Clause 75 - VED rates for light passenger vehicles, light goods vehicles, motorcycles etc

Finance Bill – in a Public Bill Committee at 10:00 am on 10 June 2014.

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

Photo of Martin Caton Martin Caton Labour, Gower

With this it will be convenient to discuss the following:

Clauses 76 to 80 stand part.

That schedule 14 be the Fourteenth schedule to the Bill.

Clauses 81 to 85 stand part.

That schedule 15 be the Fifteenth schedule to the Bill.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I have one or two queries to put to the Minister, and I will specify to which clause the queries relate as I go along.

On clauses 75, 76 and 77, according to the Office for Budget Responsibility’s March 2014 economic and fiscal outlook report, vehicle excise duty revenue is predicted to fall from £6.1 billion in 2013-14 to £5.4 billion in 2018-19. The last Labour Government rightly reformed the VED system, such that the rates paid now largely depend on CO2 emissions. However, as greener, more carbon-efficient vehicles become the norm across the UK—which is obviously a welcome development—there are implications for VED as a future source of Government revenue. Will the Minister outline what projections the Treasury has made of the revenue likely to be raised by VED over the next decade and beyond, and by how much she anticipates it will decline? How is that figure kept under review?

The relevant tax information and impact note indicates that clauses 78 and 79 will have a negligible Exchequer impact in 2014-15 and 2015-16, but this will increase to £5 million in 2016-17, £10 million in 2017-18 and £15 million in 2018-19. The cost of a systems change to revise the qualifying cut-off date for the exemption each year will be at least £40,000, which will be met by the Driver and Vehicle Licensing Agency. The note also states that in 2014-15 the measure

“will have an advantageous impact for the owners of around 10,000 classic vehicles…Every year thereafter, the number of classic vehicles will increase as additional cohorts of vehicles are included in the exemption. It is estimated that an additional 10,000 classic vehicles will be affected in each year of the scorecard. Most of these vehicles are assumed to be cars or vans giving annual savings in 2014-15 of £145 or £230, depending on engine size.”

At 30 September 2011, there were 162,734 cars and 152,836 other vehicles exempt from VED on grounds of age. The measure in clause 79 is described by the tax information and impact note as a “rolling exemption” for vehicles built more than 40 years ago, but the explanatory notes suggest that that will be legislated for in every Finance Bill. Will the Minister clarify that point? What administrative issues will owners of classic vehicles face? Will they be granted a lifelong VED exemption on their car’s 40th birthday or will they have to apply for the exemption on an annual basis?

The tax information and impact note states that clause 80 will have a positive Exchequer impact of £25 million a year between 2014-15 and 2017-18, but also that a cost of £2 million is expected for managing  and implementing changes to DVLA operational systems. Will the Minister provide more detail on the grants referenced in the tax information and impact note, which will apparently be applicable to those vehicles conforming to the Euro IV, V and VI standards until 31 December 2016? How will the system operate? How will the Government ensure that the system does not place too great an administrative burden on vehicle operators? Finally, will the Minister explain why the reduced VED rates available to less-polluting buses are also being phased out as a result of the introduction of the heavy goods vehicle road user levy? I must declare an interest, in that the excellent Smiles Engineering, which specialises in repowering buses to make them greener and more fuel efficient, is in my constituency.

There is no tax information and impact note for the measures in clause 82 and the explanatory notes provide little detail, so will the Minister explain their impact, who they will affect, the thinking behind them and the cost to the Exchequer?

Clause 83 will make life a little more convenient and very slightly cheaper for millions of motorists in the UK, but will the Minister clarify the costings set out in the tax information and impact note, which suggests a total Exchequer impact of minus £60 million between 2014-15 and 2018-19? I appreciate that the DVLA estimates that it will cost £8 million to set up the new scheme—the scheme for payment of vehicle excise duty by direct debit, for those who are still following me—but surely it will result in a significant efficiency saving going forward. How will the DVLA ensure that everyone is aware that the scheme is available? What support will be provided to more vulnerable taxpayers, many of whom still instinctively distrust the direct debit and banking system in general?

We do not have any queries relating to clause 84, which deals with the definition of “revenue weight”. Clause 85 deals with vehicle excise and registration. Coming after numerous fairly technical clauses in this part, it introduces a change that will affect the majority of people in the UK—including, I suspect, Committee members in this room, although not my hon. Friend the Member for Gateshead. As announced in the autumn statement 2013, the clause signifies the end of the beloved tax disc, which has served as proof of payment since 1921, following the Roads Act 1920 and the Finance Act 1920. At that time, what we now know as vehicle excise duty was referred to as the road fund licence.

However, long gone are the days when it was part of a police officer’s duty to inspect cars for valid tax discs, particularly as the police and the DVLA now rely largely on the DVLA’s electronic vehicle register and tools such as automatic number plate recognition cameras to support vehicle excise duty compliance. As of 1 October 2014, no longer will the Del Boys of this world be able to put a “Tax disc in the post” sign on their windscreen. We continue to move away from paper-based records and towards electronic registration in every aspect of our daily lives.

The requirement for paper tax discs to be displayed in vehicles will be removed through amendments to the Road Vehicles (Registration and Licensing) Regulations 2002. When does the Minister expect the revised regulations to come before the House? The tax information and  impact note suggests that the abolition of the tax disc will benefit owners of vehicles used for business purposes by about £7 million a year on aggregate. How has that figure been reached?

One key way in which people have renewed their paper tax disc has been over the counter at the post office. The tax information and impact note suggests that the measure will benefit the post office network through savings to the costs of storing, securing and transporting paper-based vehicle licences. However, there are also strong concerns that the move will have negative repercussions for our post offices. Can the Minister outline the Government’s assessment of the potential negative impacts of the change on the network, and what steps are being taken to mitigate them?

The tax information and impact note also suggests that the change will have a negligible or nil Exchequer impact between 2014-15 and 2018-19, but that it will have a fixed cost to the DVLA of between £3 million and £6 million for the ceasing of the tax disc and of £10 million for the amendment of the refund process—for example, when one’s car is stolen or sold. The ongoing savings to the DVLA are expected to be about £7 million a year, because it will no longer produce, issue and post the tax disc.

Can the Minister say a little more about the impact of this measure? What impact is it expected to have on reducing vehicle excise duty evasion? The latest VED evasion figures, published by the Department for Transport rather than HMRC, suggest that VED evasion decreased slightly between 2011 and 2013 and that the level has remained relatively low, with some minor fluctuations, since 2008. Although it is just 0.6% of the amount due, that still equated to about £35 million in 2013-14. The Minister no doubt expects that figure to decrease even further as a result of abolishing the paper tax disc.

Finally, on clause 87, the Department for Transport and the Vehicle and Operator Services Agency require information held by HMRC about HGVs in order to implement the HGV road users levy. The information required is held on the freight targeting system. HMRC agreed to provide the information to DFT and VOSA by creating a legal gateway in a statutory instrument, utilising powers contained in the HGV Road User Levy Act 2013. Because of an error, however, the 2013 Act did not allow for the creation of a criminal offence of wrongful disclosure of identifying information in relation to the HGV road user levy, so clause 87 rectifies the situation. We welcome the fact that that has been recognised and dealt with as the levy is introduced. The explanatory notes briefly mention how taxpayer confidentiality will be safeguarded in the light of the new information-sharing gateway. To reassure Committee members and members of the public who take an interest in the matter, will the Minister say something about how that will be assured?

Photo of Nicky Morgan Nicky Morgan Minister for Women, The Financial Secretary to the Treasury 10:15, 10 June 2014

I thank the hon. Lady for her questions and points. I will try to deal with them all, but I am sure that she will let me know if anything is outstanding at the end. Clauses 75 to 85 introduce changes to vehicle excise duty for cars, vans, motorcycles, heavy goods vehicles and classic vehicles. These clauses also introduce significant changes to the way in which VED is administered by abolishing the paper tax disc and introducing a direct debit payment method for motorists to pay their tax.

Clause 75 makes changes to VED rates for cars, vans and motorcycles, with effect from 1 April 2014. The Government announced at Budget 2014 that duty rates for cars and motorcycles, and the main rate for vans, would increase in line with inflation from 1 April. As a result, duty rates for those vehicles have remained unchanged in real terms, helping to support families and businesses with their costs. Owners of cars that were first registered on or after 1 March 2001 pay duty based on the carbon dioxide emissions of those cars. About 95% of people with such cars will pay no more than £5 extra in 2014-15. Owners of the most polluting cars will pay, at most, £10 extra. Rates remain unchanged for the cleanest cars. Cars registered before 1 March 2001 will incur only a £5 increase in duty, as will vans. Motorcyclists will see an increase of no more than £2.

Let me turn to clauses 78 and 79. The Government believe that classic vehicles are an important part of the nation’s heritage, so the duty exemption is designed to support the maintenance and use of classic vehicles. At Budget 2013, we announced that we would extend the exemption cut-off date by one year to vehicles built before 1 January 1974, and at Budget 2014 the reintroduction of a rolling exemption on a 40-year basis was announced. Clause 78 extends the scope of the exemption to vehicles manufactured in 1973 and comes into effect from 1 April this year. Clause 79 extends the scope of the exemption by a further year to vehicles manufactured in 1974 and comes into effect on 1 April 2015. The Government are committed to legislating each year, as the hon. Member for Newcastle upon Tyne North has said, to extend the cut-off date of the exemption by one year to ensure the rolling 40-year exemption. In 2014-15, the exemption is worth £145 or £230, depending on the engine size of the vehicle. The Government estimate that some 10,000 owners of classic vehicles will benefit each year.

Clause 83 relates to direct debits. Currently, duty can be paid by cash, cheque and credit or debit cards. At Budget 2012 we announced that we would aim to develop a direct debit system for VED payments to allow families and businesses to spread their tax payments. The DVLA conducted a public survey in October 2013, in which approximately 70% of those surveyed expressed an interest in paying their duty by direct debit. At autumn statement 2013, the Government announced that they would introduce such a system from October this year. Clause 83 will allow the DVLA to collect duty via direct debit in a one-off annual payment, two six-monthly payments or 12 monthly payments if motorists wish to pay in that way. Motorists who buy a six-month duty licence currently pay a 10% surcharge, but in the direct debit scheme the surcharge will be halved to 5% when tax is paid by monthly or six-monthly direct debit.

Clause 85 deals with the abolition of the tax disc. Clause 85 and schedule 15 are the first stage in the legislative process that will remove the requirement for vehicle licences, trade licences and nil licences—as the hon. Member for Newcastle upon Tyne North put it, the “beloved tax disc”—to be displayed in vehicles from 1 October this year. Approximately 45 million tax discs are issued by the DVLA and the Post Office every year. Historically, they have provided a visual aid that demonstrates that vehicle excise duty has been paid, but they have become redundant over time. The DVLA and  the police now rely on the DVLA’s electronic vehicle register and use tools such as automatic number plate recognition cameras to ensure that duty has been paid. Those enforcement tools have helped to improve compliance, with non-payment of duty running at an historic low of 0.6% in 2013.

The changes made by clause 85 and schedule 15 mean that from 1 October this year motorists will no longer receive a paper tax disc to fix to, and exhibit in, their vehicle as proof that duty has been paid on it. The change could provide businesses with administrative cost savings of about £7 million per year. In addition, it will provide the taxpayer with annual cost savings of about £7 million, as the DVLA will no longer have to produce, issue and post tax discs to motorists. The abolition of the tax disc is part of the Government’s wider digital strategy to move Government services to digital channels. The clause and the schedule pave the way for changes to be presented to Parliament later this year to remove the requirement to display a tax disc. The hon. Lady asked about the regulations, which we intend to lay in July. They are to be introduced under the negative parliamentary procedure and will come into force on 1 October this year.

Let me turn to the HGV duty rates restructure. Rates for buses and heavy goods vehicles under 12 tonnes continue to be frozen. UK and foreign goods vehicles of 12 tonnes or over are subject to the new HGV road user levy. Our aim is to achieve as complete a levy offset for UK hauliers as is practically possible. Clauses 76 and 77 introduce rate reductions to offset the levy, with new rates categories to align the UK tax system with the lowest tax rates permitted by pan-European agreement.

Clause 80 and the associated schedule 14 withdraw historic reduced pollution discounts to build room for the levy-offsetting rate reductions. The discounts are replaced by already legislated grant payments administered by the Department for Transport. For buses and goods vehicles outside the levy, reduced pollution discounts will be tapered off through the nine months from 1 April 2016 to 1 January 2017. That will remove the anomaly of, for example, a 1999 vehicle being awarded a discount, while an even lower-pollution 2007 vehicle is not. The proposal was shared with stakeholders during the Bill consultation, and I am glad to report that no concerns were raised.

Clause 81 ensures that UK hauliers can always pay the duty and levy together in a single transaction, including for combined transport vehicles that deliver goods for onward rail transport to Europe. We must keep the bi-annual levy equivalent to accumulative monthly payments made by foreign hauliers, so we are presenting a practical means of further delivering offsets for UK hauliers. Clause 82 therefore reduces bi-annual duty to counter the 20% extra in two bi-annual levy payments compared with an annual payment. Clause 84 further aligns the UK tax system with the lowest tax rates permitted by pan-European agreement by adopting the agreement’s weight thresholds. The change is carefully framed to avoid any real-world impact on UK hauliers’ day-to-day operations. It is another means of delivering as complete a levy offset for UK hauliers as is practically possible.

Let me turn to some of the hon. Lady’s questions. She asked about the changes to duty resulting from the previous Government’s change to charging less-polluting vehicles a lower rate of duty. Of course, in the end, that  will bring in less money because there are more low-pollution vehicles. The duty revenue raised is projected to fall by £1.5 billion in real terms by the end of the decade. As she will know, we keep all taxes under review. It is good that we have more lower-polluting vehicles on the roads, but that is clearly having an impact on the duty that will be taken, and that is something the Treasury, under any Government, would have to keep under review.

On historic vehicles, owners will need to apply each year. We will keep the issue under review, but the idea is obviously to keep administrative requirements as free from burdens as possible and to make things as easy as possible. The rolling exemption is provided for in each year’s Finance Bill to provide legislative flexibility, just in case any further changes need to be made.

The DVLA is developing a communication plan to ensure that the public are aware of the availability of the direct debit scheme. Stakeholders are being used to help put the message out, and I am sure Members of Parliament could also do that to make sure our constituents are aware of the changes when they next pay their duty.

I have already mentioned that evasion fell to the historic low of 0.6% in 2013. There is a comprehensive package of measures to tackle unlicensed vehicles, ranging from reminder letters, fixed penalties, court prosecutions and, as a last resort, wheel-clamping and removal of the vehicle. I have already mentioned channels such as automatic number plate recognition that allow the DVLA to track those who have not paid duty.

I have mentioned the regulations coming into force and the £7 million savings. The administrative savings will include postage in relation to paperwork and new tax discs. The £7 million was arrived at after stakeholder engagement with the British Vehicle Rental and Leasing Association. The sum represents businesses no longer needing to re-post tax discs and the reduced cost of returning the disc for a refund.

The hon. Member for Newcastle upon Tyne North asked, with reference to clauses 76 and 77, how the grants for reduced pollution trucks would operate. HGVs over 12 tonnes with a recent reduced pollution certificate will receive a grant from the Department for Transport that equals the previous duty reduction for such vehicles. The grant will be made as part of the truck operator’s vehicle excise payment. The amount of vehicle excise due will be offset against the amount of grant paid to the truck operator, so that in effect the grant is issued with no burden to the operator.

Clauses 75 to 85 support motorists with the cost of living, while ensuring that they continue to make a fair contribution to the reduction of the deficit. They provide tax administration savings to businesses and make it administratively more convenient for millions of motorists to pay their duty and license their vehicle. The clauses provide fairness by delivering offsetting vehicle excise duty rate reductions for UK hauliers with the 1 April introduction of the HGV road user levy.

Question put and agreed to.

Clause 75 accordingly ordered to stand part of the Bill.

Clauses 76 to 80 ordered to stand part of the Bill.

Schedule 14 agreed to.

Clauses 81 to 85 ordered to stand part of the Bill.

Schedule 15 agreed to.

Clauses 86 and 87 ordered to stand part of the Bill.