Orders of the Day — Car Tax (Abolition) Bill

Part of the debate – in the House of Commons at 7:58 pm on 25th November 1992.

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Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury) 7:58 pm, 25th November 1992

I agree with one thing that was said by the hon. Member for Surrey, North-West (Sir M. Grylls) and disagree with another. I shall deal with the disagreement first. It cannot possibly be claimed that the Bill—which I support—shows that the Government believe in the lowest possible taxation; as the Government have made clear, it is a tax-neutral measure. I shall list some ways in which the cost could be recouped, but I do not think that the Government have claimed that the Bill does what the hon. Gentleman suggested. Back Benchers had better stick to the brief.

The Economic Secretary referred to the Japanese motor industry's inward investment in Britain. We hope that it will be one of the beneficiaries of this measure. The north-east takes pride in the success that Nissan has enjoyed there. Not everyone expected that to happen. Old scars, the result of memories of the war with Japan, take a lot of healing, but the arrival of Nissan in the north-east, its great success and the great commitment of its work force are matters in which we take great pride. If one goes into a Nissan plant, one sees few Japanese workers there.

The large north-east work force has adapted to methods brought here from Japan—methods that themselves were adjusted to meet the British climate. They have set new standards, not just for the motor industry but for other industries. The result is that Nissan can claim that it has the best of a large available work force. Many people want to work for that company. They know that it is a good place to be.

The Bill will abolish an indefensible tax—a peculiar left-over from the old purchase tax system. Sooner or later, somebody has to get rid of it. It is arguable whether this is the best measure to choose at this time, but since the motor car industry needs help, it was a reasonable choice to make and therefore counts as one of the better points in the autumn statement.

The Chancellor of the Exchequer was at unusual pains to make it clear that there would be a comeback. He was uncharacteristically, as the hon. Member for Oxford, East (Mr. Smith) said, able to anticipate his Budget statement by suggesting that the money would be clawed back. In a normal Budget, there is often valorisation of excise duty on petrol or of vehicle excise duty. Although it does not occur in every Budget, the price is normally increased. Even if we ignore the possibility of the Chancellor doing that this year, we have to anticipate that this change will have a significant impact.

The Economic Secretary told us that he thought that vehicle excise duty might be increased by £31, if that route were chosen, which is slightly above my estimate. My estimate of what would happen with petrol was also an understatement. I reckoned that there would be 8p a gallon on petrol, if the increase were to be wholly obtained from petrol duty. It may be 10p a gallon. Opprobrium was heaped on the Liberal Democrats from time to time because we argued that, in order to tackle pollution, it might be necessary to increase the purchase price of petrol; we can now put all those remarks in context. If the Government combine some element of valorisation with recouping the cost of this measure from petrol tax, there will be a significant petrol tax increase in the next Budget.

The Government could consider company car taxation as another way of meeting the costs of this measure. By widespread consent, company car taxation is below the real value of the benefit that many company car users obtain from their car. If the money has to be found from some other form of vehicle taxation, it might be better to find it from company car taxation rather than from those who have the greatest difficulty in affording the cost of motoring.

I think in particular of many of my constituents; they live in a rural area, but the same can be said of people in other areas. They can only just afford to keep their old car going. For them, the annual bill for tax and insurance is the annual decision about whether to keep their car on the road. The decision about whether to keep their car also involves a decision about whether they can keep their job, or whether their wife can continue to work, or whether their son or daughter can continue with further education, because they need transport too. The people who find it hardest to run a car are the ones who most depend on it because of where they live.

The Government must be careful to avoid transferring the tax that they have abolished on new cars, bought by people who can afford them, on to the backs of people who cannot afford it. It would be more logical if the tax were transferred to company cars where under-taxation is significant, as the Government have recognised by seeking to address that problem in recent Budgets.

We hope that this measure will have a significant impact on the future of the car industry. However, several hon. Members have pointed out that many people will not buy cars unless they have confidence in their own economic well-being and that of the country. It would be foolish to assume that this measure will have a dramatic effect. Only the growth of confidence in the economy can bring that about. We all hope that that will happen, but different views have been expressed here regarding whether the autumn statement will bring about a real growth of confidence in the economy.

To return to Nissan, inward investment has been based on the belief that this country will remain within Europe and the single market and, if it ever comes about, the single currency. The choice of this country by Japanese investors was based on our position within Europe, together with the particular advantages that we enjoy. One of those advantages is the English language, which is the primary foreign language for Japan.

Japan will not invest in this country if there is real doubt about our future in Europe. That is why we voted for the Maastricht treaty. That is why we find it difficult to accept the view expressed by the Labour Front Bench that they share our concern regarding the real dangers to the motor industry from a two-speed Europe.