Mr. Jack: I rise to pass an observation on the logic behind the proposal. When the change to excise duty was originally introduced, the Government told us that it was intended to encourage cars that had low carbon dioxide emissions. Yet we found that cars included in the original proposals produced higher carbon dioxide emissions than those excluded. The original argument was that the reduction in vehicle excise duty would in some way cause people to change their buying arrangements. However, the new arrangements at £55 a year are the equivalent of a saving of £165 over three years. That will not have a substantial effect on the car-buying decisions of those who pay for their cars out of their own pockets.
The proposal moves the threshold from 1,200 cu cm, which seems an entirely arbitrary figure anyway, to 1,549 cu cm. I am intrigued by 1,549 cu cm. Why 1,549 cu cm? Can the Financial Secretary give a detailed explanation as to why not 1,500 cu cm, or 1,449 cu cm or any other number? Why not relate the revised arrangement to the carbon dioxide emissions of cars, particularly of new ones, where the data are readily available? If the Government wanted to prove their green credentials, they would have proposed a different arrangement.
Mr. Timms: I remind the hon. Gentleman that we agreed in last year's Finance Bill that VED for new cars would be charged on the basis of CO2 emissions, and that has taken effect. That arrangement applies to older cars for which data are not readily available.
Mr. Jack: I do not know where new cars are concerned, but the arrangement appears arbitrary. I am always interested to know how decisions are reached. Perhaps the Financial Secretary will tell us why 1,549 cu cm was alighted on. For older cars, why is not the proposal for petrol as generous as for diesel? Many diesel car engines have more cubic centimetres than that, because they have a lower brake horsepower output, but have lower CO2 outputs than vehicles that benefit from the proposals. It appears somewhat harsh, if the Government's real interest is in carbon dioxide emissions, to hit diesel cars.
I should have said, incidentally, that I run a diesel car, so I have some experience of the matter, but I do not plead the case from a selfish point of view; I plead it from the rational point of view of the stated objective, which was supposedly to reduce carbon dioxide emissions.
Mr. Timms: The clause will indeed raise the engine size threshold below which the lower rate of VED£105is levied to 1,549 cu cm from 1 July. That means that 5.7 million additional cars will be taxed at the lower rate and the extension will be backdated to November.
That is the next stage of the reform of car vehicle excise duty that we have put in place during recent years. We started in June 1999 with a low rate for cars of below 1,100 cu cm; that rose to 1,200 cu cm on 1 March this year, backdated to March 2000. The Driver and Vehicle Licensing Agency recently wrote to about 3 million keepers of vehicles between 1,100 cu cm and 1,200 cu cm, and is currently making payments against licences for those cars taken out between March 2000 and February 2001. As I said, new cars registered on or after 1 March this year are taxed directly on the basis of their CO2 emissionsI shall return to the point raised by the right hon. Member for Fylde in a momentthe latest change taking effect on 1 July and being backdated to November.
Mr. Clappison: Has the Financial Secretary received correspondence from people who licensed their cars after 1 July last yearsay last September or October, just before the announcementduring the period that was covered by the backdating but who were not eligible for it?
Mr. Timms: I cannot recall any letters specifically on that point, although there is certainly a great deal of interest in the matter. In a moment, when I respond to the point made by the right hon. Member for Fylde, I shall refer to some of the issues of boundaries, which certainly excite a good deal of attention, especially concerning the VED arrangements. In this case, the DVLA will write to everybody with cars of between 1,200 and 1,549 cu cm engines who have taken out licences between November 2000 and June 2001, inviting them to apply for a rebate against those licences. Those who have taken out a 12-month licence will receive £55; those with six month licences will receive £27.50.
The hon. Gentleman asked me: why this change of heart since our debate on the subject just under a year ago? The Government has of course listened to the concerns of rural and low-income drivers. We have received a large number of representations about the matter. Especial concern was prompted by the increase in petrol prices caused by the increase in crude oil prices last year, and this is one element in the package of the Government's response. We have listened and made a change that has been widely welcomed. I would hope that all members of the Committee would agree that the Government should be listening to what people say and making changes in response.
Mr. Jack: Will the Financial Secretary give way?
Mr. Timms: Let me make a little more progress, because I want to answer the right hon. Gentleman's questions in a moment. He asked specifically why we had chosen the figure of 1,549 cu cm and whether that was an arbitrary choice. Eagle-eyed members of the Committee may have spotted that the figure announced in the pre-Budget report in November was 1,500 cu cm. The Budget figure was higher at 1,549 cu cm.
When we first introduced the 1,100 cu cm threshold, Members of Parliament received many letters from constituents who drove 1,107 cu cm, 1,103 cu cm or other cars with engines slightly above the 1,100 cu cm threshold. They were angry that they were missing out on the lower rate. We were anxious to ensure that a similar problem did not arise with the present raising of the threshold. Now anyone driving a 1.5 litre car will benefit from the change. The increase from 1,500 cu cm to 1,549 cu cm brings 80,000 additional vehicles into the scheme. If we had stuck with the 1,500 figure, a significant proportion of those 80,000 would have been writing to their Members of Parliament to complain that they were missing out on the concession. We have addressed the problem, so I hope that no one will feel hard done by.
The right hon. Member for Fylde said that the change would not have much effect. From the letters across my desk, I know that people feel strongly about these matters and I suspect that this signal is effective in making people think about what car to buy. Some people have changed their decision accordingly, so we should not underestimate the potency of this measure as an incentive to opt for smaller cars.
The right hon. Gentleman asked about CO2 emissions as an alternative basis, but the data about emissions from older cars are inadequate. It is now a requirement that the figure appears on the registration document to make it easy for everyone to understand how much they will have to pay for new cars under the new scheme. As similar data for older cars are unavailable, such a system would be much more complicated, costly and bureaucratic processand feasible only for cars made since 1997. In view of the difficulties, we decided that it was not worth while to proceed on the basis of CO2 emissions.
The right hon. Gentleman also asked about diesel. Diesel's position is fairly reflected under the new arrangements. Again, we did not want to introduce a complex system for older cars and, although it is not a perfect measurement, the size of a vehicle's engine is not a bad proxy for its environmental impact.
The clause provides relief and offers a significant additional tax deduction for car drivers. Car drivers have warmly welcomed it, and I hope that the Committee will, too.
Mr. Jack: I restrained myself from intervening on the Financial Secretary, who was kind enough to answer some of my earlier points, but I want to put on the record the fact that I found his comments interesting. He established a principle in which a minority group, in this case rural motoristsno definition was given as to who or what they weremanaged to persuade the Treasury to alter universal car taxation for their benefit. I welcome that suggestion but it will be interesting to know what is the deadweight cost for the help that has been given to the urban motorist to achieve a clearly stated policy objective to assist the rural motorist. I am so intrigued by that that I shall write to Sir John Bourn of the National Audit Office asking him to evaluate the point.
Mr. Timms: I referred to rural and low-income motorists. Is the right hon. Gentleman suggesting that we should have different rates of vehicle excise duty for rural and non-rural motorist? Neither I, nor the right hon. Gentlemanwho is a former Treasury Ministerwould favour such action.
Mr. Jack: I take the hon. Gentleman's point. His emphasis was low-income motorists and we shall ask for that analysis. There are a fair number of deadweight costs but I shall not detain the Committee further on the matter.
Question put and agreed to.
Clause 8 ordered to stand part of the Bill.
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