Rates for 2009-10

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

As my hon. Friend the Member for Hammersmith and Fulham did on tobacco, I shall curtail my remarks on clause 13, on the basis that we have already debated vehicle excise duty for next year in Committee of the whole House. I have some fairly narrow points on clause 13.

It is, of course, a fact that the Government have significantly changed their position. I made that point last week. Much of the credit for that shift must go to my hon. Friend the Member for Putney (Justine Greening), who has done sterling work. I pay tribute to her once again.

I have been comparing the VED bands implemented by the clause with those set out by the Government. It is not entirely fair to use that announcement as a baseline and then compare pluses and minuses and say where there are increases and reductions—it is a trick of the Prime Minister to do that in other contexts, and I do not want to go down that route. However, by comparing what was announced in the 2008 Budget with what we have now, I note that vehicles that emit 150 g/km are being charged more than was originally proposed, while those that emit more than 150 g/km are being charged less.

It might be helpful if I give the Committee an example. Under proposals in the 2008 Budget, a car that emits 130 g/km would pay £90 VED under the provisions in clause 13. Now, the VED payable on that car is £120, which is £30 more. Equally, we could find examples for  higher-emitting cars where there is a reduction in the VED to be paid if we use the 2008 bands as our baseline.

Will the Minister set out how many motorists will lose and how many will win when comparing those two measurements? Using the same test, and comparing what was announced last year with what we have now, it is clear that the measures are beneficial to those cars that emit more.

I do not want to overstate the environmental arguments because there are none, at least according to the Government’s figures. It appears that the change in VED announced last year will have a very, very small impact on the total amount of CO2 emitted. Nevertheless, when the proposals in the 2008 Budget were announced, the Chancellor stated that there was a need for an incentive to encourage drivers to choose the least-polluting cars, and one could argue that that incentive has been diminished. I do not want to overstate the point, as the environmental impact of what was announced in March 2008 appears to be so minimal that unwinding that announcement cannot, I assume, cause any harm. Nevertheless, I would be grateful for the Minister’s response on that.

By comparing the Red Book for the 2009 Budget with that of last year, I note that last year the VED reforms for 2009-10 were due to raise £465 million. The Budget announcement for 2009, which uses that as the baseline, has largely been unwound. The cost of using that baseline is £475 million—£10 million more than was going to be raised.

Why have the Government continued to introduce the banding on the basis of CO2 emissions this year, even though they have largely unwound the position set out in the 2008 Budget? They are not making a particularly environmental case for the reform of VED.

Will the hon. Gentleman give way?

I am about to sit down. I might well be satisfied by the Exchequer Secretary’s arguments for the introduction of this process, but it appears to have cost £10 million. We could just have returned to the system we had before. It would be helpful if she could explain that point. Subject to those questions and given that we debated VED at some length in the Committee of the whole House, I have no further remarks.

Clause 13 will change vehicle excise duty rates for cars and vans from 1 May 2009. It follows the introduction of a system of banding for VED on the basis of carbon dioxide emissions that provides a signal to motorists about the environmental impact of using cars. The system applies to cars registered from 1 March 2001 onwards. The signal has succeeded in contributing to a fall in the CO2 emissions of new cars of 17 per cent. since 1997. Other things have contributed to that such as new engine technologies and new regulations. Road transport still accounts for 20 per cent. of all UK emissions.

By the 2008 Budget, there was a clear case for further reform of VED. We therefore announced the increase in the number of VED bands from seven to 13 in 2009 to strengthen the incentive to choose the best in class. The 2008 pre-Budget report confirmed those reforms to the  structure of CO2-based VED, but announced that to help motorists during the economic downturn, rates for all cars would go up by no more than £5 in 2009 and that rates for cars emitting less than 140 g of CO2 per kilometre would be frozen. Budget 2009 confirmed the announcements in the pre-Budget report.

The Government are committed to moving towards a low-carbon transport system through the introduction of measures that support the development of green technologies and that provide the right signals to encourage efficiency overall. The reforms to CO2-based VED will allow the system better to reflect changes in the fuel efficiency of vehicles and will provide a greater incentive to drivers to choose a lower carbon car. It is estimated that the reforms will save about 1 million tonnes of CO2 by 2020. That will support the UK’s broader aim of reducing transport emissions.

The measure does not apply to cars and vans registered before 1 March 2001 because comprehensive data on CO2 emissions are not available for those vehicles. Instead, VED will be set at two rates based on engine size, as under the old system. There will be a higher rate for vehicles with larger engines and a lower rate for those with smaller engines. The clause will increase both rates by £5, which is in line with changes to VED rates for post-2001 cars. That is the basic structure of what we are doing.

We are introducing VED bands because we believe that it is the right structure to move towards. However, because we recognise that people are under pressure during the recession and we do not want to add to it, we have made modest changes this year, such as the £5 increases and the real-terms freezes. In future there will be a role for the 13 bands, but a more stable and simple approach is appropriate in this year’s economic conditions.

The Exchequer Secretary said that the changed approach to VED was a consequence of the economic conditions. Another Government response to the economic conditions that relates to motoring is the car scrappage scheme. If Mr. Atkinson indulges us, will she clear up the confusion over VAT and car scrappage that seemed to undermine the scheme on its first day?

First, there is no confusion over VAT and car scrappage. The problem, as I understand it, is that two companies, Ford and Nissan—

Order. I am sorry to stop the Exchequer Secretary, but this whole issue is very wide of the clause.

It is frustrating to have to answer the question asked by the hon. Member for Fareham without being able to go into it.

Answer it quickly.

I will. The confusion, as I understand it, was about whether the manufacturer could demand that its dealership made part of the £1,000 payment, which the manufacturer was meant to make. The Government and the manufacturer pay £1,000 each, but there was some dispute about how that should work out for the dealerships. It was not a VAT issue and the problem has now been resolved. The scrappage scheme is going ahead, and it is attracting a great deal of interest. We hope that it will support the car industry at this very difficult time.

With that quick explanation, I hope that hon. Members will support clause 13.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Schedule 4 agreed to.