Mileage allowance payments
(1) Section 230 of ITEPA 2003 is amended as follows.
(2) In the table in subsection (2), for 40p substitute 45p.
(3) Insert at the end of subsection (6)
(7) The Treasury shall publish annually a report setting out its assessment of the impact of the rates under subsection (2) on the level of participation of volunteers in community transport schemes.
(8) A report under subsection (7) is subject to approval by resolution of the House of Commons..(Mr. Browne.)
I beg to move, That the clause be read a Second time.
New clauses 5, 8 and 9 are all in my name, and I hope that they will provide a stimulating opportunity for the Committee to consider how the law can be improved to the benefit of many of our constituents. New clause 5 amends section 230 of the Income Tax (Earnings and Pensions) Act 2003, which contains the rate for mileage allowance payments. I am sure that many Committee members will be familiar with these rates, not least because, as I understand it, they apply to Members of Parliament. However, the rates are: 40p a mile for a car or van for the first 10,000 miles within a tax year and 25p for any subsequent miles; 24p for a motorcycle, and 20p for a bicycle. New clause 5 makes two simple amendments to section 23: to increase the relief rate for cars for the first 10,000 miles from 40p to 45p a mile, and to insert a requirement at the end of the section for the Treasury to publish an annual report assessing the impact of the rate level on community transport scheme volunteers.
The new clause is fairly straightforward, so I do not wish to speak at length, but I shall briefly explain my motivation for proposing both measures. The HMRCs own guidance states:
the tax-free mileage allowances are intended to give tax relief for amounts that represent fair reimbursement for car use.
That is a crucial point. There is a tendency, in some minds, to assume that the rates have been held down as an environmental measurethat they have been kept at the same level and not had inflation taken into account because the Government wish to disincentivise people to use cars, in particular. The HMRC guidance makes it clear that that is not a motive. There is no environmental dimension to current policy. It is designed to achieve something perfectly reasonable: it is meant to reflect the costs of motoring accurately.
I think that everybody accepts that a ceiling is needed, because the provision could act as a tax avoidance scheme if a large amount of money was reimbursed for each mile driven. At the same time, there is recognition that some reimbursement is appropriate. I am not seeking to change the figure for the mileage over 10,000 miles a year. Most people accept that there are fixed costs and that the per mile cost of motoring decreases. One may wish to make the case that the level should be 8,000 miles or 12,000 miles, or make the case for any other number, but 10,000 miles is a fairly reasonable amount to set it at before the rate comes down. Therefore, I have decided to leave that figure where it is.
The only change is an extra 5p on the allowance for the first 10,000 miles. It is reasonable for those who have to drive for business to be reimbursed at a fair rate, but, in the next minute or two, I want to concentrate on people who volunteer their services and also enjoy relief at the current rate. I shall give a couple of examples; in our constituencies there are all kinds of voluntary organisations in which people give up their time to drive people to hospital appointments and so on.
Until recently there was no high-level cancer treatment in Taunton, we are pleased that there is now a new cancer centre, which provides treatment in the vast majority of cases, but that is a new service. Before that, people had to go to Bristol daily for complicated cancer treatment. Bristol is almost exactly 50 miles from Taunton, so the round trip was 100 miles. Volunteers committed to collecting two or three patients from different parts of the town, driving them to Bristol, waiting while they have their treatment and then driving them back to Taunton. That is extremely generous in terms of time and willingness to incur costs. Their mileage costs are, rightly, eligible for reimbursement, but I do not want such people to feel disincentivised to make that noble gesture on behalf of their community because they feel that the tax-free allowance on mileage does not accurately reflect the cost incurred by them.
There are other volunteers, who may not drive such long distances, but who may, for example, routinely collect elderly residents and take them somewhere. It may be that such residents one opportunity a week to go out and socialise is to attend a clubwe were talking about bingo this morningor maybe an informal bingo session in a village hall. The driver is eligible to be reimbursed, but obviously cannot be paid more than 40p a mile for the first 10,000 miles because they would be eligible to pay tax on that mileage.
The 45p per mile level was not arrived at particularly scientifically. It is difficult because one can make calculations on a number of different levels. To a large degree, it obviously depends on the value of the car and the degree to which it is depreciating, on the fuel consumption and, now that we have differential vehicle exercise duty bandings, it depends which band the car is in. One could justify all kinds of different figures. I have used 45p because the level has been at 40p for many years and all Committee members will accept that the real costs incurred by motorists are higher now than when the 40p level was introduced.
I am grateful to the hon. Gentleman for bringing this matter to the Committees attention. It is regularly brought up in my constituency, especially with regard to volunteer drivers. There was a period when the volunteer drivers in my constituency were unwilling and were really at a financial disadvantage. I want to clarify whether the hon. Gentleman is suggesting that the Government look at the matter through the new clause and perhaps come back with a differential rate that is higher for volunteers and charity workers.
I am grateful for the opportunity to clarify my intentions. The hon. Gentleman is completely right. I do not want to imply that the motivation of the people I am talking about is financial. Their commitment is huge and the reimbursement, against the time they commit, is minute. I do not want people to be disincentivised from making that sort of commitment.
The issue also applies to businesses and others, particularly in a rural community. Most of the villages in my constituency have very infrequent bus services. It would not be feasible for somebody who needs to visit a number of people who are homebound, for example, to undertake a series of journeys on regular bus services. Such people are often required to use their own car as part of their paid job, rather than one supplied by a company. I am, therefore, talking not just about volunteers but about people who quite legitimately incur mileage as part of their work. I do not want them to be penalised either.
As I said at the beginning, there are two purposes to new clause 5. The first is to increase the rate from 40p to 45p for the reasons that I have set out. I am quite willing to hear the Minister concede that 45p is not enough. If she suggests another figure, we shall be willing to listen to that argument. I can see that there might be a case for a rate of 50p, for example, but I suggest 45p. The second purpose is to seek a specific impact assessment for the necessary rate to make sure that community transport scheme volunteers are not disincentivised in their desire to serve the people in their area. I hope that new clause will enjoy the support of the Committee and the Government.
I commend the hon. Gentleman for raising the general issue. We may well hear that there needs to be a little more thought on how to address it, but I have certainly had constituentsvolunteer driversraise the issue with me. I would want to focus the issue pretty firmly on that sector. The difficulties that they face in not making their act of volunteering rather costly to themselves should, of course, be our main concern. A volunteer car scheme in my area offers a number of services. It can take someone shopping, to hospital or to a doctors appointment. I represent a rural area, so journeys to hospital are sometimes lengthy. There is also a community transport service operating minibuses and larger vehicles. It is a concern. Volunteers sacrifice a large amount of their time; it is for them to make a judgment and we are very welcoming of it. However, to add a material financial penalty, which I have been persuaded could occur in some instances, is not our intent. Our intent is to encourage volunteers to offer such services to people. I hope that the Government will at least give some careful thought to the issue, if not actually concede some ground on new clause 5.
I note that the hon. Member for Taunton says that new clause 5 is the first of three clauses in his name. Of course, the lead name on all of the new clauses is that of the hon. Member for Twickenham. There was some excitement on our Benches that he might make an appearance to speak to the new clauses. I have been a member of the Committees on the past four Finance Bills, as has the hon. Member for Twickenham, and I was hoping that we would see his first appearance in those four years.
Like the hon. Member for South Derbyshire, I welcome new clause 5, as it enables us to highlight this matter. The hon. Member for Taunton rightly says that there are two components to the new clause, the first of which would increase the rate under the approved mileage allowance payment scheme from 40p, which has been the rate since 2002, to 45p. In the time since 2002, by and large the cost of motoring has gone up. The cost of motoring varies, of course, depending on what happens with the price of petrol. The price of petrol was a particularly important issue a year or so ago, when it was higher, and I received a fair number of representations about it. Perhaps there is an argument for a fuel duty stabiliser to reduce the volatility of the cost of fuel. However, we will not go there today.
I believe that in 2007 Ministers promised a review, in discussions with businesses on the 40p rate and whether it should be changed. However, nothing in particular came of that. Perhaps the Exchequer Secretary could tell us whether there are any ongoing discussions on that matter; it is clearly a matter that must be kept under review. I would also be interested to know the financial implications of new clause 5. Again, I hope that she can inform the Committee of those implications.
Perhaps I should have mentioned this point myself, but new clause 5 clearly has financial implications although it is hard to predict them precisely because there may be some behavioural change. Having said that, however, there may be financial implications in not going forward with the new clause. If volunteers are disincentivised from driving people so that they can benefit from essential services, there may be an obligation on social services departments to do that work instead, at a greater cost.
That is a fair point. The figure involved here is quite difficult to quantify, but there is a legitimate concern about it.
The second element of the new clause is the situation with volunteers. I agree with the remarks of the hon. Members for Taunton and for South Derbyshire about the importance of volunteer drivers. As it happens, this week I was able to invite Mrs. Helen Dean, a volunteer driver for one of my local charities, the Watford Peace Hospice, to the MP Heroes tea party, which was held on Tuesday. A number of hon. Members in the Committee from all parties were able to take part in that event. Mrs. Dean, like many other volunteers, does tremendous work in helping charitable organisations. I am sure that all members of the Committee would unite in saying that without the contribution of volunteers, charities would find their work much harder and the demands on elements of the public service would be greater. So we should acknowledge the contribution of volunteers.
I am grateful to the hon. Member for Taunton for highlighting the matter of volunteers. Clearly, it would be most unjust if those individuals faced a financial penalty for their good work; it is right that we look kindly on such contributions to society. We would be interested to hear the Governments response to the new clause, in particular whether it is workable. None the less, the issue of volunteers is worth highlighting.
I should declare an interest at the outset, as I drive a biofuel car, which is considerably more expensive than a petrol car and therefore I would benefit from a higher rate if it was granted.
The position of volunteer drivers has been discussed extensively already and it is a very important matter in my area. I agree with the hon. Member for Taunton that it is not a question of providing a financial incentive for volunteer drivers; instead, it is a question of those volunteers getting back what they lose by doing that type of driving.
The wider issue is what the Revenue says at the beginning, that the tax-free mileage allowance should effectively be the cost to the taxpayer of using their car while on business. That is the purpose of the allowance. In the past, many years ago, everyone used to have a company car and there were enormous problems in working out taxable benefits.
Sarah McCarthy-Fryindicated dissent.
I see that the Exchequer Secretary disagrees, but I am sure that she enjoys her Government car. For most people in business, there was an attraction in their company providing a car, which they used privately. However, there was then a problem of taxable benefit in terms of how much of the petrol use was personal, and the calculations became extremely complicated. A tax-free mileage allowance led to habit switch: people bought their own vehicle and reclaimed the cost of using it on business through the allowance.
The question now is: has the cost changed? If the cost remains roughly 40p a mile, that is fine, but have the Government done any research in conjunction with car organisations, such as the Automobile Association, on the actual average cost of driving a mile? If the real cost is something like 70p per mile, the allowance needs to be looked at again. It cannot be right that the taxpayer does not get reimbursed for the full cost of using his vehicle while on business. Will the Minister tell us what information the Government have on the subject? If the actual cost is considerably greater than the Revenue allows for, that does not tie up with what the Revenue says is supposed to happen.
I welcome the debate on the new clause, which has raised some important questions. I will deal with the rate of the mileage allowance payment first and discuss volunteers later. I do not want people jumping up and saying, What about the volunteers? when I am talking about the mileage allowance.
The allowance is currently calculated at 40p a mile, which is the rate at which employers can reimburse their employees for using their private cars for business journeys without that reimbursement being taxed. The rate is set to reflect broadly the cost of business mileage, including the costs of fuel, maintenance, depreciation and insurance. Let me make it absolutely clear that it is not intended to be equivalent to some overall assessment of the cost of motoring, but to reflect the specific additional costs of driving businesses journeys in an employees private car. The current rate of approved mileage allowance payments of 40p a mile is a reasonable reflection of those business motoring costs. Of course, there will be some motorists for whom the rate is either above or below their actual costs, but over the whole UK car fleet, it represents a fair and, if anything, generous rate, according to our calculations.
One effect of increasing the AMAPs rate would be to provide an incentive to those employees whose actual costs are less than the proposed 45p a mile rate to drive further in order to profit from the mileage reimbursements. That is not the purpose of the allowance, and it could lead to an increase in unnecessary driving and thus to an increase in overall carbon dioxide emissions, contrary to the Governments environmental objectives.
We have been asked why we do not uprate the AMAPs rate in line with the retail prices index. Since the AMAP was introduced in 2002, some elements of the overall costs of motoring, such as fuel costs, have increased, but over the same period capital costs have fallen and the fuel efficiency of cars has improved. Furthermore, the reduced cost of fuel per mile driven is taken into account when calculating the overall costs of business mileage. We review the AMAPs rate annually as part of the normal Budget cycle, but we have concluded that, as the rates have to cover a wide variety of drivers and were never intended to reflect the actual costs of motoring for every car, the present rates are sufficient to cover the business motoring expenses of most drivers.
Do the Government publish the calculations on which their estimate that the present rate is a fair amount is based? If not, will the Minister ensure that they are published in future, so that we and our constituents can see for ourselves that there is a reasonable and rational basis for the calculations?
I will look into that. I should also like to point out that the AMAPs rate does not restrict how much employers can reimburse their employees. Employers remain free to pay their employees whatever reimbursements they wish, and employers across the country reimburse their employees for a range of expenses at various different rates.
The AMAPs rate merely limits the amount that employers can reimburse employees tax-free. Without such a limit, employers would be free to use travel expenses as a form of untaxed remuneration, while paying low salaries to their employees to avoid paying a fair amount of income tax and national insurance. There is no justification for increasing the AMAPs rate as proposed in the new clause, especially at a time when maintaining sound public finances must be a central fiscal objective for the Government.
I want to move on to volunteers
The hon. Lady mentions the financial cost of the new clause, but is moving on without having told us what it is. I would be grateful to be told, as it is easier for her Department to make an assessment than it is for me. That would surely have a bearing on Members considerations.
The estimated cost is £225 million a year.
Many hon. Members spoke about the impact on volunteers. The implication of the new clause and the comments of many hon. Members is that the current AMAPs regime may be a barrier to volunteering. Let me place clearly on the record my appreciation of the voluntary sector and the people who give up their time to help build a stronger society and are selfless in their generosity to others. Many hon. Members have spoken about that this afternoon. The Government would never want to do anything to undermine that spirit of giving or the wider culture of volunteering. In particular, we have never wished to intervene in reimbursements paid to volunteers, whose work is highly valued, in order to tax them. It is right that those who freely give their time and their vehicle to voluntary work should be able to reclaim their motoring expenses. For that reason, volunteers are not taxed on payments they receive if they just cover reasonable expenses.
As a convenience, the Government allow voluntary organisations to reimburse volunteers for mileage driven in the course of their voluntary work at the statutory AMAPs rate. If they choose to do that, voluntary organisations need not keep detailed records or produce detailed evidence to HMRC to show that the reimbursement payments only cover motoring costs actually incurred. However, using AMAPs in that way is entirely a matter of choice for voluntary organisations; if they so wish, they have the option of reimbursing volunteers the precise actual costs incurred through driving in the course of their voluntary work. However, full records would have to be kept and produced to HMRC to ensure that only the actual costs of driving were reimbursed. For voluntary organisations, therefore, AMAPs are an optional convenience and I do not think that using that system hinders or impedes the work of volunteers.
The Minister anticipates the difficulty of the answer that she has given. The representations that I have had make it clear that while it is possible to reimburse the actual cost, many small voluntary organisations find it an uncomfortable experience to keep records to feed to HMRC, which suggests they would only do that in extremis.
Further to the intervention by the hon. Member for South Derbyshire, the same thought crossed my mind when the Minister made her comments. Does she not recognise that the last thing volunteers want is a big bureaucratic burden? They are giving up their time and effort; they do not want to be faced by endless form-filling. That simply does not address the problem.
I accept the hon. Gentlemans point but it does not detract from the principle that the facility is there if they are able to use it. There may be ways the process could be made easier. Perhaps the voluntary sector could work together to look at how to do itperhaps by using a standardised form. There are ongoing discussions and all taxes are kept under review as an inevitable process. I re-emphasise that we value the work done by volunteers. I do not think the new clause will help.
It is disappointing that we are rushing at this stage of the Bill. Does the hon. Gentleman agree that it would be very simple to allow volunteer drivers to have an exemption or to make the rate 60p a mile for them. There would not be any form-filling involved; it would be a straightforward exemption. There would be no significant loss of money to the Exchequer and it would be a simple and fair way to help those drivers. I urge the Minister to take that point on board.
I am pleased that I gave the hon. Gentleman an opportunity to make that additional point.
I am now in a slightly weird position, in that I am indirectly seeking to answer for the Minister, although she might find that reassuring. However, I am not sure that it would be as simple to have an exemption as the hon. Gentleman believes, because I suppose that there would have to be some process for deciding whether the mileage was being claimed for voluntary driving or for some other form of driving. My preference would be to stick with the arrangement that I propose in new clause 5.
Perhaps the hon. Gentleman is encouraged by what may have been a throwaway line by the Ministerthat there may be a simple way in which voluntary organisations might be able to communicate any variance from the rate to HMRC and that negotiations with the voluntary sector might yield a mechanism for doing that. I must say that I am sympathetic with that point in the new clause, although I am not generally sympathetic to the arguments about business motoring and providing support for that. My focus is firmly on the specific issue of volunteer drivers.
I am genuinely grateful to the hon. Gentleman for that point, because I think that it is well meant and I think that there is a common view in the Committee that we want to do everything that we can to encourage people to contribute their time in that way. However, he also made the point earlier that a lot of very small charities are not just put off by the administrative burden that they face; they are also slightly frightened off by all the talk about HMRC. We all know that, of all the officers in a voluntary group, it is always hardest to find a treasurer, because people are worried about what the implications may be for them, in particular whether they would be legally held to account if there were any irregularities even if they had had the best intentions.
My fear is that, even if the rules appeared to HMRC to be fairly straightforward and were regarded by a company as being straightforward, there would still be a disincentive for voluntary organisations and individuals who wished to volunteer their time to go down that path, because they would fear that they would inadvertently fail to comply with the rules. On that basis, I think that the system that I propose probably offers the best way forward.
I urge the hon. Member for South Derbyshire not to be completely dismissive of the case for people who are acting in a business capacity. As I said earlier, I am not just talking about people who make lots of journeys up and down motorways at 70 mph. It is possible that some of those people, especially if they have a car with low fuel consumption, might find out that the costs of their driving worked out at less than 40p a mile for their first 10,000 miles. However, there are some people in different circumstances. The example that I gave was of people in rural communities where there is no alternative form of transport to the car.
For example, if someone in a rural community was performing some nursing-type role and was required to use their own car to go from house to house to visit people who needed a daily visit to help them to wash or change their clothes, or for some other form of personal care, that person might find, especially if they were travelling on rural roads or if they had to carry equipment and therefore needed a slightly bigger car, that the cost, in terms of the reimbursement at the rate of 40p a mile, was not an accurate reflection of the cost that they had incurred. When I talk about business, I do not want the hon. Gentleman to assume that that I just mean well-paid people driving very big cars down motorways.
Nor did I imagine that the hon. Gentleman meant that. However, the concern that I have is perhaps the one that the Minister shares. My focus is on a narrow community of volunteer drivers, but if the proposed rate was applied generally, there would be an incentive for drivers to change their behaviour to achieve a maximisation of the return that they could make tax-free from their activities. Also, I am not persuaded that the general cost of driving has risen sufficiently over a period of time to merit a general increase in the rate.
If new clause 5 is accepted in a few minutes time, it is possible, I suppose, that somebody who currently drives 8,000 miles a year as a volunteer may look at the arrangements and say, Wait a second. If I drive another 2,000 miles, and I get an extra 5p per mile, that extra £100 a year would be an incentive to do additional voluntary work. If that was the case, we might regard that as £100 well spent. There might be environmental considerations, because that persons extra voluntary activity would potentially lead to a greater amount of pollution. The point is that the matter is not quite as clear cut as the hon. Member for South Derbyshire implies and I am not convinced that an extra 5p a mile would have that much effect on behaviour.
The Minister set up a straw man when she said that there needed to be some sort of limit because otherwise people would be paid very low salaries but incur very high mileage costs. Everybody accepts that there needs to be some limit. The Minister made the point in order to knock it down. It has not been made by anyone else. I am sceptical about the estimated cost that she quoted. In the absence of detailed workingsa point raised by the hon. Member for Beverley and Holdernessit is quite hard to know on what basis those costs were calculated. There is a potential cost of disincentivising people to undertake either business or voluntary activity. I am not certain that the Minister has calculated the potential loss of revenue if such activity is disincentivised.
On the basis of all those points, and because our constituents probably think that we spend a lot of time discussing the issue without seeking to bring it to a head, I hope that we can have a Division and see whether the Government are persuaded by the argument.