Justine
Greening: I think so. The broader context to the debates
in this House and outside on VED centres around the fact that the
changes in the Budget to graduated VED were pitched by the Government
as environmental changes designed to drive a reduction in CO 2.
However, we know, from questions answered by Ministers, that that
is not the case and that the changes announced this year will cut
CO 2 emissions from motor vehicles by far less than 1 per
cent. So my hon. Friend is right to raise that issue.
If, as the
Government appear to have admitted, the changes to VED will not have a
dramatic impact on motor vehicle emissions, other fiscal measures will
become all the more important. In that case, I could understand why we
would need to consider more carefully remaining measures that could
affect motor vehicle emissions and see whether they really work. That
is why I have proposed amendment No. 160, which is the primary
amendment in the group, because it essentially would retain the current
definition of a low carbon emission car at 120 g per kilometre.
Amendment No. 161 is a consequential amendment that would ensure that
the clause remains correct in substance. Those are my concerns with the
clause. We support what the Government are trying to achieve, but I
question why they are making the incentive harder to achieve.
I would like
to ask the Minister a couple of questions that will help to put this
debate in a more fact-based context. Will the Minister say how many low
carbon emission cars qualified for 100 per cent. first-year allowances
between, for example, 2005 to 2007? Of the numbers of cars I have
talked about that were outlined in the parliamentary question and
answer I have received, how many low emission cars in both the existing
and new definition proposed by clause 74 do the Government expect and
project will qualify in 2009-10 and 2010-11? I am assuming that that is
a subset of the total number of cars that we expect to be paying
graduated VED at lower band levels.
Making the test for low carbon
emission cars tougher and lowering the grams per kilometre from 120 to
110 will necessarily limit the number of cars that might qualify.
Therefore, there is a danger that rather than encourage the use of low
emission cars, which is
what the clause is intended to do and which we welcome, it will
discourage the purchase of greener cars. Even Government estimates
about how many of those kinds of cars they expect to be purchased and
driven around over the next few years are not particularly
confident—no massive jump in the sale of such cars is predicted.
Most of the 4 million cars that the Government project will be bought
over the next two to three years will clearly be in higher bands rather
than the lowest emission bands. I shall close with those comments. I
look forward to listening to the Minister’s
response. Angela
Eagle: Before responding to the amendments, it might help
if I explain briefly that the policy purpose of clause 74 is to extend
the 100 per cent. first-year capital allowance scheme for a further
five years—until 2013—for businesses that invest in the
cleanest cars. In
response to the observations of the hon. Member for Wellingborough,
this is an allowance, not a tax, and therefore it actually costs the
Exchequer. The scheme is designed to try to improve the incentive for
the cleanest cars that are available on the market to be bought by
those businesses that operate fleets of cars or are involved in
business travel. When considering the clause and amendments, it is
important to focus on that particular area, rather than on the entire
car fleet; otherwise, we might get ourselves into a bit of
difficulty.
Mr.
Bone: There is a difference, is there not, in trying to
drive fleets towards the cleanest cars or towards low carbon emission
cars? As the Minister rightly says, we are going for the cleanest cars,
but it is a disincentive to move towards the cleanest cars. That seems
to be a change in the Government’s
policy.
Angela
Eagle: I do not agree and I shall explain why. The purpose
of extending the 100 per cent. first-year capital allowances scheme for
businesses that invest in the cleanest cars—not a clean
car—for a further five years and stretching the target again by
reducing it from 120 grams per kilometre of emissions to 110 grams is
precisely to ensure that the objectives of the scheme as they were
first designed are achieved. That is an effective environmental
incentive for the presence in the car fleet of the cleanest emitting
cars rather than good cars. The cleanest cars at the edge of
technological advance will find their way into the car fleets and that
will have an effect on the second-hand car market once they are leased,
used and sold on. We have focused on a particular part of the market
for a particular purpose. The idea behind the original capital
allowance scheme, which is being extended and tightened again under the
clause, was to keep things at the forefront of technological
change. The two
Conservative amendments would prevent us from revising the original
carbon dioxide emissions threshold down. We need to do that to ensure
that the scheme reflects advances in emissions technology since 2002,
when the first incentive scheme was put in place. The amendments would
leave the original 2002 threshold unaltered and in place until 2013.
However, massive technological change is already happening in engine
technology and emissions.
As I said earlier, the scheme is
meant to be an incentive and is intended to be at the forefront of
bringing the cleanest engines to market in a way that guarantees that
people taking a risk designing new technologies get a foothold in the
market. That is the point of the 100 per cent. first-year capital
allowances, which the hon. Member for Putney did not
accept.
Justine
Greening: My understanding is that the point of the
capital allowances was to encourage a change in behaviour rather than
simply to track technological development for the sake of it. The
figures that the Government have released suggest that they do not
believe that the allowances will change behaviour. That is why I am
pressing the Minister to explain whether that is so, not to explain
whether there is a need to track technological improvements. I accept
that having the most ambitious policy possible may be a consideration,
but the ultimate aim needs to be changing behaviour. I do not see
anything in the figures that the Government have released that suggest
that they feel that such policies, particularly this one, will be
successful.
Angela
Eagle: It already has been successful, which is why we are
tightening it. The scheme to encourage investment in the cleanest cars
was introduced in 2002. Since then the carbon dioxide emissions of the
UK car fleet have markedly reduced. In 2002, only about 7,000 cars had
emissions under the original threshold of 120 grams per kilometre
driven, but by 2006—the latest available figures only reach
2006, because of how business car taxation works—the number of
eligible cars in the fleets had increased more than fivefold and
improvements continue to be made. Therefore to ensure that the scheme
continues to secure its policy objective as an environmental incentive,
which is to encourage business to invest in the cleanest vehicles at
the edge of technological advance, not just to invest in a clean
vehicle, and to prevent escalating Exchequer cost and mounting
deadweight effects, the carbon dioxide threshold needs to be updated
and stretched and made more challenging, as the hon. Lady said. That
should be done to secure the policy aim of a generous 100 per cent.
write-down of the cost in the first year. The potential cost to the
Exchequer of maintaining the carbon dioxide emissions threshold at the
previous level of 120g/km to 2013, as the Opposition amendment would
provide for, is estimated at £450
million. The first-year
allowances scheme is intended to incentivise business investment in
cars with the lowest carbon dioxide emissions: not simply low
emissions, but the lowest. Given that policy purpose and the risk of
high Exchequer cost and deadweight in relation to the amendments, I
urge the Committee to reject the
amendment.
Mr.
Bone: I want to take up some of the things that the
Minister has said. First, on the first-year allowance—the 100
per cent. write-down—I have been in business and I have had to
make decisions about buying a fleet of cars and I certainly would be
attracted to something that offered 100 per cent. first-year allowance.
I may have already based my fleet on the 120 g per kilometre and
because I am into that fleet
structure, I cannot and am not going to change that fleet to 110 g per
year. Therefore, I am going to be penalised later on for going into
something that the Government encouraged me to do in the first
place. 5
pm
Angela
Eagle: There is a transitional arrangement that means that
access to the allowance will not change because of the changed
threshold for the length of that lease, so the hon. Gentleman’s
point is wrong.
Mr.
Bone: I can only say, from my practical experience, that
we might expand that fleet year by year and I certainly would not
switch vehicles. I would keep my fleet the same for a considerable
period. The issue about the first-year allowance and the cost, which
the Minister said is £450 million, is about cash flow. It
reverses either when the car is sold or in each and every year because
one is not getting the writing-down allowance. Therefore, it is not an
overall cost; it is purely a cash-flow
issue.
Mr.
Hammond: On that basis, does my hon. Friend have any idea
where the Minister got the figure that she just quoted on the cost of
the Opposition amendments? As he rightly points out, balancing charges
on the disposal of the vehicle mean that it is simply a cash-flow
issue.
Mr.
Bone: I am grateful for that intervention. I can only
assume that that was the cost estimated in the first year, because in
the following years it would reverse. It will be interesting if the
Government can explain that that cost may be a negative figure of
£450 million in year one, but it will be positive in the
following years. The
real issue that I want to draw attention to is that we are hiding from
the cutting edge of technology. If the Government are really keen on
green issues—I do not believe that they are because they do not
have the track record that my party has of wanting to improve the
environment—they would keep it at 120 g per kilometre because it
would encourage more cars. As my hon. Friend the Member for Putney has
pointed out already, the proportion of these vehicles will be lower in
the future than it is now. Therefore, while we want to see the actual
numbers of low carbon emission cars increasing in fleets, for all the
reasons that the Minister has said, it is a mistake to reduce the
permitted level. The
Government are missing a trick and I believe that that is entirely for
financial reasons—they think that it will cost them too much to
keep the allowance at this level. It is up to the Government to accept
this very minor amendment. It would show extremely good faith for the
first time in the Committee if they accepted
it. Justine
Greening: I am not wholly convinced by what the
Minister has said. I do not understand where the calculation of the
£450 million has come from. The Minister claimed that the impact
was a fivefold increase in cars—from 7,000 to 38,000 out of a
current car population of 15.6 million—which does not indicate
that behaviour has changed dramatically when one thinks of the amount
of that 15.6 million that would have been purchased by companies.
Again, on this and other measures in relation to green taxation,
and especially to cars, the Government are in a
mess. I will not press the amendment to a vote, but it is almost
certain that we will be coming back to these issues in the future. I
beg to ask leave to withdraw the amendment.
Amendment, by leave,
withdrawn.
Clause 74 ordered to stand
part of the Bill.
Clauses 75 and 76 ordered to
stand part of the Bill.
Schedule
25First-year
tax
credits
Mr.
Hammond: I beg to move amendment No. 212, in
schedule 25, page 301, line 34, at
end insert— ‘(5) In this
Schedule “company” includes a partnership or a business
carried on by a sole
trader’.
The
Chairman: With this it will be convenient to discuss
amendment No. 213, in schedule 25, page 313, line 36, at end
add ‘by a company which
is incorporated under the Companies Acts on or after 6th April 2008 by
a company which is a partnership or a business carried on by a sole
trader.’.
Mr.
Hammond: A number of amendments tabled to schedule 25 have
been selected separately and I will try to be brief in discussing each
of them. Hopefully we can rattle through
them. The schedule will
introduce a payable tax credit in respect of enhanced capital
allowances. Enhanced capital allowances were introduced in 2001 and
offer 100 per cent. first-year allowances for certain types of
qualifying expenditure. Generally it is expenditure that, for policy
reasons, the Government wish to encourage, such as expenditure on
energy-saving
equipment. I will leave
aside the broader question of the efficacy of using fiscal policy to
influence corporate investment decisions and focus on some practical
questions. We will see over time how effective these measures are in
enticing companies to make capital expenditure that they otherwise
would not wish to make. We will also judge over time what the economic
impact of that
is. Amendments
Nos. 212 and 213 address an important point in relation to this
schedule. As drafted, the payable credit is available only to
companies. By tabling these amendments, we seek to understand why that
incentive will not be available to sole traders and to partnerships. I
said earlier in today’s proceedings that the Government have a
stated objective of maintaining fairness of the tax system by ensuring
that people engaged in similar economic activities pay broadly the same
overall level of tax, regardless of the legal form that they chose for
their business. This discrimination against sole traders and
partnerships flies directly in the face of the pursuit of that
objective. The Exchequer Secretary must explain why the Government have
limited this payable tax credit to those companies that arguably need
it least and excluded partnerships and sole traders. The measure is
also highly discriminatory against smaller businesses. Small and
medium-sized enterprises are overwhelmingly sole traders. Excluding
sole traders and partnerships discriminates against them.
I would be the
first to admit that the amendments are a clumsy attempt at probing this
issue. In order to avoid the daunting task of going through the entire
schedule and amending every reference to company or companies, I have
taken the coward’s way out and sought to amend the definition of
company in this schedule to include partnerships and sole traders. That
is inelegant, but practical for our purposes this afternoon. If the
Government see the light and accept that the provisions should be
extended to include partnerships and sole traders, I will be happy to
withdraw the amendment and allow the professional draftsmen to do it in
a much more sensible way. I hope that this proposal will at least allow
the Exchequer Secretary to respond to the substantive
point. Amendment
No. 213 is a necessary consequential amendment because starting dates
for the different tax periods would be different if partnerships and
sole traders were included. Will the Exchequer Secretary tell us in
plain language why, in the face of the Government’s rhetoric
about fairness between different types of legal structure, sole traders
and partnerships need to be discriminated against in the way that is
proposed by the
schedule?
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