Discussion on Small Cars and Excise
Duty (UK)
Standing Committee
B
Tuesday 11 May 1999
(Afternoon)
[Mr. John Butterfill
in the Chair]
Finance Bill
(Except clauses 2,
28 and 99)
Clause 8
The general rate of
vehicle excise duty
Amendment moved [this day]:
No. 7, in page 3, line 26, leave out `1,100' and insert `1,400'.—[Mr.
Whittingdale.]
4.30 pm
The Chairman: I remind the Committeee that with
this we are taking the following amendments: No. 12, in page
3, line 26, leave out `1,100' and insert`1,600'.
No. 8, in page 3, line 30,
leave out `1,100' and insert `1,400'.
Mr. John Whittingdale (Maldon and East Chelmsford): When
we broke for lunch, I was introducing amendments Nos. 7 and 8.
As was said, clause 8 will increase VED for cars from £150
to £155 and introduce a new rate of £100 for vehicles
with an engine capacity of 1100 cc or less. When the provision
was introduced by the Chancellor, it was greeted as a bold step
that would encourage environmentally friendly vehicles, but on
closer examination it does not live up to its billing.
I tabled several parliamentary
questions on the new £100 rate. When I asked how many cars
in the UK have an engine capacity below 1100 cc, I was told that,
according to the records of the Driver and Vehicles Licensing
Agency for September 1998, about 8 per cent. of registered vehicles
have an engine capacity that does not exceed 1100 cc. On further
examination, we discovered not only that the number of such vehicles
is relatively small, but that they are fairly obscure vehicles.
We obtained a list of all cars currently made in, or imported
into the UK that have an engine capacity of less than 1100 cc.
There are 19 of them and, for the Committee's benefit, I shall
read them out. They are the Subaru Vivio, the 847 cc Daihatsu
Cuore, the 989 cc Daihatsu Cuore, the Daihatsu Move, the Daihatsu
Sirion, the Suzuki Wagon R+ and the Toyota Yaris, which are made
in Japan; the Daewoo Matiz and the Hyundai Atoz, which are made
in South Korea; the Perodua Nippa, which is made in Malaysia;
the Fiat Seicento, which is made in Poland; the Citroen Saxo,
which is made in France; the Vauxhall Corsa, which is made in
Portugal; the Suzuki Alto, which is made in India; the Suzuki
Swift, which is made in Hungary; the Nissan Micra, which is made
in the UK [Hon. Members: ``Hooray!'']; the Seat Arosa and the
Volkswagen Lupo, which are made in Germany; and the Volkswagen
Polo, which is made in Spain.
As members of the Committee
will have detected, of those 19 vehicles, only one—the Nissan
Micra, which is produced in Sunderland—is UK-based.
Mr. Geraint Davies (Croydon, Central): Is the hon. Gentleman
suggesting that the Committee should pass a resolution that lower
VED should be levied only on cars made in Britain?
Mr. Whittingdale: No. If the hon. Gentleman will allow
me to continue my argument, he will see that the amendment would
benefit not only the environment, but British manufacturers.
Precisely 38,000 Nissan Micras with the relevant engine capacity
were built and registered in the UK in 1998. The amendment would
extend the band to include cars with an engine capacity of up
to 1400 cc. In doing so, a number of vehicles that fall just
outside the present limit, and which are made in the United Kingdom
would be included. For example, on hearing the Chancellor's Budget
statement, drivers of the Rover 200, which is badged as having
an 1100 cc engine, may have felt that they were likely to benefit
from the new reduced rate. Unfortunately, that car has an 1120
cc engine, so it does not fall within the Chancellor's limit.
The Peugeot 206, originating
in this country, unfortunately has a capacity of 1124 cc, which
is outside the Chancellor's limit. The Ford Fiesta is also just
outside that limit. I suspect that many drivers, when listening
to the Chancellor's speech, thought that they would enjoy reduced
vehicle excise duty. It was only when they examined the small
print that they discovered that they would receive no benefit
at all.
I should like to quote from
one or two people who commented on this Budget measure. Mr. Stephen
Collingbourne, who lives in the constituency of my right hon.
Friend the Member for Horsham (Mr. Maude), wrote a perceptive
letter, in which he asked:
``What idiot came up with 1,100
cc? There must be many old, `non-cat' cars with small engines
polluting the atmosphere. Most modern, fuel-efficient `super-minis'
have bigger engines to cope with catalytic converters and larger
and heavier bodies designed to meet new crash safety regulations.
Drivers using their cars on the motorway, or in rural areas,
need reasonable sized engines. Small, fuel-efficient cars usually
have up to 1,400 cc petrol engines.''
Mr. Ray Hutton, who writes
in the motoring section of The Sunday Times, reviewed the cars
that will fall into the new reduced rate band. I will not go
through them all again, but he made some interesting observations
about the performance of each vehicle, and it would be safe to
say that he was not especially impressed with many of them. He
concluded:
``It is an undisputed fact
that some engines with a cylinder capacity greater than 1.1 litres
are more efficient—and therefore do more miles per gallon
and contribute less to global warming—than the tiddlers
Brown has favoured. The choice of 1.1 litres as a cut-off point
is more about balancing the books than saving the planet.''
Some industry bodies have also
commented on the Chancellor's proposals. We are told that this
is only a stopgap measure, before we reach the full, graduated
VED scheme promised for next year. There may be some merit in
moving towards that graduated scheme, which will take greater
account of the emissions from different engine capacities, but
the smallest-engined vehicles are not necessarily the ones most
likely to benefit the environment. The Society of Motor Manufacturers
and Traders said:
``The motor industry had indicated
that it supported a reform based on CO2 emissions, but made clear
that the introduction of a temporary or interim scheme would
lead to confusion among motorists and potential uncertainty in
the new car market. The Treasury has already acknowledged that
engine size is a poor guide to environmental performance.''
The Automobile Association
has also commented:
``The Chancellor's Budget decision
to reduce VED for owners of cars 1,100 cc or less will have little
or no environmental benefit. The result will be that quite significant
and unfair anomalies will be introduced to VED that people will
not understand or relate to.''
The AA goes on to point out
that engine size is not an especially good indicator as to environmental
efficiency, and that
``the break at 1,100 cc . .
. specifically favours older, more polluting cars at the expense
of more modern, greener vehicles that might have larger engines''.
The AA also cites a number
of cars just over the 1,100 cc threshold that one might have
expected the Chancellor to include in this measure. It states:
``The AA believes that the
Government's proposals for a lower band of VED are at best under-developed.
The change will make no contribution to the Government's environmental
objectives to deal with global warming or urban air quality.''
It calls on the Government
to
We echo that because one cannot
consider VED separately from other taxes on the motorist, in
particular the fuel duties that we have already debated in relation
to clause 2.
Mr. Andrew Love (Edmonton): You were not here this
morning, Mr. Butterfill, but we spent the whole morning being
chided for our lack of environmentalism and other failures, yet,
throughout the morning, there was only one mention of the cost
of the Opposition amendment. As the hon. Gentleman talked briefly
about taxes, I should like to ask him what the cost of his amendments
would be and how the Opposition would fund their commitment to
continue the Government's expenditure on health and education.
Mr. Whittingdale: I am advised that the cost of amendment
No. 7, which would extend the band from 1100 cc to 1400 cc, would
be about £19.9 million, so we are talking about a relatively
modest sum. Of course, it is only an interim measure and we look
forward to seeing the Government's proposals for the new graduated
scheme in due course. The purpose of the amendment is to turn
what is essentially a gimmick by the Chancellor of the Exchequer,
which will have negligible benefits for British motorists, into
a serious measure that will benefit a considerable number of
drivers of small-engined vehicles.
Mr. Love: The figure that the hon. Gentleman
has given the Committee of £19 million may be a significant
underestimate. According to other figures that have been suggested,
the amount may be in excess of £400 million. Perhaps the
hon. Gentleman will enlighten the Committee.
Mr. Whittingdale: I am happy to do so. A letter from
the House of Commons Library says:
``On the basis of the number
of motor vehicles licensed in the UK, the cost of extending the
reduced band would be about £19.9 million.''
I know that the Government
are keen on figures from the House of Commons Library—that
was demonstrated during the debate on fuel duties—so I hope
that they will accept that figure.
I do not want to prolong the
debate unduly. The purpose of the amendment is to turn this into
a measure that will benefit people who drive smaller, more efficient,
cars. Obviously, we shall want to return to the measure and the
whole question of VED in due course when the Government produce
their proposals for the new graduated scheme.
Mr. Edward Davey (Kingston and Surbiton): Amendment
No. 12 would go one step further than the Conservative amendment
by stating that the tax benefit of reduced VED applies to cars
with an engine size of up to 1600 cc. As we have said during
debates on the Floor of the House, we believe that people need
to be compensated for the higher petrol duty taxes that they
are being asked to pay. We have given the Government our support
for those higher petrol duties on the basis that they should
be accompanied by reductions in VED. The two are closely linked
in our minds, Mr. Whittingdale. [Interruption.]
Having followed the honourable
Member for Maldon and East Chelmsford (Mr. Whittingdale) in the
debate, his name is uppermost in my mind. I apologise.
We should be clear that the
clause does not give people an incentive to own more fuel-efficient
cars. We are promised that those incentives will be included
in next years's Finance Bill. The issue on which Liberal Democrats
have focused is compensation, which we believe should be more
generous than the Government are proposing. Costs would be greater,
and I am sure that we shall hear from Ministers about the exorbitant
cost of our proposal and that of the Conservative party, but
such comments should be set against the high revenues that are
being raised from higher fuel duties. If the Government were
concerned about the cost, they could introduce a truly graduated
system of VED and charge even higher rates than the proposed
£155 on cars of higher engine capacity, and thus introduce
revenue neutrality in VED.
4.45 pm
As the hon. Member for Maldon
and East Chelmsford said, the Government's proposal will help
only a small number of car owners. The Government's figures in
the press release accompanying the Chancellor's announcement
suggested that 1.8 million car owners would benefit. According
to the figures supplied to me by the Library—I understand
that they came from the Department of the Environment, Transport
and the Regions—the Conservative proposal would help another
6.5 million car owners and our proposal for a cut-off at 1600
cc would help an additional 4.3 car owners, leaving just over
9 million car owners paying the full rate of VED.
Is that the right approach,
and do all those car owners need that amount of compensation?
We believe that they do and that this is a sensible way of targeting
compensation for the ever-increasing petrol duties that car owners
must pay. Our amendment would also make the tax system more logical.
It is unnecessary to tax ownership as VED has for so long, and
the Government are right to increase the tax on vehicle usage.
That is how to obtain the proper incentives in the tax system
for environmental benefits.
If political support for environmental
taxes is to be maintained, it is important to have a benefit
and a penalty—the stick and carrot approach. If the Government
adopted that approach, they would not only win the argument with
the public more effectively, but the public would begin to see
the relevance of environmental taxes, and support for those taxes
would increase. There will be other such proposals in future
Finance Bills and there would be wider support in Parliament
for raising environmental taxes. If the Government get it wrong
now and reduce political consensus and support, that will affect
not only the measures before us today, but other beneficial measures
to be introduced by this and future Governments.
My final point concerns a matter
that was raised with me by my hon. Friend the Member for Cheltenham
(Mr. Jones). One of his constituents wrote to him about the applicability
of the cut in VED for people who need large vehicles because
they are disabled and need to transport wheelchairs and so on.
They will receive no benefit from the cut and my hon. Friend's
constituent is worried that disabled people are being discriminated
against.
We did not table amendments
on that because there are probably other way in the tax system
to ensure that people who need larger cars can be compensated
for the cost of higher duty. The mobility allowance is especially
relevant in this context.
The Government do not appear
to be minded to use such mechanisms to compensate disabled people,
who will not receive anything under the Government's proposals.
However, they could use VED to help disabled people. For example,
they could acknowledge the extra costs faced by the family of
a disabled person who needs additional equipment and regular
transport by giving such families a special dispensation for
one vehicle.
I hope that the Government
will consider the merits of the Liberal Democrat and Conservative
proposals, which would strengthen the welcome shift towards environmental
taxation. |
