Clause 9 - Rates of duty for goods vehicles
Finance Bill
6:15 pm
Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)
I shall respond first to the points on fuel tax that were made by my hon. Friend the Member for North-East Derbyshire (Mr. Barnes) and the hon. Member for Hertsmere. Those issues were dealt with on the Floor of the House when clauses 1 and 2, which deal with fuel duty, were debated. I am certainly aware of the problem in Northern Ireland; Customs and Excise has substantially increased the number of officials working on it. The information that I have from people involved in Northern Ireland is that the extra effort seems to be having a significant impact.
The hon. Member for East Londonderry (Mr. Ross) observed in the Chamber on Monday that the way in which the border has been regulated as a result of the difficulties with foot and mouth seems also to have had a significant impact on reducing the amount of illicit fuel crossing the border. I certainly recognise that that is a serious issue. I have seen petrol stations in rural parts of Northern Ireland selling petrol remarkably cheaply. I wondered how they could do that and guessed what the answer was. Resources are being dedicated to dealing with the problem, and we hope that it will be brought under control.
I shall focus on the issues around vehicle excise duty for lorries, to which this clause relates. The Budget contained a 3p a litre reduction in the price of diesel, but the figure for the whole package, to which I think the hon. Member for Hertsmere referred, is 7p a litre. The reduction is not just 3p if we take account of the full package, which includes the measures on lorry VED and the road haulage modernisation fund.
We are talking about a fundamental reform of the structure of VED for lorries. We consulted the industry on the principles of reform through our public consultation and through the Road Haulage Forum, which has been meeting for well over a year and at which I have represented the Treasury. Those principles have received wide support.
The competitive position of the UK haulage industry compared with continental European industries, taking full account of all the factors such as labour costs, social costs and corporation tax, which is apparently much lower here, is not at all bad. That was the position before these changes. However, we are making a substantial further reduction in the burden of taxation on road hauliers to improve the competitive position of the UK haulage industry, reducing the tax burden on that industry by £300 million and bringing the UK rates for lorry VED down to among the lowest in Europe for the cleanest lorries.
I was asked how much cabotage there was in the UK. We commissioned some work on that in the Road Haulage Forum and it appears that the figure is very small. The survey was carried out in the early part of last year and showed that 0.06 per cent. of domestic haulage is carried by non-UK lorries. There was a good deal of surprise about that but the methodology for that survey was carefully agreed with the industry organisations. There are many non-UK lorries on UK roads but they are not generally doing domestic haulage work: they bring goods into, or carry exports from, the UK. The proportion of cabotage is extremely small.
We are reducing the tax burden, bringing UK rates down to among the lowest in Europe for the cleanest lorries. Secondly, instead of the more than 100 tax rates that have applied in the past, the new system contains seven broad bands. It will mean greater flexibility for operators who will be able to operate at a wider range of different vehicle weights and axle configurations without the need to re-plate and re-license. That is an important step, but we will continue, in consultation with the industry, to look for ways in which the administration of lorry VED can be modernised to reduce further the administrative burden on hauliers.
The new system provides strong signals to hauliers about the environmental impacts and the road wear caused by their vehicles. It builds heavily on the important work that was commissioned by the Department of the Environment, Transport and the Regions from National Economic Research Associates. It produced a methodology for assessing those environmental impacts and road wear. Its work is reflected in this new structure, which will come into effect on 1 December. Until then, the interim arrangements for lorry VED, introduced from 1 December last year, will continue to apply where there is, subject to the minimum rates, a straightforward halving of the lorry VED that was being paid. That is a substantial change.
The hon. Member for Hertsmere asked me about the proposed vignette scheme. We remain committed to the principle that all lorries should contribute towards the costs that they impose in the UK. The priority that we have set in this work has been on the introduction of the lorry VED reforms and the rebate scheme, because they will be of immediate benefit to the haulage industry and certainly reflected the industry's priority. We have had some useful discussions on the introduction of a road user charge with industry representatives. We are continuing to examine the options necessary for setting up such a scheme. The new structure of VED has been designed to take account of the requirements of EC directive 62/99, which sets out both the parameters governing a vignette scheme and the minimum rates of VED. That work will continue.
The hon. Gentleman asked me about the way in which 40-tonne, five-axle vehicles have been dealt with. I repeat that the new rates reflect several factors, including the research that I mentioned on road wear and environmental impacts of different types of lorry, which have influenced our thinking. We closely considered the treatment of 40-tonne lorries. During last year's Budget process, we were especially concerned about the competitive position of United Kingdom hauliers operating such lorries compared to continental operators. It was concern on that score that led to the significant change in last year's Budget to which the hon. Gentleman rightly drew attention. The new information about road wear and environmental impact and our concern to reduce the level of lorry bed close to European Union minimums for the cleanest lorries are the factors that have determined our decision.