Finance Bill

We have had a fascinating debate with many interesting and thoughtful contributions, for which I commend Members. The Government recognise the impact that high fuel prices are having on motorists at the moment and they understand the importance of addressing it. High fuel prices are being driven by changes in the international price of crude oil, which has almost doubled over the past year. The UK continues to work with international partners to ensure efficient and effective global commodity markets. It was in recognition of the impact of high fuel costs on business and families, of which we have understandably heard a great deal today, that the Chancellor took the decision in the Budget to defer the planned 2p a litre increase in fuel duty. Since October and the last increase in fuel duty, fuel prices at the pump have risen by 20 per cent., even though tax rates have remained unchanged. The Chancellor will look closely at those and all the other factors when considering whether to go ahead with the planned 2p a litre fuel duty increase in October. Since the fuel duty escalator that we inherited from the Conservative party was abolished in 1999, fuel duty has actually fallen by 16 per cent. in real terms. The current fuel duty rate is 50.35p a litre: had fuel duty gone up in line with inflation since 1999, it would be 61p a litre; and had it gone up in line with the Conservative party's 3 per cent. escalator, as it did prior to 1999, duty rates would now be 79p a litre—a full 29p a litre higher. Furthermore, figures from the Office for National Statistics show that the real cost of motoring has fallen by 13 per cent. in real terms since 1999. That is largely because the purchase price of cars has fallen while their fuel efficiency has increased. I now wish to deal with the new clauses on vehicle excise duty in the context of the reform of 2001, which introduced graduated levels of VED to reflect the environmental impacts of different cars as assessed by their emissions of CO2.. This was welcomed by Conservative Members at the time, although it would be difficult to discern it from their opportunistic behaviour at the moment. Since the 2001 reforms, carbon emissions from cars have fallen and VED is recognised as having had an impact. Total CO2 emissions from car use have fallen by 4.8 per cent. since 1997, but road transport still comprises nearly a quarter of UK carbon emissions, so we must go further in encouraging both the manufacture and purchase of low-carbon vehicles. That is why my right hon. Friend the Chancellor announced a package of measures in the Budget to support the decarbonisation of road transport, and it is in that broader context that the VED changes must be seen. However, the proposals we announced at Budget 2008 are not actually legislated for in the Bill. All we have to consider today are the Opposition new clauses and amendments, to which I now turn. New clause 3 is designed to provide the Treasury with the power to alter VED rates by statutory instrument at any time during the financial year, but only for cars purchased after 23 March 2006. The new clause is undesirable for a number of reasons. The Government currently have two systems of VED—one for cars purchased prior to 2001, for which comprehensive data on CO2 emissions are not available; and one for cars purchased after 2001, for which data on CO2 emissions are available. The new clause would create at least three systems of vehicle excise duty, and would further complicate the system by ensuring that rather than being based purely on carbon dioxide emissions, VED rates would be based on both carbon dioxide emissions and a new criterion, the tax age of the car. That would create huge confusion, and would blunt, if not completely eliminate, the overall environmental signal that the 2001 changes to VED were designed to introduce. For example, in the second-hand car market consumers would need to confirm not only the carbon dioxide emissions of a used car when making their purchase decision, but the year in which it was manufactured to determine which VED system it would then be allocated. The new clause would also create the potential for further fragmentation of the VED system by allowing the rate to be set at any time throughout the year. It makes it possible for the Treasury to change certain VED rates, although not all, throughout the year, and potentially on multiple occasions in each financial year. That would lead to consumer confusion and uncertainty for manufacturers, and uncertainty for customers too. It would also create serious administrative challenges for the Driver and Vehicle Licensing Agency . If, as new clause 3 would allow, VED rates were to be set for a financial year but could be changed at any point during that year, whenever they changed, it would be necessary for the DVLA either to provide refunds or to collect additional taxes from people who had already paid their annual car tax bills. It would also be strange to take the decision-making process for the new third VED system outside the Budget and Finance Bill cycle in which other tax decisions are made, creating uncertainty for the public finances. In particular, the system would separate the VED rate decisions from those on all other VED rates—for example, on motorbikes, vans and heavy goods vehicles, as well as all cars purchased before 2006. Under new clause 3, the Government would still be able to choose to increase or decrease those rates, affecting existing motorists, through the normal Budget process. Whatever views there may be on the proposals for future VED changes announced in the Budget—and I have listened carefully to what my hon. Friends have said—new clause 3 is undesirable, unworkable and downright peculiar. The hon. Member for Taunton (Mr. Browne) spoke very entertainingly for nearly 40 minutes, and managed to mention his amendment No. 7 on VED in the last sentence. The amendment poses problems similar to those posed by new clause 3. It calls for changes to the 2008-09 VED rates to apply only to new cars registered after 13 March 2008, a different date from that suggested in the Conservatives' new clause. The amendment at least refers specifically to the changes in VED rates that took effect from 13 March this year and that were debated and voted on in the Committee of the whole House. Unfortunately, it would disrupt them in a way that I cannot believe the hon. Gentleman intended. His amendment would apply the new rates only to cars purchased since this year's Budget, rather than to all cars. The DVLA would need to contact and provide refunds for all the millions of people who have renewed their tax discs since 13 March. Put together, new clause 3 and amendment No. 7 would create a nightmarish double whammy of administrative complexity and confusion. They would lead to a fragmented, confusing and unworkable system of VED. If both were passed, multiple systems of VED would be created for cars purchased on different dates. There would be one system for cars purchased before 2001, another for cars purchased between 2001 and 2006, and yet another for cars purchased between 2006 and 2008, for which rates could be changed at any point throughout the year. Amendment No. 7 would introduce a fourth system operating from 2008. The combination would completely undermine the clarity of the carbon dioxide signal that the Government successfully introduced and that was supported by both Opposition parties, as well as creating a severe and costly administrative headache for the DVLA. In addition, none of the changes would affect the VED reforms announced in the 2008 Budget, which are due to be legislated for and to take effect in next year's Finance Bill. These amendments serve one useful purpose, however: they highlight the inconsistencies in the arguments that have been advanced against the application of Budget 2008 changes to existing cars. Following the Committee of the whole House, the House voted on clause 15, which introduced new rates of VED for 2008-09, and these rates are currently in effect. They include an inflation-based uprating of most VED bands, and an increase of £100 on the most-polluting cars, and these changes apply to cars that were registered prior to the Budget this year. This is in line with standard Government practice: for example, when the Government introduced a new VED band for cars emitting less than 120 g/km in 2002, and a new band for cars emitting less than 100 g/km in 2003, these were applied to existing cars, giving them significant tax cuts, even though the owners had already acquired those cars. Of course, on every occasion that the Conservative party increased VED between 1979 and 1997, it applied it to all existing cars. If the logic of the so-called ““retrospection”” had been applied to VED rates since 1979, we would currently have a system whereby those who purchased cars in 1980 would pay £60, those who purchased them in 1981 would still pay £70, and so on ad infinitum. Thus, vehicles that emitted more carbon dioxide but that were older would have lower VED rates. Where is the environmental signal in that? It is entirely usual that the VED reforms announced at Budget 2008 will also apply to post-2001 cars that have already been registered. This is in no way retrospective. It is simply the way in which VED has always worked. As the debate on these new clauses and amendments has clearly shown, if it were decided to apply new VED rates only to cars registered after a certain date, it would not only be difficult to determine what that date should be, but it would be administratively complex, and, most importantly, would seriously undermine the environmental signal that is provided through the VED system, creating confusion, in particular in the second-hand car market. New clauses 8 and 9 relate to fuel duty. If agreed to, they would introduce a mechanism that could lead to fuel duty reductions when international oil prices exceeded their forecast prices. This mechanism would, however, be very complex, involving very expensive changes to the road fuel duty and VAT systems with no guarantee of actually reducing prices at the pumps. These new clauses rely on the idea that higher fuel prices lead to higher overall receipts for the Treasury. This is simply not the case. As fuel duty is a fixed rate, increases in fuel prices will not lead to increases in revenue. Thus while petrol prices at the pump have risen 20 per cent. since the last fuel duty increase, fuel duty itself has not gone up. As it is expected that demand for fuel will fall as a result of higher prices, the Government's revenues from fuel duty are, in fact, likely to fall as a result of the current conditions in the international oil market.