Benefits in kind: diesel cars

Finance (No. 2) Bill – in a Public Bill Committee at 10:30 am on 9 January 2018.

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

With this it will be convenient to discuss new clause 5—Impact of benefit in kind tax supplement on the use of diesel cars—

‘(1) Chapter 6 of Part 3 of ITEPA 2003 is amended as follows.

(2) After section 141, insert—

(1) Within six months of the passing of the Finance Act 2018, the Chancellor of the Exchequer must review the effects of the changes to this Chapter made by section 9 of that Act.

(2) The review under this section must consider the effects of those changes on—

(a) the use of diesel cars, and

(b) the Government’s emission reduction targets.

(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.””

This new clause requires the Treasury to carry out a review of the effect of the provisions of Clause 9 on the use of diesel cars and on emission reduction targets.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

Clause 9 provides for a 1 percentage point increase in the company car tax diesel supplement. This modest increase will help to fund the UK’s national air quality plan, and is designed to encourage manufacturers to bring forward next-generation clean diesels sooner. There have been significant improvements in air quality in recent years, with nitrogen oxide emissions falling 19% between 2010 and 2015. However, air pollution is still at harmful levels in many of our towns and cities, and road transport is responsible for 80% of nitrogen oxide emissions in roadside tests. Even new diesel vehicles are a significant source of emissions. A test on the 50 best-selling diesel cars in 2016 found that, on average, they emitted over six times more nitrogen dioxide in real-world driving than is permissible under current emissions standards.

Diesel company cars are already subject to an additional supplement, currently at 3%, in recognition of diesel engines producing harmful pollutants in addition to carbon dioxide, including nitrogen oxide, or NOx, gases. The measure increases the diesel supplement from 3% to 4% for all cars solely propelled by diesel for the tax year 2018-19, until a point at which they meet the real driving emissions step 2 standard, known as Euro 6d. RDE2 sets a standard for nitrogen oxide emissions in real-world driving situations, with an emission limit of 80mg of NOx per kilometre. The supplement will not affect diesel hybrids, petrol or ultra low emission vehicles, or drivers of heavy goods vehicles or vans. The measure also removes the diesel supplement altogether for cleaner diesel cars that are certified to the RDE2 standard.

A basic rate taxpayer with a VW Golf will pay an additional £54 in 2018-19 as a result of the change. Company car drivers typically travel more miles, and have therefore benefited greatly from successive fuel duty freezes since 2011; in the autumn Budget, the Chancellor announced the eighth successive fuel duty freeze, saving the average driver £160 a year compared with the pre-2010 escalator plans. The change will encourage manufacturers to bring forward next-generation clean diesel sooner, and will also strengthen the incentive to purchase cars with a lower number of harmful pollutants—for example, ultra low emission vehicles or zero-emissions vehicles.

The measure is designed to work over several years to encourage manufacturers to bring forward the development of cleaner vehicles, so we do not believe that a review after six months, as requested in new clause 5, which was tabled by Opposition Members, would be appropriate. Company car fleets are typically renewed every three years, so we will not see the full impact of any change that takes effect from April 2018 until three years later. We will of course continue to review the uptake of company diesel cars and developments with those vehicles as part of our wider strategy on improving air quality. On that basis, I do not believe that the new clause is necessary, and I ask hon. Members to consider withdrawing it.

Clause 9 makes a small change that will support the UK’s transition to less polluting cars, helping to make sure that our towns and cities are clean and healthy places in which to live. I commend it to the Committee.

Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury)

I am grateful to the Minister for his comments. However, Labour Members will continue to be concerned about the measure and will continue to ask for a review of its effectiveness. There is obviously a clear rationale for this kind of measure: it follows widespread public and scientific concern about emissions from diesel cars that do not use emission capturing technology to the extent that they might.

There are many examples of this kind of technology-forcing regulation being effective. However, we believe that a review is required—first, because we need to be clear that new technologies will indeed be incentivised through this measure. We do not feel that we have effective evidence to prove that at the moment. The Institute of Chartered Accountants suggests that it is unlikely that any diesel cars will meet the standard required to avoid the supplement until at least 2020, so there is a question about whether distorting decisions could be made that would prioritise petrol vehicles over diesel vehicles in the meantime—especially if appropriate technologies are not introduced as quickly as they should be. I know from discussing this issue with motor manufacturers that they are confident about the roll-out of the new technology, but a review would none the less be appropriate, given the extent of use of diesel technology.

Secondly, it is important that we review the measure’s contribution to emissions reductions targets because of the lack of other environmental commitments in the Bill. Sadly, the Bill lacks measures to reduce carbon emissions in order to halt the climate crisis, despite many of us hoping that it would include, for example, more tax breaks for solar technologies, which have sadly been scaled back.

From what I can see, this is also the only measure to promote better air quality, when we know that there are many other sources of pollutants in the air that we breathe. Yes, of course NOx is important, but small particulates and other emissions are important as well. It is absolutely right to mention that NOx pollution from diesel emissions is significant at roadside sites, but petrol emissions are also significant away from direct roadside sites or at particular roadside sites, and industrial sites are also important, in terms of emissions.

Domestic stoves also have an impact. Labour Mayor Sadiq Khan is trying to deal with that in London. It is unfortunate that this is the only flagship measure to try to deal with air quality coming from the Government at the moment. The Minister referred to this as a core element of the Government’s air quality strategy. However, the Government have been taken to court repeatedly for not having a strong enough air quality strategy. I was astonished to hear that my city of Oxford was told that even under the latest strategy—which should, in theory, be a tighter one—if it did nothing, its emissions and pollution levels would be the same in future decades. How can I put this kindly? I was surprised by that claim and question the methodology used. We are asking for this review, first, because of concerns about the extent of technological readiness and, secondly, because we feel it needs to be taken in the overall context of the lack of other measures to reduce emissions. The issue needs to be looked at holistically.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General 10:45, 9 January 2018

I thank the hon. Lady for her further comments on this matter. I reiterate that we believe that a six-month time horizon is too soon. I have already said that company car fleets, for example, generally turn over every three years, which is well beyond the six-month period that we are considering. She questioned the fact that some of these measures will not fully kick in until as late as 2020. By that time, no fewer than about one million potential drivers of company cars will have taken a decision on what kind of company car they wish to take on—so a million drivers will be directly affected by this measure and will be encouraged to move to less polluting vehicles as a consequence of it. We will keep these measures under review in the light of the progress of the industry in improving the cleanliness of diesel engines and of the new technologies that are developing all the time. I commend the clause to the Committee.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Clause 10