To ask His Majesty’s Government what assessment they have made of the potential impact on the economy of changes to Employee Car Ownership Schemes announced on 21 July.
My Lords, at the Budget 2025 the Government announced that, to allow more time for the automotive sector to prepare for and adapt to the proposed changes in treatment for employee car ownership schemes, its implementation will be delayed until 6 April 2030, with transitional arrangements until April 2032. The tax impact and information notice have been updated to reflect the impact of these changes.
My Lords, I welcome the Minister to the Dispatch Box, as I am sure all colleagues do. I thank him for his positive response, having listened to the motor industry’s concerns. However, while welcome, this delay to wiping out ECOS, a 40 year-old industry leasing scheme, begs the obvious question: what assessment was made when these proposals were mooted, given that they would reduce production by 100,000 vehicles a year, cost 5,000 automotive jobs and hardly put a penny extra into the Treasury’s coffers? Would the Minister agree to meet me and industry colleagues to discuss whether these proposals should be scrapped entirely?
I thank my noble friend for the question. The Government are firmly committed to their modern industrial strategy and to the automotive sector. We have listened carefully to these concerns, which is why we have delayed the proposed changes until 2030, with a transitional period to 2032. There has been an additional commitment of £2.5 billion for automotive investment into R&D, increased flexibilities around the ZEV mandate and the funded rollout of more charge points, and we have announced plans to cut electricity costs for energy-intensive industries. Further, this measure is not expected to add any significant overall macroeconomic impacts. However, after April 2030, it is expected to have some economic impact on businesses and employers that provide this scheme and afterwards sell on those vehicles to new market entry. This impact is predominantly concentrated on the motor manufacturer and motor dealerships industries. The Government are committed to their overall tax policy of fairness to fund and balance the public services.
My Lords, I declare an interest as an owner of a hybrid vehicle. The Minister will know from the recent Budget about the plan to tax EVs for road use per mile. Can he tell the House how this is going to work in practice?
As the owner of an EV, I have a vested interest in this. The taxation of motoring is a critical source of funding for public services and investment infrastructure, including the upkeep of our roads. Fuel excise duty is £24 billion to the national tax take, and it is important, as we transition to our climate change initiatives, that we balance this fairly so that everyone who uses the roads pays their equal share. Historically, motoring taxation has been structured around two elements: taxation on usage of the vehicle and taxation on the ownership of the vehicle. This transition means that all vehicles shall contribute fairly to the wear and tear of the roads, but drivers of petrol and diesel will pay fuel duty, whereas drivers of electric vehicles will not pay the current equivalent. I refer noble Lords to the Government’s policy on the specifics of how that shall be taxed and taken.
Mr Lords, this is a difficult time for the British car industry and it is a welcome announcement that this matter has been put off for some time. Will the Government continue to monitor car production problems in the car industry and review whether this policy should be implemented at the appropriate time?
I thank the noble Lord for the question. As I stated previously, as part of our modern industrial strategy we are committed to the automotive sector. Our ability to defer the start date for this particular policy shows that we are in open dialogue. We will continue with that dialogue.
My Lords, I recognise that there has been an element of contrivance in the usage of the present employee car ownership schemes which the Government are closing down, although the delay is welcome. Right now, so many businesses are under stress, as well as the automotive sector generally. Will the Government be providing some sort of road map for those who are not using this in a contrived way but have a legitimate practice to be able to find a new mechanism to enable them to keep their businesses going? For example, would he find the salary sacrifice scheme approach an acceptable one?
The Government are committed to fairness in our tax system, so we are open to all those conversations. At the moment, we have set out the policy we intend to commit to.
My Lords, I appreciate that the Minister is new to his post, but would he have a word with his colleagues? The car industry in our country is being destroyed by this determination to prevent it manufacturing vehicles with internal combustion engines beyond a particular date. I know that the Government are keen to be in step with Europe, so will they follow Europe and extend that period? What we are doing is creating a market for cheap Chinese electric vehicles, at the expense of some of the best engines in the world, and there are many jobs associated with that.
I thank the noble Lord for recognising my novice status—I appreciate it. I am in constant conversation with my colleagues. The Government are firmly committed to the automotive sector and intend to make sure that we fulfil our commitments to the sector and to the Climate Change Committee.
My Lords, going back to the question of mileage taxation on electric vehicles, does the Minister acknowledge that, in many rural areas, where there is often precious little public transport, there is a greater need for people to have a car, and therefore it would be disproportionately burdensome on those who live there? Have the Government any thoughts about finding a way of rebating the tax for those who are obliged to use a car in rural areas?
My Lords, I welcome the Minister to the Front Bench of His Majesty’s Government. The noble Lord from the Official Opposition asked a question about the taxation of cars. I understand taxation for electric cars—that is pretty straightforward—but he asked about hybrids, which use both petrol and electricity. How will that work? Is it going to be a double whammy of taxation? I too drive a hybrid vehicle.
I thank the noble and right reverend Lord for declaring his interest. I believe that hybrid vehicles are going to be taxed at half the rate, which is 1.5p a mile, as opposed to 3p a mile.