Clause 105

Finance Bill – in a Public Bill Committee at 1:00 pm on 7th June 2007.

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VED: exempt vehicles

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

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

The debate on this clause was prefigured in the debate on clause 11, which the Economic Secretary may remember. That was about vehicle excise duty in relation to non-working vehicles used by people in rural or remote rural areas. This clause concerns working vehicles. As the Financial Secretary reminded us in the debate on clause 11, agricultural vehicles are currently exempt from vehicle excise duty. That inevitably raises the question of when, if at all, a working vehicle becomes a non-working vehicle, and vice versa.

The point was raised on clause 11 by my hon. Friend the Member for Ludlow, who may have a word or two to say about it in a moment. He said:

“My understanding is that previously it”— the exemption—

“applied to tractors and other very heavy equipment, and the proposed exemption would extend it to 4x4-type vehicles.”

The Financial Secretary replied:

“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.”——[Official Report, Finance Public Bill Committee, 10 May 2007; c. 99.]

Now we are here, and I hope that we can have the detailed discussion, because were I in a meeting with my local branch of the National Farmers Union, I am sure that its members would be able to provide me with an exhaustive list of circumstances in which 4x4s and other vehicles that might at first sight appear to be non-working vehicles are, in fact, working vehicles. I think that that was the point that my hon. Friend was getting at.

The clause is clearly in the Bill for a purpose. It provides circumstances in which further categories of vehicles can be exempted. Is it the Government’s intention to introduce measures exempting further classes of vehicles fairly soon? Can the Economic Secretary provide us with a time scale? With reference to the detailed discussion, can he suggest how the Government’s thinking on the matter is developing, and whether 4x4s might fall into the relevant category? Finally, will we be able to have a debate about the matter by way of statutory instrument? Will the affirmative rather than the negative procedure be used?

Photo of Philip Dunne Philip Dunne Conservative, Ludlow

I am pleased that my hon. Friend has reminded the Committee of our debate on clause 11. I could not allow our proceedings to draw to a close without an opportunity to remind members of my entry in the Register of Members’ Interests, which is in connection with agriculture.

I raised with the Financial Secretary, more in hope than expectation, the question of whether the clause could be used to extend vehicle excise duty relief for agricultural vehicles used solely for the purpose of agriculture, forestry and horticulture. He did not give my hopes much succour, and it is a great shame that he is not here to respond, but I have looked in more detail at the explanatory notes and accept that the aim is to give the Secretary of State flexibility and discretion to redefine tractors and vehicles used for the purpose of agriculture, forestry and horticulture, to reflect technological advance and the development of new machinery in the future.

However, there are two aspects of agricultural practice that need to be drawn out and on which I should like the Economic Secretary to reflect. This is a missed opportunity. As the costs of vehicle excise duty rise—and they are likely to rise in future, given the environmental and behavioural changes that I think hon. Members on both sides of the House anticipate—the challenge for the agriculture and forestry industries in particular is that they require a disproportionate use of vehicles just to be in business. That becomes more, rather than less, apparent as mechanisation continues to develop apace. It is no longer the case that a farm gets by with one tractor. A multiplicity of vehicles of different types are used in agriculture. It is therefore entirely appropriate, in my view, that there should be an exemption and that there should continue to be relief from these duties.

The vehicles involved are not only specific-purpose vehicles; they are often adaptations of other vehicles. I think that that is where there is some difficulty with the  wide-ranging discretion that the Secretary of State has, and I will come back to that.

The other relevant aspect is that the use of vehicles by these industries is also increasing significantly. That is partly as a result of pressures within the industry to aggregate holdings, and therefore farmers, to continue in business, need to take on other land that is perhaps some way distant from their existing holding. Obviously, they have to use the roads to get to that land. As a result, a lot of vehicles that were previously confined to off-road use are now also being used on-road, and therefore duties might start to apply where they did not previously apply.

For example, many farms use adaptations on quad bikes to provide specialist applications. Quad bikes are not normally registered for road use. However, as Members of Parliament are increasingly aware, they have a number of uses, not least for Members of Parliament. Another example would be motorised hydraulic lift vehicles, such as the well known JCBs. Those are now used for many purposes on farms and must be taken on the roads more than they used to be. It is difficult to see that a description of vehicles can be adequately encompassed to take account of differing uses. It would be a missed opportunity not to use the definition of “use of vehicle”, rather than just “type of vehicle”, when it comes to drawing up these exemptions.

Briefly—Members will be relieved to hear—clause 105(1) includes the power for the Secretary of State to repeal any of the relevant paragraphs of schedule 2 to the Vehicle Excise and Registration Act 1994. What reassurance can the Economic Secretary give us that he or his colleagues have no intention at present to repeal any of those paragraphs, and that any future attempts to repeal them will be subject to affirmative procedure? Can he also assure us that he supports the arguments that I have outlined in favour of a continuing vehicle excise duty exemption for the industries that I mentioned, all of which have high vehicle use and are, in most cases, trading in fragile circumstances?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 1:15 pm, 7th June 2007

I am grateful to the hon. Gentleman for providing a short history of UK tractors.

I draw the Minister’s attention to proposed new subsection (3)(b), where it refers to:

“vehicles used for purposes relating to agriculture, horticulture or forestry”.

Will he consider whether that list should be extended to vehicles used for conservation purposes? I realise that making such an extension might be tricky, but this is an enabling power that will be given to the Secretary of State. Vehicles that are used for conservation would not be used for purposes relating to agriculture, horticulture or forestry. For example, a vehicle that goes around to pick up great crested newts—an endangered species that seems to appear on every building site in the west midlands—would not come within the three categories that are currently listed, but I think that sort of vehicle should have the exemption. This issue needs to be  looked at, and the Secretary of State should have the power to include such vehicles in any regulations made under the amended section 5 of the 1994 Act.

Photo of Edward Balls Edward Balls The Economic Secretary to the Treasury

For a moment, I thought that I had been remiss by not welcoming the hon. Member for Birmingham, Yardley to the Committee, but I am told that he has been here before, so there is no need for me to welcome him now. In case I missed his earlier appearance, I apologise.

Agricultural vehicles benefit from exemptions from payment of vehicle excise duty which came into effect from April 2001. The clause gives the Secretary of State for Transport the power to redefine agricultural vehicles within the 1994 Act, for the purposes of maintaining the exemption in good order.

The current definition of an agricultural vehicle within the 1994 Act was established when the distinction between vehicles built for purposes relating to agriculture and vehicles with wider utility was starker, as Opposition Members have pointed out. The agricultural machine taxation class currently covers tractors, light agricultural vehicles and agricultural engines. Examples of the type of light agricultural vehicle treated as eligible for exemption are all train vehicles or quad bikes, and an example of the type of agricultural engine eligible for exemption is a crop sprayer.

As has become clear in our discussions, some vehicles are capable of being used on the land although they are not built primarily or solely for that purpose. That leaves the current definitions open to challenge. I am sure that the Financial Secretary would have liked to be here to carry on the discussions that he promised when we debated clause 11. Sadly, he cannot, and I have the pleasure of leading the debate.

On the Thursday sitting before the recess, when we did not sit in the afternoon, I took the opportunity to travel to Bridgend to meet business leaders and members of the farming community, and this very issue was raised. That preparatory discussion certainly informed my thinking as I prepared for the debate.

To answer the third question asked by the hon. Member for Wycombe, the clause provides for an order-making power that will be subject to the affirmative resolution procedure. The intention is to use the power to achieve firmer definitions and legislative concurrence between the vehicle excise duty exemption and eligibility under the Hydrocarbon Oil Duties Act 1979 for agricultural vehicles to use duty rebate diesel. That will ensure greater clarity, as those who are entitled to license their vehicles as exempt within the agricultural machine taxation class will also be eligible to use red diesel. The definition of an agricultural vehicle under the 1979 Act for the purposes of eligibility to use duty rebate diesel was updated last year by statutory instrument No. 93.

The Driver and Vehicle Licensing Agency is currently discussing the updates of definitions with the industry, and it is actively preparing an order that will, in due course, utilise the power granted by this clause to achieve that legislative concurrence. The agency is also working with HMRC and the industry to issue a memorandum of understanding on which vehicles are eligible for VED exemption and to use duty rebated diesel. It is anticipated that by next spring the Secretary of State for Transport will be in a position to put a  draft order before Parliament utilising the flexibility conferred by this clause, to answer the hon. Gentleman’s first question.

On how the exemptions will apply and whether we intend to introduce any new agricultural vehicle taxation classes or exemptions, there is no intention at this time to introduce a new agricultural vehicle exemption. The work on improving the current agricultural vehicle definitions within the existing exemption is ongoing. Depending on the outcome, there may be scope for the creation of new definitions in line with advances such as technological innovation.

The hon. Gentleman and the hon. Member for Ludlow asked about off-road vehicles and 4x4s. The Government recognise that four-wheel drive vehicles are used by other businesses, such as professional dry stone wallers and veterinarians, in support of the farming sector, as well as by farmers themselves. There is no intention to introduce an exemption for those who use their four-wheel drive vehicles on the public road. It remains the case that 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. Applicable motoring expenses are therefore allowable for deduction against turnover in such circumstances. However, the DVLA is discussing with the industry how the powers conferred by this clause can be used to update the exemption.

A separate exemption already exists for vehicles, including four-wheel drives, that are used mainly on the land. That exemption applies where vehicles are used between different parts of the land in agriculture, horticulture and forestry. It is available where a vehicle is used on the public road only to pass between different areas of land occupied by the same person for a distance of no more than 1.5 km. Provided that that condition is met, vehicles including four-wheel drives that are not otherwise eligible for exemption under the agricultural machine taxation class may be eligible for exemption. The DVLA is consulting industry representatives about updating the definition and to ensure that the proposals reflectlast year’s administrative changes on hydrocarbon oil duty.

Photo of Philip Dunne Philip Dunne Conservative, Ludlow

The suggestion that a 1.5 km limit should apply to the eligibility that the Economic Secretary described seems somewhat perverse. Many contractors, particularly in agriculture, may have to travel many miles, even tens of miles, on public roads to get from one piece of ground to another. I earnestly urge him to discuss that with the industry and to reconsider the limit.

Photo of Edward Balls Edward Balls The Economic Secretary to the Treasury

The point that I was making was that the 1.5 km limit is available in existing definitions. We are discussing with the industry how to ensure that the clause provides flexibility for vehicles, including 4x4s, that are genuinely used for agricultural purposes rather than on-road driving. The purpose of the consultation is precisely to ensure that we do not allow tax relief for normal public, on-road driving, but that we provide the flexibility that the farming community needs.

The hon. Member for Ludlow asked whether any of the current taxation classes will be repealed. That is not  our intention. The clause’s purpose is to ensure that legislation remains current and relevant, and that only vehicles that are legitimately entitled to the exemption are licensed in the agricultural categories. There are no plans to remove any of the existing exemptions. Our intention is only to improve and update, and to include revised definitions for agricultural vehicles in accordance with new technological developments.

The hon. Gentleman also asked whether the changes will put existing users outside the exemption. Clearly, we are trying to reduce the ambiguity in the definitions to enable the agricultural industry to continue to benefit from legitimate exemptions while discouraging unfair competition. The definitions will be carefully framed and will be discussed with stakeholders and businesses to avoid imposing an unnecessary compliance burden. We do not intend to penalise those who already qualify legitimately to license their vehicles in the agricultural machinery taxation class.

I am sure that the matters that my hon. Friend the Member for Wolverhampton, South-West raised will be firmly in the mind of my hon. Friend the Financial Secretary and other Ministers as they take forward our wider agenda to promote conservation and a reduction in climate change. I will ensure that the Financial Secretary is fully aware of the question that he asked. It goes wider than the clause, but it is important. If I can update him on any issues, I shall ensure that they are included in an addendum to the previous letter.

Question put and agreed to.

Clause 105 ordered to stand part of the Bill.