Clause
11
Rates
of vehicle excise
duty
Mr.
Goodman:
I beg to move amendment No. 25, in
clause 11, page 8, line 12, at
end add—
‘(11) This section
shall come into force on a day which the Treasury may by Order
appoint.
(12) No order shall be
made under subsection (11) unless the Treasury has compiled and laid
before the House of Commons a report containing an assessment of the
impact of vehicle excise duty on farming, agriculture and on rural
areas.’.
I
would like to make it clear at the start that this is a probing
amendment. I have absolutely no intention of putting it to the vote. We
have no wish to deprive the Treasury of the £625 million that
this increase will raise over three years, and we could have raised the
concerns that we are about to air in the clause stand part debate. I am
also mindful that we will return to some of the concerns when we
consider clause 105.
However, tabling and speaking
to this amendment send a signal—which we believe is important,
as I indicated in the last debate on amendment No. 1 on fuel
duties—that we are concerned about some of the long and
medium-term effects of the Government’s strategy on VED on
farming and agriculture more widely, and on people living in rural
areas. I want to explore some of those concerns in this debate. To do
so,
it is necessary for me to describe what appears to bethe
Government’s strategy in relation to important elements of
VED.
This
year’s changes represent a cautious widening of the differences
between the top and bottom bands in order to widen the differential
between the most and least polluting vehicles. I note in passing that,
as so often in this Budget, the Chancellor has tied the hands of his
successor, as appeared to be the case with the last clause, and has
spelled out three years of changes. Widening the differential between
the most and least polluting vehicles is clearly sensible, and we will
not oppose the clause in the stand part debate. We want emission levels
from new cars in the UK to fall from around 170 g per kilometre to 100
g per kilometre by 2020, and by 2030 we want that figure to be an
average for all cars on Britain’s roads. Our quality of life
policy group, chaired by my right hon. Friend the Member for Suffolk,
Coastal (Mr. Gummer), is examining the means of achieving
that aim, including VED, of
course.
My right hon.
Friend is also examining the effect of vehicle taxation on farming,
agriculture and rural areas. A written answer from the Financial
Secretary to my hon. Friend the Member for South-East Cambridgeshire
(Mr. Paice), the shadow Minister for Agriculture, points
towards some of the effects. My hon. Friend asked what estimate the
Treasury had made of how many band G vehicles, which are the most
polluting, are expected to be affected by VED up to the year 2011. The
Financial Secretary replied—I paraphrase—that
approximately 227,000 vehicles are currently affected, representing the
current stock in band G. Over the whole of 2007-08 that figure will
rise to 310,000. In 2008-09 it will rise to 416,000, in 2009-10 to
605,000 and the following year to 740,000.
Will the Financial Secretary
give us the figures for band A cars, so that we can see how successful
that band is becoming? Perhaps that information can be passed to him.
[Interruption.] My hon. Friend the Member for Fareham says that
it is a very important consideration, so his answer will be very
important.
Some of the
band G vehicles will be Land Rover Discoveries and Toyota Land Cruisers
that are registered and driven in urban areas and we are not—I
repeat, not—making representations on their behalf. As time goes
by, others will be sold on to farmers and agricultural workers and
others who live in rural areas who consequently find themselves paying
band G rates of VED. Some pick-ups used by farmers are also categorised
as band G vehicles, although others are classified as light goods
vehicles and thus qualify for lower VED.
When he replies to the debate,
perhaps the Financial Secretary will tell us if he has an estimate of
the proportion of those band G vehicles that will be used by farmers
and agricultural workers in each year up to 2010-11, as the number is
growing every
year.
Rob
Marris:
I see the direction the hon. Gentleman is going
in, but, of the two sorts of vehicles that he referred to, are not
those that are being used on farms getting red diesel, which is taxed
at a much lower rate anyway? Will not the Toyota Land Cruisers, for
example, be sold on by the Chelsea-tractor driver in the middle of
Cambridge at a lower rate to the farmer precisely because it carries a
higher vehicle excise duty? In that sense, the purchaser will not lose
out.
Mr.
Goodman:
Yes, I acknowledge what the hon. Gentleman said,
but it is important to consider the combined effect.
The work and
non-work problems are obvious. Farmers living in the countryside who
need band G vehicles for work—for cattle trailers, for
example—are not people living in urban areas who do not need
band G vehicles for whatever work they do. The National Farmers Union
claims that British agriculture and horticulture underpin £90
billion of our economy, help to provide 5 million jobs and involve
approximately £400 million of unpaid conservation work. I will
not list in detail the contribution that both make to the small
business sector, to animal welfare standards and to reducing carbon
emission by providing local food. Those working needs are clearly
serious.
It is worth
noting—inevitably we have received representations to this
effect, as the Financial Secretary will also have done—that an
off-road band G vehicle used infrequently for work purposes will
produce fewer emissions than an on-road band C vehicle used frequently
for work purposes. As for non-work purposes, such as leisure and caring
responsibilities, the considerations that have already been discussed
in relation to remote areas apply, to some degree, so I will not go
over all of those again.
I do not want to anticipate the
debate on clause 105, but I want to ask the Financial Secretary one
question: will he investigate, or is he already investigating, the
practicality of allowing an exemption for one band G vehicle? Since all
farm holdings must be registered, the argument is that such a system
would be relatively straightforward to administer and it would tend to
favour smaller holdings, because on the whole they have fewer vehicles.
Also, does the Treasury plan to produce, in relation to this
year’s rise, any estimate of how many farmers will switch from
band G vehicles to light goods vehicles that are more lightly taxed
even though they may be more polluting? I look forward to hearing the
Financial Secretary’s
reply.
3
pm
Julia
Goldsworthy:
The amendment has many echoes of the
principle that was referred to in our debate on an earlier clause and
amendment. Again, there is a concern about the differential impact that
these kinds of measures will have in rural areas where it is more
difficult for people to change behaviour.
However, I listened very
carefully to the comments by the hon. Member for Wycombe. I note that
the amendment
says:
‘No order
shall be made under subsection (11) unless the Treasury has compiled
and laid before the House of Commons a report containing assessment of
the impact of vehicle excise duty on farming, agriculture and on rural
areas.’.
I might not
have been listening carefully enough, but I do not think that I heard
any definition of what the hon. Gentleman might consider to be a rural
area. Equally, I am not quite sure why other rural industries,
for example horticulture, were not included in the report that the
Treasury would have to make.
I take on
board the comments by the hon. Member for Wycombe that he has no
intention whatsoever of pressing this matter to a vote, but there is
another inconsistency that I do not understand. I noted that the hon.
Gentleman and his colleagues felt unable to support a similar amendment
to the changes to air passenger duty, on the grounds that it delayed
the introduction of environmental measures that should be
welcomed.
Mr.
Goodman:
The point is that, on that occasion, the hon.
Member for Twickenham did not say in advance that he would not be
pressing that amendment to a vote.
Julia
Goldsworthy:
The hon. Gentleman makes a valid point that,
as these changes ramp up—as they should be ramped
up—there will be some rural areas that will be particularly
disadvantaged.
However, I would like to put on
record the fact that a large part of the demand for new 4x4s—I
think that the figure is about a third of new 4x4s—is located in
a handful of London boroughs. Therefore, not all the most polluting
vehicles are 4x4s; not all 4x4s are agricultural vehicles, and it is
possible to purchasenew working vehicles that would do the job
perfectly well and also fall into the lower bands. If the
impactof the changes that the Government have
proposedin clause 11 encourages the industry to
producemore fuel-efficient vehicles, of course that must be
welcomed.
I
sympathise with the points made by the hon. Member for Wycombe, but I
am pleased that he will not be pressing the amendment to a vote,
because I think that there are clear limitations in the amendment.
Mr.
Dunne:
I rise to support the amendment and also to remind
the Committee—I think for the first time—of my entry in
the Register of Members’ Interests in connection with my
partnership in a farming business. I do so first because farming is
referred to in the amendment, but also because I am a proud owner of a
4x4 vehicle, which I require to visit the parts of my farm that I could
not visit either in ordinary vehicles or on foot. It is an upland area
with some steep banks.
On Second Reading, I raised my
concerns about the impact of the significant increases in the rates of
duty on working 4x4 vehicles that are proposed in this Bill and in the
Budget for the subsequent Finance Bill. I berated the Government for
not being imaginative enough to think about a descriptor which would
allow working vehicles to be excluded from the increase. I hope that
when we reach clause 105, which my hon. Friend the Member for Wycombe
identified, the Government will seek to create an exemption for
vehicles engaged in farming, horticulture and forestry. I hope that
they have listened to the arguments that I and others made on Second
Reading and that they will respond positively and constructively. I
think it unlikely that the force of my argument has persuaded the
Government that that is the right thing to do, but I would be
absolutely delighted if the Financial Secretary would confirm that it
has.
It is an important matter. My
research shows that there are some 1.6 million sports utility vehicles,
although not all are in the top band of emissions. About 250,000 are
used for off-road purposes. According to the Countryside Alliance,
about 60,000 are used on working farms, 18,000 in the equine industry,
5,000 by gamekeepers and about 2,500 by rural veterinary surgeons. An
unknown number is used in the horticultural and forestry sectors. A
company in my constituency called Ludlow Drains requires such a vehicle
to transport its drain-cleaning equipment. There are many other small
businesses that require such a vehicle for multifarious working
purposes and would not necessarily benefit from the red diesel rates
available to farming
businesses.
Julia
Goldsworthy:
The figures that the hon. Gentleman has given
us are useful. Will he clarify whether he is referring to the total
number of sports utility vehicles or the number of new sports utility
vehicles that will be caught by the changes to vehicle excise duty that
have been made last year and this
year?
Mr.
Dunne:
The figures are for all vehicles. I accept that the
changes bite particularly on new vehicles, but the precedent having
been set, they will affect all vehicles henceforward, as new vehicles
become second-hand vehicles. The relevance to the farming industry of
this issue is significant. According to the Countryside Alliance, the
average net income of farmers last year was £21,300, so a
£400 vehicle excise duty is effectively a week’s income
to the average farmer. I must say that that average income figure is
rather higher than I was expecting, and higher than the figure that I
saw at the end of last year on the Public Accounts Committee, when we
reviewed the single farm payment scheme. It is not appropriate to
suggest that the measure will not have a significant impact on those
who are engaged in such business and who generate low incomes. It is
significant and that should be taken into account. I hope that the
Financial Secretary will reassure us that the Government intend to take
it into account at a later stage of the
Bill.
John
Healey:
This has been a usefully concise debate. VED rates
are set at those levels for good reasons. They perform two functions:
they raise revenue that we require for the public purse to fund public
services, and they help us to achieve some of our environmental
obligations and aims, which apply to rural areas as much as the rest of
the UK. The VED is designed to signal at the point of purchase that the
more polluting the vehicle, the more VED the purchaser will pay.
Indeed, it is a signal. It is backed by a very good labelling scheme
which is now in place. There is some evidence that there is a high
level of awareness and that it is beginning to play a part in the
purchasing decisions of car buyers. It is an important signal also, in
the long term, to motor manufacturers and designers.
Hon. Members
have been concerned about certain groups of vehicle users. I recognise
that for some, especially those in rural areas, the car is a necessity,
not a luxury. However, I do not accept that motorists have to drive
vehicles that fall within the higher bands just because they live in
rural areas. For example, various types of 4x4 vehicles fall in bands F
and E, not necessarily in
band G, of the VED system. In addition, the measure has been designed to
affect not four-wheel drive vehicles but those with high CO 2
emissions. The hon.
Member for Wycombe asked me how many band a cars we anticipate there
being by 2010-11. It is difficult to tell for certain, but our forecast
suggests that the number will increase by about two thirds between now
and then. The number of cars on the road in the second-highest band,
band B, which is also a low-emission category, is likely to almost
triple to some 670,000 to 680,000 by then.
Turning to
the principal concern of the Committee, it is important to bear in mind
what the tax treatment of farmers and their vehicles is. The tax system
is designed so that, where a vehicle is an essential component of the
business activity, businesses can deduct from their turnover all the
costs incurred for the sole purpose of generating business profits.
Such motoring expenses are therefore allowable for deduction against
turnover in such circumstances. Furthermore, agricultural vehicles are
currently exempt from vehicle excise duty.
Hon. Members
have mentioned clause 105. That will give the Secretary of State for
Transport the power to amend the definition of agricultural vehicles to
keep it in line with future technological and design developments.
Beyond that, I can see no case for special treatment of farming,
agriculture or rural areas within the VED system. Indeed, it would
complicate it, and it is likely to be costly and open to fraud.
Motorists would be able to register vehicles in rural areas and then
use them mostly, if not entirely, in areas other than rural areas. It
has been made clear that this was a probing amendment. I hope that I
have been able to respond to some of the points that have been raised,
and that the amendment will be withdrawn.
Mr.
Dunne:
I am grateful to the Financial Secretary for having
clarified the exemption in relation to agricultural vehicles, to which
we shall come at a later stage. My understanding is that previously it
applied to tractors and other very heavy equipment, and the proposal
exemption would extend it to 4x4-type vehicles. Is it his understanding
that the extension would recognise some of the
difficulties?
John
Healey:
Clause 105 provides an enabling power for the
Secretary of State for Transport to amend the definitions in future.
The sort of detailed discussion that the hon. Gentleman is tempting me
to have on this clause is better stayed until we reach clause
105.
Mr.
Goodman:
I beg to ask leave to withdraw the
amendment.
Amendment, by leave,
withdrawn.
Question proposed,
That the clause stand part of the
Bill.
3.15
pm
Mr.
Goodman:
Following the debate on agriculture and farming,
I have a few brief questions about the generality of the proposals.
First, the Environmental Audit Committee has said that the Treasury
should at
least publish its rationale for the VED differentials that it adopts.
That suggests to me that the Committee finds the explanations of the
rises year on year to be obscure. If the Treasury has not already
published its rationale, will it do so, as the Committee
wishes?
Secondly,
Friends of the Earth has argued that this year’s rise in band G
rate will not make much difference to emissions. It
said:
“These
changes are not enough to give people a strong incentive to purchase a
greener car... the Government’s own research suggests a
£150 differential would persuade 55 per cent of people to
change.”
Does the
Financial Secretary disagree with that claim, and if so,
why?
Thirdly, it can
be argued that large families need larger cars, and that a large family
in any setting may need, say, a people carrier, whereas no single
person in an urban setting can convincingly be argued to need a band G
car. The Automobile Association has called for the creation of a new
band H with an emissions threshold of 200 g/km, a rise on the current
threshold of 226 g/km, which would place most models of people carrier
into a lower tax band. [Interruption.] I thought that I heard
the Financial Secretary snort. It appeared to be a dismissive noise in
relation to the proposal. If he could kindly confirm the
Government’s view on it, we would be grateful.
Finally, have the Government
ruled out adapting the weights of VED—the idea is rather
complex, and I would be interested to hear the Financial
Secretary’s view on it—to reflect whether vehicles are
fuelled by carbon-neutral materials.
Rob
Marris:
My hon. Friend the Minister knowsmy views
on the matter. The Government have gone some way with the proposed
increase in clause 11 and band G. However, I urge him again, as I did
last year when I tabled an amendment, to be a lot bolder. I would urge
him even to be a lot bolder on Report, in terms of having a swingeing
vehicle excise duty for vehicles above 250 g/km, which are bought new.
It would not be retrospective. Part of the problem with band G,
although I support it, is that it is retrospective. That is behind some
of the concerns that have been expressed. We need to set a date two or
three year’s hence and say to somebody, “If you buy a
very polluting vehicle—say, above 250 g/km—you will pay
through the nose for it, and we are warning you now, not
retrospectively.” That would give the motor industry, including
the west midlands, where I am an MP and where, for example, Land Rover
is based, time to adjust.
Sadly, too much of the debate
is about 4x4s as polluting vehicles. In the borough in Richmond, in the
constituency of the hon. Member for Twickenham, it was widely reported
that parking charges for 4x4s were being whacked up. I said to him,
“Is this true, or is it for polluting vehicles?”, and he
said it was for polluting vehicles, but that it had been widely
reported as being for 4x4s as a kind of journalistic shorthand. In
fact, as many hon. Members will know, nine out of the 10 most polluting
new vehicles on sale in the United Kingdom today are not 4x4s. The only
one is a top-of-the-range Range Rover. Most of the other nine are
sports cars, such as Lamborghinis.
The hon.
Member for Wycombe talked about people carriers, but some of those cars
do not carry more than two people. They are
ridiculous, and those vehicles are bought by very rich people who might
not be put off if there were a swingeing new vehicle excise rate duty,
such as band H, on a new vehicle. Sadly, that is not in force, but it
would do two things. First, it would allow the Government to send a
message. Secondly, if we had a swingeing rate of, say, £2,000 a
year on those new vehicles, it would arguably affect the resale price
of them, which would in turn affect the purchasing prices that some
people make when considering whether to buy a polluting vehicle, or a
less polluting vehicle, in two or three years. It saddens me that we
are talking about greener vehicles. All vehicles are polluting. It is
just a question of the extent to which they do
it.
Adam
Afriyie:
The hon. Gentleman’s ideas are very good
for averting future behaviour without penalising people in the way I
described. Why does he think that his Front-Bench team does not take up
the radical proposals that are targeted at reducing the number of
gas-guzzling
cars?
Rob
Marris:
I hope that my hon. Friend the Minister will be
able to give reasons for that. I find it hard to conceive why, as a
Government and a society, we cannot tell people that they will be taxed
on future behaviour, so they should make their choices in advance. Such
a framework would command some, although not universal, cross-party
support and would also garner quite a lot of support within the
country. Try as we may, in spite of what is talked about in the pubs
and clubs and in the media, we must get away from this obsession with
4x4s. There are 4x4s that put out something like 172 g/km and are quite
satisfactory for most agricultural, business and rural purposes, such
as towing a horse box, or perhaps even for a drain company or whatever.
Correspondingly, the most polluting vehicles are often things like
sports cars.
It is
possible to get people carriers that emit lower than 200 g/km, such as
the turbo diesel models. In terms of sending a message about future
behaviour by motorists, I should like clause 11 to introduce different
tax proposals and to change the behaviour of vehicle manufacturers.
There is not an instant technological fix for all of this but if one
looks, as I do periodically, at what has been happening to vehicle
emissions for new vehicles on sale in the UK, it is clear that more and
more options are available. Sadly, these are often not the options
chosen by the purchasers. For example, the Volkswagen Polo BlueMotion,
which is being introduced in July this year for sale in the UK, will
have emissions of 102 g/km. It does not break the magic 100 threshold.
I believe that the new Smart car turbo diesel, which will be on sale on
the continent but is not currently announced for sale in the UK, has
emissions of 83 g/km. The petrol version, which will be on sale in
Britain, is above the 100 threshold.
In terms of
pressing the manufacturers and influencing the behaviour of buyers, we
need to say now what the situation will be in two or three
years’ time. That has happened a lot in the Budget already, and
some hon. Members have suggested that the Chancellor is tying the hands
of his successor. I do not buy into that. However, in terms of
certainty for the future, I will
support the clause, but I do not think that it is bold enough. Even now
I hope that my hon. Friend can come back with a bolder clause 11 on
Report.
Julia
Goldsworthy:
The clause is a welcome step forward from
where we were last year when the differential between the top two bands
was less than the cost of half a tank of petrol for the most polluting
cars. That will begin to make a difference. However, have the
Government undertaken an assessment of the number of people whose
buying decisions will be affected by this differential band of vehicle
excise duty? Research undertaken by MORI in 2003 indicated that the
differential of the kind in the clause will probably affect 33 per
cent. of buyers, whereas the level recommended by the Energy Savings
Trust of £2,000 would have a much bigger impact and would
influence the majority of people’s decisions when buying a new
car. I would appreciate the Minister’s thoughts on why the
Government chose the figure that they did. Perhaps he could give an
indication of longer-term plans that they have to ramp it up to that
higher level.
I do
not want to add to what has been said about the retrospection element.
There is a problem that people’s buying decisions and the resale
value of the car that they buy is affected by retrospection. There is a
certain unfairness. What work is the Minister doing with other
Departments to try to encourage changes in behaviour? The measure will
influence behaviour at the consumer end, but I note that there are no
compulsory energy efficiency targets for manufacturers. Unless such
targets are made compulsory, there will not be as quick a shift in
behaviour at the production end. Such measures, rather than simply
revenue-raising ones, would make a
difference.
Finally, I
wish to raise a point that was drawn to my attention by a constituent.
He has a car with a larger engine which he has had retrofitted to run
on liquefied petroleum gas, which means that its emissions are
significantly lower. My understanding is that he cannot benefit from
being taken down a band or two. Will people who are not buying a car
but making the car that they have more energy efficient benefit from a
lower VED
rate?
John
Healey:
If the hon. Lady writes to me with details about
her constituent, I will have a look at the circumstances. On the
question of dealing and liaising with other Departments, specifically
on emissions targets for manufacturers and the progressive reduction
that we want, that is very much a Department for Transport lead. The
Treasury and I are, of course, very supportive of its efforts in that
respect.
On the matter
that the hon. Member for Wycombe raised, we set out in either the
pre-Budget report or the Red Book an explanation or rationale for the
decisions that we take on the differentials in vehicle excise duty. We
have done that consistently. It does not greatly surprise me that the
Environmental Audit Committee takes a different view. I appear before
it regularly, and always look forward to doing so. It generally finds
itself at odds with some of the tax decisions taken in the
Treasury.
On vehicle
excise duty, it is designed, as I said, to provide signals to those at
the point of purchase about
the impact of the emissions of the cars that they are considering
buying. To that extent, it can have an impact not just on awareness but
on the motivations at the point of purchase. Mrs. Brennan
has not been introduced into the Committee’s proceedings before,
but she is a significant illustrative case in point. My hon. Friend the
Member for Cardiff, West tells me that his wife, Amy, recently bought a
small Toyota. Its VED rate of £35 a year was described as a
significant factor in her decision to buy that model. I welcome the
contribution that Mrs. Brennan has been able to make to our
proceedings, and I hope that it has been
helpful. On the
AA’s view that we ought to be considering a further band in the
VED system, and the view of my hon. Friend the Member for
Wolverhampton, South-West that we need swingeing rises at the top end of
the VED system, I shall take both as early representations for Budget
2008.
Question put
and agreed to.
Clause 11 ordered to stand
part of the
Bill.
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