Orders of the Day — Car Tax (Abolition) Bill

Part of the debate – in the House of Commons at 8:29 pm on 25th November 1992.

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Photo of Mr Bob Cryer Mr Bob Cryer , Bradford South 8:29 pm, 25th November 1992

I will be brief as other hon. Members wish to speak on a range of issues. I do not intend to detain the House for long. However, it is worth pointing out that although the abolition of car tax is welcome, it would be more welcome if the revenue was to be gained by restoring some of the £26 billion of tax concessions that have been given to the wealthy top few per cent. by successive Conservative Governments.

There are difficulties about abolishing car tax. The proposal is designed to stimulate manufacturing industry. Since 1979, we have lost 2·5 million jobs in manufacturing industry. The abolition of the car tax should have been coupled with a 100 per cent. tax allowance in respect of corporation tax on investment in plant and machinery. That was the position under the last Labour Government. This Government are very fond of making comparisons, but they must be aware that we allowed 100 per cent. tax allowances for specific investment. The allowances were therefore targeted.

A problem with abolishing car tax is that it will benefit not only cars manufactured in this country but imported cars. So far this year, we have a balance of trade deficit of approximately £10 billion. The proposal will therefore have an adverse effect as well as a beneficial effect. However, I believe that the beneficial effect will be marginal because there is such a fear of debt in the nation that people are very hesitant about incurring further debt to buy new cars or any new commodity. Fear of mortgage repossession is also widespread. People now realise that an English man or English woman's home is not always their castle if they fall into the hands of the wrong building society.

The right hon. Member for Berwick-upon-Tweed (Mr. Beith) referred to Japanese investment and whether the abolition of the car tax would stimulate that investment. The Japanese invested here because of relatively cheap labour. They did not necessarily invest here because of Maastricht. Maastricht has not gained us one extra job —nor will it.

We must recognise the dangers of such an approach. Design and development, which are crucial in our engineering industry, will be left to another nation. The power trains of Japanese cars are designed in Japan, not in this country. Incidentally, the Japanese can invest so heavily in manufacturing industry and in car design and development because they do not waste money on a defence industry as we do. While we spend 4 per cent. of our gross domestic product on defence, the Japanese spend less than 2 per cent.

It is potentially damaging for any country to invest in manufacturing here because the decision making is carried out in the nation state that is investing. In addition, our people are not necessarily trained in design and development, because that may be carried out in the manufacturer's main base. If, as is the case in Japan where car manufacturing companies are retrenching because the investing country is experiencing a recession—although, in comparison to ours, a very minor one—the main manufacturing plants will not be diminished. That will happen to plants held in other countries—for example, in the United Kingdom.

We hope that the abolition of the car tax will stimulate our engineering industry in general. If our engineering industry diminishes, and in particular the machine tool industry, that will affect the machines that make the machines. Our manufacturing ability would therefore be badly damaged.

If overseas companies invest in the United Kingdom, local component manufacture will not be confined to the United Kingdom. It will be extended to all the EC member states. I remind the Minister that there are still many hidden subsidies in those member states which produce unfair competition against which our manufacturers cannot compete.

Although the abolition of the car tax may have a marginal effect, and we will certainly not vote against this modest stimulus, I believe that it will not be sufficient. The engineering industry, which is such an essential part of the car manufacturing industry, will still lie in the doldrums. There is testimony to that virtually every week as there is a haemorrhage of jobs in all kinds of industries—in services, banking, finance, component manufacture and in the car industry itself. Until that trend is reversed, abolition of the car tax will not produce the necessary consumer-led demand, because there is simply not sufficient confidence in the Government.