‘(8) The Chancellor of the Exchequer must review the effect of the provisions in this section on the motor vehicle industry in parts of the United Kingdom and regions of England and lay a report of that review before the House of Commons within six months of the passing of this Act.
(9) In this section—
“parts of the United Kingdom” means—
(c) Wales, and
(d) Northern Ireland;
“regions of England” has the same meaning as that used by the Office of National Statistics.’
This amendment would require the Chancellor of the Exchequer to review the impact of clause 7 on the automotive industry, broken down by nations and regions.
With this it will be convenient to discuss the following:
‘(8) The Chancellor of the Exchequer must review the effect of the provisions in this section on the availability and uptake of optional remuneration arrangements relating to cars and vans and lay a report of that review before the House of Commons within six months of the passing of this Act.’
This amendment would require the Chancellor of the Exchequer to review the impact of Clause 7 on the uptake of optional remuneration schemes relating to cars and vans.
Amendment 19, in clause 7, page 5, line 2, at end insert—
‘(8) The Chancellor of the Exchequer must review the effect of the provisions in this section on tax receipts and lay a report of that review before the House of Commons within six months of the passing of this Act.’
This amendment would require the Chancellor of the Exchequer to review the revenue effects of Clause 7.
Amendment 22, in clause 7, page 5, line 2, at end insert—
‘(8) The Chancellor of the Exchequer must review the effect of the provisions in this section on the vehicle hire sector and lay a report of that review before the House of Commons within six months of the passing of this Act.’
This amendment would require the Chancellor of the Exchequer to review the impact of clause 7 on the UK vehicle rental sector.
Clause stand part.
That is a nice start to the afternoon. I will turn to amendment 17 to 19 and 22 which, I must say at this stage, we will also push to a vote unless we have the acquiescence, capitulation or otherwise of the Minister after he has heard my words of wisdom. I hope he has even more divine intervention and inspiration this afternoon from his officials telling him to agree with me.
Clause 7 introduces further reforms to optional remuneration arrangements for cars and vans. The measure seeks to make two changes to the current regime, as outlined in the Treasury’s policy paper. First, it is designed to
“ensure that when a taxable car or van is provided through OpRA, the amount foregone, which is taken into account in working out the amount reportable for tax and National Insurance contributions purposes, includes costs connected with the car or van (such as insurance) which are regarded as part of the benefit in kind under normal rules”.
Secondly, this measure is also expected to
“adjust the value of any capital contribution towards a taxable car when the car is made available for only part of the tax year.”
I imagine that the Treasury’s line is that this seeks to ensure that the value of this benefit is connected only to cost, but we are concerned that these changes may further complicate pre-existing optional remuneration arrangements that are already in place for employers and employees to utilise company cars and vans. That in turn may be a deterrent, as some employers may consider that it is too much hassle or too bothersome, and that there is too much red tape, when it comes to offering such a scheme. Similarly, employees may decide that the risks and liabilities of taking up the offer of a company car or van scheme may be too high, and that under these circumstances both rentals and automotive sales may fall.
To put it as succinctly as I can—I accept that I am prone to being succinct, which is a fault of mine—the Opposition do not believe that it is in the interest of our economy, which is heavily reliant on the automotive sector for jobs, or that of workers, to make it harder for them to use a company car or van through an optional remuneration scheme. That is why we have tabled amendment 17, which would amend page 5, line 2 of the Bill and insert:
“The Chancellor of the Exchequer must review the effect of the provisions in this section on the motor vehicle industry in parts of the United Kingdom and regions of England and lay a report of that review before the House of Commons within six months of the passing of this Act” as linked to the nations.
I accept that Government Members must recognise the clear link between automotive sales and their use as company cars or vans in optional remuneration arrangements. Work vehicles make a significant contribution to the automotive industry’s more than £82 billion annual turnover and £20.2 billion of value added.
Does my hon. Friend agree that further complicating the optional remuneration arrangements for employees who wish to use a company car or van could have an effect on the automotive sector as a whole? That would be terrible.
It would be. That goes to the heart of the point. We want to tease this issue out and have a review. I know we have raised a million and one issues for review, but that is as much as we can do in the current climate. That is what we want to do: we want to tease all these matters out.
Does my hon. Friend agree that a review would enable us to tease out some of the matters that were presented to us and to explore some of the expert information that has been provided to us? For example, the Institute of Chartered Accountants in England and Wales tax faculty said that the clause will lead to a tax charge so, for example, emergency repairs will be initially paid for or arranged by an employee and then met by the employer. If we had a review, we could look into that matter and others in more detail.
That organisation is always helpful, and it points us in the direction that the Government should go in. That goes to the point I am making.
Many proposals have come back to bite us, so we need a proper review to see how they are bedding in. For example, according to the Society of Motor Manufacturers and Traders, the automotive industry employs 168,000 people directly in manufacturing, and more than 856,000 are employed across the wider industry. It accounts for 12% of total UK exports of goods, and invests £3.65 billion each year in automotive research and development. More than 30 manufacturers build in excess of 70 models of vehicle in the UK, supported by 2,500 component providers and some of the world’s most skilled engineers. The automotive industry represents 1% of all employment in the UK and 7% of all manufacturing. It is also one of the few industries in the United Kingdom that has had a huge productivity increase since the financial crisis. The manufacturing of motor vehicles went from 5.4% of UK manufacturing in 2007 to 8.1% in 2017. Those figures do not, however, reflect the role that the automotive industry play in communities across the nations and regions of the UK, and the impact that a fall in sales or rentals relating to optional remuneration might have.
My hon. Friend is making an excellent speech in support of the communities around the country that are reliant on motor manufacturing, which include Tyne and Wear, Derby, Swindon and Merseyside. Does he think that the Government should undertake and publish a proper impact assessment on the communities that will be affected by the changes outlined?
Yes. That links to others issues. For example, my hon. Friend Justin Madders is having issues with the car factory in his constituency, where 200 jobs are threatened. These issues are all linked. When the industry is under threat, or there is a potential threat, even if it is not actually visible, we must take steps to ensure it does not appear on the horizon. Our proposal would help that process.
For example, the west midlands has by far the largest number of motor vehicle manufacturing employees of any UK region or country. There are 54,000 employees in the industry working in the west midlands. That is about one third of all motor industry employees in Great Britain. We have to take into account the fact that if fewer companies offer optional remuneration arrangements, that could directly affect jobs in that region. The Government’s job is to plan and—they said this in their industrial strategy—to ensure we are prepared for all eventualities. Our proposal helps with that preparation.
The second-largest region for automotive manufacturing is the north-west, where my constituency is located. It employs 24,000 people and accounts for 7% of the total industry and 1% of all employment. I recognise that a slowdown in automotive sales could be related to a fall in the use of company cars and vans, and could cost workers their jobs. Members from Scotland, where the automotive industry accounts for around 4,000 jobs and 2% of the total UK manufacturing sector, and Members from Wales, where the automotive industry accounts for 9,000 jobs, feel the same. Similarly, any fall in the sale of rental cars and vans used in optional remuneration arrangements will have an impact on foreign direct investment into the UK, as there are now no British-owned mass car manufacturers operating in the United Kingdom. It comes back to the point made by an hon. Member about foreign direct investment. We do not want to put it off.
Given the sounds being made by the car makers Nissan over Brexit uncertainty, it would be a most foolish approach if those safeguards were not taken, and if there were no proper impact assessment or analysis of the industry.
My hon. Friend is right. To some extent, that is part of the concern we have had about impact assessments and financial reviews on industry generally in relation to Brexit. This is part of the tapestry or mosaic of issues that we always have to keep to the fore if we are to protect jobs. All parties have said that they want Brexit for jobs and the economy. We have said it time after time, and this completely fits in with our policy of trying to protect jobs and our economy. Let us look to the future of how this might impact on an important part of our industry, rather than leaving it to chance.
The domestic automotive market is home to foreign volume car manufacturers, with other companies specialising in commercial or luxury brands, including Honda, which has almost doubled production at the Swindon plant—£240 million of investment into the Burnaston site was announced in March 2017. Jaguar Land Rover invested £400 million in a new engine plant, equipment and the expansion of its design centre in 2015. In October 2016, Nissan announced that it would produce two new models in Sunderland. Members on both sides of the Committee understand that uncertainty in an industry such as the automotive industry, which plans 10 or 15 years in advance, can be disastrous and cost jobs. We need only to look at the current uncertainty around Brexit, as I have indicated, to see that this is clearly the case. Large automotive companies express concern on a daily basis. My colleague the hon. Member for Oxford East receives regular representations from companies in her area who are deeply concerned about the future of the industry in the UK, and any fall in use of company cars will not add further confidence.
I accept that Government Members may accuse me of scaremongering, but figures from Her Majesty’s Revenue and Customs showed that 940,000 employers paid benefits in kind—tax on a company car—in 2016-17. That was a 2% fall on the 960,000 recorded the previous financial year. The decline is not isolated—the number of company cars has decreased over the last 10 years.
The issue is that there has not necessarily been a qualitative leap in the use of public transport. The muscle-bound transport system in this country is becoming even worse. It is not as if people have been coming out of cars and on to public transport, be it buses or trains. That has not necessarily happened. The amount of money being collected by the Treasury from taxes related to company cars or vans through optional remuneration has increased by more than 24% year on year—some £360 million—and we currently have some of the highest tax charges for company cars we have ever seen. The amount of national insurance contributions paid by employers who have company cars also increased. The amount of national insurance contributions paid by employers who have company cars also increased.
Employers paid £630 million in 2016-17 compared to £600 million the previous year, up 5%. Benefit in kind, tax and national insurance contributions were collectively worth £2.48 billion to the Treasury compared to £2.09 billion in 2015-16, which is an increase of about 19% or £390 million.
Compare that with 2013, when benefit in kind and national insurance contributions were worth £1.75 billion to the Treasury—some £730 million less—yet the number of employees with a company car was exactly the same, at 940,000. It is worth giving those figures a bit of thought. The record figure of £2.48 billion means that the average annual tax yield on a company car was £2,638 in 2016-17, compared with £2,166 in 2015-16. That is a 22%, or £472, year-on-year increase.
At the start of the decade in 2009-10, a company car was worth, on average, £1,680 in benefit in kind, and national insurance revenues to the Treasury were some £1.63 billion. That is £850 million less. The higher tax take between 2015-16 and 2016-17 can in part be explained by the increase reported in the taxable value over the same period. The taxable value of the company car benefit was worth £4.57 billion—up from £4.32 billion the previous year—according to HMRC’s figures.
Similarly, the use of company cars and vans has been hit by the Government’s changes to diesel and the drive towards environmental friendly cars, which should be considered in the review on the impact of these changes on the regions and nations.
There is little doubt that the consumer and political backlash against diesel has been devastating. The demand for new diesel cars in Britain nosedived by more than one third in March, generally the top selling month of the year, pushing down the total registration by 15.7%. The number of vehicle registrations fell to 479,000 in March, according to the Society of Motor Manufacturers and Traders. Once comprising half the market, diesels now account for less than one third of sales, having fallen by nearly 40%, from 101,000 in May 2016 to only 62,000 last month.
Companies that own and employees who lease diesel cars under optional remuneration schemes would not have been shielded from this disruption, as it may not be financially viable for businesses that have bought new vehicles or have entered into an agreement with third parties to return or sell the vehicle for the first three years. That would mean that employers may be stuck and unable to return diesel vehicles without facing an added cost.
If the Government have made a particular decision and there are unintended consequences, they should not fall to those people affected by it. Employee car and van schemes will also be affected by the growing market of electric vehicles. That is a welcome development. Although the Bill introduces a tax exemption for electric vehicle-charging points at work, it is clear that more needs to be done to address that transition. We believe the Government should push on that even more.
To return to my earlier point, if the Government continue to amend the regulations and rules governing the optional remuneration schemes, they will inadvertently deter any employees from taking up such schemes and employers from offering them. The situation is only heightened by the fact that too many employees do not understand or do not follow the Government tax changes that govern those particular schemes.
Take, for example, the reforms to optional remuneration arrangements introduced in the previous Finance Bill last year. Research by OSV found that more than one quarter—27%—of company car drivers were not aware of the tax changes the Government were making that would affect their company car. A similar study by Arval last year found that many small and medium-sized businesses were unaware of company car tax changes. While 70% of larger fleets with more than 50 vehicles said that they were aware of them, that figure dropped to 44% of medium-sized fleets with 10 to 49 vehicles, and to 35% of small fleets with one to nine vehicles.
That ignorance of changes to company car and van policy is deeply troubling. In some cases, it could easily lead to employees finding in the coming months, without any warning, that their net pay is below what they anticipated, as a result of those changes. Given that people are already hard pressed following a decade of low wage rises—the lowest for two centuries—every penny counts, and the Government should take that into account when introducing such policies.
The onus to know about such changes remains largely on the employer, who has a responsibility to sign off, but although some businesses will have calculated and worked with their employees to help them understand the financial implications of a company car or van where private use is allowed, explaining the option and consequences of making a capital contribution to obtain a better vehicle—
As I sit here listening to my hon. Friend describe the obscure way in which this tax is being implemented, I wonder whether it would it be fair to call it a stealth tax.
My hon. Friend makes a valid point. One could argue that it is a stealth tax, although I think what the Government have introduced is more like an incompetence tax. I am not sure they know the consequences of what they have unleashed, but I suspect my hon. Friend’s use of the term “stealth tax” is pretty apposite.
We all know that employers will have invested in vehicles in good faith on the basis of those calculations, together with the comment from HMRC that that was the correct way to calculate charges. It is therefore to be expected that they will feel let down and perhaps even blindsided by these changes. The more I think about it, the more I think they will consider what the Government are introducing as a bit of a stealth tax.
The ICAEW found that, where vehicles with allowed private use are provided to employees under OpRAs, the clause will impose unexpected increases in tax and national insurance charges on employees and employers respectively. The only way to avoid those charges will be for the employer to dispose of the vehicle. That is likely to result in the employer receiving lower than expected proceeds if the vehicle is owned outright, or suffering financial penalties if the vehicle was acquired under an ongoing contract. It may also upset the employer-employee relationship, which might ultimately lead to both employee and employer leaving the scheme entirely.
“The Chancellor of the Exchequer must review the effect of the provisions in this section on the availability and uptake of optional remuneration arrangements relating to cars and vans and lay a report of that review before the House of Commons within six months of the passing of this Act.”
In effect, it would require the Chancellor to publish a review of the impact of these changes on the number of employees choosing to enter into optional remuneration arrangements. The amendment goes to the heart of the Opposition’s concern that the Government’s constant tinkering and fiddling deters people from taking up such schemes and, no doubt, other schemes.
That feeds into the wider criticism of the Treasury—and Ministers, I have to say—as backed up by the Chartered Institute of Taxation, regarding the constant need to rework and reform measures. The perception is that this is happening all the time. That takes us back to the point raised by the Scottish National party’s spokesperson about the need to tease out these issues in advance and put them into the domain. Let us tease them out and try to get a little bit of sense out of the mix. This amendment goes to the heart of our concerns, and this tinkering and fiddling about just confuses things more.
It is telling that the changes have come about not because of a new onus to reform optional remuneration schemes for the benefit of employees and employers, but rather to clean up the mistakes made in the previous Finance Act. In practical terms, that is what has happened. The Opposition have consistently called for the Government to take a more considered approach to taxation, including the introduction of Public Bill Committee witness sessions, as mentioned both previously and today. Were these concerns and those of the tax experts and advisers who have to implement the change taken seriously, Ministers would not have to come back to the House to redo their homework on every Finance Bill. This is my fourth Finance Bill—excluding the Taxation (Cross-border Trade) Bill—and that seems to be a regular occurrence. Instead, Ministers should be able to get it right first time, not just in relation to consultation but in enabling us to help them do their job.
Thank you, Ms Dorries. The Minister considered the number of people who will be affected by the measure—1 million—to be rather small. The measure will have a disproportionate impact on van drivers and those who have company cars. The Treasury’s impact assessment shows that the majority are male and, no doubt, from various backgrounds. The Opposition want to get these changes right, which is why we are pushing for the Minister to report back to the House after six months and to offer clear evidence as to why they have had a negative impact on the number of employees able to use a company car or van under these schemes.
Given the lack of knowledge shown by small and medium-sized enterprise employers and employees when it comes to changes to optional remuneration schemes, it is hard to understand how the introduction of these measures will not incur additional expense for both. In fact, in its response to the consultation on the new measures, ICAEW found:
“The new clause introduces additional costs which will change the cost model on which the acquisition finance model was based.”
The Opposition therefore have a healthy scepticism for the Treasury’s figures on the revenue raised from these changes, because it is clear that there will be an additional cost.
In an effort to gain further clarity of the revenue effects of this measure, the Opposition have tabled amendment 19, which we will invoke later. The measures in clause 7 are part of the Minister’s clean-up operation to fully implement the wholesale reform of optional remuneration schemes introduced in the previous Bill. The reforms are aimed at targeting employers and employees who might use salary-sacrifice schemes for the purposes of tax avoidance. With that in mind, the review should consider the changes in the context of wider Government reform of optional remuneration schemes and include the impact of the changes to this specific scheme on the total revenue.
Turning to the vehicle rental sector, an increasing number of the company cars and vans offered by optional remuneration schemes are, in fact, rentals. That means that any changes to these schemes will have consequences for the vehicle rental sector. That is why we have tabled amendment 22, which would insert the following in line 2 of clause 7:
“The Chancellor of the Exchequer must review the effect of the provisions in this section on the vehicle hire sector and lay a report of that review before the House of Commons within six months of the passing of this Act.”
The vehicle rental sector contributes about £40 billion a year to the United Kingdom’s economy. That takes into account the operations of the industry; UK-made vehicles and engines it purchases; the activity of UK dealerships; and its impact on the used car market. The industry employs 52,700 people directly and contributes £23.9 billion from rental and leasing activities. Its contribution is higher than that of many other sectors because of the reliance on rapidly depreciating capital goods. Rental and leasing companies spent an estimated £30 billion on buying more than 1.8 million vehicles in 2017, including £5.4 billion spent on 304,000 UK-assembled cars, vans and trucks. That represents 70% of all vehicles assembled in the United Kingdom, which means that such companies were responsible for 83% of vehicles sold domestically. The industry also purchased 418,000 vehicles with UK-made engines.
By purchasing so many UK-made vehicles and engines, the rental and leasing sector supports an extra 78,000 jobs at manufacturing plants in Ellesmere Port, Sunderland, Oxford, Swindon, Bridgend and Dagenham, as well as in the extended supply chain. That simply cannot be ignored. Most vehicle purchases are conducted through motor dealers; in 2017, such activity contributed £1.6 billion to GDP, supported 25,400 jobs and raised £400 million in UK tax receipts. The rental and leasing industry is estimated to have replenished 25% of its fleet in 2017, supporting auctioneers and dealerships and contributing £1.7 billion to GDP. That equates to 28,200 jobs and £469 million in tax receipts.
There is also a positive environmental angle to that activity. Oxford Economics estimates that carbon dioxide emissions across the British Vehicle Rental and Leasing Association member car fleet averaged 114.6 g/km in 2017, which is 20% less than the emissions from an average car in use on UK roads. Not everything is measurable, but researchers at Oxford Economics also confirmed that the opportunity to rent and lease those vehicles provides firms with the ability to access modern, fuel-efficient vehicles, without the strain of up-front capital outlays. That is a major benefit for small and medium-sized enterprises and private customers, who also gain more certainty about their costs going forward.
It is hard to estimate the extent to which the vehicle sector depends on company cars and van rentals as part of the optional remuneration scheme, but a number of prominent experts have claimed that it is significant. Amendment 22 would offer a clear picture of the relationship between optional remuneration schemes for car and van rentals and the vehicle rental sector, reviewing the impact that those changes will have on what is clearly a crucial sector for the UK economy.
What is most baffling about the measures in clause 7 is that a number of tax experts, including at the Institute of Chartered Accountants in England and Wales, have already warned the Government that the measures come up short and will require further amendments. The institute first raised concerns about these defects when the draft proposals were first published. When the Bill was finally published, it was surprised that the defects remained—so much for having consultations and taking into account the concerns expressed by experts, as we have been told comprehensively.
The institute’s concern is that the proposed corrections to the provisions will create a new mistake by imposing a tax charge when an employee pays for emergency repairs to a vehicle and is reimbursed by the employer. With that in mind, can the Minister assure Members that the concerns of these tax experts have been addressed, or actually taken into account?
Many of the points that I was going to make have been covered by the hon. Member for Bootle. However, a few things require to be dwelt on for more time or should be looked at from a slightly different angle.
When I first became aware of the Opposition’s amendments, I did not think that it was a tack that they should take. However, when I looked into the information behind them and at the detail, I discovered that it is actually a very sensible tack to take, for a number of reasons. I note the comments about the 4,000 Scottish jobs that could be affected. It is important to note the number of jobs that could be affected by any changes to this area, particularly through tweaks to the benefit-in-kind system.
I also point out the number of new car registrations, which the Society of Motor Manufacturers and Traders has on its website. There has been a 7.2% fall in the year to date, which is incredibly significant. If the Government are thinking about ensuring that companies have those up-to-date cars with the lowest emissions, it is really important that companies are incentivised to ensure that their employees drive an up-to-date fleet, rather than older cars.
The other thing to note is that registrations in October 2018 were at their lowest level since 2013, which is significant. We might expect low numbers when we were coming out of a recession, but there has been a significant drop in registrations over the past year. It is important that the Government think about this wider context when making these decisions.
It is particularly important to note the impact of these changes on the industry, given the context of Brexit and the concerns raised by the car industry. Now is not a good time to consider making changes that are likely to negatively impact the automotive industry, particularly given the nature of its supply chains, which are so integrated with European Union countries. There is the potential for those supply chains and those manufacturing businesses and jobs to move wholesale to the EU, rather than the integrated supply chains that we have now being maintained. It is important to note that wider context when making any changes, because the Bill will not act in isolation; it will have to operate in the context of whatever potential economic hit will come from Brexit.
On the ICAEW’s comments about the potential for an accidental charge following emergency repairs, I agree with the hon. Member for Bootle that the Government might need to amend the Bill further in order to make it workable, so that it does what they intend it to do. If we are not going to listen to the utmost experts on this issue, what is the point in having the consultation? If we are to have a consultation, it will be meaningful only if the Government listen and actually make the suggested changes. These people are the experts and negotiate the tax system on a daily basis, so they are the ones who can highlight potential problems.
To expand on that a little bit, I totally accept that protecting the Treasury is important in the changes being made, and that the Government are attempting to protect the Treasury from problems that it did not necessarily foresee when it created the Bill in the first place. However, there are changes to the Finance Bill every year. As the hon. Member for Bootle said, this is the fourth Finance Bill Committee that I have served on, and every year there seem to be different changes to benefit in kind issues. I understand that the Treasury is trying to protect itself, but if there is an immensely complex tax system and it is changed every year, it is difficult for people to comply with the legislation, even those who are trying to do so. I think that the Government need to think more carefully and do some sort of sensible review, as suggested by the Opposition, into the whole landscape of benefit in kind issues and then make changes in one go, so that they are easily understood and can be complied with them. As I said earlier, there is no point having a tax system if people do not understand it and cannot pay the tax because they do not understand how they are supposed to comply with the system.
That also has a knock-on effect on the automotive industry. If it is too difficult for employees to claim the relief that they are supposed to be able to claim, or to have the benefit in kind accepted as such, as they are supposed to, it means that fewer companies will be willing even to attempt to comply with the legislation. I think that it is really important, in terms of the new vehicles and ensuring that the Government can collect the correct tax.
In relation to whether or not this is a stealth tax, I would certainly say that there are stealth changes being made to these taxes, and not ones that have been widely publicised or understood well enough by individuals having to go through the system. If the only way to comply with tax changes is to ensure that you have a very good tax lawyer or tax adviser in place, then I would suggest that the system is a bit too confusing. It should be easier for people to jump through the hoops that are in place, and constant changes by the Government are not helping.
I will speak briefly to the proposed amendment. The explanatory notes, on pages 14 and 15, state that this was first proposed in the autumn statement 2016 and put through a technical consultation. The Government are having to make changes in relation to the anomalies that were raised. The Government decided to take action to protect the Exchequer at the first opportunity. Although this was consulted on, the Government did not see the potential pitfalls in the way they put forward the legislation. Therefore, either the consultation was deficient or the Government’s ability to listen to the consultation responses was deficient. There was certainly an issue with the process.
I am pleased that the Government have changed their ways—or have said that they will—about the number of Finance Bills we are going to have in any given year, especially as I have served on four Finance Bills since 2016, and I only avoided one in 2017 because a general election was called. That seems to me to be too many tax changes in any year, given that we still have all the changes happening on a significantly more than annual basis. I think the Government need to take a step back in some of these situations and have a much more wide-ranging look at the issues, particularly in relation to benefits in kind. Every single year there are changes in the benefits in kind legislation in the Finance Bill, which every year we have stood up and debated.
First, we need to look at the whole system of benefits in kind and then make decisions about the entire system that are easily understood by people. People are much more likely to comply if they can actually understand the legislation. If there are constant changes, that makes it is much more difficult for people to jump through the hoops they are supposed to jump through and to pay the correct tax that they are supposed to pay.
Secondly, in relation to the impact on the automotive industry, I am particularly pleased that the Labour party has put forward the amendment about the different regions and nations of the UK. It is really important that we consider the differential impact, not least in the context of Brexit. Areas where there is significantly more manufacturing, such as the north of England, are likely to be hardest hit by the economic shock resulting from Brexit. That is shown across the Whitehall analysis papers. If they are being hit by that, we do not want them to be hit by other things. Doing that analysis on a regional basis is really important.
I thank the hon. Members for Bootle and for Aberdeen North for their contributions to the debate.
Clause 7 makes two changes to ensure that the optional remuneration arrangement—OpRA—rules for cars and vans work as intended. First, the clause addresses an anomaly in the OpRA legislation. Under current legislation, the value of any connected costs is not included when calculating the value of the amount foregone. That was not the original policy intention. It is important to note that we are not looking at new measures as such; we are looking at closing loopholes and ensuring that the original legislation passed in 2017 operates as intended. The clause ensures that the value of the amount forgone includes any costs connected with the taxable car or van, such as servicing and insurance. The clause also ensures that the value of the deduction available for a capital contribution is adjusted if a company car is made available for only part of the tax year. Again, that brings the original intention of the legislation into effect.
I will turn briefly to the issue of consultation and stealth tax, which Opposition Members have raised. There has been extensive consultation, both on the original measure enacted in 2017 and on the draft legislation before us today. It is worth pointing out that, despite the extensive consultation, which I will go through in some detail in a moment, neither of these issues were raised as a potential problem, although they subsequently emerged as such. The initial consultation, which ran for 10 weeks, was followed by a further technical consultation on the draft legislation, which ran for eight weeks. That was for the 2017 legislation. Officials considered 259 written responses from employers, tax professionals and representative bodies. There were 77 submissions from individuals. That led to 18 meetings with a wide range of employers, tax professionals and representative bodies, including two with the ICAEW. Officials had face-to-face meetings with over 100 employers and tax professionals. That illustrates that the level of consultation that attended these measures was deep and comprehensive.
On the background to the rationale for making these changes, optional remuneration arrangements involve an employer and employee agreeing that the employee will give up an amount of salary in exchange for a benefit in kind, or take a benefit in lieu of a cash allowance. The Finance Act 2017 introduced changes to remove the resulting tax and NICs advantages. Where the provision of a car or van available for private use is made through OpRA, the amount of earnings forgone is compared to the cash equivalent of the car or van benefit—the amount of benefit in kind deemed to have been derived from use of the vehicle. The greater of those two values is reportable for tax and national insurance purposes.
Under the original car and van benefit charge legislation, connected costs such as servicing and insurance are regarded as being part of those benefits. However, during the introduction of the OpRA rules in the Finance Act 2017, an oversight meant that the legislation was not clear that connected costs should be included when calculating the amount forgone. That meant that connected costs could be disaggregated from the calculation, artificially lowering the calculation of the amount forgone and giving those individuals an unintended tax advantage. This legislation corrects that, ensuring that when a taxable car or van is provided through OpRA, the amount forgone includes costs connected with the car or van, which are regarded as part of the benefit in kind under the normal rules. The second change in the legislation ensures that the value of the deduction available for a capital contribution is adjusted if a company car is made available for only part of the tax year.
Where an employer provides an employee with a car that is available for their private use, there is a taxable benefit in kind—the car benefit charge. The car benefit charge is based on the original list price of the car and the amount of emissions it produces. Some employees make a capital contribution towards the cost of the car. That sum is deducted from the list price and reduces the car benefit charge. The normal rules for calculating the car benefit charge automatically adjust the deduction allowed for capital contributions on a pro-rata basis if the car is made available for only part of the tax year. Similar adjustments were not included in the OpRA rules for calculating the amount forgone. This means that currently the amount deductible for capital contributions where the car is available for only part of the year, and provided through an OpRA, is overstated. The effect is that the comparison of the amount forgone under OpRA to the modified cash equivalent of the car or van benefit charge is not made on a like-for-like basis. These changes reinstate the original policy intention and ensure fairness.
The Minister said that an oversight was made in relation to the legislation as drafted. Does he share my concern that the Government should not be making oversights in tax legislation and agree that, in fact, the process we have for scrutinising tax legislation is therefore deficient?
I certainly accept the hon. Lady’s contention that oversights are never acceptable—of course they are not. As I set out, there was significant consultation and scrutiny of both the policy measure and the detailed legislation. Unfortunately, on this occasion the two issues being highlighted here did not come to the appropriate attention in the drafting of the 2017 legislation. If the hon. Member for Aberdeen North is saying that there was insufficient scrutiny, I do not believe that was the case, given the large amount of scrutiny applied in this circumstance.
The changes are expected to affect a small proportion of the 1 million or so individuals who are provided with a company car or van for private use. The average cost of the changes for those affected has been estimated at between £120 and £140 a year in extra tax. There will also be a slight increase in national insurance contributions for employers, in line with the original policy intent. The Exchequer yield from the changes is estimated to be negligible, but by stopping the growth of separate arrangements, significant amounts could be protected.
The hon. Member for Oxford West and Abingdon suggested that the issue of emergency repairs needed to be looked at in greater detail. That is already covered by the legislation. As the explanatory notes state, the clause
“does not affect the operation of sections 239(1) and (2) in relation to other payments or benefits. For example, should an employer reimburse an employee for costs incurred (such as replacing a tyre), the exemption in section 239(2) will still apply.”
HMRC will also ensure that that is reflected clearly in the guidance.
I want to bring some of the points I raised to the attention of the Minister again. He talked about consultation. Let us not take the totality of the automotive industry, because it is a big industry. What about Arval, which is a leasing company? Did the Government think, “We are going to make changes to leasing and rental arrangements, so let’s consult those companies directly affected”? Were any of those companies, many of which are quite big businesses, consulted on the measures?
As I said, there were 259 written responses from employers, tax professionals and representative bodies, 77 from individuals, and 18 meetings with a wide range of employers, tax professionals and representative bodies, including two with the ICAEW. Officials had face-to-face meetings with more than 100 employers. There was pretty extensive engagement. The Government are constantly liaising very closely with industry. I know that the Exchequer Secretary recently met, for example, the chief executives of Vauxhall and Jaguar Land Rover in Ellesmere Port, and discussed a variety of important issues. The measures in the Bill were not raised on that occasion, but if the suggestion is that we are not close enough to industry and to businesses, I can assure the hon. Member for Bootle that we are.
The hon. Gentleman talked about the potential impact of the measures on the tax yield. I will use his figures—always a slightly risky thing to do, but I will on this occasion. [Interruption.] That may be unfair. He suggested that the tax yield per company car is, on average, £2,638. It is estimated that in the order of 10,000 individuals of the 1 million company car users in the UK will be affected by the ironing out of the deficiencies in the 2017 legislation—10,000 individuals will be adversely impacted by now having to pay the correct tax rather than being able to rely on the deficiencies in order to legitimately avoid that tax. That equates to about £20.6 million of forgone taxation, if every single one of those 10,000 were, as a consequence of the changes, to drop having a company car.
Of course, there are two points to make here. One is that the vast majority will not do that, so it will be a figure well below £20 million per year, and the other is that it will be offset by the additional taxation brought in by those who will no longer be absolving themselves of taxation as a result of the deficiencies in the 2017 Act. With regard to the impact on tax that the hon. Gentleman raises, I suggest that that underpins the Treasury’s view that the impact will be negligible.
The Government have already published a tax information impact note on clause 7, in line with normal practice. As set out in that note, as I have already said, clause 7 simply corrects two anomalies in the existing legislation. These changes affect only a very small number of people who have been taking advantage of the loopholes, so it will not have a significant impact on any of the areas addressed by the amendments. I therefore call on the Committee to reject the amendments tabled. I commend the clause to the Committee.
I want to pick up on a couple of points. We keep coming back to the fact that the Minister seems to brush aside the woeful lack of consultation aimed specifically at leasing companies. They are the ones dealing with this day in, day out. They are the ones who draw up the contracts. They are the people who the Government should be going to. I do not know whether the Government have been to those particular companies, but in future maybe that is something they should consider. If they have, and if I were to have conversations with those companies in future, I would check that they were aware that the Government did discuss this with them because, if that is the case, they appear to have been asleep on the job. I do not know whether that is the case, but I am sure we can check with them; I am certainly happy to check with them.
That goes to the heart of the issue about consultation. It is happening time after time that the Government are rushing through this legislation, and having huge amounts of tax legislation is complicating things as time goes by. The Bill before last, I think—I have lost track of them—was the largest Finance Bill we had ever had. I think that was before the election. It was an attempt to ram through a whole load of proposals that, fortunately, the Opposition at that point were able to stop.
I do not think 10,000 people being affected by this is a small number. It may be a small number in proportion to the number of people who could have been affected by it, but 10,000 people affected is a fair old whack. I am sure that if I were standing here saying that Labour was going to take £150 or £200 off 10,000 people, the gasps of outrage from Conservative Members would be palpable.
The other thing worth noting is that I think an awful lot of people entered into these arrangements in the best of good faith, and the Minister talking about them “taking advantage” of the tax loophole was maybe an unfortunate phrase. I do not want to pick him up on that point, but it is important to note that the vast majority of people affected by this entered into these arrangements with the best intentions, and I do not suspect that they were in any way trying to find any loopholes. They would have been advised of these arrangements by their employers or by leasing or rental companies, and I do not think it would have been on the basis of, “Here’s a tax dodge; here’s a tax loophole; go down this path.” It is important that we try to put that into context.
I will briefly respond to those comments. I congratulate the hon. Gentleman, because he is about to tease out from me, as he likes to term it—his term “teasing out” has gone into the parliamentary lexicon—the specific issue of consulting leasing companies and listening to their views, which we also feel is important. The draft legislation was subject to technical consultation between
On the hon. Gentleman’s point about those 10,000 people affected, I think two things. First, I certainly accept, and I think I said so in my remarks, that this was not tax avoidance, but a deficiency in the way the tax legislation has been brought into effect. In no way am I casting any aspersions on the activities of those who have benefited from that deficiency. Secondly, this is not about going out and taking money off 10,000 people —I think that was the expression the hon. Gentleman used. It is just about ensuring that the tax rules we introduced in 2017, which operate effectively for the vast majority of taxpayers, apply to everybody, rather than almost everybody.
Amendment proposed: 18, in clause 7, page 5, line 2, at end insert—
“(8) The Chancellor of the Exchequer must review the effect of the provisions in this section on the availability and uptake of optional remuneration arrangements relating to cars and vans and lay a report of that review before the House of Commons within six months of the passing of this Act.”—