Finance Bill

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Clause 44

Company cars: lower threshold for CO2 emissions figure
Question proposed, That the clause stand part of the Bill.
Justine Greening (Putney) (Con): It is a pleasure to serve under your chairmanship, Mr. Hood. I have one brief question on the clause. I understand what the clause seeks to achieve, but I want to ask about the new tax regime for qualifying low CO2 emission cars, which has been introduced from April this year. From that date, cars with CO2 emissions of under 120g/kg are subject to an appropriate percentage of 10 per cent., which will be increased by 3 per cent. if the car has a diesel engine.
What assessment has the Treasury made of the number of cars that are likely to take advantage of that tax regime over the next three years? What amount of tax giveaway will be provided as part of that regime, to encourage those who have company cars, and companies that have company cars as a taxable benefit, to choose qualifying low CO2 emission cars, rather than going for the more traditional company car models that people have chosen in the past? That is the main question that I wanted to ask, to obtain more information about the qualifying low CO2 emission cars, and I would be grateful for any light that the Minister can shed on the Treasury’s expectations of how the scheme will work.
The Exchequer Secretary to the Treasury (Angela Eagle): As the hon. Lady will know, the whole approach to company car taxation since it was reformed in 2002 has been to base it on carbon emissions, which encourages the take-up and development of more fuel-efficient cars in company fleets.
The clause promotes more environmentally efficient business travel and the take-up of cleaner cars because it will reduce the lower threshold from 135g/kg to 130g/kg of emissions. The lower threshold rate relates to an appropriate percentage of 15 per cent., which will have the effect of reducing each of the 21 company car tax bands by 5g/kg. The new rules will apply from 6 April 2010.
In terms of the 120g/kg category at the very low end, about which the hon. Member for Putney asked, we anticipate that over 100 different cars in the next three years would qualify on those emissions bases. This is set within the context of the forthcoming EU regulatory requirements, which will ratchet down the emissions that are allowable under EU law. We believe that manufacturers are already responding to the challenge of populating that area of the company car tax threshold rate, and the hon. Lady should also bear in mind the fact that fleet car sales are about half of all new car sales per year. It is therefore particularly important to send these messages to manufacturers who are aiming at the fleet car market. It is a very influential market—half of all new car sales—and it presents a way of achieving quite a rapid turnover and an improvement in CO2 emissions from new cars on the road.
6.30 pm
Angela Eagle: I meant 100 different types of car. Clearly, there are now increasing signals and incentives for manufacturers to populate that part of the car taxation rate—they and companies are rewarded financially. In fact, everyone will gain, if we manage to make emissions savings that way. I hope that with that clarification, the hon. Lady will support clause 44.
Question agreed to.
Clause 44 ordered to stand part of the Bill.

Clause 45

Van fuel benefit
Question proposed, That the clause stand part of the Bill.
Mr. Breed: I have no intention of opposing the clause, as its fairness is obvious. I just wanted to point out the unintended consequences that might be visited on hon. Members. We are seeing an explosion of vans on housing estates, which is causing havoc, because they cannot go into garages or, very often, on to driveways, so they end up on the road. A significant number of people now use their company and, indeed, local authority vans. I do not know what is happening elsewhere, but it is certainly a major problem in my part of the world.
Angela Eagle: The clause clarifies the tax and national insurance contribution treatment of van fuel, and it mirrors, for van fuel benefit, the signposts in the relevant legislation for company car fuel benefit. I am not sure quite how directly that impacts on the number of vans—white or otherwise—in the hon. Gentleman’s constituency. Does he wish to ban them?
Mr. Breed: I am saying that company cars are much easier to cope with, but company vans are certainly not easy to cope with.
Angela Eagle: The hon. Gentleman has expressed an opinion and put it on the record—I shall leave it to his van-driving constituents to express theirs. I hope that the Committee will allow clause 45 to stand part of the Bill.
Question agreed to.
Clause 45 ordered to stand part of the Bill.
Clauses 46 to 47 ordered to stand part of the Bill.

Clause 48

Armed forces: the Council Tax Relief
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: Clause 48 exempts from tax payments to certain members of Her Majesty’s forces under the Ministry of Defence new armed forces council tax relief scheme. The Opposition welcome attempts to assist our armed services. I think that the Committee will not disagree that our armed services do a fantastic job for this country and, indeed, for the rest of the world. It is right that they should be treated well. Today is not the time to debate at greater length the military covenant and the relationship between the Government and the armed forces. The armed forces council tax relief scheme is an attempt to cover a certain amount of lost ground for the Government, but it is welcome none the less. It is quite right that it should be exempt from tax.
I want, however, to make one or two points. Paragraph 4 of the explanatory notes to the clause states:
“Following an announcement by the Secretary of State for Defence on 25 October 2007, payments under the Ministry of Defence’s new Armed Forces Council Tax Relief scheme are due to start from 1 April 2008.”
I checked that and there is an inaccuracy. The announcement was made on 25 September, not 25 October. I am sure that that is an entirely innocent mistake, but the context of the original announcement on 25 September was the Labour party conference in Bournemouth. The speech was made by the Secretary of State for Defence in what was believed to be a pre-election conference. How long ago that seems.
One or two points in that announcement attracted some criticism. First, the original proposal related only to members of the armed forces serving in Iraq and Afghanistan. On 28 January, the scheme was extended to include other places in the world such as the Balkans. It also appeared that the scheme was to be funded entirely from the existing MOD budget. Although it provided a happy announcement for the Government at their party conference, it was going to be funded by cuts elsewhere in the MOD budget.
The proposal in September was somewhat hurried. Will the Minister explain when the Treasury first became aware that it might result in a tax liability for members of the armed forces? The measures before us were proposed to ensure that the council tax relief scheme would be exempt from tax payments. Will the Minister also clarify the position for national insurance contributions? Again, the explanatory notes state:
“Secondary legislation will introduce a parallel disregard for National Insurance Contributions purposes.”
Clearly, under the clause, the council tax relief scheme will be exempt for income tax purposes from April 2008. From the passage of the National Insurance Contributions Bill earlier this year, my understanding of national insurance contributions is that they are determined by a forward-looking process. It is therefore necessary to pass secondary legislation for the next year. I may well be wrong on this, but will the Minister confirm that the disregard for national insurance contributions will not start until April 2009, so there will be an additional national contributions liability for members of the armed services benefiting from the armed forces council tax relief scheme?
The Financial Secretary to the Treasury (Jane Kennedy): First, it is a pleasure to be in Committee this afternoon under your chairmanship, Mr. Hood. I have enjoyed listening to the discussions.
I do not believe that the national insurance effect will take exactly the form that the hon. Member for South-West Hertfordshire suggested. I will make a few general comments. I understand from my advice that the announcement was made in October, but I will double-check in the light of what he said.
Mr. Gauke: I have among my notes the report from the BBC’s website, which gives the date as 25 September.
Jane Kennedy: I apologise. I acknowledge that it was September when my right hon. Friend the Secretary of State for Defence announced the introduction of the new scheme of tax-free council tax relief for members of the armed forces who are deployed on operations overseas. I do not want to go into the history, but it is clear that from 1 October 2007, the areas that attract operational allowance, namely Afghanistan and Iraq, will give rise to council tax relief, but from 1 February, service in other operational zones has been specified—that is, as I understand it, overseas operations, including British Forces South Atlantic Islands, Bahrain, Bosnia, Diego Garcia, Kosovo, Kuwait, Oman, Qatar, and deployed Royal Navy ships in receipt of the overseas deployment welfare package, and UN operations. The Ministry of Defence has the power to amend the specified areas from time to time.
The NICs changes will take effect from April this year, and secondary legislation was introduced with that effect to ensure that the relief is disregarded for NICs. I do not agree with the hon. Gentleman’s description of the reasons why the proposal was introduced. We have a compact with the British Army, and certainly British soldiers whom I meet from my constituency acknowledge the genuine commitment that the Government have made to British armed forces. They believe to some degree that we do not receive fair acknowledgement for our work to ensure that our armed forces are supported in every way.
The payment of the council tax relief and what we are discussing today are important steps to ensure that our armed forces receive council tax relief as intended. Many of them endure danger in difficult circumstances, and we believe that the relief should not be taxed, thereby ensuring that they receive the maximum benefit. The clause will cover all payments of council tax relief to the armed forces from April this year, and I hope that the clause will stand part of the Bill.
Mr. Gauke: I am grateful for that clarification, although I stand by my point that the matter has been hurried. The Minister did not confirm the time at which the Treasury was first aware of council tax relief being potentially taxable, but none the less we welcome the clause.
Question put and agreed to.
Clause 48 ordered to stand part of the Bill.
Mr. Bob Blizzard (Waveney) (Lab): Before I move the motion to adjourn, may I point out that we are in the third week of this Committee? When we came into this room, the clock was five minutes ahead of the time on the monitor. I understand that we are using the time on the monitor, but it is confusing to have two time references in the same room, and I wonder whether I could look to you, Mr. Hood, to ensure that the clock is put right before we meet again.
The Chairman: Before I put the Question on the motion to adjourn, may I say that I noticed that and mentioned it to the Clerk this morning?
Further consideration adjourned.— [Bob Blizzard.]
Adjourned accordingly at sixteen minutes to Seven o’clock till Thursday 22 May at Nine o’clock.
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