Clause 18 - Fee for payment of duty by credit card

Finance Bill – in a Public Bill Committee at 4:00 pm on 6th May 2004.

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

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

We do not like the clause and we would much rather that it were not in the Bill. The intention of the clause is to enable payment of vehicle excise duty

by credit card. That sounds reasonable and sensible but the clause has many nasty little aspects. It gives the Treasury an open-ended power to levy the fee at any level. It could decide to set it at 1 per cent. this year, 2 per cent. next year and 3 per cent. the following year. The fee could be constructed in the form of a surrogate tax. [Interruption.] The hon. Member for South Derbyshire (Mr. Todd) is querying what I am saying.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

Will the hon. Gentleman clarify whether it is compulsory to pay the Driver and Vehicle Licensing Agency by credit card?

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

I was just coming on to the practical difficulties of getting hold of a tax disc. People have to stand in a queue at the post office with their V11 licence renewal form, an insurance certificate, an MOT certificate and a cheque or postal order. It has often struck me that the best possible thing would be for the tax to be abolished and replaced, with the yield being collected in some other way. There is a number of other suggestions I could make. I am now straying from the subject under discussion, but, for example, revenue could be collected from foreigners—[Interruption]—who use our roads, but do not pay vehicle excise duty.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Order. The hon. Gentleman is being tempted to go wide of the scope of the clause. I hope that he will revert to the subject under discussion.

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

You are absolutely right, Sir John. I am being dragged away into a much broader discussion, which clearly excites a large number of Members, many of whom obviously enjoy queuing for their tax disc at the post office and going through other unnecessary rituals.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

Is not one of the most important points about the queuing process that it is the only time in the year when we know whether somebody's car is insured?

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

We are again straying well away from the clause. The short answer is that other countries run a perfectly acceptable insurance disc display system. People display the insurance certificate or its equivalent, which can be obtained through the post, on their windscreen. There are many practical answers to the hon. Gentleman's point, but I am not going to stray any further from the clause.

What is nasty is that the Government are telling users that they have to pay what is euphemistically described as a ''convenience charge''. More than 20 years ago, retailers on forecourts and at petrol pumps decided to try to pass on the costs that they had to pay to the credit card companies, and there was a great deal of aggravation and trouble. In the end, to cut short a very long story involving the Monopolies and Mergers Commission, the Office of Fair Trading and various other organisations, that attempt largely collapsed.

As a consequence, legislation that is conceivably relevant to this clause was put on to the statute book. I want to ask the Economic Secretary about the Price Indications (Method of Payment) Regulations 1991,

which enable retailers to vary the amount that they charge customers, provided that they make that clear, in order to collect a payment that has to be made. I wonder why the Government are not using those regulations. Perhaps there is a technical reason that can be explained to me. The reason why very few retailers use the power is exactly the same as the reason why the Government do not need to introduce this measure.

I have a number of questions. The first is about the 1991 regulations. Secondly, do the Government intend to allow payment by debit as well as credit card? Thirdly, and importantly, will the Government charge only the net external costs for collecting the charge, or will they adjust the charge downwards to take account of the evident saving that they will make by not having to handle cash?

Similarly, will the Government take account of the increase in early payment that is likely to be the consequence of changing to a credit card system? Retailers do not, on the whole, use the 1991 regulations and recoup the full 2.5 per cent. because they gain by letting customers use credit cards. They handle less cash, which would carry the risk of theft and is costly in one way or another—paying Securicor to collect it, or installing safety measures in the shop, for example—and payment is certain to be received and arrives earlier. In most cases, the 2.5 per cent. cost is more than offset by the benefit. That is why retailers do not even bother to try to collect it, even though they may do so by law.

The Government could well go down the same route. If they introduce payment by credit card without introducing an accompanying charge, I suspect that they will cover all or part of the cost of paying credit card companies. However, will the Economic Secretary clarify whether, if they do not recoup all the cost, they will reduce the charge to take account of the savings that they will make? Will they charge only the net external cost and take account of the behavioural effect—receiving more payments, earlier? If the Government cannot give that commitment, this is a tax by the back door. They will increase the total take from vehicle excise duty without having to increase the rate. Far from being a convenience measure, this will be a form of surrogate self-tax.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

I, too, welcome you to the Chair, Sir John. We are slightly more charitable than the hon. Member for Chichester about this small clause, but we have some practical concerns on which I would like the Economic Secretary to comment.

We share the view of the hon. Member for Chichester that the clause deals to only a modest extent with the underlying problem with the tax. Many of us feel that vehicle excise duty is an old-fashioned, regressive and irritating tax whose time should probably have expired long ago. The Committee may know that the tax is one of the hardest to collect both from those outside this House and from those inside it. A number of prominent politicians, even the right hon. Member for Hartlepool (Mr. Mandelson) and, I think, a Chancellor of the Exchequer, have appeared in the

newspapers for not having paid vehicle excise duty. Others of us have occasionally had difficulties over the timing of payment. I hope that our discussion of the clause will—within the constraints that you will permit, Sir John—prompt the Economic Secretary to focus on whether he should make more radical changes.

We should give credit to the Government for trying to make it easier to pay the tax. Anything that brings the payment of vehicle excise duty out of the dark ages and away from a paper-based system is welcome. However, I should like to touch briefly on some practical issues, some of which have been mentioned by the hon. Member for Chichester, as well as on longer-term issues associated with the substance and intention of the clause.

The questions asked by the hon. Member for Chichester, together with a couple that I shall add, cover the matters on which we would like to hear a response from the Economic Secretary. First, we would like clarification about when the provision will come into effect. Secondly, do the Government have any intention of extending the provision and the manner in which it operates to other taxes?

Given that the Treasury has taken upon itself an open-ended ability to increase the level of the charge beyond that of cost recovery, should the Bill not include a cap on the charge? That would provide the reassurance that a future Government, as the hon. Member for Chichester said, would not be intent on using it to raise revenue rather than recover costs. I am sure that that was not in the mind of the Government when they drafted the clause, but I am not so confident that any Government might not be inclined to tweak the cost recovery and the charge to raise revenue rather than cover costs.

Will the Economic Secretary clarify the point that the hon. Member for Chichester touched on when he asked whether the charge would cover only the net external costs or allow any profit for the Government? The hon. Gentleman asked for the Government's definition of net external costs and whether that would include an offset for the savings made from not having to process cheques and cash. He asked whether payment could be made by debit card, and we also seek that clarification.

There is the issue about whether the measure goes far enough to simplify payment of vehicle excise duty. It is a very old-fashioned tax in terms of its collection. As the hon. Gentleman mentioned, systems in operation in other countries delink the payment from insurance renewal and MOT payments. I hope that the Government will consider reforming the tax to make it easier to pay, to move it to an insurance disc and abolish something that has little environmental logic. As the Government accept, there is an environmental rationale behind shifting the taxation of motor vehicles from ownership to use. It seems to form the thrust of Government policy in the area under discussion.

As well as the problem experienced by those of us who occasionally have difficulties paying our vehicle excise duty on time due to administrative complexities,

there is the problem of tax evasion. The lost revenues are about £250 million or £300 million a year, so reform would help to tackle that concern as well.

Photo of Michael Jack Michael Jack Conservative, Fylde

I am always interested in body language, and that of the hon. Member for South Derbyshire clearly indicated that he did not think that the argument advanced by my hon. Friend the Member for Chichester that the proposals represented another tax was valid. However, it is. I can understand that the Government want to safeguard the revenue of the Driver and Vehicle Licensing Agency but, as the hon. Member for Yeovil (Mr. Laws) said, this matter raises an interesting question. For some people, using a credit card provides a way of spreading the burden of paying the tax.

We have had many debates about the effects of the cost of motoring on people on low income under this Government. The use of the card as a mechanism to guarantee payment of the road fund licence, set against the deterrent effect of being told that there will be a charge, however small it might be, raises an interesting question. It would be very interesting to hear about the work that was done to ensure that certainty of payment did not get in the way of lost revenues.

I want to raise a point of principle about the clause. In four parts of it, further developments will be confirmed by regulation. This is a theme that runs right through the Bill: large amounts of legislation will be by the secondary route. This matter could have been dealt with in a schedule, and some of the detail could have been given here and now. Subsection (2), for example, says:

''''credit card'' has such meaning as may be prescribed by regulations''.

That is what caused concern to the two hon. Members who asked whether the clause applies to debit cards. That detail should have been included at this point in the Bill in a way that was beyond reasonable doubt. Similarly, there are other issues about the timing and the level of the fee, all of which must be determined by subsequent legislation. It is about time the detail was defined in a schedule and not by having unnecessary powers to create secondary legislation.

My hon. Friend the Member for Chichester mentioned the standard credit card deduction rate for transaction. Bearing it in mind that we are looking for certainty of payment, have the Government had any discussions with the credit card providers on the use of a lower rate in official transactions? Whenever I use debit cards to buy premium bonds, for example, or to pay extra tax, no charge applies. This is a comparative exercise between the costs of transaction of cash, cheques or other means of payment, and a credit card. Could not a lower rate be applied?

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford 4:15 pm, 6th May 2004

I agree with many of the points made by my right hon. Friend. I thoroughly share his protest about the extent to which the Bill relies on giving the Government the power to make regulations

subsequently. We all know that the parliamentary scrutiny given to those regulations will be an absolute farce, even if they go through a delegated legislation Committee, which is most undesirable.

I very much agree with my hon. Friend the Member for Chichester that what is particularly undesirable about the clause is that the levy is not capped. The Government appear to be asking Parliament to give them the right to levy any amount that they want to under the name of this transaction charge. I also agree with the hon. Member for Yeovil that it is completely unacceptable that the Government have not even made it clear that the amount that they will levy will be limited to any costs that the DVLA incurs when having to pay credit or debit card companies if they prove to be included.

This is unsatisfactory, and we should not leave this discussion without the Minister answering those questions very specifically. This is a tax on a tax, which is a most unattractive and sinister development. I use the word ''sinister'' advisedly. There have been various attempts to define rather dishonest euphemisms for the charge by saying that it is a ''convenience charge'', or something of that sort. It is actually a tax on a tax. It is a tax when the state forces the citizen through the law to pay something.

Photo of Michael Jack Michael Jack Conservative, Fylde

Has my hon. Friend been a witness to or a part of the many discussions in which businesses and individuals have attempted to recover from Government the costs of doing the Government's business, but have been firmly rebutted?

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

Indeed. We all know that one of the Chancellor's great achievements is stealth taxes through all sorts of means. An obvious way of taxing the citizen without him or her appearing to realise it—at least, in the first instance—is to ensure that the taxpayer pays for part of the administrative cost that the state used to pay. Private businesses now have to levy all sorts of things, including national insurance charges, Child Support Agency charges and all sorts of other levies. All that is for the benefit of the state. In our complicated tax credit systems, the taxpayer is forced to take on administrative costs that the Government previously accepted. They have effectively defrayed their costs by imposing them, statutorily, on the private sector and on private individuals. If anything is a stealth tax, that is.

The issue of a tax on a tax raises an interesting point. A citizen might offer to pay his vehicle excise duty by credit card and have that offer accepted. The point applies even if the offer is not accepted. If he then refuses to pay the additional charge under the clause, an agent of the DVLA may refuse to accept the money unless both charges are paid at the same time. Possibly inadvertently, he might accept the money for the vehicle excise duty charge and try to levy the additional, clause 18, charge separately.

What would be the legal position in that situation? It seems to me that the citizen would have defrayed his obligation to pay for his vehicle excise duty, so could use his vehicle at liberty, and the Government would have to reclaim the additional charge from him by

some other means. The courts would be reluctant to convict someone of not having paid his vehicle excise duty—and, therefore, going around without a current tax disc displayed on his car—if that taxpayer had made a bona fide attempt to pay the money, turned up with his credit card and been turned away not on the grounds that the credit card was not acceptable and valid but that he had refused to pay the additional levy. He or she had not refused to pay the tax, but was willing to do so but offer was rejected. That seems to me to be an interesting case that the courts might have to examine.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Has the hon. Gentleman read new section 19C(2) at the top of page 16? The beginning of it says, ''Before issuing the licence'', so the hypothetical scenario to which he refers could not occur within the wording of the clause.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

I have indeed read the clause. It is perfectly possible that, inadvertently, the agent of the DVLA, which might be a local post office, might have accepted the money. In any event, the issue would arise if the car owner offered to pay the vehicle excise duty and that offer was rejected because he had refused to pay the additional and separate levy and tax. I think that that is a matter that would have to be determined by the courts—perhaps it will be so determined. It is an interesting question as to whether the courts will decide that such a taxpayer is not entitled to drive his or her car because he or she had refused to pay a different tax, which is the tax on a tax to which I have referred. The situation seems to raise a lot of uncertainties.

I was glad that my hon. Friend the Member for Chichester touched on the fundamental economics. It seems to me that the Government have got the fundamental economic logic completely wrong, because the assumption behind the proposal is that it is cheaper for the Government—or cheaper generally—if people pay by cash or by cheque. It also seems as if people who pay by credit card are imposing a cost on the state or on their fellow citizens and they ought to compensate the state or their fellow citizens for it. In fact, the exact reverse is the case. The resource cost of paying for something by credit card is much less than the resource cost of paying for something by cash or by cheque. When people pay by cash or by cheque, exactly the same electronic changes have to be made to the data in the relevant bank accounts as are made if they pay by credit card, but in addition, the costs of the physical handling of the cash or cheque and the security treatment of them—Group 4 or another security firm carrying the cash around the country—are incurred. Carrying cash around, holding it, depositing it and insuring cash payments is expensive.

Payment by purely electronic means is a much better deal for society and has a lower economic cost. There is no doubt about that. The Government are being perverse in trying to push people away from paying electronically. Nevertheless, that would be the effect of the clause. I shall certainly not pay electronically if the Government succeed in putting the clause on the statute book. I shall not deliberately pay a tax that has

been imposed in such an irrational fashion, and nor will a lot of our fellow citizens. It would be a mistake to pay it.

The Government are moving in entirely the wrong direction. I totally agree with my right hon. Friend the Member for Fylde that if the Government had adopted a businesslike approach to solving the problem—that would, perhaps, have been a little uncharacteristic—they would have embarked on negotiations with credit card companies and done a deal, instead of trying to pile more legislation on the statute book by making this already overly long and complicated Bill even longer and more complicated. Given the scale of the transactions involved, I do not see why they could not have done a very satisfactory deal.

The Government will indict themselves and their competence unless the Minister can tell me that he has undertaken such negotiations, what the results were and how the Government took them into account before introducing the clause. If the Government, with their vast majority, have decided that the easy route is to increase the size of the Finance Bill and to load more legislation on the public—that they can abuse the law in that way because they are so powerful that they can get away with anything in this place, however badly thought through—and that they need not have businesslike negotiations to solve a genuine economic problem, they will have said all that needs to be said about their attitude to legislation and the governance of this country.

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

This is not the place for the wider debate that the hon. Member for Yeovil seeks on the philosophy and the long-term purpose of vehicle excise duty. The clause is really very narrow and relates to our ability to levy a charge on motorists who choose to pay for their vehicle excise duty licence by credit card.

I am sorry that the hon. Member for Chichester and other Opposition Members do not like the provision. In effect, it gives motorists another method—in this case, their credit card—by which to pay vehicle excise duty. We have already— sensibly and, I hope, with the support of the Opposition, in principle at least—committed ourselves to electronic licensing, and the facility to pay by credit card is obviously key to making that happen.

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

May I clarify the Opposition's position? We are strongly in favour of—[Interruption.] I hear a cacophony of suggestions from Labour Members, who clearly agree with me on so many of these issues. We all strongly agree with the principle that motorists should be permitted to pay by credit card or debit card, and if possible to pay through the internet. What we do not like is the charge.

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

The hon. Gentleman may be aware that the measure is likely to be welcomed by motoring organisations, and indeed by members of the public, who have been pressing us for some time to allow them to pay for their licence by credit card. Preliminary market research shows that up to 60 per cent. of motorists are interested in taking advantage of a facility to purchase their licence by credit card.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

Is not it the case that motoring organisations, motorists and those who were presumably asked about the proposals in the survey have expressed a desire to have the opportunity to settle this liability by credit card? However, they are not prepared to have the additional tax or charge, and it would be quite disingenuous of the Minister to confuse the two issues. Surely he is not trying to tell the Committee that motoring organisations and the survey suggest that there is public demand for the additional charge.

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

I am not confusing the two. I am about to make it clear that it is necessary for us to be able to introduce the charge if we are to introduce the choice.

Arguments have been pressed on us in favour of introducing the facility to pay by credit card, and some people are no doubt attracted to the proposition as a way of making payments online. No doubt others, as hon. Members have mentioned, are attracted by the ability to use a credit card to spread the cost of a licence, rather than making a single payment, as they do now.

The clause enables the Driver and Vehicle Licensing Agency to pass on the credit card handling charge when vehicle owners choose to pay by credit card. Such practices are becoming commonplace. Anyone who has recently gone online and used a credit card to purchase flights, theatre tickets or tickets for a sporting event from any such booking agent may have found that the operator passed on the handling charge for the use of the credit card.

In such transactions, those who choose to pay by credit card are not being subsidised by those who choose to pay by another method. We are proposing precisely the same position for vehicle licensing. All the existing methods of payment, including debit cards, remain free of charge. The rate of the charge will be set by statutory instrument, in accordance with the cost of the licence and in a way that ensures that the system does not become too complex. However, there is still work that we need to do before we can set the charge.

Photo of Richard Bacon Richard Bacon Conservative, South Norfolk 4:30 pm, 6th May 2004

Can the Economic Secretary address himself to the question that my hon. Friend the Member for Grantham and Stamford (Mr. Davies) asked? Given the Government's negotiating power, their vaunted and supposedly improving skills in procurement, and the advantage to the credit card companies of having such volumes of business, have the Government cut a deal with the companies, or do they propose to do so?

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

I have much respect and time for the hon. Gentleman, but I slightly regret having given way to him, because I am about to deal with precisely that point. As he said, the point has been raised and I shall try to answer it, if he will be patient.

Let me be clear: principally, the purpose of the provisions is to allow us to deal with the handling fee that the credit card companies charge to the DVLA. The DVLA will negotiate with the credit card companies to get the lowest possible costs and the best

possible deal for motorists. As hon. Members well know, different credit card companies charge different fee rates, ranging from less than 1 per cent. of the cost of the purchase, to more than 2 per cent. Once the DVLA has negotiated the best rates possible, it will be able to set a simple rate for car drivers, if that is the most appropriate way to proceed. We aim to do what the right hon. Member for Fylde urged, which is to put in place what he called certainty of payment.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

The Economic Secretary envisages negotiations leading to agreements on different rates with different card companies, and an average rate—I hope that the eventual rate is no more than that—being charged to the public. Under such an arrangement, however, would not that part of the public whose credit card companies charge the lowest rate be subsidising other credit card holders? Would not that arrangement conflict with the principle that the Economic Secretary himself enunciated a few seconds ago?

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

What I am outlining is the approach that we intend to take and the decisions that we aim to come to, if that is appropriate, in light of the negotiations that we conduct. There will, in the end, be a trade-off between the complexity entailed in passing on to the DVLA the precise handling charges from every credit card company and charging a single rate based on the average of the best deals that the agency can negotiate. That might not suit the hon. Gentleman, but it may be the best option available. I hope that that explains why there is no precise numerical cap in the Bill. We are simply not in a position to specify one at present.

By way of reassuring hon. Members who are rightly concerned about the matter, I repeat that the charge will be set through statutory instrument. The statutory instrument process has certain limitations. The checks for that process mean that we are limited to introducing a charge. We do not have the freedom to introduce a new tax by statutory instrument. This provision is, therefore, not a new tax, nor is it a tax on a tax.

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

The Economic Secretary has explained, I think, that he is going to charge only for the costs that the Government will have to pay to the credit card companies. He has not said whether he will reduce that charge to take account of any likely early payment that may come to the Government as the result of the introduction of a charge. Will he commit the Government to do that?

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

I hope that the hon. Gentleman appreciates that it is too early in the process to give him such a commitment today. We shall take that fact into account and consider it. The measure is an important one, and it demonstrates the Government's support for developments in technology and electronic communication. It is a direct response to customer demand.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

Does the Economic Secretary anticipate that the change will have any impact on the location in which the processing of vehicle excise duty

applications takes place? Does he think that it will reduce the number of VED applications that are processed by the post office network?

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

It is difficult to give a definitive answer to the hon. Gentleman at this stage. It is difficult to anticipate precisely how many people will take advantage of the new method of paying for their licence. It is also difficult to anticipate with any certainty what inroads we shall be able to make in relation to the concern he raised about the number who currently do not pay for their licence but should.

The important point is that the clause offers more flexibility for motorists in paying their vehicle excise duty. Most importantly, it gives them the choice of taking advantage of the new facility or continuing with the existing options without additional charge. I therefore commend the clause to the Committee.

Question put and agreed to.

Clause 18 ordered to stand part of the Bill.