CO2 emissions figures etc

Finance (No. 2) Bill – in a Public Bill Committee at 3:30 pm on 16 January 2018.

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Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury 3:30, 16 January 2018

I beg to move amendment 61, in clause 48, page 42, line 15, leave out from “effect” to end of line 16 and insert

“from the date on which the Chancellor of the Exchequer lays before the House of Commons a report of the review carried out under subsection (13).

(13) A review under this subsection shall consider the appropriateness of the use of the New European Driving Cycle methodology for calculating carbon dioxide emissions for the purposes of the provisions amended by this section.

(14) A review under subsection (13) shall also consider the effects if carbon dioxide emissions were to be calculated for the purposes of the provisions amended by this section using the Worldwide harmonized Light-duty vehicles Test Procedure including

(a) the effects on the operation of those provisions,

(b) the revenue effects, and

(c) the effects on progress towards the Government’s targets for reducing carbon dioxide emissions.”

This amendment requires a pre-commencement review of the appropriateness of the current regime for calculating carbon dioxide emissions and the effects of a change to the WLTP procedure.

With this it will be convenient to discuss clause 48 stand part.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

As we move towards the denouement of today’s proceedings, I thank you for your chairmanship, Sir Roger. The formalities will ensue later on, no doubt.

Clause 48 is designed to ensure that a car’s carbon dioxide emissions for the purpose of the Income Tax (Earnings and Pensions) Act 2003 and the Vehicle Excise and Registration Act 1994 will remain based on the existing testing regime known as the new European driving cycle. I hope that that is not the cycle we were referring to earlier. This is a Government clarification, following the introduction of a new regime for calculating CO2 emissions that is called worldwide harmonised light-duty vehicles test procedures, or WLTP.

I always welcome clarifications, as the Minister well knows. This clause specifically relates to the car benefit charge and car fuel benefit charge, which are duties paid by motorists and employers who provide and use company cars. Those charges are calculated using CO2 emission figures published by a car’s manufacturer. Higher emission vehicles are subject to higher charges than are vehicles with a smaller environmental footprint.

We need to examine the implications of the clause quite closely, especially in the light of the Government’s recent interest in the environment. I expect, as I alluded to earlier, that that is an attempt to enamour young people, and so far they have not taken the bait. This clause, which attempts to demonstrate the Prime Minister’s commitment to environmental protection, demonstrates that that commitment is not as deep as it could be. Before we examine the particulars, it is useful to reflect on the reason why the EU developed new emissions testing procedures—the WLTP and the real driving emissions test—which the Government are effectively suggesting we ignore.

In September 2015, the automotive sector was plunged into crisis when the Volkswagen Group admitted that it had installed defeat device software in 11 million vehicles that had been sold across the globe. The implications of that still rumble on. It was a clear case of corporate deception, in which vehicles were mis-sold using information that suggested that their environmental footprint was smaller than it was. The Transport Committee’s report into the scandal described how it

“brought the integrity of the auto sector into disrepute” and “led to confusion”.

The same report points out, however, that although the case was one of corporate deception, it was also a matter of regulatory failure. The automotive sector is a large part of the UK’s manufacturing base, accounting for nearly £7 billion of turnover and more than £15 billion of value added, and roughly 1 million people are employed in the industry across the UK. It is clearly an important part of the economy, and that is all the more reason to ensure that it is properly regulated and trusted by the British public. I know that the Minister will completely agree with that.

The Transport Committee suggested, however, that regulators have known for years that the test used to measure emissions—the very same new European driving cycle test that the Government suggest we should continue to rely on—is unfit for purpose. The test was introduced in the 1990s and, in the words of the Select Committee, it

“has become unrepresentative of modern vehicle technology and real-world driving.”

Under the NEDC, testing takes place under laboratory conditions that are not reflective of real-world driving where, for example, speed and temperature differ.

You may be wondering, Mr Owen, why the specifics of emissions testing should be of concern to Members. One reason is that the evidence around the impact of car emissions on public health is stark. A growing body of evidence shows that nitrogen oxides are a significant hazard to human health. They can increase the risk of heart attacks, strokes and low birth weight, and they can aggravate a number of other lung and pulmonary conditions. According to the Department for Environment, Food and Rural Affairs, nitrogen oxides contribute to 23,500 deaths a year. That is why it is so vital that we get testing right and strengthen enforcement to ensure that a corporate deception akin to the Volkswagen scandal can never happen again.

Indeed, the European Union developed the new emissions testing framework as a direct response to some car manufacturers’ bad behaviour with regard to emissions testing. It is therefore odd that the Government should choose to stick to the old system for the purposes of taxation. The question is: why do they seek to do that? My assumption is that they know that taxing emissions on the basis of the new testing procedures will increase the level of taxation being applied through the car benefit charge and the car fuel benefit charge.

The Transport Committee report to which I made reference suggested that the Government should publish information explaining how vehicles tested under the WLTP compare with those tested under the new European driving cycle. Is that information in the public domain? Can the Minister confirm whether the Department has assessed the effects on the Exchequer of using the new testing regimes to calculate the amount of tax due, and can he set out the results of those assessments in due course?

My office made contact with the International Council on Clean Transportation Europe, which identified VW’s deception in 2015 and passed the information on to the United States Environmental Protection Agency. The council was clear that the type approval carbon dioxide emission values are expected to be about 20% higher under the new WLTP test than under the NEDC testing procedure, which the Government are suggesting that we stick to. The council said that that was due to a more dynamic speed profile, a more realistic vehicle test mass, lower ambient temperature and other conditions that reflect more closely typical real-world driving conditions.

However, the council informed my office that the political consideration has already been made regarding the jump in emissions figures through the testing regime, and that adjustment has been made to ensure that only three quarters of any increase in emissions will be counted. Can the Minister explain whether the Government have considered a similar compromise in the taxation being applied to emissions—one that recognises that the new tests are a better reflection of the actual emissions being produced, but that does not penalise those paying the car benefit charge and the car fuel benefit charge to the full amount?

That may be an important consideration. After all, despite the intricacies of the detail, there is a bigger issue at stake. Only a few days ago, the Prime Minister set out a 25-year plan,

“to leave the natural environment in a better state than we found it.”

Yet we are debating a clause through which the Government hope to avoid stronger tax incentives for company employees to use low emission vehicles. Does the Minister not see the contradiction between what the clause attempts to do and the Prime Minister’s speech?

We know that taxation can operate as an effective tool for behavioural change, and it is clear that the Government agree with that. Only today, we have debated measures to increase taxation on smoking in the hope of driving cessation. We have also debated the behavioural effects of air passenger taxation on the use of air travel, and the taxation of illegal landfill sites to reduce the prevalence of disposal, so behavioural change is a theme here. Why do the Government see fit to use taxation to reduce some harmful behaviours but not this one, despite the serious public health and environmental effects of vehicle emissions?

Turning to amendment 61, we are reasonably asking the Government to review this decision, to look again at the appropriateness of the NEDC procedure for measuring emissions when compared with the new WLPT regime that the EU developed in the light of the recent emissions scandals. Our suggested review would look at several of the effects of the provisions, including the revenue effects of sticking with the NEDC testing procedure rather than, say, taking up the WLPT regime.

As I have described, it is also important to review the impact of the measure on our overall ambitions for the environment. We have therefore included a provision in our amendment to ensure that the impact of the decision is measured against our progress towards the UK’s commitment to reducing carbon dioxide emissions—we all accept that they cause much harm to public health—in our environment.

If the Government do not at least pay attention to what we are saying, their strategy will be confused. On one hand, the Prime Minister is committed to protecting the environment; on the other, the Chancellor is giving tax breaks to higher emission vehicles. It just does not make sense. Our amendment will require the Government to come clean about the evidence on the matter and look again at their decision. I am sure that many Committee members will think on what I have said as they reach their decision.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General 3:45, 16 January 2018

Clause 48 confirms that for vehicle excise duty and company car tax purposes, the data for a car’s CO2 emissions will continue to be based on the new European driving cycle, or NEDC. As the hon. Gentleman says, NEDC, which is the current testing methodology for producing definitive car emissions values, is being replaced by a new lab test, known as the worldwide harmonised light vehicles test procedure, or WLTP, which is designed to be more representative of normal driving behaviour. For example, it contains more accelerating/decelerating and includes variable-speed driving. At the autumn Budget, it was announced that the Government will transition the tax system to using these improved readings from April 2020. The announcement was made now to give notice to drivers and the industry.

The Government will discuss with the industry next year whether the current CO2 band thresholds in VED and CCT are appropriate. In the interim, this clause clarifies that vehicle taxes will continue to use NEDC values until April 2020. The hon. Member for Bootle asked why we could not use the real-world driving emissions test in the interim. It is used as a complement to lab tests, to check whether cars produce similar emission values on the road as in the laboratory. We could not use the RDE as the primary basis for saving tax bands, because that is not how these tests work; they would not allow us to compare two cars on a like-for-like basis. The changes made by the clause will ensure that drivers’ tax rates are unaffected for vehicle excise duty, company car tax and fuel benefit charges.

Let me turn to amendment 61, which proposes that the Chancellor review the appropriateness of the NEDC regime prior to the clause commencing, and the effects of the change to the WLTP on the Government’s targets for reducing carbon dioxide emissions and on revenue.

I appreciate that Opposition Members want to ensure that the Government continually review the appropriateness of their policies for reducing carbon emissions. However, delaying the commencement of the clause to review the appropriateness of NEDC would be inappropriate, as it would mean that the Driver and Vehicle Licensing Agency and HMRC would not have clarity about which emissions figures they should use to set tax rates for vehicles. For clarity, I reiterate that NEDC is the established methodology for calculating CO2 values.

Clause 48 is designed to clarify the law. Since September, manufacturers seeking type approvals for new cars have been required to show two different CO2 readings for their vehicles—one produced under the new WLTP test and another consistent with the current NEDC test. We cannot use both numbers for tax purposes. Therefore, to avoid confusion, the clause makes it clear that the DVLA and HMRC will continue to assign tax bands using the current NEDC procedure.

The Government will transition the tax system to the new WLTP test from April 2020. That transition period gives the Government time to consider, in consultation with industry, what the effects of the new system will be and whether the band thresholds remain appropriate in the context of recorded WLTP results. We are actively discussing that topic with industry, and we will announce our decisions at the Budget in the usual way. On that basis, I believe that the amendment is unnecessary, and I ask the hon. Member for Bootle to withdraw it.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

Again, I appreciate what the Minister has said about keeping this under review, and about the 2020 date. We will keep looking closely at this issue, but on that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 48 ordered to stand part of the Bill.

Clauses 49 and 50 ordered to stand part of the Bill.

I am conscious of the television monitor, as there may be a Division in the Chamber at any time. When it is called, we will suspend for 15 minutes if there is one vote, and for an additional 10 minutes for each vote thereafter.

New Clause 1