HC Deb 15 July 1991 vol 195 cc127-34

'For section 52(2) of the Car Tax Act 1983 there shall be substituted the following:

"(2) Car tax on any vehicle shall be charged for vehicles recording a touring fuel consumption in the following categories:

  1. (a) 40 m.p.g. and above—zero
  2. (b) 30 m.p.g. to 39 m.p.g.—5‥
  3. (c) 25 m.p.g. to 29 m.p.g.—7½‥
  4. (d) zero to 24 m.p.g.—10‥

(2A) For the purpose of determining the Touring Fuel Consumption, official Government economy figures will be used as follows:

  1. 50 per cent of urban cycle
  2. 25 per cent of 56 m.p.h.
  3. 25 per cent of 75 m.p.h. steady speed cycles.".'.—[Mr. Roger King.]

Brought up, and read the First time.

Mr. Roger King (Birmingham, Northfield)

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

Mr. Deputy Speaker (Mr. Harold Walker)

With this, it will be convenient to consider also new clause 31—Car tax: reduction where pollution control devices fitted— — After section 1(2) of the Car Tax Act 1983 there shall be added (2A) Where a chargeable vehicle other than a caravan is fitted with a catalytic converter (or such other pollution control device as the Treasury may specify in regulations made under this section) at the time car tax falls to be paid under section 5 below and that time is not earlier than 1st July 1991, subsection (2)(b) above shall have effect as if the reference to 10 per cent. was a reference to 7½ per cent.".'.

Mr. King

It will come as no surprise to my hon. Friend the Minister that I rise again in a Finance Bill debate to raise the issue of the special car tax, which has been with us for many years—since value added tax was introduced—and which is a strong bone of contention with the motor industry belt of the west midlands where we feel that this element of taxation, which is unique to one type of product in the United Kingdom, detrimentally affects the sales of our products within the United Kingdom. At a time when the car industry is facing a downturn in its home market, we believe that the special car tax is long overdue for some reform.

A study of taxation of cars throughout Europe shows that in the United Kingdom the present level of taxation on a new car is in excess of 27 per cent., compared with 14 per cent. in Germany and about 22 per cent., which is falling rapidly and will fall further shortly, in countries such as France. Elsewhere the level of taxation is lower than in the United Kingdom.

Recently, car production in Britain has enjoyed a record level of output. That is because the industry has found a ready market overseas, principally in Europe, because of the improved quality of the product and its desirability in the marketplace. But it must be remembered that in connection with competitive pricing terms in the European market, the industry needs a strong home market. A strong home market gives it viability and competitiveness in the export market. While it is possible to make up for a shortfall in the home market by diverting products to the overseas market, that is not a long-term solution.

In addition, the retail sector is feeling the effects of the prolonged recession to a greater degree than perhaps any other industry, save the construction industry. Many retail businesses have gone out of business as a result of the downturn in United Kingdom sales, which are expected to fall this year to 1.5 million or even 1.4 million, from a peak of 2.2 million in 1989.

Another factor that we must bear in mind is the Government's desire to improve on the green aspect of their policies. We all understand and applaud that. The trouble is that if one does not tackle the problem of the car, one's green policies are somewhat suspect. If we do not encourage the sale of new cars in the United Kingdom, we shall be left with a growing elderly fleet of cars which, by their nature, are obsolete in design and have inferior emission standards. So it is in every one's interests to ensure that there is a ready market for new environmentally acceptable motor cars in the United Kingdom. That means that we should do what we can to stimulate sales.

There is no doubt that, along with manufacturers, the retail sector is playing its part in reducing prices as much as possible and offering financial incentives to encourage those important sales. But whatever the retail sector and the manufacturers do, we are still left with the 27 per cent. level of taxation.

We understand the Government's problems in eliminating the 10 per cent. special car tax. The tax brings in a large sum of money. However, this year that income will be much reduced as a result of the downturn in the United Kingdom market. But we see some clear linkage between providing environmental incentives and reducing the 10 per cent. special car tax.

My right hon. and learned Friend the Secretary of State for Transport put it clearly on Tuesday 9 July. He called on car makers to produce more fuel-efficient engines because We cannot waste any time getting to grips with this challenge … It is, of course, for the Chancellor to decide whether any further changes in motoring taxation are appropriate to encourage greater fuel efficiency. But fiscal incentives are a flexible instrument which require no new bureaucracy for their administration. They leave motorists with complete freedom of choice while providing an incentive for them to choose economical cars and drive less aggressively. At the same time they concentrate the minds of vehicle manufacturers on the importance of fuel economy. We understand that fact. He was alluding there to possible changes in duty on fuel, but there are other ways. The 10 per cent. special car tax is one matter to which we should address ourselves. New clause 22 goes a long way to giving a clear indication of how the Government should think about encouraging the use of more environmentally friendly, fuel-efficient motor cars. We accept that it may not be possible to do something this year, but due consideration should be given in the next Budget to tackling the particular difficulty of the 10 per cent. special car tax.

We have devised a formula and a method to implement it. It establishes a touring fuel consumption using the Government's fuel figures, which are well known and well documented, to categorise cars into four fuel-consumption classes. Cars that achieve 40 miles to the gallon and above on the formula would attract a zero rate of the 10 per cent. special car tax. The car tax would rise to the level of the car that achieved only 24 miles per gallon or below, on which the full 10 per cent. special car tax would be payable.

The formula has the attraction of linking new car sales with environmentally acceptable vehicles, which it is the Government's aim to achieve. The Government have set themselves the target of restricting CO2 emissions to present levels in the year 2005. Given the growth in motor transport, that will prove very difficult indeed. If we can make a sea change in the marketplace by attracting drivers to buy more fuel-efficient cars, the levels that the Government seek to achieve can be met by the motor car industry. Naturally, the Government must also take steps to deal with emissions from power stations, factories and so on, but, given the potential growth in road traffic, this formula is the one way in which the Government can in a businesslike way set about attracting consumers to buy more fuel-efficient cars. In that spirit, I commend the new clause.

Sir Hal Miller (Bromsgrove)

It gives me great pleasure to second the new clause so ably moved by my hon. Friend the Member for Birmingham, Northfield (Mr. King). Indeed, we consulted on its terms.

I have previously described the Budget as an unhelpful and unpleasant surprise for the motor industry—unhelpful in that the industry was singled out for additional taxation, whether through national insurance contributions on company cars and fuel, the increase in taxation on company cars or the unique impost arising from the special car tax uprated to 27 per cent. by the increase in VAT, which no other consumer durable bears.

Tonight I wish to approach the subject in a more constructive spirit. On Friday I said: The motor industry is anxious and willing to make its contribution to improving the environment for all of us, as well as giving us the advantages of mobility and security."—[Official Report, 12 July 1991; Vol. 194, c. 1271.] I said that the industry needed targets towards which to work. This is not just a sudden rush to green the industry. I was personally responsible for the motor industry's contribution to the Government's original White Paper. I arranged discussions between the Secretaries of State for the Environment, for Transport and for Energy and Treasury Ministers, and the Society of Motor Manufacturers and Traders. Since then we have been trying to obtain from the Government some targets to give the White Paper teeth. The only targets that we could light on were fiscal ones, which we believe are necessary.

I welcome the proposal of the Secretary of State for Transport in his recent White Paper on the environment and transport that market signals and incentives, apart from regulation and the provision of infrastructure, are the routes to adopt to improve the environment. Since the publication of the White Paper, my hon. Friend and I have been trawling all those Departments, seeking methods to improve the environment.

The first line of approach that we adopted was the suggestion that, in the short term, the only way to achieve the Government's target of stabilising CO2 emissions was by the wider use of diesel engines until further research had been undertaken to make cars running on alternative fuels practicable. There has been some recent publicity about the potential of the hydrogen cell. However, its use is still 10 years away on the most optimistic forecasts, or perhaps 20 years away on a more realistic time scale.

In the meantime, how do we cut CO2 emissions? The catalyst cannot help because it aggravates the problem. The new clause tabled by the Opposition is a case of Johnny-come-lately. Their attempts to persuade the motorist that they are on his side are laughable in view of the remarks made by their spokesman on the environment in the debate on Friday. The Opposition's proposals are of no practical purpose because manufacturers have already made arrangements to meet the statutory requirements for the installation of catalysts in cars in the next model year. There is nothing to be gained from the Opposition's new clause.

11 pm

We are still trying to enable the industry to undertake the contribution that it is willing and anxious to make towards environmental improvements. My hon. Friend the Member for Northfield was rebuffed in Committee on the use of diesel fuel, which would have been a significant help to the environment. However, I understood from the various Secretaries of State I met that that option was their preferred choice. That is why the Budget was an unpleasant surprise.

Now we are trying to introduce targets and inducements for people to purchase more economical cars to cut down on the use of carbon. The use of diesel is much the quickest way to do that, but the Treasury has apparently developed new-found environmental skills that have eluded other Departments and it claims that diesel does not contribute towards reducing environmental harm. The Government's reasoning is obscure, but, even accepting the Treasury at its own word, we have presented yet another proposal to reduce the use of carbon. We aim to switch the public preference to more economical cars, which means more economical driving. At the same time we seek to reduce the obvious bias against the motor industry in our taxation system.

I am sorry to have to take issue with Treasury Ministers at this time of night. I have warm personal regard for them, but some of the correspondence I have received recently from the Treasury is so ignorant as to be breathtaking. One cannot sustain the assertion that our cars are not more heavily taxed than those on the continent. That is not true except for a few luxury models. As my hon. Friend the Member for Northfield has established, that assertion flies in the face of the facts. However, I do not wish to be vindictive.

We are trying to make our contribution towards improving the environment. We need to have targets. Tonight we are talking about fuel consumption as opposed to emissions, but I have suggested targets for improving the quality of fuels. In the past I have asked why we are wasting time trying to deal with what comes out of the engine instead of what goes in.

I have argued for greater research on alternative fuels, but there are things that we could do now in this Budget, and certainly in the next, to improve the position. What is incomprehensible is the fact that every time one tries to make that effort the Treasury dreams up some ill-founded reason for opposing it. That goes against the thrust of Government policy as set out by the Prime Minister in his speech on Monday last, as set out by the Secretary of State for Transport in his White Paper, and as set out in the White Paper produced by the Secretary of State for the Environment to which the motor industry—through my agency—made a significant contribution. We are not harking back, being vindictive or trying to rub people up the wrong way; we are trying to make progress. I hope that the Minister will say something to show that that effort to improve the environment and provide signals to purchasers and drivers of cars is understood and will go some way towards being accepted.

Dr. Marek

If those Conservative Members who have spoken really want to do something for the environment and limit carbon dioxide emissions from motor cars, an obvious way to do so is to insist that every car has a governor to stop it going more than 70 mph. I do not know whether that suggestion would find much favour in the House, but if it were adopted, big cars simply would not be bought. Legally, no one should travel at more than 70 mph.

Sir Hal Miller

In America, where speed limits are lower than in this country, people still buy large cars.

Dr. Marek

That may be to do with the fact that petrol in the United States is much cheaper than in this country.

I sympathise with the new clauses. Although new clause 31 represents no commitment by a future Labour Government, it seeks to show a commitment to caring for the environment, which will be at the forefront of the actions of the next Labour Government. There is a deadline for catalytic converters anyway, and if a general election is delayed for too long, that deadline may overtake events.

I wonder whether the new clause is properly targeted. it must cost many hundreds of millions of pounds. There must be a certain amount of special pleading by the Conservative Members who have spoken—

Mr. Roger King

What?

Dr. Marek

The hon. Member for Birmingham, Northfield (Mr. King) is laughing and pretending to look nonplussed, but I think that he realises what I am saying.

I need to be convinced that the targeting of the new clause would achieve the environmental benefits better than any other method. There are other ways of achieving the same aim. The new clause would result in a major loss to the Revenue but would not have much effect on the environment. However, I remain to be convinced and if the Minister of State thinks that I am wrong I hope that she will say so. I insist that we need to pay more attention to the environment. There is no doubt that carbon dioxide problems are important. We may have to get rid of the car tax eventually anyway because of European legislation. If so, I should like to look at that because our car industry should not have to compete at a disadvantage with other European car manufacturers. This country will be prosperous and healthy only if the British car industry is properous and healthy. However, I have some doubts and reservations about the new clause and shall be interested to hear what the Minister has to say.

Mr. Wallace

The intention of both the new clauses in relation to improving the environment is laudable, and to that extent we should support them. I always think that if we were serious in our intent to tackle environmental problems involving cars, the first step that we could take within the powers of the House would be to change our mileage allowance scheme, which currently gives a greater incentive to those who run bigger cars. It is interesting that their Lordships did so—I think that they have a standardised mileage allowance, regardless of the car's size—[Interruption.] I can see to what controversy such a proposal would give rise. However, if we wish to be serious about the problem, and to be taken seriously about it, we could set that example.

I do not think that there is too much dispute about the car's contribution to pollution. Although leaded petrol may be on the decline, road traffic produces carbon dioxide, nitrogen oxides, hydrocarbons and carbon monoxide. Road traffic accounts for 18 per cent. of Britain's emissions of carbon dioxide—a major greenhouse gas. Nitrogen oxides—of which 45 per cent. of total emissions originate from cars—are a major cause of acid rain.

Clearly, this issue must be tackled, but I fear that if it is to be tackled in an effective way, the consequences will be difficult for any political party to face. Over time, tackling the problem will lead to an increase in petrol taxation. The sooner that all parties face that and plan for the solution over a period, rather than allowing the solution to be forced on us by sheer force of circumstances, the better it will be for the consumer.

We should not forget the costs to the average household of traffic congestion. An estimate from the Confederation of British Industry showed that each household pays £10 a week extra for goods and services as a result of traffic congestion. The growing traffic congestion on our roads has not only an environmental effect, but a general effect in terms of the cost to industry.

I said that the measure was modest, and I suspect that, in the longer term, vehicle excise duty may be more geared to the environmental friendliness of a particular car. We should enter into discussions with car manufacturers and other interested organisations to develop specifications for achievable levels of fuel efficiency and emissions of pollutants. Those specifications should become stricter over a period, and perhaps it would be possible to vary the vehicle excise duty according to the degree of specification cars attain and abolish it for cars that meet a high specification.

We must be alert to the problems of rural districts, where a car is not a luxury, but often an essential. Many car drivers in rural regions already tend to drive smaller models. While it is often thought that the mileages are higher, many of them are necessary. If we were to switch from vehicle excise duty to petrol tax, it would not necessarily be as disadvantageous as is sometimes thought.

One of the main reasons for higher petrol prices in rural districts is that the throughput of traffic at many rural garages is low, so the mark-up for the retail petrol has to be that much greater. Value added tax is put on top of that price and on top of the duty. To some extent, the Government are receiving revenue through the disadvantages with which many motorists in rural regions have to cope.

I do not think that the new clause will be put to a vote, but I think that we are discussing the initial stages of something that, over a period, will have to be dealt with by something more radical than any proposals made this evening.

Mrs. Gillian Shephard

I pay tribute to my hon. Friends the Members for Birmingham, Northfield (Mr. King) and for Bromsgrove (Sir H. Miller), both for their contributions this evening and for their continuing, vigorous support of the British car industry. They advanced valid arguments about the need for green measures and said that such measures could encourage the home market for cars. I hesitate to take issue with either of them because they are such experts in their field, but I am told that Holland, Portugal, Spain, Ireland, Greece, Denmark and Belgium all have roughly equal or higher rates of tax on non-luxury cars. If my hon. Friends know otherwise, I would be pleased to look into it further.

Sir Hal Miller

Will my hon. Friend give way?.

Mrs. Shephard

My hon. Friend is about to tell me.

11.15 pm
Sir Hal Miller

I said that Treasury officials have speciously seized on luxury rates of tax for larger cars. For volume cars in the middle range the taxation is demonstrably factually much higher in this country.

Mrs. Shephard

I said that I would look into the matter further, and I certainly shall. I should be grateful to receive those exact details from my hon. Friend.

There are some problems with the proposals set out by my hon. Friends the Members for Bromsgrove and for Northfield. First, there is no conclusive evidence that reducing car tax rates would lead to consumers switching to more fuel-efficient vehicles because only switching at the lower margin of each tax band would incur a tax incentive.

One of the major problems is cost. Car tax yields £1.3 billion a year and the proposal in new clause 22 would cost about £880 million. Obviously, it would be necessary to discover how that might otherwise be raised. Some 95 per cent. of cars are in the 25-miles-per-gallon or better category, so there would be a considerable dead weight in the proposed tax incentive.

As I have said, the current car tax yield is £1.3 billion. That is a large amount of revenue for the Government, and careful thought would have to be given to finding the nearly £1 billion that would be given over by the clause. Both my hon. Friends the Members for Bromsgrove and for Northfield said that fuel consumption was determined by the type of vehicle and driving conditions. The manner in which the vehicle is driven is also significant.

The Government have not been inactive in the introduction of green measures for motoring. The difference in pump prices between leaded and unleaded petrol is more than 18p per gallon, and 40 per cent. of all petrol that is sold is unleaded. There is also a considerable difference at the pumps between the price of diesel and leaded petrol. I note what my hon. Friend the Member for Bromsgrove said about diesel. There is no doubt that diesel is certainly more efficient than petrol. Diesel-powered cars can travel more miles per gallon than their petrol-driven counterparts. However, my hon. Friends may be prepared to concede that there is some evidence that the emissions from diesel may be as polluting as those from petrol vehicles.

Sir Hal Miller

rose—

Mrs. Shephard

I have trailed my coat again.

Sir Hall Miller

Because the efficiency and economy of diesel are so much greater, the environmental advantage of emissions is about 20 per cent., quite apart from the carbon consumption.

Mrs. Shephard

I certainly accept that diesel-driven cars are more efficient. I conceded that.

In response to the Opposition clause, I can do no better than quote from a Finance Bill debate of two years ago. The hon. Member for Wrexham (Dr. Marek) said: As we must change our exhaust systems and introduce catalytic converters in a few years' time, what is the point of having an incentive? … There is no question of providing an incentive to fit catalytic converters. It has to be done. We have agreed it with the EC. There are cases for incentives in certain circumstances, but they should be argued on their merits."—[Official Report, 11 July 1989; Vol. 156, c. 902.] I could not make a better argument in answer to new clause 31 than he did then about financial incentives for fitting catalytic converters.

The Government recognise the importance of the motor industry and wish to see the advances made in the past few years maintained. The market situation is not easy, and it is a tribute to the industry's strength and flexibility that it has been able to increase production this year compared with last year, despite the downturn in the domestic market. Production is up 6 per cent. in the first four months of 1991 over the same period last year. There has been a massive surge in exports, with a 101 per cent. increase in the number of cars produced for export over the same period.

I thank my hon. Friends the Members for Northfield and for Bromsgrove for their contributions, for their continuing effort and for their vigorous support of this important industry. They will know that my right hon. Friend the Chancellor has said that he will look carefully at the impact of this year's measures on the industry when he is considering next year's Budget. I am sure that they will encourage him to do so.

Mr. Roger King

We all listened with great interest to my hon. Friend's comments. We shall inwardly digest what she has said. There is no escaping the fact that embracing environmental incentives—the Government have done so admirably with their policy on leaded fuel, which has cost the Exchequer considerable sums of money, although leaded fuel has gone up in price to compensate—it costs a great deal of money. We are well aware that the motor car is one of the main contributing factors to pollution and if we take up the challenge of containing that pollution, we have to look at arrangements such as those suggested in new clause 22. The challenge will not go away and until the Government produce a programme of environmental incentives along the lines of that which we have set out, I am not sure that they will meet the targets that they have set.

The challenge will be an expensive one to meet. However, our proposals will not be as expensive as my hon. Friend the Minister suggested. Not everybody will buy an economy car in year one or year two. Plenty of people will still wish to buy cars in the other bands. Given the downturn in the market from 2.2 million to 1.5 million, and below, this year, the Exchequer has lost an enormous amount of money. The modest tickle up of the industry that we are suggesting may be just what the Chancellor needs to bring money into his coffers.

As I said in my opening speech, we are probing, pushing, trying to find a way to encourage the Government to move along the lines that we are suggesting. We shall renew our attempts next year. Therefore, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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