HC Deb 09 May 1991 vol 190 cc849-78

Order for Second Reading read.

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

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

The purpose of the Bill is to fill what I believe to be an important gap in the national insurance contributions system as a result of which employers do not pay contributions to the national insurance fund if they pay their employees in cars rather than in cash. As hon. Members will know, the fund is used to finance a wide range of contributory benefits, including retirement pensions and widows' benefits. Its income is generated by levying contributions on employees and their employers and on the self-employed. Under the present law, employers are required to pay contributions on the earnings of all their employees if they are above the lower limit, but earnings are defined in such a way as to exclude payments in kind. This exclusion dates from a time when such payments represented only a very small proportion of people's earnings.

Mr. Tony Marlow (Northampton, North)

My right hon. Friend, very interestingly, has indicated that the national insurance fund is a specific bucket of money to be spent in various areas of Government policy. We are aware of proposals that employees' contributions should go right up the range. If that were to happen, would not national insurance become exactly the same as income tax? It is suggested, in addition, that some people should have to pay 10 per cent. extra in income tax. That, together with the payment of 9 per cent. right up the range, would mean that the managers of the country would be faced with a marginal tax rate increase of about 50 per cent. In those circumstances, as night follows day, every handbag and wallet in the country would be mugged by people seeking this extra money.

Mr. Deputy Speaker (Sir Paul Dean)

I am sure the Minister recognises that this is a comparatively narrow Bill and that we cannot debate the whole range of things that have just been raised.

Mr. Scott

I certainly accept your judgment, Mr. Deputy Speaker. I would not, in any case, have responded in detail to my hon. Friend, although I understand his impatience and his inclination to draw attention to some of the nonsense being suggested by the Opposition in the run-up to the election. In due course, there will be opportunities to tackle these matters.

The situation that the Bill seeks to address dates from a time when payments in kind of this sort represented only a very small proportion of people's earnings. They were generally made on an irregular and infrequent basis and often consisted of goods that were difficult, if not impossible, to value accurately. The situation today is very different. A large number of employers choose to offer their employees a total package of remuneration, which includes substantial non-cash items.

The commonest and largest such item is the company car. One has only to look at the advertisements in the appointments sections of the national newspapers to see how common that is these days. We estimate that, this year, more than 2 million employees will receive, as part of the remuneration package, the benefit of having a company car. This represents a doubling of the number of company cars since 1985–86. Company cars have become a normal and accepted part of people's earnings. I cannot believe, in those circumstances, that it is right that this form of payment should lie outside the national insurance system. Perhaps I may advance an additional, tangential argument by saying that nor can it be right, given the impact of motoring on the environment, that there should, in a sense, be a built-in encouragement for people to be paid in terms of cars rather than cash.

Sir Geoffrey Finsberg (Hampstead and Highgate)

My right hon. Friend said that one purpose of the national insurance fund is to make provision for such benefits as retirement pensions. If employers are now to pay national insurance contributions in respect of staff motor cars, will the employees get some additional state benefits by way of extra pension?

Mr. Scott

That is certainly not the case. There are certain demands on the national insurance fund. A certain percentage is guaranteed to the national health service. The fund also pays for other contributory benefits. Obviously we, as well as the Government Actuary, monitor the state of the fund, but there is no essential link between the benefits that are paid and the contributions that are received. From year to year, a judgment is made as to contributions and payments. There is no automaticity.

Mr. Roger King (Birmingham, Northfield)

My right hon. Friend has mentioned the number of cars provided by companies for the use of their employees. Does he agree that a vast number of those employees simply must have a company car? I think, for instance, of electricians, washing machine servicers and representatives of confectionery companies. If such a person has a car, it is not part of his remuneration package. The car is needed as a tool of the trade, just as a secretary needs a word processor or a telephone. Surely it is unrealistic to suggest that employers should be especially burdened in this way for providing their employees with the tools to do the job for which they are paid.

Mr. Scott

I shall respond briefly to my hon. Friend, but will give more detail later in my speech. There is a range of provision for company cars. Some cars are, in effect, a perk; some are essentially a tool of the trade, in the sense that they are necessary to the job; in the middle, there is a mixture of business and private use, which varies very considerably. I hope that later I shall be able to satisfy hon. Members that the changes that we are making reflect those different uses. If a motor vehicle of one sort or another is used entirely for business purposes it will be outside the scope of this legislation. My hon. Friend referred to such vehicles as being tools of the trade, but where a vehicle is used to a significant extent for private purposes, a halved-scale rate payment will be expected to comply with these provisions. Any vehicle that is used entirely for business purposes will not be covered.

Mr. James Couchman (Gillingham)

Will the Exchequer make such national insurance contributions in respect of the private use made of ministerial cars—for example, on journeys between home and place of work?

Mr. Scott

Ministerial cars, and, indeed, cars used by some other hon. and right hon. Members, are provided from a Government pool as required. They are not allocated to individuals.

Mr. Couchman


Mr. Scott

Having been a Parliamentary Private Secretary, my hon. Friend will know that there are very strict rules about the use to which ministerial vehicles may be put.

Mr. Frank Haynes (Ashfield)

Another story for the Today newspaper.

Mr. Scott

They are no different from the rules applied by Governments of all parties since the war.

Dr. Norman A. Godman (Greenock and Port Glasgow)

I thank the Minister for his characteristic courtesy in giving way.

Can he confirm that the implementation of this legislation will not result in an extra workload on the staff in Department of Social Security offices? In Greenock and Port Glasgow, there is great concern about the slowness with which local offices deal with claims—in particular, claims for backdated benefits. I assure the Minister that this matter concerns people in my constituency.

Mr. Scott

If I may turn the tables on the hon. Gentleman, I should say that I admire his characteristic ingenuity. There is a total distinction between the new Benefits Agency, which I expect to improve the delivery of services to the constituents of all hon. Members, and the Contributions Agency, which will be responsible for the collection of national insurance contributions. There again, my right hon. Friend and my colleagues in the Department expect to see improved performance in the collection of national insurance contributions from employers, the self-employed and so on in coming years. So there will certainly be no impact at all on the service, which we aim to improve, in the local offices of the Benefits Agency.

Returning to my main theme, I do not believe that it is right that the rules should continue to operate in such a way that employers find it financially more attractive to pay their employees with cars rather than with cash. The Bill that I am urging the House to support today aims to correct this imbalance in our present legislation by requiring employers to pay national insurance contributions on cars and free fuel.

Individual employees who are provided with company cars and fuel are at present required to pay income tax on the benefit which they derive from free private motoring. The value of this benefit is assessed using a set of scale charges devised by the Inland Revenue to reflect the costs of owning and running a motor vehicle. We propose that the same scale charge rules shall be used to determine an employer's contribution liability. As with the Inland Revenue scheme, employers will face no contribution payments if a company car is provided purely for business purposes and there is no private mileage. Similarly, there will be reductions in contribution liability where business mileage is high. I believe that to be right. It is a way of recognising, within this pattern of provision, that for some employees a car is essential to the performance of their duties, whereas for others—those who do very little business travel—the car is provided solely or largely for the employees' private use.

As the House will know, there is a liability on both employers and employees to pay class 1 contributions. Nevertheless, we have decided—I hope that I can carry the House with me on this—that employees will not be liable to pay contributions in respect of company cars and free fuel. They already pay tax on that use.

There is a variety of practical reasons why we have decided not to impose national insurance contributions on those people. First, more than half all employees who have a company car are above the upper earnings limit for contributions. Secondly, employees are already required to pay tax and the imbalance in the tax and contributions rules for them is not so manifest as it is for employers. Finally, the rules for assessing primary contributions make it very difficult to integrate the new system with the existing national insurance contribution arrangements so as to produce a workable system for collecting the new contributions from employees. We believe that the additional complications for employers would be out of all proportion to the extra revenue raised and we therefore intend that employees should be excluded from any new liability.

I turn now to the practical arrangements that we intend to make for the collection of the new contributions. In devising these arrangements we have paid careful attention to the need to produce a scheme which employers can operate with the minimum of extra work. We have therefore decided to stick very closely to existing Inland Revenue rules with which employers are already familiar. Accordingly, the Bill will impose a contribution liability in respect of those employees provided with cars only where a scale charge would apply for tax purposes. Broadly speaking, these are company directors and employees earning more than £8,500 a year, including benefits in kind. The substantial advantage of this approach is that employers are already required to report annually to the Inland Revenue the details of such cars and we see no reason why they should face any particular difficulty in combining that reporting process with the assessment of contribution liability under the terms of this Bill.

The annual reporting takes place at the end of each tax year and forms detailing the cars and petrol provided during the previous year have to be sent to the Inland Revenue by 19 June. Under our proposals employers will use the same information, together with guidance which my Department will provide, to assess their contribution liability. The sums due can then be paid to the Inland Revenue as part of the normal PAYE national insurance return. The only other task employers will have to undertake is the inclusion of the contributions paid, in the normal way, in their wages records and end-of-year documentation.

The Bill will enable us to make regulations to determine those arrangements. However, before drafting the regulations, laying them before the House and setting out the practical arrangements for collection, we have invited employers' representatives to comment on the scheme that we have in mind. We will listen very carefully to their views and take them into account before settling the final details. We have time to do that because, although the Bill introduces the new contributions from the beginning of the present tax year, they will not be assessed or collected until 1992–93—in essence, in June 1992.

I know that some employers have expressed to us and in the press, to some extent, concern about the need for additional record-keeping. I do not believe that such concern is well founded. As I have explained, details of company cars already have to be provided to the Inland Revenue each year. Only a small amount of additional information will be needed to calculate the appropriate contribution charge. If, for example, the employer intends to claim one of the discounts for high mileage, he will have to satisfy himself that the car was used for more than 2,500 or more than 18,000 business miles during the course of the year. I do not believe that that will represent an insuperable problem.

We believe that in the majority of cases the information will already be available from the employers' records. First, it will be generally clear from the nature of the employee's job whether a discount for business use over 2,500 or 18,000 miles a year is appropriate. Secondly, the employer will be able to check details of business mileage with his employees. Finally, since the employer will be meeting the costs of petrol used for business mileage and may be keeping records for VAT purposes, further information will be available. So I do not believe that this will put any substantial extra burden on employers. There will be no requirement to maintain comprehensive business mileage records in every case and, generally speaking, we shall be adopting precisely the same approach to this as the Inland Revenue does at the moment in assessing individual liability; and after consulting employers, we shall be providing them with detailed guidance about what information will be required to comply with the requirements of the system.

To ensure that the system is operated correctly, we shall not be giving discounts to employers who at the time that the contributions are due do not know, or cannot say, which business mileage band is appropriate. I believe that that is a sensible protection for the fund. Subsequent adjustments will be possible if the wrong, or insufficient, information was used in the first calculation. In the event of disputes, employers will have access to the existing departmental machinery which at present determines the outcome of contribution problems.

Sir Geoffrey Finsberg

Is my right hon. Friend saying that any disputes should be settled by the Department of Social Security and not by the Inland Revenue? If the details have to go to the Inland Revenue, can he assure us that disputes will be dealt with by the excellent set-up in his Department?

Mr. Scott

My hon. Friend is, of course, very familiar with that system, and we will use exactly the same machinery as we use at the moment to settle contributions disputes.

In essence, we are looking to have here a system of self-assessment, with checks undertaken, in the normal way, by national insurance inspectors, who will obviously want to be sure that employers understand and operate the rules correctly.

Mr. Tim Smith (Beaconsfield)

Before my right hon. Friend continues, I want to ask him about the payments.

Is not it the case that most national insurance contributions at the moment are collected monthly with PAYE? How much is collected after the end of the national insurance year at the moment, because, as I understand it, in June 1992, £550 million will be due in one lump sum from employers and there are no interest penalties for late payment? How will the Department ensure that the money is paid over on time?

Mr. Scott

Under the Inland Revenue scheme, the money has to be paid by 19 June following the end of the tax year. Those would be our arrangements for any money that had not been paid in the course of ordinary monthly payments. Anything outstanding would have to be paid by 19 June following the end of the tax year. We shall follow the existing arrangements closely. It must be for the convenience of employers that, in establishing the contribution rules, we follow the Inland Revenue as closely as possible. Employers who are familiar with what happens with the Inland Revenue can lock easily into our provisions for national insurance contributions.

I turn now to the individual provisions of the Bill. Clause 1 amends existing legislation and specifies the circumstances in which the new contributions are payable and who will be liable to pay them. It also defines the amount on which the contributions will be calculated and the percentage rate at which they will be charged.

Subsections (1) to (4) introduce the new contribution which is to be called "class 1A". The provisions of subsection (5) form the basis of how the contributions will be calculated and who should pay them. The value of employer-provided cars and fuel will be determined, as I explained earlier, by reference to the income tax rules given in sections 157 and 158 and in schedule 6 of the Income and Corporation Taxes Act 1988.

The liability for the new contribution will arise where an amount is chargeable under tax rules for the employment in question and where that employment is employment for which national insurance contributions would be due. The effect of that is to exclude from the new contributions any employee earning less than £8,500 a year, including benefits in kind. Having established the basis of the liability, subsection (5) then identifies the secondary contributor—generally the employer, but not exclusively so—as the person who pays the new contribution.

The Bill deals next with the amount on which the contribution is to be calculated. That is determined by using income tax rules on scale charges for cars and fuel. Subsection (5), therefore, provides for the appropriate discounts and premiums, as well as excluding any case in which the car is not made available for private use or in which fuel is available for business travel. Having established the cash equivalent of the benefit of a car or fuel in that way, the amount of the contribution is calculated at the percentage rate set for the main employers' rate, currently 10.4 per cent. Subsection (5) also makes provision for employers who, because they have insufficient information, are unable to determine the relevant cash equivalent of the benefit of the car or fuel. The Bill provides that, unless the employer has information to the contrary, the cash equivalent is set at the highest relevant level. That will ensure that the discounts for high business mileage are available only to employers who can show that the appropriate conditions are satisfied.

Further provision is made to allow for this part of the legislation to be amended by regulation following any alteration to the main provisions of the Income and Corporation Taxes Act 1988. Any such alteration is most likely to be brought about by means of a Finance Act and the regulatory power in the Bill therefore avoids the need for additional primary legislation to follow any changes in a Finance Act. The power is limited to such amendment as is necessary or expedient.

Subsection (5) includes a regulation-making power to except persons from liability in prescribed circumstances or to reduce the class 1A contributions due. That power will be exercised only in very limited circumstances. Its purpose is to make special provision for the employers of those taxpayers who benefit from extra-statutory concessions currently made by the Inland Revenue. Broadly there are two such concessions. The first—I say this wearing my secondary, but in many ways more important, hat as Minister for Disabled People—allows disabled drivers to count their home-to-office travel as business mileage. The second grants exemptions from liability in certain circumstances in which a car is made available for use by a member of an employee's or a director's family. Once again, our aim is to ensure that our provisions follow as closely as possible those of the Inland Revenue. Our legal advice is that, under social security law, that can be achieved only by regulations.

Clause 2 extends the current arrangements for the collection of national insurance contributions to the new class 1A contributions. It includes provision for deciding who should pay the charge when employers share the cost of a car, allows for refunds in cases in which the contribution has been overpaid and provides a regulation-making power in respect of record keeping. That parallels existing provisions for class 1 contributions and will include, for example, the need for a record of contributions to be kept on deduction working sheets. The penalty provisions that exist in respect of other class 1 contributions have been extended to class 1A contributions and clause 2 also provides that previous non-payment of contributions can be declared before a court in cases in which legal proceedings are necessary to recover class 1A contributions.

The remaining four clauses, the House will be glad to hear, require only a brief explanation. Clause 3 extends the existing adjudicative system so that, where there is a dispute over class 1A contributions, employers will he able to apply to the Secretary of State for resolution of the question. Clause 4 provides that, as for all other contributions, a specified percentage of the new contributions shall be allocated to the national health service. That will make over an estimated £50 million to the NHS from the new contributions. Clause 5 contains provision for Northern Ireland. Finally, clause 6 contains consequential provisions and provides for the Act to have effect from 6 April 1991.

I have said that the purpose of the Bill is to put right an anomaly in the national insurance system which has arisen because of changing practices in employment remuneration. As a result of the Bill, employers will no longer find it so attractive from the financial point of view to pay their employees with cars rather than cash. The scale charge rules will ensure that contributions are levied on a valuation of cars and fuel which is easily understood and calculated. In 1992–93, we expect the new charge to generate some £550 million in respect of company cars and a further £60 million in respect of fuel. In terms of overall labour costs, that amounts to about 0.2 per cent.

The charges will be spread among some 300,000 employers, so the additional financial burden should not be exaggerated. Instead, the provisions of the Bill should be seen in the context of the Chancellor's overall Budget judgment, which was good for business. Other Budget measures provide significant improvements, worth £750 million in 1991–92, for business. As now, employers will have a choice of whether they want to provide cars for their employees' private use. If they do, they will now quite properly face a contribution liability in just the same way as if they had paid their employees in cash. I believe that the provisions are long overdue and I commend the Bill to the House.

5.17 pm
Mr. Graham Allen (Nottingham, North)

I am pleased to open a debate on behalf of my party for the first time. It is a unique occasion for me and may be rapidly followed by another unique occasion when I say that there is little in the Bill with which I can find fault. As the Government approach their dying days, they seem to be adopting more and more Labour party policies, so this may not be a unique occasion. I shall welcome the occasions on which I am at the Dispatch Box and can concur with most of what the Government say.

The Bill is essentially part of the Budget and its provisions might sit more easily in the Finance Bill. I am pleased to take this chance to thank my eminent colleague, my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown), for nursing me not only through the provisions of the Bill, but through the Finance Bill last year. That was quite an experience for someone like myself.

Mr. Tim Smith

Now we know who writes the hon. Gentleman's speeches.

Mr. Allen


I must admit to some surprise that changing the regulations on company cars requires a social security Bill, although my hon. Friend the Member for Newcastle upon Tyne, East will know that I am very much in favour of the budgetary process being opened up not only to include departmental Budget Bills, but to involve the departmental Select Committees of the House and outside organisations at the pre-Budget stage rather than having the wham, bam, thank you ma'am Budget speech that passes for the Budget process at the moment. A more protracted and intimate relationship between the Executive and the legislature is possible and essential in a modern democracy. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith), the shadow Chancellor, is committed to considering improvements to the budgetary process. He is in the enviable position that almost anything that he ultimately proposes must be an improvement on the current arbitrary, truncated and secretive process.

The Bill relates to national insurance contributions to be paid by employers for the first time in respect of company cars and fuel made available for private use. Most people outside this place will know that in shorthand as the company car perk. Coming new to these matters, it was explained to me that, at its simplest, a company car is deemed to add an amount to an individual's income which is liable for tax. The controversy has always arisen over the size of that amount. Seeing certain hon. Members in the Chamber today, no doubt further controversy may arise about the actual amount that should be added to the income and be liable for tax. It has been and remains considerably cheaper for an employer to provide £100-worth of benefits in kind than to provide £100 in cash as net income.

The most popular benefit-in-kind device is the company car. I understand that company cars account for 80 per cent. of all benefits in kind. That accounts for the importance of the company car and explains why the Government are taking on that benefit in kind before any others. I welcome the fact that the Government are considering the matter seriously.

There can be little doubt that the company car as a device for avoiding fair tax is destined to diminish in popularity whetever party is in government. The tax regime in the United Kingdom has favoured payment in cars rather than in cash. Despite Government attempts to move to a fairer system, some further evolution may still be necessary, as the Investors' Chronicle survey of executive cars reported last year after the previous Chancellor's bite at the issue. The Investors' Chronicle stated that that earlier attempt brought "a sigh of relief". It could have been so much worse. Business had braced itself for a much higher rise, especially in respect of the 'perk' car which covers a small annual mileage. A rise of 50 per cent. in the scale benefit taxation and banding of Vehicle Excise Duty to penalise large cars had been forecast. That report concluded on the rather weary note that future Chancellors would perhaps return to those issues and ensure that there was an equal balance between payment in kind and taxation.

In spite of the increasing burden of taxation under this Government, the effects of the recession and alleged corporate cost cutting, a recent report from the Monks Partnership revealed continuing and massive use of company cars in the United Kingdom in comparison to our neighbours. For example, in the United Kingdom 96 per cent. of senior financial posts come with a company car, compared with 29 per cent. in France.

The number of people paying tax on company cars has doubled to 2 million in the past four years according to the Inland Revenue. We appear to be a long way from the balance of advantage shifting towards using personal cars and claiming a mileage allowance for business use which is what some people would like to see. Fewer than 5 per cent. of companies expect to reduce the provision of cars and one quarter of employers intend to expand their fleets. It is still a matter of debate whether the proposals in this Bill have the balance right.

Mr. Couchman

The hon. Gentleman has just quoted most interesting figures about the number of employers who expect to reduce or increase the number of company cars that they provide. When was that survey carried out? Was it carried out before this year's Budget or afterwards? The hon. Gentleman's figures seem to conflict with information that I have read in the newspapers.

Mr. Allen

The survey was conducted after last year's Budget.

Britain still tops the European league for company cars because, even after the proposals in this Bill, Britain will still have by far and away the most favourable company car tax regime in the world. The movement on car perks by consecutive Chancellors may owe more to the eye that they are keeping on potential European directives and European average levels of assistance than to the proposal to eliminate market distortions.

We should be aware of the distorting effect of unfair taxation on the motor industry. There are several eminent representatives of that industry in the Chamber today and they may wish to refer to that point later. Over-concentration on the company car market can weaken its competitiveness overseas. Paying less in tax may encourage companies to accept a slightly higher cost for the vehicles. Higher specifications demanded by company car fleet managers may mean that vehicles are produced to too high a specification to be competitive in certain overseas markets.

Mr. Thompson, the vice chairman of the British Vehicle Rental and Leasing Association, said: the corporate sector had tolerated such price increases and there is no sensible mechanism for controlling prices. That may be part of the explanation why car prices in the United Kingdom are higher than in most parts of Europe. The Monopolies and Mergers Commission report referred to in last week's Financial Times showed that some pre-tax car prices in the United Kingdom are more than 50 per cent. higher than in other European markets.

Business buyers account for an estimated 65 to 70 per cent. of new car sales in the United Kingdom. The Financial Times stated recently that partly as a result of that Manufacturers had felt able to impose price increases more readily than elsewhere. When purchasing abroad is made easier after 1992, United Kingdom car makers may regret the price cushion that has distorted the company car market.

Another reason to tax company cars fairly was referred to by the Minister. They should be so taxed because of their adverse environmental consequences. According to a wide range of studies, company cars are used more, driven further and are larger than private cars. They are driven faster, and their drivers have more accidents, take more risks and drink more alcohol than the drivers of private cars. In addition, since 1988 free parking at work has been exempt from tax and national insurance contributions, adding a further incentive to bring cars to work and create congestion.

The National Economic Development Council has estimated that 90 per cent. of cars entering central London between 7 am and 1 pm are subsidised by companies. A study of free parking at work was recently carried out for the NEDC by Transport and Environmental Studies—or TEST. It was found that free parking is a more widespread perk than company cars and most motorists driving to work have their parking costs paid for. The TEST report proposed taxing company-provided parking spaces at a rate equivalent to their rateable or market values. TEST estimated the value of that perk as £2,000 a year for a space in the City of London and £300 a year in Swindon. I understand that the Treasury estimates are £1,500 and £500 respectively. Free parking has been estimated by Earth Resources research for Greenpeace to result in a £408 million revenue loss, comprising £288 million in tax, £30 million in employees' national insurance contributions and £90 million in employers' national insurance contributions.

It should be noted that the exemption of tax and national insurance contributions on parking at work was introduced only in the 1988 Budget on the ground that calculations of its value were too complicated. Of course, since then the revaluation of business premises with the introduction of the uniform business rate has made valuation potentially easier.

The other main unresolved issue about company cars is evasion. There is some evidence that evasion is considerable and that much business use of cars is simply not declared There are considerable discrepancies between Inland Revenue figures for those declaring company cars and Department of Transport registration figures. Earth Resources estimate that as many as half those using company cars may not be paying their Full tax on them. There can be no question but that hidden subsidies to the car are detrimental not least to the taxpayer but to other transport users or providers such as the railways and other more environmentally friendly means of transportation. Greenpeace estimates that the company car subsidy costs £150 per household, or £3.4 billion, to the nation. Government funding for all forms of public transport is lower than the subsidy for company cars and investment in road transport.

A difficult matter that has been touched on by hon. Members is that the bona fide company car user is in a different category from highly paid executives who have a company car almost exclusively, as the Minister said, as an executive perk. That is a peculiarly British institution. The Investors' Chronicle put its finger on the issue when it said: Only the naive believe that companies provide employees with cars merely to allow them to perform their duties properly. User-choices perceive their cars as a reflection of their status. Indeed, 70,000 individuals have two or more company cars. Of those earning over £35,000 a year, a staggering 73 per cent. have a company car.

There appears to be consensus that the present tax regime penalises the high business mileage user but is overly generous to high status and low business mileage users. Even after the passage of the Bill, future Governments will need to rethink their policy and relate the level of taxation more closely to business mileage. One aim could be to ensure that the high business mileage driver can be better off with a mileage allowance on his or her own car rather than a company car. Placing national insurance contributions on company cars is a long-overdue rectification of an unfair anomaly in our tax system.

Mr. Couchman

Is the hon. Gentleman under the impression that national insurance contributions are not presently leviable on the use of a company car for private use?

Mr. Allen

That is not my impression at all.

Future Governments may also regard it useful to have established the first significant precedent of levying national insurance contributions on fringe benefits, although since May 1988 national insurance contributions have been levied on gilts, but I do not regard that as a particularly significant precedent.

Mr. Couchman

Will the hon. Gentleman give way yet again?

Mr. Allen

If I may be allowed to continue the rest of my speech——

Mr. Couchman

I should like to put it right.

Mr. Allen

I have been very generous in giving way. The hon. Gentleman will seek to make his own speech shortly.

A further serious problem that has arisen concerns value added tax. I should be grateful if the Minister would consider the problem. I presume that the Government are seeking to encourage the payment of cash rather than kind or smaller cars plus cash rather than large cars. However, it now appears that VAT could become payable by an employer when cars are retained in preference to cash in lieu of cars or when a small car plus cash payment is made instead of a large car. I do not expect the Minister to spring to the Dispatch Box to answer that point—it is rather complicated. It could be possible for one arm of the Treasury, VAT collectors and Customs and Excise, to undermine the policy direction that is evident in the Bill by levying VAT, and prevent people from switching to cash payments or smaller cars. I should be grateful if the Minister would discuss that matter in the Department to see whether that is the case.

The answer to a recent parliamentary question by my hon. Friend the Member for Newcastle upon Tyne, East on 30 April showed that the Budget changes will raise an extra £550 million in respect of cars and £60 million in respect of fuel. That was reaffirmed by the Minister. However, those yields will be reduced by £200 million due to employers claiming corporation tax or income tax relief on their payments. That additional income for the national insurance fund is most welcome, not least because the fund is still carrying the immense and unnecessary burden of the £6.7 billion bribe to encourage individuals to take out private pension plans.

The measure is a small contribution, but it is welcome. For that reason if for no other reason, we generally welcome the Bill.

5.36 pm
Mr. James Couchman (Gillingham)

I begin by declaring an interest. Since 1964, I have driven a company car. I have been allowed to use it for my private use. As chairman of my own family company, I drive an opulent Vauxhall Astra GL. I am concerned that the difference between the perk car and the workhouse car is inadequately differentiated by the Bill. The hon. Member for Nottingham, North (Mr. Allen) seems to be unaware that, since 1975, national insurance contributions have been leviable on fuel provided by an employer for private use.

I declare a further interest. Recently, my small company had a pay-as-you-earn audit. One of the few things that the inspector picked up was the fact that we were not paying national insurance contributions on private fuel. However, he admitted that until 1989, when the so-called green book was issued, the fact that a sum was leviable on the private use of fuel supplied by an employer was a dark secret known not even to PAYE audit inspectors. That is extraordinary. The inspector concerned actually wants to go back six closed years. Hon. Members will not be surprised to hear that we are contesting that.

The matter has been peculiarly badly handled by the Department of Social Security, and it is a great sadness to me, having served that Department for several years, that I am in conflict with it on this matter. The matter has not been clear to employers or employees. What is more, the impost that my right hon. Friend is being asked to make is to balance this year's Budget. Let us be under no illusions. It is interesting that my right hon. Friend the Minister of State answered our hon. Friend the Member for Hampstead and Highgate (Sir G. Finsberg) in an evasive manner when our hon. Friend asked where contributions would reflect in benefits from the Department of Social Security—contributory benefits, presumably. That point was not answered.

When the Minister replies, I should be grateful if we could be told where that substantial sum of £0.–5 billion will manifest itself in benefits for employees. It is interesting to note that the £0.75 billion of benefits in this year's Budget, which are apparently good for business, are shaded by the clawback under the impost. We are talking about the national insurance fund because the money that is raised by the contributions will go into that fund. Can we be sure that that fact will be reflected in the benefits to employees, and that it will not be clawed back by the Treasury to balance this year's budget?

I am also worried about what the provisions will do to the British car industry. I have no doubt that my hon. Friend the Member for Birmingham, Northfield (Mr. King) will wish to make his own contribution on that score, because I know that he will be worried by the fact that the British motor industry will certainly not benefit from any diminution in the provision of company cars. From the newspapers that I have read in the past few days, I understand that companies are now preparing to buy themselves out of the provision of motor cars by providing large additional salaries. I have read the figure of as much as £10,000 per year. Clearly, that would be for a more opulent car than my Vauxhall Astra, but the principle is clear.

As I have said, I wonder about the damage that that will do to the British motor industry because if we buy our cars ourselves, we tend to go abroad for them rather than buy from the home market. That is because of the perceived benefits of other-than-British motor cars. As the big fleets comprise largely British motor cars, any diminution in the provision of company cars by employers will damage the British motor industry.

The other thing that I should like to make clear——

Mr. Tim Smith

Before my hon. Friend gets on to the other thing, does he not agree that it is an appalling indictment of the British motor car industry that, apparently, it is sustained at the moment only by company car fleets, and that, if individuals had a choice, they would go abroad for their motor cars?

Mr. Roger King


Mr. Couchman

My hon. Friend makes a valid point, to which I see that my hon. Friend the Member for Northfield wishes to reply.

Mr. King

The point is not that the private buyer is disillusioned with the quality of the British-built product; it is that, if the private buyers want to drive something that is more original and a little different, as opposed to something that can be seen in the average driveways of the kingdom, such as Cavaliers, Montegos and Sierras, that buyer might be tempted to buy something from an overseas manufacturer. But that in no way reflects any inadequacy in the British product.

Mr. Couchman

I am grateful to my hon. Friend for that intervention, because my son, who is aged 22 and is car mad, speaks pejoratively of the Cavalier as "the rep's motor" which, indeed, it is; as my hon. Friend has said, many of the big fleets consist of Cavaliers, Sierras and Montegos. That is why I think that the provisions will do considerable damage to the British motor industry.

I have another brief point to raise—I know that the House will not want to be detained by me for any great length of time on this point. I refer to the concept that, in some magic way, someone on £8,500 is a higher-paid employee. I pay more than that wage in my business to bar staff and it is my understanding that £8,500 is about two thirds of average earnings. One can hardly consider that a representative who earns £8,000 or £9,000 a year and who is on two thirds of average earnings is a higher-paid employee. The impost will hit hard the companies of those who are quite lowly paid.

I hold no brief whatsoever for the company director who never uses his company-provided car for business and for whom that car is a pure perk. I am happy to see such company directors pay tax on their cars. However—I come back to where I started—the impost will be unfair on the companies of those people who use their company-provided car for their job and who cannot otherwise do that job sensibly or viably.

Eighteen thousand miles may seem a high mileage, especially to those who do their business in London and the home counties, but I doubt whether those whose business is in rural areas and who have a wide area to cover will regard it as a high mileage. There should be some differential between those people who do their business miles in London and those who do them in rural areas, where miles come easily on to the mileometer.

5.44 pm
Mr. Archy Kirkwood (Roxburgh and Berwickshire)

I have no intention of opposing the Bill, but should like to support some of the comments of the hon. Member for Gillingham (Mr. Couchman), especially his point about the number of miles travelled for business purposes. That is important to me, coming from a rural part of Scotland and representing a rural constituency. I hope that the Government will give further consideration to that matter.

I start by being slightly pedantic. I do not accuse Social Security Ministers on this point, because I know that they are not masters of their own destiny when it comes to the way in which legislation is put through the House. However, I am puzzled and a bit nervous about such legislation being put through all its stages in one evening. I am doubly worried because, as a result of this matter being part of the Budget provisions, there was not much time to canvass views more widely before the measure was announed in the Budget statement.

We have had an assurance—I am sure that it will be honoured—that there will be consultations thereafter, but bringing forward such primary legislation on an evening like this and with a low attendance of hon. Members is a casual way of submitting the legislation to the statutory processes. There must be constitutional and legal reasons for it, but I cannot understand why the Bill does not form an integral part of the Finance Bill. I have no doubt that hon. Members who serve on the Finance Bill Standing Committee will spend long and happy hours upstairs considering the totality of the Government's financial proposals in the Budget. That would be a much better vehicle for giving this measure the proper consideration that it is due.

It is a small Bill, and I agree with the hon. Member for Nottingham, North (Mr. Allen) that it is a technical Bill which is difficult to understand, but £550 million-worth of national insurance fund contributions are to be raised, with an additional £60 million from fuel. As that is a very big sum of money on any definition, for that reason alone we cannot dismiss the Bill as unimportant.

I am interested that the financial and explanatory memorandum states that "50 staff years" of additional manpower are involved. The Minister of State skated over this matter—I do not know whether he did so deliberately—but he seemed to think that the extra administrative costs were fairly small beer. I wonder whether that will be the perception of the people who will have to pay the contributions for the new administrative scheme.

If the Government are to bring in the extra impost, I agree that the Inland Revenue machinery is by far the most efficient and least disruptive way of doing so, but it is not enough to say, "Using the existing systems will make no difference," because I do not think that that is true. There will be a significant increase in bureaucracy, which will fall on the shoulders of the employers, many of whom will be small employers.

Although the provision of company cars has been abused and, as the hon. Member for Gillingham said, the Government are right to tackle that abuse, there is a world of difference between the tax perk that is now an accustomed part of the stock in trade of the finance directors of big firms where fleets of company cars are used as a form of surrogate remuneration, and the little knitwear companies in my constituency, such as in the town of Hawick, which have only one works van. They use the works van six days a week to take the piecework to the outworkers so that they can knit up pieces of garments and bring them back to the factory for processing and packing. They also use the van at weekends.

I listened carefully to the Minister's speech and I assume that employees such as district nurses in rural areas will not be affected by the Bill.

Mr. Couchman

We have also had representations recently from charities that allow cars which are provided to people earning more than £8,500 a year to be used for private mileage, so the Bill will be an impost on charities.

Mr. Kirkwood

Some employers that are not commercial organisations will be caught under the provisions. I am anxious that we should have a full discussion, and that Ministers provide a complete explanation of the extent of the Bill's effect before we take it further.

I agree with the hon. Member for Gillingham that the Government should reconsider the limit of £8,500. The Bill will have a dire impact on employers and employees of small companies. That figure represents only two thirds of average national earnings. That is not a large sum of money, and I cannot work out why the Government decided to impose a limit at £8,500; the figure cannot have been plucked out of nowhere.

Mr. Tim Smith

It has always been like that.

Mr. Kirkwood

That is news to me. I freely confess my ignorance; I am sure that the Minister will confirm whether what I have said is the case. If it is an established figure in Inland Revenue rules, that is obviously why it was chosen. Has the Department considered the effects that it will have, and have Ministers considered the possibility of making exemptions so that the tax would not affect small businesses and the directors and employees of small companies who earn relatively small salaries, as £8,500 is a small annual income?

The Minister said that the Bill will affect 2 million cars and 300,000 employees. Do the Government have any idea how that figure is broken down? What is the profile of the average employer or employee that the Bill is designed to catch? If it is big companies and their employees, I would find it easier to allow the Bill to complete its passage. However, if the burden will fall disproportionately on small companies, I would see it from a different perspective.

Finally, I should like some reassurance. Have the Government considered using engine size as a way of bringing back into control the abuse of company cars? The Minister made a valid point when he said that there are environmental aspects to controlling the use and abuse of company cars.

Mr. Tim Smith

It depends on the size of the engine.

Mr. Kirkwood

I am perfectly well aware that there is a scale for company cars based on engine size, but the Government have the possibility of making it more advantageous financially for companies to buy smaller cars, so that company directors would run around in 1300 cc Vauxhall Astras. Have the Government considered making smaller cars totally exempt from taxation? In future, all Government Departments will have to look at the tax burden on motoring costs in general.

The Government are right to end the present anomaly. I am certainly prepared to allow the Bill a Second Reading, but I object to the way in which it is being put through the House in one evening. The Government still have to answer some of the questions about which people will carry the cost of the new impost that the Bill will introduce.

5.55 pm
Mr. Roger King (Birmingham, Northfield)

I do not welcome the measure, although I well understand the difficulties faced by my right hon. Friend the Minister in presenting the Bill this afternoon. The measure was included in the recent Budget, so it is no surprise that it has surfaced today.

It is unfortunate at this time in our economic resurgence to place further financial burdens on our motor industry. I do not disagree with the motives behind the claim that the perk that the company car offers a number of working people needs to be tackled. About 10 per cent. of those who have company cars have them simply as a perk. I am concerned that, in tackling the problem in order to raise money—my right hon. Friend explained earlier that the measure was designed to bridge a financial gap in the Budget—it is likely to have some disadvantages that the Government have not thought through thoroughly.

The problem with the company car was created when we had stop-go wages policies, and employees were rewarded with company cars instead of salaries, which were then very heavily taxed. That trend started a process which has grown into the present problem. However, it goes further than that. The United Kingdom is a densely populated country, and our population is scattered throughout our land. We seek to bring employment and opportunity to all regions of the kingdom, and the only way to do that is by means of a system of communications which is available to everyone, and for people to travel freely.

If we are anxious to create jobs and employment prospects in remote areas, we must enable the equipment needed for that employment to be purchased relatively cheaply and to be readily available. That is why the car has played such a formidable part in bringing employment to the more remote areas of our country. Jobs cannot depend on rail connections, if there are any. Businesses cannot wait for the next bus to turn up. They need components and goods to be supplied when they want them, and people must have the opportunity to make deliveries.

The necessity for the true company car has been overshadowed by the perk element, which has got out of hand in recent years. In successive Budgets, the Government have raised the tax bands, and that has brought the company car into balance between a perk and an essential business tool. The proposal we are discussing cannot be seen in isolation. It has to be considered in terms of the increase in tax bands that the Chancellor announced in the Budget, plus the 2.5 per cent. increase in value added tax. A car attracts 27.3 per cent. tax. No other product on sale in the Kingdom is taxed that highly; in Germany, there in only a 14 per cent. tax on cars. The combination of measures that the Government have introduced has exacerbated a problem which may come to the fore during the next few months.

There is no doubt that the British car industry is enjoying a good time, but I must stress that it is the manufacturing industry—times are far from rosy in the retail sector. About 350 large dealers have gone out of business in the past year. Nevertheless, manufacturers have been able to sustain and even increase production as a result of producing goods which have an enviable record for quality and market acceptability, and they are exporting increasing quantities. We need a strong and healthy home market behind those exports, and we do not have one at the moment. Sales are declining: they are now down to 1.6 million units per year, from a high of 2.3 million in 1989.

My fear is that the combination of measures introduced in the Budget and in this Bill will further exacerbate that problem. There are signs that the European market and other world markets, which are not untouched by the change in the world economic climate, are tending to dry up, and manufacturers in the United Kingdom will not have a buoyant home market to pick up the shortfall that will result from dwindling imports.

Mr. John Carlisle (Luton, North)

I apologise for not hearing my hon. Friend's opening remarks. Manufacturing industry is now heavily dependent on the export side, especially in the case of General Motors in my constituency, as 80 per cent. of its Vector cars, produced at Luton, are going for export. My hon. Friend is right to point out that that market is very fragile. Because of the nature of the country that they are going to—Germany, which has its own problems—those exports could dry up at a stroke. That is why this further blow to the manufacturing industry must be considered by the Government, and I agree with everything that he has said so far. Manufacturing companies could be in a serious position if those exports decline or disappear before the end of the year.

Mr. King

My hon. Friend endorses my argument. The Vauxhall Cavalier is the biggest selling fleet car. Any shortfall in demand from the United Kingdom market will have a substantial effect upon the viability of General Motors' operations in this country. That fact needs to be stressed, because the car industry offers tremendous opportunities. We have few industries which can look forward to a positive expansionist programme in the next 10 years and which can largely overcome our balance of payment difficulties. Some forecasters predict that, by the year 2000, the motor industry alone can bridge the gap in our balance of payments deficit, provided that it has the encouragement it needs to expand and invest.

One of the reasons that the United Kingdom has proved attractive to incoming investment from companies such as Nissan, Toyota and Honda is that there is a substantial bedrock of sales in the company car sector. Whatever one might think about the evil nature of the company car, it has enabled the United Kingdom market to sell 700,000 cars a year to that sector. It is a lucrative market for manufacturers, and as a consequence it has attracted many overseas companies, which come here and set up plants to cater for it.

Mr. Couchman

My hon. Friend's argument about the company car market is valid. The hon. Member for Nottingham, North (Mr. Allen), who opened the debate for the Opposition, made much of the fact that 65 per cent. of new car sales are to the company car market. However, I heard the other day that there are 20 million cars on our roads and only 13 per cent. are company-owned, because they are sold off.

Mr. King

My hon. Friend is correct. The average life of a company car is three years. Some are called company cars but are bought by companies such as Hertz and Avis, and have a life of nine months before they go into the used car market. Companies seek to dispose of company cars after three years. The Budget caused a problem within the industry, as companies are tending to replace cars after four years, and it is difficult for the British car industry to bridge that one-year gap.

It is evident that when employers consider the costs of providing a company car there is a strong temptation for them to buy out that perk—if one can use that expression—and replace it with a higher salary. Perhaps an economist could point out the consequences of that for inflation.

Also, there is the risk, as has been said, and as research shows, that, if employees are left free to buy their own cars, they will not want to buy a Vauxhall Cavalier or a Sierra—excellent though those products are—but will choose something a little more individual, which will almost certainly be imported either from Japan or from the rest of Europe. That is a fact of life. We do not always want to be like everyone else in the street. We want to express our individuality, so we buy something a little different. In car industry terms, such a product will come from abroad. It does not need many people to do that before it has a substantial impact on the United Kingdom car industry, and that would have serious consequences if it were repeated on a grand scale.

Undoubtedly, the House will see fit to approve the proposals before us, but I feel that it is right to express a few cautionary remarks. I accept that, having been landed this legislation, my hon. Friend the Minister cannot restructure the way in which these new charges will be imposed, but I certainly hope that the Government will see whether they can arrive at a fairer system.

The distinction between perk car and work car has defied Government for some considerable time. They tend to cover the lot by using some sort of mileage cutoff point, on the assumption that someone who does 18,000 miles a year is driving a works car and that someone who drives less is presumably driving a perk car. That is a crude dividing line, and it is long overdue for overhaul.

The first impositions made by the Government, taxing company cars and their benefits, were rough and ready and did not have a hard hitting financial impact upon users. That impact has become progressively harder, until it is now arguable whether there are any benefits in having a company car. With the addition of national insurance charges, the balance is definitely tipped against the company car in all respects.

The Government should redouble their efforts to arrive at a fairer banding system. It does not make any sense for the person who has a Sierra or a Cavalier estate, who perhaps services and maintains products or provides replacement goods for shops in central London and drives only 6,000 or 8,000 miles a year—although he spends a large part of his working life in his car, which is a business tool—to get little discount because he does not do the arbitrary limit of 18,000 miles.

Mr. Couchman

Is my hon. Friend aware that to do 18,000 miles in London, where the average speed is 12 mph, requires about 30 hours' driving a week, which is near to a working week?

Mr. King

My hon. Friend endorses the point I am making.

Mr. Tim Smith

Give that sort of driver a van.

Mr. King

I am sure that some employers consider the suggestion that my hon. Friend the Member for Beaconsfield (Mr. Smith) makes, but few will want to drive, say, a Transit or Sherpa van to deliver some fuses or packaging or cartons of cigarettes or sweets. A van is a large vehicle to use in London and is hardly environmentally acceptable if instead one can use a small car.

I hope that the Minister will redouble his efforts to draw up a more equitable system of bands. It would be fairer to have a cut-off point of 10,000 miles, with anything over that attracting a 15 per cent. discount; a cut-off of 18,000 miles for a further discount; with a maximum cut-off of 24,000 miles—a very high mileage, which should confirm that it is a genuine company car which should attract an even bigger discount. That would be fair to those who must have a company car as a tool of the trade.

The subject must be examined from the employee's point of view. I hesitate to suggest that employees do not welcome a company car; sometimes it is not the product or style that they want, but it goes with the job. The job usually reflects the advantage of a company car by attracting a somewhat lower salary than one might normally expect. For an employee to have the privilege of a company car standing in his drive, his employer must pay the extra charges, and that represents an enormous and unique imposition. After all, if a secretary has a piece of vital equipment on her desk—say, a word processor—to improve her working performance, neither she nor the company is taxed on the cost of that equipment.

Mr. John Carlisle

Perhaps my hon. Friend should remind my hon. Friend the Member for Beaconsfield (Mr. Smith) that a company car is often an essential tool of business. If we tax everything that looks like a perk—any article that might have a feel of luxury about it that we take home—where do we stop? We must consider the principle involved. [Interruption.] I assure my hon. Friend the Member for Beaconsfield that we are not dealing with a laughing or flippant matter, since the retail and manufacturing sectors of the motor industry are reeling from the taxation proposals.

Along with ridiculous statements that have been made about car phones, the impression has been given that the Government are against the car manufacturing industry, let alone against company cars. I am glad that my hon. Friend the Member for Birmingham, Northfield (Mr. King) has not taken any notice of some of the naive remarks of my hon. Friend the Member for Beaconsfield.

Mr. King

My hon. Friend may not have been aware that I had picked up a remark about vans by my hon. Friend the Member for Beaconsfield. Many employees have no choice, because their companies require them to take their cars home, often because they are on call. A plumber or electrician or an employee providing any other service to the community is on call, as is the company car.

A company based in Birmingham might have a representative in Basingstoke. It is suggested that every night, having finished servicing whatever it is in the Basingstoke area, that employee should take the car back to the works in Birmingham, go home to Basingstoke and repeat the journey the following morning to pick up the vehicle? That is so ludicrous as to be beyond comment. In such a case, the company car is a piece of business equipment and only as a side effect would it be used at the weekend. Indeed, an employee driving a company car doing a high mileage would not want to drive hundreds of miles at the weekend.

One could make a strong case for an almost total exemption from the type of measure we are debating. As I said, I accept that the measure will receive the approval of the House. Even so, we should examine some of its technicalities. We should examine the structure of the tax banding of company cars. We must consider that in the context of the Finance Bill, and perhaps we shall have an opportunity in due course to do that.

6.14 pm
Mr. Tim Smith (Beaconsfield)

My hon. Friend the Member for Birmingham, Northfield (Mr. King) is a doughty fighter for the motor industry. If I represented his constituency, I would have made many of the remarks that he made, and we appreciate the position in which he finds himself. My constituency allows me to take a wider view of the issues, although I probably have a high proportion of company car drivers among my constituents.

I know from my experience in industry what goes on. There is much status-seeking among company car drivers. I recall getting my first job in industry and my first opportunity to drive a company car. At that time, the large accounting firms did not give company cars to their employees and getting a car was for me an attraction of moving to industry. I was asked what sort of car I would like. I asked how much I could spend. Having been told, I went hunting for a car with all the right knobs; I wanted a GT with power steering and so on.

Mr. Couchman

Why not?

Mr. Smith

I agree with my hon. Friend. From my point of view, it was a reasonable desire because I wanted the best possible car and the best remuneration package. But this debate is not about the interests of individual company employees. It is about how we tax what, in view of what I have said, is clearly a perk.

Mr. John Carlisle


Mr. Smith

I disagree with my hon. Friend. The matters which interested me had nothing to do with the economic performance of the company. I was looking for the best deal, and who would not? We should be considering the economic performance of industry. We have heard much in the debate about the difference between perks and the tools of the trade and about vans. Company vans are not subject to this type of taxation. When buying a company van one does not pay car tax. The input VAT is recoverable against the output VAT, unlike the VAT on a car, and no taxation is paid in terms of a benefit in kind.

My hon. Friend the Member for Northfield referred to service engineers. They might be better off with company vans, on which tax would not have to be paid. We must concentrate on the fundamentals of the subject.

Mr. John Wilkinson (Ruislip-Northwood)

I imagine that during his business career my hon. Friend has taken clients to lunch, for example, to discuss important business arrangements. Would he suggest that overseas clients should be taken to a restaurant in a van?

Mr. Smith

I normally use a taxi in such circumstances. I was not aware that service engineers took customers to lunch. But since, according to my hon. Friend the Member for Gillingham (Mr. Couchman), they spend up to 30 hours a week driving, perhaps that is what they are doing.

I accept that for some people a company car is essential. We recognise that it is taken home at weekends and is driven on holidays and so on. It would be possible for company employees to emulate Ministers and take cars from a pool. They could travel to work by public transport and use a pool car for their work.

Mr. John Carlisle


Mr. Smith

Companies could make such an arrangement. If Ministers can do it, so can other people.

The Bill has my full support. It is part of a much wider Budget judgment and the issue that we must consider when discussing the future of the car industry is the same issue as we must consider in relation to the future of every industry.

The Budget was excellent for business and we must set against the points that my hon. Friend the Member for Northfield made the fact that it reduced corporation tax progressively by 2 per cent. My hon. Friend said that Japanese car manufacturers have invested in the United Kingdom because we have a large company car fleet. Although that may have been a consideration, there were far more important considerations such as the fact that we have a good industrial relations record, a low-wage economy and the most attractive corporation tax regime in Europe. It has now been made even more attractive by virtue of the Budget, which cut corporation tax by 2 per cent., benefiting industry by some £830 million in the year when the levy will first be raised.

In the light of the Budget, the measure is entirely sensible. I sympathise with the hon. Member for Nottingham, North (Mr. Allen), who said that it should have been introduced in the Finance Bill. But the hon. Member for Newcastle upon Tyne, East (Mr. Brown) and I are representing the other 39 members of the Standing Committee and we should be able to tell them next week what was said in this debate. Although I sympathise with the view of the hon. Member for Nottingham, North that it is rather anomalous, it comes about by virtue of the fact that social security benefits and contributions and the whole national insurance system are separate from the income tax system, as they should be.

I am interested in the new Contributions Agency established on 1 April, which will have the job of collecting £550 million in June next year and in subsequent years. In view of the sum involved, I am sure that the Public Accounts Committee will want to look at the agency's performance. That is why I raised the matter with my right hon. Friend the Minister of State. The hon. Member for Nottingham, North referred to the possibility of evasion and suggested that it could be on a wide scale. If so, the Public Accounts Committee should examine that problem.

On the general principle, I believe that the Government are right to tax all benefits in kind across the board, so that they are treated, for the purposes of tax and national insurance, as far as possible like cash payments. That seems to be the right philosophical approach. Although the hon. Member for Nottingham, North implied that the measure had come rather late, it would not have been possible to introduce it much earlier because it was only in the 1989 Budget that employers' contributions were extended up the scale and it would have produced relatively little revenue before then. Therefore, the timing is right and, in due course, we may consider extending the levying of employers' national insurance contributions on other benefits in kind; it would be a logical extension. However, company cars are the biggest benefit in kind paid to employees.

My hon. Friend the Member for Gillingham referred to the current position. I am not sure whether the hon. Member for Nottingham, North was aware of the fact that a national insurance employer's contribution is already charged on private fuel. It was causing considerable difficulties before this measure was introduced. I wrote to many finance directors last year about tax implications and it was one of the main issues that they raised in their replies. They said, "We hear what you say about income tax, but are you aware of how hellish the Department of Social Security is making life for us by levying national insurance contributions on private fuel?" They said that company employees who pay for their fuel with a plastic card and present the card before they fill up their car with petrol pay no contributions. However, if they fill up their car first and hand in their card afterwards, they must pay contributions on the cost of the fuel. That sounds like bad news for those who must keep the books or records. I wrote to my hon. Friend the Minister for Corporate Affairs, who was in charge of the deregulation unit, and said that he should look at the problem. I suggested that there should be a scale charge. The Bill now introduces a scale charge for fuel as well as for cars and that excellent change will lighten the load on employers.

The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) referred to the fact that there would be 50 extra staff and additional burdens on employers. I wonder how much the charge will create an additional burden on employers, given the fact that it will be levied in the same way as income tax, through the P11 D, and that employers were having such a hard time before in their record keeping. The measure should be relatively simple because the same scale of charges will be applied for both income tax and national insurance. I hope that it will not be too onerous because I am reluctant to impose additional burdens on employers who are already unpaid collectors of tax on behalf of the Government.

Mr. Couchman

My hon. Friend suggested that the contributions will be levied through the P11D mechanism, which is principally aimed at levying tax on the employee rather than the employer. It is often levied through a diminution in the code number much later than was suggested by my right hon. Friend the Minister of State in his opening remarks. I suspect that the mechanism may prove to be not nearly so simple as we were led to believe earlier in the debate.

Mr. Smith

I referred specifically to the P11D. The information required to complete the P11D form is the same as is required to pay employers' national insurance contributions on cars and private fuel. I accept that the P11D is a statement to the Inland Revenue about employees' benefits in kind, so perhaps I should not have referred specifically to it. The point that I wished to make was that the information is common to both requirements. Employers will not need to keep much new or additional information because of the Bill. I listened to the comments of my right hon. Friend the Minister of State on that subject and it did not seem that much additional information would be needed. Perhaps we can return to that important issue later.

As I was saying, some employers were having a hard time—my right hon. Friend the Minister of State may also be having a hard time with his pay-as-you-earn audit—because of the previous arrangements for collecting contributions on private fuel. The scale charge introduced by the Bill is a major improvement.

For those reasons, the Bill is to be welcomed. Benefits in kind should be taxed in the same way as cash. I recognise the problems of the motor industry, but they can be better tackled in other ways, rather than trying to solve them by looking at the way in which we tax benefits in kind.

6.27 pm
Mr. John Wilkinson (Ruislip-Northwood)

I hope that those who have participated in the debate will not think me rude for coming in rather late. I do not normally seek to catch your eye, Mr. Deputy Speaker, unless I have heard the opening speeches. However, the title of the Bill is somewhat misleading. I thought that it must have something to do with social security, and not being a social security expert, I kept away. As soon as I entered the Chamber I realised that a more appropriate title might have been, "Clobber the Motor Industry yet more through Additional Social Security Contributions Bill". It is a silly little Bill—an unworthy little Bill—and is totally inappropriate for a country that is in deep recession with thousands of people being laid off in the motor industry and elsewhere. I believed, perhaps naively, that the Conservative party and the Government were primarily engaged in trying to support and encourage businesses, not in introducing pettifogging little measures that further damage them. I may have been ingenuous, but I also thought that we were not primarily tasked to create additional unproductive jobs in the public sector and not in the business of creating additional quangos such as the Contributions Agency.

I thought that we were sent to this place by those who elected us to do everything in our power to support British industry and those who work in it. I see nothing in the Bill that will have this effect, but quite a lot that will do considerable damage. My hon. Friend the Member for Birmingham, Northfield (Mr. King), who is an expert on the motor industry, and my hon. Friend the Member for Luton, North (Mr. Carlisle), who intervened, spoke from the heart and the head, and with experience.

I must declare an interest and, in case hon. Members think that it is a matter of special pleading, I shall disabuse them of that notion. I am a director and the chairman of a small marketing consultancy. My own little company is in business to promote, largely overseas, the sale of British equipment. For companies such as mine, and many other small businesses that are primarily engaged in selling, a motor car is absolutely indispensable. I find it incomprehensible that Her Majesty's Government should be putting further imposts on company cars at a time of recession. It is even more surprising that they are using the social security system as a means of doing so.

Other hon. Members have referred to the arbitrary earnings limit of £8,500 per annum for employees. Many company directors do not even earn that, and their companies will now have to pay national insurance on their company cars, as well as for any fuel used for private purposes. The amount of revenue generated will be relatively small and it would have been infinitely more honest not to use the national insurance fund as a vehicle for bringing more taxation into the Government Exchequer. I believe that national insurance resources fund only about 10 per cent. of pensions and that the rest come out of taxation. If that is so, and we use the national insurance fund as a means of gathering revenue, it would be much more straightforward to abolish it—at least, it would be much more honest.

Does my hon. Friend the Parliamentary Under-Secretary of State think that the Bill is well drafted? I think that it is a masterpiece of gobbledegook and a fantastic testimonial to the incomprehensible. I am sure that my hon. Friend will be able to clarify clause 1(6)—if she cannot, the legislation should not be passed. Clause 1(6) states: In calculating for the purpose of subsection (4) above the cash equivalent of the benefit of a car or fuel—(a) the car shall not be treated as being unavailable on a day by virtue of paragraph 22)(b) of Schedule 6 to the Income and Corporation Taxes Act 1988 for the purposes of section 158(5) of that Act or paragraphs 2(2), 3(2) or 5(2) of that Schedule, unless the person liable to pay the contribution has information to show that the condition specified in paragraph 2(2)(b) is satisfied as regards that day". My hon. Friend the Under Secretary nods her head wisely. I admire her. But civil servants would be much better employed not producing such nonsense. The motor industry would be much better if it were allowed to get on with its job of satisfying the customer without such an idiotic little Bill.

We have a serious recession on our hands and it is important to get on and address it, and support the motor industry. I had the honour and privilege of being awarded a parliamentary industrial fellowship with GKN, a major automotive supplier, of which there are countless up and down the land. Any measure passed by the House which has a depressing effect on the automotive industry in general can only be deplored and should be rejected. I shall not bother to vote against it, because almost all Opposition Members have now gone; what they said had little to commend itself to me.

The hon. Member for Nottingham, North (Mr. Allen) talked about yet more taxes. There has been an element of obfuscation surrounding the measure. Her Majesty's Government were, at least implicitly, kowtowing to the green lobby by suggesting that imposing such an impost and increasing taxation on company cars would benefit the environment. All that they are doing is to add to the dole queues, which is not worthy of them.

6.35 pm
Mr. John Carlisle (Luton, North)

Like my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson), I apologise to the House for not being present at the start of the debate. Like him, I saw the measure on the Order Paper and assumed that it was a social security matter. It was only when I came into the Chamber to hear the debate that I realised the enormous impact that the measure would have on the motor industry.

I immediately declare a professional interest: I am a non-executive director of a medium-sized motor retailing company. My constituency interest is already known—part of my constituency contains Vauxhall Motors, the largest employer in Luton. As my hon. Friend the Member for Birmingham, Northfield (Mr. King) said, the company has enjoyed a certain amount of prosperity during the past few years, and has brought back boom times to my constituency town.

However, I fear that if the Government continue with the various measures proposed in the Budget and other provisions, such as the special car tax, those boom times could well be over, not just for us as a manufacturing town but for many other companies that will be deeply affected by this imposition on the company car.

I agree with my hon. Friend the Member for Ruislip-Northwood that this appears to be a shabby little measure which says more about the politics of envy than the politics of good sense. Frankly, we are more accustomed to hear about such measures from Opposition Members than from Conservative Members. The Government do themselves no credit with this Bill, which stupidly panders to the so-called green lobby and fails to recognise the enormous improvements that the industry has made to reduce noise and air pollution over the years.

Social security Ministers and their colleagues in the Treasury must understand that the measure will have a devastating impact on the car industry if it means, as I believe it could, that many companies decide that the company car is not for them and, perhaps more important, employees decide that the benefits of a company car do not make it worthwhile to pay the tax. There are about 150 to 200 company cars in my company, which is now considering charging its employees for the use of their cars because of the additional cost of the national insurance. Therefore, employees will be further penalised.

My hon. Friend the Member for Northfield was absolutely right to say that if people do not have company cars, which are generally British, or are given some other financial benefit in kind, they buy foreign cars. My hon. Friend the Member for Beaconsfield (Mr. Smith) made a ribald comment about that. However, when a large employer that gave its employees hefty discounts on certain British manufactured cars withdrew that discount and gave money in lieu, nearly every employee bought a foreign car—I shall not name the company.

The measure is not worthy, because, as my hon. Friend the Member for Ruislip-Northwood said, for various reasons the motor industry is on its knees. The figures for new car sales are dramatic—350 motor retailers have gone out of business in the past 12 months. Every manufacturer is reporting that new car sales are at least 20 per cent. lower. It is only the service industry and, to a certain extent, the contract hire and retail side which are keeping many retailers in business. For the Government to bring forward such a petty little measure is disgraceful. It is viewed with utter dismay by manufacturers and retailers at a time when we should be looking for assistance for them.

Mr. Roger King

My hon. Friend is the second person to refer to the Bill as a petty little measure. It is not a petty or a little measure: it will raise a large sum of money. That is the problem. If the amount involved were little, we would not worry unduly, but nearly £500 million will come out of the pockets of companies which will have difficulty in replacing it. Something will give. My fear and that of my hon. Friend is that it might be British industry.

Mr. Carlisle

I thoroughly agree, and I thank my hon. Friend for pointing that out. The pettiness is perhaps in the minds of those who conceived the idea.

The motor industry is crucial to the fortunes of the country. Let no one forget that. The Conservative party has always supported free choice on transport. We have always controlled strictly pollution within the industry. Indeed, the industry has carried us through rough times. We are now in deep recession both inside and outside the industry. The measure will sadden the hearts of our supporters and of people in the industry.

The Bill should be rejected by the House, but I will not embarrass my hon. Friend the Member for Tatton (Mr. Hamilton) by going to get my hon. Friends out of offices and bars to vote against it. That might be even more embarrassing for the Government. However, many of us are deeply upset by the measure. Had we the opportunity, we would vote against it.

6.42 pm
The Parliamentary Under-Secretary of State for Social Security (Miss Ann Widdecombe)

We have had an interesting debate, with three main themes, all of which I believe to have been ill advised. The first was a misconception, particularly on the part of my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson), that somehow the Bill will cause great financial embarrassment and will have huge economic effects on the car industry.

We should see the matter in context. The overall labour costs of the industry for this year will be £300 billion. We are talking about a sum of £500 million. We are talking about an increase in cost of 0.2 per cent., whereas labour costs alone, through wage rises, are likely to increase by 7 per cent. to 10 per cent. We have to keep in context the alleged financial effects of the Bill on the car industry.

Mr. Wilkinson

Does not my hon. Friend realise that, at a time of recession, when jobs are being lost in the motor industry, Her Majesty's Government, if they are to act wisely, should eschew any additional impost which would put an extra adverse burden on the motor industry or which would depress demand further? As for small businesses, they will get virtually nothing from the Budget. Those with the lowest profits will get no reduction in corporation tax. The requirement to pay national insurance on company cars is yet another unwelcome, adverse development. My hon. Friend should not be so glib.

Miss Widdecombe

My hon. Friend makes the point for me by admitting that in the Budget there is a net gain to the industry through the reduction in corporation tax.

In answer to the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), may I point out that the vast burden will fall on large employers rather than on small employers in relation to company cars as tools of trade.

Fear has been expressed. most notably and eloquently by my hon. Friend the Member for Gillingham (Mr. Couchman), about the administrative burden that the provision will place on the motor car industry. In fact, there will be very little administrative burden. There should be a lightening of the burden. He referred to the current arrangements of levying on fuel, which we admit are more complex than we had intended.

Two themes run through the Bill. The first is to make things easier for employers by replicating exactly the provisions of the Inland Revenue, so that it will already have to hand the information, the system and the calculations. The provisions will replace the complicated administrative system that was required following the overdrive decision to which attention has rightly been drawn. In this instance, the effect will be wholly beneficial.

I congratulate the hon. Member for Nottingham, North (Mr. Allen) on his first speech on these matters in the House. I regret that I cannot associate myself with his wholesale attack on company car ownership. The purpose of the Bill is not to make life difficult for company car owners but to achieve equity between those who draw their income in cash and those who draw income in substantial benefit through a company car. That is the sole purpose of the Bill. It has no other.

Mr. Nicholas Brown

The Minister's last point is fair. The Labour party shares those objectives.

Miss Widdecombe

It is because there is so much cross-party agreement on the Bill that we can deal with it in one day, a point raised by the hon. Member for Nottingham, North.

The provisions will not be brought into effect tomorrow. There will be a long period of detailed consultation about the administrative aspects of the Bill.

What we are doing is very fair and straight in regard to taxation. If the car industry was handing the money to its employees in straightforward salary income rather than by company cars, it would have to pay the national insurance contributions.

Mr. Couchman

My hon. Friend talks about the car industry giving up the money. The Bill has nothing to do with the car industry. It will affect every employer, whatever his business, be it service or manufacturing, who provides company cars for employees who earn more than £8,500 and who allows them to use the cars privately.

Miss Widdecombe

That is absolutely true. My reference to the car industry was a slip. It has been so widely discussed in the debate that the two have almost become linked in my mind. My hon. Friend is right: the Bill will affect all employers, and what I have said applies to all employers. Any employer who hands out cash rather than a company car would at present have to pay a national insurance contribution, so there is no reason why he should not pay a contribution on the company car.

We have also heard that the Bill will have a very bad effect on the entire British car industry because, if people have a choice, they will buy foreign cars. I bought my own car, and I bought British. My hon. Friend the Member for Fylde (Mr. Jack) tells me that he bought British. Why is there an assumption that, if people have to buy their own cars, they will buy foreign cars?

Mr. John Carlisle

My hon. Friend is being unfair. I am afraid that she is speaking from ignorance. It is not an assumption. Those of us who are in the trade could give her figures, if she wanted them, which would prove that those who are handed the money tend to buy foreign cars—for exactly the reasons which my hon. Friend the Member for Birmingham, Northfield (Mr. King) has given. If my hon. Friend were sure of her facts, I would believe her, but she is on dangerous ground in talking from a brief that does not have the facts. Sadly, the reality is that people buy foreign cars, not British cars.

Miss Widdecombe

All I was challenging was the assumption that, if people had to buy their own cars rather than company cars, they would automatically choose foreign cars. There are fleets of foreign cars, and the purchase of such cars is not confined to the private buyer.

Mr. Wilkinson

If an employer wishes to provide an employee with a car that will be needed for the business, and if that employee has to buy the car out of his after-tax personal income, the employer will have to pay him much more than the cost of providing him with a car to do his job. That is an additional burden, and anything that discourages employers from providing company cars, such as the necessity to pay national insurance on that so-called benefit, is thoroughly adverse and negative.

Miss Widdecombe


Mr. Deputy Speaker (Mr. Harold Walker)

Order. May I ask the hon. Lady not to turn her back on the Chair when she replies to her hon. Friend?

Miss Widdecombe

I apologise, Mr. Deputy Speaker; I stand corrected, facing the right way round.

The Bill's main thrust is exactly what my hon. Friend says: by providing a company car instead of salary, thus avoiding liability to national insurance contributions, the employer, and to a lesser extent the employee, will benefit. That is what we are trying to control.

According to Inland Revenue figures, two thirds of company cars travel more than 2,500 miles per year. That means that tools-of-trade cars, those covering between 2,500 and 18,000 miles per year, make up a large proportion of the total. We are trying to make it easier for those who use their cars as tools of trade to be able validly to do so, as opposed to those who use such cars purely as a perk. Clearly, cars which cover fewer than 2,500 miles a year are being used as perks.

The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) asked where the burden would fall most heavily. A director with a new car costing, say, £25,000 who covers fewer than 2,500 business miles a year would have a scale charge for the car of £8,250, and free fuel would be worth £900. The total contribution liability would be £950. A typical sales representative covering more than 18,000 business miles a year in a car costing less than £19,250 and with an engine capacity of less than 1400 cc would have a total liability of only £130. Therefore, there is a marked distinction between the burden falling on those who clearly use their cars for less than business purposes and those who use them a great deal.

I shall not address the issue which will be debated in Committee but which was mentioned on Second Reading about those who have a small private mileage. The national travel survey shows that those with tools-of-trade cars covering more than 18,000 miles a year have an average private mileage of 8,600 per year. That is substantial. The number of people affected who have a one or two-mile drive home and to work will be minimal. That will be addressed at greater length in Committee.

The Bill does not seek to clobber the car industry or to make life difficult for employers. The administrative burden for them will be a great deal less. The Bill simply seeks to make sure that the same rules apply to those who take their income in cash as to those who take their income in kind.

My hon. Friend the Member for Ruislip-Northwood asked whether I understood clause 1(6). It is very simple, and reflects the Inland Revenue rule about the availability of a car for any period of 30 days. If my hon. Friend had gone to the Vote Office and obtained the notes on clauses, he could have informed himself about that and would not have had to ask me.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Committee of the whole House—[Mr. Neil Hamilton.]

Further proceedings on the Bill stood postponed, pursuant to Order [3 May].