Transport: Chancellor may scrap car tax perk may face a clean sweep

GORDON BROWN, the Chancellor, may scrap tax breaks for company- car owners as part of a strategy for reducing pollution, ministers hinted yesterday.

John Reid, the Transport minister, gave the clearest signal so far that an increase in taxes for motorists to get more people on to public transport would be part of the Budget on 9 March.

At question time Dr Reid said Mr Brown took an "enlightened and rational" view and concerns "would not have fallen on stony soil".

"I can confirm that two areas, the tax breaks which encourage people to drive more business miles, on the other hand the disincentive by taxing as benefits in kind those employers and employees who benefit from buses, for instance, being laid on to bring them to work, have been subject of discussions between our departments," he said. The Treasury understood there were environmental benefits from reducing congestion and encouraging public transport.

"The Government is continuing to review the company-car taxation regime and how it might be altered to send better environmental signals."

But he dismissed suggestions by Liberal Democrats to force company cars to carry adverts for their firms as a way of cutting the mileage they clocked up in leisure time. Tom Brake, MP for Carshalton and Wallington, said that this would cut "illegal journeys" by company-car drivers. But Dr Reid told him: "The sentiment is good and the idea is completely batty."

According to research, private mileage by the UK's 2.3 million company cars is twice the national average, accounting for 10 per cent of congestion and emitting 8 million tonnes of carbon dioxide a year.

The Chancellor is also expected to penalise cars with poor fuel efficiency. He has said he intends charging owners of small-engined cars pounds 50 less than the pounds 150 car tax.

William Hague, the Tory leader, said increased taxes on company cars could cost jobs, saying environmental measures should be introduced as part of a low-taxation strategy.

Mr Hague is positioning his party to reap the votes of motorists and as the "motorists' friend" but his strategy could backfire if the Government's wider environmental agenda proves popular. The Tories also said they would use the election campaign for the mayor of London to fight the Government's plans to introduce congestion charging on motorists commuting by car into the capital.

Richard Ottaway, the Tory spokesman on London, said: "It is just using the motorist as a milch cow. It will be a tax by the back door and we are going to oppose it."

He said some reports suggested that motorists would have to be charged pounds 8 to force them on to public transport but the Government was considering a charge of pounds 2. "That won't deter anyone. It would be a new tax on motorists," he said.