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‘(18)(a) the Chancellor of the Exchequer shall, within three months of Royal Assent , undertake a review of the impact of changes made by this section to the Income Tax (Earnings and Pensions) Act 2003 on—
(i) tax revenues; and
(ii) the electric car market manufacturing industry in the UK.’.
The clause relates to company car tax and the appropriate percentage. It provides for company car tax rates for 2016-17. Before turning to the detail of the amendment, it is worth making a couple of points about the clause. I want to quiz the Minister on a particular issue, which is the diesel supplement on company car tax.
The Government announced the removal of the diesel supplement in the 2012 Budget, as part of a raft of changes to company car tax, including the ending of the five-year exemption for zero carbon and ultra-low carbon emission vehicles. The impact notes describe the benefits of changes for low-emission vehicles. Will the Minister enlighten us on how much the average company car driver—of a diesel car—can expect to save in 2016-17 as a result of the removal of the diesel supplement?
Will the Minister also set out the Government’s reasoning for repealing the 3% diesel supplement? Are we to presume that it is on the basis of emissions from diesel cars, which are often lower than for petrol cars? At Budget 2012, the Government forecast that the changes, including ending the exemption for ULEVs, would lead to a net benefit of between £300 million and £400 million to the Exchequer. Will the Minister outline the cost to the Exchequer of removing the diesel supplement, if indeed there is a cost?
The amendment is a probing one to elicit information. By way of background, the company car tax calculation, which previously had been based purely on business mileage, was correctly reformed—in my view—back in 2002 by the Labour Government to take account of carbon dioxide emissions. That led to a number of changes to the now famous Income Tax (Earnings and Pensions) Act 2003, providing for calculating the cash equivalent of the benefit of a company car. Broadly speaking, the calculation depends on the list price of the car, as well as any taxable accessories—we have had some interesting discussions on those during the passage of previous Finance Bills—multiplied by the level of CO2 emissions that the car produces. The way in which the appropriate percentage is calculated means that the lower the car’s emissions, the lower the percentage.
As Members know, the 2002 reforms to the regime mean that changes to rates have been announced at least two Budgets in advance—a practice intended to give stability and certainty to the company car market. That has been particularly helpful for fleet operators when making decisions about purchasing vehicles. It is therefore welcome that, as of 2013, the Government have been announcing the changes to rates three years in advance to avoid difficulties on that issue.
I will not go into all the detail about the new bands that are being introduced, other than to raise one query. The rates are now lower than the 13% announced in Budget 2012 for all zero-emission and low-carbon cars emitting less than 95 grams of carbon dioxide per kilometre in 2015-16, which were to rise to 15% in 2016-17. Yet that still represented a rise in 2015, so again I seek some clarification.
Clause 24 is partly concerned with uprating the new lower rates of company car tax for 2016-17. The tax information and impact notes, as well as comments by Ministers in previous Finance Bill Committees, have set out what those changes would mean for the basic rate taxpayer driving a low-emission company car.
Amendment 5 calls on the Government to take stock and consider the impact that their various policy announcements have had on the company car and van tax burden and on the electric vehicles market and manufacturing industry in the UK. The amendment is probing. It would be helpful if the Minister told us how much more a basic rate taxpayer driving a low-emission vehicle at the average list price can expect to pay in 2015 compared with 2010.
It is important to support the manufacture, sale and usage of electric vehicles. If the Minister could reassure us on that point, it would help us to make some progress.
As we have heard, clause 24 makes changes to the taxation of company cars, to take effect from 6 April 2016. I would like to give hon. Members some background before I speak about the clause and the amendment in detail.
The taxation of company cars was reformed in 2002. It was linked to carbon dioxide emissions to promote the purchase of environmentally friendly cars—the lower the carbon dioxide emissions, the lower the appropriate percentage. Carbon dioxide emissions from the average new car have declined by just over a quarter since 2002. The appropriate percentages have therefore traditionally increased each year to reflect the continued improvement in car fuel efficiency and to ensure that the company car benefit in kind continues to be taxed fairly.
As the hon. Lady has said, all Governments have committed to announcing changes in the taxation of company cars at least three years in advance so that employees and businesses have greater certainty about the costs involved in their use.
The previous Government introduced a time-limited company car tax exemption for zero-emission cars from 2010 to 2015. Upon expiry of the tax exemptions, zero-emission cars would have paid the same appropriate percentage as the cleanest conventionally fuelled cars. The changes made by clause 24 are part of announcements in Budgets 2012 and 2013, which introduced a differential in appropriate percentages between ultra-low emission and conventionally fuelled company cars from 2015-16 to 2019-20 to ensure that we continue to incentivise the choice of the former over the latter.
The Government also announced that the appropriate percentage for conventionally fuelled cars will increase by two percentage points in 2015-16 and 2016-17. The changes therefore ensure that taxation of company cars continues to reflect the improvement of emissions levels and provides for company car drivers to make a fair contribution towards the Government’s deficit reduction plans.
Regarding the impact of the ultra-low emission car changes, the detail of the appropriate percentages and bands are set out in the legislation. The changes ensure that ultra-low emission cars will be taxed at a lower rate than conventionally fuelled cars. Therefore, in 2016-17, a basic rate taxpayer driving a popular ultra-low emission car would pay £420 less tax than a basic rate taxpayer with a popular conventionally fuelled car. Our tax plans therefore continue to incentivise the choice of ultra-low emission company cars.
The hon. Lady asked for the differential between what someone paid in 2010 and what they would pay in 2015. If I am not able to gather the information before I sit down, I will certainly write to her.
Regarding the impact of the non-ultra low-emission car changes, for conventionally fuelled cars, a basic rate taxpayer with a popular petrol fuelled company car could be paying approximately £80 more in 2016-17. A higher rate taxpayer could pay £165 more. However, there is a company car turnover of three to four years, which allows employees and employers to switch to more fuel efficient cars to benefit from paying a lower tax rate.
The increase should be seen in the context of the increase in the personal allowance to £10,500 in April 2015 and the freeze in fuel duty. As a result of the Government’s action on fuel duty since 2010, a typical car owner will have saved £680 by March 2016. Furthermore, businesses that provide their employees with a company car have had their vehicle excise duty frozen in real terms since 2010.
The hon. Member for Kilmarnock and Loudoun asked about the diesel supplement abolition. New European standards coming into force on 1 September 2015 are intended to put the air quality pollutant emissions from diesel cars broadly on a par with petrol cars. To reflect the tightening of the air pollutant emission standards that new cars will now have to meet, the Government announced at Budget 2012 that the diesel supplement will be abolished after the first full year of the new standard. The abolition will also help provide administrative simplification to the taxation of company cars and bring the regime into alignment with that of fuel duty and vehicle excise duty, where the tax treatments of petrol and diesel cars are the same.
I have mentioned the changes in the standards. The hon. Lady also asked about what that would mean in terms of what drivers would be paying. A basic rate taxpayer with a popular diesel fuelled car could pay approximately £40 less tax in 2016-17, due to the repealing of the diesel supplement. A higher-rate taxpayer could pay some £85 less.
The hon. Lady also asked about the score card implication. Budget 2012 set out company car tax rates from 2014-15 and 2016-17, including the removal of the diesel supplement in 2016. We do not have the figures to isolate the diesel supplement removal cost in isolation, but the overall score card cost impact of the 2016-17 changes was included in the costing of the Budget 2012 announcement and showed an increase of £120 million in 2014-15, £375 million in 2015-16 and £350 million in 2016-17. If that is not clear, I am happy to write to her again, so the information is set out.
The Government are undertaking other initiatives and policies to limit air pollution emissions, including making £900 million available to the Department for Transport to support the early market for ultra-low emission vehicles and the Department’s making £535 million available, under the local sustainable transport fund, to support local transport projects aimed at reducing emissions.
The Government cannot accept amendment 5, because it calls for a review, within three months of the Bill’s receiving Royal Assent, of the impact of changes that will not take effect for another two years. The Government announced at Budget 2013 that we will review the company car tax incentives for ultra-low emission cars, in light of market developments, at Budget 2016. Furthermore, Committee members will know that we keep all taxes under regular review as part of the annual budget.
This Government’s ambition is to make the UK a premier location for the design, manufacture and adoption of ultra-low emission vehicles. The tax support that we have provided, including for company cars, combined with the Government’s grants to ultra-low emission vehicle purchases, will help to make that ambition a reality.
The clause strikes a balance between supporting the purchase and manufacture of ultra-low emission cars in the UK and ensuring that all drivers of company cars and their employers are subject to a fair level of tax. I owe the hon. Lady an answer on one thing and I am afraid that I will have to write to her about it.
I mentioned that I wished to probe a number of points and I thank the Minister for her response. Given that she has provided assurance that she will write to me on a number of points—and I am sure that she would do so if there were any follow-up—I do not intend to press the amendment to a vote. I beg to ask leave to withdraw the amendment.