Clause 13
Finance Bill
3:45 pm
Angela Eagle (Parliamentary Secretary, HM Treasury; Wallasey, Labour)
Clause 13 will change vehicle excise duty rates for cars and vans from 1 May 2009. It follows the introduction of a system of banding for VED on the basis of carbon dioxide emissions that provides a signal to motorists about the environmental impact of using cars. The system applies to cars registered from 1 March 2001 onwards. The signal has succeeded in contributing to a fall in the CO2 emissions of new cars of 17 per cent. since 1997. Other things have contributed to that such as new engine technologies and new regulations. Road transport still accounts for 20 per cent. of all UK emissions.
By the 2008 Budget, there was a clear case for further reform of VED. We therefore announced the increase in the number of VED bands from seven to 13 in 2009 to strengthen the incentive to choose the best in class. The 2008 pre-Budget report confirmed those reforms to the structure of CO2-based VED, but announced that to help motorists during the economic downturn, rates for all cars would go up by no more than £5 in 2009 and that rates for cars emitting less than 140 g of CO2 per kilometre would be frozen. Budget 2009 confirmed the announcements in the pre-Budget report.
The Government are committed to moving towards a low-carbon transport system through the introduction of measures that support the development of green technologies and that provide the right signals to encourage efficiency overall. The reforms to CO2-based VED will allow the system better to reflect changes in the fuel efficiency of vehicles and will provide a greater incentive to drivers to choose a lower carbon car. It is estimated that the reforms will save about 1 million tonnes of CO2 by 2020. That will support the UK’s broader aim of reducing transport emissions.
The measure does not apply to cars and vans registered before 1 March 2001 because comprehensive data on CO2 emissions are not available for those vehicles. Instead, VED will be set at two rates based on engine size, as under the old system. There will be a higher rate for vehicles with larger engines and a lower rate for those with smaller engines. The clause will increase both rates by £5, which is in line with changes to VED rates for post-2001 cars. That is the basic structure of what we are doing.
We are introducing VED bands because we believe that it is the right structure to move towards. However, because we recognise that people are under pressure during the recession and we do not want to add to it, we have made modest changes this year, such as the £5 increases and the real-terms freezes. In future there will be a role for the 13 bands, but a more stable and simple approach is appropriate in this year’s economic conditions.