Clause 78 - Vehicle Excise Duty: Exemption for Certain Cabotage Operations

Finance (No. 2) Bill – in a Public Bill Committee at 6:00 pm on 5 January 2022.

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

Photo of Angela Eagle Angela Eagle Labour, Wallasey

With this it will be convenient to discuss the following:

Clause 79 stand part.

New clause 16—Assessment of effect of sections 78 and 79 on supply chain—

“The Government must publish within three months of this Act coming into effect an assessment of the impact of the provisions of sections 78 and 79 on—

(a) supply chain disruptions,

(b) numbers of HGV drivers working in the UK, and

(c) shortages of products in UK shops.”

Photo of Helen Whately Helen Whately The Exchequer Secretary

Clauses 78 and 79 relate to the taxation of heavy goods vehicles. Clause 78 relates to cabotage, which is the transport of goods between two places in the same country by a transport operator from another country for the purposes of hire and reward. Cabotage is restricted both in the UK and abroad. In recent months, shortages of lorry drivers have been associated with problems with the distribution of food and other essential goods, and there have been representations to allow increased levels of cabotage.

The number of professional UK-resident drivers is estimated to have fallen by about 39,000 between the year ending June 2019 and the year ending June 2021, to stand at 268,000. The Government are temporarily extending road haulage cabotage to allow, until 30 April 2022, unlimited cabotage movements of HGVs within Great Britain for up to 14 days after arriving in the UK on a laden international journey, without transport operators needing to pay vehicle excise duty. The changes came into force on 28 October 2021. This temporary relaxation of cabotage rules for international HGV journeys within Great Britain is expected to increase resilience in key supply chains in response to the acute shortage of HGV drivers.

Clause 79 relates to the HGV road user levy. The HGV levy is an annual charge paid by UK hauliers alongside their VED, as well as a daily, weekly or monthly charge for HGVs from outside the UK accessing the UK road network. In light of the impact of covid-19, the Government decided to suspend the levy in August 2020 for 12 months to support the haulage sector by reducing its costs, and they did so again for a further 12 months from August 2021 for the same reason.

Clause 78 will make temporary changes to the Motor Vehicles (International Circulation) Order 1975 so that the relevant non-UK operators travelling in Great Britain do not need to start paying vehicle excise duty. The temporary relaxation of cabotage rules would not be effective if the relevant non UK operators of HGVs were expected to register in the UK and pay VED for the first time.

The exemption from VED will be extended to cover additional temporary cabotage rights. It will last until 30 April 2022, and encompass unlimited cabotage movements of HGVs within Great Britain for up to 14 days after arriving on a laden international journey into the UK. The changes made by clause 79 will extend the suspension of the levy for a further 12 months from 1 August 2022. This means that UK-registered keepers of HGVs will again save up to £1,200 per vehicle, as they will not have to pay the HGV road user levy when they renew their vehicle licence. Non-UK-based hauliers will also not need to pay the levy during this period.

New clause 16, tabled by the hon. Members for Ealing North, for Erith and Thamesmead and for Blaydon, asks the Government to

“publish within three months of this Act coming into effect an assessment of the impact of the provisions of sections 78 and 79” on supply chains. The new clause is unnecessary, and should not stand part of the Bill. The Government consulted on the temporary extension of road haulage cabotage ahead of its introduction to gather evidence on its potential impact. As has been set out, the Government published a response to that consultation. We had clear indications that there will be some use of the additional cabotage rights in critical parts of the supply chain. However, existing cabotage rights are modestly used by international hauliers and therefore the measure is judged likely to only modestly increase cabotage overall.

Information received by the Department for Transport has indicated that, as anticipated, there was some use of the extra cabotage rights during November and December; initial surveys suggest that about 40% of drivers engaged in cabotage used the additional rights. The take-up of those rights may continue to change over time—for example, in the context of the omicron wave of infections—and the Government are committed to continuing to monitor take-up, with more data being collected by the DFT. With regard to the suspension of the HGV levy, the Government published a tax information impact note that sets out the expected impact of the measure, including the fiscal impact. As with all tax changes, the Treasury will continue to monitor the impact of the suspension.

The Government have acted rapidly and brought forward 32 short, medium and long-term interventions to help tackle the current HGV driver shortage and support UK supply chains. In addition to the temporary extension of road haulage cabotage, those interventions include attracting drivers back to the industry through investing £32.5 million in improving facilities across the country; launching a review to look at ways to streamline compulsory ongoing training requirements under the driver certificate of professional competence scheme; and investing £17 million to create new HGV skills boot camps to train up to 5,000 more people to become HGV drivers in England.

We are already aware that since those interventions have been introduced, there has been a 90% increase in available HGV driver tests, with 2,850 tests available each week. The Driver and Vehicle Licensing Agency is dealing with around 4,200 applications daily, more than double the pre-covid rate. Information from the sector shows that the lorry driver shortage is reducing, although it continues to be a significant issue. The Government will continue to use industry intelligence and official statistics to monitor the scale of the shortage and its effects. We therefore believe that new clause 16 is not necessary, because monitoring of the UK’s supply chains and the impact of the Government’s interventions is already taking place. I urge the Committee to reject the new clause.

Overall, the changes outlined in clause 78 will temporarily ease pressures on critical supply chains due to capacity issues connected with the acute shortage of HGV drivers. Haulier capacity has been increasing, and continues to do so, but it will take some months before UK driver numbers can be grown sufficiently to rectify that shortage, so this is a temporary change while UK drivers are recruited and trained. Additionally, the haulage sector supports many other industries, so temporarily easing its financial burdens through the changes made by clause 79 will support them and help the economy recover from the impacts of covid-19. I commend these clauses to the Committee.

Photo of Abena Oppong-Asare Abena Oppong-Asare Shadow Exchequer Secretary (Treasury)

As the Minister has said, clauses 78 and 79 are both designed to help strengthen supply chains, and in particular to address the shortages of drivers in the haulage sector. Clause 78 temporarily relaxes rules for international HGV journeys within Great Britain, while clause 79 continues the suspension of the HGV road user levy for a further 12 months, until 31 July 2023.

We support both measures, although we believe they are only a small part of the action needed to tackle the supply chain crisis. That is why we have tabled new clause 16, which calls on the Government to publish a report on the effectiveness of the measures in tackling three related issues: supply chain disruptions, the number of HGV drivers operating in the UK and product shortages in UK shops.

I noted that the Minister said that this new clause was unnecessary, and that the Government are already doing some level of monitoring. However, I point out that we have seen nearly half a year of supply chain issues affecting the UK, due to a combination of the effects of covid, the Government’s patchwork Brexit deal, and global shortages of critical materials.

In the UK, the shortage of lorry drivers has hit businesses across the economy, as the Minister noted. That has gone from fuel to food, and the impact of Brexit, cancelled driving tests and the increasing numbers of drivers forced to self-isolate have all played a part in that.

Since last summer, we have called on the Government to take decisive action to tackle the crisis and ensure that supply chain issues do not further risk our economic recovery. I am afraid that the Government have a habit of shifting the blame on to businesses, but many of the long-term causes of this crisis do lie with the Government—whether through insecure work or a lack of skills training. The answer must be to make long-term improvements in the UK’s supply chain resilience. We are concerned that, despite months of problems, the Government are still not acting.

New clause 16 simply asks the Government to be honest about the supply chain challenges we face and whether these measures are enough to solve them. Does the Minister think that this part of the legislation will go anywhere near far enough in addressing the supply chain crisis? If not, what further steps will the Government take to alleviate these problems?

Photo of Helen Whately Helen Whately The Exchequer Secretary 6:15, 5 January 2022

In essence, what I heard from the hon. Member was that she wants us to take more action on some of the challenges with supply chains. However, as I set out earlier, we have been addressing the particular problem of HGV driver shortages—both some of the short-term reasons and short-term barriers. One of those steps has been to increase the availability of new driving tests, and we have seen a substantial increase in the number of tests being taken. We are also looking at some of the longer-term challenges, such as the conditions for HGV drivers; we are therefore providing significant funding to improve roadside facilities for those drivers. That is both short-term and longer-term action being taken. We have already seen benefits from the short-term actions, with some of the pressures on the supply chain being alleviated.

Question put and agreed to.

Clause 78 accordingly ordered to stand part of the Bill.

Clause 79 ordered to stand part of the Bill.