New Car Sales: Tax Treatment (Hansard, 21 January 1992)

§ Lord Brabazon of Tara
My Lords, I cannot anticipate my right honourable friend's Budget Statement in the other place.

§ Lord Astor of Hever
My Lords, I thank my noble friend for that Answer. I appreciate that at this point he cannot give a specific reply. However, with domestic new car sales down 21 per cent. last year and 850,000 workers dependent on the motor industry, can the Government consider tax reductions as a stimulus? Further, is my noble friend aware that the car tax was introduced in 1973 as a temporary measure?

§ Lord Brabazon of Tara
My Lords, the Government fully recognise the key importance of the motor industry to the United Kingdom's manufacturing base and indeed to our national prosperity. However, I still cannot anticipate the Budget Statement of my right honourable friend.

§ Lord Dean of Beswick
My Lords, is the Minister aware that the serious downturn in the domestic market as indicated by his colleague on the Back Bench will have a serious permanent effect on our domestic motor car industry unless action is taken? Is the Minister also aware that the tax situation for cars in this country is probably the most adverse in Europe? For instance, is the Minister aware that Belgium, one of the smallest countries, has the highest ratio of car ownership because cars are more favourably taxed than our own commodity? Will the Government take on board that some help may be needed in order to give us a chance to compete on a fairer basis with our competitors in Japan and Europe?

§ Lord Brabazon of Tara
My Lords, I certainly take the points made in the first part of the noble Lord's question. However, I cannot agree with his latter points. Five other EC member states impose additional sales taxes equivalent to car tax. For example, Belgium—which was quoted by the noble Lord—has a 25 per cent. tax rate on cars up to 3,000 cc and 33 per cent., which is well above our rate, for all cars above three litres.

§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that the tax treatment of cars is made particularly onerous by reason of the fact that VAT is charged not on the value of the car but on the value of the car as already inflated by the car tax?

§ Lord Brabazon of Tara
My Lords, I am aware of that. It is something which no doubt my right honourable friend will take into account. Cars are not the only product which bears taxes in that way. Excise duties on petrol, alcohol and tobacco are treated similarly.

§ Lord Monson
My Lords, if Her Majesty's Government are thinking of reducing or altering the special car tax, will they consider grading the tax to encourage smaller cars in terms of engine capacity in order to reduce pollution and in terms of overall length and width to reduce congestion on our over-crowded streets?

§ Lord Brabazon of Tara
My Lords, the noble Lord makes a number of points which no doubt my right honourable friend will bear in mind when considering representations for the removal of the special car tax.

§ Lord Marlesford
My Lords, will my noble friend agree that many people believe that there are better uses to be made of taxpayers' money than subsidising a price cut on new cars? If the object is to stimulate the sales of cars by cutting prices, it would be a great deal better for manufacturers to cut their prices to something closer to the price at which cars are sold on the Continent.

§ Lord Brabazon of Tara
My Lords, my noble friend takes the contrary view to that expressed in the Question. My right honourable friend the Chancellor receives hundreds if not thousands of representations in advance of the Budget. He will deal with them as he feels best.

§ Baroness Nicol
My Lords, does the Minister agree that there are considerable environmental benefits to be gained in addition to those mentioned by the noble Lord, Lord Monson? The sooner we remove some of the older, polluting cars from the roads the better it will be? Does the noble Lord agree that we should therefore encourage greater turnover in new cars so that more vehicles fitted with catalytic converters are on the roads as soon as possible?

§ Lord Brabazon of Tara
My Lords, my understanding is that the environmental effects can work both ways. If we reduce the tax there may be more cars on the road; on the other hand, as the noble Baroness points out, we may have newer ones.

§ Lord Peston
My Lords, I accept entirely the noble Lord's remark that he cannot anticipate what his right honourable friend the Chancellor of the Exchequer will put in his Budget. I hope that he extends the same courtesy to my right honourable friend the shadow Chancellor of the Exchequer and ceases asking questions about proposed taxes in his Budget in May of this year.

Noble Lords
Question!

§ Lord Peston
My Lords, I am leading up to the question. We should understand what we are talking about. The noble Lord, Lord Astor, is right to point out that the tax was temporary. I assume that he is aware that every tax levied on us was introduced as a 728 temporary measure, not least the income tax. "Temporary" seems to mean "permanent". Having reached that point, without anticipating what his right honourable friend may do, can the noble Lord enlighten us as to what he sees the purpose of the car tax to be? Is it to raise the price of cars so that they do not pollute the environment, or is it simply an easy way to raise money? I believe that it is probably the latter, which is why the tax will almost certainly last for ever.

§ Lord Brabazon of Tara
My Lords, when the noble Lord is in a position—which I hope he will not be —to advise his right honourable friend on what Budget should be produced, he can make that point to him. I believe that car tax is an effective and efficient way of raising money. It raises £1.3 billion a year and involves only 25 Customs staff in its collection.

§ Lord Hatch of Lusby
My Lords, does the noble Lord agree that if we are to attain our stated targets of a reduction in the rate of increase in carbon dioxide by the year 2005 it is very probable that we shall have to increase drastically the tax on cars, in particular larger cars?

§ Lord Brabazon of Tara
My Lords, I believe that that is wide of the Question. I have already answered a couple of points on environmental issues.