Clause 14 — Vehicle Excise Duty: Rates

Part of Finance Bill – in the House of Commons at 6:00 pm on 13 May 2003.

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Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General 6:00, 13 May 2003

Clause 14 amends the general rate of vehicle excise duty and the specific rate for private and light goods vehicles with effect from 1 May this year. The Committee need not be detained long on this clause, but there is a point that requires consideration.

The vehicle excise duty on cars and vans increased by £5, which represents the revalorisation rounded to the nearest £5. The increase impacts lower capacity vehicles and lower emission cars by a larger percentage. For example, a car of less than 1,549 cc has seen general VED increase from £105 to £110, an increase of 4.8 per cent., whereas a car of more than 1,549 cc has seen general VED increase from £160 to £165, an increase of 3.1 per cent. I understand, of course, that the differential is due to the £5 rounding.

Not only are both increases above inflation—a fact no doubt noted by drivers up and down the land—but the £5 increase penalises cleaner cars to a greater extent. Recognising that the £5 is the normal rounding, the Red Book that accompanied the Budget stated:

"The Government has reformed vehicle excise duty (VED) to provide incentives for motorists to choose the least polluting vehicles"

—a worthy aim for which there is support across the Chamber, as we look to the environmental responsibilities of our generation towards those who come after us. There is a need to provide incentives to buy less polluting cars, but the £5 increase, which I recognise has been accepted practice, runs contrary to that need and has the greatest impact on the least polluting vehicles. It would be possible to specify a precise number instead of rounding up the level to £5, but I understand the efficiency of having a round number in paying VED when one goes to the post office or wherever else for renewal.

John Dawson, director of the AA Motoring Trust, recently said:

"The news on road tax is disappointing because we had hoped that he"— the Chancellor

"would allow these new bands, which he has only recently set, to bed in with drivers."

While that is a supplementary argument that reflects disappointment on the part of the AA, it reinforces the fact that there is disappointment generally not only that the new bands have not been allowed to bed in with drivers, but that the increase has a discriminatory impact against the least polluting vehicles.

I invite the Minister to accept that one of the ways in which the problem could most easily be addressed is by deploying the easy and rather more normal mathematical approach of rounding down the figure rather than rounding it up. Such an approach would have produced numbers that helped to secure the differential with which the Government are seeking to incentivise people who wish to use the least-polluting vehicles. It would also have been in line with the objectives that the Government have set. As I said, we do not take issue with those concerns—far from it. As Conservatives, we want the best conservation and it is our approach to take our environmental responsibilities seriously. Incentivisation is being reduced because the figure has been rounded up, but the problem would be simply cured by rounding it down.

I do not wish to detain the Committee and I do not expect to divide it, but it is important that the Economic Secretary acknowledges the problem. Perhaps he will also take the opportunity to explain how he will address it in future, if not this year.