I beg to move,
That this House notes with concern the increases in Vehicle Excise Duty (VED) imposed in the Budget; notes that between 2006 and 2010 revenues from graduated VED will have more than doubled; observes that the majority of motorists who currently pay graduated VED will now pay more; deplores the Government’s decision to abolish the exemption from higher graduated VED rates for cars that emit more than 186g of carbon dioxide per kilometre and were registered between March 2001 and March 2006, and the fact that this was not stated clearly at the time of the Budget; considers that these changes will hit those on low incomes hardest and be a further burden on hard-working families already struggling to cope with soaring living costs; further notes that, although graduated VED revenues will total £4.4 billion by 2010-11, carbon emissions from motoring are expected to reduce by less than one per cent. as a result of the new VED regime; believes that any increases in environmental taxes should be offset by tax reductions elsewhere; and calls upon the Government to abandon its planned increases in VED.
With the greatest respect to the Financial Secretary, we are disappointed that yet again the Chief Secretary has not been deployed to defend the Government’s policies. Perhaps she is too busy working on plans to undo them.
The Chancellor’s Budget is unravelling before our eyes. The purpose of the debate this afternoon is to give it another little shove. Yesterday we witnessed the unprecedented spectacle of a Chancellor coming back to the House of Commons just 10 weeks after a Budget to unravel his income tax proposals for the current year. I remind the House that we had already seen major U-turns on the taxation of capital gains and on non-domiciled UK residents, where the Chancellor conjured up £550 million that he does not have to buy off criticism of his inept handling of those two measures.
Yesterday we saw an unprecedented emergency mini-Budget, with the Chancellor wielding the nation’s credit card yet again to buy his way out of trouble with a temporary fix for the ghastly mess that he had inherited from his predecessor, in the form of the doubling of the 10p tax band, making 5.3 million low- earning families worse off—with another £2.7 billion that he does not have.
So we are making progress. We have established that the Chancellor can rewrite his Budget, even though he said that he could not. We have established that he can make in-year changes, even though he told us that it was impossible. We have established that the long-accepted principle that major tax changes are announced only in Budget or pre-Budget reports has been scrapped, and that the Chancellor can in fact reverse taxation policy whenever it is convenient and politically expedient for him to do so. Let us look this afternoon for the next candidate for a U-turn.
Does the hon. Gentleman agree that Conservative policy on vehicle excise duty is also unravelling before our eyes? Some eight months ago we had a quality of life policy document from the Conservatives, which was launched in a hail of publicity in September 2007. It proposed that the increase in the vehicle excise duty differential between the top and bottom bands of emission performance be capped at a maximum of £500. A few months later we have on the Order Paper a motion that goes in exactly the opposite direction. Whose policy is unravelling?
It is the Labour party’s policy that is unravelling. As the hon. Gentleman well knows, the document that he cites was a report to the party from a policy review body. It was never accepted as policy of the Conservative party. It is a menu, it contains some valuable ideas, and in due course my right hon. Friend the Member for Witney (Mr. Cameron) will announce to the public which of those policy areas he wishes to adopt as Conservative policy for the next general election, always bearing in mind the constraints within which we will operate and the mess that we will have to tackle when we assume office in a year or two.
I always find that it is best to get all the Whips’ questions out of the way early. So far, the only new ideas that the Government have had on taxation policy have been those that they have stolen from the Conservative party, so I understand the hon. Gentleman’s concern that, if we do not announce a stream of new policies over the next few months, the locker will be bare when the Chancellor makes his pre-Budget report in November or December.
I was suggesting that we should turn our attention to the next candidate for a Budget U-turn, but there are not many policies left on which the Chancellor has not backed down. However, one more needs his urgent attention in this new-found listening climate. The Chancellor will have noticed that 18 Labour Members have signed the early-day motion tabled by the hon. Member for Blyth Valley (Mr. Campbell), which calls on the Government to reconsider the changes announced in the 2008 Budget to vehicle excise duty, which will take effect in April 2009.
To Conservatives, Reading is Reading, and it is a very sweet word.
I am not entirely sure that the hon. Gentleman is right about the early-day motion, but I accept that he wished to draw attention to the retrospective effect of the changes that the Chancellor proposed. Indeed, the thrust of my argument will be about the retrospectivity element. It is not the only problem with the changes, but it is the biggest.
Helpfully, the hon. Member for Blyth Valley explained in the Newcastle paper The Journal his reasons for attacking the VED changes. I shall not try to do the accent, but he said:
“It’s like the 10p tax, it’s going to hit the poor. I don’t know where we’re going hitting the working man at every corner.”
The hon. Gentleman is right, because for many, driving is a necessity not a luxury. That is easily forgotten by metropolitan policy makers living in an area served by the country’s best public transport infrastructure. Even in such circumstances, Ministers demonstrate every day—and I do not criticise them for this—how for some people, because of their job, a car is a necessity, even for the shortest journeys.
I hear what the hon. Gentleman says about the metropolitan understanding. I come from a rural island constituency and I know that many people have large vehicles. They are certainly not Chelsea tractors, and are often second-hand and not in the best nick. Those people will be badly hit, and they are already paying £1.35 a litre for diesel. One suggestion I made during consideration of the Finance Bill was that if someone was in receipt of the single farm payment it should put them in a particular category, so it would be easy for the Government to charge them a different level of duty. Even if the Government intend to pursue the main thrust of the policy, exemptions can be made.
With the greatest respect to the hon. Gentleman, I suspect that I should not revisit the details of that debate, although the Conservative spokesman on that issue did suggest that we have considerable sympathy with the thrust of the Scottish nationalists’ argument. However, he also drew attention to some of the serious practical problems with that solution.
Is not this yet another example of politicians saying that they are in favour of environmental policies and green taxation in general, but when it comes to the particular, finding a reason why a policy is not any good? This week, American scientists have pointed out that the carbon dioxide concentrations in the atmosphere are 40 per cent. higher—higher than anyone expected. Have we not got to get serious and get real and all of us, across the parties, recognise this and act on it?
The hon. Gentleman makes what on the face of it is a fair enough point. I will come shortly to the specific issue of the environmental effects of the policy, and if the hon. Gentleman wants to intervene on me again at that point, I will be happy to take his intervention.
Will my hon. Friend reflect on what he just said, because I do not think that the last intervention was a fair point at all? Has he seen the study by Professor David Newbury of Cambridge university, which concluded that if motorists were to pay the cost of the effects that they have on the environment, they would be paying tax at the rate of 20p per litre of fuel, yet motorists are paying tax at 65p a litre of fuel? Therefore, there is no justification on environmental grounds for these vehicle excise duty increases.
My right hon. Friend makes an equally fair point. I think that the hon. Member for Edinburgh, North and Leith (Mark Lazarowicz) was seeking to say that changes to environmental taxes at the margin, whether or not the overall burden of taxation is justified, might be expected to have a beneficial environmental effect. I shall seek to show in the course of my remarks that that is not the case, even on the Government’s own figures. It is only right to invite the hon. Gentleman to come back once I have set out my case.
Is my hon. Friend of the opinion that the Government expect to get more revenue out of this, that it is a tax-raising device, and that that shows that they do not believe that it will work, because if they are getting more revenue it means that people will still be buying the larger vehicles?
The Government clearly expect to receive substantially more revenue from these changes, but I shall come to the environmental benefits issue shortly.
Encouragingly, we also heard yesterday from the hon. Member for Wolverhampton, South-West (Rob Marris), sowing the seeds by taking up the opportunity of the Chancellor’s announcement of his climbdown on the 10p rate to inquire when he will announce a climbdown in respect of vehicle excise duty. I do not know whether the hon. Gentleman sees himself as assuming the mantle of the right hon. Member for Birkenhead (Mr. Field) in relation to an issue that I predict will become an equally big problem for the Government in the not-too-distant future.
Hon. Members who are perhaps uneasy about the Chancellor’s vehicle excise duty policy should not be disheartened by any protestations from the Treasury Bench that we may have heard or that we might hear later on today that there will be no turning back, that the line is fixed, that the measures are right and will be implemented in full, because that is precisely what the Chancellor said about the doubling of the 10p income tax rate until he was forced into a humiliating U-turn by a combination of public anger and panicking Labour Members.
The message from the Chancellor’s and the Prime Minister’s conduct over the 10p rate to those on the Labour Benches who have already spotted this time bomb ticking away under their marginal seats for next April—such as Reading, as I am helpfully reminded —is that no matter what the protestation of inflexibility, the Government are now for turning. Let us be under no illusion. The measures announced by the Chancellor on vehicle excise duty in the 2008 Budget are a ticking time bomb under his successor for 2009, just as surely as his predecessor’s 2007 Budget was primed to explode under him.
I note that this matter will come to a head in 2010, just when we expect to have the next general election. I heard the cheering when the Chancellor made his announcement on the 10p income tax, but I imagine that the situation in 2010 might be very different. Only five Back-Bench Labour Members are present today, but by 2010 there might be 50 or even more.
By later on in 2010 the Labour party might struggling to muster five. The hon. Gentleman has suggested a Machiavellian proposition that I must confess I had not thought of. Perhaps the Chancellor’s swingeing increase in vehicle excise duty is set up so that he can abolish it in 2010 just before a general election and get the same kind of reaction that he was obviously hoping to achieve yesterday. I will leave such Machiavellian considerations to members of the Scottish National party.
The announcement in the Budget speech on vehicle excise duty was significant enough—the creation of a new and complex regime of vehicle excise duty with 13 bands, raising the duty payable on many family cars, and all of it dressed up as an environmental measure aimed at gas guzzlers and nothing whatever to do with filling a bankrupt Treasury or taxing ordinary motorists. That was the clear message.
As far as the measure’s green credentials are concerned, in fact, the percentage increase in duty on a Nissan Micra is larger than the percentage increase on a six litre Hummer or a Porsche Cayenne. In truth, this is an old-fashioned revenue-raising measure. At a time when families are struggling to make ends meet, the Chancellor has hit them with a more than doubling of VED between 2006-07 and 2010-11, from £1.9 billion to £4.4 billion. That is at a time when the average motorist is already contributing more than £1,800 a year on average in tax.
Vehicle excise duty on a Ford Mondeo estate, whether owned in Worcester or otherwise, will go up by 32 per cent. between 2007-08 and 2010-11. VED on a Renault Espace, a largish family car, will increase by 43 per cent. That is bad enough when taken at face value, without having to read between the lines. Conservative Members have become wearily resigned to the fact that the Budget Red Book—let alone the Budget speech—never tells the whole story, but the Treasury has plumbed new depths of cynicism with its presentation of the VED changes. The Red Book assures its readers on page 96:
“As a result of these reforms, the majority of motorists will be better or no worse off in 2009.”
What it did not say was that, because of the unannounced reversal of the exemption from the highest bands of VED announced in the 2006 Budget for vehicles registered before March 2006, more than 1 million families will see their car tax double over the next two years.
We have only discovered the truth because my hon. Friend the Member for Putney (Justine Greening) looked at the numbers and the Government’s rhetoric and realised that, even by their usual standards, there was a gap. Between 2006-07 and 2010-11, graduated VED is shown in the Government’s figures to rise from £1.9 billion to £4.4 billion, more than doubling in four years—an increase that she realised could not be accounted for by the announced changes alone. She discovered through a series of parliamentary questions that that unexplained increase was accounted for by an unannounced stealth tax on existing cars registered before March 2006, which, but for their age, would be in band G now and which are heading for bands L or M in the new system.
Thanks to my hon. Friend’s forensic accountant-trained mind and her fierce tenacity, and to the momentum generated by the campaign launched by The Daily Telegraph, the truth, kicking and screaming, has finally emerged into the light of day and is beginning to penetrate the public consciousness. The Treasury now admits that the statement in the Budget Red Book was
“not as clear… as it could be.”
I will make a deal with the hon. Gentleman. When he comes here and tells us where the Chancellor has got the money from to back down on capital gains tax and on non-domiciles, and to fund his U-turn on the 10p tax rate, then we will explain it to him. He can jolly well answer the question.
The public and Labour Members woke up to the problem of the 10p rate only when the increase was upon us. We hope to do Labour Members a favour through today’s debate and ensure that the response on vehicle excise duty is a bit quicker because—I stress to Labour Members—the sooner one defuses a bomb, the less danger one is in.
By 2010, 81 per cent. of the 19.6 million cars that pay graduated vehicle excise duty will pay it at a higher rate than now. That means that four out of five motorists will lose out—some 12.5 million losers will be worse off as a result of a change, which was presented as a tax on gas guzzlers that would benefit the majority of ordinary motorists. I stress the figure of 12.5 million—far more than twice the number of losers from the disastrous decision to scrap the 10p income tax band. For at least 1 million of those losers, the cost will be at least £220 a year of extra VED by 2010, and 3.7 million motorists will lose £90 a year or more—not far off the average loss from the abolition of the 10p tax rate.
The hon. Gentleman is being expansive in his criticisms of the Government’s decision. I understand that he is not in a position to say precisely what his party would do if it was preparing a Budget. However, what is the strategic framework within which he would consider VED or other duties? Does he believe that VED should play any role in incentivising or disincentivising customer choices when buying cars? Does he believe that fuel duty should play any role in combating climate change? If so, what is that role? If not, what does he suggest instead?
The hon. Gentleman makes a fair point. We have made it clear that we believe that green taxes have a role to play in changing behaviour. However, if he reflects for a moment, he will realise that VED can play such a role only in respect of cars not yet purchased. I shall develop the argument that there is a problem in imposing that tax on the existing stock of cars because people are effectively locked into decisions that were made many years ago.
Conservative Members believe that green taxes have a role to play, but if we want to carry a sceptical public with us, we must make it clear that they are introduced for environmental reasons and are not disguised stealth taxes. Politicians should acknowledge the public’s scepticism. It is why my right hon. Friend the Member for Witney has committed himself to a ring-fenced family fund, into which the proceeds of additional green taxes will go. It will be audited externally and used to reduce taxes that are otherwise paid by families. That is the only way in which to retain the public’s confidence and get them behind the green taxation agenda.
Earlier, the hon. Gentleman mentioned losers. Does he accept that many losers will be disabled people on low, fixed incomes? I received an e-mail from one of my constituents today who must drive a large car to accommodate his wheelchair. He is deeply worried about how to afford the tax. Does the hon. Gentleman share my concern that we must find a way of ensuring that such people are protected?
My hon. Friend is being generous in giving way. He makes a compelling case against the increases in vehicle excise duty. Is not the position worse than he outlined? At the same time as the increases, the Government are leaning on and forcing many local authorities to consider introducing road charging in city centres.
I want to make a little progress. I said that I would give way to the hon. Gentleman again, and I will. However, in view of his earlier intervention, perhaps he will let me make the environmental point; I will then give way to him.
Let us be clear: the abolition of the pre-2006 exemption for older vehicles that would otherwise fall into higher VED groups is nothing but a cynical, revenue-raising stealth tax. It is a retrospective measure that cannot affect behaviour as a prospective measure might. Its burden will fall disproportionately on the poor, who are more likely to own older cars; on those in rural areas, who are more likely to own higher-rated vehicles; and on those with large families, who are more likely to have bigger cars.
There is a double whammy for those caught in the trap. Industry experts have confirmed—it has been in all the major papers—that these VED rises will slash the value of older cars that fall into the higher bands. CAP, a data provider to the used car trade, says:
“When people find out that it could cost half a car’s value just to tax it each year, its value will plummet. Many of these cars…will be reduced to their scrap value. The sad thing is that perfectly usable cars will be scrapped…Poorer families who need a bigger car to transport children…will find their car has lost up to £1,000 of its value. They face an impossible choice because many will struggle to pay the higher road tax but won’t be able to afford to buy a more fuel-efficient car with a lower road-tax rating.”
In other words, those people will not be able to respond as the economic model worked up in the Treasury predicts, because they will not have the money.
There is a long-standing bar room joke, which I am sure all Members will have heard from time to time; it seems to come around every time there is a surge in petrol prices. It is something about doubling the value of a car by filling its tank. The combination of a doubling, in some cases, of vehicle excise duty and the slashing of the capital values of larger, older cars means that sticking an annual licence disc in the windscreen will literally double the value of some cars. Even medium-sized cars will be severely affected. Data from CAP show that a Hyundai Lantra 1.6 litre automatic registered in 2001 has a trade value of £850. Under the new vehicle excise duty regime, that car’s road tax will increase to £430 a year in 2010.
Here is the rub: far from changing behaviour and encouraging lower carbon output, this measure will lock low-income families into the worst possible position. By reducing the capital value of the vehicle that those families own, the Chancellor will trap them in what is effectively the motoring equivalent of negative equity. They will be unable to change their vehicle because its value will have collapsed, yet they will be forced to pay the Chancellor’s punitive taxes to stay on the road.
I should like to quote one of the many e-mails that we have received. This one is from a motorist in Merseyside:
“Many of us are stuck with the car we have. Those who drive older cars are in the main the retired or low-income groups. The arrogance of the remarks”—
that is, the Chancellor’s remarks—
“suggesting if we don’t want to pay the tax we should buy another car is beyond belief. We can’t afford another car. Please don’t let this one go, I can tell you people are furious about this, it’s on a par with the 10p tax. This can bring Gordon down. He knows it’s the low-earners who will be hit and it doesn’t deter him.”
I could quote many more examples showing the anger and frustration felt by owners of larger, older vehicles, who see themselves being trapped for ever by this stealth tax into paying higher taxes and being unable to escape because of the erosion of the value of their vehicles.
As has been adverted to, I have been concerned about this issue for some time. It has nothing to do with the forensic skills of the hon. Gentleman’s accountant friend, the hon. Member for Putney (Justine Greening); I raised the issue in the Finance Bill debate. The retrospective nature of the measure is clearly in table 8A of the Red Book. The hon. Gentleman is absolutely right that the issue is about future behaviour. That is why two years ago, I tabled an amendment to the Finance Bill to put up vehicle excise duty substantially for future purchasers of new gas guzzlers. The hon. Gentleman’s motion says that
“any increases in environmental taxes should be offset by tax reductions elsewhere”.
It behoves him to say a little more about that. In terms of the taxation that we raise, the idea of ring-fencing is very dodgy, because we need to spend money from taxation on adapting to climate change. The Government are already doing things with general tax revenue, such as building up coastal defences, increasing flood defences, work on wildlife habitats, and so on. Ring-fencing green taxes for green issues is not a simple position to take.
There is a germ of truth in what the hon. Gentleman says. In an ideal world, one would not hypothecate. The reason we have taken the step of deciding, in effect, to hypothecate additional green taxes to reduce taxes on families is simply to respond to the high degree of public scepticism about this agenda. The public are sceptical about things that the Government have done and, more broadly, about politicians now claiming to be raising green taxes when, time after time—we have another example before us today—the public are really facing an ordinary stealth tax to fill the Treasury’s coffers. That is why we have taken this exceptional route of ring-fencing and auditing the additional proceeds.
I will make a little progress, if the hon. Gentleman will allow me, and come back to him in due course.
The reality for many poorer families is very far from the Whitehall theory of the Chancellor’s Budget statement that the new VED structure will encourage drivers to choose the least polluting car. Many Labour Members and, indeed, many Conservative Members will recognise how divorced that concept is from the reality of the everyday lives of many of their constituents. “Oh, my car tax has just doubled, so I’ll get rid of the car and nip out and buy a nice little economy model from the showroom”—that is not how people’s lives work. The Government will tell us, I am sure, that this is all about encouraging green behaviour. Perhaps they would like us to take a more strategic view. We know, after all, that this Government are prepared to take tough, long-term decisions and accept the short-term political pain that they get from ignoring the anger of the poorest when they lose out from Government policies. The Government have clearly demonstrated that when they say that a line in the sand has been drawn, that line in the sand has been drawn. Perhaps they would argue that a little bit of pain is worth while—even, perhaps, if 1 million or so owners of older vehicles are placed in the impossible position of being unable to trade up to a more environmentally friendly car, or if 80 per cent. of motorists are faced with higher VED alongside the higher costs of petrol, food, household energy and everything else. Perhaps the Government will say that it is all worth while in order to reduce the impact of vehicle-based emissions on our environment—that it is the right thing to do.
Unfortunately, however, that generous interpretation —that image of a resolute, principled Government determined to press on with what they know to be right in the face of short-sighted opposition—is fatally undermined not only by the short-term political manoeuvring that we have become used to as the Prime Minister twists and turns to try to save his own skin, but by the Government’s own figures on the impact of the measure. In a written parliamentary answer to my hon. Friend the Member for Putney on 21 April 2008, the Treasury first claims that the 2008 Budget reforms of vehicle excise duty are forecast to result in a rising carbon saving over time, and then admits that the changes are forecast to deliver a reduction of just 0.16 million tonnes of CO2 by 2020. To put that into context, total vehicle-based emissions of CO2 were estimated at 120.3 million tonnes in 2006—the last year for which figures were available. The expected benefit of this measure, as set out in the Treasury’s written answer, is a less than one seventh of 1 per cent. reduction in vehicle-based carbon emissions over a 10-year period. Even taking into account not all vehicle emissions but car emissions alone, the saving is less than one quarter of 1 per cent. The Chancellor’s claim that Budget 2008 reformed VED to strengthen the environmental incentive to develop and purchase fuel efficient cars is blown away by his own figures predicting almost no positive environmental impact at all.
Is not the whole global argument shown to be bunkum when we cross the Irish sea, and see that in the Republic of Ireland it costs £20 to fill the tank of the average family car? The current price of fuel per litre in the Republic of Ireland is lower than it was here a year ago. I would like to ask the Conservatives whether, if they were in power, they would revoke the proposals of the current Labour Government on vehicle excise duty.
The hon. Gentleman’s argument as to why the increase in VED has little environmental benefit is remarkably similar to the argument we sometimes hear from Government Front Benchers as to why a few airport extensions are no bad thing because the effect is only minimal.
Leaving that aside, I suggest to the hon. Gentleman that he raises important points, but if he is wants people to accept that his party is not just trying to jump on the bandwagon, he should at least make suggestions as to how we can bring down vehicle omissions more substantially. It is only fair to ask him to do that because if he just simply attacks this policy, while at the same time attacking congestion charging, car park charges and so on, we return to the point that politicians talk green in general, but when it comes to the particular, they oppose any specific policies.
What we have to do if we want to carry the public with us is show that any green tax proposal has an environmental benefit. There must be a correlation between the burden that we are imposing on taxpayers and the benefit that we are generating for the environment. The restructuring of vehicle excise duty fails that test, suggesting that it will save 160,000 tonnes of CO2 by 2020 in exchange for the imposition of a huge increase in vehicle excise duty on ordinary families throughout the country.
Ultimately, the Chancellor’s fig leaf has been blown away, exposing yet another plain, old-fashioned stealth tax. The vehicle excise duty structure will leave most drivers worse off; it is dressed up and presented as a green measure and presented with all the self-righteous pompousness that the Government reserve for such matters. It is a tax hike that, according to the Government’s figures, will have virtually no impact on CO2 emissions, it will undermine further the public’s confidence in the principle of green taxes and it will reinforce cynicism about the real motives of politicians talking about the green agenda. In other words, it is a measure that will damage, not enhance, the environmental agenda in this country, which is why we have made the pledge to ring-fence the proceeds of additional green taxes in order to reassure the public that green taxes are just that, not eco-stealth taxes.
We have long known that the Government do not care about rural Britain. The 10p tax fiasco confirmed that the Prime Minister does not care about low-earning families. This cynical tax hike hits poorer families and rural areas hardest; it is a metaphor for new Labour’s tax policy. At a time when families—and not just families on the lowest incomes—are feeling the squeeze, when earnings are stagnant and prices are soaring, and when people are looking to the Government for a helping hand, the Government’s response has been to kick hard-working lower and middle-income families through another major stealth tax rise that is set with a delayed fuse, timed to go off next April, with an aftershock the following April when the final increase for older cars kicks in.
This is the worst kind of stealth tax introduced at a time when families are least able to absorb it, and it has been introduced in an underhand way. The Chancellor has shown that where the political cost of an ill-thought-out tax measure is high enough, he can and will reverse it without regard to the niceties of Budgets and pre-Budget reports. It is up to those of us on both sides of the House who see the unfairness of this swingeing, bogus green tax increase, which disproportionately affects the poorest and which will set back the cause of genuine environmental taxation, to get the Government back to the drawing board on their plans for VED. On the evidence so far, the way to do that is not by quiet argument, rational analysis of the weakness of the proposals or an appeal to the long-term interests of the country, but by encouraging public awareness now of what will otherwise be next year’s 10p tax debacle. That is because short-term political cost and benefit seems to be the only currency that this short-term Prime Minister deals in.
It is a pleasure to speak for the Government and to follow the hon. Member for Runnymede and Weybridge (Mr. Hammond) in this debate on vehicle excise duty. He presented a robust case for the prosecution, as is his wont, but I am delighted to have been invited to present the defence case.
I am responding as someone who has always enjoyed driving, appreciates the freedom that a car can bring and values the contribution that motor vehicles have made to our economy. However, I do not subscribe to the view that Labour is anti-motorist and that the Tories are the motorist’s friend. We have learned from the hon. Gentleman today that if the Tories took office, they would repeal the measure. We noted that they voted against the measure in the votes on the Budget. I also invite voters and drivers to be aware that he dismissed the policy document to which my hon. Friend the Member for Reading, West (Martin Salter) referred, to which I shall turn in a moment, as merely a policy discussion document, from which policies may be drawn at a future date, when a manifesto is drafted.
Does the Financial Secretary not recognise that I also chaired a policy review that made a lot of proposals for lower taxes? Why does she not refer to those as Conservative policy? The truth is, of course, that my right hon. and hon. Friends will make their decisions near the election. However, she grossly misrepresents our policy work if she does not refer to my work in favour of lower taxes.
Does my right hon. Friend agree that the right hon. Member for Wokingham (Mr. Redwood) is being unnecessarily bashful? We regularly refer to the excellent document that he produced denying climate change and trashing the green credentials of his party leader. He should be given a wider hearing, and it is my right hon. Friend’s job to ensure that he is.
I am grateful to the Financial Secretary for giving way, because I cannot allow what the hon. Member for Reading, West (Martin Salter) said to stand without comment. There has been absolutely no trashing of either my party leader or the need to have greener and cleaner vehicles, but we want to encourage people, rather than clobber them.
There we have it. I am always happy to give way to the right hon. Gentleman, but sometimes think that when he is in a hole, he should not dig any harder.
Overall, the Government’s policies have had a palpable effect on the manufacturing of cars and lorries. In 1997, there was only one flat rate of VED for all drivers. In 2000, we decided to graduate VED, ensuring that the drivers of the most polluting cars paid the most road tax. That was fair then and it is right to maintain that position now. It means that VED reflects the car’s emissions, as well as creating incentives for people to drive cleaner cars and supporting the development of such cars.
Manufacturers such as Jaguar and Land Rover, to name just two, which produce high quality cars at the excellent Halewood plant in the constituency of my hon. Friend the Member for Knowsley, South (Mr. O'Hara)—
And in the west midlands. Such manufacturers have responded to the pressure that purchasers are bringing to bear. They acknowledge that if they are to maintain their competitive edge, they have to continue to develop their product and engineer cars of high quality, but with an ever reducing impact on the environment. Just as technology has helped to achieve huge improvements in vehicle performance and safety, the motor industry is now addressing the greatest challenge yet—that of delivering environmental solutions.
The Minister will know that I have made forceful arguments about giving manufacturers incentives to make their cars more energy efficient. Car use is absolutely essential for everyday living for many families in my constituency, and they are already burdened by paying extra fuel duty at the pump. The extra charge required for cars purchased between 2001 and 2006 will be yet another burden. Will the Minister reflect on the fact that certain areas of the country seem to suffer a double whammy when it comes to running cars?
I acknowledge the force with which my hon. Friend makes his case today. Indeed, he has made that case consistently and we will listen to the points that he makes. I shall come to the question of fuel duty in a moment, if he will allow me to make some progress.
I shall come in a moment to the point that was raised earlier, which was characterised as the burdens on motorists and the cost of fuel. I hope that the hon. Gentleman will allow me to make some progress so that I can reach that point, as I know that my hon. Friend the Member for Ynys Môn (Albert Owen) would like me to address the point that he has raised.
I make that point so often that I felt that it hardly needed repeating, but the hon. Gentleman is absolutely right. I want to move on to the points that he and my hon. Friend the Member for Ynys Môn made about the costs that they described as a burden on rural drivers. I will come to that in a moment.
The Stern review concluded that urgent action was needed now to offset the most serious impacts of climate change. A challenge on this scale requires all sectors, including road transport, to make urgent and substantial progress in reducing CO2 emissions. In the long term, and possibly by 2050 in the developed world, almost complete decarbonisation of road transport is a possibility.
When I was elected in 1992, the Conservatives were in government. I took part in a debate at that time on a White Paper, promoted by the Government, entitled “New Opportunities for the Railways”. My hon. Friends will be interested to learn that that was a euphemism for privatisation. The debate was held on 29 October 1992, and in it I confessed to being a confirmed motorist, albeit
“a motorist with a very uneasy conscience; one who uses her car knowing full well what damage that causes to the environment and the congestion that it causes in cities.”—[Official Report, 29 October 1992; Vol. 212, c. 1215.]
I have at least been consistent in the intervening years. Before I became an MP, and then a Minister, I was alive to the effect of cars on the environment. That is precisely the position that many motorists are in now, as they choose which car to purchase.
I should like to make some progress, as this is a short debate.
As I have said, VED was charged at a flat rate at that time. Everyone paid the same road tax, whether they drove a clean car or a polluting car. Indeed there was little choice, in many ways, as there was no such thing as clean diesel or cars capable of burning biofuels. The then Government put in place something called the fuel duty escalator. The right hon. Member for Witney (Mr. Cameron) was advising Chancellor Lamont on this matter at the time. The escalator delivered, year on year, a 3 per cent. increase in fuel duty above the rate of inflation. We abandoned it in 1999; as a result, current fuel duties have been raised. [Interruption.] This is part of the context of the debate and it is right and proper for me to reply to the questions I have been asked. We abandoned the fuel escalator in 1999 and, as a result, current fuel duty rates are 50.35p a litre. Had fuel duties gone up in line with inflation since 1999, they would be 61p a litre. Had they gone up in line with a 3 per cent. escalator, they would be 79p a litre. If we add in VAT, the average price of petrol would be 34p higher today.
The Conservatives are trying to sell the idea to voters in Crewe and Nantwich that they are on the side of the motorist, but the right hon. Member for Witney has not told those voters about the new Tory taxes, including the 10 per cent. showroom tax on new cars and up to £500 VED, as we have heard, on older cars. This is not yet rubber stamped as Tory party policy, as we have heard, but I believe that voters and drivers should take note. The man in charge of writing Tory transport policy, Stephen Norris, has said that under the Tories,
“you will pay more in green taxes, you will, for example, see the re-introduction of a fuel duty escalator, I’m quite sure.”
He said that on Radio 4’s “World at One” on 31 August 2006.
We have heard a great deal since the Budget about the impact of these changes, particularly the claim that low-income families will pay more. I would like to tackle that head-on. About 40 per cent. of low-income households that own cars bought since 1 March 2001—
I will give way when I have finished my point. I am responding to a point that the hon. Gentleman made in the debate.
As I was saying, about 40 per cent. of low-income households that own cars bought since 1 March 2001 have tended to buy cars in the current band C. Those car owners will be better off as a result of this year’s Budget changes, as their VED will fall from the current £120 to either £90 or £110 in 2009.
We were disappointed that the amendment was not selected. We consulted the House authorities yesterday. What we tabled in the Prime Minister’s name last night took the views of the Table Office into account. The amendment was in order, and I am now responding—
I withdraw the comment about it being in order—[Interruption.] Well, let me return to the substance of the debate. Interested as we may be in those arcane arguments, I believe that the public are interested in the subject of the debate.
As I said, I reject the case of the hon. Member for Runnymede and Weybridge.
Will the right hon. Gentleman allow me to return to the main point?
As I have said, 40 per cent. of low-income households that own cars bought since 1 March 2001 have tended to buy vehicles in the current band C. Those car owners will see their vehicle excise duty fall from the current £120.
I am not giving way to the right hon. Gentleman again. He really should let me get to the point that will specifically address his comment. Many drivers of family cars will be better off as a result of these changes. That applies to 24 of the most popular 30 models of cars in the country, including popular versions of the Ford Focus, Renault Clio, Vauxhall Astra and the Citroen Xsara Picasso. It is true that drivers of other versions of those models could pay more. The point of these changes is that motorists can reduce their VED by choosing a cleaner version of their preferred model, or a cleaner car of the same class, if they do not want to change to a cleaner class of car altogether. Encouraging a market in which drivers can exercise their choice does not mean that they must purchase a different type of car. According to the King review, the average driver could reduce his emissions, and of course his fuel bills, by 25 per cent. simply by choosing the most efficient car in his preferred class.
Over the years, since coming to office in 1997, the Government have been responding to the genuine concern expressed by the driving public as well as the travelling public about the damage that motor vehicles do to the environment. Human, social and economic costs arise from unmitigated climate change. Before the debate, I discussed with my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) the flood damage that regions such as his have experienced, and the imperative necessity for revenues to build flood defences.
May I briefly return the Minister to her comments about band C cars? The parliamentary figures that she gave me suggest that by 2009-10 most cars that are currently in Band C will move to band F rather than bands D and E. Owners of cars in bands D and E will pay the same or less, while those with cars in band F will pay more. That means that most band C drivers will pay more.
I do not accept the hon. Lady’s point, forensic though she may be. Most drivers will not be worse off in 2009-10. In fact, we expect about a third of drivers to be better off. The point of our proposals is that they will influence drivers’ behaviour and choice of car.
The Minister has made a good case for a graduated system of vehicle excise duty, particularly for people who can choose which vehicle to drive, but people in some categories—especially small business people—need a vehicle of a specific size in order to carry on their trade, and the retrospective part of the Government’s proposals will be particularly damaging to them. Does the Minister not recognise that this is really an attack on small businesses, and on people who are trying to start and build on their businesses?
I thank the Minister. It is a similar point. The Minister rightly spoke of allowing people to make choices in order to cut their vehicle excise duty by 2010, but that was predicated on the assumption that people would have enough money in their family budgets to change their cars before 2010. Many of the people whom the Minister and I represent do not have that disposable income. That is the nub of the problem.
My hon. Friend and others are presenting a strong argument, and I hear what they say. The package that we presented in the Budget, and which I am explaining today—in defence against the attack by the hon. Member for Runnymede and Weybridge, who claims that the Opposition are the motorist’s friend—specifically seeks to influence purchase choices when they are made. We already know that that is the way in which the market is moving.
May I gently suggest that a better way of changing behaviour would be to introduce a prospective rather than a retrospective tax change, and to introduce not a “showroom tax” but something which I must say in all humility that I suggested three years ago—a three-year lead-in for new vehicles and the most gas-guzzling and vehicle excise duty of, say, £2,000 a year, so that people thinking of buying a car of that kind would know what they were doing? Furthermore, such a level of vehicle excise duty would substantially hit its resale value and influence prospective purchasers of new vehicles, whereas a showroom tax is such a small proportion of the price of those gas guzzlers that it is unlikely to have much effect on the purchase decision.
I have been listening very carefully to the points that my hon. Friend and other Members have been making about retrospectivity. As Members know, this will be legislated for in the Finance Bill of 2009, so there will be ample time for us to discuss the issue on many occasions before then.
The hon. Member for Brecon and Radnorshire made a point about small businesses. Small businesses using vehicles are no different from other users of such vehicles. I hear his point, but many families also have no choice in that they need a car to travel to work or to school. I do not believe that we ought to have a specific measure to help people in small businesses.
It has been claimed that moving existing cars bought after 1 March 2001 into the new VED bands in 2009 is some form of stealth tax. As has been pointed out, the Budget states—this quote comes from page 121 of the Red Book:
“With effect from 1 April 2009…VED for cars, registered on or after 1 March 2001, will be reformed to include six new bands.”
There is not a lot that is very stealthy about that. How stealthy can it be, given that we are debating it today and Members raised it during the debate on the Budget and in Committee of the whole House? Indeed, I heard my hon. Friend the Member for Wolverhampton, South-West make his point on the matter in his usual forceful and thoughtful way in that debate.
The Budget was very clear that the measure includes existing cars, as is normal for VED changes. What I agree could be clearer is that cars bought between 2001 and 2006 and emitting more than 225 g of CO2 per km will not be placed in higher bands straight away in 2009, but that change will be staggered over two years. That staging means less of a rise for drivers of existing polluting cars next year. This cannot by any means be described as a stealth tax.
Will the right hon. Lady accept that, although she says that the measure was made clear in the Budget, when the Chancellor referred to it he suggested that the majority of drivers would be no better or worse off, and did not mention the fact that millions of drivers would be paying between £50 and £90 per year more?
I know that I have not given way to the hon. Gentleman, but this is a short debate and there must be time for Back-Bench speeches.
May I finally turn to the current costs of motoring? We understand, of course, the pressures that the current high petrol prices are putting on motorists.
I am grateful to the right hon. Lady for giving way; she is being characteristically charming. Does she agree that there is a competitive disadvantage for British hauliers compared with those from the European mainland, and has she considered making foreign lorries pay for using UK roads and for the environmental damage they cause, by means of what has been described as a “Brit disc”—another UK Independence party policy?
No, I do not accept what the hon. Gentleman says, although he makes his point in his usual entertaining way.
We do, of course, understand the pressures that the current high petrol prices are putting on motorists. Those prices are being driven by high global oil prices. Fuel duty has fallen by 16 per cent. in real terms since 1999, and the cost of motoring has fallen in real terms by 11 per cent. since 1997 and by 13 per cent. since 1999. I understand, as representations are being made on the matter, that it might not feel like that to motorists, but we have to respond to the facts as they stand. I know that road transport underpins our way of life in the UK. It is a key enabler of the economy, and it helps families to make essential journeys to work and school. The key challenge that we face is to support increases in road transport use in a sustainable, environmentally responsible way.
At this point, I feel that I should say a word or two about the debate that took place last week on the Finance Bill. The hon. Member for Taunton (Mr. Browne) sought to explain how the Liberal Democrats would find £50 billion from environmental taxes—taxes on behaviour damaging to the environment—to fund a reduction in income tax from 20 to 16 per cent. The hon. Member for Runnymede and Weybridge was there, so he will remember that it was an entertaining sitting. The hon. Member for Taunton singularly failed, in half an hour of his contribution to the discussion, to explain how his party would raise that £50 billion, and the hon. Member for Runnymede and Weybridge did not challenge the figure.
What I find striking is the similarity between the position that the Liberal Democrats took in that debate and the position that the Conservatives have taken in today’s debate. These vehicle excise duty changes are forecast to save 1.3 million tonnes of CO2 by 2020. The incentives that they create will contribute to the projected increase in the total number of cars in bands A and B—the cleanest bands—by 650 per cent. by 2020. It is important for parties that come to this House to make a case such as the one that has been made today to demonstrate responsibility in their actions when considering such measures. As my hon. Friend the Member for Wolverhampton, South-West has said on a number of occasions, they should not fail, whenever the responsible position is put, to support the need for green taxes.
The Minister is right to point out the hypocrisy of the Conservatives’ motion, because they have not identified where they would tax elsewhere to fund the reductions that they propose to make. I do have a meeting with the Chancellor, and I have raised the issue of rural areas with him before. My area was crippled by the fuel escalator under the Conservatives, but now that there has been an increase at the pump, is it possible for the Treasury to examine ways of considering rurality when it deals with fuel duty and other such measures in future?
The Exchequer Secretary to the Treasury, whose policy area this is, has greater oversight of the detail on the other ways in which the Government are working internationally to ensure that every step is taken and that the overall package of measures that seeks to reduce damage to the environment is a balanced one.
I am grateful to the Minister, because she did say that it was important for hon. Members to act responsibly on these matters, and she also told the House that these measures would produce a saving of 1.3 million tonnes of CO2. That is not a terribly large figure, but it is at odds with the answer that my hon. Friend the Member for Putney (Justine Greening) received from the Exchequer Secretary to the Treasury, which stated:
“Budget 2008 reformed the VED structure to strengthen the environmental incentive to develop and purchase fuel-efficient cars. The reforms take effect from 2009-10 and 2010-11. They are forecast to result in rising carbon savings over time as the number of low carbon cars significantly increases. In 2020 the changes are forecast to deliver carbon savings of 0.16 MtCO2.”—[Official Report, 21 April 2008; Vol. 474, c. 1676W.]
There is no difference whatever. The figure of 0.16 applies to 2020 only. The cumulative effect between 2009 and 2020, which is the figure that I referred to, will be 1.3. I believe that the package of measures that we have put forward will have the effect that the Government intend. Drivers will be incentivised to buy cleaner versions of their preferred model. As I have said, drivers of 24 of the 30 most popular cars in the UK will pay less or no more because of the Budget.
These are important changes for the environment. The Opposition motion distorts the position while remaining silent on their proposals for climate change, just as the hon. Member for Runnymede and Weybridge remained silent on that subject during his speech. Motorists should be wary of the Opposition’s words. The motion is not worthy of support today.
I approached the Conservative motion in my usual constructive way and found things in it with which I could agree. I agree that the change for existing vehicles was not introduced with great clarity. I am sure that it is in the Red Book, but not too many British families sit around reading the Red Book in the evening to find out what will happen to their taxation. I also agree with the Conservatives that it is wrong, in terms of retrospectivity and the social consequences, to attack existing vehicles rather than new vehicles. That principle is clear. I also agree with the basic approach that such is the lack of faith in environmental taxes that any future changes have to be included within a package that is offset against other forms of tax. I agree with the motion on those three key points.
In parenthesis—since the Financial Secretary chose to have a go at my colleague, my hon. Friend the Member for Taunton (Mr. Browne), who is not here—I am not sure what she meant by the reference to a £50 billion package. The package that I crafted, which has gone through our party conferences and has been published, would cost about £20 billion. The basic principle behind it was that we would want to cut taxes on hard-working families—I think that that is the expression—and that it would be funded by a combination of environmental taxes, increased capital gains taxes and the removal of some of the reliefs on high earners. People might not like the politics of it, but the numbers were fully checked out by the Institute for Fiscal Studies. Indeed, I presented a copy to the Prime Minister, and since he proceeded with the cut in income tax, he may well have read part of it, although he did not follow up my advice on how to raise the revenue.
Let me make it absolutely clear. The hon. Member for Dundee, East (Stewart Hosie) suggested that the cost would be £57.5 billion over the years and asked the hon. Member for Taunton (Mr. Browne) whether he could make it clear
“what environmentally damaging things he would tax to find £57.5 billion”.
The hon. Member for Taunton replied:
“I can indeed. Let me give the Committee a few examples”.––[Official Report, Finance Public Bill Committee, 6 May 2008; c. 9.]
He then gave the example of removing higher rate tax relief on pension contributions, but failed singularly to bring forward any other measure.
I think that I understand the mystery. Twenty times three is fairly close to 57—I think that that is where the Financial Secretary has got her number from. Of course, the environmental measures were a combination of aviation taxation—I think that even the Conservatives are fairly sympathetic to the point that aviation is under-taxed—and various specific proposals on VED. The environmental measures were clearly spelled out, costed and independently audited. I do not know why the Financial Secretary has a problem with it.
Let me return to the Conservative motion. Although I agree with elements of it, I disagree with the final phrase, in which it
“calls upon the Government to abandon its planned increases”.
As I understand it—I might have misunderstood the legislation—the measures went much further than the changes for old vehicles. Was there not a package of measures that involved a new scale and a new structure for dealing with new vehicles? One can pick holes in particular details, but it seemed to me that much of that was reasonably sensible.
I ask the question that the hon. Member for Birmingham, Northfield (Richard Burden) asked earlier, as it was exactly right. What is the strategic framework within which the policy is located? If the Conservatives are attacking the retrospective taxation of old vehicles, do they go along with the argument—on which, until now, I thought there was a reasonable degree of consensus—that the differential for new vehicles should be widened? That view was not only set out in the quality of life policy group report, but argued on a cross-party basis by the all-party Environmental Audit Committee, chaired by the hon. Member for South Suffolk (Mr. Yeo). I think that many Conservative Members subscribed to the idea. The highest rate would have been of the order of £3,000, which is substantially more than the Government are proposing. I do not know whether that idea is being disowned or criticised now, but I always understood that the Conservatives supported it.
My second, related question is whether the Conservatives are questioning the whole basis of the idea of graduated VED as it relates to the environment. If graduated VED does not work—and there is a perfectly sensible, empirical debate to be had on whether it will work—what other signals could be used? There are other options. We could use more petrol duty, or road-user pricing. Do they want to shift the emphasis on to those options? There are of course problems with all those things, but VED probably involves fewer problems than some of them.
Are the Conservatives questioning the principle of using market incentives? That is what taxes are about: the use of a market incentive to change behaviour. There are people—not just environmentalists, but tough business people—who argue that we need to stop pussyfooting around with market instruments and should just get on with regulation. My former boss at Shell, Mark Moody-Stuart, was recently on the radio saying, “Let’s stop all this silly nonsense about environmental taxes. It’s all involved in giving money to the Government. We need draconian controls on vehicle emissions, and if car manufacturers cannot make cars with sufficiently low emissions, they will go out of business. You might want to toughen things further by tightening MOT controls, so that old vehicles simply go off the road.” That is much tougher and nastier to people who own old vehicles, but that draconian approach would be the alternative to using market instruments. I do not know whether the Conservatives want us to move more in that direction or less in that direction, but that is the question that the hon. Member for Birmingham, Northfield, asked earlier. It is exactly the right question, and I have not yet heard the answer.
We got a hint of the answer when the hon. Member for Runnymede and Weybridge (Mr. Hammond) got a little carried away in a response to one of his colleagues, and started telling us about the motorist under assault. Most of us are motorists, and of course most of us are concerned about rising costs, but the concept of the motorist under assault needs to be examined a little. The Financial Secretary to the Treasury gave us a bit of a clue when she talked about real costs, and the overall cost of motoring in comparison with other modes of transport. What she said was quite true: in the past 10 years, the real cost of motoring, including everything—the private costs as well as the different types of tax costs—has fallen by 10 to 11 per cent. The cost may have increased in the last year—I do not think that those figures include the effects of petrol increases last year—but the figures are fairly neutral. Certainly the real cost has not risen in the past decade.
By comparison, in real terms, the cost of trains has increased by 6 per cent., and buses by 13 per cent. If we take a 30-year perspective, car costs have fallen in real terms by 10 per cent., and train costs have risen by more than 50 per cent. If we compare costs, it simply is not meaningful to talk about motorists being under assault, unless we mean the day-to-day irritation of higher fuel costs. In terms of the incentives structure, the system clearly remains heavily geared against public transport.
Before I say a little about my approach to the specifics of VED, it may be useful if I give a bit of historical context. It is often forgotten that vehicle excise duty was one of the many creations of the 1906 Liberal Government and of Lloyd George. He introduced it with two provisos, which were subsequently forgotten. First, he was very keen on graduated VED. It was to have been graduated by horsepower. That was not because of global warming, but there was an awareness, even then, of environmental costs. However, his recommendation that VED be graduated was subsequently forgotten. That is how VED was introduced.
Lloyd George also recommended that the receipts from vehicle excise duty should be ring-fenced. He was very conscious of the way in which the Treasury absorbs revenue, and specifically recommended that it should be set aside in a separate fund, which ultimately became the road fund.
The second historical point to which it is worth drawing attention is that in 1978 the vehicle excise duty almost disappeared, because the then Labour Government argued strongly that it was a bad tax. They wanted to get rid of it and convert it entirely into petrol duty. The serious analytical point that was made at the time was that if they did that, it would save emissions and fuel use, on a one-off basis, of about 10 per cent.
VED was saved for the nation by the Conservatives, who felt that it should not be abolished. They thought it was a good tax with all kinds of secondary advantages, including tightening up on the enforcement of insurance, so they kept it. That is why we have the debate today. The tax has gone a lot further since then, with the introduction in 1998 of environmental differences. Those are its origins, which are somewhat strange, one might think.
In conclusion, I shall run through some key points in the motion, which require some attention from the Front-Bench spokesmen on either side. I begin with a simple factual question; it is not a policy point. I do not know the answer to it. In the motion the Conservatives imply that the introduction of differentiated VED has very little impact on CO2 emissions. They say that there will be a 1 per cent. reduction. That may or may not be true. It may be what the Government are saying. Is it true? What is the evidence?
The hon. Gentleman may have heard the exchange earlier with the Minister, when we appeared to be in dissension, but as the right hon. Lady confirmed, we were saying precisely the same thing—that the expected change over 10 years as a result of the measure is less than one seventh of 1 per cent. of CO2 output.
If that is true, ceteris paribus and ignoring other considerations, it is an extraordinary conclusion and it goes completely contrary to all the experience that we have had. I am interested and intrigued. If that is the case, we will need to rethink the policy. If it does not work, what is the point of continuing with it?
The evidence of the past few years is that differentiated VED produces substantial changes. Even over the past six years, the number of vehicles in the A, B and C groups has increased from 19 to 36 per cent., and the number of vehicles in the higher range—E, F and G—has fallen from 58 to 37 per cent. Not all of that is necessarily environmentally driven, but it is suggested that that is what has been going on.
The Carbon Trust, which advised the Environmental Audit Committee, produced remarkably high elasticities for the impact of vehicle excise duty on consumer choice. If all this is wrong, it is important that the Government present the analysis. All parties need to rethink what they are doing. There is no point in blindly pursuing a strategy that is not working. May we have the evidence and the basis on which the policy was arrived at?
When the hon. Gentleman looks for the evidence underlying the changes to which he referred, I suggest that he examines the taxation regime for company cars, which changed markedly in those years and was a driver when prospective purchasers of company cars looked at what the income tax effect would be, perhaps more than the vehicle excise duty effect.
That may be part of the argument. In the opposite direction, I saw a study produced by the Environmental Transport Association, reporting that 42 per cent. of all motorists planned to switch to more environmentally friendly cars at their next purchase. That may be tax driven; it may be ethically driven. We do not know. Clearly, there is a mood to switch, and I do not believe those wholly negative results, but I believe in science and I would be interested to see where they came from.
On the policy, I agree. There is nothing much to add. The arguments against taxing existing vehicles are strong, in terms of both fairness and the underlying economics. There is no need to labour the point.
One question that the Conservative spokesman did not raise, which is worthy of mention and often posed by the farming community, is how we deal with the specific problems of working vehicles. The NFU argues that it can produce a workable definition of working vehicles. It is a technical point, but if it can do that, we should try to exempt them. There is no point treating real tractor-type vehicles on the same basis as Chelsea tractors, which would defeat the objective of the policy and undermine agriculture, and there is clearly work to be done on that point.
If we are looking to the longer term, both for the reasons that have been advanced in this debate and more generally, there is a strong argument for moving away from vehicle excise duty as the main instrument to attempting to change behaviour on the roads. Road-user pricing is probably the best long-term replacement, and my party supports that view. I shall not hold my breath, because I wrote essays on road-user pricing when I was an undergraduate 40 years ago, and it still is not with us. It has real problems of technology and privacy, but the technology is now much more advanced and I would welcome progress in that direction.
I was surprised that neither of the two speeches so far referred to the technological change required to produce the switch to low-carbon vehicles. We can play around with prices and taxes, but if the technology does not advance, we are unlikely to achieve very much. Fifteen years ago, I helped to produce scenarios for the oil company for which I worked, and we knew then that low-carbon emission vehicles were available. All the elements were in place—light materials, more efficient engines, more efficient batteries—and that was why the company did not anticipate some of the high prices that we have seen. It assumed that high growth in China and India was entirely compatible with relatively low oil prices because we would see all those energy-efficient vehicles on the roads, but it never has seen them. It has been a slow process and I wonder whether the Government should now consider some of the regulatory steps that need to be taken to push the revolution along faster.
The hon. Gentleman talks about regulation and the context in which motor manufacturers make their engines. I am sure that he knows about the EU directive that we hope will be in place by 2012 to regulate the emissions allowed from the tailpipes of cars, reducing them to 130g of CO2 per kg. That is a significant stretch for current technology, but that is the regulatory context in which policy has to be set.
That is a helpful additional factual point. If we are to round off this discussion properly, we have to have some concept both of the targets for introducing new technology and the monitoring and enforcement of it. All those different elements have to accompany the tax changes, otherwise they will have no effect.
It is a pleasure to follow the hon. Member for Twickenham (Dr. Cable). Some of what I intend to say takes up the themes that he articulated. Like him, I was disappointed to get to the end of the speech by the hon. Member for Runnymede and Weybridge (Mr. Hammond) no wiser about the Conservatives’ proposals, as opposed to their criticisms. That is a shame, because VED raises real and complex questions about how we should deal with motor vehicle taxation. If we are honest, what we should all be trying to do is to reconcile a range of competing and often contradictory pressures and considerations.
How do we frame policies that ensure that the production and use of motor vehicles—not much has been said about production, but it is part of the issue—play their part in meeting the challenge of climate change? In doing so, we must also recognise the strategic importance of the UK motor industry and the specific aspects of the automotive industry in which we excel. That is sometimes an uncomfortable matter in a debate such as this because we are often talking about niche production, performance engineering and luxury car production, and how to ensure that the industry is not undermined. That also applies to jobs outside manufacturing but in the automotive industry, whether in retail, after sales and the used-car market.
How do we incentivise drivers to use their vehicles in a more environmentally sensitive fashion and how do we improve public transport alternatives to inappropriate car use? How do we persuade people that environmental performance is an important factor to be considered when they buy a new car or a used car?
How we do all that is a complicated issue, particularly when we have to feed into it the issue of ability to pay, particularly at a time of rising fuel prices globally, and how to recognise that for some people, whether in their work or where they live, owning or driving a car is not a luxury, but an essential component of mobility for themselves and their families.
The first issue to consider is that the increase in the number of VED bands in the Budget was generally welcomed across the board, a point that has not received much attention so far today. That was welcomed in that it delivered a less blunt instrument for classifying the environmental impact of different models in terms of influencing customer choice. The review led by Professor Julia King at Aston university in Birmingham talks about other ways in which the tax disc could be used to incentivise different forms of behaviour. For example, tax discs could be colour coded to show much more clearly the environmental performance of different vehicles. There are also lessons to be learned from experience gained from the colour coding of the results of crash testing regulations.
I have some particular concerns that I hope the Exchequer Secretary will address when she replies. The first is the new car/used car issue, on which I will strike a slightly different note. I worry about the so-called showroom tax that is to be paid on less fuel efficient cars bought from new. There is a year-on-year increase in fuel efficiency for virtually every new model. This year’s model will be more fuel efficient than the same model produced last year, the year before that or the year before that. To increase the tax on a model simply because it is new, could have the perverse impact of making it more expensive to run even though it is more environmentally efficient than an older model. For the same reason, in principle there is not much logic in the argument that particular vehicles should be exempt from the taxation consequences of their performance simply because they are three or four years old if the objective is to incentivise different forms of driver and customer behaviour. It does not address the issue of ability to pay and the ability to buy different cars—which are real issues—but to say on environmental grounds that cars should be exempt because they are older does not stand up to close scrutiny. However, we must be careful in terms of the ability to pay. We must also be careful about the impact on residual values and on the used car market, which is an important part of the industry.
I am not sure that VED is the best way of incentivising or disincentivising driver and customer behaviour because VED is not related to use. If someone has a 1,300 cc car and they do not keep it well serviced, but use it every day, even for the shortest, most inappropriate runs, their impact on the environment and on CO2 will be greater than if they had a niche sports car of the kind in which the UK excels, although most of us cannot afford such cars, and took it out only on rare occasions. Therefore, it seems that we need to relate incentives and disincentives to issues of use, not simply to issues of ownership. The hon. Member for Twickenham is right: that probably means doing something with fuel taxes or relating some form of road user charging to the environmental performance of models. I cannot think of another way of doing it. Those are the issues that the Conservative party must deal with if it is serious about using green taxes and including motor vehicles in that approach.
I would like to make some suggestions. One is on VED. The King review talked about colour coding to establish and to make clear the environmental performance of cars. We could also look at how to use VED and the tax disc to link up and to promote the use of public transport and the use of a particular car. There are lessons from the use of the Oyster card about whether buying a tax disc could also provide the individual with a passport to public transport as well as being applicable to the individual car. That is an area we could look at.
It is right that rigorous regulation requiring industry, including the motor industry, to improve performance should be important to the general debate on the environment. Indeed, the motor industry has done a lot already. The Society of Motor Manufacturers and Traders’ sustainability report shows what has been done in production processes and in the recycling of vehicles, as well in terms of the performance of vehicles themselves. However, if we introduce regulation, it must be logical. That is why I hope that we will continue to keep a close eye on some of the EU regulations currently being shaped that enable manufacturers that produce lots of models, some with quite poor environmental performance, to be subject to fewer penalties, as long as they also produce other cars that have smaller engines. Such would be the impact because those penalties are measured across the car fleet of the manufacturer. A penalty is imposed on manufacturers not for producing less fuel efficient cars, but for being a smaller company producing less efficient cars. In other words, a company such as Fiat, the Italian company that produces Ferraris, would be hit less under that regulation, unless certain safeguards are built in, than Aston Martin, a British company based in the UK. Why? Because Fiat owns Ferrari and Aston Martin is an independent company. That would be the only difference. That is illogical.
At present the Commission is proposing an exemption threshold for companies producing fewer than 10,000 vehicles per year. Below that they would be exempt from some of the penalties. I know that the Minister and the Government are pressing for the retention of that exemption. I say hold firm on that one—it is important to the British niche vehicle industry.
Unfortunately, that exemption on its own does not meet the needs of another important British company: Jaguar Land Rover, on which thousands of jobs depend in my region in the west midlands and the north-west. It will face big penalties as a result of those regulations simply because it is becoming independent of Ford and is therefore not part of a bigger group. I ask the Minister to continue to work closely with Jaguar Land Rover to ensure that the EU regulations that come in do not have the kind of perverse effect that I have described.
I am happy to assure my hon. Friend that the Government are aware of the points that he makes and are keeping a close eye on the progress of discussions about the development of EU regulations in Europe. We are committed to getting down to 130 kg of carbon dioxide emissions per kilometre, but we certainly take my hon. Friend’s points on board.
I am grateful for that clarification.
I want to make two final points. The first is about the exemptions for classic cars. Although it is not a big issue in the overall scheme of things, it is important to the people involved. Classic cars are environmentally inefficient—cars produced many years ago did not perform well environmentally. Most classic cars are hardly used—they are taken out on high days and holy days to shows and exhibitions. Their tax treatment is illogical because they have to be in a specific age range if they are to be exempt from vehicle excise duty, which is related to a particular date. When the regulation was first introduced, there was a sliding scale—if a car was more than 25 years old, it would be exempt. The amounts of money involved and the nature of the classic car movement mean that we should revisit the matter and revert to a sliding scale of 25 years rather than picking an arbitrary date in the 1970s.
I want to consider technology, which the hon. Member for Twickenham mentioned. We need to get further ahead of the game in promoting vehicles’ environmental performance. We need to redouble our efforts in areas in which we are already strong to make the UK a world leader in automotive-related transport and environmental technologies, whether for cleaning up diesel further, doing more with lightweight materials for use in vehicles, the use of intelligent vehicle systems or getting the mass production of fuel cells closer to reality. If we are to achieve that, and much has already been done, the Government must play their part.
If Conservative Members agree with environmental taxes in some circumstances but believe that they should be ring-fenced to reduce other taxes, do they rule out extra Government investment in those useful environmental objectives? A range of Government programmes already try to incentivise companies to invest in environmental performance, research, development and so on. I would like the proceeds of transport-related environmental taxation to be used not simply to reduce other taxes but to invest in the very things that will enable us to combat climate change as far as we are able. Conservative Members need to reconsider that point. Do they want to use environmental taxes only to reduce other taxes or do they want to invest in the technologies that I described? If the answer is the latter, they must find the money from somewhere.
I emphasise to my hon. Friend the Exchequer Secretary that we are doing much but we can do more, and I urge us to do more if we are to meet the challenge of climate change and allow the motor vehicle industry to play its full part in doing that.
The Government made an odd decision to produce a policy that masquerades as green, but that, on their figures and admission, will make almost no contribution to their green objectives, while taking much money from motorists, especially those on lower incomes and owners of older cars that are less fuel efficient.
What do we know about the proposal? We have learned in the debate that the best that we can say for it is that there might be a saving of one seventh of 1 per cent. of total carbon after the full effect of the measures has been felt. That is well within the rounding error or scope for mistakes in estimating. That is presumably the Government’s best case, so we must assume that the worst case is that there will be no improvement. That seems borne out by the other forecast, which we are more inclined to believe: that the tax revenue will more than double as a result of the proposals. That shows that most people will continue to own their older and less fuel-efficient vehicles and have to pay the tax. It shows that there will not be a huge change in the variety of vehicles that people buy new; a lot of people will opt to buy the less fuel-efficient vehicles because they like such vehicles, which may suit their purposes and be necessary for people’s businesses or the terrain over which they will be driven.
I am afraid that I do not have time to give way. Other colleagues wish to join in this very short debate, and it would not be fair on them. My hon. Friend knows that I am normally very happy to give way.
The position is that there will be a colossal tax hit on people for no good green purpose. We have to conclude that on this occasion this is not a green tax, but a way of raising revenue. What is so sad is that all those who believe that the way to change behaviour in an environmental direction is to use taxation are building a strong feeling out there—on the doorsteps that we all saw in the run-up to 1 May, and on doorsteps in a by-election area that one could mention. People are saying that this measure is a cynical ploy by the Government and a new way of taxing us. There will not be any great green good as a result; the taxes are being used as an excuse.
I urge the Government, at this relatively early stage in the crisis that will undoubtedly occur in the next few months, as people realise what the issue is about, to think again. Not only are they very likely to have to back down because the politics of the proposal are so bad—they will feel that in the marginal constituencies—but they will discover that the proposal is bad for the green cause that they claim to espouse. The Government do not make proposals to curb their own carbon footprint by going a bit easy on the air conditioning and changing the heating systems in their offices. They do not make similar proposals on very old trains and buses, of which we have all too many in this country and which are heavy, fuel inefficient and do a lot of damage. Yet the motorist is always involved.
Why is that? It is because the Government have worked out that most people need a car, as they do not live on top of a railway station and do not have access to bus routes to all the places to which they wish to go. Most people need a car because they need to take things to work or carry their tools or equipment around when they are working. A lot of people need a car to take their children to school because it is the safest and easiest way and they then use it to go on to their own place of work, fitting everything into those difficult one or two hours early in the morning.
If Ministers wish to show that they have any connection with the world in which their constituents live, they should understand that the car is not a luxury but a working necessity for most people in this country, other than the privileged few who live in central London where there is good public transport. Ministers should understand that many have to struggle with out-of-date and old vehicles. Such people would dearly love to have new, fuel-efficient modern vehicles such as those that they see around them that belong to the rich. However, they cannot afford to change their cars today, because of penal taxes and the pressures on their incomes, and they will certainly not be able to do so once the swingeing tax increases come in through the proposals for a massive hike in vehicle excise duty.
Any Government with any political feel or any understanding of how people lead their lives and of the reality of the situation would back off from these proposals now. This Government, of course, usually play silly political games and try to claim that everything is about the Conservative Opposition and not them. That is not how the public see it; the public understand that the Government have the power—they make the proposals and decisions, and whether our lives are good or not is very influenced by the impact of their proposals.
It is extraordinary that the only point that the Government have made in the debate has been to ask how the Conservatives would pay for cancelling the penal element of these tax proposals. Well, how are the Government paying for £100 billion of liabilities that they have taken on to our books through Northern Rock? That is never explained. How are the Government paying for the recently announced £50 billion special assistance for the banking industry? That puts us all at risk. How are they paying for the £2.7 billion of tax reductions announced only yesterday to deal with their political difficulties?
The Government have blown their cover on this argument. They believe that anything can be added to the borrowing requirement; in the past nine months, they have added more than £150 billion to the contingent liabilities and borrowing of this country. How dare they say, then, that the Conservatives could have a problem in wishing to forgo a bit of prospective revenue in 2009-10, based on the laughable assumption that these proposals can stand and that a Government who wished to be re-elected would go all the way in legislating for them and imposing them on people? We have seen how electrifying the impact on the electorate was when the 10p band was taken away and millions of people on low incomes discovered that they were paying for the tax chicanery of the previous Budget. This is almost exactly the same—the only difference is that even more people will experience that hit in the wallet and the pocket-book. They will not need to read their pay cheque to discover what has happened to them—they will physically have to go into a post office or go online to pay this massive and swingeing tax. It will be extremely visible and “in your face”.
The Government are trying to pretend that all people with normal cars will not experience any pain, but that is simply not true. In 2009-10, the duty on a vehicle emitting 162 g to 165 g—for example, a Citroen C5—will go up from £145 to £175, which is a 20 per cent. increase. On a 201 g to 224 g vehicle—say, a 2-litre saloon for the larger family—it will go up from £210 to £300, which is a whopping 43 per cent. On the really big supercars—the over 225 g models—it goes up by only 10 per cent. from £400 to £440. How can the Government argue that that is just or that it makes environmental sense? How can they say that they have any shred of credibility when they whack the people with the family saloon and do not produce such a big increase for the people with supercars who may be a little more tolerant of these large increases in taxation?
I believe that the way to change behaviour is to offer incentives and encouragement, just as we did to get to rid of lead in petrol when we made unleaded petrol cheaper. This Government are doing it wrong. They are trying to clobber people, and in this case the tragedy for them will be even bigger because there is no environmental gain at the end of it.
Although I am critical of the Government’s proposals, I will not join the Conservatives in the Lobby tonight, as they will not be surprised to hear. That is not just because this is an Opposition day debate but because of the sheer hypocrisy of their position. They accuse the Government’s proposals for graduated vehicle excise duty of being dressed up as an environmental measure but solely designed to increase and raise tax revenue, yet when the Conservatives propose precisely the same policy it is apparently the work of environmental visionaries that we should follow and that should lead the debate.
I do not think that the right hon. Member for Wokingham (Mr. Redwood), for whom I have great affection, has claimed to be an environmentalist, but he has claimed not to be a climate change denier. That rings rather hollow if one reads his blog of 4 April 2008—my excellent researchers have fetched it for me. The opening paragraph begins:
“Anyone in power who believes that global warming is happening”.
Those are not the words of someone at the forefront of the environmental movement. I remember the right hon. Gentleman saying, “Who believes it’s happening?”, as if it is not. I remember public quotes from him—I have not been able to dig them out so I will have to rely on my memory—about not being able to identify the 4x4s that are “allegedly” responsible for contributing to global warming. There is a deep brand of scepticism about the entire climate change agenda in parts of the Conservative party, and we need to recognise that.
That does not necessarily apply to the leader of the Conservative party, who has been very forthright about the subject. On the “Andrew Marr Show” on 7 October, he said:
“You can see the very strong commitment to the environment and yes, green taxes, as a share of taxes do need to go up. That’s not necessarily popular, but I think it’s right.”
He is absolutely right—it is not necessarily popular but it is the right thing to do. The question for the Opposition, if they want to walk the walk and look like a Government in waiting, is this: when will it be the right thing to do and time to come off the fence? At the moment, the Conservative party has an interesting and comprehensive document—I will give it that. It is the quality of life document, which was put together by Zac Goldsmith and the right hon. Member for Suffolk, Coastal (Mr. Gummer), and it has three specific proposals that relate to the matters we are debating. It says:
“It is therefore necessary to be much more subtle in the way we design taxes so that they achieve their ends with the least possible pain…Fiscal incentives for environmental improvement can be highly flexible, applied to industry, as in the case of the Landfill Tax, or aimed at directly influencing consumer behaviour, such as the banded system of Vehicle Excise Duty.”
The Conservative motion, unless I am reading it wrongly, effectively seeks to scrap the banded system of vehicle excise duty. The document goes on to commend purchase tax:
“In contrast, an emissions-related tax directly at the point of purchase would increase the price differential between clean and polluting new cars more steeply. Such a tax could be phased in over time as automakers respond by bringing a greater range of efficient cars to market.”
It then recommends graduated VAT of between 5 and 17.5 per cent. on new vehicles.
On vehicle excise duty, the document could not have been clearer:
“We recommend more modest changes in VED, aimed primarily at influencing the used car market where annual running costs comprise a larger proportion of total costs. These levels of VED may also lead to slower depreciation rates for cleaner cars, thus indirectly influencing new purchase decisions. On this basis we propose increasing the VED differential between the top and bottom bands of emissions performance, capped at a maximum of £500.”
That £500 figure is considerably more than the Government are proposing. There will come a time, as my hon. Friend the Member for Birmingham, Northfield (Richard Burden) said, when the Conservatives will have to come off the fence, grasp the bullet and adopt some policies rather than make interesting suggestions.
The motion shows that the Conservatives are prepared to will the end but not the means, and I look forward to a time when they come up with clear, substantial and coherent policy. I believe that the motion misses the point. It calls for the abolition of increases in vehicle excise duty instead of addressing the point of concern for those in my party and elsewhere in the country, which is the retrospective nature of the policy. For Labour MPs, it is the retrospective nature of the measures, with the abolition of the 2006 exemption, that is the nub of the argument.
I agree wholeheartedly with the graded vehicle excise duty—in fact, I was one of the Back Benchers who lobbied for the proposal when I first came to this place. It has made a difference by informing consumer choices. I agree with incentives to make green choices pay. I would go as far as loading purchase taxes quite heavily on new gas guzzlers, with bans of 4x4s from residential streets, if necessary, and higher charges for the most polluting vehicles. I have no problem with incentivising green choices and with making it more expensive to do the wrong thing by the environment. However, I do not agree—and I hope that this came across in the interventions that I and other colleagues made—with denying to the people who can least afford it the opportunity to make an informed and empowered choice in favour of the environment and their family budgets.
We saw the problems concerning the 10p tax, and we have seen the steps that the Government were rightly prepared to take to put £120 back into the pockets of basic rate taxpayers. Some of the increases in vehicle excise duty rates are in line with that £120 figure; people will certainly be forced to pay £90. It is quite simple to me: we can talk about choice, but choice is always an option for the rich. People on low incomes do not change their car every year or two. They need longer than from now until 2010 to make the changes necessary to cut vehicle emissions without being penalised by higher car tax. I speak as patron of the Berkshire Multiple Sclerosis Therapy Centre, which the right hon. Member for Wokingham will know of. I see constituents of mine and his who scrimp and save to run an old Ford Transit van into which they can run a wheelchair to get the dignity that mobility gives them. Do we really want to hit those people? Do we not want to give people with large families, people on low incomes and people with mobility or disability problems an opportunity to make the informed choice that the time scale currently envisaged in the measure simply does not allow?
That is why I urge my hon. Friend the Exchequer Secretary to reflect carefully on representations on the issue from people who truly are her friends, because there is time to put things right. There is time to phase in, if necessary, the different bands. There is time to end the retrospective nature of the measures, which is fundamentally wrong.
My final point is about the public’s capacity to accept green taxes. In this cynical age, we should all be wary of destroying the credibility of green taxation as an environmental tool, if the public consider the measures that we propose to be either unfair or unclear. I do not often do this, but I commend to hon. Members a bit of reading from the Department for Environment, Food and Rural Affairs website, which is a snappily titled document called “A Framework for Pro-Environmental Behaviours”. It makes depressing reading for those of us who genuinely believe in climate change and who want to lead the public debate and change public attitudes.
Sadly, only 18 per cent. of the public fit into the category of “committed environmentalist”. That might be okay when it comes to voting in local elections, but it is certainly not okay when it comes to doing the right thing. What we learn from the survey is that the public are prepared to recycle more, take a tough line against manufacturers that produce excessive packaging and use recycled light bulbs, because they can see that doing so will save them money. But are they prepared to drive less, fly less or be unnecessarily penalised in their pockets? Sadly, they are not at this stage. However, they need to be, and we need to get them there, because climate change is one of the most serious issues facing our planet.
If we want to undermine the necessary measures in the Climate Change Bill to cut our carbon emissions by 60 or even 80 per cent. by 2050, which we all support, we will do so by being unclear or engendering opposition or a sense of unfairness and cynicism about the policies that we put forward in favour of that agenda.
In conclusion, let me say this to Conservatives Members. You have been shallow and opportunistic, because once again you have been found out willing the ends, but not the means. But you are not all wrong—
I take your strictures, Mr. Deputy Speaker. Through you, I say to the Conservatives, “You have been shallow and opportunistic.”
We should accept that there is merit in reforming the proposals. I ask the Government please to reflect carefully on the sheer unfairness of the retrospective nature of the proposals. There is time to make amendments and do the right thing by the environment without hitting some of the people whom we all came into politics to help and support.
I rise to speak on behalf of my constituents, a number of whom have been eagle-eyed and spotted the changes that will hit them next April and the April afterwards. They are pretty horrified by the retrospective nature of the changes that the Government have introduced. Hon. Members in all parts of the Chamber have spoken of their horror of retrospective changes. They are not fair, do not enable people to plan properly for the future, and should be avoided.
Three quarters of my constituents live in the three towns in my constituency. The issue affects not just the rural areas of our country but our urban areas. The employment base in my area has virtually disappeared over the past 15 to 20 years, so many of my constituents need their cars to get to work and to get their children to school. The car is not a luxury item for them. I can think of people who are out of work and who might be offered a job. If the bus could not get them to work on time, they would need a car, and we might prevent people like that from getting into jobs if we set the price of motoring too high.
There are many good works being done in my constituency, often by pensioners on very modest incomes. There are also people who cook for the over-60s’ lunches. They might have to go and get the food and ferry people back and forth in a car that they can only just afford to run. They might not be able to afford to run a car next year or the year after, which could affect those good works.
I am pleased that disabled drivers have been mentioned in the debate. My own mother had multiple sclerosis, and had to use a rather elderly Renault Trafic van to enable her to get around. I saw the real difference that that made to her quality of life. What a disgrace it would be if our disabled fellow citizens were unable to enjoy that degree of freedom and mobility in the years to come, because of these increases.
As has already been said, many of us are in favour of the principle of green taxes. We have to change people’s behaviour, because climate change is really happening and we need to reduce carbon emissions. However, this is a lousy green tax. By the Government’s own admission, it will lead to a reduction in carbon emissions of less than 1 per cent. That will simply store up a lack of credibility with a sceptical public. We know that at least 1 million drivers are going to be forced to pay the higher vehicle excise duty charges. Many of them will not be able to afford to change their car, and some might have to get rid of their car altogether.
We have said that we want to see much lower carbon emissions from cars. I gather that we want to see a target of 100 g per km by 2030, with graduated reductions up until then, which is excellent. We also need to see more progress being made on technology. I saw in one of the newspapers today that a British company, Modec, is going to manufacture up to 5,000 electric cars in Coventry. Those cars will attract no VED at all. We need more companies like that to lead the technological charge in this country.
Edmund King of the AA has said that motorists are to be taxed at a higher rate than champagne drinkers. That is a disgrace, when people need their cars. We know that by 2010, 81 per cent. of motorists will be losers as a result of these measures, which have been roundly criticised by the Society of Motor Manufacturers and others.
Retrospective taxation is not a fair way to proceed. There is broad support across the House for environmental taxation, given the threat of climate change facing the world, but this is not the way to arrange it. There are other ways to raise the revenue that would be forgone by getting rid of these retrospective changes, but this is neither the time nor the place to deal with that issue—[Interruption.] My point is valid; Labour Members have said that that could be done.
I shall support the motion tonight for two reasons. First, the Minister has said that this is a green tax designed to change behaviour, yet if we look at how it was introduced, we see that it happened without any warning. Furthermore, the Chancellor suggested that the increase in VED would affect hardly anyone, that the majority of people would be unaffected and that there would be nothing to worry about. We now know, of course, that more than 16 million motorists will be affected by 2010.
If the Government are to introduce measures to change people’s behaviour, surely the first thing that they should do is spell out those measures, and their consequences. They should then seek to persuade people to do something different. They should not do that by stealth. We were told that these were taxes to change behaviour—but the way in which they were introduced makes it clear that, rather than behaviour-changing taxes, they were simply a cynical attempt to exploit the hysteria about the role of CO2 emissions in climate change.
Secondly, the Minister told us that even when these taxes have been made, the impact on CO2 emissions will be very little—less than a fraction of 1 per cent. That is based on the assumption that people will sell their CO2-emitting cars and opt for cars that emit less. That assumption, of course, as hon. Members have pointed out, is based on a false premise—that many of those who own those cars have the ability to sell them and buy a different car. It is quite clear from what hon. Members have said in the debate that many of the people involved are from low-income families and have bought old cars because those are all that they can afford, and large cars because they have families.
I would give way, but I have to finish quickly.
Those people buy large cars because they require them for their work or their families, so they will not be able to change their behaviour in that way even if they wanted to, and even if they had the economic incentive to do so.
When we look into the environmental credentials of this tax, it becomes quite clear that it is not about changing behaviour or dealing with climate change; it is about raising revenue. If people believe in high taxation, that is fine, but surely that is not true of regressive taxation that hits the poor—poor or disabled families, poor families living in rural areas, poor families with low incomes who can only afford old cars. For those two reasons—because the tax is regressive and because it does not and will not achieve what it is designed to achieve—I will support the Opposition motion tonight.
It is a pleasure to conclude the debate on behalf of the Opposition. We called this debate because the Government have been caught out yet again. They are now planning to pickpocket from the purses of millions of people in our country—and this time that means motorists, many of whom are the least able to afford it. Much of the discussion about who has lost out from this year’s Budget has focused on the 10p tax rate fiasco and the 5.3 million households that the Prime Minister was happy to target last year—until he was found out.
Today we have the chance to voice the concerns of millions of other Budget losers—the millions of motorists who are paying graduated vehicle excise duty on cars bought after March 2001. Many of them will see their car tax rise by up to £245 a year by 2010-11. In fact, they may well be some of the people from the 5.3 million households that the Prime Minister and Chancellor stung for more income tax—before yesterday’s spectacular U-turn.
The story of those motorists and their experience of this Government and tax is almost a case study of Government policy at its worst. It is ineffective, it is, as my right hon. Friend the Member for Wokingham (Mr. Redwood) said, cynical, and it is also, I think, underhand. The Government’s approach to vehicle excise duty was, as ever, “What can we get away with?” We have seen it in so many areas, but especially in tax. In fact, VED was not really a major part of this year’s Budget speech. It would not have been, because it was a tax rise. We were assured by the Chancellor, however, that
“the road tax system should do more to support the use of more carbon-efficiency”,
and that there should be
“an incentive to encourage drivers to choose the least polluting car.”—[Official Report, 12 March 2008; Vol. 473, c. 297.]
Those were the Chancellor’s words in this year’s Budget speech.
Behind the rhetoric, however, the Government’s real approach to vehicle excise duty is characteristic of their approach to environmental taxation in general, providing another chance to tax people more. I can tell the Minister on behalf of my constituents and the public who have contacted me after seeing stories in various newspapers—we heard about one constituent earlier—that they feel this is a disgraceful way to treat the British public. It is claimed, of course, that this tax will help save the environment. The VED changes can be found in the “Protecting the environment” part of the Red Book. However, we now know that Treasury officials told the Government that they could expect the policy to reduce motor vehicle emissions by only a fraction of 1 per cent. by 2020. This policy is not about tackling climate change.
Of the 4 million extra cars that the Government assume will pay graduated VED by 2010-11, guess how many they assume will be in band A? Just 11. The number will rise from 395 in 2008-09 to 406 by 2010-11. I thought the hon. Member for Twickenham (Dr. Cable) put it very well when he said that it would be helpful to understand the assumptions on which the Government have come up with such amazingly and shockingly low figures in describing the impact of the policy on the environment. But, as we know, ultimately the policy was not intended to have an impact on the environment; it was intended to have an impact on Exchequer revenues. These measures were all about bringing in more tax.
According to page 89 of the Red Book,
“As a result of these changes the majority of drivers will be better or no worse off”.
In my view, that was a real and possibly deliberate misrepresentation of the policy. We now know that when the Government referred to “the majority of drivers” they meant the majority of all drivers, irrespective of whether they were paying graduated VED. They lumped in all the 10 million extra drivers who do not pay it. They based their statement on the fact that 26 million drivers pay VED, but of those only 16 million pay graduated VED. They used sleight of hand to suggest that people would be unaffected, when that was not the case. That is a bit like the Government saying that they will raise inheritance tax but only 2 per cent. of people will be affected, simply because 98 per cent. of people will not have died by the end of the year.
When we look at the figures, the position is pretty straightforward. Of the 15.5 million motorists who pay graduated VED this year, more than 10 million will pay more, and 12.2 million will pay more by 2010-11. The people who are worse off include people with family cars such as Ford Mondeos or Renault Méganes, and even people with cars as small as the Nissan Micra. Perhaps most disgracefully of all—we have talked about this a great deal—the people who are worse off also include people who bought cars between March 2001 and March 2006. They never thought that they would be affected by the changes in VED and graduated VED. That is one of the reasons for the sharp rise in VED revenues from graduated VED over the next couple of years. It is due to the Government’s abolition of the 2006 exemption, which was obviously introduced specifically to exclude those people.
Did the Chancellor announce that in the Red Book? No. Did he explain it in the Red Book? No, it was buried in the fine print. As we have heard, a Treasury spokesman eventually admitted that it was not as clear as it could have been. It was not explicitly spelt out that the drivers hit by the backdating of the policy, as my right hon. Friend the Member for Wokingham pointed out in a well-judged speech, would be people with older cars. We know that because those cars are now higher-tax cars, they are worth less second hand. That point was made by the hon. Member for Reading, West (Martin Salter). It is likely to affect people from lower-income families, the elderly and the young, who—unlike many others—may not be able to afford to buy new cars whenever they need them
The hon. Member for Birmingham, Northfield (Richard Burden) spoke of the impact on his constituents. The reality is that the Government are again hitting those who can least afford it, and can least afford to change their behaviour. Ministers know that, because it later came to light that the new backdating of graduated VED would happen over two years because of the transition from band K to band L. That transition was not even mentioned in the Red Book, and emerged only when the Treasury was questioned more explicitly about how the changes in graduated VED could possibly leave so many drivers unaffected. Millions of motorists are suffering a tax increase.
Having said in the 2007 Budget that band F drivers’ bills would increase by, say, £5 a year up to 2010, the Treasury has gone back on its promise and is raising graduated VED massively, in a way that was never explained to people in advance. So the Chancellor is going back on the Prime Minister’s word, giving people the mistaken impression that most will not have to pay more, and that they might even be better off, hiding this backdating of the tax from the new motorists paying it, and making no mention of Government efforts to spread the pain of these newly taxed motorists over two years.
The Government say that this policy is about the environment and motorists changing their behaviour, but as the hon. Member for East Antrim (Sammy Wilson) asked, how does the Exchequer Secretary expect the public to change their behaviour when she hides every aspect of these changes in VED from them? The answer is that people are not meant to be able to react to the changes, which is why the Government are not even pretending that emissions will drop as a result of these VED changes in the Budget. This is just another big fat tax hike perversely aimed at the people who can least afford it. It is a double whammy for the motorists captured by the backdating, because not only will they pay more tax, but their cars will be worth less if they try to get out of this tax trap by selling them. It is utterly deplorable to hit those people when their cost of living is rising so much.
One thing we and the British public know is that this Prime Minister and this Government are never straight with them, and he is not on their side. We are, which is why we are standing up for the public and against this eco-stealth tax brought forward by a Government who are simply out of touch—and when voters get given a chance, they will be out of office.
I want to start by responding to the myths and distortions the Opposition have been peddling today—that this is a hidden tax that hits low-income households and family cars. They are wrong on all those counts. The vehicle excise duty changes are not hidden; they are all there in the Red Book for all to see. The Red Book makes it clear that reform of the VED will mean some drivers paying more while others pay less. We have not heard the Opposition mention today that anyone will be paying less, but that is true. Page 121 paragraph A.97 of the Red Book contains the details of the retrospective aspect.
The changes raise revenue, but it is important to remember that transport spending has increased by 70 per cent. in real terms since 1997, while revenue from transport taxes has fallen by 13 per cent. in real terms since 1999. That is a result of this Government abolishing the fuel duty escalator, which was left to us as a legacy by the Conservative party, and not raising fuel duty every year. Drivers are switching to more efficient cars as well, which reduces revenue, and that is what we want them to do.
Myth two is that this is a tax rise for most motorists. The reality is that the majority of drivers will be better off, or no worse off, because of the Budget changes.
No, I have been left nine minutes in which to speak, so I cannot give way.
The hon. Member for Putney (Justine Greening) said that the figures for who is better or worse off were based on graduated VED alone. That is not correct; they are based on all motorists. These reforms incentivise people to drive cleaner cars, helping to protect the environment, and they reward people who decide to choose not necessarily a different class or model of car, but often just the cleanest version of the model that they wish to drive. As has been said, drivers of 24 of the 30 most popular cars in the UK will pay less, or no more VED, as a result of these changes. Popular versions of cars that will pay less include the Ford Focus, the Renault Clio, the Vauxhall Astra and the Citroen Xsara Picasso. This is not an attack on the family car.
Myth three is that the change will hit low-income families the hardest; that has been suggested by many Opposition Members. It will not. Lower-income families are less likely to own a car than the rest of the population; indeed, most of the poorest 20 per cent. of households do not own a car. Moreover, lower-income families who do own a car are more likely to own older cars, from before 2001, which are not affected by the new VED bands at all; that represents one third of all cars in the UK. Lower-income families are not the most likely to buy the most polluting cars because they tend to be the most expensive, because of their larger engines. The majority of low-income families will therefore be either unaffected or better off. This is not a tax rise for most motorists, or a tax rise that hits the poorest, nor is it a tax rise that hits the average family car.
The interesting thing about today’s debate was the announcement by the Conservative party that it will reverse the VED changes that we have outlined. The Conservatives did not enlighten us by telling us how they would reverse the changes or what they would put in their place. That gives no environmental signal or certainty whatever. The Conservatives did say that there would be no environmental taxes from them that did not hypothecate the revenue into a special fund. It seems to me that their environmental credentials are falling apart.
I am finishing my answer to my hon. Friend. Vehicle excise duty will contribute only part of achieving a much greater prize, which is what we can gain if we can manage, by regulation and agreement in the EU, to create a limit of 130 g of CO2 per kilometre for all new cars. If we could manage to do that, it would save as much as an additional 8 million tonnes of CO2 by 2020, which is a prize well worth having.
I presume that Zac Goldsmith’s quality of life paper, which the right hon. Member for Witney (Mr. Cameron) said was full of interesting ideas, many of which would end up in the manifesto, proposed a version of change in respect of graduated VED containing bigger environmental signals and higher top rates than the ones that the Government are promising to put in place from 2009 onwards.
I am grateful to the Minister. Will she say something about the disproportionate effect that the proposals will have on people in rural areas, many of whom need access to larger vehicles because of their employment in agriculture and other sectors? That point has been raised by a number of hon. Members on both sides of the House.
We have this debate often. It is very difficult to have a rural or regional view of VED, because it is difficult to define it, and it would be even more difficult to try to police it. As the hon. Gentleman knows, some vehicles are exempt and some vehicles use red diesel, which lowers the costs. We are sensitive to the issue, but there are no real easy answers.
The hon. Gentleman also ought to realise that some 4x4 cars are in lower CO2 bands, and I hope that it will be possible, over time, for people to migrate to using those. Part of the dynamic point of the VED changes is to increase the incentives for manufacturers to make more cars in lower bands. That approach is working, as we have seen over time. As a result of VED changes, there has been a 25 per cent. fall in the number of vehicles that are very polluting and an increase of 33 per cent in the number of less polluting vehicles. So, there are signs that these changes are working.
I have two minutes left, so I cannot give way.
The whole point of the new system is to create choice and to create the incentive for people to change their behaviour. Vehicle excise duty has contributed to the proportion of the least polluting cars rising by more than a third. The number of the most polluting cars has fallen by a quarter, so there are some signs that our approach is working. These changes should be seen as part of a package of measures that support the EU proposal to reduce the average emissions from new cars to 130 g per kilometre, and gain and capture that 8 million tonnes of CO2 savings.
In conclusion, let me remind the House why we are making these changes. Climate change is not a problem that we can afford to ignore—
Motion made, and Question put,
That at this day’s sitting, Standing Order No. 41A (Deferred divisions) shall not apply to the Motions in the names of Sir Stuart Bell and Ms Harriet Harman, relating to the Church of England Marriage Measure, and Yvette Cooper, relating to Banks and Banking.—[Liz Blackman.]
On a point of order, Mr. Speaker, I would be grateful for your guidance with regard to item No. 4 on the Order Paper—namely, the banks and banking statutory instrument. I served on the Committee that considered that this afternoon, and I raised a point of order there, too. Surely it is very unusual for a statutory instrument to be considered in Committee room at 2.30 pm and then in the main Chamber in the evening. I acknowledge that the Hansard report of the proceedings in Committee has been available in the Vote Office for some time this evening, but I doubt that many hon. Members have had the opportunity to read it.
The problem has been compounded by the fact that we have just agreed that the motion should not be dealt with through a deferred Division. That means that hon. Members will have to vote on the motion tonight, whereas normally they would have the opportunity of a few days to read Hansard before they did so. Surely that hardly gives the House due time and opportunity to consider what is a complex and technical matter that was considered only this afternoon.
I anticipated that an hon. Member—not necessarily the hon. Gentleman—would raise the matter, and I have taken the bother to write something out, which I shall read into the record.
This is an infrequent but well precedented occurrence. The transcript of the debate in the Delegated Legislation Committee earlier today was produced very rapidly and is now in the Vote Office. I understand that it has been in the Vote Office for some two hours.
I hope that that explanation helps the hon. Gentleman. If he feels that it is inadequate, it is not for me to tell him what to do, but he can vote against the motion if he wishes—though I am not encouraging him to do that.
Further to that point of order, Mr. Speaker. You said that the procedure has precedent but is used infrequently. However, I understand that it was previously used on 8 March. If we reach the stage when this happens every couple of months, it will become part of the norms of the proceedings of the House, and Members will suffer as a result.
Sometimes we deal with precedents from 8 March 1900. If the precedent is last 8 March, that is not too bad in terms of the House’s history.
Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Delegated Legislation Committees),
Church of England Marriage Measure
That the Church of England Marriage Measure (HC 511), passed by the General Synod of the Church of England, be presented to Her Majesty for Her Royal Assent in the form in which the said Measure was laid before Parliament.—[Sir Stuart Bell.]
The House divided: Ayes 266, Noes 4.
Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Delegated Legislation Committees),
Banks and Banking
That the draft Cash Ratio Deposits (Value Bands and Ratios) Order 2008, which was laid before this House on 2nd April, be approved.—[Liz Blackman.]
On a point of order, Mr. Deputy Speaker. Given the proportions in the last vote, would it not be reasonable for this to be carried by acclaim rather than by a formal Division?