Finance Bill

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Mr. Chope: I congratulate the Government on their enlightened approach, which is reflected in the clause. When I was the roads Minister many years ago, I was unable to persuade the powers that be that motorcycles should be treated in that way because the prevailing view at the heart of Government was that motorcycles were inherently dangerous, and therefore

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anything that was done to encourage their use was bad for both road safety and the wider economy. Obviously, different views now prevail, and I should like to put on record the fact that when I was the roads Minister I had free rides on very powerful motorcycles, but was never able to deliver anything in return. I recognise that the clause is a move in the right direction, and I congratulate the Government.

Mr. Edward Davey (Kingston and Surbiton): I rise to congratulate the Government on a long-overdue measure, which I am sure will be welcomed by the many motorcyclists across the country, particularly the 600,000 of them whom we are told will benefit.

I have a probing question for the Financial Secretary. Will he tell the Committee—I presume that this was because of the consultation—why the Government decided to base the structure of VED for motorcycles on engine size as opposed to CO2 emissions, which is the basis of the structure for motor vehicles?

Mr. Boateng: I have served in Committees for many years, but I have never served in one in which there was such a warm and unqualified welcome from the Opposition for a clause.

Mr. Flight: Beware.

Mr. Boateng: It is funny that the hon. Member for Arundel and South Downs should say that, because from a sedentary position one of my hon. Friends said, ''I think that we should quit while we are ahead.'' I do not want to give the hon. Member for Epsom and Ewell any prospect of this particular ministerial team quitting. However, I warmly welcome the measure, because it shows a sometimes cynical wider world that, as the hon. Member for Christchurch said, the Government can have their mind changed by effective consultation.

The hon. Gentleman is right in identifying the resistance to this measure. As a result of effective consultation and the Government being prepared for a change not only of heart but of mind, we have reached our current position. Motorcycle VED is still based on engine size because of the results of the consultation, as the hon. Member for Kingston and Surbiton (Mr. Davey) said. The industry association said that until carbon dioxide data become available, engine size is the only satisfactory and practical basis on which to set motorcycle VED. That was the overwhelming view, and we made our decision as a result of that. I am grateful to the Committee for its commendation of the clause.

Question put and agreed to.

Clause 18 ordered to stand part of the Bill.

Clause 20

Calculating cylinder capacity of vehicles

Question proposed, That the clause stand part of the Bill.

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Mr. Chope: I would like the Minister to explain, because some of us do not understand, how there can be more than one way of calculating cubic capacity. The clause appears to give powers to calculate cylinder capacities in different ways.

Mr. Boateng: I do not think that the hon. Gentleman is alone in his response to the clause. Let me explain the thinking behind it. It was important that the Secretary of State should have the powers to calculate the cylinder capacity of all vehicle engines recognised in statute. Prior to 1999, cars and light vans paid a flat rate of vehicle excise duty. In June of that year, a reduced rate was introduced for certain vehicles based on their cylinder capacity. The relevant regulations defining how such capacity should be calculated was apparently only extended to motorcycles.

There was not, therefore, a recognition in statute that the Secretary of State should fulfil such a role in relation to all vehicle engines. The provision corrects the position and grants the Secretary of State powers to calculate the cylinder capacity of all vehicles. We will all be reassured that the Secretary of State acts within powers in making what are, as the hon. Gentleman says, rather obvious calculations.

Mr. Jack: I am afraid that I find the clause intriguing. What would happen if the vehicle manufacturer made its own calculation of the cubic capacity of an engine and there was a dispute between it and the Government over the matter? As far as I can tell—perhaps I have not studied the clause in the exacting, detailed manner that it deserves—the clause does not contain the formula by which such calculations would be made.

Perhaps the Financial Secretary would tell me where I might find the mathematical formula. Cars are often described in populist terms as having engines with a capacity of 1.8 or 2 litres, whereas the capacity according to the vehicle manufacturer's definition may be 1 or 2 cu cm above or below that publicly stated capacity. That precise capacity as calculated by the manufacturer usually appears on the vehicle documents. How is that potential difference of opinion to be resolved? It could have quite a material effect on taxation.

Secondly, how will the formula deal with Wankel-type engines, which contain a different form of technology from the traditional normal cylinder arrangement? Will the clause enable the Financial Secretary to deal with future developments?

Thirdly, how will the clause deal with engines that have variable strokes? The Financial Secretary will appreciate that I am not offering him a sensorial opportunity. In vehicle technology terms, there are performance reasons for engines with such a facility, but it is not clear how the clause will deal with it.

Mr. Boateng: Different strokes for different folks. As usual, the right hon. Gentleman—this time, donning his anorak—has asked for detailed clarification, and I shall do my best to accommodate him.

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It is important to realise that it would be inappropriate to include in a Bill the basis on which precise mathematical calculations are made. Secondary regulations normally cover matters such as the calculation of cylinder capacities for all vehicles. The clause is intended to firm up the primary legislative position in respect of such regulations, by which I mean that it corrects an anomaly. It will ensure that the Secretary of State has the right to say how cylinder capacity is calculated for all vehicles.

Rotary engines, or Wankel engines, are subject to the general rate, which I hope answers the right hon. Gentleman's specific question on that form of engine.

If the Committee takes the view that the proposed change should not be made, the power to make regulations to calculate the cylinder capacity for cars will be incomplete. The revenue might be challenged in such a way that it is threatened, unless the Committee gives the Secretary of State the powers in the clause, as I hope that it will.

Mr. Jack: The Minister did not deal with the point at the heart of his last remark: what is the resolution mechanism, should a dispute arise over measurement?

Mr. Boateng: It is the wisdom and balanced judgment of the Secretary of State, subject, of course, to proper oversight by the courts through judicial review. That is always the way, as the right hon. Gentleman well knows. I am sure that a resolution will be achieved using the primary legislation that the Committee is being asked to put in place and the secondary regulations that will be published in due course. I referred to the Secretary of State's wisdom, but we should not forget that there will be sympathetic and careful consideration of the issue, that advice will be readily proffered, as my hon. Friend the Paymaster General said, and that, if necessary, my learned friends will offer their assistance. There will be no need to go to the extremes that the right hon. Gentleman contemplates.

Question put and agreed to.

Clause 20 ordered to stand part of the Bill.

Clause 21 ordered to stand part of the Bill.

Clause 22

Disallowance of input tax where consideration not paid

Question proposed, That the clause stand part of the Bill.

Mr. Burnett: The principle that credit for input tax should be adjusted if and to the extent that an invoice remains unpaid is entirely sensible and we support it. Despite the extra compliance burdens, we support the thrust of the clause. In other words, the purchaser or client who does not pay should not be entitled to the benefit of a value added tax credit in respect of tax that they have not paid. The clause places compliance burdens on the creditors who comply with the legislation, but there is a degree of uncertainty in the

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proposals which I should like to address. Perhaps we can persuade the Government to introduce greater certainty.

10.45 am

The proposed six-month period runs from the later of the date of the supply or the date on which the sum becomes payable. There are two principal difficulties with that. First, the date normally recorded in the accounting records is the invoice date. As the Committee will know, the invoice may lawfully be provided up to 30 days after the time of supply or later if the commissioners permit. Secondly, the time when the consideration is payable is determined by the contract between the parties, and that is frequently a matter of custom. There is therefore a potential difficulty in identifying the expiry date of the six-month period.

A simple and straightforward amendment that the six-month period should run from the invoice date would be entirely sensible. It would add certainty for the thousands of business men who have to comply with the legislation and would avoid confusion. I look forward to hearing the appropriate Minister's comments on this basic, straightforward proposal.

Mr. Mark Hoban (Fareham): I welcome the simplification that the clause provides for. The Government were right to lift the burden on businesses to notify their customers about claiming bad debt relief and I welcome that. Like the hon. Member for Torridge and West Devon (Mr. Burnett), I am concerned about the six-month rule and the burden that it will place on business. My own experience as an auditor is that often the sheer volume of relatively low-value invoices, some of which may not have been paid, is an issue in business. If a business were obliged to go through and identify those invoices after six months, the task would have to be done on a daily or monthly basis. That would constitute an onerous burden, particularly for smaller businesses.

I wonder whether it would be more appropriate for smaller businesses to be asked to do this adjustment as part of their year-end accounting procedures, when businesses would normally examine their supply accounts and identify any unpaid invoices. The small business community would welcome that measure and see it as being in step with their own procedures. It would not require an additional compliance burden to be placed on them.

My second question is whether, for low-value invoices, a de minimis limit should be put in place so that the measures apply during the course of the year only when an invoice is for more than a particular value. Again, that would simplify matters for businesses of all sizes and prevent them from having to scroll through thousands of invoices on a regular basis.

I ask the Minister to consider further lifting the burden on small businesses by reconsidering the application of the rules. The Government often state

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their commitment to lifting the regulatory burden. This would be a positive way of doing that and would demonstrate that their words were not empty.

I want to raise a further and slightly more technical point. Under the previous regime of having to notify customers that one had claimed bad debt relief, there was a concession for receivers of companies, who did not have to repay the input tax on certain debts. Will that concession remain, given the change to the regime outlined in clause 22?

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