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The right hon. Gentleman makes an interest point about the impact of some behavioural taxes on different social groups. Tobacco taxation, for example, has a disproportionately large impact on people in the lower income deciles, because they have a greater propensity to smoke. That is one of the reasons why, in percentage terms, the total tax burden on people on lower incomes is in many cases greater than the burden on people on higher incomes.
There is a serious social question to be asked about some of the behavioural taxes, but it applies less to VED because many people in the lowest two or three income deciles cannot afford to drive—although I take the point made by my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) that that is more true in urban areas than in rural areas: some people in rural areas on very low incomes have to drive. However, large numbers of people, particularly in cities, on low incomes do not have cars, and those on relatively low incomes who do have cars tend to pick models with smaller engines, although not exclusively, of course. My point is that the social impact of VED differentials is less pronounced than that of other forms of behavioural taxation.
Mr. Frank Field: I do not want us to get muddled up with smoking taxation. I am raising the issue of low-paid workers—people who want to work and who do work—who face the cost of getting to work in their cars. The question they posed, which I put to Treasury Ministers, is whether there might not be fairer ways of raising the necessary revenue—I am not asking for revenue cuts—by shifting from taxation of petrol towards the taxation of vehicles.
3.15 pm
Mr. Browne: Perhaps the Minister will deal with that in her response. I recognise, as I am sure all hon. Members do, that there are practical considerations for people on low incomes who wish to work and for whom motoring represents quite a large proportion of their overall expenditure. That is particularly true in rural areas, where the need to drive and to drive longer distances is greater. However, I do not accept that that alone makes the case against VED differentials. In fact, one could argue that it would be more appropriate to have more pronounced differentials, so that people with low-emission cars are incentivised to an even greater degree compared with people who have high-emission vehicles.
That is why I mentioned in passing—Mr. Atkinson, I hope you agree that, if I touch on it only briefly, it is relevant—why I am keen to see measures introduced that do not have significant revenue-raising implications, such as giving people tax exemption on residents’ parking if they have low-emission cars. That positively incentivises environmentally responsible behaviour. Not only can such measures have a positive impact on low-income groups, but they send out a powerful signal about our collective environmental responsibilities.
My party has argued for an initial VED levy to be charged on new cars and graded so that the charge is highest on high-emission cars. We talked about a so-called showroom tax and, in effect, the Government are introducing a variant on that theme by setting a higher initial rate. One can brand measures in different ways,
but the objective remains the same, which is to encourage people to think about buying a lower-emission new car by giving them a financial incentive to do so.
I am not sure that the Government’s policy is entirely consistent across the piece. The so-called scrappage scheme is to be introduced, which seems to be designed to encourage people to buy new vehicles, whereas some might interpret the VED measures as a fairly strong inducement to stick with their existing vehicles, as doing so means that they will not incur the additional higher VED rate in year one. I am interested to know whether the Minister believes that the measure will stimulate the sales of new cars, as some MPs, especially those representing west midlands constituencies and parts of the country with a motor manufacturing tradition, want. Are the Government trying to stimulate sales through the Department for Business, Enterprise and Regulatory Reform, but trying to restrict them through the Department of Energy and Climate Change and the Treasury? If so, people are being sent conflicting signals.
We are pleased that the measure is not retrospective. It seems to be far less controversial than last year’s VED measure, and it sends out a powerful environmental signal. Although we do not accept it in its totality and think it could be modified and improved, the broad principle behind the Government’s thinking seems to us to be aimed in the right direction.
Rob Marris: For the purpose of this debate, I declare an interest in that I drive a car with CO2 emissions of 119 g/km and my wife drives one with emissions of 108 g/km.
I am delighted that the Government reconsidered the retrospective measures proposed in Budget 2008, following the work done by me—I think that I was the first person to raise the subject in the Chamber—my hon. Friend the Member for Blyth Valley (Mr. Campbell) and the hon. Member for Putney (Justine Greening), who was present for the early part of this debate. It raises a question about the concept of being open to discussion and public debate and the tendency in the UK body politic to decry changes of position by Government or Opposition parties as U-turns, when such changes are often the result of productive discussions, informed by fresh information. That is what my Government did in relation to the VED proposals made last year, which were withdrawn and have been reintroduced, in a very much reworked form, in clause 14. They are now much better.
I did want to say a little about the general structure of VED, because I think it is entirely right that it should be graded according to the CO2 emissions of the vehicle. I know that my right hon. Friend the Member for Birkenhead (Mr. Field) has some reservations about that, particularly because of the impact the duty could have on lower socio-economic groups driving older cars, which tend to be bigger-engined. I would caution that if we moved away from the proposal in clause 14 to grade VED according to emissions to one based on engine size, that could present difficulties for diesel engines, for example. The car I drive has a diesel engine of approximately 1400 cc and it produces a much lower rate of CO2 emissions per kilometre than a 1300 cc model of the same car with a petrol engine, so one has to be a little careful. I know that there are concerns about diesel engines and particulates, but I am told that such concerns are sometimes overstated.
May I say, somewhat parenthetically, that I welcome the slight change to the company car tax regime on CO2 emissions per kilometre, which I believe is a progressive measure, referred to in paragraph A.119 on page 167 of the Red Book? There is also a reference in paragraph A.120 on the same page to the lifting of the £80,000 cap on the list price, which I must confess I did not previously know existed and seems rather bizarre.
Why does clause 14 still provide for the “reduced rate”, as it is called? My understanding, as it stated in paragraph 28 of the explanatory notes to the clause, is that the reduced rate
“applies to cars using alternative fuels or featuring a hybrid fuel-electric powertrain. Alternative fuels include Liquefied Petroleum Gas, Compressed Natural Gas and high blend (85 per cent. content) bioethanol.”
On grounds of tax simplification and the rate differentials in tables 1 and 2 of clause 14—they are not, in any case, very great—I would urge the Government to reconsider whether the reduced rate should exist at all. That consideration is particularly relevant when some environmental concerns have been raised about whether we should encourage the use of LPG fuel in vehicles.
According to table C6 on page 131 of the Red Book, for 2009-10, VED is projected to raise £5.6 billion. Given the changes that will take place from 2010-11, as set out in tables 1 and 2 of clause 14, I hope that the Minister will be able to tell us this afternoon what the projected VED revenues will be for 2010-11 and even for 2011-12, bearing in mind that VED principally covers light passenger vehicles, but also commercial vehicles, light vans and so forth.
I start from the point—as, I suspect, do most hon. Members apart from the flat earthers on climate change—that it is a good thing to use taxation measures to discourage polluters. Cars that emit higher levels of CO2 per mile driven pollute more and mess up the planet more, so I salute what the Government have done in recent years by introducing the 15 bands of VED in an attempt to change consumer behaviour through a tax mechanism. I similarly salute what the last Conservative Government did, following the efforts of the Campaign for Lead-free Air of which I was a member, to encourage motorists through a tax mechanism to switch from leaded to unleaded petrol. That produced changes very quickly—both in consumer behaviour and the type of vehicles produced by motor manufacturers within the UK, including the west midlands, and abroad.
In recent months, because of the oil price spike last year and what the Conservative party refers to as the age of austerity, I understand that sales of small cars are increasing proportionately to those of large cars. I would categorise a Ford Mondeo estate as a large car in respect of its dimensions and, in many versions, its engine size. I view the change as a step forward, but I stress the word “proportionately”, because although small cars may have recorded more sales in recent months, overall sales have fallen markedly. That, of course, adversely affects the motor industry around the country.
Table 1 in clause 14 shows that a new vehicle will be exempt from VED in the first year when it produces fewer than 130 g of CO2 per kilometre driven. That is a good step forward and, in future years, I urge the
Government to keep the matter under review with the aim of lowering the exemption threshold from, say, 130 g to 120 g. The European Union has been striving against backward-looking motor manufacturers—those manufacturers are now, sadly, reaping the whirlwind, as are their workers—to get the average for each manufacturer’s fleet production down to 130 g. Table 1 currently provides for a first-year exemption only for those vehicles described as below the EU average.
Mr. Jeremy Browne: I share the hon. Gentleman’s instincts. However, I am always a little cautious about exempting only such small cars because that makes the person in the street think it is just a ruse to provide the appearance of environmentalism, given it is so hard to find models that actually qualify for the exemption. Surely there may be some benefit in exempting some reasonably popular models of cars; they may not be right at the end of the emissions scale, but they are nevertheless near it. That might offer people what they regard as a genuine inducement rather than a bit of political manoeuvring.
Rob Marris: I take the hon. Gentleman’s point. I am not an expert, but I understand that there are some relatively large cars coming in at an emissions rate of 130 g or below. In order to drive the motor industry by means of a taxation mechanism and to drive consumer behaviour—to use an appropriate verb—we need to keep the grading under review and push it further in the future. It is no coincidence that the European Union manufacturer with the lowest fleet average—from memory, I believe it is about 136 g per kilometre driven for all the new cars sold last year—is the one that is quite likely to take over Chrysler and Opel-Vauxhall: namely, Fiat. Relative to many other motor manufacturers, Fiat is thriving at the moment. Of course, all these things are relative, but I suspect that has happened because Fiat had the foresight to concentrate on smaller and lower-polluting vehicles. The two do not always go together. It is possible to buy some pretty polluting cars that have small external dimensions, just as it is possible to buy some relatively low-polluting cars that have quite large external dimensions.
Turning to table 2, in clause 14, I note an element of retrospection in paragraph (a) relating to higher-polluting cars. For those cars with emissions between, say, 225 g and 250 g, for which the standard rate of vehicle excise duty would be £425 per year, for those registered before 23 March 2006 that rate will be £235. Such cars would now be three years old, but given the number of years for which society has imposed tax penalties for more polluting vehicles, I welcome and am content with that relatively minor level of retrospection. Similarly, for those cars registered before the 23 March 2006 cut-off date that produce more than 255 g in emissions, the standard rate of VED will be £245 per year rather than £435.
Mr. Browne: Given the hon. Gentleman’s undoubted expertise in this area of industry, does he anticipate that motor manufacturers, which, in many cases, are desperate for sales, might absorb the costs of first year VED, and include it in the list price for consumers? If so, will that stimulate demand and weaken the environmental message that the Government seek to send?
3.30 pm
Rob Marris: As is the hon. Gentlemen’s wont, he jumps ahead of me. I was referring to table 2, which relates to vehicles after the first-year loading. I am about to refer to table 1 and vehicles in the first year. I think the small element of retrospection is acceptable. Those vehicles with emissions of 255 g registered after 23 March 2006 will not get the discount from £435 to £245 that those registered before that date will get.
Turning to table 1, to which the hon. Gentleman referred in his speech and intervention, there is a risk in relation to shifting cars in the showroom. As far as I know, almost everyone who buys a new car does so with the vehicle excise duty paid—it is shown on the invoice. Just as we see advertisements for “No VAT”, which are not technically accurate as a discount is being given equivalent to the VAT chargeable on a list price, we may see such sales techniques creep into advertisements with regard to VED—for example, “No VED loading on a brand new car.”
VED loading simply on a first-year basis is not the way to go. As the hon. Gentleman put it, it would be a variation on a showroom tax. Company cars constitute quite a high proportion of the UK car market. Three years ago, the Liberal Democrats commendably picked up my proposal of about four years ago for swingeing vehicle excise duty on new cars bought after an announced change in the taxation regime had taken effect. That would be not merely a first-year loading. For example, under table 1, a car that emits 255 g or more of CO2 emissions would pay £950 at the standard rate in its first year, dropping to £435. For that kind of vehicle, swingeing vehicle excise duty is needed every year, not only to dissuade people from buying it, but to make them bear in mind the resale of the car. Such swingeing vehicle excise duty, as I proposed one year, although I put the grams per km threshold higher, would affect resale massively, and cause company as well as private buyers to think about whether they would buy such a polluting vehicle. They might be able to afford to run such a car year to year, but they would not be able to afford the hit on the resale price.
Previously, I have had complaints from the public, who misunderstand the proposal. It is not an attack on 4x4 drivers. The last time I looked, nine out of the 10 most polluting cars on sale in the UK were not 4x4s. The one 4x4 in that top 10 was a Land Rover, which is produced in the United Kingdom. The others in the top 10 were sports cars and top-of-the-range cars such as Bentleys, which have huge engines and are huge vehicles. I urge the Government to consider again an ongoing—not retrospective—swingeing rate of vehicle excise duty for the most polluting vehicles. That would discourage people from buying such vehicles, not only because of their running costs but because of the adverse affect on their resale price. I hope the Minister will assure me that the Government will consider that in future years.
Angela Eagle:
I hope that I can deal with some of the points raised by Opposition Members and by my hon. Friends on clause 14. As has been pointed out, the clause makes changes to vehicle excise duty rates for cars and vans, and those changes take effect from 1 April 2010. The clause introduces first year rates of VED for brand-new cars, as was, I think, mentioned by all who spoke. First year rates will be chargeable on the
first vehicle licence taken out on a new car from 1 April 2010. They are intended to influence, up front, the purchasing choices of drivers who are buying brand new cars by acting as a strong signal at the point of purchase that people can save money by choosing lower-emission cars.
The introduction of first year rates means that cars emitting up to 130 g of carbon dioxide per kilometre will pay no duty on their first vehicle licence. Cars emitting between 131 and 165 g per kilometre will pay the same amount for their first year rate as they will for all subsequent licences. For cars emitting more than 165 g per kilometre, first year rates will be higher than the standard rates applicable on all subsequent licences. Only those new cars with the very highest emissions will pay the top rate of £950.
My hon. Friend the Member for Wolverhampton, South-West (Rob Marris), the hon. Members for Taunton (Mr. Browne) and for South-West Hertfordshire (Mr. Gauke), and to a lesser extent my right hon. Friend the Member for Birkenhead (Mr. Field)—the latter talked about the distributional effect of the measure, and I will deal with that point separately, if he will allow me to—all pointed out that tax measures try to change behaviour, certainly when they are based on trying to incentivise activities that have a smaller carbon footprint. That is a clear way of trying to change behaviour. As my hon. Friend the Member for Wolverhampton, South-West and the hon. Member for Taunton pointed out, the measures are also revenue raisers.
Revenue raising is an important aspect of the part of the Budget documents that we are discussing. The remainder of our debates today are about duties that raise a certain amount of revenue. We must not forget, or lose sight of, the fact that it is perfectly reasonable for Governments to raise revenue with which to finance the things that they do with public money. I often have that discussion with the many people who come to tell me that we should reduce all the taxes that are levied, but who never tell me where we can find the extra revenue that they wish to see spent on whatever is in their interest; in the context of vehicle excise duty, that is often on roads or other infrastructure. I can see the hon. Member for South-West Hertfordshire wriggling in his place; I am happy to let him intervene.
Mr. Gauke: I am far from wriggling. I wish to thank the Minister; she is being very clear, and the Committee appreciates that. The clause is about changes to vehicle excise duty, and that is about raising revenue. Governments have to raise revenue, but does she accept that when the policy—or rather, last year’s policy—was announced, it was very much presented as an environmental policy? However, the Government’s figures suggest that the environmental impact will be very limited.
Angela Eagle: I hoped that I was saying that there are some taxes through which one hopes to change behaviour, but which also have a revenue-raising element to them. Vehicle excise duty is one of those. Obviously, we wish to change behaviour, and I will talk about that later. We wish to incentivise people to buy cars with a smaller carbon footprint and lower CO2 emissions than those that were on the road in the past.
That is a clear aim, but another aim is to raise revenue. We can do both. As was said earlier, there can
be a balance. If a Government are very successful at changing behaviour, they may have to find other ways to raise revenue, because the more successful they are at changing behaviour by giving signals through taxes, the less their tax take will be. As they need to finance public services and everything that our constituents want the public services to provide, such as health and education, other ways must be found to finance them. That balance exists, and is accepted in all parts of the House.
Tax measures are only one means of changing behaviour. Another is regulation, which applies particularly in this instance, as was pointed out by my hon. Friend the Member for Wolverhampton, South-West, with his knowledge of these matters. He mentioned the European Union regulation governing car emissions. We have successfully negotiated increasingly tight limits on emissions to be set for manufacturers. In answer to his question whether 130 g was the correct point at which to allow an effective exemption from first year rates, our judgment is that it is correct at present, but as we always do after every Budget, we will keep an eye on the development of engine technology. We want the incentive to remain taut. As engines become much more efficient, we will review that rate.
The other main way of driving behavioural change and driving down CO2 emissions is through new technologies. The Government have made some significant announcements about how we wish to support the car industry through its short-term difficulties, and incentivise it to be at the forefront of the dash to innovation in energy efficiency and carbon efficiency in engine design and the design of transport generally. Despite the significant progress that has been made in engine efficiency—new cars are 30 per cent. more efficient than 10-year-old cars because of innovation and change—we must recognise that road transport still accounts for 20 per cent. of all UK emissions.
Given that the House passed the Climate Change Act 2008—this year’s Budget contains the first three carbon budgets—we have a legal duty to achieve the huge reduction in carbon emissions that Parliament set us in that legislation. One of the ways in which we must approach that is by dealing with the 20 per cent. of emissions that come from road transport. That means that we must incentivise technological change and innovation, as well as behavioural change.
The changes in the Budget, which my hon. Friend the Member for Wolverhampton, South-West spoke about, form a coherent package to achieve that aim. It includes, as he pointed out, the changes to the tax on company cars, with lower tax for lower-carbon cars, lower rates in capital allowances for the business car regime for lower-carbon cars, and the differential rates of VED that we are discussing. Outwith the Budget process, but of equal importance, there is the £250 million of support to provide incentives for ultra-low-carbon cars, too.
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