Clause 137 - Taxable benefits: lower threshold for cars with a CO2 emissions figure

Finance Bill – in a Public Bill Committee at 9:15 am on 12th June 2003.

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Question proposed, That the clause stand part of the Bill.

Photo of Michael Jack Michael Jack Conservative, Fylde

I rise to speak on some of the principles that underlie the clause. As part of Government policy, it seeks to encourage companies, in particular, to purchase cars that are deemed to be more environmentally friendly by virtue of lower CO2 emissions. Will the Paymaster General say a few words about whether the Treasury has monitored the real-world effect of clause 137, and those parts of the law on motor taxation that it seeks to amend? A number of forces are moving inextricably towards the provision of more environmentally friendly motor cars. Manufacturers are using lighter materials to make cars with enhanced performance and lower fuel usage. We have discussed the development of environmentally friendly fuels and, as the explanatory notes rightly state, European Union targets are persuading motor manufacturers, without fiscal incentives, to produce cars with lower carbon dioxide output.

The Government's structure of motor vehicle taxation, including the clause, is complex and designed to play a part in contributing to the uptake of cars with lower CO2 emissions. However, given the variables in the equation, which I described, we do not know the effect of the Government's fiscal intervention in achieving those environmental objectives through the taxation structure on cars. It is aimed particularly at companies, which are large purchasers of motor vehicles and have a significant ability to increase at a stroke the number of vehicles with lower carbon dioxide outputs. Measuring the effectiveness of fiscal policy is important if the Government want to achieve their objectives. The only problem is that we mere mortals who observe such matters do not, as yet, have a detailed analysis of what is causing the reduction in emissions that the Government seek. I would like an undertaking from the Paymaster General that the Government will, in due course, produce an analysis to enable us to see the wood through the trees. I suspect that there will be no difficulty in finding people with the right econometric skills to do that work because they have now finished the analysis on the euro and will probably be looking for something else to analyse.

Photo of John Healey John Healey The Economic Secretary to the Treasury

The Government are committed to using the company car tax system as part of their efforts to protect the environment and particularly to reduce carbon dioxide emissions, which contribute to greenhouse gases and global warming. The clause furthers the environmental incentives for that. It

reduces the level of carbon dioxide emissions qualifying for the minimum company car tax charge by 5 g per km to 140 g per km in 2005–06. That will provide a continuing incentive for company car drivers and their employers to choose more fuel-efficient cars and encourage manufacturers to produce cars with lower carbon dioxide emissions. The right hon. Member for Fylde is right to say that many changes can contribute to that policy and that average carbon dioxide emissions are falling because of improvements in manufacturing and engine technology. The importance of the clause is to provide a continuing incentive for manufacturers to continue to produce, and for employers and drivers to continue to choose, more fuel-efficient cars.

The right hon. Gentleman asked about monitoring. We are evaluating the effect of radical changes in the company car tax system. We are measuring its long-term effects and will produce an analysis in due course, but it is too early to say definitively what is happening, although the early findings from the ongoing evaluation suggests that the reforms are having the positive effect on the environment that we seek. Many company car drivers—97 per cent.—are already aware of the reforms; 85 per cent. of employers providing company cars support the environmental principles behind the reforms and more than half of employers providing company cars are already actively encouraging staff to switch to cars with lower carbon dioxide emissions. More than half have changed their policies on carbon dioxide emissions with the cars that they provide as a result of the changes. Overall, we expect the reform to the company car tax system, put in place last April, to lead to a projected reduction in carbon dioxide emissions that will save between 500,000 and 1 million tonnes of carbon by 2010.

Having set the level for company car tax reform when we introduced the changes, we are now setting the level for 2005–06 to give drivers certainty about how much their company cars will cost them during the next three years. For employees and employers renewing their company cars in the future, that furthers the incentive to choose more fuel-efficient cars, which are cleaner and more environmentally friendly. The right hon. Gentleman is right to say that company car purchases play a significant part in the market. Some 50 per cent. of new cars sold in the UK each year are sold to companies. Reducing carbon dioxide emissions from company cars is essential to help to protect the environment and to contribute to the Kyoto protocol and UK domestic cuts in carbon dioxide emissions. The clause continues our drive to reduce carbon dioxide emissions in this country, and on that basis I commend it to the Committee.

Question put and agreed to.

Clause 137 ordered to stand part of the Bill.