Schedule 11

Finance Bill – in a Public Bill Committee at 10:30 am on 9th June 2009.

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Tax relief for business expenditure on cars and motor cycles

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment 19, in schedule 11, page 108, line 30, at end insert—

‘2A In section 45D(4) for “110” insert “160”’.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Is it a pleasure to serve under your chairmanship again, Mr. Hood. May I congratulate the hon. Member for Burnley on her return to the Treasury team? There is potentially one more Finance Bill left in this Parliament. She might decide whether to put some odds on serving on that too, having done three so far. I should also like to congratulate, in her absence, the hon. Member for Wallasey (Angela Eagle) on her promotion. Clearly, the prospect of my hon. Friend the Member for Hammersmith and Fulham making another speech about white label cigarettes manufactured in eastern European states led to her to put in a transfer bid. I am sure she will enjoy her work in the Department for Work and Pensions.

Amendment 19 is very much a probing amendment. We want to understand why in schedule 11 the Government use a different definition for a car with low carbon emissions from that used in section 45D of the Capital Allowances Act 2001, which defines cars with low CO2 emissions as those falling below a CO2 emission threshold of 110 g/km, whereas the schedule’s threshold is 160g/km. The amendment would increase the threshold in section 45D(4) from 110g/km to 160g/km. We are not arguing that that is the right threshold, We simply want to understand why one rate is used in one area and a different rate is used in the schedule for exactly the same definition. We are concerned that it might lead to some confusion among advisers about the definition of a car with low carbon emissions. That is the purpose behind this probing amendment.

Photo of Kitty Ussher Kitty Ussher Parliamentary Under-Secretary, Department for Work and Pensions

The answer is quite simple. We have 100 per cent. capital allowance for cars with emissions at or below 110 g/km; then, we propose a 20 per cent. allowance for cars with emissions up to 160 g/km and a 10 per cent. allowance for cars with emissions in excess of that. The legal definition is extremely clear. The purpose of our legislation is to encourage companies to purchase cars that are progressively more environmentally friendly. If they want to go straight away for cars emitting 110 g/km or less, that is fantastic and they will reap a reward for doing so. We are trying to shift the bell curve all the way down to encourage the use of lower emitting vehicles.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

This is a slightly unfair question to ask the Minister, given her recent arrival in the Treasury, but was any thought given to using a different term? That is where the confusion arises. The 2001 Act uses the term to describe a car with emissions of 110 g/km or less; the same term is used in the Bill in reference to a 160 g/km threshold. To give clarity to taxpayers and  their advisers, it would have been sensible to use a slightly different definition in schedule 11 to avoid confusion in the future.

Photo of Kitty Ussher Kitty Ussher Parliamentary Under-Secretary, Department for Work and Pensions

I can safely say that, as far as I am aware, no consideration was given to that. I am sorry if the hon. Gentleman is confused, but we think the intention is clear.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

As I said, the amendment is probing. It would have been better for clarity if the Government had come up with a different term, to prevent confusion and to ensure that taxpayers understand the Government’s aim exactly. Given that the Government do not wish to move on this, however, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment 20, in schedule 11, page 109, line 32, at end insert—

‘(5A) An order under subsection (5) may not be made until 2 years after this Act has passed and any subsequent change will be subject to a 2 year notice period.’.

The purpose of the amendment is straightforward. We want to ensure some certainty for taxpayers and that, where an amendment is made to the thresholds, businesses are given some notice, so that changes are not simply made overnight. We want to ensure that businesses can plan how to meet the downward trend of emissions—shifting the bell curve down, as the Minister described it earlier. The amendment introduces a two-year waiting period for any changes made under new section 104AA(5) of the Capital Allowances Act 2001, inserted by the schedule, so that businesses can properly prepare.

Photo of Kitty Ussher Kitty Ussher Parliamentary Under-Secretary, Department for Work and Pensions

In a sense, I accept the spirit behind the amendment. We try to give businesses as much notice as possible. We understand that is important and we have no plans not to do that. However, as I said in my remarks on clause 30, the proposals have been consulted on extensively—indeed the first consultation took place more than three years ago, which is a longer period than the two years’ notice proposed in the amendment.

We accept that planning and certainty are important to business, but we do not accept that a statutory requirement to wait for two years and always give two years’ notice is necessary or always desirable. I can think of circumstances where, for example, our policy proves to be more effective than we expected, leaving us with a policy that has achieved its design, but which we are unable to ratchet further for environmental purposes because of a provision such as this in the Bill. At the same time, I do not want to send a signal that we intend to change the capital allowances system arbitrarily. We think it important to consult properly, and the Government benefit from that.

I assure the Committee that we have no secret plan to change anything and that we are always committed to good consultation. However, I do not think it right to tie the Government’s hands—I am sure that the hon. Gentleman would agree—in case different external factors come into play, such that government and policy would be better served by not being tied down in that way.  The Government recognise the need to give business time to plan for changes, so I ask the hon. Gentleman to withdraw the amendment.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 10:45 am, 9th June 2009

I am grateful for the hon. Lady’s assurance that there is no secret plan to make changes. It would not have been a secret if it had been announced in this Committee—although, on the other hand, it might well have been, given the extent of reporting of events in Committee.

Although the Treasury has made some progress towards improving consultation before making announcements, it does not have a perfect record. There are clauses, such as clause 92, on which no consultation was undertaken before an announcement was made. I am sure that, in the new mood that seems to be suffusing the Government right from the very top in relation to consultation and discussion—not that we have not heard that before—the Minister will ensure that, where there are changes, proper consultation is conducted. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the schedule be the Eleventh schedule to the Bill.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I have two questions to raise about schedule 11. They are detailed points that have been raised with us by the Low Incomes Tax Reform Group, which has done a good job of examining how the Bill’s provisions will affect vulnerable people.

The first question the group has drawn to my attention is whether an impact assessment has been undertaken for the schedule addressing the impact on people with disability. A feature of Her Majesty’s Revenue and Customs’ disability equality scheme is that there should always be an assessment of the impact on people with disability. The Low Incomes Tax Reform Group’s point is that disabled drivers might need to purchase larger and generally less CO2-efficient vehicles to accommodate their needs. They are not only faced with a potentially higher cost for the vehicle itself, but might receive only the lower special capital allowance rate of 10 per cent. Given the costs that many people with disability face, the group is concerned that the low capital allowance rate would put them in a worse position than they are in now, so it has asked the Minister to consult on the issue to see whether an exemption could be made.

The group’s second point relates to the change in treatment of exempt hire cars for disabled people. The previous regime allowed hire companies to claim the writing down allowance on the full cost of those cars, rather than on the limited £12,000. It was believed that the Government were going to provide a similar exemption by allowing cars hired to disabled people to qualify for the higher 20 per cent. rate of capital allowances, regardless of CO2 emissions, but a technical note produced last year suggests that the Government have reached an agreement with the main UK supplier of such cars to disabled people whereby they will defer an application under state aid rules and look at other initiatives to increase the availability of cars with lower emissions for  leasing to disabled people. Although the intention might be to increase the availability of those lease cars to people with disability, the concern is that, in the short term, hire companies might face higher costs, taking into account the loss of tax relief, and that those costs will be passed on to people with disability.

My final comment relates to a definition in paragraph 22 of schedule 11, which, in proposed new section 268D(2) of the 2001 Act, sets out four criteria people can use to determine whether they qualify as disabled people in relation to hire cars. Those criteria are quite complex, and I was asked why they cannot be simplified to include someone who is a disabled badge holder, rather than seeking to assess whether someone is a disabled person by reference to several different allowances.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

It is a great pleasure to serve under your chairmanship, Mr. Hood, and I welcome the hon. Member for Burnley to her new ministerial role.

On the basic issue dealt with by the schedule, if I understand it correctly, there is a low emission rate of 100 per cent. capital allowance. I wonder if the Minister knows to what cars that rate applies and how many of those cars are actually bought. I also wonder if the change to a 10 per cent. allowance for cars with high emissions and 20 per cent. for those with lower emissions is revenue-neutral, given the abolition of the separate pool.

Of course, we are dealing with a timing difference. It is not a case of money being given away. Capital allowances are recouped when the vehicle is sold, so there is either the balancing charge or the balancing allowance. What I would have expected to see in the schedule, given the state of the car industry, is the Government bringing forward 100 per cent. relief for fleet cars to encourage the purchase of new vehicles. After all, it is only a timing difference. That change to 100 per cent. relief would encourage companies to spend money. At the end of the day, the Government would get their money back when the vehicle was sold. That change would be an incentive that would help car manufacturing in this country. I wonder why the Government rejected that approach.

Photo of Kitty Ussher Kitty Ussher Parliamentary Under-Secretary, Department for Work and Pensions

I will take the questions in the order in which they were put. Yes, there is an impact assessment that specifically considers the impact on disabled people. I am sure that the hon. Member for Fareham will have that impact assessment in his papers. Although the Finance Bill can achieve many things, the policy intention behind the measure was to simplify the arrangements and ensure that they are consistent with environmental objectives, not to widen the scope of the policy. We wanted to ensure that the provisions and exemptions that are available for disabled drivers are replicated in the new legislation. As he rightly said, and as we have made clear several times, it is our intention, subject to state aid rules, to ensure that the exemptions are carried over into the new system. That remains our intention. The timing has been agreed with all the players.

The hon. Gentleman then asked specifically why in paragraph 22 we do not simply use the qualification criterion of a person holding a disabled badge. The answer quite simply is that the power to award a badge is devolved to local authorities and we wanted to ensure  that we had a comprehensible and tighter set of criteria, so that the system and the resources are properly targeted on those people who need our support.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

On the point about the blue badge, does the hon. Lady accept the argument that the Low Incomes Tax Reform Group made that, as a consequence of these changes, high costs may be imposed on people with disability who need larger cars?

Photo of Kitty Ussher Kitty Ussher Parliamentary Under-Secretary, Department for Work and Pensions

I am not entirely sure that the evidence points towards that conclusion, although I think that the Low Incomes Tax Reform Group is an effective lobby group and I commend it on the work that it does. The market is sufficiently dynamic that there is a large number of models available to suit people’s needs, so I do not think that these measures will create an extra cadre of people who will face additional financial hurdles. We are just seeking to replicate the current criteria in a new system that is simpler and that has greater environmental incentives for those who are leasing and purchasing cars.

It is a pleasure to serve again on the same Committee as the hon. Member for Wellingborough. To his question whether the policy is revenue-neutral, the answer is no. The impact assessment shows that, assuming that there is no change in behaviour, which is the crucial point, the policy would yield revenue to the Treasury of £485 million over five years. That figure is broken down year by year in the impact assessment.

The hon. Gentleman then suggested that we could have used the policy to boost the automotive industry. In his previous ministerial incarnation, my hon. Friend the Economic Secretary has been extremely closely involved in measures designed to have that effect. We hope very much that the effect of the policy will be a change in behaviour, precisely because of the new financial incentives that we are putting in place that will cause large companies with large fleets in particular to purchase more environmentally efficient vehicles, and thus to avoid paying the revenue that would otherwise accrue to us. That will provide precisely the spur for the green technology and green automotive industry that we want.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

My point was more that we have missed an opportunity to have an incentive. Yes, there is the stick to encourage us to switch to more environmentally friendly cars, but we then get only the standard writing down allowance. If we extended the allowance to 100 per cent., more cars would be bought and that would be better for our manufacturing industry.

Photo of Kitty Ussher Kitty Ussher Parliamentary Under-Secretary, Department for Work and Pensions

We could use the policy simply to pass over cash to the manufacturing industry. The Government do that in various ways, but it is more appropriate to have a targeted policy that seeks simultaneously to simplify the system, which is what business wants, and to provide a spur for investment in environmentally efficient vehicles. There will also be a third effect, which is to boost the development of those vehicles. In a sense, therefore, the hon. Gentleman and I agree.

Question put and agreed to.

Schedule 11 accordingly agreed to.

Clause 31 ordered to stand part of the Bill.