Special Car Tax

Orders of the Day — Finance Bill – in the House of Commons at 9:45 pm on 11th July 1989.

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'All motor vehicles subject to the 10 per cent special car tax shall when sold with exhaust systems complying with the relevant EC Directive on emission standards be eligible for a rebate of up to 20 per cent of the said special car tax.'.—[Mr. Roger King.]

Brought up, and read the First time.

Photo of Mr Roger King Mr Roger King , Birmingham, Northfield 10:15 pm, 11th July 1989

I beg to move, That the clause be read a Second time.

Environmental matters give rise to much concern these days and have attracted a wide range of attention and many remedies as how best to tackle the challenge that they pose. One of the foremost examples of our determination to tackle some of the problems of the environment is the introduction of lead-free petrol, which is now widely supported and used by most motorists—probably as a result of the financial incentives that the Government have seen fit to introduce, amounting now to about 10p per gallon. About 20 per cent. of the motoring population now use lead-free petrol, and 1 warmly welcome that.

There is a great deal of argument about how effective this simple measure has been in reducing pollution. A few years ago it became a requirement to remove most of the lead from leaded petrol anyway, but we shall all reap the benefits from this small but significant step forward. There is no doubt that encouragement in the form of a reduction in the price of petrol has played a significant part in persuading the motorist to make the change.

The introduction of lead-free petrol is a small step along the road to an environmentally cleaner atmosphere. European legislation is making it mandatory for most cars built after 1992—we brought that date forward by one year—to have catalytic systems fitted to their exhaust systems to remove further exhaust impurities. That has been agreed by all the member states and there is nothing now to stop us fitting those systems to cars as early as we can. Some countries within the European Community have already done so, notably Germany, which has been seeking in the past few years to change to cars equipped with those exhaust emission control devices by offering very strong financial incentives to the purchasers of cars fitted with them.

The increase in the cost of the vehicle when fitted with proper exhaust emission devices is significant. Of course, it will vary depending upon the size of the engine fitted, but it will, for instance, cost about £289 to fit a single stage catalyst on the exhaust system of a Rover Group Mini, whereas on bigger cars it will cost much more, and sums of £800 have been commonly put about as being the extra cost involved.

New clause 18 gives further encouragement to the purchasers to specify that they want cars fitted with the catalytic devices sooner than when required under the Europan legislation. Most United Kingdom manufacturers can produce cars with those exhaust systems fitted —which, of course, they will have to do in any case within a short period. There is no need for us to delay any further. We need not wait until 1992. We can start to sell those cars now. In fact, many manufacturers are already offering cars fitted with such devices. However, customers have to pay a penalty for cleaning up the atmosphere and playing their part in reducing exhaust emissions.

Surely a Government who have taken such a significant lead in environmental measures and in reducing the price of lead-free petrol would wish to extend that lead into encouraging the fitting of these far more elaborate devices to cars so as to tackle the problems of pollution once and for all. Some of us would take the view that we were merely moving the goalposts a little, because even with catalytic converters all that cars do is to convert various poisonous gases into so-called harmless carbon dioxide. Yet we all know that the carbon dioxide build-up in our atmosphere, which is possibly creating the greenhouse effect, is probably just as disadvantageous as other exhaust emissions which occur without catalytic converters being fitted to cars. Nevertheless, it is a step in the right direction as carbon dioxide is significantly less damaging to the environment than other pollutants that come out of car exhaust systems.

If we offer that modest financial incentive of 20 per cent. of the special car tax, which is a penalty that the British car purchaser has to pay, that would be a small but not insignificant factor in encouraging motorists to specify that catalytic converters be fitted to their cars when they buy them. The special car tax is something that the motor industry imagined—perhaps in error—was to be a short-term measure when the original purchase tax was phased out. The Government of the day decided that they wished to maintain their revenue and introduced a 10 per cent. car tax. On top of that, 15 per cent. value added tax was added. The motor industry has long hoped that that special car tax, which is more or less unique within Europe, would be phased out gradually over the years so that we could establish a regime of taxation on motor vehicles similar to that which obtains throughout most of the European Community. As 1992 approaches, of course we shall wish to harmonise our tax regime with those in the rest of Europe.

The rebate is a small step, but on a £10,000 car the sort of concession that the new clause advocates would cost perhaps £200. It would cost, for instance, £289 to fit a catalytic converter to a Mini. By allowing that 20 per cent. on the special car tax, the Government will in effect be giving the consumer £80 to encourage him or her to buy a car fitted with a converter. That is not a generous amount, but it is a significant indicator that when it comes to environmental issues the Government mean business.

Such a sweeping change may mean that the Government will have to consider at length the desirability of adopting such a measure, which would be widely encouraged by the motor industry. Many European car manufacturers already fit catalytic exhaust systems—certainly they do in Germany—and if British manufacturers could be encouraged to fit them sooner rather than later, economies of scale would be geared up for the time when the fitting of such devices is mandatory, in 1992. The Government should consider carefully this modest measure, which carries on from the bold initiative of reducing the cost of lead-free petrol and should be widely supported.

Photo of Mr Hilary Miller Mr Hilary Miller , Bromsgrove

Now is not the time, although certainly it is the place, to debate the motor industry's detailed complaints about the special car tax and the way that the industry has, in its view, been singled out for the most unfair and prejudicial treatment. I shall not rehearse those arguments, except in supporting my hon. Friend the Member for Birmingham, Northfield (Mr. King), whose initiative in proposing the new clause I value highly, as it makes a significant contribution to the debate on motor vehicle pollution.

Value added tax is based on the basic price of the car plus the special car tax, so it is a tax on a tax. As we move towards 1992 and the approximation of motor vehicle taxation, I shall use the debate on the proposed new clause to explore the mind of my hon. Friend the Minister as to how the future motor vehicle tax regime will operate. The Commission proposes that we should move to a regime of value added taxes and dispense with other and, in many cases, higher taxes. The suggestion is that value added tax should be levied at the rate applying in the purchaser's country, which would be determined by the vehicle's country of registration.

Britain's special car tax is a form of sales tax and should be included in the VAT, which may need to be adjusted for that purpose. As we move towards 1992, it is important to decide how motor vehicle taxation is to operate. Manufacturers need to proceed on the basis of certain assumptions, because their model policy is determined some years in advance.

My hon. Friend the Member for Northfield referred eloquently to the environmental benefits of catalytic converters, to the precedent set by the lower excise on unleaded petrol, and to the efforts of other European countries—notably West Germany—to expedite the fitting of converters. There has been a good deal of propaganda from catalytic converter manufacturers that their cost is not at all what others state it to be, and that it has been greatly exaggerated. It is a matter not just of the cost of the metal in the catalyst box. One cannot run a catalyst without an engine management system, which is where a large element of the expenditure comes, quite apart from the later costs to the consumer arising from maintenance and fitment.

There is much uncertainty about the cost of maintaining the catalysts and their lifespan. On a recent visit to a car manufacturer that had fitted catalysts, I was given lifespans ranging from 25,000 miles to 100,000 miles. There is much uncertainty about the frequency with which they need to be replaced. It is worth bearing in mind that they cannot be serviced; they must be junked and then one starts again. That means taking off the whole exhaust system, and those of us who have had to replace those systems know what is involved.

My hon. Friend the Member for Northfield and I are trying to encourage our friends in the Government to consider the introduction of some incentive in the shape of a reduction in the additional cost incurred by fitting catalysts. We carefully did not pitch the amount of the incentive but gave a band that could be considered. Such an incentive would encourage the earlier and wider use of catalysts. It would be for the benefit of the environment and would be a powerful incentive for our manufacturers to bring themselves up to date on a fully competitive continental basis.

Photo of Dr John Marek Dr John Marek , Wrexham 10:30 pm, 11th July 1989

I listened with interest to the hon. Member for Birmingham, Northfield (Mr. King). The Opposition would welcome it if he put his name down for the Finance Bill Committee next year. We have discussions year in, year out on excise duties and other taxation on vehicles and not a Conservative Back Bencher who has any knowledge of the subject will stand up and take issue with us so that we can make the policies and duties better suited to Britain. I hope that the hon. Gentleman will take that request seriously.

The hon. Gentleman is wrong when he says that the Government mean business on environmental issues. If it had been left to the Government, we would not have had an agreement on catalytic converters or clean car engines. That was forced on the Government by the European Community, and we must get that point clear.

The Opposition are passionately pro-environment, and we sympathise with the basic aim of the new clause. We take issue, however, with the method chosen. As we must change our exhaust systems and introduce catalytic converters in a few years' time, what is the point of having an incentive? I do not understand the rationale behind the speeches of the hon. Members for Northfield and for Bromsgrove (Sir H. Miller). The incentive is unnecessary.

The difficulty is—I am sure that the Economic Secretary will say the same—that if an allowance is made for catalytic converters, the Treasury will be inundated with pleas for allowances for all sorts of additions to cars. Many kinds of transport systems will be fair game for different people with different interests.

Photo of Mr Hilary Miller Mr Hilary Miller , Bromsgrove

I am sorry to interrupt the hon. Gentleman, but the logic of his argument escapes me. I do not recollect his opposing the incentive of the reduction in the excise duty to encourage the greater use of lead-free petrol. I am sorry if, in my anxiety to be quick, I did not make it plain that the purpose of the new clause is to speed up the introduction of catalysts.

Photo of Dr John Marek Dr John Marek , Wrexham

The two issues are very different. There is always a choice between leaded and unleaded petrol, at least for some cars. I have recently seen something called "super leaded" in garages. It costs the same as unleaded, but I wonder whether petrol companies will continue to rip off motorists by charging high prices.

There is no question of providing an incentive to fit catalytic converters. It has to be done. We have agreed it with the EC. There are cases for incentives in certain circumstances, but they should be argued on their merits. I regret that I have to say that I do not think that the case has been proven here. I would rather that the money which would be lost to the Treasury were spent on other environmental concerns.

How much does the Economic Secretary think the Treasury would lose if the new clause were accepted? Can he think of better environmental uses for the money? I sympathise with the new clause, but I think that it is the wrong approach.

Photo of Peter Lilley Peter Lilley The Economic Secretary to the Treasury

I am sure that the House joins me in paying tribute to my hon. Friends the Members for Binningham, Northfield (Mr. King) and for Bromsgrove (Sir H. Miller), who have always been lively advocates of the interests of the British motor car industry and who today have wedded that interest to their concern for the environment.

My hon. Friend the Member for Northfield mentioned the success of the increased reliefs and changes in the treatment of two-star petrol in the Budget. It has been immensely successful—more successful than I expected at the time. The latest figures, at 14 June, show that unleaded petrol sales account for 20·6 per cent. of the whole as compared with only 5·5 per cent. the month before the Budget, and that more than 50 per cent. of filling stations sell it as against about 22 per cent. earlier this year.

My hon. Friend drew an analogy between that and the tax relief proposed in new clause 18, but I do not think that the analogy is valid. Excise duty applies to all cars, not just new ones, and there is no mandatory use of unleaded petrol in the offing. Those are my reasons for suggesting that the House should not accept the new clause. The benefit that is proposed offers a remission of an element of car tax which is levied only on new cars. The incentive would therefore apply only to the installation of catalytic converters in new cars. In 1992, however, such installation will be compulsory for all new cars sold in the EC, and I imagine that before then it will be normal for them to be fitted as producers gear up with new models. We are being asked to introduce a tax relief for a short time only, and one which applies only to new cars. Tax reliefs should always be introduced with caution and I am not minded to recommend to the House a relief with a short life and relatively little coverage.

Both my hon. Friends, but especially my hon. Friend the Member for Bromsgrove, mentioned their resentment at the existence of a special car tax. At least 10 EC countries have a higher rate of value added tax, or a registration tax, if not a special car tax like ours, so the tax is by no means abnormal. Our VAT and the special car tax is similar to what is charged in other countries.

Photo of Mr Hilary Miller Mr Hilary Miller , Bromsgrove

While my hon. Friend is dealing with the practice of our EEC partners, will he answer my question about what is to happen in future? Will the car tax be subsumed in VAT?

Photo of Peter Lilley Peter Lilley The Economic Secretary to the Treasury

I apologise for not responding to that specific point without prompting. The Commissioner has put forward proposals which are being considered by the Government. They acknowledge that special consideration will have to be given to items such as car tax on motor vehicles. The general presumption is that they would be rendered uniform. However, we have tried to work out proposals in general which will not require central bureaucratic determination of tax rates in individual countries and will leave as much discretion to individual countries as possible while removing any unnecessary fiscal controls at frontiers. That is the line that we are pushing, but we are a long way from achieving the unanimity that is required on that issue in the Community.

The hon. Member for Wrexham (Dr. Marek) asked what the proposal would cost. It would cost about £3 million in revenue forgone for every 1 per cent. of motor cars which took advantage of the incentive and had the equipment fitted. Obviously, one has no idea how many would do so, but as 1992 approached a great many cars would be so fitted, not in response to the incentive but in anticipation of the time when it would become mandatory. We should thus have to bear the cost with no extra benefit. That is one reason why I am not urging the House to accept the new clause.

We accept that the new clause seeks to encourage producers and car drivers to recognise the value of such equipment from an environmental point of view and seriously to consider voluntarily insisting on their incorporation in any new vehicle which they may buy ahead of 1992. 1 welcome that spirit, but I hope that the new clause will not be pressed to a vote.

Photo of Mr Roger King Mr Roger King , Birmingham, Northfield

I have listened, as my hon. Friend the Member for Bromsgrove (Sir H. Miller) will have done, with a great deal of interest in the hope that my hon. Friend the Economic Secretary would give us some encouragement to the effect that our proposals met with some enthusiasm. I understand the problems of introducing a further tax incentive such as this. The aim of the new clause was simply to give some added impetus to what will obviously happen anyway in 1992. It would have shown clearly that we wished to proceed faster rather than slower along the lines of the EEC proposal.

Despite the unbridled optimism of my hon. Friend the Member for Bromsgrove and myself that we would have the Opposition's support in this matter, it is clear that they have no bottle for a fight on this. I beg to ask leave to withdraw the new clause.

Motion and clause, by leave, withdrawn.