I welcome the opportunity to reply to the range of interesting points made by my hon. Friend the Member for Birmingham, Northfield (Mr. King). As the House knows, he has considerable expertise in and knowledge of these matters and is a valiant campaigner on behalf of the United Kingdom motor industry and the west midlands motor industry in particular. Such was his eloquence and such is his detailed knowledge of the matter that I shall have to be fairly brief in replying to his separate points.

The Government have no quarrel with a number of fundamental assessments made by my hon. Friend. First, we fully recognise the key importance of the motor industry to the United Kingdom's manufacturing base and to national prosperity. We have a successful motor industry and our policies during the past 12 years have played no small part in that.

At the end of the 1970s, the motor industry illustrated everything that was going wrong in our industrial life. It was overmanned, strike-ridden, to a large degree nationalised and, for the most part, had an unattractive product range. However, since then the position has been transformed. The industry has seen huge productivity gains, it has much more harmonious industrial relations and it produces superb cars, the qualities of which are constantly sung by my hon. Friend and his colleagues in the west midlands.

The British car industry is growing. The United Kingdom is seen as a good place in which to build cars. Motor analysts continue to predict that United Kingdom car production will reach the 2 million mark by the late 1990s.

I would not argue with my hon. Friend's point that the recession has brought difficulties for the car industry. He is right to draw attention to the important role played by the business car in Britain. There is no doubt that the business car is an integral part of modern business. Many businesses could not operate efficiently without cars. Of the total stock of 20 million cars, it is estimated that 5 million are owned by businesses and 3 million owned by individuals are used on occasions for business purposes.

For a variety of reasons, not least that in the past they were very much undertaxed, company cars tend to be more prevalent in the United Kingdom than in other EC member states. That is why it is important to consider carefully the tax regime which applies to them.

My hon. Friend will not be surprised when I say that I can make no specific comment this morning on his suggestions for the forthcoming Budget—clearly, I cannot anticipate what my right hon. Friend the Chancellor might wish to do in his Budget next year—but I assure him that my right hon. Friend and I and other Treasury Ministers will continue to listen carefully to representatives of the car industry as we lead up to next year's Budget.

The Government's broad policy thrust on the taxation of benefits in kind is to ensure neutrality in tax treatment between payments in cash and payments in kind. I know that my hon. Friend opposes the concept, as do the Government, of a business car simply as a perk. The car scale structure, which has been in place in broadly its current form since the mid-1970s, has served us reasonably well. However, it is no part of that structure to tax the business use of company cars; merely their private use. The structure of the tax bands recognises the difference between high business mileage and the so-called perk car.

It is never difficult to point to anomalies, because there are only five categories of car tax scale. However, there is simplicity and certainty in the current regime. My hon. Friend mentioned national insurance contributions on company cars. It was sensible to tackle cars in the light of the Government's overall aim of obtaining neutrality between cash and benefits in kind because cars represent about three quarters by value of all benefits in kind. National insurance contributions also apply to payment by gilts and will be extended to unit trusts and equities. Therefore, cars are not being singled out.

My hon. Friend suggested that car scales should be banded by reference not to engine size but to fuel economy. That would not necessarily remove the kind of anomalies for which the current scheme is criticised. It might lead to more anomalies and, given that the main policy aim is to tax the value of cars to individual drivers, fuel economy would not necessarily be the best way to achieve that. My hon. Friend is enthusiastic about diesel cars and raised the matter in our debate on the Finance Bill last year. In reply at that time, my hon. Friend the Financial Secretary explained that the car scale bands cover a fairly wide range of cars and that there were no compelling reasons for distinguishing diesels. My hon. Friend was right to speak about the increase in efficiency of diesel engines and he also spoke about the development of an engine at Ellesmere Port. I shall not dare to enter the fierce environmental debate about the relative merits of diesel fuel and unleaded petrol.

My hon. Friend spoke about cars costing more than £19,250. Such limits are closely examined every year in the budgetary process. He questions the different treatment of taxpayers in schedules D and E. I do not entirely accept that there is a fundamental difference between the two, because for self-employed taxpayers the individual costs of each car are apportioned between private and business use for tax purposes. That is what used to happen for schedule E and the change to scales is mainly to simplify administration and to save arduous record keeping. The substantial discounts that are available for increasing business use give a fair approximation of the individual apportionments within schedule D.

The £8,000 limit on capital allowances is also kept under review, and we are aware of the concern about the effect of these restrictions. My hon. Friend suggests that the 18,000 mile threshold should be reduced. It is, of course, a broad brush threshold in the way that it affects differently those whose mileage is mostly in urban areas and those who have large distances to travel for business purposes. It is kept under review, but it works tolerably well.

My hon. Friend also spoke about the VAT input tax on cars. That has not been recoverable on company cars since the start of VAT in 1973. Most company cars have some private use and if the VAT on their purchase were fully recoverable, a system would have to be introduced to tax the private use and the subsequent sale of the car. That would complicate the administration of the tax.

I reiterate that the Government take seriously the interests of the car industry. I cannot make any commitment about what the Chancellor will decide to do in the next Budget. We shall consider the serious points that have been made in the debate and in the many meetings that the Chancellor and I have had with the car trade. The Government's main concern has been to increase the level of company car scale charges with a view to obtaining parity of tax treatment between those paid in cash and those paid partly in cash and partly in kind.