HC Deb 17 November 1992 vol 214 cc259-65

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Sir John Cope.]

10.48 pm
Mr. A. J. Beith (Berwick-upon-Tweed)

As this is a ways and means resolution, will the Minister say whether the ways and means are to be found by increasing motoring taxes in next year's Budget? There has been much suggestion in the press that the abolition of car tax, which may prove helpful to some car manufacturers and retailers, will be clawed back by an increase in motoring taxes. Those stories were not denied, or may have been fairly official, although at this stage the Treasury does not specify what it might do.

Clearly, by choosing that instrument, the Government have forgone the opportunity to use car tax as an environmental policy instrument by putting a higher rate of car tax on heavy fuel-using vehicles and none on low fuel-using vehicles. It would be useful to know whether, having chosen that instrument, they are saying that there will ultimately be no net cost, or only the cost arising between now and next April, because they intend to claw back the whole lot through an increase in motoring tax later.

10.50 pm
Mr. Iain Mills (Meriden)

When my right hon. Friend the Minister concludes the case for the ways and means resolution, will he reflect on the need very quickly to bring the company car tax consultation document to the House and to finalise it before too long? That is part of the excise duty argument. Will he do it as quickly as he can, please?

10.51 pm
Mr. Andrew Smith (Oxford, East)

First, I welcome the motion and the Government's partial conversion to a point of view which the Society of Motor Manufacturers and Traders, trade unions in the industry and Members of Parliament representing car manufacturing constituencies have been advocating for some time.

I hope that I can claim some credit for the fact that the tax is being abolished. I called on the Government to act on it, both in questions to the Leader of the House on 19 July last year and in an Adjournment debate four days later. On 12 November last year, I asked the Prime Minister in Prime Minister's questions to back the British car industry by reducing the absurdly high levels of sales tax on new cars, then running at 27.3 per cent.

Abolition will also get rid of the anomaly of double taxation, which is always resented, whereby value added tax has been levied on the car tax. Its abolition is all the more welcome for that.

As with some of the other measures in the autumn statement, the complaint from Labour Members is not that some of our proposals are being purloined by the Government—the more they do what Labour says, the happier we shall be and the better off Britain will be—but that they have taken too long to acknowledge that we were right, they are half-hearted about it and they are not adopting our whole programme for recovery, which is what the economy really needs.

So it is with the car industry. Although we welcome the measure and the extra car sales to which it will give rise, no one can claim that it will in itself be sufficient to produce the scale of recovery that motor manufacturing desperately needs. Indeed, as my hon. Friend the Member for Bassetlaw (Mr. Ashton) has pointed out to me, if second-hand car dealers cut their trade-in prices because of the knock-on effect of cheaper new cars, as they might, there will not be the £400 stimulus per car which the autumn statement assumes.

Two other important points need to be made on this resolution: first, the sheer scale of the lack of consumer confidence, which has been locking the industry into recession; and secondly, the likely impact of the additional taxation on motorists, which the Chancellor warned that he is to impose in next year's Budget.

As the Society of Motor Manufacturers and Traders said to me in a letter on the abolition of the special car tax: Consumer confidence remains very shaky due to high levels of unemployment and personal debt; fear of unemployment; and negative equity in the housing market. It must be remembered that whilst a reduction in interest rates is welcome, car dealers have been offering interest-free finance on many models, and reductions in interest rates matter only in that they add to individuals' personal sense of well-being, rather than enabling them to buy cars at a cheaper price.

Mr. Mills

Did not that communication also mention the increased number of cars that would be sold—60,000 in 1992–93?

Mr. Smith

Indeed—I am coming to that. The forecast was for 60,000 in the current year and for 70,000 when the full year's effect of total abolition is taken on board.

But that must be set in the context of the sheer depth of the recession in the demand for cars. Compared with new registrations, which reached well over 2 million a year between 1987 and 1990, there were just 1.59 million last year, and the latest projection for this year is, at best, 1.56 million. So, even if the abolition of car tax were to result in an increase in sales by as much as 70,000, sales would still be some 670,000, or 29 per cent., below their 1989 level. That is a measure of the depth of the recession into which the Government's incompetence has plunged us. It also shows us how puny the measures contained in the autumn statement are by comparison.

Mr. Roy Thomason (Bromsgrove)

Does the hon. Gentleman not agree that car sales increased by more than 25 per cent. in the year up to this October, and that exports are up by well over a third, so the car industry is achieving much more than it did 12 months ago? Will he not acknowledge those facts?

Mr. Smith

I very much welcome the improvement in car production and sales to which the hon. Gentleman referred, but set against the scale of the overall depression in demand for cars, and compared with the levels of sales and production in the late 1980s, the figures provide scant comfort for those who work in the industry. I commend the truly heroic performance of the car industry and its work force in terms of the quality and competitiveness of new models, and the impressive productivity gains.

Nothing could more clearly demonstrate the fact that, helpful as the measure to abolish car tax is, above all the industry needs a massive boost to consumer confidence. That will not be created as long as unemployment is set to continue rising, as the Chancellor concedes that it will. It will not happen while people are fearful for their jobs and worried about their accumulated debt.

It will not happen for the 5 million workers in the public sector who now face the Government's 1.5 per cent. incomes policy. They will not rush out to buy new cars, and neither will the 2.5 million workers covered by the wages councils that the Government have tonight so disgracefully resolved to abolish. All those factors will leave the domestic production of cars struggling to sustain the small 1.8 per cent. increase on last year that it is presently registering.

The hon. Member for Bromsgrove (Mr. Thomason) mentioned exports. Welcome as any increase in sales is—exports are critical to the industry—the measure will not of itself help exports. It would be wrong for the Government to place too much reliance on devaluation as a means of boosting sales and output. As the Society of Motor Manufacturers and Traders said in its briefing on 9 November, after devaluation: Despite impressive production figures in the face of the recession there are signs of growing difficulties in export markets, especially within the European Community. If this trend continues motor companies have warned that production schedules could be revised. In its summary of the main issues that the motor industry is pressing on Government, the society states: Inflation is still feared, the pound is regarded as unstable at its present level (which is much too low—the industry was competitive at DM2.90 to the pound) and there is great concern lest the industry again be subjected to taxation to help the government fund the PSBR. A two-speed Europe would speedily negate the purpose of the foreign investment so that new capacity would replace rather than add to existing capacity. The lesson to be drawn from that is that it would benefit the car industry far more were the Government to get their act together on Europe and use the wasted British presidency to place at the top of the agenda for the Edinburgh summit the concerted European programme for economic recovery for which Labour has called.

Mr. Richard Burden (Birmingham, Northfield)

Will my hon. Friend join me in applauding the efforts of the socialist group in the European Parliament, particularly the work done by Carole Tongue MEP, in producing a report for precisely the sort of European strategy for the motor industry that my hon. Friend mentioned? Does my hon. Friend agree that, rather than adopting the sort of hands-off approach presently adopted by the Government, it would be better if they joined in the sort of initiatives taking place in Europe to ensure that the car industry has a stable and secure future? That applies not only to the big manufacturers, but to the many hundreds of car component firms in the midlands and elsewhere that need such a strategy.

Mr. Smith

I join my hon. Friend in commending our colleagues in Europe who, like us, have been pressing for this concerted programme for recovery. The car industry is a pan-European industry, so what happens in Europe is crucial to the prospects for exports and for the sale of British cars. However much importance the Government attach to measures to stimulate the economy, they are bound to run into balance of payments difficulties if the expansion does not also take place in other member states of the Community. We need to expand together. That is why the Government must put at the top of the agenda for the Edinburgh summit measures for recovery, to lift the fear of unemployment and jointly to stimulate investment. I understand that the President of the Commission wanted the Prime Minister to put those items on the Birmingham summit agenda, but the latter refused to do so.

Mr. Phil Gallie (Ayr)

Given all that he has said about the need for Europewide expansion, why did the hon. Gentleman and his colleagues go through the Lobbies en masse against Maastricht?

Mr. Smith


Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)

Order. Both hon. Members have now gone very wide of the ways and means resolution.

Mr. Smith

We were registering a vote of no confidence in the Government, as Conservative Members know full well.

I must heed your advice, Mr. Deputy Speaker, and return to the subject of the debate. The House needs to know from the Government exactly why and how they propose to recoup from motorists the £750 million which it is estimated the abolition of the special car tax will cost. In the autumn statement, the Chancellor said: any action in this area will have to be paid for in my next Budget by higher motoring taxes after 1992–93."—[Official Report, 12 November 1992; Vol. 213, c. 998.] I trust that the Paymaster General will tell us why this money is being clawed back from motorists. A great part of the case against the special car tax was that it was unfair to have a levy that was not similarly levied on other goods. If the Government accept that logic, how do they justify proposing to clobber car purchasers again to compensate for the removal of the tax? Will that not amount to a transfer of the tax burden from purchasers of new cars to motorists in general? So motorists who cannot afford to buy a new car will have to pay the tax instead of those who can afford to.

Why, on Government figures, is there a possibility that total taxation on motorists will rise? Is the £750 million which appears to be the gross cost of abolishing the tax the actual amount that the Government intend to claw back? If so, why do not they make allowance for the extra VAT which will be generated by the increased sales of new cars arising from the abolition of the special car tax? If the full-year effect of the abolition increased new car sales, including imports, by 70,000, at an average price of £10,000, the additional VAT revenues generated would amount to about £122 million; so even if the cost of abolition is to be recouped in the way the Chancellor proposes, should not the amount be £628 million, not £750 million?

What is more, even if this amount is clawed back, is it not wrong to refer to it as some new fiscal stimulus—except for the few remaining months of this financial year? Typically, the Chancellor claimed a great many benefits for his autumn statement, but on examination those benefits fade away even more quickly than his hallucinogenic green shoots of the pre-election spring.

We welcome the measure abolishing the special car tax, which was a Tory tax in the first place, but we want answers to the questions that I have posed, and we warn that this measure will not be enough to provide the uplift in confidence that the car industry and the wider economy so desperately need. A full programme for economic recovery is needed for that —and that, sadly, is not on offer from the Government.

11.5 pm

Mr. Michael Ancram (Devizes)

Briefly, and in contrast to the hon. Member for Oxford, East (Mr. Smith), with his sour and rather grudging welcome, I want to say how much the measure has been welcomed in my constituency where both Honda and Rover manufacture cars. They consider that this has been a real boost to their work and see it as a sign of hope for the future.

The workers in those two plants will have listened carefully to what the hon. Gentleman said about confidence. They believe that the measure gives them a real hope that they will see their industry come out of recession. All they will have heard tonight from the hon. Gentleman, speaking for the Labour party, is the usual talking down of their industry, confidence and hope.

I welcome the measure, and I hope that the House will also welcome it.

11.6 pm

The Paymaster General (Sir John Cope)

The hon. Member for Oxford, East (Mr. Smith) welcomed the measure, admittedly in what my hon. Friend the Member for Devizes (Mr. Ancram) called a grudging way, and he was right to do so. He had no alternative but to do so, because the measure had been widely welcomed by not only the motor manufacturers, to whom the hon. Member for Oxford, East referred, but also by the retail trade and many other people. It is not surprising because it is a welcome measure.

The hon. Gentleman referred to the car tax as a Conservative tax in the first place. In fact, it carried into VAT in 1973 the extra rate of purchase tax that there was and had been for a long time under the previous Labour Government. The car tax continued throughout the subsequent Labour Government, and it has fallen to a Conservative Government to abolish it in this year's autumn statement, after having halved it in the Budget earlier this year.

The hon. Gentleman also claimed credit for the abolition of the tax by saying that he thought of the idea first. As you well know, Mr. Deputy Speaker, having been here for some time, when a tax is reduced or abolished, nearly everyone claims credit for it, but no one ever does when it is the other way round.

I shall not follow the hon. Gentleman's remarks about the autumn statement—apart from anything else, we are about to have two days of debate on that—but it is undoubtedly the fact that this measure, taken together with the other measures in the autumn statement, will boost confidence and help to assist the welcome improvement in domestic car sales and car sales generally.

The hon. Gentleman spoke of exports, which do not arise under the resolution, and drew attention to the difficulties in other markets, which is another way of saying that other countries have problems of recession as well as us. But I noted what he said about a two-speed Europe and it came oddly from one who voted against Maastricht the other day along with most of his hon. Friends—all his hon. Friends.

Attention has been drawn to what my right hon. Friend the Chancellor of the Exchequer said in the course of his autumn statement—that any action taken in this area will be paid for in the next Budget by higher motoring taxes. That, in a sense, is the answer to the right hon. Member for Berwick-upon-Tweed (Mr. Beith). That was made clear by the Chancellor in the autumn statement, and I can confirm it.

I can also confirm that the hon. Member for Oxford, East is right to say that the £750 million is the gross cost next year—that is to say, car tax plus VAT. What I cannot do, and have no intention of doing, is anticipate next year's Budget statement and the way in which my right hon. Friend the Chancellor will approach this aspect of it. It would clearly be wrong for me to do that.

Mr. Burden

I do not wish to press the Paymaster General too hard about what his right hon. Friend may say next year, but will he give some preliminary responses on taxation levels and the method of taxing company cars? The Government have claimed considerable credit for what they describe as taxation of perks in that connection. If it is possible that they will look at that next year, will they bear in mind the fact that the extent to which taxation has been levied on company cars has principally affected the possession rather than the use of such cars? As a result, a company director who has all his or her—it will probably be his—private mileage paid for will be affected disproportionately, not as greatly—

Mr. Deputy Speaker

Order. Interventions are supposed to be brief, and they are not supposed to be speeches.

Sir John Cope

I was about to intervene on the hon. Member myself, Mr. Deputy Speaker, but I suppose that you were right to dissuade me.

Company car tax has nothing to do with the motion, but my hon. Friend the Member for Meriden (Mr. Mills) mentioned it as well, and I will pass on what has been said to my hon. Friend the Financial Secretary to the Treasury. We are in the process of considering company car tax, and we shall continue to consider it between now and the next Budget.

Mr. Beith

Is the Paymaster General saying—or does the Chancellor intend to imply—that the Budget announcement in April, projecting a tax forward into the forthcoming year, will feature a tax sufficient to recoup all the costs in the current financial year, together with those in the next financial year following the abolition of car tax?

Sir John Cope

I have no wish to add anything to what my right hon. Friend said in the autumn statement, and I do not think that, on reflection, the hon. Gentlemen would expect me to.

Mr. Andrew Smith

I must push the Paymaster General on that point. The Chancellor has said that he intends to recoup the cost from increases in motoring taxation next year. May I repeat the point that I put to him earlier? Does he not accept that the VAT on extra sales will bring in some £122 million, and would it not be right to take that off the extra cost? Otherwise, will there not be additional overall motoring taxation?

Sir John Cope

I heard what the hon. Gentleman said the first time, including his speculation about VAT yield. Yes, he may push me if he wishes, but I will not add to what I have already said, and I do not think that he would really expect me to do so.

The motion introduces the abolition of car tax, and, of course, primary legislation will put that into effect. The move has been widely welcomed in the car industry—both the retail and manufacturing sectors—and even more widely than that. Moreover, it has been welcomed in the House this evening, and I commend it.

Question put and agreed to.


That a Bill be brought in upon the foregoing resolution: And that the Chairman of Ways and Means, Mr. Chancellor of the Exchequer, Mr. Secretary Clarke, Mr. Secretary Heseltine, Mr. Secretary MacGregor, Mr. Secretary Hunt, Mr. Secretary Lang, Mr. Secretary Lilley, Mr. Michael Portillo, Mr. Stephen Dorrell, Sir John Cope and Mr. Anthony Nelson do prepare and bring it in.