Mr James Clappison (Hertsmere, Conservative)

It is tempting to let this pass as it involves a reduction in vehicle excise duty, but I cannot do so without putting the reduction into some sort of context, given the remarks that Ministers have made about similar proposals. The clause would extend the scope of the lower rate of vehicle excise duty from 1,200 cu cm cars to 1,549 cu cm cars. The change will take effect on 1 July but it will be backdated to November 2000. The clause provides for a system of rebates.

I hope that the Minister will accept that the background to that is the pressure under which the Government came last autumn. The change must be set in the context of what took place before then. In the Budget last year the reduced vehicle excise duty rate was extended to cars with engines up to 1,200 cu cm. When last year's Finance Bill was being considered in Committee the Liberal Democrats moved an amendment to extend that reduced rate to cars with engines up to 1,400 cu cm. The Financial Secretary rejected the amendment saying that it was not well targeted, environmentally or otherwise and that as it would apply to almost half the cars on the road it would cost about £290 million more than the extension of the threshold

Given that what is proposed is an extension not just up 1,400 cu cm but to 1,549 cu cm, it would be interesting to know what change in environmental factors between May and November of last year led to a change in Government thinking. At the time of the pre-Budget statement when the Chancellor announced the reduced rate for vehicles up to 1,549 cu cm, the number of additional vehicles brought into the reduced rate had gone from being the vice that it had been in May, when the Financial Secretary addressed the Committee, to being a positive virtue, because on the day of the statement the Chancellor told us:

``All those who have a car from 1200cc to 1500 cc—that is, an extra 5 million cars—will be entitled to £55 off their annual licence fee from today.''

The Chancellor gave his rationale for the policy shift that had taken place as a wish to provide greater choice for rural dwellers:

``many—especially those in rural areas—have put it to me that greater choice would be available to rural motorists and motorists generally if the £55 deduction could be accessible not only for cars under 1200 cc, but for cars up to 1500 cc, including the Focus, Golf, Astra, Escort and Rover 214.''—[Official Report, 8 November 2000; Vol. 356, c. 323.]

I look forward to the Financial Secretary's reaction, and am tempted to speculate on the basis of the Chancellor's statement whether Ministers had hitherto been unaware that it was possible for those who live in the country to purchase and drive the Focus, Golf, Astra, Escort and Rover 214. One imagines that Ministers, even in this Government of city dwellers, may have been aware that those possibilities were open to them. [Interruption] No doubt the Financial Secretary will put me right. I suggest to him that, while country dwellers may not be concerned about their choice of car—and it was country dwellers that the Financial Secretary said he was responding to—and, to be fair, I am sure that they would be grateful to the Chancellor for being considerate about that choice, they are certainly concerned that they have no choice about the cost of the petrol they put inside those cars, and the fact that so much of that cost arises from tax and duty. That, however, is another story.

Can the Minister tell us the rationale for the policy shift that is so dramatic compared to the attitude of the Government last May?

Mr Michael Jack (Fylde, Conservative)

I rise to pass an observation on the logic behind the proposal. When the change to excise duty was originally introduced, the Government told us that it was intended to encourage cars that had low carbon dioxide emissions. Yet we found that cars included in the original proposals produced higher carbon dioxide emissions than those excluded. The original argument was that the reduction in vehicle excise duty would in some way cause people to change their buying arrangements. However, the new arrangements at £55 a year are the equivalent of a saving of £165 over three years. That will not have a substantial effect on the car-buying decisions of those who pay for their cars out of their own pockets.

The proposal moves the threshold from 1,200 cu cm, which seems an entirely arbitrary figure anyway, to 1,549 cu cm. I am intrigued by 1,549 cu cm. Why 1,549 cu cm? Can the Financial Secretary give a detailed explanation as to why not 1,500 cu cm, or 1,449 cu cm or any other number? Why not relate the revised arrangement to the carbon dioxide emissions of cars, particularly of new ones, where the data are readily available? If the Government wanted to prove their green credentials, they would have proposed a different arrangement.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

I remind the hon. Gentleman that we agreed in last year's Finance Bill that VED for new cars would be charged on the basis of CO2 emissions, and that has taken effect. That arrangement applies to older cars for which data are not readily available.

Mr Michael Jack (Fylde, Conservative)

I do not know where new cars are concerned, but the arrangement appears arbitrary. I am always interested to know how decisions are reached. Perhaps the Financial Secretary will tell us why 1,549 cu cm was alighted on. For older cars, why is not the proposal for petrol as generous as for diesel? Many diesel car engines have more cubic centimetres than that, because they have a lower brake horsepower output, but have lower CO2 outputs than vehicles that benefit from the proposals. It appears somewhat harsh, if the Government's real interest is in carbon dioxide emissions, to hit diesel cars.

I should have said, incidentally, that I run a diesel car, so I have some experience of the matter, but I do not plead the case from a selfish point of view; I plead it from the rational point of view of the stated objective, which was supposedly to reduce carbon dioxide emissions.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

The clause will indeed raise the engine size threshold below which the lower rate of VED—£105—is levied to 1,549 cu cm from 1 July. That means that 5.7 million additional cars will be taxed at the lower rate and the extension will be backdated to November.

That is the next stage of the reform of car vehicle excise duty that we have put in place during recent years. We started in June 1999 with a low rate for cars of below 1,100 cu cm; that rose to 1,200 cu cm on 1 March this year, backdated to March 2000. The Driver and Vehicle Licensing Agency recently wrote to about 3 million keepers of vehicles between 1,100 cu cm and 1,200 cu cm, and is currently making payments against licences for those cars taken out between March 2000 and February 2001. As I said, new cars registered on or after 1 March this year are taxed directly on the basis of their CO2 emissions—I shall return to the point raised by the right hon. Member for Fylde in a moment—the latest change taking effect on 1 July and being backdated to November.

Mr James Clappison (Hertsmere, Conservative)

Has the Financial Secretary received correspondence from people who licensed their cars after 1 July last year—say last September or October, just before the announcement—during the period that was covered by the backdating but who were not eligible for it?

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

I cannot recall any letters specifically on that point, although there is certainly a great deal of interest in the matter. In a moment, when I respond to the point made by the right hon. Member for Fylde, I shall refer to some of the issues of boundaries, which certainly excite a good deal of attention, especially concerning the VED arrangements. In this case, the DVLA will write to everybody with cars of between 1,200 and 1,549 cu cm engines who have taken out licences between November 2000 and June 2001, inviting them to apply for a rebate against those licences. Those who have taken out a 12-month licence will receive £55; those with six month licences will receive £27.50.

The hon. Gentleman asked me: why this change of heart since our debate on the subject just under a year ago? The Government has of course listened to the concerns of rural and low-income drivers. We have received a large number of representations about the matter. Especial concern was prompted by the increase in petrol prices caused by the increase in crude oil prices last year, and this is one element in the package of the Government's response. We have listened and made a change that has been widely welcomed. I would hope that all members of the Committee would agree that the Government should be listening to what people say and making changes in response.

Mr Michael Jack (Fylde, Conservative)

Will the Financial Secretary give way?

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

Let me make a little more progress, because I want to answer the right hon. Gentleman's questions in a moment. He asked specifically why we had chosen the figure of 1,549 cu cm and whether that was an arbitrary choice. Eagle-eyed members of the Committee may have spotted that the figure announced in the pre-Budget report in November was 1,500 cu cm. The Budget figure was higher at 1,549 cu cm.

When we first introduced the 1,100 cu cm threshold, Members of Parliament received many letters from constituents who drove 1,107 cu cm, 1,103 cu cm or other cars with engines slightly above the 1,100 cu cm threshold. They were angry that they were missing out on the lower rate. We were anxious to ensure that a similar problem did not arise with the present raising of the threshold. Now anyone driving a 1.5 litre car will benefit from the change. The increase from 1,500 cu cm to 1,549 cu cm brings 80,000 additional vehicles into the scheme. If we had stuck with the 1,500 figure, a significant proportion of those 80,000 would have been writing to their Members of Parliament to complain that they were missing out on the concession. We have addressed the problem, so I hope that no one will feel hard done by.

The right hon. Member for Fylde said that the change would not have much effect. From the letters across my desk, I know that people feel strongly about these matters and I suspect that this signal is effective in making people think about what car to buy. Some people have changed their decision accordingly, so we should not underestimate the potency of this measure as an incentive to opt for smaller cars.

The right hon. Gentleman asked about CO2 emissions as an alternative basis, but the data about emissions from older cars are inadequate. It is now a requirement that the figure appears on the registration document to make it easy for everyone to understand how much they will have to pay for new cars under the new scheme. As similar data for older cars are unavailable, such a system would be much more complicated, costly and bureaucratic process—and feasible only for cars made since 1997. In view of the difficulties, we decided that it was not worth while to proceed on the basis of CO2 emissions.

The right hon. Gentleman also asked about diesel. Diesel's position is fairly reflected under the new arrangements. Again, we did not want to introduce a complex system for older cars and, although it is not a perfect measurement, the size of a vehicle's engine is not a bad proxy for its environmental impact.

The clause provides relief and offers a significant additional tax deduction for car drivers. Car drivers have warmly welcomed it, and I hope that the Committee will, too.

Mr Michael Jack (Fylde, Conservative)

I restrained myself from intervening on the Financial Secretary, who was kind enough to answer some of my earlier points, but I want to put on the record the fact that I found his comments interesting. He established a principle in which a minority group, in this case rural motorists—no definition was given as to who or what they were—managed to persuade the Treasury to alter universal car taxation for their benefit. I welcome that suggestion but it will be interesting to know what is the deadweight cost for the help that has been given to the urban motorist to achieve a clearly stated policy objective to assist the rural motorist. I am so intrigued by that that I shall write to Sir John Bourn of the National Audit Office asking him to evaluate the point.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

I referred to rural and low-income motorists. Is the right hon. Gentleman suggesting that we should have different rates of vehicle excise duty for rural and non-rural motorist? Neither I, nor the right hon. Gentleman—who is a former Treasury Minister—would favour such action.

Mr Michael Jack (Fylde, Conservative)

I take the hon. Gentleman's point. His emphasis was low-income motorists and we shall ask for that analysis. There are a fair number of deadweight costs but I shall not detain the Committee further on the matter.

Question put and agreed to.

Clause 8 ordered to stand part of the Bill.