Car Tax (Abolition) Bill (Hansard, 3 December 1992)

The Minister of State, Department of Transport (The Earl of Caithness)
My Lords, I beg to move that the Car Tax (Abolition) Bill be now read a second time.
This Bill gives effect to one of the measures which my right honourable friend the Chancellor of the Exchequer announced in his Autumn Statement in another place. It abolishes car tax with effect from midnight on 12th/13th November 1992.
This is a measure of tax reform which has been widely welcomed by the motor industry. Last March my right honourable friend made the first step in this direction by cutting the tax from 10 per cent., the rate since it was introduced in 1973, to 5 per cent. Now he has completed the reform and got rid of the tax altogether. The motor industry had long pressed for the abolition of car tax because it regarded it as a discriminatory tax. It applied to cars alone, whereas all other consumer goods were subject only to VAT. This Bill removes that discrimination.
1459 In announcing the measure my right honourable friend made clear that it would have to be paid for in higher motoring taxes after this financial year. But instead of being liable to three taxes, apart from VAT, on cars—a tax on purchase, one on ownership (vehicle excise duty) and one on use (fuel duty)—motorists will in future be liable only to the latter two.
This is a measure which will help the environment. All new cars will shortly have to be fitted with catalytic converters and use unleaded fuel, and so they are more environmentally friendly than the old cars they replace. Moreover, to the extent that the cost is recouped from fuel duty—the tax on car use—this should help the environment because environmental damage is related to car use, not car purchase.
As I have said, the motor industry has widely welcomed this measure. It expects it to lead to increased sales and increased confidence in the industry. The UK motor industry —with associated industries such as components manufacture and distribution—is an important part of British industry and its health is important to the health of the British economy. The measure will also benefit British business in another way. Just over half the cars bought in the United Kingdom are bought by business, so they will benefit directly from the price reduction resulting from car tax abolition. It will also benefit the private citizen, reducing the cost of the average family car by about £400. That reduction should also feed into second-hand car prices.
I should like now briefly to explain the Bill which is before the House. Although it is a short Bill, consisting only of six clauses, it is still a little more complicated than might at first have been thought necessary. Car tax is abolished by Clause 1. Clause 2 contains various consequential transitional pro-visions. It restricts Customs' powers in relation to car tax to dealing with cars on which tax became due on or before 12th November. Once manufacturers and importers have satisfied Customs and Excise that all the tax due on such cars has been paid, they will be deregistered. Clause 3 provides relief for dealers' tax-paid stocks of unsold cars on 12th November and also for cars ordered by customers but not invoiced, paid for and delivered until after that date. Clause 4 deems never to have been enacted the legislation for adapting collection of car tax on imported cars to the single market, due to have come into force on 1st January 1993. Clause 5 sets the date the Bill comes into effect, and Clause 6 its title.
This is a short and useful measure. I commend it to the House.

§ Lord Boyd-Carpenter
My Lords, I should just like to say a word in welcoming the Bill. It is a sensible action on the part of the Government. It will help an industry which is experiencing a certain amount of difficulty at present. It will deal with what I have always thought was an extraordinary anomaly. When car tax was levied on the sale of a car VAT was then charged on the price of that car as inflated by the car tax. That curious and rather perverse provision will 1460 now disappear. The Bill is a good thing and I hope that your Lordships will give it a speedy Second Reading.

§ Lord Monson
My Lords, I do not want to repeat the arguments which I put two days ago to the effect that this reduction in car tax is being paid for by the drivers of existing cars in the form of higher road fund licence fees and petrol tax.
Is it not the case that profit margins on cars sold in this country are higher than they are in many continental countries, notably Belgium? If dealers were prepared to reduce their margins there would not be a need for the Bill and existing motorists would not have to pay higher petrol tax or higher road fund licence fees.

The Earl of Caithness
My Lords, so far as concerns profit margins, I am sure that if one spoke to some car dealers they would say that at the moment they do not have a profit margin. I do not follow the logic that the Bill is unnecessary. I believe that it is a necessary measure.
I was grateful for what my noble friend Lord Boyd-Carpenter said. My noble friend and I go back some years on this matter. When I was Paymaster General he chided me for having a tax in the first place. I was then able to turn to him and say what a good thing it was that the tax had been reduced to 5 per cent. in the Budget. My noble friend then said that that was not good enough and we must remove the rest. I now have the greatest pleasure in saying to my noble friend that we have done so.