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Clause 92 ordered to stand part of the Bill.

Clause 14

Rates from April 2010

Question proposed, That the clause stand part of the Bill.

Mr. David Gauke (South-West Hertfordshire) (Con): I do not know whether it is appropriate to say so in these circumstances, but it is a pleasure to serve under your chairmanship, Mr. Atkinson.

Vehicle excise duty was one of the stories of last year’s Finance Bill and the 2008 Budget. I will be relatively brief—and I can assure the Exchequer Secretary that this issue will not keep her here until the early hours of the morning—but it may be useful to return to the proposals in that Budget. In particular, I wish to take the opportunity to pay tribute to the tenacious work of my hon. Friend the Member for Putney (Justine Greening) in examining and unravelling the Government’s case.

The Committee will recall that in the 2008 Budget the Chancellor of the Exchequer set out his proposals to reform vehicle excise duty, which included introducing a greater range of gradations in bands on the basis of CO2 emissions. He told the House that that was a sensible green measure, saying that

My hon. Friend started to examine the details of that policy and several points emerged.

First, the Chancellor claimed that the proposal was a green measure, but it clearly sought to raise revenue. Of course, the proposals on vehicle excise duty in this Finance Bill have been largely shaped by the arguments and the analysis of last summer. Thanks to my hon. Friend’s work, it emerged that the original proposals would reduce motor vehicle emissions by 160,000 tonnes a year by 2020. To put that in context, that is a fraction of 1 per cent. of total transport CO2 emissions, which in 2006 amounted to 120 million tonnes. We can see immediately that the proposals’ green credentials were somewhat weakened, and I would be grateful if the Exchequer Secretary gave her assessment of the green benefits of the original proposals and of the proposals in clause 14.

Another green argument needs to be addressed. It was persuasively argued that a number of older cars would essentially become unsaleable and have to be scrapped as a consequence of the new VED scheme, which would have an environmental impact. I do not wish to deviate from the subject of VED, but that point throws up the issue of the environmental impact of the car scrappage schemes. It would be helpful if the Minister said a word or two on the environmental pluses and minuses of scrapping older cars. Clearly, newer cars are more efficient and, by and large, have lower CO2 emissions,
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but quite a lot of carbon is involved in car manufacture. I ask that purely to inquire about the Government’s analysis.

Rob Marris: May I inquire, purely to seek information, whether the hon. Gentleman can confirm that his party stands by its commitments on green issues, particularly on green taxation?

Mr. Gauke: Yes, we do. I shall come back to that point—that was a perfectly fair question. I suspect that quite a bit of this afternoon will be devoted to green taxation of one sort or another. After this debate, we will debate fuel duties and I want to say quite a bit more on the subject at that point.

My second point is to ask whether the VED proposals in the last year’s Budget and those in this Finance Bill are retrospective. I have already praised my hon. Friend the Member for Putney, but a word should also be said about the hon. Member for Blyth Valley (Mr. Campbell), who tabled an early-day motion and secured considerable support from both sides of the House—

Mr. Jeremy Browne: What about the hon. Member for Wolverhampton, South-West (Rob Marris)?

Mr. Gauke: Indeed, it would be a great omission not to mention him.

Is the measure retrospective? If someone has bought a car that was made or registered after 2001, and subsequently found that they will pay more VED in future years, they are committed to that car. They are stuck with it and are faced with a tax bill that they did not anticipate. People argued whether the provision was retrospective—I think that it is —and I would be grateful if the Minister confirmed her view. On 14 May 2008, in column 1495 of Hansard, she referred to page 121, paragraph A.97 of the Red Book, which, she said, contained details of the retrospective element. It seems to me that there is a retrospective element, and that point applies to this clause, albeit that the effects are less dramatic than perhaps was originally envisaged last year. Will the Minister confirm her interpretation of that point?

That raises the issue of unfairness and of who will be hit by the provisions. The hon. Members for Blyth Valley and for Wolverhampton, South-West asked who would be affected by the change in VED. Let me put that in the context of the clause, although that question could still be asked of the original proposals. It would appear that some 1.2 million drivers will experience rises of more than £200, and that many others will be affected. They would say that it is very difficult to change their behaviour when they have already acquired the cars, which comes back to the green taxation point I was making a moment or so ago.

The Exchequer Secretary to the Treasury (Angela Eagle): Will the hon. Gentleman give way?

Mr. Gauke: I will. I should make it clear that the figures I have been quoting are those given in the debate last year. If the Exchequer Secretary can update me, I would be very grateful.

Angela Eagle: Will the hon. Gentleman at least acknowledge that we are talking about increases in
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VED this year of no more than £5 per car and increases of no more than £30 next year?

Mr. Gauke: I do. In the pre-Budget report, the Government changed their position, and many of my remarks praise those who were able to persuade the Government to do so. I am asking the Minister to explain what persuaded them to change their position. Was it the argument that it was not a green tax? Was it the argument that it was retrospective? Was it the argument that those who were going to be affected were not just rich executives driving around in gas guzzlers but those across the income distribution scale? What persuaded the Government to move from the position we were in this time last year to the position we are in now, where, as the Minister says, the increase will be no more than £5 this coming year and no more than £30 next year? I am trying to understand the Government’s position.

There is continuity in what we had last year and what we have this year. In both the Budget and the pre-Budget report, which essentially set out what we have now, the Government stated that the majority of drivers will be better off or no worse off under the proposals. That is right, in my understanding. However, it is right in relation to the original proposals only if one includes those drivers who are not paying graduated VED at all. Let me quote the figures from last year—I am sure that the Minister will update the Committee on the figures for this year. The vast majority of the 15.5 million motorists who paid graduated VED would pay more. I would be grateful if the Minister said that that figure no longer applies.

I want to make it clear that we are not just talking about the larger models. The duty would also apply to people who drive Ford Mondeos. I should declare an interest as a driver of a Ford Mondeo estate—

Rob Marris: A larger car.

Mr. Gauke: Larger is all relative. We are not talking about sport utility vehicles or Humvees. Renault Méganes and even some Nissan Micras were affected. Where do we stand now? By 2010-11, how many people will be paying more? Who is affected? What is the breakdown?

This year, VED is not the big controversial policy it was. That is largely due to the efforts of hon. Members of all parties, and we are grateful that the Government listened to the case made by my hon. Friend the Member for Putney and others. They said that the policy announced in last year’s Budget was misguided and retrospective, that it was ineffective as a green policy and that it would affect people of all incomes.

Progress has been made, but I look forward to the Minister explaining precisely which arguments the Government found so persuasive that they were prepared to back down.

3 pm

Mr. Frank Field (Birkenhead) (Lab): As you know, Mr. Atkinson, I and my hon. Friend the Member for North-West Leicestershire (David Taylor) have tabled amendment No. 16. For reasons that we well understand—although people outside may not—it is not in order for that amendment to be called today, so I am grateful to be able to participate in this debate. In my short
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contribution, I shall talk about VED but also, if I may, about other forms of taxation on motorists.

I accept that taxation is going to go up in the next five-year period, so I shall not undertake any special pleading to try to convince the Minister that the concerns of my constituents should somehow render them exempt from the Government’s need to balance the national accounts over the medium term. The hon. Lady is the Member for Wallasey, which means that she is my neighbour in the Wirral—

Angela Eagle: And friend, I hope.

Mr. Field: And friend, very much so. I was going to call her my very honourable Friend, as both of our expenses have been published, but I did not know whether the term would be in order. The Minister is, of course, my very, very hon. Friend the Member for Wallasey, and I hope that she will say whether, before the next Budget, the Treasury will assess the distributional impact on households with different incomes and in different parts of the country of duties imposed on motorists as a result of the need to increase revenue across the board.

Such an assessment would add to the rationality of the debate, but since I have not got 38 or so Back-Bench Labour MPs to sign the amendment it poses no threat to the Government. However, it would help our constituents to understand that the Government are thinking carefully about any future tax increases that they may have to make. It would also help to convince them that taxation on motorists will be underpinned by a distributional analysis to ensure that the poorest motorists are better protected than the richer ones.

Mr. Jeremy Browne: I am grateful to have an opportunity to contribute to the debate on an element of the Bill that I readily concede—and as the hon. Member for South-West Hertfordshire (Mr. Gauke) noted—is less contentious than it was last year. What made it so contentious last year was the element of retrospection, and I remember an interesting debate about whether all new taxes had a degree of retrospection. However, many hon. Members felt keenly that the proposals on VED last year had a greater degree of retrospection than most tax proposals.

Mr. Frank Field: Will the hon. Gentleman give way?

Mr. Browne: I will in a moment. To some extent, the fact that the higher rates will not be implemented until next year means that the sting has been taken out of the proposal—although perhaps not to the entire satisfaction of the right hon. Gentleman.

Mr. Field: I thank the hon. Gentleman for giving way. As the Budget comes after the beginning of the financial year, is not all taxation retrospective?

Mr. Browne: I do not want to get too far off the beaten track, Mr. Atkinson, but for a person who earns £200,000 a year, the Government’s proposal to introduce a 50p rate of tax on incomes over £150,000 a year could be called retrospective, on the basis that that person could not have anticipated the change when he accepted a job offer in the first place. It was argued that the
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proposals on VED were no more retrospective than the example that I have just given because, if that example was seen as retrospective, whole areas of the Finance Bill would be deemed to be unacceptable.

I was not entirely sympathetic to that argument. I understood it, but I felt that any attempt to effect behavioural change by using VED differentials meant that the tax change also had to impact on people buying cars for the first time. They had to be in a position to make important decisions about such a purchase and so they had to know the VED rates that they would face.

It is important that we examine these matters in detail, but the danger is that we lose sight of the big principle, about which all parties are essentially in accord. We may differ on the degree, but we accept that there must be some differential between the lowest polluting cars and the highest, and that that differential should be graded. My party argued for that differential before the Government introduced it in 2001. We had made the case forcefully for many years before then, and I remember that we were sometimes criticised for doing so. However, the notion of having a differential seems now to have become the accepted wisdom.

Why is a differential deemed to be a good idea? Transport clearly contributes to CO2 emissions and pollution. It is only one contributor among many, but it is significant, so encouraging people to use more fuel-efficient models of car is deemed to be in our collective environmental interest.

It is also worth noting in passing that the principle is being applied more widely. London’s congestion charge may be rather inaccurately titled now, but it contains an element of the principle. Interestingly, residents’ parking in the Taunton Deane borough council area in my constituency will be free for people whose cars are in the lowest category of emissions, and half price for those whose cars are in the second lowest category. Instead of disincentivising people with high-emitting cars, the scheme incentivises people with very low-emitting cars, and that is a sensible and practical change.

My point may be slightly off the beaten track, but incorporating a component in VED that attempts to affect people’s environmental behaviour is widely accepted to have merit. If it is not retrospective, one would hope that the impact would be of even greater benefit to the environment, and that the population at large would deem the tax to be fairer.

In the past, my party has spoken about the impact of VED rises on very rural areas, something that always comes up in these debates. People in such areas need to use cars—

Rob Marris: That is the next debate.

Mr. Browne: The hon. Gentleman says that that is the subject of the next debate, which is about fuel. He is right, and people who have to drive longer distances because they live in remote rural areas are going to use more fuel. However, some people in urban areas may not need to drive at all, whereas people in remote rural areas may have no choice—for example, they may have no other way of getting to work. My party has said that
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we should at least explore options for giving assistance with VED to people whose principal address is in a very remote rural area.

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): People who live in remote rural areas often find it essential to have a larger, more fuel-inefficient vehicle, thanks to the nature of the climate, the need to drive on winter roads, and so on. Also, their vehicles often have to have a dual purpose: they have to be family vehicles and they also have to be able to cope with work, be it on farms or in the forestry or tourism industries. People in remote areas do not have the same choices as people in urban areas.

Mr. Browne: My hon. Friend makes a perfectly valid point. People in extremely remote areas, and not just those who live outside the big cities, have two practical considerations. The first is that their need to drive is much greater, because there is little or no public transport where they live. The second consideration is the one that my hon. Friend described, which is that they may need to drive a vehicle with higher emissions because of off-road requirements and so on. That issue is worth exploring, but the clause does not do so and I shall therefore not dwell on it any further.

Mr. Frank Field: The provisions of the clause and those on fuel duties—the subject of our next debate—are precisely the reason why I made the plea to the Government to take a more comprehensive view of the impact of vehicle taxation, both geographically and on various income groups.

Mr. Browne: The right hon. Gentleman makes an interesting suggestion, but I do not agree with his central premise for two reasons. First, there would be a significant revenue shortfall—I assume that that is why he was not able to get his amendment selected for our consideration. That is a serious point when we have an annual budget deficit of £175 billion. Presumably, the Government’s measures are intended simultaneously to effect behavioural change and to raise revenue, which is not impossible. The Government raise revenue and try to effect behavioural change through tobacco duty, for example. There is a trade-off of sorts, but it is possible to pursue both objectives simultaneously.

Angela Eagle: The hon. Gentleman is of course right to say that it is possible to raise revenue and effect behavioural change at the same time. Although I would not put them in precisely the same category, VED and tobacco duties are examples of that phenomenon. However, I assume he agrees with me that if one is really successful in changing behaviour, the revenue-raising aspect of the tax tends to diminish.

Mr. Browne: Indeed it does. The Government face the peril of being more successful than they intended to be.

That leads me neatly to my second concern about the proposals made by the right hon. Member for Birkenhead (Mr. Field), which is that the straightforward commercial or financial incentives to pick lower-emission cars would be reduced. My party wants those incentives to be in place.

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