§ Order for Second Reading read.7.30 pm
§ The Economic Secretary to the Treasury (Mr. Anthony Nelson)
I beg to move, That the Bill be now read a Second time.
The Bill implements one of the principal measures announced by my right hon. Friend the Chancellor of the Exchequer in his autumn statement—the abolition of car tax.
The Bill continues and completes a measure of tax reform that was begun in the Budget this year, when car tax was reduced from 10 to 5 per cent. It does away with another tax. It will rebalance the taxation of motoring away from the taxation of purchase towards taxation of ownership and use. It ends the discrimination against cars in the indirect tax system whereby previously they alone —apart from the traditional high excise duty goods—were singled out for additional tax on top of value added tax. It will enable the trade to reduce the price of a new car by about 4 per cent., saving the customer about £400 on a typical small family saloon costing about £10,000.
The Bill will help boost the motor industry, and it has been widely welcomed in the industry. It provides a reform that it has long sought. It will benefit business generally, as about half of new cars are bought by businesses.
§ Mr. Roy Hughes (Newport, East)
It seems that there is some misunderstanding about the sum that accrues to the Exchequer through the car tax. The sum of £750 million has been quoted recently, but I understand that earlier it was thought to be a much higher figure. Why is there confusion?
§ Mr. Nelson
If the hon. Gentleman will allow me, I shall deal with that later in my remarks. The receipts this year are affected by the earlier reduction of car tax from 10 to 5 per cent. Clearly that will affect the accrual for this year compared with last year. Also to be considered is the number of cars on which the tax is paid, and the value of those cars. I shall deal in some detail with past and future tax yields—the yield in future, of course, will be nil—and the estimate of the yield forgone.
§ Mr. Andrew Mackinlay (Thurrock)
The Minister has said that the abolition of the tax will give a boost to the motor car industry. Is he aware that most of those who are involved in the industry—both wholesale and retail—consider that it will be an exercise of damage limitation and not a boost? Can the Minister give us an assurance that there will be a significant increase in car sales over the next year as a consequence of the measure?
§ Mr. Nelson
Yes, I hope and believe that there will be. The hon. Gentleman need not take my word for it. He need only reflect on the warm welcome that has been given to the abolition by the motor manufacturing and retail industries generally, about which more in a moment.
I shall explain in a little more detail what the Bill does. Clause 1 abolishes car tax with effect from midnight on 12 November 1992. Clause 2 contains a number of consequential amendments to the Car Tax Act 1983. These 931 include allowing traders' car tax registration to be cancelled when Customs and Excise are satisfied that all the tax due has been paid. They restrict Customs' powers relating to car tax for the future by enabling them to be exercised only in respect of cars on which tax became due on or before 12 November, to ensure that such tax is properly accounted for. There are no new powers for Customs and Excise in the Bill.
Clause 3 provides two transitional reliefs. One relieves from car tax vehicles ordered by customers from retailers on or before 12 November. provided they were invoiced to, paid for in full and collected by customers after that date. The other relieves vehicles held by dealers as tax-paid stock and unsold to final consumers on 12 November.
Clause 4 deems never to have been enacted legislation which was due to take effect on 1 January 1993 to enable car tax to be collected on chargeable vehicles brought to the United Kingdom from other member states after that date under the single market transitional arrangements, which is now, of course, unnecessary.
Car tax was introduced in 1973 to compensate for the replacement of the then 25 per cent. rate of purchase tax by the imposition of VAT, which was then 10 per cent. Car tax receipts last year—I answer the question of the hon. Member for Newport, East (Mr. Hughes)—amounted to about £.1.24 billion. It is estimated that this year, following the reduction to 5 per cent. and now the abolition, it will amount to about £510 million. The cost of abolition for the rest of the year is estimated at £100 million within that figure and the £750 million for next year.
I am the first to acknowledge that forward estimates —it is to be hoped that they are good estimates—will inevitably be slightly "questimates". We have some indications from the industry of what turnover levels will be. As my right hon. Friend the Chancellor of the Exchequer has made clear, the cost of the measure after this year will have to be met by higher motoring taxes in the next Budget. Other motoring taxes include duties on petrol, both leaded and unleaded, and diesel. There is also vehicle excise duty. The House will understand that it would not be right for me to anticipate how the cost will be recouped in that Budget. That will be a matter for my right hon. Friend's Budget strategy.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
Will the Minister confirm that, if the cost were to be met by vehicle excise duty alone, it would increase from £110 to £135?
§ Mr. Nelson
Yes, it would be about that. I shall correct myself if I am wrong but I think that the increase would be £31 if the total cost were borne by VED.
It is difficult to forecast accurately the extent to which the measure will stimulate car sales, but retailers put it at about 70,000 cars, or an increase of about 4 per cent. in the United Kingdom market, which now amounts to 1.6 million new registrations.
§ Mr. Peter L. Pike (Burnley)
If the maximum benefit is to be derived from the abolition of car tax, we must consider the number of cars produced and the production of car components as well as car sales. That benefit must be passed on to the consumer, to ensure that the producers of cars and components similarly enjoy the maximum benefit from the action that the Government are taking.
§ Mr. Nelson
I agree that that is important. Fortunately, the car industry—especially now—is extremely competitive. I note that some car dealers are already announcing substantial reductions in the offer prices of their cars. They are not mentioning the abolition of car tax but are taking the benefit for themselves. I am happy to enable them to do so by that marketing technique. There are certainly reductions in the price of new cars, which will be invoiced. Clearly no car tax will be added. I imagine that there will be an impact on the second-hand car market, where there is a differential all the way down the line. It decreases the more that the value of a car diminishes.
§ Mr. Richard Burden (Birmingham, Northfield)
I think that the Minister said that retailers within the motor industry predict that sales will increase by about 70,000 a year. Will he confirm that the Society of Motor Manufacturers and Traders estimate that the increase will be about 60,000? It stresses that it cannot be confident or that until we rid the country of the fear of unemployment. It takes the view that we shall not be able to regenerate the. industry until then. People do not buy new cars when they think that they will lose their jobs. Does the Minister accept that we require an industrial strategy of the sort which has been advocated by the Engineering Employers Federation and which the Government, so far, have singularly failed to provide?
§ Mr. Nelson
The hon. Gentleman says that people will not buy cars until they have job security, but in a sense the converse is more persuasive: revival of the car industry is a necessary precondition for the security of many jobs. I shall later explain the central importance that I and, I think, many hon. Members attach to the car, automotive and components industries, which are crucial.
§ Sir Michael Grylls (Surrey, North-West)
The hon. Member for Darlington (Mr. Milburn) spoke about representations by the Engineering Employers Federation. To the best of my recollection, the federation asked for a reduction in interest rates. The Chancellor has reduced them three times since September. It asked for investment allowances, which were contained in the autumn statement, and it asked for the preservation of capital projects. The industry has done rather well. It is odd for the hon. Gentleman to complain when the representations have been met almost to the letter by the Government.
§ Mr. Nelson
My hon. Friend is right. The change has been welcomed by industry generally and by the motor industry in particular. The abolition of the car tax was warmly welcomed by the Retail Motor Industry Federation, the Society of Motor Manufacturers and Traders, the CBI, the Association of British Chambers of Commerce and many industrial leaders. That warm welcome was in marked contrast to the grudging reaction of the Opposition. The hon. Member for Dunfermline, East (Mr. Brown) suggested that the money should have been put towards prizes in the national lottery. That is not the sort of reaction that one would expect from industry, or, indeed, from the Opposition.
I recognise that the industry has been going through a tough time, with lay-offs and short-time working. Following this and other measures, especially the reductions in interest rates, we believe that there is every prospect of a much brighter economic outlook which will benefit the car industry. I think that we all recognise that 933 that industry is of great importance to the United Kingdom's economy. Production of motor vehicles and parts accounts for about 5.5 per cent. of United Kingdom manufacturing output. Producers employ 250,000 people, and distribution and servicing employ a similar number. That means that about 500,000 people are employed in the industry.
Output grew rapidly during the second half of the 1980s but fell with the onset of the recession. The most recent figures show that car production was up by 3.7 per cent. in the first 10 months of this year compared with the same period in 1991. Much of the increase in domestic production can be attributed to Japanese car manufacturers, who were one of the key sources of inward investment in Britain in the 1980s. I remind the House of the central importance of attracting and retaining that inward investment, not just for the car industry but for manufacturing generally. For example, Nissan Motor Manufacturing (UK) Ltd has an investment exceeding £800 million. Planned car production next year is more than twice that of last year and the company has just won a Queen's award for exports.
Toyota has spent £840 million on its United Kingdom operations, and that includes a £140 million engine plant in Shotton in north Wales to produce up to 200,000 engines. Honda is investing £300 million in its car manufacturing plant at Swindon. It currently employs 786 people, and that could rise to 2,000 at full capacity. This is not just a Japanese success story, because British car manufacturers have their successes. For example, in the past two months Land-Rover has increased production of its new model.
None of us must lose sight of the importance of the European dimension. There is much loose talk about the effects of imports on the car industry, but more and more of the components used in the assembly of cars are produced throughout the European Community. One obvious, although high-market, example of car production is Mercedes-Benz. Its current procurement of components from the United Kingdom is valued at £25 million, and it will rise to £75 million. The procurement of the Daimler-Benz group generally is worth about £240 million in addition to that.
That means that procurement by a German manufacturer of United Kingdom components, some of which are then imported to Britain, amounts to almost one third of a billion pounds. Similarly, many British companies have subsidiaries and operations in other parts of the European Community producing components that are used by United Kingdom car manufacturers. As I say, we must remember the European dimension. The legislation will be of material benefit in increasing the car industry's turnover. It has been widely welcomed in the industry, and I hope that it will be welcomed by the House.
§ Mr. Andrew Smith (Oxford, East)
The Bill seems to be longer than the European Communities (Amendment) Bill, but I trust that we shall deal with it more quickly and with greater agreement. Labour welcomes the abolition of the car tax, and I have no wish to detain the House unnecessarily on this legislation to carry the abolition into effect.
934 Motor manufacturers, trade unions in the industry, retailers and component suppliers have said for some time that this tax must go. I and some of my hon. Friends, especially those who represent motor manufacturing constituencies, have said the same. The measure will be especially welcomed by Rover and other United Kingdom producers, because the level of indirect taxation in a producer's home market clearly influences the strength of domestic demand, which is the foundation of company strength and of success in other markets.
The old level of car tax was 10 per cent., but VAT at 17.5 per cent. and the double imposition of VAT on the special car tax itself, an anomaly that was greatly resented, meant that British producers faced total sales taxes of 29.25 per cent. in their main domestic market. That compares with 22 per cent. in France and 14 per cent. in Germany. Therefore, it is good that the tax is to go.
The Opposition have two important concerns. Although the measure is welcome, it will not provide the stimulus that the motor industry needs, but neither will the rest of the autumn statement, as my hon. Friend the Member for Birmingham, Northfield (Mr. Burden) said. The Society of Motor Manufacturers and Traders has said that consumer confidence remains shaky because of the fear of unemployment and outstanding debt, especially on housing. Car dealers have already been heavily discounting models and offering interest-free finance. The reduction in interest, about which the Economic Secretary spoke, can be beneficial only through its impact on general consumer confidence. We have yet to see that confidence returning.
Even if the abolition of the tax resulted in an extra 70,000 sales a year, it would, as I said in the debate on the autumn statement, still leave sales about 670,000, or 29 per cent., lower than in 1989. That is a measure of the scale and depth of the recession and its adverse consequences for the motor industry, which, as the Economic Secretary conceded, has had to impose lay-offs and short-time working. We clearly need a recovery programme that will reduce unemployment and restore consumer confidence, but the Government are a long way from that.
We welcome the inward investment about which the Economic Secretary spoke. He was right to mention the extent to which the motor industry is pan-European and, indeed, global. In that context, he should have regard to the importance of stability and proper co-ordination and co-operation in our economic relations with Europe. After the devaluation of the pound, the SMMT said:there is great uncertainty … over the future direction of Britain's economic and European policy. 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—£1) 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".I hope that the Government will end the semi-detached attitude that they have been taking in regard to Europe. If they do not, they will damage the prospects for jobs and growth in the motor industry and in other industries.
The Economic Secretary has confirmed the Chancellor's statement that he—or, rather, the motoring public—will pay for the abolition of car tax by means of higher motoring taxes after the end of the financial year. That is the Opposition's second worry. Despite repeated demands from me, the Government have given no answer 935 to our questions about why the cost of abolition is being put at £750 million, and not at a lower figure that would take account of the additional VAT revenue to which extra sales will give rise. Were there to be 70,000 extra sales—as we hope there will be—they would bring in some £122 million extra in VAT, thus reducing the real cost of abolition to £628 million.
Furthermore, as my hon. Friend the Member for Burnley (Mr. Pike) pointed out earlier, recouping the revenue in the way that the Government propose will not give any overall extra fiscal stimulus. It amounts, in effect, simply to shifting the burden of tax from those who can afford to buy new cars to those who cannot.
As the Minister will no doubt confirm, it is unusual for the Chancellor to commit himself to extra motoring taxes in next year's Budget. He would not normally speculate on what was going to happen until he had presented his Budget proposals: indeed, he frequently says as much when he is pressed on different aspects of the Government's overall fiscal stance. Let me make it clear that Labour is not committing itself now to the extra motoring tax; first, we shall want to know exactly what the Chancellor proposes.
As well as telling the right hon. Member for Berwick-upon-Tweed (Mr. Beith), what it would cost in terms of vehicle excise duty if the Chancellor chose to recoup the cost in that way, perhaps the Minister will tell us by how much petrol duty would rise if he chose that option. Given that the Chancellor has announced that motorists will bear the cost, I feel that the public and the industry have a right to know what he has in store for them.
Although we welcome the abolition of car tax, we do not feel that, in itself, it can provide anything like the boost to confidence that is necessary to stimulate the growth, jobs and future success of the motor components industry, whose future is so vital to this country.
§ Sir Michael Grylls (Surrey, North-West)
The abolition of any tax is a happy development, and the abolition of car tax is no exception. We should be smiling and throwing our hats in the air—if we were wearing them, that is. The proposal proves, if proof were needed, that the Government and the Conservative party are dedicated to the lowest possible taxation.
Manufacturing industry is enjoying the best of both worlds. The Chancellor has introduced the new investment allowances, albeit on a temporary basis; I believe that we also have the lowest corporation tax in the world. That will enable companies to keep their profits and use them to expand—and the only way in which small and medium-sized firms can expand is generally through the use of their own internally generated profits. The motor industry—not just the distribution side, but the components side—contains many successful small and medium-sized businesses. I wish that there were more, and I think that we should try to encourage such a development.
As I think most hon. Members would agree, a few years ago the components industry was not very competitive; it was fairly flabby. One of the best things that Japanese inward investment has done for this country is to compel the component firms to pull their socks up and become really competitive. Japanese motor representatives have 936 told me that some of our best component manufacturers are among the best in the world. We can be proud of what has been achieved; but there is a long way to go. As the hon. Member for Oxford, East (Mr. Smith) pointed out, this is an international industry: throughout Europe, buyers will look to different sources, and we need to win our share of the market.
As my hon. Friend the Economic Secretary will recall, some years ago we were in the depths of gloom about the state of our motor industry. The British-owned industry had shrunk as a result of various disasters and incompetences—and, dare I say, intervention by a Labour Government, who had not helped by forming the botched-up company that later became British Leyland. That is all history, but they were depressing days. We had American investment, but no investment from Japan.
Since then, there has been a twofold transformation. First, the British-owned industry—what used to be called British Leyland, and is now Rover—has been successfully returned to the private sector, where it should always have been, and is thriving within the British Aerospace empire. Secondly, there has been massive inward investment by Japanese firms. I think that hon. Members on both sides of the House will agree that that investment has virtually no negative aspects. Not only has it brought much-needed employment to areas where unemployment has been, and still is, high; it has provided a spur for efficiency in our motor car and component firms.
I hope that the House will pass the Bill with enthusiasm. I consider it another sign of the Government's commitment to British manufacturing industry: it is an industry that, with the right encouragement—which the Government are now providing—can beat all comers. The British motor industry has much of which we can be proud, both in British-owned concerns such as Rover and Rolls-Royce and in the smaller component firms and the foreign-owned businesses. Its success is already having a dramatic effect on our balance of payments: exports, for example, rose by 50 per cent. between 1990 and 1991. That will lead Japanese firms to gear up and sell into Europe.
I congratulate the Government on the Bill. I hope that we shall never bring back the car tax, which was art aberration. Admittedly, it was introduced by a Conservative Government, but even Conservative Governments make mistakes occasionally, and we hope. that that mistake will never be repeated. I rejoice, and throw my hat in the air.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
I agree with one thing that was said by the hon. Member for Surrey, North-West (Sir M. Grylls) and disagree with another. I shall deal with the disagreement first. It cannot possibly be claimed that the Bill—which I support—shows that the Government believe in the lowest possible taxation; as the Government have made clear, it is a tax-neutral measure. I shall list some ways in which the cost could be recouped, but I do not think that the Government have claimed that the Bill does what the hon. Gentleman suggested. Back Benchers had better stick to the brief.
The Economic Secretary referred to the Japanese motor industry's inward investment in Britain. We hope that it will be one of the beneficiaries of this measure. The north-east takes pride in the success that Nissan has enjoyed there. Not everyone expected that to happen. Old 937 scars, the result of memories of the war with Japan, take a lot of healing, but the arrival of Nissan in the north-east, its great success and the great commitment of its work force are matters in which we take great pride. If one goes into a Nissan plant, one sees few Japanese workers there.
The large north-east work force has adapted to methods brought here from Japan—methods that themselves were adjusted to meet the British climate. They have set new standards, not just for the motor industry but for other industries. The result is that Nissan can claim that it has the best of a large available work force. Many people want to work for that company. They know that it is a good place to be.
The Bill will abolish an indefensible tax—a peculiar left-over from the old purchase tax system. Sooner or later, somebody has to get rid of it. It is arguable whether this is the best measure to choose at this time, but since the motor car industry needs help, it was a reasonable choice to make and therefore counts as one of the better points in the autumn statement.
The Chancellor of the Exchequer was at unusual pains to make it clear that there would be a comeback. He was uncharacteristically, as the hon. Member for Oxford, East (Mr. Smith) said, able to anticipate his Budget statement by suggesting that the money would be clawed back. In a normal Budget, there is often valorisation of excise duty on petrol or of vehicle excise duty. Although it does not occur in every Budget, the price is normally increased. Even if we ignore the possibility of the Chancellor doing that this year, we have to anticipate that this change will have a significant impact.
The Economic Secretary told us that he thought that vehicle excise duty might be increased by £31, if that route were chosen, which is slightly above my estimate. My estimate of what would happen with petrol was also an understatement. I reckoned that there would be 8p a gallon on petrol, if the increase were to be wholly obtained from petrol duty. It may be 10p a gallon. Opprobrium was heaped on the Liberal Democrats from time to time because we argued that, in order to tackle pollution, it might be necessary to increase the purchase price of petrol; we can now put all those remarks in context. If the Government combine some element of valorisation with recouping the cost of this measure from petrol tax, there will be a significant petrol tax increase in the next Budget.
The Government could consider company car taxation as another way of meeting the costs of this measure. By widespread consent, company car taxation is below the real value of the benefit that many company car users obtain from their car. If the money has to be found from some other form of vehicle taxation, it might be better to find it from company car taxation rather than from those who have the greatest difficulty in affording the cost of motoring.
I think in particular of many of my constituents; they live in a rural area, but the same can be said of people in other areas. They can only just afford to keep their old car going. For them, the annual bill for tax and insurance is the annual decision about whether to keep their car on the road. The decision about whether to keep their car also involves a decision about whether they can keep their job, or whether their wife can continue to work, or whether their son or daughter can continue with further education, 938 because they need transport too. The people who find it hardest to run a car are the ones who most depend on it because of where they live.
The Government must be careful to avoid transferring the tax that they have abolished on new cars, bought by people who can afford them, on to the backs of people who cannot afford it. It would be more logical if the tax were transferred to company cars where under-taxation is significant, as the Government have recognised by seeking to address that problem in recent Budgets.
We hope that this measure will have a significant impact on the future of the car industry. However, several hon. Members have pointed out that many people will not buy cars unless they have confidence in their own economic well-being and that of the country. It would be foolish to assume that this measure will have a dramatic effect. Only the growth of confidence in the economy can bring that about. We all hope that that will happen, but different views have been expressed here regarding whether the autumn statement will bring about a real growth of confidence in the economy.
To return to Nissan, inward investment has been based on the belief that this country will remain within Europe and the single market and, if it ever comes about, the single currency. The choice of this country by Japanese investors was based on our position within Europe, together with the particular advantages that we enjoy. One of those advantages is the English language, which is the primary foreign language for Japan.
Japan will not invest in this country if there is real doubt about our future in Europe. That is why we voted for the Maastricht treaty. That is why we find it difficult to accept the view expressed by the Labour Front Bench that they share our concern regarding the real dangers to the motor industry from a two-speed Europe.
§ 8.6 pm
§ Mr. Peter Griffiths (Portsmouth, North)
I welcome the measure. We all take pleasure in the abolition of a tax. I understand the point made by the right hon. Member for Berwick-upon-Tweed (Mr. Beith) about the way in which this tax might be recouped in the coming months. His point about company vehicles very much echoes the representations that many hon. Members received only today from Transport 2000, the environmental group. I trust that the Government will seriously consider the impact of their decision on how they choose to recoup their lost revenue.
I hope that the Minister can give us an assurance about the price of new vehicles. We no longer have a special car tax; there will therefore be a consequential decrease in VAT. Should not the price of new vehicles manufactured within the European Community, either in this country or on the continent, be the same, wherever one happens to purchase a new car? The argument about the complications of the British taxation system leading to price differentials will no longer wash. Differences in the rates of exchange mean that, from time to time, there will be differences in the nominal price of vehicles, but that does not alter the real cost of a car. I hope that the Minister will be able to reassure us that there will be an end to customers being pushed into importing their cars in order to take advantage of lower prices for similar vehicles, particularly in Belgium.That will encourage people to return to British car showrooms.
939 This measure, by itself, will not regenerate the motor car industry, but it is a step in the right direction. I trust that the House will respond enthusiastically to this measure and that it will encourage the Minister to look for other ways to reduce the tax burden. With a request that he examine closely the way in which the revenue will be recouped and for an assurance of equal prices across our open frontier market, I welcome the Bill.
§ 8.9 pm
§ Mr. Andrew Mackinlay (Thurrock)
I did not intend to participate in the debate. However, on behalf of my constituents, I was legitimately aggrieved when I heard the Minister, supported by the hon. Member for Surrey, North-West (Sir. M. Grylls), imply that this measure was a great step forward and would boost motor car sales in this country. I am not aggrieved because the Government are deluding themselves. I should be happy for them to continue to do so, were it not for the fact that their delusion is leading to a continued decline in Britain's manufacturing industry, especially the motor car industry.
I represent an area in which there is a Ford plant. The workers at the Aveley plant face the prospects of job losses, relocation and redundancy; also, many of my constituents work at Dagenham. Workers at Dagenham and other Ford plants have greatly contributed to increased productivity, only to find that their enthusiasm and dedication to promoting their industry has resulted in their being kicked in the teeth by a complacent Government who preside over a recession which has resulted in a significant decline in the motor industry.
I am concerned about the short-term working at many Ford plants. Vauxhall has also introduced short-time working because of the fall-off in demand. Short-time working is an enormous blight on the local economies which surround those plants. There is no doubt that the Dagenham plant and the Ford plant in Aveley were a major stimulant to the local economies in good times. However, short-time working and job losses not only depress the incomes of those who are laid off or put on short-time work; they ricochet through the local economy. We see that not only in the factories and small industries which supply the main plants but in the high street shops and corner shops.
The motor car industry in Britain must compete in a difficult environment to sell its products. That is having a deleterious effect on the economies of Essex and east London and is resulting in job losses for other people in the constituencies in those areas. It is unacceptable that the Government pretend that this measure is a great step forward and a great boost for the motor car industry. At the very most, the measure will limit the damage that has been done to such an important industry.
In case hon. Member twist my words or suggest that I am being ambiguous, I make it clear that I welcome the abolition of the tax. The hon. Member for Surrey, North-West said that the Labour Government had not imposed the tax; indeed, the Conservative Government imposed it. We must ask this question: if the abolition of the tax is to make such a significant contribution in boosting car sales, why was it not abolished weeks or months ago? Since we have fallen into a recession—or perhaps it is a depression—many people in and around my constituency have lost their jobs as a consequence of the decline in the motor car industry.
940 Many of us had a bruising experience on the night and morning of 9 and 10 April. The Government should bear in mind the fact that many Ford workers and other workers in the motor car industry were persuaded by the lie that to vote Labour would cost them about £1,250 a year. That was a downright electoral lie. It is legitimate tonight to say that, since 9 and 10 April, thousands of workers in the motor industry have lost much more than £1,250 as a result of short-time working. They will lose much more. Unhappily, some people have lost their jobs as a result of the continuing recession.
If the outcome of the election on 9 April had been different, we would have a Government who sought to stimulate demand in the economy. A Labour Government would have paid attention to the necessary promotion of the motor car industry, which would have been stimulated by the public works that that Government would have sponsored to create demand in the economy and get the building and construction industry back to work. Clearly, that would have had an immediate impact on demand in the motor car industry.
I feel most aggrieved on behalf of my constituents that the President of the Board of Trade promised at the Conservative party conference this year to intervene on behalf of manufacturers at breakfast, lunch and tea time. However, we must legitimately charge him this evening with not demonstrating any interest in creating new job opportunities in the motor car manufacturing industry in and around constituencies in Dagenham, east London and Essex, including Thurrock and Basildon, in which there is rising unemployment.
The President of the Board of Trade and the Government seem to be complacent. That has been demonstrated by Conservative Members who paraded this measure as some great breakthrough to create new job opportunities and to stimulate and promote the main industry in east London and Essex. It is nonsense. It would be wrong if I let the Minister get away with introducing the Bill without expressing the concern of my constituents—the Ford workers and workers in other motor manufacturing plants who have done much to increase productivity over the years only to find that they face a loss of income and job losses as we look forward to 1993.
§ Mr. Richard Burden (Birmingham, Northfield)
I will not detain the House for long because I know that it wants to make progress. Conservative and Opposition Members are unanimous on one point: we welcome the abolition of the tax. There is no doubt about that, and there is no fudging it.
We welcome the abolition of the tax. Industry in the west midlands, where I come from, has called for this measure for a long time. Trade unions and both major political parties have called for it for some time. So the abolition of the tax is welcome. I have little doubt that it will give a necessary boost to the motor industry. However, the size of that boost is highly debatable. Today a figure of 70,000 cars has been bandied about. The Society of Motor Manufacturers and Traders gave a figure of about 60,000 cars. But they are only estimates.
There is no doubt that the price of a car alone does not determine whether the motor industry thrives. We have already had a substantial reduction in prices. We saw the first reduction in the special car tax in the Budget, and a 941 price reduction arose from the VAT on top of that. Many deals were undertaken over the summer. All of them have provided some boost to the industry. I will not deny that, and I am sure that the industry will not deny that. But it is not enough, because in a climate of recession and rising unemployment the idea that the removal of the special car tax, or any other tax, will regenerate either the car industry or manufacturing industry in general is totally misguided.
The car industry has been doing a magnificent job. The investment that Rover has put into the Longbridge plant, in Northfield, is magnificent, as are the efforts of the work force in changing their working practices. The training initiatives are to be applauded, too.
Both sides of the industry are keeping up their end of the bargain. Component manufacturers have been mentioned tonight, and they, too, have been doing what they can to compete and to thrive. But in a climate still dominated by the dead hand of recession, what they can do is limited.
After the autumn statement, growth will still be pitifully low during the coming year. Unemployment will rise; even the recorded level will rise to more than 3 million. Investment has plummeted in recent years, and at best is likely to stagnate next year. In such a climate, the efforts of the industry and of the people who give their lives to that industry can be only partially successful.
In an earlier intervention I mentioned the recent launch of a campaign by the Engineering Employers Federation. I had not intended to mention that again, but I feel that I must, because it is worrying that either Conservative Members have not bothered to read what the federation says, or they have not been able to understand it. So I shall quote from the press release by the director general of the federation—not a body which historically has been over-supportive of the Labour party—about whether his interpretation of the document is the same as that of Conservative Members, who believe that the federation applauded what the Government are doing.
Referring to the Department of Trade and Industry, the press release says:We need a department with vision and a clear commitment to the success of UK plc. We stand ready to give such a department, which should be part of the DTI, our full and enthusiastic support, but in recent weeks industry itself has been doing the job of the DTI—fighting for a voice and fighting for action within Government. I believe we have a right to expect a more effective and committed champion. If the DTI lacks the vision, the competence or the determination, or if it is simply too busy with short-term issues to deal with long-term strategy, perhaps we should look to the creation of a specialist Treasury section to do that vital work".There are two possible interpretations of that press release. I suppose that it would be possible to say that the Engineering Employers Federation is very unhappy with the DTI, yet totally happy with the performance of the Treasury—but I do not think that that would be correct. It would certainly suggest an unfortunate division in the ranks of the Government. The only other interpretation is that a major representative organisation of manufacturing industry considers that the Government are not delivering or keeping their side of the bargain—that they are not doing what is necessary to stimulate manufacturing industry.
The Government are still obsessed with short termism. They are not developing the kind of long-term strategy 942 which manufacturing industry needs. To continue in that way is a recipe for disaster, not only for big manufacturers such as Rover and Ford but for hundreds and thousands of smaller firms—component manufacturers and so on —which depend on manufacturing industry.
§ Mr. Roy Thomason (Bromsgrove)
Does not the hon. Gentleman agree that the Engineering Employers Federation welcomed the autumn statement as a substantial boost to the economy?
§ Mr. Burden
I have read the document from the Engineering Employers Federation launch, which took place this week, after the autumn statement. Its purpose was to suggest that the measures in the autumn statement, welcome though they may be—the Opposition have welcomed some of them tonight—were nowhere near enough to provide the boost or, more importantly, the long-term strategy which manufacturing industry needs. That was the message of the Engineering Employers Federation.
There is nothing new in that, although the document is new. The federation has been saying such things for months—in some cases, for years. The trade unions have certainly been saying such things for years. If the Government ever intend to listen to what industry says, they need to start listening now.
If we are to develop such a strategy, it must be done at local, national and European level. I have said something about national strategy, and it is worth recalling that efforts are being made even now by local authorities. My local authority, Birmingham city council, and others are trying to do what they can to work with the component suppliers and with firms such as Rover to improve product development, training and research and development. Those efforts need support from central Government. At the moment there is at best a hands-off approach and at worst something even worse: those are the same local authorities which suffer from Government restrictions on local authority autonomy, and on their spending—
§ Mr. Deputy Speaker (Mr. Michael Morris)
Order. I hope that the hon. Gentleman will not continue with the local authority dimension, because the subject of the debate is very specific—the removal of car tax.
§ Mr. Burden
I am grateful to you, Mr. Deputy Speaker, and I shall not dwell much longer on the issue. Work is being done at local authority level to regenerate manufacturing industry, and it is being co-ordinated through organisations such as MILAN—the Motor Industry Local Authority Network. I believe that such organisations deserve support from central Government.
Such a strategy also has to be adopted at European level. Work is going on in the European Parliament—spearheaded by the socialist group. Reports produced by a working party headed by Carole Tongue MEP are aimed at producing the kind of European strategy which the motor industry needs. I hope that our Government do not adopt a hands-off approach but will become involved and will contribute.
The right hon. Member for Berwick-upon-Tweed (Mr. Beith) talked about possible ways in which revenue lost as a result of the abolition of the car tax could be recouped, and mention was made of company car taxation. It is fair to say that the overall level of company car taxation in Britain today has still not completely managed to grasp the 943 level of perks, where perks exist. Yet the approach to such taxation in recent years has singularly failed to tackle genuine perks; the people who use company cars as a tool of their trade have been the hardest hit.
The simple reason for that is the way in which the tax has been progressively jacked up on the mere possession of a company car. That is where the biggest tax burden has fallen. Tax on the use of such cars has not increased especially, so that a company director who gets all his private mileage paid for suffers some taxation, but he does reasonably well on his real gains, because he is taxed only at the same level as a sales rep or someone similar who has to pay for every private mile that he does.
If we are to tackle the issue of company car taxation and perks, it is important that our efforts should be targeted on the perks and not on people who happen to have a company car yet who contribute to every private mile that they drive. It would be fair to sort out the company car taxation system to take account of that. The debate is about much more than fairness; it is about effectiveness, efficiency and the regeneration of manufacturing industry.
I shall close as I started. The abolition of the lax is welcome, but it does not go even half far enough. We need a major fundamental change in Government policy to provide the kind of long-term support, the strategy and the intervention that manufacturing industry in the midlands and elsewhere so desperately needs.
§ Mr. Bob Cryer (Bradford, South)
I will be brief as other hon. Members wish to speak on a range of issues. I do not intend to detain the House for long. However, it is worth pointing out that although the abolition of car tax is welcome, it would be more welcome if the revenue was to be gained by restoring some of the £26 billion of tax concessions that have been given to the wealthy top few per cent. by successive Conservative Governments.
There are difficulties about abolishing car tax. The proposal is designed to stimulate manufacturing industry. Since 1979, we have lost 2.5 million jobs in manufacturing industry. The abolition of the car tax should have been coupled with a 100 per cent. tax allowance in respect of corporation tax on investment in plant and machinery. That was the position under the last Labour Government. This Government are very fond of making comparisons, but they must be aware that we allowed 100 per cent. tax allowances for specific investment. The allowances were therefore targeted.
A problem with abolishing car tax is that it will benefit not only cars manufactured in this country but imported cars. So far this year, we have a balance of trade deficit of approximately £10 billion. The proposal will therefore have an adverse effect as well as a beneficial effect. However, I believe that the beneficial effect will be marginal because there is such a fear of debt in the nation that people are very hesitant about incurring further debt to buy new cars or any new commodity. Fear of mortgage repossession is also widespread. People now realise that an English man or English woman's home is not always their castle if they fall into the hands of the wrong building society.
The right hon. Member for Berwick-upon-Tweed (Mr. Beith) referred to Japanese investment and whether the abolition of the car tax would stimulate that investment. 944 The Japanese invested here because of relatively cheap labour. They did not necessarily invest here because of Maastricht. Maastricht has not gained us one extra job —nor will it.
We must recognise the dangers of such an approach. Design and development, which are crucial in our engineering industry, will be left to another nation. The power trains of Japanese cars are designed in Japan, not in this country. Incidentally, the Japanese can invest so heavily in manufacturing industry and in car design and development because they do not waste money on a defence industry as we do. While we spend 4 per cent. of our gross domestic product on defence, the Japanese spend less than 2 per cent.
It is potentially damaging for any country to invest in manufacturing here because the decision making is carried out in the nation state that is investing. In addition, our people are not necessarily trained in design and development, because that may be carried out in the manufacturer's main base. If, as is the case in Japan where car manufacturing companies are retrenching because the investing country is experiencing a recession—although, in comparison to ours, a very minor one—the main manufacturing plants will not be diminished. That will happen to plants held in other countries—for example, in the United Kingdom.
We hope that the abolition of the car tax will stimulate our engineering industry in general. If our engineering industry diminishes, and in particular the machine tool industry, that will affect the machines that make the machines. Our manufacturing ability would therefore be badly damaged.
If overseas companies invest in the United Kingdom, local component manufacture will not be confined to the United Kingdom. It will be extended to all the EC member states. I remind the Minister that there are still many hidden subsidies in those member states which produce unfair competition against which our manufacturers cannot compete.
Although the abolition of the car tax may have a marginal effect, and we will certainly not vote against this modest stimulus, I believe that it will not be sufficient. The engineering industry, which is such an essential part of the car manufacturing industry, will still lie in the doldrums. There is testimony to that virtually every week as there is a haemorrhage of jobs in all kinds of industries—in services, banking, finance, component manufacture and in the car industry itself. Until that trend is reversed, abolition of the car tax will not produce the necessary consumer-led demand, because there is simply not sufficient confidence in the Government.
§ Mr. Nelson
With the leave of the House, I shall reply to the debate. Hon. Members have welcomed the proposal. There was a warm welcome from the Conservative Benches and a miserly one from Opposition Members. I regret that, because this proposal is a considerable element of the autumn statement and it has been widely welcomed by industry generally and by representative bodies of the motor industry.
I will try to answer as briefly and as directly as possible a number of the points that have been raised. The hon. Member for Oxford, East (Mr. Smith) has an important car interest in his constituency, He accused the 945 Government of a semi-detached stance on Europe. If the Government's stance is semi-detached, the Opposition's stance is positively schizophrenic. The hard-fought agreement on Maastricht was the agreement that my right hon. Friend the Prime Minister sought and wanted and we obtained a majority in the House for it. In the recent debate, the Opposition went back on their commitment for the basest of political, opportunist reasons.
The hon. Member for Oxford, East said that the proposal provided no extra fiscal stimulus. As I said in my opening remarks, the proposal was intended as a transfer towards a tax on use rather than on purchase. The tax yield forgone in the remainder of this financial year is £100 million and that is not being recouped by additional motoring taxes.
The hon. Member for Oxford, East expressed surprise at the novelty of my right hon. Friend the Chancellor of the Exchequer announcing that he would seek to recoup the revenue in motoring taxes next year. I believe that my right hon. Friend was being responsible. He would not want to give the impression in the current circumstances that fiscal policy can be relaxed unduly. The substantial package of measures that he announced in the autumn statement, including the abolition of car tax, has a cost tag attached to it next year and beyond that will have to be met.
The hon. Member for Oxford, East and the right hon. Member for Berwick-upon-Tweed (Mr. Beith) wanted to know the cost if the cost of abolition were added to petrol. The answer is 2.2p on leaded petrol and 1.8p on unleaded and diesel.
§ Mr. Nelson
My hon. Friend the Member for Surrey, North-West (Sir M. Grylls) gave a warm welcome to the Bill. He referred to the revival of the car industry which has undoubtedly taken place, the importance and size of inward investment and the importance, to which I also referred, of the component sector. He said that the car tax must never return and he, like others, poured some scorn on the existence of the tax.
No tax is welcome. However, it is fair to point out that the car tax has been a fairly cost-effective tax to raise. it cost £700,000 a year to administer and involved the full-time employment of four staff and 20 man years. Considering the yield, in years gone by and even in this year, that is relatively cost-effective.
The right hon. Member for Berwick-upon-Tweed referred to the implications of recouping and said that it might be better to put the cost in part or in whole on company car taxation. That point was also made by other hon. Members. That is, of course, a judgment for my right hon. Friend, but what the right hon. Gentleman has said will be noted.
I warmly concur with the sentiments of the right hon. Member for Berwick-upon-Tweed that Britain's future in Europe is essential if we are to maintain and attract inward Japanese investment. There must be no question of that, given the flows of investment, and there really must be division across party lines on the importance of that investment. Despite what the hon. Member for Bradford, South (Mr. Cryer) said about design of manufacture, there 946 must be no doubt that this is a welcome haven for world-wide investment. I mentioned north Wales, but there are other examples, particularly in the north of the country. The extent to which investment has revitalised those areas is very exciting for the future. It has been a great success story, and we should welcome and applaud that investment and succour it for the future.
My hon. Friend the Member for Portsmouth, North (Mr. Griffiths) would like the cost of cars to be on a more similar basis throughout the EC. The Government are currently reviewing car prices throughout the Community and are keen to encourage the industry to co-operate with current European Community initiatives to produce greater price transparency. Abolition of the tax means that we will have almost the lowest rates of tax on cars in the European Community. The rates range from those in Denmark, which has a VAT rate of 25 per cent., plus an additional sales tax of 105 per cent. on the first 34,400 krona, and 180 per cent. tax on the balance, down to those in Germany, which has a 14 per cent. rate of VAT and no additional car tax.
With the minimum rates of VAT that are being introduced, we will see a standardisation of the minimum rates, but at the moment there is considerable variation in those basic rates and in the supplementary additional sales taxes, but we are looking at that matter.
Dealing as expeditiously as I can with the remaining important points, the hon. Members for Thurrock (Mr. Mackinlay) and for Birmingham, Northfield (Mr. Burden) felt that the measure would not boost industry. The hon. Member for Northfield, who has Rover Longbridge in his constituency, felt, as did others, that the measure alone would not suffice and that a broader regeneration and inspiration of manufacturing industry were necessary.
The last thing that industry needs at this time is a public expenditure programme which will increase its burden of taxation and borrowing. Any Chancellor has to make a major judgment about the size of public expenditure. My right hon. Friend the Chancellor has come forward with a major package to restore confidence in the housing market, to promote exports, and, in particular, to target the car manufacturing industry.
§ Mr. Nelson
The hon. Member for Oxford, East shakes his head, but major amounts of public money have been allocated for the revitalisation of British industries. We all hope that they will have the effect we intend.
The hon. Member for Northfield spoke about company car taxation and urged us to hit the perks rather than continue with the present regime. Again, that is a matter for my right hon. Friend's judgment in the Budget, but what the hon. Gentleman said will have been noted.
The hon. Member for Bradford, South spoke about capital allowances, which he said should have been raised to 100 per cent. He will be aware that, in the statement, tax incentives for investment included an increase in capital allowances in the first year to 40 per cent. for 12 months for most plant and machinery. The Chancellor spelt out very clearly why the Government retain the view that they have held for some years, that they do not wish, by reintroducing capital allowances, to introduce artificialities into the spending and investment decisions that people make. It is far better to keep down the overall burden of taxation and, in a more perfect market, enable people to 947 take decisions about the allocation of capital and investment which will earn sufficient return and promote profitability.
Abolition of the car tax will have a very good stimulus upon the market. If the House does not accept my intentions in that regard, I refer to the statement of Mr. David Gent, director general of the Retail Motor Industry Federation, who said:The motor industry and its customers can now look forward to a more certain future and an increasingly brighter 1993.Sir Hal Miller, the chief executive of the Society of Motor Manufacturers and Traders Ltd., said:we now look forward to leading the way out of recession.Those are important leaders of a major industry for our country. They welcome the measure that was announced today. I am sure that it will have a beneficial impact, and I hope that the House will approve it.
§ Question put and agreed to.
§ Bill read a Second time.
§ Bill committed to a Committee of the whole House.—[Mr. Wood.]
§ Bill immediately considered in Committee.
§ [MR. MICHAEL MORRIS in the Chair]
§ Clause I ordered to stand part of the Bill.