Finance Bill

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The Financial Secretary to the Treasury (Mr. Paul Boateng): The purpose of the clause is to establish a new lower rate of vehicle excise duty that recognises the benefits of cars with very low emissions of carbon dioxide.

Cars first registered on or after 1 March 2001 pay vehicle excise duty according to their emissions of carbon dioxide as measured during the EU type approval test. There are currently four tax bands based on carbon dioxide with three tax rates within each of those for petrol, diesel and alternative-fuelled vehicles. The purpose of that system is to send a signal to vehicle manufacturers and users about the environmental impact of the cars that they make and buy.

Listening to the right hon. Gentleman's discourse, which was a pleasure even at this time of the day, one gets a sense of the complexity of the task that the Government have set themselves when they set out to deliver messages of that sort. Technology is ever advancing, and it is important that one seeks to reflect that so far as one can—I shall come on to one particular area of technological advance in a moment. At the end of the day, one sends out messages, as best one can, as technology advances. It would be a mistake for the Government to pretend that sending such messages out was an exact science in which it were possible exactly to balance the issues around the levels of particle emissions and carbon dioxide in a totally satisfactory way. Some of the messages will be more satisfactory than others, and one has to seek to get the balance right without introducing undue complexities and burdens for retailers and users alike.

The clause adds a fifth band to that structure to increase the incentives to choose the very cleanest cars, which are defined as vehicles that emit 120g per km or less of carbon dioxide. The tax rates in the new band are £30 below the existing lowest band, which will increase the incentive between the least and most efficient cars to £100 per year—a not insignificant sum of money. In the first instance, that will benefit more than 30,000 vehicles, including the most efficient

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versions of the Ford Fiesta, Vauxhall Astra and Peugeot 206 as well as the hybrid electric-petrol Honda Insight and Toyota Prius.

The right hon. Gentleman's amendment, which I am grateful to him for describing as ''probing'', would have the effect of undermining the principled position at which we seek to arrive in the clause by suggesting that the premium rate for diesel should be abolished, despite the fact that many diesels are already in the lowest carbon dioxide band because of their high efficiency. We pointed out in our 1998 consultation on the reform of vehicle excise duty and the need to ensure a cleaner environment through that reform, that tax can and should be used to promote environmental objectives, such as curbing the growth of emissions, with the caveats around sending messages that I have outlined.

In our view, the current system of graduated VED does just that, taking into account carbon dioxide emissions but also, quite rightly, the local air quality emissions of different vehicle types. That is why there is a £10 discount for alternatively fuelled vehicles, such as hybrids and those using road fuel gas.

Chris Grayling: With hybrid vehicles, which might have a liquid petroleum gas engine and a petrol engine in the same car or an electric engine and a petrol engine in the same car, can the Minister explain what means the Treasury uses to assess the likely emissions? Cleary, each type of engine in those vehicles has entirely different performance and emission levels.

Mr. Boateng: There would be some difficulty in determining the emissions from such a car without knowing how the owner was gong to use it and which choices they would make. We would seek to ensure that we had a sense of the emission from each fuel supply and the balance between them. We would then tax on the basis of what the owner chose to fill up on. That is the basic principle.

The right hon. Member for Fylde (Mr. Jack) struck straight home on the issue of how to define the balance between carbon dioxide and local air pollutants. We have sought to reflect our targets for many different types of emissions, including those for carbon dioxide, as a result of the Kyoto protocol, and those set for local air pollutants through the national air quality strategy. It is important for Government fiscal policy to complement those targets, but it is not, as I said earlier, an exact science. We have never pretended that the £10 VED supplement for diesels is exactly equal to the extra-low local air pollution costs that are imposed.

The important point is to ensure that we monitor the development of diesel engines and make any changes considered necessary in the light of those developments in order to impact on vehicle emissions, and reflect that impact. On Euro IV diesel, one hopes that, in a couple of years, the right hon. Gentleman will be able to return to this Committee in exactly the same place that he is in now—I hope and pray that in four, five, six, seven or eight years' time he will return to the

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House in exactly the same position—with a turbo-charged Euro IV diesel. By that time, we can expect to have ensured that, as the technology develops, the banding reflects those developments.

At the moment, on Euro IV—which will be as clean as its effective equivalent in terms of local air pollutants—we have taken the view that there are at present very few, if any, Euro IV diesel vehicles on the road. The tax system needs to take into account the existing stock of diesel vehicles, which are not Euro IV. We have not, therefore, made specific provision for Euro IV emission standards in the bands. However, the right hon. Gentlemen's point is perfectly fair. We shall ensure that we monitor developments in that field very carefully and shall, no doubt, reflect those changes in subsequent Finance Bills.

To return to the point made by the hon. Member for Epsom and Ewell (Chris Grayling), it will also be important to reflect developments in the technology of vehicles and mixes. For vehicles with two fuel types, the EU type approval process produces two CO2 figures and we take the lower. There will important developments and they will be monitored to ensure that subsequent Finance Bills take account of them.

I am grateful to the right hon. Member for Fylde for raising the matter. I hope that he accepts that we are sensitive to the points he properly raised and that he will not press his probing amendment to a vote.

Mr. John Burnett (Torridge and West Devon): We discussed this matter on 14 May when I made some points about diesel. The Financial Secretary gave us the benefit, in part, of the Government's philosophy on the taxation of diesel.

There is some comfort--I wait to hear what the right hon. Member for Fylde has to say--in the fact that the Government are monitoring progress, especially of diesel technology, all the time. Although the Financial Secretary gave a fairly long time scale of five or six years and I hoped that it would be earlier, the Government are monitoring progress every year, particularly on Euro IV diesels. Ownership of those cars will become more common and I hope that, even before that, the Government will consider any changes that could be made in the duty regime to reflect the benign effect of the technology and to encourage further the manufacture and use of such engines.

Mr. Jack: I am grateful to the Financial Secretary for the way in which he responded to these probing amendments. At the conclusion of my comments, I shall seek leave of the Committee to withdraw my amendment because I am heartened by what the Financial Secretary said.

It is interesting that when the Government are slightly unsure of the basis on which they are acting, Ministers say a few words and then fall back on the technical knock-out clause: ''As I can't think of a better argument, I'll make sure the other side knows that there is a technical deficiency, so in no circumstances could the Treasury allow further progress.'' I was intrigued that the Financial Secretary did that after two sentences of argument on carbon

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dioxide, but I would not want to be accused of undermining any economic signals that encourage the development of improved technology in motors vehicles. Quantum advances have been made to the efficiency of car engines, both petrol and diesel, during the past decade.

However, I was interested in the construction of the Financial Secretary's four lines of argument. In three of the four he rested his case on carbon dioxide being the principle measure by which vehicle emission improvement would be judged. Diesel engines, by any measure, win that argument hands down, whether the technology is yesterday's, today's or tomorrow's. That said, I acknowledge that measurements of air quality are complex and are not the province of motor vehicles alone. For example, bonfire night can rapidly transform the air quality of particular locations. That shows the difficulty of measuring air quality.

I am encouraged that the Government will monitor that, and I seek one or two assurances from the Financial Secretary. Will he assure me that between now and the next pre-Budget report, or Budget, he will meet with those who are more knowledgeable than I will ever be about diesel engine technology to discuss the change in technology as it applies to the cohort of diesel vehicles in the United Kingdom, so that the Government are as up-to-date as possible with what is happening from a trade point of view.

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Secondly, and I would not blame the Financial Secretary if he were not able to assure me about this, will he reflect on whether the Government might be willing, if the newer technology is adopted at a more rapid rate than his current calculations suggest, to consider making further changes to the premium rate in order to encourage the best diesels while recognising that there may be problems with the older diesels?

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