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Dr. Cable: I think that I understand the mystery. Twenty times three is fairly close to 57—I think that that is where the Financial Secretary has got her number from. Of course, the environmental measures were a combination of aviation taxation—I think that even the Conservatives are fairly sympathetic to the
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point that aviation is under-taxed—and various specific proposals on VED. The environmental measures were clearly spelled out, costed and independently audited. I do not know why the Financial Secretary has a problem with it.

Let me return to the Conservative motion. Although I agree with elements of it, I disagree with the final phrase, in which it

As I understand it—I might have misunderstood the legislation—the measures went much further than the changes for old vehicles. Was there not a package of measures that involved a new scale and a new structure for dealing with new vehicles? One can pick holes in particular details, but it seemed to me that much of that was reasonably sensible.

I ask the question that the hon. Member for Birmingham, Northfield (Richard Burden) asked earlier, as it was exactly right. What is the strategic framework within which the policy is located? If the Conservatives are attacking the retrospective taxation of old vehicles, do they go along with the argument—on which, until now, I thought there was a reasonable degree of consensus—that the differential for new vehicles should be widened? That view was not only set out in the quality of life policy group report, but argued on a cross-party basis by the all-party Environmental Audit Committee, chaired by the hon. Member for South Suffolk (Mr. Yeo). I think that many Conservative Members subscribed to the idea. The highest rate would have been of the order of £3,000, which is substantially more than the Government are proposing. I do not know whether that idea is being disowned or criticised now, but I always understood that the Conservatives supported it.

My second, related question is whether the Conservatives are questioning the whole basis of the idea of graduated VED as it relates to the environment. If graduated VED does not work—and there is a perfectly sensible, empirical debate to be had on whether it will work—what other signals could be used? There are other options. We could use more petrol duty, or road-user pricing. Do they want to shift the emphasis on to those options? There are of course problems with all those things, but VED probably involves fewer problems than some of them.

Are the Conservatives questioning the principle of using market incentives? That is what taxes are about: the use of a market incentive to change behaviour. There are people—not just environmentalists, but tough business people—who argue that we need to stop pussyfooting around with market instruments and should just get on with regulation. My former boss at Shell, Mark Moody-Stuart, was recently on the radio saying, “Let’s stop all this silly nonsense about environmental taxes. It’s all involved in giving money to the Government. We need draconian controls on vehicle emissions, and if car manufacturers cannot make cars with sufficiently low emissions, they will go out of business. You might want to toughen things further by tightening MOT controls, so that old vehicles simply go off the road.” That is much tougher and nastier to people who own old vehicles, but that draconian approach would be the alternative to using market instruments. I do not know whether the Conservatives want us to move more in that direction
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or less in that direction, but that is the question that the hon. Member for Birmingham, Northfield, asked earlier. It is exactly the right question, and I have not yet heard the answer.

We got a hint of the answer when the hon. Member for Runnymede and Weybridge (Mr. Hammond) got a little carried away in a response to one of his colleagues, and started telling us about the motorist under assault. Most of us are motorists, and of course most of us are concerned about rising costs, but the concept of the motorist under assault needs to be examined a little. The Financial Secretary to the Treasury gave us a bit of a clue when she talked about real costs, and the overall cost of motoring in comparison with other modes of transport. What she said was quite true: in the past 10 years, the real cost of motoring, including everything—the private costs as well as the different types of tax costs—has fallen by 10 to 11 per cent. The cost may have increased in the last year—I do not think that those figures include the effects of petrol increases last year—but the figures are fairly neutral. Certainly the real cost has not risen in the past decade.

By comparison, in real terms, the cost of trains has increased by 6 per cent., and buses by 13 per cent. If we take a 30-year perspective, car costs have fallen in real terms by 10 per cent., and train costs have risen by more than 50 per cent. If we compare costs, it simply is not meaningful to talk about motorists being under assault, unless we mean the day-to-day irritation of higher fuel costs. In terms of the incentives structure, the system clearly remains heavily geared against public transport.

Before I say a little about my approach to the specifics of VED, it may be useful if I give a bit of historical context. It is often forgotten that vehicle excise duty was one of the many creations of the 1906 Liberal Government and of Lloyd George. He introduced it with two provisos, which were subsequently forgotten. First, he was very keen on graduated VED. It was to have been graduated by horsepower. That was not because of global warming, but there was an awareness, even then, of environmental costs. However, his recommendation that VED be graduated was subsequently forgotten. That is how VED was introduced.

Lloyd George also recommended that the receipts from vehicle excise duty should be ring-fenced. He was very conscious of the way in which the Treasury absorbs revenue, and specifically recommended that it should be set aside in a separate fund, which ultimately became the road fund.

The second historical point to which it is worth drawing attention is that in 1978 the vehicle excise duty almost disappeared, because the then Labour Government argued strongly that it was a bad tax. They wanted to get rid of it and convert it entirely into petrol duty. The serious analytical point that was made at the time was that if they did that, it would save emissions and fuel use, on a one-off basis, of about 10 per cent.

VED was saved for the nation by the Conservatives, who felt that it should not be abolished. They thought it was a good tax with all kinds of secondary advantages, including tightening up on the enforcement of insurance, so they kept it. That is why we have the debate today. The tax has gone a lot further since then,
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with the introduction in 1998 of environmental differences. Those are its origins, which are somewhat strange, one might think.

In conclusion, I shall run through some key points in the motion, which require some attention from the Front-Bench spokesmen on either side. I begin with a simple factual question; it is not a policy point. I do not know the answer to it. In the motion the Conservatives imply that the introduction of differentiated VED has very little impact on CO2 emissions. They say that there will be a 1 per cent. reduction. That may or may not be true. It may be what the Government are saying. Is it true? What is the evidence?

Mr. Philip Hammond: The hon. Gentleman may have heard the exchange earlier with the Minister, when we appeared to be in dissension, but as the right hon. Lady confirmed, we were saying precisely the same thing—that the expected change over 10 years as a result of the measure is less than one seventh of 1 per cent. of CO2 output.

Dr. Cable: If that is true, ceteris paribus and ignoring other considerations, it is an extraordinary conclusion and it goes completely contrary to all the experience that we have had. I am interested and intrigued. If that is the case, we will need to rethink the policy. If it does not work, what is the point of continuing with it?

The evidence of the past few years is that differentiated VED produces substantial changes. Even over the past six years, the number of vehicles in the A, B and C groups has increased from 19 to 36 per cent., and the number of vehicles in the higher range—E, F and G—has fallen from 58 to 37 per cent. Not all of that is necessarily environmentally driven, but it is suggested that that is what has been going on.

The Carbon Trust, which advised the Environmental Audit Committee, produced remarkably high elasticities for the impact of vehicle excise duty on consumer choice. If all this is wrong, it is important that the Government present the analysis. All parties need to rethink what they are doing. There is no point in blindly pursuing a strategy that is not working. May we have the evidence and the basis on which the policy was arrived at?

Rob Marris: When the hon. Gentleman looks for the evidence underlying the changes to which he referred, I suggest that he examines the taxation regime for company cars, which changed markedly in those years and was a driver when prospective purchasers of company cars looked at what the income tax effect would be, perhaps more than the vehicle excise duty effect.

Dr. Cable: That may be part of the argument. In the opposite direction, I saw a study produced by the Environmental Transport Association, reporting that 42 per cent. of all motorists planned to switch to more environmentally friendly cars at their next purchase. That may be tax driven; it may be ethically driven. We do not know. Clearly, there is a mood to switch, and I
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do not believe those wholly negative results, but I believe in science and I would be interested to see where they came from.

On the policy, I agree. There is nothing much to add. The arguments against taxing existing vehicles are strong, in terms of both fairness and the underlying economics. There is no need to labour the point.

One question that the Conservative spokesman did not raise, which is worthy of mention and often posed by the farming community, is how we deal with the specific problems of working vehicles. The NFU argues that it can produce a workable definition of working vehicles. It is a technical point, but if it can do that, we should try to exempt them. There is no point treating real tractor-type vehicles on the same basis as Chelsea tractors, which would defeat the objective of the policy and undermine agriculture, and there is clearly work to be done on that point.

If we are looking to the longer term, both for the reasons that have been advanced in this debate and more generally, there is a strong argument for moving away from vehicle excise duty as the main instrument to attempting to change behaviour on the roads. Road-user pricing is probably the best long-term replacement, and my party supports that view. I shall not hold my breath, because I wrote essays on road-user pricing when I was an undergraduate 40 years ago, and it still is not with us. It has real problems of technology and privacy, but the technology is now much more advanced and I would welcome progress in that direction.

I was surprised that neither of the two speeches so far referred to the technological change required to produce the switch to low-carbon vehicles. We can play around with prices and taxes, but if the technology does not advance, we are unlikely to achieve very much. Fifteen years ago, I helped to produce scenarios for the oil company for which I worked, and we knew then that low-carbon emission vehicles were available. All the elements were in place—light materials, more efficient engines, more efficient batteries—and that was why the company did not anticipate some of the high prices that we have seen. It assumed that high growth in China and India was entirely compatible with relatively low oil prices because we would see all those energy-efficient vehicles on the roads, but it never has seen them. It has been a slow process and I wonder whether the Government should now consider some of the regulatory steps that need to be taken to push the revolution along faster.

Adam Price: The hon. Gentleman is making a typically thoughtful speech. Given that he agrees with some of the elements of the Conservative motion, but has problems—as I do—with the last clause, will he join the Conservatives in the Lobby tonight?

Dr. Cable: I was not inclined to do so, because of the aspect that the hon. Gentleman mentions, and it is interesting to hear further contributions on that subject.

The Exchequer Secretary to the Treasury (Angela Eagle): The hon. Gentleman talks about regulation and the context in which motor manufacturers make their engines. I am sure that he knows about the EU
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directive that we hope will be in place by 2012 to regulate the emissions allowed from the tailpipes of cars, reducing them to 130g of CO2 per kg. That is a significant stretch for current technology, but that is the regulatory context in which policy has to be set.

Dr. Cable: That is a helpful additional factual point. If we are to round off this discussion properly, we have to have some concept both of the targets for introducing new technology and the monitoring and enforcement of it. All those different elements have to accompany the tax changes, otherwise they will have no effect.

Several hon. Members rose

Mr. Deputy Speaker: Order. We have about 40 minutes left for contributions from Back Benchers. I hope that hon. Members will bear that in mind.

5.58 pm

Richard Burden (Birmingham, Northfield) (Lab): It is a pleasure to follow the hon. Member for Twickenham (Dr. Cable). Some of what I intend to say takes up the themes that he articulated. Like him, I was disappointed to get to the end of the speech by the hon. Member for Runnymede and Weybridge (Mr. Hammond) no wiser about the Conservatives’ proposals, as opposed to their criticisms. That is a shame, because VED raises real and complex questions about how we should deal with motor vehicle taxation. If we are honest, what we should all be trying to do is to reconcile a range of competing and often contradictory pressures and considerations.

How do we frame policies that ensure that the production and use of motor vehicles—not much has been said about production, but it is part of the issue—play their part in meeting the challenge of climate change? In doing so, we must also recognise the strategic importance of the UK motor industry and the specific aspects of the automotive industry in which we excel. That is sometimes an uncomfortable matter in a debate such as this because we are often talking about niche production, performance engineering and luxury car production, and how to ensure that the industry is not undermined. That also applies to jobs outside manufacturing but in the automotive industry, whether in retail, after sales and the used-car market.

How do we incentivise drivers to use their vehicles in a more environmentally sensitive fashion and how do we improve public transport alternatives to inappropriate car use? How do we persuade people that environmental performance is an important factor to be considered when they buy a new car or a used car?

How we do all that is a complicated issue, particularly when we have to feed into it the issue of ability to pay, particularly at a time of rising fuel prices globally, and how to recognise that for some people, whether in their work or where they live, owning or driving a car is not a luxury, but an essential component of mobility for themselves and their families.

The first issue to consider is that the increase in the number of VED bands in the Budget was generally welcomed across the board, a point that has not
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received much attention so far today. That was welcomed in that it delivered a less blunt instrument for classifying the environmental impact of different models in terms of influencing customer choice. The review led by Professor Julia King at Aston university in Birmingham talks about other ways in which the tax disc could be used to incentivise different forms of behaviour. For example, tax discs could be colour coded to show much more clearly the environmental performance of different vehicles. There are also lessons to be learned from experience gained from the colour coding of the results of crash testing regulations.

I have some particular concerns that I hope the Exchequer Secretary will address when she replies. The first is the new car/used car issue, on which I will strike a slightly different note. I worry about the so-called showroom tax that is to be paid on less fuel efficient cars bought from new. There is a year-on-year increase in fuel efficiency for virtually every new model. This year’s model will be more fuel efficient than the same model produced last year, the year before that or the year before that. To increase the tax on a model simply because it is new, could have the perverse impact of making it more expensive to run even though it is more environmentally efficient than an older model. For the same reason, in principle there is not much logic in the argument that particular vehicles should be exempt from the taxation consequences of their performance simply because they are three or four years old if the objective is to incentivise different forms of driver and customer behaviour. It does not address the issue of ability to pay and the ability to buy different cars—which are real issues—but to say on environmental grounds that cars should be exempt because they are older does not stand up to close scrutiny. However, we must be careful in terms of the ability to pay. We must also be careful about the impact on residual values and on the used car market, which is an important part of the industry.

I am not sure that VED is the best way of incentivising or disincentivising driver and customer behaviour because VED is not related to use. If someone has a 1,300 cc car and they do not keep it well serviced, but use it every day, even for the shortest, most inappropriate runs, their impact on the environment and on CO2 will be greater than if they had a niche sports car of the kind in which the UK excels, although most of us cannot afford such cars, and took it out only on rare occasions. Therefore, it seems that we need to relate incentives and disincentives to issues of use, not simply to issues of ownership. The hon. Member for Twickenham is right: that probably means doing something with fuel taxes or relating some form of road user charging to the environmental performance of models. I cannot think of another way of doing it. Those are the issues that the Conservative party must deal with if it is serious about using green taxes and including motor vehicles in that approach.

I would like to make some suggestions. One is on VED. The King review talked about colour coding to establish and to make clear the environmental performance of cars. We could also look at how to use VED and the tax disc to link up and to promote the use of public transport and the use of a particular car.
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There are lessons from the use of the Oyster card about whether buying a tax disc could also provide the individual with a passport to public transport as well as being applicable to the individual car. That is an area we could look at.

It is right that rigorous regulation requiring industry, including the motor industry, to improve performance should be important to the general debate on the environment. Indeed, the motor industry has done a lot already. The Society of Motor Manufacturers and Traders’ sustainability report shows what has been done in production processes and in the recycling of vehicles, as well in terms of the performance of vehicles themselves. However, if we introduce regulation, it must be logical. That is why I hope that we will continue to keep a close eye on some of the EU regulations currently being shaped that enable manufacturers that produce lots of models, some with quite poor environmental performance, to be subject to fewer penalties, as long as they also produce other cars that have smaller engines. Such would be the impact because those penalties are measured across the car fleet of the manufacturer. A penalty is imposed on manufacturers not for producing less fuel efficient cars, but for being a smaller company producing less efficient cars. In other words, a company such as Fiat, the Italian company that produces Ferraris, would be hit less under that regulation, unless certain safeguards are built in, than Aston Martin, a British company based in the UK. Why? Because Fiat owns Ferrari and Aston Martin is an independent company. That would be the only difference. That is illogical.

At present the Commission is proposing an exemption threshold for companies producing fewer than 10,000 vehicles per year. Below that they would be exempt from some of the penalties. I know that the Minister and the Government are pressing for the retention of that exemption. I say hold firm on that one—it is important to the British niche vehicle industry.

Unfortunately, that exemption on its own does not meet the needs of another important British company: Jaguar Land Rover, on which thousands of jobs depend in my region in the west midlands and the north-west. It will face big penalties as a result of those regulations simply because it is becoming independent of Ford and is therefore not part of a bigger group. I ask the Minister to continue to work closely with Jaguar Land Rover to ensure that the EU regulations that come in do not have the kind of perverse effect that I have described.

Angela Eagle: I am happy to assure my hon. Friend that the Government are aware of the points that he makes and are keeping a close eye on the progress of discussions about the development of EU regulations in Europe. We are committed to getting down to 130 kg of carbon dioxide emissions per kilometre, but we certainly take my hon. Friend’s points on board.

Richard Burden: I am grateful for that clarification.

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