HC Deb 09 May 1991 vol 190 cc879-84 6.55 pm
Mr. Nicholas Brown (Newcastle upon Tyne, East)

I beg to move amendment No. 1, in page 2, line 37, at end insert '; provided that if the person liable to pay the contribution can show that in the tax year the use of the car for the earner's business travel amounted to more than 18,000 miles (or such lower figure as is specified in sub-paragraph (2) of paragraph 3 of Schedule 6 to the Income and Corporation Taxes Act 1988) and also amounted to more than three quarters of the total use of the car in that year by the earner, or any relative of his (as defined in section 417(4) of that Act), then the cash equivalent of the benefit of the car for that year shall be taken to be £1.'. The amendment seeks a modest reform to what has been a little intemperately described by Conservative Members as a pettifogging little measure. I agree with the hon. Member for Birmingham, Northfield (Mr. King) that it is folly to describe a measure that will bring £500 minion to the Government as pettifogging and little. The extra revenue that the Government hope to gain from the measure will be welcomed by them and by us. The Opposition and the Government do not differ in their objectives on this issue.

The Financial Secretary to the Treasury and other Conservative Members who are in the Chamber have served on the Finance Bill Committee since 1987. They will know that every year when we debate these matters the Government steadily claw back through income tax the advantage to the company car owner. Labour's pre-Budget representations suggested a further move in that direction, although we did not suggest that it should be done by way of the instrument that the Government have chosen—employers' national insurance contributions. However, that method, although different from the one that we propose, is not objectionable to the Opposition and we would not seek to reverse it.

Government policy on this issue over the past four years is broadly right and fair, and is necessitated not only by equity, but by the trading relationships that we have to enjoin with our European partners. In time, pressures by them might have become intolerable if the Government had not moved on this issue. I wonder what would have happened if a Labour Government had travelled in the direction in which this Government have travelled in the past four years.

Mr. John Wilkinson (Ruislip-Northwood)

There is not much difference.

Mr. Brown

I take that comment as an attack on the hon. Gentleman's own side rather than as a compliment: to me. I am always willing to receive compliments from Conservative Members, provided that they are offered in the right spirit.

We wish to proceed in the same direction as the Government on this issue, and although we harbour the fear that if we had had to travel this road at the pace which the Government have chosen, which is right, the Government would not have given us the welcome that we are extending to them. If they were in opposition they would have ensured that the full anger of the automobile industry lobby was directed at the Labour Government. Instead, the Government have to weather that attack themselves. I hope that that remark was not too unworthy of me, but I must also point out that we have always argued for some exemption for those who must have a company car and who do little personal mileage. This will come as no surprise to the Financial Secretary because my hon. Friend the Member for Wrexham (Dr. Marek) has made the same point, in the context of income tax rather than national insurance contributions, on the past three Finance Bills.

I rather agree with the hon. Member for Beaconsfield (Mr. Smith): it is slightly discordant that we should discuss these issues in this forum instead of in Committee on the Finance Bill, but I understand the necessity for that and take no great exception to it.

7 pm

This year I and, I am sure, other hon. Members have received a parliamentary briefing from the CBI which asks: Are MPs satisfied that there is sufficient distinction made by the Government between cars used as essential tools of the trade and those given as perks? It is clear that some Conservative Members are not satisfied and the purpose of our modest little amendment is to give them some encouragement.

The amendment is specific; it does not leave it open to the Government to make regulations, containing, as it does, the necessary regulations within it. It deals with people who use company cars exclusively on business, not for purposes about which there may be some argument, and who drive them more than 18,000 miles a year—a fairly high mileage. It seems to us likely that such a person would be sick of the sight of the car after 18,000 miles and would not regard any remaining use of it for personal reasons as much of a pleasure. The Minister touched on that point at the end of Second Reading. However, if such a person does not take that attitude, enjoys the use of the car and does a high mileage in it—the Minister referred to an average of 8,000 miles, a figure with which I have no quarrel—of course the car is a perk and the perk element should rightly be taxed.

So we set a threshold. We stipulate that in order for the employer not to be taxed on a company car as an employee's perk it should not be used for private reasons for more than a quarter of the total annual mileage. If someone, therefore, has used a car for more than the 18,000 threshold, we say that he should not have used it for personal reasons for more than about 4,000 miles. That is a clear personal-use threshold beyond which a person's employer would enter the charge bracket.

As the Minister said, a majority may not fall into that category initially, but we think that the pattern might change if the amendment were accepted, and that could be beneficial. People might think again about whether it was advantageous to use a car instead of public transport. They might think again about whether the casual use of the car was really justified. In any event, it is surely right to provide for people who are forced to have a car because of their jobs and who do not enjoy using it much for private purposes.

I realise that the thrust of the legislation is not particularly directed at employees this year; it is intended more as a disincentive to discourage employers from providing company cars in the first place. But our amendment does not deal with that. It covers circumstances when cars must be given and are not much used for private purposes, and when the Government require the clawback.

I know that there is a scale which the Minister may argue deals with our point, but we think that in the narrow circumstances that we outline—in what is called the "district nurse" case—it would be right to make an exception, and that is the purpose of the amendment.

The Minister for Social Security and Disabled People (Mr. Nicholas Scott)

I shall respond briefly, but I hope equally persuasively, and try to dissuade the hon. Member for Newcastle upon Tyne, East (Mr. Brown) from pressing his amendment. He said that there was no disagreement between us about the main thrust of the Bill. When he spoke of our travelling in the same direction, I was reminded of the late lamented lain Macleod who, referring to Enoch Powell, said, "I travel on the same train but I like to get off before the train hits the buffers." There may be something in that.

I am somewhat surprised by the amendment, although it was presented with characteristic good humour by the hon. Member for Newcastle upon Tyne, East. In the Bill, we seek to ensure that cars doing more than 18,000 miles a year which verge on being tools of the trade but which are used for personal reasons for several thousand miles a year, and which are provided free of charge to a private individual, are covered. I emphasise that if a car is provided exclusively for business purposes and no private mileage is run up on it, no charge will arise; but on reflection, the hon. Gentleman may realise that he is going a bit far by suggesting that cars with mileages of more than 18,000—they could still be used for several thousand private miles provided, in effect, by the employer—should be wholly exempt or should make a peppercorn payment, as suggested by the amendment. That would be wrong.

We shall of course keep all this under review once the Bill is implemented, but I cannot advise the Committee to support the amendment because it would enable employers to escape contribution liability even though their employees were allowed to use their cars for quite large private mileages. I believe that employers should pay contributions on this sort of mileage just as if they had remunerated their employees in cash. The charge is reduced by 50 per cent. after 18,000 miles, but to reduce it to a peppercorn would be outwith the spirit of the measure, and I urge the Committee not to accept the amendment.

Mr. Nicholas Brown

I was rather hoping for some support from Conservative Back Benchers—perhaps one of the more likely places where I might look for support. I admit that this argument is taking place only at the margins, but, given the comments of some Conservative Back Benchers earlier, I thought that the amendment might find some favour with them.

Having failed to stir up any trouble for the Minister, I suppose that I ought to be grateful for his offer to keep the matter under consideration. This is a new move towards dealing with cars as a perk. This is year one of the approach that the Government are adopting, and I welcome the Minister's promise to return to the matter later if the anomaly with which the amendment deals is shown to be one that needs attention.

I accept the Minister's remarks in the spirit in which they were made, and in those circumstances I can do no other than beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Mr. Tim Smith (Beaconsfield)

As my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson) has said, this is an extremely complicated clause. It would be helpful if the Minister explained some of its subsections. Subsection (5) inserts into the Social Security Act 1975 new section 4A, subsection (2)(b) of which provides that class 1A contributions are payable by, if no such contribution is payable in relation to a relevant payment of earnings in the tax year, the person who would be liable but for subsection (4)(2)(b) above to pay a secondary Class 1 contribution". The notes on clauses say that that refers to a situation in which no payments were due because the earner's earnings were below the lowest earnings limit. The suggestion there is that the earnings were very low indeed. In fact, the lower earnings limit is about £43 a week.

Mr. Scott

It is £52.

Mr. Smith

Very well, £52. I do not see how the employer of a person earning less than £52 a week would be liable to pay national insurance contributions in respect of a car. Indeed, it would be rather unusual for someone earning such a figure to be provided with a company car. However, those appear to be the circumstances to which this clause refers.

Subsection (8) of the new section 4A says: A person shall be liable to pay different Class 1A contributions in respect of different earners, different cars and different tax years. The notes on clauses say: Subsection (8) provides that a person shall be liable to pay different Class 1A contributions in respect of different earners, different cars and different tax years. The notes on clauses simply repeat the contents of the subsection. That is hardly a helpful way of explaining its meaning. In my view, this subsection is redundant. Surely it is obvious that there will be different contributions, depending on how much people earn, the type of cars they have, and the tax year involved. What is the need for the subsection?

Subsection (9) says: Regulations may provide—

  1. (a) for persons to be excepted …;
  2. (b) for reducing Class IA contributions".
Can my right hon. Friend tell me who will be excepted from the payment of contributions, and in which cases there will be reduced contributions?

Mr. Wilkinson

My right hon. Friend, in reply to the hon. Member for Newcastle upon Tyne, East (Mr. Brown), who moved the amendment, was elegantly more socialist than the socialists. I should like to refer to the reply of my hon. Friend the Parliamentary Under-Secretary of State to a question that I put to her. I asked her to explain in simple language the exact meaning of subsection (6). It has to be remembered that we are passing legislation that must be comprehensible to the ordinary man or woman in the street. Members of the public, unlike Ministers and other Members of Parliament, are not provided with notes on clauses.

Can my right hon. Friend explain why Her Majesty's Government are relying on the age-old formula whereby employees earning more than £8,500 shall incur liability for their companies to national insurance contributions? This applies also to directors. As I pointed out in my Second Reading speech, there are directors who earn very small salaries, if any at all. Often, in the case of a small company, a director's salary is a few hundred or a few thousand pounds—certainly less than £8,500. What is the logic in providing that an employee earning less than £8,500 per annum will not incur for his company liability to national insurance contributions on a company car, but that a director, by virtue of his office, shall incur that liability for his company? I know that the argument is a historic one—previous usage and the system for scale charges. That is the precedent to which we are working, but it makes very little sense, particularly as company directors have the full statutory obligations and the responsibility inherent in their office, whereas employees have not. In my view, there should be some mitigation.

7.15 pm
Mr. James Couchman (Gillingham)

I did not intend to take part in this debate, but it occurs to me that my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson) is quite right to point out that some directors who have company cars may not reach the lower threshold for class 1 contributions. That may well be the answer to the first query of my hon. Friend the Member for Beaconsfield (Mr. Smith). What is the position of directors of companies limited by guarantee? Many charities are in that category. What imposition will there be on their directors, particularly if their salaries are below £8,500?

Mr. Scott

I shall seek to address the detailed, but important, points that have been raised.

This is a complicated Bill, but, as my hon. Friend the Parliamentary Under-Secretary has said, we shall conduct wide consultations with employers to ensure that the guidance issued clarifies the whole situation to the greatest possible extent. The figure of £8,500 was chosen for the threshold because it is the same as the Inland Revenue's figure. We are anxious to make sure that the procedures for the collection of these charges are related as closely as possible to those used by the Inland Revenue authorities, so that there will be no further complications for employers.

My hon. Friend the Member for Beaconsfield (Mr. Smith) raised the question of the £8,500 limit. That figure includes not just earnings but any benefits in kind. There has been mention of the position of directors. It would be possible for someone in control of a company so to manipulate the balance of his salary against benefits in kind as to evade proper charges. In this regard, what we propose is realistic and sensible. Full-time working directors, or directors of charities or other such bodies or officers of committees of unincorporated bodies or non-profit-making concerns who are treated as directors will be excluded from the scale charges where they have no personal stake in the operation of the enterprise or organisation. I hope that that will reassure my hon. Friend the Member for Gillingham (Mr. Couchman).

In respect of subsection (8), I reiterate that we are anxious to ensure that our arrangements are in most cases identical to those of the Inland Revenue authorities. That is why subsection (8) is there.

The concessions in subsection (9) reflect the extra statutory concessions provided by the Inland Revenue. We are not able to do that on an extra-statutory basis; we are advised that we have to do it by regulation. That is why we are replicating in the regulations that will flow from the Bill the extra-statutory concessions that are provided by the Inland Revenue. Thus, an employee provided with a second car for a family member, typically his or her spouse, faces two scale charges, and the second is increased by 50 per cent. But there are concessions where the family member is also an employee of the company. The rules are fairly complicated and, if it would help, I would be happy to write to my hon. Friend the Member for Beaconsfield (Mr. Smith) and perhaps place a copy of my reply in the Library, because it is a rather convoluted argument to carry through. This is widely practised by the Inland Revenue and, I think, broadly accepted as a fair practice. I will make sure that those who are interested are made aware of the details.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 6 ordered to stand part of the Bill.

Bill reported, without amendment.

Motion made, and Question proposed, That the Bill be now read the Third time.—[Mr. Scott.]

7.22 pm
Mr. Graham Allen (Nottingham, North)

I hope that Ministers have noted the generous co-operation that has been extended on this measure. I hope that that co-operation will be reciprocated and that a large number of Bills will be dealt with similarly when a Labour Government comes to power. I am sure that that opportunity will arise very shortly. I am thinking in particular of uprating provisions for pensions and child benefit, which I hope will be among the first items placed before the House.

This Bill seeks to redress the imbalance between national insurance contributions on pay and national insurance contributions on the company car, a payment in kind. It is a matter which will require further review and examination by the incoming Labour Government. We will not oppose the measure.

Question put and agreed to.

Bill accordingly read the Third time, and passed.

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