Schedule 28

Finance Bill – in a Public Bill Committee at 1:30 pm on 11th June 2009.

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Taxable benefits: cars

Question proposed, That the schedule be the Twenty-eighth schedule to the Bill.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

It is a great pleasure to serve under your chairmanship, Mr. Hood, I believe for the first time in this Bill Committee. I assume that the Exchequer Secretary will be dealing with this schedule. May I formally welcome her back to the Treasury? I know that this is not the first time she has been a Treasury Minister. Perhaps she is following the example of the Financial Secretary as a serial Treasury Minister. I do not know whether she will reach his total number of spells in the Treasury—I suspect she will not do so in the immediate future.

Schedule 28 deals with provisions regarding taxable benefits that arise from cars being made available to employees by reason of their employment. I have a couple of queries that I would like to raise with the Exchequer Secretary. The first matter is the abolition of the current £80,000 list price cap, which will lead to higher tax charges for individuals using more expensive cars. The Institute of Chartered Accountants in England and Wales asked whether that proposal will have an impact on the UK car industry, because the UK car industry produces a number of cars that would exceed the £80,000 list price cap. I would be grateful if the Exchequer Secretary said whether any assessment has been made of that impact.

The second issue is directly relevant to provisions regarding the taxable benefits that arise from cars being made available to employees by reason of their employment. I will mention briefly a slightly specialist point, and, to be fair to the Exchequer Secretary, it is a matter that she may find easier to respond to in writing. In April, through correspondence, I raised with her predecessor the issue of car dealership employees who are taxed on their use of demonstrator cars. The problem relates to those employees working for car dealerships who use demonstrator cars for their own private use. It has long been accepted that it would be inappropriate to tax that benefit in kind in exactly the same way as company cars are usually taxed. It is likely that the employee will use more than one car or that they have no choice over which car to drive. The car that the employee drives is likely to be disproportionately expensive compared with their salary.

As a consequence, a system has developed whereby HMRC has looked at a range of models and averaged a value to calculate a figure for the relevant benefit in kind. A new system was introduced in April that still  works on the basis of averaging the value, but it is done on narrower bands. I have received representations from car dealerships and manufacturers because the consequence of that is likely to be that more car dealership employees pay tax. In addition, the measure is likely to increase the administrative burden on car dealerships. As I said, I have raised that point previously in correspondence, but given that schedule 28 deals specifically with taxable benefits and cars, I have taken the opportunity to raise it again.

Photo of John Howell John Howell Conservative, Henley

I wish to make a couple of points. My hon. Friend has asked about the impact of the provision and research on the car industry, but will the Minister comment on the difference in tax yield between the proposal under discussion and increasing the amount from £80,000 to, say, £100,000?

Photo of Kitty Ussher Kitty Ussher Parliamentary Secretary, HM Treasury

It is a pleasure to serve once again under your chairmanship, Mr. Hood. As it is, or it is also a pleasure—even if I cannot speak—

Photo of Kitty Ussher Kitty Ussher Parliamentary Secretary, HM Treasury

Overwhelmed, indeed, by the opportunity and privilege of debating with the hon. Gentleman again today.

The points that have been made are valid. The schedule does three things: shifts down the CO2 emission threshold for the main company car tax band by 5g CO2 per km; abolishes the cap on company car list prices for the purposes of CCT; and—I think this is uncontroversial—simplifies the legislative means by which the appropriate percentage for electric cars in CCT is set.

On the point made by the hon. Member for South-West Hertfordshire, we have, of course, considered the impact on the industry. The impact, if there is any at all, is negligible, for the simple reason that only around 1,700 company cars retail at more than £80,000. The price range may be extremely wide. I think the figure of £300,000 was mentioned. People who purchase that type of car should easily be able to cope with what we propose. There is no policy reason for a cap. On the point made by the hon. Member for Henley, it therefore follows that it would not make any difference if the cap were raised to £100,000.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I am grateful for the Minister’s explanation, but given what she has just said, why are the proposals being introduced at different times?

Photo of Kitty Ussher Kitty Ussher Parliamentary Secretary, HM Treasury

We like to give certainty to the industry, and are simply setting out what we propose to do in the appropriate years ahead. Some of those proposals have been pre-announced, fulfilling different commitments.

Abolishing the £80,000 cap will, after three years, yield about £5 million, while raising the cap to £100,000 would probably not yield anything quantifiable. I hope that that goes further towards answering the question asked by the hon. Member for Henley.

The hon. Member for South-West Hertfordshire raised an issue that, as I was aware, he raised with my predecessor in correspondence: car dealerships that might give employees  a different car to drive every couple of days, or every week. As he says, while in some firms an employee might be given those different cars because they are what they would like to drive, in many other firms employees do not have a choice. He is right that in the past, just to make it simpler for the employer and the garage, we allowed average list prices. What we wish to address is the fact that those prices were negotiated with HMRC on a piecemeal basis, garage by garage, often with an individual garage in a chain of garages. That sometimes led to an arbitrariness that perhaps was not conducive to good policy making, and we are simply formalising the process by means of a national system.

It might help the hon. Gentleman to know that the effect of the change is cost neutral to us, and so while there might be differences for individuals—and they are right to raise those differences—this is not a revenue-raising measure and there will be both winners and losers. I am sure he agrees that it is better to have a proper system, rather than to deal with the issue on an arbitrary, ad hoc basis.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I am grateful to the Minister for responding this afternoon on that point. I note her comment that the measure is cost neutral for HMRC, but what assessment has been made of the additional administrative burden for car dealerships? What consultation was there with car dealerships and the car manufacturing industry as a whole, and what was the response?

Photo of Kitty Ussher Kitty Ussher Parliamentary Secretary, HM Treasury

I think that I am able to reassure the hon. Gentleman on those points. We have consulted extensively with industry bodies—for example, the Society of Motor Manufacturers and Traders and the Retail Motor Industry Federation—on the change. The feeling that we are getting back is that the change will lead to reduced administrative burdens, because of the certainty that it provides. Individual employers do not have to use an averaging process if they do not want to; they can continue with the mainstream system if they prefer that. However, the purpose of the measure is to reduce compliance costs and have a far simpler method.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

In the correspondence that I have seen, both RMIF and SMMT have expressed concerns about the proposal. That correspondence dates back a couple of months or so, and those bodies’ position might have changed, but what I have seen suggests concerns about the proposals rather than a general welcoming of them.

Photo of Kitty Ussher Kitty Ussher Parliamentary Secretary, HM Treasury 1:45 pm, 11th June 2009

The advice I have been given is that the measure should lead to reduced administrative burdens, and that that is understood. We intend there to be a simplification measure. We are making the change because people have complained that the previous system of individual car averaging arrangements with individual employers and garages was unfair, and led to inconsistencies across the country. Perhaps that is the nub of the problem. If there were inconsistencies there would obviously be winners and losers as a result.

I simply want to reassure the Committee that this is not an attempt to ratchet in more funds to the Exchequer; it is simply better policy making. If in ironing out there are inconsistencies and some individual employers feel  hard done by, I can understand that. But this is a better way forward. As I said, they have the option of not going down the averaging route if they prefer. I hope, having explained that, that the schedule will be accepted by the Committee.

Question put and agreed to.

Schedule 28 accordingly agreed to.