HC Deb 12 May 1977 vol 931 cc1659-84

'Paragraph 3 of Schedule 7 to the Finance Act 1976 shall have effect and be deemed always to have effect with the addition at the end of sub-paragraph (2) of the following:

"(3) Provided that in no case shall the cash equivalent exceed the personal proportion of the aggregate of the costs incurred by the employer in respect of the car on petrol, oil, diesel fuel, maintenance and repair, car tax, insurance, garage rent, car parking, and depreciation (at the rate laid down in section 63(5)(6) of this Act).

(4) For the purposes of this paragraph 'personal proportion' means the number of miles which an employee did not use the car preponderantly for business purposes in the year of assessment compared with the total number of miles for which the car was used in that year.".'—[Sir John Hall.]

Brought up, and read the First time

Sir John Hall: (Wycombe)

I beg to move, That the clause be read a Second time.

The Second Deputy Chairman (Mr. Bryant Godman Irvine)

It will be convenient to take at the same time New Clause 4—Taxation of directors and others in respect of cars, which also appears in the name of the right hon. and learned Member for Surrey, East (Sir G. Howe) and the names of his hon. Friends.

Sir J. Hall

Both clauses deal with the benefits of employment and the assessment for private use of car mileage, as calculated under the Finance Act 1976. New Clause 3 is intended to give the taxpayer the option of being taxed either on the flat-rate cash equivalent laid down in Schedule 7 to the Finance Act 1976 or on a sum calculated by reference to the probabality of private use, whichever is the lower.

As an expert, the Chief Secretary to the Treasury knows that under the existing law a director or employee whose total emoluments are above the magic £5,000 ceiling and who has a company car but whose private use of that car might be very small finds himself penalised by an arbitrary assessment which bears little relationship to the benefit he might get from the private use of the car. Indeed, in many cases the additional tax penalty which is imposed thereby largely offsets the very modest reduction in income tax that the executive might hope to get under the provisions of the Bill.

Prior to the 1976 Act, those who used their cars preponderantly—to use that awful word which is employed in the 1976 Act—for business purposes generally managed to agree with their inspector at the end of the year the proportion of the mileage for which they used the car for legitimate private use. I find on inquiry among the employees of companies with which I am associated that many of those who have cars, such as salesmen and others like them, in general manage at the end of each year to agree with their inspector a figure which varies between 10 per cent. and 20 per cent. of the total mileage covered by the car during the 12-month period.

I notice from a memorandum that the CBI has recently issued that it has carried out an examination of 12 major companies and finds that the average private usage of company cars by employees of those 12 companies was about 15 per cent. It is not very much different, therefore, from the experience I had in the inquiries I made in my own companies.

Mr. Joel Barnett

Fifteen per cent. of what?

Sir J. Hall

It is 15 per cent. of the total mileage covered by the car during a 12-month period. I hope I make myself clear.

New Clause 3 is designed to restore that position in part. It reintroduces a variable basis by which the tax is based on the personal proportion of aggregate running costs defined by the proportion of private mileage to total mileage. The running costs include depreciation calculated on the basis of Section 63(5)(b) of the Finance Act 1976—that is, 20 per cent. of the original market value, or 10 per cent. if the car is over four years old.

The proposal in New Clause 3 seems to me to have the merit of relating the private use of the car very closely to mileage—a factor on which last year the Financial Secretary laid very great stress during debates in Standing Committee and on the Floor of the House.

I turn to New Clause 4. This reopens the debate that we had in July last year on Report, although the clause goes a little further than the amendment that was then moved by my hon. Friend the Member for Norfolk, South (Mr. MacGregor). However, the arguments remain the same. Indeed, they are strengthened by the representations that we have received since that date.

There is little doubt that to set a figure of 25,000 miles for business travel before one can qualify for the 50 per cent. reduction in the flat-rate cash equivalent is to set it unrealistically high. I have been provided with the results of examinations of a number of companies, which are included in tables provided for me by the CBI, to which I made earlier reference. However. I have preferred in this case to carry out my own examination into some companies—three, in fact—with which I have been personally concerned over the years. I should like to give the Chief Secretary the results of my research.

Mr. Max Madden (Sowerby)

On a point of order, Mr. Godman Irvine. The hon. Gentleman has just referred for the third time to companies with which he is associated. Would it be in order for him to declare an interest in supporting the new clauses, as the clauses are obviously based on information from companies with which he is associated and, presumably, he has an interest in their success?

The Second Deputy Chairman

That is a matter entirely for the hon. Member.

Sir J. Hall

My interest in companies is well known in the House. No personal benefit accrues to me from anything that I am now debating. I do not possess a company car, so I have no personal benefit.

9.0 p.m.

Mr. Madden

Further to that point of order, Mr. Godman Irvine. Will you confirm whether interests are supposedly well known? There is an obligation on Members to declare their interests every time they participate in proceedings in the House.

The Second Deputy Chairman

There is a resolution of the House that Members should declare their interests, and that is normally done. I should add that certain hon. Members who regularly take part in proceedings in Committee on Finance Bills from time to time declare interests which are fairly well known.

Sir J. Hall

Perhaps I may make two points. First, many Opposition Members and, indeed, Labour Members frequently talk about matters of vital concern to trade unions without declaring that they are members of the unions concerned. Secondly, regarding the companies to which I was referring, I said that I was at one time personally concerned with them. I am no longer concerned with them. Indeed, I have retired from active participation in two of the three companies to which I referred as having been investigated.

When making my inquiries, the chief executives and financial directors kindly supplied me with the information for which I asked. Of the total staff who have company cars, most are salesmen. However, there are many other categories as well.

The average mileage covered by salesmen varies between 15,000 and 18,000 miles. No salesman at any time within the records of the company reached 25,000 miles, except on one occasion when I was an active executive with one of the two companies. One salesman did over 25,000 miles. At the time I said that we should rearrange his duties and area because it was wrong that a man should spend three to four hours a day driving. It was uneconomic. It meant that he had to drive 130 miles a day. Therefore, he could not make the calls that he should make, and it was an uneconomic use of time for that individual. We rearranged his duties to ensure that his mileage was drastically reduced. That was the only occasion in the last 10 years when I can remember anyone achieving 25,000 miles in one year. That is the experience of only three companies. Others may have different experience.

Mr. Joel Barnett

It would be helpful, as we have been told the approximate percentage that is used for private use and the total average mileage, if we could be told, on a percentage basis, the total costs of running the car, taking into account depreciation, petrol and oil and the rest, so that we may compare it with the schedule.

Sir J. Hall

That is a little difficult, because the cars varied in size from 1,100 up to 3,000 I have not got the breakdown of the cost of individual cars. I cannot help the right hon. Gentleman in that way.

In addition to those figures, one company has staff technicians and chemists who are regarded as trouble-shooters and advisers and who visit factories within the group and customers' plants. They must have cars available for their individual use each day of the week. They might be called out to a factory at any time during the week. Their mileage is considerably less—between 8,000 and 13,000 miles, depending on the individual.

About 55 per cent. of these people with company cars have second cars, because without them their families would be completely marooned. We all know about the problems. Labour Members laugh at that. We had a debate not long ago about the problems not only of rural transport but of urban transport. For example, many people in High Wycombe cannot rely on getting to work at the right time if they do not have the use of a car, because the bus services are so unreliable.

Mr. Madden

The hon. Gentleman and I participated in the debate on rural transport. I am sure that he does not want to mislead the Committee. There were expressions of grave concern by Labour Members about poor people who live in rural areas. In many cases, because the husband had the use of the car during the day, the wife and family were marooned at home because they did not have access to a second car. That concern was expressed strongly by Labour Members.

Sir J. Hall

That does not invalidate my argument. Some 55 per cent. of the people with a company car must for one reason or another have a second car, because without it their families would be marooned. That situation exists in all parts of the country.

All those who were classified as being among the higher paid, who were caught by the provisions of the 1976 Act and who had a second car, made little private use of their company car—with one exception. All of them complained that they were now being assessed at too high a figure, and they believe that the change is unjust and penal.

The present position arose because last year the Financial Secretary did not appear to understand the difference between exceptional business use of cars and exceptional business mileage. Few people, particularly the higher paid, reach an annual business mileage of 25,000 miles. They should not be allowed to reach that mileage. Far more people make exceptional business use of cars without coming within striking distance of 25,000 miles a year. A salesman covering an urban area works as hard as, if not harder than, a man covering a sparsely populated area because he makes more calls. One is to be penalised and the other may escape penalty. A senior executive engaged in customer liaison, for instance, may need a car each working day, and on occasion seven days a week. His mileage would be modest.

A number of letters have been sent to me by constituents. I have picked out two from salesmen from the top of the pile. I shall quote only the relevant paragraphs because I do not want to bore the Committee. The first letter states: As a field sales manager I need a motor car and incur some expenses on behalf of my employer, whilst performing my job…. In my case, the car and expenses are not a 'perk', but are essential to the pursuance of my job…. The provision that the amount to be included in reckoning my gross income should be halved, if I do 25,000 business miles per year, does not bear any relationship to the business miles covered by the average field sales manager of a national company. That constituent is right. The letter continues: 12,000 miles is much nearer the true average, and should be the point at which the amount is halved. This act is a discriminatory, iniquitous piece of legislation which penalises a section of the community for the way in which it earns its living. I received a similar letter from an area salesman covering Buckinghamshire, Hertfordshire, Middlesex and North London. He says: In my opinion, 10,000 miles would have been sufficient to distinguish between those for whom the car is a perquisite and those for whom the car is a necessary tool for their job. In general, this aspect of the Finance Act will add a further burden to that group of people whom have benefited less than any others, those earning around the £5,000 per year. Already we are seeing differentials being whittled away. Other hon. Members will have received similar complaints.

I think that the Financial Secretary knows me well enough to realise that I am right. I am opposed to fringe benefits in principle. But, there has been an alarming and rapid fall in the real incomes of middle and senior management because of the combination of the severe restrictions on growth and the penal tax. It is a wonder to me that there has not been a greater attempt to increase the number of fringe benefits rather than reduce them.

When someone gets a benefit which normally he would expect to pay for out of taxed income, it is right that he should be assessed. No one would disagree with that. No one would complain, except perhaps at the level of taxation, if the assessment were done fairly. I believe that the new system is unfair, and its impact will fall especially on those who are most likely to be the men or women on whose initiative, ability and drive we depend. It was clear from the debates last year during the Report stage that insufficient thought had been given to the effect of the measures which are now in the Finance Act 1976.

For those reasons I commend the new clauses to the Committee. In particular, commend New Clause 4 to the Chief Secretary.

Mr. John MacGregor (Norfolk, South)

In view of the obsession of the hon. Member for Sowerby (Mr. Madden), I shall declare an interest at the outset. I have no company car, I am not talking about anyone in the single company with which I am associated, and I am mainly concerned with the interests of constituents who have written to me on this matter and of other companies with whom I have had discussions over the past year. That arises from the fact that during last year's debates on the Finance Bill I was very much involved.

As my hon. Friend the Member for Wycombe (Sir J. Hall) was kind enough to remark, I proposed an amendment last year to bring the figure down to £15,000. The Chief Secretary will also recall that in the debates upstairs, largely due to the Opposition's concentration on the problem of very extensive business use, the Government introduced the concession in the first place, and we were grateful for that.

I had hoped, from the debates we had last year, and particularly from the response of the Financial Secretary, that the Government would be prepared to look again at their figure of 25,000 miles and, in the light of experience, to adjust it, because I believe that experience has shown that that figure is too high.

I have sympathy with the Inland Revenue's desire to produce simplification in the whole area of taxation on car fringe benefits. For that reason I much prefer New Clause 4 to New Clause 3, because I think it is another step towards simplification, whereas New Clause 3 would slightly complicate the present laws.

I am bound to say that the way in which the Inland Revenue is interpreting these new clauses in relation to cars does not exactly suggest that it is wholly concerned with simplification. There have been some interpretations, in which perhaps the Chief Secretary has not even been involved, which have created a great deal of muddle.

One example of this is where an individual pays for his petrol himself for private or other use and asks his company to reimburse him, or, alternatively he reimburses his company for the private use of a car. In such a case the cost of the petrol will be added to the total, whereas, if a company credit card is used for the petrol, that rule will not apply. That is the sort of technical muddle that we seem to be getting into already in the interpretation of these clauses.

I appeal to the Chief Secretary to make sure that the Inland Revenue carries out the original objective of these fringe benefit clauses on company cars, and, even if it means rough justice, tries to make sure that there are simple rules to follow.

With regard to the main point on New Clause 4, the whole burden of our argument last year is that those who use their cars for very substantial business mileage will find that under the new rules they will be taxed more heavily. I think that that is doubly unfair, first, because an element of tax is being added—which is entirely due to business expense—to an executive's already highly-taxed income, in many cases. It is also discriminating against those who are using their cars entirely for business and not for private use at all.

I well remember, last year in Committee upstairs, quoting a letter from a constituent. I shall not bore the House by quoting it again. The effect was that the writer hoped that Government Ministers did not believe that at the end of a very tiring week, driving many thousands of miles round the country, the people concerned were only too delighted to go out during the weekend on private mileage. The writer emphasised that he was only too pleased to see the car in the garage, rather than having to drive another mile during the weekend.

9.15 p.m.

There are many salesmen and executives in that situation for whom the car is essential for business and who use it very little for private purposes. The problem is that the Government have set the top limit on their concession far too high. The limit of 25,000 miles means that a salesman must travel about 100 miles every working day. That is a level that most of them do not achieve.

So whereas the Government were right to accept the concession that we pressed last year, they have still not achieved the correct level, and they are still discriminating against those who use their car predominantly for business purposes, who are therefore incurring only business expense, and who are finding that they are therefore being taxed more highly.

I have been talking to travellers or salesmen in various companies about this matter. Only this weekend a deputation of ICI salesmen came to see me in my constituency. All of them use their cars mainly for business purposes. None of them actually achieves the 25,000-mile figure, even though they all operate in a rural area. All the experience shows, therefore, that the Chief Secretary has set the limit too high.

One point struck me about the circumstances in East Anglia. Many of these travelling salesmen, who work for all sorts of companies, run two cars. They have the company car, which they use every working day. They probably leave home early in the morning and return fairly late in the evening. Therefore the wife has to have an old "banger" to get the children to and from school and to do the shopping, because in a rural area that is the only way in which she can get about. In those circumstances it is ludicrous to assume that these travelling salesmen are using their business cars a great deal for private purposes. The car is an essential tool of business for them. I believe, therefore, that last year's concession should apply for all these cases.

We can argue whether the limit should be 12,500 miles or 15,000 miles, as we suggested last year. Whichever figure we settle on there can be no doubt that 25,000 miles is too high. Personally, I would prefer to be generous. We are here talking about people earning between £4,000 and £6,000 a year, but because of the way in which total remuneration is calculated for last year and the forthcoming year, and because of the business expenses they incur, they are put into the category of the higher paid. They are not among the higher paid, but they are among the most hard-working members of the community.

We were talking about such people on Tuesday, although on that occasion our remarks were directed primarily at those in the higher tax range. These are the people who are getting a raw deal and are becoming completely dispirited in their work, and who find that the combined effects of their not getting last year's concession and the change in the car rules mean that they will be taxed more heavily this year than in the previous year. They will ask themselves why they are in the business at all. I do not blame them taking that attitude. They use their cars almost entirely for business purposes, and the Chief Secretary would therefore be well advised to take another look at this matter and, for the sake of giving this group sufficient motivation, accept the concession we are suggesting in New Clause 4.

I end by quoting from a letter from one of my constituents which emphasises the sort of problems presented by the demotivation of executives in industry. This constituent is precisely in the category that we have been discussing. This year his tax bill has increased by £60 because of the way that the rules operate. He receives a comparatively modest salary but recently he declined an offer of promotion and an extra £1,000 a year because it would have meant transferring to another part of the country, and he worked out that it was not worth accepting. He says: How sad it is that people in positions similar to mine should be so dispirited and depressed. Is it any wonder that I find myself unable but to advise my son, who is just completing a postgraduate course at Cambridge after gaining a first class honours degree at another university, that he should seek employment beyond the shores of the United Kingdom. The Chief Secretary raises his eyebrows, but he must accept that this is the kind of problem occurring in British industry from time to time. This is not a bleat about tax levels, as it might well have been. It is a despair that has been brought about because the lines were drawn too high last year, and this is the final straw for that executive. The clause would make a comparatively small change, but I urge the Chief Secretary to think again and accept it.

Mr. Richard Page (Workington)

I want to speak very briefly, and, not surprisingly, in favour of the new clause—and not only from the straight taxation point of view. I am sorry that the Labour Benches are depleted, because I should have loved to declare my interest, which comes from a background of many years in the motor industry.

The clause goes part of the way towards alleviating the problems that will be created by this part of the Finance Bill. There is a possibility that if this part is not changed there will be an increased threat of unemployment in the motor industry and its associated suppliers.

The majority of companies that run company cars have strong pro-British and "Buy British" policies for their fleets. The vast majority of company-owned cars are British-manufactured. On the other side of the coin, private individuals are tending more and more to buy foreign imports. I am concerned about the rigidity of the Government's proposals and the depressing effect of tax levels on the individual in the section of our society that really needs every incentive and motivation to get up and make this country a better place.

I am afraid that companies will consider paying their employees a mileage allowance and allowing them to run their own cars. This will increase the foreign vehicle demand, and the number of registrations of foreign imported cars will climb, month by month, to 30 per cent. or more. This will put pressure on home production. There will be a reduction in the number of registrations and sales of British cars. Obviously there will be job losses, and the increased import costs will affect our balance of payments.

I wish to back up the points that have been made already about the 25,000-mile figure. We are told that this figure has been introduced to take account of the commercial traveller. I cannot follow the reasoning behind the fixing of that figure. The commercial traveller does a job the same as anyone else. He or she is no different in that respect from a bus driver or a train driver. His personal mileage—if he feels like it after a long hard day of driving—is personal to him, just as personal mileage is personal to anyone in any other occupation. One might just as well argue that because a bank clerk is handling and counting money all day he is qualified for a reduction in his taxation.

I also wish to take up the point about the second car. In some country districts there is appalling local transport, and a person should not be penalised for having one car for his own use and another for his wife. For this reason the figure of 25,000 per year for predominantly business use is nonsense, and is far too high. The average recorded mileage is about 12,000 a year. That figure is produced and substantiated in practice, and it is borne out by Glass's Guide which is a trade manual and a fairly discerning publication on these matters.

The figure of 12,000 miles includes personal and business use. It is a figure that is being achieved in practice. Therefore, it seems logical that the figure of 12,500 miles per year, as we propose, should be adopted as the starting figure.

If this proposal is accepted, it will be of special benefit to small business men, who are being hard hit in the present business climate. They comprise a section of the community looking for expansion and growth to help mop up the unemployed. A change to a figure of 12,500 miles per year will help such a man, because he is under pressure and strain, as is shown by the present level of bankruptcies.

I wish to draw attention to the rigidity of the present flat-rate proposal. I do not want to go into all the details or to plough through the examples, because no doubt Finance Committees have heard them many times before. The calculation divides proportionately between business use and insubstantial non-business use. The first half of the calculation relates to flat-rate benefit plus any private element. The second part is a percentage of original market value plus running costs. There is a looseness in the definition of the word "insubstantial" in the Finance Act, although the Inland Revenue has stated that the business rate of over 10 per cent. a year will be regarded as insubstantial.

There is an additional and perhaps minor point, but it is relevant in this context. No provision is made in the Bill for vehicle use by companies engaging in the manufacture, promotion or sale of a specific product. This will mean a locked-in position for those concerned and will cause difficulty in negotiation.

I believe that our proposals in New Clause 3, coupled with the mileage reduction to 12,500 will enable a contribution to be made for personal mileage use. The contribution will relate to actual cost and will be a means of evaluating personal use within the limits of the Bill. The present proposals could lead individuals to pay far more tax than they should under the flat-rate proposals. I support the clause because I believe that it will eliminate this injustice.

Mr. Joel Barnett

I have listened to the debate with great interest. Two issues arise. The first relates to New Clause 3, which seeks to add to the half-scale in the schedule to last year's Finance Act a proportion of the actual cost in certain circumstances. The second matter which is dealt with in New Clause 4, would reduce the figure of 25,000 miles per year to 12,500 miles per year in the assessment of half the scale instead of the full scale.

Let me seek to deal first with New Clause 3, which seeks to return to the old system of calculating a private proportion of total motoring costs in the circumstances of a figure of 12,500 miles. The hon. Member for Wycombe (Sir J. Hall) said that that figure would embrace the great majority of business users. We were given figures showing that that was an average mileage for business use. Therefore, we would be back to the old system of calculating the private mileage assessment.

I have had some experience of dealing with these matters in a former life. I was reminded of those halcyon days when I heard the hon. Member for Norfolk, South (Mr. MacGregor) talk about someone who had written to him saying that he would be only to happy never to see his car again. That is what clients used to tell me in the past. I naturally assumed that they were telling me the truth and that that was the situation.

9.30 p.m.

However, it is a little difficult to imagine that private use would be an average of only about 20 to 30 miles a week, including evening, weekend and holiday motoring. That is the impression one gets from the figures given by the hon. Member for Wycombe. He referred to CBI figures which showed that 15 per cent. was private motoring and that this meant an average of 37 miles of private motoring a week. If one takes 12,500 miles a year as average, as the new clause seeks to do, one is talking about a pretty small assessment of mileage for private use. I am sure that the hon. Member for Norfolk, South was telling the truth, and I have no doubt that there are some salesmen who, once they have finished travelling and working at a difficult job all week, say at the weekend "Thank God. That's it" and then put the car in the garage, not wanting to use it again. If that happened over the whole year the private mileage for that car would be as low as the hon. Member for Norfolk, South suggested. I agree that that might be so in certain cases, but in most cases—I put it no higher than that—it is unlikely that the private use of the car would be so low.

Sir John Hall

Does the right hon. Gentleman agree that it is difficult to calculate the actual private use of the car, because, although the business man involved might not be using the company car for private use, he might be using his second car or he might be driven around by his wife or another member of his family.

Mr. Barnett

That is absolutely right it is extremely difficult to calculate the private use of a car. In my experience as an accountant in practice, there was no more burdensome task both for the inspector of taxes and for an accountant than to have to spend a huge amount of time calculating—this had to be done—the distance from home to the office and how many miles were driven during weekends and holidays. This could continue during a long correspondence and many telephone calls.

That has been replaced by a scale which I shall come to presently. It cannot be suggested that having to calculate the mileage of the great majority of business users would be a better way of dealing with the matter. That is wrong. I see the hon. Member for Norfolk, South nodding in agreement. Nobody else saw him doing so, and I am sorry if I have embarrassed him.

I hope that nobody will support New Clause 3. It would mean going back to the old system, which would cause the great burden of having to calculate what proportion of the mileage was private use and what proportion was business use.

We could then go on to consider whether the scale that we use is accurate. That is the matter that we are really discussing. There can be few accountants and certainly, if the tax inspectors were to deal with these things stringently, few business motorists who would want to go back to the system of calculating private and business motoring.

Let us take the example of a motorist with a Cortina 1600 and driving an average of 12,500 miles a year. I know that the sort of person to whom we are referring loathes using his car again after working hard all week. However, the proposition is that he would have to do as little as 20 miles a week private motoring to come within the half scale available on 12,500 miles a year. Are the Opposition suggesting that, even if a man does substantial business motoring, he will not use his car privately for an average of more than 20 miles a week? I cannot believe that they would press that idea.

Even if we kept the mileage at 25,000 a year, such a driver would have to do less than 40 miles a week in order to benefit from going on to the proportional rather than the half scale. It stretches the imagination to believe the Opposition's proposition.

Mr. Richard Page

Most commercial travellers do not go to an office first but go straight to work from home. That is what make it possible for them to cover these phenomenal mileages in a year. At weekends they are only too glad to put the car in the garage, and they are most unlikely to do even 25 miles a week if they have any sense.

Mr. Barnett

The hon. Gentleman takes me back. Those are precisely the arguments that I used. No doubt many salesmen do exactly that. I am sure that every client who told me that was telling me the truth, and I am sure that those who tell the hon. Gentleman the same thing are also telling the truth. However, the car is at their disposal. Are we to believe that they never go out and see their friends during the week, that they never go out at weekends and that they never use the car on holiday? We are talking in this debate to the vast public outside, and to expect them to believe that is expecting too much.

Sir John Hall

The Chief Secretary is making a lot of this point. We are talking about the private use of a company car. It does not mean that another car may not be used privately for more than 20 miles a week. I am not sure where the Chief Secretary gets the figure of 20 miles, because my suggestion would give a private use of about 50 miles a week. The right hon. Gentleman should not keep emphasising that the company car will be used for 20 miles of private use every week. It may not be the company car that is used privately.

Mr. Barnett

There is a fair number of two-car families, but there are many others with only one car. The hon. Gentleman is seeking to bring down to 12,500 the mileage after which a man would be able to get the half scale and be allowed to use the proportion that, as I have said, few would seek to do. The hon. Gentleman also quoted the CBI in evidence and said that 15 per cent. was the proportion for private use. Fifteen per cent. of 12,500 miles is certainly less than 40 miles a week.

Sir John Hall

This is probably where the confusion has arisen. I was not relating that to the 12,500 miles in New Clause 4. The two clauses are alternatives. I am sorry I did not make that clear. I was utilising the CBI's investigation, which showed that those who had a business use mileage of over 15,000 miles did an average of 15 per cent. for private use. We are talking about 15 per cent. of a minimum of about 17,500 miles.

Mr. Barnett

The hon. Gentleman quoted a number of figures which I took down. He said that the CBI had quoted 15 per cent. as the total mileage for private use. He talked about salesmen as being responsible for 10 per cent. to 20 per cent. of costs, and an average mileage of between 15,000 and 18,000 a year. But I remind the Committee that 12,500 miles is not an exceptionally high figure. After all, the hon. Gentleman put forward New Clause 4. If that is not the case, he is seeking to persuade the Committee that less than the average mileage should be allowed half the scale or a proportion of the total calculated costs.

Sir John Hall

Perhaps I may explain by using words of one syllable. In putting forward New Clause 4, I was trying to stress that the real problem arose last year because of the confusion between the concentration of exceptionally high mileage and the exceptionally high business usage. The two are not necessarily the same. We are beginning to get down to 12,500 miles because we believe that there are many people who use a car all the time who cannot possibly do the high amount of mileage required by the present Act.

Mr. Barnett

I shall be coming precisely to that point. I do not think the hon. Gentleman is suggesting that 12,500 miles is an exceptionally high mileage. It is not. But under New Clause 4 it would be possible for business motorists, with that figure, to obtain half the scale. I should like to remind the Committee what the scale actually is and what that would mean particularly to business motorists. The scale, as it stands in last year's Finance Act, is in itself a very low scale by anyone's understanding of the availability of a car for private use and the amount of private mileage for which it is used.

Let me come to New Clause 4, which is—[Interruption.] We are debating two new clauses. The hon. Member for Blaby (Mr. Lawson) may not know it, but his hon. Friend introduced New Clauses 3 and 4. I assume that the hon. Member for Blaby supports New Clause 3 because, being a Whip, he has to support both of them even though he does not agree with them.

New Clause 4 seeks to reduce the milage from 25,000 to 12,500. We estimate that that would cost about £20 million because, as the hon. Member for Wycombe indicated, we are not talking about an exceptionally high mileage but rather about something lower than average business mileage. We put in a figure of 25,000 miles because it implies a reasonably substantial mileage. I have no doubt whatever that there will be many salesmen running their cars for business use on a rather higher mileage in a year than that. Certainly no one would argue that 12,500 miles was an exceptionally high mileage.

9.45 p.m.

If we accepted that 12,500 miles should be the scale of assessment of the benefit, for a car of 1300 cc or less, the present scale of £175 would be reduced to £87.50 Many motorists running such a car for even as little as 30, 40 or 50 private miles a week would consider that a small assessment. That is not the total liability—it is simply the assessment—on which the people about whom the hon. Member for Norfolk, South spoke would pay 33 per cent. or possibly as high as 40 per cent. It is a little difficult in those circumstances to believe that hon. Gentlemen are not exaggerating.

The hon. Member for Norfolk, South said that the major problems were confronted by salesmen earning between £4,000 and £6,000 a year.

Mr. MacGregor

And others.

Mr. Barnett

Now he is seeking to add to the list.

Mr. MacGregor

I did say "others".

Mr. Barnett

The hon. Gentleman mentioned the man earning £4,000 to £6,000 a year. However, I am sure he has overlooked the fact that the Bill increases the level for P11Ds to £7,500.

Mr. MacGregor

For next year.

Mr. Barnett

Yes, but even if that man were running a Rolls-Royce he would not be caught. The full scales—certainly the half scales—would be an absurdity for the man with the average private availability of a car.

Mr. MacGregor

Would not the right hon. Gentleman agree, though, that there are many people, some of them earning more than £6,000—I stressed that—who have done very little private mileage with their cars before and who, under the new system below 25,000 miles, will find that they are taxed very heavily? Is the right hon. Gentleman satisfied with the 25,000 figure? If he disputes 12,500, does he not think that it should come down a bit?

Mr. Barnett

Since the hon. Gentleman asks, no, I do not. The scale of assessment to private benefit, even without the substantial mileage of 25,000, even for a man doing a substantial mileage for his private use—even if he does only 40 or 50 miles a week on average—will be £175 on a car of 1300 cc or less, £225 on a car up to 1800 cc and £800 on something above £10,000 in value. The hon. Gentleman is a reasonable man. He is smiling. I do not know whether that means that he agrees, but I have always regarded him as reasonable. Is he really telling the Committee that that kind of scale is excessive and should be halved for average business mileage? I hope that even Conservative Members will realise that that is not a reasonable argument to ask the Committee to accept, and I ask the Committee to reject it.

Mr. David Howell

The Chief Secretary has entertained the Committee with some pre-ministerial anecdotes about the way in which he, no doubt excellently, acted for clients, and has offered us some guesses and some memories as a defence of the Government's position. That will not do. We are concerned with making law, not with guesses and anecdotes. The right hon. Gentleman used the phrase "I would guess" more than once. That is not a sufficient basis on which to continue, in financial legislation, measures which unfairly and discriminately damage the position of people who, as we have established, are of modest means.

First, I deal with a point that the Chief Secretary made several times about the undesirability of returning to the old business of calculating all the mileage. We can all agree with his idea that we should aim for greater administrative efficiency. If the scale rates will simplify matters, we recognise the value of bringing forward such a system. However, the book issued by the Inland Revenue entitled "Notes On Expenses Payments And Benefits For Directors And Certain Employees" is full of recommendations and injunctions that those using their cars preponderantly for business travel should keep mileage records. In page 12, paragraph 10.7, the taxpayer is warned: Employees likely to fall within this category should keep sufficiently detailed records to demonstate the extent of their business travel in the tax year. Under the section dealing with cars supplied with a driver, which would be the sort of cars that would probably not be used at the weekend, the book states that detailed records have to be kept throughout the year to assess what proportion of the driver's time, energy, wages and on-costs can be apportioned to that part of travel which is considered to be non-business. Presumably that is the last part of the journey between office and home or home and office. Therefore, records have to be kept over a long period. The whole of the book is full of injunctions that such records should be kept.

It will not do for the right hon. Gentleman to tell us that he has a wonderful new system that is so nearly perfect that we should not sully it—a system that eases the administrative burden for the car user and the Inland Revenue of keeping records of mileages. The right hon. Gentleman knows that to a large extent the record-keeping has to go on as before.

The effect of the law as it stands without the new clause is to ensure that commercial travellers are taxed more heavily than in the past. The law hits especially the travelling salesman who has a certain region to cover by car. Such a salesman cannot make use of a pool car. He has to cover a certain area from his house. He is being hurt the most by the present provisions.

As my hon. Friend the Member for Wycombe (Sir J. Hall) said in his excellent moving of the clause, the propositions in the mass of new arrangements as outlined in "Notes on Expenses Payments And Benefits For Directors And Certain Employees" are based on a muddle. It was a muddle in the mind of the Financial Secretary. With due respect, we sometimes feel that it is not the only muddle in his mind when dealing with these matters. In any event, it is a muddle between business mileage and business use. It would seem to be a muddle in the Chief Secretary's mind too. But perhaps it is not. Perhaps he knows that it is a confusion but chooses to keep it to please himself.

The confusion is between the idea that high business mileage means a high business use and low business mileage means a lower business use. That is nonsense. A salesman in the metropolitan area will find that it is possible to do a great deal of travelling, or a great deal of driving, and still clock up only 12,000 miles a year. That is well below the average for all the forms of travel that were mentioned by my hon. Friend the Member for Wycombe when dealing with the CBI survey.

It is possible in the metropolitan area, or the Home Counties, such as my county of Surrey, to spend all day on the roads and to clock up a modest mileage. If a salesman confines his business driving to such areas, he may well drive only 8,000, 9,000 or 10,000 miles a year. However, in Radnorshire, parts of Wales, Herefordshire, Northamptonshire or Scotland, it is possible to clock up an enormous mileage. In both instances the salesman may spend all day on the roads, doing an equal amount of work, but when driving in the outlying areas he gets the half-scale rate after 25,000 miles if he has kept all his records, detailed mileage accounts and everything else that the Inland Revenue tells him to do, whereas in the Home Counties he may drive between 4,000 and 6,000 miles a year and the Chief Secretary chooses to put nothing into the Bill to help him.

The salesman in the Home Counties is contributing as much as anyone to the efficient performance of our nation, but he gets no benefit. Our new clause would have enabled him to have some of the same benefit as those doing 25,000 miles. It would have been far better to reduce the mileage from 25,000 to 12,500. Keeping it where it is is yet one more attack on that so-called middle income group which is now merging with the lower income group, earning beween £60 and £100 a week—the people we are supposed to have been helping. As we learned earlier this week, these people are greatly disliked by Labour Members below the Gangway. There was talk that they would be helped in this year's budget, but when one adds up the tax concessions that they are supposed to have received and then deducts the additional tax imposts, increased national insurance and a variety of other costs, including higher petrol and fuel costs, as well as the increases yet to come from last year's Finance Act, one sees that they are no better off but are becoming daily worse off.

Here is an attack being sustained by the Government on people with modest incomes who are trying to do a job that involves having a car for substantial business use. If that is what the Govern ment want to do, why do they not say so? If they are pretending to help these people, they should at least reinforce and make some virtue of that pretence by supporting a clause that will ease the situation for the people of whom I am speaking.

The Government's position on this matter is feeble. The Chief Secretary's anecdotes are all very interesting, but have no relevance. His guesses are a poor basis for making law. I urge my right hon. and hon. Friends to press the clause to a Division.

Mr. Peter Rees

I intervene briefly, provoked by the Chief Secretary's implausible arguments. The right hon. Gentleman remains as genial as ever but his arguments become more and more threadbare as he puts a greater distance between himself and the private practice he left in 1974, and as his association with the Chancellor grows longer.

The arguments initially adduced to support the provisions in the last Finance Bill were based on grounds of equity. In fact, on analysis it was found not to be equity but the rancid envy and antediluvian malice of some of the right hon. Gentleman's hon. Friends below the Gangway. Now the argument has shifted to that of administrative convenience or simplicity.

The Chief Secretary has batted on behalf of lower, middle and higher management. His mind has been lent to these classes to support them in their efforts to achieve a fair balance in the tax they pay. What the Chief Secretary has not admitted is that before the last Finance Bill there was but one test, admittedly not entirely simple—that of the annual value of the car and driver made available to the employee by his firm.

In his professional life the Chief Secretary may have encountered certain difficulties in arriving at the annual value, but since the last Finance Bill we have not merely one test but three. It is now necessary to discover whether the car is substantially for private use or substantially for business use, or is a pool car. In other words, there is now not one category of car but three.

Superimposed on that is the question whether a driver is provided for the car. As I understand the law—perhaps at some point it will be possible to elucidate this point—if one is fortunate enough to have a pool car there is to be no charge to tax for the driver, but if one has a car substantially used for business the value of the car is to be assessed by reference to the formula. However, the benefit of the driver is to be assessed on the old basis, the annual value. Therefore, one is still compelled to ascertain the number of miles for which one may have used one's car for business and the number for which it has been used for private purposes. If one's car is substantially used for private purposes, one must determine what the annual value of one's driver is, or was.

Beyond that, if one is on the formula one must still keep records. This emerges from the booklet helpfully circulated by the Inland Revenue to assist in determining whether one has used one's car for more or less than 25,000 miles for business purposes. It is wrong to pretend, as the right hon. Gentleman has done, that the new system is devised for the advantage of middle management so that it can ascertain its liability with ease and simplicity is not true. The truth is that the right hon. Gentleman was responsible for a mean series of sections in the Finance Act 1976, of which he is probably now a tiny bit ashamed.

Mr. Joel Barnett

indicated dissent.

10.0 p.m.

Mr. Rees

The right hon. Gentleman shakes his head. There will be opportunities to come back to this matter in Committee upstairs, particularly, for example, with regard to the question of accommodation. We shall consider why and how, closely and carefully, the rules have been dealt with so that some can slip through the net and some can be caught. I shall not delay the Committee on the matter now, but I give the right hon. Gentleman due notice that we shall go into it with considerably greater care in Committee upstairs.

The only honourable course for the right hon. Gentleman would be to withdraw the measures introduced in the Finance Act 1976. But it takes a bigger, braver and more honourable man than he is to admit error. The right hon. Gentleman's case is riddled with phrases like "These are practical arguments which you can safely pass by." But my right hon. and hon. Friends have riddled his arguments and have demonstrated how hollow they are. If he cannot, as he should, withdraw the offending sections of the 1976 Act, the least he can do is accept our proposal. There is just a moment for him to repent, but if he does not I hope that we shall press the matter to a Division.

Sir John Hall

Before I seek leave to withdraw New Clause 3, I should like to make a brief comment. Referring to his previous incarnation, the Chief Secretary said that he accepted as completely true facts given to him about the very small private mileage in the use of company cars. Such cases must have been true, for otherwise he surely would not have been prepared to represent the people concerned, even for the high fee which I am sure he charged.

I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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