Rob Marris (Wolverhampton South West, Labour)

The Government introduced the regime to change the way in which company cars are taxed several years ago. I think that I am right in saying that the majority of new cars bought in the United Kingdom are still company cars. The Government have had huge success with the regime. It has really changed the way in which company cars are bought, and the CO2 emissions of the company car fleet have been falling year on year in contrast to the CO2 emissions of private average cars, which have been increasing in the past couple of years.

My hon. Friend the Financial Secretary to the Treasury would probably term what I am about to say as an early bid for next year. I welcome the proposals under clause 59 at the lower end of the scale so that, when the 3 per cent. diesel supplement is dropped, some cars will drop to a 10 per cent. valuation for company car tax purposes. However, having had such success with changing buying plans for company cars in recent years, the Government have missed a major opportunity by not greatly increasing the figure at the upper end of the scale. I urge my hon. Friend to take such action next year.

Helen Goodman (Bishop Auckland, Labour)

The hon. Gentleman was certainly right about the lower end of the scale. Will the Financial Secretary comment on the remarks of Stewart Whyte, the director of the Association of Car Fleet Operators, about the clause? He said:

“Generally, it is a broadly neutral budget for the fleet industry with no major changes. However, the further tightening of company car tax in 2008-09 is a minor disappointment. It is clear that vehicle manufacturers are having some difficulty in driving through the technological changes that will see a significant rise in the number of very low CO2-emitting cars on sale.”

We certainly explored that issue in the debate on vehicle excise duty. He went on:

“We hope that all parties will work together to ensure that the typical car becomes much more fuel- and CO2-efficient—and therefore tax-efficient—so that the impact on drivers of the tax change is neutral. We cannot have a company car tax system which takes no account of the technical realities of the vehicles available and, as a result, penalises company car drivers through no fault of their own.”

John Healey (Financial Secretary, HM Treasury; Wentworth, Labour)

Clause 59 is a further step in the reforms that we put in place in 2002 to base the company car tax system on carbon dioxide emissions as a contribution to meeting the challenge of climate change. My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) is right to say that it has been a success. Our first stage evaluation demonstrated that the average emissions of company cars in 2004 were some 15 g per kilometre lower than they would have been had we not put the reforms in place. On his point about top rates, he is nothing if not consistent. He made the same point in relation to top rates of vehicle excise duty in earlier discussions on the Bill. He is right that I will not accept the argument at this stage in the debate on this clause, but I will take it as an early Budget representation for 2007.

We are making two changes to reinforce the environmental effect of the company car tax regime. First, the clause reduces the level of carbon dioxide emission qualifying for the lower threshold by 5 g per kilometre to 135 g per kilometre from 6 April 2008. That will provide a continuing incentive for company car drivers and their employers to choose more fuel-efficient cars. It will also encourage manufacturers to produce cars with lower carbon dioxide emissions.

The hon. Member for Wycombe (Mr. Goodman), is right to quote Stewart Whyte, and Mr. Whyte was right to say that the measure is broadly neutral for the industry. It is also neutral for the Exchequer. We do not anticipate an impact on revenues from the company car tax regime when the changes come in in 2008-09. If the hon. Member for Wycombe has discussed it with him, Mr. Whyte will also have pointed out that the industry was expecting the Government to move in this direction. We have been discussing it for some time, and did so again in the run-up to the Budget. The point about setting the rates three years in advance is that that is not just advantageous for companies that make cars available to their employees for private use; it is also a useful long-term signal for car designers and manufacturers about the policy direction of the Government.

The clause’s second incentive for company car drivers and their employers to choose more fuel-efficient vehicles is the introduction of a new 10 per cent. rate for company  cars with carbon dioxide emissions of 120 g per kilometre or below. Setting the levels now for 2008-09 gives drivers a degree of certainty about how much their company cars will cost them for the next three years. Because company cars are typically held for three or four years, setting the threshold for that period in this Finance Bill enables businesses to plan ahead sensibly for their car fleets and company car drivers to calculate the full cost of company cars that will be reviewed in the next three years. On that basis, I hope that the Committee will accept the clause.