Applicable CO2 emissions figure determined using WLTP values

Finance Bill – in a Public Bill Committee at 10:45 am on 16th June 2020.

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

Photo of Kemi Badenoch Kemi Badenoch The Exchequer Secretary

Clause 82 makes changes that ensure that CO2 emissions figures for vehicle excise duty will be based on the world harmonized light-duty vehicles test procedure—WLTP—for all new cars registered from 1 April 2020. Until 1 April 2020, the owners of new cars were liable to pay VED based on CO2 emissions figures provided under the new European driving cycle test procedure, which is otherwise known as the NEDC. That test underestimates real-world driving emissions by up to 40%. In the 2018 Budget, it was announced that from April 2020, VED would be based on WLTP, which closely reflects real-world driving emissions. Consequently, vehicle excise duty liabilities for new cars purchased from April 2020 may change.

In the 2018 Budget, the Government announced a review of the impacts of WLTP on vehicle taxes. In July 2019, the Government announced that as mitigation to help the industry manage the transition to WLTP, company car tax rates would be temporarily reduced, and that the Government would publish a call for evidence on vehicle excise duty. Draft legislation for the Finance Bill was published on L day 2019 to switch on WLTP from April 2020 and to implement the new CCT rates.

Clause 82 confirms that CO2 emissions figures for vehicle excise duty will be based on WLTP for all new cars registered from 1 April 2020, and that all cars registered before 1 April 2020 will continue to use existing NEDC CO2 values for VED purposes. As WLTP is more representative of real-world driving conditions, this measure ensures that VED is based on a more robust regime for measuring CO2 emissions. It will also allow motorists to make more informed purchasing decisions when considering the CO2 impact of their new car.

Photo of Wes Streeting Wes Streeting Shadow Exchequer Secretary (Treasury)

I do not think that we need to dwell too long on this, but it is worth exploring a few points that were made during the Government’s consultation and to test some stakeholders’ arguments. Assertions are sometimes made, but it is important to revisit the arguments and see whether they stand up to the scrutiny of evidence. It will be interesting to hear the Treasury’s view on that.

There was a concern that the WLTP charging rates could lead to distortion ahead of April 2020, because consumers might bring forward purchasing decisions to avoid potential tax increases on new cars. Given that April 2020 has passed, it would be interesting to know whether such distortion has actually occurred. What assessment has the Treasury made of that?

On the environmental impact, some respondents stressed that company cars were more environmentally friendly than private cars. The argument goes that it is important to keep people in that market by adjusting company car taxation to reflect the lower impact. What analysis has the Treasury done of that claim? Does the Treasury think that that is a valid argument, or simply an assertion?

Finally, some concern was raised that under WLTP values, there could be an above-average increase in the reported CO2 emissions of cars with smaller engines, whereas cars with higher CO2 emissions would not be affected by the change to the same extent. How much does that argument hold water with the Minister?

Photo of Kemi Badenoch Kemi Badenoch The Exchequer Secretary

On the question of why we are treating cars registered before 6 April 2020 differently and whether that would create a distortion, the WLTP testing standards were introduced in 2017 and EU legislation required manufacturers to record the CO2 emissions for both regimes. We have not sought to change the tax treatment of existing cars; we aim to encourage people who purchase new cars to choose low-CO2-emitting models.

On the analysis that the hon. Gentleman asks for, it is probably too soon to tell. The impact is linear, and we published some findings in July 2019 when we set rates. I can have that information provided to him, and I can write to him on that point. I do not have the full answers for the analyses that he is asking for.

Question put and agreed to.

Clause 82 accordingly ordered to stand part of the Bill.