(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules) - Clause 67 - Cars with low carbon dioxide emissions

Finance Bill – in a Public Bill Committee am ar 11 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Amendment proposed (this day): 50, in clause 67, page 35, line 37, leave out subsection (2).—(Ian Mearns.)

Question again proposed, That the amendment be made.

Photo of David Crausby David Crausby Llafur, Bolton North East

I remind the Committee that with this we are discussing the following:

Amendment 54, in clause 67, page 36, line 15, at end add—

‘(9) The Chancellor of the Exchequer shall review the overall impact of the Government’s overall budgetary and policy decisions on support for the low emitting vehicles industry, and the sales of these vehicles, and place a copy of this review in the Library of the House of Commons within six months of Royal Assent.’.

Clause stand part.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It is good to be here once more after the lunch break, Mr Crausby. We are discussing clause 67, and the extension of the first-year allowance for expenditure on cars with low carbon dioxide emissions. I was in the process of welcoming the extension; I was also commenting on how my hon. Friend the Member for Gateshead had carefully outlined the detrimental impact that the clause could have on the UK’s low-carbon and electric vehicle industry, given that subsection (2) will exclude UK firms leasing or renting such cars from claiming the previously available 100% first-year allowance. That is clearly an extremely serious cause for concern, given the critical role that UK leasing and rental firms have played in supporting the purchase, take-up and use of low-emission cars. I look forward to the Minister’s response, given the impact that subsection (2) could have on the industry.

My hon. Friend the Member for Gateshead also made clear the importance of consumer and business confidence in helping this new and potentially hugely successful industry to grow in the UK. That industry has particular relevance and significance to a region such as the north-east, given the role that Nissan and its supply chain play in the local economy. Amendment 54 calls on the Government to take stock and consider the  impact of their various announcements and policy decisions relating to the industry since 2010; they should have a look in the round to see what effect those announcements and decisions have had.

Before testing the Committee’s opinion on the amendment, we will discuss whether the clause as a whole should stand part of the Bill. I therefore want to take the Committee back briefly to the heady days of 2010, and the Prime Minister’s visit to the Department of Energy and Climate Change with the then Secretary of State for that Department—I apologise to the hon. Member for Eastleigh for bringing it up. The Prime Minister used that visit to claim that this Government would be the greenest Government ever. Three years on, and we have a Government who in 2012 presided over an increase in the level of CO2 and greenhouse gas emissions, who have been blocking the CO2 decarbonisation target for 2030 for the UK’s power sector in the Energy Bill and who have mired themselves in a plethora of misdemeanours. We have had the feed-in tariffs debacle and the forests cock-up; then there is the fact that they are the first Government since the 1970s not to have a Government-funded energy efficiency scheme; there is also their continued to-ing and fro-ing over renewables policies, and indeed the dreadful decision this month to plough on with the badger cull. We also have a relatively new Energy Minister, the right hon. Member for Sevenoaks (Michael Fallon), who as recently as last year was questioning whether climate change targets were even necessary.

What, then, of the Government’s support for the low-carbon vehicle industry? The coalition has a programme in place, led by the Department for Transport, to increase the uptake of low-carbon emission vehicles, which is obviously welcome. However, the Opposition are genuinely concerned that, as with so many other areas of Government policy, the continued chopping and changing and giving out mixed messages across Whitehall has caused unnecessary uncertainty for a relatively new industry, in which certainty and predictability will be absolutely key to success. There is particular uncertainty for consumers who are thinking of purchasing a low-carbon emission vehicle: one example was the short-sighted and damaging decision to cut back on the planned national network of charging points for electric vehicles back in 2011. The decision to exclude UK firms that are leasing or renting low-emission cars from the 100% first-year allowance is worrying: it is another bad signal that the Government are sending out.

The Opposition are not alone in expressing this concern. Last September the Transport Committee report, “Plug-in vehicles, plugged in policy?”, was highly critical of the Government’s approach. It concluded:

“The Government must avoid creating instability in the plug-in vehicle market through a lack of consistency between departments in their approaches to financial incentives for plug-in vehicles and adopt a more coordinated approach to these incentives across Whitehall.”

It also said:

“We regret the Treasury’s decision to change the financial incentives framework for low carbon vehicles without prior consultation. Such unexpected changes to these incentives risk creating instability in the market for plug-in vehicles.”

On the financial incentives, the report stated:

“The March 2012 Budget announced a number of changes to the financial incentive programme for low carbon vehicles. General Motors commented on these changes as follows:

We were disappointed with the recent announcements in the 2012 budget relating to low carbon vehicles. In order for low carbon vehicles to be successful they require a taxation system that encourages their uptake. Increasing the company tax rate for low emission vehicles after 2015 and preventing leased business cars being eligible for first year capital allowances will not help this. This has made purchasing a plug-in vehicle less attractive to the corporate consumer with little overall benefit to the Exchequer.

This disappointment was echoed by other industry representatives. The Society of Motor Manufacturers and Traders stated ‘such unexpected announcements cause instability in the fleet market and provide mixed messages on market support.’ Toyota was ‘surprised’ by the announcement and said it ‘may cause instability in the fleet market and send a mixed message’”.

Critically, in relation to amendment 54 and the need for stability to support this industry, the report also stated:

“In addition to the potential financial impact of this change, industry witnesses told us that the perception that financial incentives were changeable was also problematic. Ian Allen, from Vauxhall, told us that such instability was particularly problematic in a ‘fragile, fledgling market.’ Graham Smith, from Toyota, concurred that ‘there are plenty of reasons why consumers might be cautious about a new technology. Therefore, anything that changes and destabilises the regime within which that purchase takes place… will affect particularly professional buyers.’ He argued that this change should be reconsidered and that ‘there is an opportunity to reverse what is a fairly negative signal towards the auto sector in the UK were those changes to be reconsidered.’ Toyota argued that ‘continuation and stability of such measures is important to avoid retreating too early from the incentive frameworks’ as this ‘could negatively impact the consumer’. It stated ‘we encourage a coordinated cross-departmental approach by Government on policies relating to low carbon’”.

Any right-thinking person would regard a co-ordinated cross-departmental approach as common sense, but achieving it is apparently beyond this Government. The tax information and impact note states that the provisions included in clause 67 are

“expected to encourage higher levels of investment in the most environmentally-friendly business cars.”

That is something that we all want to encourage. The assessment of the impact of the measures in clause 67 shows significant gains to the Exchequer with an additional £25 million in receipts expected in 2013-14, £115 million in 2014-15, £185 million in 2015-16 and £250 million in 2016-17. So what is the real motive behind the changes that the Government are introducing? Are they genuinely trying to support the take-up and use of low-emission cars or have they found a target to help reduce the deficit, which at the current rate of reduction will take 1,000 years?

For all the reasons outlined, the Opposition believe that the Government should take a step back and look at the overall impact of their policies and spending decisions on the low-carbon vehicle industry and the sales of these vehicles. It is vital that the Government have a co-ordinated, long-term, strategic approach to this area. That is not only our belief but that of many of those in the industry who are equally concerned about the impact of the Government’s policy approach.

Photo of Fiona O'Donnell Fiona O'Donnell Llafur, East Lothian

Even though I sense that my hon. Friend is coming to the end of her contribution, would she like to encourage Lib Dem members of the Committee in particular to support the amendment? During the vote on decarbonisation, some members of their party were willing to stand up for the green credentials that the Government claim.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank my hon. Friend for that insightful intervention. Amendment 54 is very reasonable. We ask the Government to take a strategic view of the impact of all their

“budgetary and policy decisions on support for the low emitting vehicles industry, and the sales of these vehicles,” and to place a report before the House of Commons. Not only have the Government claimed to be the greenest Government ever but they have claimed to have high aspirations to be transparent. Supporting the amendment would put their approach to both those challenges in the public domain.

Photo of John Pugh John Pugh Democratiaid Rhyddfrydol, Southport

I am sympathetic to the hon. Lady’s point, but not to the amendments that have been tabled. I think that the Government would happily agree with her suggestion that we need a long-term strategic approach to such matters. I have tabled an amendment to a later clause a propos liquid petroleum gas. We are in agreement that the Government need to be strategic, take a long-term view and provide certainty for industry. All that amendment 54 appears to do, however, is to call for an analysis of the impact of taxation. As the hon. Lady said, the Transport Committee has already done that, so the amendment seems anodyne. One would suppose that the Chancellor does that as a matter of course on all fiscal measures. I am not clear how any of the Opposition’s amendments would put in place a long-term strategic approach.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I did not catch the hon. Gentleman’s final point. Obviously, the Select Committee looked at the matter in advance and sent out warnings about some of the potential policy changes. We are now voting on those changes in Committee, but unfortunately the Opposition do not have enough Members to vote them down. To do so would require the Liberal Democrats to put their money where their mouth is on their green credentials and join us in holding the Government to account on their green claims. We are asking the Government, with the immense resources at their disposal—[ Interruption. ]

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Thank you, Mr Crausby. We are asking the Government to carry out a strategic overall review after the event to assess the impact of the changes. We have asked for the report to be produced within six months of Royal Assent. The measure is a perfectly reasonable one, and I hope that Liberal Democrat Members will join the Opposition in voting for it, to ensure that the Government are going down the right track in supporting a vital and still fledgling industry.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

I apologise to the hon. Member for Gateshead for not being here at the start of debate on the clause. I have listened carefully to his remarks, which he made very well, and I will touch on them shortly.

Clause 67 makes several changes to the capital allowances system for business cars. Those changes will ensure that the capital allowances system continues to provide a targeted, robust and fiscally sustainable incentive for businesses to purchase the most environmentally friendly  vehicles. The changes will also support the UK’s progress towards European Union emissions targets for 2015 and 2020, and they will lay the foundations for a strong, sustainable low-carbon economy.

Allow me briefly to give some background. The rate of capital allowances available for expenditure on a business car is currently determined by the car’s carbon dioxide emissions. That is designed to provide a financial incentive for businesses to purchase cleaner cars over more polluting ones and support the Government’s objective of reducing carbon dioxide emissions in the UK. Capital allowances for business cars were first linked to carbon dioxide emissions in 2008. Since then, there have been significant improvements in engine efficiencies and a significant reduction in vehicle emissions.

We need to take steps to ensure that the capital allowances system continues to reward investment in the cleanest cars and to support the Government’s wider objectives for the UK environment. The changes made by clause 67, which were announced at Budget 2012, are designed to achieve just that.

The first change is to extend the 100% first-year allowance for expenditure on the lowest carbon dioxide emitting vehicles for two years, until 31 March 2015, which will continue to reduce the cost of investment in the cleanest vehicles by increasing the value of capital allowances relief to a business. To ensure that the first-year allowance remains effectively targeted, the qualifying emissions threshold will be updated in line with the EU emissions target for 2020. Expenditure on leased cars will also be excluded from the first-year allowance from April 2013 to ensure that the first-year allowance delivers value for money in terms of the environmental benefit it brings to the UK.

The second change made by the clause is to reduce the carbon dioxide emissions threshold at which expenditure on a car qualifies for the main capital allowances rate. The new emissions threshold, which takes effect from April 2013, will provide a more appropriately targeted incentive, which aligns with the EU emissions target for 2050.

The third and final change is to reduce the carbon dioxide emissions threshold above which the lease rental restriction applies, in line with the changes to the main capital allowances rate threshold. The lease rental restriction reduces how much of a business’s rental payments on high carbon dioxide emitting vehicles are deductible for tax purposes. The new threshold, which takes effect from April 2013, is therefore designed to provide a more effectively targeted disincentive for businesses to hire or lease environmentally polluting vehicles.

Amendment 50, tabled by the hon. Member for Gateshead, would allow expenditure on low CO2 emissions cars bought for leasing purposes to continue to be eligible for 100% first-year allowances. I sympathise with the concerns that such an exclusion might reduce the effectiveness of the first-year allowance in supporting low emission vehicle uptake in the UK.

The Government believe, however, that it is necessary to protect the Exchequer from abuse. Without the exclusion, there is nothing to stop an overseas business leasing  low-emission vehicles from the UK in order to benefit from the first-year allowance. In that situation, the Exchequer would subsidise the cost of providing the first-year allowance, despite no environmental or economic benefit accruing to the United Kingdom. That is not an effective use of taxpayers’ money. All other mobile leased assets are excluded from first-year allowances to protect against that risk of overseas leasing.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 2:15, 11 Mehefin 2013

I appreciate the arguments that the Minister is putting, but is there a risk that he is using a sledgehammer to crack a nut? He says that there is no economic benefit to the UK, but that seems to disregard the knock-on impact on production in the UK and on the supply chain resulting from destabilising confidence in the market itself.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

I was just coming to that issue, which we looked at carefully. We explored alternative anti-avoidance proposals as part of the discussions with industry—was there a way we could try to achieve that without the benefit going overseas? We were unable, however, to identify a simple, EU-compliant proposal to provide an effective safeguard against that potential abuse. Nevertheless, the Government will keep the matter under review and see whether it is an area we can look at again in future.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Do I detect from the Minister’s comments that the Government will support our amendment today, to keep the situation under review and produce a report in due course that will be placed in the House of Commons Library?

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

I think the hon. Lady’s detection system is faulty. I am coming to amendment 54.

Amendment 54 asks the Chancellor to review the impact of the Government’s budgetary and policy decisions on support for the low-emitting vehicles industry and the sale of such vehicles. I shall reaffirm the Government’s strategy in this area and explain why a review of its success is unlikely to be informative at this stage. The Government aim to position the UK at the global forefront of the development, manufacture and use of ultra-low emitting vehicles. They are looking to support the UK’s progress towards European Union emissions targets and lay the foundations for a strong and sustainable low-carbon economy.

To help achieve that aim, the Government have made £400 million available through the Office for Low Emission Vehicles, which has been used to support initiatives that break down the barriers to growth in the market, such as awareness, cost and a lack of infrastructure. Alongside that, they have introduced strong packages to support our aim through the tax system, including: a commitment to reduced rates of company car tax on ultra-low emission vehicles, at least until 2019-20; an extension of the 100% first-year allowance for low emission vehicles until 2018; and the introduction of a new 10% above-the-line credit for R and D, which will support innovation in the automotive sector.

The measures respond to views put forward by industry and provide a clear signal of long-term Government support in this area. Given that the market is still at the  early stages of development and that certain policies have only recently come into effect, it is not possible to review their impact accurately within six months of Royal Assent. At this stage, full and systemic tax return data will not be available to HMRC. We have set out an initial assessment of the clause’s economic impact, including the Office for Budget Responsibility’s certified costing, in the tax information and impact note published in December 2012.

If I heard the hon. Lady correctly, in outlining the Government’s estimate of the financial impact of the clause, she may have inadvertently used the older numbers put out when the tax information and impact note was published in December 2012, rather than the latest revised figures, published at Budget 2013. If she would like me to, I can ensure that she has the numbers published at Budget 2013, which are different and I think in aggregate lower over the five-year time frame. I would be happy to provide her with the latest numbers.

We will keep the measure and wider Government support for low-emission vehicles under review and assess the economic and environmental arguments for further targeted support. The changes made by the clause are necessary. They will encourage investment in cleaner cars, support the UK’s progress towards EU emissions targets and ensure that the capital allowances system for business cars remains robust and fiscally sustainable. I ask the hon. Gentleman to withdraw his amendment, and that hon. Members allow the clause to stand part of the Bill.

Photo of Ian Mearns Ian Mearns Llafur, Gateshead

I have listened carefully to the Minister and I can almost detect a small feeling of reassurance within myself that the Government will keep an eye on what is being done. I would like my hon. Friend to press amendment 54, which would tighten things up, to a Division, but with the Committee’s permission, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 54, in clause 67, page 36, line 15, at end add—

‘(9) The Chancellor of the Exchequer shall review the overall impact of the Government’s overall budgetary and policy decisions on support for the low emitting vehicles industry, and the sales of these vehicles, and place a copy of this review in the Library of the House of Commons within six months of Royal Assent.’.—(Catherine McKinnell.)

Question put, That the amendment be made.

The Committee divided: Ayes 12, Noes 16.

Rhif adran 7 Decision Time — (Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules) - Clause 67 - Cars with low carbon dioxide emissions

Ie: 12 MPs

Na: 16 MPs

Ie: A-Z fesul cyfenw

Na: A-Z fesul cyfenw

Question accordingly negatived.

Clause 67 ordered to stand part of the Bill.