This is a good example of the Government at their worst in tax matters. It is a small example, but it is quite interesting. It is a small vignette of the major problem that we face. We know that the Government have lost control of fiscal policy, as I argued in detail on Second Reading. That was never refuted. They desperately need money. They are borrowing £37 billion or £38 billion and they are thrashing around in desperation looking to get money back from any taxpayer they can find who may be vulnerable to a new provision of this kind. Their eyes have alighted on van drivers, and I am afraid that van drivers are therefore being targeted and that as much money will screwed out of them as possible. That is basically the purpose of the measure.
Another aspect of the schedule, which is a microcosm of the Bill, in that it is extraordinarily heavy-handed. The Government are using a sledgehammer to crack a nut, or, perhaps I should say, a van driver. The schedule is six and a half pages long, and, as if that was not enough, there are another six pages of explanatory notes. When there are as many pages of explanatory notes as there are pages in the Bill, something is clearly wrong. There are endless laborious definitions of new bureaucratic concepts such as business travel requirements, commuter use requirements and restricted private use provisions.
There are even two equations. They are mercifully relatively simple linear equations, but I do not doubt that one day the Government will come up with provisions that require us all to solve differential
equations in order to work out our tax liability, and that we will go to jail if we do not succeed. I am afraid I shall be joining the group going to jail—I better not say that because it might be a rather seductive prospect for the Government; I do not want to give them ideas.
I do not know whether it is true that most van drivers naturally think algebraically and will think it helpful to have their tax liability expressed in terms of equations. However, it is possible that not all van drivers think algebraically. The Government must think about the complexity that they are introducing into the Taxes Acts with measures of this kind. They are not defining a liability to a purely corporate tax, such as petroleum revenue tax, which no individual ever pays.
It is certainly not good enough to say that the employer will have the task of assessing employees under the provision, because—I hope that the Government will not disagree with me—it is important that employees understand the basis of the tax code that the employer gives them. Any kind of mystification that makes it more difficult for employees to understand their position under PAYE is inherently undesirable. It is not an excuse for this kind of complexity to say that under PAYE the employer will have the burden of doing most of the calculation.
Nor is it an excuse—I say this having worked with the Charted Institute of Taxation for many years —that people who do not understand such things can always go to professional advisers. That is not an acceptable answer from the Government. I do not believe that that is right, and nor do members of the Chartered Institute of Taxation, which is high-minded about such matters and not cynical. It believes that we should not generate additional, gratuitous complexity simply to provide an earning stream for advisers. Undue complexity is an important issue and anyone who cares to waste quarter of an hour of their lives by reading the schedule in detail will recognise that it is extremely heavy-handed and convoluted.
Does not the hon. Gentleman accept that, since 1993, when the £500 was introduced, there has been some inflation and, furthermore, a change in the nature of people's vehicles? Some people avoid company car taxation by obtaining what purports to be a van because of the changing nature of available vehicles.
I fear that I cannot go along with the hon. Gentleman on either of those points. There has been some inflation, but not of 600 per cent., which is the difference between the £500 and the £3,000 that van drivers may have to pay if we accept the schedule. I am not an expert on the changes in the types of vehicles available, so I shall leave him to enlighten the Committee if he feels that that is relevant to our deliberations.
The sad thing is that, despite this extraordinarily heavy apparatus for attacking poor van drivers, the result is imprecise and slovenly drafting which leaves open all sorts of ambiguities. I refer the Committee to paragraph 5 of the schedule, which inserts new section
155 into the Income Tax (Earnings and Pensions) Act 2003. New subsection (4) states that the restricted private use condition is met if
''the commuter use requirement is satisfied throughout the year . . . or the extent to which it is not satisfied during that period is insignificant''.
What does ''insignificant'' mean? If you use a van once a month or once every three months, is that significant? That is extremely unhelpful and will be difficult not just for the van driver but for the employer to get right.
May I suggest that the hon. Gentleman is trying to have it both ways? He criticises the Government for introducing heavy-handed, over-complex legislation, but cites a new subsection containing realistic flexibility and slags off the Government for that.
The hon. Gentleman is 180° wrong. The Government have got it wrong because they seem to think that by drafting this extremely heavy schedule they can accurately define all possibilities and leave no room for doubt, but they have not succeeded in doing so. I shall propose a way in which that might be possible using a 10th or less of the words in the schedule to produce a fair system without those ambiguities. I refer the Committee to new subsection (5) which states:
''The commuter use requirement is satisfied at any time if— the terms on which the van is available to the employee at the time prohibit its private use otherwise than for the purposes of ordinary commuting or travel . . . neither the employee nor a member of the employee's family or household makes private use of the van at the time otherwise than for those purposes.''
Does ''at the time'' mean at the time when the commuter run or travel is being undertaken, or at any time when the van driver has the theoretical liability because he has use of the van? Great ambiguity is being introduced into the Bill. If it means the former, narrower definition, does that mean that someone cannot drop their child off at school on the way to work while claiming the commuter use? Perhaps the Government will explain what they have in mind, because it is unclear to me what ''at the time'' means. Perhaps it means just the relevant part of the year when the van is available.
Similarly, new subsection (7) states:
''The business travel requirement is satisfied at a time if the van is available to the employee at the time mainly for use for the purposes of the employee's business travel''.
''Mainly'' is identified in the Taxes Act 1988 as being more than 50 per cent. Are the courts expected to apply that definition in this case? Again, the provision is loosely drafted, despite the enormous effort that has gone into producing excessively long and convoluted legislation. It is not a good day's work by the Government.
I shall make three points in conclusion. First, the provision is unfair. It involves an enormous increase from £500 to £3,000, which is not at all reasonable.
More important, you might inadvertently—I use the word ''you'' in the sense of ''one''. I suppose that one is allowed to make use of the impersonal you.
''One'' sounds a little stilted, which is why I tend to avoid it. A van driver—third person singular—may inadvertently exceed the legitimate use of his vehicle for non-business purposes. For example, if he drops off a child at school once, it is insignificant. If he does it regularly, is it significant? What happens if he does it once a week? We just do not know.
A driver could fall into the trap of going over the limit and suddenly find himself being assessed for a benefit in kind of £3,000, possibly for something that took him five minutes out of his way, or did not take him out of his way at all but simply involved stopping for 30 seconds outside a school. That is not reasonable, and those on the Treasury Bench are not rushing to their feet to correct my interpretation.
Secondly, the provision is striking in that it is completely unnecessary. It does not cover the self-employed driver at all and, anecdotally, most vans are owned by self-employed business men. My understanding of the Taxes Act 1988 is that it is perfectly legitimate for a self-employed person to claim the portion of the use of a van that is for business as a business expense, and not to claim the portion that is for private use. The balance might vary from year to year: for example, 60-40, 50-50 or 70-30. That system works perfectly well. People discuss with their inspector of taxes, if he wants to quibble about it, what reasonable business use is. Why not replicate such common-sense arrangements, which are already a part of tax common law, rather than thrust this extremely onerous bureaucracy on us?
Is the hon. Gentleman seriously suggesting that every employee who has a company vehicle, whether a van or a company car, should enter into negotiations with his or her local inspector of taxes to determine what proportion of use is for business and what is private? He says that the provision is a problem because it is bureaucratic, but he suggests something that is immensely bureaucratic.
I think that the hon. Gentleman has misunderstood how this aspect of taxation works. The employer would have to take responsibility for determining whether a van that has been provided to the employee is 100 per cent. a business instrument, something to be used in connection with the business, or available for private use, and then modify the employee's tax code accordingly under PAYE. The hon. Gentleman has misunderstood the way in which employees are taxed.
Finally, the provision does not relate at all to provisions in a Finance Bill some years ago on taxation of cars provided by employers and the extent to which private use is allowed. The value to the employee of the non-business use of a company car is graded according to the car's emissions. Perhaps there is some difference between the emissions of vans and the emissions of
passenger cars, meaning it would have been unreasonable to take the emissions criterion into account, in which case one could have simply defined a van for this purpose as being a car with a particular capacity or level of emissions.
The whole matter could have been dealt with equally fairly in two lines while introducing no different procedures from those that already exist for cars, which—Lord knows—are already complex enough. The Government have gone overboard. In their desperation to try to screw the last penny they can out of poor van drivers, who will understandably feel that they are being invidiously targeted by the Government, they have come up with a measure that will cause an enormous amount of wasted time and compliance effort on the part of employers, and a corresponding degree of consumption of time and public money in the Revenue.
The Government have proceeded on the wrong lines. They have something that is neither precise and unambiguous—which would have been a virtue if they had got right this extraordinarily laborious, bureaucratic system that they want to put in place—nor simple. They could have had a simpler and more unambiguous process.
I am grateful to my hon. Friend for opening the batting on the issue. I would like to ask whichever Minister is to respond for a little help on the question of definition.
My first question concerns the Treasury's definition of a van. The hon. Member for Wolverhampton, South-West alluded to the fact that the nature of a light commercial vehicle has changed over time. If a company provided an employee with a modern utility vehicle that had four comfortable seats and a truck formation at the back, which could be used in comfort for leisure and pleasure as much as business, there is not a great deal of difference between that and a company car with a big boot. If there were such a benefit in kind one would understand it if the Government wished to tax those vehicles in the same way as company cars. The reverse may well be true if the van is strictly utilitarian and full of the tools of the trade—perhaps even without a passenger seat. It is important to understand what constitutes a van, and what might reasonably be expected to be used for leisure and pleasure.
The next area on which I would be grateful for clarification concerns the on-call employee. That is someone in a highly mobile capacity who appears to be exempt from the provisions of the schedule because they are involved in what is called normal business travel. However, because they might be away from their home base for two or three days calling at a number of different business locations, they might conduct private business in the course of that travel. They might stop at a supermarket to do shopping. If they are not immediately on call, they might go to some place of pleasure and look at the view. Intermingled with their business requirements, there is a certain amount of leisure use of the vehicle.
I would be interested to learn whether that comes under restricted use—in other words, if the employer defines that within the context of carrying out various business mileage while being on call, the employee can also go to the supermarket and carry out various other duties. That would help us to make the distinction between the normal flexibilities of the use of a commercial vehicle as opposed to the outright use of a vehicle masquerading as a van that is simply a company car by any other name. I hope that we can have some further qualification of what the schedule does and does not cover.
The schedule, alongside clause 80, introduces a major deregulation of company van rules. It reforms the system of scale charges and bases them on the type of private use, with a new fuel charge where an employer provides fuel for unrestricted private use. The current rules, as my hon. Friend the Member for Wolverhampton, South-West said, were introduced in 1993, have remained unchanged since then and no longer fit modern working practices.
How many vans does the schedule cover, how many does the hon. Gentleman anticipate being brought into tax, particularly in 2007, as a result of these provisions, and how much revenue will be raised?
The number of company-provided vans is about 290,000—a figure that we have been able to calculate from the detailed and helpful responses that we received during the extensive consultation on our proposals last year. I will come on to the question of revenue later, in answer to the points made by the hon. Member for Grantham and Stamford (Mr. Davies).
We have consulted widely on this measure with employers and other interested parties. The responses that we received contributed significantly to the reform package, and a report on the consultation was published in April.
The hon. Member for Grantham and Stamford asked a number of specific questions about drafting and terminology, which I will come to later, when I will also pick up on the points made by the right hon. Member for Fylde. I would say quite gently to the former that the general remarks that he made at the beginning were misdirected. First, he accused the Government of using this as a tax-raising measure. In fact, it removes the tax charge from 85 per cent. of van drivers. Not only that, but it will cost the Exchequer £30 million a year for the first two years.
Secondly, the hon. Gentleman said that the measure is somehow heavy-handed and over-complex. In fact, it reduces the administrative burden on employers. That has been recognised by the Small Business Service, and the measures have received a wide welcome from manufacturers, industry and employers.
The Economic Secretary was very careful in saying that the measure would reduce revenue for two years. The charge does not go up to the
full £3,000 for two years. What will the position be when the charge has gone up from £500 to £3,000? Will there still be a revenue loss to the Exchequer?
Our estimates suggest that from 2007 onwards the measure will be revenue-neutral. For the first two years, there will be a cost to the Treasury of £30 million each year, and when the package as a whole comes into force from 2007, we will be talking about a revenue-neutral change.
The hon. Gentleman asked why we did not base the proposals for the reform of the taxation of company-provided vans on those for the reform of company car taxes. He is right that company car tax reforms base the system on emissions from the cars. The simple fact is that information about emissions is not yet available for vans and it was not an option that we were able seriously to pursue.
The hon. Gentleman also asked why we did not treat employees who were van drivers in the same way as the self-employed. The measures in the package of reform reflect the representations that we received during the consultation from employers, and they have been widely welcomed by those employers. It has long been recognised that there are different rules for employees and the self-employed. The measure is about the taxation of benefits in kind, which is an employee issue, and there is therefore no reason to align it with those of the self-employed.
The hon. Gentleman asked several questions about the meaning of some of the terminology in the schedule. He asked about the meaning of ''insignificant''. My hon. Friend the Member for Wolverhampton, South-West made a very useful point when he said that rather than trying to specify the working practices and arrangements in every workplace in the Bill, the schedule allows a measure of flexibility that reflects the reality of workplaces.
I will exemplify some uses that might be deemed insignificant by the Inland Revenue. Insignificant use might include an employee request for a one-off private use to take an old mattress to the tip, an employee regularly making a slight detour to stop at a newsagent on the way to work, or to drop off a child at school, as the hon. Gentleman said, or stopping off at a dentist on the way home. Essentially, we wanted to avoid the case in which a one-off journey outside the strict scope of the home-work travel route propelled an employee into a £3,000 charge.
The Economic Secretary has been very helpful in elucidating those points. If an employee delivers his child every day to school with his van, is it regarded as insignificant non-business use?
If that is a stop-off en route, it will be acceptable. Introducing the provision for insignificant use simplifies the procedures for employers by enabling them to dismiss intermittent or incidental private use. Beyond that, the Revenue is examining the representations that have been made by some of the professional bodies and taking account of the concerns that have naturally been raised since the publication of
the Bill. We plan to publish guidance after the Bill has received Royal Assent that will further help employers.
The right hon. Member for Fylde asked about the definition of a van. He rather eloquently described what are known in the trade as double cab pick-ups. Although the Revenue and Customs have used a consistent and single definition of double cab pick-ups since 2002-03, changes in manufacture and vehicle design inevitably create some blurred boundaries. Broadly, vehicles that can legally carry payloads of 1 tonne or more will not be treated as cars. A car is primarily for the carriage of people; a van is primarily for the carriage of goods.
From 6 April next year, a nil charge will apply to employees who take their van home and are not allowed any further private use. That responds directly to the representations of employers that most employees are provided with a van for work and are expected to take it home overnight. In future there will be no tax or national insurance charge in such circumstances, which will involve about 85 per cent. of van drivers and save the basic rate taxpayer as a van driver about £110 per year.
If unrestricted private use is allowed, the existing scale charges depending on the age of the van will apply. However, from 6 April 2007, employees who choose to make full private use of their company van will be taxed on £3,000, which will mean tax of about £55 per month or £660 per year for a basic rate taxpayer. If an employer also provides free fuel for unrestricted private use, a new fuel charge of £500 will apply, meaning tax of about £9 per month for a basic rate taxpayer.
The hon. Member for Grantham and Stamford implied a concern for the environment and asked why the Government did not introduce a scheme based on emissions for vans, but the regime that we are proposing will help the environment. The reform abolishes a rather perverse incentive to drive older and more polluting vehicles because the tax charge on them is lower. The new fuel charge will reduce the blanket acceptance of fuel charge for private use and make it a matter of choice and consequence for employees. The introduction of a nil charge will limit private use to travel from home to work for more than 85 per cent. of users, generating a reduction in the amount of private mileage undertaken in commercial vehicles.
The reform will also reduce the overall administrative burden on employers. I mentioned the Small Business Service's recognition of that. We have consulted, listened, acted on the responses and recognised that company vans are used differently from company cars. The schedule modernises the tax rules for company vans and exempts more than 85 per cent. of current van users from tax charge altogether. It provides a major deregulation for employers, with scale charges in the future that properly reflect the benefit of private use. It has been praised and welcomed by the industry, by manufacturers, by representative bodies and by employers. On 25 March, Fleet News said in an article that the reform was
''a major boost for van fleets''.
On that basis, I commend the schedule to the Committee.
Question put and agreed to.
Schedule 14 agreed to.