It is a pleasure to serve under your chairmanship, Sir Roger.
I will follow what the Minister helpfully did by giving a preview of where I am going, as I think that might help the Government, but I will do it seriatim numerically. I want to probe clause 7 a little. We broadly support clauses 8 to 11, which relate to vehicles, although we have tabled two amendments to them. The Minister helpfully—in terms of procedure, if not policy—indicated that the Government were not minded to accept amendments 2 and 3. If the Government, in spite of my silver tongue, maintain that position, I will in due course seek to press amendment 2 to a Division. We broadly support clauses 12 and 13. We also broadly support clause 14, on travel expenses for workers, but I wish to probe the Government on it and ventilate some issues. We broadly support clause 15. I want to run clause 16, on employee share schemes, around the block. There are a number of share option schemes under various guises and the situation is arguably getting a little out of control. The Opposition broadly support clauses 17 and 18.
Clause 7 relates to taxable benefits. It seeks to amend 2003 legislation to clarify the concept of a fair bargain. This is, as I understand it—I am not an accountant—where an employer provides some kind of benefit in kind, which is in some circumstances provided at a cost to the employee and in some circumstances is not. Where benefits of goods or services are provided at a cost, HMRC wishes to know whether the cost of the benefits provided is below market rate. Clause 7 goes to that issue, but it appears to cover vans and cars as well as other things and of course we will be dealing with vans and cars in other clauses. As the Minister has a bad back, I will try to avoid putting him in a situation where he feels that he has to intervene. I have every sympathy with him as I have suffered from a bad back for decades. If he catches your eye, Sir Roger, when we come to closing this part of the Committee proceedings, I hope
that he will be able to explain and differentiate for those of us who are not accountants how vans and cars come into the benefit-in-kind provisions under clause 7. Having had a company car for many years with two different employers, I understand how they come in under subsequent clauses—that is not to say that I know the whole regime, but I am broadly familiar with that territory—but not under clause 7. Will the Minister tell us, therefore, to what extent the Treasury has found that there has been a misuse of the original rules, thereby necessitating the clarifications under clause 7—Government amendments 22 to 26? The explanatory notes, which the Minister will know are my lodestar in these matters, refer to “uncertainty”. I hope the Minister can explain from whence that uncertainty comes, so that we can be a little clearer on that.
I will now come on to meatier matters on cars and vehicles. We are all aware that the use of the tax regime to encourage certain behaviours and discourage others is well known to have an effect when it comes to the purchase and use of vehicles, unlike in some other areas where the efficacy or otherwise of tax reliefs is not so clear. As I look around the Chamber, I can see that there are not many Members present who will remember the campaign for lead-free petrol, but I remember it and supported it. In the bad old days, lead was added to petrol as a mechanism for increasing its octane rating and therefore its power output. Initially, when the excise regime was the same for leaded and unleaded petrol, unleaded cost more. The then Conservative Government, under some pressure from the campaign for lead-free petrol and others, wisely changed the excise regime so that unleaded petrol at the pump, with a lower excise duty than leaded petrol, cost less, which meant that many motorists made the switch within a period of about two years. That was achieved by using excise levers to change behaviour in the use of vehicles.
In recent years, we have also seen the explosion in the United Kingdom of the purchase and use of diesel vehicles. That was started under a Labour Government who were trying to cut CO2 emissions, because, mile for mile, diesel engines generally emit lower CO2 per mile driven. That policy succeeded, but it was always contradictory, because there was also a 3% loading—in other words more tax payable—for those who had a diesel-powered company car in contradistinction to a petrol-powered company car.
Clause 8 increases quite markedly the percentage of the purchase price, which is then counted as taxable income for somebody who is provided with a company car. For low-emission vehicles, or those with 76 to 94 grams of CO2 per kilometre—I hope that, when we leave the European Union, we will not revert to imperial—the appropriate percentage goes from 19% to 22%. Under clause 8, the range goes up 3% each time, with a delay, as the Government have announced, for two years. Broadly, that looks to us like a tax-raising measure—there is nothing wrong with that as Her Majesty’s Revenue and Customs is about levying taxes so that the Government have sufficient income to provide the service that our constituents want.
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I hope the Minister will be able to give us an estimate of how much the increase in those bandings in clause 8 will bring to the Exchequer and tell us whether it will have any effect, positive or negative, on the types of
vehicles purchased. Most people—I concede not everybody —would agree that a vehicle purchased with lower CO2 emissions per kilometre is generally less dirty and more socially acceptable than a vehicle with higher CO2 emissions per kilometre.
As I understand it, clause 9 is, in part, a correction of problems in the Finance Act 2015—I confess that I am not sure whether it was the second Finance Act of that year—in relation to vehicles that cannot emit CO2. For most of us, that probably means electric cars as they are the most common vehicles, although there may be other types of vehicles. As it is a correction, there will not be the two-year lead-in that the Government, generally and quite properly, wish to have so that manufacturers and purchasing managers for fleet operators can plan. Will the Government tell us a bit about how that error crept in? I know that these things happen, but a little explanation of how the error arose would be helpful. I think provisions were overlooked and omitted in the 2015 Act, which led to this correction in clause 9.
Clause 10 gets us on to the much meatier issue of the appropriate percentages for diesel cars. I think that it was always the case—I may be corrected on this—that there was an additional 3% to be paid as a benefit-in-kind assessment for those who had diesel-powered company cars in contradistinction to petrol-powered ones. As I understand it, the Government had enacted a provision abolishing that 3% loading—I am not sure why because I was not in the House then—and clause 10 abolishes the abolition, so that the 3% loading continues. Overall, that seems to Labour to be a good thing to do given the increasing evidence that is emerging of the particularly deleterious effect of diesel vehicles—not just diesel cars but many, many commercial vehicles which, because of their size and weight, tend to do far fewer miles to the gallon. That is a particular problem in certain parts of the country as it has an effect on air quality.
Let me talk about the number of vehicles that this measure will affect. The Library has been very helpful in this matter. As always, I am most grateful to my excellent researcher, Imogen Watson, who has done a huge amount of work on this with a great deal of help from the Library. The latest figures that the Library could find—any mistakes that I make at the Dispatch Box are of my making—show that about 313,000 company cars are replaced each year, but those figures go back to 2012-13. That is around 14% of total car sales, which is a considerable drop compared with 30 years ago when it was nearer 50%. Because of the ratcheting of the tax regime on company vehicles, however, that proportion has lessened.
As we now know, diesel cars are particularly noxious, and there are, in fact, standards—Euro 6—that came in for new type approvals from September 2014 and for all new cars from September 2015. When sold in the UK, new vehicles have to be compliant with Euro 6, unless a subsequent Government decided to change that—and I rather suspect they would not. Regardless of the UK leaving the EU, one would expect Euro 6 to continue to apply in this country. If a Euro 7 were to be introduced by a post-Brexit European Union, it is likely, I suggest, that the UK would then comply with that, because our manufacturers would have to do so in order to sell in the continental market. At the moment, as I say, we are on Euro 6. The standards of Euro 6 are set out in terms of grams per kilometre. I confess that I do not understand
all the science, but while the metrics for petrol and diesel are the same under Euro 6, the targets that the vehicles have to reach are somewhat different.
The 3% surcharge for loading, which the Government wish to retain and we support, will somewhat discourage fleet managers from allowing company cars to be diesel, even though those cars will get more miles to the gallon. I believe that the Minister referred to an estimate of 23,500 deaths per year brought about by poor air quality—he will correct me if I am wrong. No one knows for sure, but I see the Minister nodding helpfully. That is a shocking figure. From memory, I believe the number of road traffic collision fatalities each year to be in the order of 2,750—I stand to be corrected again, but that is the rough order of magnitude—so it is apparent that that is not much more than a tenth of the premature deaths caused by air quality.
To the interested observer, it appears that the UK has quite rightly invested huge amounts in passive and active safety to cut down on the number of road traffic collisions and on their severity—whether or not there are fatalities—yet when it comes to air quality, while we have been a member of the EU, we have been in breach of EU legislation. In this case, the EU does make rules for the UK, and we have been in breach of these air quality standards for years.
The World Health Organisation has ambient air quality guidelines, with which I am sure the Minister and his ministerial colleague are intimately familiar, that are based on micrograms per cubic metre. There are two ways of measuring these standards: one is the annual mean and the other is the 24-hour mean, which shows the peaks. There are two broad categories of particles about which there is concern: PM10, which is particles of less than 10 micrometres in diameter, and PM2.5, which—surprise, surprise—is for particles of less than 2.5 micrometres in diameter. These are very small, and it is these fine particles of less than 2.5 that are considered by many to be much more damaging to health than the PM10 particles. They are found in dust, dirt, soot, smoke and liquid droplets.
Without detaining the Committee at great length, let me explain that a large number of cities in England, Wales and Scotland—I have no figures before me for Northern Ireland—have an air quality that consistently breaches the WHO guidelines on the annual mean. The annual mean recommendation for PM2.5, the smaller particles, is less than 10 micrograms per cubic metre. In Birmingham, just down the road from my beloved constituency in Wolverhampton, it is 14 micrograms—well above the 10 limit. In Leeds, it is 15; in London 15; in Stoke-on-Trent, where I used to work and just up the road from Wolverhampton, 14; and in Glasgow, I am afraid, it is 16—well above the 10 limit. This is very bad news.
Frankly, London has a shocking record. The former Mayor of London, now the hon. Member for Uxbridge and South Ruislip (Boris Johnson), bears considerable responsibility for not having done enough in this regard. In January 2016, London breached the annual air quality limit in eight days. If we think of this as an annual allowance, London used it all up and more within eight days of the start of the year. Under EU rules, sites are allowed to breach the hourly limits of 200 micrograms of nitrous dioxide per cubic metre of air 18 times in a year. Call these what we will—I think they are legislative guidelines from the EU—they allow for certain peaks,
exceptional circumstances and so forth, but having 18 of them in eight days means that they were not exceptional circumstances for the city of London, but everyday circumstances. During that particular period, this was happening on average more than twice a day.
We have already mentioned the 23,500 estimated annual premature deaths, but there are huge financial costs as well. Of course the loss of life will be the key indicator for all hon. Members, but the costs are estimated at between £15 billion a year on the basis of Scottish Government sources and £20 billion a year in a report in February this year by the Royal College of Physicians and the Royal College of Paediatrics and Child Health. It is now estimated that England’s air and water are sufficiently polluted in 96% of sensitive habitats to pose risks to their ecosystem. This is a cost to farmers as well because of the ground level ozone produced by nitrogen oxides reacting with other atmospheric pollutants to lessen crop yields. This is a huge problem.
Amendments 2 and 3 are designed simply to address this problem in a small way. They deal with company cars rather than all cars and they are intended to encourage manufacturers to act in a certain way. Under the amendments, if a vehicle with a diesel engine meets the same Euro 6 standard as a petrol engine, the same tax regime should apply to it. Dozens and dozens of hon. Members who were, of course, paying attention earlier, will remember that I referred to Euro 6, which used the same measurement yardsticks for both types of vehicle but provided different points on them for diesel and petrol vehicles. For carbon monoxide, for example, it stipulates 1 gram per kilometre for petrol and 5 for diesel, while for nitrous oxide emissions—the key problem—it is 0.06 for petrol and 0.08 for diesel. As I understand it, the PM2.5 or less particles principally come from such emissions.
The amendments thus provide a very small but important and symbolic step for the Government, who could move towards lessening the appalling—and, arguably under EU rules—illegal air quality in the 38 cities of the United Kingdom that are in breach of the WHO’s recommended regulations for PM2.5 levels, and in the 10 UK cities that are in breach of the PM10 WHO guidelines. This is literally killing people, so I urge the Government to rethink this measure. Accepting amendments 2 and 3 would not transform air quality, but it would be a step towards that and it would be an important symbol, showing that the Government took this issue seriously.
I have to say to the Ministers that the mood music from both the present Government and the coalition Government has not exactly suggested that they have taken air quality from vehicle emissions very seriously. The fact that vehicles can be bought in one part of the United Kingdom and driven in another—quite properly, given that we are still, at the moment, a United Kingdom—requires measures to be taken principally at Westminster or national level, whatever the Scottish Parliament or the Welsh Assembly might wish to do in order to improve air quality, and, unless we were to be incredibly draconian, to be taken through a Finance Bill rather than some kind of diktat.
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Clause 11 is entitled “Cash equivalent of benefit of a van”, and I hope that the Minister will be able to tell us where the Government are going with their vans. I may
have misunderstood, but where they seem to be going is towards discouraging people from buying electric vans, and, if I have understood correctly, that does seem a bit odd. At present, the charge for zero-emission vans is 20% of the benefit-in-kind tax that would apply to vans that emit carbon dioxide. If I understand clause 11 correctly, the Government will gradually abolish that differential, so that over five or six years the 20% will become 40%, 60%, 80%, 90%, and then 100% by 2022-23. Someone who wants to buy a van in 2022-23 will say, “If I buy an electric van, I shall have to pay as much benefit-in-kind tax as I would if I bought a diesel or petrol van.”
If I have understood correctly, that does seem a rather odd way to deal with benefit-in-kind vehicle taxation. Perhaps the Financial Secretary will either explain that I have misunderstood, or explain the Government’s thinking. Many of us would conclude that they are going in the wrong direction in environmental terms, and that the differential should, prima facie, be maintained.
Clause 12 deals with sporting testimonial payments. As the Minister said, careers in sport can be short. In my experience, that is sometimes the case in politics as well. According to the Chartered Institute of Taxation—and I thank the institute for its help—the arrangement whereby the £100,000 on which, as the Government have clarified, tax is not payable if it is income from a testimonial obtains when the testimonial is neither contractual nor customary. For those of us who are lawyers, like the Financial Secretary, “contractual” is a fairly straightforward term, but “customary” is a bit woolly. It is the kind of word that lawyers and accountants like, because they can make a living charging people for interpreting it so that they can plan their affairs. Again, I may be wrong, but I cannot see a definition of “customary” in the Bill, and I urge the Financial Secretary to have another look at that. Perhaps, either today or later, he will also give us an indication of how much revenue has been missed by the Exchequer in the last five years from testimonials that are contractual or customary, in which case we would expect them to be liable to income tax.
Clause 13, entitled “Exemption for trivial benefits provided by employers”, concerns rewards for services. The Chartered Institute of Taxation has helpfully suggested that it would be useful to everyone if the Financial Secretary could clarify the difference between a reward for services and a reward for “particular services”. They appear to be very similar, but the Government and HMRC must think that there is a difference. I hope that the Financial Secretary will be able to clarify that difference today, if he cannot do so in the Bill.
Clause 14 is entitled “Travel expenses of workers providing services through intermediaries”. This is a difficult issue for all of us, because it involves questions of equality between those who are workers but not necessarily employees, and those who are employees. I should explain to those who are not familiar with the terrain that there are people who are workers for tax purposes, and indeed for minimum wage purposes, but who are not employees.
Successive Governments have attempted to prevent employers—de facto employers—from getting around the law by using devices that lessen the amount of tax that is payable. It is difficult to clamp down on the
overnight costs and travel costs of workers who are employed by various organisations, because people are very inventive. However, it is quite common for people working on building sites as skilled workers hundreds of miles from home to have been engaged through an agency, or to be self-employed, and, if they have been engaged through an agency, to have their travel expenses and the cost of their overnight accommodation paid week by week. Clause 14 is an attempt to clarify and clamp down on what the Government consider to be a misuse of the arrangements, or, if not a misuse, a lack of equality between those who might be described as “true” employees and non-employee workers.
I declare an interest as a proud member of the trade union Unite, which is affiliated to the Trades Union Congress, as is the Union of Construction, Allied Trades and Technicians, which is strong throughout Britain but particularly in Scotland. UCATT believes that the Government’s estimate that 430,000 workers will be affected by the changes in the Bill is, in fact, a gross underestimate, and that when travel expenses and overnight accommodation become assessable for the purposes of income tax or national insurance, some of its members in the construction trade who are employed by umbrella companies could be more than £3,300 a year worse off.
Having met representatives of the Freelancer and Contractor Services Association, I wrote to the Financial Secretary twice about its proposals, and he helpfully replied on both occasions. I thank him for that, but I still think that the Government ought to have another look at the position. The FCSA made three proposals. The first concerned a radius allowance: a person’s main address would have to be a certain distance further away from the place of work than the average commute, which, apparently, is 16.7 miles a day. I do not know whether you were aware of that, Sir Roger; I was not. The second concerned the 24-month rule, which is the yardstick according to whether an employment position is regarded as temporary. The third proposal would, I suppose, hurt some people, including, possibly, politicians: the removal of food and drink costs from eligibility for subsistence expenses. We did that in this place some time ago, when food and drink was removed from what used to be called the additional costs allowance, and quite right too.
The Scottish National party has tabled new clause 1, and my hon. Friends and I have tabled new clause 3. It will not surprise Members to learn that I prefer new clause 3. While both new clauses call for a review and an assessment by the Chancellor of the Exchequer of this whole area of the tax system, new clause 3 also includes umbrella companies, which, arguably, are a growing problem or, at least, a growing phenomenon.
Labour supports clause 15, which deals with taxable benefits and PAYE. Clause 16 deals with employee share schemes, of which there are currently about five. The Minister helpfully referred to the issue of productivity. One of the justifications for having employee share ownership schemes is that they will encourage people to work harder for their company and be more committed to it. Of course we want people to be committed to the company where they work hard, unless they have a terrible employer.
The Minister cited the Office of Tax Simplification earlier. I have here a report from the OTS—I confess I cannot recall the date of the report but I think it was probably 2012—which states:
“Interestingly, despite the fact that increased productivity has been repeatedly used by previous governments as a rationale for using share schemes, none of the companies or advisers we spoke to told us that they used a share scheme primarily as a way to improve productivity, albeit some accepted that this could be a by-product of participation.”
In a written parliamentary reply on 1 April this year, the noble Lord O’Neill of Gatley basically said that the Government did not know the answer because it was all a bit complicated to work out. I appreciate that that is the case, but I say this in the context of the National Audit Office report on the roughly 1,200 measures that could be called tax reliefs. It found that only in the case of about 300 of them did the Government have any idea whether they had the effect on behaviour that they were designed to have. Employee share ownership schemes might be socially worth while but they are quite costly, and whether they have any positive effect on productivity is at best unclear. I think the Government ought to look into that some more.
New clause 10 relates to the value for money of employee share schemes. Given the uncertainty as to the efficacy or otherwise of such schemes, the new clause calls for a report from the Chancellor of the Exchequer giving the Treasury’s assessment of the value for money provided by each type of employee share benefit scheme. I hope that the Minister will accept the new clause and, if not, rather than simply saying that the Government keep these matters under review— which of course they do, and that is good—acknowledge that a specific report on this matter would be helpful. Clause 17 relates to securities options. It is also unclear what effect those options have, but we broadly welcome them.
Clause 18 deals with employment income provided through third parties. Most of this is fairly technical stuff. That does not mean that we should not scrutinise it, but I understand that there will be a consultation on this. Perhaps the Minister could provide a little more detail on that. Will he address the question of lower-paid individuals in small businesses, some of whom feel that these proposals are retrospective because they refer to pre-2011 arrangements? We in this House are always wary of anything that smacks of retrospectivity.