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Mr. Greg Knight (East Yorkshire) (Con): Will my hon. Friend reflect on what he just said, because I do not think that the last intervention was a fair point at all? Has he seen the study by Professor David Newbury of Cambridge university, which concluded that if motorists were to pay the cost of the effects that they have on the environment, they would be paying tax at the rate of 20p per litre of fuel, yet motorists are paying
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tax at 65p a litre of fuel? Therefore, there is no justification on environmental grounds for these vehicle excise duty increases.

Mr. Hammond: My right hon. Friend makes an equally fair point. I think that the hon. Member for Edinburgh, North and Leith (Mark Lazarowicz) was seeking to say that changes to environmental taxes at the margin, whether or not the overall burden of taxation is justified, might be expected to have a beneficial environmental effect. I shall seek to show in the course of my remarks that that is not the case, even on the Government’s own figures. It is only right to invite the hon. Gentleman to come back once I have set out my case.

Mr. John Redwood (Wokingham) (Con): Is my hon. Friend of the opinion that the Government expect to get more revenue out of this, that it is a tax-raising device, and that that shows that they do not believe that it will work, because if they are getting more revenue it means that people will still be buying the larger vehicles?

Mr. Hammond: The Government clearly expect to receive substantially more revenue from these changes, but I shall come to the environmental benefits issue shortly.

Encouragingly, we also heard yesterday from the hon. Member for Wolverhampton, South-West (Rob Marris), sowing the seeds by taking up the opportunity of the Chancellor’s announcement of his climbdown on the 10p rate to inquire when he will announce a climbdown in respect of vehicle excise duty. I do not know whether the hon. Gentleman sees himself as assuming the mantle of the right hon. Member for Birkenhead (Mr. Field) in relation to an issue that I predict will become an equally big problem for the Government in the not-too-distant future.

Hon. Members who are perhaps uneasy about the Chancellor’s vehicle excise duty policy should not be disheartened by any protestations from the Treasury Bench that we may have heard or that we might hear later on today that there will be no turning back, that the line is fixed, that the measures are right and will be implemented in full, because that is precisely what the Chancellor said about the doubling of the 10p income tax rate until he was forced into a humiliating U-turn by a combination of public anger and panicking Labour Members.

The message from the Chancellor’s and the Prime Minister’s conduct over the 10p rate to those on the Labour Benches who have already spotted this time bomb ticking away under their marginal seats for next April—such as Reading, as I am helpfully reminded —is that no matter what the protestation of inflexibility, the Government are now for turning. Let us be under no illusion. The measures announced by the Chancellor on vehicle excise duty in the 2008 Budget are a ticking time bomb under his successor for 2009, just as surely as his predecessor’s 2007 Budget was primed to explode under him.

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Mr. MacNeil: I note that this matter will come to a head in 2010, just when we expect to have the next general election. I heard the cheering when the Chancellor made his announcement on the 10p income tax, but I imagine that the situation in 2010 might be very different. Only five Back-Bench Labour Members are present today, but by 2010 there might be 50 or even more.

Mr. Hammond: By later on in 2010 the Labour party might struggling to muster five. The hon. Gentleman has suggested a Machiavellian proposition that I must confess I had not thought of. Perhaps the Chancellor’s swingeing increase in vehicle excise duty is set up so that he can abolish it in 2010 just before a general election and get the same kind of reaction that he was obviously hoping to achieve yesterday. I will leave such Machiavellian considerations to members of the Scottish National party.

The announcement in the Budget speech on vehicle excise duty was significant enough—the creation of a new and complex regime of vehicle excise duty with 13 bands, raising the duty payable on many family cars, and all of it dressed up as an environmental measure aimed at gas guzzlers and nothing whatever to do with filling a bankrupt Treasury or taxing ordinary motorists. That was the clear message.

As far as the measure’s green credentials are concerned, in fact, the percentage increase in duty on a Nissan Micra is larger than the percentage increase on a six litre Hummer or a Porsche Cayenne. In truth, this is an old-fashioned revenue-raising measure. At a time when families are struggling to make ends meet, the Chancellor has hit them with a more than doubling of VED between 2006-07 and 2010-11, from £1.9 billion to £4.4 billion. That is at a time when the average motorist is already contributing more than £1,800 a year on average in tax.

Vehicle excise duty on a Ford Mondeo estate, whether owned in Worcester or otherwise, will go up by 32 per cent. between 2007-08 and 2010-11. VED on a Renault Espace, a largish family car, will increase by 43 per cent. That is bad enough when taken at face value, without having to read between the lines. Conservative Members have become wearily resigned to the fact that the Budget Red Book—let alone the Budget speech—never tells the whole story, but the Treasury has plumbed new depths of cynicism with its presentation of the VED changes. The Red Book assures its readers on page 96:

What it did not say was that, because of the unannounced reversal of the exemption from the highest bands of VED announced in the 2006 Budget for vehicles registered before March 2006, more than 1 million families will see their car tax double over the next two years.

We have only discovered the truth because my hon. Friend the Member for Putney (Justine Greening) looked at the numbers and the Government’s rhetoric and realised that, even by their usual standards, there was a gap. Between 2006-07 and 2010-11, graduated VED is shown in the Government’s figures to rise from £1.9 billion to £4.4 billion, more than doubling in four years—an increase that she realised could not be
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accounted for by the announced changes alone. She discovered through a series of parliamentary questions that that unexplained increase was accounted for by an unannounced stealth tax on existing cars registered before March 2006, which, but for their age, would be in band G now and which are heading for bands L or M in the new system.

Thanks to my hon. Friend’s forensic accountant-trained mind and her fierce tenacity, and to the momentum generated by the campaign launched by The Daily Telegraph, the truth, kicking and screaming, has finally emerged into the light of day and is beginning to penetrate the public consciousness. The Treasury now admits that the statement in the Budget Red Book was

Albert Owen (Ynys Môn) (Lab): The hon. Gentleman talks about a gap, yet the Conservative motion talks about off-setting by “tax reductions elsewhere”. Where are the Conservatives going to get that money from, because that certainly would be a huge gap?

Mr. Hammond: I will make a deal with the hon. Gentleman. When he comes here and tells us where the Chancellor has got the money from to back down on capital gains tax and on non-domiciles, and to fund his U-turn on the 10p tax rate, then we will explain it to him. He can jolly well answer the question.

The public and Labour Members woke up to the problem of the 10p rate only when the increase was upon us. We hope to do Labour Members a favour through today’s debate and ensure that the response on vehicle excise duty is a bit quicker because—I stress to Labour Members—the sooner one defuses a bomb, the less danger one is in.

By 2010, 81 per cent. of the 19.6 million cars that pay graduated vehicle excise duty will pay it at a higher rate than now. That means that four out of five motorists will lose out—some 12.5 million losers will be worse off as a result of a change, which was presented as a tax on gas guzzlers that would benefit the majority of ordinary motorists. I stress the figure of 12.5 million—far more than twice the number of losers from the disastrous decision to scrap the 10p income tax band. For at least 1 million of those losers, the cost will be at least £220 a year of extra VED by 2010, and 3.7 million motorists will lose £90 a year or more—not far off the average loss from the abolition of the 10p tax rate.

Richard Burden (Birmingham, Northfield) (Lab): The hon. Gentleman is being expansive in his criticisms of the Government’s decision. I understand that he is not in a position to say precisely what his party would do if it was preparing a Budget. However, what is the strategic framework within which he would consider VED or other duties? Does he believe that VED should play any role in incentivising or disincentivising customer choices when buying cars? Does he believe that fuel duty should play any role in combating climate change? If so, what is that role? If not, what does he suggest instead?

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Mr. Hammond: The hon. Gentleman makes a fair point. We have made it clear that we believe that green taxes have a role to play in changing behaviour. However, if he reflects for a moment, he will realise that VED can play such a role only in respect of cars not yet purchased. I shall develop the argument that there is a problem in imposing that tax on the existing stock of cars because people are effectively locked into decisions that were made many years ago.

Conservative Members believe that green taxes have a role to play, but if we want to carry a sceptical public with us, we must make it clear that they are introduced for environmental reasons and are not disguised stealth taxes. Politicians should acknowledge the public’s scepticism. It is why my right hon. Friend the Member for Witney has committed himself to a ring-fenced family fund, into which the proceeds of additional green taxes will go. It will be audited externally and used to reduce taxes that are otherwise paid by families. That is the only way in which to retain the public’s confidence and get them behind the green taxation agenda.

Bob Spink (Castle Point) (UKIP): Earlier, the hon. Gentleman mentioned losers. Does he accept that many losers will be disabled people on low, fixed incomes? I received an e-mail from one of my constituents today who must drive a large car to accommodate his wheelchair. He is deeply worried about how to afford the tax. Does the hon. Gentleman share my concern that we must find a way of ensuring that such people are protected?

Mr. Hammond: The hon. Gentleman is right. I expect that we shall hear examples from several hon. Members of constituents whom the measure will disadvantage.

Mr. Greg Knight: Will my hon. Friend give way?

Mr. Hammond: Perhaps I will hear one now.

Mr. Knight: My hon. Friend is being generous in giving way. He makes a compelling case against the increases in vehicle excise duty. Is not the position worse than he outlined? At the same time as the increases, the Government are leaning on and forcing many local authorities to consider introducing road charging in city centres.

Mr. Hammond: Indeed. Furthermore, if my right hon. Friend goes to Nottingham city centre, he will see that parking charges have been introduced. My right hon. Friend is right: the motorist is under assault from many directions.

Mark Lazarowicz rose—

Mr. Hammond: I want to make a little progress. I said that I would give way to the hon. Gentleman again, and I will. However, in view of his earlier intervention, perhaps he will let me make the environmental point; I will then give way to him.

Let us be clear: the abolition of the pre-2006 exemption for older vehicles that would otherwise fall into higher VED groups is nothing but a cynical,
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revenue-raising stealth tax. It is a retrospective measure that cannot affect behaviour as a prospective measure might. Its burden will fall disproportionately on the poor, who are more likely to own older cars; on those in rural areas, who are more likely to own higher-rated vehicles; and on those with large families, who are more likely to have bigger cars.

There is a double whammy for those caught in the trap. Industry experts have confirmed—it has been in all the major papers—that these VED rises will slash the value of older cars that fall into the higher bands. CAP, a data provider to the used car trade, says:

In other words, those people will not be able to respond as the economic model worked up in the Treasury predicts, because they will not have the money.

There is a long-standing bar room joke, which I am sure all Members will have heard from time to time; it seems to come around every time there is a surge in petrol prices. It is something about doubling the value of a car by filling its tank. The combination of a doubling, in some cases, of vehicle excise duty and the slashing of the capital values of larger, older cars means that sticking an annual licence disc in the windscreen will literally double the value of some cars. Even medium-sized cars will be severely affected. Data from CAP show that a Hyundai Lantra 1.6 litre automatic registered in 2001 has a trade value of £850. Under the new vehicle excise duty regime, that car’s road tax will increase to £430 a year in 2010.

Here is the rub: far from changing behaviour and encouraging lower carbon output, this measure will lock low-income families into the worst possible position. By reducing the capital value of the vehicle that those families own, the Chancellor will trap them in what is effectively the motoring equivalent of negative equity. They will be unable to change their vehicle because its value will have collapsed, yet they will be forced to pay the Chancellor’s punitive taxes to stay on the road.

I should like to quote one of the many e-mails that we have received. This one is from a motorist in Merseyside:

that is, the Chancellor’s remarks—

I could quote many more examples showing the anger and frustration felt by owners of larger, older vehicles, who see themselves being trapped for ever by
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this stealth tax into paying higher taxes and being unable to escape because of the erosion of the value of their vehicles.

Rob Marris (Wolverhampton, South-West) (Lab): As has been adverted to, I have been concerned about this issue for some time. It has nothing to do with the forensic skills of the hon. Gentleman’s accountant friend, the hon. Member for Putney (Justine Greening); I raised the issue in the Finance Bill debate. The retrospective nature of the measure is clearly in table 8A of the Red Book. The hon. Gentleman is absolutely right that the issue is about future behaviour. That is why two years ago, I tabled an amendment to the Finance Bill to put up vehicle excise duty substantially for future purchasers of new gas guzzlers. The hon. Gentleman’s motion says that

It behoves him to say a little more about that. In terms of the taxation that we raise, the idea of ring-fencing is very dodgy, because we need to spend money from taxation on adapting to climate change. The Government are already doing things with general tax revenue, such as building up coastal defences, increasing flood defences, work on wildlife habitats, and so on. Ring-fencing green taxes for green issues is not a simple position to take.

Mr. Hammond: There is a germ of truth in what the hon. Gentleman says. In an ideal world, one would not hypothecate. The reason we have taken the step of deciding, in effect, to hypothecate additional green taxes to reduce taxes on families is simply to respond to the high degree of public scepticism about this agenda. The public are sceptical about things that the Government have done and, more broadly, about politicians now claiming to be raising green taxes when, time after time—we have another example before us today—the public are really facing an ordinary stealth tax to fill the Treasury’s coffers. That is why we have taken this exceptional route of ring-fencing and auditing the additional proceeds.

Mark Lazarowicz: Will the hon. Gentleman give way?

Mr. Hammond: I will make a little progress, if the hon. Gentleman will allow me, and come back to him in due course.

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