Mr. Boateng: The clause introduces a new system for calculating the taxable benefit of free fuel provided by employers for private use by employees who drive company cars. It will help the environment, be easy for employers to implement and easy for employees to understand.
If an employer provides free fuel for private use by an employee who drives a company car, income tax, which is payable by the employee, and class 1A national insurance contributions, payable by the employer, are due. Tax and contributions are calculated using flat rate charges based on the engine size of the car and whether it runs on petrol or diesel.
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A consultation document issued on 6 December 2001 set out three options for a new structure of the fuel charge from April 2003. All three options linked the new charge, in some way, to the CO2 emissions of the car. The responses to the consultation clearly showed that the preferred option was for the fuel scale charge to be determined by reference to the same percentage rate used to determine car benefit tax. It was recognised that such a system would be easy for employers to implement and for employees to understand, as opposed to one approach used for car benefit taxafter that part of the vehicle excise dutyand another one for the new charge.
Under the new company car tax system, introduced in April this year, the value of the car benefit is calculated as a percentage of the list price of the car. The appropriate percentage is based on the car's level of CO2 emissions. Employers will use that same percentage figure charge to work out the free fuel benefit charge when the new fuel scale charge comes into effect in April 2003. They will simply multiply it by a set amount--£4,400 in 2003-04--
Mr. Flight: Fourteen thousand, four hundred pounds.
Mr. Boateng: Fourteen thousand, four hundred pounds. The amount will be set at a level intended to ensure that the total tax collected overall for the next year does not increase in real terms. The complexity introduced there will ensure that there is no increase in the total tax payable. This new approach aims to make the system as simple as possible to administer, and it will be much simpler once the initial calculation has been made.
In response to requests from business, we are also introducing a new system of apportionment when an employee permanently ceases to be provided with free fuel during the year. The current fuel scale charge is an all-or-nothing charge so that a single amount of free fuel in any tax year leads to imposition of the full charge for the year. As right hon. and hon. Members know, employees and employers are increasingly deciding that it is not worthwhile to provide free fuel. Previously, they would have been penalised for coming to that decision mid-year and that was deterring employers and employees from providing and receiving free fuel when that might have suited them. The clause will allow employees to stop receiving free fuel at any time within a tax year and to benefit from having the fuel scale charge reduced proportionately. They will be taxed only for the number of days in the year for which free fuel was provided. Our intention is to remove a barrier that hinders employers and employees in ceasing to provide and receive free fuel part of the way through the year. However, we must avoid abuse of the new easement. We do not want people opting in and out of free fuel when they go on holiday. If an employee receives free fuel again later in the same tax year, a full year's tax charge will be due.
The new fuel scale charge system will be more environmentally friendly and will encourage the use of cleaner cars by directly linking the tax charge to the car's CO2 emissions. It will be straightforward for
Column Number: 124employers to operate, administrative burdens will be kept to a minimum, and it will be easier for employees to understand.
I hope that, having heard my explanation, the hon. Gentleman will withdraw his amendment. It would enable people to opt in and out whenever they go on holiday and I am sure that he does not want that. I hope that he feels that I have gone at least some of the way in addressing his concerns.
Mr. Flight: The amendment merely ties together section 45D of the Capital Allowances Act 2001 and the new provision covering fuel. It would provide a dual incentive for employers to provide and employees to want vehicles with low carbon-dioxide emission. I hope that the public will understand the new system. My perception is that no one has a clue about it and everyone finds it very difficult, but perhaps they will understand it in due course.
The amendment does not cover a major issue and the Government have decided not to accept it, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Flight: I beg to move amendment No. 37, in page 23, line 14, leave out subsection (3).
The amendment addresses the Government's commitment not to keep changing the tables. It asks indirectly whether the Government are willing to guarantee that fuel differentials between road fuels, petrol and diesel will not be changed beyond 2004, to give manufacturers and fleet owners an assurance of consistency and ensure that manufacturers particularly who invest in new technology will not have the rug pulled from under them. There is an acknowledged lack of confidence in the Government maintaining differentials in clean fuels, as emerged in the debate on 19 October 2001, when the Minister effectively undertook that there would be no changes before 2004.
The amendment removes the Treasury's power to change the amounts in the tables. As I understand it, only Vauxhall and Volvo are investing money in liquefied petroleum gas technology. The longer there is no risk that the fuel duty basis on which such manufacturers are going ahead will suddenly be changed, the greater the certainty that they will get this new technology into production.
Mr. Davey: I presumed that this interesting amendment was a probing amendment when I saw it on the amendment paper. From what the hon. Gentleman said, I think that is what he intends.
Mr. Flight: Yes.
Mr. Davey: If so, I am surprised at the way in which the hon. Gentleman puts the argument. It may be right that the Government should have this power, if they intend to increase the incentive for environmental purposes. We would welcome that flexibility. Therefore, I hope that the Financial Secretary, in
Column Number: 125replying to this short debate, will be able to say that the Treasury wants this power because it wants to improve the situation.
Mr. Boateng: It would be very, very surprising if I were to rise to my feet and say that the Treasury did not want this power. It would also, for one good reason, incur the Paymaster General's substantial and much-to-be-feared wrath, because it would undoubtedly have an impact on future Finance Bills and the space taken up in them. She probably ventures to ensure that that does not occur, because we want to keep the Finance Bills as manageable as possible. [Laughter.] I hear a wry laugh coming from a sedentary position from those who would much better be quiet. The hon. Member for Mid-Worcestershire (Mr. Luff) will understand, concerned as he always is with the good management of Committees and the Finance Bill, that the amendment would mean that any future change to the multiplier used to calculate the value of fuel benefit could not be made by order. It would have to take up space in the Finance Bill, which cannot be sensible. We must be able to amend the fuel scale charge multiplier to reflect changes in pump prices and it seems sensible, over the years, to allow for changes to be made by a Treasury order. The current power has been used on a number of occasions in the past few years, and this year too, to amend the amount of the fuel scale charge, and I do not believe that great exception has been taken to it. The use of secondary legislation in this way is time honoured and perfectly sensible and I commend it to the Committee.
Mr. Flight: This was a probing amendment and the issue was raised with me by the industry, reflecting Acts in other areas not far from the oil industry. We want manufacturers to invest in vehicles with lower carbon emissions such as LPG vehicles and do not want the rug then to be pulled from under them. However, there are points both ways, and I understand the Financial Secretary's response. The issue has been raised, and I think that it is worth talking to the industry about it if we want to get a move on. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Flight: I beg to move amendment No. 10, in page 23, leave out lines 35 to 37.
Amendment No. 10 raises an issue that the Financial Secretary referred to earlier. Clause 34 introduces a welcome U-turn by the Chancellor, which I think that we raised when we debated the Finance Bill last year. When we changed the rule on car fuel tax last time, we debated the situation where an employee who received fuel for private use only in a single day, would be taxed as if he had the benefit for an entire year.
For reasons that I do not think the Financial Secretary has explained to my satisfaction, new subsection (6B) has the strange impact that if an employee starts a tax year with an exemption from the draconian tax but then matters change, through no fault of his own, he loses that exemption and collects an entire year's worth of tax again. I think that the
Column Number: 126example that the Financial Secretary gave was one where the change was at the instigation of the individual. If the change in his circumstances was beyond his control, it seems quite unreasonable for him to be charged a whole year's worth of tax.
Mr. Boateng: I have heard the point made by the hon. Gentleman. I must say that his amendment would allow people to opt in and out of free fuel on a whim. It would be possible for someone to take a decision on the basis that, for example, they were going on holiday. They could manipulate the system to some sort of advantage.
We are keen to remove the all-or-nothing nature of the charge, which deterred employers and employees from ceasing to provide or receive free fuel part of the way through the tax year, were that most convenient to them. We are undertaking this measure to encourage more people to cease receiving free fuel. That is to help the environment. People tend to drive more miles, without thinking about whether they really need to, if no cost is attached. This clause provides for a proportionate reduction where free fuel ceases to be made available part way through the year.
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