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

With this it will be convenient to discuss clause 6 stand part.

Clauses 5 and 6 make changes to ensure long-term certainty on company car tax by setting the rates for 2028-29 and 2029-30. The increases in the appropriate percentages will help to ensure that the tax system contributes to supporting the sustainability of the public finances. The effect of the clauses is to gradually narrow the differential between zero emission and electric vehicles and their petrol and diesel counterparts, while ensuring that significant incentives to support the take-up of EVs remain in place. The provisions also increase rates for hybrid vehicles.

Company car tax applies when a company car is made available to an employee or their family member for private use. Company car tax rates were confirmed by the previous Government up until 2027-28. In the 2024 autumn Budget, the Government set out the rates for 2028-29 and 2029-30, to provide certainty.

The Government recognise that the company car tax regime continues to play an important role in the EV transition by supporting the take-up of EVs and their entry into the second-hand car market. Although it is important to maintain strong incentives to encourage the take-up of EVs, the Government need to balance that against the responsible management of the public finances by gradually withdrawing them over time, as EVs become more normalised. That is why we have committed to raising the company car tax rates—or appropriate percentages—for EVs, hybrids, and petrol and diesel vehicles in 2028-29 and 2029-30, gradually narrowing the differential between EVs and other vehicle types, and bringing the treatment of hybrids closer to that of petrol and diesel cars.

The changes made by clauses 5 and 6 will set the company car tax appropriate percentages for the tax years 2028-29 and 2029-30. Appropriate percentages for EVs will rise by two percentage points per year, rising to 9% by 2029-30. Meanwhile, the appropriate percentages for cars with emissions of 51 grams of carbon dioxide per kilometre or over will rise by one percentage point per annum. By 2029-30, the appropriate percentages for petrol and diesel cars will rise to between 20% and 39%, depending on the car’s specific emissions. Together, the measures will gradually narrow the gap between EVs and their petrol and diesel counterparts, while maintaining a generous incentive for EVs.

On the changes to the hybrid appropriate percentages, I draw the Committee’s attention to recent research from the European Commission that has shown that the real-world emissions of hybrid vehicles are in fact three and a half times higher than previously thought. Consequently, the Government have announced that they will align the treatment of hybrids more closely with that of petrol and diesel cars.

On aligning hybrid cars more closely with petrol and diesel cars, what assessment has been made of the impact on the hybrid car market and the take-up of hybrid cars, if we are ultimately looking to move away from petrol and diesel in the long term?

Over the coming years we need to make the transition to electric vehicles. Hybrid cars obviously play an important part in the car market and car manufacturing in the UK. The clauses are about a plan over the next five years or so regarding what will happen to the appropriate percentages. This is not an overnight change. Actually, one of the important principles of our setting out the appropriate percentages now for some years in advance is to give car manufacturers and everyone interested in the car industry certainty about what will happen. That is why, as I have been setting out, the appropriate percentages for EVs will rise, thereby narrowing the gap between them and petrol and diesel vehicles, but there will still be a generous incentive to help to shift people towards purchasing EVs.

Hybrid vehicles obviously fit within the general scheme of appropriate percentages. However, as I was setting out, European Commission research shows that emissions from hybrid vehicles are in fact three and a half times higher than previously thought, so in setting the rates for 2028-29 and 2029-30, we have decided to reflect that fact in the appropriate percentages that we are legislating for. That means all cars with emissions between 1 gram and 50 grams of carbon dioxide per kilometre—those that largely fall in the hybrid category—will see their appropriate percentages rise to 18% in 2028-29 and to 19% in 2029-30. As I outlined to the hon. Member for Gordon and Buchan, by setting out the rates until 2029-30 we will give the industry and consumers certainty about the future rates.

The company car tax system offers generous incentives to encourage EV take-up and makes an important contribution to the EV transition. The Government, however, must balance incentives against responsible management of the public finances. We are announcing the rates for 2028-29 and 2029-30 to start to narrow the differentials between EVs, hybrids, and petrol and diesel vehicles. I therefore commend clauses 5 and 6 to the Committee.

As the Minister set out, clauses 5 and 6 set the appropriate percentage used for calculating the taxable benefit for a company car for tax years 2028-29 and 2029-30. In those tax years, the appropriate percentage for EVs will increase by 2% to 7% in 2028-29 and 9% in 2029-30. For most other vehicles, the appropriate percentage will increase by a further 1% in each year, up to a maximum of 39%. Hybrid vehicles are the standout exception. The effect of these clauses for vehicles capable of operating on electric power while producing between 1 gram and 50 grams of CO2 per kilometre is to introduce a steep increase in the appropriate percentage of as much as 13% in 2028-29 to reach 18%, before rising to 19% in 2029-30.

Whereas previously the appropriate percentage for cars with emissions between 1 gram and 50 grams of CO2 per kilometre would rise as the electric range reduced, from 2028-29 that system will be replaced with a single flat rate, regardless of the electric range. That means that hybrid cars with the greatest electric range, which are presumably the least polluting, will see the steepest tax rise. Any distinction between hybrid vehicles will be eliminated for the purposes of these provisions. Indeed, as the explanatory notes make very clear, rates for hybrid vehicles will align more closely with the rates for internal combustion engine vehicles, as the Minister just pointed out.

It will not have escaped Members that these new rates take us to 2030. The Government have confirmed their intention to ban the sale of new petrol and diesel cars by that date. What has not yet been confirmed is the future of hybrid vehicles. The Department for Transport is consulting on which hybrid cars can be sold alongside zero emission models between 2030 and 2035. The Minister, naturally, will not pre-empt the outcome of that consultation, but these measures effectively do just that. While the Department for Transport parses the differences between plug-in hybrid electric vehicles and hybrid electric vehicles, the Treasury is eliminating that distinction altogether by 2028, let alone by 2030.

Not only that, but the Treasury is effectively lumping all hybrid vehicles in with those powered by internal combustion engines. Treasury Ministers will be aware that the manufacturing of hybrid vehicles and engines supports thousands of British jobs, as my hon. Friend the Member for Gordon and Buchan alluded to, and car manufacturing firms operate on a multi-year investment cycle. The contradictions between the Bill and the Department for Transport’s consultation send a less than clear signal, which puts those jobs at risk. I would therefore be grateful if the Minister clarified the Government’s intention in making these changes, especially when the House of Lords Environment and Climate Change Committee has heard that these rates have been the single most effective intervention to date in changing consumer behaviour around different types of vehicles.

I would also be grateful if the Minister outlined what steps the Treasury and HMRC are taking to make the general public aware of these changes. I grant they are quite technical, but they could impose a significant additional tax bill on certain taxpayers with plug-in hybrid vehicles. The Chartered Institute of Taxation raised that as a key area of concern, which could confront unsuspecting taxpayers—those seeking to do the right thing by purchasing a less-emitting vehicle— with a massive and steep tax rise. A higher rate taxpayer on £51,000 whose company car is a plug-in hybrid VW Golf could face an additional tax bill of as much as £1,600 in 2027-28. That strikes me as neither fair nor proportionate.

It has been reported that this Labour Government ordered no fewer than 10 petrol hybrid Jaguars upon assuming office to supplement the existing departmental, chauffeur-driven pool cars. If the Minister is confident that the consequences of the changes have been communicated and fully understood, I am sure he will be able to inform the Committee of the extra tax liability in 2028-29 of someone on a salary similar to that of a Treasury Minister—£110,000—whose full-time work car is a plug-in hybrid Jaguar F-Pace valued at roughly £60,000 with an electric range of just under 40 miles.

As the Committee can tell, we have serious reservations about the communication of the changes, the unfair overnight tax hikes they impose on taxpayers just trying to do the right thing, and the mixed messages they send to vehicle manufacturers by contradicting other areas of Government policy and consultation. The measures concern the ’28-29 and ’29-30 tax years, so the Government have time to think again and to bring back a better calibrated policy in a future Finance Bill. For the reasons that I have set out, we will vote against the clauses.

I listened to the shadow Minister’s comments, and he must have a different definition of “overnight” from me. Legislating now for changes that will come in in 2028 does not feel like overnight. Some Budget changes come in on the day of the Budget—had he called one of those overnight, I might have had some sympathy with the description, but not for legislating now for changes that will come in in 2028, toward the end of this decade. Part of the point of legislating now for changes that will happen some years down the line is precisely to give that signal to consumers and manufacturers, to ensure that the consumers are aware of what is to happen and manufacturers know what is planned.

People might be buying cars now—that is, overnight—that they still have in ’28-29, when the changes come in. They will be making decisions now that will be caught up in future changes.

The hon. Lady makes a similar point to that made by the hon. Member for Grantham and Bourne, which is that the changes will come in further down the line, but they are critical of the fact that we are pre-announcing the changes now so that we give greater certainty and stability. I cannot understand that criticism, because I thought that giving as much forecasting, certainty and stability as possible would be welcomed by the industry and consumers. People expect taxes to change over time, and the greater the forecasting and advance notice they have, the better for consumers and for manufacturers. Without making this too political, I know that the Opposition were not a great fan of certainty and stability when they were in office, but we are rather different. That is why we are setting out the changes now.

The shadow Minister referred to the DFT consultation, and of course, he is right that I would not pre-empt its outcome. In combination, our giving information about what the appropriate percentages will be towards the end of the decade, thereby providing certainty and stability, will help us to work closely with other Departments to ensure that consumers are well informed about what is likely to happen towards the end of the decade and manufacturers have the certainty and stability that were so desperately lacking under the previous Administration.

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

The Committee divided: Ayes 10, Noes 4.

Question accordingly agreed to.

Clause 5 ordered to stand part of the Bill.

Clause 6 ordered to stand part of the Bill.