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Mr. John Horam (Orpington): I support the points of my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer) and of my hon. Friend the Member for Huntingdon (Mr. Djanogly), who stressed the need for a long-term strategic approach to taxing motor vehicles. At one stage in the past, we had almost all-party support for the fuel duty escalator. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) instituted that when he was Chancellor and the current Chancellor continued the policy until it was aborted at the time of the famous fuel protests. We all understand why that happened. The policy was pushed too far in an extreme way and the Government undoubtedly learned some lessons.
However, the downside of the experience is that there has been no subsequent strategy, simply a series of ad hoc adjustments. I accept that many go in the right direction and try to prevent people from buying cars that have higher emissions. That is admirable, but the policy has not been strong enough or clear enough to enable the consumer, let alone the industry, to work out a long-term strategy.
As my hon. Friend the Member for Billericay (Mr. Baron) said, the Government's transport policy is a mess. If anything is worse than the policy on motor cars, it is that on transport in general. The original plans that the Deputy Prime Minister made when he was in charge of such matters have clearly been shot to ribbons, and nothing as coherent has been proposed subsequently. The Government have the opportunity to tackle the matter through taxation. They expressed their aspirations to act on that in their recent document, "Taxation and the Environment". They have done some good things, but they should adopt a much stronger and more strategic approach to the issue.
John Healey: The clause introduces a new rate of vehicle excise duty for cars and vans from 1 May. Rates for most car and van owners will increase in line with inflation, rounded up to the nearest £5. That follows past practice when increasing VED rates in line with inflation. Consequently, no motorist will pay more than £5 more.
The clause also introduces a new lower triple-A VED band for the least polluting cars: those with carbon dioxide emissions of 100g per kilometre or less. Motorists with cars in that band will be able to pay up to £110 less than motorists who pay the highest rate of VED. That further improves the incentives to choose less polluting cars.
I acknowledge the point of the hon. Member for Eddisbury (Mr. O'Brien), although I do not accept that it is a problem in the way he describes. The Government have carefully targeted motorists who use fuel-efficient cars for reductions in car VED. The changes in clause 14 mean that there is a minimum difference of £90 between the top and lower bands in the new system. Since 1997, the average car VED bill has fallen by £24 in real terms and £8 in cash terms. Those are reductions of 16 per cent. and 5 per cent. respectively.
The hon. Member for Huntingdon (Mr. Djanogly), the right hon. Member for Suffolk, Coastal (Mr. Gummer) and the hon. Member for Orpington (Mr. Horam), who chairs the Environmental Audit
Committee, all stressed the need for stability and a long-term approach to trying to influence purchasing decisions and thereby the beneficial impact on the environment that we want to achieve. May I say to all three Members that, in making policy in this area, we are mindful of the need for stability? That is one of the reasons why we announced the levels of company car tax a full three years in advance, so that purchasing decisions, lead times and predictability could be as advantageous as possible.The new band demonstrates that, in this area of VED, we are also taking a long-term approach to encourage the use of cleaner vehicles. The hon. Member for Orpington and the right hon. Member for Suffolk, Coastal will know that, in the Government's powering future vehicles strategy last year, we set ourselves the target of seeing 10 per cent. of new cars sold having carbon dioxide emissions of 100g per kilometre or less by 2012; that is the very rate that we are now setting in the triple-A band.
Mr. Djanogly: As I explained in my speech, last year only 350-odd cars in the new band were sold. Clearly, this has not caught on in a massive way. Can the Minister give the House an assurance that the Government are now taking the issue of supporting the environmental cause in relation to cars slightly more seriously than he has described so far?
John Healey: I think the hon. Gentleman is making my point for me. This structure for VED is not designed to reflect current purchasing decisions and choices. It is designed to build incentives for the longer term, and to encourage more people to buy and use more fuel-efficient cars in the longer term.
We have begun an evaluation of the CO2-based VED system, which is due to be completed by the autumn. It will focus on the impact that the new system is having on consumer choices, as well as on the impact on the environment. It will also take into account the concerns that we have heard from the industry. On that basis, I commend the clause to the House.
Clause 14 ordered to stand part of the Bill.
Question proposed, That the clause stand part of the Bill.
Mr. Stephen O'Brien: Clause 22 is the primary legislation element of a matter that we considered under secondary legislation—the draft Value Added Tax (Supply of Services) (Amendment) Order 2003—last week. It was suggested in the debate that we might be putting the cart before the horse. The Minister and I went through the order at some length. I felt that we had some very serious issues to consider, in addition to the extraordinarily complex domestic and EU law implications involved. In the light of that discussion, we have been able to move some issues forward but, sadly, an awful lot have moved backwards.
I shall try to set the scene for this complex and important matter, which could have a serious effect on many people. We also need to have anti-avoidance in
our minds at all times, however, and to decide where the legitimate line—the grey line, perhaps, between the black and white—is to be drawn. Discussion of clause 22 might seem like déjà-vu for the Minister and me, but the issues certainly merit the full consideration of the Committee of the whole House.The members of the Committee who were present last week—including my hon. Friend the Member for Huntingdon (Mr. Djanogly), who so ably delineated some of the points on that occasion—will know that the background to the measure is that when a business purchases an asset that is to be used for both business and non-business purposes, EU law provides that the input tax incurred on the purchase of that asset is deductible, but that the business must account for an output tax charge arising over the lifetime of that asset. This treatment is known as the Lennartz approach, after the Lennartz case, the details of which I shall ensure are placed on the record. The case is known as Lennartz v. München III, case C-97/90, reported in 1995, STC514. [Hon. Members: "Ah!"] I am delighted that so many Members immediately recognise the reference. No doubt a series of interventions will demonstrate their detailed knowledge of both the facts and the exceptionally complex and fascinating legal arguments involved in the case, which have ensured that I have not had too many hours' sleep recently.
There is an alternative approach—to apportion the VAT incurred and treat the part relating to non-business use as not being input tax, and therefore not being deductible. There is then no output tax on the non-business use. There is also no VAT in the event of a sale of the part of the assets allocated to non-business use.
Customs and Excise has presumably had to take counsel's advice on the view it has had to develop, which in itself presents us with serious issues. Following an earlier discussion about these matters, the Minister was kind enough to write me a letter dated 12 May, which I received last night. I thank him for ensuring that it was faxed to my office.
Customs and Excise takes the view that because buildings depreciate very slowly—say, over 40 years—and can be disposed of with exemption from VAT, the Lennartz approach provides an opportunity for delay and the avoidance of VAT payment. Clause 22—along with the statutory instrument that we were required to examine last week before considering primary legislation; the Government have yet to secure authority for it through the normal processes of the House—seeks to prevent the use of the Lennartz approach in the case of land and buildings where there is non-business use.
Non-business use includes private use by an individual; one can well imagine the circumstances in which that might take place. More important, it includes use by a charity. We are not talking just about the highly paid or sophisticated investor, but about charities trying to make good use of good will and the funds they have secured with the help of volunteers and hard work. Those charities now face a challenge.
Some education and grant-funded research is also regarded as non-business use. Therein lies one of the most telling problems that might affect people who will not expect to be hit—especially in university towns that are experiencing enough pressure as it is, given the Government's policy on tuition fees.
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