Orders of the Day — Car Tax (Abolition) Bill

Part of the debate – in the House of Commons at 7:44 pm on 25th November 1992.

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Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury) 7:44 pm, 25th November 1992

The Bill seems to be longer than the European Communities (Amendment) Bill, but I trust that we shall deal with it more quickly and with greater agreement. Labour welcomes the abolition of the car tax, and I have no wish to detain the House unnecessarily on this legislation to carry the abolition into effect.

Motor manufacturers, trade unions in the industry, retailers and component suppliers have said for some time that this tax must go. I and some of my hon. Friends, especially those who represent motor manufacturing constituencies, have said the same. The measure will be especially welcomed by Rover and other United Kingdom producers, because the level of indirect taxation in a producer's home market clearly influences the strength of domestic demand, which is the foundation of company strength and of success in other markets.

The old level of car tax was 10 per cent., but VAT at 17·5 per cent. and the double imposition of VAT on the special car tax itself, an anomaly that was greatly resented, meant that British producers faced total sales taxes of 29·25 per cent. in their main domestic market. That compares with 22 per cent. in France and 14 per cent. in Germany. Therefore, it is good that the tax is to go.

The Opposition have two important concerns. Although the measure is welcome, it will not provide the stimulus that the motor industry needs, but neither will the rest of the autumn statement, as my hon. Friend the Member for Birmingham, Northfield (Mr. Burden) said. The Society of Motor Manufacturers and Traders has said that consumer confidence remains shaky because of the fear of unemployment and outstanding debt, especially on housing. Car dealers have already been heavily discounting models and offering interest-free finance. The reduction in interest, about which the Economic Secretary spoke, can be beneficial only through its impact on general consumer confidence. We have yet to see that confidence returning.

Even if the abolition of the tax resulted in an extra 70,000 sales a year, it would, as I said in the debate on the autumn statement, still leave sales about 670,000, or 29 per cent., lower than in 1989. That is a measure of the scale and depth of the recession and its adverse consequences for the motor industry, which, as the Economic Secretary conceded, has had to impose lay-offs and short-time working. We clearly need a recovery programme that will reduce unemployment and restore consumer confidence, but the Government are a long way from that.

We welcome the inward investment about which the Economic Secretary spoke. He was right to mention the extent to which the motor industry is pan-European and, indeed, global. In that context, he should have regard to the importance of stability and proper co-ordination and co-operation in our economic relations with Europe. After the devaluation of the pound, the SMMT said: there is great uncertainty … over the future direction of Britain's economic and European policy. Inflation is still feared, the pound is regarded as unstable at its present level (which is much too low—the industry was competitive at DM2·90—£1) and there is great concern lest the industry again be subjected to taxation to help the Government fund the PSBR. A two-speed Europe would speedily negate the purpose of the foreign investment so that new capacity would replace rather than add to existing capacity". I hope that the Government will end the semi-detached attitude that they have been taking in regard to Europe. If they do not, they will damage the prospects for jobs and growth in the motor industry and in other industries.

The Economic Secretary has confirmed the Chancellor's statement that he—or, rather, the motoring public—will pay for the abolition of car tax by means of higher motoring taxes after the end of the financial year. That is the Opposition's second worry. Despite repeated demands from me, the Government have given no answer to our questions about why the cost of abolition is being put at £750 million, and not at a lower figure that would take account of the additional VAT revenue to which extra sales will give rise. Were there to be 70,000 extra sales—as we hope there will be—they would bring in some £122 million extra in VAT, thus reducing the real cost of abolition to £628 million.

Furthermore, as my hon. Friend the Member for Burnley (Mr. Pike) pointed out earlier, recouping the revenue in the way that the Government propose will not give any overall extra fiscal stimulus. It amounts, in effect, simply to shifting the burden of tax from those who can afford to buy new cars to those who cannot.

As the Minister will no doubt confirm, it is unusual for the Chancellor to commit himself to extra motoring taxes in next year's Budget. He would not normally speculate on what was going to happen until he had presented his Budget proposals: indeed, he frequently says as much when he is pressed on different aspects of the Government's overall fiscal stance. Let me make it clear that Labour is not committing itself now to the extra motoring tax; first, we shall want to know exactly what the Chancellor proposes.

As well as telling the right hon. Member for Berwick-upon-Tweed (Mr. Beith), what it would cost in terms of vehicle excise duty if the Chancellor chose to recoup the cost in that way, perhaps the Minister will tell us by how much petrol duty would rise if he chose that option. Given that the Chancellor has announced that motorists will bear the cost, I feel that the public and the industry have a right to know what he has in store for them.

Although we welcome the abolition of car tax, we do not feel that, in itself, it can provide anything like the boost to confidence that is necessary to stimulate the growth, jobs and future success of the motor components industry, whose future is so vital to this country.