Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 100 - 119)

WEDNESDAY 13 DECEMBER 2000

MR STEPHEN TIMMS MP AND MR CLIVE MAXWELL

  100. The difference would be, would it not, to require the Government to take some view as to whether a particular vehicle is fuel efficient or not in its construction, which is something which could be tested and established? If I understand it, that is what you are intending to do with new cars.
  (Mr Timms) The point I am making is that for new cars the data is readily available, it will be on the registration document so everybody can see what it is. I would not favour a system which required everybody to have their car tested in order to find out what level of vehicle excise duty they had to pay. Would this be something which varied from one year to another depending? We would be getting into levels of bureaucratic burden which would not be warranted.

  101. Forgive me but I do not think the proposal I am putting to you is completely illogical. Even when you do this for new cars, depending on the way people maintain their cars, it is soon going to make a huge difference to the level of fuel efficiency which is in fact being generated from any individual engine. That is still the route you have decided to embark on, but it is not the route which you have decided to take in relation to existing vehicles. I am just trying to probe a little bit about the reasonings behind all this. I have to say to you that I am very unconvinced that there is an environmental benefit at all from this proposal to move it up to 1500cc, which is why I asked you whether there was an environmental appraisal. We do not have it. Is this a palliative to motorists or is this a reasoned, thought through process by your department in conjunction with DETR or whoever else it may be, that you have come up with a scheme which is going to have a really good impact on emissions and use of vehicles? Is it the one or is it the other?
  (Mr Timms) I do not want to claim too much for what will be achieved by this change. The way that I see it is that it is sending out a signal which is clear and is actually going to be quite effective, that if people go for a smaller car they will pay rather less in duty.

  102. A smaller bigger car or bigger smaller car you have decided, because previously you were trying to keep people down to 1100cc; you have expanded it up to 1500cc. So it is already an enlargement of the type of vehicle which is brought into the process.
  (Mr Timms) Yes. What it will do is provide an incentive for people who might otherwise have bought 1600cc plus to go for a sub-1500cc car. It is addressing a different part of the car buying public and I suspect that where we have set it now is probably the most effective point. I do think it is important that any arrangements of this kind are simple and do not require people to go through very complicated processes in order to work out whether they should be paying £105 or £155.

  103. May I just turn to VED on lorries? Is the change not inconsistent with your own ten-year transport plan which wants to see an 80 per cent increase in rail freight by 2010? With a halved rate of VED, what is the incentive to use rail or the waterways or take goods off the roads?
  (Mr Timms) There are several points to make here. Certainly one of the concerns which we have been looking at quite closely over the last year or so is the competitive position of the UK haulage industry compared with the industry in France, Belgium and elsewhere. UK hauliers certainly are not only competing with rail, they are competing with hauliers elsewhere as well. I think the international competition is an important part of the consideration here. Equally of course it is the case that we have not gone anywhere near as far as people in the haulage industry were calling for in reducing the fuel duty which is paid by hauliers. What we have done is to introduce a balanced package which addresses some of the competitiveness concerns that UK hauliers have been experiencing, which continues to ensure that other competitors to road haulage have a level playing field.

  104. Forgive my saying it but during the period between September and the Chancellor's Pre-Budget statement, I remember oft repeated statements coming from the Chancellor, indeed I think from the Prime Minister, saying that the argument put forward by the road haulage industry that its costs were very much higher than its continental competitors was wrong because it was failing to take account of a series of indices which in fact showed that they could be very competitive because there were certain areas where they were much cheaper. Suddenly, hey presto, Pre-Budget Report, we have a halving of VED. Let us try to be realistic about this. I appreciate governments are subject to political pressures. Is not the reality that that was simply a response to political pressures from the road haulage industry and had absolutely nothing whatsoever to do with an environmental policy at all?
  (Mr Timms) No, I do not accept that. At the Road Haulage Forum which I attend, we have been looking at these issues over a lengthy period. We have carried out a good deal of work. I have mentioned the study carried out about the environmental costs of lorries and that was available to us as well and the conclusions of that work will be reflected in the revised scheme for lorry vehicle excise duty. So it will be a properly considered new scheme, taking full account of all of the environmental issues which are appropriate and it certainly was not and it will not be an ill-thought-out knee-jerk response in the way you are proposing. It is the case that if you look at the overall rates of taxation on hauliers in the UK compared with those in other EU Member States, the difference is nothing like as great; for some of the countries there is not much difference at all but certainly the differences are nothing like the same as one would conclude if you only looked at fuel duties. But of course things are changing. Changes were made in some EU countries over the summer in response to increased oil prices and those are changes which we need to take account of as well. The new scheme for VED will take very full account of environmental considerations.

  105. I am grateful for that. In effect this is the end of the DETR's sustainable distribution strategy. We have been told authoritatively that the authoritative figure for a lorry on the road is £28,000 per vehicle in terms of environmental damage. On the face of it, what you have just done does not contribute in any way towards achieving that policy objective, if it is really costing in environmental impact terms £28,000 per vehicle, and the DETR is aiming to try to deal with it—and that is their figure. Forgive my smiling just a little bit but we are bombarded with figures on this Committee, authoritative figures, half-authoritative figures, non-authoritative figures, all telling us that there is an environmental strategy which can be pursued based on objective evidence. It comes back in a sense to what I was asking you much earlier. Yet here we have a decision which appears to fly completely in the face of the so-called objective criteria laid down by DETR. Is the reality that the policy and political pressure considerations have just overridden whatever DETR thought about this?
  (Mr Timms) No. The decisions which we have announced will take full account of environmental and social and economic considerations. I am going to ask Mr Maxwell to comment specifically on your question about £28,000.
  (Mr Maxwell) In respect of the reform of the lorry vehicle excise duty, the existing scheme has something like over 100 different classes. It is very difficult to work out where the incentives lie for different people to use different sorts of lorries. One way of tackling the environmental cost of lorries is to encourage people to use cleaner lorries or to use lorries which impose less track damage. The aim is that the reformed lorry VED scheme with fewer, simpler classes and those classes themselves based on environmental costs and the differences in environmental costs caused by different types of lorries, will help to encourage people to use cleaner lorries which damage roads less. So it is possible to reduce those costs.

  106. Does that mean that the DETR is going to be coming up with a new impact survey, consequences, results, because I have not seen it?
  (Mr Maxwell) There is an understanding that over time the improvements in lorry technology and in particular engine technology have reduced the costs associated with air pollution, for example local air pollution, and those are the sorts of things we factored in to the VED reform.

  107. You would expect the DETR therefore to agree with you about this and to be in a position to come to us, just as an example, and say they have thought this through again and with all these extra things we are factoring in we have to look at it differently.
  (Mr Timms) We are certainly working very closely with DETR on all of these issues and of course the licensing agency is a DETR agency. There is very, very close cooperation between us.

  Chairman: If you had produced an environmental appraisal on this it might have been to your advantage.

Mr Chaytor

  108. May I return to the point on VED for private vehicles and just endorse the comments of my colleague, Mr Grieve, about the position of older vehicles? I really must press you on this point as to why it is exceptionally bureaucratic to have a progressive system for older vehicles either through emissions' ratings which the manufacturers must have for vehicles or by using engine size as proxy, when the fact remains that for all the vehicles we simply have the one incentive, the £50 reduction for vehicles under 1500cc. Really my question is: do you not think there is a perfect logic for older vehicles to have a greater number of bands of engine sizes or emissions rating and a wider spread? The point surely is that one of the greatest groups of polluters is large engined older vehicles. At the moment there is little disincentive to get those off the road and to persuade people to trade them in for more efficient vehicles.
  (Mr Timms) There are incentives. Inefficient older vehicles consume more fuel and so that in itself provides an incentive for newer and more efficient cars. There is a limit to what one can expect the vehicle excise duty system to deliver; we are talking about £160 a year. To introduce a system, which, if I have understood correctly what is being suggested, would involve some sort of annual test being carried out on the vehicle, is just—

  109. I am not suggesting an annual test, I am saying that the manufacturers are simply asked to give a rating to all of their vehicles still in production, whether they are registered in the year 2001 or whether they have been previously registered. I am just challenging your notion that there is a responsibility on the individual to designate the rating of their vehicle and say this is information that the manufacturers must have.
  (Mr Timms) It is very important that the system should be very simple and that people should be able very easily to tell what the level of duty they are going to have to pay is. It is the case that the data is actually available for vehicles manufactured since 1998. I suppose one could require people to ring up the manufacturer or find the information in that way, but that seems to me to be introducing a degree of complexity into what is a pretty limited system.

  110. The onus would not be on the individual, surely. The onus would be on the DVLA when they sent out reminders for renewal of vehicle excise duty. The DVLA would keep a central record of the emissions rating of all vehicles up to a certain point and they would then send out with the reminder the appropriate charge and explanation as to why the charge was different. There is no need for the onus to be on the individual to find out. DVLA ought to keep this on record.
  (Mr Timms) It would be a pretty big task for DVLA to set up a database for emissions. I think the information has only been available since 1998 anyway, so we are only talking about cars between 1998 and 2001. It just sounds a bit over the top to me.

  111. May I pick up on your other point about the limited use of VED because of the ceiling of £155? With the emissions rating, am I right in thinking there will be four bands from next April?
  (Mr Timms) Yes, that is right.

  112. So my question there is: is there not really a choice to be made of accepting that VED has limited impact because we have established four bands and the maximum VED is £155 and therefore the cash incentive is really quite small, or accepting that VED has potentially much more significant impact if it becomes more progressive and if the range of charge is widened? I suppose the essence of my question is when are we going to see a Range Rover tax, is it not?
  (Mr Timms) There is a bigger range in the rates; £70 between top and bottom as opposed to the £50 for the 1500cc. So there is a wider range. We need to see how that goes. My hunch is that the signals that sends out are going to be quite effective in influencing people's behaviour but we will just have to see.

  113. Would you accept that there is potential for something far more progressive, as already applies in other western European countries, a much bigger range of VED levied according to emissions rating?
  (Mr Timms) I accept that theoretically one could certainly do something along those lines. Whether it is desirable is another matter.

Mr Jones

  114. I want to come back to an answer you gave to Mr Grieve in giving the Government's justification for the reduction in VED on vehicles 1500cc or lower. You said that would give an incentive for people buying second-hand cars to buy a smaller vehicle. I was trying to think through that. I am a serial second-hand car buyer, in fact third-hand car, fourth-hand car buyer. I enjoy going to car auctions and buying second-hand cars. I do not understand how this works. If I go and buy a car I am going to gain on the VED by buying a cheaper car. But if I am trying to sell a car and I have a bigger car, what does that mean? It means that I reduce the price of my larger vehicle to sell it. How does it affect the proportion of the total number of cars on the road? The gate is the cars which are sold new. Once they are sold new, if 20 per cent or 30 per cent of your cars new are over 1500cc, what do you suppose is going to happen to them? Are they just not going to get sold? Someone is going to buy them cheaper than they bought them before you reduced the VED on smaller vehicles, but those cars are not going to sit there not being sold because you have reduced VED. How have you had any effect, any net effect, on the total number of smaller vehicles on the road with this policy? What is the environmental justification?
  (Mr Timms) I think that it will make smaller cars somewhat more popular. I suppose one would have to look at the point at which vehicles ultimately get scrapped to come up with an answer to your question. It clearly will reduce the cost of running a smaller car compared with running a larger one and at the margin that will have some impact.
  (Mr Maxwell) It reduces the fixed cost of owning that car. Of course it does not have a bad environmental impact of reducing the marginal costs of driving extra miles. A change in vehicle excise duty of this nature does not increase the incentive for people to drive more miles.

  115. I think we have established that whatever effect this policy has on the environment it is extremely marginal.
  (Mr Timms) I do not know about extremely. I have made the point that it is not huge.

Mr Shaw

  116. Continuing the theme of working closely with the DETR I want to talk about regenerating our inner cities. In protecting the environment, in the Pre-Budget Report at 6.80, you say that you are going to introduce a package of £80 million to encourage property conversion etcetera. The Empty Homes Agency tell me that there are 250,000 properties which have been empty for a year or more. The DETR are only able to tell me about properties which have been empty for a year because the local authorities provide that for them in their housing investment programme returns because they have a statutory requirement to do so. How then are you able to assess the number of properties which have been empty for ten years or more, as you say you are going to reduce to zero the VAT rate for renovation? What model have you used? How have you obtained the information when the DETR do not have the information? How many houses have been empty for ten years?
  (Mr Timms) You have got me there. Certainly this is information which I presume was obtained from DETR.

  117. They did not have it in answer to PQs.
  (Mr Timms) The answer is that we do not know but perhaps I may send the Committee a note.

  118. You are saying you are prepared to spend £80 million but you have no idea of how many properties. How do you arrive at that figure?
  (Mr Timms) We do know the number of properties we think are involved. What I am not able to tell you is what the source of that data is and that is what I shall check and come back to you on.

  119. The DETR do not know and they are the responsible department. I wait with bated breath on that one. Is the adjustment to zero rate of VAT for these something you are going to take up with Europe because previously you have always said when we tackled this issue that it is impossible to go to zero rate. Are you going to zero rate because it is of an environmental nature which is beneficial to the end user as we have other zero rates for? How can you do it on this one when you have not been able to do it on energy saving materials as you have told us in the past?
  (Mr Timms) The EC rules on this are fairly complex and the EC law requires a reduced rate to have a social objective. Our aim is to create relatively affordable housing units. It is going to require some quite careful discussion and quite careful work with the European Commission to ensure that we do not fall foul of state aid rules, but I am pretty confident that we are going to achieve those negotiations successfully.


 
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