Finance Bill

Jonathan Edwards Excerpts

Monday 26th October 2015 Commons Chamber

[Mr Gauke]

It certainly is the case that there has been no shortage of representations received by the Treasury on the changes we have undertaken in this area. As always, it is necessary to strike a balance between ensuring we move swiftly to address any risk to the Exchequer and ensuring the legislation is adequate and achieves what the Government seek. I am satisfied that in these circumstances we have struck that balance successfully, and that there has been the opportunity to understand the implications of this legislation while at the same time ensuring we have been able to protect the Exchequer.

While I am on my feet, and perhaps to anticipate some of the points that will be made on this somewhat diverse group, I shall address the related matter of new clause 3 tabled by Scottish National party Members. It proposes a review within six months of Royal Assent on the tax treatment of investment fund managers’ remuneration. Legislating for a review in six months is unnecessary. The Government have already launched a consultation in this area to ensure rewards will be charged to income tax when it is correct they are, according to the activity of the fund. That consultation closed on 30 September and we will be publishing our response along with any resulting draft legislation in due course.

In anticipation of remarks I know we will hear from the hon. Member for Salford and Eccles (Rebecca Long Bailey) about vehicle excise duty, let me also turn to amendments 91 to 93. They would require the Chancellor to replace the changes made by clause 42 and introduce a new VED system that addressed none of the challenges of the current VED system. The amendments call for first year rates of VED to be extended to cover the first three years of ownership and thereafter for rates to be based on a shallower graduation of CO₂. By continuing to base annual rates of VED on CO₂, these amendments would recreate the sustainability challenge of the existing VED system. As new cars become more fuel efficient, more and more ordinary cars will fall into the lower rate of VED bands for their entire lifetime. The changes would also weaken incentives for people to purchase the very cleanest cars. The system Opposition Members propose would therefore need updating regularly to keep pace with technological change. Unless Opposition Members are proposing to retrospectively tax motorists every time the system needs tweaking, an entirely new VED system would need to be created each time. This would create uncertainty for motorists and car manufacturers, something they have repeatedly asked the Government to avoid. These amendments would also mean the VED system remains regressive and unfair for motorists. Poorer families with older, less fuel-efficient cars would still end up paying more tax than richer ones who were able to buy a new car every few years.

In contrast to amendments 91 to 93, the changes made by clause 42 do address the fairness and sustainability problems of the current VED system. These changes base annual rates of VED on a flat rate of £140 for all cars except zero-emission cars, which pay nothing. There will be a standard rate supplement of £310 for cars worth above £40,000 to apply for the first five years in which the standard rate is paid. These changes improve fairness for all motorists and ensure that those with expensive cars pay more than those with ordinary family cars. Those who can pay more will pay more.

They also provide long-term certainty in VED revenues. This supports the creation of the new roads fund so that from 2020 all revenue raised from VED in England will go into the fund. It will be invested directly back into the English strategic road network. The changes made by clause 42 still support uptake of the cleanest cars. They maintain and strengthen the environmental signal where it is most effective in influencing people’s choice of car in the highly visible first-year rates.

By returning VED to a flat rate while continuing to support the cleanest cars, clause 42 provides a simple, fairer, more certain and more sustainable long-term solution. It allows for the creation of a new roads fund which will ensure that our roads network will receive the multi-billion programme of investment it needs. I commend clause 42 and urge the house to reject amendments 91 to 93.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

How will the roads fund work when applied to Wales, Scotland and Northern Ireland, with the duty coming from Welsh, Scottish and Northern Irish car taxes?

[Mr Gauke]

I can assure the hon. Gentleman that the Government are talking to the devolved Administrations about exactly how we are going to do that. We are conscious that these are devolved matters, and we are actively engaged with the devolved Administrations.

I hope that the new clauses and amendments to which I referred earlier in the context of the enterprise investment scheme, venture capital trusts, corporation tax instalment payments and restitution interest payments will be able to stand part of the Bill and have the support of the whole House.

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As I have said, we are keeping the CO₂ link at the point where is it most effective—the first year. Consumer research demonstrates that first-year incentives are by far the most important when customers come to choose new cars. If CO₂ bands continue beyond that, we will continue to be subject to the sustainability challenge of the current system. Over time, technological progress means that new cars would end up paying less and less. We would therefore need to tweak the system again and again, and we would not have the sustainable revenues that we need for the road fund.

[Jonathan Edwards]

If there is any evidence in future years of significant behavioural changes, which some of us are concerned there might be, would the Government be willing to revise their position?

[Mr Gauke]

The Government and the Treasury keep all taxes under review, and were contrary evidence to emerge, we would of course look at it and, if necessary, adapt the policy. We have, however, made a judgment on the evidence before us, and consumer research demonstrates that first-year incentives are by far the most important when customers come to choose new cars.

The hon. Member for Salford and Eccles asked why the Government are now taxing plug-in and hybrid vehicles the same as conventionally fuelled cars. Such cars will still benefit from cheaper rates. The updated CO₂ banding on first-year rates in the new VED system will strengthen the incentive to purchase the cleanest cars, including plug-in and hybrid vehicles. As I have said, the evidence suggests that up-front incentives are the most effective in influencing behaviour. We will continue to support hybrids and plug-in vehicles with beneficial rates of company car tax and enhanced capital allowances, as well as through the plug-in car grant. The Government have guaranteed that £5,000 grant until February 2016.

Our longer-term plan will be announced after the spending review. To drive down carbon emissions and air pollutants, we will give the greatest incentives to zero-emission cars—those that produce no air pollution or CO₂ whenever they are driven—which pay no VAT.

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[Rob Marris]

I agree that it sometimes seems that the policies of this Government are not only to shrink the state, but to give to those who already have and take away from those who have not, for example in terms of tax credits. I will not be drawn by my hon. Friend on the subject of tax credits, but it does seem a rum state of affairs. It is the sort of thing that drew people like me to join the Labour party, to fight for that kind of equality and to fight against regressive taxation.

[Jonathan Edwards]

The hon. Gentleman has been inviting interventions on this issue. On new clause 9, why has he tied in the holy grail of a Budget surplus with asking for a review? As he has said, the Government proposals in the Finance Bill will make it more difficult to reach a Budget surplus.

[Rob Marris]

That is in the interests of having some clarity as to when this should kick-in. The Government could do it now if they chose. They do not need primary legislation to do it, but the proposal for a review of inheritance tax is in the context of the Government now being five years behind the original projections made by the current Chancellor as to when we will be in surplus. We are giving the Chancellor a lot of latitude now. We hoped that there would not be draconian cuts, which are now being planned by the Government, to public spending and that we could, through adopting a growth strategy, get to a Budget surplus with no deficit earlier than 2019-20, but I fear we will not do so. So a review now is fine, but Labour Members are reasonable people and we are giving the Government lots of latitude. They ought to think again on this regressive tax, as on others.