Clause 22

Finance (No. 3) Bill – in a Public Bill Committee at 9:00 am on 19th May 2011.

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

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Under the clause, HGVs of a certain weight and axle configuration that do not have road-friendly suspension will attract a different rate of vehicle tax, which takes effect from 1 April 2011. That means that not all HGVs will enjoy the freeze in vehicle excise duty that was confirmed in clause 21. I accept that the rate for HGVs without road-friendly suspension has to increase to meet the EU’s minimum rates of taxation, but there is concern in the haulage industry that such an increase comes at a time when it faces pressures as a result of high fuel prices. Has the Treasury held any discussions with haulage companies on the increase in duty for HGVs without road-friendly suspension? Does the Minister know the number of HGVs that will be affected by that rate of duty, and how much revenue is the change likely to generate? Finally, what impact will the new rate of  vehicle excise duty have on the haulage industry? Given that drivers are being made redundant, that companies are struggling to compete and that the industry is not in a position to reinvest its shrinking profits in more eco-friendly HGVs, is this really the right time to introduce such a change?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The clause ensures that UK vehicle excise duty rates for lorries are consistent with European Union minimum tax rates for lorries. The background to this clause is that the EU minimum tax rates for lorries are based on the understanding that there is a cost to making good the wear and tear caused to European road infrastructure by goods vehicles weighing more than 12 tonnes.

European Union member states, including the UK, agree and accept minimums below which tax rates for lorries should not fall. The agreed tax minimums have been set in euros. As the hon. Lady mentioned, some of the UK’s vehicle excise duty rates for lorries have fallen below the agreed tax minimums due to exchange rate fluctuations; those rates are based on pound sterling to euro exchange rates on the first working day of October 2010, in line with our obligations under European law. Our aim is to ensure consistency with European rules on minimum rates of taxation while causing the least impact to lorry owners.

The clause introduces new exceptional rates of vehicle excise duty for 10 categories of lorry for which VED has fallen below the agreed European Union tax minimums. The rate increases for those categories of lorry are no greater than is required to ensure consistency with European rules on minimum rates of taxation. The affected categories are limited to lorries that do not have road-friendly suspension fitted. The majority of the affected categories are lorries that have been awarded a vehicle excise duty reduction because they met reduced pollution requirements early. In most instances, lorry owners will continue to receive a reduction from the standard rate, even after the application of the exceptional rates, as exceptional rates are set as low as permitted by European law.

The hon. Lady asked about the impact. No more than 12,000 lorries will be affected by the change, but the number could be fewer than that, as lorries fitted with road-friendly suspension will not be affected. Based on the 12,000 ceiling on the numbers of lorries affected and the minimal level of rate increase, the anticipated financial impact on the industry is no more than £500,000. The clause is designed to satisfy the requirements of European law. A failure to observe European law can lead to European Union member states being fined, and we wish to avoid that outcome.

The hon. Lady asked about consultation. Representatives from the leading industry associations were consulted while we were developing the measure. In fact, informal discussions began in early 2010. They contributed to the design of the draft legislation, which was published in late 2010. We had input from the Freight Transport Association and the Road Haulage Association, which represent large fleet and smaller independent lorry operators. Both organisations agreed that the industry would accept a transparent solution that enabled us to meet EU tax minimums. Their input was useful in allowing the Government to develop such a solution, and allowed us to provide certainty that existing rates will be maintained for the vast majority of lorry owners.

As for future changes, the transparency of the clause supports a future Finance Bill removal or amendment of exceptional rates if future pound sterling to euro exchange rates allow. The clause offers a “least impact” solution for reaching consistency with mandatory European tax rules. It has been tailored with the industry to give transparency, and it protects the majority from increases in the rate of vehicle excise duty.

Question put and agreed to.

Clause 22 accordingly ordered to stand part of the Bill.