Clause 11

Finance Bill – in a Public Bill Committee at 2:45 pm on 10th May 2007.

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Rates of vehicle excise duty

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

I beg to move amendment No. 25, in clause 11, page 8, line 12, at end add—

‘(11) This section shall come into force on a day which the Treasury may by Order appoint.

(12) No order shall be made under subsection (11) unless the Treasury has compiled and laid before the House of Commons a report containing an assessment of the impact of vehicle excise duty on farming, agriculture and on rural areas.’.

I would like to make it clear at the start that this is a probing amendment. I have absolutely no intention of putting it to the vote. We have no wish to deprive the Treasury of the £625 million that this increase will raise over three years, and we could have raised the concerns that we are about to air in the clause stand part debate. I am also mindful that we will return to some of the concerns when we consider clause 105.

However, tabling and speaking to this amendment send a signal—which we believe is important, as I indicated in the last debate on amendment No. 1 on fuel duties—that we are concerned about some of the long and medium-term effects of the Government’s strategy on VED on farming and agriculture more widely, and on people living in rural areas. I want to explore some of those concerns in this debate. To do so,  it is necessary for me to describe what appears to bethe Government’s strategy in relation to important elements of VED.

This year’s changes represent a cautious widening of the differences between the top and bottom bands in order to widen the differential between the most and least polluting vehicles. I note in passing that, as so often in this Budget, the Chancellor has tied the hands of his successor, as appeared to be the case with the last clause, and has spelled out three years of changes. Widening the differential between the most and least polluting vehicles is clearly sensible, and we will not oppose the clause in the stand part debate. We want emission levels from new cars in the UK to fall from around 170 g per kilometre to 100 g per kilometre by 2020, and by 2030 we want that figure to be an average for all cars on Britain’s roads. Our quality of life policy group, chaired by my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer), is examining the means of achieving that aim, including VED, of course.

My right hon. Friend is also examining the effect of vehicle taxation on farming, agriculture and rural areas. A written answer from the Financial Secretary to my hon. Friend the Member for South-East Cambridgeshire (Mr. Paice), the shadow Minister for Agriculture, points towards some of the effects. My hon. Friend asked what estimate the Treasury had made of how many band G vehicles, which are the most polluting, are expected to be affected by VED up to the year 2011. The Financial Secretary replied—I paraphrase—that approximately 227,000 vehicles are currently affected, representing the current stock in band G. Over the whole of 2007-08 that figure will rise to 310,000. In 2008-09 it will rise to 416,000, in 2009-10 to 605,000 and the following year to 740,000.

Will the Financial Secretary give us the figures for band A cars, so that we can see how successful that band is becoming? Perhaps that information can be passed to him. [Interruption.] My hon. Friend the Member for Fareham says that it is a very important consideration, so his answer will be very important.

Some of the band G vehicles will be Land Rover Discoveries and Toyota Land Cruisers that are registered and driven in urban areas and we are not—I repeat, not—making representations on their behalf. As time goes by, others will be sold on to farmers and agricultural workers and others who live in rural areas who consequently find themselves paying band G rates of VED. Some pick-ups used by farmers are also categorised as band G vehicles, although others are classified as light goods vehicles and thus qualify for lower VED.

When he replies to the debate, perhaps the Financial Secretary will tell us if he has an estimate of the proportion of those band G vehicles that will be used by farmers and agricultural workers in each year up to 2010-11, as the number is growing every year.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I see the direction the hon. Gentleman is going in, but, of the two sorts of vehicles that he referred to, are not those that are being used on farms getting red diesel, which is taxed at a much lower rate anyway? Will not the Toyota Land Cruisers, for  example, be sold on by the Chelsea-tractor driver in the middle of Cambridge at a lower rate to the farmer precisely because it carries a higher vehicle excise duty? In that sense, the purchaser will not lose out.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

Yes, I acknowledge what the hon. Gentleman said, but it is important to consider the combined effect.

The work and non-work problems are obvious. Farmers living in the countryside who need band G vehicles for work—for cattle trailers, for example—are not people living in urban areas who do not need band G vehicles for whatever work they do. The National Farmers Union claims that British agriculture and horticulture underpin £90 billion of our economy, help to provide 5 million jobs and involve approximately £400 million of unpaid conservation work. I will not list in detail the contribution that both make to the small business sector, to animal welfare standards and to reducing carbon emission by providing local food. Those working needs are clearly serious.

It is worth noting—inevitably we have received representations to this effect, as the Financial Secretary will also have done—that an off-road band G vehicle used infrequently for work purposes will produce fewer emissions than an on-road band C vehicle used frequently for work purposes. As for non-work purposes, such as leisure and caring responsibilities, the considerations that have already been discussed in relation to remote areas apply, to some degree, so I will not go over all of those again.

I do not want to anticipate the debate on clause 105, but I want to ask the Financial Secretary one question: will he investigate, or is he already investigating, the practicality of allowing an exemption for one band G vehicle? Since all farm holdings must be registered, the argument is that such a system would be relatively straightforward to administer and it would tend to favour smaller holdings, because on the whole they have fewer vehicles. Also, does the Treasury plan to produce, in relation to this year’s rise, any estimate of how many farmers will switch from band G vehicles to light goods vehicles that are more lightly taxed even though they may be more polluting? I look forward to hearing the Financial Secretary’s reply.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury 3:00 pm, 10th May 2007

The amendment has many echoes of the principle that was referred to in our debate on an earlier clause and amendment. Again, there is a concern about the differential impact that these kinds of measures will have in rural areas where it is more difficult for people to change behaviour.

However, I listened very carefully to the comments by the hon. Member for Wycombe. I note that the amendment says:

‘No order shall be made under subsection (11) unless the Treasury has compiled and laid before the House of Commons a report containing assessment of the impact of vehicle excise duty on farming, agriculture and on rural areas.’.

I might not have been listening carefully enough, but I do not think that I heard any definition of what the hon. Gentleman might consider to be a rural area. Equally, I am not quite sure why other rural industries,  for example horticulture, were not included in the report that the Treasury would have to make.

I take on board the comments by the hon. Member for Wycombe that he has no intention whatsoever of pressing this matter to a vote, but there is another inconsistency that I do not understand. I noted that the hon. Gentleman and his colleagues felt unable to support a similar amendment to the changes to air passenger duty, on the grounds that it delayed the introduction of environmental measures that should be welcomed.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

The point is that, on that occasion, the hon. Member for Twickenham did not say in advance that he would not be pressing that amendment to a vote.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

The hon. Gentleman makes a valid point that, as these changes ramp up—as they should be ramped up—there will be some rural areas that will be particularly disadvantaged.

However, I would like to put on record the fact that a large part of the demand for new 4x4s—I think that the figure is about a third of new 4x4s—is located in a handful of London boroughs. Therefore, not all the most polluting vehicles are 4x4s; not all 4x4s are agricultural vehicles, and it is possible to purchasenew working vehicles that would do the job perfectly well and also fall into the lower bands. If the impactof the changes that the Government have proposedin clause 11 encourages the industry to producemore fuel-efficient vehicles, of course that must be welcomed.

I sympathise with the points made by the hon. Member for Wycombe, but I am pleased that he will not be pressing the amendment to a vote, because I think that there are clear limitations in the amendment.

Photo of Philip Dunne Philip Dunne Conservative, Ludlow

I rise to support the amendment and also to remind the Committee—I think for the first time—of my entry in the Register of Members’ Interests in connection with my partnership in a farming business. I do so first because farming is referred to in the amendment, but also because I am a proud owner of a 4x4 vehicle, which I require to visit the parts of my farm that I could not visit either in ordinary vehicles or on foot. It is an upland area with some steep banks.

On Second Reading, I raised my concerns about the impact of the significant increases in the rates of duty on working 4x4 vehicles that are proposed in this Bill and in the Budget for the subsequent Finance Bill. I berated the Government for not being imaginative enough to think about a descriptor which would allow working vehicles to be excluded from the increase. I hope that when we reach clause 105, which my hon. Friend the Member for Wycombe identified, the Government will seek to create an exemption for vehicles engaged in farming, horticulture and forestry. I hope that they have listened to the arguments that I and others made on Second Reading and that they will respond positively and constructively. I think it unlikely that the force of my argument has persuaded the Government that that is the right thing to do, but I would be absolutely delighted if the Financial Secretary would confirm that it has.

It is an important matter. My research shows that there are some 1.6 million sports utility vehicles, although not all are in the top band of emissions. About 250,000 are used for off-road purposes. According to the Countryside Alliance, about 60,000 are used on working farms, 18,000 in the equine industry, 5,000 by gamekeepers and about 2,500 by rural veterinary surgeons. An unknown number is used in the horticultural and forestry sectors. A company in my constituency called Ludlow Drains requires such a vehicle to transport its drain-cleaning equipment. There are many other small businesses that require such a vehicle for multifarious working purposes and would not necessarily benefit from the red diesel rates available to farming businesses.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

The figures that the hon. Gentleman has given us are useful. Will he clarify whether he is referring to the total number of sports utility vehicles or the number of new sports utility vehicles that will be caught by the changes to vehicle excise duty that have been made last year and this year?

Photo of Philip Dunne Philip Dunne Conservative, Ludlow

The figures are for all vehicles. I accept that the changes bite particularly on new vehicles, but the precedent having been set, they will affect all vehicles henceforward, as new vehicles become second-hand vehicles. The relevance to the farming industry of this issue is significant. According to the Countryside Alliance, the average net income of farmers last year was £21,300, so a £400 vehicle excise duty is effectively a week’s income to the average farmer. I must say that that average income figure is rather higher than I was expecting, and higher than the figure that I saw at the end of last year on the Public Accounts Committee, when we reviewed the single farm payment scheme. It is not appropriate to suggest that the measure will not have a significant impact on those who are engaged in such business and who generate low incomes. It is significant and that should be taken into account. I hope that the Financial Secretary will reassure us that the Government intend to take it into account at a later stage of the Bill.

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

This has been a usefully concise debate. VED rates are set at those levels for good reasons. They perform two functions: they raise revenue that we require for the public purse to fund public services, and they help us to achieve some of our environmental obligations and aims, which apply to rural areas as much as the rest of the UK. The VED is designed to signal at the point of purchase that the more polluting the vehicle, the more VED the purchaser will pay. Indeed, it is a signal. It is backed by a very good labelling scheme which is now in place. There is some evidence that there is a high level of awareness and that it is beginning to play a part in the purchasing decisions of car buyers. It is an important signal also, in the long term, to motor manufacturers and designers.

Hon. Members have been concerned about certain groups of vehicle users. I recognise that for some, especially those in rural areas, the car is a necessity, not a luxury. However, I do not accept that motorists have to drive vehicles that fall within the higher bands just because they live in rural areas. For example, various types of 4x4 vehicles fall in bands F and E, not necessarily in  band G, of the VED system. In addition, the measure has been designed to affect not four-wheel drive vehicles but those with high CO2 emissions.

The hon. Member for Wycombe asked me how many band a cars we anticipate there being by 2010-11. It is difficult to tell for certain, but our forecast suggests that the number will increase by about two thirds between now and then. The number of cars on the road in the second-highest band, band B, which is also a low-emission category, is likely to almost triple to some 670,000 to 680,000 by then.

Turning to the principal concern of the Committee, it is important to bear in mind what the tax treatment of farmers and their vehicles is. The tax system is designed so that, where a vehicle is an essential component of the business activity, businesses can deduct from their turnover all the costs incurred for the sole purpose of generating business profits. Such motoring expenses are therefore allowable for deduction against turnover in such circumstances. Furthermore, agricultural vehicles are currently exempt from vehicle excise duty.

Hon. Members have mentioned clause 105. That will give the Secretary of State for Transport the power to amend the definition of agricultural vehicles to keep it in line with future technological and design developments. Beyond that, I can see no case for special treatment of farming, agriculture or rural areas within the VED system. Indeed, it would complicate it, and it is likely to be costly and open to fraud. Motorists would be able to register vehicles in rural areas and then use them mostly, if not entirely, in areas other than rural areas. It has been made clear that this was a probing amendment. I hope that I have been able to respond to some of the points that have been raised, and that the amendment will be withdrawn.

Photo of Philip Dunne Philip Dunne Conservative, Ludlow

I am grateful to the Financial Secretary for having clarified the exemption in relation to agricultural vehicles, to which we shall come at a later stage. My understanding is that previously it applied to tractors and other very heavy equipment, and the proposal exemption would extend it to 4x4-type vehicles. Is it his understanding that the extension would recognise some of the difficulties?

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

Clause 105 provides an enabling power for the Secretary of State for Transport to amend the definitions in future. The sort of detailed discussion that the hon. Gentleman is tempting me to have on this clause is better stayed until we reach clause 105.

Amendment, by leave, withdrawn.

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

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury 3:15 pm, 10th May 2007

Following the debate on agriculture and farming, I have a few brief questions about the generality of the proposals. First, the Environmental Audit Committee has said that the Treasury should at  least publish its rationale for the VED differentials that it adopts. That suggests to me that the Committee finds the explanations of the rises year on year to be obscure. If the Treasury has not already published its rationale, will it do so, as the Committee wishes?

Secondly, Friends of the Earth has argued that this year’s rise in band G rate will not make much difference to emissions. It said:

“These changes are not enough to give people a strong incentive to purchase a greener car... the Government’s own research suggests a £150 differential would persuade 55 per cent of people to change.”

Does the Financial Secretary disagree with that claim, and if so, why?

Thirdly, it can be argued that large families need larger cars, and that a large family in any setting may need, say, a people carrier, whereas no single person in an urban setting can convincingly be argued to need a band G car. The Automobile Association has called for the creation of a new band H with an emissions threshold of 200 g/km, a rise on the current threshold of 226 g/km, which would place most models of people carrier into a lower tax band. [Interruption.] I thought that I heard the Financial Secretary snort. It appeared to be a dismissive noise in relation to the proposal. If he could kindly confirm the Government’s view on it, we would be grateful.

Finally, have the Government ruled out adapting the weights of VED—the idea is rather complex, and I would be interested to hear the Financial Secretary’s view on it—to reflect whether vehicles are fuelled by carbon-neutral materials.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

My hon. Friend the Minister knowsmy views on the matter. The Government have gone some way with the proposed increase in clause 11 and band G. However, I urge him again, as I did last year when I tabled an amendment, to be a lot bolder. I would urge him even to be a lot bolder on Report, in terms of having a swingeing vehicle excise duty for vehicles above 250 g/km, which are bought new. It would not be retrospective. Part of the problem with band G, although I support it, is that it is retrospective. That is behind some of the concerns that have been expressed. We need to set a date two or three year’s hence and say to somebody, “If you buy a very polluting vehicle—say, above 250 g/km—you will pay through the nose for it, and we are warning you now, not retrospectively.” That would give the motor industry, including the west midlands, where I am an MP and where, for example, Land Rover is based, time to adjust.

Sadly, too much of the debate is about 4x4s as polluting vehicles. In the borough in Richmond, in the constituency of the hon. Member for Twickenham, it was widely reported that parking charges for 4x4s were being whacked up. I said to him, “Is this true, or is it for polluting vehicles?”, and he said it was for polluting vehicles, but that it had been widely reported as being for 4x4s as a kind of journalistic shorthand. In fact, as many hon. Members will know, nine out of the 10 most polluting new vehicles on sale in the United Kingdom today are not 4x4s. The only one is a top-of-the-range Range Rover. Most of the other nine are sports cars, such as Lamborghinis.

The hon. Member for Wycombe talked about people carriers, but some of those cars do not carry more than two people. They are ridiculous, and those vehicles are bought by very rich people who might not be put off if there were a swingeing new vehicle excise rate duty, such as band H, on a new vehicle. Sadly, that is not in force, but it would do two things. First, it would allow the Government to send a message. Secondly, if we had a swingeing rate of, say, £2,000 a year on those new vehicles, it would arguably affect the resale price of them, which would in turn affect the purchasing prices that some people make when considering whether to buy a polluting vehicle, or a less polluting vehicle, in two or three years. It saddens me that we are talking about greener vehicles. All vehicles are polluting. It is just a question of the extent to which they do it.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

The hon. Gentleman’s ideas are very good for averting future behaviour without penalising people in the way I described. Why does he think that his Front-Bench team does not take up the radical proposals that are targeted at reducing the number of gas-guzzling cars?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I hope that my hon. Friend the Minister will be able to give reasons for that. I find it hard to conceive why, as a Government and a society, we cannot tell people that they will be taxed on future behaviour, so they should make their choices in advance. Such a framework would command some, although not universal, cross-party support and would also garner quite a lot of support within the country. Try as we may, in spite of what is talked about in the pubs and clubs and in the media, we must get away from this obsession with 4x4s. There are 4x4s that put out something like 172 g/km and are quite satisfactory for most agricultural, business and rural purposes, such as towing a horse box, or perhaps even for a drain company or whatever. Correspondingly, the most polluting vehicles are often things like sports cars.

It is possible to get people carriers that emit lower than 200 g/km, such as the turbo diesel models. In terms of sending a message about future behaviour by motorists, I should like clause 11 to introduce different tax proposals and to change the behaviour of vehicle manufacturers. There is not an instant technological fix for all of this but if one looks, as I do periodically, at what has been happening to vehicle emissions for new vehicles on sale in the UK, it is clear that more and more options are available. Sadly, these are often not the options chosen by the purchasers. For example, the Volkswagen Polo BlueMotion, which is being introduced in July this year for sale in the UK, will have emissions of 102 g/km. It does not break the magic 100 threshold. I believe that the new Smart car turbo diesel, which will be on sale on the continent but is not currently announced for sale in the UK, has emissions of 83 g/km. The petrol version, which will be on sale in Britain, is above the 100 threshold.

In terms of pressing the manufacturers and influencing the behaviour of buyers, we need to say now what the situation will be in two or three years’ time. That has happened a lot in the Budget already, and some hon. Members have suggested that the Chancellor is tying the hands of his successor. I do not buy into that. However, in terms of certainty for the future, I will  support the clause, but I do not think that it is bold enough. Even now I hope that my hon. Friend can come back with a bolder clause 11 on Report.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

The clause is a welcome step forward from where we were last year when the differential between the top two bands was less than the cost of half a tank of petrol for the most polluting cars. That will begin to make a difference. However, have the Government undertaken an assessment of the number of people whose buying decisions will be affected by this differential band of vehicle excise duty? Research undertaken by MORI in 2003 indicated that the differential of the kind in the clause will probably affect 33 per cent. of buyers, whereas the level recommended by the Energy Savings Trust of £2,000 would have a much bigger impact and would influence the majority of people’s decisions when buying a new car. I would appreciate the Minister’s thoughts on why the Government chose the figure that they did. Perhaps he could give an indication of longer-term plans that they have to ramp it up to that higher level.

I do not want to add to what has been said about the retrospection element. There is a problem that people’s buying decisions and the resale value of the car that they buy is affected by retrospection. There is a certain unfairness. What work is the Minister doing with other Departments to try to encourage changes in behaviour? The measure will influence behaviour at the consumer end, but I note that there are no compulsory energy efficiency targets for manufacturers. Unless such targets are made compulsory, there will not be as quick a shift in behaviour at the production end. Such measures, rather than simply revenue-raising ones, would make a difference.

Finally, I wish to raise a point that was drawn to my attention by a constituent. He has a car with a larger engine which he has had retrofitted to run on liquefied petroleum gas, which means that its emissions are significantly lower. My understanding is that he cannot benefit from being taken down a band or two. Will people who are not buying a car but making the car that they have more energy efficient benefit from a lower VED rate?

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

If the hon. Lady writes to me with details about her constituent, I will have a look at the circumstances. On the question of dealing and liaising with other Departments, specifically on emissions targets for manufacturers and the progressive reduction that we want, that is very much a Department for Transport lead. The Treasury and I are, of course, very supportive of its efforts in that respect.

On the matter that the hon. Member for Wycombe raised, we set out in either the pre-Budget report or the Red Book an explanation or rationale for the decisions that we take on the differentials in vehicle excise duty. We have done that consistently. It does not greatly surprise me that the Environmental Audit Committee takes a different view. I appear before it regularly, and always look forward to doing so. It generally finds itself at odds with some of the tax decisions taken in the Treasury.

On vehicle excise duty, it is designed, as I said, to provide signals to those at the point of purchase about  the impact of the emissions of the cars that they are considering buying. To that extent, it can have an impact not just on awareness but on the motivations at the point of purchase. Mrs. Brennan has not been introduced into the Committee’s proceedings before, but she is a significant illustrative case in point. My hon. Friend the Member for Cardiff, West tells me that his wife, Amy, recently bought a small Toyota. Its VED rate of £35 a year was described as a significant factor in her decision to buy that model. I welcome the contribution that Mrs. Brennan has been able to make to our proceedings, and I hope that it has been helpful.

On the AA’s view that we ought to be considering a further band in the VED system, and the view of my hon. Friend the Member for Wolverhampton, South-West that we need swinging rises at the top end of the VED system, I shall take both as early representations for Budget 2008.

Question put and agreed to.

Clause 11 ordered to stand part of the Bill.