Finance (No. 2) Bill
Wednesday 29th March 2023
(1 year, 1 month ago)
Commons ChamberRead Full debate Finance (No. 2) Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
18:03 - The House divided: - Ayes: 211 / Noes: 289 - Question accordingly negatived.
The Financial Secretary to the Treasury (Victoria Atkins)
I beg to move, That the Bill be now read a Second time.
Before I start the debate, Mr Deputy Speaker, I should declare, to avoid any potential conflict or perception of conflict, that due to a family member’s financial interests, I have recused myself from making ministerial decisions on issues relating to the soft drinks industry levy, which will be dealt with more than amply by my hon. Friend the Exchequer Secretary.
I start the debate by paying tribute to Betty Boothroyd, a groundbreaking Speaker of this House who commanded the Chamber with wit, good humour and gravitas for eight years. She developed a number of subtle and perhaps not so subtle tactics to control a rowdy House, including, I understand, yawning to hint that a speech had outrun the patience of the House. I will try, Mr Deputy Speaker, not to cause you to yawn.
Since the last Finance Bill in the autumn, 10-year gilt rates have fallen, debt servicing costs are down, mortgage rates are lower and inflation has peaked. The Office for Budget Responsibility now forecasts that we will meet the Prime Minister’s priorities to halve inflation, reduce debt and get the economy growing. We are on the right track.
At the Budget, my right hon. Friend the Chancellor delivered the next part of our plan: a Budget for growth. He was clear that this Government’s focus is not just on encouraging growth as we emerge out of the downturn, but on building long-term, fiscally sustainable and healthy growth with businesses and, importantly, communities.
The Finance (No. 2) Bill delivers on those commitments. It takes forward measures to support enterprise and grow the economy by encouraging business investment and helping to increase the number of people in work. It legislates for announcements made at previous fiscal events, which take advantage of our opportunities outside the EU and reinforce our commitment to financial stability and sound money. It implements the tax measures needed to continue improving and simplifying our tax system, to ensure that it is fit for purpose.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
On fiscal events, the Minister will be aware that there was dismay in the Scotch whisky industry at the decision not to reverse the double-digit duty hike previously announced, while introducing a freeze on duty for what the Chancellor called “warm ale”. How is that consistent with the Government’s previously stated policy of reforming spirit duty to support the Scotch whisky industry?
Victoria Atkins
I am grateful to the right hon. Gentleman for raising that issue. I understand his concerns, and I will go into a little more detail later about the reasoning behind the restructuring of alcohol levies. In the last 10 fiscal events before this one, the whisky industry benefited from either freezes or cuts in duties. The Bill will bring into place the new framework announced some time ago, including the health aspect of being able to differentiate the strength of alcohol used in products—something that I suspect the right hon. Gentleman will want to engage with in his speech.
Let me turn to the substance of the Bill, starting with the measures to support enterprise and economic growth. Those of us on the Government Benches know that a strong private sector will grow the economy, spread wealth and prosperity across the country, help to invest in public services and support the most vulnerable in society. We recognise that central to these ambitions is private sector investment, so we are lowering business taxes to incentivise investment and tackle the productivity gap. My right hon. Friend the Prime Minister put that at the heart of his economic strategy as Chancellor, when he introduced the super deduction for corporation tax.
The next step in encouraging business investment is the full expensing policy announced in the spring Budget. The Bill introduces full expensing for the next three years. That means that for every single pound that a company invests in qualifying plant or machinery, its taxes are cut by up to 25p. That will put more than £27 billion back into the economy over the next three years. It is a corporation tax cut worth £9 billion, which the OBR has said will increase investment by 3% for every year that it is in place. It will also make us the only major European country with full expensing, and will give us the joint most generous capital allowance regime of any advanced economy, making the UK capital allowances regime the most competitive in the OECD on a net present value basis, and securing the UK’s position as a global leader.
Sammy Wilson (East Antrim) (DUP)
Does the Minister accept that, as a result of corporation tax increases, the amount of money taken out of firms will be more than double the amount of the allowance that she has just spoken of?
Victoria Atkins
I encourage the right hon. Gentleman to look carefully at the small profits rate clauses in the Bill. We clearly do not want smaller businesses, such as those on our high streets that we care for so deeply as constituency MPs, to be subject to the regimes for the largest multinational companies. If he looks at those clauses, he will see that we keep the rate at 19% for companies with profits of £50,000 or less. For companies with profits between £50,000 and £250,000, there is a tapered rate of increase. That means that 70% of companies will not see an increase in their corporation tax rate. Only the top 10% of companies will be eligible for the full main rate, but we hope that many will take advantage of the full expensing policy that we have announced.
Harriett Baldwin (West Worcestershire) (Con)
Many measures in the Bill will be warmly welcomed by businesses and households in West Worcestershire. However, clause 346 abolishes the Office for Tax Simplification. I do not think that anyone would say that the tax system is simpler than it was when the OTS was established. Could the Minister outline how we on the Treasury Committee can hold her accountable for continuing to simplify our tax system?
Victoria Atkins
I thank my hon. Friend the work that she and her Committee have done on the issue of simplification. The Committee had a very productive session with the soon to be former members of the office. What we want to do, which I will expand on a little later, is to put simplification at the heart of policymaking. So I have set my officials three objectives: making tax fairer, simpler and supportive of growth; and, for every single decision that we make, having explanations of how we will meet those three objectives. But we must acknowledge that, sometimes, there is a tension between the wish to make tax fairer and the wish to make tax simpler. The taper rate that I just described is an example of that. I appreciate that, for businesses with profits between £50,000 and £250,000 profits, their accountants will have to work out which tapering rate is available to them. But we do that precisely because we want to be fair to those businesses. I will expand on the important point that she raised later in my speech.
The Government have committed not only to supporting the growth of established businesses but to providing a boost to start-ups and young companies. That is why the Bill increases the amount of seed enterprise investment scheme funding that companies can raise over their lifetime from £150,000 to £250,000. It simplifies the process to grant options under the enterprise management incentive scheme, and it doubles the amount of share options that qualifying companies can issue to employees under the company share option plan to £60,000. Those changes intend to provide a boost to young companies by widening access to the schemes and increasing the funding limits, encouraging additional investment and further supporting growth of those companies.
We recognise how important research and development is to drive innovation and economic growth, including in our thriving life sciences sector, which employs more than a quarter of a million people and had a combined turnover of more than £90 billion in 2021. To encourage research and development, the Bill legislates for reforms to the R&D tax reliefs system previously announced by the Prime Minister when he was Chancellor. They include changes to support modern research methods by expanding the scope of qualifying expenditure for R&D reliefs to include data and cloud computing costs, and a range of measures to reduce error and fraud to ensure that our tax reliefs are well targeted and offer value for money.
By encouraging more businesses to invest in R&D, this Government are helping them to create the technologies, products and services that will advance living standards. I am pleased that, when they were announced, the chief executive of the Bioindustry Association Steve Bates OBE said of the measures:
“Modernising R&D tax reliefs to include data and cloud computing is essential for life science firms discovering and developing life-changing therapies for patients”.
We recognise the enormous contribution to our culture and economy made by theatres, orchestras and museums, as well as our vibrant film, gaming and media businesses. The Bill will extend for another two years the current 45% and 50% rates of tax relief for theatres, orchestras and museums, which will continue to offset ongoing pressures and boost investment in our cultural sectors.
The Bill will support the Chancellor’s ambitious plans relating to employment. To achieve the dynamic economy we all want, we cannot afford to waste anyone’s potential. We need to remove the barriers that stop people from working. No one should be pushed out of the workforce for tax reasons.
The British Medical Association, the Royal College of Surgeons and others have told us about the disincentive to continue working in healthcare because of tax charges on their pensions, and the NHS is our biggest employer, so to make sure that they and other professions are not deterred from working, the Bill will increase the pensions annual allowance to £60,000. The Bill will also remove the lifetime allowance charge to incentivise our most experienced and productive workers across our economy to stay in work for longer. As Dr Vishal Sharma, chair of the British Medical Association pensions committee, said:
“The scrapping of the lifetime allowance will be potentially transformative for the NHS as senior doctors will no longer be forced to retire early and can continue to work within the NHS, providing vital patient care.”
These changes will help to incentivise highly skilled and experienced individuals to remain in the labour market, which will help to grow the economy while increasing the knowledge and experience of the UK’s labour force.
Rachel Hopkins (Luton South) (Lab)
Can the Minister confirm whether the Government have made any assessment of the number of doctors who will stay in the NHS specifically because of the measure, which will cost more than £1 billion a year?
Victoria Atkins
The hon. Lady must not confine herself merely to the medical profession. I think the chair of the Association of Police and Crime Commissioners said this will be a game changer—
Victoria Atkins
Just give me a moment—I am galloping up to the jump. He said it would be a game changer in terms of policing. We know that education leaders have welcomed the changes, as have others, including air traffic controllers.
The hon. Lady asked a specific question about doctors. I am happy to be able to help her, using statistics produced by the Department of Health and Social Care. They suggest that, in 2023-24, around 22,000 senior NHS clinicians would have been expected to exceed the former £40,000 annual allowance—she must not forget that point—and around 31,000 clinicians would have reached at least 75% of the abolished lifetime allowance. I am happy to reiterate that we are introducing the change precisely because of the challenges we know our NHS, which we all love, faces at the moment, with waiting lists and so on, and because we can make the changes next week, in the new financial year.
I know the hon. Lady will recall that, the day after the Chancellor delivered the Budget, someone eminent in the medical profession appeared on television and said that they had already started receiving phone calls from doctors about how they could come back into the workforce or increase their hours. I know this is a point of disagreement between us and the hon. Lady’s party, but we are determined to encourage doctors and clinicians to remain in the NHS, working for all our constituents.
We are also determined to spread prosperity everywhere. One of the most exciting parts of the Budget was the creation of 12 new investment zones, helping to spread the benefits of economic growth around the UK. The Bill will deliver important aspects of that ambition. It will ensure that investment zones have access to a single five-year tax offer in specific sites, matching that in freeports, consisting of enhanced rates of capital allowances, structures and building allowances, full relief from stamp duty land tax, business rates and a reduced rate of employer national insurance contributions.
Importantly, investment zones will also uphold the UK’s high environmental standards and meet our international commitments. We require that proposals demonstrate how they support the UK reaching net zero by 2050 and our new long-term targets to protect and enhance the natural environment, and how they are resilient to the effects of climate change.
The Bill will also deliver on commitments made at previous fiscal events, including important ones to deliver on our freedom to set our own course outside the European Union. Among those opportunities is a major review of the alcohol duty system, as mentioned by the right hon. Member for Orkney and Shetland (Mr Carmichael). We have worked closely with industry on that over the last two years.
Now that the UK is able to diverge from inherited EU laws, we can implement a system that is a better fit with our national priorities, encourages growth and innovation, aligns with public health goals and is fairer for hard-working producers. The Bill simplifies the regime and moves to a progressive tax structure, where products are taxed according to their strengths. It also legislates for two reliefs: draught relief and a new small producer relief, which will support a wider range of small businesses to grow and provides recognition of the vital role that pubs and other on-trade venues play in our communities.
Thanks to the Windsor framework, the Government can implement these reforms in Northern Ireland, including the ability to tax alcohol by strength, and to introduce draught and small producer relief. We will set out more detail about how that will work in the coming weeks.
Sammy Wilson
The Minister appears to have anticipated my intervention. One aspect of VAT that could not apply to Northern Ireland was the relief on renewable items such as boilers and solar panels. The framework document said that, with immediate effect, zero VAT rates could apply to Northern Ireland. I do not see anything in the Bill about that. When does “immediate” apply? Did it apply last Friday, when the agreement was signed? Does it apply after this Finance Bill, or are we waiting for the EU to ratify its law changes before it can apply?
Victoria Atkins
I am extremely grateful to the right hon. Gentleman for his question, which I interpret to be about energy-saving materials. I ask him to watch this space. I know how keen he and his colleagues in Northern Ireland are to ensure that we are able to bring forward those measures. I was hoping he would ask me a question that would give me the opportunity to flag my love for Bushmills whiskey—in a healthy way—but sadly I have been denied that.
Victoria Atkins
Crikey—if the right hon. Gentleman asks me to list my favourite Scotch whisky, we could be here some time.
Mr Carmichael
I am well up for that challenge. We know that the Secretary of State for Scotland argued against the increase in duty. One wonders what it was that the Minister found so unattractive in that argument; perhaps we will now get some of the answer. I do not know whether the Minister regards it as a detail, but when will we see spirit duty reform? Can she give us a date?
Victoria Atkins
As the right hon. Gentleman knows, I am bound by collective responsibility, so I can neither confirm nor deny what the Secretary of State for Scotland may or may not have said. I do not know, but I certainly intend to continue to support the Scotch whisky industry. [Interruption.] My hon. Friend the Exchequer Secretary to the Treasury reminds me that the changes will be coming in in August. We want to work constructively with industry on this.
Another opportunity is in delivering a better connected country. As announced in the autumn Budget 2021, the Bill delivers a package of air passenger duty reforms that will bolster air connectivity across the UK through a 50% cut in domestic air passenger duty. Set at £6.50, the new domestic band will benefit more than 10 million passengers from April. The reforms will also align with UK environmental objectives by adding a new ultra-long-haul band, ensuring that those who fly furthest and have the greatest impact on emissions incur the greatest duty.
The Bill will also take forward measures to support sustainable public finances, helping to provide the stability and confidence that underpin the economy and supporting businesses and households across the country. Despite energy prices having come down since they reached historic heights after the invasion of Ukraine, we know that many families and businesses still feel the strain. The only sustainable solution to the link between the cost of gas and the price paid by customers for all electricity is to reform the energy market and reduce the reliance on gas generation, so as we announced at the autumn statement, the Government are now legislating for a tax on the extraordinary returns of electricity generators resulting from the spike in gas prices driven by Russia’s illegal war in Ukraine. It is forecast to raise approximately £14 billion over the next five years, to help to fund public services and interventions to support households and businesses with increased energy bills.
To further ensure that businesses pay their fair share of tax, the Government will also legislate to protect the UK tax base against aggressive tax planning by large multinational businesses, and to reinforce the competitiveness of the UK; I know that this is a matter of interest to several right hon. and hon. Friends. The Bill will implement OECD pillar two in the UK, which builds on the historic agreement of over 135 countries to a two-pillar solution to the tax challenges of a globalised and digital economy. The global minimum tax—pillar two, as it is called by those who speak accountancy language—will ensure that multinational enterprises pay a minimum 15% rate of tax in each jurisdiction in which they operate, meaning that those companies operating in the UK contribute their fair share to sustainable public finances.
Richard Drax (South Dorset) (Con)
Can the Minister tell the House how many countries have signed up to this mad, mad move?
Victoria Atkins
I am sensing from my hon. Friend that perhaps I have to convince him. I can tell him that 135 countries have signed the agreement.
My hon. Friend’s question may well extend to implementation; I know from listening to colleagues that there are concerns about that. We are acting in unison with other countries. EU member states are legally obliged by a directive to implement the measure by 31 December this year. Things are moving very fast. Germany published its draft legislation last week, showing its full intent to implement the directive; it joins Sweden and the Netherlands in doing so. Other countries implementing to the same timescale include Japan, Korea and Canada. In its Budget yesterday, Canada made the point that
“the multilateral framework for the global minimum tax regime is now being put in place.”
I understand the concerns that colleagues have raised about implementation and the timing thereof, but we are very much working in unison with other countries. Importantly, because of the position that we are taking, we can help to shape the rules.
Richard Fuller (North East Bedfordshire) (Con)
In enumerating all those countries, the Minister has covered approximately 20% of the global 100 multinationals. There are still 80 that are not covered by the countries that she has mentioned, the most important of which is of course the United States, which is having tremendous problems in fulfilling its signature to the agreement with the OECD. Can she say at the Dispatch Box whether she will be open to accepting an amendment in Committee, if such a provision is not in the Bill, to the effect that the United Kingdom will implement these changes only when all the major OECD countries have done so?
Victoria Atkins
I regret that I cannot undertake to do so. As my hon. Friend will know, we have had to scorecard the impact of this measure, and I have looked carefully into the implementation dates precisely because of the concerns that right hon. and hon. Friends have raised. I understand why my hon. Friend cites the US, but the United States already has rules that require US-headquartered groups to pay a minimum level of tax on their foreign activities.
We believe very strongly that acting alongside others is crucial to meeting the aims of this global reform. I know that there are certain points of tension with particular sectors, but we can point—perhaps in Committee, if not now—to examples of our ability to shape the rules in order to answer the very reasonable needs and requests of sectors that are so critical to the UK economy.
Sammy Wilson
The Minister is being generous in giving way. Does it not seem odd to her that at a time when we are talking about taking back sovereignty and having our independence, we are signing up to an arrangement that curtails that very ability? Does she recognise that the Republic of Ireland vigorously resists giving way on its 12.5% corporation tax? That directly competes not just with Northern Ireland, but—as we have already seen with pharmaceutical companies—with the rest of the United Kingdom.
Victoria Atkins
The way in which the agreement works means that the tax liability falls due in a country that has signed up, as Ireland has done, partly through its membership of the EU. The tax minimum floor is 15% and it falls due on the activities in that country. The country that collects the tax, first and foremost, will be the country in which the company is headquartered —it might be a UK-headquartered company, for example—but that floor means that with respect to those countries that do not charge 15%, the company is liable for that top-up tax. That is why being part of the group of countries helping to make the rules is so critical. It is not for me to advise the Irish Government or others on how to conduct their own tax affairs—I would not dream of doing so—but it is a member of the European Union, which has set out that directive, and the date is 31 December. I will leave that with the right hon. Gentleman.
Victoria Atkins
I will give way once more, if I may, but then I must make some progress.
Nigel Mills
The Minister will know that the main motivation for this change is to stop the use of tax havens. Sadly, a lot of our overseas territories and Crown dependencies have a corporate income tax rate below 15%. Have the Government had discussions with those territories to try to ensure that they reform their position, so that they do not have their tax topped up elsewhere, effectively, rather than charging it themselves?
Victoria Atkins
I know my hon. Friend understands that I must not reveal conversations that may have happened with other jurisdictions, and of course it is not for me to comment on how other jurisdictions conduct their tax affairs. However, he is absolutely right that this is about having a minimum floor of tax to prevent the sort of aggressive tax planning that frankly very few people or businesses in the world can afford. It is about ensuring that they pay a fair amount, across the world, so that they are contributing to public services.
I am mindful that the right hon. Member for East Antrim (Sammy Wilson) asked me a question about sovereignty. We have a veto, so we are leading the discussion on this. If we do not like a future proposal, we have a veto: that is a very important part of the international agreement in which we are taking part.
As was announced last year and as the Chair of the Treasury Committee, my hon. Friend the Member for West Worcestershire (Harriett Baldwin), has set out, the Bill legislates for the abolition for the Office of Tax Simplification. We have taken that approach because what we want, rather than an arm’s length body overseeing simplification—albeit one with some very interesting ideas that I have certainly read carefully and been interested to consider—is a clear mandate to officials in the Treasury and His Majesty’s Revenue and Customs to put tax simplification at the heart of policy making.
A very good example that will be introduced via the Bill is that the £1 million annual investment allowance limit will be made permanent. This measure allows businesses to write off the cost of qualifying plant and machinery investment in the first year up to £1 million, simplifying the tax treatment of capital expenditure for 99% of businesses.
Victoria Atkins
I am so sorry, but I must make progress; I am sensing your yawn coming on, Mr Deputy Speaker.
The Bill will simplify pension tax by increasing the annual allowance and removing the lifetime allowance. It also legislates for a range of administrative changes to deal with technical issues, improving and modernising the tax system and making it easier for businesses to interact.
This Finance Bill takes forward important measures that are needed to support enterprise and growth, including incentives for investment and support for employment in, for instance, the NHS. It seizes freedoms that are available now that we are outside the EU, it deals with threats posed to the sustainability of our public finances by the energy crisis and aggressive tax planning, and it supports our long-standing goals of modernising and simplifying the tax system. It delivers on an important part of the Government’s commitments in the spring Budget to create long-term economic growth, and for all those reasons I commend it to the House.
Mr Deputy Speaker (Mr Nigel Evans)
The Minister began by paying a tribute to Betty Boothroyd. She was my first Speaker, 31 years ago. The Minister said that she ruled from this Chair with fun and firmness, and she certainly did that. When my office was over at Millbank, I tried to persuade Seb Coe to write to the Speaker and say that he found it difficult to get here in time when the Division bells rang. He refused, so I wrote to her, and she said to me, “No, I am not increasing the time, lovey.” She was the first and only Speaker to call me “lovey”, I am thankful to say! She said, “I am not doing that, because I went over to Millbank myself and even had time for a puff at a cigarette before I strolled across and did it well in time—so I am not increasing the time limit.” We do remember her with great fondness, particularly on the day of her funeral.
I now call the shadow Minister.
James Murray (Ealing North) (Lab/Co-op)
I beg to move,
That this House declines to give the Finance (No. 2) Bill a second reading because, notwithstanding the introduction of the multinational top-up tax and electricity generator levy, it fails to introduce a targeted scheme to address pension issues affecting NHS doctors, instead making blanket changes to tax-free pensions allowances which, as they will cost around £1 billion a year and benefit only those with the biggest pension pots, should not be the priority, and because it derives from a Budget which failed to set out an ambitious plan for growing the economy.
Six months ago the previous Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng), described our economy as being stuck in a “vicious cycle of stagnation”, and on that one point he was absolutely right. To his credit, unlike many of his colleagues, he at least took responsibility, on behalf of the Conservative party, for more than a decade of economic failure.
However, although the previous Chancellor was right to point to our country’s economic stagnation, the prescription that he and the previous Prime Minister offered was nothing short of disastrous. They set the UK economy on fire, and people are still paying the price as a Tory mortgage penalty does lasting damage to the living standards of working people; yet the current Prime Minister and Chancellor expect praise for being better than the arsonists who preceded them. Could the bar seriously be any lower? British families and businesses deserve so much better than that. After 13 years of economic failure, people and businesses across the UK deserve a plan for the economy that offers more than managed decline.
Anthony Browne (South Cambridgeshire) (Con)
I fear that the hon. Gentleman may know what I am about to say. Is he aware that, according to the International Monetary Fund, economic growth in the UK—GDP, either per capita or in terms of constant prices—has grown faster than economic growth in France, Germany, Italy and Japan, faster than the G7 average, faster than the EU average and faster than the euro area average? That is quite a record, and one to be proud of, so it is not a case of 13 years of economic failure. I invite the hon. Gentleman to pay tribute to the Government’s success in ensuring that our economy grows faster than the economies of all those other countries that have faced similar international challenges.
James Murray
Just two weeks ago, we were promised a Budget for growth. Let us now look at the data that was published alongside that Budget. It shows that ours is the only G7 economy that is forecast to shrink this year. Our long-term growth forecasts were downgraded in the Office for Budget Responsibility report.
James Murray
No, I am going to finish what I am saying before I give way again.
That data confirms that we are suffering the worst falls in household incomes in a century. The hon. Gentleman need look no further than the OBR report alongside the Budget, which make it very clear that this Government have little or nothing to be proud of when it comes to our economy. Across the UK, people and businesses want to get on with making our country better off, but we are being held back by a Government who are out of energy and out of ideas. That much is clear from the Bill that is before us today, which seeks to implement some of what the Government have promised.
Of course, consideration of any Bill on Second Reading must include what it omits as much as what it contains. Let us start with the fact that this Bill contains no mention of introducing stealth tax rises for working people, although we know that that is exactly what the Government are doing. We know that in the Budget of March 2021 and in the Finance Act that followed it, the then Chancellor, now the Prime Minister, froze the basic rate limit and personal allowance for income tax for four years. In the recent autumn statement of 2022 and in the Finance Act that followed that, the current Chancellor extended those freezes by a further two years. Now, following this month’s Budget, the OBR has made it clear that the Government’s six-year freeze in the personal allowance will take its real value in 2027-28 back down to its level in 2013-14. What is more, in a double whammy, families across the country will be hit next month by the Tories’ council tax bombshell, a move that will take the bill for a typical band D property above £2,000 for the first time. Look beyond the rhetoric from the Conservatives, and the reality is clear: their stealth taxes are hitting working people hard.
However, while the tax burden for working people is up, important measures that we have been calling for to make the tax system fairer are nowhere to be found in the Bill.
There is nothing in it to close the loopholes in the windfall tax on oil and gas giants, which we have been urging the Government to do for so long. Of course, we have been pressing for an extension of the energy price freeze for many months, and we were glad that the Government followed our lead in the Budget, but it is wrong that they are still leaving billions of pounds of windfall profits for oil and gas giants on the table when those windfalls of war should be helping to support families through the cost of living crisis.
Matt Rodda
My hon. Friend is making an excellent point. Does he agree that the pressures that are, as he rightly said, felt by many families are also felt by our hard-working small businesses, which face extreme pressures on their costs, suppliers and energy costs? Does he agree that the Government seem to have forgotten about them?
James Murray
My hon. Friend is a real champion for small businesses in his constituency and beyond. We meet small business owners all the time, and they tell us that what they want are stability, certainty and a long-term plan from the Government, but none of that is evident in the Bill.
Something else that is missing is any legislation to tackle non-dom tax status. Non-doms are getting another reprieve from the Government. Labour believes that those who make Britain their home should pay their taxes here, but while families across the UK face higher taxes year on year, the Government are helping a few at the top to avoid paying their fair share of tax when they keep their money overseas. The non-dom rules that allow this to happen cost us more than £3 billion every year, and ending that outdated, unfair loophole could fund the biggest expansion of the NHS workforce in a generation.
For most people, ending non-dom status is a no-brainer, although we know that some opinions to the contrary do exist. Last week, for instance, we learnt of a blog published by Evelyn Partners, a wealth management firm which supplies accountancy services to the Prime Minister. In that blog, the firm makes it clear that it
“would prefer not to see further tinkering with the system”,
and feels that non-doms
“will welcome some continuing stability.”
I am tempted to paraphrase Mrs Merton’s legendary quip by asking, “Prime Minister, what first attracted you to this non-dom-supporting firm of accountants?”
The Prime Minister’s accountants have not only welcomed Government inaction over non-doms; they have welcomed the changes to tax-free pension allowances in part 1 of the Bill. As the shadow Health Secretary, my hon. Friend the Member for Ilford North (Wes Streeting) has made clear, we have long been calling for a targeted scheme to deal with the pension issue facing doctors, which is forcing some of them to retire early. We had thought that a sensible, targeted approach might even gather cross-party support. Indeed, the Health and Social Care Committee made the same call last year, when the current Chancellor was its Chair. In its report published last July, it said:
“The government must act swiftly to reform the NHS pension scheme to prevent senior staff from reducing their hours and retiring early”.
However, now that he has moved into No. 11 Downing Street, the right hon. Member for South West Surrey (Jeremy Hunt) has failed in one of the most important responsibilities of being Chancellor, which is to spend taxpayers’ money wisely.
The Conservatives could have included in the Bill a targeted scheme to encourage doctors to work overtime and not to retire early, but instead they have introduced an expensive blanket change that will benefit all those with the biggest pension pots. This approach fails the test of providing value for money. In the middle of a cost of living crisis, a blanket giveaway for some of the most well-off is the wrong way to spend more than £1 billion of public money a year. As the British Medical Association has said, a scheme targeted at doctors could be introduced at a fraction of the cost. The policy is ostensibly about keeping people in work, yet as Paul Johnson, the director of the Institute for Fiscal Studies says, it will cost in the region of £100,000 per job retained. We voted against the policy last week, and as our amendment today explains, the Government’s approach is a key reason for our declining to give this Finance Bill a Second Reading.
Hywel Williams (Arfon) (PC)
Does the hon. Gentleman agree that the Government’s proposal will have a differential effect geographically, when comparing economies with low wages such as my own in Wales with London and the south-east, for example, and that that is hardly conducive to levelling up?
James Murray
I thank the hon. Gentleman for his comment. The geographical impact of policies should always be considered, but we should also ensure that the Government consider targeting sectors. Rather than having a scheme that applies to everyone with a large pension pot, let us have a targeted scheme for NHS doctors, which is something we can all agree on.
Alongside the changes to the taxation of individuals’ pensions, this Finance Bill includes measures that will affect the taxation of businesses. Disappointingly, but unsurprisingly, there is no sign of the fundamental reform of business rates once promised by the Conservatives. The Bill does, however, include changes to corporation tax and allowances. In fact, making changes to corporation tax and allowances is something the Government have become quite experienced in. Under the Conservatives, corporation tax has changed almost every year since 2010, and as the Resolution Foundation has pointed out, the introduction of the latest temporary regime for corporation tax represents the fifth major change in just two years. Businesses deserve better than this. When I meet businesses across the country, they are clear that they want stability, certainty and a long-term plan, yet after 13 years in office, this Government are incapable of providing those crucial foundations for success.
The truth is that Conservative MPs have become deeply inward-looking and riven by division, and their default when faced with difficult choices is to put party before country. No matter what they say, this means that Conservative Ministers are simply incapable of providing stability and certainty in government. We can see that reality in the policies they announce. As Paul Johnson of the IFS said in response to the latest temporary tweak to the tax regime for businesses:
“There’s no stability, no certainty, and no sense of a wider plan.”
Indeed, we can see that by looking at the Government’s decision to allow temporary full expensing for expenditure on plant and machinery. We know how important it is to get capital allowances right as the rate of corporation tax is being increased, yet, as the Office for Budget Responsibility reveals, the Government’s approach will make no difference whatever to medium-term levels of business investment. Rather than a long-term permanent change, this change is for only three years. As a result, it only brings forward investment rather than increasing its overall level.
Craig Mackinlay (South Thanet) (Con)
The hon. Gentleman has talked about certainty and stability, and they are qualities that I would have some sympathy with, but can he rule out, here and now on the Floor of the House, that it is not going to be Labour’s plan under any circumstances to harmonise capital gains tax with income tax?
James Murray
As we have said several times, we will set out our plans in our own time. But let us be clear, if the hon. Member has concerns over capital gains tax, he might want to talk to those on his own Front Bench, because they raised it in the last Finance Bill by cutting the annual exempt amount. I suggest he talks to his colleagues before he raises questions with us.
Ian Murray
I am going to make some progress. I will give way to the hon. Gentleman in a moment.
Rather than a long-term permanent change, this change is for only three years. It only brings forward investment rather than increasing overall investment. The Government’s own policy paper on temporary full expensing, published on the day of the Budget, makes that clear. It says:
“This measure will incentivise businesses to bring forward investment to benefit from the tax relief.”
Meanwhile, the OBR forecast makes it clear that business investment between 2022 and 2028 is essentially unchanged as a result of these measures. If anything, there is a very slight fall. So let us be clear about the implication here: the Conservatives’ inability to provide long-term certainty means that measures in this Bill will bring no overall increase in business investment. That is not good enough. That is why, as part of Labour’s mission to secure the highest sustained growth in the G7, in government we would review the business tax system and set out a clear road map to provide certainty and boost investment. We believe that our economy’s long-term underperformance on capital investment needs long-term measures to be put in place as part of a tax framework that supports and incentivises investment.
Alongside stability and certainty, a key principle in our tax system is one of fairness. The importance of fairness in the tax system applies to individual taxpayers and to businesses too. We in the Opposition want to make sure that British businesses face a level playing field, and that is why we have for so long pressed the Government to back an ambitious global minimum tax rate for large multinationals. A global minimum would help to stop the international race to the bottom. It would help to stop British businesses that pay their fair share of tax being undercut by large multinationals that do not, and it would help to raise revenue to support British public services.
We are therefore glad to see provisions in this Finance Bill that will, as part of the international agreement fostered by the OECD, ensure that large multinationals pay a minimum level of 15% tax in each jurisdiction in which they operate. We have raised the need for such an international deal many times with the Government. It was in fact nearly two years ago, on 13 April 2021, on Second Reading of an earlier Finance Bill, that I first raised with Treasury Ministers the question of a global minimum corporation tax rate. In that debate, I pressed Treasury Ministers to confirm to the House that they and the Chancellor of the time backed plans for a global minimum corporate tax rate, and that they would do all they could to make it a reality. Ministers appeared lukewarm, so I pressed them again in subsequent debates on 20 April and 28 April, urging them to make a clear statement of support in favour of a global deal. They held back from doing so.
At the time, the Ministers’ response seemed to lend credibility to a report by Bloomberg that implied that the real reason behind the Government’s position might have been to disguise their real agenda—namely, a desire to keep alive the possibility of a race to the bottom in the future. In the end, however, plans by President Biden to set the global minimum rate at 21% did not receive wide enough support and a figure of 15% was agreed. That figure was welcomed by the then Chancellor, who began to support the deal in public. Now, however, the deal faces a new front of challenges, as the Minister acknowledged earlier in her comments. Her Back Benchers have begun to be open in their hostility towards the implementation of the deal.
Richard Fuller
The hon. Member is a very thoughtful man. I think one of the reasons that he might be hearing some questions from Conservative Back Benchers is that he has just positioned himself as the advocate for the policy that our Front Benchers are now implementing. I have a question of substance for him on his research. He has just mentioned the original position of 21%, and has been clear in saying that what business wants is clarity, so can he give us some clarity? Is it the intention, if there is a future Labour Government, that they will press OECD countries for an increase in that 15% to achieve the 21% that he has been advocating?
James Murray
It is always nice to have an intervention from the hon. Gentleman. We very much miss his being in his position on the Government Front Bench. The debate over the OECD agreement has been going on for several years. President Biden wanted 21%, but there was lukewarm support for that from this Government and we ended up with 15%. Our challenge now, frankly, is to make sure that the likes of the hon. Gentleman do not get in the way of its implementation, because we want to see this global deal in place and Britain playing its part.
The hon. Gentleman’s intervention was timely as a reminder of the opposition coming from Conservative Back Benchers. In fact, this is an issue that I have raised with the Treasury Minister before. She might remember that on 7 February I asked her if the Government would keep their promise to implement the multinational top-up tax in the UK this year. We wanted reassurance that the Prime Minister’s weakness in the face of his Back Benchers would not leave us missing out on this landmark global deal. The Minister might recall that she brushed aside concerns that her Back Benchers might oppose these plans, only for concerns to be raised moments later by the right hon. Member for Witham (Priti Patel). The former Home Secretary, who was here earlier, went on to write a piece in The Daily Telegraph on 24 February arguing against the Government’s approach. In that piece, she claimed:
“In the House of Commons, those now turning their attention to all this are beginning to bridle.”
We believe it is crucial to get this legislation in place, so I hope the Minister can reassure us today that those parts of the Bill that introduce a multinational top-up tax will not be bargained away in the face of opposition from Conservative Back Benchers.
A fairer and more certain tax system, underpinned by a long-term economic plan, is crucial to helping businesses invest and grow, but an ambitious plan for growing our economy must go much further, and we have made it clear that this would be Labour’s first mission in government. At the heart of our plan to grow the economy, to create jobs and wealth, and to make everyone in our country better off is the partnership we would build between Government and business. We understand, as do businesses, that growth comes from the Government supporting private enterprises to succeed in the industries of the economy of the future.
That is why our green prosperity plan is so important, as it would provide catalytic public investment to crowd in private sector investment and to grow our clean energy capacity and green industries across the country. We would support growth in the digital economy and the life sciences, we would update our planning system to remove barriers to investment, and we would improve access to capital for new and growing businesses. We would make sure that, under Labour, the Government and business work together and invest together, for the good of everyone in every region and nation of the UK.
This task is urgent, because the world economy is changing and other countries are pulling ahead. According to the CBI, we are investing five times less than Germany, and roughly half of France and the US, in green industries. The Institute of Directors has said that, on its present path
“the UK will find itself left behind in the accelerating race to lead the green economy.”
The Society of Motor Manufacturers and Traders said, following the Budget:
“There is little…that enables the UK to compete with the massive packages of support to power a green transition that are available elsewhere.”
From President Biden’s Inflation Reduction Act in the US to the programmes coming out of Europe, Asia and Australia, the rest of the world is chasing the opportunities of the future. We need to be in that race too. Once we are, the opportunities will be ours for the taking. Our British businesses already excel in so many sectors and, with the right support, we could be a world leader in the new and growing industries of the future, making full use of our geography, our advantage in high-tech sectors and our world-leading universities.
What British businesses and families need now is a credible, ambitious plan from the Government to grow the economy and to make everyone in every part of our country better off. The failure to do that is perhaps the greatest failure of this Finance Bill and this month’s Budget. The Conservatives have had 13 years, and they have failed. As long as they stay in power, the vicious cycle of stagnation stays too. It is time for a new Government who will get us off this path of managed decline and make sure that people and businesses in Britain succeed.
Craig Mackinlay (South Thanet) (Con)
I will start with a depressing fact. We have talked about the Office of Tax Simplification, and I struggle because the Bill before us runs to 456 pages and the explanatory notes run to 679 pages. Perhaps we are not going in the right direction.
As I am sure Ministers are aware, I will air my views on this Finance Bill, both the bits I like and the bits I most certainly do not like. Starting with clause 2, we know that the income tax rates are 20%, 40% and the additional rate of 45%, but that does not tell the whole story, does it? We have this peculiar rate of 60%, as the annual allowance is taken away at £1 for every £2 of extra earnings over £100,000. The tax rate for those earning between £100,001 and £125,140 is, in fact, 60%.
At the autumn statement, we debated whether the 45% additional rate is the right measure at the right time, the right measure at the wrong time, or the wrong measure at any time, but I would have been more comfortable—this may surprise Ministers—if the 45% rate started at £100,000 and we got rid of the 60% band.
My entry in the Register of Members’ Financial Interests notes that I am a chartered accountant and a chartered tax adviser, and I recommend that the Treasury considers the number of people in that £100,001 to £125,140 band. It is all very well once people push their way through the band, but there are behaviours that can enable people to avoid the band, not least with the expansion of the annual allowance for pension contributions. I foresee that there will be very few people in that band, because they will use pension planning to make sure their income is always below £100,000 if there is any threat of being in that band.
I suppose this comes down to the whole concept of tax. I am not talking about a spreadsheet in the Treasury; I am talking about people’s behaviour. We sometimes forget that making such a change does not automatically spring a certain amount of tax out of the system, as people do other things. Additional money might be raised because people spend and pay VAT. We are all very familiar with the multiplier.
Anthony Browne
I am sure there is, and I might intervene later.
My hon. Friend makes an interesting point about moving the 45% additional rate to £100,000, which I have previously recommended. Does he agree that it would be a good guiding objective for this Government, and indeed any Government, to try to reduce all marginal tax rates below 50%? It is a good, Conservative principle, but it applies to everyone, that people who work extra should keep at least half the money. People should never have to give more than half to the Government.
Craig Mackinlay
My hon. Friend speaks a truism that should not need to be spoken from the Conservative Benches, as it should be patently clear.
A sole trader who is running a good little business and doing quite well might be knocking on the door of £100,000 in profits—I would have thought that is not an unusual amount for some in the south-east of England, even in the building trades. Too many of them will say, “I’m not going to pay 60%, plus 2% national insurance. I will work four days a week and spend the fifth day on the golf course.” We are losing out through the 60% rate.
Ministers will not be surprised by my objection to corporation tax being increased from 19% to 25%.
Richard Drax
Raising corporation tax from 19% to 25% is a 31% increase. That figure is not often used.
Craig Mackinlay
My hon. Friend makes a very good point. This 6 percentage point increase is actually very big in percentage terms.
The corporation tax increase is in clauses 5 and 6, and corporation tax has a story in this country. I went back to April 1973, a mere 50 years ago, and it was at 42% in those days. Corporation tax has generally fallen over time, both in the Conservative years and under the Labour Administration between 1997 and 2010. Peculiarly, the Labour Administration even introduced a 0% rate on small profits up to £10,000 between 2000 and 2006. I was more vigorously in practice at the time, and the 0% rate was a bizarre move that caused a rash of incorporations, which people did not need the wisdom of Solomon to foresee. The rate was deemed to be malused, shall we say, so things changed again.
Under us, since 2010, the maximum rate of corporation tax has reduced from 28% to 19%, and what have we seen? We used to have discussions about Laffer-curve economics, to which I am an adherent. There is a sweet spot at which reducing the rate raises more tax. That was behind the thinking of George Osborne, a previous Chancellor. I would not say that I agree with everything he did—I think he meddled rather too much with the tax system; hence, we now have a tax code that runs to about 23,000 pages—but he believed that reducing corporation tax would increase returns, which is exactly what happened. The money we are looking to raise to pay for the NHS, and to do all the good things that public services provide for us, was being delivered through a lower corporation tax rate. Is it any surprise that Ireland decided to put this on steroids by taking corporation tax down to 12.5%? The rate per head of receipt in corporation tax is four times the rate in the UK. Ireland’s corporation tax returns are way in excess of what is raised from one of our primary taxes, VAT.
We lived through the 19% rate era, however, which was very welcome. It attracted international business and, on the other side of this, made domestic businesses think that the risk reward was better and they therefore took their business forward. We had a lot of complications in the old days, when we had marginal rates and businesses had to go from the lower small company rate to the bigger company mainline rate. It was a complicated calculation, and my hon. Friend the Financial Secretary referred to that. It was not only that that was complicated; those with a number of associated companies had to divide the limits, and it was a dreadfully complex calculation. She said clearly that the lower rate of 19% will remain for companies on up to £50,000 of profits, which is welcome and will catch a lot of the numbers as a percentage of the entirety registered at Companies House, so many companies will not be affected.
Richard Fuller
I do not want to disagree with my hon. Friend, but we on these Benches must stop being grateful when some of our businesses are exempted from increased taxation. We are the party that believes people know best how to spend their own money. We should be arguing for the widest spread of low taxes. He is talking about history, and the other aspect of corporation tax is the ability to attract capital. Back in the 1970s and ’80s, the largest source of capital to support our businesses was from a domestic pool of capital, but now we are competing for an international pool of capital. What effect does he think this increase in corporation tax will have on our ability to tap into those competitive global markets?
Craig Mackinlay
I do not think that was a criticism from my hon. Friend, but I was trying to be kind and find some good news in what is a fairly miserable story on corporation tax. He makes a good point: the world potentially has an almost limitless amount of global capital looking for a home, and I want that home to be here, and having a lower headline rate of corporation tax would be a very good way of achieving that. I want to develop the argument about the complication we have now added to the system.
Kit Malthouse (North West Hampshire) (Con)
I draw attention to my entry in the register. My hon. Friend is making a powerful point and is right about the impact of thresholds on behaviour. There are a number of thresholds, including the VAT threshold and income tax rates, and these marginal rates have a massive impact. Does he think that during the passage of this Bill the Government should consider whether the threshold of £50,000 to £250,000 ought to be higher, not least because catching a company just as it makes £50,000, on an ellipse of growth, and taxing it more is effectively to punish it for success?
What is his view on the notion that not just the rate but also consistency has an impact on the national and international sentiment about investment? The fact that we do not muck about with our rates all the time and they do not vary very significantly from year to year has a big impact on businesses’ ability to plan for the future. The Americans have a higher corporation tax rate than we do, but they have not touched it for years—it has been the same for many years—which allows businesses to trade a higher rate for a longer planning horizon. We might benefit from such a perspective.
Craig Mackinlay
My right hon. Friend makes a powerful point on the lower threshold for where 19% goes into the higher rate, and I am going to expand on what that rate actually is. He is right that £50,000 is not a king’s ransom these days; this should be in the phase of growth of a company as it goes on to higher levels.
I have some sympathy with my Front-Bench colleagues on the stability point. We need only think of the journey we have been on in just the last year. The former Chancellor, now the Prime Minister, declared that the rate would be going up to 25%. Then in autumn statement No. 1, it was going to stay where it was at 19%, but then we had autumn statement No.2, which confirmed that it would be going up to 25%. I was hopeful—I am sure my right hon. Friend and others were in a similar camp. I thought, “I will have a yo-yo this time; I am happy with a yo-yo. Let’s keep it at 19%.” However, my right hon. Friend makes the powerful point that stability is good. The rate might not be the one we prefer, but we can at least see to the horizon of where rates are likely to be quite a few years hence.
I want to expand on the point made by my hon. Friend the Member for South Dorset (Richard Drax) that the rise from 19% to 25% represents a 31% increase. I am afraid it is far worse than that on the marginal pound—say, if a company earns £50,001. To start at a 19% rate for up to £50,000 and get to a 25% rate at £250,000, the rate has to be more than 25% in between. The real rate on that marginal pound above £50,000 is 26.5%, so it is actually far worse. As I have said, we are going back to the bad old days where we have to divide those levels by the number of associated companies involved.
The full expensing is, of course, very welcome. I am sure that the Treasury has offered that as a quid pro quo in trying to encourage behaviour, so that companies can invest or are encouraged to invest in new plant, machinery, equipment and all the other stuff that will perhaps help our productivity gap, which we all know has been fairly poor for some time.
My hon. Friend the Financial Secretary mentioned the seed enterprise investment scheme under clause 15. There is also the old EIS, which is even more attractive to the small investor and is a means by which growth companies in early phases can get some capital from investors who may be looking for a home. The new higher levels are welcome, but I hope HMRC has the administration to cope with the applications. As my hon. Friend will know, we have had some problems with HMRC recently.
What does the message on higher corporation tax say to international investors? Big international investors will probably have a global accountancy firm that will analyse the tax rates, the deductions, the super deductions and the weave of things that go on in different countries, but the headline rate of 25% is not appealing. If a company is doing a first sort through Europe deciding where to go, Britain will not be appealing with one of the higher rates.
I worry that we are going for a sugar rush today that will lead to a deferred tax loss in the future because of the lack of domestic and international investment that otherwise might have come our way. That is a game of sliding doors—the title of a film I rather like—and one will never quite know what the future might have held, but this cannot be attractive to international investors. We raise taxes on things that are bad, such as cigarettes, to try to stop their use; why are we raising tax on something we want a lot more of?
I made a fairly lengthy speech on Budget day about the dividend tax—the dividend-free amount—and there is nothing on that in any of the clauses. I explained on the day that it has been through a story very much like the corporation tax story—up and down, with rates all over the place. We settled on the £5,000 amount of dividend-free allowance in about 2016. That did not last very long and went down to £2,000, and it is due to go down to £1,000 from next week. I stated on Budget day how I could live with £1,000 because it accords with other small amounts of income that HMRC is quite happy to disregard.
We have a disregard on trading allowance. Where someone has an eBay business that has advanced from selling the contents of the loft to doing a bit of trading, HMRC is not interested if it is under £1,000—it does not want to know and they do not have to do a tax return. A similar £1,000 allowance is in place for rent. Where someone rents their driveway out to a commuter or someone rents out their holiday home, if they are lucky enough to have one, for a couple of weeks a year, as long as the income is less than £1,000 they do not have to do a return, as no one is interested. A similar thing applies in respect of interest for basic rate taxpayers; £1,000 of interest may be earned and it does not need a tax return, as we are just not terribly interested.
The £1,000 level for dividends therefore has some common sense behind it. Obviously, as a low-tax Conservative, I would rather it were more, because this has already been taxed through the corporation tax system—it is not a deduction against corporate profits, so it is already a double tax. Reducing it further to £500 in 2024-25 breaks that £1,000 rate that we have established as reasonable. Not only that, but do we really want to drag in people who have been PAYE—pay-as-you-earn—all their lives?
We are talking about people with fairly simple affairs, who are perhaps retired and, for all the right reasons, have been in the Sharesave scheme. Let us suppose someone has accumulated a mere £10,000 over years of Sharesave in Lloyds Bank plc. The dividend from Lloyds, now that it is back paying dividends, is generally 5%. So for a mere £10,000 of Sharesave, which may have been accumulated over 20 years of work—hardly high amounts—these taxpayers, who have been PAYE all their lives, will now need to do a tax return in order to recover 8.75% on that marginal pound over £500. This seems to be unduly parsimonious, and I sincerely beg those on the Front Bench to look at it again. It will cost more for HMRC to administer these small amounts of tax receipts; there is no sensible intention here at all.
Clause 18 deals with the lifetime allowance for pensions. We are having a debate this afternoon, and Labour Members obviously think that this should be carved out just for those in the NHS and nobody else. We already have a carve-out for senior judges, and there is even a special one for the Leader of the Opposition. Why have this just for doctors? There is a saying in tax, which is that we should never allow the tax tail to wag the commercial dog, and that is exactly what has been happening with pensions: people have been retiring early and not taking up extra work because of this tax trap. I am delighted that we are getting rid of that trap. Surely a senior teacher who has been in employment for a number of years, a senior civil servant, or someone senior in the police or the armed services will be accumulating in excess of the old threshold of £1,073,000. Those very senior people are now likely to stay in post for longer, offering their services to the nation.
I could have lived with the £40,000 annual threshold, so I am delighted that it has gone up to £60,000. Why should a taxpayer—not a civil servant paid for by the public purse in any way—be penalised for good management of their pension fund? I have always found that bizarre. If they have been clever, they have had a great independent financial adviser or they have managed their own self-invested personal pension and they have exceeded that limit because of their own research and endeavours—and perhaps a bit of good luck—I say, “Good luck to them.” Why should there be a tax hit on that? Clause 20 and the annual allowance increase from £40,000 to £60,000 are therefore very welcome. The £40,000 threshold has been in place from 2014-15 and I calculated that, with inflation, it would be at £52,000 today. We have therefore done something outside the fiscal drag here, so that must be very good news. I would have thought that the Labour party, which has mentioned fiscal drag, would be grateful for that.
May I pay a particular tribute to the Financial Secretary to the Treasury, because I believe that I have had a success in this Finance Bill, and I do not get too many of those? I spotted it! It comes in clause 29, which deals with estates in administration, and in parts 1 and 2 of schedule 2, under the heading “Low income trusts and estates”. I am ignoring the complication of multiple settlements, so let us put that aside. There has been a concession by HMRC for many years that if someone had an estate in administration and the tax payable was £100 or less, HMRC did not want to know. What a lovely simplifying measure that is. However, it did not apply to small trusts, for example, where granny had left the Lloyds shares. I am being very nice to Lloyds this afternoon, so let us use a different share—
Craig Mackinlay
I thank my right hon. Friend for the prompt.
Let us suppose the Standard Life shares had been left for the grandchildren to get the capital when they are 18—I am talking about the usual little family trust. Under the changes that were made some years ago, any small amount of dividends required a full tax return, because 7.5% of dividend tax had to be found and the stopping of withholding tax on bank interest received required that to be returned. We therefore had the mad situation where people with the smallest trusts, created perhaps many moons ago for austere reasons and with parsimonious amounts, were having to do a full trust return.
I have been pushing on this since 2017, when my right hon. Friend the Member for Central Devon (Mel Stride) was the Financial Secretary, and I saw in the Bill that we are not going to have the £100 disregard on tax and that there will be a £500 income in total disregard. Thankfully, these small trusts will be able to save their accountant’s fees, if they had even thought they needed one thus far. I hope that this measure will have a degree of retrospection and HMRC will not be raising £100 fines and more all over the place for the granny trusts with a few Standard Life shares in them. This could have been achieved just by HMRC practice or an old-fashioned extra statutory concession, but it is being done legislatively and I am delighted about that.
So we are up to clause 29 of the 352 in the Bill. Members will be grateful to hear that I will leave it to others to comment on the alcohol duty changes, which range from clauses 44 to 120. So we have cut out a good amount there, Mr Deputy Speaker. What I am going to say now will perhaps be aired by others this afternoon. There was nothing on Budget day—not even the barest word—about these OECD pillar two proposals. To the Financial Secretary’s credit, she did mention them, but perhaps rather more briefly than required, given that half the Bill relates to them. In easy terms, as the Bill mentions, this is about the “multinational top-up tax”. It sounds cosy, does it not? Additionally, between clauses 265 and 312, there are measures on the “domestic top-up tax”. The House might be pleased to know that I am now up to clause 312 of 352. I have, constitutionally, an extreme disquiet, not about the proposal itself, but about what such a major international treaty commitment is doing within a Finance Bill. This has far-reaching consequences for UK corporation tax rules, yet it has been barely mentioned before today, and it is in a Finance Bill when it should be standing alone as an international treaty.
What worries me further, and it has been raised in interventions, is that most of the rest of the world is saying, “Thanks, but no thanks.” It seems that only the UK and South Korea are making substantial progress on this. I know that Switzerland, Holland, Germany and Japan have begun drafting, but 100 other countries are doing absolutely nothing at all at the moment and the EU has allowed a six-year run-on for the directive to take full effect. Four countries—Hong Kong, Thailand, Singapore and the USA—are saying that it is not for them at all.
Why, having had multiple years of Brexit battles, which were, at their core, over the sovereignty and independence of this nation, would we wish to outsource our own international corporation tax affairs to a supranational body? We are already having battles in the House with the Illegal Migration Bill about how the 1951 convention and the ECHR obligations are coming home to roost. Those conventions and treaties were signed with the best of intentions at the time, when the world was a rather different place, but they are now coming home to roost in ways that we perhaps did not expect.
The manifesto commitment on which I and every Conservative MP stood in 2019 was to take back control of our money and our laws. To see us almost unilaterally adopting this international accord on corporation tax seems rather strange. I am afraid that we are seeing rather a lot of this, including in terms of climate change commitments. We seem to be promoting a Betamax when the rest of the world is waiting for the VHS to come down the line. Being first in the field is not always the best place to be.
Perhaps it is thought that this will be a new tax-raising measure—I have seen it written that £2 billion could be raised by it. I stand to be corrected, but over many years Finance Bills have had substantial anti-avoidance legislation to stop transfer pricing. That has been the feature of much tax legislation over many years, which I would have thought would catch and overcome any mischief on low-tax profit shifting. But will this actually raise anything? I wonder what the OECD is trying to achieve. Will low-tax jurisdictions, particularly those involved in the insurance industry, just sit back and say, “Oh well, profits will be taxed up the line in the UK or elsewhere”—a very limited number of companies are taking this onboard—or will they raise tax themselves? That seems the obvious place they will go, but there is a conundrum. Much of the legislation is to do with how we calculate that profit. We have our means of calculating profit according to our corporation tax law, and other countries do the same. This is trying to overlay a determination of OECD profit out of the books and records of large, multinational corporations in the UK. That is what this is all about. It is about trying to create a new form of profit.
We have seen that—I have commented on it in the past—in something that is quite simple: whether one qualifies for support for childcare. We have three forms of calculation of profit in our tax code relating to the simple sole trader. That is the normal taxable profit in accordance with our tax law. We have a different assessment—it is marginally different—for calculation of profit to qualify for universal credits. Then there is something completely different, if someone wants to calculate their due profit for qualification of child help and support. Therefore, we are overlaying more complication on that OECD framework.
Kit Malthouse
Again, I draw attention to my entry in the Register of Members’ Financial Interests. Does my hon. Friend think that there is a risk that countries may seek to manipulate their tax code in such a way that, while their headline rate might comply with the international minimum, the effective rate could be manipulated by the creation of all sorts of bonkers and crazy allowances, as we have seen in the past? We have full expensing of capital. That is fine for a capital-intensive company, but we have lots of items that are disqualified for corporation tax, which could be allowed if we wanted to make the effective rate lower than the minimum 15% in future. In many ways, that encourages even more gaming of the system by countries, rather than the system that we have at the moment, where it is a bit more transparent, if indeed complex.
Craig Mackinlay
My right hon. Friend highlights the problem that different countries could indeed game the system. The peculiarity here is the domestic top-up tax. Even if, under the UK calculation of profit, a business had a profit rate of more than 15%, it could be under 15% using the OECD way of calculating profit and therefore there would be a top-up tax. That is truly perverse. In accordance with UK tax law, perfect rates of corporation tax are being paid, but because it does not comply with these new strictures, of which there are hundreds of pages in this legislation, someone could find themselves paying a domestic top-up.
My concern is whether we will see a rash of new statutory instruments, as we have new external nation-UK tax treaties needing to be looked at and unwound. I wonder, too, whether any thought has been given to potential trade deals; I am given to understand that the US is looking quite negatively at countries that are looking to implement the OECD pillar 2 proposals.
I am just about to conclude, which I am sure will be a great relief to many. What would I like those on the Treasury Front Bench to look at carefully before we get to Committee stage, Report and beyond? I recommend that we strip out the multinational top-up tax clauses, or implement what other hon. Friends have suggested, a start date more in accordance with when the rest of the world thinks this is a great idea as well. Otherwise, as I have said before, we could be buying the Betamax when we should be waiting for VHS.
These measures occupy half of the Bill. I would like to hear assurances that for 2024-25 we can have the £1,000 as a general disregard threshold applied to dividend taxes under a simplification measure. However, given that the Bill runs to such a huge volume, I would like to hear more about how we are going to replace the Office of Tax Simplification. I think it would be fair to say that I know many of the characters in there—there were a number of ex-presidents of the Chartered Institute of Taxation. I do not know quite how wide a remit they had, but one has to assume they did not really get very far with tax simplification.
When I qualified as a chartered accountant in 1991, there was big talk about the tax law rewrite to change seven pages explaining first in, first out with perhaps one word, FIFO. We have a lot of verbiage in our tax system, and to address and simplify the 23,000 pages would aid everybody. Those are my brief observations on the Finance Bill.
Mr Deputy Speaker (Sir Roger Gale)
I notice that my two predecessors in the Chair this afternoon have paid tribute to Baroness Boothroyd, and I would like to do the same. Betty was one of the two great Speakers of my parliamentary lifetime, the other being Jack Weatherill—that is excluding the current Speaker, of course, who will no doubt take his own place in those annals. Not all Speakers have a facility with names and faces, and Betty freely admitted she was one who did not—something you may have noticed I sometimes suffer from myself. She just used to say, “You, lovey—no, no, not you, lovey; you, lovey.” Happily, I can remember Stewart Hosie’s name.
Stewart Hosie (Dundee East) (SNP)
That was a fascinating and wide-ranging speech from the hon. Member for South Thanet (Craig Mackinlay). Twice he used the analogy of being a Betamax waiting for the VHS video to arrive. I am sure I have heard that speech from the Conservative Benches so many times that it was like a worn-out Philips Video 2000—another plan that never quite made it.
The Financial Secretary made a number of remarks at the beginning of her address. She said debt servicing costs were down, and indeed they are—down from last November, but still massively up from one year ago. She said the fiscal targets were to be met, and indeed they are. The debt target in particular will be met in five years—it will be down by 0.2% of GDP. That is £6.5 billion out of a GDP of, at that point, £3 trillion. The margin for error is very small. She also said that employment will go up—that is to be welcomed—and the OBR certainly suggests that it will. It will go, over the next five years, from 60% to 60.4% of the available workforce. That is helpful, but it does not begin to touch the edges of the labour shortage and skills problems that we have.
The OBR has told us that living standards will fall by 6% or so over this fiscal year—the largest two-year fall since Office for National Statistics records began in the ’50s. We know that there is a combination of reasons for that, particularly inflation, which was at 10.4% in February. I am sure that we have all seen in the last day or so the 17.5% inflation rate in groceries, which is really affecting people and was reported from February. We also know that the Government could have done more to ease people’s cost of living pain. They should not simply have frozen the energy price cap at £2,500 but reduced it to £2,000. They could and should have maintained the £400 energy support payment, but they chose not to. Those measures would have borne down even more on inflation, which would have been helpful.
In a sense, what is more disturbing than the lack of immediate help is that the Government seem relatively content with the modest progress made towards tackling the long-term underlying issues in the UK economy. Productivity in particular remains a huge problem. The OBR forecast from the Budget said that productivity per hour would not even reach 1.5% growth in any year during the forecast period—that is below the 2% norm.
Of course, some aspects of the Budget and the Bill are to be welcomed and may well help with productivity issues. I am thinking particularly of the full expensing of capital allowance until March 2026, but as the hon. Member for Ealing North (James Murray) pointed out, that is temporary—it is only for three years—and the impact on business investment over the forecast period is not particularly clever. At the same time, the failure to increase the annual investment allowance means that businesses planning to benefit from £1 million of investment allowance will find that that £1 million of planned investment has been badly eroded by inflation.
Likewise, the intention to deliver £20 billion of research and development spending by 2024-25, which could certainly help with productivity, was not mentioned in the Budget, as I said on Budget day. I have done some digging about because there seems to be a lack of clarity on that. Is it because that £20 billion was actually meant to be £22 billion but that figure was quietly dropped? And was the 2024-25 goal pushed back to 2026-27? In either event—whether we get £20 billion or £22 billion of total R&D spend, and whether that is in in two, three or four years—the investment will not be of the same value as when it was first announced because of inflation.
Although references to R&D credits are certainly there in the Bill, part 2 of schedule 1 seeks to limit attributable expenditure on data licences or cloud computing in some circumstances. There may be good reasons for that, but I suspect, given that a large amount of future R&D work will be on cloud technologies, that we will have to probe very carefully indeed in Committee to find out whether the Government are justified in removing from R&D credits the attribution of such costs.
Likewise, we will also need to probe in Committee the decision to remove the cap on lifetime pension allowances, which will cost around £3 billion but benefit a tiny number of already pretty comfortably well-off—or, indeed, very wealthy—people. If that measure is genuinely designed to lift certain categories of worker—doctors in particular—out of a pension and employment trap, the Government will, to be brutally honest, have to come up with a much better and narrower solution.
We also saw the decision to impose a huge 10.1% rise in the duty on Scotch whisky. The Scotch Whisky Association could not have been more stark in its response, saying:
“We have been clear with the UK Government that increasing duty would be the wrong decision at the wrong time”—
I agree with that—
“so it is deeply disappointing that one of Scotland’s largest and longest-standing industries has been treated in this way.”
It also said:
“This is an historic blow to the Scotch Whisky industry. The largest tax increase for decades means that 75% of the average priced bottle of Scotch Whisky will be collected in tax”.
I welcome and support sensible duty measures—the Government know that I would welcome a duty regime based on alcohol content, with no other criteria—but the decision to put such a significant and substantial increase on Scotch tells me that the UK Treasury views this totemic industry as, frankly, no more than a cash cow.
The Financial Secretary spoke earlier about enhancing the environment. In the Budget debate I laid out the huge cost and almost unlimited financial risk to the taxpayer of nuclear energy. The reasoned amendment that SNP Members tabled was critical of not just the decision to invest in nuclear but the failure to invest fully in real green, renewable technologies. Nowhere was that more obvious, and more starkly demonstrated, than in the next contracts for difference auction, which will be allocation round 5, the budget for which has been reduced by 30%, from £285 million to £205 million. The tidal stream ringfencing has been halved to £10 million.
This all comes at a time when inflation in the price of materials and construction is in the order of 30% for established renewables and closer to 50% for projects such as the MeyGen tidal stream, which is the largest tidal stream project in the world. Although the budgets are now annual rather than biannual, the allocation means that fewer projects can be successful when they bid, which means we are likely to see reduced pipelines of orders in the UK and reduced investor confidence. We saw that in onshore and offshore wind projects, which became reliant on foreign manufacturing. By contrast, UK-based supply chains account for 80%-plus of tidal stream content. For example, Orbital Marine Power’s O2 device was delivered with an over 80% UK supply chain spend. It was designed in Orkney and built in Dundee with steel from Motherwell, blades from the Solent, anchors from Anglesey and hydraulics from the midlands
With a bigger ringfenced pot for tidal, we have the opportunity to scale up the MeyGen site in particular; otherwise, we will end up cutting costs and being dependent on foreign manufacturing, and the technology will lose out, as did the wind technology when Denmark provided Government support for its sector and the UK lost out. At this point, if the UK Government do not increase the overall budget, the whole process could fail, like the most recent Spanish auctions, and all against a backdrop of massive investment through the Inflation Reduction Act in the United States.
Kirsty Blackman (Aberdeen North) (SNP)
On investment in renewables, does my right hon. Friend feel, as I do, that the Government are missing out on an opportunity? This is the opportunity to capitalise on the move towards a just transition to renewable energy, and the Government are putting down exactly the wrong markers. When we want to build up investor confidence and the industry and to take advantage of it, the UK Government are choosing not to give confidence to those who are keen to invest.
Stewart Hosie
This is absolutely the opportunity to invest properly, to deliver the just transition that we all speak about and want to see, and to protect the jobs, abilities and skills of the hundreds of thousands of people in the oil and gas sector across the UK as they transition into renewables, so that Scotland is no longer the oil and gas capital of Europe but becomes the Saudi Arabia of renewables—what a thing we could achieve. However, some of the decisions that are being taken, including the obsession with nuclear and the reduction in funding for real green renewables, are deeply problematic.
I also want to address the lack of action on, and support for, trade. The OBR said that while it is true that
“additional trade with other countries could offset some of the decline in trade with the EU, none of the agreements concluded to date are of a sufficient scale to have a material impact on our forecast. The Government’s own estimate of the economic impact of the free-trade agreement with Australia, the first to be concluded with a country that does not have a similar arrangement with the EU, is that it would raise total UK exports by 0.4 per cent, imports by 0.4 per cent and the level of GDP by only 0.1 per cent over 15 years.”
As an aside, if this is the much-vaunted benefit of Brexit, it is very, very thin. What that means is that the OBR estimates the economic impact of the free trade agreement with Australia, for example, will raise the level of GDP by 0.1% over the next 15 years, while estimating that Brexit will cause a drop in GDP of 4%.
With families still burdened by high inflation, and also feeling the pinch from rising mortgage and rental costs; with energy costs still way higher than they should be; with the long-term problems of the economy, particularly poor productivity, inadequately addressed; and with the self-inflicted economic harm of Brexit hampering trade and GDP growth, I am afraid that this Budget and this Finance Bill simply are not enough.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to follow the right hon. Member for Dundee East (Stewart Hosie). I will start where my hon. Friend the Member for South Thanet (Craig Mackinlay) did: people think that Finance Bills are a little dry, but somebody must have a sense of humour to produce a 456-page Bill and then hide in clause 346 the abolition of the Office of Tax Simplification, probably at the exact time that we really need it. When I used to practise as an accountant, I had a copy of all the tax legislation on my desk. I sense that if I were still working, I would need a much bigger desk for the successive Finance Bills we have had over the past 13 years. Perhaps at some point, we should stand back and think, “Do we really need to keep adding all of this stuff every year? At what point are we going to start taking away stuff that we have now effectively duplicated?” I suppose it would mean that I could work from home, because I probably could not carry all of those books around, so maybe there are some bonuses there.
Much of the technical stuff in this Bill has been pre-consulted on—we have seen it for a long time—and most of it is to be warmly welcomed. I will quickly mention clause 25, which finally sorts out the net pay arrangement for pensions. We have been trying to find a solution for this for quite some years; to put people whose pension scheme has chosen the net pay arrangement, rather than the other way of doing it, into the position that they should have always been in. We have finally found a solution through which HMRC will make it good, which is to be warmly welcomed. I cannot quite see a start date for that in the Bill, though—I hope it is soon—and it would have been nice if HMRC had actually paid some back pay. People who are saving pretty small amounts, who are the ones on the very lowest levels of income, could have had the tax back that they should have been getting for the past decade or so, but perhaps we should not be too greedy.
I want to focus most of my remarks on the pensions tax changes, and then on the corporation tax and the multinational top-up tax. There is a theme in those things: we have some welcome measures, but we end up on a rather haphazard journey to a very strange place where things competing with each other everywhere, and I do not quite have an idea of what we are trying to achieve.
On the pensions tax stuff, we had clearly created a problem through the reduction and freezing of the lifetime allowance. The only solution to a problem caused in that way is to undo what we have done, and it makes sense to scrap that completely. I would have probably preferred to have a higher lifetime allowance and scrap the annual allowance: if we are aiming to limit how much tax relief people get on pensions saving, I am not quite sure why we need to do it on a year-by-year basis when we should probably be more worried about the overall total. It seems a bit harsh to me that somebody who starts a business, scrimps and saves, saves every penny and reinvests it, and finally sells that business for a decent amount now cannot get the same pension as somebody who has been employed for all that time, taking much less risk, because they are capped on the £60,000 they can put in per year and by how many years they can look back. I am not sure what policy objective we are trying to achieve there, but it is welcome progress.
On the Opposition’s reasoned amendment, I am sceptical about the attraction of trying to have different tax regimes for different sectors. It becomes hard to work out which occupations we like and which we do not, and to which we want to give favourable status. Even if we wanted to do it, it becomes hard. Do I want a favourable tax regime for doctors regardless of where they work? I then have to define “doctor” and work out what sort of doctors I want to favour. Do I want it for people who work in the NHS, in which case it would have to include whoever is being paid large amounts, whether finance directors, human resources directors or diversity officers?
It would be slightly bizarre to give a more generous tax regime to a finance director in an NHS trust being paid a large amount of money, but not to somebody owning and running a business, trying to create jobs in the economy. That would be hard to do, and we would have to go through every senior public sector worker, as my hon. Friend the Member for South Thanet did, working out who to include. Even if we did that, how on earth would we work out which organisations to include? Most high-paid NHS staff are not employed by NHS England, but by God knows how many trusts around the country. If we wanted to apply the regime to GPs, too, they all have their own businesses. It would be phenomenally difficult to work out how to do that, if we think about how the lifetime allowance being set that way was causing a problem and driving people out.
Anthony Browne
My hon. Friend is making some excellent points about the problems of having sector-specific lifetime allowances, which would proliferate and become unbelievably confusing, as he says. We have all made the case about other public sector workers who would be affected by the lifetime allowance. We could introduce a regime where we exempt them one by one and effectively have a regime for all public sector workers, but does he agree that it would be unfair and economically irrational to have a completely separate pension regime for public sector workers and a far more punitive one for private sector workers, who are important for generating wealth in the country?
Nigel Mills
I agree with my hon. Friend. I remember the anger when I was first elected about people working in the private sector getting a very small pension and seeing the large generosity of the public sector ones that they could never dream of aspiring to. To have a more generous tax arrangement on top of a more generous pension that they were effectively paying for would be hard to sell to people. I think the Government have found a sensible fix on that.
Where has this situation left pension tax policy? We now have a regime where when someone earns the money and pays it into their pension, they do not pay income tax and national insurance on it, and when they draw the pension, they pay income tax, but not national insurance. We are not quite sure we like that. If someone is earning too much—more than £260,000 now—we start reducing the amount they can put in every year from the £60,000 cap down to a £10,000 cap. Then, if someone wants to draw their pension, they can have a quarter of it completely tax-free, even if they do that 10 years before they retire, but now we do not like that either, because that might be too much, so we have capped it at the level of the lifetime allowance that we have just scrapped. What are we trying to do? Added to that is the fact that if I have a defined-contribution pension that I do not draw and leave in my estate, there is no inheritance tax on it. I do not even pick up the tax at that point.
If we stood back and said, “What are we trying to incentivise and encourage people to do by the £50 billion or so of annual tax that we forgo”—or defer, strictly speaking—“on pension saving?”, I am not sure we would design this system. The Government would be well advised to create some kind of commission or review to look in the round at all the various ways we incentivise pension saving and all the ways we tax it and try to work out what a coherent system that people have some hope of understanding would be. I suspect we would get far better outcomes if we did that. I encourage the Government to do that. That would need to be on a long-term, cross-party basis. It cannot be done on a whim every few months.
The danger is that we get to a Finance Bill or Budget and we want a bit of money here, or we have found a little fire we want to put out there, or we want to make another tweak, and we end up building and building more and more strange bits on to this rather ugly looking house until it finally falls over. We should try to get it in some kind of shape before we get into that position.
Moving to the various corporation tax measures in the Bill, I am prepared to accept the rise in corporation tax. Given the fact we bailed out nearly every business in the economy three years ago in the covid pandemic, there is justification for saying that we need to pay those bills, and corporation tax, which businesses only pay when making a profit, is the right way to do that. It takes a little bit of believing to convince ourselves that we can raise the rate that businesses pay on all their future profits—all the fruits of their investment—and that that will not deter investment, but a short-term deferral of when they pay tax by having full expensing will somehow encourage loads of investment, even though they will end up paying the extra 6% on the profit they will earn from the use of new machinery at some point in the future. They will not pay it in the first year, but they will pay more in all of the subsequent years.
Kit Malthouse
My hon. Friend points to an argument that, I have to confess, has perplexed me. People say that raising corporation tax to 25% will not necessarily damage investment or, indeed, British business, but then why stop at 25%? Why is that the appropriate amount? If businesses are impervious to the tax rate and it does not affect their behaviour, why not have 30%, 35% or 40%? He understands my point. They are making a value judgment about where the line of damage is to be drawn, and I think he is quite right that it is hard to think that it will not have some kind of impact.
Nigel Mills
My right hon. Friend makes a fair point. I guess there is an attraction in that 25% is an easy calculation. We could go for 26%, which Labour had in its manifesto at the last election, and perhaps that could have been a submission. I think it also had a small companies rate rising to 21%, which it does not want to remember these days. I just think that we cannot really have it both ways—that deferring taxes encourages investment, even though businesses end up paying them, but raising them somehow does not. I think we should try to be a bit coherent about what we actually think in that situation.
Again, I have no idea what we are trying to do in giving people tax relief on their expenditure on capital assets. We now have a capital allowance regime that, for most assets, is generally 25% on a reducing balance, unless it is an asset for too long, for which the long-life regime is 4% a year, or it is a short-life asset, such as a computer, when they can choose a different regime over a shorter period of time. Then there is an up-front initial allowance, depending on whether we have one in place, and now we have a 100% initial allowance for a short period, but we do not give any tax relief at all for industrial buildings. If I want to build a new factory to bring some jobs back from China, I need to go through convoluted calculations—such as proving that the air-conditioning in my building is actually a piece of plant and equipment, not a part of the building—which makes huge amounts of work.
Could we just stand back at some point and think about what we are trying to incentivise business to do? I am not actually convinced that many businesses will really be able to use full expensing on large capital expenditure, because they just will not have the profit. It may give them some cash-flow advantage, but they will have the complexity of how much they can claim, and which company a loss gets trapped in to make sure they can use it all around the group. We are just creating difficulty. Most of the large businesses I ever worked with focused on the rate of tax they had to account for in their accounts—of course, having accelerated deduction does not change that—rather than the cash position, which was hugely complex if they were leasing an asset, finance leasing it, hire purchasing it or God knows what. So I would be a little suspicious or cynical about our actually getting the big change that the Government were hoping for here.
I would go back to an amendment I tabled a decade ago, when I said, “Why don’t we just try to move to giving people tax relief in line with their accounting treatment, so if they think this piece of kit has a five-year life and they account for it over five years, let’s just go for that? Why have all this hassle, and all the cost of all these different regimes? Let’s be more generous on the assets you get relief for, and let’s try to simplify it.” I have a feeling that, if we could somehow get to that, it would be more attractive to most businesses than the annual tinkering of saying, “You can now do this and get a bit more”, and no one knows where on earth they are in such a situation. I would recommend that.
On the multinational top-up tax, I actually support it, and I think I argued for it when it was being discussed. I have always been a little bit suspicious of the OECD—I once called it the organisation for excessively complex drivel, and if Members read the causes we have ended up with, they might think it was relatively complex. What I think we have started trying to do on base erosion is to stop people hiding profits in tax havens with very low rates of corporation tax. We generally know where they are and what their rates are. We could have gone back to what we used to have with our controlled foreign company regime, which was a list of naughty countries. If a business had a subsidiary in one of those, it had to go through some extra compliance to prove that real genuine trading profits were arising in that country, rather than that it was hiding passive income that should have been taxed somewhere else.
I think we could have found a way to have a regime that most countries accepted, where we just said, “If you’ve got a subsidiary in one of these naughty regimes then you have to pick up some tax on it,” rather than having dozens and dozens of hugely complex clauses to effectively create a whole new corporation tax range applying to companies in every country in the world, which have to try to work out whether they are paying too little tax or not based on whatever the local tax differentials are on timing and rules, which we then have to adjust for to try to work out whether someone is being naughty or not, when we know damn well a company in the Cayman Islands is paying zero on the £100 million-worth of profit it has salted there, which is what we were after in the first place.
I welcome where we have got to and I accept that if this is the way we have to do it, it is better than not doing it, but surely if anything highlights how complex our corporate income tax regime has become it is the fact that we need to have 150-odd clauses to try to tax income that is being hidden in territories that have a zero rate. It really is almost beyond belief that we have made it that difficult.
We have to remember that a lot of our own overseas territories and Crown dependencies have seen some of the worst behaviours in this area. As it was when we had to have more transparent disclosure regimes, we need to set a lead on this issue to get the rest of the world to follow. If we are not doing it and not encouraging parts of our UK family to do it, there is a fair chance that the rest of the world will think, “Well, if they’re not going to do it, we’re never going to do it.” So we end up moving at the speed of the herd, which will be standing still.
I welcome the fact that we are doing this. It is the right thing. We need to try to find a way of stopping profits being hidden in places where there is absolutely no justification for them being there. A 15% top-up rate is a good compromise. I would hope that most regimes would see the writing on the wall and up their rates to 15%, and not go for dubious reliefs, deemed deductions and so on to try to contrive their way of having a headline 15% but never applying it. Let us just say that this is the way that the world wants to go. This is what responsible ethical business looks like. This is what responsible ethical government looks like. We do not want money hidden where there is absolutely no justification for it being earnt there. We can try to end up not needing all these hugely complicated rules, which UK-headquartered companies might be having to apply to every territorial subsidiary they have, to try to catch some naughty things that they are not even doing in the first place.
Intriguingly, I do not see in the Bill the repeal of our controlled foreign companies rules. If we have a new regime that tops up the tax in every subsidiary owned by a UK group to 15%, do we need all the old compliance rules to stop UK companies hiding their profits offshore? It seems to me that we will end up with a collection of different regimes all trying to do the same thing. Maybe we could find at least a partial simplification to offset the 150-odd clauses here in the Bill.
My concluding remark on these key issues is that I welcome what the Government are trying to do, but at some point we need to stand back and think, “Have we got our tax code regime in a sensible place where we are realistically, and in as understandable a way as possible, trying to achieve these sensible aims; or have we, through quite understandable tinkering, ended up with some kind of hugely complex monstrosity that at some point will fall over and in the meantime is probably not incentivising the things we want people to do or disincentivising the things we really we do not want them to do?”
Sir Stephen Timms (East Ham) (Lab)
I am very pleased to follow the hon. Member for Amber Valley (Nigel Mills), whose pensions expertise we benefit from greatly on the Work and Pensions Committee.
I want to comment fairly briefly on two aspects of the Bill: first, the decision, at a time when the pension burden on ordinary families is rising so fast, to give a big tax cut to the wealthiest pension savers; and secondly, the abolition of the Office of Tax Simplification—and to reflect on the history of that initiative that led us to where we are today.
Table 4.1 in the Red Book tells us that the abolition of the lifetime pension allowance will cost the Government £1.8 billion in uncollected tax over three years. At a time when the tax burden on ordinary families is being raised to the highest level since the second world war, it seems extraordinary that the Chancellor thinks it is right to cut the tax on the 1% largest pension pots.
It is a big challenge for pensions policy that tax relief support for pension saving is so massively skewed in favour of the wealthiest. There are suggestions from time to time about how to use that relief more progressively to encourage pension saving among lower-paid workers. Instead, the Chancellor has made the unfairness £1.8 billion worse. It is difficult to understand how that can be justified.
It is a problem that Chancellors, Prime Ministers and Ministers completely unavoidably spend their time talking to people who are in that 1% wealthiest group—they are the people who make representations, who they sit next to at their dinners and so on. By giving a £1.8 billion tax cut to that group, the Chancellor has chosen the wrong priority. The hon. Member for South Thanet (Craig Mackinlay) rightly made the point in passing that it is creating a large tax avoidance opportunity for a large number of people. They will simply not pay the tax that the Bill imposes on them, but will instead choose to put an unlimited amount of money over a lifetime tax-free into their pension.
The Work and Pensions Committee’s report on saving for later life, published last September, highlighted the collapse of pension saving among the self-employed. In the late 1990s, about half of self-employed people were saving in a pension. By December 2021, that was down to 16%, compared with 88% of eligible employees, thanks to the success of auto-enrolment, which is not available to self-employed people. Pension saving for them is now at a very low level. Our report recommends that the Treasury and the DWP should set a date to trial ways to default self-employed people into pension saving, to work out how to replicate the success of auto-enrolment among self-employed people. Tax relief of £1.8 billion could have been a valuable incentive to make a success of an initiative along those lines. Unfortunately, the Government’s response to our report rejected our recommendation. Instead, the Bill is giving away that support to those who already have the largest pension pots. It is difficult to understand how that can be justified.
I was elected to the Commons in June 1994. As is usual, I served on the Finance Bill Committee the following year—some of my recently elected hon. Friends will have a similar privilege with this Finance Bill. One of the other members of that Committee was the Conservative Back Bencher Tim Smith, the MP for Beaconsfield, who no doubt you will remember, Mr Deputy Speaker. He moved an amendment in that Committee to require the Inland Revenue to prepare a report on tax simplification and to lay it before Parliament. To the fury of the Conservative Front Benchers on that Committee, not only did he move the amendment—that is a fairly normal thing to do—but he pressed it to a vote. Of course, all the Labour Committee members voted in favour of it, so it was agreed to and the Bill was amended in Committee. Ministers were absolutely livid. It was unheard of for the Government to be defeated in the Finance Bill Committee. I do not think that the relationship between Tim Smith and his party’s Front Benchers ever recovered.
Within a few weeks, the then Chancellor Ken Clarke was making a virtue of the fact he would bring forward proposals for tax simplification. The idea rapidly gained currency and Tim Smith’s idea was embraced. The spade work was done by Michael Jack, who became the Financial Secretary in 1995. What emerged from it—the hon. Member for South Thanet mentioned this—was the tax law rewrite project, which brought forward a series of five Bills under the Labour Government, which made tax law easier to understand. It certainly did not shorten tax law, but I think it made it easier to understand.
The Conservative party returned to the theme in 2010, with its manifesto commitment to set up the Office of Tax Simplification, which is abolished by the Bill. Michael Jack, a previous Financial Secretary to the Treasury, was the first chair of the project, and John Whiting of the Chartered Institute of Taxation did a lot of the spadework.
The Office of Tax Simplification was made statutory in 2016, so we understood it would be a permanent feature of the landscape. It had its first quinquennial review in 2021, when the current Prime Minister was Chancellor. That review concluded
“that the need for the OTS’s statutory function to advise the Chancellor on simplification of the tax system remains undiminished.”
What has happened in the past 18 months to mean that it is now being abolished?
PricewaterhouseCoopers makes the point that when Tim Smith’s amendment was moved in 1995, the volume of tax legislation was 5,000 pages and his aim was to reduce it. The hon. Member for South Thanet is correct that it is now 23,000 pages, so it is not clear that the need for simplification has ended. PricewaterhouseCoopers says the Office of Tax Simplification has a “high level of engagement” with the tax profession and that when the office consults on issues, it receives a lot of ideas and contributions about how to do things. PwC goes on to say:
“It has produced a number of insightful reports… The response from the Government has been mixed, however, and whilst some of its recommendations have been accepted, many have been watered down or simply ignored.”
The real reason that it is being abolished is that, in the end, the Government are not that interested and there are other priorities that have a higher weight than simplifying the tax system.
The closure was announced in the disastrous mini-Budget last September. For that reason alone, we ought to be a bit sceptical about whether it is a sensible thing to do. At the time, the then Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng), said, rather as the Minister said in her opening speech:
“I have decided to wind down the Office of Tax Simplification, and mandated every one of my tax officials to focus on simplifying our tax code.”—[Official Report, 23 September 2022; Vol. 719, c. 937.]
If everybody is responsible for something, in reality nobody is, so I do not think we will hear much about further progress on that in the future. It sounds very much like the end of the project.
The Chair of the Treasury Committee, the hon. Member for West Worcestershire (Harriett Baldwin), asked about that in her intervention on the Minister. She has written to the Chancellor on behalf of her Committee to ask why the Office of Tax Simplification is being abolished; we will all be interested to see his reply. The Office of Tax Simplification has done valuable work and, having followed the progress of work on the issue since 1995, I am sorry to see it go. I will be interested to hear the Minister’s justification for the decision.
Several hon. Members rose—
Mr Deputy Speaker (Sir Roger Gale)
Order. A significant number of right hon. and hon. Members still wish to take part in the debate. The debate is open-ended, but bitter experience has taught me that if you wish to retain the attention of the House, brevity is the order of the day.
Richard Drax (South Dorset) (Con)
Every time my late father—bless him—heard me speak, all he said was, “Too long, Richard,” so on that basis I shall be brief. It is a pleasure to follow the right hon. Member for East Ham (Sir Stephen Timms). I refer to my entry in the Register of Members’ Financial Interests. I will speak, probably for no more than five minutes, about the corporation tax rise and the international minimum level of 15%.
I turn first to the corporation tax rise. I have huge respect for the Chancellor, as I do for the Ministers on the Front Bench, so I do not want this point to be taken incorrectly, but during his 2019 leadership campaign, he proposed reducing corporation tax to 12.5%—the rate that, I believe, the Republic of Ireland has now. Corporation tax in the UK will now rise from 19% to 25%, which may look like a 6% rise, but is actually a 31% rise. I totally accept that smaller companies will not be affected, and I accept that there are various capital allowances that larger companies can go for, but as many colleagues have said, why complicate an already complicated tax system? Why not just keep it simple? As a former soldier, I remember the acronym KISS: keep it simple, stupid. I wish sometimes that politicians would do that.
I am very surprised that the international agreement on the minimum level of tax—the OECD scheme—is being pushed through in the Bill. I find that quite extraordinary, because the two do not sit comfortably together. Many Conservative Members and some Opposition Members fought very hard to get control of our country back by leaving the EU, so that we could have our own laws, our own taxes, our own money and so on. I am therefore completely bamboozled by this, and have yet to hear a very good reason why we are signing up to the very thing we were trying to escape: something that enables an unelected multinational organisation to affect how we set our own taxes. As my hon. Friend the Member for Amber Valley (Nigel Mills) said so well, why can we not set and control our taxes? Surely we could have dealt with this on our own.
I find this move, which will subject us to a tax rate set outside our country, to be really extraordinary, and I will have great difficulty in supporting the measure on Third Reading. The Government have said that the effectiveness of the policy
“depends on a high degree of consistency in the implementation in different jurisdictions”.
The Financial Secretary listed a whole mass of countries in answer to a question I asked earlier, but as I understand it, countries including Singapore, Hong Kong and Thailand have announced that they will be delaying implementation until 2025. I also understand—I hope I am correct—that the EU has broken a commitment that was agreed internationally by giving smaller member states a six-year delay before they, too, will have to implement the measure. That will disadvantage the competitiveness of UK-based multinationals against their EU rivals.
I remember campaigning for Brexit: it was a great thing. We were going to become an offshore, Singapore, low-tax, let’s go, gung-ho place, and create business, create jobs and create wealth. That is what the Conservative policy is, so what on earth are we doing? We are signing ourselves up to a package that could once again see British courts overruled by foreign ones. The industry—I have read much about it in the press—has also called for the policy to be delayed, because UK growth will be stunted by unnecessarily burdensome administrative costs for business.
All this is being put forward in a rush. There was no mention of these plans either in the Chancellor’s Budget statement, unless I missed something, or in the accompanying Red Book and costings document. HM Treasury documents confirm that the Government still intend to implement pillar two this year. Why are we having such minimal scrutiny of something with so huge a potential effect on the ability to attract business to this country? I thought that that was exactly what we wanted to do.
The role of a Government, particularly a Conservative one, is to create an infrastructure in which business can thrive. One of the key levers for that is low taxes—the lower, the better. On the whole, as the Exchequer Secretary well knows, the lower the taxes, the more money comes rolling into the Treasury.
The size of all this has already been mentioned. I have in front of me two massive documents. Pillar two takes up 169 pages of the Bill, across 156 clauses and five schedules. The Finance Act 2022 ran to only 222 pages, including schedules, and had 104 sections in total.
I really do ask the Government to rethink. I know that Opposition Members have already commented with glee that people like me are leaping up to oppose this measure. Yes, of course we are, because we are Conservatives. I have been here for 13 years; on three or four occasions during that time the whole House has agreed to a proposal, and every single time it has been wrong, so for me that is the clearest guide that something has gone seriously wrong here.
Let me say to the Ministers on the Front Bench that it is in the best interests of the United Kingdom to delay implementation of pillar two until 2025, or, even better, to bin it altogether.
Hywel Williams (Arfon) (PC)
The test of any Finance Bill should be this: will it improve living standards now and into the future? With living standards plummeting at the fastest rate since records began and incomes set to remain at pre-pandemic levels until 2028, this Bill is clearly inadequate. Indeed, set against these trends, the spring Budget was a clear missed opportunity to give people at the sharp end of the cost of living crisis some much-needed relief.
Instead, the Chancellor chose, for example, to prioritise a pension tax advantage for the few. Listening to the Chancellor, one would be forgiven for thinking that the crisis was over, but with four in 10 households in Wales not heating their homes, and typical energy bills set to be 17% higher next year, the lived experience of my constituents is very different from that of those whom the Chancellor is so keen to help: those who can afford to set aside up to £60,000 every year for their pension funds, and who are now able to do so without any limit on how big that fund can be.
Accepting the extraordinary pressures under which so many people are living as anything like normality is foolhardy in the extreme. There is an immediate need for additional targeted support, which the Government could deliver directly by, for example, extending the energy bills support scheme and guaranteeing off-grid homes and businesses in rural areas an additional round of the alternative fuels payment.
Immediate support should also be extended to struggling renters. The Government’s failure to increase local housing allowance rates since 2019 means that housing is increasingly becoming unaffordable for low-income renters in Wales, and indeed elsewhere. According to research by the Bevan Foundation, last month only 32 properties throughout Wales were available at or below local housing allowance rates. That is equivalent to just 1.2% of the properties advertised on the formal rental market. Only 32 homes at affordable rents were available across the entire country!
An overwhelming proportion of renters receiving housing allowance are having to redirect money that is required for other essentials, such as food, heating and clothing, just to pay the rent. The UK Government should increase the local housing allowance forthwith to the 30th percentile of market rents, which would lift 32,000 people in Wales out of poverty and save up to £2.1 billion net by easing the pressure on public services that has been caused by chronic poverty. However, the UK Government seem to be uninterested in taking such an obvious positive step. If that is indeed the case, they should transfer the powers and the money to the Welsh Government so that they can do so.
The Chancellor could also have used the Budget to release the £1 billion owed to Wales so far in Barnett consequentials from the £20 billion that has already been spent—I would say “squandered”—on HS2. It is wrong that HS2 is held to be an England and Wales project. Not a single inch of the track is being laid in Wales and, what is more, diverting prosperity away from Wales to areas served by HS2 will actively damage our economy. Over time, Wales should receive £5 billion in Barnett consequentials, which could be spent on improving our dire public transport infrastructure. But worse, if reports are accurate, the Treasury now intends to reclassify HS3 as an England and Wales project, even though, again, not a single inch of it comes anywhere near Wales. So the Chancellor can add a further £1 billion to the payments we are due.
Enough of that—what I at least consider to be—pie in the sky. Let us take a step back and look at the longer-term forecasts. This Finance Bill fails to address the broader questions of what we want our tax system to deliver and what constitutes a coherent delivery strategy. A ten-minute rule Bill tabled by my right hon. Friend the Member for Dwyfor Meirionnydd (Liz Saville Roberts) proposes establishing a tax reform commission to do just that. I think that might have been of interest to the hon. Member for Amber Valley (Nigel Mills), who spoke earlier. My right hon. Friend’s proposal would provide an opportunity to have the required discussion, as a Parliament and as a society, about what we want our public services to deliver, how we are going to pay for it and what is the fairest way to raise the money and revenues to pay for it.
Personal taxation has been much discussed over the last week, and this has once again raised the question of why income from wealth is treated differently from income from work. If, for example, income from dividends and shares were treated in the same way as income from work, a certain Member on the Front Bench would have seen his tax bill for the last three years almost double. This is not about punishing the wealthy; it is about creating a system that raises money more fairly, to deliver our public services and reduce inequality. The wealth of the richest 1% is greater than that held by 80% of the population of the UK in total, while our public services are under severe pressure after a decade of cuts. It is clear that the tax system, as it is, is failing both to tax equitably and to tax adequately.
The spring Budget also missed the opportunity to remedy the dysfunctional Welsh fiscal settlement. A timely example this week is that Westminster has clawed back £155.5 million from the Welsh Government because of their underspending in 2021-22. That meant that they breached the Wales reserve—that is, how much funding the Welsh Government are able to carry forward from one year to the next. That reserve is currently capped at £350 million. At a time when so many are struggling and Welsh public services are so severely overstretched, that underspending is a damning indictment of the Welsh Government’s ability to plan. It is also one of the many consequences for Wales of being tied to this broken UK system.
Wales’s fiscal settlement not only allows the UK Government to claw back money; it also inhibits the Welsh Government’s ability to deliver large-scale, long-term infrastructure projects by placing strict limits on their borrowing powers. It also ensures that most Welsh taxes collected by Westminster and then sent back to Wales are based on population share rather than on actual need. Money is raised not to meet need but according to a wholly discredited formula, the Barnett formula, and this Government, like their predecessors of both main parties, are doing nothing about it. They are failing to achieve a fairer economic balance between the nations and regions of the UK and deliberately failing to level up.
I have laid out some of the much larger case as to how this Budget fails Wales and will continue to fail Wales. This Government could act differently but, after 12 years of failure to meet the requirements of my country, they clearly have little intention of doing that. So, as more and more people in Wales are realising, one way forward is for us to take responsibility for our own affairs as an independent country.
Richard Fuller (North East Bedfordshire) (Con)
It is a pleasure to follow the hon. Member for Arfon (Hywel Williams). I am obviously not as familiar as he is with the arrangements between Wales and the Treasury, but I think he made his points very clearly. Another thing he said—I think I caught him correctly—was about taxation not being fair enough, or sufficient. I might have slightly more disagreements with him on that.
It is a pleasure to be called to speak in this debate. As you said, Mr Deputy Speaker, this is a debate without limit. Due to my concern, shared by many hon. Members, about the complexity of our tax code, I was tempted to read out the tax code from cover to cover, but reading out all 23,000 pages might test even your patience. I will not do so this year.
It was interesting to listen to the two opening speeches. The measures in this Finance Bill go back to the Budget, and we should not lose sight of the tremendous job the Chancellor did with that Budget. At a time when there were so many competing pressures on the public purse from Conservative Back Benchers, let alone from the Opposition, it is a tribute to the Treasury and its officials that they were able to craft a Budget that has, so far, stood the test of time.
The Opposition have been scrambling to find reasons to disagree with the Budget and have alighted on one: the pension changes. That is interesting because I distinctly remember responding to a debate from the Dispatch Box in which there was pressure from all political parties —from Scottish nationalists and, I think, representatives from Northern Ireland, and definitely from Labour and Conservative Members—to make precisely the change that the Government announced in the Budget. The Labour party obviously has nothing substantive to say in opposition to the Budget, which is a tribute to Treasury Ministers.
I enjoy my encounters with the shadow Minister, the hon. Member for Ealing North (James Murray). I remember the first thing he said on my appointment to the Treasury, which was that I should be sacked. The record will show that he did not quite get what he wanted, but I am pleased our relationship has improved over time.
I gently say to the hon. Gentleman that, if the Labour party wants to be treated seriously in the run-up to the next general election, the time has passed when it can say, “Just wait and see.” It is reasonable for Members to ask him to be clear on whether Labour intends to harmonise capital gains tax with income tax, but he dodged that question. It is quite reasonable, as we are discussing the global minimum corporation tax, to ask whether Labour intends to push for the 15% rate, if it is enacted, to go up. Perhaps Labour can, in the winding-up speech, answer some of the questions put by my hon. Friend the Member for South Thanet (Craig Mackinlay) and me.
One of the Bill’s most important aspects is whether it meets the challenges of today and prepares us for the challenges of tomorrow. I told my voters at the 2019 election that this country had one of the highest rates of taxation since the 1960s, and it has since gone up because of the implications and effects of the covid support measures.
This is difficult and uncomfortable territory for Conservatives. Our intention and objective should be to lower taxation. Too rarely, in this House of Commons, do we hear voices for lowering taxation. It seems to be completely beyond the pale for the Labour party even to consider that there might be a time when it is right to lower taxes. Labour would certainly never dream of lowering taxes for those foolhardy enough to earn more than £50,000 a year. Correct me if I am wrong, but I do not see a shadow Minister standing up to say, “Hold on a minute. We are in favour of people earning more than £50,000, and there may be a day when we cut their taxes.” We do not hear that from Labour, because it relies on making people not like the fact that people can make a lot of money.
That is a huge change from the days of Tony Blair and new Labour. In those days, Tony Blair recognised that the British people liked the idea that, if they could not make a lot of money themselves, perhaps their children would start a business and make some money, or get a good career—yes, in the health service—and make a lot of money. That is what the Labour party then stood for. Because it understood that natural instinct that people want their kids to have a better future and, if they make it, to be able to keep more of their money to make a better future for their families in turn, the Labour party under Tony Blair caught the attention of the British electorate. It is clear that the Labour party under the current leader will go into the next election with nothing like the agenda new Labour stood for in 1997. [Interruption.] Labour Front Benchers say that we have not seen the manifesto. Why are they waiting? If the Labour party manifesto is so good, let’s see it; let us not hide behind it. [Interruption.] Don’t tempt me too much.
On clause 2 and the main rates of income tax, I reiterate a point made by my hon. Friend the Member for South Thanet, who talked about the 60% marginal rate. The Treasury would be wise to look at that anomaly again. There is still time, perhaps not in this Budget, but certainly in a future Budget, to come forward with some simplification.
On corporation tax, the Government were caught, and my hon. Friend the Member for Amber Valley (Nigel Mills) made a reasonable point. There is a difference between the tax-raising powers we may wish to have and the signalling effect it will have for the attraction of international capital. The headline rates of corporation tax are usually what result in investment decisions getting a green or red light from multinationals.
On the OECD mutual multinational top-up tax, I welcome that the Government are at least putting in measures in the Bill. Perhaps that is not the right place, as my hon. Friend the Member for South Thanet said, but it is important that the UK has some response. It is, however, potentially foolhardy for us to progress at a pace that creates a competitive disadvantage for us. Many Members talk about the desire for economic growth and that is great, but economic growth comes because a country offers an environment that attracts international capital and talent, and part of that is how much tax people will pay. If the Labour party heralds the fact it wants to tax individuals at the highest rate possible—and to take away an exemption, when people might come here for the first time, to stop them being double taxed—and Labour party policy is to raise corporation tax to high levels, that sends all the wrong signals. I worry about that in relation to the multinational top-up tax. So let us not progress those measures in the UK ahead of our main competitors.
The right hon. Member for East Ham (Sir Stephen Timms) has left his place, but he asked questions about the abolition of the Office of Tax Simplification, a decision made during my time at the Treasury. He made some good points about how that office provided some points about tax simplification when it was allocated the task and I have no concerns or criticisms about the work it did but, if a Government of any stripe are serious about tax simplification, I do not think that process was going to achieve that objective. My view was it would be better to embrace that as a whole-Government effort. I hear the right hon. Gentleman’s concerns about no one being in charge if everyone is in charge, but that was never the intention, of course; the intention was to move to have someone in the Treasury directly in charge to look at tax simplification on a much more holistic basis, rather than take the case-by-case approach of the OTS. That was the rationale last year. It would be fair for Front Benchers to give an update on that, but I thought I would mention that for the benefit of the right hon. Gentleman, for whom I have enormous respect.
I want to mention something that is not in the Bill but which we need to think about. On achieving net zero, we have made tremendous strides by asking our corporations to start accounting for carbon in their annual account reporting. We need to harness the power of the private sector if we are going to achieve our net zero goals. I saw reports in The Times that there are going to be some announcements tomorrow that may affect this, but we perhaps did not see enough from the Government about what the plans are on carbon taxes in the UK. If we want to achieve a social objective, the introduction of a carbon tax would be one effective way of doing it. If that could be combined with reductions in general corporation tax, it would be a helpful move. It cannot be done all of a sudden, but it would be an interesting addition to the mix for the Government.
I thank my right hon. and hon. Friends on the Front Bench for the Budget and these measures, and should I be selected by the Whips—it is a safe bet that that will not happen—I look forward to debating it line by line in Committee.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
The Chancellor heralded these proposals two weeks ago as “a Budget for growth”, and thank goodness, after 13 years of a stagnating economy and with the OECD confirming that we are the only G20 economy that will shrink this year, with the exception of Russia—what a record. It is completely shameful.
I want to talk about the proposals on childcare and the extension of the free childcare entitlement, which is aimed at boosting growth and getting more parents of young children, particularly women, back into work. That is a welcome ambition. At the moment, about 1.7 million women are prevented from taking on more hours of paid work due to childcare issues, representing an estimated loss of £30 billion to the economy every year. Those numbers are as true now as they were before the Budget, because although the £1 billion tax cut for people making large tax savings on their pensions comes into effect straight away, the implementation of the free childcare arrangements is still a long way off being delivered. Parents will not receive the full benefits of the scheme until September 2025; a child who is two today will not see any of that entitlement.
The policy also risks embedding inequalities and widening the attainment gap. I worry that the Government are missing an opportunity to truly tackle the issues that are dragging growth in our economy, by not supporting parents into work, and are compounding the inequalities in our society, which are also holding people back from reaching their full productive potential. Some 80% of families earning less than £20,000 a year will not benefit from any of these entitlements—only one in five will. The north-east has the highest rate of child poverty in the country. One in five children live in workless households, and 38% of children live in households where someone has a disability, which might mean that they are unable to work. Yet those children will not receive any of this entitlement. We know that the poorest children are, on average, 11 months behind their peers when they start school. Leaving them out of this policy will just embed that inequality further. I fear that the policy confirms what we already know: levelling up is no more than a billboard announcement. If we scratch the surface, we find that there is very little underneath.
Even on the Government’s own terms, the childcare entitlement falls short. If it is about getting parents back into work, why are those who want to train as nurses, paramedics, teachers or midwives, and those who want to be apprentices, not entitled to this childcare support? Parents are trapped in low-paid work and low-skilled jobs. They dare not take time out to train because if they do so, they will lose any childcare support that they might be entitled to.
As Chair of the Petitions Committee, I know that childcare is an issue that has been raised with us time and time again, with thousands and thousands of petitioners signing petitions calling on the Government to think again. Although the Government do seem to have finally listened, it is far from job done. The provision offered covers only term time—38 weeks of the year—so for the rest of the year parents need to find the money to pay for childcare. The long-standing problem with the Government’s free childcare offer that is already in existence has been baked into these new provisions, with the risk that prices will be driven up even more.
The Government acknowledge that we have one of the most expensive childcare systems in the world. According to the Women’s Budget Group, the current provision already falls short by £1.8 billion. The new proposals from the Government have a projected £5.2 billion shortfall—the shortfall is increasing, along with the promises. Without proper funding, childcare providers will have to drive up prices, because for every hour that they provide for which there is a shortfall in funding they have to find the money to top up the rest. We must be honest here: it is parents who are picking up the tab, because the hours that parents are paying for cost far more as a result. This really should not have to be said, but crashing the childcare sector and taking money out of the pockets of hard-working parents are the absolute opposite of helping our economy to grow.
Bob Stewart (Beckenham) (Con)
I thank the hon. Lady for allowing me to intervene. I am getting a few cases now of people who are going to the Government to get the voucher for childcare, but the Government are taking far too long, which means that those people miss the deadline for giving the voucher to the local council—Bromley Council—so that they can get funded. This is a real problem, and it is increasing in my view.
Catherine McKinnell
I thank the right hon. Gentleman for raising his concern. That is just one of a number of complexities in the childcare system that are holding parents back. Adding more complexity in the system, which I fear some of these reforms will do, will only compound those problems. Parents, who are so busy, so stressed and so under pressure trying to work and bring up their children, are having to navigate the various Government offers of childcare. They call these offers free, but parents have to pay for so many hours. They also say that it is tax-free, but it is no such thing and parents need to apply for it and get the money back. It is an incredibly complex system. We could provide a much more simplified system that truly helps parents to reach their full potential and that also helps their children to reach their full potential in a quality early years environment.
That brings me to my next point, which, again, reflects my genuine concern about the Government’s proposals. To make up for the inadequate funding that the Government know they are providing, they are looking to cut corners and, I fear, to drive down quality. Against the advice of parents, providers and childcare experts, the Government are proposing to amend the ratio for two-year-old children from one adult for four children to one adult for five children. I wonder whether the Prime Minister or the Chancellor has ever tried looking after four two-year-olds, but add another into that mix and it does not get any easier. Significant investment is required in training to enable staff to manage that larger workload. Furthermore, comparing us with other countries that have much higher regulatory and training standards for their early years education staff is just a false comparison.
I urge every Member to listen to parents such as the Steepers, who, tragically, lost their son while he was at nursery. They brought a petition to Parliament to raise awareness of the danger of increasing the ratios, because they are desperate that no parent will ever face the same pain. Nobody supports a reduction in childcare quality or safety, but many warn that that is what these changes will bring. The risk is as well that it will only compound the current challenges in the early years workforce, who are leaving in their droves. Seventy five per cent. of nursery and pre-school staff have said that they are likely to leave the sector if their childcare provider increases the ratios. They are already underpaid and under pressure. Adding another child into the mix will only tip them over the edge. That will not help the Government’s target of finding 39,000 extra childcare staff to meet the needs of the new provision. That explains the delay in bringing it in, because the Government face a mammoth task to build up the workforce.
The only attempt I can see to tackle this—other than reducing the ratios, which people have said and I believe will have the opposite effect—is giving bonuses to prospective childminders. Here is the deal: if someone signs up as an individual, as people have for many years, they will get a bonus from the Government of £600. However, if they sign up with a private childcare agency, of which there are currently six in the country, all listed with hyperlinks to their websites on the Government website, they will get a double bonus of £1,200.
I asked the Prime Minister why the Government are driving people to go through an agency rather than sign up directly with their local authority. The answer I got was:
“I think it is a reflection of the fact that it is through intermediaries, so there are additional costs.”
That rather sums up how backward this policy is; there is £10 million allocated to it, and we could get two for the price of one if we cut out the middleman. Why the Government are doubling bonuses for people who sign up with agencies, I do not know. The Prime Minister has promised to write to me with answers and I eagerly await his response.
Ruth Cadbury (Brentford and Isleworth) (Lab)
Is it not something of a contradiction to appear to benefit nurseries over childminders when, in a Westminster Hall debate that I led on childcare, the Under-Secretary of State for Education, the hon. Member for East Surrey (Claire Coutinho), decried the loss of childminders and said how much the Government wanted to see the number of childminders return to previous levels?
Catherine McKinnell
I think there are many contradictions in the Government proposals, and I am attempting to set them out here. I admire the ambition, but I fear the reality does not match it. I would be interested if the Minister were able to shed some light on some of these issues when he sums up the debate.
I also want to focus on wraparound care. We know the crisis in childcare does not stop when a child starts school; the juggle only increases. Parents need help with breakfast clubs and after-school clubs and the Government must ensure that not only are they available, but they have funding to support them. Although the Government have announced an ambition to provide 8 am to 6 pm care for all primary schools, there is not much in reality to meet that ambition. The money that has been provided is for start-up funding. It runs out after 2025 and parents are left to pay the bill with no support with those costs.
The hon. Member for North East Bedfordshire (Richard Fuller) suggested that Labour is keeping its election plans very tight, but this is one policy that we shout loud and clear and are very proud of, and are disappointed that the Tories have not stolen. With our wraparound care offer we will guarantee breakfast clubs for all primary school children, paid for by abolishing the non-dom status. I would be delighted, and I think the country would too, if the Government were to steal that policy.
I will conclude, because I am aware that some hon. Members have gone on very long in this debate. The Government finally appear to recognise that childcare is part of our vital infrastructure. I welcome that. It is fundamental to our economy, to tackling the gender pay gap and to giving all children the best start in life—something that is too often forgotten in these conversations. Childcare is about not only helping parents into work, but giving children the best start in life, ensuring that they have good-quality early years provision so they are ready to start school in line with their peers.
I fear that driving down quality and a race to the bottom on ratios will not achieve those ends. The real test of the policy is whether it will make childcare more affordable and more available and whether it will deliver economic growth. We have heard from parents and providers that at best, these measures are just not enough, and at worst, they might make the problems worse. I hope the Government listen to those concerns and keep the policies carefully under review, because the childcare system in our country is so broken that sticking plasters will no longer do.
Priti Patel (Witham) (Con)
It is an honour to follow the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), because I wholeheartedly support the principle of getting more parents into work and, importantly, we both became Members of Parliament at a similar time, when we both had small children. There is a clear understanding that the childcare system in this country has been dysfunctional and unaffordable for too long. I was a Minister in a Government who developed the policy of tax-free childcare, and we wanted to simplify it. I think she made some important references to simplification and making childcare much more accessible to and practical for parents—we need that.
I say that because our country and our economic prosperity are built not on the foundations of government, high taxes and regulations, but on the ingenuity of the human spirit and the British public going out to work and contributing. That is effectively what we need to be doing. Our economic strength comes from the entrepreneurial spirit of businesses—obviously, I say that as an Essex MP—and from the nation’s wealth creators: our army of hard-working businesses. I come from a small business background myself—people know that I have worked overseas and all the rest of it. That is what builds economic foundations and protects us, allowing us to weather economic hard times.
We must recognise, of course, that we have seen economic hard times—certainly in my decade in this place—and we are not out of the woods; we have high levels of inflation. We also have challenges in the banking system, which could have long-term repercussions. We want to get the economy growing, and for the Government to meet their pledge to grow the economy, create more better-paid jobs—we all believe in better-paid jobs—halve inflation and reduce the national debt, we need businesses such as those in Essex. My hon. Friend the Exchequer Secretary to the Treasury is a Suffolk MP, and I am adding the entrepreneurial eastern region. We have to give people the bandwidth to invest. We need them to feel confident about the strength of our economy and that businesses will do a great deal to invest.
Of course, Governments do not create jobs—we need to recognise that—but they can help to generate growth. That is why we need the right economic foundations, fiscal framework and supply-side reforms—about which we do not talk enough—to encourage free enterprise. So many of us in this place are old enough to remember that that was the approach that lifted our country out of the economic doldrums in the 1980s. As I said in the Budget debate, there are many positives in the Budget, but there is a strong sense among the business community that the Budget and the Bill could have gone further, and that we need to think about future-proofing where we as a country go on the economy and, as many of my hon. Friends have said, about addressing the high tax burden, which curtails our economic freedoms.
I could make many references to one great Conservative, the late Baroness Thatcher, who said:
“Our challenge is to create the kind of economic background which enables private initiative and private enterprise to flourish for the benefit of the consumer, employee, the pensioner, and society as a whole.”
For me, those are the basic tests by which we should judge a Budget and a Finance Bill. Do they support private investment and enterprise? Do they ensure that we are internationally competitive? Do they help households and businesses by giving them economic freedoms?
I will touch on some measures that have already been mentioned. On the rise in corporation tax, there are measures to provide more relief, which can be welcomed, but I do not believe in increasing taxes and then providing relief to compensate for them. Too many risks come with relief. It can create complexities in the tax system, and small businesses in Essex will have to employ armies of lawyers, tax accountants and specialists. I just disagree with that; I do not think it is right, as I said in the Budget debate. I believe that we need a simplified tax code underpinned by lower taxes. We have been talking about that for years in this House but we struggle to deliver it. Of course, businesses are frustrated by that because they are the ones that have to pay the costs of it. Entrepreneurs and small businesses are subject to more regulatory costs and more restrictions, which stifles innovation. We need to do much more in that space.
The OECD minimum rate of corporation tax is a hugely complex change to our tax system that has so far progressed with very limited scrutiny, I am afraid. Given the extent of the 159 clauses, that scrutiny may happen in Committee, as colleagues have said. I hope the Minister can assure me that the time allocated to those clauses in Committee will reflect their complexity, and that key sections will be considered by the whole House, because we are deeply concerned about the impact of the change on the UK’s economic future. I have concerns about the administrative costs of those measures for businesses. We need to look at the change in more detail, given that businesses are already paying above the 15% tax rate. That is of great concern.
Bob Stewart
Small businesses in my constituency are complaining hugely about the fact that they will have to employ more and more accountancy hours in order to do their work. It is a real problem because it costs them more and more money.
Priti Patel
My right hon. Friend is absolutely right, and that brings me to a point that I hope the Minister will seek to address. The Government’s impact assessment suggests that the costs could be around £13 million initially, and then an additional £8 million annually to maintain. This is a total underestimation. When the lawyers, tax accountants and everything else—the layer cake—is included, the cost will be phenomenal. For example, the insurance sector believes that its compliance costs will increase by a minimum of 20% to 25%. Others say the increase could be as high as 40%. These are business costs—I do not need to spell them out any further.
To quote the Government, the effectiveness of the policy
“depends on a high degree of consistency of the implementation in different jurisdictions”.
It has already been said this afternoon that although we are pressing on with implementation, other countries are not. As my hon. Friend the Member for South Dorset (Richard Drax) said, the EU has granted many member states the right to delay for up to six years. The US is not going to implement it at all. We know exactly what the White House and the US House Committee on Ways and Means have said. If the UK progresses ahead, how high a degree of consistency can we expect elsewhere? In America, the House Committee on Ways and Means is threatening retaliatory measures against any countries that attempt to collect additional taxes from US corporates. We need to understand the implications across Government, because this is about not just the Treasury but the Department for Business and Trade. What impact will the Bill have on the prospects of a UK-US trade deal?
Finally, we are legislating before a final international agreement has been reached. As we know, negotiations are ongoing in respect of several measures, not least the infamous international dispute resolution, which seems to have plagued most Government policy in many other areas. We are signing up to a deal when we do not know whether it will be so loosely policed that China and other countries can game it without thinking about the wider implications. I know that the Minister will pick up these points, and I thank the Front-Bench team and the Chancellor for their strong engagement on all these issues.
I wish briefly to touch on the point that has been made about the Office of Tax Simplification. Much more work needs to be done in this policy area. At the end of the day, it applies to issues such as personal taxation rates. We on this side of the House are Conservatives and believe in allowing people to keep more of what they earn, and we trust them to make more informed choices about how they spend their money. Notwithstanding not just this Finance Bill but previous ones, it is fair to say that since 2010 we have lifted many of the lowest-paid out of income tax by increasing the tax-free allowance to £12,570. We should be proud of that. It has doubled under us and, along with the introduction of the national living wage, we have helped those on low incomes, which is absolutely the right thing to do.
The previous Finance Act that we passed froze the tax-free allowances and respective tax bands until 2028. I want to see so much more done in this policy area to give people more freedoms and to let them keep more of the income they earn, rather than having the state continuously robbing Peter to pay Paul and then reallocating so much public money in difference schemes.
We now face a real problem with fiscal drag that we have to address. Middle-income earners have already faced the impact of fiscal drag, with little change in the 40% higher-rate threshold in recent years. We also know that in 1990-91 there were 1.7 million higher-rate income tax payers out of 26.1 million, which was less than 7% of all earners. Now there are 5.5 million higher-rate income tax payers out of 34 million, which is 16% of all earners. As Members can work out, over the past 30 years we have gone from one in every 14 income tax payers paying the higher rate to one in every six. That is very significant, so this is one area that I would say to the Government, to Treasury Ministers and to the Prime Minister has to be kept under review.
To conclude, I encourage Government Front Benchers to drive forward everything that will promote free enterprise and to look at good tax cuts that will really help people, including those who, quite frankly, are struggling: low-income earners in particular, but also small businesses around the country. This is not just about the large corporates, but those that employ people in our communities. Those businesses are the backbone of our communities and our societies, and if we do more of that, we will have stronger economic freedoms to grow our economy and make our country more prosperous again.
Ashley Dalton (West Lancashire) (Lab)
Over the past few weeks, Government Members have described the Opposition’s objections to this Bill, and to the Budget that came before it, as “the politics of envy.” Nothing could be further from the truth. It is not envy to understand that pension tax breaks for the very richest in society do nothing to provide the economic growth we all so desperately need. It is not envy to demand an economic strategy that prioritises growth and public services, and it is not envy to want good jobs and productivity across all of our communities. This is about tapping into the potential of our country to build the better Britain that we on the Labour Benches know is not only possible, but essential. It is about priorities.
This Government had an opportunity to unlock the massive potential of our country and target measures in a way that could drive growth, invest in public services, and facilitate jobs and employment in our key sectors. However, what they have again chosen to do is paper over the cracks of 13 years of economic failure. They have chosen to dress up a massive tax cut for the richest as some kind of economic freedom, when in fact it is one of the most regressive decisions they could have taken. They have chosen to vaguely manage ongoing decline, rather than take the bold and progressive steps required to unleash the potential of our economy and build a better Britain.
I am sure that Government Members will tell us that the plan is for inflation to come down and for financial growth, but all the evidence is to the contrary. Inflation was meant to come down this month, but it went up again. Rather than improving, growth forecasts have been downgraded, and the Office for Budget Responsibility tells us that wages will fall again this year in real terms. As for the Government’s plan to abolish the pensions lifetime allowance, apparently to keep doctors in the NHS, it is a blanket measure that benefits only the very richest, and one that the former Pensions Minister Sir Steve Webb believes will actually lead to people retiring earlier.
Let us have a look at this abolition of the pensions lifetime allowance. The Government are keen to dress it up as a “keep more of what you earn” idea, as though it is going to help struggling people to save for their futures, but that is absolute nonsense. It is a common misconception that the lifetime allowance stops people from saving more than the limit—it does not. As it stands, people can save more than the lifetime allowance in their pension pots, but over that allowance they will have to pay tax on it. At first glance, anyone might think that it is a great idea that they can now save more without being taxed, but who does the policy actually benefit? In 2019-20 there were over 41 million people of working age in the UK. How many of those were fortunate enough to be able to save enough money that they went over the allowance in that year? It was 8,510. If we filled The O2 arena, four of the people in there would go over the limit. This policy will benefit at most 1% of people. How do the Government justify a policy that helps so few and costs everyone else so much? Even if it did encourage people to stay in employment longer, the IFS says it will cost the taxpayer £100,000 for every job retained. There is no guarantee at all that those people will be retained in the key sectors where we desperately them, such as doctors.
Moreover, this policy allows somebody to hoard huge unlimited wealth in pension pots tax-free. On their death, they can pass those on without having to consider inheritance tax. When Government Members claim this policy is about letting working people keep more of what they earn, we know it is a sham. When they claim it is about retaining doctors, we know it is a sham. When they claim it is about growth, we know it is a sham, because despite this so-called tax cut, the tax burden on ordinary working people is up. Not only is it up; it is at its highest in more than 70 years, and that comes on top of stagnating wages, rising inflation and rocketing interest rates.
There was a chance to put in place an affordable, targeted scheme to keep doctors, but the Government did not. There was a chance to give control back to communities through devolution deals, but 90% of us have missed out on that. There was a chance to end non-dom status and spend the money on the NHS, but it was missed. That is because the Government are out of ideas, out of steam and out of touch. It is time for them to get out of the way so that Labour can get on with building the better Britain that we not only need, but that Opposition Members know we can be.
Siobhain McDonagh (Mitcham and Morden) (Lab)
I wanted to start by saying a few words about the late Baroness Betty Boothroyd, because I think I may be the only Member currently in the Chamber who was here when she was Speaker. She was an extraordinary, indomitable, wonderful, tough and completely terrifying person to a new young MP—one of the 101 Labour women elected in 1997. She smashed her way through every glass ceiling that ever stopped her. She was a working-class woman, proud of her roots and of who she was, and she would let nothing get in her way.
Betty led a very different House of Commons. When you came here in the morning, you did not know what time the House would go on to in the evening. You would be terrified to get one of the invites to her many social occasions; you had to be sure you had the appropriate outfit on the back of your door in case she did invite you. Woe betide anyone who did not respond to her invites within 48 hours, because the invite would be promptly withdrawn. I do not know whether it is apocryphal, but rumour had it that she stood at the door of her social evenings and watched you come in, and if you were not appropriately dressed, you were asked to leave.
I have one last story about Betty. It was an extraordinary time in 1997, and we were all invited by Queen Elizabeth to go to Buckingham Palace. I do not know whether my right hon. Friend the Member for Doncaster Central (Dame Rosie Winterton) recalls it, but we arrived terrified. I walked into a room and I saw Betty Boothroyd. I knew that I knew her, so I could talk to her. At that point, another Labour MP who is no longer in this House turned to the Duke of Edinburgh and asked him to take a photograph of me, Betty and himself. I thought I was going to die—at least, I thought I was going to stop breathing. Everybody was silent, until Betty opened her arms and sprang into a rousing chorus of “A Nightingale Sang in Berkeley Square”, while one of the Duke’s aides took him away so that he would no longer be offended. She was a character, and we all came along behind on her coattails.
Just because Betty achieved, it does not mean that everybody could achieve. We know that the number of working mothers in our economy is in decline in the 21st century. At a time when we know that we need more people in the workforce, mothers are not entering it because they cannot afford to do so, even if they want to carry on working to develop their skills, they hope for a better career in the future or they simply need the money.
Something that makes all of our constituents cynical about politicians and Government is when much is promised and little is delivered. When my friend Natasha and her husband Pete were watching the Budget, hoping for help with childcare costs for their two-year-old son Noah, they found none. They pay more in childcare than they pay on their mortgage. There will be many women who, as my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) said, find nothing in these proposals that is going to assist them, because they really click in in September 2024 and September 2025. We could cynically ask whether those dates have been arrived at because they will be after the general election and the current Chancellor may not have to deliver on the promises.
More worryingly, the Sutton Trust has found that only 20% of the poorest third of families will benefit from the proposals. Those are the women and the families who need to work to improve their chances. We all agree that working is the best way out of poverty, or at least that it should be. In September 2024, there will be 1,369,000 children between the ages of nine months and two years. This scheme benefits only 600,000 of them, and more—729,000 of them—will have no benefit from these proposals.
However, it is not just the mums and the families who are going to have a problem. The nurseries—the providers themselves—already have problems. We know that 5,400 nurseries have closed since 2021, because they simply could not make up for the increasing cost of gas, electricity and staffing or for the fact that the current free hours are not free to the provider. It costs about £7.49 an hour to keep a child in a nursery, but that is only subsidised to the tune of £5.50 by the Government’s plan. Promises have been made that the difference will be made up to prevent more nurseries from closing.
The money offered by the Government for the current proposal is £240 million, but the Women’s Budget Group says it will cost £1.8 billion, and that famously Trotskyist organisation the CBI reckons it will cost £1.6 billion. The Women’s Budget Group believes that the total cost in September 2025 will be £9.4 billion. The amount paid by the Government will be £4.2 billion, so it will need more than half as much again to make the scheme work. We are either going to collapse the nurseries that currently exist because they will not have anybody to cross-subsidise with, or the places will not be there for those children.
It is not about the mums and it is not about the nursery, so is it about the staffing? Our childcare works on the back of very young women being paid very little. One in eight of the staff in our nurseries is paid £5 an hour because they are too young for the national living wage. That is how nurseries manage to keep going.
Bob Stewart
I entirely endorse what the hon. Lady says. A lot of nurseries in my constituency are coming to me saying, “The people we employ are just not getting enough money and we can’t afford to give them more. Please, please help.”
Siobhain McDonagh
I completely agree with the right hon. Gentleman. I am sure that, like me, he gets emails from parents who are absolutely desperate because nurseries are closing at short notice and no alternatives are available. We think we have a problem in outer London, but the problem in Newcastle is even tougher.
Some 90,700 staff have left the profession since 2018. The Women’s Budget Group—we thank it for all its efforts in getting these details—believes that for the Government to meet their plan, they need 38,000 more childminders and nursery workers. That does not happen by magic. It requires intervention. It requires the intervention of the businesses, but also the intervention of Government. We know, and we have known for years, that children benefit from the most well-qualified and well-trained staff. Well-qualified and well-trained staff need to be paid properly. Childcare should not be the service that is provided on the back of the least well educated and the least well paid.
Several hon. Members rose—
Mr Deputy Speaker (Sir Roger Gale)
Order. There are still four Members waiting patiently to speak. We hope to start the winding-up speeches at 5.40 pm. It is a big ask. I expect you to be able to say what you need to say, but do your best.
Sarah Olney (Richmond Park) (LD)
Households across the country are under immense financial pressure. Mortgage bills are up, the cost of the weekly shop is up, taxes are up and energy prices are up, yet the Bill offers no immediate help with the cost of living.
The Prime Minister has repeatedly promised to halve inflation this year, but the Bill does nothing to deliver on that goal. Instead of using the measures available to tackle rampant inflation, the Government are forcing countless shops, pubs and restaurants to pass increased costs on to their customers by slashing energy support for businesses by 85%. The price of clothes, food and a drink at the local pub will all go up because the Government are cutting support. Recent statistics emphasise the direct impact that increased costs for businesses have in fuelling inflation.
Last month, the rate jumped up to 10.4%, driven largely by the cost of food and alcohol in hospitality venues, but that jump was not mirrored globally. Inflation eased to 6% in the United States and to 8.5% in the eurozone, so why is the UK suffering from persistently higher rates of inflation than other large economies? The Government would like to pin the blame solely on external factors, but they are actively choosing not to tackle rising prices by supporting businesses with their energy costs. If the Government wish to be congratulated when inflation falls, they must also take responsibility when it rises.
The impact of the Government’s failure to tackle inflation is not only felt through increased prices in the shops. Earlier this month, the Bank of England raised interest rates for the 10th consecutive time, causing further misery for millions of mortgage holders who face soaring monthly payments. In my constituency alone, 15,000 mortgage holders are now vulnerable to soaring costs because of the Conservative chaos.
The Government could be doing so much more to support families with the immediate pressures of the cost of living. The Minister claims the Government are extending support with energy bills, but that is simply not true. People will pay more for their energy this year than they did last year, not less, even though gas prices are falling. In three months’ time, there will be no extra help in place whatsoever—the £400 discount is also gone. Fuel poverty will get worse, not better.
The Liberal Democrats would cut energy bills by £500, taking them back to the level they were at last April. The Government even had unspent funds available to do that, but they simply chose not to. The Liberal Democrats would also introduce targeted support for the most vulnerable households by doubling the warm home discount and the winter fuel allowance, as well as setting up an emergency home insulation programme to bring energy bills down in the long term. To fund additional support, we would implement a proper windfall tax on the super-profits of the oil and gas giants by raising the rate and abolishing the fossil fuel investment loophole—fair taxation that would redistribute windfall profits to directly benefit households.
Not only have the Government failed to get a grip of the cost of living crisis; they are hitting hard-working families with unfair tax rises, penalising people for every extra pound they earn at a time when wages are already declining in value. Meanwhile, households have seen no benefit from the increased taxes they pay. Schools and hospitals are stretched to breaking point, with no room left in their budgets to cover essential running costs, let alone to fund vital repairs to crumbling infrastructure. The Bill completely ignores our crumbling public services, condemning them to further decline.
The Chancellor has spoken of re-engaging economically inactive people in the labour market, but the Government have no plans to fix NHS backlogs and social care staff shortages, which is essential to reduce the nearly 2.5 million workers out of work due to ill health. They cannot fix workforce problems with people with ill health if they do not fix the NHS and social care. The Government just do not seem to get that.
Above all, the Bill fails yet again to implement measures that would deliver strong, sustainable and fair growth for the UK economy. Business investment in the UK is the lowest in the G7. We urgently need to boost private sector investment in our businesses to get on the path to sustained growth. The Conservatives’ policy on that has failed badly. The lack of industrial strategy and their constant flip-flopping on tax and investment rules have not achieved the growth they promised us.
The business community has been vocal about the damage caused by the Government’s decision to scrap research and development tax credits for SMEs in the autumn statement. I was therefore disappointed by the lack of movement in that area in the Bill. I urge Treasury Ministers to reconsider their policy and to reinstate the R&D tax credits for SMEs in full. Such incentives are vital to enable small businesses to fully explore the opportunities opening up, particularly in the digital sphere, artificial intelligence and robots, and to ensure that the UK can continue to be a powerhouse of technical innovation.
The Government should also explore other tax incentives proven to boost productivity, such as tax breaks for training, digital investment and upgrades to energy efficiency. Instead, we have another temporary measure that fails to give businesses the confidence to make investment plans for the future.
Despite its 450 pages, the Bill offers nothing to support households or businesses with immediate cost of living pressures. Families are looking to the Government for support, but they are met with unfair tax hikes and crumbling public services, all the while being left to suffer the effects of rampant inflation, soaring interest rates and declining wages. The Liberal Democrats are calling for more support with energy bills, both for households to deal with the cost of living and for businesses to help curb inflation. We are calling for a proper plan for fair and sustainable economic growth, and urgent action to clear NHS backlogs and to ensure that those suffering from ill health are able to access the care that they need to return to the workforce. The Bill fails to address those points, and the Liberal Democrats will vote against it.
Ruth Cadbury (Brentford and Isleworth) (Lab)
It is an honour to follow my constituency neighbour, the hon. Member for Richmond Park (Sarah Olney). However, I do not support her party’s amendment.
I rise to speak about the Finance Bill by saying:
“there’s no stability, no certainty and no sense of a wider plan”.
That is not a comment on the revolving door of Chancellors that we have seen over the past year. They are the words of Paul Johnson of the Institute of Fiscal Studies on the Government’s latest changes to the tax regime in the Budget. He is right, and his words could be applied to the entire Finance Bill and this Government’s entire Budget. The Budget that preceded the Bill was the chance to unlock Britain’s promise and potential, but it failed. Therefore, I speak in support of the amendment in the name of the Leader of the Opposition. There is a lot I could say, but I want to focus on two things: the failure to ensure that we have a tax system that works, and the impact that is having on public services and my constituents.
The business rates system is outdated and antiquated—the Government themselves have said that. Whether I talk to businesses on Chiswick High Road or in the heart of Brentford, they say that the business rates system is clobbering them, especially small, family-owned businesses that are fighting to survive. Those businesses, in addition, face rising loan costs—a Tory tax on their loans because they decided to shoot a torpedo into our economy. The economy was already struggling after 13 years of low growth and failure. We have all seen how those 13 years of failure have impacted on our public services. In our constituencies, youth centres have been closed, police numbers have been cut, and health, education and care services have been cut to the bone. We feel these cuts every day. They rip the heart out of so many communities and are the reason that we live in a country where nothing seems to work. Ambulances do not arrive, the police do not turn up, the potholes get bigger and new homes do not get built.
The 13 years of Conservative misrule have had a devasting impact on households across Hounslow, Isleworth, Brentford and Chiswick, yet the Budget and the Bill show where the Government’s real priorities lie: with the richest 1%. They were the only people to get a permanent tax cut in the Budget, through the changes to the lifetime pensions allowance. Labour called for a targeted measure, specifically to help NHS doctors, but the Government brought forward a blanket exemption for all high earners. To quote Alexander Pope,
“Who breaks a butterfly upon a wheel?”
That tax change brought a steamroller to our pensions system, when a far simpler and more targeted solution would have been the answer.
While the Government brought forward that tax break for the richest in society, the reality for families across my constituency is that living standards over the past two years have fallen by the largest levels since records began. Every week I hear from families living in small, cramped, temporary accommodation, parents working two or three jobs to keep a roof over their heads, and families worried about how they will pay the next gas bill, next month’s rent or mortgage payment, or how they will fix the washing machine. On top of that, the tax burden on families across west London continues to rise, with 3 million taxpayers caught up in the Government’s stealth tax rises.
Businesses and families in my constituency desperately want, and need, a Government who are on their side. My right hon. Friend the Member for Leeds West (Rachel Reeves) has set out how a Labour Government would be different: a comprehensive review of business rates, a proper windfall tax on oil and gas giants, a real industrial strategy that incentivises business investment, and a plan that would support our economy and give businesses and families the security they need. Heaven knows, after 13 years of Conservative rule, it is time for a change.
Mick Whitley (Birkenhead) (Lab)
I rise to speak in support of the reasoned amendment tabled in the name of the Leader of the Opposition, my right hon. and learned Friend the Member for Holborn and St Pancras (Keir Starmer), and the shadow First Secretary of State, my right hon. Friend the Member for Ashton-under-Lyne (Angela Rayner).
The amendment rightly raises the question of priorities. When the Prime Minister outlined his so-called five missions to the country early in the new year, he promised the British people that
“your priorities are our priorities”.
But the Bill put to the House today, just like the Budget from which it derives, is the work of a Government who seem to be fundamentally adrift from the needs and priorities of the British people.
Indeed, looking at the measures that have been outlined today, people could be forgiven for thinking that this country was not in the midst of the worst cost of living crisis in a lifetime, that the price of basic foodstuffs was not rising at the highest rate since the late 1970s, and that the dilemma of whether to heat a home or eat was still the preserve of a few households in crisis, not a choice that is now depressingly familiar to hundreds of thousands of families across the country.
My constituents desperately needed the Chancellor to step up with a plan for progressive tax reform that would boost their disposable incomes, secure their standards of living and guarantee additional investment in our ailing public services, by asking the wealthiest few to pay their fair share. They needed action to tackle the soaring costs of food and rent, including price controls if necessary, and to close at long last the glaring loopholes in the Government’s oil and gas windfall tax scheme, so that we can begin to move towards creating an energy system that serves the public need, not the greed of private shareholders.
They wanted Ministers to take inspiration from President Biden’s Inflation Reduction Act, to recognise the importance of public finance policy in acting as a catalyst for green growth, and to begin to make up for what the Climate Change Committee has described as a “lost decade” on climate action, presided over by successive Conservative Governments. But from what we have seen today, it is clear that the Chancellor is not listening.
On the most recent reforms to the tax regime for businesses, Paul Johnson of the Institute for Fiscal Studies has rightly said:
“There’s no stability, no certainty, and no sense of a wider plan.”
He could well have been speaking for this Government as a whole. This is a Government who do not have a plan, a vision for the future of our country or the appetite to make the meaningful changes that the British people want to see. After 13 long years in power, it is time they stepped aside for a party that does.
Grahame Morris (Easington) (Lab)
Thank you for the chance to speak in this debate, Madam Deputy Speaker. I was quite taken by the Financial Secretary’s remarks setting out the three pillars of tax: making it fairer, making it simpler and encouraging growth. I want to focus on the failure of the Budget, and of this Bill, to address the flaws in the Government’s policy on levelling up that affect my constituency, because Easington has suffered and continues to suffer as a result of Government policy.
I am delighted that the Exchequer Secretary is on the Treasury Bench, because I want to touch on some barbed comments that he made to me and to my good friend, my hon. Friend the Member for Eltham (Clive Efford), in relation to allegations about wealth taxes, in a debate on the Budget. However, the main point that I am trying to make is about the failure of the levelling-up fund and of the Government to identify the resources needed to meet their primary objective of investing in and regenerating the poorest communities and most fragile economies in order to close the economic equality gap in the UK.
I also want to make a suggestion to Opposition Front Benchers: to develop a White Paper on investment and regeneration as part of our Budget strategy to be ready for the first days when we take office, as the Conservative party has been absolutely disastrous on supporting the poorest communities. In a previous speech, I highlighted some alternatives that the Government and my party might want to consider.
The Budget and the Finance Bill are all about political choices over tax. I am a great advocate, having looked into the matter in some detail, of a proportional property tax to replace council tax. It would be a tax cut for more than 75% of households—actually, in my constituency it would be for 100%—which would benefit from an average annual tax saving of £900. Regional economies would effectively receive a £6.5 billion economic stimulus annually, so that levelling up, rather than being a Government investment scheme, would be a feature of the tax system each and every year. It would streamline tax collection and make it more efficient, saving local authorities £400 million a year and meeting the Government’s stated aim of simplification.
In the little time I have, I want to mention the impact on Horden in my constituency. My constituents in the village of Horden were very much involved in the partnership developing the levelling-up bid. Horden is one of the poorest communities not just in east Durham or County Durham, but probably in the whole country. A great deal of time and effort went into developing the bid.
Many of the problems that Horden and my constituency face have been fashioned by Government policy. Does anyone remember the introduction of the bedroom tax? It had significant consequences for my community that we are still living through today. Accent Housing, a social landlord, cancelled a multimillion-pound decent home investment scheme in Horden, citing the collapse in demand caused by the introduction of the bedroom tax: many of its tenants were renting two-bedroom properties and were single people. The consequence was that Accent sold on the properties in a fire sale, so we have a plethora of private landlords.
Sometimes making the wrong policy decisions, particularly on tax, is worse than doing nothing. To my mind, and in the experience of many of us, the Government gimmick of making levelling up a funding competition wastes time, money and resources that could be better spent in the community. There is no way to calculate the cost and time that have been lost on consulting on and raising expectations for the failed bids, but I want to point out to the Exchequer Secretary that all five bids from County Durham were rejected. These are resources that we can ill afford to lose after 13 years of austerity, and cuts of more than a quarter of a billion pounds in Durham’s budget. My constituents are lobbying and protesting at County Hall—and, I should add, the council is now a Conservative-led coalition.
Things are very difficult, and my constituents, like me and like many other people across the country, have lost what little hope, faith and trust they may have had that a Conservative Government and Conservative policies could work in their interest, or indeed the national interest. As we have seen through their recent leaders, the Government are often more preoccupied with their own self-interest and short-term agendas. I am pleased to say that Labour is a Government in waiting, and only a general election away from restoring competent government.
I am seeking a commitment in relation to investment and regeneration. I do not want any gimmicks or games. Labour has set out our mission for government, which will guide policy and everything we do, and I therefore ask that we do not create games and competition on something as important as investment in our communities. Resources should be allocated to those in the greatest need, and I hope that the shadow Minister can confirm that instead of chaotic competition, Labour will produce a clear, targeted commitment with the purpose of closing the economic gaps and disparities and strengthening regional economies. I look forward to campaigning on such a manifesto.
Let me end by once again thanking my constituents from Hordern who are protesting and lobbying at County Hall and making their voices heard. I say to them that what this Government have done to our community is not fair or right, but together we will win, we will secure investment, and we will secure a Government who care and who represent the people.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
Let me begin by paying tribute to Betty Boothroyd, who was a great female trailblazer. We should do all that we can to remember her as an inspiration to all of us in this place.
I am grateful for the opportunity to close this debate on behalf of the Opposition. The Budget was a chance for the Government to unlock Britain’s promise and potential, but instead they decided to continue papering over the cracks of 13 years of economic failure. As my hon. Friends have illustrated so powerfully and persuasively today, the Government’s economic record is appalling, and the Finance Bill does nothing to fix that.
I am particularly grateful to my right hon. Friend the Member for East Ham (Sir Stephen Timms) and my hon. Friend the Member for West Lancashire (Ashley Dalton), who expressed concern about the baffling tax cut for the wealthiest 1%. My right hon. Friend the Member for East Ham said that the Chancellor had chosen the wrong thing to prioritise, and I could not have put it better myself. However, it is not just Labour Members who think that. As my hon. Friend the Member for West Lancashire pointed out, Sir Steve Webb, the former Pensions Minister and a partner in Lane Clark & Peacock, has raised concerns as well. My right hon. Friend the Member for East Ham also expressed concern about the abolition of the Office of Tax Simplification, which was announced in the disastrous mini-Budget. I should be grateful if the Minister could explain to him the justification for that decision.
My hon. Friends the Members for Newcastle upon Tyne North (Catherine McKinnell) and for Mitcham and Morden (Siobhain McDonagh) talked about the Government’s childcare proposals. They represent a welcome ambition, but all of us on this side of the House know that the devil is in the detail. Parents will be waiting until September 2025 to see the real benefits when it is fully implemented.
The right hon. Member for Witham (Priti Patel) said that the Bill could have gone further on the economy. My hon. Friend the Members for Brentford and Isleworth (Ruth Cadbury) and for Birkenhead (Mick Whitley) spoke about the impact of the current business rates system and the cost of living crisis on their constituents, a problem with which we are all too familiar in our constituencies. My hon. Friend the Member for Easington (Grahame Morris) raised his concerns about the Government’s failure to invest the levelling-up fund fairly.
The headline offering in the Budget was a blanket change in tax-free pension allowances, which benefits only those with the biggest pension pots and will cost about £1 billion a year. The Government claim that it will fix the NHS crisis, but let us be clear: this is not a targeted scheme to address pension issues affecting NHS doctors. It is a tax cut for the well off—a permanent tax cut for the richest 1% of earners that might even see workers retiring earlier, not later.
As several hon. Members have already mentioned, a former Pensions Minister has said that these changes could backfire and enable some people to retire sooner than expected. The Government could have designed a targeted scheme at a fraction of the cost, but they chose not to. As my hon. Friend the Member for Ealing North (James Murray) set out, that would have ensured value for money for the taxpayer. Perhaps the Minister can provide an explanation today for this blanket giveaway. Let us not forget that the only reason the Government have introduced a policy like this is to fix their own mess—the mess that 13 years of Tory failure has wreaked upon our national health service. Labour will continue to oppose these measures.
Let me turn to the wider economic climate facing people up and down the country. Under the Tories, growth has plummeted, leaving working people’s living standards squeezed. Since 2010, the UK has grown more slowly than its peers. Out of the 38 countries in the OECD, our average growth of 1.4% is ranked 29th, behind countries such as Mexico, Germany and the USA. UK productivity grew by just 0.4% on average between 2010 and 2019, the second slowest in the G7 after Italy, and wages are lower in real terms now than in 2010.
Labour understands the scale of this challenge and is ready to fix the failings of this Tory Government. I think that Conservative Members recognise this, given the number of policies they appear to have taken from us, including the extension of the energy price cap, addressing the scandalous treatment of those on prepayment meters, cancelling the planned fuel duty increase, introducing investment allowances to reward firms for investing, and a narrative on getting people back into work. These are all areas where Labour is leading the way and generating ideas to grow our economy.
With our mission to secure the highest sustained growth in the G7, we will create good jobs and productivity growth across every part of the country. Our plan is to replace business rates to support our high streets; to implement a modern industrial strategy to help businesses succeed; to introduce start-up reforms to make Britain the best place to grow a business; and to fix the holes in the Brexit deal so that we can export more. That will be complemented by our green prosperity plan, which will create jobs across the country. We will deliver greater self-sufficiency in renewable energy by doubling onshore wind, trebling solar and quadrupling offshore wind, thus reducing people’s energy bills and guaranteeing our energy security. We will create half a million jobs in renewable energy, and an additional half a million by insulating 19 million homes over 10 years—[Interruption.] Members may laugh, but this is more ambitious than what this Conservative Government have been delivering for 13 years.
We will make Britain a world leader in the industries of the future and ensure that people have the skills to benefit from those opportunities. As my hon. Friend the Member for Ealing North said, the world economy is changing and Britain is not grasping the opportunities to get ahead of the game. We see developments across the US and Europe that highlight the scale of the opportunity, and we see just how much Britain might miss out if we do not grasp the nettle. I know that this issue is serious, having met businesses up and down the country, including this morning. We should be at the forefront of the race to net zero, and there are individuals and innovative businesses across the UK who are working hard to play their part, but their question is: when will the Government back them and give them the tools they need to succeed? Labour’s economic plan would do just that and put the UK at the head of the pack.
So—low growth, stagnant wages and no plan for growth. That is what the UK is facing with this Government, and for precisely that reason, as our amendment today sets out, we will decline to give this Finance Bill a Second Reading. It is time for a Labour Government: a Labour Government who would get us on the path to growth; a Labour Government who would enable the United Kingdom to reach its full potential; a Labour Government who would support people and businesses to thrive and succeed.
The Exchequer Secretary to the Treasury (James Cartlidge)
I join the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) in paying tribute to Betty Boothroyd on the day of her funeral. I thank all colleagues who paid tribute to our great female Speaker, including in a fascinating anecdote from the hon. Member for Mitcham and Morden (Siobhain McDonagh).
It is a pleasure to respond to the many contributions from hon. and right hon. Members. I start with the Labour Front Benchers and the hon. Member for Richmond Park (Sarah Olney), who speaks for the Liberal Democrats. As at Treasury orals, they once again used the word “loophole” to describe our investment allowance for North sea oil and gas, which is an extraordinary thing to say. When we debated the autumn statement, the shadow Economic Secretary to the Treasury, the hon. Member for Hampstead and Kilburn (Tulip Siddiq), said that
“we need more oil and gas”.—[Official Report, 22 November 2022; Vol. 723, c. 180.]
That was what she said, but it is clear from Labour’s policy that it does not want that oil and gas to come from the United Kingdom. What an extraordinary position.
If we have learned anything from what has happened since Russia’s invasion of Ukraine, it is surely that we have to maximise our domestic energy production. The windfall tax is raising significant funding so that we can pay for all the energy support our constituents are getting, but we are balancing that with an allowance so that we continue to maximise investment in our energy security.
The hon. Member for Ealing North (James Murray) lamented the fact that the Bill does not cover business rates. Well, I have news for him: Finance Bills never cover business rates, which are local taxes. If he were to pick up the Order Paper, he would see that, before this debate, my right hon. Friend the Secretary of State for Levelling Up, Housing and Communities introduced the Non-Domestic Rating Bill.
The hon. Gentleman, along with many of his colleagues, including the Chairman of the Work and Pensions Committee, the right hon. Member for East Ham (Sir Stephen Timms), and the hon. Members for Brentford and Isleworth (Ruth Cadbury) and for West Lancashire (Ashley Dalton), continued the narrative that our abolition of the lifetime allowance is somehow a tax cut for the rich. They talk of the beneficiaries as if they were oligarchs, but we do not see it like that. These people have worked hard all their working life, doing the right thing and paying into a pension.
My hon. Friend the Member for Amber Valley (Nigel Mills), in an excellent speech, like my hon. Friend the Member for South Thanet (Craig Mackinlay), made an important point about the complexities and issues that would arise if we tried to have a scheme purely for one profession. I said last Thursday that we would have to consult on such a scheme, and then we would have to respond to the consultation. All those things would take months, but our tax cut will come in on 6 April because we need these doctors on our wards now, and we do not want them to retire early. We are backing all our professions because we want to get Britain growing again.
Catherine McKinnell
It is interesting that the hon. Gentleman speaks with such passion about moving fast to help these very high earners. Could he explain why the Government are incapable of moving any faster than a snail’s pace on providing childcare for some of the lowest earners in the country?
James Cartlidge
The hon. Lady knows why we need a staggered implementation, and I will return to that point.
At the beginning of his speech, the right hon. Member for Dundee East (Stewart Hosie) referred to our progress, or lack of progress as he sees it, on reducing debt, before setting out a load of spending requests and demands for more support. He wants more energy support and more support with the cost of living. He does not want alcohol duty to be uprated by RPI, and I understand why he makes that point, but it scores £5 billion. He cannot have it both ways.
Once again, the right hon. Gentleman spoke about our relative performance following Brexit. By definition, and we can have this debate, our growth compared with other nations must always be an estimate. This is not “Sliding Doors”—my hon. Friend the Member for South Thanet mentioned that film—and there is no parallel universe, but there is one area on which we can speak definitively, and that is the saving accrued by not paying our membership fee. I can confirm to the House that, net of the divorce settlement, £14.6 billion has been made available in the current spending review by not having to pay the membership fee. That is an absolute gain from Brexit that the Opposition would not have enjoyed.
My hon. Friends the Members for South Dorset (Richard Drax) and for South Thanet and my constituency near neighbour the former Home Secretary, my right hon. Friend the Member for Witham (Priti Patel), all spoke about corporation tax, and my right hon. Friend made the brilliant Conservative point that the Government do not create jobs—she also spoke very well about eastern region entrepreneurialism, which I obviously support her on.
On the corporation tax issue, I would make this key point: we legislated for the increase in 2021 when we were still in the pandemic, and one only has to look at the graph for borrowing that followed the pandemic, showing the most extraordinary surge, to realise that it is impossible to have such a surge in borrowing without fiscal consequences. So we had to take difficult decisions. Like my right hon. Friend, I ran a small business and I did not enjoy paying corporation tax. As Conservatives we do not want to put up taxes, but we also have a duty to run the public finances in a sound and stable fashion, so we have taken difficult decisions, but they have given us the platform to cut corporation tax in this Budget and Finance Bill for businesses that invest.
The right hon. Member for Dundee East asked about tidal stream energy. We recognise the opportunity of that, which is why we are allocating a ringfenced budget for the technology in allocation round 5. The hon. Member for Richmond Park complained about our performance on inflation relative to the EU; there are 12 countries in the EU with higher inflation than us.
My right hon. Friend the Member for Witham and my hon. Friends the Members for South Dorset and for South Thanet, and I think also my hon. Friend the Member for North East Bedfordshire (Richard Fuller), raised a point about pillar 2 and sovereignty, and I totally respect the points and arguments they make. I reassure them that pillar 2 is implemented through domestic legislation in each implementing nation, rather than as an international treaty. The UK has a primary right to impose any top-up tax due on UK-headquartered groups or on foreign groups’ UK operations. If the UK does not exercise that right, the same top-up tax can be imposed by other countries, and businesses would therefore incur the same level of top-up tax but the tax would be paid to that nation, not to the UK.
I said I would respond to the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) on childcare. As she knows, we are increasing support for those on low incomes. We are increasing support for those on universal credit, not least by paying it up front. We will be phasing in the childcare support—from April 2024 working parents of two-year-olds can access 15 hours per week. From September 2024 all working parents of children aged between nine months and three years can access 15 hours per week. [Interruption.]
There seems to be a cold going round or something, as there is a lot of coughing, so I will conclude by referring to the point of the right hon. Member for East Antrim (Sammy Wilson). He is not in his place but he asked an important question, especially in light of our announcement in relation to the Windsor framework. I can confirm that the Government have today published secondary legislation that will extend full VAT relief for energy-saving materials to Northern Ireland. The Windsor framework now enables the relief to be expanded to Northern Ireland, with a single UK-wide relief set to take effect from 1 May 2023. The relief supports households across the UK to improve their energy efficiency. I hope the hon. Member for Strangford (Jim Shannon), who is always present, will relay that back to the right hon. Gentleman.
To conclude, the Prime Minister has three economic targets. We want to halve inflation; this year we are forecast to more than halve it, but we know times remain challenging for households. We want to get debt down; that is why we are running public finances in a prudent fashion. Above all, we want to get the economy growing; that is why I commend this Finance Bill to the House.
Question put, That the amendment be made.
FINANCE (NO. 2) BILL (PROGRAMME)
Wednesday 29th March 2023
(1 year, 1 month ago)
Commons ChamberRead Full debate Finance (No. 2) Act 2023 Read Hansard Text
Proceedings | Time for conclusion of proceedings |
|---|---|
First day | |
Clauses 5 and 6; Clauses 7 to 9; Clause 10 and Schedule 1; Clauses 11 to 15; Clauses 121 to 125 and Schedule 14; Clauses 126 and 127 and Schedule 15; Clauses 128 to 260 and Schedule 16; Clause 261 and Schedule 17; Clauses 262 to 264; Clauses 265 to 275 and Schedule 18; Clauses 276 and 277; any new Clauses or new Schedules relating to the subject matter of those Clauses and those Schedules | six hours after the commencement of proceedings on the Bill on the first day. |
Second day | |
Clauses 18 to 25; any new Clauses or new Schedules relating to the subject matter of those Clauses | two hours after the commencement of proceedings on the Bill on the second day. |
Clauses 278 to 312; any new Clauses or new Schedules relating to the subject matter of those Clauses | four hours after the commencement of proceedings on the Bill on the second day. |
Clause 27; Clauses 47 and 48 and Schedule 7; Clause 50 and Schedule 8; Clauses 51 to 54 and Schedule 9; Clauses 55 to 60; any new Clauses or new Schedules relating to the subject matter of those Clauses and those Schedules | six hours after the commencement of proceedings on the Bill on the second day. |
Finance (No. 2) Bill
Tuesday 18th April 2023
(1 year ago)
Commons ChamberRead Full debate Finance (No. 2) Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 18 April 2023 - (18 Apr 2023)
16:33 - The Committee divided: - Ayes: 227 / Noes: 306 - Question accordingly negatived.
16:48 - The Committee divided: - Ayes: 233 / Noes: 302 - Question accordingly negatived.
17:01 - The Committee divided: - Ayes: 232 / Noes: 299 - Question accordingly negatived.
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
I remind Members that in Committee, Members should not address the Chair as “Deputy Speaker”. Please use our names when addressing the Chair. “Madam Chair”, “Chair”, “Madam Chairman” and “Mr Chairman” are also acceptable.
Clause 5
Charge and main rate for financial year 2024
Question proposed, That the clause stand part of the Bill.
The First Deputy Chairman
With this it will be convenient to consider the following:
Clauses 6 to 10 stand part.
Amendment 26, in schedule 1, page 280, line 32, leave out
“a requirement relating to the making of the claim”
and insert
“the requirement to make a claim notification pursuant to either section 104AA, section 1045A or 1054A of CTA 2009 (as appropriate) or failed to provide the additional information as required by paragraph 83EA”.
This amendment would make clear that the power to remove a claim for R&D relief from a corporation tax return is only available to HMRC where a company has failed to make a claim notification (required pursuant to Part 1 of this Schedule) or to submit the additional information (required pursuant to paragraph 13 of this Schedule).
Government amendment 14.
That schedule 1 be the First schedule to the Bill.
Clauses 11 to 15 stand part.
Clauses 121 to 125 stand part.
That schedule 14 be the Fourteenth schedule to the Bill.
Clauses 126 and 127 stand part.
That schedule 15 be the Fifteenth schedule to the Bill.
Clauses 128 to 173 stand part.
Government amendment 12.
Clauses 174 to 222 stand part.
Government amendment 13.
Clauses 223 to 260 stand part.
Government amendments 15 to 20.
That schedule 16 be the Sixteenth schedule to the Bill.
Clause 261 stand part.
That schedule 17 be the Seventeenth schedule to the Bill.
Clauses 262 to 275 stand part.
That schedule 18 be the Eighteenth schedule to the Bill.
Clauses 276 and 277 stand part.
New clause 1—Statement on efforts to support implementation of the Pillar 2 model rules—
‘(1) The Chancellor of the Exchequer must, within three months of this Act being passed, make a statement to the House of Commons on how actions taken by the UK Government since October 2021 in relation to the implementation of the Pillar 2 model rules relate to the provisions of Part 3 of this Act.
(2) The Chancellor of the Exchequer must provide updates to the statement at intervals after that statement has been made of—
(a) three months;
(b) six months; and
(c) nine months.
(3) The statement, and the updates to it, must include—
(a) details of efforts by the UK Government to encourage more countries to implement the Pillar 2 rules; and
(b) details of any discussions the UK Government has had with other countries about making the rules more effective.’
This new clause would require the Chancellor to report every three months for a year on the UK Government’s progress in working with other countries to extend and strengthen the global minimum corporate tax framework for large multinationals.
New clause 3—Review of business taxes—
‘(1) The Chancellor of the Exchequer must, within six months of this Act being passed—
(a) conduct a review of the business taxes, and
(b) lay before the House of Commons a report setting out recommendations arising from the review.
(2) The review must make recommendations on how to—
(a) use business taxes to encourage and increase the investment of profits and revenue;
(b) ensure businesses have more certainty about the taxes to which they are subject; and
(c) ensure that the system of capital allowances operates effectively to incentivise investment, including for small businesses.
(3) In this section, “the business taxes” includes any tax in respect of which this Act makes provision that is paid by a business, including in particular provisions made under sections 5 to 15 of this Act.’
This new clause would require the Chancellor to conduct a review of business taxes, and to make recommendations on how to increase certainty and investment, before the next Finance Bill is published.
New clause 6—Review of energy (oil and gas) profits levy allowances—
‘(1) The Chancellor of the Exchequer must, within three months of the passing of this Act—
(a) conduct a review of section 2(3) of the Energy (Oil and Gas) Profits Levy Act 2022, as introduced by subsection 12(2) of this Act, and
(b) lay before the House of Commons a report arising from the review.
(2) The review must include consideration of the implications for the public finances of the provisions in section 2(3)—
(a) were all the provisions in section (2)(3) to apply, and
(b) were the provisions in section 2(3)(b) not to apply.’
This new clause requires the Chancellor to review the investment allowances introduced as part of the energy profits levy, and to set out what would happen if the allowance for all expenditure, apart from that spent on de-carbonisation, were removed.
New clause 7—Review of effects of Act on SME R&D tax credit—
‘(1) The Chancellor of the Exchequer must lay before Parliament within six months of the passing of this Act a review of the impact of the measures contained in this Act on the rate of inflation and on small businesses.
(2) The review must compare the regime for SME R&D tax credits and associated reliefs before and after 1 April 2023, with regard to the following—
(a) the viability and competitiveness of UK technology startup and scale-up businesses,
(b) the number of jobs created and lost in the UK technology sector, and
(c) long-term UK economic growth.
(3) In this section, “technology startup” means a business trading for no more than three years; with an average headcount of staff of less than 50 during that three-year period; and which spends at least 15% of its costs on research and development activities.
(4) In this section, “technology scale-up” means a business that has achieved growth of 20% or more in either employment or turnover year on year for at least two years and has a minimum employee count of 10 at the start of the observation period; and spends at least 15% of its costs on research and development activities.’
This new clause would require the Government to produce an impact assessment of the effect of changes to SME R&D tax credits in this act on tech start-ups and scale-ups.
New clause 8—Relief for R&D expenditure on data and cloud computing: assessment—
‘Within six months of this Act coming into force, the Chancellor of the Exchequer must publish an assessment of—
(a) the overall costs,
(b) the overall benefits, and
(c) the net cost or benefit
of extending relief of R&D expenditure to profit-making cloud computing services.’
New clause 10—Assessment of the impact of the de-carbonisation allowance—
‘(1) The Chancellor of the Exchequer must, within six months of this Act coming into force, publish an assessment of—
(a) the financial cost of the de-carbonisation allowance to the Treasury,
(b) the impact of the de-carbonisation allowance on overall investment in UK upstream petroleum production, and
(c) the revenue that the energy (oil and gas) profits levy would yield if neither the de-carbonisation allowance nor the investment allowance had effect in respect of investment expenditure.
(2) The assessment must cover the whole period that the allowance is in effect and also assess the revenue in each tax year.
(3) The assessment must include an evaluation of the impact of the de-carbonisation allowance and the investment allowance on the United Kingdom’s ability to meet its climate commitments, including—
(a) the target for 2050 set out in section 1 of the Climate Change Act 2008,
(b) the duty under section 4 of the Climate Change Act 2008 to ensure that the net UK carbon account for a budgetary period does not exceed the carbon budget, and
(c) the commitment given by the government of the United Kingdom in the Glasgow Climate Pact to pursue policies to limit global warming to 1.5 degrees Celsius and phase out inefficient fossil fuel subsidies.’
This new clause would require the Government to produce an impact assessment of the de-carbonisation and investment allowances under the Energy Profits Levy, including on tax revenues and the UK’s ability to meet its climate targets.
The Financial Secretary to the Treasury (Victoria Atkins)
It is a pleasure to serve under your chairmanship, Dame Rosie.
Before I start, I would like to pay tribute to a previous Financial Secretary to Treasury, namely the right hon. Lord Lawson of Blaby, who sadly passed away while the House was in recess. After the Conservative party’s historic election win in 1979, he took office as the FST, calling inflation “a disease of money”. To this day, we on the Government Benches recognise that, which is why the Prime Minister is determined to halve inflation as one of his five promises to the public.
Margaret Thatcher recognised Lord Lawson’s talents, his incisive intellect and his single-minded determination to reshape the UK economy, and in due course she appointed him as her Chancellor. He went on to deliver six Budgets, drinking, I am told, a spritzer as he did so, and he set the framework for today’s tax system. He was an intellectual and political giant, and we pay tribute to him in this place.
The measures before the Committee today relate to the Bill’s clauses on corporation tax, investment incentives and the global minimum tax on large multinational businesses. The changes that they make will support business investment and innovation in the UK, while contributing to fiscal sustainability and protecting our tax base against harmful tax planning.
Clause 5 legislates for the right to charge corporation tax and maintain the rate at 25% for the 2024 financial year, in line with the 2021 spring Budget announcement. As hon. Members will know, we legislated in the Finance Act 2021 to increase the main rate of corporation tax to 25% from this month, April 2023. We typically legislate a year in advance to provide certainty to large companies that pay corporation tax in advance on the basis of their estimated tax liabilities. The rate increase, which took effect from this year and which the Bill will maintain for the 2024 financial year, is forecast to raise more than £85 billion in the next five years. It will make a vital contribution to ensuring that our debt continues to fall, as part of the Prime Minister’s five pledges, while allowing us to continue to invest in our much-cherished public services.
Kit Malthouse (North West Hampshire) (Con)
I draw attention to my entry in the Register of Members’ Financial Interests. As the Minister says, the Government are legislating in advance of next year. Can she reassure the Committee that as we approach next year, the Government will review not just the headline rate—a juicy and necessary source of income for the Treasury—but the thresholds? The media are full of the fact that at over £250,000 profit, people will be paying the higher rate, but there is also a transitional zone between £50,000 and £250,000 profits, which is exactly the ellipse of small company growth where companies need that money to invest for more growth. If there is a detrimental impact within that transitional zone, will the Minister undertake to review it in advance of next year? Will she perhaps think about shifting the thresholds upwards so that we do not constrain the growth that we so need in the economy?
Victoria Atkins
I acknowledge my right hon. Friend’s experience, not only at the Dispatch Box but, importantly, in the world of accountancy and business. I reassure him that the Treasury keeps all taxes under review. He is right to draw attention to clause 6, which maintains the small profits rate because, precisely as he says, we want to encourage small businesses that are in the first flourishes of profit and help them to build.
There are two measures that I hope will reassure my right hon. Friend. First, the small profits rate means that 70% of businesses will see no increase at all in their corporation tax charges. Because of the threshold that he describes, a further 20% will fall into that spectrum, so only 10% of businesses will face the full 25% rate. If they invest in their businesses and in plant and productivity, as we very much want and encourage them to, they will—depending on their returns—be eligible either for the full expensing capital allowance that the Chancellor announced alongside this measure at the spring Budget or for the annual investment allowance. This Budget was very much about encouraging growth and encouraging the small businesses on which my right hon. Friend the Member for North West Hampshire (Kit Malthouse) so rightly focuses, but we are doing so as part of a responsible fiscal approach and making sure that those with the broadest shoulders bear the greatest burden of tax.
Jim Shannon (Strangford) (DUP)
I thank the Minister for outlining the provisions on corporation tax. Obviously corporation tax will be the same everywhere, but in the light of the peculiar circumstances in Northern Ireland—the region is much more under pressure when it comes to jobs—can she reassure me and my constituents back home that small businesses in Northern Ireland will feel the benefits of what she is putting forward?
Victoria Atkins
Very much so. I am conscious that the hon. Gentleman’s constituency and his corner of the United Kingdom are marking the very important anniversary of the Good Friday agreement; we wish everyone who is marking that occasion the very best for the future. I know that there are points of contention with his party, but one reason why we are so very committed to the Windsor framework is that we want to ensure that issues that have arisen through the Northern Ireland protocol are resolved with the EU to enable the economic flourishing that he rightly describes.
I can reassure the hon. Gentleman and my right hon. Friend the Member for North West Hampshire that even with the increase to 25%, we will still have the lowest rate of corporation tax in the G7. What is more, it will be lower than at any point before 2010. I very much hope that the Committee understands why we are taking this approach: because we have to take a fiscally responsible approach to our public finances, but we want to do so while encouraging growth and international competitiveness.
Clause 6 will maintain the small profits rate, as I hope I explained in answer to my right hon. Friend’s intervention. Clause 11 will update the patent box legislation to reflect the introduction of the small profits rate. The patent box incentivises the retention and commercialisation of intellectual property, allowing UK companies to elect to pay a lower rate based on their earnings from patents or similarly robust IP. This is part of our drive to encourage innovation and growth in our economy.
We are not stopping there. A competitive corporate tax system that supports growth, investment and innovation is about so much more than just the headline corporation tax rate; the availability and generosity of reliefs also matter. Clause 7 will therefore introduce new first year capital allowances, including a 100% first year allowance for qualifying new main rate plant and machinery investments, known as full expensing. It will also introduce a 50% first year allowance for new special rate expenditure such as long-life assets. Full expensing offers a substantial financial incentive for companies to increase their investment, improving their cash flow by lowering their corporation tax bill in the year of investment.
These changes will provide a £27 billion tax cut for companies over three years. They will help to boost business investment by ensuring that the UK’s capital allowances regime is among the world’s most competitive: joint first by OECD net present value. The independent Office for Budget Responsibility estimates that full expensing will increase business investment by 3% for each year that it is in place. What is more, the Chancellor has set out his intention to make the measure permanent when fiscal conditions allow.
Clause 8 will set the maximum amount of the annual investment allowance at £1,000,000 indefinitely, providing certainty to the more than 99% of businesses that invest up to that amount.
Clause 9 will make changes to extend the generous 100% first year allowance for electric vehicle charging equipment. This will continue to encourage businesses to invest in the roll-out of charging equipment, which will be a key enabler of the transition to zero-emission vehicles.
Clause 10 and schedule 1 set out changes that will modernise research and development tax reliefs in order to better incentivise R&D methods that rely on vast quantities of data which are analysed and processed via the cloud. These changes will also help reduce error and fraud, requiring claims to include more information—including the name of any agent involved—and to be provided digitally. The Government have tabled amendment 14, which is a technical fix to ensure that companies claiming small and medium-sized enterprise credits will be able to benefit from the change in the going concern rules.
Clause 12 will introduce a new rate of investment allowance in the energy profits levy, set at 80%, for qualifying expenditure on decarbonising upstream oil and gas production. This builds on the existing 29% investment allowance which is designed to encourage the sector to reinvest its profits to support the economy, jobs, and the UK’s energy security. It supports key commitments in the North sea transition deal and the Government’s aims for net zero by 2050. Clauses 13 and 14 will extend the duration of the reliefs available to our important cultural sectors, including orchestras, theatres, museums and galleries, to meet ongoing pressures and to boost investment in those wonderful and important cultural bodies.
The final clause relating to investment incentives is clause 15. As well as making other improvements, it increases the amount of seed enterprise investment scheme funding that companies can raise over their lifetimes from £150,000 to £250,000. This will boost start-ups and young companies by widening access to the SEIS and increasing the funding limits, and we estimate that it will help more than 2,000 very early-stage companies a year to gain access to finance.
Kit Malthouse
Let me again draw attention to my entry in the Register of Members’ Financial Interests.
The SEIS changes are welcome, but, as I am sure the Minister knows, the amount of initial finance raised under the SEIS and, indeed, the enterprise investment scheme has been declining in recent years. That may be a reflection of the wider economic environment, but it nevertheless means that fewer businesses are being started under that scheme. Will the Minister and her Treasury colleagues give some consideration over the next few years to the sheer complexity that is involved in making what is a relatively small investment through the SEIS? The scheme deals with quite small amounts of capital—£25,000 or so—but an accountant and a lawyer are needed, as is pre-authorisation from His Majesty’s Revenue and Customs. An enormous amount of compliance is required even before a company makes its first investment, and a fair amount of the investment that is being made can be absorbed in compliance costs. Complexity is therefore as much of a deterrent as the limits on the scheme, which may be why it is not being taken up with the enthusiasm that I am sure the Minister would like to see.
Victoria Atkins
I genuinely thank my right hon. Friend for that intervention. I am trying to ensure that, not just in the context of this fiscal event but in our work across the Treasury, we focus on the pressure points involved in developing a business—setting it up, employing the first member of staff, and all the other major milestones that constitute a critical part of the journey towards growing a business. Obviously there has to be paperwork, but we want to ensure that it does not get in the way.
I will take away some of the ideas that my right hon. Friend has advanced, but let me also say that I very much understand his concerns. One of the main challenges that I issue to the Treasury during every one of our policy discussions is “Does this proposal make tax fairer, does it make it simpler, and does it support growth?” Those are the three objectives that I will be endeavouring to meet in all my work as Financial Secretary to the Treasury.
Let me now turn to the measures in clauses 121 to 277 and schedules 14 to 18, which constitute a large proportion of the Bill. I know that, rightly, they are meeting the sort of scrutiny that we expect of parliamentary colleagues, because they relate to a very significant international agreement. In 2021, my right hon. Friend the Prime Minister brokered an international deal as part of our G7 presidency to tackle profit shifting by large multinational groups and to level the playing field between countries for tax competition. That will ensure that countries are better able to tax the profits that multinational groups generate from trading in their jurisdictions. More than 135 countries have now signed up to the deal, including all members of the G7.
These changes mean that, regardless of where a multinational group operates, it pays tax of at least 15% on its revenues, or profits. This will protect the UK from multinational tax planning by removing the incentives to shift profits out of the UK for tax purposes, and will help to ensure that profits generated in the UK are taxed in the UK. It will also strengthen the UK’s international competitiveness by raising the floor on the low—or no—tax rates that have been available in some countries, while ensuring that groups are not exposed to top-up taxation in the UK as a result of the UK’s world-leading R&D credit and full expensing regimes. Finally, it will ensure that the top-up tax due from UK groups under pillar two is collected in the UK rather than being collected by other countries, which could be the case if we did not implement these arrangements by 31 December.
Vicky Ford (Chelmsford) (Con)
As my hon. Friend says, this is a large and significant part of the Bill. It is of course important for multinational companies to pay their fair share of tax, but for too long too many have not done so, and it is good news that action is being taken in that regard. If it is to work, however, we must ensure that other countries not only sign up to the rules but implement them. I am thinking in particular of the possible impact on sectors such as insurance. My constituency contains a great many insurance companies, and many of my constituents work in the sector. It is a global industry, in which we happen to be the world leader.
We need to ensure that other countries implement these rules, as they have promised to do, and do not end up trying to avoid doing so, thus undermining our own competitiveness and potentially forcing businesses that have been paying tax in the UK to go overseas. May I therefore urge my hon. Friend and her excellent team at the Treasury to focus, laser-like, on ensuring that all countries do implement the rules, as they have promised? We have seen, time and again, many EU countries signing up to rules and then not implementing them in accordance with the timescales. Will my hon. Friend also ensure that if other countries try to retaliate against our measures—through sanctions, for example—we will not just rely on the undertaxed profits rule to ensure that we can obtain taxes from them, but will have a plan B up our own sleeve to ensure that our industries and our competitiveness are not threatened?
Victoria Atkins
My right hon. Friend has been very good at representing the interests of her constituents. I certainly acknowledge the significant rule that the insurance sector plays in her constituency, and, indeed, the role that her constituents play in that industry. I want to develop my argument a little, but I hope I will be able to reassure her on the points that she has raised—and I will come to the point about implementation, because I think it is important.
Let me try to help Members navigate this rather large piece of legislation. Part 3 deals with the multinational top-up tax, which is introduced by clauses 121 to 131 and schedule 14 for multinational groups whose global revenues exceed €750 million a year.
Clause 132 determines how multinationals should calculate their effective tax rate for a territory. Clauses 133 to 172 set out how multinational groups should determine their underlying profit and then make adjustments. Clauses 173 to 192 describe how to determine the amount of taxes called covered taxes paid by a multinational that should be included in the effective tax rate calculation. Clauses 193 to 199 set out how multinationals should use the effective tax rate and adjusted profit they have calculated to work out how much top-up tax, if any, is due for each territory in which they operate.
Mr Jacob Rees-Mogg (North East Somerset) (Con)
One has to be a bit careful when talking about the US, because although the President might be in favour of this, the Republicans in the House of Representatives have made it absolutely clear that they are not, and as they have a majority there, that is quite significant.
Victoria Atkins
Yes, of course, but we have to work with the US Administration this week, next week and the year after next. That is why, with the US having its own rules and with its encouragement that these global standards should be applied, we are in lockstep with other countries in implementing this rule. I would just make the point that this is unprecedented; this is new and we have to be realistic. A hundred years ago we did not have multinational groups operating in the way that they do today, or in the way they will in five or 10 years’ time. We as an international community are trying to deal with some of the aggressive tax planning that we have seen multinational groups indulge in. We want to raise the floor, and those economies have signed up to this. They are part of the 135 countries that have committed themselves to this agreement. That is what was so important about the agreement, and these taxes will apply in those jurisdictions even if they have not implemented it.
Richard Fuller (North East Bedfordshire) (Con)
I am grateful to the Minister for giving way, and I apologise for not being here for the start of her speech. Can I just pick up on her remark that these countries have “committed” to this? A commitment in words to an international treaty is not the same as a commitment to enactment in domestic legislation. This is the point that my right hon. Friend the Member for North East Somerset (Mr Rees-Mogg) was making. In the United States it is clear that although there might be an international intent to enact this legislation, there is certainly no legislative intent that it should be passed into US law. I have other points to make but I will finish on that point and simply ask the Minister for her comment on that.
Victoria Atkins
First, this is an international agreement and nobody has forced the US, or anyone else, to sign up. As I say, 135 countries have signed up to it and a significant number are already implementing it or bringing forward legislation to do so. Indeed, the US Administration have maintained their commitment to align their rules with the pillar two standards. Until that happens, however, the OECD inclusive framework members, including the US, have agreed on how the US rules and the pillar two rules should interact to ensure that US multinationals are subject to the same standard as groups in other countries.
The long and the short of it is that we should be proud of the fact that we in the United Kingdom have helped to shape—and will continue to shape—these rules, precisely because we are able to work in unison with other large economies. As a result, we have been able to retain the corporate tax levers that we care so much about, such as research and development tax credits and the full expensing policy that my right hon. Friend the Chancellor announced at Budget, and to ensure that issues specific to the UK financial sector are identified and addressed.
Richard Fuller
On the Minister’s point about being proud to implement this, I would say that the shadow Minister, representing the high-tax Labour party, might be happy to implement it, but I am not sure that I would have quite the same degree of enthusiasm as a Conservative. I want to probe a bit deeper on a fundamental question that the Minister gave an interesting answer to, which is about how the United States’ interpretation of this is going to be held in the international context. Was she saying that the other countries in the international community that have signed up to it have effectively agreed that America does not need to go any further than its existing legislation in order to meet the requirements of this international standard? Or is she saying that there is still a requirement for the United States to enact it? If it is the latter, does she agree that the UK should not go forward and make its own changes until the United States makes those changes?
Victoria Atkins
I remind my hon. Friend that this is a minimum floor of 15%, which is below the lowest rate of corporation tax payable in this country, 19%, and below the 25% corporation tax we are setting for both this financial year and the next financial year in this Bill.
The countries most affected by this change are those that set lower rates of corporation tax. This international agreement is important because it means, when our constituents ask us why a particular tech giant has headquartered itself somewhere other than the UK while making enormous profits on its activities here—my hon. Friend the Member for North East Bedfordshire (Richard Fuller) will appreciate that I am not naming any businesses—we can say that we have joined an international agreement to ensure that such profit shifting does not occur. In the shifting sands of the 21st century and beyond we, as an international community, have to find ways of ensuring that companies cannot engage in profit shifting.
I normally try not to reference Labour Front Benchers, but my hon. Friend the Member for North East Bedfordshire mentioned them. Through this Finance Bill—and I know he fundamentally believes in this—we are taking a fiscally responsible approach to taxation. We understand that those with the broadest shoulders should bear the greatest burden of taxation, but we want to do it in a way that encourages growth and investment, and encourages businesses to set up and trade in our economy. Full expensing, R&D tax reliefs and the measures we introduced into the OECD agreement because of the concerns voiced by the insurance sector—these are examples of how we have been able to lead the international community in these negotiations and influence how the rules interact with our needs as a country.
Vicky Ford
Put simply, it is important that multinational companies pay their taxes and it is good that the UK has agreed a new set of rules, but we need other countries to play the game according to the rules to which they have agreed. Will my hon. Friend keep a laser-like focus on ensuring that other countries play the game according to the rules? If they do not, will she make sure we have a plan B up our sleeve to defend our interests?
Victoria Atkins
I repeat that the date for implementation is 31 December. The EU has issued a directive and, as I outlined, the major economies within the EU are already bringing together the legislation to enact this. Japan has already legislated, and others are following.
I would argue that our plan B is in the very rules of this international agreement. The rules work because they ensure that every low-taxed multinational company pays the top-up tax that is due, whether or not it is headquartered in a country that has introduced pillar two. Those economies that rely on low tax rates understand that, because of how business is now conducted in some regards, we are raising the floor of international taxation so that those with the broadest shoulders continue to pay.
Victoria Atkins
I will give way once more, and then I will make some progress.
Kit Malthouse
The Minister is being generous with her time, although we are in Committee, so detailed scrutiny and questions are appropriate.
I have a couple of questions. The Minister says that one of her missions is simplicity, and I know she understands that this measure will necessarily add several thousand pages to “Tolley’s Tax Guide”, which is now in two volumes—it was only one volume when I trained as an accountant. That is unfortunate, and we can debate the desirability or otherwise of this measure, but what protections are there against the creation of just another game?
Although this Bill seeks to set a minimum floor on the headline corporation tax rate, it is perfectly possible for countries to compete on effective corporation tax rates. Are we likely to see Governments around the world play a game of competitive subsidies and competitive allowances? We will have full expensing, but some of our competitors will not—full expensing will reduce the effective rate for quite a lot of capital-intensive businesses, although not necessarily for services businesses—but there will now be a menu of allowances, derogations and tax breaks that can effectively be used to play a slight game of subterfuge as we all compete for these large, and now very mobile, businesses to locate in our territories.
Victoria Atkins
My right hon. Friend raises an interesting point. We have been leading the negotiations on this precisely so that we are able to bring in some of these allowances, which we fundamentally believe will help to support investment and growth in the UK economy. On multinational companies, we are trying to raise the floor in those jurisdictions that currently charge below 15%.
Kit Malthouse
Perhaps I was not entirely clear. For example, it is perfectly possible for us to say that our headline corporation tax rate is 25%, but we previously had—we are now getting rid of it—a super deduction that allowed me to offset more than 100% of any cost or investment against my tax and, therefore, reduce my effective rate of corporation tax to much less than 25%.
It is possible, away from the headline rate at which we are imposing this minimum rate around the world, for Governments to play the game of subsidy. “We will give you £150 million to come to our country, and you then pay 25% corporation tax. It is like for like. I am paying you, but I am getting my money back.” It is also possible to create a raft of allowances against that income, which will reduce the effective rate. The headline rate then becomes less important than the effective rate. We may well be kicking off that game with this measure. I am not entirely sure what protections there are against that, and against the complexity that comes with it, in this Bill.
Victoria Atkins
On the complexity point, having set my three objectives, of course I acknowledge that there will be times of tension between fairness and simplicity. Indeed, I said that in the Budget debate and on Second Reading. We believe it is fair to have a spectrum of corporation tax thresholds between 19% and 25% as businesses grow and accrue profits, but I fully admit that does not make it simple. The balance the Government have to strike is where there might be tension between fairness and simplicity. Of course, we always want to ensure that fairness prevails.
I take my right hon. Friend’s point about complexity, but I gently remind him that these enormous multinational groups have armies of lawyers and accountants looking after their affairs. One might say that many of them have been able to shift their profits in this way because they are able to conduct that analysis. I should say that they are doing it completely lawfully, and there is no allegation of misfeasance, but we wish to bring forward this international agreement.
In the 21st century, we should not be frivolous or dismissive about encouraging businesses to invest in plant, machinery and people. I know my right hon. Friend is not being frivolous or dismissive, but this is not a game. If we can encourage multinational groups to come and do more business here, to invest in our workforce and in other businesses, that would be a great thing for the UK economy. This international agreement is about trying to introduce a level playing field in 135 countries to ensure multinationals are taxed fairly in each jurisdiction.
Finally, if we do not implement this measure, the top-up tax that these groups would have paid to the UK will be collected by other countries. This important agreement was reached by the Prime Minister when he was Chancellor, during our G7 presidency, and we want to enact it in this Finance Bill to enable it to take effect.
Richard Fuller
As has been mentioned, the Minister is being extremely generous in providing answers to some of these important questions. This may be a little niche, but may I take her back to the experience of the United States? A large number of US multinational companies, such as Apple and others that will be covered by this measure, held their cash balances offshore and did not take them back to the US because of the levels of corporation tax. Those levels were reduced under President Trump from 33% to 21% or 25%, I believe, but then in addition a special law was introduced providing for a 15.5% repatriation tax. That one-off tax enabled or incentivised companies such as Apple to bring their resources back to the US and pay tax there. Under the specifications both within the UK and under our international agreements, will what she is asking us to support today enable the UK to make one-off changes that might be in the specific interests of our corporations to help them bring back capital here? She may not know that—
Victoria Atkins
I hope I have understood my hon. Friend correctly. I am always loth to draw direct comparisons, particularly at the Dispatch Box, between the way in which the US conducts its tax affairs and the way we do so, as the systems are different. He has alighted upon the changes that the previous President made. The current President has also indicated that he wishes to make changes, albeit perhaps in a different direction. I hope my hon. Friend will appreciate my being cautious before giving an answer. I do not know whether he is referring to the corporate alternative minimum tax and the global intangible low-taxed income provisions. If I may, I will write to him on this, because it is incredibly technical and I want to ensure that I answer him accurately.
Having taken that final intervention, I am very conscious that although this is a large piece of legislation, colleagues are rightly scrutinising it. I shall sit down now so that they have a chance to have their say on it. I ask that clauses 5 to 15, and 121 to 277, and schedules 14 to 18 stand part of the Bill.
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
I call the shadow Minister.
James Murray (Ealing North) (Lab/Co-op)
Thank you, Dame Rosie, for the opportunity to respond on behalf of the Opposition. I would like to speak to the amendments and new clauses in my name and that of my hon. Friend the Member for Erith and Thamesmead (Abena Oppong-Asare).
When we debated this Bill’s Second Reading at end of last month, we made it clear that what we needed was a plan to get us out of what the previous Chancellor rightly called a “vicious cycle of stagnation”. We need a plan for growth—a plan to raise the living standards of everyone in every part of the country—but this Government have failed to offer us one. That much was clear from the data published alongside the Budget, which showed that ours is the only G7 economy forecast to shrink this year and that our long-term growth forecasts were downgraded in the Office for Budget Responsibility report.
Since we last debated this Bill, further data has been published confirming our fears. Earlier this month, a report from the International Monetary Fund put the UK’s growth prospects this year at the bottom of those of the G20 biggest economies—a group that includes sanctions-hit Russia. After 13 years of economic failure, people and businesses across the UK deserve so much better than that. They deserve a plan for the economy that offers more than managed decline. So today, we begin by looking at some of the measures the Government are seeking to introduce in this Bill and explaining why their approach is letting Britain down.
First, let me speak to clauses 5 to 15, which address the rate of corporation tax, capital allowances and other reliefs relating to businesses. On those, one thing prized above all else is the need for certainty and stability. Businesses across the country want stability, certainty and a long-term plan, yet under the Conservatives corporation tax has changed almost every year since 2010. Furthermore, as the Resolution Foundation has pointed out, the introduction of the latest temporary regime for corporation tax represents the fifth major change in just two years. It seems that the Conservatives are simply incapable of offering stability.
Let us start by looking at the main rate of corporation tax, which clause 5 sets at 25% for the financial year beginning in April 2024. The clause will mean that corporation tax will continue to be charged at the rate to which it rose at the start of this month. That rate, 25%, was first announced by the Prime Minister, when he was Chancellor, in his spring Budget 2021. One might think that sounds like a rare example of certainty, but, sadly, that is not the case. As we know, last September, the then Chancellor, the one who said our economy was trapped in a “vicious cycle of stagnation”, announced that the rise to 25% would be cancelled, leaving the rate at 19%. That was of course reversed just a month later, when the current Chancellor moved into No. 11, and confirmed that the rise to 25% was back on. So much for stability! But we are where we are, and if we are to assume that the current Chancellor’s plans will indeed go ahead—a bold assumption, I admit—the rise to 25% will now continue from April 2024.
With the rate of corporation tax being increased, it is particularly important to get capital allowances right. The Government should be focused on giving businesses certainty that will help them to plan and increase their investment in the UK economy. We need that certainty and greater investment—the UK currently has the lowest investment as a percentage of GDP in the G7—yet the approach in clause 7 is to introduce temporary full expensing for expenditure on plant and machinery for three years only. By making that change temporary, it only brings forward investment, rather than increasing its level overall. The Government’s own policy paper on this measure, published on the day of the Budget, makes that clear. It says:
“This measure will incentivise businesses to bring forward investment to benefit from the tax relief.”
As the Office for Budget Responsibility has made clear, the Government’s approach will mean that business investment between 2022 and 2028 is essentially unchanged as a result of these measures. If anything, there is a very slight fall. Britain deserves better than this. As Paul Johnson of the Institute for Fiscal Studies said in response to this temporary tweak to the tax regime for businesses:
“There’s no stability, no certainty, and no sense of a wider plan.”
That is why we have tabled new clause 3, which would require the Chancellor to follow Labour’s lead by developing a wider plan for business taxes, which we believe is needed. As my right hon. Friend the Member for Leeds West (Rachel Reeves), the shadow Chancellor has set out—
Kit Malthouse
I wish to challenge the hon. Gentleman’s assertion about the notion of a window. We know that where taxation is concerned the creation of a window can often create an incentive to move quickly. For example, when there was a stamp duty window, we saw a significant number of transactions brought forward and take place. The Government are saying that they want to see very significant investment taking place. We know that British industry has accumulated a large amount of cash on its balance sheets. Why would the Government not create a particular incentive by saying, “Look, there is a deadline. If you get in now, we will give you this very generous tax break and then who knows what may happen in the future”? We must not forget that although the investment may absorb all of the profit for small businesses, it will, in effect, create a tax loss that is able to be carried forward beyond the window. So I do not understand his criticism of our having a window if, as the Government say, they want action now rather than in three years’ time.
James Murray
I thank the right hon. Gentleman for his intervention but I feel he rather misses the point. Surely having a temporary change merely moves investment around, rather than increasing its overall level, as the OBR has set out. We have the lowest investment as a percentage of GDP in the G7, so the importance of increasing investment should be agreed by Members in all parts of this House. We need a wider plan that will give that stability and certainty, which is exactly what my right hon. Friend the shadow Chancellor has set out. She has set out Labour’s mission to secure the highest sustained growth in the G7, which means that in government we would review the business tax system and set out a clear road map to provide that certainty and boost investment.
New clause 3 speaks to that, and perhaps the right hon. Gentleman would like to join us by voting for it later this evening. It would require the Government to follow our lead by initiating that review of business taxes that we want to see now. Such a review would make recommendations on how to give businesses more certainty about the taxes they need to pay, and how to make sure that the system of capital allowances operates effectively to incentivise investment. The new clause would require the review to be conducted, and recommendations on how to increase certainty and investment to be published, within six months of the current Finance Bill becoming law. I urge Ministers and, indeed, Back Benchers to accept and support new clause 3. If they do not, I at least encourage Ministers to give as much certainty as possible by making it clear what their plans for capital allowances are beyond the three-year period covered by clause 7.
Caroline Lucas (Brighton, Pavilion) (Green)
As well as the economic cost of the way that the windfall tax has been designed, does the shadow Minister agree that it has a massive climate cost, in the sense that we are incentivising oil and gas at exactly the time when we need to make the transition to green energy technologies?
James Murray
The hon. Member is right to point that out that, in addition to the points that I have made, the Government’s decision has a climate change impact. It shows, I think, in the design of the windfall tax that investment allowances really should have no place in a proper windfall tax on oil and gas giants’ profits. We want to scrap those investment allowances and to make sure that that money is spent helping people through the cost of living crisis that we face right now. I would very much welcome the hon. Member and any Member on the Conservative Benches joining us in voting for new clause 6, which will force the Government to come clean about how much money they would raise by strengthening the windfall tax—money that could go towards freezing council tax this year.
I have spoken so far about the clauses of the Bill that relate to the main rates of corporation tax, capital allowances and reliefs. I now turn my attention to another important way that the Bill impacts on corporation tax through parts 3 and 4, which relate to the new multinational top-up tax and the related domestic top-up tax. As I set out earlier, we desperately need greater stability and certainty in business taxes and allowances to help the economy grow in the future. We also need greater fairness to help people with the cost of living crisis right now.
That principle of fairness is crucial in making sure that British businesses that pay their fair share of tax face a level playing field when competing with large multinationals that may not do so. That is why we have, for so long, pressed the Government to back an ambitious global minimum tax rate for large multinationals. We have long needed an international deal on a global minimum corporate tax rate to stop the international race to the bottom and to help raise revenue to support British public services. We welcome the international agreement, fostered by the OECD, that makes sure that large multinationals pay a minimum level of 15% tax in each jurisdiction in which they operate.
As I set out on Second Reading, it has been a long and winding path to get to this point. The Prime Minister, when he was Chancellor, was often lukewarm in his support of such an approach. However, the deal now faces a new front of challenges, as Conservative Back Benchers have begun to be open in their hostility towards the implementation of the deal, as we have seen in this place today. We believe that it is crucial to get this legislation in place, so I hope the Minister can reassure us today that those parts of the Bill that introduce a multinational top-up tax will not be bargained away in the face of opposition from Conservative Back Benchers.
On Second Reading, we heard from the right hon. Member for Witham (Priti Patel) and others as they rallied their colleagues against the global minimum rate of tax for large multinationals. We therefore want to press the Government to make sure that, in the face of opposition from their Back Benchers, they do not back away from implementing this landmark deal.
That is why we have tabled new clause 1, which would require the Chancellor to report every three months for a year on the Government’s progress in supporting the implementation of OECD pillar two rules. The quarterly reports mandated by the new clause would update the House on the Government’s progress towards implementation. Those updates must include details of what efforts the Government have undertaken to make the rules as effective as possible. They must explain what the Government have done to encourage more countries to implement the pillar two rules—a point made by the right hon. Member for Chelmsford (Vicky Ford), who is no longer in her place. This is important because we know that the rules will be more effective the more widely they are implemented. I hope that the Government will support our new clause, which commits them to giving these updates. Surely that is a matter on which we broadly agree. Even if Ministers do not support the new clause, I hope that many Conservative Back Benchers do.
On Second Reading, the right hon. Member for Witham expressed her concern that the implementation of the OECD rules had so far progressed with “very limited scrutiny”.
Although I know that she and I, and others on the Conservative Benches, may have very different views on these rules and on what they will achieve, surely she and her fellow Back Benchers will not vote against transparency and will not try to block our new clause that simply requires updates to Parliament every three months.
Richard Fuller
The hon. Gentleman is very kind to give way. Personally, I do not have much concern about transparency in the United Kingdom—we do a fantastic job in that regard. I also have no problem with this country implementing regulations. We tend to have a reputation for gold-plating all our regulations. My concern is that other countries will not do what they say they will do. By enacting this legislation, my concern is that other countries will not do so. The hon. Gentleman has been extolling the virtues of supporting British enterprise, but Labour’s approach runs the risk of putting British companies at a disadvantage, because the United States and other countries may not move forward as we introduce these restrictions. He has talked about transparency, but can he specifically say today that, if the United States does not enact this legislation, the Labour party, whether in Government or not, would support efforts for us to renew or review pressing ahead with our own legislation?
James Murray
I thank the hon. Gentleman for his comments. At one point, I thought he was starting to speak in favour of our new clause; I got my hopes up momentarily because he referred to the importance of making sure that more countries implement the pillar two rules, and we agree that that is important to make them as effective as possible. Indeed, new clause 1 says that the statements to the House, every three months of the following year, must include details of efforts by the UK Government to encourage more countries to implement the pillar two rules. On that basis, I hope that he will join us in the Lobby to vote for the new clause later this evening.
James Murray
I am going to make some progress.
Finally, our new clause 2 would require the Government to set out their approach to pillar one of the OECD agreement and the digital services tax. We know that, unlike pillar two, the implementation of which is proceeding both here in the UK and in many countries overseas, the prospects of pillar one being implemented in the near future look less positive. That is likely to have an impact on the Government’s approach to the digital services tax, so I urge the Government to support our new clause, which requires the Chancellor to make a statement to the House on the matter. While new clause 2 has not been selected today, I none the less encourage the Minister to set out the Government’s approach to pillar one and the digital services tax in her closing remarks.
Through today’s debate on the Bill’s clauses and our amendments, we have seen the state that the Government are in. We have seen how they are failing to provide our economy with the stability and certainty that is needed for growth—growth that we need in every part of the country to make everyone, rather than just a few, better off. We have seen how the Government’s Back Benchers risk putting their party before our country at every turn, and how they are unable to provide the long-term plan that people and businesses need. We have seen clearly how this Government are refusing to take fair decisions on taxes—putting up council tax for families across the country, rather than strengthening the windfall tax on oil and gas giants.
When we come to vote at the end of this debate, I urge all hon. Members to support Labour’s new clauses and expose the unfair choices that this Prime Minister and this Conservative Government are making, which are leaving our economy on a path of managed decline.
Priti Patel (Witham) (Con)
I rise to speak to the topic at hand, but I want to begin by thanking the Minister for the way in which she has tackled this Committee sitting and her familiarisation with the points made on Second Reading.
I am on the record as having concerns about not just the implementation but the purpose of all this. No one would disagree that multinational companies need to pay their fair share of tax, but I question the way we are going about achieving that. I put it on the record that I was semi-humoured by the comments of the Opposition spokesperson just now. Even when the Labour party is taking a break from its efforts to heap extra burdens on businesses, which is obviously what it stands for, it is raising concerns about implementation timetables.
Labour has missed the opportunity to speak up for British businesses, so it falls to those on the Conservative side of the House to do that. We believe in competition, business growth and business investment. My right hon. Friend the Member for Chelmsford (Vicky Ford) is not in her place right now, but sectors such as insurance employ my constituents, probably the constituents of the hon. Member for Ealing North (James Murray) and hundreds of thousands of constituents up and down the country. Those are the types of jobs we should try to safeguard in the United Kingdom.
The hon. Gentleman was partisan, so I will make a point now as well: the response of the Labour party is always to build up even more red tape, regulations and reporting. I think we all know how we adopt regulations in this country. My own personal view, which I attested to on Second Reading, is that I would like to have a delay to implementation until we see a critical mass of other countries, including very significant competitors, moving some way towards implementing the tax, as has been said by colleagues this afternoon.
As my hon. Friend the Minister already knows from interventions today and from Second Reading, I feel that this new tax risks placing significant compliance costs on British businesses, which are already paying well above the minimum 15% tax rate. We must recognise that there are current pressures and that these inevitable costs will be fed on to consumers. I have touched on the insurance sector, but at the end of the day it is consumers who will end up picking up the costs through higher premiums and other impacts on them. On top of consumer prices, which bear the brunt of that and are also inflationary, there is no way, given the delays that we are seeing elsewhere, that implementing this tax will not have an impact on our competitiveness. By pressing ahead, we risk capital flight and jeopardising future investment income.
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
I call the SNP spokesperson.
Kirsty Blackman (Aberdeen North) (SNP)
It is a pleasure to take part in a Finance Bill Committee of the whole House. I will raise a number of points, particularly in relation to the new clauses and to what the Minister said about them.
The right hon. Member for Witham (Priti Patel) mentioned tax simplification. During later consideration of the Bill, we will raise questions about the removal of the Office for Tax Simplification, what has happened to the Government’s assessment of the benefit of that office, whether we will have an issue with removing that office, and whether there will be a cost to the public purse or to businesses as a result of.
We will support Opposition new clauses 1, 3 and 6. We would also support new clause 10 if it were pressed to a vote. I will talk a little about new clauses 6 and 10 on requests for transparency. It is incredibly important that we have transparency about how allowances, tax and everything else put in place by the Treasury—and, in fact, by every Government Department—work. The Red Book that is produced at Budget time gives us a genuine idea and expectation of how much any measure—be it an investment allowance, a new tax measure, or something else—is expected to generate, but the UK Government are not terribly good at putting in place post-implementation reviews of such tax measures.
We do not have enough transparency on whether the tax measures put in place have actually achieved what the Government intended. In fact, I tabled a written question on this some time ago, and various Government Departments were unable to tell me even how many post-implementation reviews they had carried out and whether there were any that they had not carried out. It seems to me pretty fundamental that the Government should fulfil their role of calculating the cost or benefit and saying whether the projection has seemed accurate. It is all well and good for the Government to say, “This is going to raise £100 million,” but if they do not then assess whether it did, how can we be sure that a measure had the desired effect, particularly when it is something such as an investment allowance? We are not saying, “We don’t think there should be allowances”; we are saying, “We want the allowances that are put in place to actually work in the way that they are intended to work.” I have concerns about that.
New clauses 6 and 10 would require the UK Government and the Treasury to provide transparency on the allowances and their resulting outturn. It is particularly important to look at our climate change obligations. In fact, we have tabled an amendment specifically on looking at the entire Finance Bill through the lens of whether it will help us to meet our climate change and Paris agreement commitments. There is no point in this House agreeing to legislation that takes us further from the Government’s stated aims and legislative commitments on climate change. I am still of the opinion that the UK Government are fairly good at talking the talk on their climate change commitments but not at translating that into checking whether our climate change objectives will be hampered by the policies that are put in place.
During the Committee stage of the Advanced Research and Invention Agency Act 2022, for example, I requested that the new organisation be set up on a net zero basis from the beginning. Given that we have net zero targets, I do not think that it is unreasonable to ask for any new Government department to be set up on that basis and, at least, to not contribute in a negative way to our carbon outturns. As I said, we will support new clauses 6 and 10 if they are pushed to a vote.
New clause 8, which relates to clause 10, addresses the R&D spend on data and cloud computing. We have tabled a probing amendment on that, and although we do not intend to press it to a vote, I would appreciate it if the Minister were able—either today or at a future stage—to answer some questions. We have particular concerns about clause 10 as it relates to part 2 of schedule 1. The explanatory notes—a hefty document—state that:
“Expenditure on data licences and cloud computing services only qualifies for relief to the extent that the commercial use of that licence or service is restricted to the particular research and development activity to which the claim relates, and that the customer does not have a right to…ongoing use after the relevant research and development has ended.”
I appreciate the Government’s intention, but we have tabled new clause 8 because we are concerned that this will hamper anyone applying for the allowance in the first place, as they may want to continue to use that data licence and cloud computing after the research and development. Surely they are only doing the research and development because they think it will be profitable and positive for their company. I am concerned that they may choose not to make the investment or to apply for the allowance if they know that they will have to pay it back at a later stage if this does what the company surely wants to achieve, which is to make money.
This could have been done in a different way, by allowing companies the investment opportunity and the R&D allowance for the data licence and cloud computing, and then stopping the allowance at the point at which it begins to make money, rather than saying, “If this does begin to make money, you have to pay us back.” It would be great if the Minister could answer questions on that issue today, but if not, I am happy to receive information afterwards, so that we have clarity on the Government’s assessment of this.
Mr Rees-Mogg
It is a great pleasure to follow the hon. Member for Aberdeen North (Kirsty Blackman), although I must say that there was some irony in a representative of the Scottish nationalist party speaking in favour of following financial rules, which sometimes seems not to happen in that part of the United Kingdom.
Of course, like everyone else here, I am a taxpayer, so we all have to declare some element of interest, and I am a corporate tax payer, under a particular hat, so I have an interest in the subject. Today—perhaps suitably, for what we are discussing—is the eve of the feast of St Alphege. Hon. Members will recall that St Alphege was murdered for refusing to pay higher taxes. He was, in many ways, the first tax martyr, who, reluctant to pay an additional Danegeld, had ox bones thrown at him until he was dead. I fear that, under current circumstances and with the approach taken by those on both Front Benches, we see endlessly higher taxes, and we are having metaphorical ox bones continually flung at us. Let us hope that we do not get martyred through it.
It is appropriate to think of St Alphege, because we are debating the worst bit of the Budget today, turned into law. It is the bit that will be most damaging to the economy, and it is the bit that is least in the interests of the United Kingdom. Let us start with clause 5, which is an historic mistake—it is a major blunder being made by His Majesty’s Government, and it fails politically and economically. It is worth remembering why the then Chancellor, George Osborne, started to reduce corporation tax. He got the Treasury for the first time to do a dynamic assessment of the consequences of cutting a tax. What did that dynamic assessment show? It showed that more revenue would be raised, which is precisely what happened. More revenue came through, both in actual, nominal cash terms and as a percentage of GDP. That cannot just be ascribed to general economic improvement and growth: it was a fundamental change in the level of corporation tax raised at a lower rate. Why was that? Well, it made the country more competitive, it encouraged people to set up businesses, and it created a system where people thought that the United Kingdom was open for business. What we are doing now is the precise opposite.
In her opening remarks, my hon. Friend the Minister referred to our noble Friend the late Lord Lawson—most distinguished Chancellor, most effective Chancellor—but this goes against everything that he did as Chancellor. In every single Budget that he presided over, he managed to abolish one tax. Why? Because he realised that simplification of the tax system was the right way to go, and because he realised—we saw more of this in the United States during the same period—that lower rates with fewer write-offs is a better way to go than higher rates and complex write-offs. Today, His Majesty’s Government are doing the exact opposite, because the Government think that they know how businesses should spend their own money better than businesses do themselves, which is fundamentally wrong.
As such, we get a raise in the basic rate, which will hit small businesses. It actually hits them at a higher marginal rate, because between £50,000 and £250,000, it has to make up the 19% to the 25%. As people get their business out of the foothills and begin to climb the mountain, we start hitting them with a high marginal rate, which is not particularly clever. Then we say, “You, dear business, do not know how to spend money—you are far too stupid—so we will tell you how”, which fundamentally misunderstands the British economy. It may be that we were a wonderful manufacturing economy in the 19th century. I love the 19th century; I have great affection for the 19th century. Some people accuse me of being the hon. Member for the 19th century—I would point out that it is the right hon. Member, and it may be earlier than that, but never mind. However, that is not the economy we have now. Our economy is primarily a service economy, and providing complex write-offs for investment that benefit manufacturing but hit services does not understand where our economy is based.
Mr Simon Clarke (Middlesbrough South and East Cleveland) (Con)
I agree with my right hon. Friend. I would add that, even for the manufacturing sector, we are obviously facing an extremely concerning tax situation—I refer him to AstraZeneca’s recent decision to locate in the Republic of Ireland rather than the UK. It is absolutely imperative that we lower our corporation tax rather than raise it, because that is ultimately the key test of our competitiveness.
Mr Rees-Mogg
My right hon. Friend is right, and for once, those on the Opposition Front Bench were right as well. Part of the problem with the write-offs is that they are temporary, but why are they temporary? Not because that is what the Government want to do, but because the Government are in hock to the OBR, which gets all its forecasts wrong. All the OBR has managed to say about the write-offs is that they will bring forward investment. That is not a bad thing in and of itself, but the long-term benefit is not being achieved because we insist on following what a bad forecaster tells us will happen. Actually, to the credit of the bad forecaster, it admits that what it says will happen will not happen, so we are doing something on the basis of something that even the forecaster says will not be the case when the years have passed. That cannot possibly make sense. We are making it more difficult to do business in this country, and our aim should be lower rates and fewer write-offs. That is the way to encourage business, and it is the way to grow the economy. If we grow the economy, we can afford the public services that we want. At the moment, we are risking shrinking the economy, encouraging business to leave and set up elsewhere and not having the money we need for public services. Clause 5 is a bad clause; it is a bad thing to be doing, and it is a bad thing for the British economy.
I would go further, because this idea that attacking corporations is a free lunch for Governments is a mistake. Corporation tax is of itself a bad tax, because it is not a tax that falls on nobody; it actually falls directly on consumers. It comes through to consumers, because businesses thinking of operating in this country do not care about their gross margin; they care about their net margin. When the corporation tax rate goes up, what do they do? They say, “We either have to increase prices or reduce employment to maintain the net margin.” Increasing corporation tax from 19% to 25% in a period when there is already inflation in the system will be more inflationary, as multinationals will raise their prices to compensate and maintain the net margin, or they will reduce employment, which makes the cost of living crisis worse for people, because people’s incomes then fall when they are trying to deal with rising prices.
I fear that there is a view among politicians that we tax corporations because they do not vote, and it is therefore an easy raid to make and therefore it does not matter. It is the old saw about plucking the goose with the least amount of hissing. Unfortunately, the hissing on corporation tax is delayed, but all taxation ultimately falls on individuals, and that is true of corporation tax. That is why it is a bad tax and why increasing it is a mistake in these current circumstances—indeed, it is a mistake in almost all circumstances.
The multinational minimum tax is also a mistake, and it is a mistake in terms of diplomacy and foreign policy. It was a daft thing to agree at the G7. We had no interest in doing it, and my hon. Friend the Minister said that they have all done it in the EU, as if that was meant to be any salve or balm in Gilead for us anyway. The fact that the high-tax, highly inefficient, highly regulatory EU is keen on it is enough to make most people reach for the smelling salts, rather than to think it is some glorious success of His Majesty’s Government. Why is it a bad idea? It is a bad idea because it deprives us of ambition. My right hon. Friend the Chancellor himself called for corporation tax to come down to 12.5%, and we are now legislating to make his ambition impossible. That is not something that Governments usually do; they normally try to ease their way through to something that they have set out, even if they recognise that the circumstances are not immediately possible in which to do it.
The other reason that the tax is wrong and deprives us of ambition is that it is about settling for a high-tax, inefficient world. I think Angela Merkel, the former German Chancellor, said, “We have a system where we have all this welfare, and other countries do not. How are we going to carry on paying for it when they are so competitive?” That is a quotation from her from a few years ago. We are trying to make the whole of the rest of the world as uncompetitive as we have allowed ourselves to become. That is surely not the answer; the answer is to make ourselves more competitive and therefore to have and to be able to afford lower taxation. Instead of looking at those countries that have low-tax regimes as pariahs, we should look at them as models. Instead of saying that Ireland with its low tax rate is doing something scandalous and should be punished, we should say, “No, Ireland has got more from corporation tax than it gets from value added tax.” We do not get a fraction of the money from VAT and corporation tax, because we have a much higher rate, and we have not attracted the businesses that Ireland has attracted.
Richard Fuller
I am somewhat sorry to interrupt my right hon. Friend, but I am interested in his views on international competitiveness. One of the issues that the Minister mentioned in relation to the application of global minimum tax is that it will affect companies that have a large amount of their asset base in intangible assets. Those are primarily in the more advanced countries—western democratic countries—which will find it much harder to justify some of the deductions they can make from the amount of tax they will be subject to under that global minimum tax. What is his consideration of the global political impact of that on the competitiveness of our advanced economies versus China, and of the other implication about the valuation of pensions, many of which are invested in companies that will be disproportionately affected by this legislation?
Mr Rees-Mogg
My hon. Friend is absolutely spot-on that intellectual property rights are, of their nature, much harder to tax, but they clearly belong in the country that invented them or that owns the intellectual right, which is a saleable asset. If that is in a low-tax jurisdiction, why should it be taxed at a falsely high rate? If Disney makes a plastic toy in China, where is the value? It is not actually in the plastic toy being created; it is in the fact that millions of people like watching Disney characters. Trying to locate where that tax ought to be paid is therefore an extremely complex issue, and not one that is solved by a minimum tax. All that does is make it less efficient for companies to invest, develop and do things here, and they might as well do that somewhere else. They might as well do it in China, actually, because China does not seem to be very enthusiastic about this minimum tax anyway.
I do not think this will succeed in stopping complexity. Indeed, it adds to the complexity of the system, and we need only look at this Finance Bill to see by quite how much. The Minister, to her credit, did admit this, and said it was so important that we debated it, with which I thoroughly agree, but the dozens of pages of clauses and schedules on this are making our system fundamentally more complex.
My right hon. Friend the Member for Witham (Priti Patel) raised the issue of tax sovereignty. We got into a terrible muddle by signing up, in the European Union, to a minimum rate for VAT. We thought at the time it was a success, because the EU wanted to be able to set a unified rate, and we got just a minimum rate agreed. However, that led to suddenly finding that it was impossible to lower VAT rates, as we discussed during the Brexit debate, and as we still cannot do in Northern Ireland, where we are stuck with VAT rates still being set according to the minimum agreed in the European Union. So we remove flexibility, remove sovereignty, increase complexity and make it less competitive for business, and we are selling the pass on becoming a tax-efficient, tax-competitive country.
Tax competition is a good thing for those of us on this side of the House, who are meant to be capitalists. I accept that the socialists do not want it, and that is fair enough—that is what they believe in—but we believe in growing economies through free-market solutions. Therefore, we believe that if we have a lower tax rate than Germany, that is a good thing because it makes our economy more competitive and makes the British people richer than the Germans. That is not something we are achieving currently, but that I would like to achieve, Mr Evans—the independent Chairman seemed to be nodding at that, but I am sure that Hansard will take no notice of his agreement that we ought to be richer than the Germans.
This is about a failed economic orthodoxy of an undynamic kind that is leading to the increase in corporation tax, when the evidence from George Osborne showed that that is not true, so clause 5 is a mistake. Then the multinational minimum tax is about making globally the rest of the world as inefficient as the European behemoth has become, and that is the wrong approach to be taking. Where is our ambition, where is our vision and where is our free-market approach?
Several hon. Members rose—
Richard Fuller
On a point of order, Mr Evans. For complete transparency, I just mentioned a point about intellectual property, but I did not mention that I have recently resumed a position as an adviser to a technology investment company. Actually, it is so new that it has not yet appeared in the Register of Members’ Financial Interests. It would not be affected by global minimum tax, but I thought I should make that clarification.
The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)
That is on the record. Thank you very much.
Sarah Olney (Richmond Park) (LD)
I rise to speak on behalf of the Liberal Democrats to new clause 7, tabled in my name, which would require the Government to produce an impact assessment of the effect of changes to small and medium-sized enterprise research and development tax credits on the UK tech industry and on long-term economic growth.
The Conservatives’ constant flip-flopping on tax and investment rules and their badly targeted incentives have not achieved the growth they promised, or are promising. Just last week, the International Monetary Fund predicted that the UK economy would contract by 0.3% this year, making us the worst-performing major economy. Prolonged weakness in business investment and productivity are a major barrier to economic growth, and if the Government want to boost innovation and drive long-term sustainable growth, they need to implement effective and well-designed policy on tax and investment.
The Federation of Small Businesses calls research and development tax credits for SMEs the most effective industrial policy of the last 10 years, enabling small businesses to develop cutting-edge products and foster competition and innovation within industry. The Government’s decision to dramatically slash R&D tax credits has therefore come as a blow to thousands of businesses. The Chancellor’s new policy of targeting tax breaks at research-intensive firms has been celebrated by the life sciences industry, but many other industries will fall outside the 40% intensity threshold. The Institute of Directors has also warned that targeting tax credits at research-intensive firms could lead to less innovation across the economy more widely.
We need to incentivise companies across all sectors to innovate, and particularly to encourage those that have not habitually been innovators. The manufacturers’ organisation Make UK has warned that further damage has been caused by the Conservatives’ chopping and changing on tax credit policy, which leaves businesses struggling to keep up and weakens business confidence. On Second Reading I urged those on the Treasury Bench to reconsider their policy and to reinstate the R&D tax credits for SMEs in full, and I am disappointed to see a lack of movement in that area.
The Liberal Democrats would introduce the kinds of incentives that have been proven to boost productivity, such as tax breaks for training to ensure that employees can continue to develop their skills, both for their own benefit and for the benefit of their employers; allowances for digital investment, to enable businesses to invest quickly and early in the newest digital tools in order to make productivity gains; and, most importantly, encouraging proper, ambitious, bold investment in energy efficiency. Whether for switching a fleet to electric cars or installing solar panels, reducing demand for energy is essential not only for decarbonising our industrial sector, but for bringing down production costs.
The need for targeted incentives for energy efficiency has been underlined by the ongoing energy cost pressures that businesses are experiencing, and the Conservatives’ decision to slash energy support for businesses by 85% will force countless shops, pubs and restaurants to pass increased costs on to their consumers, further fuelling inflation. The Liberal Democrats have repeatedly called on the Government to do more to tackle rampant inflation by supporting businesses with their energy bills. Amidst Government inaction, last month the rate of inflation in the UK jumped to 10.4%, driven largely by the cost of food and alcohol in hospitality venues. I urge the Government to look again at their policy on energy support and tax incentives offered to business, to tackle inflation, to stimulate economic growth and to drive productivity across all sectors.
Kirsty Blackman
The hon. Lady is making an important speech on new clause 7. I did not mention this in my speech, but we will support the new clause if it is pressed to a Division today.
Sarah Olney
I welcome the Scottish National party’s support for our new clause.
I ask the Government to accept the Liberal Democrat amendment proposing an impact assessment on the changes to R&D tax credits. It is essential that this policy is kept under review and its impact on the UK’s tech industry and long-term economic growth is monitored if we are to ensure that the UK becomes the powerhouse of technical innovation it so badly needs to be if we are to drive the productivity we need to increase growth across all economic sectors.
Caroline Lucas
I rise to speak in support of new clause 10, which stands in my name and addresses the decarbonisation allowance first announced by the Chancellor in the autumn statement and now legislated for in this Bill. Although in principle the decarbonisation allowance may sound innocuous or even useful, it is in fact an outrageous subsidy that sees the taxpayer paying companies to decarbonise their activities.
Under this scheme, a company spending £100 on so-called “upstream decarbonisation”—in other words, reducing emissions from the process of extracting oil and gas that then goes on to be burned—is eligible for £109 in relief. We should remember that these companies have themselves admitted that they have
“more cash than we know what to do with”,
and earlier this year they recorded obscene, record profits, with BP’s profits more than doubling to £23 billion and Shell reporting annual profits of more than £32 billion, all while millions of UK households face unbearable choices between basic needs and desperately struggling to make ends meet.
In his Budget statement, the Chancellor recognised what he called the enormous pressures on family finances, with some people remaining in real distress, yet even with the decision to freeze the energy price guarantee at £2,500 as of this month, bills will still rise by almost 20% and 7.5 million households will be in fuel poverty. It is utterly perverse that in this context the Government have decided to hand the climate criminals—those who have profited from the spoils of war—yet another subsidy. These are, at bottom, political choices.
The Chancellor may say, in response to my amendments, that we should be endorsing the decarbonisation allowance to cut emissions from the oil and gas sector, but that ignores the economic reality of the situation and the reality of our planetary boundaries, with upstream decarbonisation doing nothing to mitigate the end result of the fossil fuels choking our precious planet. I am afraid that, in the face of worsening climate impacts, paying companies to power oil rigs with wind turbines or to monitor emissions to detect leaks simply does not cut it. Even more alarming is the provision in the Bill for the decarbonisation allowance to support carbon capture. That UK taxpayers would pay oil and gas companies to capture their emissions in order to allow them to continue production—essentially, to continue business as usual—is a shocking violation of the “polluter pays” principle.
If the Government were seriously looking at reducing production emissions, they would, for example, be looking to bring forward an outright ban on flaring by the end of 2025 at the very latest—I remind Members that flaring has been banned in Norway since 1971—or they would be strengthening the lamentable targets in the North sea transition deal from a 50% reduction in emissions by 2030 to at least a 68% reduction, as proposed by the Committee on Climate Change in its balanced pathway, both of which have been called for by the Environmental Audit Committee, of which I am a member. Yet in their response to the EAC’s report on “Accelerating the Transition from Fossil Fuels and Securing Energy Supplies”, the Government roundly rejected both recommendations, maintaining that the existing targets in the North sea transition deal are “sufficiently ambitious”.
This is not a Government who are serious about cutting emissions from production, and they are certainly not serious about the climate crisis. New clause 10 recognises that the decarbonisation allowance is just one of the handouts to fossil fuel companies that have been introduced under the energy profits levy. It would require the Government to produce an assessment of the cost of the decarbonisation allowance to the Treasury and, crucially, its impact on overall investment in oil and gas production. It would also reveal how much money would be raised through the energy profits levy without the enormous gas giveaways in the form of both the investment allowance and the decarbonisation allowance, as well as assessing their impact on delivering our crucial climate targets.
At this point, I would like to say a few words in support of new clause 6, which would require the Chancellor to conduct a review of the decarbonisation allowance and its impact on public finances, although it is important to note that the amendment is somewhat narrower in not requiring an assessment of climate impacts as well. The Government are very transparent about the fact that the investment allowance is directly aimed at encouraging companies to pump more money into oil and gas extraction in the UK by allowing them to claim £91.40 for every £100 invested. That policy runs directly counter to the advice of the world’s leading scientists on what is needed to keep 1.5° within reach, with the UN Secretary-General calling for a cessation of
“all licensing or funding of new oil and gas”
at the recent launch of the Intergovernmental Panel on Climate Change’s “AR6 Synthesis Report”, and the report itself being clear that emissions from existing fossil fuel infrastructure already exceed the remaining carbon budget for 1.5°.
The bottom line is that our climate simply cannot take any new oil and gas licences. As I have said time and again, new licences would also fail to deliver energy security. With the oil and gas sold on global markets to the highest bidder, they will not bring down bills in the UK and will inevitably come at a huge cost to the taxpayer. Indeed, if we take just one example, Rosebank, the UK’s largest undeveloped oilfield, the costs become clear. Rosebank is enormous. At triple the size of the neighbouring Cambo oilfield, it would produce more emissions than 28 low-income countries combined or, to put it another way, it would produce the carbon dioxide equivalent of running 58 coal-fired power stations for a year. If developed, its owners will be gifted a £3.75 billion taxpayer-funded subsidy from the Government to the estimated £4.1 billion project. The Norwegian state-owned company Equinor, which made a staggering £62 billion last year, contributed just £350 million while pocketing enormous profits.
Emma Hardy (Kingston upon Hull West and Hessle) (Lab)
What an interesting debate it has been. I have found myself slightly amused numerous times by comments from Conservative Members, especially when have they tried to make out that theirs is the party of low taxes, when taxes as a share of GDP are heading to a post-war high. The public are not stupid. A recent poll in The Spectator showed that the public associate the Conservative party with higher taxes. The reason is that the Conservatives keep putting their taxes up.
Another problem that I have seen play out this afternoon as I have sat here is that the Conservative party is inherently divided. Different parts of the governing party are pulling in different directions. That is seen in the seven Chancellors we have had since 2010. As different factions have taken over the leadership, those seven Chancellors have pulled the party in different ways, creating uncertainty. Uncertainty is one of the key things that businesses say leads to a lack of investment. It is not just businesses telling us of the problem of uncertainty, but economists. They tell us about the difficulty with uncertainty and why the UK is uniquely impacted by a lack of investment.
Torsten Bell said that if we go back to 2010 when the Conservatives first came to power—13 long years ago—we initially see a relatively good bounce back from the financial crisis, but then
“we basically miss out on all of the investment growth that other countries saw in the second half of that decade. We flatlined, everyone else soared. In so far as there was a global boom going on, that is when it happened. We did not see that. There have been some revisions to the data recently that make the bounce back from the pandemic on business investment less grim than they looked before, but they are still pretty bad.”
That is one economist. Another economist, Professor Coyle, said:
“Tax will make a difference, but it is not the only thing that matters, and surveys of employers tend to highlight poor infrastructure”—
something that anyone who spends any time travelling by rail around the north is only too aware of—
“and lack of skills, which we’ve already been talking about. Lining up all the different things that matter is obviously part of the challenge—so, consistency”—
that word again—
“and making the system work as a whole.”
Another economist, Paul Johnson, said:
“The lack of consistency in policy is clearly a problem. Something that we talked about—perhaps it is not the right place to talk about it—is that the political instability is a problem for companies looking to invest”.
Seven Chancellors and a divided governing party that does not know which direction to take the economy and our country. Businesses are seeing that, voting with their feet and choosing not to invest in the UK. Professor Coyle went on to say:
“If you look at the past decade or so, what has been happening to firms, even within a given industry, is that the dispersion of productivity has increased. There are some very productive firms. Their productivity growth has slowed down, but they are pulling further and further ahead of…the rest. Firms that are operating outside London and the south-east tend to be the ones in the low productivity part of that distribution.”
As we have said before, the issue goes back to infrastructure. The constant under-investment in Northern Powerhouse Rail, with different Prime Ministers making decisions about whether we will or will not have it, will have an impact on business investment and influence whether businesses choose to invest in our country.
Professor Coyle went on to say:
“I do not mind whether it is called an industrial strategy or not, but we need some kind of long-term perspective—some kind of strategic approach to managing the economy.”
Hear, hear, Professor Coyle. I agree and so does the Labour party, which is why the Labour party has a long-term plan for growth in the country and why I am speaking in support of new clause 3. If businesses cannot have certainty from the governing party or understand which Chancellor is going to introduce which measure in what way, or which faction is the latest to take over the governing party, then they need that certainty from the Labour party, because they are really struggling.
I have met with local businesses in my constituency and they gave me a very clear message: it is incredibly difficult. The Chancellor may boast—boast, ha!—that we are not in a technical recession, but try telling that to the small businesses in my constituency that are finding life incredibly difficult. As we walk around different high streets, we can see the number of shops that are closing. Although the review of business rates does not go as far as the Labour party wants—we want to get rid of business rates altogether—hopefully Members from across the House can support such a fundamental review. Let us look at what we can do to support businesses, especially small businesses. I am sure each and every one of us has been lobbied hard by the Federation of Small Businesses and heard directly from small businesses about how difficult they are finding things.
I will comment briefly on new clause 7 about research and development tax relief, which is proposed by Liberal Democrat Members. It is well worth reading the TaxWatch report into the levels of fraud associated with R&D tax reliefs. We may want to support businesses with R&D tax reliefs—I am not saying that we should not do that—but we need to take the issue of fraud more seriously. The OBR predicts that the total cost of R&D reliefs will increase from £6.8 billion in 2021 to £9.2 billion in 2026-27, but fraud and error in that scheme totals over £1.1 billion in the last three years.
Sarah Olney
The hon. Member makes an excellent point about fraud and error. Does she agree that removing the tax breaks entirely is a sledgehammer to crack what is ultimately quite a small nut? Further attempts to crack down on fraud and error would be a much more constructive way to approach the issue she raises, rather than scrapping the tax relief entirely.
Emma Hardy
I never for one moment suggested we should scrap the tax relief entirely, but we definitely need to do something about fraud. When we have businesses ripping off the taxpayer for £1.1 billion—money that is desperately needed for our public sector, hospitals and infrastructure—we need to take the issue seriously and not brush it under the carpet. R&D claim firms continue to hard sell opportunities to claim refunds, often to companies that should not qualify.
We have issues with the tax gap, which is around £32 billion. That tax gap continues to increase and the tax fraud gap stands at £14.4 billion. That is a heck of a lot of money. If they were serious about wanting to reduce taxes, I would have thought Government Members would want to tackle tax fraud. I have raised the issue with the Minister in a previous debate and I know she is aware of it, so will she outline the steps being taken by HMRC and HM Treasury on the important work of reducing tax fraud and simplifying our tax system?
While we are talking about tax simplification, and as a teaser for the debate tomorrow, it seems strange that the Government wish to abolish the Office of Tax Simplification. That seems a rather strange thing to do when they seem so keen on having tax simplification, but maybe we can continue that discussion tomorrow.
Douglas Chapman (Dunfermline and West Fife) (SNP)
I always wondered how the Conservative party did its policy development, but I think the right hon. Member for North East Somerset (Mr Rees-Mogg) has helped me to come to a conclusion. My sympathies therefore go to the Minister.
This Finance Bill is yet another glaring example of the UK Government trying to shove a square peg into a round hole for the people of Scotland. They are desperately trying to fix economic problems of their own making, but their Bill will do the square root of zero to fix the enormous productivity and labour supply challenges that our nation faces as a result of their mismanagement.
I know that the SNP is often seen as a force for positive general happiness around this Chamber, but there is a great black cloud of gloom and doom overhanging the Bill. It relates to Brexit: the unwelcome guest at the wedding, the elephant in the room, the truth that dare not be spoken by its instigators. Brexit has brought us headlines such as “Economy in decline”, “No-growth Britain”, “Bottom of the class at the G7” and “Export exodus”—hardly what we would call sunlit uplands, and not a unicorn in sight.
Did Scotland vote for this? No, we did not. We did not want Brexit, but it was forced upon us. Meanwhile, the Prime Minister seems to be contradicting his own ideology by remarking on all the special and exciting opportunities for Northern Ireland from access to the EU and UK markets. He does not even realise the irony of his comments or the gross unfairness to Scotland, which has been left in the lurch, with our democratic mandate ignored.
The Scottish people know that this is a Government in denial, with a double whammy of Tory ineptitude on the economy and a damaging Brexit that cannot be fixed by a Finance Bill produced by the same team who were behind that not-so-winning combination. With the economy contracting, according to the International Monetary Fund, and with the Chancellor failing to meet his two main fiscal targets of a falling public debt burden and borrowing below 3% of GDP by 2028, we now know that workers in old Blighty are £1,300 worse off as a result of Brexit. The IFS has stated that our productivity and economic output will fall by 4% as a result of leaving the single market, leaving workers significantly worse off and public services at the thin end of the wedge again, with less money in their budgets. We need less “Better Together for Scotland” and more “I’m Scottish…Get Us Out of Here PDQ!”
I turn to our amendments. I hear from small and medium-sized businesses in my constituency and across Scotland that they are struggling as a result of the economic decline. They are fighting a war on all fronts with energy costs and the costs of doing business, not to mention that they are still trying to get back on their feet after the pandemic and are dealing with the new red tape generated by Brexit.
I am happy to support SNP new clause 8 on extending relief of R&D expenditure for our excellent and important data and cloud computing services. On research and development, the refrain that I hear on repeat from businesses is that they are keen to invest but have their hands tied behind their back. Looking at the clauses before the Committee today, it is easy to see why the Conservatives have lost their “party of business” strapline. So many businesses are reporting that they feel abandoned by this Government and left to float alone, without a life raft to get them out of the swirling morass of the economy and into better times. If the Government want growth and prosperity, they need to listen—really listen—to the people at the coalface who do business every day and who have faced years of knocks and challenges.
On corporation tax, the Government do not seem to know whether they are coming or going. One minute, corporation tax rises seem to be in vogue; the next minute, they are not. The Government swither and dither, but the business community desperately needs stability, security and some long-term plans that will give it the space to breathe and grow.
The ever-present climate crisis is a threat not just to business, but to people’s livelihoods. The UK Government have not shown their best colours when it comes to ensuring that their legislation is in line with the climate challenges. Despite the climate-induced weather events in the UK and abroad, the Prime Minister left out tackling climate change and reaching net zero from his core priorities for his growth strategy. With the number of elephants in the room, No. 10 and No. 11 are getting pretty crowded.
We cannot pretend that Brexit and climate change are not devastatingly bad for business and for people’s finances. Without acknowledging the catastrophic damage that they bring, we cannot move forward with a comprehensive plan. The Chancellor can present as many Finance Bills to Parliament as he wishes, but these are people’s real lives, real livelihoods and real futures, uncushioned by wealth and privilege, and catastrophically unsupported by a tin-eared Government who refuse to look at the reality of the situation that they themselves face. It is time for Scotland to make a swift exit, and I hope that in the coming months we can achieve just that.
The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)
I call the Financial Secretary to the Treasury to wind up the debate.
Victoria Atkins
I thank all Members for a most interesting debate. It is not often that the public—if people have been watching this debate—are able to see us scrutinise measures in this way. Committee debates often take place in rooms off the Committee Corridor, and although they are sometimes available for public consumption, it is very helpful when they happen on the Floor of the House. I am genuinely grateful to all who have contributed.
I am afraid I cannot resist picking up, very gently, the points made by Opposition Members about the role that my hon. Friends have been playing during this Committee stage in scrutinising legislation. This is exactly what Members of Parliament are supposed to do. Their job—your job, dare I say it to Members—is to scrutinise our legislation, and I welcome that. It may well be that Opposition Members have highlighted a fundamental difference between the Labour and Scottish National parties and the Conservative party: we have the intellectual self-confidence to hold these debates, and to debate policy. [Laughter.] Opposition Members may laugh, but we know how difficult internal debate has been in the Labour party. It has meant inquiries by the Equality and Human Rights Commission, it has meant a Labour MP being protected by the police in order to attend her own party’s conference, and I understand that a member of that party is currently being ostracised because her views on what a woman is differ from those of the Leader of the Opposition. So we on this side of the House do welcome debate, and we are able to conduct it properly and professionally within the rules of this Chamber.
Victoria Atkins
I will not give way, because I know it has been a busy day for the SNP. [Interruption.] I will not say any more.
My right hon. Friend the Member for North West Hampshire (Kit Malthouse) rightly raised the subject of the corporation tax increase, but so, significantly, did Opposition Members. They have made much play of the tax rate, and I thought it important just to remind everyone why we are where we are.
The Government borrowed an additional £14 billion in 2020-21 and 2021-22 to fund the response to covid. I cannot imagine that any Opposition Member—including those on the Front Bench—actually disagreed with, for example, the furlough scheme, which protected more than 11 million jobs and companies throughout the country. However, that enormous sum has to be repaid. In response to the energy crisis, the Government have provided just over £100 billion to help households and businesses with higher energy bills in 2022-23 and 2023-24. That has contributed to a significant increase in our public debt, which is forecast to reach 100.6% of GDP in 2022-23, the highest level since the 1960s.
That has happened precisely because the Government have responded to the pandemic, to the international crisis in Ukraine and, importantly, to the knock-on effects that that has had on our cost of living. I cannot imagine that Labour Members really begrudge the support that we are providing—more than £3,000 for every household, including households in their constituencies, to help those people with the cost of living.
However, as my right hon. Friend rightly pointed out, we also believe in the principles of sound money. In the autumn statement, my right hon. Friend the Chancellor explained that some very difficult decisions had to be made. Indeed, even with the increase in the rate to 25% that was originally announced by the Prime Minister when he was Chancellor, we will still have a corporate tax system that remains one of the most supportive of business anywhere in the world, with the lowest headline rate of corporation tax in the G7, the joint most generous capital allowances regime for plant and machinery in the OECD, thanks to the full expensing in this Bill, and the joint highest uncapped headline rate of R&D tax relief support for large companies in the G7. That is in addition to the features of the corporate tax system that make the UK an attractive location as a global hub, including having the largest tax treaty network in the world, mitigating the risk of double taxation. I point out for the sake of clarification that at 25%, the rate of corporation tax will be lower than at any time before 2010 under the last Labour Government.
I will move on to the provisions in relation to pillar two. My right hon. Friend the Member for Witham (Priti Patel) raised some important questions, including about capital flight. We have looked carefully at this and I understand why she is asking about this. I hope she will be reassured that this has been at the forefront of negotiators’ minds as we have looked at this agreement. The rules contain defensive measures to prevent capital flight. If a country does not implement them, the top-up tax will be collected by other countries instead, so there is no incentive to move or escape from these rules.
My right hon. Friend also asked about the Chartered Institute of Taxation’s view that this measure might raise less than expected. Again, I hope she will be reassured that the costing for pillar two was certified by the Office for Budget Responsibility and published at the autumn statement. The estimates are that pillar two will raise £2 billion a year by 2027-28. This includes revenue arising from UK-headquartered groups that are subject to low tax on their foreign operations, the diminished incentive for groups to shift their profits out of the UK and the qualified domestic minimum tax.
My right hon. Friend also asked about Japan. It has passed its legislation and it is implementing this in April next year, three months after we are legislating for. I hope that that timeframe gives her some comfort. I also note that 40 countries have implemented or announced pillar two or a similar rule, and I am told that they make up around 60% of global GDP. It is precisely because of the interlocking nature of the rules that revenues will be taxed at 15%, no matter where they are shifted. I am going to move on to three new clauses that I have a feeling might be the cause of contention and therefore Divisions tonight, but I will happily write to the hon. Member for Aberdeen North (Kirsty Blackman) about her point on data licences, because I want to reassure her on that.
On new clause 1, the Government are committed to sharing expertise on implementation and to co-ordinating our efforts internationally. We are playing an important and active role in the design of pillar two rules and we are achieving the delicate balance between having rules that are effective in tackling profit shifting and being proportionate. It would not be appropriate to provide a running commentary on international discussions ahead of the agreed outcomes of these meetings, which are published by the OECD, including in the administrative guidance to the rules published in February. We therefore say that the new clause is unnecessary and we urge colleagues to vote against it if it is pushed to a Division.
New clause 3 would require the Government to conduct a review of the UK’s business tax regime. This is business as usual for the Treasury and the Government. We have done, and continue to undertake, significant work to understand the impact of tax incentives on business investment. The tax plan published at spring statement 2022 set out the Government’s vision for using the tax system to incentivise investment in capital assets and in research and development, and we have set out detailed information on the Exchequer, macroeconomic and business impacts of these policies at the Budget. The evidence for this continuing work lies in both the full expensing policy in clause 7 and the increase to the annual investment allowance in clause 8, both of which I trust the Opposition will support.
I remind colleagues that the full expensing policy is equivalent to a £27 billion tax cut for businesses over three years. It saves eligible businesses 25p in tax for every £1 they invest. That is the Conservative approach to sound money, and that is what we will do to help grow our economy. The impact of our plan to halve inflation, to grow the economy and to reduce debt is demonstrated in the rising confidence of finance executives, as reported in the recent Deloitte survey. Do not listen to the doom-mongers opposite; listen to British businesses.
Turning to new clause 6, the Government expect the energy profits levy to raise just under £26 billion between 2022-23 and 2027-28, helping to fund the vital and unprecedented cost of living support orchestrated by this Government. This includes the impact of the investment allowance. HMRC regularly publishes estimates for the cost of various tax reliefs where relevant data is available and identifiable in tax returns. For example, estimates for the cost of the investment allowance against the supplementary charge and the first-year allowance of the ringfencing regime are regularly included in that publication. HMRC intends to make a cost estimate for the investment allowance against the energy profits levy in due course.
We have always been clear that we want to see significant investment from the sector to help protect our energy security. Oil and gas accounted for 77% of the UK’s energy demand last year and, as set out in the energy security strategy, the North sea will still be a foundation of our energy security, so it is right that we continue to encourage investment in oil and gas. Supporting our domestic oil and gas sector is not incompatible with net zero 2050, as we know we will need oil and gas for decades to come.
As the energy crisis in the UK has shown, constraining supply and dramatically increasing prices does not eliminate demand for oil and gas. A faster decline in domestic production would mean importing more oil and gas at greater expense, potentially resulting in additional emissions, especially in the case of gas.
On the climate targets, the Treasury carefully considers the impact of all measures on the UK’s climate change commitments as a matter of course. It should be noted that the Government have made the UK a climate leader and have reduced emissions faster than any G7 country over the last 30 years. We are on track to deliver our carbon budgets and on course to reach net zero by 2050, creating jobs and investment across the UK while reducing emissions.
I hope I have been able to reassure Members. I have genuinely enjoyed the scrutiny they have brought to this important piece of legislation. I urge the Committee to reject new clauses 1 to 3 and 6 to 10, and amendment 26. For the reasons I set out at the beginning, I commend Government amendments 12 to 13 and 15 to 20.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clauses 6 to 10 ordered to stand part of the Bill.
Schedule 1
Relief for Research and Development
Amendment made: 14, page 283, line 27, at end insert—
‘(3) In section 1057 (R&D relief for SMEs: tax credit only available where company is a going concern), after subsection (4C) insert—
“(4D) For the purposes of this section, where a company (“A”) is a member of the same group as another company (“B”) and A’s latest published accounts were not prepared on a going concern basis by reason only of a relevant group transfer, the accounts are to be treated as if they were prepared on a going concern basis.
(4E) For the purposes of this section—
(a) a “relevant group transfer” is a transfer, within the accounting period to which the latest published accounts relate, by A of its trade and research and development to another member of the group mentioned in subsection (4D);
(b) A and B are members of the same group if they are members of the same group of companies for the purposes of Part 5 of CTA 2010 (group relief).”’ —(Victoria Atkins.)
This amendment would make an amendment to section 1057 of the Corporation Tax Act 2009 that is equivalent to the amendments being made by the Bill to sections 104T and 1046 of that Act.
Schedule 1, as amended, agreed to.
Clauses 11 to 15 and 121 to 125 ordered to stand part of the Bill.
Schedule 14 agreed to.
Clauses 126 and 127 ordered to stand part of the Bill.
Schedule 15 agreed to.
Clauses 128 to 173 ordered to stand part of the Bill.
Clause 174
Amount of covered tax balance
Amendment made: 12, page 119, leave out lines 4 to 8.—(Victoria Atkins.)
This amendment omits Step 4 in clause 174(1). That Step is unnecessary as it duplicates the effect of provision in clauses section 175(2)(e) and 176(2)(i).
Clause 174, as amended, ordered to stand part of the Bill.
Clauses 175 to 222 ordered to stand part of the Bill.
Clause 223
Adjustments
Amendment made: 13, page 163, line 19, at end insert—
‘(10) Where the covered tax balance of an investment entity includes an amount allocated to it under section 179(1) or 180(3)(a) (allocation of tax imposed under controlled foreign company tax regimes), only so much of its covered tax balance as is not comprised of amounts allocated under those sections is subject to adjustment under this section.’.—(Victoria Atkins.)
This amendment prevents adjustments being made to the covered tax balance of an investment entity in relation to amounts of controlled foreign company tax allocated to the entity (to avoid the same adjustments being effectively made twice).
Clause 223, as amended, ordered to stand part of the Bill.
Clauses 224 to 260 ordered to stand part of the Bill.
Schedule 16
Multinational top-up tax: transitional provision
Amendments made: 15, page 395, line 8, leave out paragraph (a) and insert—
‘“(a) assets are transferred from one member of a multinational group to another member of that group,
(aa) either—
(i) the Pillar Two rules do not apply to the transferor for the accounting period in which the transfer takes place, or
(ii) an election under paragraph 3(1) (transitional safe harbour) applies in relation to the transferor for that period, and’.
This amendment provides for the anti-avoidance provisions in relation to intragroup transfers to apply to transfers from a member of a multinational group until that member is fully subject to the Pillar Two regime.
Amendment 16, page 395, line 17, leave out “beginning of the commencement period” and insert “relevant time”.
This amendment is consequential on Amendment 15.
Amendment 17, page 395, line 19, leave out from “transfer,” to end of line 24 and insert “and”.
This amendment is consequential on Amendment 15.
Amendment 18, page 395, line 27, leave out from “assets” to end of line 32.
This amendment is consequential on Amendment 15.
Amendment 19, page 395, line 32, at end insert—
‘(3A) For the purposes of this paragraph “the relevant time” means the later of—
(a) the date of the transfer, and
(b) the commencement of the first accounting period in which—
(i) the Pillar Two rules apply to the transferee, and
(ii) an election under paragraph 3(1) (transitional safe harbour) does not apply in relation to the transferee.
(3B) Where the relevant time is after the date of the transfer—
(a) the value of the assets at the relevant time is to be adjusted to reflect—
(i) capitalised expenditure incurred in respect of the assets in the period between the date of the transfer and the relevant time, and
(ii) amortisation and depreciation of the assets that, had the transfer not occurred, would have been recognised by the transferor if the transferor had continued to use the accounting policies and rates for amortisation and depreciation of the assets previously used, and
(b) the tax paid amount in relation to the transfer of the assets is to be adjusted to reflect the matters referred to in paragraph (a)(i) and (ii).’
This amendment is consequential on Amendment 15.
Amendment 20, page 398, leave out lines 36 and 37 and insert—
‘(3A) Information derived from qualified financial statements as to revenue or profit (loss) before income tax must be adjusted—
(a) as the information was adjusted for the purposes of its inclusion in a qualifying country-by-country report in relation to the territory, or
(b) if the information was not included in such a report, as it would have been adjusted had it been included in such a report.
See also paragraph 6 which provides for circumstances in which further adjustments are required to profit (loss) before income tax and circumstances in which adjustments are required to qualifying income tax expense.’—(Victoria Atkins.)
This amendment makes it clear that in determining whether the transitional safe harbour provisions apply for the purposes of multinational top-up tax, revenue and profits are to be as stated in a country-by-country report, or adjusted as if they were included in such a report.
Schedule 16, as amended, agreed to.
Clause 261 ordered to stand part of the Bill.
Schedule 17 agreed to.
Clauses 262 to 275 ordered to stand part of the Bill.
Schedule 18 agreed to.
Clauses 276 and 277 ordered to stand part of the Bill.
New Clause 1
Statement on efforts to support implementation of the Pillar 2 model rules
‘(1) The Chancellor of the Exchequer must, within three months of this Act being passed, make a statement to the House of Commons on how actions taken by the UK Government since October 2021 in relation to the implementation of the Pillar 2 model rules relate to the provisions of Part 3 of this Act.
(2) The Chancellor of the Exchequer must provide updates to the statement at intervals after that statement has been made of—
(a) three months;
(b) six months; and
(c) nine months.
(3) The statement, and the updates to it, must include—
(a) details of efforts by the UK Government to encourage more countries to implement the Pillar 2 rules; and
(b) details of any discussions the UK Government has had with other countries about making the rules more effective.’—(James Murray)
This new clause would require the Chancellor to report every three months for a year on the UK Government’s progress in working with other countries to extend and strengthen the global minimum corporate tax framework for large multinationals.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Finance (No. 2) Bill
Wednesday 19th April 2023
(1 year ago)
Commons ChamberRead Full debate Finance (No. 2) Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 19 April 2023 - (19 Apr 2023)
15:41 - The Committee divided: - Ayes: 45 / Noes: 292 - Question accordingly negatived.
15:55 - The Committee divided: - Ayes: 293 / Noes: 218 - Question accordingly agreed to.
16:09 - The Committee divided: - Ayes: 218 / Noes: 294 - Question accordingly negatived.
17:37 - divided: - Ayes: 54 / Noes: 290 - Question accordingly negatived.
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
I remind Members that, in Committee, they should not address the Chair as “Deputy Speaker”. Please use our name when addressing the Chair. “Madam Chair,” “Chair,” “Madam Chairman” and “Mr Chairman” are also acceptable.
Clause 18
Lifetime allowance charge abolished
Kirsty Blackman (Aberdeen North) (SNP)
I beg to move amendment 21, page 12, line 31, at beginning insert—
“(A1) This section applies to any person who it employed for an average of more than 15 hours per week by an NHS body.”
This amendment would limit the removal of the lifetime allowance charge to NHS staff.
The First Deputy Chairman
With this it will be convenient to discuss the following:
Amendment 22, page 12, line 31, after “charge” insert
“for a person to whom this section applies”.
This amendment is consequential on Amendment 21.
Amendment 23, page 12, line 36, at end insert—
“(3) The Treasury may by regulations specify a list of NHS bodies, or types of bodies, in respect of which this section applies.
(4) Regulations under this section—
(a) may specify different bodies, or types of bodies, in England, Wales, Scotland and Northern Ireland, and
(b) are subject to annulment by a resolution of the House of Commons.”
This amendment is consequential on Amendment 21 and gives the Treasury the power to define “NHS body” for the purposes of that amendment.
Clauses 18 to 24 stand part.
Amendment 27, in clause 25, page 18, line 23, at end insert—
“(4A) The arrangements must include that the Commissioners are required to provide to an individual their calculation of the appropriate amount under subsection (3).”
This amendment would require HMRC to provide recipients of the relief with a calculation of the payment so that it can be checked.
Amendment 28, page 18, line 26, insert—
“(5A) The arrangements must include procedures for the purposes of allowing an individual to—
(a) challenge the amount the Commissioners have determined to be the appropriate amount under subsection (3), and
(b) make a claim requesting that the Commissioners calculate and pay an appropriate amount in accordance with subsection (3) where the Commissioners have failed to make such a payment.
(5B) The individual must give notice to the Commissioners of any such challenge or claim no later than four years from the end of the relevant tax year as defined in subsection (1)(b).”
This amendment would enable a recipient of the relief to challenge the amount determined by HMRC if they think it is incorrect, and would allow someone not identified as eligible for the relief by HMRC to initiate a claim for it.
Amendment 29, page 18, line 41, at end insert—
“(8A) The arrangements must include a procedure for the Commissioners to correct, in accordance with section 9ZB TMA 1970, an individual’s personal return for the relevant tax year to include the appropriate amount paid under this section.”
This amendment would enable HMRC to correct the tax return of a recipient of a payment under the new section 193A FA2004, to reflect that the receipt of the payment has increased the recipient’s income for the year.
Clause 25 stand part.
New clause 4—Review of the impact of the abolition of the lifetime allowance charge—
“(1) The Chancellor of the Exchequer must, within three months of the passing of this Act, make a statement to the House of Commons on the impact of the abolition of the lifetime allowance charge introduced by section 18 of this Act and other changes to tax-free pension allowances introduced by sections 19 to 23 of this Act.
(2) The statement must provide the following information—
(a) the number of NHS doctors who will benefit from the policies referred to in subsection (1);
(b) the proportion of those benefiting from the policies referred to in subsection (1) who are NHS doctors;
(c) the number of people who are expected to—
(i) stay in work, and
(ii) return to work
as a result of the policies referred to in subsection (1);
(d) a breakdown of the figures in subsection (2)(c) by sector, including the number of people under subsection (2)(c)(i) and (ii) who are NHS doctors; and
(e) details of how a scheme that provided benefits equivalent to the policies referred to in subsection (1) only for NHS doctors could operate.”
This new clause requires the Chancellor to make a statement setting out the impact of the tax-free pension allowance changes in relation to NHS doctors, and to set out details of how an alternative scheme targeted at NHS doctors could operate.
New clause 5—Review of alternatives to the abolition of the lifetime allowance charge—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed—
(a) conduct a review of the impact of the abolition of the lifetime allowance charge introduced by section 18 of this Act and other changes to tax-free pension allowances introduced by sections 19 to 23 of this Act, and
(b) lay before the House of Commons a report setting out recommendations arising from the review.
(2) The review must make recommendations on how the policies referred to in subsection (1)(a) could be replaced with an alternative approach that provided equivalent benefits only for NHS doctors.”
This new clause requires the Chancellor to review the impact of the tax-free pension allowance changes and to recommend an alternative approach targeted at NHS doctors.
Kirsty Blackman
It is a delight to speak first in Committee of the whole House this afternoon. I had a few extra minutes to tweak my speech during the ten-minute rule Bill, as it is unusual for such a Bill to be opposed, and those extra few minutes will presumably have made my speech extra good. I am sure the whole Committee will listen very closely.
I rise to speak to amendment 21 in my name and in the name of my SNP and Plaid Cymru colleagues, but I will first talk about new clauses 4 and 5, which were tabled by the Opposition. The new clauses would require a review of the impact of the abolition of the lifetime allowance charge, with new clause 4 focusing on NHS doctors and new clause 5 looking more widely.
A significant number of questions have been raised in the House about the lifetime allowance and the problems it has caused, particularly for NHS doctors. I do not think any Opposition Member would consider that the solution to this problem is to abolish the lifetime allowance charge completely, which seems totally out of proportion. We have been raising this very serious issue for a number of years, but I never considered arguing against this solution because it never crossed my mind that the Government would do something quite so drastic or extreme.
New clauses 4 and 5 both ask for reviews, statements and information. Particularly pertinent is information on the number of NHS doctors who will benefit from the abolition of the lifetime allowance charge, as is a report containing recommendations in the light of a review of the effect of abolishing the lifetime allowance charge. The least the Government can do, if they are to make such a massive change to the lifetime allowance or the pension tax system, is provide us with as much information as possible so that we can consider all the potential and actual implications. We would then have all the information at our fingertips. The Government are able to access HMRC data in a way that the rest of us cannot, so we need details on the actual impact of these changes.
On the specific issue of NHS doctors, Torsten Bell of the Resolution Foundation has said that 20% of those who benefit from the change to the lifetime allowance work in the finance industry. He said that
“nearly as many bankers as doctors”
will benefit from this change. The Institute for Fiscal Studies has called it “bizarre”, stating:
“if this is aimed at doctors then it really is a huge sledgehammer to crack a tiny nut.”
That accords with our understanding.
Again, we agree that this significant issue for doctors needs to be fixed, but the Government are going about it in totally the wrong way. During the covid pandemic, we clapped NHS staff from our doorsteps. We recognise how difficult NHS staff had it working on the frontline during the pandemic, and how difficult they continue to have it. When other people were furloughed, they were working hard, day in and day out, to keep as many of us alive and healthy as possible, yet the Government are giving exactly the same break to bankers as they are giving to those who worked day in, day out to keep us all safe. That does not make sense. If we want to support our NHS, to ensure that we have the best possible public services and to give the NHS our vote of confidence, our backing and our support, we should recognise that those working in the NHS provide a vital public service and therefore deserve different treatment from those who work in the finance industry, for example, and who do not provide that level of public service.
I thank the Clerk of Bills, who was helpful in drafting these amendments. I knew what I wanted to do, but I was not quite sure how to do it, so I very much appreciated that assistance.
Amendment 21 would mean that the abolition of the lifetime allowance charge applies only to those employed by an NHS body for more than 15 hours a week, on average.
Aaron Bell (Newcastle-under-Lyme) (Con)
We all respect the hard work of NHS staff, but why does that argument not equally apply to, say, senior police officers?
Kirsty Blackman
An awful lot of people work hard. The specific issue that many of our constituents have raised is in the NHS. I have not been approached with this concern by senior police officers, but I have been approached by NHS doctors. If the hon. Gentleman feels particularly strongly about senior police officers, he could table an amendment so that people employed in the wider public sector, or in the police service, can be included in this measure. I think both police officers and NHS staff could be included, but it would be ridiculous to include everyone, no matter how little they do for the public good.
Anthony Browne (South Cambridgeshire) (Con)
Not only NHS staff and senior police officers but state school headteachers, senior civil servants in our local authorities, air traffic controllers and senior Government scientists are affected by the lifetime allowance. In fact, about half the people affected work in the public sector. If the hon. Lady follows her rationale, she would end up with a completely different tax regime for public sector pensions. Does she think that would be fair for private sector workers?
Kirsty Blackman
Given how much we have relied on our public sector, and given how unwilling this Government are to come to the table on pay negotiations, it would be totally reasonable for this House to say, “Our public sector is incredibly important. We want to support our public sector workers, and therefore we want to give them differential access to lifetime allowance exclusions.”
Amendment 22 is consequential on amendment 21. Amendment 23 would allow the Secretary of State to specify which NHS bodies, or types of bodies, are covered, given that the NHS is structured in different ways in England, Scotland and throughout these islands. It makes sense for the Secretary of State to make that decision.
The amendments cover NHS staff who work, on average, at least 15 hours a week so that they cover all the NHS staff who have come to us with pension concerns, particularly doctors but also other senior NHS staff. I have a large teaching hospital in my constituency, and there is another hospital just over the boundary. There is a medical school too.
Kirsty Blackman
Not just now.
A significant number of doctors live and work in Aberdeen, and a number of them have come to me with concerns about the pension regime. One of them did not realise that he was about to hit the lifetime allowance until his accountant came to him and said, “This is how much you are required to pay in tax.” He had tipped over into this additional tax because he had taken on hours to teach junior doctors and medical students how to be better doctors. He had taken those extra hours on at the request of the hospital. This was because the immigration laws and rules have meant that a number of our doctors are struggling to jump through the hoops that the UK Government have put in a place or they are feeling that the Home Office is particularly against doctors coming from other countries.
That constituent had been asked to take on those hours as a result of the changes in some of the departments. He had willingly taken on those hours because he knows how important continuing professional development is in the NHS and how important it is to have a new generation of doctors coming through, but he had then been hit with a massive tax bill as a result. When I met him, he said to me, “I do not want to take on any more teaching as a result of what has happened to me. The amount I have been taxed means that the teaching costs me money. I don’t see why I should be asked to do this when I am training the next generation of doctors.”
Anthony Browne
I am glad that the hon. Lady recognises the dangers of high levels of taxation in discouraging people from work, as I believe those on both sides of the House can agree on that. Her amendment mentions the NHS and people who work for “an NHS body”. What does she think about this applying to GPs? The overwhelming majority of GPs do not actually work for the NHS—they are self-employed or work for their partnerships. Does she think that GPs should be excluded from this legislation as well?
Kirsty Blackman
That is one reason why our amendment 23 would allow the Secretary of State to make those specifications, so that all the people considered to be working for NHS bodies—GPs are commissioned by NHS bodies—are included. The measure was intended to allow that level of flexibility. If I had not intended to allow that level of flexibility, we would not have tabled amendment 23 to allow the Secretary of State that flexibility. We referred to NHS bodies and specified a number of hours so that someone who works for the significant majority of their time in private practice and private systems, and perhaps works an hour or so every few months for the NHS, would not be caught by this measure. The intention is that those people who work for a significant amount of their time in contributing to the health of the population, making people better and well, ensuring that they stay healthy and live longer lives, are recognised and given the opportunity to benefit from this measure.
My understanding, from everything that the Government have said previously about this, is that one of the biggest concerns in this area relates to NHS doctors. If the Government feel that there are other significant areas of the public sector where people could and should benefit, I look forward very much to the Minister standing up and explaining all of those. I am sure I will be asking further questions about this in Committee.
The lifetime allowance was in place for a reason and it does not work in relation to senior NHS staff, but it does work in relation to those places where people are not contributing to the health and wellbeing of our population and where people have not been on the frontline during the past few years, working under immense pressure for the public good. SNP Members will therefore vote against clause 18 standing part of the Bill if we have a vote on that. That clause is about the abolition of that lifetime charge. We do not agree that that should apply to everyone. The Government need to bring in a bespoke scheme to solve this problem, rather than applying it to everybody, no matter how much money is involved and how little public service they provide for that income that they receive. I ask the House to support amendment 21, which stands in my name and those of my colleagues.
The Economic Secretary to the Treasury (Andrew Griffith)
It is a pleasure to follow the hon. Member for Aberdeen North (Kirsty Blackman). We are covering clauses 18 to 25, which will remove the pension tax barriers to remaining in work that highly skilled and experienced individuals across the public and private sectors, including senior NHS clinicians, are facing. The clauses also ensure that the tax regime works appropriately for the winding up of collective money purchase schemes and legislates to provide taxpayer-funded top-up payments for up to 1.2 million of the lowest earners in net pay pension schemes.
Anthony Browne
Does the Minister agree that the 80% of employees who work for the private sector make a valuable contribution to the wellbeing of the country as well? Does he agree that they would have a right to feel annoyed at the idea that there should be an especially punitive regime just for private sector workers, which the public sector workers do not get punished by?
Andrew Griffith
My hon. Friend makes exactly the point that I was making, and does so extremely well. It is wrong for us in this House to seek to assign to ourselves the ability to judge the virtuous nature of people’s activity. I am sure that an accountant in the private sector works as diligently as an accountant seeking to drive value for money and the best medical outcomes in the NHS. With the greatest respect, I think that the hon. Member for Aberdeen North goes a little too far in seeking to “unbake” the wonderful cake of our mixed economy health system, which involves contributions from the private sector, private forensic laboratories and private diagnostic machines, and the wonderful work of our clinicians, and administrative, ancillary and domiciliary staff, who are mostly in the public sector. As I have said, her approach is the wrong basis on which this House should proceed.
Clauses 18 to 23 will reform pension tax thresholds to remove the current disincentives for highly experienced individuals to remain in the labour market or even to return to the workforce to build up their retirement savings. Currently, there are limits placed on the amount of tax-relieved pension savings individuals can make each year and an additional second restriction that applies to the total. That is an unusual feature of the tax system, where almost every other allowance is on an annual basis. The Government listened to stakeholders from across the public and private sectors, who have said that the annual and lifetime allowances can influence the timing of retirement and act as a barrier to remaining in the workforce.
The changes made by these clauses will increase the annual allowance from £40,000 to £60,000 and remove the lifetime allowance charge from 6 April 2023. The changes will ensure that pensions tax does not act as a barrier to staying in or returning to work, and will eliminate the chilling impact that the mere fear of triggering an extra tax charge has, even for those who are not immediately subject to falling foul of the cap. Much as the opposition parties may not wish to hear this, these changes command support across the economy. The Guild of Air Traffic Control Officers told us that pension taxation risks causing its members to reject tasks essential for the safe and efficient operation of air traffic control in the United Kingdom.
Dr Vishal Sharma of the British Medical Association has said that this is
“an incredibly important step forward”.
He said that the abolition of the lifetime allowance will mean that
“senior doctors will no longer be forced”—
his words—
“to retire early and can continue to work within the NHS, providing vital patient care.”
The Forces Pension Society said that this is a positive development and that it had been lobbying for it for several years. It said that these changes will help keep our streets safe. Marc Jones, chairman of the Association of Police and Crime Commissioners, confirmed that, as it relates to the police, they
“will be a game changer for thousands who love their jobs and do not want to retire.”
To support those who have left the labour market to return and build up their retirement savings, these clauses will also increase the money purchase annual allowance from £4,000 to £10,000 from April 2023. This will enable more individuals who have previously retired to return to the workforce and to continue to build their savings. In line with these headline reforms, there are also technical changes. They increase the minimum tapered annual allowance from £4,000 to £10,000 and the adjusted income level required for the annual tapered annual allowance to apply to an individual from £240,000 to £260,000.
Kirsty Blackman
While the Minister is talking about all the public sector individuals who will benefit as a result of these changes, he has not made the case for why this should apply to bankers. Why should bankers receive this exemption from the lifetime allowance? What benefit will the country get as a result?
Andrew Griffith
I am sure that the significant number of people—over half a million—who depend on jobs in the financial sector, including in places such as Edinburgh, one of our great financial centres, are listening with consternation to the politics of envy. The hon. Lady singles out individual professions and invites us to set separate tax policies on the basis of a particular profession. That would be entirely wrong. If she had been listening very carefully—I understand that she wanted to get in, because this is a debate and is the opportunity to do so—she would have heard that I was talking about the annual tapered allowance. That is a feature in pensions policy that is there entirely to ensure that it continues to have a progressive nature. A banker who is earning £260,000 a year can get only a reduced amount. They cannot avail themselves of the same annual allowance as the hon. Lady’s friends, colleagues and those she seeks to represent in our public services. I can assure the House that this is not a charter for bankers. In fact, the annual tapered allowance remains unchanged in its operation. We are updating the thresholds here today.
Unless the hon. Lady wishes to withdraw her amendment at this point having heard the strength of our arguments, I will now turn briefly to the remaining clauses that we are debating today, covering collective money purchase pension arrangements and relief relating to net pay arrangements. Collective money purchase is a new type of pension arrangement. Clause 24 will prevent any unintended tax consequences should a collective money purchase scheme wind up. It will ensure that members and their dependants can receive payments and transfer funds without incurring an unauthorised payments tax charge—I do not think that that should be controversial for the House.
Finally, clause 25 relates to the introduction of top-up payments for the lowest earners—another highly progressive measure—who sit within net pay pension schemes. There are two main methods of giving pensions tax relief. Although they provide the same outcomes for most individuals, lower earners can have different levels of take-home pay depending on how their pension scheme is administered for tax purposes, and the Government believe they are right to rectify that.
Clause 25 makes changes to ensure that eligible low-earning individuals whose income sits below their personal allowance receive a taxpayer-funded top-up payment so that they will have broadly similar take-home pay regardless of how their pension scheme is administered for tax purposes. The hon. Member for Ealing North (James Murray) has tabled some amendments in this respect, and I wrote to him yesterday to provide some of the comfort that I think he was looking for. They were well-intentioned amendments, and I hope that the letter I have sent him gives him some of the satisfaction that he seeks. Fundamentally, we do not disagree with what he is trying to achieve, and it has the support of those who have been agitating for low-income earners. That measure could benefit an estimated 1.2 million low earners who save into an occupational pension under net pay arrangements.
In conclusion, as I have set out, we know that there is a problem that needs to be tackled. It is a fact that individuals are choosing to retire early to prevent incurring pension taxes. The changes today, which have been widely welcomed by sectoral representatives across the economy, will ensure that we can retain our most skilled and experienced workers in all sectors while also simplifying and improving the pension arrangements for millions of households. I therefore urge Members to accept that clauses 18 to 25 should stand part of the Bill.
James Murray (Ealing North) (Lab/Co-op)
Thank you, Dame Rosie, for the opportunity to respond on behalf of the Opposition. I wish to speak in support of the new clauses in my name and the name of my hon. Friend the Member for Erith and Thamesmead (Abena Oppong-Asare).
In this debate, we get the chance to discuss something rare: a tax cut from this Government. It is rare to see a tax cut from this Government, because we are so used to seeing tax rises from them—24 tax rises in the past few years. We now face a tax burden in this country that has risen to its highest level in 70 years. This month, people across the country are being hit by a double whammy of Tory tax rises. Freezes to income tax thresholds mean stealth tax rises for working people, while, at the same time, families are being hit by the Tories’ council tax bombshell.
Let me be clear about what these tax rises mean: the Government’s six-year freeze in the personal allowance will take its real value in 2027-28 back down to its 2013-14 level, while this year, council tax for the typical band D property will breach £2,000 for the first time. In the middle of a cost of living crisis, made worse by the Conservatives’ tax rises, one permanent tax cut was announced by the Chancellor in his Budget last month. That tax cut, introduced by the clauses we are debating today, sees £l billion of public money spent to benefit only the 1% with the biggest pension pots. It is an extraordinary way to spend £l billion in the middle of a cost of living crisis, which is still hitting people across this country hard. Ministers may claim that their decision was driven by a desire to get doctors back in work, but it is clear that they could have found a fair, targeted fix for doctors’ pensions at a fraction of the cost. The British Medical Association has said that a targeted doctors’ scheme could cost as little as £32 million to implement. The Conservative Chair of the Treasury Committee has said that even she was surprised that the Government did a blanket cut, rather than a bespoke policy for doctors. That is why we oppose the Government’s plans to abolish the lifetime allowance charge in clause 18 as part of their package of changes covered by clauses 18 to 23.
I wish to spend a few moments addressing clause 25, which covers a separate pensions matter, unrelated to the package of measures that we have concerns about. Clause 25 introduces, as the Minister has said, a scheme of “top-up payments” for low earners contributing to net pay pension schemes who currently miss out on a Government pension savings incentive. We know that tax relief on pension contributions can be given to individual scheme members in two ways: relief at source and net pay arrangements. In the case of the former, even non-taxpayers are given basic rate tax relief, but in the case of the latter they are not. As the Minister said, this is particularly unfair as individual people have no control over which form of scheme their employer chooses. We commend the efforts of the Low Incomes Tax Reform Group, along with pension providers, Age UK, the TUC, and others, to campaign for a change to the law, which is culminating in clause 25 before us today.
There are, however, a number of points of detail that we would like to raise with the Minister. To help draw these out, we have tabled amendments, three of which— amendments 27, 28 and 29—have been selected for debate today. I wish to put on record my thanks to the Low Incomes Tax Reform Group for its help in drafting these amendments.
We recognise that, under the measures proposed in clause 25, there is an onus on His Majesty’s Revenue and Customs to make payments to eligible individuals. While we hope, of course, that HMRC would always do the right thing, we think individuals should be able to challenge the amount paid if they think it is incorrect. With that in mind, amendment 27 would require HMRC to provide recipients of the relief with a calculation of the payment so that it can be checked. I therefore welcome confirmation from the Economic Secretary to the Treasury in a letter sent to me this morning that
“HMRC are already planning to provide customers with details of the payment and how it was calculated.”
I would welcome any further detail on that commitment that the Economic Secretary is able to give in his closing remarks.
Anthony Browne
The hon. Gentleman is making the case for a special NHS-only or doctors-only regime. Does he accept that senior workers in other parts of the public sector are affected by the lifetime pensions allowance? There was already a separate scheme for judges, and we know about the former Director of Public Prosecutions having his own individual scheme, but does the hon. Gentleman accept that there are senior police officers, senior local authority civil servants, senior Government scientists, air traffic controllers—as we have heard—and other workers across the public sector who are disincentivised from continuing to work by the current regime?
James Murray
I thank the hon. Gentleman for his intervention, but the argument we were hearing from hon. Members on both sides of the House was about NHS doctors and keeping them in work. The Chancellor himself, when he was Chair of the Select Committee, said that we needed targeted intervention to help NHS doctors. No one was talking about a wider scheme to affect everyone with the largest pension pots until the Chancellor stood up and made his announcement on Budget day. I respectfully suggest the hon. Gentleman focuses on our amendments in hand and on new clause 5, which suggests that, rather than proceed with a blanket scheme affecting everyone with a pension pot, we should do what I thought there was an emerging consensus around and develop a targeted scheme for NHS doctors.
Otherwise, the Government’s approach fails the critical test for any Government spending—whether they are spending public money wisely. Yet Ministers refuse to entertain the prospect of a targeted scheme for NHS doctors instead. That is why we have tabled new clause 5, which would require the Chancellor to make recommendations on what a scheme targeted at NHS doctors would look like. We believe that is a crucial question to be answered. I hope that any Conservative Members, including the hon. Gentleman, who are concerned about spending public money wisely, getting value for money and supporting our NHS, will vote for new clause 5 in the Division Lobby later.
James Murray
No; I am going to make some progress. The hon. Gentleman has intervened quite a lot and I am looking forward to his speech, as I am sure everyone in the Committee is.
When the Economic Secretary responds, I would be grateful if he could address the points set out by new clause 4, in particular by giving some much-needed clarity on the scale of the impact the Government expect their changes to pension allowances to have. Can he tell us how many people are expected to stay in work or return to work as a result of these policies? What sectors do they work in? How many of them are NHS doctors? Those are important questions, yet it has been hard to get exact answers from Ministers. The Office of Budget Responsibility has said the changes to pension contribution allowances will increase employment by around 15,000, but Paul Johnson of the Institute for Fiscal Studies has said that figure is “optimistic”.
When the Financial Secretary to the Treasury was asked on Second Reading of this Bill how many doctors would stay in the NHS because of these measures, she confidently quoted Department of Health and Social Care statistics that around 22,000 senior NHS clinicians would have been expected to exceed the £40,000 annual allowance this year. However, she may not have known that, at the very same time, the permanent secretary who oversees Government spending was appearing before the Treasury Committee, where the hon. Member for South Cambridgeshire (Anthony Browne) was asking her questions. When asked about the evidence on how many of those 22,000 NHS clinicians would have been discouraged from working by the cap, she said the evidence was “mixed” and that they would need to do further evaluation.
It seems clear that the Government simply do not know how many people will be brought back into work as a result of their changes to pension tax-free allowances. They certainly do not know how many NHS doctors will come back into work, and they have clearly failed to do the thinking on how a bespoke approach for NHS doctors could operate.
That is why we oppose the Conservatives’ pension changes and why we will be voting for a fair fix for doctors’ pensions to get them back into work. We will be voting to spend public money wisely. We will be voting against a Government who choose to cut tax for the richest 1%, while pushing up stealth taxes and council tax on working people across the country.
Sir Robert Syms (Poole) (Con)
I declare an interest, as I am in the parliamentary pension scheme and I think I am one of the older people in the Chamber today. Indeed, I am old enough to remember when the shadow Health and Social Care Secretary, the hon. Member for Ilford North (Wes Streeting), was musing about getting rid of the lifetime allowance—a matter of a few weeks ago, before the Government did it.
Doctors in Poole have said to me clearly over a number of years that at a certain stage of their career they have all the skills, but when they work they get annual bills, and when they look at their lifetime allowance it makes sense for them to retire. The tax policy of the lifetime allowance and the annual allowance have been improving the golfing skills of GPs and hospital doctors, because they get to a point where, if they do the extra work, they are penalised by the tax system and they say, “Why should I do this?” Many still do it, but it is totally wrong that we have a tax policy that discriminates against people who want to work and want to use their skills.
One key thing that the Government have done is put billions into the national health service to catch up with the backlog. If we are putting billions in and want productivity in our hospitals to improve, it is totally inconsistent to have a tax system in which the key people leading teams and doing tests find that it is a disadvantage for them to work. We will never get the lists down if people feel that they are penalised for working hard, and many want to work hard. I have talked to doctors since the changes, and the evidence in my constituency is that some have decided to delay their retirements, which they had already put in for, while others who had retired are now coming back to work part-time. The main improvements will be higher productivity and more patients being seen. I do not know whether there will be a massive advantage for doctors, but there will be for patients, because at the end of the day, there are people waiting to have tests and operations, and this will make the national health service rather more productive that it would otherwise be.
Also, because many early-retirement doctors will now stay working, they will continue to receive salaries and pay tax at the normal rate. I am somewhat sceptical about the £1 billion cost because, if significant numbers of people stay in our hospitals, they will ultimately continue to pay taxes and many of them are higher-rate taxpayers. The key point is that we have to focus on the patients, not on the providers of services. If the providers of services can work and have incentives to work, we will get through more patients, which is what people in this House want.
It is difficult to focus on the national health service alone. There are the anomalies not only of general practitioners—I come across general practitioners well into their 50s and nearing retirement who work only three days a week because of the tax system, and this measure will help them—but of dentists. We all get people writing to us about a shortage of dentists—particularly NHS dentists—and unless we fix these problems, which are pushing experienced dentists into early retirement, our constituents will not get the services that they need.
As my hon. Friend the Member for South Cambridgeshire (Anthony Browne) pointed out, many other high-skilled, high-paid public sector jobs are impossible for managers to manage because the people undertaking those tasks are penalised either by a big tax bill each year, or by the difficulty of seeing their lifetime allowances used, so there is no great incentive for them to continue working. If we have a problem in this country, it is one of productivity. This tax change improves productivity. If we improve productivity in people-facing services, such as those provided by dentists and doctors, the people waiting for those services will clearly be more and better looked after by the system.
When the Conservative party came into office, the lifetime allowance was £1.8 million, which was a significant sum 14 years ago. The reason it was reduced was that there was a suspicion that City slickers were putting millions into pension funds and not paying any tax. In reality, it has come down too far and is hitting people who we need to provide the skills that they have trained for over years. Doctors spend years training and decades getting experience, but at the time when they are needed most—to deal with the waiting list—they find that the pension system is forcing them into retirement or to play golf. What the Government have done is sensible.
I do not accept the figures from the shadow Minister, the hon. Member for Ealing North (James Murray). The main benefit of the changes will be for those in the health service, but we cannot differentiate between one person providing one skill and somebody else providing some other skill. From that point of view, the tax system has to be neutral. If we get into a position in which the more worthy people pay less tax, we may as well be saying, “Why should anybody in the NHS pay tax? Why not just give them a free ride?” That is an argument without a great deal of thought behind it. We have to have a neutral tax system without the Government trying to second guess about the public or private sector, or whether doctors are more worthy than others.
I think that the Government have done quite a brave thing, and it was the right thing to do. Government is about taking the right decisions, even if they are not always the most popular. They are the right decisions to provide better medical care for our constituents and to get the NHS backlog down. Of course, one of the Prime Minister’s key pledges is to do just that. This is one measure that will enable that by letting people work longer, harder and more productively.
Aaron Bell
It is a pleasure to follow my hon. Friend the Member for Poole (Sir Robert Syms). I rise to speak to clauses 18 to 25, which I support. I was unsurprised to hear that the Opposition do not support them. The shadow Health Secretary, the hon. Member for Ilford North (Wes Streeting), told The Daily Telegraph on 2 September that the cap was “crazy”. He did not say that specifically about the NHS—although, as shadow Health Secretary, he obviously spoke about the NHS—but he called the cap “crazy”. He then said:
“I’m not pretending that doing away with the cap is a particularly progressive move… I’m just being hard-headed and pragmatic about this.”
Well, obviously that could not last. On the day of the Budget, the hard-headed and pragmatic approach from the shadow Health Secretary—the so-called “heir to Blair”—was handed over to the soft-headed and opportunistic approach that we saw in the response from the Leader of the Opposition. Actually, it was not in his response, because he had to go away and first check with some other people what the Labour policy was going to be, but Labour later came out against the policy, and has tabled amendments to strike the clauses entirely and replace them with new clauses, which I am sure the Government will oppose.
To address the point about progressiveness, it is absolutely asinine to assume that the only test of any fiscal measure is whether it is progressive. We seek to do lots of things with our tax system: incentivise people, grow our economy, grow our productivity. The measures proposed by the Financial Secretary to the Treasury today, and by the Chancellor in the Budget, will do that. We want to incentivise people to stay in work and return to work.
Like my hon. Friend the Member for Poole, I am not even sure that there will be a cost in the long run, because those who do not retire early will pay tax while they are earning their salaries. One big problem in our society is people retiring early with all the wisdom, experience and skills that they have at that stage of their careers. People are so productive in their 50s and 60s because they have accumulated so much knowledge, so to have people retiring early is a crying shame, not only for the country as a whole but for them, their patients and the people whom they serve in other ways. Also, those people will ultimately pay more tax when they claim their pensions; it is not a tax-free system. People might be exempt on entry into their pension scheme and exempt on returns, but they pay taxes when they draw their pensions, so taxes will be paid in the long run.
The hon. Member for Aberdeen North (Kirsty Blackman) made a point about bankers, which was ably answered by the Minister. We still have a tapering of the annual allowance for people who earn incredibly large salaries, of which there are a number in this country, although not many in my constituency. As many on the Conservative Benches have said, we do not seek to divide people based on where they work or the nature of their jobs. Our tax system works for everybody.
Our public sector has incredibly generous pension provision, as we have seen in recent discussions about strikes. That is why some people in the national health service, for example, have accumulated notionally very large pension pots. They are highly skilled, long-serving public servants who earn substantial salaries, particularly towards the latter end of their careers. If they have been on the scheme for a long time, they could be entitled to a pretty large pension, and we multiply it only by 20 to find out their defined benefit. So people in the public sector in defined benefit schemes are already better treated than people in the private sector, in which the same level of salary could not be purchased for £1.07 million.
I heard that argument from doctors, I put it to the Minister, and I am glad that the Chancellor listened in the Budget. I have heard the argument from others in Newcastle-under-Lyme that the system disincentivises people to continue working. We should be against that. Clause 18 abolishes the lifetime allowance, as we have heard. In clause 19, we quite rightly limit the tax-free lump sum. I do not think that it would be conscionable to have an unlimited lump sum, which could be abused. We also have a limit on the annual allowance and its tapering, so it would not be plausible for people with defined contributions on a normal career trajectory to challenge the sort of high numbers—£2 million or £3 million—that people are talking about. It is not just feasible for most people—unless they have exceptionally good returns from their pension investments—to achieve those sums in their lifetime.
Another iniquity of the current system is that people can stop paying into their defined contribution scheme and—if in a bull market, for example—have no idea how much their scheme might increase by. Obviously, that is down to investment returns, for people who do not know where they stand with their pensions right up until the moment of crystallisation.
As I said in my intervention earlier, and as my hon. Friend the Member for South Cambridgeshire (Anthony Browne) expanded on, there are all sorts of people who welcome this. They include people in both the private and the public sector, senior armed forces personnel, senior police chiefs, headteachers, people in the NHS and GPs.
Dr Richard Fieldhouse, chair of the National Association of Sessional GPs, said of the shadow Health Secretary’s comments:
“Each person’s pension fund is their embodiment of a lifetime’s worth of delayed gratification. So any measures to motivate people towards this is to be welcomed, particularly when applied to us as GPs”.
That is what pensions are—pay deferred. From the Government’s point of view, they are tax deferred as well. They are not tax waived or tax given away; they are tax deferred until the point at which the person, whether they work in the private or the public sector, gets the rewards for their labour.
That is why I support what we have done in the Budget. The measure will simplify things for people, save lives in the NHS and, more than anything, encourage people, whatever their job is, to stay in work for longer, and that is all to the good of the British economy.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to follow my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell). I agree with everything he said.
I am a little surprised that we have ended up having to have this debate again today. Generally speaking, people who campaign for their own interests and ask for a special scheme for doctors do so because that was their particular area. However, if we stand back and ask how it is possible to make a special scheme for one particular sector work, we quickly realise that it is fiendishly difficult to do. There are all sorts of scenarios where we hit a problem. For example, some people have split careers, spending some time in the NHS and the rest of the time outside it. Others have split jobs where they might be a consultant for a couple of days a week and then spend another couple of days training the next set of doctors as a university lecturer. That puts them in a different pension scheme that is not subject to the same tax regime. They might say, “I have an NHS pension but I’ll pay it all on my other one,” so that would not work. What about people who are not employed by the NHS or any of the myriad trusts and organisations?
I do not want to pick too much on the amendment tabled by the hon. Member for Aberdeen North (Kirsty Blackman), because I have tabled enough in my time to know that they are not always drafted precisely. However, if we use the word “employed” in draft legislation, that cannot be stretched to include a partner in a GP practice, because they are not employed by anybody. If we use the phrase “employed in an NHS organisation”, that cannot be stretched to include somebody working as a locum, because they are a contractor rather than somebody who is employed. There is all manner of people in the NHS family who we want to encourage to stay in work, but this is not how we will achieve it.
I also think that the hon. Lady has chosen the wrong mechanism. This would result in her having a nightmare. As soon as a person who used to be exempt ceased to work more than 15 hours or retired, the lifetime allowance would kick in and clobber them when they drew their pension. I understand her intention, but I suspect that her mechanism of choice would be disastrous.
Having thought through the scenarios, how do we pick a sector and get the right people? Are we trying to help doctors or are we trying to help anybody who happens to be employed by the NHS? As I said earlier, we are basically helping accountants, finance directors and procurement directors—all manner of people who are paid very large amounts by the NHS. I probably do not have the same amount of sympathy for their contribution to public service as I do for that of frontline doctors. It is bizarre to give a tax advantage to an NHS finance director, who gets a very generous pension, and not to an entrepreneur who is trying to grow the economy and create jobs to pay for all of this. That seems to create a huge iniquity.
If we stand back and think about how we want tax policy to work—heaven forbid that the Opposition get into government and try to do this—it would be really hard, as my hon. Friend the Member for South Cambridgeshire (Anthony Browne) has said, to go down the route of justifying different tax rates for public sector employees. If we start asking why we are charging them the same income tax and national insurance, we will end up in a horrible world and a very complicated tax regime.
Those of us who have very good public sector pensions should be very careful. Unlike my hon. Friend the Member for Poole (Sir Robert Syms), my lack of career success means that I am not worried about the lifetime allowance, including under the old level, because 20 times my pension gets me nowhere near it. Strange situations are being proposed. When I was first elected 13 years ago, a big issue on the doorstep was, “Public sector pensions are too generous. It’s not fair. I work in the private sector, basically paying for that, and I’m going to get a tiny pension. People in the public sector are being paid the same or more than me, and they are getting a massively generous pension. It’s not fair.” The coalition Government’s response to tackling that perceived unfairness was to change the scheme from final salary to average salary. If we load on to that generous, inflation-protected, state-guaranteed pension a more generous tax treatment than that received by private sector pensions, that would recreate that horrible argument.
It is foolish and damaging to go down the route of cherry-picking favoured sectors and giving them different tax treatment from other sectors. It was a mistake to take that approach to judges and to Directors of Public Prosecution, and it would be a mistake to apply it to doctors. The tax system should apply to everybody across the board in the same way. If we want to provide more reward to people, we should do so by pay rather than by tax. That is a far better approach.
I want to address where the Government have ended up. We have a very complicated pensions tax regime where people do not pay tax on the way in or on an annual basis. Instead, they pay tax on what they draw out of the pension when they get to the end, unless they draw out a quarter of it as a lump sum, in which case they do not pay tax on it all. We have chosen a pension model whereby the state pension broadly provides people with subsistence to live on, and if people want more than that, we incentivise them with a generous tax regime so that they can save it themselves. The implication is that a higher earner gets a greater tax incentive because, unlike a lower earner, they save tax at 40% or 45%. They probably pick up a bit more tax at the end, but a large amount of people pay a lower marginal tax rate when they retire than when they are working. That is the system that we have chosen.
We then thought that perhaps that was a bit too generous to higher earners, so we introduced an annual cap and a lifetime cap. Quite why we needed both, I do not know. If we want to limit how much tax relief we give people, we could choose one of the two and still get to the right answer. The Government have now chosen the annual approach rather than the lifetime approach. The problem is that that does not help people whose earnings are not consistent. If someone is earning a relatively high amount at age 25 and then keeps earning it, that system will work very well for them. If someone starts a business that struggles in the early years and they cannot pay themselves a big salary or make big pension contributions, but then finally it is successful and they sell it and make a lot of money, under this new regime they would not be able to put that much in their pension because they would only be allowed to put in 60 grand a year. I think we could have chosen a higher lifetime allowance and not bothered with the annual allowance. That would have achieved a similar outcome, but we have not done that.
To complicate things further, we have decided that if people earn too much, we will start taking their annual allowance off them completely, meaning that they will be able to put next to nothing in a pension scheme. That does not strike me as being a pensions tax regime that incentivises people to save money in the way we want them to or to use it in their retirement. Effectively, as soon as people hit 57, that gives them a tax incentive to take a lump sum before they retire. We are saying, “The more you earn, the better off you are—unless you earn too much, in which case you are being made worse off and put back to where you started.” In order to put out this particular fire, I urge the Government to step back and consider what they are trying to achieve with the £50 billion or so a year of tax we defer—we actually lose the vast majority of it—and what they really want people to do with their pension savings. How can we use the tax regime to incentivise that and make it fair all the way around? We must come up with a coherent tax regime that drives our policy, rather than come back every couple of years, tweak things, find another fire to put out and think, “Well, it’s not quite working how we wanted, so let’s move it around,” and end up in a confused mess.
This should be a warning to us. If we have a confused mess, with different competing objectives, and we do not think about the whole system, we end up with an unintended consequence. The consequence we had was senior doctors retiring far earlier than we wanted them to because we got the pensions tax regime wrong. If we do not fix this, I suspect there will be another unforeseen consequence and we will have to come back and tweak it in another couple of years. Let us do the job properly, have a coherent regime and use the very large amount of money that we invest to drive the behaviours that we want.
Anthony Browne
I preface my comments with an absolutely fundamental underlying principle of all economic policy. Whatever we are talking about, I think this should be our first, axiomatic ground rule: whatever is right for the Leader of the Opposition should be right for everyone. There is a fundamental principle here, which is fairness, and I will come on to that.
First, though, I want to mention some of the underlying principles of the annual allowance versus the lifetime allowance, because during almost all of the previous Labour Government’s time in office, there was not a lifetime allowance. It was brought in at the tail end of the Labour Government. One of the Government’s concerns about tax relief for pensioners is the need to limit it so that we do not end up creating huge amounts of dead-weight costs for pension relief, particularly for the well paid. That is why we have an annual allowance that limits tax relief.
Andrew Griffith
I thank my hon. Friends for their contributions to this debate. It has been brief, and I will try to keep my remarks brief, too. The Government do not want any doctor to retire early because of the way that pension taxes work, but as my hon. Friends have said, the issues that these changes address go much wider than doctors and affect workers across the economy. Nobody should find themselves having to reduce their work commitments due to interaction between their pay, their pension and the tax system. It is detrimental not just to those individuals who feel compelled to retire earlier than they would like, but also to the economy, and with them goes their often irreplaceable knowledge and experience.
My hon. Friend the Member for Poole (Sir Robert Syms) reminded us that today is a bad day for the purveyors of golf equipment, because this measure will allow people to come back into work. More than anything, we should be talking about the patients and others who will benefit, as well as the benefit to the economy from doctors, consultants and workers across sectors continuing to pay tax at their normal rate for those extra years.
My hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell) conjured up the image of how it would oh so wonderful to be a fly on the wall for the recent conversations between the hon. Members for Ilford North (Wes Streeting) and for Ealing North (James Murray) in respect of this policy. We took our cue from the hon. Member for Ilford North, who called the cap “crazy” and said that removing it would “inevitably save lives”. I find it remarkable that that is no longer the position of the official Opposition.
My hon. Friend the Member for Amber Valley (Nigel Mills) talked about the fiendishly difficult position of trying to create a special scheme. Though we take the amendment of the hon. Member for Aberdeen North (Kirsty Blackman) in good faith, she nevertheless conjures up an “Animal Farm” tax policy, where we hit GP practices, people who work in hospices and adult and social care, mental health consultants, those who work in air ambulances and medical charities, and give preference to NHS finance directors over long-standing public servants elsewhere in the sector. I could not make those unequal choices, and I am surprised that she and her party feel able to do so.
Finally, my hon. Friend the Member for South Cambridgeshire (Anthony Browne), who speaks with such great knowledge on matters financial, reminded us of the fundamental principle. We could call it the Starmer principle: what is good for the Leader of the Opposition should be good for everyone.
Since this is part of the fundamental economic debate, I will conclude by reminding my hon. Friends what happened the last time Labour had its chance to put its hand on the economy: the then Chief Secretary to the Treasury left a note saying that there was no money left. [Interruption.] I have answered the questions from the hon. Member for Ealing North, and I was kind enough to write to him about the matters that he raised with me.
Kirsty Blackman
The Government have been battling manfully to attempt to retrofit a justification to a policy that was unveiled like a rabbit out of a hat on Budget day. We have been speaking about doctors’ pensions in this Chamber for years, and suddenly it turns out it is actually about air traffic controllers, senior police officers and others who were not being mentioned, because the Chancellor has made the decision to abolish the lifetime allowance. The Minister was continuing to try to pull at the heartstrings by mentioning NHS doctors and consultants in every second sentence as if they are the only ones who will benefit from the £1 billion tax cut that is being made, and as if we should all support this change because it is for our NHS heroes, but actually it is not just for our NHS heroes.
The Government have chosen to implement this in the widest, most ham-fisted way. If the current policy of the lifetime allowance was so bad, why did it take the Conservative Government 10 years to change it? Why did it take them so long to decide this was so horrific that they had to get rid of it? Why, if they cannot possibly have a scheme that allows for one profession or one public service to be treated differently, did they allow the scheme for judges to continue for such a long period of time? If that was so discriminatory and cannot possibly be replicated for NHS doctors, why have they only realised this in the last few months? Their arguments do not stack up. Therefore, we will do what we intended to do, which is to press amendment 21 to a vote.
Question put, That the amendment be made.
The Chairman of Ways and Means (Dame Eleanor Laing)
I am progressing as slowly as I can, in the hope that the hon. Member for Richmond Park (Sarah Olney), who tabled amendment 8, or indeed one of her colleagues, might appear in the Chamber. I do not think I can go any slower, as I would have to chastise myself for wasting the Committee’s time.
It must be said that I have given the Liberal Democrats as much time as possible to move amendment 8, so we will instead move directly to clause stand part.
Question proposed, That the clause stand part of the Bill.
The Chairman
With this it will be convenient to discuss the following:
Amendment 8, page 197, line 35, after “costs” insert “and relevant investment expenditure”.
This amendment is linked to Amendment 9.
Amendment 9, page 198, line 3, at end insert—
“Where the generating undertaking is a generator of renewable energy, determine the amount of relevant investment expenditure and also subtract that amount.”
This amendment, together with Amendments 8, 10 and 11 would allow generators of renewable energy to offset money re-invested in renewable projects against the levy.
Amendment 10, in clause 279, page 199, line 13, at end insert—
“a “generator of renewable energy” means—
(a) a company, other than a member of a group, that operates, or
(b) a group of companies that includes at least one member who operates a generating station generating electricity from a renewable source within the meaning of section 32M of the Energy Act 1989;
“relevant investment expenditure” means any profits of a generator of renewable energy that have been re-invested in renewable projects;”
This amendment is linked to Amendment 9.
Amendment 11, page 199, line 18, at end insert—
“a “renewable project” is any project involving the generation of electricity from a renewable source within the meaning of section 32M of the Energy Act 1989;”
This amendment is linked to Amendment 9.
Clauses 279 to 312 stand part.
New clause 11—Assessment of the impact of the electricity generator levy—
“(1) The Chancellor of the Exchequer must, within six months of this Act coming into force, publish an assessment of the impact of the electricity generator levy on investment in renewable energy in the UK.
(2) The assessment must include a comparative assessment of the impact of the energy (oil and gas) profits levy and the investment allowance on overall investment in UK upstream petroleum production.
(3) The assessment must include an evaluation of the impact of the electricity generator levy on the United Kingdom’s ability to meet its climate commitments, including—
(a) the target for 2050 set out in section 1 of the Climate Change Act 2008, and
(b) the duty under section 4 of the Climate Change Act 2008 to ensure that the net UK carbon account for a budgetary period does not exceed the carbon budget.”
This new clause would require the Government to conduct an assessment of the impact of the Electricity Generator Levy on investment in renewables and the delivery of the UK’s climate targets, including a comparative assessment of the impact of the Energy Profits Levy and the investment allowance, on investment in oil and gas production.
The Exchequer Secretary to the Treasury (James Cartlidge)
It is always a pleasure to appear so early and unexpectedly. This grouping is about the electricity generator levy. Before I address the specific clauses, here is a reminder of why we are debating this ultimately exceptional new tax.
We have to remember that Putin’s weaponisation of gas supplies to Europe has pushed energy prices to record levels. In 2022, UK wholesale energy prices rose to eight times their historical level. Despite recent falls, gas prices, which currently drive the market price for electricity, remain at twice their pre-pandemic level, which means that the price achieved by some electricity generators has risen considerably, driven by natural gas prices.
The Government have absorbed a substantial portion of the price increase through our generous support for households and businesses, which is why we have chosen to capture the windfall profits of oil and gas extraction with the energy profits levy. The Government are now introducing an electricity generator levy. The EGL is designed to capture only the exceptional receipts that electricity generators make, by taxing only the amounts above their normal return while preserving the incentive to invest in the capacity we need.
Clauses 278 to 280 detail the calculation of the levy, which will be applied at a 45% rate on revenues above a benchmark price for UK generation activities. The benchmark price of £75 per megawatt-hour is set approximately 1.5 times higher than the pre-crisis average. The benchmark price will be indexed to inflation from April 2024. To ensure that the levy applies only to large commercial operations with the capacity to administer the tax, the EGL includes an annual generation output threshold of 50 GWh, which is equivalent to approximately 15,000 domestic rooftop solar panels. A £10 million allowance provides further protection for smaller businesses from undue administrative burden and reduces the impact of the levy for those in scope. The levy applies from 1 January 2023 and will end on 31 March 2028, although colleagues will appreciate that the design of the levy is such that, should prices return to normal, no tax will be due. To ensure that the tax does not have unintended consequences, clause 279 excludes certain technologies.
Clauses 281 to 285 provide definitions for in-scope generation and the calculation of exceptional receipts. As I have outlined, the benchmark price has been set so that the EGL applies only to revenues from the sale of electricity at prices higher than the pre-crisis expectations of generators and investors. The levy applies to receipts from power sold on to the grid from wind, solar, biomass, nuclear and energy-from-waste technology. It applies to revenues that generators actually receive, taking account of contracts which might involve selling power over a longer period for a stable price. Certain types of transaction are excluded, such as “private wire” not sold via the grid, as well as power sold under contracts for difference with the Low Carbon Contracts Company, which is the Government’s flagship scheme supporting investment in renewables. Clauses 283 to 285 set out provisions for the recognition of exceptional costs related to the acquisition of fuel and from revenue-sharing arrangements. These provisions reflect the fact that for some generators fuel acquisition costs will have increased as a result of the energy crisis.
Clauses 286 to 300 deal with detailed arrangements for various structures of business operating in electricity generation. Owing to the size and complexity of projects involved, there are a number of common structures for generation undertakings. Those often involve large group companies, sometimes with significant minority shareholders. Others involve a number of businesses forming a joint venture. For example, a company specialising in offshore wind might go into business with a finance provider to deliver a large and complex project, sharing the revenues and risk between them. There are rules to treat these so-called “joint ventures” as stand-alone generation undertakings for the purposes of the EGL. These clauses ensure that businesses with in-scope revenues pay an appropriate share of EGL liability.
Clauses 301 to 305 provide rules for the payment of EGL. The EGL is a temporary measure that has been carefully designed to minimise the administrative burden on businesses. Firms within scope of the levy will pay it as part of their corporation tax return, albeit that EGL is a separate and new tax. The provisions for paying corporation tax are therefore applied here, including in respect of the supply of information, the collection of tax due and the right of appeal.
I turn briefly to the final clauses on the EGL, clauses 306 to 312. Those provisions ensure that the EGL applies to in-scope revenues from generation activities regardless of company type. Appropriate anti-avoidance rules are also included. Clause 309 details the interaction between EGL and corporation tax for accounting purposes, including the fact that EGL is not deductible from profits for corporation tax purposes.
In conclusion, these provisions ensure that, where electricity generators are realising exceptional receipts as a result of the current crisis, they make a fair and proportionate contribution to the support that the Government have provided to households and businesses. Importantly, the levy is designed to apply only to the excess portion of those revenues, in order to maintain the incentive to produce low-carbon electricity. This is in addition to the Government’s extensive support for investment in UK electricity generation. I will of course respond to proposed amendments, assuming that we hear about them, in the debate. In the meantime, I ask that clauses 278 to 312 stand part of the Bill.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to speak for the Opposition on the clauses relating to the electricity generator levy, a policy that was first announced in the autumn statement of 2022. Clause 278 introduces a new 45% charge on businesses that generate electricity in the UK. Specifically, it will be charged on exceptional earnings related to soaring energy prices. Extraordinary profits are defined in the Bill as receipts from wholesale electricity sold at an average price in excess of a benchmark price of £75 per megawatt-hour over an accounting period. Clause 280 specifies that this benchmark will be adjusted in line with the consumer prices index from April 2024. Companies liable for the levy are those that produce more than 50 GWh annually, generate electricity in the UK from nuclear, renewable or biomass sources, and are connected to a local distribution network or to the national grid. The levy will apply only to exceptional receipts exceeding £10 million.
Caroline Lucas (Brighton, Pavilion) (Green)
I am delighted to have the best part of an hour and a half to talk about the electricity generator levy—[Interruption.] No, not really.
I rise to speak in support of new clause 11, which would require the Government to conduct an assessment of the impact of the electricity generator levy on investment in renewable energy in the UK, exactly picking up on the point that was made by the Official Opposition just a moment ago.
In his speech in the spring Budget, just one month ago, the Chancellor proudly declared:
“We are world leaders in renewable energy”.—[Official Report, 15 March 2023; Vol. 729, c. 840.]
Since then, the Government have published their latest energy security plan, which points to “low-cost renewables” as being “central” to their goal of Britain having among the cheapest wholesale electricity prices in Europe. The strategy is absolutely right in that regard; the International Energy Agency’s “World Energy Outlook” makes clear that, in the context of the energy price crisis, countries with a higher share of renewables also had lower electricity prices. In the words of the IEA’s executive director, Dr Fatih Birol:
“The environmental case for clean energy needed no reinforcement, but the economic arguments in favour of cost-competitive and affordable clean technologies are now stronger—and so too is the energy security case.”
In light of all that, it seems extremely perverse—to put it mildly—that, rather than the Government doing everything they can to unleash our abundant renewables, their current policy is stifling the investment we desperately need. A recent report by Energy UK warns that the investment climate for renewables has deteriorated significantly in recent months due to a combination of factors, including what it describes as “poorly designed windfall taxes. The report also states that, without urgent action to address concerns and prevent investment from moving elsewhere, the UK risks losing out on £62 billion-worth of investment this decade, which could also lead to a shortfall of 54 GW of potential solar and wind capacity, which would be enough to power every single UK home.
RenewableUK has criticised the Government for continuing to develop policies that,
“increase uncertainty and dampen investment”,
with the electricity generator levy in particular damaging investor confidence and increasing costs. While it is right that companies are taxed fairly on their excess profits, hampering our vital renewable energy industry when a expansion is essential to deliver on our climate targets is reckless.
The Government’s own plans include increasing our offshore capacity by four times over current levels by 2030 and solar by five times by 2035. My amendment would therefore also require an assessment to cover the impact of the electricity generator levy on the delivery of those UK climate targets, including net zero by 2050, and on our legally binding carbon budgets.
Most egregious of the complaints laid at the door of the EGL is that it is more punitive than the tax and relief regime for oil and gas companies. The sector has highlighted three key differences between the regimes. First, the electricity generator levy is a tax on revenue rather than overall profit, as with the energy profits levy, which results in an above-the-line cost of doing business rather than a reduction in profit.
Secondly, the electricity generator levy is not deductible from corporation tax, whereas the energy profits levy is an extension of an existing scheme. That leads to higher effective tax rates for electricity generators than is currently the case for oil and gas companies.
Thirdly and most importantly, oil and gas companies are eligible for vast and frankly obscene subsidies through the investment allowance that renewables do not have access to. If we add to all that the decarbonisation allowance, which means that the taxpayer is paying oil and gas companies to decarbonise—even though, in their own words, the companies already have more cash than they know what to do with, thanks to their vast windfall profits—it seems to me that the Government’s approach is misguided.
The approach means that, in the case of a decarbonisation allowance, companies are eligible for more tax relief if they are putting a wind turbine on an oil platform than if they are installing a wind turbine to feed into the grid. Put simply, we should be incentivising investment in renewables to power homes, not rigs. The amount of power it takes to drill for oil and gas is comparable to the total amount of power generated by offshore wind, or enough power to generate electricity for every house in Wales.
That should be paid for by the very oil and gas companies that are reaping such huge profits, not by the taxpayer. Surely the Chancellor and Treasury team can see that, when we need to urgently get off fossil fuels to secure a liveable future, it is madness to subsidise oil and gas extraction at all, let alone at the expense of renewable energy, as the Government are doing.
My amendment would require a comparative assessment of the impact of the energy profits levy, including the investment allowance, on investment in oil and gas production versus the regime the Government are proposing for renewables. Renewable energy companies have rightly called for a level playing field with oil and gas, but, in the face of an escalating climate emergency, we should be going further than that and responding to the ambition of other countries. Biden’s Inflation Reduction Act, for example, offers $216 billion-worth of tax credits to companies investing in clean energy and transport.
Finally, I record my support for the amendments tabled by the hon. Member for Richmond Park (Sarah Olney), which would allow generators of renewable energy to offset money reinvested in renewable projects against the levy. Yet failing that, surely the Chancellor cannot object simply to having, at the very least, clarity on the impact of this policy. That is exactly what my new clause would do, and I very much hope that the Treasury team will consider it.
The Government are fond of pointing to the fact that almost 40% of our electricity is now generated from renewables, but if we are to fully decarbonise our electricity system, we need the right incentives, a supportive policy framework, an improved grid fit for the 21st century, and a planning system that does not hold renewables back. We simply cannot rely on what the Chancellor called a “clean energy miracle”. I very much hope that the Government will take new clause 11 seriously.
James Cartlidge
It is a pleasure to respond to the hon. Member for Brighton, Pavilion (Caroline Lucas). I hope that she will not take it as a lack of respect if I say that it is probably a good thing that she did not go for the full one-and-a-half hours, but she made important points to which I will respond. Both she and the Labour Front Bencher, the hon. Member for Erith and Thamesmead (Abena Oppong-Asare), asked about the impact on investment.
New clause 11, in the name of the hon. Member for Brighton, Pavilion, specifically proposes that the Government publish within six months an assessment of the impact of the EGL on investment in renewables, and a comparison with the impact of the energy profits levy. First, I am bound to say, in the immortal words of the Treasury, that we keep all policies under review. We will, in the course of normal tax policymaking, return to make an assessment of the EGL’s impact at a suitable time. On investment specifically, we have to appreciate that this country has led the way in securing investment in renewables. Bloomberg New Energy Finance data shows that the UK has secured nearly £200 billion of public and private investment into low-carbon industries since 2010. Generators have received to date almost £6 billion in price support from the contracts for difference scheme for low-carbon electricity generation. CfDs have contracted a total of 26 GW of low-carbon generation, including around 20 GW of offshore wind. I hope that we are all proud of the result, which is that we as a country now have the largest array of offshore wind in Europe. Going forward, we have committed £160 million for the floating offshore wind manufacturing investment scheme to support floating offshore wind, and up to £20 billion for early deployment of carbon capture, usage and storage.
Our record to date is also crucial. The hon. Member for Brighton, Pavilion spoke about the Inflation Reduction Act and the steps being taken in the US. Of course, that is important, and we watch what is happening there very carefully, but it is worth reflecting on the fact that, as she quite rightly said, about 40% of our electricity came from renewables last year, while in the US that figure was about 20%.
There are two key things about the EGL and investment. First, we have to remember that the levy does not apply to the contracts for difference, which have been hugely successful in securing renewable energy investment and will cover the mainstay of future deployment in this country in relation to renewables. Secondly, the threshold price of £75 per megawatt-hour is exceptional; it is about 50% higher than the average over the past decade. The extraordinary energy prices, driven by Putin’s invasion of Ukraine, would not have been foreseen by investors when they committed capital to the building of wind and solar farms—they would not have foreseen such a huge increase.
The hon. Lady, whom I respect, has made her key point about oil and gas consistently; in many ways, the Labour party’s criticism of our investment allowance, which it calls a loophole, is the same point. We differ in our view. In the world today, we face a most profound energy crisis. It is a strategic energy crisis. We look at Russia, which has weaponised energy, and we ask ourselves: “Is it the right moment to be turning our back on our own domestic supply of oil and gas?” We need it. Of course, we are on the path to net zero—this country has cut its emissions more than any other nation in the G7; we are making that difference—but the journey is a long one. In that time, we will need oil and gas, which make up about three quarters of our energy demand when all transport is included. Unless the hon. Lady and the Labour party think that we should stop using oil and gas tomorrow, what they are really arguing for is simply to use more imported oil and gas.
Caroline Lucas
I am so fed up with this argument from the Government, because nobody is talking about turning off oil and gas tomorrow. We are talking about whether the world can sustain more new oil and gas, particularly from a country such as the UK, which is so blessed with alternatives. We were also one of the first countries to industrialise, so we have a greater responsibility to take a real lead on this. That is why the Government should invest in alternatives, renewables and energy efficiency, and listen to the IEA, which says that there is no space for new oil and gas.
James Cartlidge
As I have said, I respect the hon. Lady’s position, but the point is that if we were to have no further investment, the North Sea Transition Authority estimates that we would lose about 1.5 billion barrels-worth of output. There is no realistic estimate that we would not use an equivalent amount. In other words, we would simply import it, and if we import gas, that means 50% more emissions. Most importantly—and I feel very strongly about this—we would undermine our energy security. Even yesterday, representatives of the Kremlin were still talking about weaponising energy. If we have learned one thing, surely it is that we have to be realistic and pragmatic. We want to support the UK economy. Above all, we have a balanced approach. We are on the journey to net zero. We have cut our emissions more than any other country in the G7, and we continue to back renewables.
Caroline Lucas
The Minister is very generous in giving way again. I simply want to make the very obvious point that simply because oil and gas are extracted from the North sea, there is no guarantee that they will be used by people in the UK. They get sold on global markets at the highest price, so the argument that this is the best way to reach energy security is flawed. The best way to reach energy security is through introducing a mass energy efficiency and home insulation upgrade system, which the Government have not done; through more on electrification of transport, which they have not done; and through investing in renewables, which they are not doing enough of, as we have been saying this afternoon.
James Cartlidge
This is entirely true, but of course selling on the international market means that, through our balance of trade, we have an economy where we can afford to import. It is about comparative advantage.
As I have described, the Government are providing extensive support for renewables in order to decarbonise our power system and meet our ambitious net zero commitments. The EGL has been carefully designed with those objectives in mind. I therefore urge the Committee to reject the amendments and to agree that clauses 278 to 312 stand part of the Bill.
Question put and agreed to.
Clause 278 accordingly ordered to stand part of the Bill.
Clauses 279 to 312 ordered to stand part of the Bill.
Clause 27
Power to clarify tax treatment of devolved social security benefits
Question proposed, That the clause stand part of the Bill.
The Chairman of Ways and Means (Dame Eleanor Laing)
With this it will be convenient to discuss the following:
Clause 47 stand part.
Amendment 25, in clause 48, page 39, line 32, at end insert—
“(aa) section (exemption: Scotch Whisky),”.
This is a paving amendment for NC9, which would exempt Scotch Whisky from the increase in duty on spirits.
Clause 48 stand part.
Amendment 7, in schedule 7, page 334, line 18, leave out “£31.64” and insert “£28.74”.
That schedule 7 be the Seventh schedule to the Bill.
Clause 50 stand part.
That schedule 8 be the Eighth schedule to the Bill.
Clauses 51 to 54 stand part.
That schedule 9 be the Ninth schedule to the Bill.
Clauses 55 to 60 stand part.
New clause 9—Exemption: Scotch Whisky—
“(1) The rate of duty on spirits shown in Schedule 7 shall not apply in respect of Scotch Whisky.
(2) The rate of duty in respect of Scotch Whisky shall continue to be the rate that applied before this Act came into force.
(3) For the purposes of this section, “Scotch Whisky” has the meaning given in regulation 3 of the Scotch Whisky Regulations 2009 (S.I. 2009, No. 2890).”
This new clause would exempt Scotch Whisky, as defined in the Scotch Whisky Regulations 2009, from the increase in duty on spirits
James Cartlidge
We have had pensions and energy, and we conclude with alcohol, and of course one other minor matter is covered. We are specifically debating clauses 27, 47, 48 and 50 to 60, and schedules 7 to 9, which cover powers to clarify the tax treatment of devolved social security benefits—that is the measure not relating to alcohol—as well as the change to alcohol duty and the introduction of two new reliefs for alcohol duty.
Clause 27 introduces a new power to enable the tax treatment of new payments or new top-up welfare payments introduced by the devolved Administrations to be confirmed as social security income by statutory instrument. The changes made by clause 27 will allow the UK Government to confirm the tax treatment of new payments or new top-up payments introduced by the devolved Administrations within the tax year, rather than their being subject to the UK parliamentary timetable.
I will now turn to the main issue of alcohol duty, and specifically clauses 47 and 48, which set out the charging of alcohol duty, and schedule 7. In line with our plan to manage the UK economy responsibly, we are reverting to the standard approach of uprating the previously published reformed rates and structures by the retail price index, while increasing the value of draught relief to ensure that the duty on an average pint of beer or lower-strength cider served on tap in a pub does not increase. Most importantly, these clauses introduce the Government’s historic alcohol duty reforms: the biggest overhaul of the alcohol duty system in over 140 years, made possible by our departure from the European Union.
The current alcohol duty system is complex and outdated. The Institute for Fiscal Studies has said that our system of alcohol taxation is “a mess”; the Institute of Economic Affairs has said that it “defies common sense”; and the World Health Organisation has said that countries such as the UK that follow the EU alcohol rules are
“unable to implement tax systems that are optimal from the perspective of public health.”
As such, at Budget 2020, the Government announced that they would take forward a review of alcohol duty. This legislation is the culmination of that review, and makes changes to the overall duty structure for alcohol. It moves us from individual, product-specific duties and bands to a single duty on all alcoholic products and a standardised series of tax bands based on alcoholic strength.
The clauses we are debating today repeal and replace, with variations, the Alcoholic Liquor Duties Act 1979 and sections 4 and 5 of the Finance Act 1995. Specifically, clause 47 provides for alcohol duty to be charged on alcoholic products, clause 48 explains where the rates of alcohol duty can be found—that is, in schedule 7—and schedule 7 itself provides the standard or full rates of alcohol duty to be applied to alcoholic products. This radical simplification of the alcohol duty system reduces the number of duty bands from 15 to six, and has only been made possible since leaving the EU. Now, thanks to the Windsor framework, I can confirm that these reforms can now also be implemented in Northern Ireland. The new alcohol duty structures, rates and reliefs will take effect from 1 August this year, which brings me to the new reliefs.
Bob Stewart (Beckenham) (Con)
As a member of the Campaign for Real Ale, may I ask the Minister whether that means beer that is not very strong will come down in price?
James Cartlidge
That is an excellent question from my right hon. Friend. As he will appreciate, there is obviously a difference between the duty and the price—we control the duty. As I am about to explain, we are doing everything possible, and I hope he will be interested, because I know that members of CAMRA have great fondness and support for our brilliant pubs up and down the country.
The first of the two new reliefs, which is our new draught relief, applies to alcoholic products under 8.5% alcohol by volume intended to be sold on draught. This draught relief is historic, because as Members will remember, in the EU, we had a thing called the EU structures directive. Under that directive, as a country, we could of course vary our alcohol duty—we could increase it, decrease it or whatever—but what we could not do was charge differential duty between the on trade, meaning pubs, and the off trade, meaning supermarkets, retail and so on. For the first time, we will have that differential draught relief, and I am pleased to confirm that in the Budget, we brought forward two very important measures in relation to that relief. It had been anticipated that we would set the draught relief at 5%, but the Chancellor confirmed in the Budget that it would be increased to 9.2%. I can therefore confirm to my right hon. Friend the Member for Beckenham (Bob Stewart) that as a result of that increase in the draught relief, when the new system comes in this August, the duty on the average pint of beer or lower-strength cider that people buy in pubs will still be frozen.
More importantly, we have issued our Brexit pubs guarantee. As I say, this change would not have been possible in the EU, and we are using this opportunity to send a very powerful message to our pubs: to guarantee that from August onwards, the duty on a pint in a pub will always be lower than the duty on the equivalent in a supermarket.
Mark Jenkinson (Workington) (Con)
I thank the Minister for giving way. I just wondered whether an impact assessment was done on the benefits of such a change to the on trade.
James Cartlidge
My hon. Friend asks an excellent question, and I will be more than happy to write to him setting out more detail on the benefits, but I hope he agrees that the key point is this: we in this House all know that pubs suffered terribly in the pandemic, if we are honest. We literally legislated to close them, obviously for a very good reason—to support public health and stop the spread of that terrible disease—but the fact is that doing so was costly to pubs, so we had to support them. In addition, since then they have seen their energy bills surge on the back of the invasion of Ukraine. We want to do what we can to support them.
Sir David Evennett (Bexleyheath and Crayford) (Con)
Pubs are so important in our communities. My constituents in Bexleyheath and Crayford find their pubs pivotal to the social environment. We have a very good micropub in Crayford, the Penny Farthing, which I occasionally go to at lunchtime. My hon. Friend makes an important point. We need these pubs. They are centre stage for our local communities. They do a good social job, and also they are a safe place for people to go to. What the Government are doing is commendable.
James Cartlidge
We have had strong support from public health groups for the differential duty, because the evidence shows that is healthier to drink in a social environment than privately. That is another significant benefit.
Mr Carmichael
I think the Minister has a sound case in relation to what the Government have done on beer duty. What is less clear, however, is why they have chosen to treat spirits so differently. Spirits are also an important part of the on trade. What will the impact be on the spirits trade from the differential that the Minister has now baked into the duty system?
James Cartlidge
There are spirits that will benefit from the differential—not spirits served from what I think are called optics, but spirits served on tap. There are mixers served on tap that will benefit from a more generous differential duty. On spirits, I am more than happy to set out further detail when I respond to the relevant amendments, because I think they are specifically focused on Scotch whisky, and I understand the concerns there.
I just want to finish my point on our Brexit pubs guarantee. Just to underline what we are doing, we are giving pubs a new permanent competitive advantage. We are levelling the playing field against supermarkets. Following the difficult times that pubs have had with the pandemic and higher energy costs, that hopefully gives them a new narrative for their communities with more positive times to look forward to ahead. That is what we want for our pubs. As my right hon. Friend the Member for Bexleyheath and Crayford (Sir David Evennett) said, they are so important for our communities and our economy. We continue to do everything possible to back the great British pub.
Bob Stewart
It seems that we will finish early tonight, in which case I am going straight to the Jolly Woodman in my constituency. I hope I will be able to tell it that the price of its beer will come down. Is there any possibility that there can be a differentiation to encourage real ale, speaking as a member of the Campaign for Real Ale?
James Cartlidge
I hope my right hon. Friend is welcomed with open arms in the Jolly Woodman, having given it fulsome promotion. I might make do with Strangers Bar downstairs. Real ales will benefit from the differential duty, particularly those served on tap. There are lower rates for those with lower alcohol by volume, which will hopefully encourage innovation. I hope that will support our craft brewers, not least with the second relief, which replaces and extends small brewers relief with a small producer relief applying to alcoholic products under 8.5% ABV produced by those making less than 4,500 hectolitres of alcohol per year. That will be precisely those sorts of craft brewers.
Clauses 50 to 53 introduce the new draught relief and clauses 54 to 60 provide for the new small producer relief. Taking each clause in turn quickly—I will canter through them—clause 50 explains that alcohol duty is charged on qualifying draught products at the reduced rates shown in schedule 8. Clause 51 sets out the eligibility criteria for draught relief. Clause 52 defines repackaging for the purposes of draught relief and introduces a penalty for repackaging that is not authorised. Clause 53 provides assessment and penalty consequences for a person repackaging qualifying draught products in a way not allowed under clause 52. Clause 54 provides for discounted rates to be charged on all small producer alcoholic products and explains how the discounted rate is calculated. Clause 55 defines small producer alcoholic products.
Clause 56 introduces the criteria for determining whether premises used to produce alcoholic products are small production premises. Clause 57 explains the alcohol production amount used for the purposes of determining eligibility for the duty discount and calculating the duty discount for small producer alcoholic products. Clause 58 sets out the circumstances, other than not meeting the eligibility conditions, in which alcoholic products are not small producer alcoholic products. I hope hon. Members are all following. Clause 59 and schedule 9 set out how to calculate the duty discount used to determine the discounted rate for small producer alcoholic products, and clause 60 allows the commissioners to assess alcohol duty that is due in circumstances where the small producer rate has not been applied correctly. The remaining clauses concerning alcohol duty will be debated in the Public Bill Committee.
Daisy Cooper (St Albans) (LD)
The Minister has talked about the Government’s ambition to simplify the tax system, but he will be aware that the most adversely affected businesses are the port and sherry traders, which will feel the force of a full £20 million increase, despite fortified wine being only 3% of the total wine trade. They have asked for this process to be simplified further by taxing fortified wine at the midpoint of 17.5% ABV. Is that something the Government might still consider?
James Cartlidge
It is a fair point from the hon. Lady. I do think this is a significant simplification. We are moving from 15 bands to six. I would love it to be 15 to one, but unfortunately “Fifteen to One” is going to remain the name of a quiz programme. If she looks carefully at the new rates—I am more than happy to share a copy of the bands with her—she will see that it is a significant simplification. It provides many benefits to the wine trade, particularly with our differential duty and the small producers relief.
To conclude, I will be happy to respond to the amendments on Scotch whisky at the end, but in the meantime I commend to the Committee clauses 27, 47, 48 and 50 to 60, and schedules 7 to 9.
The Chairman of Ways and Means (Dame Eleanor Laing)
I call Alistair Carmichael.
Mr Carmichael
Thank you, Dame Eleanor. It is perhaps not a novelty to see you back in the Chair, but it is still a great pleasure none the less. I am delighted to serve with you in control.
I rise to speak to amendment 7, which stands in my name and those of my hon. Friends. In doing so, I should indicate at this stage that it is my intention to divide the Committee and establish opinion on it. The effect of amendment 7 would be to freeze the level of duty on the production of spirits. The Minister kept saying these are Scotch whisky amendments. He maybe knows me too well, but I would readily concede that many other spirits will be affected by this, and they are just as important. I think the hon. Member for Aberdeen North (Kirsty Blackman) will speak to her amendments, which do relate specifically to Scotch whisky, but I have had discussions with her, and she tells me that SNP Members are in fact minded to support our amendment, instead of pursuing their own. She will doubtless speak for herself, as she always does, later in the debate.
When we consider that 70% of the gin produced in this country is, in fact, produced in Scotland—my constituency has no fewer than four gin distilleries, and we find that situation replicated across Scotland—the impact of rises in duty are not just going to be felt by areas that produce Scotch whisky. We have also seen a number of distilleries appearing in recent times—a much smaller number, but it is significant none the less—producing rum. So it is important that we have a coherent strategy for the excise duty on these products. The difficulty I have with what I hear from the Treasury Minister is that it is difficult to discern exactly what the Government are trying to achieve in this Budget.
Scotch whisky in particular is very important to the UK as part of our manufacturing base. Indeed, it is an enormously important part of our export portfolio. It is also critical for many of the most economically fragile communities that can be found around the highlands and islands of Scotland. I was born and brought up on Islay, and people will know the importance of the whisky industry, and in recent years the growth of whisky tourism to that economy. In my constituency we have Highland Park and Scapa. Occasionally other interests are declared, but we still have only two producing distilleries. They are very important to our local community, not just in relation to the jobs they provide directly, but because of the spin-offs—the visitor centre, the merchandising, and the visitors that those distilleries bring to the community. Whisky tourism is enormously important, and it is it enormously important that the whisky industry has confidence that the Government are on their side. I am afraid that the signals we have seen from this Government in recent months have been, if I am to be kind to them, mixed at best.
The Chancellor was right to say in December that there would be a freeze on duty. We welcomed that, as I am sure did others. Three months later, to then turn around and whack a duty increase on spirits in the region of something just north of 10%, makes us wonder what the Government are trying to achieve. When I was Secretary of State for Scotland, along with Danny Alexander, who was Chief Secretary to the Treasury, we argued successfully for a 2% duty cut. In 2015, the Red Book of the day said that that would bring with it a reduction in the amount of duty received and revenue brought in, but in point of fact we brought in more revenue with a lower level of duty than had been the case before it was cut.
If we are trying to do something that will bring in more money to the Treasury, surely a duty freeze, at the very least, should be on offer. Indeed, Treasury data illustrates the point well, because a recent history of cuts and duty freezes has actually had a beneficial effect on revenue brought in. For some reason, we now seem determined to introduce a duty increase that will have an inflationary impact, and for some of the most economically fragile communities in the country that will have the effect of stymying growth.
The position laid out by the Minister on sales of beer was exceptionally interesting. He will be aware that spirits account for one third of the serves of alcohol consumed in this country, but less than one fifth of the units consumed. On the other hand, beer has 60% of the units consumed but accounts for less than 50% of the serves. It is clear that the effect of this measure will be inflationary and have a detrimental effect on the economic growth that we are all supposed to be pursuing.
The Chief Medical Officer tells us that we should safely consume 14 units per week—I think I have read this correctly—per week. If we are to consume 14 units of cider, we pay £1.13 in tax. If we consume 14 units of wine, we pay £3.36 in tax. But if we consume 14 units of spirits, we pay £4.06 in tax. To put it another way, Scotch whisky, and spirits as a whole, are taxed 256% higher than cider, and 16% higher than wine.
It was presumably for that reason that the Secretary of State for Scotland is reported in The Scotsman as having argued against it. This was not some source quoted as saying that, but the Secretary of State himself. He said that he was disappointed the Chancellor acted in the way he did. I think we can all very much share the disappointment of the Secretary of State for Scotland. For the avoidance of doubt, I did let him know that I would be referring to him in the course of my speech. Our real disappointment, however, is that, having publicly disagreed with the Government on the matter, I have a strong suspicion that if it is put to a Division he will be in the other Lobby. It is all very well to wring your hands, but if, when the moment comes and the Division bells ring, you are not prepared to do what you know is right for such an important industry in Scotland in so many of our communities, then I feel we are, as politicians, failing in our duty to our constituents and those whom we seek to serve.
We heard a lot from the Minister about the harmonisation of duties, but the House has heard the truth of the matter. The position in relation to on-sales consumption of beer will widen the gap. It simply makes no sense. If the Minister can answer no other question when he comes to respond, can he answer this: what strategy are the Government seeking to deliver by bringing forward a duty increase in excess of 10%? I do not see it. It flies in the face of the Treasury’s own data and contradicts it. It is difficult to understand what the purpose of it is, other than simply an attitude that says, “Well, you’ve had it good for a few years now, so we’re going to treat you differently and it’s time for you to take some of the pain.” An industry as important as the production of spirits deserves rather better consideration from the Treasury.
Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)
I rise in support of my right hon. Friend the Member for Orkney and Shetland (Mr Carmichael), who speaks for my constituents as much as he does his own.
I want to make two simple points. First, the distilleries in my constituency—I could name them all, but I have done that before in this place—are part and parcel of each community in which they are based, and they are important to the people in those communities. They see them as their own. As my right hon. Friend said, the jobs they provide in some of the most sparsely populated and economically fragile parts of Scotland are absolutely crucial. Inver House, a company that owns two distilleries in my constituency, Balblair in Edderton and Old Pulteney in Wick, sponsors the Wick Gala each year. As something that epitomises the culture of Caithness, I would honestly recommend that all right hon. and hon. Members come to Wick and see the Wick Gala—it is something they will not forget. That company is a part of it and makes it happen, which is incredibly important. In my own home town of Tain, Glenmorangie, now owned by the French company Louis Vuitton, has for a number of years pretty well paid for the Tain highland games. Again, I say to Members: come see them and enjoy. So the distilleries are a part of the community and what they do is crucial for the community. It is about rural jobs in sparse areas.
The second point I want to make to those on the Treasury Bench is about levelling up. Those are not the words I would have chosen, but it is a good concept to take parts of the UK that have lost out in the race and bring them up—giving them a leg up—to be equal to the richer parts of the UK. By definition, the areas where there are distilleries are very often some of the more hard-up parts of the Scottish highlands and of Scotland. If Government Members want to go about levelling up, they need to get into the parts of Britain that need help.
Mr Carmichael
As my hon. Friend says, these are often some of the more hard-up areas of the country, but the truth of the matter is that down the years they have contributed enormously to the GDP of this country and they have the potential to do more. We are not looking for any special treatment. We are not looking for any favours or handouts. All we are looking for is a fair crack of the whip.
Jamie Stone
That is an extremely valuable point. I would bolt on to it that we have new distilleries starting up. In John O’Groats, there is a brand new one called 8 Doors. These enterprising local Caithness people have done it off their own bat. To get tourists to go to John O’Groats, we have 8 Doors, which has done it along the coast of Caithness. We have Wolfstone—I think I have that right.
Jamie Stone
You’re dead right—I stand corrected by my right hon. Friend. Tourists love it and it contributes a huge amount to the Exchequer. It matters passionately to my constituents and to me. If I do nothing else for my constituency, I will try to boost the economy in every way I can because every job counts. I rest my comments with that.
Kirsty Blackman
I fear that, if I was to talk about the names of all the distilleries in my constituency, the debate would be much shorter than if the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) were to do so. In fact, I have much more of a tendency to drink gin than whisky, although other spirits are available.
It was interesting to hear the words “economically fragile”. That is an incredibly good point. Rural depopulation is a real issue. The Scottish Government are doing what we can to ensure that it does not continue, but if the UK Government keep working against what we are doing to encourage people to live and stay in our rural communities, we will have a real problem. That is not a small thing.
We tabled our amendments because we specifically wanted the word “whisky” on the Order Paper and we wanted to make the case in relation to whisky. However, I will not be pushing our amendments to a vote, and will support that of the right hon. Member for Orkney and Shetland (Mr Carmichael) because I concede that his is better. I am always happy to do that in such situations.
The reality is that Scotch whisky is 4.9% of the Scottish economy. Some £8.1 billion can be attributed to the sale of alcohol, around 60% of which comes from whisky exports. The numbers stated by the right hon. Member about how the differential rates work and how much people are taxed on those 14 units were incredibly interesting. The Government’s purpose is to make money from some of the alcohol measures, but there is also a population behaviour change intention behind what they do with tax on spirits and alcohol, particularly the allowance on draught beer. They have different taxes to encourage a change of behaviour, or differential behaviour in people. The Government may intend to use this tax to shift some of the population, but they are actually discouraging people from buying the very spirits that a huge amount of our livelihoods relies on. It is the case that 90% of spirits in the UK are produced in Scotland. The Government’s measures therefore have a massive negative impact on Scotland.
The average price of a bottle of Scotch whisky is £15.22 at a supermarket in Scotland. Following the new alcohol duty plus the VAT, £11.40 of that £15.22 will go to the Treasury. That is such a significant amount, and does not compare with other alcohol. I appreciate what the Government are trying to do on draught, and it is important that they have laid out their rationale for doing so—that was very helpful—but this is incredibly unfair and risks damaging those economically fragile areas, particularly in rural Scotland. Those areas have already suffered as a result of Brexit, with people’s reduced ability to freely move here.
I want to raise a small flag with the Minister in relation to the Public Bill Committee. When we come to that stage, I will be raising questions around clause 87, which is on post-duty point dilution of alcoholic products. I know there have already been problems in relation to that, so when we come to that stage of the Committee, I would appreciate Ministers being absolutely clear about their reasons for the changes in clause 87. If they are able to lay out those reasons clearly, that will reduce the number of questions I am likely to ask.
In summary, we support the amendment proposed by Liberal Democrat Members. We agree with the Scotch Whisky Association and think that the increase in duty is unfair and hits spirits, particularly Scotch whisky, unfairly. We want to stand up for our constituents, our constituencies, rural Scotland and Scotland as a whole in supporting the amendment.
Abena Oppong-Asare
I rise to speak, on behalf of the Opposition, to the clauses that are related to the tax treatment of devolved social security benefits and the new alcohol duty regime.
I will address clause 27 briefly. Clause 27 introduces a new power to enable the tax treatment of new or new top-up welfare payments, introduced by devolved Administrations, to be confirmed as social security income through secondary legislation. That will allow the UK Government to confirm the tax treatment of new or new top-up payments within the new tax year rather than be subject to the UK parliamentary timetable.
I note that the income tax treatment of social security benefit is currently legislated for in part 10 of the Income Tax (Earnings and Pensions) Act 2003, and that this clause will introduce a new power to add new benefits to the table of taxable benefits included in the Act. I can see that the clause is largely administrative. Therefore, the Opposition do not take issue with the clause and will support it.
I will now move on to the clauses concerning the new alcohol duty regime. The Bill contains 77 clauses establishing a new structure for alcohol duty, but we will discuss just some of those today, before moving to consider the remainder in Public Bill Committee.
Labour agreed with the principles behind the alcohol duty review. We want to see the alcohol duty system made simpler and more consistent. We recognise that there is a balance to be struck between supporting businesses and consumers, protecting public health, and maintaining a source of revenue for the Exchequer. We have consistently raised concerns about the Government’s rushed and confused messaging on this area.
Before I come to the clauses and schedules, I want to paint a brief picture of the context behind the changes. Back in October 2020, the Government announced a call for evidence, seeking views on how the alcohol duty system could be reformed. At the time, they said this would make the system
“simpler, more economically rational and less administratively burdensome on businesses and HMRC.”
However, what we have seen since then is indecision, U-turns and delays.
Businesses and consumers had to wait until September 2022 for the Government’s response to the alcohol duty consultation. What ensued was chaos. In the shambolic mini-Budget that crushed the British economy, the then Chancellor announced a freeze on alcohol duty that was due to come into force in February 2023, but then the new Chancellor scrapped the freeze in October’s autumn statement. Fast forward to December, and I was back standing at the Dispatch Box responding to another Government’s U-turn, that time deciding that the freeze was back in place until August 2023.
The Government have now confirmed that the freeze will end in August and a new system of alcohol duty will be put in place. Alcohol duty rates will be adjusted in line with inflation and moved to a system that links duty rates to alcohol by volume. Clause 47 sets out the new regime, while clause 48 and schedule 7 specify the new adjusted rates of alcohol duty for different drinks. I note that some sectors are concerned about these changes—particularly wine producers and Scottish whisky producers, as the right hon. Member for Orkney and Shetland (Mr Carmichael) highlighted.
The reason the Tories have hit people and businesses with stealth taxes is that they have failed to get the growth that our country needs and have failed to get a grip on inflation. That is what makes the boasts of halving inflation so hollow. Prices are already soaring, hitting industries with steep tax rises.
Mark Jenkinson
Can the hon. Lady set out in detail the Opposition’s plans for alcohol duty and how they might differ from the Government’s plans?
Abena Oppong-Asare
As I mentioned, we have consistently raised concerns about the Government’s U-turns on the issue. We have scrutinised them and put forward recommendations, which the hon. Member will hear us talk about in further detail in the Public Bill Committee.
It is important that today the Minister lays out what measures the Government will take to support the sectors most affected by the duty changes, as well as what consideration the Treasury has given to the potentially inflationary impact of the increases. The explanatory notes to the Bill state:
“The commencement of changes to approvals will be announced at a later date.”
Perhaps the Minister could give some certainty to businesses by fleshing out some further detail today.
Clause 50 and schedule 8 set out measures for a new draught relief that will provide a reduced rate of duty on qualifying draught products. Clause 51 sets out the requirement that qualifying draught products be under 8.5% ABV and be packaged in containers that hold at least 20 litres and are designed to connect to a dispensing system. Clause 52 sets out the rules on the repackaging of qualifying draught products. Decanting from 20-litre containers into smaller containers will be prohibited unless the products are to be consumed on the premises at which decanting takes place.
Labour supports these measures, which will support and protect the hospitality sector, but our analysis has found that more than 70,000 venues have had to reduce their opening hours because of energy bills. I have seen that in my constituency. These are businesses that enrich our communities and boost our high streets, but they are being let down by the Government and many of these changes will come far too late.
I note that the draught relief has been designed in a way that will exclude the wine sector. Can the Minister explain why? Will he let us know whether the Government will introduce any other measures to support British wine and spirit producers?
Clause 54 lays out measures to replace the small brewers relief with a small producer relief. Clause 55 specifies that eligible producers will be those whose products have an alcoholic strength of less than 8.5% ABV and who produce less than 4,500 hectolitres of alcohol per year. The remaining clauses and schedules lay out precise measures for calculating rates of relief.
Labour introduced the small brewers relief in 2002 and is proud of the effect that it has had by supporting small brewers and creating a vibrant UK beer scene. We therefore support the extension of relief to other producers, but I note that that may not occur under the new scheme, as British wine and spirit producers are largely excluded from these measures. Perhaps the Minister could lay out why the scheme has not been further extended.
In conclusion, Labour recognises the need to simplify the alcohol duty regime while striking a balance between supporting businesses and consumers, protecting public health and maintaining a source of revenue for the Exchequer.
Mr Carmichael
May I take up the point about small producers? Deerness distillery, in my constituency, is a family-owned business that is seeking to move into whisky production. Surely, as a small producer in a market dominated by big corporates, it should be given the same opportunity to grow as a brewer. Why, in principle, should there be any difference in their treatment?
Abena Oppong-Asare
We, too, are concerned about that, and I have met various stakeholders in the sector who have highlighted their concerns. I hope that the Minister will take the issue on board in his response.
We do not oppose the clauses and schedules, but we want answers to the questions that have been raised, and, most important, we want certainty for the businesses and consumers who have suffered over the past few months and years as a result of the constant chopping and changing that the country has seen from various Conservative Governments.
James Cartlidge
Before I turn to the very good speeches that we have heard during the current debate, let me clarify a point relating to our earlier debate on the electricity generator levy. I mistakenly said that “private wire” was included in the levy, when of course I meant to say that it was excluded.
Let me begin by saying that I welcome the support expressed by the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) for the clause relating to devolved welfare payments. As for alcohol duty, the right hon. Member for Orkney and Shetland (Mr Carmichael) may not recall the debate that he initiated in Westminster Hall in October 2017, when I was a mere Back Bencher, but I was the first Member to intervene on his speech. All the others were Scottish. I intervened because a leading company in my constituency produces the bottle tops for the whisky trade. That, along with the East Anglian grain that is sent up to Scotland from time to time to help support the sector, underlines the fact that this is a UK industry, and a UK export. We are all proud of Scotch whisky and the role that it plays in our economy. However, I must say this to the right hon. Gentleman, and also to the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone), who spoke with his usual eloquence and conjured up wonderful images. I understand the importance of the Scotch whisky sector, and we have supported it—in nine of the last 10 Budgets, we have either frozen or cut the tax—but the key point is that not introducing the RPI-linked increase would have a significant cost.
Mr Carmichael
The Minister is making our case himself, so presumably he will be joining us in the Lobby—as, indeed, the Secretary of State for Scotland should be doing—or else accepting my amendment.
James Cartlidge
I had never thought of the right hon. Gentleman as a cheeky chappie, but for that brief moment, he almost was. Let me now address his amendment 7. The Scottish National party Members have, very nobly, effectively withdrawn their amendments to ride on the back of it, which is perfectly fair: they seek, ultimately, to arrive at roughly the same point, which could be described as the protection of spirits, and Scotch whisky in particular, from the RPI-linked increase.
The proposal in amendment 7 would cost an amount between £1.7 billion and £2 billion. An overall RPI freeze would cost £5 billion across the scorecard. We have, of course, supported freezes in the past, and it was I who announced the freeze back in December. Members may recall the reason for that freeze: in view of the August reform, we did not want the sector to go through two separate alcohol tax increases. We supported the industry, but it is expensive, and with the public finances as they are, we feel that the responsible option is to introduce the RPI-linked increase—which, after all, is not a real-terms increase—but, nevertheless, to bring in the differential duty to support our pubs.
James Cartlidge
I will give way to the right hon. Gentleman, for the last time.
Mr Carmichael
The Minister needs to look at the actual data relating to the revenue brought in over these years of cuts and freezes, because the story that it tells is very different from the forecasts on which he relies. He should remember that in 2015 the forecast was for a 2% reduction, but in fact there was a 4% increase. When will the Government become a bit more realistic about the effect of their own policies in this area?
James Cartlidge
I have to disagree with the right hon. Gentleman’s use of the word “realistic”. I have met representatives of the Scotch Whisky Association, whom I greatly respect, and they have said to me that if we freeze the tax we get the revenue. Unfortunately, however, the Government have what I believe is the very important and successful policy of using an independent body, the Office for Budget Responsibility, which makes forecasts independently for Governments on the effects of fiscal measures. [Interruption.] I hear voices behind me saying that they are wrong. The point is that the OBR is not a collection of soothsayers employed to predict, entirely accurately, exactly what will happen in the future. With the greatest respect to everyone, if that was the case, I suspect they would spend rather more of their time looking at accountancy of the turf-related kind rather than trying to forecast the national accounts. The point is that this enables us to ground fiscal events in a forecast of where we are at that time and the fiscal costs at the time, therefore adding credibility to the decisions we make and avoiding the easy situation where we do not have to make the difficult trade-offs that households and businesses know that, in reality, we have to face. If we want to cut one tax, we have to find the money from somewhere else. It is a good discipline.
James Cartlidge
I will take this very last soupçon: a final intervention from the hon. Gentleman.
Jamie Stone
The Minister is nothing if not courteous, but does he not accept that he would increase the revenue base by increasing industry and economic activity? What message does this send to—let me get the names right—Wolfburn in Dunnet or 8 Doors in John O’Groats? These are new distilleries, just starting out. From little acorns, mighty oaks can grow, and those mighty oaks can give the Government lots of acorns in tax revenue.
James Cartlidge
The hon. Gentleman is always courteous, and I send the message to him that for every single business, charity and household in the country, one thing that trumps all is wanting the Government to run the public finances in a stable way so that businesses can have confidence that the investments they make will be in a growing and stable economy. I totally understand where he is coming from, but he has not persuaded me that he has a way to find those billions of pounds. I hope that I have nevertheless offered the assurance needed for hon. Members to retract their proposed amendments, and that clauses 27, 47 to 48 and 50 to 60 will stand part of the Bill as we end our theme of alcohol for the evening.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
Clauses 47 and 48 ordered to stand part of the Bill.
Amendment proposed: 7, in schedule 7, page 334, line 18, leave out “£31.64” and insert “£28.74”—(Mr. Carmichael.)
Question put, That the amendment be made.
Finance (No. 2) Bill (First sitting)
Tuesday 16th May 2023
(11 months, 2 weeks ago)
Public Bill CommitteesRead Full debate Finance (No. 2) Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 May 2023 - (16 May 2023)
The Chair
We are now sitting in public and the proceedings are being broadcast. I have a couple of preliminary announcements. Hansard colleagues would be grateful if Members could email their speaking notes to hansardnotes@parliament.uk. Please switch electronic devices to silent. Jackets may be removed.
We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication. I call the Minister to move the programme motion standing in her name, which was discussed yesterday by the Programming Sub-Committee.
Motion made and Question proposed,
That—
1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 16 May 2023) meet—
(a) at 2.00 pm on Tuesday 16 May 2023;
(b) at 11.30 am and 2.00 pm on Thursday 18 May 2023;
(c) at 9.25 am and 2.00 pm on Tuesday 23 May 2023;
2. the proceedings shall be taken in the following order: Clauses 1 to 4; Clauses 16 and 17; Clause 26; Clauses 28 and 29; Schedule 2; Clauses 30 to 34; Schedule 3; Clause 35; Schedule 4; Clauses 36 and 37; Schedule 5; Clauses 38 to 44; Schedule 6; Clauses 45 and 46; Clause 49; Clauses 61 to 105; Schedule 10; Clauses 106 to 108; Schedule 11; Clauses 109 to 112; Schedule 12; Clauses 113 and 114; Schedule 13; Clauses 115 to 120; Clauses 313 to 315; Schedules 19 and 20; Clauses 316 to 320; Schedule 21; Clauses 321 to 324; Schedule 22; Clauses 325 to 331; Schedule 23; Clauses 332 to 345; Schedule 24; Clauses 346 to 352; new Clauses; new Schedules; remaining proceedings on the Bill;
3. the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 23 May 2023.—(Victoria Atkins.)
Kirsty Blackman (Aberdeen North) (SNP)
I will make a brief comment in relation to the programme motion. It is the convention of the House that a Finance Bill does not take oral evidence. That continues to be a significant issue for the knowledge of the Committee. Written evidence is very important, and everybody does their best to read it, but nothing quite compares to asking questions in an oral evidence session. The programme motion does not allow for oral evidence. The Government have made it clear on previous Finance Bills in previous years that that is because part of a Finance Bill is considered by the whole House and the rest is considered in Committee.
Given the extent of this Finance Bill and how incredibly complex it is, particularly when it comes to corporation tax, it would have been beneficial for the Committee to ask questions of experts. It would not have taken us past any potential dates. We could have scheduled an oral evidence session with, for example, the Association of Taxation Technicians and the Chartered Institute of Taxation, and taken evidence on the parts of the Bill that we are yet to consider in order to better understand what is in the Bill and the issues that it presents for professionals.
Although I will not oppose the Programming Sub-Committee’s recommendations in the programme motion, I raise my concerns, as I do for every Finance Bill Committee on which I sit, that oral evidence sessions would have made a positive difference. They would not have held up the machinery of government and the progress of the Bill, but they would have allowed us to make more informed decisions.
Dame Angela Eagle (Wallasey) (Lab)
It is a great pleasure to serve under your chairmanship, Ms McVey, I think for the first time. I have a great deal of sympathy with what hon. Member for Aberdeen North has just said, and I look forward to what the Minister has to say about it. It may well be that an innovation that has worked well in other Committees should spread to the Finance Bill. In the absence of any progress on that, I refer the hon. Member for Aberdeen North to the work of the Treasury Committee, of which I am a member, alongside one of her colleagues. We do extensive work pre and post Budgets and take a great deal of evidence. While it is not the same as having oral evidence to this Public Bill Committee, it is a pretty good alternative, and at the moment it is all we have.
The Financial Secretary to the Treasury (Victoria Atkins)
May I say what a pleasure it is to serve under your chairmanship, Ms McVey? I am delighted if this is the first Finance Bill over which you are presiding. I should declare that I used to prosecute tax fraudsters for His Majesty’s Revenue and Customs, but I have not done so since being elected to this place. I ought also, while we are in housekeeping mode, welcome all Committee members to this scrutiny. It is an important part of our legislation-making process. Particular thanks go to my hon. Friend the Member for Totnes who—I hope he will not mind my sharing—got married at the weekend and so is perhaps the first parliamentarian to spend his honeymoon in a Finance Bill Committee. My sincere apologies to Mrs Mangnall.
The Chair
Copies of written evidence that the Committee receives will be made available in the Committee Room and will be circulated to Members by email.
We now begin line-by-line consideration of the Bill. The selection list shows how the clauses and the selected amendments have been grouped together for debate. Clauses and amendments grouped together are generally on the same or similar issues.
Clause 1
Income tax charge for tax year 2023-24
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
Clause 1 legislates the charge for income tax for 2023-24. Clauses 2 and 3 set the main, default and savings rates of income tax for 2023-24 and clause 4 maintains the starting rate for savings nil rate band for tax year 2023-24.
Before I get into the meat of these clauses, it might help to remind hon. Members that, as I have already said, because some measures in the Bill have already been debated on the Floor of the House, many measures will not be debated here in this Public Bill Committee. There is no mystery as to why some clauses are not appearing.
Income tax is one of the most important revenue streams for the Government, expected to raise approximately £268 billion in 2023-24. These clauses are legislated annually in the Finance Bill. Clause 1 is essential; it allows for income tax to be collected in order to fund the vital public services on which we all rely. Clause 2 ensures that the main rates of income tax for England and Northern Ireland continue at 20% for the basic rate, 40% for the higher rate and 45% for the additional rate.
Clause 3 sets the default and savings rates of income tax for the whole of the UK. The starting rate in clause 4 applies to the taxable savings income of individuals with low earned incomes of less than £17,570, allowing them to benefit from up to £5,000 of savings income free of tax. Clause 4 will maintain the starting rate limit at its current level of £5,000 for 2023-24, in order to ensure simplicity and fairness within the tax system while maintaining a generous tax relief. Clauses 3 and 4 are important pillars of the Government’s savings strategy, because we wish to help those with low earned income to save.
In addition to the starting rate whereby eligible individuals can earn up to £5,000 in savings income free of tax, savers are supported by the personal savings allowance, which provides up to £1,000 of tax-free savings income for basic rate taxpayers. Savers can also continue to benefit from the annual ISA allowance of £20,000. Taken together, those generous measures result in around 95% of savers paying no tax on their savings income.
Finally, the Government’s efforts to encourage those on the lowest incomes to save include the Help to Save scheme, which provides savers with a 50% bonus on their savings. The Government have recently extended the scheme while we consult on longer-term options to continue to support low-income savers, which is a good example of our commitment to levelling up opportunity across the whole country. I hope that Committee members feel able to promote the scheme to their constituents, and I encourage them to do so. We are committed to helping people of all incomes, at all stages of life, to save. Recent reforms, coupled with the significant increase to the starting rate limit in 2015, mean that the taxation arrangements for savings income are very generous.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to serve on this Committee with you as Chair, Ms McVey. As we heard from the Minister, clause 1 imposes a charge to income tax for 2023-24. It is a formality in every Finance Bill, which provides the legal basis for Parliament to impose an annual income tax. Of course, we will not oppose that clause. Clause 2 provides the main rates of income tax for 2023-24, which will apply to the non-savings, non-dividend income of taxpayers in England and Northern Ireland. As the Minister said, the rates include the 20% basic rate, the 40% higher rate and the 45% additional rate.
With respect to the other nations of the UK, the explanatory notes make it clear that income tax rates on non-savings, non-dividend income for Welsh taxpayers are set by the Welsh Parliament. The UK main rates of income tax are reduced for Welsh taxpayers by 10p in the pound on that income. The Welsh Parliament sets the Welsh rates of income tax, which are then added to the reduced UK rates. Income tax rates and thresholds on non-savings, non-dividend income for Scottish taxpayers are set by the Scottish Parliament. We do not oppose clause 2. However, the income tax rates within it will interact with the level of personal allowance and relevant thresholds to determine how much income tax people pay. I will briefly ask the Minister about them.
Committee members will remember that in the March 2021 Budget, and in the Finance Act that followed, the then Chancellor—now Prime Minister—froze the basic rate limit and personal allowance for income tax for four years. In the recent autumn statement 2022, and in the following Finance Act, the current Chancellor extended those freezes by a further two years. That means that the current 2023-24 tax year is the second of a six-year freeze. The Office for Budget Responsibility has made clear, in its March 2023 economic and fiscal outlook, that the Government’s six-year freeze in the personal allowance will take its real value in 2027-28 back down to the level in 2013-14. When the Minister responds, I would be grateful if she could confirm whether she accepts that conclusion from the Office for Budget Responsibility.
As we have heard, clause 3 sets the default rates and saving rates of income tax for the year 2023-24. Clause 3 specifically sets the default rates that will apply to the non-savings, non-dividend income of taxpayers who are not subject to the main rates of income tax, Welsh rates of income tax or Scottish income tax. It also sets the savings rates that will apply to savings income of all UK taxpayers. We will not be opposing the measure.
Finally, clause 4 sets the starting rate limit for savings for 2023-24, which remains at £5,000, as we heard. As we know, the starting rate for savings can apply to an individual’s taxable savings income, which includes—but is not limited to—interest on deposits with banks or building societies. The extent to which an individual’s savings income is liable to tax at the starting rate for savings, rather than the basic rate of income tax, depends on their total non-savings income, which can include income from employment, profits from self-employment, pensions income, and so on.
If an individual’s non-savings income is more than their personal allowance plus the starting rate limit for savings, the starting rate is not available for that tax year. Where an individual’s non-savings income in a tax year is less than the personal allowance plus the starting rate limit, their savings income is taxable at the starting rate up to the starting rate limit. We will also not be opposing clause 4.
As I have set out, we will not be opposing any of the four clauses in this first grouping of the debate, but I look forward to the Minister’s response on my specific point about the Office for Budget Responsibility.
Dame Angela Eagle
Thank you very much, Ms McVey. I think that the comment that I made earlier about this being your first Committee was about it being your first Committee that included me, not it being your first Committee completely. I am sure that we have an extremely experienced Chair, or you would not have been put in the position of having to Chair a Bill Committee where the Bill is this thick. I think that everyone can have great confidence in your ability to take us through the proceedings today.
I want to raise some questions for the Minister about levels of income tax, so that she could perhaps talk to us about the Government’s thinking. We have here—it is not explicitly referred to in the legislation, but it is there nevertheless—the fact that the thresholds have been frozen until 2028. That effectively drags many more people into paying these rates of income tax, at whatever level. It is called “fiscal drag” in the business.
When we analyse precisely what the Government are doing, we see that, without the headline rates of income tax being affected, 8 million people will be forced to pay higher levels of income tax the threshold has been frozen. That is particularly exacerbated in an era of high inflation, when more people will get dragged into paying higher levels of income tax because prices are going up yet thresholds are frozen.
This has been estimated to be the biggest stealth tax put into place since the doubling of VAT in the early 1990s. Looking at the situation that is expected to prevail in 2027-28—on the plans that the Government are putting forward—8 million people will be affected by fiscal drag. In other words, they will have their income tax increased even though the headline rates have stayed the same. That will mean that one in five taxpayers—20%—will actually be paying the higher rate, at 40% or above, as a result of this Government’s stealth tax.
That is at a time when people’s incomes are being squeezed from all directions. Many of us know that we have a cost of living squeeze that is driving millions to food banks, having to make the choice between heating and eating, and sometimes not being able to do either satisfactorily because of the amount of cash available at the end of a working week to buy essentials.
I will demonstrate just how many people have been dragged into the higher rates of tax by the stealth tax manoeuvre that the Government have turbo-charged for the next few years. In the 1990s, no nurses at all paid the higher rate of tax, and only 5% to 6% of machinists or electricians did. The Minister might have noticed information from the Institute for Fiscal Studies on the front page of quite a lot of newspapers this morning that demonstrates that the situation has totally changed. One in four teachers and one in eight nurses will be higher-rate taxpayers by 2027—presumably, that is before their disputes have been settled one way or the other. That is bad in itself, because it is a stealth tax.
Craig Whittaker (Calder Valley) (Con)
The points that the hon. Lady makes are valid. Another valid point is this: while it is true that more people are paying tax, is it not also true that more people are earning a lot more money than they used to?
Dame Angela Eagle
I am all in favour of people earning more money, but it is important that they are doing so in in real terms. Someone can earn more money in terms that do not take account of inflation, but they can actually be earning less. If the right hon. Gentleman talked to people and asked them whether they were any better off than they had been when this series of Governments came into office in 2010, he would find that people’s nominal salaries and wages might be higher in some cases, but a lot of them are worse off in reality because those earnings have not kept up with inflation. The point about the tax burden and fiscal drag makes that much worse.
Kirsty Blackman
On the point about how well-off people feel, does the hon. Member know that in 2008, 12% of people in the UK believed that their children would be worse off than them? Now, IPSOS has found that that number is up to 41%—some 41% of people now believe that their children will be worse off than them. Does she feel that that needs to be tackled, and that the Government are not taking it seriously?
Dame Angela Eagle
I agree, and the hon. Lady makes a valuable point. For societies to advance in a sensible, healthy way, succeeding generations must have optimism about things changing for the better. That also tends to lead to happier societies with people who are more likely to innovate and go the extra mile. We all want that so that we can rebuild prosperity for our nation in the years ahead in the new, more isolated circumstances in which we find ourselves, as a result of which we must remake the economic foundations of our country. I wonder how much fiscal drag helps us to do that, and I am interested to hear the Minister’s observations on how that approach will help.
There are other undesirable effects of threshold freezes of the kind encompassed by clause 1, including very high marginal tax rates for people in particular circumstances. We know from the Prime Minister’s tax return that he effectively pays 22% on his millions of earnings every year, if one combines the income tax that he pays with the way that he takes out his money through capital gains and in other areas. However, given the present tax thresholds and fiscal drag, there are people who will face marginal tax rates of 45% and 60%, which are very high—much higher than those that the Prime Minister faces.
The Treasury Committee is so concerned about that that we have begun an inquiry into spiky marginal tax rates and cliff edges. As you will know, Ms McVey, from having been Secretary of State for Work and Pensions, cliff edges and high marginal tax rates can often combine to create even greater losses of income. That is a disincentive to work harder, get more hours and move jobs when the increased wage may not compensate for the higher marginal tax rate, or a combination of the higher marginal tax rate and the cliff edge for a particular allowance. When we took evidence a few weeks ago, we discovered a marginal tax rate combined with a cliff edge that was over 100%.
There are issues surrounding the £50,000 threshold, at which point high earners start having child benefit clawed back. That has remained unchanged. It has not gone up; it is another frozen threshold. That is dragging far more people into the means test for child benefit than even the Conservative Chancellor George Osborne—we can say his name now, as he is no longer a Member of this House—intended when he introduced the policy. The Government should be aware of the combined effect of fiscal drag and unindexed rates on real people’s choices.
Freezes are a stealthy and arbitrary way to raise tax revenues. They often have a bigger impact on household incomes than more eye-catching discretionary measures do. They are particularly expected to have an impact on lower earners. By 2028, someone earning £20,000 will be £1,165 poorer under the current fiscal drag system than they would if income tax had been raised by 1%. There have been various calculations of how many pennies this stealth tax raises on the up-front rate of income tax, and they range from 3p to 4p per £1. I hope that the Minister will confirm that and try to justify why on earth the Government are raising money in that way, rather than being more transparent and up-front about rates of income tax. What will they do about the high marginal rates that the fiscal drag and frozen threshold system is landing our entire structure with? It is distorting the structure and making it very difficult to justify much of how it works for the future.
Rob Butler (Aylesbury) (Con)
I am interested in what the hon. Lady is saying. Will she clarify the latter point about the increase in the rate that would have been necessary had it not been frozen? Is she saying that she would rather the basic rate of income tax had been put up by 3% or 4%, such that lower-paid workers—nurses, for example, to whom she has referred—who are in the lower tax bracket would pay more tax? That seems to be the logical end point of what she has suggested.
Dame Angela Eagle
I am not suggesting any policy—far be it from me to do so from this side of the House. I am a mere Back Bencher, and it is not for me to make tax policy from the Opposition Back Benches. I am merely pointing out some problems that the choices that the Government appear to have made with this stealth tax are causing real people out there.
The problems are exacerbated by high marginal rates, and by very difficult and bad incentives that are quite hidden. That is why I am raising some of them here—I am attempting to draw attention to them to see whether the Minister has a response. If the Government are working on those areas, I am trying to find out what they aim to achieve by doing things this way. That is precisely what these Standing Committees are about—one gets to talk in more detail about choices that are made.
The hon. Gentleman must not imagine that I am putting forward a completely costed, different alternative, because this is not the place or time to do that. I am pointing out some of the problems, about which there is cross-party concern. I am not even making highly party political points. Far be it from me to do so—it is too early in the morning for me to do too much of that—but there are issues that we need to surface so that we can hear the Government’s official response.
I fear that we are driving into a cul de sac that will cause more problems than it solves, particularly in the interaction of the income tax system with a range of benefits, not only for the very low paid, but for medium earners. That is not being properly talked about, so by raising the matter at this point in the Bill, I am trying to get a handle on the Government’s thinking. I look forward to listening to what the Minister has to say about it, and perhaps even intervening further if she says something that piques my interest.
Victoria Atkins
In that case, I will try to be extremely dull. I am genuinely grateful to the hon. Lady for her questions. If I may take issue with her challenge that this is somehow hidden or a stealth tax, we debated these thresholds in the previous Finance Bill in the autumn. My right hon. Friend the Chancellor was very clear in his statement and in the following debate, as well as during the consideration of the Bill, about the difficult decisions, and we very much include the threshold decisions in that category. We were up-front and transparent about what we had to do to address some of the underlying issues we face in the economy.
I do not for a moment underestimate the hon. Lady’s intentions in raising the matter, but I must push back on the idea that this is somehow being hidden. Indeed, I remember being asked about it on many occasions both in this place and, dare I say it, on media rounds—understandably so, because this matters to people.
There is one point of agreement across the House, however, and that is the impact of inflation on people’s take-home pay. That is why the Prime Minister has set it as his first of five priorities to halve inflation by the end of this year, because it hurts all of us, but it hurts the poorest in society the most. We have heard the ongoing debate about food inflation, and none of us wants to see the difficult situations that people on the lowest incomes are finding themselves in. That is why the Treasury is doing everything that we can to support the Bank of England, which is of course operationally independent, in lowering the rate of interest.
The hon. Member for Ealing North asked me about the OBR. I am happy to quote the Chancellor, who has said in relation to the OBR’s figures overall that we respect them. It is an independent forecaster, whose job it is to make a forecast. As we all know, however, and as we have seen very recently with the Bank of England, forecasts are exactly that—forecasts. They can change, so we are working to support the Bank of England in its work. We respect the OBR, but fundamentally we are trying to ensure that the lowest paid receive as much of their income without having to pay any tax as we can afford as a country.
Dame Angela Eagle
I assume that those figures are for now. Is there a calculation of where fiscal drag will have left them after 2027-28? The figures will undoubtedly go down, especially if inflation persists for any length of time. It is 10% now, which means that anyone who is within 10% of the next threshold will go over it this year.
Victoria Atkins
The hon. Lady has hit on exactly the point. We have to be so careful with forecasts, because there are so many variables. As she has identified, inflation is one of them. Please do not think that I am speculating about what may or may not be in future fiscal events, but if there are changes to the rate of national living wage, for example, that will have an impact. There are many variables, and that means that our figures are both costed from a Treasury perspective and examined by the OBR. We very much stand by the figures set out in the autumn statement and as part of Budget considerations in the spring.
Dame Angela Eagle
The Office for Budget Responsibility has said that the frozen thresholds will drag 2.1 million people into the higher rate of tax, raising £26 billion a year, which is the equivalent of 4p on the basic rate. One presumes that that is net of all the other things that the Minister is talking about.
Victoria Atkins
The shadow Minister asked that question. We respect the work of the OBR, and of course we understand that it is an independent forecaster. However, as I said, we have never shied away from the fact that this a difficult set of circumstances. I know it is not for the hon. Lady to set tax policy on behalf of her Front-Bench team, but my hon. Friend the Member for Aylesbury posed an interesting question: what is Labour’s alternative? Outside observers may wish to take that into account.
We believe in sound money, and the rate of debt interest that we are paying each year—some £120 billion—is money that we would much rather spend on our NHS, police and defence. However, precisely because of our extraordinary efforts to protect our constituents throughout the pandemic, to help Ukraine and to provide support through the cost of living crisis that has emerged from that, we are having to take these difficult decisions in a fiscally responsible way.
Ashley Dalton (West Lancashire) (Lab)
It is a pleasure to serve under your chairmanship, Ms McVey. This is my first Public Bill Committee, so I am definitely the baby in the room. There is just one thing I would like the Minister to clarify. When she was responding to the point raised by my hon. Friend the Member for Wallasey about the OBR projections, she said very clearly that she respected and understood them. However, does she agree with them?
Victoria Atkins
The hon. Lady will know that I have just answered her shadow Minister’s question on that. I will quote the Chancellor:
“I respect the OBR’s figures. The OBR is an independent forecaster”—
the hon. Lady must use the correct terminology—
“it is their job to make a forecast.”
However, I do observe that forecasts can change, which is why these variables are so important.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 to 4 ordered to stand part of the Bill.
Clause 16
CSOP schemes: share value limit and share class
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
Clauses 16 and 17 make changes to improve two of the tax-advantaged employee share schemes. Clause 16 increases the generosity and availability of the company share option plan, or CSOP. The changes will help larger companies that have grown beyond the scope of the enterprise management incentive—EMI—scheme, to offer more attractive share-based remuneration, helping them to recruit and retain the key talent that they need to succeed and grow. Clause 17 makes changes to the provisions of the enterprise management incentives. Those changes will simplify the process to grant options under an EMI scheme, and remove some of the administrative burdens on participating companies.
CSOP is available to all UK companies wishing to offer their employees share options, but the EMI scheme is specifically targeted at small and medium enterprises. It helps them to compete with larger firms to attract and retain key talent by bolstering the attractiveness of the share-based remuneration they can offer to their employees. At Budget 2021, the Government published a call for evidence to seek views on whether the EMI scheme should be expanded. At spring statement 2022, they announced that it remains effectively and appropriately targeted. However, they also expanded the review to consider whether CSOP could support companies as they grow beyond the scope of EMI. Following the review, we decided that CSOP should be expanded to make it more generous and accessible to a broader base of companies, including scale-ups that are no longer eligible for EMI.
The Government also listened to those who said that the administrative requirements of the EMI scheme could be improved, particularly in relation to the process of granting options. That is an example for the hon. Member for Aberdeen North of the public-facing nature of our efforts in drafting this Bill. We are making these changes to address those concerns.
The changes made by clause 16 will increase the CSOP employee share options limit from £30,000 to £60,000 and allow future changes to the share option limit to be made by regulations. The “worth having” condition will be removed, allowing more share types, and therefore companies, to be included in the scheme. Clause 17 will remove two administrative requirements within EMI. The first is the requirement to include within the option agreement details of any restrictions on the shares to be acquired under the option, as those restrictions are typically set out in other documents. The second is the requirement for an employee who receives an EMI option to sign a declaration that they meet the EMI working time requirement. The clause will not remove the working time requirement itself, which is a key part of the scheme. These sensible changes will reduce the burdens on companies granting EMI options, saving them time and money and reducing the risk that tax relief is lost due to administrative oversights.
The changes to EMI will support an estimated 4,700 small and medium-sized companies, and an estimated 45,000 employees who are granted EMI options annually. The changes will apply to both schemes granted on or after 6 April 2023, and options granted before 6 April 2023 that have not yet been exercised.
Clause 16 will improve the company share option plan, making it more accessible and generous, which will support businesses to recruit and retain key staff. Clause 17 will improve the enterprise management incentives scheme by simplifying the process to grant options, and will support small and medium-sized businesses to recruit and retain the talent they need to succeed. I commend the clauses to the Committee.
James Murray
As the Minister said, clause 16 makes changes to the company share option plan, a tax-advantaged employee share scheme available to all UK companies and their employees. It will double the employee share options limit from £30,000 to £60,000; remove the “worth having” condition, which limits which types of shares are eligible for inclusion within a CSOP scheme; and make changes to the share options limit, which will now be achievable through secondary rather than primary legislation.
We understand from the Government’s policy paper that this measure seeks to support companies to attract talent and to grow by expanding the availability and generosity of CSOP. They hope to allow companies to offer their employees a greater stake in the company so employees can share in their employer’s success. The changes will help companies that have grown beyond the scope of the enterprise management incentives scheme to offer more attractive share-based remuneration, supporting them to recruit and retain talent. These changes to CSOP were announced not by the Chancellor at the spring Budget 2023, but by the previous Chancellor in September 2022, so it seems we have found one of the very few remaining measures from last autumn’s so-called growth plan.
Although the Minister has set out the details of what this measure involves, I would like to ask her to explain some of the detail behind its operational impact, set out in HMRC’s policy paper. In the section on operational impact, it says that a small IT change will be required to support delivery of the measure, which will be expected to cost less than £5,000. It also says that, due to the relaxation and increased generosity of the CSOP rules, HMRC will undertake increased compliance activity to ensure CSOP is being used appropriately. It says that additional resource will be dedicated to compliance work to support the effective delivery and implementation of this measure, and that this resource is expected to cost a total of £570,000.
Will the Minister confirm whether the additional resource dedicated to that compliance work will be additional net resource at HMRC, or will it involve any redeployment of resources? If the latter is true, will she explain the expected impact on other work carried out by HMRC? We know from a recent Public Accounts Committee report that £9 billion in tax revenue was lost during the pandemic because 4,000 HMRC staff fighting tax avoidance were redeployed. We therefore believe it is important to ask questions about any such potential redeployment. I look forward to a clear answer from the Minister on that point.
Kirsty Blackman
Like the Labour party, the SNP will not oppose this measure. These are positive changes. Particularly on EMI, the Government have listened to what companies are asking for, and making some of requested changes is important, particularly when it may not have been the Government’s initial intention to dos so. They have listened to the additional information that has come in and made that change as a result of the response from companies.
There are two sides to what happens in relation to employee share schemes. There is the experience that employers and companies have in relation to whether they are an EMI or a CSOP—it looks like that will be smoother for companies. There is also the experience that the employee has, and whether or not accessing those schemes works for their lives and what they intend to do. The right hon. Member for Knowsley (Sir George Howarth) has put forward a ten-minute rule Bill on the share incentive plan scheme, trying to ensure that lower-income workers can get access to the scheme and that the length of time that an employee is required to stay at the company before they can access their share ownership and benefits is reduced from five years to three years.
We know that the younger workforce these days are moving companies more quickly, and that is not necessarily a bad thing. Younger people are seeing the benefits of working for a number of different companies and building up a significant breadth of experience across companies, and they are more likely to job hop than my parents’ generation. As I said, it is not a bad thing; it is just a change in the way society works. As a result, share ownership schemes, in the way that they are written and organised by the Government, are less attractive to the younger workforce than they were to previous generations.
My key question is: what are the Government’s intentions for employee share ownership? Are they hoping to encourage and increase the amount of employees taking part in such schemes? It seems to me that 4,700 small and medium companies feeling good about EMI access is not all that many, and other companies that could benefit from it that may find there is not much in the way of interest among their employees because of the restrictions. Do the Government hope to make it more attractive for employees, or simply to make it slightly easier and more attractive for employers? If they hope to make it more attractive for employees, are they looking at the current restrictions and restraints on employee share ownership schemes and whether they work for the workforce of today, as opposed to just the workforce of yesterday?
I am incredibly positive about employee share ownership schemes. I do not necessarily think that every single company should use them, and I would certainly not push every single company in that direction. However, all companies that want to use them should have the flexibility to access them without red tape and bureaucracy, so removing some of that is helpful. Companies will be able to use them only if they get buy-in from their employees, which they can do only if the employee sees the benefit of taking part. It would be helpful to have an idea of the Government’s intentions—whether they plan to do any wider consultation or check in on the numbers, whether they have targets for employee share ownership and whether they plan to extend and increase it. It seems to me from clauses 16 and 17 that the Government are positive towards the schemes, but they have not gone quite far enough in increasing accessibility.
Victoria Atkins
If I may, I will answer the hon. Lady’s questions first. For the two schemes to work, we must help employers and employees to administer them and take advantage of them respectively. This is why we have made the changes that I set out.
We are mindful of the changes in the employment market that the hon. Lady described, and we looked very carefully at the gig economy. The issue is that many workers in the gig economy are not employed for tax purposes, so they fall outside the scope of EMI. Extending eligibility to the self-employed would go beyond the aims and objectives of EMI, because it is about employees having not just an earned income interest, but a full share investment in the business for which they work. There are complexities here, but we are mindful of how the modern economy is taking shape. That is why we will be launching a call for evidence shortly on non-discretionary share schemes, which are open to all employees of companies that opt in. I encourage her and others to participate in that call for evidence when it is launched.
The hon. Member for Ealing North asked about compliance, and he will know that HMRC takes compliance very seriously. Indeed, we have increased funding for compliance activities across the board. We want to ensure not only that officers can deal with particular forms of tax evasion or criminal activity, but that they can offer results across the board. I know that the answer will come to me shortly, but I commit to writing to the hon. Gentleman if it does not fall upon my shoulders before I sit down. I am very willing to take questions or interventions from any colleague on this matter, particularly from colleagues on this side of the House, because we fundamentally believe in entrepreneurship and capitalisation. We believe in spreading prosperity and wealth across the workforce, so it is not just the business owners but the employees that must profit.
Craig Whittaker
Before my time in this place, I worked for the Dixons stores group in retail. I remember how valuable the share options were to us—they were available to all employees. In fact, Dixons stores group was such a great company to work for that it often gave us free shares. On one occasion, it helped to pay for a very luxurious family holiday. Does the Minister agree that all the Government can do is to facilitate legislation to enable good employers to keep such things going? Skin in the game, as we used to say, is of as much value as money. Feeling part of the company is just as important.
Victoria Atkins
I am extremely grateful to my hon. Friend, who had a very successful business career before he was rightly elected to this place. He makes a really interesting point about spreading the benefits and how they do not just need to be financial, as he says. They can also be about career development. I recently visited John Lewis on Oxford Street. Although it has a different model of—
Victoria Atkins
Yes, Ms McVey; the trip to John Lewis will have to come later. I am helpfully informed that, as set out in the TIIN, the additional resource will be dedicated to compliance work to support effective delivery and implementation of the measure. That is expected, as the hon. Member for Ealing North said, to cost a total of £570,000, but we will write to him with further details in due course.
James Murray
I appreciate the Minister reading out the information from the policy note, which I also read and quoted during my speech. The question I was specifically asking, just to make sure there is no confusion at all, was whether the additional resource that she referred to—the £570,000 resource that is dedicated to compliance work—will be additional net resource at His Majesty’s Revenue and Customs, or will it involve any existing resource at HMRC being redeployed? If the latter, will the Minister set out—in writing, I presume—what impact the redeployment will have on other work carried out by HMRC?
Victoria Atkins
I am mindful that when the hon. Member asked me quite a technical question in a Statutory Instrument Committee recently, he misunderstood my response and raised a point of order that turned out to be wrong. I had to correct him on the record and with a letter to the Library, so I am pleased to be able to write to him on this matter to ensure that I have answered his question and that he understands the answer.
Victoria Atkins
I got it right. That was the point. He raised a point of order that was wrong.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clause 17 ordered to stand part of the Bill.
Clause 26
Payments under Jobs Growth Wales Plus
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
The clause clarifies that payments made under the Welsh Government’s Jobs Growth Wales Plus scheme are exempt from income tax, with retrospective effect from 1 April 2022. The scheme was introduced by the Welsh Government on 1 April last year to replace traineeships and Jobs Growth Wales. The changes made by the clause will exempt from income tax payments made by way of training allowances under the scheme. Without the clause, the payments would be taxable, which would not be in line with the treatment of payments made for other training allowances.
James Murray
As we have heard, the clause introduces an income tax exemption for payments made by way of training allowances under the Jobs Growth Wales Plus scheme, which the Welsh Government introduced on 1 April 2022 to replace the traineeships and Jobs Growth Wales programmes in Wales. This is a training and employment programme aimed at 16 to 18-year-olds who are not in education, employment or training, and is designed to help them overcome any barriers that they may face in further training or employment.
As I understand it, the scheme has three strands: engagement, advancement and employment. Under the engagement strand, participants receive a training allowance of up to £30 a week; under the advancement strand, they receive £55 a week, and under the employment strand, individuals will be paid at national minimum wage for the age group. We understand that the training allowances paid under the scheme will be exempt from income tax. That was announced by the Financial Secretary to the Treasury in a written ministerial statement on 11 October last year. The objective of the measure is to clarify the tax treatment payments made by way of training allowances under the Jobs Growth Wales Plus scheme, and it will have retrospective effect from 1 April last year. We will not oppose the measure.
Kirsty Blackman
Will the Minister clarify how the payment has been treated in the interim period? I understand that back in October the Government announced their intention to treat it as exempt from income tax, but what has happened to the payments made since 1 April last year? Have the individuals been liable for income tax during that period? Will repayments or tax adjustments be required for those individuals because of the retrospective nature of the measure? Will the Government provide some clarity on how they intend to tackle those things to ensure that everybody has certainty about their tax treatment—that the individual who pays income tax has certainty about their tax treatment and that devolved Governments, when they are putting in place any of the allowances, are certain about the relevant income tax treatment in advance? We do not want uncertainty around something that is supposed to be positive for individuals.
Victoria Atkins
I am happy to be able to tell the hon. Lady that they were exempted. In terms of costs, I see the word “negligible” in the Exchequer impact assessment, so that is the administrative side effect of what we are trying to achieve to support efforts to train young people in Wales, which are commendable and for which I welcome the support. Clause 27, which I do not think we will debate, allows us to clarify the treatment of devolution payments via statutory instrument, which we are keen to do. Indeed, the hon. Lady will know that significant work with the Scottish Government, led by the Chief Secretary to the Treasury, is going on across the Treasury to underpin the arrangements for the fiscal framework.
Kirsty Blackman
Let me make sure that I understand what the Minister is saying. The Welsh payments were considered exempted, and this measure is just the legislation catching up with the treatment that they were being given anyway. Is that correct?
Victoria Atkins
I can confirm that.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Clause 28
Qualifying care relief: increase in individual’s limit
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
The clause makes changes to support foster carers by increasing the amount of income tax relief available to them and ensuring that that relief stays at an appropriate level over time in line with inflation. We are nearly doubling the qualifying care relief threshold, which will give a tax cut to a qualifying carer worth an average of £450 a year. I know that hon. Members are particularly interested in supporting foster carers, who are real public servants, in looking after looked-after children.
Qualifying care relief has been unchanged since 2003. Many carers are now paying income tax on payments intended to represent the additional costs of fostering that qualifying care relief was intended to exempt. Minimum fostering allowances are set to rise by 12.4% in this financial year, and with current tax threshold freezes, current qualifying care relief levels are expected to push approximately 1,500 carers into tax, which could disincentivise care. We are seeking to reflect the higher allowances that are paid to carers and the higher costs of caring compared with when the relief was set originally. By linking the value of the relief to inflation, the measure will also help to ensure that the level of qualifying care relief remains appropriate over time, supporting carers now and in the future. This will help to provide a greater financial incentive for carers to join or stay in the care industry, improving the recruitment and retention of carers in the future.
The measure increases the amount of income tax relief available for foster carers across the UK and shared lives carers using qualifying care relief from £10,000 to £18,140 per year, plus £375 to £450 per week for each person cared for. Those thresholds will be index linked to the consumer prices index. That will benefit more than 33,000 individuals who receive care income in respect of foster caring and other types of care and who currently submit self-assessment returns; such people look after an estimated 58,000 foster children.
We expect to take most care income out of tax by providing a higher level of relief. It will have simplification benefits, because it will allow more carers to use the simpler method of completing their self-employment pages on their self-assessment return. I hope that that will be a welcome improvement to the tax position of foster carers and shared lives carers. I therefore commend the clause to the Committee.
James Murray
As the Minister says, the clause increases the annual amount of care income that a recipient of qualifying care relief will receive that is not subject to income tax. Furthermore, the clause provides for the annual amount to increase in subsequent tax years in line with CPI. We know that qualifying care relief allows carers who look after children or adults, including foster carers, shared lives carers and kinship carers, to receive certain payments tax free, up to an annual limit. We know that the annual limit comprises a fixed amount for each household, plus a weekly amount for each child or adult being cared for.
Qualifying care relief is a tax simplification providing specific tax relief for care income as a replacement for apportioning and calculating full deductions for expenses. The relief allows carers to keep simpler records for their care activities and to use a simpler method of filling in the self-employed pages of their tax returns, as the Minister mentioned. We recognise that the clause increases the fixed and weekly amounts making up the annual limit to bring more carers out of income tax and simplify their tax reporting responsibilities. It also introduces CPI indexation.
We welcome the fact that the clause could provide a greater financial incentive for carers to join or stay in the care industry, potentially improving the recruitment and retention of carers in the future, so we will not oppose it.
Kirsty Blackman
First, given the inflation that we are facing, it is incredibly important that people who are caring, and taking on caring responsibilities, can afford to do so and are not forced to stop because of an impact on their income. This is a positive step. A not insignificant number of those who are cared for face a specific issue, such access to special diets, for which inflation has increased much more than even for food inflation. Individuals caring for anybody who is on a special diet will have seen a differentially large impact on their household spend specifically as a result of having to cater for those special diets. The changes being made therefore could not have come at a better time.
It is also positive to hear recognition for kinship carers, who are so often missed out in conversations about caring, even if people are taking on a formal role as kinship carers. We could not do without the significant amount of work that kinship carers do, so I am pleased, having previously had to argue in my council role for similar benefits for kinship carers as those that foster carers were receiving, that the Government have as a matter of course included kinship carers in the qualifying care relief, and ensured that the changes being made extend to them.
Dame Angela Eagle
I think that this measure will be welcomed across the Committee. As the Minister said, no one will vote against it. All of us know locally, from our constituency advice surgeries and our general work, the pressure that the entire care system is under. We know many of the things that are wrong with it and difficult in it, and how crucial it is to try to get it right, not least for the life opportunities of those people who are caught up in the system.
In the context of a welcome change, could the Minister explain the decision to index to CPI rather than RPI? The retail price index takes into account the costs of rent or housing in a way that I would have thought was directly relevant in this context. Why was it decided to use CPI rather than RPI for future indexation?
Victoria Atkins
We use CPI across the board. What we have tried to do is bring the value of the QCR back to its intended level. As I said, it had not changed since 2003. Index linking protects its value to foster carers in the future, so that a future Finance Bill Committee does not have to consider a similar uprating in the future.
Dame Angela Eagle
I thank the Minister. It is obviously a good thing that there will be indexation. In fact, I was talking about the lack of indexing when we were talking about the freezing of tax thresholds earlier, so I understand that point.
However, I am asking a very technical, specific question about why the Government are using CPI rather than RPI. RPI includes the cost of housing, and the cost of rent, or whatever, for the place where the caring is being done seems to me to be a relevant cost in this context. Indexing to RPI would actually be a better way of representing and indexing those costs going forward. I am asking: why CPI, rather than RPI?
Victoria Atkins
It is because that tends to be our measure across the board. I take the hon. Lady’s point about housing, but if someone needs help with the cost of housing, depending on their income levels, there are other ways in which they can get help from the state for that. This relief was specifically to reflect the extraordinary public service that families across our constituencies provide in helping those most vulnerable of children.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill
Clause 29
Estates in administration and trusts
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 4, in schedule 2, page 291, line 38, at end insert—
“(za) the property comprised in the settlement is not held for a pensions purpose within the meaning of paragraph 7(3) of Schedule 1C to TCGA 1992 (property comprised in settlements held for a pensions purpose);”
This amendment would mean that a pensions settlement could not be a “qualifying settlement” for the purposes of section 24B of the Income Tax Act 2007 (being inserted by the Bill) or a “relevant settlement” in respect of which the conditions in subsection (9) of that section could be met.
That schedule 2 be the Second schedule to the Bill.
Victoria Atkins
Clause 29 and schedule 2 make changes to provide greater certainty and simpler tax administration for trusts and estates by legislating and extending an existing concession. The changes prevent trusts and estates having to report small amounts of income tax to HMRC, make tax calculations more straightforward for some trustees, and provide technical clarifications for estate beneficiaries.
Trustees of trusts and personal representatives of deceased persons’ estates do not have tax allowances in the same way that individuals do. As a result, they must send HMRC a self-assessment return for all income, even small amounts. HMRC operates a narrow concession so that trustees and personal representatives do not have to report small amounts of untaxed savings income.
Last year, HMRC consulted on proposals to formalise and extend the concession, and on related reforms that would apply to smaller trusts and estates. Respondents broadly welcomed the proposals. We published a summary of the responses to the consultation at the spring Budget and are proposing legislation in line with that publication.
The changes made by clause 29 and schedule 2 will provide greater certainty and simpler tax administration for trusts and estates. Part 1 of the schedule makes technical amendments relating to income distributed from a deceased person’s estate to a beneficiary. Those ensure that the beneficiary’s tax credits operate correctly, and that a person can use their savings allowance against distributed savings income.
Part 2 of the schedule introduces a tax-free amount for trusts and estates with an income of £500 or less in a tax year. That frees smaller trusts, and around one in every seven estates with income, from paying and reporting income tax. The tax-free treatment for estate income is also passed on to the estate’s beneficiaries. For groups of trusts, the £500 limit will be reduced to a minimum of £100 per trust. That will prevent individuals from splitting up their investments into multiple small trusts to build up an inappropriate amount of tax-free income. We have tabled amendment 4 to simplify that rule. It excludes certain pension schemes from consideration when determining the amount of any reduction to a trust’s £500 tax-free amount.
James Murray
As we have heard from the Minister, clause 29 introduces schedule 2, which makes provisions relating to the taxation of estates in administration and trusts. We understand that the clause implements the Government’s response to the “Income tax: Low income trusts and estates” consultation conducted by HMRC between April and July 2022. The response was published at the time of the spring Budget. The clause seeks to legislate for an existing concession on the administration of tax for trusts and estates.
We will not oppose this measure, but I ask the Minister to address concerns raised by the Chartered Institute of Taxation about the impact of this clause on trusts. It believes that the legislation takes a practical approach on estates, which will benefit both the personal representatives of the deceased and their beneficiaries. However, it believes there is less simplification in respect of trusts with low incomes, and that for some people, the administrative burden will actually increase. The institute has concerns about the way that trust income is taxed in two stages. First, the trustees report the trust’s income and pay tax on it. Secondly, when income is distributed to beneficiaries, they must report the income and pay any tax that remains due after credit has been given for the tax that was taken at the first stage.
The Chartered Institute of Taxation draws attention to the fact that although a £500 threshold, like that for estates income, is applied to the income accruing to the trustees of a settlement, that does not exempt the income in the hands of the beneficiaries. Where trustees have no liability to report or pay, basic rate taxpayers will have to pay the basic rate tax due on their income from the trust. Currently, they may not be filing a tax return at all, as their basic rate liability will have been met by the tax deducted by the trustees; this measure may mean that they now have to file a tax return. I would welcome the Minister’s thoughts on that point, and would be grateful for a response to CIOT’s concern that this measure, while described as a simplification, could impact on often vulnerable beneficiaries receiving modest amounts of income, who will now have greater compliance burdens.
Kirsty Blackman
I have a quick question on Government amendment 4. Will it change the application of schedule 2 and proposed new schedule 1C to the Taxation of Chargeable Gains Act 1992, or does it simply clarify what is intended anyway under those schedules? The amendment specifically mentions the property not being held for pensions purposes. I am trying to understand whether that was the original intention, or whether the amendment changes the intent of schedule 2 and of schedule 1 to the TCGA.
Victoria Atkins
On the simplification point, the replacement of the lower-rate band with the new tax-free amount supports our long-standing goal of a modern and simpler tax system. This is a simplification for low-income discretionary trusts, as income within the tax-free amount will no longer be taxed as it arises. The change also simplifies calculations when income distributions are made. The consultation last year outlined that where discretionary trusts make income distributions, the existing 45% credit given to beneficiaries with that income would remain, as would the continued need for trustees to top up their payments to HMRC to match that credit when the distribution is made. I am told that the Chartered Institute of Taxation agreed with that proposition, and the Association of Taxation Technicians saw that as largely a question of timing and did not see a particular issue with the principle.
The hon. Member for Ealing North asked about vulnerable beneficiary trusts. The measures are a simplification for those trusts, as for any other low-income trust, as there will no longer be the need to elect to have income taxed as if for vulnerable beneficiaries. Instead, the income will simply not be taxed as it arises. Most vulnerable beneficiary trusts are, indeed, discretionary trusts, and as I said earlier, both the Chartered Institute of Taxation and the Association of Taxation Technicians have opined on this. The measure does not affect the need for trust beneficiaries to consider their tax reliability on their trust income. On the hon. Member for Aberdeen North’s question, the amendment clarifies our intentions.
James Murray
I thank the Minister for her response to my point. For clarity, my understanding of the Chartered Institute of Taxation’s point was that where trustees have no liability to report or pay, the beneficiaries, if they are basic-rate taxpayers, may still have basic rate income tax due on their income from the trust. I may have misunderstood, but did she say that beneficiaries will not be liable to income tax? Can she clarify that point?
Victoria Atkins
I will repeat exactly what I said for the hon. Gentleman, slowly: the measure does not affect the need for trust beneficiaries to consider their tax reliability on trust income that they receive.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Schedule 2
Estates in administration and trusts
Amendment made: 4, in schedule 2, page 291, line 38, at end insert—
“(za) the property comprised in the settlement is not held for a pensions purpose within the meaning of paragraph 7(3) of Schedule 1C to TCGA 1992 (property comprised in settlements held for a pensions purpose);”—(Victoria Atkins.)
This amendment would mean that a pensions settlement could not be a “qualifying settlement” for the purposes of section 24B of the Income Tax Act 2007 (being inserted by the Bill) or a “relevant settlement” in respect of which the conditions in subsection (9) of that section could be met.
Clause 30
Transfer of basic life assurance and general annuity business
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
Clauses 30 and 31 address two issues concerning the tax rules that deal with reinsurance of a specific type of long-term insurance business known as basic life assurance and general annuity business, or more commonly, BLAGAB. Clauses 32 and 33 address the corporation tax and pension tax consequences that will arise from proposed new schedule 12 of the Financial Services and Markets Act 2000, which amends the procedure for a court-ordered write-down of an insurer’s liabilities when an insurer is in financial distress.
Clauses 30 and 31 were originally announced by the Economic Secretary to the Treasury in a written ministerial statement on 15 December 2022 and applied with effect from that date. They address the risk of both tax loss and unfair outcomes for insurers that could otherwise arise from commercial transfers of BLAGAB from one insurer to another.
Insurers writing BLAGAB are charged corporation tax under the “income minus expenses” basis of taxation, which seeks to tax the shareholder profits and the policyholder investment return together as a single taxable amount. When a BLAGAB book is reinsured prior to the transfer of a business, the shareholder profit and policyholder investment return become separated and are taxed differently, which could result in a tax mismatch. Clauses 32 and 33 prevent unintended tax consequences arising for both the insurer and individuals in the event of a court-directed write-down, which will help to ensure that such write-downs are a viable option to insurers in financial difficulty.
Clause 30 addresses a possible tax mismatch arising from the rules applying to the reinsurance of BLAGAB, which can result in a loss of corporation tax when a court-approved transfer of BLAGAB is preceded by reinsurance. In that situation, the clause classifies and taxes the reinsured business as BLAGAB in the hands of the reinsurer, ensuring that profits are taxed on a consistent basis. By protecting the Exchequer in such a way, this measure will increase receipts by £50 million to £60 million per annum.
Clause 31 addresses an industry concern that the current scope of the legislation, which treats certain sums received under a reinsurance contract as taxable income, may be unnecessarily wide and is blocking commercial transactions. It amends section 92 of the Finance Act 2012 so that it does not apply where substantially all the insurance risks of a book of BLAGAB are reassumed by a reinsurer.
Clause 32 addresses the corporation tax consequences that could otherwise arise when an insurer’s liabilities are written down under proposed new section 377A of the Finance Services and Markets Act 2000, and when there is any subsequent write-up under proposed new section 377I of FSMA. Without the clause, any release of liabilities could lead to an undesirable additional tax charge, which would reduce the balance sheet benefits of the write-down. The changes therefore help to ensure that the ailing insurer avoids insolvency. The clause also prevents the insurer from claiming a tax deduction where a write-down order is subsequently varied or terminated, which ensures that when an insurer recovers, the overall impact of the clause is tax neutral.
Clause 33 will extend the circumstances in which a pre-6 April 2015 lifetime annuity or a dependants annuity under a registered pension scheme can be reduced under a section 377A write-down without incurring unauthorised payments charges. This will ensure that those who receive financial services compensation scheme top-up payments, following a write-down under proposed new section 217ZA of the Financial Services and Markets Act 2000, will not face a tax disadvantage.
These clauses address a possible mismatch within the life insurance tax rules and clarify the scope of existing legislation, facilitating commercial transactions and protecting vital Exchequer revenue. They also ensure that write-down orders are a viable option for insurers in financial distress, and do not cause any additional tax liability for either the insurer or the individuals who hold policies with those insurers. I therefore recommend that the clauses stand part of the Bill.
James Murray
As we have heard, clause 30 applies to reinsurers of specific types of long-term insurance businesses known as basic life assurance and general annuity businesses, or BLAGAB. This is a technical change that addresses a tax mismatch in the life insurance rules where reinsurance precedes a transfer of BLAGAB. In that situation, the clause classifies the reinsured business as BLAGAB in the hands of the reinsurer.
We recognise that when books of life insurance policies are transferred between insurers, the economic transfer is typically effected by a reinsurance contract, pending court approval of the transfer. That gives the purchaser the economic benefits of the acquisition immediately. As we know, a tax mismatch can arise, as the profits from the business are initially taxed in the hands of the cedant as BLAGAB, then in the hands of the reinsurer as non-BLAGAB and, finally, after the business transfer scheme occurs, in the hands of the reinsurer as BLAGAB once again. A loss of tax can occur if a non-BLAGAB trade loss arises for the reinsurer and is offset against total profits or surrendered as group relief. The clause resolves that anomaly by ensuring that any profits or losses from the reinsured business that arise to the reinsurer are within BLAGAB. The ensuing result is that any trade profit or loss in the reinsurer will be subject to the BLAGAB rules, which accordingly brings the tax treatment of the reinsurer in line with the seller of the business.
We will not oppose this measure. For completeness, however, I would be grateful if the Minister could confirm the Exchequer impact of the measure, as it was not included in the original policy paper published on 15 December last year. We recognise that, as the policy paper points out, a consultation was not conducted due to the risk of forestalling. We also recognise that the amendments to eliminate the possibility of a mismatch will apply from 15 December last year, regardless of when the reinsurance contract was entered into.
Dame Angela Eagle
We often plead for financial services legislation to be made simpler, but from listening to the debate, it seems that we have not quite succeeded yet. I have a few questions, but the changes seem to be sensible; they ensure that there is no game-playing when it comes to reinsuring those bits of business that might need to be transferred from an ailing or failing insurance company to something stronger, so that those who rely on payments for their pensions or other costs can be assured that they will not lose out.
Have these technical changes been proposed as a result of an issue in the insurance world? Do insurers who wish to join larger companies or pass on some of their insurance policies want to do so because they thought that they had a tax advantage, and have buyers not been wanting to buy because they think that they might be left holding the baby, and face a big tax issue? Is this a structural problem, or does the Treasury see this as a potential problem that it wants to iron out before it manifests in the market? I suppose that is the question I am asking. If we are talking about a problem that has been holding up the efficient working of the market, what will the effect of the change be? Will it be beneficial? Has the Treasury modelled it, so that it knows the implications of the change? I am trying to get a handle on whether this is a theoretical issue, or whether there is an actual problem that has led to these changes, which seem sensible, if complex.
Victoria Atkins
First, in answer to the hon. Member for Ealing North, the Exchequer impact is plus-£15 million for 2022-23—all the figures are positive—plus-£50 million in 2023-24, plus-£55 million in 2024-25, and the same for 2025-26 and 2026-27. That is how long the measure has been scorecarded for. The hon. Member for Wallasey asked whether the risk was possible or actual. We legislated before significant further risk could arise on the adoption of the new accounting standard, IFRS 17.
Clause 30 addresses a possible tax mismatch in the BLAGAB reinsurance rules. Clause 31 addresses a matter brought to HMRC’s attention by the insurance sector, which has a long-standing concern that the current scope of the legislation, which treats certain sums received under a reinsurance contract as taxable income, may be unnecessarily wide and is blocking commercial transactions. In relation to the hon. Lady’s laments about the simplification of financial services legislation, I speak with the scars of having tried to prosecute insider dealing cases in my time, so I can understand why she asks about that.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clauses 31 to 33 ordered to stand part of the Bill.
Clause 34
Corporate interest restriction
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 5.
That schedule 3 be the Third schedule to the Bill.
Clause 35 stand part.
That schedule 4 be the Fourth schedule to the Bill.
Victoria Atkins
Clause 34 and schedule 3 make changes to the corporate interest restriction and connected rules in order to protect Exchequer revenue, remove unfair outcomes and reduce administrative burdens for businesses. Clause 35 and schedule 4 amend tax rules for real estate investment trusts, qualifying asset-holding companies, and overseas collective investment vehicles that invest in UK property.
On clause 34, the UK’s corporate interest restriction rules prevent groups from using financing expenses to erode their UK tax base, where those expenses are not aligned with a group’s UK taxable activities. The Government estimate that the rules have increased corporation tax receipts by over £1 billion per annum since they were introduced in April 2017. The rules can be complex because they operate at both worldwide group and individual entity level. Therefore, on their introduction, the Government committed to keeping the rules under review, and in July last year HMRC set up an external working group to consult on proposed amendments to address issues raised by businesses and their advisers.
Following that consultation, we are introducing clause 34 and schedule 3 to make a total of 21 amendments to the corporate interest restriction and related rules limiting deductions for finance costs. There are five changes that protect the Exchequer’s position. I will not go through all five, but they include ensuring that groups cannot reallocate amounts of disallowed financing costs to reduce or eliminate a corporation tax inaccuracy penalty for careless or deliberate errors, and confirming that groups containing charities cannot benefit from tax relief for financing costs incurred in respect of tax-exempt activities. In most cases, the changes implemented by the Bill will take effect for periods of account starting on or after 1 April 2023.
The Government have also tabled amendment 5, which concerns the definition of an insurance company for the purpose of the corporate interest restriction rules. The amendment ensures that the legislation has the desired effect, and I am told that it is supported by the Association of British Insurers.
At Budget 2020, we launched a review of UK investment funds’ taxation and regulatory rules. That led to the introduction of a new tax regime for qualifying asset-holding companies in April last year. Clause 35 and schedule 4 make targeted changes to that regime, to address issues raised by industry. They also make reforms to other tax regimes for investment vehicles that invest in UK property.
There are many changes, including, first, to amend the “genuine diversity of ownership” condition in the tax regimes for qualifying asset-holding companies and real estate investment trusts, as well as the non-resident capital gains tax rules that apply to overseas collective investment vehicles. The second group of changes make targeted amendments to the REIT rules, to address issues raised by industry following a call for input in April 2021. They remove unnecessary constraints and administrative burdens. The third group of changes make amendments to the qualifying asset-holding companies regime, making it more widely available to investment fund structures that fall within its intended scope.
It is right that, after six years, the Government review the corporate interest restriction rules and address issues brought to our attention. That is what these clauses and schedules serve to deliver.
James Murray
As we have heard, clause 34 and schedule 3 make amendments in connection with the corporate interest restriction and predecessor legislation, to ensure that the rules work as intended. As we know, the corporate interest restriction rules superseded part 7 of the Taxation (International and Other Provisions) Act 2010, commonly referred to as the debt cap. The aim of the rules has been to restrict the ability of large businesses to reduce their taxable profits through excessive UK finance costs. Amendments were made to the corporate interest restriction rules in the Finance Acts of 2018, 2019 and 2021, to address various technical issues in order to ensure that the rules operated as intended. In July 2022, a working group was formed to consider proposed amendments to the rules, following further representations from customers, tax advisers and representative bodies regarding unfair outcomes. It was announced at the Budget that the Government would make a number of modifications to the rules, and clause 34 implements those modifications.
We will not oppose clause 34, but I would be grateful if the Minister could give some sense of the scale of the benefit that the changes are likely to bring to businesses or the Exchequer. The policy paper for the measure begins:
“This measure addresses a number of issues to protect the Exchequer and reduce unfair outcomes or high administrative burdens.”
However, in the detail, it states:
“This measure is expected to have a negligible impact on the Exchequer…This measure will have a negligible impact on an estimated 6,800 groups,”
and
“This measure is expected overall to have no impact on business’ experience of dealing with HMRC as the proposals do not significantly change any processes or administrative obligations.”
The policy paper therefore sets out at several points the view that the measure has no impact or, at most, a negligible impact. I would be grateful if the Minister could help us to square those statements with the aim of the measure. For instance, can she explain how the policy paper can claim at one point that the measure will “reduce...high administrative burdens,” yet also conclude that
“the proposals do not significantly change any processes or administrative obligations”?
Clause 35 and schedule 4 update the rules governing the tax treatment of certain investment vehicles. The qualifying asset-holding companies regime was included in the Finance Act 2022 and came into effect from April last year. Amendments to the regime were initially announced in July 2022, with further amendments announced in March 2023. The amendments seek to make the regime more widely available to investment fund structures that fall within its intended scope.
As we have heard, clause 35 and schedule 4 also affect the rules for real estate investment trusts—companies through which investors can invest in real estate indirectly. In a written statement on 9 December 2022, the Chancellor announced changes to the property rental business condition and three-year development rule within the real estate investment trust rules. Schedule 4 gives effect to those changes, and we will not oppose clause 35.
Victoria Atkins
We are making these changes because, as I have said, we are mindful that this is an incredibly complex area of law and of corporate accountability and we are genuinely happy to listen to businesses when they tell us that there are problems and they think that they have solutions for those problems. That is why we have gone through this process and set up an external working group. HMRC, businesses and their advisers have identified issues with the current rules. We are making these changes to protect the Exchequer and reduce unfair outcomes and administrative burdens on affected businesses.
The hon. Member for Ealing North referred to the worldwide debt cap. The corporate interest restriction rules superseded the tax treatment of financing cost and income rules, commonly referred to as the worldwide debt cap, but there are still open inquiries and cases in litigation where the debt cap legislation is in point. The changes clarify that a revised statement of disallowances is ineffective unless a revised statement of allocated exemptions is also submitted, so exemptions must always be reduced in line with disallowances.
Question put and agreed to.
Clause 34 accordingly ordered to stand part of the Bill.
Schedule 3
Corporate interest restriction etc.
Amendment made: 5, in schedule 3, page 309, line 4, leave out paragraph 28 and insert—
‘28 (1) In section 494 of TIOPA 2010 (other interpretation), at the end insert—
“(3) The definition of “insurance company” in section 65 of FA 2012 (which is applicable to this Part as a result of section 141(2) of that Act) has effect for the purposes of this Part as if, in subsection (2)(a), the reference to Part 4A of the Financial Services and Markets Act 2000 included a reference to the law of a territory outside the United Kingdom which is similar to or corresponds to that Part.”
(2) In Part 7 of Schedule 11 to that Act (index of defined expressions), in the entry relating to an insurance company, in the second column, for “section 141 of FA 2012” substitute “section 494(3)”.’—(Victoria Atkins.)
This amendment secures that companies count as insurance companies for the purposes of the corporate interest restriction rules if they effect or carry out contracts of insurance and have regulatory permission to do so under a foreign law which is similar to or corresponds to the relevant United Kingdom law.
Schedule 3, as amended, agreed to.
Clause 35 ordered to stand part of the Bill.
Schedule 4 agreed to.
Ordered, That further consideration be now adjourned. —(Andrew Stephenson.)
Finance (No. 2) Bill (Second sitting)
Tuesday 16th May 2023
(11 months, 2 weeks ago)
Public Bill CommitteesRead Full debate Finance (No. 2) Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 May 2023 - (16 May 2023)
The Chair
With this it will be convenient to discuss the following:
Clause 37 stand part.
That schedule 5 be the Fifth schedule to the Bill.
Clause 38 stand part.
The Financial Secretary to the Treasury (Victoria Atkins)
Clause 36 makes changes to ensure that tax is paid on value built up in UK shares or securities even if the shares or securities are exchanged for an equivalent holding in a non-UK company. The measure is already legally in application since the point of its announcement in the autumn statement on 17 November last year. It will ensure that tax cannot be avoided where a UK resident non-domiciled individual with a degree of control in a UK company exchanges shares or securities in a UK close company for shares or securities in a non-UK holding company.
Before the measure was introduced, individuals could claim the remittance basis on disposal of the non-UK company shares and any income received in respect of the non-UK company shares. That means that tax will be paid only on the chargeable gain or the income if it is brought into the UK. The measure prevents the remittance basis from applying to the chargeable gain on disposal where the individual holds more than 5% of shares or securities in a UK close company and exchanges the shares for an equivalent holding in a non-UK company. Instead, the individual will pay tax as if the share exchange had not taken place. The clause will prevent tax avoidance by a small number of individuals, and protects £830 million of revenue across the scorecard period, ensuring that tax is paid on value built up in the UK on UK company securities even when securities are exchanged for securities in a non-UK company.
Clause 37 and schedule 5 make changes to require large multinational businesses operating in the UK to prepare transfer pricing documentation in accordance with the OECD’s transfer pricing guidelines. Transfer pricing is a means of ensuring that the pricing of transactions between connected parties is at arm’s length for tax purposes. From the financial year 2016-17 to 2021-22, HMRC brought in £10 billion in additional tax from transfer pricing compliance activities. HMRC does not currently prescribe specific transfer pricing records that UK businesses must prepare to demonstrate that their tax returns are complete and accurate, or the format of those records.
The proposed changes would require UK businesses to prepare OECD standardised documentation, which is described as a master file providing high-level information of the global business operations and a local file providing more detailed information about material cross-border transactions of UK group members with other members of the multinational group. The changes made by clause 37 and schedule 5 provide greater certainty for UK businesses, provide HMRC with better quality data to enable more efficient and targeted compliance interventions, and align the UK’s practice more closely with the transfer pricing documentation requirements of comparable tax administrations.
Clause 38 makes changes to ensure that access to double taxation relief is limited in respect of dividends received by UK companies in periods prior to the introduction of a broad distribution exemption regime in 2009. Specifically, it will prevent new claims for double tax relief credit calculated at the foreign nominal rate of tax on such dividends being made on or after 20 July 2022, the date on which the Government announced in a written ministerial statement that legislation would be introduced for that purpose. Unlike normal double tax relief, which is given on tax actually paid, foreign nominal rate credit is a notional amount calculated by reference to the rate of tax applicable to the profits out of which the overseas dividends were paid.
A first-tier tribunal decision in 2021 concerning the nature of this credit raised the prospect that certain claims could still be made by companies in receipt of foreign dividends prior to the introduction of distribution exemption in 2009, possibly as far back as 1973, so we needed to act. The measure will protect Exchequer revenue by preventing new claims from being made for long-settled years where no actual additional tax has been paid by the claimant. It does not seek to prevent such claims in relation to periods that are open or remain subject to ongoing litigation. The measure is intended to preserve the balance between taxpayers’ rights to make double-taxation relief claims and the need to impose reasonable time limits in respect of such claims. I recommend that all of these clauses stand part of the Bill.
James Murray (Ealing North) (Lab/Co-op)
I begin by addressing clause 36, which inserts new sections into the Taxation of Chargeable Gains Act 1992. As we heard from the Minister, the new sections will help to make sure that UK tax cannot be avoided on chargeable gains made on the disposal of a UK business, or on income received in respect of shares or securities held in a UK business, by exchanging securities in a UK company for securities in a non-UK holding company. Under the current legislation, where such an exchange takes place and the individual is a UK-resident non-domicile, they will be able to claim the remittance basis on any chargeable gain made on the disposal of the non-UK company’s securities or on any income received in respect of the offshore company’s securities.
I would be grateful if the Minister could set out the Government’s response to some of the queries about the detail of the Bill that have been raised by the Chartered Institute of Taxation, which has expressed concern that by applying only to individuals in their other guises—for example, when they are acting as trustees—the measure leaves gaps that could be exploited. The Chartered Institute of Taxation believes that there is potentially a straightforward avoidance opportunity here, whereby having shares held by trustees just before the share-for-share exchange could be resolved by extending the measure to cover trustees, rather than just individuals on their own. To tackle this issue, the Chartered Institute of Taxation suggests that individuals acting as trustees, or as partners or members of partnerships or LLPs, be included within the definition of those affected by the change, to ensure that artificial intermediaries are not put in place prior to any exchange.
The second point raised by the Chartered Institute of Taxation, which I would like the Minister to address, relates to the wording of the Bill with respect to the ownership of shares, which it believes may also create an avoidance opportunity. New section 138ZA(1)(d) of the Taxation of Chargeable Gains Act 1992, which clause 36 introduces, refers to the person to whom the shares are issued—the legal owner, as opposed to the beneficial owner. It is well recognised in tax law that the beneficial owner is the real owner for tax purposes, so the Bill should logically refer to beneficial ownership. The Chartered Institute of Taxation is therefore concerned that failure to clarify the beneficial, rather than legal, ownership could leave a possible avoidance opportunity open, and I would be grateful if the Minister could address that point.
More widely, looking beyond the specific detail of the Bill, we believe it is important to consider the context in which the clause operates. It seems clear that the situation that the measure in the clause seeks to address arises only because of the existence of the non-dom tax status and the associated remittance basis. Indeed, the Government’s own policy paper on this matter makes it clear that the measure is expected to affect a very small number of wealthy, UK-resident non-domiciled individuals a year. In practice, the measures we are considering need to be addressed only because the Government refuse to get rid of the £3.2 billion-a-year tax loophole that the Prime Minister has referred to as “that non-dom thing”.
The Minister may recall how she told the House in January that the measures we are debating today would mean that the Chancellor would close the loophole in non-dom legislation, but when we inspect the detail that is before us today, it is clear that this is just a smaller loophole within the much larger and more profound loophole: the continued existence of the non-dom tax status. The policy paper underscores this point and confirms that the measure will raise, on average over the next five years, just one 20th of the £3.2 billion lost through the non-dom tax status every year. I urge the Minister to go beyond the small step today and commit to abolishing the non-dom tax loophole altogether.
Moving on to clause 37 and schedule 5, we understand that this measure is intended to make sure that businesses maintain and provide upon request transfer pricing documentation prepared in accordance with the OECD transfer pricing guidelines. We recognise that accessing high-quality data in a standardised format would enable HMRC to carry out more informed risk assessments, target resources more efficiently and reduce the time taken to establish the facts in compliance interventions. Moreover, having to clearly report transfer pricing information in specific documentation will result in businesses having clearer and more robust transfer pricing positions to inform the filing of their return. This may encourage and incentivise businesses that adopt higher risk transfer pricing positions to change their behaviour.
In recent years there have been significant developments in the field of international taxation. More than six years ago, the OECD presented a package of measures in response to the G20-OECD base erosion and profit shifting action plan, including a requirement to develop rules regarding transfer pricing documentation. The action 13 final report recognised the importance of having the right information at the right time to identify and resolve transfer pricing risks. This led to the introduction of guidance on a standardised approach to transfer pricing documentation.
The standardised approach consists of three things: a master file containing standardised information relevant for all multinational enterprise group members; a local file referring specifically to material transactions of the local taxpayer; and a country-by-country report for the largest multinational enterprise groups containing aggregate data on the global allocation of income, profit, taxes paid, economic activity and so on among the tax jurisdictions in which it operates.
We understand from the policy paper on this measure that the UK did not originally introduce specific requirements regarding the master file and local file because the Government felt that the UK already had broad record-keeping requirements. They seem to have changed their mind on this, which has led to this Bill. It seems that the status quo had created uncertainty for UK businesses regarding the appropriate transfer pricing documentation that they needed to keep. That led to an inconsistency of approach. Although this measure relates to the standardised approach for transfer pricing documentation, I would like to ask the Minister to update the Committee on the status of country-by-country reporting.
The policy paper refers to the fact that the UK implemented the country-by-country minimum standard. However, as we know, the Government have long been hesitant to go beyond that minimum and provide public country-by-country reporting. Indeed, nearly three years ago my hon. Friend the Member for Houghton and Sunderland South (Bridget Phillipson) made it clear to one of the Minister’s predecessors that for years the Opposition has been urging the Government to commit to country-by-country reporting on a public basis. Will the Minister give us her view on public country-by-country reporting and explain what is preventing the Government from implementing it?
Finally, clause 38 introduces a measure to limit access to double taxation relief in certain circumstances. Specifically, we understand that it will prevent new claims for double taxation relief credit, calculated by the foreign nominal rate of tax, which could arise in relation to overseas dividends received by UK companies in periods prior to the introduction of the distribution exemption in 2009. We recognise that this measure is intended to preserve the balance between double taxation relief claims and the need to impose reasonable time limits in respect of such claims, so we will not be opposing this clause.
Sam Tarry (Ilford South) (Lab)
It is an honour to speak under your chairmanship, Ms McVey. On the points made by my hon. Friend in relation to clause 36, it is important for the record that we understand the Government’s thinking around non-doms. Although work has been done to close the particular loophole that was mentioned, as my hon. Friend has just said it is quite apparent that that work is tiny compared to the scale of the problem. It is worth exploring the breadth of the problem.
Let us be clear. Non-doms receive around £10.9 billion in offshore income. That is capital gains that they are not required to report on to HMRC or pay tax on in the UK each year. For a non-dom using that remittance basis scheme, that amounts to a tax break of on average £420,000. Those unreported capital gains represent a huge untapped pool of tax. There are so many issues facing the country, and that money could be used appropriately to lift many people out of poverty.
Members on Government Benches have expressed on many occasions concerns about abolishing non-dom status and a potential flight or mass exodus from the UK. However, recent interesting research by the University of Warwick found that only 0.3% of those affected would leave the country. That is fewer than 100 people in total, most of whom are paying hardly any tax under the current regime. My question to the Minister is: why is there so little breadth in what has been brought forward? This was an opportunity to completely abolish non-dom status, or, if the Government are not prepared to do that, certainly to apply minds in the Treasury to a far wider range of areas, which would have brought much-needed money into our coffers. It is a problem that the Government are really a bit lax when it comes to tax.
Victoria Atkins
I am delighted to answer the Opposition’s queries on non-domiciled taxpayers. Their stance is an interesting contrast to the Conservative party’s inclusive nature when it comes to wealth creation, and opening ourselves up to the rest of the world to encourage the best and brightest to come here and do business. I am interested to hear that the hon. Gentleman has something against film stars, singers and—dare I say it—movie stars who perhaps cross into the world of football. I will not name any taxpayers. But my goodness, I am sure he is proud of the fact that we have a leading film and creative industry in the United Kingdom, particularly on the outskirts of London. I have the great pleasure of meeting representatives of some of those industries from time to time; the excitement and the welcome they feel from the United Kingdom, partly because of the reliefs and support given by the Government, is really interesting to see.
Turning to the scheme itself, we want to have a fair but internationally competitive tax system, designed to bring in talented individuals and investment that will contribute to the growth of the economy. Non-domiciled individuals pay tax on their UK income and gains in the same way as everybody else, and they pay tax on foreign income and gains when those amounts are brought into the UK. They play an important role in funding our public services through their tax contributions. According to the latest information, non-UK domiciled taxpayers are estimated to have been liable to pay almost £7.9 billion in UK income tax, capital gains tax and national insurance contributions in 2021, and they have invested more than £6 billion in the UK using the business investment relief scheme introduced in 2012.
To put those numbers into context, £7.9 billion is just under half of what we spend on policing in England and Wales. They are extremely big numbers. When the Opposition put their plans forward, they do not address a significant risk, which we have looked into carefully. What happens if, by changing the rules and making ourselves less competitive, we start to turn away those very successful people?
The hon. Member for Ilford South talked about capital flight. I think he was referring to the research published by the London School of Economics and the University of Warwick, which suggested that abolishing the non-domiciled regime would lead to very little immigration—around 0.2%. That study looked at the particular response to the 2017 reforms. As colleagues will know, several policy mitigations that were put in place in 2017 reduced the migration impact of reform: protections for non-resident trusts, the option to revalue non-UK assets at their 5 April 2017 valuation for CGT purposes and the ability to rearrange offshore investments to make it easier to bring money to the UK. Abolishing the remittance basis outright would be expected to have a much more significant behavioural impact in the absence of any policy mitigations, so the headline result of the external research may underestimate the migration response.
Samantha Dixon (City of Chester) (Lab)
This morning we discussed the Office for Budget Responsibility’s statement that the Bill will drag an extra 1.2 million people into the higher rate of tax, so will the Minister explain, in plain English, her reluctance to include non-domiciled taxpayers?
Victoria Atkins
They are taxed, as UK taxpayers are taxed, on their UK income—that is the point. The hon. Lady will know that the threshold for the additional rate was lowered from £150,000 to just over £125,000 at the autumn statement. That will apply to the UK income tax of those who are earning here in the UK. That is precisely the point; the difference relates to their foreign income. We want to help these very mobile and very successful people who work for banks or in the movie and sporting worlds, and we want to help those who work for the various businesses to which the hon. Member for Ilford South referred to help us to build the best tech industry that we can possibly have. We want them to help us to build incredible life sciences solutions.
If the hon. Member for City of Chester took a bit of time to talk to some of the individuals involved in the life sciences industry—that golden triangle between Cambridge, Oxford and London—she would know that what they do is genuinely inspiring. Why on earth would we not welcome people from overseas to help us in that? That little golden triangle has more tech companies in it than any place on the planet other than New York and Silicon Valley. If those places are our competitors in the tech industry, we are doing very well indeed. We want to encourage more of them to come to our country to help us to build that.
Aaron Bell (Newcastle-under-Lyme) (Con)
It is a pleasure to serve under your chairmanship, Ms McVey. The Opposition already seem to have spent the money from this claimed non-dom bonus a dozen times over, by my count. The Minister referred to the University of Warwick research, which I have referred to during various debates in the main Chamber. If the Treasury analysis is that that research—that 0.3% figure—is misguided, is it not the case that the magic pot of money that the Opposition keep spending does not actually exist?
Victoria Atkins
My hon. Friend brings a particular fervour to his intervention, if I may say so. I absolutely want very high-earning people to pay their proper taxes here in the United Kingdom, but we need to stay competitive, which is why we look at other countries around the world. Our competitors have regimes that give tax advantages, or they are more careful with the tax that they apply, to people who are so highly mobile. I want to bring those people to the UK and get them to pay UK taxes on their UK earnings.
Rob Butler (Aylesbury) (Con)
It is a pleasure to serve under your chairship, Ms McVey. Is it not also the case that attracting those very mobile people to this country means that they then spend money in this country? Some of that is on VAT—a further tax—and much of it is on employing other people, who then pay tax themselves, so the very presence of such very mobile people has a multiplier effect on tax.
Victoria Atkins
I completely agree: there is a ripple effect from those individuals. Conservative Members understand the concern that such people should pay their taxes fairly and contribute to our economy, which is precisely why it is a Conservative Government who act on loopholes when they emerge and are drawn to our attention, as we have done in the Bill but also in 2017. There is a delicate balancing act to ensure that we remain internationally competitive.
Sam Tarry
It is important that we are clear that non-dom status is mostly used by British citizens who were born in this country but have decided to not pay their taxes in this country, even though they live here for the majority of the year—[Interruption.] It is true. It is a hangover from the colonial era, when people used to have sugar plantations. Look at the history of non-dom status; it is hundreds of years old. It has not just been cooked up by the Treasury in the last five minutes, has it? It was a way of allowing people to own different things around the world—sugar plantations in the Caribbean are one example—and have that money come back to the UK without paying the taxes. It was a perk, essentially, for those people.
If Conservative Members do not believe me, they should go and look at the history. They are in government. They should know these sorts of things. The fact is that non-dom status is used as a tax dodge. The point is about fairness. Of course we want to encourage the brightest, most talented people to come to this country, make a life here and contribute, be that in life sciences, tech companies, the NHS or whatever, but I strongly suggest to the Minister that she should have a firm conversation with the Home Secretary about putting in place a progressive migration policy, because that is the problem here.
This is about taxation and people paying their fair share. Some 77,000 people—British residents, living most of the time in this country—use the non-dom scheme to not pay taxes—
Victoria Atkins
The hon. Gentleman is trying to tempt me away from the scope of the Bill, and I will resist that temptation. I gently ask him to help me—perhaps afterwards—to understand the evidence he has to support his claim that the overwhelming number of non-dom claimants are British residents. We just need to be a little bit careful about definitions.
Let me move on to the questions from the hon. Member for Ealing North. The share exchange legislation provides a relatively simple way for shareholders to avoid tax. It applies only to individuals. If individuals use artificial arrangements to prevent the legislation from applying, they will need to consider whether other anti-avoidance provisions apply.
The hon. Member asked about the difference between the legal owner and the beneficial owner. Again, the legislation applies to shares held on behalf of the individual in a nominee, or bare trust arrangement. Section 60 of the TCGA treats shares as being issued to the beneficial owner where there is a bare trust or nominee arrangement in place.
On public country-by-country reporting, we remain firmly committed to a multilateral approach, but it is important that such a requirement applies consistently across domestic and foreign headquartered multinationals to avoid distorting decisions on where companies decide to locate.
James Murray
The Minister quoted some figures that we have heard before, and I think it is worth the Committee having the context for them. The Minister tried to defend non-dom tax status by claiming that non-doms paid £7.9 billion in UK taxes last year. As always, that argument entirely misses the point, because we are talking about the £3.2 billion of tax that non-doms avoid paying in this country every year.
The Minister also repeated her line about non-doms having invested £6 billion in investment schemes since 2012, but I am sure the Committee would want to know that that ignores the fact that only 1% of non-doms invest their overseas income in the UK in any given year. In fact, non-dom status discourages people from bringing money into the UK to invest. We have set out the Labour party’s position very clearly, explaining how we would have a modern, short-term scheme for temporary residents.
Finally, the Minister referred to the potential behavioural impact if non-dom status were abolished. She was quick to dismiss some of the independent findings of the LSE and Warwick, made on the basis of HMRC data. If she is so confident that the behavioural difference will be that different, will she publish the Treasury research, so we have it in the public domain?
Victoria Atkins
We have to make judgments on how we ensure that the UK economy is not only internationally competitive but attractive to other countries. We are happy to make the point that non-domiciled taxpayers can make a valuable contribution to the United Kingdom, but of course we want them to pay—we require them to pay—UK income tax, and so on, on their UK income and remittances. We want to ensure that that system is in place.
On the behavioural aspects, we looked very carefully at the University of Warwick report, but what worries us is that there does not seem to be a recognition of the mobility of such people. They are able to live and work anywhere in the world. We do not want to put their living here at risk. Let us not forget that the hon. Gentleman is prepared to put at risk £7.9 billion. That is a risk we are not prepared to take.
James Murray
I will focus on the question in my previous intervention. The Minister was keen to rubbish the LSE and Warwick analysis based on HMRC data. Will she—
James Murray
Thank you, Ms McVey. The Minister was quick to rubbish the conclusions of the LSE and Warwick on the behavioural impact of abolishing non-dom status, even though the research was thorough and based on HMRC data. The question I asked the Minister was whether she will publish the Treasury analysis that she is relying on to rubbish that LSE-Warwick conclusion.
Shaun Bailey (West Bromwich West) (Con)
On a point of order, Ms McVey. My hon. Friend the Minister did not say that. Is it in order for Members of this House to misrepresent the words of other Members? I am pretty sure that “Erskine May” is clear, but I would be grateful for your guidance. I apologise for jumping in.
The Chair
We cannot say “misrepresentation”, but I would like the Minister to give a full response to what was said.
Victoria Atkins
We have been through this on many occasions. We are perfectly entitled to receive advice. We have come to the conclusion that non-domiciled status is right for ensuring that we remain internationally competitive. I am not rubbishing anyone, or anything of that nature, and it is improper to say that I am, but we do have reasonable concerns. We have to look at the evidence base. The one thing that we are not prepared to do is to put at risk that £7.9 billion going into the UK economy.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clause 37 ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 38 ordered to stand part of the Bill.
Clause 39
Payments to farmers under the lump sum exit scheme etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 40 stand part.
Government amendments 6 and 7.
Clause 41 stand part.
Government amendment 8.
Clauses 42 and 43 stand part.
Victoria Atkins
Clause 39 makes changes to clarify that payments from the lump sum exit scheme are treated as capital receipts. It aims to set clear and fair rules regarding the taxation of the scheme. Clause 40 creates a fairer system for assessing capital gains when an asset is disposed of under an unconditional contract. Clause 41 makes the capital gains tax rules fairer for spouses and civil partners in the process of separating or divorcing. Clause 42 makes changes to ensure that individuals who pay tax on carried interest are able to better align the time a tax liability arises in the UK with that of other relevant jurisdictions, and therefore claim double taxation relief where it is due. Clause 43 makes changes to ensure that roll-over relief and private residence relief work as originally intended for members of limited liability partnerships and partners of Scottish partnerships.
I will go through the changes in detail. Clause 39 clarifies the tax treatment for around 2,700 sole trader farmers, farming partnerships and farming companies who have received, or will receive, payments from the lump sum exit scheme. That will give certainty to those receiving such payments and remove the need to consider individual cases.
Clause 40 modifies HMRC’s four-year assessment powers so that, in certain circumstances, they will operate by reference to the tax year or accounting period in which the asset is conveyed or transferred. For capital gains tax, those circumstances are where the conveyance or transfer takes place six months after the end of the tax year in which the contract is entered into. For corporation tax, the date is one year after the end of the accounting period for the contract.
Capital gains tax rules provide that the transfer of assets between spouses and civil partners is made on a “no gain/no loss” basis. When spouses or civil partners separate, no gain/no loss transfers can be made only in the remainder of the tax year in which the separation occurs. Clause 41 extends no gain/no loss treatment until the end of the third tax year after the year the parties ceased to live together, the date on which the parties’ marriage or civil partnership ended, or the date when the parties entered into a divorce or separation agreement. No time limit applies to transfers of assets that form part of a formal divorce or separation agreement. The clause also makes changes to the rules that apply to the sale of the former family home. The other change applies to individuals who have transferred their share in the former family home to their ex-spouse or civil partner and who are entitled to receive a percentage of the proceeds when it is eventually sold.
Amendment 6 corrects an issue with time limits. Where a divorce agreement has not been entered into, spouses and civil partners should have up to three full tax years in which to transfer assets between themselves on a no gain/no loss basis. As it is worded currently, clause 41 provides a day short of that, so we want to correct that. Amendment 7 clarifies that the new rules also apply to divorce agreements entered into after spouses and civil partners have ceased to be married or have ended their civil partnership.
The changes made by clause 42 will introduce a new elective basis of taxation for carried interest, a type of reward for asset managers. For those who opt to use the elective basis, it will tax carried interest in the UK at an earlier time than under the current rules. That will mean that individuals receiving carried interest may be able to claim double tax relief in other jurisdictions more easily, avoiding disproportionate tax outcomes. That will help to remove barriers to international trade and support the health of the asset management sector while accelerating, but not reducing, UK tax.
Amendment 8 seeks to refine the calculation of carried interest for the purposes of clause 42. It modifies the calculation methodology so that it works in circumstances where managers are entitled to more carried interest if investors receive fund profits earlier. That means that the measure will better deliver in practice the opportunity to claim relief from double taxation on carried interest, as intended.
Clause 43 will ensure that roll-over relief and private residence relief work as originally intended for members of limited liability partnerships and partners of Scottish partnerships, by clarifying that the reliefs are available to them when an exchange of interest in land or private residences takes place, in the same way as they are when the land is held by the individual members or partners.
This group of clauses will provide greater certainty, consistency and fairness in the taxation of chargeable gains. I therefore commend them to the Committee.
James Murray
Clause 39 clarifies the tax treatment of payments received under the lump sum exit scheme, saying they will be treated as capital receipts rather than income, provided that the eligibility criteria are met. As we know, the lump sum exit scheme was designed to make it easier for farmers who wish to retire or to leave the industry. The basis for the scheme was considered in 2021 by a consultation that we understand received 654 responses.
We will not oppose the clause, which is specifically designed to provide clarity on the tax treatment of payments made under the scheme, but I wish to use this opportunity to ask the Minister for more context around the clause and, in particular, for details on the operation of the scheme and what comes next.
I understand that a total of 2,706 farmers made an initial application to the lump sum exit scheme by the deadline of 30 September 2022. Of those claims, 511 were withdrawn or rejected. Will the Minister tell us what analysis there has been of why those 511 claims were withdrawn or rejected?
I am conscious that when the draft Agriculture (Lump Sum Payment) (England) Regulations 2022, which relate to this matter, were debated in March last year, concerns were raised, on behalf of organisations including Sustain, that the scheme could be open to instances of fraud. Will the Minister confirm whether any of the 511 claims that were withdrawn or rejected were in fact rejected on the basis of fraud? If she does not have that information, perhaps she can at least provide us with the detail about what anti-fraud efforts have been made in relation to the scheme and how successful they have been.
I understand that the Department for Environment, Food and Rural Affairs is conducting five pilots aimed at supporting new entrants into farming, and I would be grateful if the Minister updated us on how those pilots are going and any early lessons that she may be able to share with us.
Clause 40 modifies the operation of the period in which a person must notify HMRC that they are chargeable to capital gains tax or corporation tax, and the time limits for assessing chargeable gains and claiming allowable losses, when an asset is disposed of under an unconditional contract.
When an asset is disposed of in that way, its date of disposal for capital gains purposes is treated as being the date on which the contract is made and not the date on which the asset is conveyed or transferred, if this is different. HMRC subsequently has four years from the end of the tax year or accounting period in which the disposal is treated as taking place in which to assess any tax that is due. Similarly, there is a four-year time limit for making loss claims. If there is a long gap between the disposal contract being entered into and it being performed, that can result in HMRC and taxpayers having little or no time in which to make a tax assessment or a claim.
We recognise that the measure removes potential avoidance opportunities by ensuring that HMRC can assess tax due in circumstances in which more than four years pass between an unconditional contract being entered into and an asset being conveyed or transferred. It also provides the taxpayer with a safeguard by allowing a corresponding period to claim allowable losses. We will therefore not oppose the clause.
As we heard, clause 41 makes changes to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating. It provides that they be given up to three years in which to make a no gain, no loss transfer of assets between themselves when they cease to live together, and unlimited time if the assets are the subject of a formal divorce agreement. It also introduces special rules that apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold.
Essentially, the clause seeks to make fairer the capital gains tax rules that apply to spouses and civil partners who are in the process of separating. It gives them more time to transfer assets between themselves without incurring a potential charge to capital gains tax. No gain, no loss treatment is currently available only in relation to disposals made in the remainder of the tax year in which the spouses or civil partners cease to live together. After that, transfers are treated as normal disposals for capital gains tax purposes. The measure extends the time available to give separating couples at least three years to make no gain, no loss transfers between themselves for capital gains tax purposes.
It is worth noting that the “Background to the measure” section of the Government’s policy paper on this matter refers to the Office of Tax Simplification and its consideration of how the capital gains tax rules apply to individuals who separate and divorce. The Government responded to the Office of Tax Simplification recommendations by agreeing that the no gain, no loss window on separation and divorce should be extended, and that is what the clause implements.
There is at the very least something ironic about a Government who use one clause of a Finance Bill to implement a recommendation of the Office of Tax Simplification and another clause of the same Bill to abolish that institution. As the Chartered Institute of Taxation has pointed out, the changes to be made by the clause are a result of an Office of Tax Simplification report. In fact, they are the third recommendation from that report to be implemented: it also recommended an increase in the notification period for the disposal of residential properties from 30 days to 60, and the incorporation of capital gains tax into a single customer account.
Will the Minister offer her views on that when she responds, and set out how the Government reconcile the apparent worth they seem to attribute to the Office of Tax Simplification, as evidenced by their decision to implement its recommendation in clause 41, with their decision to scrap it later in the Bill?
Victoria Atkins
On amendment 8, I had read out that it seeks to refine the calculations of carried interest for the purposes of clause 42. It modifies the calculation methodology so that it also works in circumstances where managers are entitled to more carried interest if investors receive fund profits earlier. That will mean that the measure will better deliver in practice the opportunity to claim relief from double taxation on carried interest, as intended.
James Murray
I apologise to the Minister for missing her comments about Government amendment 8 and remind her that I would like to know whether the amendment, if it is passed, will have any effect on the overall Exchequer impact of the measure.
Victoria Atkins
I will come to that later.
The hon. Gentleman should send his questions about the farmer scheme to DEFRA, which is responsible for the Rural Payments Agency, which operates the scheme. He will know that we are confining ourselves to the tax implications of the scheme, so he ought to direct his questions there.
The hon. Gentleman asked about the Office of Tax Simplification, and that debate awaits us in our next day of consideration in Committee. I will not trespass on those deliberations, but we are in fact going further than the OTS’s recommendation, as we consider that that will give a fairer outcome to the parties involved in complex separation and divorce proceedings. We received representations that the OTS’s recommendations did not go far enough and we wanted to address the issues about the former family home that, for many divorcing and separating couples, is their main asset. We want to try to relieve the pressure during what can be a very upsetting and emotional time for the people involved and to try to ensure that they have time to resolve important family disputes.
In relation to carried interest being taxed as income, depending on the circumstances carried interest can be subject either to income tax rates or to the higher capital gains tax rate of 28% for higher and additional rate taxpayers. This is a balanced approach and one that is followed by comparable jurisdictions. We are supportive of the wider role and importance of the asset management sector. Amendment 8 has no impact on clause 42; it is designed to make the measure work as intended.
Question put and agreed to.
Clause 39 accordingly ordered to stand part of the Bill.
Clause 40 ordered to stand part of the Bill.
Clause 41
Separated spouses and civil partners
Amendments made: 6, in clause 41, page 32, line 36, at beginning insert “on or ”.
This amendment ensures that the inserted subsection (1C) applies to disposals made on the days mentioned in paragraphs (a) and (b) of that subsection as well as before those days.
Amendment 7, in clause 41, page 33, line 8, after “etc)” insert—
“, but as if, in subsection (2)(a), after ‘partner’ there were inserted ‘, or former spouse or civil partner,’”. —(Victoria Atkins.)
This amendment clarifies that the inserted subsection (1D) applies in relation to disposals made after A and B have ceased to be married or civil partners.
Clause 41, as amended, ordered to stand part of the Bill.
Clause 42
Carried interest: election to pay tax as scheme profits arise
Amendment made: 8, in clause 42, page 34, line 40, at end insert—
“(5A) Where—
(a) distributions were made by the scheme to external investors before the relevant tax year, and
(b) the timing of those distributions affects the amount of carried interest that actually arises to A,
the amount of carried interest to be presumed to arise in the circumstances mentioned in subsection (5) is to reflect the fact those distributions were made before the relevant tax year.
(5B) But if reflecting that fact would lead to a presumption that an amount of carried interest had arisen before the relevant tax year, any such amount is to be presumed to arise in the relevant tax year.” —(Victoria Atkins.)
This amendment secures that the amount of carried interest that is presumed to arise in the hypothetical situation that determines the amount of the charge properly reflects prior distributions to investors.
Clause 42, as amended, ordered to stand part of the Bill.
Clause 43 ordered to stand part of the Bill.
Clause 44
Meaning of “alcoholic product”
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 6 be the Sixth schedule to the Bill.
Clauses 45 and 46 stand part.
Clause 49 stand part.
The Exchequer Secretary to the Treasury (Gareth Davies)
It is a great pleasure to serve under your chairmanship, Ms McVey. Clauses 44 to 46 and 49 introduce part 2 of the Bill, which delivers on the Government’s commitment to reform alcohol duty. Clauses 47 and 48 were debated in the Committee of the Whole House, which accepted that they should stand part of the Bill. The clauses change the structure of alcohol duty by creating a standardised series of tax bands based on alcohol strength.
At Budget 2020, the Government announced that they would take forward a review of alcohol. This legislation is the result of that review and makes changes to the duty structure for alcohol, moving from individual product-specific duties and bands to a single duty on all alcohol products and a standardised series of tax bands based on alcohol strength. In making these changes, the Government aim to support public health, encourage innovation and ensure that the duty system reflects modern drinking practices.
Clause 44 sets out what is meant by “alcoholic product” and points to definitions in schedule 6. Clause 45 explains the meaning of alcohol strength and gives HMRC the power to make regulations about how strength is to be determined for duty purposes. Clause 46 gives His Majesty’s Treasury the power to amend the categories of alcohol product and treat products as falling within a certain category, even though they may otherwise have fallen in another. Clause 49 explains when excise duty on alcohol is payable, how the amount is determined and how it is paid.
The changes made by the alcohol duty clauses are expected to impact up to 10,000 businesses that produce alcohol, import alcohol or supply it wholesale. This impact will be down to changes in how they calculate the amount of duty that is due on their products. The entire alcohol reform package will cost £155 million in 2022-23 and £880 million across the scorecard period.
To conclude, the clauses and accompanying schedule form an essential part of the Government’s ambitious reform of alcohol duty and will modernise the tax treatment of alcohol. I commend the clauses and schedule to the Committee.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to serve with you in the Chair, Ms McVey. I wish you and Committee members a good afternoon. I take this opportunity to formally welcome the Minister to his new post. I am looking forward to this afternoon’s discussion, which I hope continues to be as productive as this morning’s was.
The clauses are in part 2 of the Bill, on alcohol duty. As the Minister said, clause 44 and schedule 6 introduce the term “alcoholic product” and set out what it means. The term is defined as spirits, beers, ciders, wines and any other fermented products if they have an alcoholic strength of more than 1.2%. Schedule 6 provides a definition for each of the categories I just listed.
The clauses introduce the new alcohol duty regime, which was touched on in the Committee of the whole House. In that debate, I made it clear that the Labour party agrees with the principles behind the alcohol duty review. Indeed, we want to see an alcohol duty system that is simpler and more consistent, while recognising that there is a balance to be struck between supporting businesses and consumers and protecting public health—as the Minister mentioned—and retaining a source of revenue for the Exchequer.
The clauses are administrative in detail so we will not oppose them, but let me lay out some of our underlying concerns about messaging and decision making, which will drive Labour’s scrutiny of the clauses. The Committee may remember that the Government announced a call of evidence on potential alcohol duty reform way back in October 2020. The aim of the review was to make the system
“simpler, more economically rational and less administratively burdensome on businesses and HMRC”.
But since then businesses have seen indecision, U-turns and delays.
The Government’s response to the alcohol duty consultation was published in September 2022, just before the chaotic Tory mini-Budget that crashed the British economy. In that mini-Budget, the then Chancellor announced a freeze on alcohol duty that was due to come into place in February 2023. The new Chancellor then scrapped the planned freeze in October’s autumn statement.
Businesses were scrambling to get their heads around the changes, and some scrapped product lines and slimmed back orders, losing out on the revenue they would expect to see in the run-up to Christmas. The situation has been reflected in many conversations that I have had with businesses up and down the country. I am sure it has caused real distress and difficulties for businesses involved in the supply chain—whether in manufacturing or hospitalities—in the constituencies of all Committee members.
Then, in December, the Government announced a screeching halt and another U-turn. They decided that the freeze was back in place and would last until August 2023. This caused a sigh of relief among businesses facing uncertainty, but it was too late to undo the damage inflicted on their balance sheets. We all know a pub that is facing closure as soaring inflation becomes unmanageable, or perhaps a small brewery that employs local people and has now had to reconsider its expansion plans. Such businesses desperately need certainty, so I hope that the Minister can confirm today that there will be no further U-turns or changes.
The new duty regime will see duty rates adjusted in line with inflation and moved to a system that links them to the ABV—alcohol by volume—of drinks. Clause 45 sets out how alcoholic strength is to be measured and understood, and provides for HMRC commissioners to make regulations on determining the strength of alcoholic products. Alcoholic strength, otherwise known as ABV, is what it says on the tin: the proportion of alcohol contained in a product’s total volume, expressed as a percentage. It is calculated while the product is at a temperature of 20°C.
Dame Angela Eagle (Wallasey) (Lab)
I take this opportunity to welcome the hon. Member for Grantham and Stamford to his new position as Exchequer Secretary to the Treasury. I am told that this is his first Committee as a Minister. I trust that he has been having sleepless nights about it in the run-up, and that he has had his advisers put every size of bottle and every alcohol stamp on his desk, so that he could get to understand how the system works.
Dame Angela Eagle
Of course not; otherwise, I am sure the Minister would be in a much worse situation than we find him in today. However, we will make that judgment after he has finished answering our questions. I genuinely welcome him to his position. It is a fantastic job, and he will be fascinated by it. He will wake up suddenly to realise that his job is to tax all vices, and how interesting that can be.
The Minister is inheriting a completely different regime of alcohol taxation from the one that is about to make an exit. As he heard from my hon. Friend the Member for Erith and Thamesmead, in principle, the Opposition are not opposed at all to the changes, but although there is that agreement, there is an awful lot of detail, potential issues and problems. He will find that definitional issues are not always easy, not least because if tax and duty are to be based on alcohol by volume, the manufacturers will switch the volumes around to get from one band into another. I am interested, philosophically, in what he thinks the right banding is to prevent too much of that.
The public policy reason for having that kind of duty system is, I presume, to persuade people gently that if they are to drink alcohol products with a higher percentage of alcohol in them, they will have to pay more tax, because in general higher-alcohol products are thought to have a greater effect on health than products with less alcohol. That was always the reason, philosophically, for moving to such a system. The Minister will find that, at the margins, manufacturers will try to ensure that their products are in a lower rather than a higher band, although some of the most glorious alcoholic beverages cannot begin to do that. I am thinking of spirits, such as whisky, which are much higher in alcohol.
If we look at the reaction of business and manufacturers to this change, there seems to be an equal division between those with higher alcohol by volume percentages, who find themselves in the higher-taxed bands, and those in the lower-tax bands, such as beer manufacturers. There is an inverse relationship between manufacturer satisfaction and where they are in the ABV bands. The beer and cider manufacturers are basically happy, whereas the wine and spirit manufacturers are less happy. Presumably the Minister will, if he has not already, have them in his office, making it quite clear to his face precisely what they think about that.
Issues other than definitional ones will come to bear on the new system, which will come into being on 1 August. I assume the entire system and HMRC are ready for that; it is a big change. The Minister is presumably confident that when 1 August comes along, the system will come into place seamlessly, and as the old system exits, the new system will appear. I assume he will confirm today that he is more than confident that this large change will come off without any problems. Obviously, we eagerly await his reassurance that there will not be some disaster as the new system comes in.
What, if any, work has been done on the implications for our export trade of changing the way we tax alcohol products? Obviously, countries have different ways of categorising products for tax purposes. I seek reassurance our deviating from a system that used to be EU-wide will not have any deleterious effect on our capacity to export what are often well-known products. I am thinking of not just Scottish whisky—we know how important that industry is to the Scottish economy, but other well-known products associated with this country, which we see when we are on holiday abroad. I assume that he is happy with that.
The OBR has said that it expects alcohol revenue to be £13.1 billion this year. Again, I assume the Minister is confident that the changes will not have an unpredictable effect on alcohol revenue. The OBR expects that to rise to only £15.8 billion by 2027-28. Given that we will have a 10.1% increase—I assume that will happen on 1 August, when the uprating happens—that seems like quite a small amount of increased revenue. I note the uprating is by retail price index when that suits the Government, because it means that they get more revenue, but we learned from our earlier conversations that they link by the consumer prices index when indexing something that gives money out. RPI makes some sense, but I just note that in passing.
Will the Minister talk about the transitional arrangement? There is quite a lot of worry in the trade about certain products that do not qualify for wine industry support. The more general rate is meant to be a transitional arrangement, lasting for the 18 months before the different ABV levels are brought it, in full force. Will he talk about draught relief? When I was Exchequer Secretary, there were big issues between the on-trade and the off-trade. It looks like the trade relief is trying to deal with some of the issues between the on-trade and the off-trade through tax. If I have understood correctly, it looks like there will be tax relief for the on-trade in order to balance out the price differential with the off-trade, and presumably to prevent people from loading up down the shop before they go into a pub. I assume it is an attempt to support the licence trade and the on-trade at the expense of the off-trade, given the “buy one, get one free” discounting that goes on in our supermarkets.
This may make the Minister very unpopular in the southern part of the country, but I note that there is still what is known as cider exceptionalism in the levels. Cider is taxed less than other alcoholic beverages, even though it is the same ABV as them. He might have an explanation for the cider exceptionalism. Now that we are not in the EU, he does not have the excuse that I had that: we could not do anything about cider exceptionalism because of EU rules. I note that he has decided to continue with cider exceptionalism. Perhaps he will tell us why. Does the Treasury prefer cider as a drink, or is there some terrible prejudice against beer that is being found out through this?
The changes introduce a huge range of different forms of taxation. Nobody objects to the principle, but there are quite a lot of anomalies. There are issues between the on and the off-trade, definitional issues, and issues surrounding revenue—why does it continue to be so flat, unlike the beer being taxed? I look forward to the Minister’s response, and I hope that he will not mind me leaping up if he says something that piques my interest, so that we can have a debate about it.
Kirsty Blackman (Aberdeen North) (SNP)
Who knew that a debate on alcohol would be so popular in this place? I will try to limit myself to the clauses that we are talking about, but I will mention a couple of general issues. In Committee of the whole House, we discussed our specific issues with rates. In particular, we discussed the concerns raised by the Scottish whisky industry. We gave our wholehearted backing to the amendment on the subject tabled by the right hon. Member for Orkney and Shetland (Mr Carmichael), because we had concerns about the changes and increases. However, as I said, that has already been discussed, so I will not major on that.
This is a direction of travel for which we have been calling for a very long time. We are pleased that the Government are moving towards applying differential tax rates based on the alcohol in beverages. I share the concerns raised just now about cider, and about exceptionalism for a certain type of product, rather than going simply by the alcohol by volume ratio. It would have been more sensible and fairer across the board to be more consistent.
It is pretty unusual for me to criticise explanatory notes, but those on this part of the Bill are not particularly good. They mention that 77 clauses relate to the changes to alcohol duty, but they give a very general explanation of what the clauses do, rather than a specific explanation of what each clause does. Therefore, we cannot see easily by looking at the explanatory notes what each clause is intended to do. For example, I will ask questions later about clause 87. The explanatory notes could have answered my questions, had an actual explanation been written in there, but the notes just say, “This is what we intend to do with the entirety of the alcohol regime,” rather than providing a commentary on each clause. I understand that a commentary on each clause would have been significantly more work, but presumably the Treasury has an idea of why it is putting forward each clause; it would not have cost it too much to expound on that in the explanatory notes.
Gareth Davies
That was an extensive display of preparation and reading, and quite right too, because that is exactly what we are here to do—scrutinise the Bill. Let me try to answer some of the many points that were raised in the three speeches. First, let me thank Opposition Members for their very generous and kind words. It is a great pleasure to serve in this position in the Treasury.
First out of the gate, let me say that the reforms were extensively consulted on; a lot of the comments related to that. As was pointed out, the reforms were first mentioned in 2020. The hon. Member for Wallasey is quite right: one of my first meetings was on this subject. Engagement with industry is paramount, and that is an ongoing process. Many in the various industries affected by the reforms very much welcome the public health focus that is driving this significant change. Many also welcome the simplification that we are bringing in across the board, and the fact that we are correcting several inconsistencies. I was asked by Opposition Members to give several examples. I can do that. One that springs to mind is the fact that sparkling wine pays 28% more duty than still wine, yet has significantly less or the same alcohol content. The driving principle behind the reforms is that the more alcohol in a product, the more tax that the producer pays. That is very clear for businesses to understand.
We were asked at the beginning about our support for businesses, and were told that businesses require certainty. I completely accept that, and we are providing it with the reforms. This is a massive simplification of our tax system for alcohol, and it builds on all the support that the Government have provided through covid and the energy crisis, as hon. Members will be well aware.
Let me try to rattle off a couple of quick responses to the hon. Member for Wallasey. I was asked about the differences in banding and how certain categories of alcohol can fall into different bands. That is true of spirits; Scotch whisky is required to be over a certain level of alcohol, but cocktails in a can and other items that I am aware of are lower in alcohol content, and so will have a lower tax requirement. That is very pertinent to businesses that have a portfolio of different products in their range.
The question about HMRC readiness is absolutely fair, and we are very confident that the processes have been put in place and businesses are ready to adapt to the new system. As I say, it is based on an extensive programme of consultation and engagement. The hon. Lady asked about exports. They are not subject to alcohol duties, although we are aware of the importance of exports to our alcohol industry. That is a live discussion that we have with the Scotch whisky industry all the time.
Let me address the point about the wine easement, which also relates to the question that the hon. Member for Aberdeen North asked about engagement with industry and others. There is a unique circumstance involving wine that comes from fresh grapes: the alcohol content changes by season, according to seasonal factors. That is different from fortified wine, which involves a more artificial process in which spirits are put into the wine to achieve a specific alcohol content. As part of the consultation that I mentioned, we listened to the wine industry, and for 18 months we have put in place a transitional arrangement for still wine of between 11.5% and 14.5% derived from fresh grapes to enable the industry to transition accordingly.
The hon. Member for Wallasey asked about draft relief. If she will forgive me, that was fully covered in Committee of the whole House, but she is right that it will benefit drinkers of pints in a pub over supermarkets. Draft relief applies to all alcohol below 8.5%. It is something that we are doing in support of beer drinkers and to support our community pubs, which are a vital part of all our communities.
Finally, I will just say that cider is also subject to the general principle that we seek to adhere to—namely, that the higher content of alcohol, the more cider producers will pay. Producers of super-strength ciders above 8.5% will pay more duty, but those of fruit ciders will pay significantly less. At the moment, on certain fruit ciders that are not apple or pear cider, producers pay two to three times the amount of duty. The outcome of these reforms will be a range of differential impacts for the cider industry. I will always support the cider industry, because it is incredibly important to the south of our country, but also to those across the country who enjoy drinking cider in the pub or at home.
Dame Angela Eagle
The Minister talked about simplification, and changing the system to make it easier for people to understand often brings important benefits. However, the reliefs that are coming in complicate it again. Is he satisfied that he has the right balance in extending the reliefs to the new simplified system, particularly the draft relief and the transitional relief?
As the person who brought in the small brewers relief, I have a certain attachment to it, although we will not be talking about that. What revenue does the Treasury believe these reliefs will rob it of, and does he think he has the right balance in imposing a more complicated relief-based system on his simpler system?
Gareth Davies
It is a fair question. We are seeking to simplify the entire system of alcohol taxation, and in the round that is broadly what we are doing. However, we are conscious that certain sectors are under acute pressure—smaller cider makers may have particular vulnerabilities to some of these reforms, for example, and we are mindful of that.
However, we are still applying the principle that I have discussed: the higher the alcohol content, the more tax will be paid. As I mentioned, the wine easement is a reflection of the particular and unique circumstances that I heard about from the wine industry. That is a transitional arrangement, not a permanent reform; overall, we are seeking to simplify the system.
Abena Oppong-Asare
I thank the Minister for his explanations so far. I want to get clarification on a few points. As I mentioned, clause 46 and schedule 6 have been drafted to allow the reclassification of categories. Is any guidance being drafted at the moment? Can the Minister give us more information about how the operation will be carried out to make sure that no issues are identified later? The legislation is not very clear.
To follow on from the points made by my hon. Friend the Member for Wallasey, extra work will be given to HMRC as a result of this. I know that the Government have done work on the issue for some time, but I would like reassurance that adequate processes are in place. How much resource has been allocated to ensure that this is carried out? There will be extra work for HMRC to make sure that the alcoholic strength regulations are determined. It is important that we know whether there have been issues for HMRC in delivering because it has been under a lot of pressure. More information about that would be very helpful.
Gareth Davies
Let me answer the point about guidance. I assure the hon. Lady as well as the hon. Member for Aberdeen North that guidance will be issued very shortly. The hon. Member for Erith and Thamesmead will be able to review that and it should answer a lot of the questions that she has just asked.
Let me repeat what I said about HMRC. The organisation has some incredibly hard-working staff who I have had the pleasure of meeting just in my first two weeks. As a Treasury, we have been preparing for this for quite some time. I have every confidence that our colleagues at HMRC are ready and waiting to implement the system. I have nothing further to add on this, so I urge that the clauses stand part of the Bill.
Kirsty Blackman
I have a brief comment about the guidance. I appreciate that a proportion of the stuff coming out is guidance so will not need to go through any parliamentary processes. However, some of the issues are to do with statutory instruments. Is the Minister satisfied that enough parliamentary time would be given for those, whether under the negative or affirmative procedure? Will they happen as quickly as possible? Clause 119 is about procedure and regulations. Will there be enough time for all that as well as for the less formal guidance coming through from HMRC?
Gareth Davies
We all take parliamentary scrutiny incredibly seriously and of course we will allow appropriate time for scrutiny of the Bill and all the guidance in the appropriate way.
Dame Angela Eagle
Given the newness and thoroughness of the changes that the Minister has outlined, and obviously extensively consulted on, I am presuming that the Treasury will also have a review process once the introduction has happened, so that it can look at how the changes have gone and whether further tweaks are necessary. Certainly, but not surprisingly, some aspects of the industry at the higher ABV end wish the transitional arrangements for wine to be extended beyond 18 months, as the Minister would expect. Is there going to be a review process? Could the Minister briefly outline the kind of time scales that are on his mind?
Kirsty Blackman
Does the hon. Lady share my concern that the post-legislative review scrutiny that is supposed to take place in Government Departments does not always take place—and does not always take place timeously? Does she also share my sense of thanks to the Treasury Committee, which does get hold of and scrutinise the post-legislative review guidance? I am hoping that, as part of the Treasury Committee, she will be keen for the review to take place and for the information to go to the Committee so that it can do the appropriate scrutiny of whether the legislation has achieved what was intended.
Dame Angela Eagle
I agree with the hon. Lady’s comments about the potential role of the Treasury Committee, although I am not the Chair—I am only one modest member. She might want to have a word with the current Chair to ask whether that is appropriate. We are clearly all interested and want the system to work effectively. We do not, however, want to see a sudden reduction in revenue, unless that is because people have started drinking less high-ABV products, and are out running and being very healthy all of a sudden. In that case, they are going to live longer and put much less pressure on our NHS.
Will the Exchequer Secretary give an outline of the Treasury’s thoughts on when it will do a review? Will he also bear in mind the balance between having changes to definitions and those detailed things that make up the essence of a system such as this, which are required by negative and affirmative procedures in this House, and guidance, which does not get to be looked at in the House? That would ensure that his welcome comments about respecting the rights of this House to effectively scrutinise how the system beds in and evolves in the future are realised.
Will the Exchequer Secretary give us an undertaking that he will bear in mind the right of the House to have appropriate scrutiny rights over some of those things—not just shove everything into guidance, which does not have to come before the House at all?
Gareth Davies
All taxes are always under review, as the hon. Lady knows. The Treasury Committee, of which we were both members, plays a vital part in the scrutiny process—of course it does. That process started when the Chancellor appeared before it, and carries on through the parliamentary procedures we are going through right now. The Treasury is unusual in that it has two fiscal events per year—
Gareth Davies
I was waiting for that.
The Treasury has two fiscal events in which the full House has the opportunity to scrutinise our decisions. That also gives the Treasury the opportunity to review existing rates and systems, which is what we are doing as part of the spring Budget.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Schedule 6 agreed to.
Clauses 45 and 46 ordered to stand part of the Bill.
Clause 49 ordered to stand part of the Bill.
Clause 61
Mergers: general provisions
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clauses 61 to 71 provide for transitional arrangements for small businesses that merge under the new small producer relief and provide definitions for terms used in the chapter.
The Government are committed to modernising and reforming alcohol duty. Part of the reform package is a new small producer relief for businesses that make alcoholic drinks of a strength less than 8.5% alcohol by volume. That will extend the benefit of progressive duty rates enjoyed by small brewers to the producers of other alcohol products. The provisions on mergers and acquisitions mean that small businesses that merge will not face a cliff-edge duty increase in the first year of the merger; instead, their duty rates will increase gradually over a three-year period. The clauses also include some general provisions around definitions for the purposes of the relief.
Clause 61 introduces the concept of a post-merger group, which is a company formed from the merging of two or more companies, and explains how each of the three years in the transitional period will be referred to. Clause 62 sets out the conditions which must be met for a newly merged business to qualify for the relief. Clause 63 explains what is meant by the “relevant production amount” during the transition period. Clause 64 explains what is meant by “post-merger amount”, which determines the level of relief available to newly merged businesses.
Clause 65 provides for termination of a transition period where the amount of alcohol produced by a post-merger group decreases. Clause 66 explains the treatment when another merger takes place during an ongoing transition period. Clause 67 explains the treatment of mergers involving more than two small producers at the same time. Clause 68 provides that that the transition period ends when businesses demerge. Clause 69 gives definitions of “production premises”, “production groups” and “connected premises” for the purposes of small producer relief. Clause 70 explains that the definition of “connected persons” for the purposes of the relief mirrors that in the Corporation Tax Act 2010. Clause 71 provides a table of expressions used throughout the small producer relief chapter.
Around 10,000 businesses in the UK produce alcohol, import alcohol or supply it wholesale. The clauses will help small businesses compete with larger businesses, such as multinationals, and support them as they grow. The entire alcohol reform package will cost £155 million in 2022-23 and £880 million across the scorecard period. These clauses and accompanying schedule form a key part of the Government’s ambitious alcohol duty reform and will support small alcohol producers to grow and thrive.
Abena Oppong-Asare
The clauses under discussion in this group form part of chapter 3 on small producer relief, as the Minister mentioned. I thought it would be helpful to remind the Committee that Labour introduced the small brewers relief in 2002, and we are proud of the effect it has had in supporting small brewers, creating the vibrant UK beer scene, and supporting British business. We therefore support its extension to other producers.
In the context of small producer relief, clauses 61 to 68 specifically deal with the regulations and provisions for when mergers take place. Clause 61 sets out general provisions, determining that a merger of two small producers is to be called a post-merger production group, and is deemed to be in a transition phase for the three years following the merger. Clause 62 introduces modified conditions to determine whether the premises of two small producers that newly merge are small production premises for the purposes of small producer relief. A merged small producer will be eligible for small producer relief if the adjusted post-merger account does not exceed the small producer threshold of 4,500 hectolitres and if, for each set of premises in the group, fewer than half of the alcoholic products produced on those premises in the previous year were produced under licence.
Clause 63 sets out that, in calculating small producer relief for a post-merger group, the adjusted post-merger amount is used for the “relevant production amount” as set out in section 59. Subsection (3) sets out that the exclusion in clause 58(c) does not apply to the premises in a merger transition year. The Minister will not be surprised that I want to ask why that is the case. I cannot find anything about the purpose of the subsection in the explanatory notes, and it would be helpful to get the background as to why it exists.
Clause 64 provides a definition of the adjusted post-merger amount, which is used to determine eligibility and calculate the rate of small producer relief for companies transitioning post merger. Clause 65 sets out that a merger transition period will end early if the total amount of alcohol produced on all premises by a post-merger group in the preceding production year is less than the adjusted post-merger amount for the current year.
Clause 66 lays out provisions for subsequent mergers of alcohol producers. If a second merger takes place, the producer is no longer considered to be in its merger transition period for the first merger. The second merger could be considered a new merger transition period if the eligibility conditions are met. On the other hand, clause 67 lays out provisions for simultaneous mergers, setting out which producers will be considered the “larger producer” and the “smaller producer” for the purposes of determining the small producer relief. Clause 68 sets out what happens when a production group demerges and the regime to be applied for demerged businesses looking to receive small producer relief.
As we know, clauses 69 to 71 provide some guidance on the interpretation of chapter 3. Clause 69 lays out definitions of the terms producer, production premises, group premises and connected premises. Production premises are premises where alcoholic products are produced, including premises outside the UK. Group premises are all the premises on which the same person produces alcoholic products. A production group includes the group premises and all connected premises. A producer is a person who produces alcoholic products.
Clause 70 states that two people will be considered to be connected persons if they meet the test contained in section 1122 of the Corporation Tax Act 2010, although HMRC’s commissioners can overrule that if they think it necessary. Finally, clause 71 provides a table of expressions used in the small producer relief chapter. These clauses are all administrative in purpose, and we will not oppose them.
Gareth Davies
I am very grateful to the hon. Lady for her comments. Let me start by acknowledging the success of small brewers relief. We have seen the number of breweries increase six times since its introduction, and I think we should applaud a good policy, wherever it originates. In fact, we are seeking to build on it by expanding its principles to the new small producer relief and extending it to all alcohol products under the parameters that she has outlined. There was a very specific point of clarification, which I am afraid I do not have to hand at the moment, but I am happy to set out in writing the detailed answers that she seeks.
Question put and agreed to.
Clause 61 accordingly ordered to stand part of the Bill.
Clauses 62 to 71 ordered to stand part of the Bill.
Clause 72
Exemption: production for personal consumption
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clauses 72 to 81 reproduce existing exemptions and reliefs from excise duty on alcohol products. These reliefs and exemptions will continue to operate in the same way as they do now. To reform the alcohol duty system, we are legislating for a restructured duty system and two new reliefs. To ensure that all primary legislation relating to the production and use of alcoholic products is contained in one place, existing exemptions and reliefs from alcohol duty unaffected by the reforms but still needed in the new duty system have been re-enacted in the Bill. The relevant legislation in the Alcoholic Liquor Duties Act 1979 and Finance Act 1995 will be repealed.
Abena Oppong-Asare
The group of clauses sets out circumstances in which producers will be exempt from alcohol duty. Clause 72 sets out that alcoholic products, except for spirits, produced by an individual for their own personal consumption are not subject to alcohol duty. Clauses 73, 74 and 75 provide for alcohol duty to be remitted or repaid when the alcohol is used for research or experiments, where the product is spoilt or unfit for use, and where alcohol was used in the production of qualifying food products or beverages, such as chocolate and vinegar.
The next part of the group of clauses concerns exemptions from alcohol duty for spirits. Clauses 76 and 77 set out that alcohol duty will not be charged on any spirits contained in imported medical products or in flavourings. Clause 78 sets out some circumstances in which a person may receive spirits without the payment of alcohol duty, including where spirits may be used for art or manufacture. Clause 79 provides for alcohol duty to be remitted on spirits contained in imported goods that are not for human consumption. Finally, clauses 80 and 81 set out a penalty regime for people who make unauthorised use of exemptions, such as by claiming the medical exemption for goods that are then not used for medical or scientific purposes.
We do not take issue with the exemptions, so will not oppose the clauses, but will the Minister lay out in more detail how clauses 80 and 81 will work in practice, and whether there will be a monitoring system to ensure that unauthorised exemptions are prevented?
Kirsty Blackman
Alcohol hand sanitiser is obviously not for human consumption, but is it considered to be a medical item and so exempt under clause 76(2), or to be not fit for human consumption and so exempt under clause 79? However it is considered, will the Minister clarify that it is exempt from alcohol duty? Many of us had not often used it prior to 2020, but these days it is a significant part of our lives. It would be a concern if it received an alcohol duty charge, because it is part and parcel of keeping us safe and ensuring that we stop any further spread of covid or anything else.
Gareth Davies
As I set out at the beginning, the changes are largely administrative. To answer the question directly, there is no change whatsoever in terms of how the provisions are operationalised; they are carried over. The whole point is to consolidate the legislation in one place. I think our alcohol taxation system dates back to 1643, and the last change was in the 1990s. A lot of the changes are administrative, and the hon. Member for Erith and Thamesmead should take assurance from that.
Abena Oppong-Asare
I appreciate that a lot of these clauses are administrative. In that case, is the Minister able to tell me whether there has been any work done on unauthorised exemptions? Has that issue come up, does he have data on it and is he confident that unauthorised exemptions are being prevented? Could he give more information about what schemes or measures may be put in place? I appreciate that the clauses are administrative, but there is nothing in them about how to ensure that the system is not being abused.
Gareth Davies
There are penalties already in place if a person uses products or carries out activities that are not approved. The hon. Lady should take my assurance that these are carry-over provisions that come with the protections that we already have in place. I really do not have anything more to add, other than the fact that what was in existence prior to this legislation is being carried over. To answer the specific question on hand sanitizer, it is exempt.
Question put and agreed to.
Clause 72 accordingly ordered to stand part of the Bill.
Clauses 73 to 81 ordered to stand part of the Bill.
Clause 82
Approval requirement: producers
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clauses 82 to 89 make changes to the approval and registration requirements for alcohol producers, ensuring that they are harmonised across all products. The new alcohol duty rates and reliefs will take effect from 2023, but the commencement of changes to approvals will come into force at a later date. The Government are committed to simplifying the current alcohol duty system, which is complicated and outdated. The clauses repeal and replace the Alcohol Liquor Duties Act 1979, as well as sections 4 and 5 of the Finance Act 1995.
The changes made by the clauses will standardise the approval processes for all alcohol producers, regardless of which alcoholic product they produce. Clause 82 sets out the requirement for a person to be approved by HMRC in order to produce alcoholic products. Clause 83 stipulates that an approval may cover multiple premises and product types, and that HMRC may vary or revoke an approval at any time. Clause 84 provides an exemption from the requirement to be approved for those who make alcoholic products for their own consumption, although that does not apply to spirits.
Clause 85 provides an exemption from the requirement to be approved for those who produce alcohol only for research and experiments. Clause 86 restricts the mixing of multiple alcoholic products except in certain circumstances. Clause 87 reproduces a section of the Alcoholic Liquor Duties Act 1979 with minor changes to update terminology. Clause 88 gives HMRC the power to make regulations regarding the administration and collection of alcohol duty. Clause 89 details the penalties and forfeiture that may apply if a person does not comply with the approval requirements. Overall, the clauses simplify and standardise approval requirements for alcohol producers.
Abena Oppong-Asare
We come to chapter 5 of the Bill and a group of clauses concerning regulated activities and approvals. Clauses 82 and 83 would require any person producing alcohol products to be approved by HMRC as a fit and proper person to do so, as determined by the HMRC commissioners. Clauses 84 and 85 provide exemptions from the approval process, so that a person may produce alcoholic products for their own consumption or for research into, and experiments in, the production of alcoholic products without needing approval from HMRC.
Clause 86 restricts the mixing of multiple alcoholic products, except in certain circumstances, such as if it is done in an excise warehouse and the mixing occurs before the duty point; the alcoholic products being mixed are all of the same type and strength; or the alcohol duty on each product has been paid and the resulting mixed product is to be consumed at the place where the mixing took place, such as a pub or bar. Clause 87 sets out that a person cannot mix water or any other substance with alcoholic products if the mixing is after the duty point, the mixed product is to be sold, and the resultant product would have attracted a higher amount of alcohol duty if the mixing were done prior to the duty point.
Clause 88 provides for HMRC to make regulations concerning the production, packaging, keeping and storing of alcoholic products; charging alcohol duty in reference to a strength that might reasonably be reached; relieving alcohol products from alcohol duty in certain circumstances; and regulating prohibition of the addition of substances and mixing. Before the Minister says that these are all largely administrative clauses, which I do not dispute, these seem like quite wide powers. I am interested to see that they will be subject to the negative procedure. Perhaps he can explain why that is the case?
Clause 89 sets out the penalties or forfeiture that can occur if a person fails to comply with clauses 82, 86 and 87, and any regulations made under clause 88, as we have just discussed. As we know, this is an administrative set of clauses laying out a reasonable approval and exemptions process, so we will not oppose it.
Kirsty Blackman
As I said both in the Committee of the whole House and earlier today, I have a number of questions about clause 87, which relates to the post-duty point dilution of alcoholic products. The Minister mentioned that all the exemptions, some of the technical language, and some of the definitions mentioned in this part and in the previous part are carried over from the Alcoholic Liquor Duties Act 1979 and the Finance Act 1995. I understand that, but the post-duty point dilution changes are relatively recent; they have not been in place particularly long. The clause replicates section 55ZA of the 1979 Act, which I think was added to it in the last few years in relation to concerns that were raised about the post-duty point dilution.
The clause relates to products such as Bacardi Breezers and WKD blue. Hooch was a drink that existed when I was first able to drink alcohol. Basically, it is things that are mixers, in bottles. It was a significant issue because they were effectively being taxed at the wrong rate because they were being charged duty in advance of the dilution. They would have been liable for more tax had they been taxed after the dilution rather than before it. They were being taxed on the basis not of the sold product but of the created product, which was very different. I understand the Government’s intention in introducing the measure, but because it is a relatively new one that is simply being replicated in the new regime, I wonder how much information the Minister has about how well the change has worked. Has it actually done what was intended?
I am slightly unclear about the Government’s intention in relation to the clause. From reading the Bill, it looks like the intention is that no mixing can take place: no other liquids can be added to spirits. If a company adds orange juice to vodka and sells it, the tax rate will not be lower. Have we seen in practice that companies are not mixing? Are they paying the duty at a different point in the journey rather than not creating these products anymore? What effects have the Government’s previous changes had?
Dame Angela Eagle
It is obviously important, when we get on to enforcement, that we are confident that HMRC is on top of this. The Minister was a bit coy about when these clauses will come into being, so perhaps he can explain that, given that they are quite important. They are about the fitness, rightness and properness of the characters out there producing alcohol, who must be properly registered by HMRC.
The Minister gave the impression that this is just a technical thing—that it is a hold-over from older laws dealt with in a more simplified and perhaps modernised way—but he was not very explicit about how it will be simpler or modernised. Can he give us some idea? Will it all be done online? Is there some modernisation such as that? If he can give us a handle on how the administration of the scheme will change, that might give us an idea of HMRC’s intention.
The Minister is about to introduce a new scheme, whereby the taxation of alcohol is based on the alcohol by volume level. That creates a completely different incentive for adulteration along the production process. HMRC’s decisions about which category of duty a product is in become important in terms of what tax is due. That creates new forms of incentives for fiddling. I am not saying that everyone in the alcohol industry, by definition, wants to fiddle and avoid tax, but there will be temptations along that line, given the new focus on alcohol by volume as a way of calculating what tax is due. That makes adulteration and fiddling potentially much more valuable for avoiding tax. It also means that HMRC has to be vigilant in protecting revenue from those taxes.
Will the Minister therefore say a little about enforcement? Given the new dangers around alcohol by volume and the approach to what duties are due, will HMRC beef up its enforcement regarding not only approved producers but checking along the production line when decisions are made on what tax will be due on the particular product being manufactured?
Gareth Davies
Let me respond to those questions in turn, but I will come to the post-duty point dilution last, if that is okay. I was asked about scrutiny in the first instance by the Labour spokesperson, the hon. Member for Erith and Thamesmead. The powers mirror those that we have already, and we are putting exactly the same procedures in place in the Bill, but I will outline, and give an example of, how the Government could use the powers.
The powers allow HMRC to make adjustments to the new reforms by regulation, if needed. It will have that flexibility, given the scale and novelty of the reforms. That is a sensible precaution to allow HMRC to make changes quickly if the reforms are not working as intended. Today, reviewing and tweaking as necessary have come up consistently. We are carrying over a lot of the legislation, and this is one power, in particular, that we are able to use.
The overarching policy is one of simplification and putting in place a simpler, streamlined process, where we have one single approval process for all alcohol products, to answer the hon. Member for Wallasey. She also asked about HMRC’s readiness and, as I have already said, I have full confidence in our colleagues at HMRC to be able to process the changes and—she also asked about this—to enforce the rules, regulations and laws we are putting in place. Furthermore, we are looking to deliver a digitised application process, which will happen at a later date, once robust systems are put in place. As she would rightly expect, we want to get that absolutely right for producers first.
Let me directly answer the question of post-duty point dilution. The hon. Member for Aberdeen North raised that with my predecessor in 2018, and she is a great champion of her constituent, who raised the issue with her. Following the question to my predecessor, we introduced post-duty point dilution specifically to address wine, I think. We now go further by extending the provisions to all alcohol products and not just wine. That goes back to the overarching principle that we are trying to impose a consistent, simplified approach to all alcohol categories. That is why we are doing it, and we believe that it is impactful. I have no anecdotes, but if I obtain any, I will certainly write to her.
Kirsty Blackman
I appreciate the logic behind the original measure and behind the change. Had I been the Minister, I would have been talking positively about the change and about the fact that we are moving from made-wine and wine to everything. He is right that this is a simplification and a good thing, and it will ensure that everyone ends up paying the right tax. He is playing it down a bit by saying that it was just about terminology changes. That is another of the issues I had with the explanatory notes, which could also have sung the praises of the changes that are being made, rather than simply describing them as minor terminology changes to tidy things up. This is a change in the application, and I am glad the Minister has confirmed and clarified that from the virtual Dispatch Box. That will make this change easier for people to understand when they read about it in concert with the Minister’s statements in Committee.
Gareth Davies
I always take constructive feedback on presentation and talking up the policies we are implementing, so I completely accept that. For the record, we believe this is a really important anti-avoidance measure, which will protect the integrity of the duty system we are implementing, and I want to be really clear about that.
Question put and agreed to.
Clause 82 accordingly ordered to stand part of the Bill.
Clauses 83 to 89 ordered to stand part of the Bill.
Clause 90
Denatured alcohol
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss clauses 91 to 97 stand part of the Bill.
Gareth Davies
Clauses 90 to 97 reproduce the existing exemption from excise duty on denatured alcohol. The exemption will continue to operate in the same way as it does now. As mentioned during the debate on clauses 72 to 81, we are legislating to ensure that all primary legislation relating to the production and use of alcoholic products is contained in one place.
No policy changes are made by these clauses. They reproduce an existing exemption from the charge of alcohol duty for denatured alcohol. In some clauses, changes to the structure and language have been made to modernise and simplify the legislation, but the operation of the exemption remains the same. The clauses reproduce the exemption for denatured alcohol, which is used for the manufacture of products that are not for human consumption, such as paint fillers, cosmetics and toiletries.
The clauses are an administrative measure to ensure that the current exemption for denatured alcohol will continue as now in the newly reformed alcohol duty system. I therefore urge that the clauses stand part of the Bill.
Abena Oppong-Asare
We now come to chapter 6 of the Bill, which concerns denatured alcohol. Clause 90 states that the definition of “denatured alcohol” will be provided by the HMRC commissioners. Perhaps the Minister could give us an idea of what that definition might look like. The clause also sets out that alcohol duty will not be charged on denatured alcohol.
Clause 91 specifies that a person must be licensed as a denaturer to legally denature alcoholic products or be a wholesaler of denatured alcohol. Clause 92 provides the HMRC commissioners with a sweeping set of powers, such as allowing them to regulate the denaturing of alcoholic products and the supply, storage and sale of denatured products. Perhaps the Minister could outline the purpose of this wide set of delegated powers or give an example of where he would expect them to be used.
Clause 93 sets out that failure to comply with the regulatory regime for denatured alcohol, as set out in chapter 6, will attract a penalty under section 9 of the Finance Act 1994. Clauses 94 and 95 lay out the circumstances in which denatured alcohol is liable for forfeiture or penalty—for example, when a person produces or possesses more denatured alcohol than they are licensed to.
Clause 96 gives HMRC officers a power to inspect, at any reasonable time, premises being used to produce denatured alcohol, and to take samples. Finally, clause 97 lays out the circumstances in which it is an offence for a person to use denatured alcohol—for example, preparing denatured alcohol as a beverage or purifying denatured alcohol. Most of these clauses simply update and integrate into the Bill provisions already laid out in the Alcoholic Liquor Duties Act 1979, so we will not oppose them.
Gareth Davies
Let me again provide reassurance that we are not changing the definition of denatured alcohol, and we have no need to do so—this is a legislative update. However, the hon. Lady should know, for interest and further exploration, that the definition is found in the Denatured Alcohol Regulations 2005. In this measure, we are simply re-enacting existing powers. She should take reassurance from that.
Question put and agreed to.
Clause 90 accordingly ordered to stand part of the Bill.
Clauses 91 to 97 ordered to stand part of the Bill.
Clause 98
Definitions
The Chair
With this it will be convenient to discuss the following:
Clauses 99 to 105 stand part.
That schedule 10 be the Tenth schedule to the Bill.
Clauses 106 and 107 stand part.
Gareth Davies
Clauses 98 to 107 and schedule 10 simply reproduce existing provisions for excise controls on anyone making wholesale transactions in duty-paid alcoholic products.
As mentioned during the debate on clauses 72 to 81, and clauses 90 to 97, we are legislating to ensure that all primary legislation relating to the production and use of alcoholic products is located in one place. Clauses 98 to 107 and schedule 10 reproduce the requirements for the wholesaling of controlled alcoholic products. Those controls and requirements will continue to operate in the same way as they do now.
To conclude, these clauses and schedule 10 are an administrative measure to ensure that all primary legislation relating to the production and use of alcoholic products for duty purposes are contained in one place.
Abena Oppong-Asare
We now come to chapter 7 of the Bill, which concerns the wholesaling of controlled alcoholic products. Clause 98 provides several definitions relevant to the chapter, and clause 99 allows HMRC commissioners to make specific definitions concerning whether goods are to be considered wholesale or retail sale. Clause 100 lays out an approval process to allow a person to carry out wholesale activity. Again, that simply reproduces, with updated terminology, sections of the Alcoholic Liquor Duties Act 1979.
Clause 101 requires HMRC to keep a publicly available register of all approved wholesalers, and clause 102 provides HMRC with powers to regulate the wholesale system. I would be grateful if the Minister could humour me and give me more information on how the register will be made publicly available, what timescales have been given to HMRC and what publication dates will be required for that information.
Clause 103 turns the focus to purchasers of alcoholic products, specifying that a person may not buy controlled alcoholic products unless they are buying from an approved wholesaler. Clauses 104 and 105 and schedule 10 make it clear that a penalty could be incurred if a person knows, or reasonably suspects, that they have bought alcoholic products from someone who is not suitably approved.
Clause 106 defines a group for the purposes of the alcoholic product wholesaler provisions, and clause 107 provides definitions for some of the terms used in the chapter. We do not take issue with this set of clauses concerning wholesale transactions, and we will not oppose them.
Gareth Davies
I appreciate the points that the hon. Lady has raised. I reassure her that these are technical updates to consolidate the legislation, so that, for simplification purposes, we have in one place all the legislation for alcohol duty and measures—isn’t that a wonderful thing that we are doing?
The hon. Lady made a good point on communication. We will ensure that all communication is as good as it can be, and we will come up with further details on that in due course.
Question put and agreed to.
Clause 98 accordingly ordered to stand part of the Bill.
Clauses 99 to 105 ordered to stand part of the Bill.
Schedule 10 agreed to.
Clauses 106 and 107 ordered to stand part of the Bill.
Clause 108
Reviews and appeals
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 11 be the Eleventh schedule to the Bill.
Clauses 109 to 112 stand part.
That schedule 12 be the Twelfth schedule to the Bill.
Clauses 113 and 114 stand part.
That schedule 13 be the Thirteenth schedule to the Bill.
Clauses 115 to 120 stand part.
Gareth Davies
Clauses 108 to 111 and schedule 11 make supplementary changes for the reformed alcohol duty system. The provisions are necessary consequential amendments as a result of changes made elsewhere in the Bill. Clause 112 and schedule 12 reproduce the requirements for duty stamps on alcoholic products. Those controls and requirements continue to operate in exactly the same way as they do now. Clauses 113 to 116 make changes to repeal outdated legislation and provide transitional arrangements for wine businesses and small cider makers as they move to the new duty system. Clauses 117 to 120 allow for regulations to be made to supplement the provisions in primary law.
The Government are committed to simplifying the current system for alcohol duty, which is complicated and outdated. As mentioned in debate on previous alcohol duty clauses, we are legislating to ensure that all primary legislation relating to the production and use of alcoholic products is contained in one place. Clauses 113 to 116 and schedule 13 repeal some parts of the Alcoholic Liquor Duties Act 1979 that are no longer needed, and they ensure that all primary legislation relating to alcohol duty is now contained in one place. They also include specific transitional provisions for cider and wine products, which face the biggest challenges as we move to the new strength-based system. Clauses 117 to 120 allow the Government to commence different parts of the primary legislation at different times by appointed day order.
Clause 108 and schedule 11 provide a right to reviews and appeals for decisions that HMRC makes. Clause 109 ensures that the forfeiture provisions across the reformed alcohol duty system are consistent. Clause 110 updates legislation relating to certain movements of alcohol products from a warehouse so that it applies equally to alcohol products removed from premises that have the new alcohol approval. Clause 111 extends brewers’ existing ability to offset a claim for refunds of excise duty against liability on their monthly return. Clause 112 and schedule 12 reproduce the requirements for duty stamps on alcoholic products. Those controls and requirements will continue to operate in the same way as they do now.
Clause 113 provides a list of repealed legislation. Clause 114 makes consequential amendments to other legislation, which is required as a result of the policy changes. Clause 115 is a temporary provision for producers and importers of certain wine products, to help them to manage the transition to a strength-based system. That will be in place for 18 months, and it will ease the administrative burdens of moving to calculating the duty on wine based on strength. Clause 116 is a temporary provision for small cider producers to maintain the effect of the exemption from registration and paying alcohol duty that they currently hold until the approvals provisions are given effect next year.
Clause 117 provides an index of terms used in this part of the Bill and references to where further detail can be found regarding each. Clause 118 provides a power to make regulations in relation to this part of the Bill and how the power may be used. Clause 119 explains the parliamentary procedure that must be used to make regulations using the various powers included in this part. Clause 120 concerns commencement and states that, other than these clauses and other regulation-making powers, none of the provisions in the Bill concerning alcohol duty takes effect until an appointed day order is laid.
These clauses and accompanying schedules are administrative measures that ensure that the Government’s ambitious alcohol reform is underpinned by modern legislation, and that the transition to the new system is smooth. The clauses conclude the part covering alcohol duty reform, and I commend them to the Committee.
Abena Oppong-Asare
With this group of clauses, we turn to chapters 8, 9 and 10 of the Bill concerning supplementary items, repeals, further amendments, transitional provisions and final provisions. Clause 108 and schedule 11 make relevant amendments to the Finance Act 1994. They appear to be purely administrative, but perhaps the Minister could clarify that? Clause 109 specifies that HMRC may destroy, break up, or spill anything seized as liable to forfeiture. Clause 110 inserts new subsections into the Customs and Excise Management Act 1979. As this is quite technical, perhaps the Minister could explain precisely what the clause achieves, because I found that the explanatory notes did not cover it in depth. [Interruption.]
Abena Oppong-Asare
Clause 111 provides that producers of alcoholic products can offset amounts of alcohol duty that are owed to them against other amounts of alcohol duty that they have been charged. Clause 112 and schedule 12 make provisions about duty stamps.
The next measures in the group cover repeals, further amendments and transitional provisions. Clause 113 provides a list of legislation repealed as a consequence of this Bill, including the Alcoholic Liquor Duties Act 1979 and sections 4 and 5 of the Finance Act 1995. I can see that that is because the Bill will replace those pieces of legislation. Clause 114 and schedule 13 make minor and consequential amendments to other legislation.
The next clauses within the group concern transitional provisions included in the Bill. Clause 115 provides for a temporary period for treating wine of between 11.5% and 14.5% ABV as if the strength were 12.5% ABV, lasting for eighteen months after the new system comes into force. Clause 116 provides a temporary exemption from the new alcohol duty regime for cider that is produced before the new approvals system comes into force, as long as the cider is produced by a cider maker producing less than 70 hectolitres a year. I know that many affected businesses will be grateful that transitional arrangements are being put in place, but they will want to know precisely how those arrangements will be implemented and any tapering, and they will want confirmation of the time periods involved.
We are now at the final set of clauses within this group, concerning final provisions. Clause 117 provides an index of terms defined in this part of the Bill, with a reference to where further detail can be found for each term. That includes terms that we have already discussed, such as “alcoholic strength”, “excise duty point” and “qualifying draught product”.
Clauses 118 and 119 provide broad delegated powers to the HMRC commissioners to provide supplementary provisions to the alcohol duty regime. Will the Minister outline examples of what those supplementary provisions might be, why the negative procedure has been thought appropriate and how affected groups will be consulted prior to any further changes?
Finally, clause 120 concerns the commencement of the new alcohol duty regime. At this stage, perhaps the Minister could confirm—he did not when I asked him previously—when the new alcohol duty regime is expected to come into force, and that there will be no further U-turns or delays.
As has been the trend, we will not be opposing these measures. I look forward to continuing our discussion of the new alcohol duty regime on Report, where I hope to be able to extract the detail and certainty that businesses so desperately need from this Government.
Kirsty Blackman
I will follow up with several similar questions about dates, so that people have a level of certainty about when they will be expected to comply and when transitional provision will run out. On the temporary provision for wine in clause 115, I understand what the Minister said about how the strength of wine fluctuates depending on the time of the season when the grapes were grown or picked. After the 18 months, what does he expect to happen with this fluctuation? Does he think that wine producers will somehow regularise the alcohol percentage of the wine that they produce? I am not sure how they could do that; they cannot do it by dilution. How exactly might they do that, or does he expect that they will pay different rates depending on the percentage of each bottle? I am not hugely fussed about which he thinks will happen, but it would be interesting to know what the Government expect those wine producers to do.
The case that the Minister has laid out around transitional provision for wine makes sense. I understand that the measure will be brought in fairly shortly and does not give wine producers the time to make seasonal adjustments at this point, but this will give them time to make such adjustments before the end of the 18-month period.
In relation to the temporary provision on cider, my understanding from clause 116 is that the current relief is being extended until the new approvals process comes into place, so those who currently qualify to benefit from relief will continue to do so. The date that has been chosen is the date on which the approvals process comes into force, rather than the date on which the new rates come in. I understand from what was said earlier that the approvals process will come into place later than the rest of the Bill, and I wonder whether there is clarity on how much later. Do we have a date on which the process will kick in? If not, do we have a date for when we will know? That would at least mean that people knew that from September, for example, they would have a level of certainty about when the transitional relief will end and the new approvals process will begin.
Two different sets of dates have been chosen. Clause 120 is about commencement, and there is a level of flexibility built in. Can the Minister confirm when the majority of this part of the Bill will commence, and whether only the approvals process will lag behind? Given the dramatic change from one regime to another and the fact that there might be a significant change in rates—as he has made clear, however, there will not be a significant change in exemptions; only the calculation of rates will be changed—does he expect the new rates to be charged from day one? Let us say he picks 1 August; will the old rates be charged until 31 July and the new rates kick in on 1 August?
To prevent any fiddling of the rate, is there clarity about when people will pay it? Is there a risk that they might, for example, stop putting caps on bottles for a period of time to ensure that they are subject to the new rate rather than the old one? If so, is HMRC aware of that, and will it ensure that people pay the appropriate rate and can prove they are eligible for that rate?
There is quite a cliff-edge change. The rates will go up dramatically for some people; they will go down dramatically for other people; and for some people they will stay the same. For an awful lot of people, there will be a change. When the new regime comes in, we need to ensure that it is fair and is applied fairly, so that those who go out of their way to try to swizz the system are not allowed to benefit at the expense of those who are being sensible and paying the correct rates when and where they should be.
Gareth Davies
Let me first address the request from the hon. Member for Erith and Thamesmead for me to further explain certain clauses. Clause 108 ensures that the legislation works, basically, and detail is provided in the explanatory notes. If she requires more detail, I am happy for her to write to me. Clause 110 ensures that this measure works with amended legislation, because it is about the movement of alcohol from excise warehouses to authorised people. Clause 115 basically sets out the period of 18 months that I am about to address. Clause 116 relates to when the period ends and approvals come into force.
The hon. Member for Aberdeen North makes some good points, and she asked a good question about the 18-month period for the wine easement. It has been determined, through consultation and engagement with the wine industry, that 18 months is sufficient time for it to put in place the operational requirements, such as labelling, for it to be able to meet the alcohol reforms that we are making. As I set out at the beginning, some types of wine will see a reduction in duty. Simplification is driving these reforms, and we are moving to the principle that the more alcohol a product contains, the more tax it attracts, so there will be increases and decreases as part of all this.
Question put and agreed to.
Clause 108 accordingly ordered to stand part of the Bill.
Schedule 11 agreed to.
Clauses 109 to 112 ordered to stand part of the Bill.
Schedule 12 agreed to.
Clauses 113 and 114 ordered to stand part of the Bill.
Schedule 13 agreed to.
Clauses 115 to 120 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Andrew Stephenson.)
Finance (No. 2) Bill (Third sitting)
Thursday 18th May 2023
(11 months, 2 weeks ago)
Public Bill CommitteesRead Full debate Finance (No. 2) Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 18 May 2023 - (18 May 2023)
The Chair
We are now sitting in public, and the proceedings are being broadcast. I have a few preliminary announcements.
Owing to a printing error, Government amendment 9 was missing from the amendment paper issued earlier this morning. That omission was rectified, and the correct version of the amendment paper is available in the room, from the Vote Office and online.
Hansard colleagues will be grateful if Members could email their speaking notes to hansardnotes@parliament.uk. Electronic devices should be on silent. Tea and coffee should not be brought into the room. It is getting a bit muggy, so any Member wishing to take off their jacket may do so. We now continue line-by-line consideration of the Bill.
Clause 313
Transactions funded with the assistance of a public subsidy
Question proposed, That the clause stand part of the Bill.
The Financial Secretary to the Treasury (Victoria Atkins)
It is a pleasure to serve under your chairmanship, Mr Stringer.
As a matter of housekeeping, I should say that the shadow Minister, the hon. Member for Ealing North, asked me questions on Tuesday regarding the implementation of changes to the company share option plan, and I committed to write to him with those details. That letter has gone to him this morning, with copies deposited in the Libraries of the Houses. Indeed, I have also arranged for it to be sent to the other Committee members, for their convenience.
The clause will amend existing stamp duty land tax rules to ensure that registered providers of social housing are exempt from the tax when purchasing property using funding allocated under section 31 of the Local Government Act 2003. In December last year, the Government announced an additional £650 million for the Homes for Ukraine support package, which included giving local authorities in England an additional £0.5 billion to reduce homelessness by obtaining housing to reduce pressure on social housing and to help accommodate Ukrainian and Afghan refugees. On 28 March this year, the Government announced a further £250 million of funding, the majority of which will be used to house Afghan families in bridging accommodation. The rest will be used to ease existing homelessness pressures.
The additional funding, as I said, is allocated under section 31 of the Local Government Act, and the existing stamp duty land tax system includes an exemption for social housing purchases. However, not all social housing providers in receipt of the additional funding would benefit from those exemptions, so we are looking to correct that and to enable registered providers of social housing to benefit from the exemption when they use the new funding. It is a sensible clarification and I hope that the Committee will support the clause standing part of the Bill.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to serve in Committee with you as Chair, Mr Stringer.
The acquisition of certain properties by registered social landlords is exempt from stamp duty, provided that the purchase is funded with the assistance of public subsidy. As the Minister set out, in December last year the Department for Levelling Up, Housing and Communities announced an additional £500 million in funding for local authorities to secure additional housing stock for those fleeing conflict, including those from Ukraine and Afghanistan. We understand that that additional funding was allocated under section 31 of the Local Government Act, and the clause will add that section to the list of public subsidies that enable a purchase to qualify for the stamp duty exemption. For the purposes of the stamp duty exemption, we understand that local authorities that intend to register with the Regulator of Social Housing are treated as not-for-profit registered providers of social housing.
The explanatory notes state that £500 million was announced for the local authority housing fund in December 2022, and I welcome the Minister’s assurance that the additional £250 million announced since will also be covered by this clause. We will not oppose the clause, as any support it offers to local authorities that buy homes to provide social housing is welcome.
Dame Angela Eagle (Wallasey) (Lab)
It is a pleasure to serve under your chairmanship, Mr Stringer. This is not the first time that I have been on a Committee with you in the Chair.
Will the Minister give a view about how many extra homes this change to stamp duty land tax will enable local authorities to fund? Has any analysis been done? There will obviously be a positive effect, but how large will it be? Many Afghans are still in hotels and are unable to put down roots so that they can begin to establish themselves in this country and flourish. For large families living in hotels, this is a difficult time, so I would have thought that Members from both sides of the House are anxious to see this scheme work. Knowing the Treasury, it will have done some analysis of the positive benefit of the proposal, so will the Minister share it with the Committee?
How long does the Department for Levelling Up, Housing and Communities expect these extra moneys to last? Will the Minister come back to Parliament to extend this exemption further, or will that happen in a spending review?
Douglas Chapman (Dunfermline and West Fife) (SNP)
It is a pleasure to serve under your chairmanship, Mr Stringer. The hon. Member for Wallasey just asked about the length of the funding. As MPs, we all have hard cases to deal with involving refugees from other parts of the world. What funding will be given to Scotland, Wales and Northern Ireland so that the devolved Administrations can implement their own schemes?
Victoria Atkins
I can answer yes to the question that the hon. Member for Ealing North asked about the £250 million.
On the question that the hon. Member for Wallasey asked about the number of houses, DLUHC has estimated that it will be about 1,300 homes. She will understand—indeed, we discussed this when I was Minister for Afghan Resettlement—that one of the complexities with Afghan families is that their larger family sizes mean that there is not the availability of housing stock that there is for slightly smaller families. That is why it is taking a bit of time.
The hon. Member for Dunfermline and West Fife asked about Scotland, and I commit to write to him. This is across the board, so I imagine the scheme will be UK-wide, but I will get that confirmation for him by the end of the sitting.
Samantha Dixon (City of Chester) (Lab)
It is a pleasure to serve under your chairship, Mr Stringer. According to the Home Office figures that were issued at the end of April, there are 8,000 Afghans currently in UK hotels, half of whom are children. On the point about revisiting this at a future date, does the Minister think the Government have done enough?
Victoria Atkins
I must direct the hon. Lady to the Minister for Veterans’ Affairs, who is now leading on that. He has overall control of the programme of rehousing for Afghan refugees, and the Homes for Ukraine scheme—obviously that is a very separate system. The scheme is one of the tools available to the Government, which is why we are making the stamp duty changes to assist local authorities in their efforts to find homes for refugees. It will not be the only way in which we find accommodation for those families; there are other ways, including the military helping with accommodation for those who formerly served or helped the armed forces when they were in Afghanistan. It is one tool, and we want to make it as easy as possible for local authorities to use. I encourage the hon. Lady to speak to the Minister for Veterans’ Affairs, who is leading on the issue.
Dame Angela Eagle
Another question occurs to me: is the scheme only for Afghans and Ukrainians, or does it accommodate other homeless people who are fleeing conflict? It is clear that those who have fled Afghanistan and Ukraine are in a pretty unique position, with special schemes attached. Could the Minister put it on the record that the exemption may then also help others who are in a similar situation, but not in those categories?
Victoria Atkins
I am very happy to. The scheme is certainly not restricted to Ukrainian and Afghan refugees. It is designed to meet all local authority social housing needs. It is a measure to help alleviate overall social housing pressures on local authorities, precisely because we realise that the enormous generosity of the United Kingdom in helping Ukrainian and Afghan refugees has put increased pressures on local authorities when it comes to social housing. We want to ensure that this is sorted out for local authorities, as part of our humanitarian response to those crises—we are also long enough in the tooth to understand that there may be other humanitarian crises in the future.
Question put and agreed to.
Clause 313 accordingly ordered to stand part of the Bill.
Victoria Atkins
On a point of order, Mr Stringer. Before we move on, in relation to the clarification that the hon. Member for Dunfermline and West Fife asked for, stamp duty applies only in England and Northern Ireland. Scotland and Wales have their own land transaction taxes. Obviously, we are very happy to work with the devolved authorities if there is a point of clarification that they need on that.
Clause 314
Deposit schemes
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
Clause 314 makes changes to the Value Added Tax Act 1994. Those changes will enable further secondary legislation designed to ensure that businesses only account for VAT on the price actually paid for bottles or drinks containers covered by deposit return schemes. Such schemes are being introduced across the UK to encourage the recycling of containers, and under existing law VAT is due on the full price paid for a drink, including any deposit.
Existing rules do not permit VAT adjustments for deposit scheme refunds. That means that under the current law VAT would be collected on drink deposits, even though they have been refunded. We do not want that to happen, because we want to support the environmental aspirations of such measures. The changes made by clause 314 will address that, by removing the need to account for VAT on the deposit amount when it is charged. The new rules will require VAT to be accounted for only on unreturned deposits.
To avoid complexity for both consumers and businesses, only the business that makes the first sale of the drink with a deposit will be required to account for VAT on unreturned deposits. What that means in practice is that producers and importers will be the ones liable to account for it on their VAT returns. We have tried to protect both consumers and small shops—corner shops, newsagents and the like—from having to deal with any VAT complexity from the measure. When drinks containers are returned, they will be scanned, and the consumers will receive a refund of the deposit. It will not touch them; they will get the money back that they put forward. Information on numbers of returned products will be collected and passed to the business that made the first sale of the product on which a deposit was charged.
James Murray
As we have heard, the clause introduces rules for VAT accounting for deposit return schemes. As the Minister set out, it means that when making sales within the scope of the relevant deposit scheme, no VAT will be charged in relation to the deposit amount. However, VAT on unreturned deposit amounts will be paid by the first seller of a deposit scheme product.
We recognise that, under existing legislation, deposit return schemes may be introduced across the UK, and we recognise that the clause helps to facilitate the operation of such schemes by introducing VAT accounting rules. The clause ensures that no VAT will be charged at any point in the supply chain in relation to the deposit element of the price for a deposit scheme product. There will only be a requirement to account for VAT where suppliers make the first sale of standard-rated deposit scheme products that include a deposit amount.
More widely, we have been disappointed by the delays in the introduction of a deposit return scheme. It was only after multiple consultations that the Government finally announced in January 2023 that they would introduce a deposit return scheme for plastic and cans, but not for glass, in England, Wales and Northern Ireland from 2025. We will not oppose the clause. Indeed, we want to see a deposit return scheme introduced as soon as possible, so I would be grateful if the Minister could use this opportunity to confirm whether the Government are still committed to introducing one in England, Wales and Northern Ireland by 2025.
Dame Angela Eagle
Obviously, the VAT rules account for some of the most complex parts of the duties and excise that the Minister has to wrestle with on a day-to-day basis. When one talks to businesses of all sizes, often one of the biggest complaints is about the complexity of the VAT rules. Given how much revenue VAT brings in and how all-encompassing it is, perhaps that is not surprising, but I wonder whether the Minister is happy with increased complexity that the changes bring. Perhaps she could give us a flavour of her thoughts and considerations in dealing with the issue of deposit schemes and the complexity of the VAT rules.
Given that VAT will be levied only on the first seller, the Minister has clearly tried to make the rules as simple as possible. But how much complexity does she think the clause will introduce, given that it will be applicable to plastic and cans—presumably aluminium—both of which are easily recyclable, but not to glass? I assume that she is not introducing glass straight away because of the sheer number of glass bottles and the size of the task. Again, perhaps she could give us a flavour of the thinking behind excluding glass, and tell us whether the intention is to include it at a later stage. How complex does she think doing that might be?
I am old enough, as I am sure—I am going to put this politely—you are, Mr Stringer, to remember when we had deposit return schemes for glass, long before anyone thought about digitally scanning anything or any of the computer-based structures that I assume will facilitate the VAT inspectors’ task. Perhaps the Minister could give us some indication of that. Again, how much revenue does she think will have to be forgone?
What assumptions have His Majesty’s Revenue and Customs and the tax inspectors made about the actual cost of schemes such as this in revenue forgone? Clearly, the idea—to incentivise good behaviour that will assist in increasing recycling—is one we would all support. We all want that to work, but if it is not done properly, it could be an enormous fiddling thing that does not really have much effect at all. All of us would applaud the decision not to impact the customer and, clearly, we want to see the containers for recycling brought back.
Can the Minister say a little about whether she has considered how the scheme might interact with the packaging regulations? Again, they are a moveable feast, given that we have left the EU and they have had to be changed as well, but there is clearly a direct connection between the two. We must make certain that the way the packaging regulations work increases, if possible, the incentive for the recycling to work.
There is also the landfill tax, which might have an impact on behaviour. I am sure that the Minister has had a towel on her head thinking all that through to try to make certain that it works as intended. It is currently due to come into effect in 2025. Given the complexity, is she confident that that will happen, given that there have already been delays and the scheme itself is now smaller than most people want it to be, because it excludes glass?
Given the complexity of VAT—when it must be done, when the returns must be made and how difficult that can be for businesses—does the Minister think that moving on without a set timescale, and the uncertainty created by that, give the best background for a successful introduction? The delivery of the scheme in Scotland seems to have run into trouble. I do not know whether the hon. Member for Dunfermline and West Fife has insights that he can share with us—it is almost as late as a TransPennine Express train.
I am interested in what the Minister has to say about some of my questions. The scheme might seem to be a fiddling little thing, but it fiddles with a very complex tax and interacts with many other things. A bit more insight into the Minister’s thinking and her confidence about whether the scheme can be delivered on time would be really welcome.
Douglas Chapman
I will take the towel off my head before I reply. There have been difficulties in Scotland with the implementation of the deposit return scheme. In general, I am reading that this is a simplification, and it maybe brings a bit of clarity to what is possible in a DMS scheme. The important point is that, as pointed out by the previous speakers, it would be fantastic if we could operate across the whole UK. It is not often I say that, but there are opportunities with such a big environmental project that we could all share in.
Although this is not for debate as part of the Finance Bill, I hope that the Minister will take the opportunity to listen to some of the comments made and see whether we can work with other Departments—and Wales, Northern Ireland and Scotland—to see what combinations can be brought to bear. I notice that the Nordic Council, for example, had a discussion session not so long ago where it talked about operating almost a Scandi food waste policy, which would cover all the various countries in the Nordic Council. I do not see why we cannot be working in a positive way like that across the whole UK, albeit that we in the SNP have other ambitions to take our country in a slightly different direction.
Samantha Dixon
Clearly, this is a complex piece of work that has taken a great deal of time, but I get the sense that the Government may be kicking the proverbial recyclable can down the road. Taking it piecemeal without a comprehensive view across the whole UK does not seem to be the best approach. Could the Minister speak to that?
Victoria Atkins
On the last point, I gently redirect the hon. Member’s observation about a piecemeal approach. That is probably more for the Scottish Government to answer because we would very much like to be acting in tandem. By the way, I am responsible for only the VAT elements, so questions about the wider design of the scheme, including whether glass is included, must be directed to the Department for Environment, Food and Rural Affairs.
I have been holding that wet towel over my head at night thinking about this. For example, what happens if somebody buys their bottle of drink just north of the border, pops over to visit Newcastle for the day and wants to get rid of that bottle? There are practical considerations. With some of this—and the Scottish Government are in this position as well—we will have to see how consumers behave. I hope that the scheme will be an enormous success and that the producers will pay the VAT on returned bottles, but it will take us a bit of time to get used to it.
Douglas Chapman
Would it not be a good idea to have a consistent approach that the UK Government could get behind? We have had to push on with our DRS to actually achieve some of our net zero targets and a better environment for our citizens, so the Government could back us up on that and bring in their own scheme.
Victoria Atkins
Again, I am trying to be terribly tactful about how I put this. There has been so much discussion between officials behind the scenes. Scotland has wanted to run ahead with its scheme. Frankly, there were some significant intellectual debates about how VAT is dealt with in this scenario. If the hon. Member—I am not pressing him because I know this is not his portfolio—or others in the Scottish Government want a little breathing space to check that we are all going in the right direction, that is of course a matter for them.
We are committed to implementing the scheme in 2025, but it will need a lot of publicising as to the impacts for consumers. We will all want to encourage our constituents to either use their own drinking vessels wherever possible or to return their bottles and cans when they can, but we have tried to simplify the VAT so that the larger producers will be the target of that first stage of VAT accounting.
On the complications, as I say, we have tried to simplify the scheme. One can imagine the scenario where if we were accounting for VAT at every single stage of the transaction process, that would be a nightmare for the tiny retail shops that we all care so much about. That is a good example of two of the three objectives that I set His Majesty’s Revenue and Customs and the Treasury to ensure taxes are fair and simple so that there is a little tension between them, but we have tried to ensure it is as simple as possible for consumers and smaller businesses.
Just to make it clear, we are not making any money from this scheme. Indeed, we hope that tiny amounts of VAT will be paid to us, because that would mean that the overwhelming majority of people were returning their bottles. I hope we make as little money out of this as possible, which is perhaps unusual for me to say.
We will deal with the plastic packaging tax later in the Bill. The latest figure is just over £200 per tonne. As with the landfill tax, it will sit alongside this scheme and the whole point is to, first, cut down on plastic and secondly, make sure that less of it goes to landfill. I very much hope that people will see this as a holy trinity of environmental measures to try and achieve the ends that we are all so keen to achieve. Unless there are any further takers, I will sit down.
Question put and agreed to.
Clause 314 accordingly ordered to stand part of the Bill.
Clause 315
Dumping, subsidisation and safeguarding remedies
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 19 be the Nineteenth schedule to the Bill.
That schedule 20 be the Twentieth schedule to the Bill.
Clauses 316 and 317 stand part.
Victoria Atkins
This grouping can be summarised as further tools to defend UK businesses in international trade disputes or where the rules are not clear or could be interpreted in a variety of ways. The Department for Business and Trade leads on this work, but it is my pleasure to bring these measures into the Finance Bill to help it assist UK businesses in taking full advantage of our Brexit freedoms and ensuring that they continue to flourish in exporting their goods and services around the world.
Clause 315 and schedule 19 deal specifically with existing trade remedies legislation and create new processes for bilateral safeguards. At the moment, we have only two choices when making decisions on trade remedies: we either accept a Trade Remedies Authority recommendation in full or we reject it entirely. That means that we have a limited ability to consider the broader public interest, which the Trade Remedies Authority cannot consider. The changes made in schedule 19 will allow for a greater flow of information between Government and the TRA by requiring the TRA to notify Ministers before initiating new investigations.
The other changes will maintain the TRA’s expert, independent, analytical and investigative role while giving Ministers greater flexibility when making decisions about trade remedies. It will provide Ministers with the power to request that the TRA reassess a recommendation and give them the flexibility to apply a different remedy to that recommended by the TRA and to revoke a measure without a TRA recommendation, provided there is supporting evidence to do so and it is in the public interest. The TRA will have the power to provide alternative options of recommendations to Ministers where justified.
Currently, the TRA can only recommend a measure if it meets the economic interest test, which goes beyond World Trade Organisation requirements. Schedule 19 makes that test advisory, meaning that Ministers can consider the overall economic impact of a measure alongside the broader public interest. It makes technical provisions to allow for the reimbursement of trade remedies duties, the backdating of trade remedies exemptions and the claiming of unpaid duties by HMRC in certain circumstances.
Clause 315 also introduces schedule 20, which concerns bilateral safeguards: another type of trade remedy that may be used when domestic industries are suffering from the adverse effects of increased imports as a result of a free trade agreement. The changes made in the schedule create a new process for the investigation and application of bilateral safeguards, extending the role and responsibility of the TRA and aligning the process to the wider UK trade remedies framework. That will ensure that the UK can adequately protect UK industry and fulfil provisions in our free trade agreements.
Clause 316 introduces customs advance valuation rulings. Those will enable UK traders to apply for legally binding rulings from HMRC on how to calculate how much duty and tax for a specific good is due. That will facilitate trade flows by giving businesses importing to the UK certainty on the amount due before their goods are shipped and will therefore help to support financial planning. We already issue advance rulings in respect of tariff clarification and origin of goods, but we have not provided advance rulings on customs valuations. That is a legacy of such rulings not being provided in the EU, so we are correcting that through the Bill. Indeed, customs authorities worldwide offer them outside the EU. All traders with an economic operator registration and identification number will be able to apply for such a ruling.
Clause 317 updates customs legislation to ensure that decisions by HMRC to require a financial security as a condition of releasing imported goods from customs control are subject to appropriate safeguards. It also brings together all legislation relating to customs guarantees into a single framework. As I say, those are a variety of tools to help Ministers, the TRA and HMRC ensure that we have what we need to protect UK business and to help the flow of goods between the UK and other countries.
James Murray
As we heard from the Minister, clause 316 introduces schedules 19 and 20, which relate to the Trade Remedies Authority. When the UK left the EU, the UK Government established their own UK Trade Remedies Authority to undertake work on trade remedies previously carried out by the EU. The organisation was established in June 2021 to carry out investigations and recommend remedies related to dumping, foreign subsidies and safeguards for internationally traded goods.
The explanatory notes to the Bill explain that schedule 19 is intended to allow the Secretary of State to exercise a great deal of flexibility when making decisions on trade remedy cases. The notes also explain that schedule 20 extends the TRA’s remit to include bilateral safeguards in some of the UK free trade agreements. It also seeks to enable Ministers to request that the TRA open an investigation to determine whether the criteria to apply a measure has been met and what form a potential measure should take. It further provides Ministers with the power to apply a measure to ask the TRA to reassess its determination and recommendation, and to enable Ministers to take a different decision from the TRA’s recommendation.
It seems clear that the schedules represent a significant increase in the power of Ministers over the Trade Remedies Authority, which was established just two years ago. Despite its short life, the Trade Remedies Authority found itself at the heart of a political storm in Downing Street last year. Right hon. and hon. Members might recall that in June 2022 Lord Geidt resigned from his position as the ethics adviser for the right hon. Member for Uxbridge and South Ruislip (Boris Johnson) when he was Prime Minister. In his resignation letter Lord Geidt wrote:
“I was tasked to offer a view about the Government’s intention to consider measures which risk a deliberate and purposeful breach of the Ministerial Code. This request has placed me in an impossible and odious position.”
In his response, the then Prime Minister confirmed what the dispute concerned. He wrote to Lord Geidt:
“You say that you were put in an impossible position regarding my seeking your advice on potential future decisions related to the Trade Remedies Authority.”
Despite that brush with the former Prime Minister, the Trade Remedies Authority has continued to exist. The measures being introduced by the two schedules that we are discussing will have a significant impact on its relationship with Ministers. This is a fair amount of change for an organisation that has existed for less than two years.
To help members of the Committee put the proposals in context, will the Minister explain the Government’s reasoning behind the initial arrangements for the Trade Remedies Authority two years ago, and how the changes to the arrangements that we are considering today were decided? Will she explain whether there has been any international benchmarking of similar authorities in other countries? What are their levels of independence and their relevant relations with politician?
Clause 316 would allow customers to apply to HMRC for advance valuation ruling decisions. Advance rulings provide traders with a legally binding decision from customs authorities in advance of a shipment, which gives them certainty about how their goods are treated with implications for duty levied. The UK currently issues advance rulings in respect of tariff classification and origin of goods but has not provided advance rulings on customs valuation. That is because customs valuation rulings were not provided for in the EU. However, as the Minister said, they are widely offered by customs authorities worldwide.
We understand that the measures would allow HMRC to provide businesses with more certainty when they are deciding on the most appropriate method of customs valuation for valuing their goods for import. Anything that gives businesses greater certainty is to be welcomed, so we will not be opposing the clause. On a specific point of clarity, however, I would be grateful if the Minister could confirm that the clause’s advanced rulings provision is required as a condition of the UK’s accession to the comprehensive and progressive agreement for trans-Pacific partnership.
Finally, clause 317 updates legislation to permit HMRC to require financial guarantees to be given for duty amounts payable on imported goods and ensure that decisions to require such guarantees will be subject to review and appeal rights. Since January 2021, section 119 of the Customs and Excise Management Act 1979 has been used to require a financial guarantee from importers as a condition of releasing imported goods from the control of an HMRC officer where the amount of customs duty due for the goods is unclear. However, there has been no statutory right for an importer to request a review of, or an appeal against, such a guarantee requirement. Those appeal and review rights were inadvertently omitted when EU legislation was transposed into domestic legislation, which seems to have been an oversight by the Government. We will not oppose the clause, which seeks to remedy the Government’s mistake, but will the Minister explain what impact that mistake has had? Specifically, how many appeal and review requests by importers have been lodged but denied consideration since January 2021, and what steps are being taken to rectify any individual grievances that have arisen as a result?
Dame Angela Eagle
The clause seems quite mild, but it seems to have many implications for the policing of import duties; the prevention of widespread dumping or misuse of products on our markets, which could destroy establishing domestic industries; and the regulation of free trade agreements that we make around the world. Will the Minister give us some indication of how the Trade Remedies Authority changes that are encompassed in clause 315 and schedules 19 and 20 will impact on its independence? From listening to the Minister, it seemed to me that that was one of the most important aspects of the changes, and the Committee needs to understand it as we continue to scrutinise the Bill.
Clearly, a trade remedies body must be independent of those it oversees, so that it is seen as an appropriate body to make decisions that might have serious economic consequences for one side or the other. It is, effectively, a trade judiciary; if it is to be effective, it has to be seen to be independent and widely respected for its independence. The changes made by the clause seem to eat away at some of that. The Minister was talking about different changes to the way in which the authority can pursue its job, including increases in different kinds of information and having to notify Ministers before initiating reviews. It is a quite a big step to put that in legislation, rather than have it as memorandum of understanding. Reading between the lines, that implies that Ministers are not happy with the way in which the Trade Remedies Authority is behaving. Why have the Government decided to put these changes in legislation, rather than in a memorandum of understanding, and why do they think that the Trade Remedies Authority needs to be constrained by law? Is it because there has been a breakdown in the relationship between Ministers and the people who run the authority? Is because there is a lack of trust, or is it simply because Ministers want more direct control over the way in which the authority behaves? That would have implications for the TRA’s independence, and it would certainly have implications for how its independence would be perceived by those wishing to approach it for a jurisdictional reason or for decision making.
Victoria Atkins
I hope I will be able answer some of the questions that the hon. Member for Wallasey asked about why the changes are being made. We announced our decision to reform the trade remedies framework in June 2021, and this is the end of a review process to look at how our framework is working. As I suspect Members across the House, not just this Committee, might expect, we have been talking and listening to industry, asking it for its views on how the trade remedy system could be improved. Consultations on including bilateral safeguard provisions have taken place as part of new free trade negotiations, and those will continue to occur for each negotiation. Importantly, we have asked not only the industry but the TRA, and we will work with it to ensure that the changes are implemented effectively.
The hon. Member for Ealing North asked about international comparators. I confirm that all the changes we are making are in line with our obligations under the WTO. Advance rulings are a key component of the UK’s accession to the comprehensive and progressive agreement for trans-Pacific partnership and other key free trade agreements, but they also help business. Those are some reasons for introducing them. On clause 317, no statutory right of appeal for traders has existed since we left the EU, but we continue to offer the trader the right to be heard scheme, which gives a trader a period of 30 days to present additional information before HMRC confirms the decision.
The hon. Member for Wallasey asked some important questions about the TRA and its independence, including why this has to be done through legislation. The TRA very much remains an independent body, and we genuinely value its expertise and advice. Its core objective will be to investigate allegations of unfair trading practices and unforeseen surges in imports, and to make recommendations to Ministers. It will continue to run fair, impartial and evidence-based investigations. The Secretary of State will then decide whether a measure should apply based on the evidence provided.
The Bill injects another element of transparency, because the Secretary of State for Business and Trade will have to make a statement to Parliament if Ministers decide to apply an alternative remedy to that recommended by the TRA—I imagine that the Treasury Committee would take a great interest in that—and the statement would set out the reasons for their decision. The TRA will continue to maintain a public file of the evidence and publish its conclusions as well. I hope colleagues will be reassured by the transparency that we seek to bring in.
On the TRA itself, it started to investigate cases in 2021. To date, its completed cases include one new investigation and 11 measures transitioned from the EU. It investigates, for example, allegations of dumping, subsidy and unforeseen surges in imports, and it provides objective, independent and evidence-based advice to Ministers, which we will very much continue to value.
As to why we have to make the changes through legislation, the TRA is a statutory body, it can therefore only act within its statutory powers. That is why we have to bring forward the legislation. Furthermore, it will give certainty to parliamentarians should it be needed in future—though I hope that will not be the case.
James Murray
I thank the Minister for her response, although she might have misunderstood my question on international comparators. Her response, I believe, was that what the UK Government are doing is in line with WTO requirements, but my question was whether there had been any international benchmarking of the TRA, its role, its powers and its relationship with politicians—its level of independence and so on—against similar authorities in other countries. Perhaps she will address that question.
Victoria Atkins
I do not have that information to hand, but I will endeavour to get it as quickly as possible and furnish the Committee with it.
Question put and agreed to.
Clause 315 accordingly ordered to stand part of the Bill.
Schedules 19 and 20 agreed to.
Clauses 316 and 317 ordered to stand part of the Bill.
Clause 318
Excepted machines etc
Question proposed, That the clause stand part of the Bill.
Gareth Davies (Grantham and Stamford) (Con)
I am afraid you’ve got me, Mr Stringer. It is a great pleasure to serve under your chairmanship.
Clause 318 makes technical amendments to the legislation that restricts the entitlement to use rebated fuels to a number of qualifying uses from 1 April 2022 to adjust the restrictions and ensure the legislation operates as intended. It makes minor amendments to changes that were introduced in April 2022 to restrict the entitlement to use rebated fuels.
At Budget 2020, the Government announced that we would remove the entitlement to use rebated diesel and biofuels, including marked oils, from most sectors to help meet our climate change and air quality targets. The changes were legislated for in the Finance Act 2021 and amended by the Finance Act 2022. The changes ensure that most users of rebated fuels prior to April 2022 are now required to use fully duty-paid fuel, like motorists. That more fairly reflects the harmful impact of the emissions that they produce.
Following the implementation of the changes, the Government were made aware of a small number of unintended impacts on fuel users. This measure will make minor amendments in relation to them and will correct a technical issue in section 14B of the Hydrocarbon Oil Duties Act 1979.
The changes in the clause will adjust restrictions on the entitlement to use rebated fuels to a number of qualifying uses, will qualify how the changes to the new rules work, and will allow the legislation to operate as intended. They will allow machines or appliances used to generate electricity or provide heating primarily for non-commercial premises to use rebated fuels even if they also provide some of the electricity or heat to commercial premises. They will also add arboriculture to the list of activities for which machines and appliances, other than vehicles, can use rebated fuels. That clarification will allow those working in the sector to use rebated fuels in the same machines and appliances as they did before April 2022.
The changes allow the use of rebated fuels in tractors and gear owned by lifeboat charities used to launch and recover their lifeboats. Finally, they make minor technical corrections to remove an anomaly of section 14B of the Hydrocarbon Oil Duties Act 1979.
These changes reflect feedback received from stakeholders since the Finance Act 2022 received Royal Assent. The technical changes in the clause will ensure that the Government’s reforms to the tax treatment of rebated fuels made in April 2022 work as intended. I commend the clause to the Committee.
James Murray
As we know, at Budget 2020, the Government announced that they would remove the entitlement to use rebated diesel and biofuels from those sectors. As we heard, these changes took effect from April 2022, and they ensure that most users of rebated diesel prior to April 2022 are now required to use fully duty-paid diesel, as motorists do.
As the Minister set out, the Government have been made aware of unintended impacts of the legislation on fuel uses, so further amendments to it have been needed by way of the clause. As we heard, the clause amends the Hydrocarbon Oil Duties Act 1979 to adjust restrictions on the entitlement to use rebated diesel and biofuels.
We understand from explanatory notes that the changes will affect businesses and individuals who use rebated fuels to provide electricity or heating to premises that are used for both commercial, and non-commercial purposes, businesses and individuals using machines or appliances other than vehicles for purposes relating to arboriculture, and charities operating lifeboats. I ask the Minister for further information on that last category. Can he help us better understand what issue the measures in the clause are seeking to address specifically in relation to charities operating lifeboats? Can he explain what impact the law, as it currently exists, has been having on those charities operating lifeboats?
Gareth Davies
Essentially, as the hon. Gentleman points out, the measure is to correct some unintended consequences. One of those does relate to lifeboats. The initial provision was to include lifeboats and their ability to use rebated fuel. It did not include tractors and geared machines, which enable lifeboats to get in and out of the water. It is not something that was raised as part of the consultation process initially, but it was raised after the legislation went through. We are now amending that to ensure that not only lifeboats but tractors and geared machines can use rebated fuel.
James Murray
I thank the Minister for his clear response on that point. Obviously, charities operating lifeboats are ones that we all seek to support and to ensure are not disadvantaged inadvertently by any laws. Has the Minister had any discussions with those charities about whether they have lost out because of the unintended consequences, and whether there will be any redress?
Gareth Davies
I personally have not had that engagement. I will look into what discussions have taken place, and I would be happy to report that back to the hon. Gentleman.
Question put and agreed to.
Clause 318 accordingly ordered to stand part of the Bill.
Clause 319
Rates of tobacco products duty
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clause 319 implements changes announced at the spring Budget 2023 concerning tobacco duty rates. The duty charge on all tobacco products will rise in line with the tobacco duty escalator, with additional increases being made for hand-rolling tobacco and to the minimum excise tax on cigarettes. Smoking rates in the UK are falling, but they are still too high. Around 13% of adults are smokers. Smoking remains the biggest cause of preventable illness and premature deaths in the UK, killing around 100,000 people a year, and about half of all long-term users.
We have plans to reduce smoking rates further, towards our Smokefree 2030 ambition. To realise that ambition, the Minister for Primary Care and Public Health recently announced the next steps to help people quit smoking. Our policy of maintaining high duty rates for tobacco products will support the Government’s plan to reduce smoking to improve public health. According to the charity Action on Smoking and Health, smoking costs society £21 billion a year in England, as a result of sickness, disability and premature death, including £2.2 billion in costs to the NHS for treating disease caused by smoking.
At the spring Budget, the Chancellor announced that the Government will increase tobacco duty in line with the escalator. Clause 319 thus specifies that the duty charged on all tobacco products will rise by 2% above the retail prices index level of inflation. In addition, duty on hand-rolling tobacco increases by a further 6% above RPI inflation. The clause also increases the minimum excise tax—the minimum amount of duty to be paid on a pack of cigarettes—by an additional 1% to 3% above RPI inflation. The new tobacco rates will be treated as having taken effect from 6 pm on the day they were announced, which was 5 March 2023.
Recognising the potential interactions between tobacco duty rates and the illicit market, the Government intend to introduce tougher sanctions later this year to punish those involved in the illegal tobacco market. The Government also recently announced that HMRC and Border Force will publish an updated strategy to tackle illicit tobacco later this year.
This clause will continue our tried and tested policy of using high duty rates on tobacco products to make tobacco less affordable, and will continue the reduction in smoking prevalence towards a smoke-free 2030, as well as reducing the burden of smoking on our public services.
Craig Whittaker (Calder Valley) (Con)
On the Government’s ambition to reduce smoking, I briefly want to mention heating tobacco, in preference, I might say, to vaping.
The only problem with vaping, of course, is that there is absolutely no evidence of any health benefits or health risks. However, with heating tobacco, there is a huge amount of evidence, particularly from Japan, about its health benefits, in helping people to reduce and stop smoking. I just wondered whether the Minister has had any indication that heating tobacco has been looked at as an alternative to vaping. Of course, adding extra duties to it is an inhibitor to people reducing or stopping smoking.
Dame Angela Eagle
We are obviously dealing with a product that kills and, as the Minister said, cost the public purse £21 billion a year. That is why there is cross-party support for the tobacco duty escalator, which the Minister just outlined, explaining how it applies to current costs. It will increase the average price of a packet of cigarettes by 95p and the average price of a 30-gram packet of hand-rolling tobacco by £1.75. I have to say that hand-rolling tobacco is the tobacco product that is smuggled most, so we have to be particularly aware of that. The Minister will know that, if he has been to see Border Force. A 10-gram packet of cigars will go up by 48p, a 30-gram packet of pipe tobacco—again, that is a tobacco product that is often smuggled—by 63p and a typical 6-gram pack of tobacco for heating by 24p.
The Office for Budget Responsibility estimates that these increases will raise the amount of revenue taken by tobacco from £10 billion last year to £10.4 billion next year, which will actually return it to where it was the year before. Clearly, that is just an OBR estimate, but I presume that it is based on the work of and information given by Border Force and HMRC. If we are trying to get to a tobacco-free place by 2030, surely we need more progress than this kind of stasis on receipts. I wonder whether the Minister might wish to comment on that.
Clearly, the innovation of vaping is helping many people to give up smoking, but there are unknown health risks to vaping. In particular, would he comment on the way that vapes are being marketed at the moment in our society, with sweer flavours like bubble gum and melon, in a way that is clearly aimed at children. I do not think we should tolerate that. Will he give us a view rather than just saying that vaping is better than smoking cigarettes, which is clearly true?
What that does not include is the alarming rise in vaping among children, which is addicting them to nicotine in a way that might have difficult implications for public expenditure, health and their wellbeing if we allow it to continue. Will the Minister give us at least an early indication of his Department’s thinking on this juxtaposition?
Some organisations that do not think we are going far enough fast enough to eliminate tobacco as a habit to get to a smoke-free 2030 are proposing capping net profit margins on UK tobacco sales to no more than 10%—currently it is 50%—in line with the average for UK manufacturing. That could directly raise £700 million, which could fund the Khan review proposals, which contained a more radical way of trying to get us to the smoke-free target. Is the Department considering something more radical on revenue raising from tobacco products, given that progress has stalled?
As the Minister mentioned, and it is no surprise that he did, as soon as the tax goes up on tobacco products, the financial incentives to smuggle get greater. He mentioned there would be another smuggling strategy, which presumably will try to prevent the complete loss of revenue and lack of any capacity to prove whether the products being smuggled are even vaguely acceptable, because they are adulterated by all sorts, including brick dust. Will the Minister give us more information about what effect that will have on smuggling, because it is a constant problem?
Gareth Davies
There was quite a bit in there, but a lot of it was related, so I will do my best to address those points. First, to my right hon. Friend the Member for Calder Valley, I will need to educate myself a little better on heated tobacco, but if he would like to write to me, I will provide a more detailed response. I will address his comments on vaping, together with those of the hon. Member for Wallasey, in a moment.
The hon. Member for Wallasey mentioned hand-rolling tobacco and the connection to illicit trade. I want to clarify for the Committee that the fact we are raising the rate so significantly—6% plus RPI—is to help hand-rolling tobacco prices catch up with cigarettes to help us towards our Smokefree 2030 ambition. I wanted to provide that clarity because I did not in my opening remarks. The hon. Lady alluded to various calls to do more and to raise prices even more, and she referenced the OBR’s estimates for that. I will take that, together with the point she raised about the Khan review recommendations. We have to get the balance right with this taxation, as the hon. Lady said. If it is too high, it is likely to push people into the illicit trade. That is a known fact. That is one of the reasons why we have not proceeded with the 30% suggestion from the Khan review. At every review, we are trying to get that balance while also seeking to improve our enforcement action on illicit trade.
I referred to the updated review from HMRC and Border Force that is coming out later this year. I do not want to pre-empt what it is going to say or what it may achieve, but I certainly await it with eager anticipation. I would also add that the Finance Act 2022 included new sanctions, such as enhanced penalties, to strengthen the agencies’ enforcement abilities. That is a key focus of the Government right now.
The Chair
With this it will be convenient to discuss that schedule 21 be the Twenty-first schedule to the Bill.
Gareth Davies
Clause 320 and schedule 21 legislate to amend part 2 of the Finance Act 2017 to bring into scope the soft drinks industry levy on liquid flavour concentrates used in fountains, also known as dispensing machines, which combine added sugar with the concentrate when the soft drink is dispensed to produce a soft drink with at least 5 grams of sugar per 100 ml. The change takes effect from 1 April 2023.
The Government launched a consultation on the design and implementation of the soft drinks industry levy in August 2016 and set out a response confirming the broad policy approach. The soft drinks industry levy came into effect in April 2018 and supports the Government’s strategy to tackle obesity by encouraging reformulation at manufacturer level. The soft drinks industry levy applies to packaged soft drinks containing at least 5 grams per 100 ml of added sugar. Producers, manufacturers and importers of liable soft drinks must register a report and pay the soft drinks industrial levy on the volume of liable soft drinks packaged in and imported into the UK.
The soft drinks industry levy has driven substantial reformulation, resulting in a sugar reduction in soft drinks of 46% between 2015 and 2020 and the reformulation of more than 50% of sugary soft drinks in response to the levy. The changes made by clause 320 and schedule 21 will close a minor technical loophole within the soft drinks industry industrial levy, improving the consistency of its application. The changes are in line with the intent of the original legislation. The measures extend the definition of a soft drink liable to the soft drink industry levy to include packaged concentrates that are mixed with sugar when dispensed from a soft drink fountain machine. Other fountain machines used in the restaurant, retail and leisure industry that use a packaged syrup or concentrate containing added sugar are already in scope of the soft drinks industry levy.
The change will bring consistency across the soft drinks industry by ensuring that all packaged concentrates used in fountain machines, regardless of the stage when the sugar is added, are captured by the soft drinks industry levy. Existing soft drinks industry levy rules, including registration, rates, accounting and payment will apply to manufacturers and importers of flavour concentrates manufactured to be mixed with sugar in a dispensing machine. The change takes effect from 1 April 2023 and will bring consistency across the soft drinks industry by ensuring that all packaged concentrates used in fountain machines, regardless of the stage at which sugar is added, are captured by the soft drinks industry levy.
James Murray
I will speak briefly to clause 320 and schedule 21, which relate to the scope of the soft drinks industry levy. As the Exchequer Secretary set out, the result of these measures is that the levy will now apply to liquid flavour concentrates that are manufactured in, or imported into, the UK. The concentrates are products that are mixed with added sugar in a dispensing machine to dispense a soft drink for the final consumer.
The soft drinks industry levy was announced at Budget 2016 and came into force in April 2018. It has been targeted at producers, manufacturers and importers of soft drinks containing added sugar by encouraging the reformulation of drinks to reduce levels of added sugar and portion sizes, and the marketing of low-sugar alternatives and so on. We recognise that this technical change will bring liquid flavour concentrates within scope of the levy, and we will not oppose the clause.
Victoria Atkins
Out of an abundance of caution, I refer Members to my entry in the Register of Members’ Financial Interests and my ministerial interests. I am recused from this subject matter in a ministerial capacity.
Dame Angela Eagle
I wonder which sugary drinks the Minister is addicted to—perhaps she will tell us when we are not sitting in public.
We are dealing here with a technical change to the successful sugar tax, if we can call it that. Again, when we are dealing with Ministers whose job is to get money into the Exchequer, it is strange to have to congratulate them for the declining level of soft drinks industry levy receipts. The tax has successfully delivered on the intention behind the policy, and receipts are down by £21 million for April 2022 to March 2023. That is an awful lot of ruined teeth and extra weight avoided, often for children, whose life chances can be negatively impacted by becoming addicted to sugar.
The consensus among public health officials is that the sugar tax has caused a decline in sugary drink sales, and the total amount of sugar in soft drinks sold by retailers and manufacturers decreased by 35.4% between 2015 and 2019, from 135,500 tonnes to a mere 87,600. That is a success as far as things go, but perhaps the Minister might assure the Committee that the Government will take credit for the success and that they intend to continue to push for lowering even further the 87,600 tonnes of sugar that are currently put in drinks, because there is uncertainty about the Government’s direction.
Two previous Prime Ministers have challenged the existence of sugar taxes. The right hon. Member for Uxbridge and South Ruislip said that, on the current evidence, it is ambiguous whether they work, but I have just raised some evidence that shows unambiguously that they do. Similarly, the Prime Minister’s immediate and very short-lived predecessor, the right hon. Member for South West Norfolk (Elizabeth Truss), said that
“taxes on treats hit those on the lowest incomes.”
If I may say so, they might also account for the development of a trend that is quite shocking when one thinks about it. There is now a positive correlation being between poor and being obese. As a society, we ought to tackle that, partially by using such methods, so that we can ensure that the correlation does not survive. We could bring to bear a range of other measures to ensure that happy outcome, but they would be completely outwith the scope of the Bill, so I will not talk about them.
We must, however, congratulate the Government on their introduction of sugar taxes. Since the current Prime Minister’s position is unclear, because he has both supported and rejected furthering a sugar tax, will the Exchequer Secretary tell us what the Government’s position is? Is he willing to stand up and take unambiguous credit for the success of the sugar tax and confirm to us that the Government’s intention is to continue making progress in this area in an appropriate way, with more than just technical changes for drinks fountains?
Gareth Davies
I am always grateful for the hon. Lady’s comments. I can answer her quickly. We are committed to the SDIL—the soft drinks industry levy—and we share her positive recognition of the sugar decline. With any tax considerations, however, we have to achieve a balance; we have to balance tax against cost of living concerns, as she pointed out, so all taxes remain under review.
Question put and agreed to.
Clause 320 accordingly ordered to stand part of the Bill.
Schedule 21 agreed to.
Ordered, That further consideration be now adjourned. —(Andrew Stephenson.)
Finance (No. 2) Bill (Fourth sitting)
Thursday 18th May 2023
(11 months, 2 weeks ago)
Public Bill CommitteesRead Full debate Finance (No. 2) Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 18 May 2023 - (18 May 2023)
The Committee divided: - Ayes: 10 / Noes: 7 - Question accordingly agreed to.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 2 / Noes: 9 - Question accordingly negatived.
The Exchequer Secretary to the Treasury (Gareth Davies)
Clause 321 introduces a new domestic air passenger duty band for flights within the UK to bolster connectivity within the Union and a new ultra-long-haul band to further align the tax with the Government’s environmental objectives. The clause also sets the 2023-24 rates for both the new bands and the two existing bands that are operated by the retail price index.
Clause 322 enables the Northern Ireland Assembly to set the rate for the new ultra-long-haul band for direct flights departing Northern Ireland. The primary purpose of air passenger duties is to ensure that the aviation sector contributes to public finances, since tickets are VAT-free and aviation fuel incurs no duty.
Following a consultation on aviation tax reform in 2021, the Government announced a package of APD reforms at the autumn Budget 2021. First, the reforms will bolster air connectivity within the Union through a 50% cut in domestic APD. Some of the nations and regions of the UK are separated by sea so aviation has a critical role to play in facilitating the necessary links across our Union.
Secondly, by adding a new ultra-long-haul distance band, the reforms further align APD with the Government’s environmental objectives, recognising that aviation is responsible for 8% of the UK’s greenhouse gas emissions. In particular, emissions from international aviation have more than doubled since 1990, and we were responsible for 96% of the sector’s greenhouse gas emissions in 2019.
The new ultra-long-haul band, which covers flights that are greater than 5,500 miles from London, will ensure that those who fly furthest and have the greatest impact on emissions incur the greatest duty. The annual uprating for APD rates in line with RPI to the nearest pound is routine and has occurred every year since 2012. To give airlines sufficient notice, the Government announce the rates at least one year in advance.
The changes made by clause 321 implement the APD reforms and the 2023-24 rates announced at autumn Budget 2021. APD for domestic flights, except private jets, will be reduced by 50%, from £13 to £6.50 for passengers flying economy class. Overall, the Government expect that more than 10 million passengers will benefit from the reform.
The new ultra-long-haul band will be set at £91 for passengers flying in economy—a £4 increase compared with the existing long-haul band. That is expected to affect less than 5% of passengers. For the remaining 2023-24 rates where the standard uprating applies, the clause increases the long-haul rate by a nominal increase of just £3 for economy class. The rounding of APD rates to the nearest pound means that short-haul rates will remain frozen in normal terms for the 10th year in a row. That benefits more than 70% of passengers.
Clause 322 enables the Northern Ireland Assembly to set the rates for the new ultra-long-haul band for direct flights departing Northern Ireland. The rates for direct long-haul flights from Northern Ireland are already devolved. The reforms to air passenger duty will bolster Union connectivity and further align the tax with our environmental objectives. These are a routine uprating of existing rates, which represents a real-terms freeze and ensures that airlines continue to make a fair contribution to our public finances. I therefore move that the clauses stand part of the Bill.
James Murray (Ealing North) (Lab/Co-op)
As we heard from the Minister, clause 321 will introduce a new domestic band for flights within the UK and a new ultra-long-haul band covering destinations with capitals located more than 5,500 miles from London. Until the end of March 2023, there were two destination rate bands for air passenger duty: band A included those countries whose capital city is less than 2,000 miles from London, with band B covering all other destinations. From 1 April, there have been four destination bands: the domestic band for flights within the UK; band A for non-domestic destinations whose capital is up to 2,000 miles from London; band B for destinations whose capital is between 2,001 and 5,500 miles from London; and band C for all other destinations.
As the Minister explained, clause 322 makes consequential amendments to the provisions that devolve to the Northern Ireland Assembly the power to set the direct long-haul rates of APD. I understand that the changes in the clause do not impinge on the devolved powers, and the devolved rates are not affected. Rather, it updates the provisions to reflect the introduction of clause 321 and the ultra-long-haul band.
Before I address our concerns about this measure, I would be grateful if the Minister could help the Committee to understand what the situation would be if the clause passed by confirming what rates of air passenger duty would apply in a few specific instances. First, if someone were to travel by helicopter around the UK—for instance, from London to Southampton—would that be subject to air passenger duty? Secondly, if someone travelled on a private jet around the UK—say, from London to Blackpool—that was, for argument’s sake, a Dassault Falcon 900LX, what rate of air passenger duty would apply? Finally, if someone lives in the UK but was travelling to another home of theirs—say, in Santa Monica, California—what rate of air passenger duty would apply? I would be grateful if the Minister could answer those three questions.
I turn to our concerns about the clause. As the Minister might know, when this measure was first announced at autumn Budget 2021, we raised our concerns about it during the debates on the subsequent Finance Bill. We pointed out then—it is even truer today—that it could not be right for the Government to prioritise a tax cut that would be of greatest benefit to people who are able to be frequent flyers in the UK at a time when working people across the country have been hit again and again by tax rises.
As well as being the wrong priority for public money, the Chancellor announced the cut in air passenger duty just days before COP26. What is more, as the Institute for Fiscal Studies pointed out at the time, the cut in air passenger duty would in fact flow through the UK emissions trading scheme and push up electricity prices for people at home. The Government have pointed out that the introduction of a reduced domestic rate of air passenger duty has been accompanied by the introduction of an ultra-long-haul rate. However, when taken together, all the changes in the clause are still set to cost the taxpayer an additional £35 million a year. We cannot support this as a priority for spending public money, so we will oppose the clause.
Dame Angela Eagle (Wallasey) (Lab)
Will the Minister tell us how clause 322(4), which devolves these issues to the Northern Ireland Assembly, will work, given that the Assembly is not sitting at the moment? Does it mean that this will be decided centrally at Westminster? What arrangements are made for that, since, if there was no change in these areas, in the absence of the Assembly sitting, there would be a divergence between air passenger duty in one place and the other? How has the Treasury modelled that divergence, given that air passenger duty is a devolved issue, even though the devolution settlement is not working at the moment because the Assembly is not sitting?
Will the Minister update the Committee on where we are with the aviation treaties that zero-rate aviation fuel? It is an ongoing issue, given the nature of the environmental damage that is done—particularly by aviation fuel—in the higher atmosphere when airplanes fly at higher levels, which they normally do on long-haul flights. How will private jets be treated and affected, if at all, by the reduction in domestic air passenger duty, since we have a Prime Minister who seems to think that public transport is chartering a private jet for short-haul flights?
Craig Whittaker (Calder Valley) (Con)
May I declare a loose interest?
I have an elderly mother who lives in Australia. As she is elderly, I am spending more and more time going down there. That aside, has the Minister done any evaluation of air passenger duty and the economic competitiveness of the UK versus our European partners?
I ask that because I know from previous years travelling down to Australia that it has been much more viable for me to catch a flight to Amsterdam, Oslo or wherever and pick up a flight from there, because the cost of flights from the UK has been phenomenally more expensive than those from our European partners. From speaking to people, I know that more and more people are doing that. APD has the adverse effect of making us uneconomical and perhaps at some future point even taking a reduced rate because more and more people will be doing that. Has the Minister or anybody in the Treasury done any evaluation of our air passenger duty versus those of our European counterparts?
Gareth Davies
Let me try to answer those questions in order. Just to clarify for the Committee, there is no APD other than on fixed-wing aircraft. Private jets pay a higher rate than any other flight domestically, and they are not, to answer the hon. Member for Wallasey, subject to the 50% cut that we are talking about here. Any ultra-long-haul flights will face a new band, as I described in my opening remarks.
To answer the excellent and reasonable question from my right hon. Friend the Member for Calder Valley (Craig Whittaker), I understand there was a review in 2021 of the economic impact of APD. As I said in my opening remarks, all factors are considered as part of that process, but I am happy to provide more detail in due course if that is warranted.
The point on Northern Ireland that the hon. Member for Wallasey raised is a good one. It is a devolved matter, as she points out, and Northern Ireland has the ability to set the rate for ultra-long-haul flights. Let me look into the matter of the arrangements we are putting in place, given the specific circumstances that we find ourselves in with the Executive. It is a fair question, and it deserves a fair answer, so I will come back to her.
Dame Angela Eagle
I thank the Minister for undertaking to let us have that information, given the particular circumstances that prevail in Northern Ireland. Can he say a little bit about whether there is any progress with the aviation treaties? I know how difficult it is, but it is a complete anomaly that there is no taxation of aviation fuel simply because most flights pass through an international area, given the worse damage that use of aviation fuel does when aeroplanes are travelling at high altitude. Something that we aspired to do when I was in the Treasury was to get some kind of agreement in international treaties to bring that matter into tax. Has any progress been made in the ever-elongated period between when I was in the Treasury and the present day?
Gareth Davies
First, let me apologise to the hon. Lady. I had that in my notes to address, and I did not. She is referring to the Chicago convention, which basically is an international agreement whereby we have agreed not to tax aviation fuel. That was, as I understand, enacted in the 1940s. I was told in a briefing yesterday that it may have been updated some eight times since then, but she raises an interesting point. We are committed to all current international agreements, but it is certainly something that I will look into. I still regard myself as fairly new in this job, but I commit to look into it in due course.
Question put, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 9.
Clause 324 stand part.
Government amendment 10.
That schedule 22 be the Twenty-second schedule to the Bill.
Clause 325 stand part.
Gareth Davies
Clauses 323 to 325 and schedule 22 provide for the 2023-24 vehicle excise duty rates and the new, reformed heavy good vehicle levy from August 2023.
The clause sets the 2023-24 vehicle excise duty rate. Since 2010, rates of VED have changed only in line with inflation, which means that drivers have not seen a real-terms increase. The clause will result in nine in 10 car drivers seeing a change to their VED liability of £20 or less next year. The Government continue to support drivers who will benefit from the extended cut and will freeze fuel duty in 2023-24, worth £100 to the average driver.
Clause 324 and schedule 22 introduce the new, reformed HGV levy from August 2023, following the end of the levy suspension period. The reforms are a further step towards reflecting the environmental performance of heavy goods vehicles. Given that the HGV levy suspension period is coming to an end, HGV VED will remain frozen for 2023 to 2024 to support the haulage sector. Finally, clause 325 removes certain circumstances in which the levy suspension period for a given HGV is extended longer than intended.
I will now go through the measures in detail. A long-standing feature of VED is that it is uprated in line with inflation, using a measure based on the retail price index. Since 2010, rates for cars, vans and motorcycles have increased only in line with inflation. The standard annual rate of VED for cars first registered since April 2017—the most common annual rate—will increase by £15, from £165 to £180. Drivers will continue to benefit from the extended cut and freeze to fuel duty in 2023-24, which taken together represent a saving of £100 per average motorist.
As for the HGV levy, which applies to all HGVs of 12 tonnes or more, it was introduced in 2014 to ensure that all hauliers, both UK and non-UK, make a contribution when they drive on UK roads. The levy was suspended in August 2020 to support the haulage sector and aid the covid-19 pandemic recovery efforts. The suspension is due to end in August 2023.
In June 2022, the Government consulted on HGV levy reform options. The consultation sought views on proposals to align a reformed HGV levy with the environmental performance of the vehicle, ensuring that levy liability is as closely aligned as possible to when a foreign vehicle is used on a major road. Having considered views on the subject, the Government decided to take forward the proposals, as announced at the Budget.
Clause 323 will result in changes to some drivers’ vehicle excise duty liabilities. That includes changes to first-year rates of VED for cars. The most polluting vehicles will pay up to £2,605, while those with lower emissions will pay nothing. Rates for vans, motorcycles and motorcycle trade licences will also change in line with RPI.
Clause 324 and schedule 22 will increase the new reformed HGV levy. That is effective from August 2023. On average, UK HGVs will pay around 20% less than under the previous HGV levy, with both UK and non-UK hauliers benefiting from a much simplified levy structure based on weight proxying CO2. The number of rates will reduce from 22 to 6, which will make administration easier. For non-UK hauliers, the reforms also ensure that the levy is focused on road usage and is more clearly aligned with the Government’s international obligations. The most common type of HGV hauliers will pay £576 per year. The second most common type will pay £150—less than the cost of a tank of fuel. For many types of HGVs, operating costs are more than £100,000 a year; the HGV levy represents a small fraction of that.
Clause 325 is a technical anti-avoidance change. In the final year of the three-year levy suspension period, each vehicle should benefit from only up to 12 months of levy-free period. The clause ensures that by providing for a transitional payment where a vehicle has benefited from additional months of levy-free period.
The Government have tabled amendments 9 and 10 to those clauses, which address minor legislative errors to ensure that vehicle excise duty for rigid HGVs pulling trailers continues to apply as intended following the introduction of the new reformed levy. Where VED was partly set according to the vehicle weight bands of the previous HGV levy, the amendments specify the same weight bands independently of the new reformed levy. As a result, the VED due for HGVs pulling trailers does not change, in line with the Government’s policy intention.
In conclusion, a new reformed HGV levy will ensure that all hauliers continue to make a contribution when they use UK roads after the levy suspension period ends. VED has been frozen for HGVs, and for other vehicles it is rising in line with RPI only, so drivers will not see a real-terms increase in their VED liabilities. I therefore commend the clauses, the schedule and amendments 9 and 10 to the Committee.
James Murray
As we have heard from the Minister, clause 323 provides for changes to certain rates of vehicle excise duty by amending schedule 1 to the Vehicle Excise and Registration Act 1994. As we know from announcements in the spring Budget, vehicle excise duty rates for light passenger and light goods vehicles and motorcycles will increase in line with inflation, based on RPI. We understand that the changes to rates will take effect for vehicle licences taken out on or after 1 April this year.
Clause 324 and associated schedule 22 change the HGV road user levy; they amend, as the Minister said, how it is calculated and the rates. They also remove the requirement to provide a register of HGV levy paid. The HGV levy was introduced in 2014, and is payable by both UK and non-UK HGVs when using UK roads. The Government suspended the levy in August 2020, and it will return in August this year. The Department for Transport consulted on changes to the HGV levy in June 2022. The reforms implemented by the clause and the accompanying schedule move the levy towards better reflecting the environmental performance of vehicles.
On a minor point of clarification, the explanatory note to the clause states:
“For non-UK HGVs, the reforms also ensure that the levy is…more clearly aligned with the government’s international obligations.”
Could the Minister explain what international obligations the note refers to, and how the reforms better align the UK with them? Finally, clause 325 operates alongside clause 324. It deals with circumstances where the levy’s suspension period for a given HGV is extended longer than the Government intended. As the explanatory notes on the clause make clear, in the final year of the three-year levy suspension period, which ends in August this year, each vehicle should benefit from only another 12 months of levy-free period. I understand that the clause ensures that that is the case by providing for a transitional payment where a vehicle has benefited from additional months of levy-free period, so Labour will not oppose the clause.
Gareth Davies
I am grateful to the Opposition for not opposing clause 325. The hon. Member rightly asked about the international aspect of the provisions on international hauliers. Perhaps I can offer additional clarification. The measures will apply only to A roads and motorways, which is in line with what happens in many other countries. On the specific international obligations that he asked about, I do not have the exact detail to hand, but I am happy to follow up on that. However, what we propose is in line with what is done by many other countries around the world. Revenue weight of vehicle 2 axle vehicle 3 axle vehicle 4 or more axle vehicle Exceeding Not exceeding kgs kgs Band Band Band 11,999 15,000 B(T) B(T) B(T) 15,000 21,000 D(T) B(T) B(T) 21,000 23,000 E(T) C(T) B(T) 23,000 25,000 E(T) D(T) C(T) 25,000 27,000 E(T) D(T) D(T) 27,000 44,000 E(T) E(T) E(T)”.
We are often asked why the levy is restricted to certain roads. It has been assessed that rerouting to avoid the levy would not be cost-effective for hauliers. We have every confidence that the Driver and Vehicle Licensing Agency, the police and our extensive automatic number plate recognition technology will enable us to enforce this measure. On the question about international obligations, I understand that the obligations may be those under the trade and co-operation agreement. I will confirm that to him later.
Question put and agreed to.
Clause 323 accordingly ordered to stand part of the Bill.
Clause 324
Reform of HGV road user levy
Amendment made: 9, in clause 324, page 245, line 34, after “provision” insert “(including consequential provision)”.—(Gareth Davies.)
See the explanatory statement for Amendment 10.
Clause 324, as amended, ordered to stand part of the Bill.
Schedule 22
Reforms of HGV road user levy
Amendment made: 10, in schedule 22, page 449, line 25, at end insert—
‘10A “(1) In consequence of the amendments made by paragraph 10, in Part 8 of Schedule 1 to VERA 1994 (annual rates of duty: goods vehicles), paragraph 10 (relevant rigid goods vehicles) is amended as follows.
(2) After sub-paragraph (2) insert—
“(2A) In this paragraph, references to “the tables” are to the tables mentioned in sub-paragraph (6).”
(3) In sub-paragraph (3)—
(a) in the opening words omit “following”;
(b) in paragraph (c), for “appropriate HGV road user levy band” substitute “vehicle excise duty band”.
(4) For sub-paragraph (5) substitute—
“(5A) The “vehicle excise duty band” in relation to a vehicle is determined in accordance with the following table—
(5) In each of the tables after sub-paragraph (6), in the headings to column 1, for “Appropriate HGV road user levy band” substitute “Vehicle excise duty band”.’—(Gareth Davies.)
This amendment and Amendment 9 would make consequential amendments to ensure that vehicle excise duty remains chargeable on certain HGVs on the same basis, and in the same amounts, as it is chargeable before the amendments to the HGV road user levy in the Bill have effect.
Schedule 22, as amended, agreed to.
Clause 325 ordered to stand part of the Bill.
Clause 326
Rates of landfill tax
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 327 to 329 stand part.
New clause 5—Assessment of impact of the Act on compliance with the climate change target—
“The Chancellor of the Exchequer must, within one year of this Act coming into force, publish an assessment of the impact of this Act on the Government’s ability to meet—
(a) the duty under section 1 of the Climate Change Act 2008 (the target for 2050), and
(b) its obligations and commitments under the Paris Agreement of 2015.”
This new clause would require the Chancellor to publish an assessment of the impact of the Act on the UK Government’s ability to meet its duty to achieve Net Zero by 2050 and its obligations under the Paris Agreement.
Gareth Davies
Clauses 326 to 328 make changes to the rates of several taxes to support our environmental and climate change objectives. Clause 329 makes technical changes to ensure that the aggregate levy is fairer and simpler for businesses. I will talk through the clauses in turn.
Landfill tax aims to encourage the diversion of waste away from landfill and towards more environmentally friendly waste-management options, such as recycling. Clause 326 maintains the real-terms value of the price incentive to divert waste away from landfill by increasing the lower and standard rates of landfill tax in line with the RPI. The clause increases the lower rate from £3.15 per tonne to £3.25 per tonne and increases the standard rate from £98.60 per tonne to £102.10 per tonne, with effect from 1 April 2023.
The Financial Secretary to the Treasury (Victoria Atkins)
Again, out of an abundance of caution, I refer hon. Members to my entry in the ministerial register of interests. I am recused from any consideration, in a ministerial capacity, of this levy.
James Murray
As we have heard, clause 326 increases both rates of the landfill tax in line with inflation, rounded to the nearest 5p. The increased rates apply to any disposal of relevant materials made, or treated as being made, at a landfill site in England or Northern Ireland on or after 1 April.
The landfill tax was introduced in 1996. It increased the cost of waste disposal at landfill to encourage waste producers and the waste management industry to switch to a more sustainable way of disposing of waste material. The tax was originally UK-wide, but it was devolved in Scotland from April 2015 and in Wales from April 2018. We will not oppose the clause, but I ask the Minister to fill us in on the wider context of the landfill tax, and specifically landfill tax fraud. In a Backbench Business Committee debate on landfill tax fraud in January, my hon. Friend the Member for Cambridge (Daniel Zeichner) said:
“Landfill tax fraud is a blight on communities across the country. It causes lasting damage to the environment and, of course, deprives the Exchequer of revenue.”—[Official Report, 12 January 2023; Vol. 725, c. 793.]
As Members discussed during that debate, according to His Majesty’s Revenue and Customs’ most recent annual estimate of the tax gap, the gap between landfill tax due and revenue collected in 2021 is £125 million. That is a gap of 17.1%—much higher than the overall tax gap for that year. According to HMRC’s report, the uncertainty rating for the landfill tax gap estimate is high. The then Exchequer Secretary, the hon. Member for South Suffolk (James Cartlidge), conceded in the debate that “non-compliance is high.” In responding to the debate, he set out some details of the operational resource dedicated to landfill tax non-compliance; however, I do not think that he directly answered a question that the shadow Minister, my hon. Friend the Member for Cambridge, put to him: how much of the £125 million tax gap identified in 2021 has been recovered by HMRC? I would be grateful if the current Exchequer Secretary could address that point.
Clause 327 amends the main rates of the climate change levy on gas and other taxable commodities, and the reduced rate percentages on those commodities paid by participants in the climate change agreement scheme from 1 April next year. The climate change levy is a tax on the non-domestic use of gas, electricity, liquefied petroleum gas and solid fuels. Energy-intensive businesses that participate in the climate change agreement scheme run by the Department for Energy Security and Net Zero pay reduced rates expressed as a percentage of the four main rates of the climate change levy on the taxable commodities supplied to them.
We understand that the changes introduced by the clause were announced in the 2022 autumn statement, which froze the electricity rate, and in which it was confirmed that the climate change levy rate for LPG will continue to be frozen until 31 March 2025. It was further announced that the reduced rates of the levy for 2024-25 on gas and other taxable commodities paid by qualifying businesses in the climate change agreement scheme would be amended, so that participants will not pay more under the levy than they would have if the rates had increased in line with the retail price index.
Clause 328 increases the plastic packaging tax in line with the CPI. The plastic packaging tax was introduced in April 2022 to provide an economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging. That was expected to create greater demand for the material, which would in turn stimulate increased recycling and collection of plastic waste, diverting it from landfill or incineration. I understand that the new rate maintains the real-terms value of the incentive to include 30% or more recycled plastic and plastic packaging components in a product by increasing the rate of tax in line with the CPI. As that tax has now been in place for a year, what evaluation have the Government made of it? In particular, can the Minister tell us what impact the tax had in 2022-23, in terms of fulfilling its stated aim of stimulating increased recycling and collection of plastic waste?
Clause 329 makes changes to the aggregates levy exemptions for some types of aggregate from construction sites. We understand that it replaces four exemptions for by-product aggregate arising from certain types of construction with a broader and more general one. The explanatory notes state:
“Following a review of the levy in 2019, some concerns about the operation of the levy were raised by different stakeholder groups.”
I understand that the changes were consulted on in 2021. Draft legislation was published in July 2022 for technical consultation, which has now concluded. On that basis, we will not oppose the clause.
Aaron Bell (Newcastle-under-Lyme) (Con)
It is a pleasure to serve under your chairmanship, Sir Gary. I will confine my remarks to clause 326. I am grateful to the hon. Member for Ealing North for raising landfill tax fraud and the debate on 12 January, which I contributed to at some length. As Members may know, I have the worst landfill in the country in Walleys Quarry in my constituency of Newcastle-under-Lyme. The Opposition Whip, the hon. Member for Blaydon, also has some experience in this area, because her constituents have suffered at Blaydon Quarry. She contributed to that debate, too.
The hon. Member for Ealing North mentioned that the tax was introduced in 1996. The differential between the rates for regular waste and inert waste has grown immensely. Now, they are £3.25 and £102.10 respectively; back in 1996, they were £2 and £7. Just as the hon. Member for Wallasey said earlier in relation to tobacco, that has increased the incentive for people to break the rules, and unfortunately, many people in the waste industry are breaking the rules. What goes on at Walleys Quarry causes misery for my constituents, as fly-tipping and everything else that goes on in the waste industry does for people around the country.
The responsibility falls primarily on the Environment Agency, which I continue to press to do more about Walleys Quarry, as well as about Staffordshire Waste Recycling Centre, which is just over the border in the constituency of my hon. Friend the Member for Stoke-on-Trent North (Jonathan Gullis), who mentioned it just yesterday at Prime Minister’s questions. Will the Minister focus on the role of HMRC in helping the EA to do its work, because prosecutions for fraud may ultimately have more effect than prosecutions under environmental regulations?
Liz Twist (Blaydon) (Lab)
It is a pleasure to speak with you in the Chair, Mr Stringer. As the Opposition Treasury Whip, talking about landfill tax is becoming an annual ritual for me.
Landfills are a blight on our society. It is not pleasant to live near one—even a well-regulated one—and it is good that we are considering how to pursue landfill taxes. My particular concern is, as it was previously, about the effectiveness and enforcement of the rates and the recovery of the taxes. As we heard from my hon. Friend the Member for Ealing North, there is still a considerable gap in collection rates, and that must be addressed if we are to treat people properly and minimise the impact of landfill sites.
The Minister may know about Operation Nosedive, which HMRC pursued with great fanfare in my constituency only to drop it quietly six years later. Earlier this year, on 12 January, we had a debate to consider that operation and the wider implications of landfill tax fraud. The joint unit for waste crime was established following the failure of Operation Nosedive, which, incidentally, cost HMRC £3.5 million in public money. There are huge tax implications here. Will the Minister comment on what is being done to close that tax gap?
As I said, landfill sites are not good, and it is good that we do all we can to reduce their environmental impact, but there is also the matter of reducing the gap between what is collected and the expectation, by ensuring that those moneys are recovered. Will the Minister comment on that and on how many enforcement actions and prosecutions have resulted from the work of the joint unit for waste crime on landfill tax?
Douglas Chapman (Dunfermline and West Fife) (SNP)
New clause 5 would require the Chancellor of the Exchequer to publish an assessment of the impact of the Bill on the Government’s ability to meet their duties under the Climate Change Act 2008 and commitments under the 2015 Paris agreement. The UK Government need to walk the walk as well as talk the talk on climate change. We had an extremely successful conference of the parties in Glasgow in 2021. The UK Government COP President secured the historic inclusion of coal in the climate pact, even if that commitment was not quite as explicit as he originally wished.
Scotland is taking that very seriously. We have ambitious climate change targets to become a net zero greenhouse gas-emitting nation by 2045, with interim targets of 75% by 2030 and 90% by 2040. We are taking positive action to realise those goals. The UK Government’s action has stalled, however, and has not been helped by the series of changes of Prime Minister, each of whom has had a wholly different attitude to the urgency of climate change.
In reality, the UK Government talk about climate change when they are forced to do so, but they do not take the action required to meet their obligations. Is the Minister confident that the measures in the Bill will get targets back on track? In every single policy that comes from the UK Government and every piece of legislation enacted by this Parliament, the climate change impact should be evaluated, and this Bill is no exception. We should be leading from the front and considering the impact of each policy on the targets that have been set.
Dame Angela Eagle
This is a group of clauses on environmental taxes, and the Minister has taken us through some of the technical changes and some of the upratings that are required by law. There is a gap on the landfill tax, as my hon. Friend the Member for Ealing North pointed out from the Front Bench, which implies that people are avoiding it rather than paying it. What comfort can the Minister give us that HMRC and the tax authorities are on to that issue? We have heard from both sides of the House, particularly on landfill tax, about the fraud that is perpetrated. I suspect that all of us in this room regularly spend our time as constituency MPs phoning various authorities to try to get the evil effects of fly-tipping in our constituencies dealt with.
The Minister has not said anything about enforcement of the tax and anti-fraud measures. He has said a little about how some of the taxes will be redesigned to try to design out some fraud, and I suspect he has done that particularly with the aggregates levy and his attention on so-called borrow pits. Perhaps he will correct me if I have got that wrong, but, having listened to what he had to say on that, I suspect it is about avoidance issues, focusing the aggregates levy on taking away the incentives to use virgin aggregate rather than recycling existing aggregates, and filling in other loopholes.
We all know from our constituencies that the landfill tax is not working as well as it should. Many of us have closed and managed landfill sites in or close to our constituencies. Not all of us have quarries, with the difficulties that occur there, but we all see the baleful effects of fly-tipping and people who save money by dumping rubbish, and sometimes far worse things, into the environment.
Clearly, HMRC and those who collect taxes have a role to play in dealing with fraud, but so has the Environment Agency. Perhaps the Minister will give us some comfort on this, but the weakening of enforcement authorities over the past few years is a real problem. We could have the perfect law, with the perfect text, designed perfectly so that incentives are fantastic, but if it is not enforced properly, it fails. We are certainly seeing that happen with the landfill tax.
Can the Minister give us some comfort that he is on to the issue and that the Treasury knows that it has to spend to save? The Treasury has to enforce the taxes that it levies, but it also has to empower other regulators and agencies that have a policing role, such as the Environment Agency and local authorities, to ensure that enforcement on these very important issues, which have a huge bearing on quality of life in all our constituencies, is properly resourced. Will the Minister give us some guarantees on that? At the moment, particularly with respect to the landfill tax, it is failing.
Gareth Davies
First, let me acknowledge that the landfill tax has been an overarching success, with local authority waste into landfill down by some 90% since 1990. I think we can all agree that that is a very good thing for England. I want to emphasise that, because it is a great success story.
A number of questions have been asked about waste crime. I completely agree that any type of waste crime is a blight on all our communities. As constituency MPs, we see the damage that it does, whether it is fly-tipping or other waste crime. That is why we have the joint unit for waste crime.
There have been questions about the effectiveness of the unit and the actions it has taken. I can tell the Committee that the unit is actively engaged in seeking to tackle waste crime. In particular, a special operation was undertaken from April 2020 to November 2022, in which some 100 partner agencies were engaged with the JUWC, and some 2,500 illegal waste sites were closed and a number of criminals engaged. But this is an ongoing problem and something we take very seriously. Of course, the Environment Agency has a role to play. The Government are engaged with all the agencies, not least the joint unit for waste crime, and we will continue to be so for some time to come.
There was a series of questions about the tax gap. For clarity, that is the difference between the amount that should be paid in theory and the amount that is collected by the Exchequer. The overall tax gap was 7.5% in 2005. It reduced to 5.1% in 2020-21. Any percentage of tax gap is too much, so it is important that we keep pressing HMRC to do everything that it can. I am confident that HMRC is tackling businesses that it suspects of waste crime that are not registered with it but could be liable for tax. The Government have given powers to HMRC to compulsorily register those businesses and, if necessary, issue penalties.
Dame Angela Eagle
I am fascinated by the work of the joint unit for waste crime. I am slightly horrified that 2,500 illegal waste sites were closed. It is good that they are closed, but it is horrifying that there were so many of them to begin with. I wonder what estimates there are for how many remain. Could the Minister give us some information about what fines were levied and what prosecutions have been successfully undertaken by the joint unit for waste crime?
Gareth Davies
I am grateful for the question. I can tell the hon. Lady that in the period I referenced with the 2,500 waste units, 51 arrests were made as a result of that action. I apologise that I do not have further details to hand, but I am happy to provide them later.
As I was saying—this goes back to what my hon. Friend the Member for Newcastle-under-Lyme talked about—HMRC does have powers to intervene and issue penalties if necessary.
Liz Twist
I have two points for the Minister. First, my specific question was whether any prosecutions had taken place as a result of the work of the joint unit for waste crime. Like my hon. Friend the Member for Wallasey, I am pleased to hear that a number of sites have been shut down, although it is worrying that there were so many.
Secondly, will the Minister comment on the landfill tax gap? The issue was discussed in the Public Bill Committee on what became the Finance Act 2022. The then Exchequer Secretary to the Treasury, the hon. Member for Faversham and Mid Kent (Helen Whately), wrote to me following the Committee with an estimate of £200 million—22.7%—for the landfill tax gap for England and Northern Ireland in 2019-20. That was a decrease from the previous year.
If I heard him correctly, the Minister—
The Chair
Order. Interventions should be brief and to the point. The hon. Lady and other members of the Committee will not have any difficulty catching my eye if they want to make another contribution.
Gareth Davies
I completely understand the hon. Lady’s passion. I know that she is a long-standing campaigner in this area, so it is no surprise that she wants to discuss the issue; I completely understand why that is. I can tell her that the tax gap has fallen, I believe, in the period that I talked about by £125 million, from £200 million in 2019-20. To reiterate, in 2005 the tax gap stood at 7.5% and in 2020-21 it stood at 5.1%. As I say, we are not complacent. We must tackle the issue, and we continue to make great efforts to do so. I put on the record my thanks to HMRC for all the work that it does to get the number down, but it is a live issue.
Let me mop up the question asked by the hon. Member for Ealing North about a review of the plastic packaging tax. He is right to raise that. We will be conducting a review very soon, but we are clear that we would like a decent period in which to conduct it so that we can see a clearer picture of the impact the tax is having. I can assure him that a review will be conducted very soon.
Liz Twist
I apologise for my previous lengthy intervention, Mr Stringer. May I return to the issue of the tax gap? As the Minister himself said, it was £200 million in 2019-20, a 22.7% gap. I am interested to hear the Minister say that it has reduced so much. If it has, I am hugely pleased, as it means that enforcement action is being taken. [Interruption.] Would he care to comment on the huge gap in the figures and how it might have reduced?
Gareth Davies
I apologise, but will the hon. Lady make that last point again? I did not hear her because of the noise in the background.
Gareth Davies
I am grateful for that clarification. As I mentioned, HMRC is actively targeting businesses and is able to tackle businesses that are not registered but that it believes are liable. In addition, HMRC has powers of compulsory registration.
I should clarify that those figures give the overall tax picture. The most recent figures for the landfill tax gap for England and Northern Ireland are estimated at 17.1% for 2020-21. I was giving figures for the overall tax picture, but the hon. Lady makes a very good point of inquiry. I hope that that clarifies the situation.
James Murray
I thank the Minister for his commitment to a review of the effectiveness of the plastic packaging tax and for his clarification of some of the statistics around the tax gap. Comparing the figures that he cited with the figure of 17.1% for landfill tax fraud shows just how big the tax gap is for landfill tax fraud, and how important it is that specific action be taken. Will he explain what specific action, rather than just talk about generalities, is being taken on landfill tax fraud, which we all agree is a problem that must be tackled?
May I also remind the Minister about a question I asked earlier? I am sorry if I missed it, but I do not think he responded to my question about the £125 million tax gap identified in 2020-21 and what has been done to recover that money.
Gareth Davies
As I have laid out, the Joint Unit for Waste Crime is a very effective organisation. It works with more than 100 agency partners to tackle all types of waste crime, including the type that we are talking about. HMRC is targeting businesses and has the powers to compulsorily register and to issue penalties. That action is being taken by not just HMRC, but by the JUWC.
I will get back to the hon. Member on his last point; I do not have the information in front of me right now.
Question put and agreed to.
Clause 326 accordingly ordered to stand part of the Bill.
Clauses 327 to 329 ordered to stand part of the Bill.
Clause 330
Designation of sites
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 331 stand part.
That schedule 23 be the Twenty-third schedule to the Bill.
Victoria Atkins
Clauses 330 and 331 will make changes to ensure that tax sites in investment zones can benefit from an optional single five-year offer of tax reliefs, identical to those available in freeports. That will mean that businesses within the tax sites can benefit from tax and national insurance reliefs to incentivise investment and reduce the cost of hiring employees.
The Government have set out an ambitious plan for growth and prosperity, rooted in boosting the UK’s potential as an innovation nation, growing strengths in key industries to support national priorities and levelling up communities across the country. At the spring Budget, the Chancellor confirmed that the investment zones programme will catalyse 12 high-potential, knowledge-intensive growth clusters around the UK, including four across Scotland, Wales and Northern Ireland. Each investment zone will bring together local partners to drive the growth of our key future sectors, bringing investment into areas that have traditionally underperformed economically. Each English investment zone will be able to benefit from access to interventions of £80 million over five years, which can be used flexibly between spending and a single, optional five-year tax offer. The changes made by clauses 330 and 331 will enable special tax sites in English investment zones to have access to that single, optional five-year tax offer.
Clause 330 will amend existing legislation to allow investment zone tax sites to be designated via secondary legislation in the same way as freeport tax sites. Clause 331 will allow the sunset date for the investment zones, tax reliefs and special tax sites to be set in that secondary legislation. Businesses investing or hiring new employees in investment zone tax sites will have access to the following tax reliefs: first, a full stamp duty land tax relief for land and buildings bought for commercial use or development for commercial purposes; secondly, a 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in investment zone tax sites; and thirdly an enhanced capital allowance, a 100% first-year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.
Furthermore, there is an enhanced structures and buildings allowance, which provides accelerated relief to allow businesses to reduce their taxable profits by 10% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over 10 years. [Interruption.] It is always delightful to hear from the Speaker.
Finally, there is employer national insurance contributions relief—zero-rate employer national insurance contributions on salaries of any new employee working in the tax site for at least 60% of their time, on earnings up to £25,000 per year, with employer NICs being charged at the usual rate above that level. The relief applies for 36 months per employee. The precise costs of tax sites will vary by site; however, the estimated value of 600 hectares of tax reliefs is £45 million, to be deducted from the overall £80 million funding envelope available to an investment zone.
These clauses will help to enable the investment zones tax offer to operate in special tax sites in England. That will drive private sector activity in investment zone tax sites, which will be key to catalysing the agglomeration of businesses in high-potential, knowledge-based sectors in investment zones across England.
James Murray
As we have heard, clause 330 and its associated schedule, schedule 23, will extend the power to designate special tax sites to allow designation of such sites in or connected with investment zones located in Great Britain, while clause 331 makes provision related to the sunset date for tax reliefs available in special tax sites.
We know that these provisions are being introduced effectively to extend the tax reliefs available in freeport tax sites to such sites in or connected with investment zones. We know that those tax reliefs include an enhanced capital allowance for qualifying expenditure and plant machinery; enhanced structures and buildings allowance for qualifying expenditure on non-residential buildings and structures; and a stamp duty land tax relief for certain acquisitions of land. Furthermore, a secondary class 1 national insurance contributions relief for eligible employers on the earnings of eligible employees up to £25,000 per annum, which is available in freeport tax sites, is also being extended to special tax sites in or connected with investment zones.
It is worth being clear that the investment zones with which the Government are currently proceeding are different from the investment zones that the right hon. Member for South West Norfolk (Elizabeth Truss) announced when she was Prime Minister. A significant number of councils put in bids for investment zones when they were announced under her premiership. According to the Association of Local Authority Chief Executives, councils had to spend an average of £20,000 to £30,000 on each bid, and may well have lost staff hours to work on preparing the submissions. Since then, investment zones have been relaunched, but it seems clear that the process for proceeding with the relaunched investment zones is entirely separate from the bidding process in operation for their former incarnation.
I would be grateful if the Minister confirmed how much money is estimated to have been wasted by councils, and indeed by central Government civil servants, on the now-abandoned bidding process for the original incarnation of investment zones. I assume that councils will be left out of pocket with respect to any money that they have spent on bids, and that the Government will not be considering refunding any of those costs, but I would be grateful if the Minister at the very least apologised to taxpayers for the money wasted as a result of this aborted policy.
I know that apologies can be hard to come by. Just last night, in fact, we heard the former Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng), brazenly denying the harm that the mini-Budget last autumn caused to family finances. He refused to take responsibility for the impact of soaring rates on mortgage payers across the country and on renters, who are seeing higher costs passed on to them. However, I urge the Minister to do the right thing and take this opportunity to apologise more generally for the harm caused by the mini-Budget last autumn, and indeed by Conservative failures over the past decade.
Mark Jenkinson (Workington) (Con)
Would the hon. Gentleman like to clarify whether it is Labour party policy to intervene in Bank of England decisions?
The Chair
Order. I did not realise that that was an intervention; I thought the hon. Gentleman wished to make a speech. The shadow Minister had sat down. If the hon. Gentleman wants to make a contribution, I will be happy to call him, but otherwise I will call Angela Eagle.
Dame Angela Eagle
There is an ongoing issue in this country, and in our economy, with investment and with the ability to ensure that we can remake our prosperity as a country and make our way in the 21st century as we did in previous centuries, thereby maintaining our position in the G7, perhaps, as the rise of other economic powers in other parts of the globe puts that under pressure. [Interruption.] Everybody cheers for that, Mr Stringer. Everybody on this Committee wants to see positive progress in this area.
This Bill is enacting some of the Budget—that is why we are in Committee, considering this legislation—but the OBR report on it had a pretty grim picture to show us of how investment has stalled in our country. On page 48, at chart E, it states that
“business investment stalled…after the EU referendum”.
By the time this document was published, investment was at fully 16.2% below the OBR’s pre-referendum expectations. Those who have sat in the main hot seat in No. 10, and those who have been progressing all too rapidly through the Chancellor’s hot seat, have been aware of that and have tried to do something about it. Most notably, there was the current Prime Minister’s super deduction, which paid people to invest in plant and machinery. It not only deducted the entire cost, but gave even greater tax incentives for them to invest. Effectively, it failed: it made no difference whatever to the stalling levels of investment in plant and machinery in our economy. That has now been replaced.
Craig Whittaker
It is interesting to hear what the hon. Lady says about levels of investment in plant and machinery. From the point of view of my patch, Calder Valley, where we have 19.2% of people working in manufacturing, the super deduction has been a huge boost to manufacturing. Will the hon. Lady acknowledge the huge investment of £17.7 billion that has been achieved only this week by the Prime Minister’s trip to Japan? That is an amazing boost to our economy.
Dame Angela Eagle
I am glad that there are positive examples of investment, but what I am talking about is the macroeconomic levels, which demonstrate that we are not where we should be. Essentially, investment has “stalled”—that is the OBR’s word, not mine. That stalling is not disproved by individual examples of investment in particular places. I congratulate the right hon. Gentleman and all the people who have been involved in doing whatever has happened in Calder Valley—no problem—but I am talking about the macroeconomic effects. The investment zone policy that we are discussing is presumably designed to kick-start investment in particular areas where the zones are marked out, which hopefully will create local prosperity. That is my understanding of what the Minister said.
Samantha Dixon (City of Chester) (Lab)
To illustrate to the Minister why I support the request of my hon. Friend the Member for Ealing North for an apology from the Government, I draw attention to my borough of Cheshire West and Chester, which made a bid for an investment zone last year. That zone would have been a real game changer for our region. It was in the constituency of my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders), and the business case specifically referred to a company called Stellantis—hon. Members may have heard of it. Unfortunately, that investment zone bid, into which council officers put a considerable amount of time and energy, has vanished like Scotch mist.
The right hon. Member for Calder Valley is fortunate that his investment zone was taken forward, but in my borough, the fact that the bid was not successful may have prompted some difficult decisions for the companies that were going to be located in the proposed investment zone. The leader of the council, Councillor Louise Gittins, wrote to the Chancellor asking for an explanation of why the investment zone was not taken forward. I am not aware that she has received a response.
Shaun Bailey (West Bromwich West) (Con)
I will keep my comments incredibly brief. There is a running theme to the debate. I thank my hon. Friend the Financial Secretary to the Treasury, because my area of the west midlands and the fantastic advocate that we have in Mayor Andy Street secured significant investment as part of the Budget. I put on record my thanks for the £22.5 million investment in Tipton town centre that the Chancellor announced in his Budget statement.
I appreciate what the hon. Member for Wallasey said about the broader parts of this discussion, and I defer to her much more considerable knowledge of the issue. But in terms of the more regional aspects of investment, it is a really important part of the investment package and strategy that we put confidence into our communities and that we say to those who want to bring inward investment into our areas—particularly post-industrial areas such as mine—that there is a case to do so. That £22.5 million, combined with the £60 million transport investment that my right hon. Friend the Chancellor also announced in the Budget as part of his broader package of resources, shows the confidence we need to see. Let us not forget that the west midlands has had a tough time, particularly post pandemic, and our productivity is still 3% down on pre-pandemic levels, so what this investment means for bringing in the inward investment that secures support for industry will be key to addressing the challenges that we face.
The efficacy and efficiency of this investment is key. We need to make sure that we set out tangible metrics of success so that not only the public, but industry can measure the effect of this important investment. As we go forward, particularly on the regional investment front, I ask the Minister and her officials to make sure that dialogue continues so we can make sure that areas such as the west midlands can see the money’s true benefit. It is all well and good talking about abstract figures of billions and millions of pounds, but we need to get across the real-life, tangible results for our constituents. We see that in the increased productivity, increased employment opportunities and upskilling in our areas.
We are very grateful for the investment that we have seen in our region, and I agree somewhat with the broader points raised by the hon. Member for Wallasey, but the key point in this broader debate is tangible, real results on the ground. We can have all the economic debates we want, but it is about delivery for real people.
Victoria Atkins
I thank my hon. Friend for his comments, with which I agree. I will not pretend that the Labour party is in politics for different reasons from us. I genuinely believe that most Members of Parliament are in politics to do good for their local residents and for the country as a whole. The point of contention is on how we achieve that.
I am interested in the contrast between the submission of the hon. Member for Ealing North and the submission of the hon. Member for Wallasey. She represents part of Liverpool, and I grew up in the north-west, so I know Liverpool and Manchester very well. I think we would all agree that Liverpool and Manchester have seen a revitalisation over many decades. It takes a village to raise a child, as the old saying goes, and I fully accept that the previous Labour Administration may have done a great deal to help those areas. Going back a long way—a little before my time, perhaps—Lord Heseltine played his part in helping both Liverpool and Canary Wharf. We are trying to revitalise areas in the same way that Liverpool, Manchester and Canary Wharf, and indeed many other areas, have been revitalised.
Dame Angela Eagle
The Minister would be very, very unpopular in my constituency if she referred to it as Liverpool. I represent the Wirral, which is over the river, where the Mersey ferry goes when it ferries across the Mersey. People can still listen to Gerry singing “Ferry Cross the Mersey” on the ferry as it goes from Liverpool to the Wirral. I appreciate her comments, but the people of the Wirral regard themselves as a bit different from those in Liverpool.
Victoria Atkins
I apologise to the hon. Lady. I meant to refer to the wider area. I thoroughly respect the independence of the good people of the Wirral.
We saw the regeneration and revitalisation of the great city of Liverpool in the wonderful displays at last weekend’s Eurovision celebrations. The regeneration of that great city has, of course, had a much wider ripple effect.
We want to channel the focus and private sector investment to which the hon. Lady rightly refers in revitalising these areas. We want to do that in a way that takes notice and full advantage of the opportunities of the 21st century. The Chancellor set out the sectors that we will concentrate on, because we want to build that investment for the future. There is some extraordinarily good news in our economy in terms of innovative technologies, life sciences and advanced manufacturing. Indeed, I saw in a WhatsApp group only this morning that Rolls-Royce has just unleashed its latest aircraft engine, to great acclaim, here in the UK. That is an extraordinary achievement, which we want replicate across the country. That is the thinking behind investment zones.
When the shadow Minister talked about these exciting proposals, he said nothing about the principles of the investment or the enormous opportunities for communities outside London. I know that he is a Member of Parliament for London, so perhaps he does not have the natural affinity with constituencies outside London that Conservative MPs have, and which I certainly have as a proud Lincolnshire MP. We really want to focus on the excitement for what we can achieve around the rest of the country. The shadow Minister, however, just focuses on process.
Samantha Dixon
The point I want to make to you—[Interruption] Sorry, the point I want to make to the Minister is that the areas that have been referenced have mayoral combined authorities. My borough sits in a sub-region of Cheshire and Warrington, which, despite strenuous efforts, has not managed to get those powers devolved to it. Under this Government, it appears to have lost out on an investment zone. Upper-tier authorities were encouraged to submit bids. They did so, but none of them were successful and they have not been given an explanation of why.
Victoria Atkins
The work on the new investment zones is ongoing. The Department for Levelling Up, Housing and Communities has begun discussions on hosting investment zones with local partners and the Treasury. That is because we want those areas to operate at a regional level, as has happened in the past with other examples. We want them to be regional examples, as I said. We are looking forward to Scotland, Wales and Northern Ireland having their investment areas. From that, many other measures will flow. Investment zones will also sit alongside freeports. Some investment zones may include freeports, but some freeports may stand independently of them. We want to ensure that we spread innovation and a drive for growth across the country.
Shaun Bailey
I want to add to the Minister’s response to the hon. Member for City of Chester. I do not necessarily disagree with some of the hon. Member’s frustrations. However, as a Member who sits within a combined authority area, I know that even when the combined authority is involved in those bids, the upper-tier authority does not just vanish from the picture; it is very much involved. The investment we had came from upper-tier authority submissions that went into the Government. I appreciate what the hon. Member said about the assistance that a combined authority might give, but it is still very much on the upper-tier authority to be in the game with some of this stuff. It does not just vanish with the creation of a combined authority area.
Victoria Atkins
I am grateful to my hon. Friend for his intervention. This is about teamwork across the various authorities, and working with local businesses. We are very open to the idea that different investment zones will focus on different sectors and specialisms. We want them to be driven at a local level by people who know their areas best. For example, they know what their local university specialises in, what local manufacturing there may be and so on. This must be driven from local areas.
Samantha Dixon
At the risk of repeating myself, the bid put in by my local authority, in partnership with two other upper-tier authorities, was fully cognisant of both the business interests in the sub-region and the HE factor. It was an excellent bid. It vanished, and no explanation has been given. It is extremely frustrating.
Victoria Atkins
I will commit to our trying to get an answer to the hon. Lady’s local authority about that. She will appreciate that other bids are run by other Departments. I am not intimately involved in what happens after a bid has been announced, but I will certainly try to get some answers for her. For the future, that is how we can ensure that the investment zones and other investment opportunities best work for local people. I am happy to commit to trying to get her an answer, although it will probably come from another Department.
Question put and agreed to.
Clause 330 accordingly ordered to stand part of the Bill.
Clause 331 ordered to stand part of the Bill.
Schedule 23 agreed to.
Clause 332
Right to repayment of income tax to be inalienable
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
I hope that clause 332 will be of real interest to hon. Members and their constituents. In recent years, there has been a growth in what are commonly called repayment agents. Hon. Members may have received a great deal of correspondence from their constituents about such agents. They are paid tax agents who specialise solely in making claims for income tax relief on behalf of their clients.
Repayment agents can provide a useful service to taxpayers by helping them to claim reliefs or allowances to which they are entitled from HMRC, but last year HMRC received around 2,800 complaints about repayment agents from taxpayers who were unclear about the terms or conditions to which they had signed up. Those taxpayers were unaware that they were claiming through a third party and that they would be charged a fee of up to 50% of the repayment, and they were unaware of the use of assignments. Clause 332 prohibits the assignment of income tax repayments and, where such rights have been assigned, renders the assignment void. It is a consumer protection measure that is aimed at ensuring that taxpayers have better control over their income tax repayments, and I hope that hon. Members will advertise the measure to their constituents.
I turn to clauses 333 to 335. New late payment penalty and interest legislation was approved by Parliament in 2021. The new system is built on fairness and proportionality. In implementing penalty reform and interest harmonisation for VAT, we have identified some minor defects in the legislation that the clauses seek to correct. Clause 333 ensures that, for customers who use the VAT annual accounting scheme, late payment interest will not be charged on interim instalments of VAT that are paid late. Clause 334 ensures that late payment penalties do not apply to instalments payable under the VAT annual accounting scheme, and clause 335 makes a minor technical change to repayment interest on VAT to ensure that the rules operate as intended.
Clause 336 gives HMRC a power to move insurance premium tax administration forms out of secondary legislation and into a public notice. Currently, whenever administration forms need to be updated, a statutory instrument needs to be passed. Moving administration forms out of that regime will enable them to be updated without the need to pass legislation each time an update is required. That will simplify the administration of tax and support HMRC in keeping pace with developments in tax policy and insurance industry practices.
Finally, clause 337 relates to the plastic packaging tax. Currently, late payments in respect of plastic packaging tax by liable businesses and businesses that are held secondarily liable or joint and severally liable incur the same penalties. In contrast, late payments of assessments made by HMRC where a business has failed to submit a return incur different penalties. Clause 337 addresses that anomaly and amends schedule 56 to the Finance Act 2009, so that all late payments of plastic packaging tax incur the same penalties.
James Murray
As we heard, clause 332 introduces a new provision that renders void assignments of income tax repayments. We understand that the clause removes the ability of a taxpayer to legally transfer their entitlement to an income tax repayment to a third party such as an agent. It enables HMRC to disregard assignments when issuing income tax repayments, although we understand that it does not remove a taxpayer’s ability to use a non-legally binding nomination where they wish their repayment to be made to a third party. The decision to prohibit assignments seems to have been driven largely by the practices of Tax Credits Ltd, which ultimately led to HMRC having to issue tax refunds directly to 60,000 affected taxpayers.
The changes in the clause have been broadly welcomed by groups including the Low Incomes Tax Reform Group, which pointed out that they mean that taxpayers will no longer be able to assign their rights to an income tax repayment to a third party repayment agent, and that includes taxpayers who have been tricked or misled into doing so by an unscrupulous agent. However, LITRG highlights that issues remain around the nomination process—the alternative way that I mentioned of enabling an agent to receive a payment. It is concerned that the provisions in the clause will not stop taxpayers being tricked or misled into nominating an unscrupulous agent to receive an income tax repayment. LITRG also raised its concern that responsible repayment agents, who were not misusing assignments, may exit the market, given the risk of non-payment for their work. LITRG therefore suggests that HMRC carefully monitors the impact of the provision on taxpayers and their ability to obtain refunds.
I am sure that the Minister will try to assure us that HMRC carefully monitors all its operations, but I would press her to give a more specific commitment in response to LITRG’s concerns. In particular, will she commit to publishing certain metrics proposed by LITRG, such as the total number of refund claims made and the total number made by third party companies?
Clauses 333 to 335 amend legislation governing a new penalty regime and rules on interest for VAT, which the Government announced at spring Budget 2021. As we heard, clause 333 makes two technical changes to the late payment interest rules. The first change ensures that late payment interest does not apply to instalments payable under the VAT annual accounting scheme. The second change means that when HMRC is recovering a VAT payment, the late payment interest start date is the date from which HMRC paid that amount. Clause 334 amends the Finance Act 2021 to ensure that late payment penalties do not apply to instalments payable under the VAT annual accounting scheme. Clause 335 amends the Finance Act 2009 to remove a restriction on the accrual of repayment interest on VAT paid by HMRC to the taxpayer. We will not oppose these clauses.
We understand that clause 336 will broaden existing powers, thereby enabling HMRC to move insurance premium tax forms from secondary legislation and into a public notice by way of a statutory instrument. As the Minister outlined, these technical changes are intended to reduce the administrative burden and make it easier to make administrative updates to the forms without the need for legislation. We also understand that this provides a necessary step for future legislation allowing HMRC to further digitise the insurance premium tax forms. We will not oppose the measure.
Finally, clause 337 amends schedule 56 to the Finance Act 2009, to align inconsistent late payment penalty provisions and ensure that all businesses liable for a late payment penalty in respect of the plastic packaging tax are charged the same penalty, however that liability arises. As we discussed earlier, the plastic packaging tax was introduced from 1 April last year to provide an economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging, which was intended in turn to create greater demand for that material. The clause introduces a technical, administrative change and we will not oppose it.
Victoria Atkins
We are pleased that LITRG is one of the many groups that we work closely with. We listen to them very carefully. Indeed, I met the head of the group only last week, I think, to listen to their concerns or thoughts about the tax system.
Just to reassure hon. Members, some people want to nominate tax agents to reclaim their taxes, and we do not want to shut down that route if people want to use it and do so in a fully informed and consenting manner. That is why we are moving from the assignment process through to nominations, and taxpayers will be able to withdraw easily from nominations. The point is that nominations are not permanent; they can be changed if taxpayers should wish to do so.
That is a really critical consumer protection. It is why we have put it in the Bill. It took immediate effect, because we wanted to apply it as soon as possible to prevent taxpayers from being tied into agreements that they could not rescind. Repayment agents were made aware of the Government’s intentions to legislate in January and we would say that they will have had time to adjust to the new forms, if you like, by the time that this Bill receives Royal Assent.
In relation to the other matters, I understand that the Opposition are not challenging them, so I will stop there.
Question put and agreed to.
Clause 332 accordingly ordered to stand part of the Bill.
Clauses 333 to 337 ordered to stand part of the Bill.
Clause 338
Approval of aerodromes
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
These clauses make changes to strengthen HMRC’s framework for approving aerodromes and excise businesses. Clauses 338 and 339 deal with aircraft carrying passengers or goods into and out of the United Kingdom. These aircraft are required to land at or depart from a designated customs and excise airport, unless permitted by HMRC to use an aerodrome.
There are approximately 540 aerodromes in the UK, which may handle small private jets with passengers and goods under a duty allowance, with very limited movements of freight. The typical requirements placed upon customs and excise airports are not appropriate for these smaller locations.
The Government currently agree the certificate of agreement with aerodrome operators and that provides the permission required to land at these locations. The changes made by these clauses will strengthen the legal basis for the aerodrome approval process. First, clause 338 will allow HMRC to issue approvals to aerodromes for customs purposes, to attach conditions and restrictions to these approvals and to vary or revoke approvals where necessary. Secondly, this clause provides a power to allow HMRC to make regulations about approval conditions for aerodromes and civil penalties for non-compliance with approval conditions and restrictions. Finally, the clause will require operators of unapproved aerodromes to take reasonable steps to ensure that pilots and importers do not depart from or arrive at their aerodrome in contravention of legal requirements on aircraft movements into and out of the United Kingdom.
Clause 339 makes minor and consequential amendments.
Clause 340 concerns excise regimes. Colleagues may be aware that businesses in a several excise regimes operated by HMRC require approval to conduct certain controlled activities. Those include the alcohol wholesaler registration scheme and the raw tobacco approval scheme. Approval is dependent on a business continuing to satisfy certain fit and proper criteria. Where evidence shows that the business is no longer fulfilling that criteria, HMRC may as a last resort revoke its approval. The business may request an internal review of the decision by an independent officer and ultimately has the right to appeal to tribunal and higher courts, in which case a temporary approval may be given so that the business can carry on trading until the matter is finally determined.
James Murray
As we heard from the Minister, clauses 338 and 339 relate to regulated aerodrome approvals. Clause 338 introduces a power for HMRC to grant approvals to aerodromes for the purposes of the customs and excise Acts and to amend and revoke those approvals. The clause also introduces a requirement that operators of aerodromes take reasonable steps to ensure that no aircraft lands or departs in contravention of the Customs and Excise Management Act 1979.
Clause 339 introduces consequential amendments following the provisions of clause 338. The clauses together aim to strengthen aerodrome operator accountability by establishing an approval regime for aerodromes, which handle movements of people and goods and are not designated as customs and excise airports. We will not oppose the clauses.
Moving on to clause 340, excise businesses must be approved by HMRC to conduct certain controlled activities. HMRC can revoke a business’s approval where it fails to meet HMRC’s fit and proper criteria. Current legislation allows a temporary approval to be granted pending a review or appeal, and the temporary approval automatically ends once that review or appeal has finally been determined. We recognise, however, that that may cause hardship to an affected business as, after the final determination, there is at present no time for such a business to wind down its operations without incurring a penalty.
The measure has a new discretionary power to allow HMRC to extend a temporary approval following a final determination of a decision to revoke an approval, or a temporary approval granted during the review or appeals process. That will enable a business to wind down its operations without incurring a penalty, so we will not oppose this clause, either.
Question put and agreed to.
Clause 338 accordingly ordered to stand part of the Bill.
Clauses 339 and 340 ordered to stand part of the Bill.
Clause 341
Licensing authorities: requirements to give or obtain tax information
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
Clause 341 makes the renewal of certain licences to trade conditional on licence applicants completing tax checks in Scotland and Northern Ireland from 2 October 2023. Clause 342 makes amendments to licensing legislation in Scotland, which are consequential on clause 341
This is an extension of existing principles of conditionality that already apply to renewal applications in England and Wales for taxis and scrap metal dealer licences. The checks will confirm applicants are registered for tax and have notified HMRC of their income tax or corporation tax liability. This will make it harder for traders to operate in the hidden economy. It will also help licence holders get their tax affairs right and give honest businesses confidence that their competitors are playing by the same rules. New licence applicants will be supported and directed to HMRC’s guidance on tax obligations.
James Murray
We know that the Finance Act 2021 made provision for tax conditionality connected to the application for certain licences issued in England and Wales, namely licences to drive taxis, licences to drive and operate private-hire vehicles and licences to deal in scrap metal. We understand that clauses 341 and 342 extend the existing tax conditionality legislation to similar licences issued in Scotland and Northern Ireland. In Scotland, this applies to licences to drive taxis and private-hire cars, operate a booking office, and be a metal dealer, while in Northern Ireland it applies to licences to drive taxis.
We will not be opposing these clauses, but I would be grateful to the Minister if she can explain what, if any, additional resources will be made available to HMRC to effectively implement this extension of tax conditionality legislation.
Victoria Atkins
I wrote to the hon. Gentleman to set out the amounts and estimates that HMRC has given in its annual report and accounts about the collection protection in compliance yield, and this includes the compliance officers that would be put forward to help reduce the tax gap. They are changes to existing tax exemptions, reliefs and policies that HMRC is already resourced to administer, and it undertakes compliance interventions based on risk, with investigations normally covering multiple taxes and duties, as opposed to narrowly focusing on a single area of taxation. For example, we do not have a compliance team solely dedicated to investigating cases relating to the HGV levy, but if HMRC opened a tax inquiry into an HGV business, this would be one of many areas of taxation that it would look into to ensure that the business is compliant with its total tax obligations.
Question put and agreed to.
Clause 341 accordingly ordered to stand part of the Bill.
Clause 342 ordered to stand part of the Bill.
Clause 343
Definition of “charity” restricted to UK charities
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clauses 343 and 344 will restrict UK tax reliefs to UK charities and community amateur sports clubs. Having left the EU, it is right that UK taxpayer money should support UK charities and community amateur sports clubs.
The UK is a world leader in the charitable sector. This reflects many factors, including our geography, our connectivity and our recognised legal and regulatory expertise, but also because our tax regime for charities is among the most generous of anywhere in the world. As a result, there is a thriving UK charity sector, which includes numerous charities working across the globe, comprising both UK-based charities and UK branches of international charities.
Charitable tax reliefs in the UK are given in the following areas: income tax; capital gains tax, corporation tax, VAT, inheritance tax, stamp duty, stamp duty land tax, stamp duty reserve tax, annual tax on enveloped dwellings, and diverted profits tax. Additionally, charities and CASCs can also claim gift aid of 25p for every £1 of eligible donations made by UK taxpayers. In 2021-22, UK charitable reliefs were worth £5.5 billion to the sector, up from £4 billion in 2013-14. That has remained strong despite covid-19, with the value of reliefs remaining at about £5.5 billion from 2019-20 until 2021-22.
Before the introduction of that measure, charities based in the EU or European economic area could qualify for UK tax reliefs. Now it is time to take advantage of the UK’s exit from the European Union and to restrict UK tax reliefs so that they are available only to UK charities and community amateur sports clubs. That will protect the integrity of the tax system, as UK charities and community amateur sports clubs that are located outside the UK are harder for HMRC to police.
Clauses 343 and 344 will restrict UK tax reliefs to UK charities and community amateur sports clubs. Importantly, they do not discriminate between UK charities undertaking charitable activity here in the UK or abroad. The key factor is that the charity must be governed by a UK court. The measure took effect from Budget day, but the Government have allowed a short transition period until April 2024 for those charities that HMRC has recognised will be affected by the change. That provides a window for them to register in the UK if they are eligible or, if not, to reformulate their affairs.
The measure will ensure that UK taxpayer money will be used to support UK charities and community amateur sports clubs, and the effective policing of charitable reliefs through HMRC compliance activities. I commend the clauses to the Committee.
James Murray
As the Minister set out, clauses 343 and 344 introduce a restriction on the availability of tax reliefs so that only UK charities and UK community amateur sports clubs can gain access to UK charity tax reliefs. UK charitable tax reliefs were extended to organisations equivalent to charities and community amateur sports clubs in the EU and in the EEA countries of Norway, Iceland and Liechtenstein following a judgment of the European Court of Justice in January 2009. Following the UK’s exit from the EU, however, the Government are progressing to restrict UK tax relief to UK charities and community amateur sports clubs. We will not oppose the clauses.
Question put and agreed to.
Clause 343 accordingly ordered to stand part of the Bill.
Clause 344 ordered to stand part of the Bill.
Clause 345
Exemptions from tax
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider that schedule 24 be the Twenty-fourth schedule to the Bill.
Victoria Atkins
The clause and schedule 24 confirm that income tax and corporation tax exemptions will apply to “thank you” payments made to sponsors under the Homes for Ukraine sponsorship scheme. They also introduce legislation for temporary reliefs from the 15% rate of stamp duty land tax and the annual tax on enveloped dwellings for dwellings owned by companies when they are made available to Ukrainian refugees under the sponsorship scheme.
In March last year, we announced the Homes for Ukraine sponsorship scheme, which supports those who generously open their homes to Ukrainians arriving in the UK. As part of that scheme, sponsors receive a monthly “thank you” payment for housing an individual or family. Without specific legislation, those payments could be subject to tax. Likewise, ATED and the 15% may also have presented barriers to those who wish to provide homes for Ukrainian refugees. We therefore committed to legislate to exempt “thank you” payments from income tax and corporation tax, and to provide temporary reliefs from ATED and the 15% rate of stamp duty. We thank those public-spirited people and I commend the clause to the Committee.
James Murray
As we heard, the clause and schedule introduce income tax and corporation tax exemptions for thank-you payments made by local authorities to sponsors under the Homes for Ukraine sponsorship scheme. They also introduce temporary reliefs on the annual tax on enveloped dwellings and on the stamp duty land tax in connection with the provision of accommodation under the scheme.
The reliefs and exemptions were announced by the Financial Secretary to the Treasury in a written ministerial statement on 31 March 2022. In that statement, she explained that
“those companies that currently qualify for the existing reliefs available from the annual tax on enveloped dwellings (ATED) and the 15% rate of stamp duty land tax (SDLT) for dwellings used in a property development or property trading business or let on a commercial basis will continue to be able to claim the relief while the dwellings are being used under the Homes for Ukraine Scheme.”
Since March 2022, many people across the country have volunteered to sponsor Ukrainians fleeing the war in their home country, and have warmly opened their homes and hosted them accordingly, and it is right that the Government support them.
Samantha Dixon
I welcome this measure, and it is really important that these provisions be extended, but will the Minister consider extending them to the Afghan citizens resettlement scheme and the Afghan relocations and assistance policy? This morning, we talked about the number of Afghan refugees who have come to the country under those schemes and are currently accommodated in hotels. The Minister may be aware that charitable organisations, such as Refugees at Home, put sponsors in touch with refugees. Will she ask her officials to consider whether there are opportunities for similarly public-spirited people who are willing to use their accommodation to assist Afghan families in this country?
Victoria Atkins
On the case cited by the hon. Member for Ealing North, clearly we would like banks to enter into the public-spirited nature of the Help for Ukraine scheme and other refugee schemes. I will take that issue away and reflect on it with my ministerial compadre in the Treasury, the Economic Secretary, to see what we can do. Of course, the first port of call for anyone in that situation is their constituency MP. We are, I hope, good constituency MPs, and we can draw these matters to banks’ attention and can often get answers that our constituents sadly cannot, but I will take this matter away and mull it over.
The hon. Member for City of Chester mentioned other refugee schemes. I am not aware that the Afghan scheme has quite the same system of payments as the Ukrainian scheme, but I am happy to reflect on that issue. It is probably not a matter for this Bill, but I will think that one over.
Question put and agreed to.
Clause 345 accordingly ordered to stand part of the Bill.
Schedule 24 agreed to.
Clause 346
Abolition of the Office of Tax Simplification
Douglas Chapman
I beg to move amendment 2, in clause 346, page 264, line 31, at end insert—
“(9) This section shall not come into force until the Chancellor of the Exchequer has published—
(a) a response to the letter from the Chair of the House of Commons Treasury Committee, dated 2 March 2023, on the closure of the Office of Tax Simplification, and
(b) a statement of his assessment of the costs and benefits of abolishing it.”
This amendment would prevent the Office of Tax Simplification from being abolished until the Chancellor has replied to outstanding correspondence from the Treasury Committee on the subject, and published a cost/benefit analysis of the policy.
The Chair
With this it will be convenient to discuss the following:
Clause stand part.
New clause 1—Reports to Treasury Committee on measures to simplify tax system—
(1) The Treasury must report to the Treasury Committee of the House of Commons on steps taken by the Treasury and HMRC to simplify the tax system in the absence of the Office of Tax Simplification.
(2) Reports under this section must include information on steps to—
(a) simplify existing taxes, tax reliefs and allowances,
(b) simplify new taxes, tax reliefs and allowances,
(c) engage with stakeholders to understand needs for tax simplification,
(d) develop metrics to measure performance on tax simplification, and performance against those metrics.
(3) A report under this section must be sent to the Committee before the end of each calendar year after the year in which section 346 (abolition of the Office of Tax Simplification) comes into force.”
This new clause would require the Treasury to report annually to the Treasury Committee on tax simplification if the Office of Tax Simplification is abolished.
Douglas Chapman
I am sure that Members gathered here agree on the importance of data gathering, impartial analysis and evidence-based decision making. We can make informed decisions only if the facts are laid out in front of us in black and white. It would seem wise, then, that data be gathered on the costs and benefits of doing away with the Office of Tax Simplification before a final decision is made.
I will also be so bold as to point out that the recommendation to abolish the OTS came from a rather short-lived and now infamous Chancellor in his ironically named growth plan Budget of September 2022. Suffice it to say that the growth plan went down like a lead balloon after weeks of market turbulence, with unprecedented condemnation from the International Monetary Fund. That is not to mention the important—indeed, massive—£60 billion fiscal hole left in its wake. The then Chancellor and his Prime Minister swiftly exited stage left before more damage was done to the economy, our global reputation and citizens’ livelihoods.
Interestingly, of the many gung-ho announcements made in that growth plan, abolition of the OTS is one of the few that has not been reversed. When it comes to gathering evidence and data for making evidence-led decisions, and listening to experts and a broad group of stakeholders on tax simplification, we still have a long way to go, if this still seems to the Government to be a wise decision. One such expert is George Crozier, head of external relations at the Association of Taxation Technicians and the Chartered Institute of Taxation. He has argued that the OTS achieved a significant amount during its 12 years of existence and, with greater ministerial support for its proposals, could have achieved much more. Mr Crozier and the CIOT argue that among the OTS’s achievements since it was established in 2010 are the abolition of more than 40 unnecessary tax reliefs that were “clogging up” the tax system, as well as
“useful reforms to employee expenses and inheritance tax reporting,”
which have all had a positive impact. In fact, the CIOT informs us that
“every Finance Act of the last decade has had measures in it which owe their genesis to the OTS, and which have made navigating the tax system easier for one group or another.”
Does the Minister not believe that is a good thing?
Importantly, the ATT believes that there are many benefits to maintaining independent advice to the Government on tax simplification; for example, the OTS drew directly and effectively on the skills and expertise of tax professionals, professional bodies and taxpayers when making its recommendations for simplification. The ATT believes that the OTS maintained that level of engagement only due to the trust and belief that the OTS would treat its comments and views impartially and fairly. The ATT’s concern is that without the perceived independence of the OTS, taxpayers and professionals will be more reluctant to come forward with relevant evidence and experience. Does the Minister not believe that relevant evidence and experience are good things?
If analysis leans in the direction of abolishing the OTS, it seems fair to back up calls from Mr Crozier and his colleagues to question the UK Government on how they will deliver the promise to embed tax simplification in the institutions of government. Will the Minister confirm that he will at least give the OTS a stay of execution until further evaluation is carried out, or will the OTS baby be thrown out with the bath water? In the run-up to an election, it may be popular with the public if the Government of the day were seen to be taking the thoughtful and sensible decision to retain the services of the OTS.
Dame Angela Eagle
New clause 1 is also part of this group. As a member of the Treasury Committee, which fairly collectively signed new clause 1, I will speak to the new clause, as well as to the Scottish National party amendment to clause 346.
It came out of the blue that the Office of Tax Simplification was to be abolished as part of the mini-Budget—the catastrophic event last September that created the worst of all events in the Treasury. Interesting times. As an ex-Treasury Minister, I can assure you, Mr Stringer, that boring times are the best; interesting times, when bond markets soar and pension funds teeter, are not the best. We were thrown into that situation with the mini-Budget, out of which came the sudden announcement that the Office of Tax Simplification would be abolished. The reason given for that abolition was that we would boost economic growth and simplify the tax system by having tax simplification in house. That is one of the more Orwellian reasons for abolishing something that I have heard. It was set up by a previous Conservative Chancellor, George Osborne; I can use his name because he is no longer a Member of this House and has gone on to other—I will not say better—things.
When the OTS was set up, the idea was to identify areas where complexities in the tax system for business and taxpayers could be reduced. We need only look at the thickness of this modest Bill to realise how complex financial legislation can be. This is the Finance (No. 2) Bill, and others will be along soon, I am sure. Yesterday, we had a hearing of the Treasury Committee on tax reliefs and cliff edges, and we were told that there were 1,180 tax reliefs in the system. Of them, 841 are structural, and 339 are non-structural, which apparently means that they are aimed at behaviour. That is a lot of tax reliefs. Every relief, whether for a good or a bad reason, creates a complexity. I am not arguing at all that tax systems should be completely simple—complexity is sometimes important and inherent to the way that a tax works—but as with all these things, it is possible to have too much of a good thing. It tends to go beyond complexity for a good reason and become complexity for complexity’s sake.
I do not know why—perhaps the Minister could enlighten us—it was suddenly decided that the Office of Tax Simplification was such a thorn in the side of the Treasury that it could be abolished forthwith without much notice, and that a job that has not really been done routinely in the Treasury could suddenly be done in house without any kind of preparation. When the Treasury Committee had staff from the Office of Tax Simplification give evidence in a hearing, they did not really know why it had been abolished, either. Nobody likes to be abolished. I cannot think that they were enamoured of the idea, but they were very diplomatic. They did not really have any confidence that the more systematic look at how taxes could be simplified over time would continue once the office had been abolished.
Could the Minister give us some insight as to why the abolition was announced? Why was it reconfirmed by the new Administration—one of the four that we have had in the last year—when they came into office that they would go ahead with the abolition? It is one of the few things that the previous Prime Minister and her Administration inaugurated that has survived the shake-up of the system.
The Institute for Government argues that the Office of Tax Simplification should not be abolished, but that if it is, it should be replaced with a body with a wider remit that can make extensive recommendations on tax administration beyond just simplification. It points to the utility of having an independent body that provides options for tax reform.
Our political structures are littered with huge, all-encompassing reviews, such as the Mirrlees review of the entire taxation system. They are always so controversial, but it is rare that their recommendations are implemented. Having a body that could undertake some of this work in smaller bites may help us to reduce the complexity of our system while not compromising on fairness.
James Murray
It is a pleasure to follow my hon. Friend the Member for Wallasey, who spoke to new clause 1. I will address some of the points she raised, as well as amendment 2 and clause 346.
As several Members have said, the Office of Tax Simplification was set up in July 2010. It was an independent office in the Treasury before being placed on a statutory footing by the Finance Act 2016. As we have heard, on 23 September last year, the right hon. Member for Spelthorne (Kwasi Kwarteng) announced that it would be abolished. He said:
“Instead of having a separate arms-length body oversee simplification, the government will embed tax simplification into the institutions of government.”
I will return to that quote in a moment.
As hon. and right hon. Members have said, the policy was announced during the tenure of the previous Prime Minister and is being continued under the current leadership. That makes the abolition of the OTS one of the few elements of the so-called growth plan of that premiership to survive. In an earlier sitting of this Bill Committee, I commented:
“There is at the very least something ironic about a Government who use one clause of a Finance Bill to implement a recommendation of the Office of Tax Simplification and another clause of the same Bill to abolish that institution.”––[Official Report, Finance (No. 2) Public Bill Committee, 16 May 2023; c. 47.]
As was mentioned, the Chartered Institute of Taxation has pointed out that almost every Finance Act of the last decade has included measures that owe their genesis to the OTS.
To return to the reason originally cited for abolishing the OTS, the right hon. Member for Spelthorne said that the Government wanted to
“embed tax simplification into the institutions of government.”
We therefore have great sympathy with amendment 2, which was tabled by the hon. Member for Aberdeen North and has been spoken to. It would at least require the Chancellor to publish an analysis of the cost and benefit of the policy. That has been entirely lacking so far.
If the Government press ahead with abolishing the OTS, it is important that they make clear how they will deliver on their commitment to tax simplification. As was mentioned by my hon. Friend the Member for Wallasey, the Chartered Institute of Taxation sent a joint letter with the Low Incomes Tax Reform Group, the Association of Taxation Technicians, the Institute of Chartered Accountants in England and Wales, and the Institute of Chartered Accountants of Scotland to the Financial Secretary to the Treasury on 5 April. The letter covered identifying the characteristics of tax simplification; ensuring that someone is accountable for the delivery of tax simplification; including simplification declarations in tax information and impact notes; gaining external input on policy design and implementation; seeking feedback from a broad range of stakeholders; ensuring that HMRC and Treasury engagement groups have tax simplification as a standing objective; increasing awareness and improving guidance; allowing time for the development and integration of systems; and adopting a consistent approach across tax regimes.
I would be grateful if the Minister updated us on her response to the specific points set out by the Chartered Institute of Taxation. I also ask her again to set out clearly what costs and benefits, including the cost impact of any proposed new operational arrangements, she believes the abolition of the OTS will have, so that members of the Committee can consider this matter with all the relevant information to hand.
Victoria Atkins
For ease and convenience, I will speak to all the amendments and new clauses as well as clause 346. First, I thank the OTS—
Victoria Atkins
Thank you, Mr Stringer
I thank the members of the Office for Tax Simplification for their contribution to the tax debate over the years. I had the pleasure of meeting some of them just after I was appointed. As I said to them at the time, although the OTS will longer exist once the Bill has passed, their expertise will none the less not be lost to the Government, and I very much look forward to working with its members in different ways over the coming months and years.
The closure of the OTS does not mean that simplifying tax is no longer a priority. In fact, I have set three criteria for tax policy across the Treasury and HMRC: for any document or proposal that I am given, officials must tell me, first, how it meets the expectation that it will make tax fairer; secondly, how it meets the expectation that it will make tax simpler; and, thirdly, how it meets the expectation that it will help to support growth. Having that in the document—I have said this many times, because it was a very early commitment that I put down—has really helped our discussion of those principles when forming tax policy.
As I have mentioned in Budget debates and so on, one of the tensions between those first two criteria is that to make a tax fairer, sometimes we end up making it more complicated—for example, when we talk about tapering schemes, as we are doing in the Bill more widely. We have a scheme whereby we are tapering the rise in corporation tax for businesses that have smaller profits. That makes it more complicated but also fairer, so there is sometimes a trade-off between the interests and wishes of those involved in administering tax or helping taxpayers. With the best will in the world, the OTS, as an arm’s length body set up to comment on simplification alone, could not help with those sorts of balancing acts, which is why the Chancellor has set a clear mandate for officials in the Treasury and HMRC to focus on simplicity in tax policy design as part of our decision-making process.
Dame Angela Eagle
There is clearly a difference between the accrued complexity across a particular tax from end to end, which can gather barnacles over time, and a ministerial decision on whether to opt explicitly for a bit more complexity to achieve fairness, which is not a design issue but a political choice. Surely the Office for Tax Simplification was good at looking at the former, while leaving decisions on the latter to those who ought to be making them: the Ministers in charge at the time.
Victoria Atkins
Of course, pretty much every decision that comes across my desk is political in nature. Officials have very much taken on board their responsibilities in this regard.
The hon. Member for Ealing North asked about a letter sent to me in April from important tax specialists and organisations. In fact, I met them last week to discuss that very letter. I wanted to meet the organisations to discuss, for example, how to make tax simpler for the lowest paid in society and how we can try to help tax agents to navigate their way around the tax system, because that will help not just taxpayers but also, importantly, HMRC. We really have begun to embed this in our decision-making process.
The reason we want to make this change is that people were concerned that there was a tendency to rely on the OTS to look at simplification because that was its job, and we wanted to bring it very much into the Treasury. Of course, that does not mean that there is never going to be any commentary or analysis or observations about simplicity. My goodness me, I do not think anyone could claim that the world of tax lacks analysis, commentary and often criticism—hopefully constructive—of the tax system. I do not perhaps have quite the same concerns about us being accountable for the political decisions we make.
Victoria Atkins
If I may, I will make some progress, because I want to deal with new clause 1 and amendment 2, which are important.
On new clause 1, the Chancellor committed to Select Committee colleagues that he is asking officials about tax simplification ahead of every Budget and fiscal event. That will mean that hon. Members will have the opportunity to scrutinise the Government’s progress. In the last Budget, we were able to bring forward measures such as the cash basis for business, which will help enormously by helping more than 4 million sole traders to calculate and pay their income tax. We also introduced the permanent £1 million limit to the annual investment allowance, which will simplify the tax treatment of capital expenditure for 99% of businesses. There are also other measures.
In relation to the point about measuring and metrics in simplification, the Government are genuinely considering how to develop a suite of metrics to measure progress on simplification, working with businesses and representative bodies to ensure that measures reflect the real-world experience of taxpayers.
On amendment 2, it is right that the Chancellor has responded to the Committee, having written on 20 March to explain the rationale for the decision. I hope that helps to answer some of the questions that the hon. Member for Dunfermline and West Fife may have had. I refer again to the point that simplification is a vital principle to bear in mind when looking at the tax system, but it is not the only one. As the hon. Member for Wallasey rightly says, I have to make political decisions on a host of matters.
Dame Angela Eagle
I agree about that and I am glad to hear that the Minister is making decisions on a host of issues, although politically we may not always have the same approach to them. She was talking about there being plenty of commentary on tax issues. There always is, but the point about the Office of Tax Simplification was that it was not doing it from a set stance. For example, one will get plenty of commentary from accountants about particular things, and it will tend to be mainly about the interests of the people who use accountants—their clients. That comes from a particular space, as a user of the tax system, or someone that helps comment or advise on the tax system. The Office of Tax Simplification could look at a tax from its start all the way through its process—look at what it was intended to do and whether it would be possible to administer it in a different way, for simplification purposes, without coming from a particular viewpoint. If the OTS goes, I do not think there is anybody out there now that will do that in a neutral way. As such, a lot of the commentary that one gets on the tax system comes from a very particular, interested place, which often gives a bigger voice to small groups of taxpayers than to larger numbers of taxpayers. Is the Minister not worried that by making this decision, she is going to lose objective oversight of a system that is not coming from a biased place, but is looking purely at the criterion of simplicity?
Victoria Atkins
That is a fair challenge. It is one that we will meet through the meetings that we are already having, and that I am personally having, with organisations to discuss simplification. Of course we will discuss other matters in the future as well, but that is the No. 1 issue I am raising with those organisations. Also, I am very lucky to be able to work in the Treasury with incredibly talented officials. They do not hold back from giving Ministers of any Government proper advice on the tax system and other parts of the economy, so through all of this—as well as mulling over how we are ourselves able to check the progress we are making, as I say—I am confident that we will be able to make real progress in this area.
Douglas Chapman
On that point, I think the Labour party spokesperson, the hon. Member for Wallasey, was also alluding to the fact that it was that element of independence that really made the Office of Tax Simplification stand out from anything that can be provided in-house. That is the real danger of Government Departments, and Governments in general, marking their own homework. That is what it sounds very much like, and that is how it will be seen outside the bubble we inhabit here in Westminster. I sincerely ask the Minister to reconsider her stance and have a really long think about not making that decision just now, but instead doing a full evaluation of the benefits and value of the Office of Tax Simplification to see how it might be either enhanced or supported in future.
The Chair
Order. I remind Committee members of the point I made to the hon. Member for Blaydon earlier: interventions should be short. They are getting longer.
Victoria Atkins
I do not feel there is anything I can add to what I have already said, but I thank the hon. Gentleman for his intervention.
The Chair
In which case, I call the hon. Gentleman to respond to the debate, and ask him to tell me whether he wishes to push the amendment to a Division.
Douglas Chapman
I think that the overall message we have heard today—certainly from Opposition Members—is that the Office of Tax Simplification should be retained, as it provides a very important independent view of the very complicated and complex system of tax takes and tax reliefs throughout the United Kingdom. I am hoping that that position will win support, and I am prepared to push it to a Division.
Question put, That the amendment be made.
Victoria Atkins
Clause 347 makes changes to support the expansion of the dormant assets scheme to a wider range of assets, including insurance assets, pension assets, investment assets, client money assets and security assets such as shares. The Government estimate that up to a further £880 million will be made available for good causes across the UK thanks to the expansion of the scheme to the new sectors.
James Murray
As we know, under the UK’s dormant assets scheme, dormant asset funds are transferred to an authorised reclaim fund, Reclaim Fund Ltd. People can reclaim from that fund what they otherwise would have owned if their asset had never been transferred into the scheme. In some cases, it will be the monetary value of the dormant asset that will be transferred into the RFL rather than the original asset.
We understand that clause 347 ensures that the payments from an authorised reclaim fund are treated, for the purposes of income tax, as if they were from a pension asset that was initially transferred. We understand that it also seeks to ensure that, where an asset has been transferred from an authorised reclaim fund and its owner was alive at the time but subsequently dies before the asset has been reclaimed, the owner will be treated for inheritance tax purposes as still owning the original asset. We do not oppose the clause.
Question put and agreed to.
Clause 347 accordingly ordered to stand part of the Bill.
Clause 348
International arrangements for exchanging information
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
Clause 348 introduces technical and administrative changes to four powers used to implement international tax arrangements relating to the exchange of information. Clause 349 introduces a 13-year time limit on funds paid into the Court Funds Office as civil claims that remain unclaimed, after which the right to claim will be extinguished.
Clause 350 clarifies HMRC’s functions regarding payment obligations in relation to individuals and organisations subject to UK financial sanctions. The measure clearly sets out which payments HMRC is prohibited from making in accordance with financial sanctions, namely all payments, repayments and set-offs to or for the benefit of designated persons subject to financial sanctions. Clauses 351 and 352 simply set out the Bill’s legal interpretation and short title in the usual way.
James Murray
As we have heard, clause 348 consolidates existing automatic exchange of information powers that allow the Treasury to implement the domestic requirements of certain international instruments, relating to, among other things, the automatic exchange of information between tax authorities. We recognise that the purpose of the consolidation is to create a general power to allow the Treasury to give effect to existing and future international exchange of information instruments. We understand that once the Bill is enacted, the previous powers will be repealed. We do not oppose the clause.
We understand that clause 349 will allow the transfer of moneys that have remained unclaimed in the Courts Fund Office account for many years, despite attempts to trace the beneficiaries and the account titles being available to the public via the unclaimed balances database on gov.uk. We recognise that at present such moneys are being held in perpetuity unless claimed. I also noted that some moneys have apparently been held since 1726. Does the Minister know what rate of interest those moneys have been earning for the last 300 years, and how much money is expected to be earned from that interest at the point of transfer?
Clause 350 defines how HMRC’s payment functions across the taxes, duties and benefits it administers interact with financial sanctions regulations and seeks to ensure that relevant changes to UK financial sanctions regulations are automatically reflected in HMRC’s functions. I understand that subsection (1) prohibits the making of a payment, whether directly or indirectly,
“to or for the benefit of a person who is, at that time, a designated person for the purposes of financial sanctions regulations.”
We will not oppose the clause. However, the fact that subsection (1) is necessary could be seen to imply that payments have in fact been made to, or the benefit of, a person who was at the time
“a designated person for the purposes of financial sanctions regulations.”
Will the Minister confirm whether that was the case, and tell us how many payments have been made to such people, what the total value of such payments was in each of the last 10 years and under which financial sanctions regulations the people involved have been designated? Clauses 351 and 352 relate to the interpretation and short title, and we will not oppose them.
Very briefly, Mr Stringer, may I take this opportunity to thank people? I thank all Ministers and Committee members, particularly my hon. Friends the Members for Wallasey, for City of Chester, for West Lancashire, for Ilford South, for Erith and Thamesmead, and for Blaydon. I thank the Clerks, parliamentary authorities and third parties, including the Chartered Institute of Taxation. I also thank you, Mr Stringer, and of course Ms McVey, who chaired the sitting on Tuesday.
Victoria Atkins
The shadow Minister asked about the amount of money that is expected to be paid into the consolidated fund in 2024-25. It is some £50 million. I am afraid that I do not know the interest rate charged in 1726; I obviously have room to improve on that—apologies. I suppose that in an idle moment we may put our minds to it and see whether we can come up with something, but I do not commit to that. I regret that I did not hear the detail of his questions on financial sanctions.
James Murray
I thank the Minister for giving way. The fact that clause 350(1) is necessary could be seen to imply that payments have in fact been made
“to or for the benefit of a person who is, at that time, a designated person for the purposes of financial sanctions regulations.”
My question was, if that is the case, will the Minister tell us how many payments have been made to such people, the total value of such payments in each of the last 10 years and which financial sanctions regulations the people involved were designated under?
Victoria Atkins
I am in the situation that I find myself in from time to time, which is that, although I am extremely conscious of the desire for transparency, there is still the principle of taxpayer confidentiality. Given the sensitivities of the subject matter, and given that, I suspect, a small group of individuals would be subject to the measure, I regret that I am unable to give those details. I have to give that answer from time to time, and I know that it is frustrating for hon. Members, because I can understand why they want answers. I regret that I cannot assist the hon. Member for Ealing North on this occasion.
Question put and agreed to.
Clause 348 accordingly ordered to stand part of the Bill.
Clause 349 to 352 ordered to stand part of the Bill.
New Clause 1
Reports to Treasury Committee on measures to simplify tax system
“(1) The Treasury must report to the Treasury Committee of the House of Commons on steps taken by the Treasury and HMRC to simplify the tax system in the absence of the Office of Tax Simplification.
(2) Reports under this section must include information on steps to—
(a) simplify existing taxes, tax reliefs and allowances,
(b) simplify new taxes, tax reliefs and allowances,
(c) engage with stakeholders to understand needs for tax simplification,
(d) develop metrics to measure performance on tax simplification, and performance against those metrics.
(3) A report under this section must be sent to the Committee before the end of each calendar year after the year in which section 346 (abolition of the Office of Tax Simplification) comes into force.”—(Dame Angela Eagle.)
This new clause would require the Treasury to report annually to the Treasury Committee on tax simplification if the Office of Tax Simplification is abolished.
Brought up, and read the First time.
Douglas Chapman
I beg to move, That the clause be read a Second time.
Hopefully we can all get off to lunch quite soon. The UK Government may still be driving the big red Brexit blunder-bus towards the sunny uplands, merrily in denial of the catastrophic damage that leaving the EU has wrought on the country, but British citizens and businesses are in no doubt about the serious lack of any tangible benefits from Brexit. In reality, the UK Government may have got Brexit done, but unfortunately we all got done at the same time. Not a week goes past without a Brexit myth-busting news headline. This week, we discovered that one of the world’s largest car manufacturers believes that Brexit is a threat to our export business, and the sustainability of UK manufacturing options. Stellantis, which owns Vauxhall and Fiat, warned the Government to reverse Brexit, or it will have to close down its factories. Just today, Jaguar Land Rover described the Brexit deal as “unrealistic and counterproductive” for electric vehicle manufacturing.
The Minister mentioned all the fantastic innovation-based opportunities that she could see in the future, but those two companies join a chorus of other manufacturers in the UK that have advised the Government to look again at the Brexit trade deal. Brexit was sold to us as a chance to reduce red tape, to free us up from the so-called constraints of EU bureaucracy, and to negotiate bigger and better trade deals across the globe. Instead, it has freed us from success, growth, productivity and competitiveness—so quite the opposite. Brexit has meant that we are fighting a war on all fronts, with not a unicorn or rainbow in sight, and no sign of the much-promised £350 million a week for the NHS, or an end to stagnant wage growth, the crippling cost of living and the energy crisis in the UK.
That brings me to this important new clause on exiting the European Union—an attempt to pin down the UK Government, shine some light on the well-hidden Brexit benefits, and require the Chancellor of the Exchequer to provide us with proper information and analysis to back up the Government’s claims. We are asking the Chancellor to publish a report on which of the policies included in the Bill could not have been introduced while the UK was a member of the EU. We are also asking for that report to include an evaluation of the costs and benefits of each provision.
Here is the thing: the Government might believe in Brexit. They might be convinced of the benefits of it, alongside their Opposition colleagues on the Labour Benches, but no matter what myths are busted every week in the real world, it is people in the UK who are bearing the brunt. That is the thin end of the wedge for our constituents, who want to know whether the Brexit-induced or Brexit-exacerbated hardships they face day to day—the astronomical levels of food inflation, the difficulties with European travel, and the closure of their exporting businesses due to jams and chaos at Dover—has all been worth it. Really, has it all been worth it?
Gareth Davies
I am happy to respond to new clause 4. The Government are committed to taking full advantage of the opportunities arising from the UK’s exit from the European Union, and we will make the most of our Brexit freedoms. Indeed, we have already set in motion a number of measures that capture those freedoms, whether it is the VAT relief on women’s sanitary products, cutting VAT on the supply of energy-saving materials or, as we have heard, measures in this Bill to reform our alcohol duty system. None of that could have been implemented had we remained in the European Union, and we will go further over the course of the months and years ahead.
As those reforms develop, we will routinely publish the impacts that they have, in exactly the same way as we do now and always have. An additional report is not necessary. Information on all changes is available in the Budget documents and the tax information and impact notes, outlining those impacts. I therefore urge the Committee to reject the new clause.
Douglas Chapman
I thank the Minister for his response. I have no intention of pursuing this new clause any further, but I hope the Government have taken these views on board and, if those broad and sunlit uplands are still there in their heads, let us make them a reality. I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
Question proposed, That the Chair do report the Bill, as amended, to the House.
Victoria Atkins
I thank you, Mr Stringer, for your superb chairmanship of this Committee and Ms McVey for hers. I thank my ministerial colleague, my hon. Friend the Member for Grantham and Stamford, who did very well on his first Bill Committee; it has been a pleasure. I thank all Back-Benchers for lively debates and their attention to these important matters, and those on the shadow Front Bench for their important contributions.
I thank the Doorkeepers—Monty—the Clerks and of course our Hansard reporters, who help to make our words look more polished than perhaps they are in real life. Of course I must also thank the Whips, who have an incredibly difficult job arranging such a huge piece of legislation and have done so with great skill—and I thank them for the wine gums.
Finally, I thank the massive team of officials, primarily in the Treasury, but also in other Government Departments. There is so much work that goes into preparing a Bill for Committee. This is such an important stage of its scrutiny, and we take it very seriously. I offer my sincere thanks to each and every one of the officials who have been kind enough to brief me and my hon. Friend.
The Chair
That is quite out of order, but thank you.
Question put and agreed to.
Bill, as amended, accordingly to be reported.
Finance (No. 2) Bill
Tuesday 20th June 2023
(10 months, 1 week ago)
Commons ChamberRead Full debate Finance (No. 2) Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 20 June 2023 - (20 Jun 2023)
15:44 - The House divided: - Ayes: 202 / Noes: 296 - Question accordingly negatived.
15:59 - The House having divided: - Ayes: 192 / Noes: 294 - Question accordingly negatived.
The Financial Secretary to the Treasury (Victoria Atkins)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to discuss the following:
Amendment (a) to new clause 4, at end insert—
“(2) The Treasury may by regulations amend subsection (1) by substituting a later date for the date for the time being specified there.”
Government new clause 5—Communications data.
New clause 1—Review of alternatives to the abolition of the lifetime allowance charge—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed—
(a) conduct a review of the impact of the abolition of the lifetime allowance charge introduced by section 18 of this Act and other changes to tax-free pension allowances introduced by sections 19 to 23 of this Act, and
(b) lay before the House of Commons a report setting out recommendations arising from the review.
(2) The review must make recommendations on how the policies referred to in subsection (1)(a) could be replaced with an alternative approach that provided equivalent benefits only for NHS doctors.”
This new clause requires the Chancellor to review the impact of the tax free pension allowance changes and to recommend an alternative approach targeted at NHS doctors.
New clause 2—Reports to Treasury Committee on measures to simplify tax system—
“(1) The Treasury must report to the Treasury Committee of the House of Commons on steps taken by the Treasury and HMRC to simplify the tax system in the absence of the Office of Tax Simplification.
(2) Reports under this section must include information on steps to—
(a) simplify existing taxes, tax reliefs and allowances,
(b) simplify new taxes, tax reliefs and allowances,
(c) engage with stakeholders to understand needs for tax simplification,
(d) develop metrics to measure performance on tax simplification, and performance against those metrics.
(3) A report under this section must be sent to the Committee before the end of each calendar year after the year in which section 346 (abolition of the Office of Tax Simplification) comes into force.”
This new clause would require the Treasury to report annually to the Treasury Committee on tax simplification if the Office of Tax Simplification is abolished.
New clause 3—Review of public health and poverty effects of Act—
“(1) The Chancellor of the Exchequer must review the public health and poverty effects of the provisions of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) The review must consider—
(a) the effects of the provisions of this Act on the levels of relative and absolute poverty across the UK including devolved nations and regions,
(b) the effects of the provisions of this Act on socioeconomic inequalities and on population groups with protected characteristics as defined by the 2010 Equality Act across the UK, including by devolved nations and regions,
(c) the effects of the provisions of this Act on life expectancy and healthy life expectancy across the UK, including by devolved nations and regions, and
(d) the implications for the public finances of the public health effects of the provisions of this Act.”
New clause 6—Review of business taxes—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed—
(a) conduct a review of the business taxes, and
(b) lay before the House of Commons a report setting out recommendations arising from the review.
(2) The review must make recommendations on how to—
(a) use business taxes to encourage and increase the investment of profits and revenue;
(b) ensure businesses have more certainty about the taxes to which they are subject; and
(c) ensure that the system of capital allowances operates effectively to incentivise investment, including for small businesses.
(3) In this section, ‘the business taxes’ includes any tax in respect of which this Act makes provision that is paid by a business, including in particular provisions made under sections 5 to 15 of this Act.”
This new clause would require the Chancellor to conduct a review of business taxes, and to make recommendations on how to increase certainty and investment, before the next Finance Bill is published.
New clause 7—Statement on efforts to support implementation of the Pillar 2 model rules—
“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, make a statement to the House of Commons on how actions taken by the UK Government since October 2021 in relation to the implementation of the Pillar 2 model rules relate to the provisions of Part 3 of this Act.
(2) The Chancellor of the Exchequer must provide updates to the statement at intervals after that statement has been made of—
(a) three months;
(b) six months; and
(c) nine months.
(3) The statement, and the updates to it, must include—
(a) details of efforts by the UK Government to encourage more countries to implement the Pillar 2 rules; and
(b) details of any discussions the UK Government has had with other countries about making the rules more effective.”
This new clause would require the Chancellor to report every three months for a year on the UK Government’s progress in working with other countries to extend and strengthen the global minimum corporate tax framework for large multinationals.
New clause 8—Review of energy (oil and gas) profits levy allowances—
“(1) The Chancellor of the Exchequer must, within three months of the passing of this Act—
(a) conduct a review of section 2(3) of the Energy (Oil and Gas) Profits Levy Act 2022, as introduced by subsection 12(2) of this Act, and
(b) lay before the House of Commons a report arising from the review.
(2) The review must include consideration of the implications for the public finances of the provisions in section 2(3)—
(a) were all the provisions in section 2(3) to apply, and
(b) were the provisions in section 2(3)(b) not to apply.”
This new clause requires the Chancellor to review the investment allowances introduced as part of the energy profits levy, and to set out what would happen if the allowance for all expenditure, apart from that spent on de-carbonisation, were removed.
New clause 9—Review of section 36—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact on the public finances of the measures provided for by section 36 of this Act (‘the section 36 measures’).
(2) The assessment must include details of any analysis by the Treasury or HMRC of—
(a) the amount of additional tax raised by the section 36 measures and,
(b) the number of individuals who are required to pay additional tax as a result of the section 36 measures.”
This new clause requires the Chancellor to review the impact of the measures in the Act that affect people with non-domiciled status, including by setting out how many people will be required to pay additional tax and how much this will raise in total.
New clause 10—Review of new bands and rates of air passenger duty—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes to air passenger duty introduced by this Act on—
(a) the public finances;
(b) carbon emissions; and
(c) household finances.
(2) The assessment under subsection (1) must consider how households at a range of different income levels are affected by these changes.”
This new clause requires the Chancellor to publish an assessment of this Act’s changes to air passenger duty on the public finances, carbon emissions, and on the finances of households at a range of different income levels.
New clause 11—Review of impact of tax changes in this Act on households—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes in this Act on household finances.
(2) The assessment in subsection (1) must consider how households at a range of different income levels are affected by these changes.”
This new clause requires the Chancellor to publish an assessment of the changes in this Act on the finances of households at a range of different income levels.
New clause 12—Review of Part 5—
“(1) The Treasury must conduct a review of the provisions of Part 5 of this Act (electricity generator levy).
(2) The review must consider the case for ending or amending the charge on exceptional generation receipts when energy market conditions change.
(3) The report of the review must be published and laid before the House of Commons within six months of this Act being passed.”
This new clause would require the Government to conduct a review into the energy generator levy with a view to sunsetting the levy when market conditions change.
New clause 13—Review of effects of Act on the affordability of food—
“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons an assessment of the impact of the measures of this Act, and in particular sections 1 to 4 (income tax), on the ability of households to afford the price of food.”
This new clause would require the Government to produce an impact assessment of the effect of the Act on the affordability of food.
New clause 14—Review of effects of Act on small businesses—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the likely impact of the measures of this Act on small businesses.
(2) The report must assess the effect on small businesses of any taxes charged under this Act, in the context of other financial pressures currently facing small businesses including—
(a) the rate of inflation, and
(b) b) the cost of energy.”
This new clause would require the Government to produce an impact assessment of the effect of the Act on small business with particular regard to inflation and the cost of energy.
New clause 15—Review of effects of Act on SME R&D tax relief—
“(1) The Chancellor of the Exchequer must lay before Parliament within six months of the passing of this Act a review of the impact of the measures in section 10 relating to research and development tax relief for small and medium-sized enterprises.
(2) The review must compare the impact of the relief before and after 1 April 2023, with regard to the following—
(a) the viability and competitiveness of UK technology start-up and scale-up businesses,
(b) the number of jobs created and lost in the UK technology sector, and
(c) long-term UK economic growth.
(3) In this section, ‘technology start-up’ means a business trading for no more than three years; with an average headcount of staff of less than 50 during that three-year period; and which spends at least 15% of its costs on research and development activities.
(4) In this section, ‘technology scale-up’ means a business that has achieved growth of 20% or more in either employment or turnover year on year for at least two years and has a minimum employee count of 10 at the start of the observation period; and spends at least 15% of its costs on research and development activities.”
This new clause would require the Government to produce an impact assessment of the effect of changes to SME R&D tax credits in this act on tech start-ups and scale-ups.
Government amendments 9 to 13.
Amendment 1, page 12, line 30, leave out clause 18.
Amendment 2, page 12, line 37, leave out clause 19.
Amendment 3, page 13, line 31, leave out clause 20.
Amendment 4, page 14, line 1, leave out clause 21.
Amendment 5, page 14, line 11, leave out clause 22.
Amendment 6, page 14, line 20, leave out clause 23.
Government amendments 14 to 16.
Amendment 22, in clause 115, page 74, line 10, at end insert—
“(1A) The Chancellor of the Exchequer must, within one month of this Act coming into force, lay before the House of Commons an assessment of the impact of extending the provision of subsection (1) to wine which—
(a) is obtained from the alcoholic fermentation of fresh grapes or the must of fresh grapes and fortified with spirits,
(b) is included in one or more of the United Kingdom Geographical Indication Scheme registers, and
(c) is of an alcoholic strength of at least 15.5% but not exceeding 20%.”
This amendment requires the Chancellor to lay before the House an assessment of the impact of providing comparable transitional relief to fortified wine made from fresh grapes, such as port and sherry, as has been made available to other forms of table wine.
Amendment 20, in clause 264, page 188, line 7, at end insert—
“(2) The Treasury may by regulations amend subsection (1) by substituting a later date for the date for the time being specified there.”
Amendment 23, in clause 278, page 198, line 9, after “costs” insert “and relevant investment expenditure”.
This amendment is linked to Amendment 24.
Amendment 24, in clause 278, page 198, line 12 at end insert—
“Where the generating undertaking is a generator of renewable energy, determine the amount of relevant investment expenditure and also subtract that amount.”
This amendment, together with Amendments 23, 25 and 26 would allow generators of renewable energy to offset money re-invested in renewable projects against the levy.
Amendment 25, in clause 279, page 199, line 21, at end insert—
“a ‘generator of renewable energy’ means—
(a) a company, other than a member of a group, that operates, or
(b) a group of companies that includes at least one member who operates a generating station generating electricity from a renewable source within the meaning of section 32M of the Energy Act 1989;
‘relevant investment expenditure’ means any profits of a generator of renewable energy that have been re-invested in renewable projects;”.
This amendment is linked to Amendment 24.
Amendment 26, in clause 279, page 199, line 26, at end insert—
“a ‘renewable project’ is any project involving the generation of electricity from a renewable source within the meaning of section 32M of the Energy Act 1989;”.
This amendment is linked to Amendment 24.
Government amendments 17 to 19.
Amendment 7, page 265, line 2, leave out clause 346.
This amendment would leave out Clause 346, which abolishes the Office of Tax Simplification.
Amendment 21, in schedule 16, page 399, line 27, at end insert—
“(2A) The Treasury may by regulations amend subsection 2(a) by substituting later dates for the dates for the time being specified there.”
The aim of this amendment is to enable the Treasury to extend the permitted period for multinational groups to make transitional safe harbour elections, reducing the compliance burden, in the event that other countries are slow to follow suit in implementing these rules.
Victoria Atkins
Let me first thank all right hon. and hon. Members who have taken part in debates on the Finance Bill so far. Today is Report stage, but there has been intense scrutiny of many measures in the Bill, not just line by line in Committee on the Committee Corridor but, importantly, in Committee of the whole House. I hope that I will hear from right hon. and hon. Members on some of those discussions.
We are focusing on a number of proposed amendments to the Bill, which I will address in turn. Many of the Government’s amendments focus on ensuring the proper functioning of the legislation in response to scrutiny from businesses, business representative groups, parliamentarians and feedback. Others take forward responses to substantive issues that have emerged during the Bill’s passage. This is an exercise of how scrutiny in this place works, and I hope it works well. I will address each Government amendment in turn in this part of the debate. To reassure colleagues, I want to listen to the debates that will follow on non-Government amendments and proposed new clauses, and I hope to deal with points raised by right hon. and hon. Members when I wind up.
Government amendments 9 and 10 seek to ensure that our policy of full expensing achieves its intended affect. The existing wording can result in balancing charges being incorrectly calculated by not applying the correct apportionment to the disposal receipts. This is a straightforward and necessary technical adjustment to a policy that will help businesses to invest with confidence and boost UK productivity.
Government amendments 11, 12 and 13 provide that both the decarbonisation allowance and the existing investment allowance in the energy profits levy work as intended. They correct unintended exclusions by revising definitions to ensure that the investment allowances apply throughout the UK, in UK waters and on the United Kingdom continental shelf.
Government amendment 14 is a minor technical amendment that concerns the lifetime allowance—specifically, in clause 23, which allows modifications of certain existing transitional protections to ensure that stand-alone lump sums can continue to be paid to those who are entitled. The amendment clarifies the tax treatment for any amount above the limited 5 April maximum. The amendment is required to avoid an unintended outcome that would otherwise arise as a result of the removal of the lifetime allowance charge, whereby those who are entitled to stand-alone lump sums may not have been able to access their full benefit. The amendment corrects that. We are grateful to members of His Majesty’s Revenue and Customs pensions industry stakeholder forum for raising the issue.
New clause 4 relates to the domestic minimum top-up tax, which is part of the global minimum tax agreement. That agreement protects against large multinational groups and companies using aggressive tax planning and shifting their UK profits overseas. The amendment simply puts beyond doubt that the commencement date for the domestic top-up tax aligns with the multinational top-up tax and the internationally agreed timings, and no earlier. The start date is for accounting periods beginning on or after 31 December 2023. We will discuss the global minimum tax agreement in more detail later, precisely because it is of particular interest to right hon. and hon. Members. I will respond to those further arguments and suggestions when I wind up.
Stewart Hosie (Dundee East) (SNP)
The subparagraphs that new clause 5 intends to delete were not in the original Finance Act 2008 but were added by the Investigatory Powers Act. I am at a loss as to why it is necessary to remove them from that Act to make it work in the way intended.
Victoria Atkins
That gives me the opportunity to declare that I sat not only on the Joint Committee for that Bill but on the Select Committee. There was a great deal of concentration and discussion, as I recall—the House will have to forgive me as I am rolodexing back several years in my memory—about the meaning of communications data, because of the sensitivities in relation to some of the powers rightly given to our security services in order to safeguard national security and for other purposes.
There has been some debate about how the General Data Protection Regulation and the Data Protection Act apply in the years that have fallen since. The clarification has been made because the Home Office wanted to ensure that it defines that accurately, protects citizens’ rights and permits Government agencies, law enforcement agencies and other agencies to collect and review the data necessary to protect us all. We are tabling this amendment now at the first opportunity we have had, to ensure that that phrasing still permits HMRC to collect the vital data that we need to ensure that our taxes are collected properly. To sum up my point on new clause 5, the civil information powers allow HMRC to continue to collect vital revenue to fund our public services.
In conclusion, the Government’s proposed amendments will ensure that the legislation works as it should and that HMRC has the powers it needs to continue collecting tax revenue that is vital to fund our public services that so many in our country rely on. I will, of course, address all amendments tabled by other Members when I wind up later. I very much want to listen closely to the debate that will now follow. In the meantime, I commend amendments 9 to 19 and new clauses 4 and 5 to the House. I urge hon. Members to accept them in due course.
James Murray (Ealing North) (Lab/Co-op)
It is important, briefly, to first recognise the context in which we consider amendments and new clauses to the Bill. Yesterday we heard the news that the average rate for a two-year fixed-rate mortgage has now breached 6% for the first time since December. That news will leave the 400,000 people across the country whose existing fixed deals end between July and September feeling anxious and fearful. They face the prospect of having hundreds of pounds less in their pockets each month when their current deal expires and they have to re-mortgage. That is not to mention all those on variable rates, who have already seen their payments rise relentlessly as a result of interest rates going up again and again.
Across the country, mortgage payers are facing interest rate rises above 6% for the second time in 12 months. The first time came in the wake of the Conservatives’ disastrous mini-budget last autumn; now it is because inflation means that banks expect interest rates to stay higher for far longer than anyone feared. The truth is that mortgage payers are feeling pain because the Tories crashed the economy and have no plan to fix it. What is more, we know the current increases in mortgage payments come after 13 years of low growth and stagnant wages. They also come after 25 tax rises by the Government in this Parliament alone, increases that have pushed the tax burden in this country to its highest level in 70 years.
I will begin considering the detail of our amendments on Report by focusing on something very rare indeed: a tax cut from this Government. That tax cut is included in clause 18. Through that section of the Bill, the Government will be spending £1 billion of public money a year to benefit the 1% of people with the biggest pension pots. Ministers may claim that their decision was driven by a desire to get doctors back into work, but since the policy was first announced the Government have flatly rejected any call to consider a fairer and less costly fix targeted at doctors’ pensions.
It is not just Labour who have been questioning the Government’s approach; the Conservative Chair of the Treasury Committee, the hon. Member for West Worcestershire (Harriett Baldwin), said that even she was surprised that Ministers had opted for a blanket cut rather than a bespoke policy for doctors. That is why we will be voting today for our amendment 1, which deletes clause 18, thereby abandoning plans for this blanket change that fails to spend public money wisely. As our new clause 1 makes clear, the Chancellor should finally do what so many have been calling on him to do and produce an alternative approach to pensions that is targeted at NHS doctors and provides taxpayers with value for money.
Harriett Baldwin (West Worcestershire) (Con)
I put on the record that while the hon. Gentleman quotes me correctly, I underline that I was pleasantly surprised.
James Murray
I thank the hon. Lady, I think, for that intervention. I am trying to work out exactly what point was being made there, but I think the overall point is clear. There is concern from all sides at £1 billion a year of public money being spent on a blanket change, rather than something targeted at NHS doctors.
That failure to spend public money wisely is evident again in the Bill’s proposal to reduce air passenger duty for domestic flights, the impact of which our new clause 10 seeks to uncover. Again, at a time when public finances are under severe pressure, household budgets are being stretched in all directions and the cost of inaction on climate change grows by the day, it is baffling that a tax cut for frequent flyers is the Government’s priority for spending public money.
Kit Malthouse (North West Hampshire) (Con)
I just want to take the hon. Gentleman back, if I may, to the point he made on pensions. Can he not see the difficulty of having a specific regime for NHS doctors? For example, if he were to bring in a specific regime, would it apply to doctors who also work in the private sector? What would happen if an NHS doctor changed career and became an accountant? There are other areas where we have difficulty securing the services of public servants beyond a certain point, for example judges, prison governors or senior police officers. Is he proposing that each of those areas should have their own specific scheme and that therefore we should build a sort of rats’ nest of complexity around pensions?
James Murray
I thank the right hon. Gentleman for his comments, but I feel he is misguided in claiming that it is somehow only Labour calling for a doctors-only pension scheme to be investigated. I referred to the Chair of the Treasury Committee, but I could also refer to the current Chancellor—the current Chancellor—who less than a year ago suggested that we should go for a doctors-only scheme. All we are asking is for the current Chancellor to do what he told himself to do less than a year ago and investigate the possibilities. That is important, because that is how we spend public money wisely.
To return to air passenger duty, Ministers may try to point out, when we discuss it later in the debate, that the lower rate of domestic air passenger duty has been accompanied by the introduction of an ultra long-haul rate. But when taken together, the air passenger duty changes in the Bill are set to cost the taxpayer an additional £35 million a year. That cannot be the right priority for spending public money. In Committee, we tried to get to the bottom of why this tax cut is being prioritised.
Alun Cairns (Vale of Glamorgan) (Con)
I am grateful to the hon. Gentleman for giving way on that point. How does the shadow Minister square his comments with those made by the Welsh Government calling for air passenger duty to be devolved and abolished to support Cardiff Airport, which they have purchased?
James Murray
I will leave matters for the Welsh Government to the Welsh Government to set out their position. We are trying to challenge the position of the UK Government on air passenger duty.
Whatever the UK Government say, the reasoning behind air passenger duty changes have been hard to come by. In Committee, we wanted to understand why the cost of domestic flights is so high up the agenda of this Government under this Prime Minister. I asked the Minister whether, if someone were to travel by helicopter around the UK, for instance from London and Southampton, that would be subject to air passenger duty. I could equally have asked if that would be the case if someone were to get a helicopter ride from London to Dover. At the time, the Minister clarified that there is no air passenger duty other than on fixed-wing aircraft, so that anyone wanting to make short hops in a helicopter can rest assured that this tax would not apply.
I also asked the Minister whether, if someone travelled on a private jet around the UK from, say, London to Blackpool, what rate of air passenger duty would apply in that case. The Minister confirmed that private jets will not benefit from the domestic air passenger duty cut—something the Chancellor may want to let his neighbour on Downing Street know. Finally, I asked the Minister what rate of air passenger duty would apply if someone lived in the UK but was travelling to another home of theirs, let us say in Santa Monica, California. The Minister did not say at the time whether such a flight would attract the ultra long-haul rate, but my understanding is that it would not, so anyone on the Government Benches who needs to fly to their Los Angeles home will not be hit.
It is clear from the Tories’ approach that they have no idea how to spend public money wisely, and that their judgment over what to prioritise is at odds with the British people. Under the Conservatives in this Parliament alone, people across Britain have faced 25 tax rises and 12 interest rate rises. Yet the Tories think the priorities for taxpayers’ money in the middle of a cost of living crisis should be tax cuts for frequent flyers and for those with the very largest pension pots. The truth is that under the Conservatives, working people always end up paying the bill.
Richard Drax (South Dorset) (Con)
On the Government Benches, we get tired of hearing from the Opposition Benches about taking taxpayers’ money. This is money the poor taxpayer is having to pay in the first place and should not be taxed on. So far as pensions are concerned, surely the aim for all of us is to have, if we can afford to, sufficient money to live free of the state and off the state at the end of our years, thereby allowing taxpayers’ money to be effectively used for those who really do need it.
James Murray
I thank the hon. Gentleman for his intervention. At one point I thought he was touching on a point that we might agree on, which is that spending public money is about priorities. It is about making choices on how to spend public money wisely. That is important at any stage for any Government, but in the middle of a cost of living crisis, when household budgets are being stretched and people are facing mortgage payments going up relentlessly, it is more important than ever that we prioritise the spending of public money and spend taxpayers’ money wisely. That is really at the heart of the argument I am making. We need a fairer tax system in this country, but time and again the Conservative Government have ignored chances that were in front of them to do something about it. Our new clause 9 relates to the Government’s approach to non-dom tax status—the £3.2 billion a year loophole that the Prime Minister called “that non-dom thing”.
Craig Mackinlay (South Thanet) (Con)
Does the hon. Gentleman really believe that non-doms who could pay zero inheritance tax in other places around the world and need not spend money any at all in the UK will just stay here and be taxed under his plans? Or will they up sticks and go elsewhere—which they are very capable of doing—in which case we would lose the VAT and everything else that comes with non-dom spending in the UK?
James Murray
I would welcome a more extended debate about non-dom tax status. That might be slightly outside the remit of today’s debate, but I refer the hon. Gentleman to some very good research conducted by the London School of Economics and Warwick University on the impact of people potentially leaving the UK as a result of any changes in non-dom status. Getting rid of non-dom status would still net £3.2 billion a year according to the work done by the LSE and Warwick, which is based on HMRC data which they have looked at and which constitutes reputable evidence showing what would happen in that event. As I have said, we would replace non-dom status with a modern system like the one that operates in many other countries around the world.
Let me link the hon. Gentleman’s point to the point made earlier by the hon. Member for South Dorset (Richard Drax). This is about priorities. What is the priority for expenditure of £3.2 billion a year? Is it protecting non-dom tax status, or is it strengthening the NHS and childcare? That is at the heart of the question we are asking today.
As well as closing the non-dom loophole—about which I could speak at length— we will keep pressing the Government to close gaps in their approach to the windfall tax on oil and gas giants. Our new clause 8 presses them to think again about their investment allowance loopholes. We believe it is wrong for Ministers to leave billions of pounds of windfall profits for oil and gas giants on the table when some of that money should be helping to support families through the cost of living crisis.
We know, of course, that making our tax system fairer is not just a question of having the right legislation in place domestically; it is also a question of working with other countries to end the race to the bottom among large multinationals around the world. As our new clause 7 makes clear, we want the Government to remain committed to implementing the global agreement on a minimum rate of corporate tax. This landmark deal from the OECD is an important step towards ending the international race to the bottom on tax, as it calls time on large multinationals which operate in the UK but use low-tax jurisdictions overseas to avoid paying their fair share of tax. When large multinationals do that, it flies in the face of the British sense of fairness, it deprives public services in our country of much-needed funding, and it undercuts and undermines British businesses that play by the rules.
As we have made clear throughout consideration of the Bill, we are glad to see this legislation being implemented. We want to see the global agreement in place so that large multinationals pay a minimum level of 15% tax in each jurisdiction in which they operate. We have raised the need for such an international deal many times with the Government. Indeed, I first pressed Treasury Ministers on the subject more than two years ago, on 13 April 2021, during Second Reading of an earlier Finance Bill. At the time, we suspected that the Government might be dragging their feet because they wanted to keep alive the possibility of a race to the bottom in the future, but now, with Ministers having finally agreed to implement the deal—albeit in a version that they allowed to be weakened from what was originally proposed—opposition to it has galvanised those on the Tory Back Benches.
Two days ago, the right hon. Member for Witham (Priti Patel) published an opinion piece in The Sunday Telegraph. The headline described the common-sense approach taken with the global minimum corporate tax rate—the approach that her colleagues on the Conservative Front Bench want to implement—as a
“radical plan for permanent worldwide socialism”.
The right hon. Member has tabled an amendment to this part of the Bill, which she said in her piece on Sunday was
designed to be helpful and easy to adopt.”
I would be interested to hear whether the Minister agrees, and how helpful she thinks the amendment is, because we believe that it is designed to undermine fatally the implementation of the landmark deal on a global minimum corporate tax rate. Efforts to scupper the implementation of the deal constitute an astonishing act of self-sabotage on our public finances. The reality is that if the UK walks away now from implementing these rules, businesses will simply be taxed by other countries which have implemented the deal. Let me reassure the Minister that if the amendment is pushed to a vote by Conservative Back Benchers, we will oppose it, so Ministers need not worry about whether they will be able to vote it down even if they lose their majority through a Back-Bench rebellion.
What on earth does this situation say about the state of the Conservatives and about the weakness of the Prime Minister? The amendment, which brazenly undermines the Government’s position, has been signed by right hon. and hon. Members who, within the last 12 months, have held the offices of Prime Minister, Chief Secretary to the Treasury, Secretary of State for Levelling up, Housing and Communities, Secretary of State for Business, Energy and Industrial Strategy, and a raft of other ministerial positions. What would happen to the implementation of these rules if the right hon. Member for Richmond (Yorks) (Rishi Sunak) became the third Conservative Prime Minister to be forced from office in 12 months, and an MP who supports this amendment took over his role? The truth is the Conservatives have now become totally incapable of offering any certainty or stability, but that certainty and stability is what businesses and investors so desperately want so that they can play their part in growing our economy and raising living standards for people across Britain.
Jonathan Edwards (Carmarthen East and Dinefwr) (Ind)
Has the shadow Minister seen today’s report from the Institute for Public Policy Research? It states that the UK is in the middle of an economic growth “doom loop” as a result of decades of under-investment by Government and businesses. Recent statistics indicate that the UK has the lowest business investment in the G7, ranking 27th among the 30 OECD countries. Does that not suggest that businesses have no confidence in the Government’s strategy, and that alarm bells should be ringing in the Treasury?
James Murray
The hon. Gentleman is right to describe the state of the economy as a doom loop. It is on a managed path of decline, which even the former Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng) described as a “vicious cycle of stagnation”. The fact is that without any stability or certainty and without a plan for growth, we cannot get the economy out of that doom loop, which is exactly what we are pressing the Government to do.
I know that Conservative Members may be feeling rebellious today, so perhaps they will consider supporting our new clause 6, which requires the Chancellor to follow Labour’s lead and set out a plan for business taxes that increases certainty and investment. The truth is, however, that even if the Conservatives did set out a plan, no one would believe that they would or could stick to it. Everyone knows that this Prime Minister is weak, hostage to his party, and unable to lead. Only a new Labour Government can bring the stability and certainty that businesses need.
That is what we need in order to boost investment, create jobs and grow Britain’s economy. That is what we need to get us off this path of managed decline, to provide security for family finances once again, and to make people across Britain better off.
Harriett Baldwin
I rise to speak to new clause 2 and amendment 7, which were tabled in my name and those of all the other members of the cross-party Treasury Committee.
“Taxes are far too complex.”
Those are not my words but the words of the Chancellor of the Exchequer when he gave evidence to our Committee. The amendments to which I am speaking would give legislative effect to the recommendations of the report we published last week on the work of the Office of Tax Simplification. The report is on the Table, and I encourage all hon. and right hon. Members to read it.
Across the House, I think we can all agree that, regardless of the level of tax, the tax system itself has become far too complex. To give an example, as a result of the Committee’s current inquiry on tax reliefs, we have finally found out how many tax reliefs there are in the tax code—1,180. The unnecessary complexity in our tax code makes the tax system expensive and difficult for HMRC to administer, makes the tax system confusing and makes it difficult for taxpayers to understand the choices on offer and the consequences of those choices for their after-tax income.
A complex tax system can be hugely costly for taxpayers and for those responsible for compliance with the tax code. The Financial Secretary to the Treasury was kind enough to give evidence to our Committee on the VAT system last week, and she described it as the “most complex” part of the tax system. VAT creates a crippling compliance burden for small businesses and, as a result, there is a massive pile-up of companies just underneath that £85,000 turnover threshold. This shows that small, potentially dynamic, growing businesses—the engines of our economy—would rather stay under the threshold than deal with the VAT system.
Unfortunately, the VAT threshold is far from the only cliff edge in our tax and benefits systems. At worst, these cliff edges result in people being worse off for earning more money. In recent evidence to a joint session of the Treasury Committee and the Work and Pensions Committee, we heard how people can suddenly find themselves much worse off, after losing entitlements such as free school meals and council tax support, when they earn only a little more money. Indeed, next winter a person who earns an extra £1 will take home £900 less because they lose the cost of living support entitlement, which we reflected in a recent report. People would actually be better off by working less, or perhaps not working at all, and surely that is something we do not want to see in our tax and benefits systems.
Kit Malthouse
My hon. Friend is making a powerful point, but does she accept that complexity can lead to gaming of the system? It often feels as if the accountancy profession and tax planners are streets ahead of the Revenue, to the extent that we now have to have a general anti-avoidance measure so that, if they find something we do not like, they are not allowed to do it, even though it may be within the rules. That is a direct product of this complexity, which is creating a whole other industry around finding loopholes.
Harriett Baldwin
I agree with my right hon. Friend’s excellent point. Not only do the wealthiest get the best tax advice, but general financial advice has now become so expensive in this country that only 8% of our constituents can afford to pay for it.
Bob Stewart (Beckenham) (Con)
I am ignorant about tax affairs, but trying to sort it out might make it even more complicated.
Harriett Baldwin
My right hon. Friend highlights that this is not an easy task. The point I am trying to make with my amendments, which I hope he will support, is that, by abolishing the Office of Tax Simplification, we lose not only a source of valuable advice on how to simplify the tax system but the message that we want to do so, which I know the Chancellor wants to convey.
Higher up the income scale, the £100,000 income bracket triggers the withdrawal of the very welcome steps we have taken on tax-free childcare and the personal allowance. This means that a family with two children in full-time childcare, if they happen to live in London, would be better off earning £99,999 than earning more than £150,000 because they would have a more than 100% withdrawal of extra earnings in that income bracket, which is very distorting. It provides disincentives to work, and we see that obstacle to economic growth reflected in the workforce numbers produced by the Office for National Statistics.
The Chancellor agrees that
“the tax system is overcomplicated and the trend of ever more complication must be reversed.”
It is surprising that, on coming to office, he chose not to reverse the abolition of the Office of Tax Simplification. It was established in 2010, and it was given a ringing endorsement by the Treasury in its 2021 statutory review. Disbanding the independent champion for simpler tax sits very uncomfortably with the Government’s insistence that tax simplification is a priority.
However, the most important factor in securing tax simplification in practice would be for the Chancellor to take on the personal responsibility for simplification that he pledged to take, which brings me to the Treasury Committee’s new clause 2. We have heard that, while the Treasury and HMRC focus on new taxes, the Office of Tax Simplification did important practical work seeking to simplify the existing tax system. We also heard in our evidence session that the Office of Tax Simplification did good work listening to taxpayers to understand how the complexity of the tax system works against them. The reports of the Office of Tax Simplification were published very transparently, unlike the private advice given to Ministers, and they facilitated parliamentary scrutiny of tax simplification efforts.
The Chancellor told us that he intends to be a Chancellor who makes “progress on tax simplification.” I welcome the simplification of the lifetime allowance, which the Opposition opposed earlier, but the Committee wants the ability to hold him accountable for that. Under new clause 2, the Treasury would report to the Committee annually on the Chancellor’s promise to simplify taxes.
Victoria Atkins
I have genuinely enjoyed my hon. Friend’s contributions not just today but at earlier stages, and I enjoyed being grilled with the Committee’s very thoughtful questions last week. In the spirit of agreement and co-operation, would it meet with her and the Committee’s approval if I committed to write to the Committee once a tax year, including this tax year, on the subject of simplification? The Committee could look at that report, decide for itself how the Government of the day are doing and, of course, call Ministers to account before the Committee.
Harriett Baldwin
I thank the Financial Secretary for that intervention, which is very much in the spirit of what we are calling for in our new clause. Our report set out the sorts of things we would like to see. The report from the Treasury should be annual and it should include international comparisons, where available. It should also set out what the Treasury has done within that year to simplify taxes for our constituents and those who run businesses.
Dame Andrea Leadsom (South Northamptonshire) (Con)
Let me add that we want to see real examples of simplification, as the tax code is so incredibly long and confusing. Just today, I was talking to people from some businesses that have found it impossible and extremely expensive to work their way through that tax code. As the Chairman of the Treasury Committee has set out, some concrete examples would be crucial in any report that came to the Committee.
Harriett Baldwin
I thank my right hon. Friend for that intervention, which made me think immediately of the measures in this Bill on the increased rate of corporation tax. That in itself is controversial, but we now have these ladders between 19% and 25%. Our Committee would be interested to see the letter that the Financial Secretary has undertaken to write to us annually include an assessment of not only new measures such as that on the behaviour of businesses—I highlighted the impact of the VAT measures just now—but of the existing body of tax law. As with the simplification of the lifetime allowance, we must ensure that this Treasury and these Treasury Ministers focus relentlessly on how they can simplify the complexity and the behavioural signals that our tax system is sending, which are deterring people from entrepreneurialism, taking on extra work and earning higher incomes. With that, I am happy to have spoken to those two amendments.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
I wish to speak to my new clause 3, which would compel the Chancellor to assess the impacts of the Bill on poverty and inequalities, and, subsequently, our health. It states:
“The Chancellor... must review the public health and poverty effects of the provisions of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) The review must consider—
(a) the effects of the provisions of this Act on the levels of relative and absolute poverty across the UK…
(b) the effects of the provisions of this Act on socioeconomic inequalities and on population groups with protected characteristics as defined by the 2010 Equality Act…
(c) the effects of the provisions of this Act on life expectancy and healthy life expectancy across the UK…
(d) the implications for the public finances of the public health effects of the provisions of this Act.”
Most notably, it must consider those implications on the NHS. So the ask is simple: that the Government should disclose their evaluation of the impact of their economic policies on the health of our constituents—that is it. It is fairly straightforward, and I think we are all aligned on that; these are ambitions the Government have professed to have in their levelling-up agenda. My new clause would contribute to that and to the achievement of the reduction in health inequalities to which the Government say they aspire. They should have nothing to fear from the transparency that this new clause would bring.
As we know, there is overwhelming evidence that socioeconomic inequalities are the key determinants of our health and, consequently, our health service use; inequalities in income, wealth and power will determine how long we are going to live and to live in good health. It is, therefore, only reasonable that the Government report on how the Finance Act will have an impact on those inequalities. For example, life expectancy for men is four years lower in Oldham than it is in the Prime Minister’s constituency. In the past 13 years, Oldham Council has had £230 million in funding cut from its central Government funding—that is 29% of its total budget in 2010. It has received funds through the competitive bidding processes for the towns fund and levelling-up fund totalling £44 million. A GCSE in maths is not required to see the shortfall there. However, in Surrey, where the Chancellor is an MP, people have seen their council budget cut by just 8.3%. The issues are clear when we compare that 8.3% with that 29%.
How can it be right that in the sixth richest country in the world people are dying younger because of their socioeconomic position? Poverty and inequality are not inevitable; they are political choices that can have deadly consequences. The pandemic revealed that stark reality, exposing how our structural socioeconomic inequalities impacted on who was infected by covid and their experience of the disease. People on low incomes were more likely to be infected and to die of covid; within that, and at every other level of the income hierarchy, people of colour and people with disabilities were disproportionately represented in case numbers and deaths. If we are to prevent the same mistakes from happening, the Government must listen. If they do not listen to me, they should listen to Professors Sir Michael Marmot, Clare Bambra and Kate Pickett, and to countless others. There is overwhelming evidence to show that structural inequalities in our country drove the unequal death toll from covid.
Michael Marmot revealed that instead of narrowing, health inequalities, including how long we are going to live and to live in good health, were getting worse; prior to covid, our life expectancy and healthy life expectancy was getting worse. Most significantly, his analysis showed that unlike the situation in the majority of other high-income countries, our life expectancy was flatlining. For the poorest 10% of the country, including in my part of the world, it was actually declining, with women being particularly affected. He showed that “place matters”; living in a deprived area in the north-east was worse health-wise than living in an equally deprived area in London.
Sir Michael also emphasised that it is predominantly the socioeconomic conditions that people are exposed to, not the NHS, that will drive their health status and how long they will live. Analysing the abundant evidence available, he attributed the shorter lives that people in poorer areas such as my north-west constituency are predominantly living to the disproportional Government cuts to local public services, support and income that they have experienced since 2010—and then the pandemic hit. As the National Audit Office and others have outlined, it was always a question of when, not if, there would be a pandemic. Like many of us, Sir Michael has pointed out that the Government’s hubris can be seen not only in their pandemic management but in the high and unequal covid death toll. Improving our health and wellbeing must be a priority of this Government and an outcome of our economic—and other—policies.
Matt Rodda (Reading East) (Lab)
My hon. Friend is making an excellent, powerful speech. Does she agree that the inequality she has described also extends across a range of other fields, such as the quality of housing and of food?
Debbie Abrahams
My hon. Friend is absolutely right on that. When we look at the socioeconomic inequalities and the social determinants of health, we see that they include both the quality of housing and people’s opportunities for healthy living. That all has an impact, but we know that our socioeconomic determinants are the key drivers—the most important ones—of our health outcomes. There is indisputable evidence about that, which is unfortunately not reflected in some of the choices the Government are making.
I am glad that my party has recognised that, along with the importance of tackling socioeconomic determinants of health, in our health mission. We will take a health-in-all policies approach to tackle the socioeconomic inequalities driving health inequalities across our country. We will create a Marmot England and introduce new mission-delivery boards to ensure Government Departments work together to tackle health inequalities. My new clause is about ensuring that the Chancellor also recognises this and publishes a review into the impacts on poverty, inequality and, ultimately, health. After covid, that is the least the Government can do.
Priti Patel (Witham) (Con)
I am grateful for the opportunity to speak to amendment 20, tabled in my name, which has the support of more than 25 right hon. and hon. Members.
It is not breaking news that I remain concerned about the introduction of a global minimum corporation tax. We have debated the issue in the House, in Committee— Ministers, the Chancellor and colleagues, including the hon. Member for Ealing North (James Murray), the Opposition spokesperson, are aware of my views—but I think it is right that we have the right level of scrutiny of the policy because I have concerns about the implementation, which I have raised consistently.
Before I come to the range of concerns about the policy, I will touch on the remarks made by the Chair of the Treasury Committee, my hon. Friend the Member for West Worcestershire (Harriett Baldwin). She spoke about the need for business certainty, which is crucial, as did the hon. Member for Ealing North. I believe that the implementation of this tax policy creates challenges for businesses and for business certainty. As she highlighted, it also exacerbates the complexities that businesses face when it comes to administering these policies. There are also implications for capital allowances.
Richard Drax
I congratulate my right hon. Friend on amendment 20. The only certainty that the Opposition can offer to businesses is that taxes will be so high that businesses will fail—that is about the only thing the Opposition can do. So far as this measure is concerned, can she tell the House what the Americans think of the idea? Where are they in their thinking?
Priti Patel
I thank my hon. Friend for his support for the amendment and for his comments. As we have discussed previously—I was going to touch on this—the United States is not in a position to introduce the policy. It is a fact—politics in the US is like politics here or anywhere in the world—that the Republican party has made it abundantly clear that it will not allow this policy to go through. It wants to go further and to bring in legislation that will put retaliatory measures in place against countries that impose the new tax and burdens on US businesses and multinationals.
Returning to the amendment, I will come on to some specifics with regard to the dialogue I have been having with the Minister and the Chancellor on this subject. It is right that we scrutinise the policy, which the amendment seeks to do. It is right for the Government to pursue international agreement to address the complex tax arrangements, which hon. Members have referred to, that exist with multinational corporations and businesses operating in multiple jurisdictions. That is vital and makes sense.
Richard Foord (Tiverton and Honiton) (LD)
On the point about multinational corporations, does the right hon. Member think that it is right that we treat multinational corporations that produce oil and gas in a different way from the way we treat renewable energy companies, including companies that produce renewable energy and invest in renewable energy projects? At the moment, it seems that the energy profits levy treats those things in different ways. Will she be supporting Liberal Democrat amendments to the Bill to encourage investment in renewable energy projects?
Priti Patel
I thank the hon. Gentleman for his comments. I would rather businesses had zero taxation policies. I should declare an interest: when I was a Treasury Minister many years ago, I undertook the fiscal review of oil and gas. Frankly, we need to do everything to stimulate investment in both oil and gas and renewables. I would like to see consistency in policies on that.
Specifically to my point about multinationals and how they are taxed in jurisdictions, I support the Government in the sense that it is right to look to close tax loopholes where we see companies operating in multiple jurisdictions, but the plans for a global minimum tax are wrong, as I have raised in the House before. They are wrong and flawed for a number of reasons.
No one would deny that the introduction of such a measure is complex—it is not straightforward. I paid attention to the comments made by the hon. Member for Ealing North. There is no point just saying that we need to crack on and implement this; we have to do it in the right way, which is why I put forward the amendment. It even gives the Government scope for more time to look at the complexities around its implementation and to look at what our competitors are doing. We should not rush headlong into this. These are complex changes that will be challenging to enforce; I will speak about that, too.
I believe the measure is anti-competitive. It undermines our fiscal sovereignty. Without labouring the point too much, we have left the EU. The Government have the ability to make their own tax laws and fiscal sovereignty is crucial to this, too. Why are we are now going to surrender tax powers to the will of the OECD?
Economic growth has already been mentioned by my hon. Friend the Chair of the Treasury Committee. We do not want to undermine our ability to be a low-tax global beacon of free trade. The Government are pursuing policies such as freeports. We all welcome that when it comes to competition, but we do not want to encourage a culture of subsidies, which this policy will do.
I believe that Governments and Parliaments must have flexibility to set their own fiscal policies and tax rates, striking a balance across all sectors, including multinational companies and small and medium-sized enterprises. Speaking as an MP for Essex, which is known to be an entrepreneurial county, SMEs are the backbone of our economy. We have to strike a balance between being competitive and having low tax rates to attract investment, and generating revenue to support public services—I agree with the hon. Member for Ealing North about that. If we are not competitive, we will not have the tax revenues to support public services. However, a minimum corporate tax would prevent us from doing that.
There are problems with the OECD’s plan, which is why I want to have greater scrutiny on implementation. The enforcement and implementation mechanisms are unclear and countries could find ways around them, which should concern us. They could find loopholes to circumvent the policy. The UK looks set to gold plate measures. We follow rules and standards when we sign up to them, which is the right thing to do when it comes to our Government policies. The same cannot be said for more than 130 countries that have taken an interest in the matter. For many, agreeing to the OECD framework appears to be more about rhetoric and the ability to take action on taxing multinationals, than making the changes necessary and following the committed approach that this Government plan to take. I have no doubt that the Minister will want to speak about that, because the Government are being diligent in their approach and more scrutiny is required.
Moreover, limiting fiscal freedoms opens the door for countries to entice investment from big businesses with big subsidies, which distorts the market. All hon. and right hon. Members will understand that in a subsidy race we simply cannot compete with the United States or even China. Some countries can pump millions of dollars into supporting investment from multinationals. That is not what we do in this country.
We are more competitive as a country in being able to deploy a full range of fiscal and tax-cutting powers, than we are in a race to the bottom with subsidies. There are serious concerns about how these plans will be enforced and, importantly, how disputes between countries will be resolved. I understand that negotiations with the OECD are taking longer than expected, which is not a surprise, and I think it will be some time before an agreement is reached, but by baking into primary legislation a requirement for us to implement without any further flexibility, we risk blindly signing up to a package where foreign officials could overrule decisions and interpretations in our own jurisdiction and in on our own Government.
The peer review panels, being set up to review implementation, could be made up of representatives from China or other hostile states—for example, Russia—all countries which are involved in the process and states that have concerning records on human rights, war crimes and other conflicts, which we debate in this House day in, day out. Frankly, they do not meet our standards and we should be cognisant of that. Our tax affairs could be judged by representatives from states that many in this House are concerned about.
There is then the issue of the date of implementation, which I have referred to in my amendment. The Government have been clear that they will implement the policy by the end of this year— as clause 264 states, from 31 December 2023. This measure, despite the concerns I am raising, can only have a chance of succeeding in the way the Government hope if it is implemented in a constituent manner by all states—or, if not that, by a critical mass—at the same time. This is where we have concerns. We are just not seeing this right now in other countries and among our competitors, because they are not as wedded to the date as we are. I understand why we have to put down the date to enshrine it in law.
The United States, as my hon. Friend the Member for South Dorset (Richard Drax) has mentioned, will not be able to take this through to implementation by 2024. The Republicans in the House of Representatives are opposing those plans. But as well as opposing and preventing the US—our largest trading power—from introducing them, they are threatening retaliatory measures on countries that implement the policy, and in doing so will penalise US-based companies. So we could have a situation where this Government introduce a tax measure that adversely impacts on our trade and investment with the US. Of course, that could have an impact on trade negotiations and some of the work that other Departments are doing—such as Business and Trade, for example.
It would be interesting to know from the Minister whether this issue was discussed by the Prime Minister and the President in their recent bilateral talks. The US is crucial in this, but it is not just the US that will not implement the policy. The EU members are not going to implement the policy fully on day one. They have been given six years to implement tit. In Asia, major economies and competitors are setting dates behind the UK: Japan, Singapore, Thailand and Hong Kong. Although that the Government have been clear about their intent, we need to know what they intend to do on implementation. I have put my own concerns about this tax on the record. I think the date is wrong.
Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)
My right hon. Friend knows that I have signed her amendment. It is a good amendment because the compromise, as it stands, gives the Government more time to think carefully about what we are doing here. As she said, the Americans are almost certainly not going to implement this measure. That means that the single largest trading nation in the world will not play a part in this. What assurances has she secured from the Government? Will she press her amendment tonight? If she does so, I will support her. If she does not press it, I will understand that she has some assurances. Can she spell out what the assurances from the Government are?
Priti Patel
This is important. The purpose of scrutinising the Bill and discussing the amendment is about the implementation and how the Government will pursue that. We have big concerns. Other countries are not moving forward, so we will be the first. We need a sensible and practical course of action. My amendment is reasonable.
I have had discussions with the Chancellor in particular. He has given some very clear assurances that, in the light of the points that I have raised, not just today but previously, and the conversations that I and all colleagues who have signed the amendment have had, in respect of the implementation of the tax, the Government have committed to bring to this House regular updates on what the OECD is proposing with regards to policing pillar 2. That speaks to my point about how all the enforcement mechanisms will work and about whether countries will be circumventing the rules and the structures of pillar 2. Also, before the summer recess, they will bring forward some detailed assumptions and modelling. The Treasury has forecast and scored, as I understand it, the expected tax revenues from pillar 2. That is something that I have been pursuing and asking specific questions about. It is important that we understand not only what revenues are gained, but the costs that will be incurred, particularly by businesses.
I have received clear assurances that the Government will publish, ahead of the autumn statement, details on the compatibility—or even the lack of compatibility—and interoperability of the US’s global minimum tax legislation and that proposed by the OECD. That, of course, has an impact of double taxation for companies.
Madam Deputy Speaker (Dame Rosie Winterton)
I gently remind colleagues that if they want to intervene on a speaker, it is important that they are in the Chamber at the beginning of the speech, just in case the point that they wish to raise has already been made. It is also important to stay until the end. I call the SNP spokesperson.
Stewart Hosie
Before I turn to the new clauses and amendments before us, it is worth reminding ourselves briefly about the debate so far, not least that the Bill was derived from a Budget that had the stated intention of seeing the debt, borrowing and inflation all fall. As the Financial Secretary has said previously, debt servicing costs are down, and indeed they are—they are down from last November, but massively up from the previous year. She said that the fiscal targets are to be met. Again, indeed they are. The debt target in particular is forecast to be met in five years’ time measured against the fiscal charter, but it will be at 0.2% of GDP. That is £6 billion out of a GDP approaching £3 trillion. As I have said before, these are very fine margins.
Although it is true that having a weather eye on debt and deficit—the big macro-economic indicators—is important, so too is immediate help for families suffering from high inflation, high energy prices and spiralling mortgage costs. Those things, however, are all sadly absent from the Bill. That is important because the OBR has told us that living standards will fall by 6% over this fiscal year. That will be the largest two-year fall since Office for National Statistics records began in the 1950s. It is important because inflation is still at 8.7%, and it is far worse for certain essentials such as sugar, at nearly 50%. Remember that inflation was forecast to fall to 2.9% by the end of this year. Since then, it has been revised up to 5% by the end of this year. That means that the forecasts and the pain keep rising.
We know that real pay is not keeping pace with inflation. Troublingly, the Government are keeping their head in the sand regarding the inflationary impact of Brexit, ignoring even the former Bank of England Governor, Mark Carney, who could not have been clearer about the contribution Brexit has made to the soaring inflation we face.
I turn to the amendments and new clauses we are considering on Report. New clause 1 calls for a review of alternatives to the abolition of the lifetime allowance, and amendments 1 to 6 delete clauses associated with the abolition. On Second Reading, I suggested the need to probe this matter in Committee. The decision to remove the cap on lifetime pension allowances, which will cost around £3 billion, will benefit a tiny number of already pretty comfortably off or very well-off people. I also suggested that, if the measure was genuinely designed to lift certain categories of worker—doctors in particular—out of a pension and employment trap, the Government should, to be brutally honest, have come up with a much better and far narrower solution.
My hon. Friend the Member for Aberdeen North (Kirsty Blackman) also raised the matter in the Committee upstairs. She made the point that a significant number of questions have been raised in the House and elsewhere about the lifetime allowance and the problem it has caused, particularly for NHS doctors, but went on to quote Torsten Bell of the Resolution Foundation, who noted that 20% of those who will benefit from the change in the lifetime allowance work in the finance industry, meaning that nearly as many bankers as doctors will benefit. That surely cannot have been the intention. We are pleased to support new clause 1, because it seeks not simply a review, but a review that will make recommendations about how a more focused alternative could be delivered.
Amendment 7 seeks to remove entirely the abolition of the Office of Tax Simplification, and new clause 2 seeks reports based on metrics to measure the performance of tax simplification. We will support both if they are voted upon. My hon. Friend the Member for Dunfermline and West Fife (Douglas Chapman) provided some excellent context in Committee, arguing that
“the OTS achieved a significant amount during its 12 years of existence and, with greater ministerial support for its proposals, could have achieved much more.”—[Official Report, Finance (No. 2) Public Bill Committee, 18 May 2023; c. 136.]
He also quoted George Crozier of the Chartered Institute of Taxation, as many have done over many years, who said that there had been
“useful reforms to employee expenses and inheritance tax reporting,”
and that
“every Finance Act of the last decade has had measures in it which owe their genesis to the OTS, and which have made navigating the tax system easier for one group or another.”
My hon. Friend also made the rather important point that it was the independence of the Office of Tax Simplification that made it stand out from anything that can be provided in-house. We will back amendment 7 and new clause 2 if they are pressed to a Division.
If I may say a few words about Government new clause 4 and Government amendments 9 to 13, they appear to come under the category of tidying up and clarification. New clause 4 in particular ensures that both domestic and international top-up taxes commence at the same time, and the other amendments ensure that reliefs and charges operate as intended.
However, I am rather less sanguine about Government new clause 5. Ostensibly, it is required to deal with the situation where
“financial institutions are regarded as telecommunications or postal operators”.
For example, subsection (5) of Government new clause 5 suggests that paragraph 19(4) and (5) of schedule 36 to the Finance Act 2008 be removed, but paragraph (19)(4) says:
“An information notice does not require a telecommunications operator or postal operator to provide or produce communications data.”
That is a protection against the requirement to produce data in certain circumstances. Paragraph 19(5) defines “communications data”, “postal operator” and “telecommunications operator” as per the Investigatory Powers Act 2016—the very legislation that inserted those protections into schedule 36 to the Finance Act 2008 in the first place. Government new clause 5 not only affects the financial institutions regarded as telecoms or postal operators but, it would appear on my reading, removes protections in the Act for all telecommunications and postal operators not to be required to provide certain information in certain circumstances.
The Financial Secretary said she would answer questions at the end in her summing-up, and my questions are rather simple. What problem is Government new clause 5 designed to address? Why has a potentially significant amendment such as this come so late in the day? Is it even remotely appropriate that a criminal justice measure, the Investigatory Powers Act, should be amended in a potentially significant way through a late-delivered new clause on Report of a Finance Bill?
New clauses 3 and 8 to 14 call for reviews or reports of one form or another on the public health and poverty effects of the Bill, the oil and gas profits levy allowance, the impact of those with non-dom status, the bands and rates of air passenger duty, the impact of tax changes on households, and the effect of the Bill on the affordability of food and on small businesses. We are happy to look on those positively, although I am not certain that new clause 12 should really be opening the door to reducing the electricity generator levy. The Lib Dems have disappeared, but I would have said to the hon. Member for Tiverton and Honiton (Richard Foord), had he been in this place, that if one opens the door to a tax cut to the Tories, they by and large take it.
We will also support new clause 7, which requires a statement of progress on the pillar 2 reforms, seeking
“to extend and strengthen the global minimum corporate tax framework”.
It is important that we have a global minimum corporate tax framework, and I am not convinced by the arguments made by the right hon. Member for Witham (Priti Patel) about offering the opportunity for implementation to be delayed.
Again, the Lib Dems are not in their place, but I am also not yet convinced by new clause 15 because, while there are issues with the Government’s research and development framework, which I have raised before—namely, the stated intention to limit attributable expenditure for data and cloud computing licences—the new clause seeks to make the regime more restrictive and introduces the extraordinarily subjective viability clause in subsection (2)(a).
It is, however, true that none or few of the amendments and new clauses tabled substantially alter the Bill. It is also sadly true that none of the Government changes offer any hope of substantial help for the cost of living crisis any time soon. I fear that the Bill, and the Budget it derived from, will go down in the missed opportunity category.
Alun Cairns
I will speak to part 2 of the Bill, clauses 46 to 60, to which Government amendments 15 and 16 refer. In general, they relate to duty rates and any exemptions that apply thereafter. The Government’s objectives have been to simplify the system, to have an emphasis on health and healthy consumption, and, of course, to support pubs. In general, these are significant changes that have a positive impact on the hospitality sector.
When the Exchequer Secretary’s predecessor, my hon. Friend the Member for South Suffolk (James Cartlidge), said at the Dispatch Box that the Bill delivers the Brexit pub guarantee, there was significant enthusiasm within the sector to recognise and interpret a long-term commitment. There are two elements that immediately stem from that. The first is that these are changes that can be delivered as a result of Brexit; there were difficulties, challenges and nonsensical structures in the sector that could not be amended while we were a member of the EU. That is a major positive impact. However, the significance of the Brexit pub guarantee is that it will be long-term and we look for it to be ever extended.
I pay tribute to the Exchequer Secretary, who has engaged with me on some of the points that I have already made, but also to his predecessor, to the Chancellor, and to the Prime Minister when he was Chancellor, for recognising the opportunities to amend duty rates. That can genuinely help the hospitality sector, particularly pubs.
The original draft duty relief, which was in the Budget two years ago, was set to be 5% and to come into force this year. This year’s Budget and the Bill increased that to 9.1%, which will make a real difference. It follows the theme, all being well, of a continuing differential between rates that apply to the off-licence trade and those that apply to pubs and the general hospitality sector. The Government have therefore taken important, positive steps, which are welcomed far and wide.
Nigel Mills (Amber Valley) (Con)
It is pleasure to speak to amendment 21, which stands in my name. I also want to speak to the amendments on the Office of Tax Simplification, which my hon. Friend the Member for West Worcestershire (Harriett Baldwin) tabled and I was happy to put my name to.
In my more naive and mischievous days, I occasionally tabled amendments to Finance Bills that called on the OTS to review elements of tax. The last time I tried that was on corporation tax in about 2014 and the amendment was accidentally passed in the Bill Committee. I say “accidentally” because neither side knew that we were voting for the amendment. We thought we were voting to withdraw it and we had to rewrite history quickly and pretend that the amendment had not been passed. I have not been able to serve on a Finance Bill Committee ever since, or indeed any Bill Committee, so perhaps I could recommend that as a tactic for Members who do not enjoy them as much as I used to.
If we were being slightly mischievous, we could say that 13 years of the OTS has not resulted in a tax system that is a great deal simpler than the one we have now, but that is probably more the Treasury’s fault than the OTS’s. The serious point is that we need to find a mechanism whereby we can simplify our tax regime. It has got ever more complicated, and at some point we will see taxes start to fall over, because the complexity of different policy ideas over time that conflict with one another leaves us with a system that is incredibly hard to follow and to comply with and is putting undue costs on individuals and businesses.
We could, in a rolling programme, find a way of taking out some of this complexity by being a bit clearer in our policymaking about what we are trying to do. Are we trying to raise income? Are we trying to encourage or discourage certain behaviours? Are we trying to virtue-signal? Are we trying to win votes? Sadly, we do all those things at the same time, sometimes in conflicting ways, and end up with a rather strange system.
The amendments I want to speak to are about the global minimum corporate tax. I think I am the lone voice on the Back Benches who likes to speak in favour of this. I remember looking at this issue before I came here. The OECD has spent a very long time trying to find a solution to base erosion and profit shifting. A few years ago, it produced 15 or so ideas that were quite worthy but made absolutely no progress. The Government then introduced the diverted profits tax in the UK to try to tackle this issue on a domestic basis. It would be a terrible signal if the UK, having been one of the countries that signed up to this, now decided that we want to delay implementation and not go ahead with it.
To be fair, no other solution has been found to how we can stop certain large multinationals trying to hide revenue in low-tax jurisdictions that has no commercial basis for being there. We have tried changing transfer pricing rules, we have tried country-by-country solutions, and we have tried more reporting—we have tried all manner of things, but none of them has managed to fix the problem. That is why the two pillars in the most recent OECD deal, while far from perfect, are the best we are going to get. If we do not go ahead with those, we might see some even more radical, less consensual, less well thought-through ideas being brought in. We even see the UN starting to play in this space, and there is a real risk that what it produces may not be consistent with a coherent tax regime.
I am not the biggest fan of the OECD. I once described it as the “Organisation for Excessively Complex Drivel.” If we read the rules that we are putting through today, there is a real sign that it is excessively complex, and that was my motivation for tabling amendment 21. We probably could have found a better way of achieving the same thing, rather than UK-headquartered groups having to go through a very complicated series of calculations for every subsidiary they have in an overseas regime to try to work out whether they have paid the 15% minimum tax, when the headline rate in those countries is 25% or 30%, and it is extraordinarily unlikely that they will not have paid that 15% tax, and there may well have been timing differences that have to be worked through to try to prove that. That will be a huge compliance burden, and it will not add very much. It will not collect any tax, and it will just make these rules look a lot worse than they are.
The purpose of amendment 21 is to offer the Government the chance to extend the power that the transitional, lighter-touch regime we are allowed to use for the first three years of the rules that has been agreed by the OECD and use it for a bit longer, especially if not every country in the world is following our early implementation of these things, to try to avoid us imposing a compliance burden in the UK that will not exist elsewhere. I accept that that is not currently in the OECD agreement.
As more and more countries try to put these rules into their own domestic law, I think we might see them realise how fiendishly complicated they are and start to look for simpler ways of implementing them, so that we can focus on working out where real tax abuse—avoidance and evasion—is taking place and go and collect the tax that is not being paid, rather than having a big compliance burden. There are plenty of precedents for how we can do that in our own tax rules. We had the worldwide debt cap, which we do not need any more, so we scrapped it, but that had a gateway test. Companies went through a simple test, and if it was clear that they were innocent, they did not have to go through the full detail of the rules. I am sure that we could find some way around that. Our old foreign-controlled company rules had a list of territories that were treated as good unless there was any avoidance going on, and we could use a model like that.
I want to touch on why it is important that the UK takes a lead on this. I think it is fair to say that our overseas territories and Crown dependencies have been among those that have behaved the naughtiest around the world in terms of certain tax behaviours that they have encouraged or permitted in their jurisdictions. We are not going to get global progress on this issue if the UK is not at the forefront. If we say we will wait for the pack, half the world will think, “Well, they’re the ones that have been responsible for a whole chunk of this. If they’re not going to do it, we’re certainly not going to do it.” It is important that we are seen to take a lead in tackling this. Getting this right is hugely popular. Our constituents do not want to see large multinational corporations hiding their profits in low-tax jurisdictions. This sort of relatively moderate measure that we are opting into as part of a global deal does not have any sovereignty concerns.
Victoria Atkins
I should have known by now that my hon. Friend the Member for Amber Valley (Nigel Mills) would put his points succinctly and with expertise. He has taken me a little by surprise in ending as he did, but I thank him greatly for his comments.
May I conclude this stage of the scrutiny of the Bill by first of all genuinely thanking all right hon. and hon. Friends and Members for their contributions on Report? It has genuinely been the sort of scrutiny that shows this House in its best light: although there has been a certain amount of party politicking in certain parts of the Chamber, a very detailed set of questions and concerns has been raised about some of the most complex parts of the Bill. When I responded to the Chair of the Treasury Select Committee, my hon. Friend the Member for West Worcestershire (Harriett Baldwin), in giving evidence last week, I said that VAT is the most complex part of tax law, which in itself is incredibly complex. I think I am about to prove that pillar 2 may be joining that very elevated rank.
If I may, I shall concentrate on some of the amendments that have been the focus of the House this afternoon; I hope colleagues will understand if I do not address some amendments that have not been spoken to, or will not be pushed to a Division. First and foremost, I will deal with tax simplification—in new clause 2 and amendment 7, which have been tabled by my hon. Friend the Member for West Worcestershire. Again, I very much thank our Treasury Select Committee colleagues for their interest, their expertise and their commitment on this issue, and their scrutiny of opportunities for tax simplification. I have read the report already, which I hope shows my commitment to simplification. I hope my hon. Friend will understand if I do not respond in detail to the report now; we will of course respond formally to it in due course.
My right hon. Friend the Chancellor and I remain deeply committed to simplifying the tax system. My right hon. Friend the Member for North West Hampshire (Kit Malthouse) intervened earlier on: he is a chartered accountant, so he knows with great expertise just how complicated some aspects of the tax system can be. I very much share the Chancellor’s ambition and determination to try to bring some simplicity to some of these reliefs and rules. We very much want to engage constructively with the Treasury Select Committee and, indeed, the whole House in our efforts to do so.
If I may, I will just touch on amendment 7. We have introduced through this Finance Bill our determination to put simplification at the heart of the tax system and our consideration of it, which is why we will not be able to renege on our commitment to abolish the Office of Tax Simplification. We are going to stay the course with that policy, but we genuinely see the Bill as an opportunity to enable us to put simplification at the heart of the Treasury.
With regard to new clause 2, the Chancellor has set a clear mandate to Treasury and HMRC officials to focus on both the simplicity of new tax policy design and simplifying the existing tax rules and administration at all times. At spring Budget, the Chancellor announced the first steps of that work, including a range of improvements to make it easier for businesses, especially small businesses, to interact with the tax system. That includes—this is by no means an exhaustive list—a systematic review to transform HMRC guidance and key forms for small businesses, and a consultation on expanding the cash basis, which is a simplified way for over 4 million sole traders to calculate and pay their income tax. As my right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom) said, these need to be practical simplification measures. I very much hope that the consultation on the cash basis will provide some of that practicality that she and others so wish for.
We are also taking further action to simplify the tax system through the Bill. A great example of that is the permanent £1 million limit to the annual investment allowance, which provides 100% first-year relief for qualifying main and special-rate investments in plant and machinery, simplifying the tax treatment of capital expenditure for 99% of businesses. The Bill will also simplify the process of granting share options under an enterprise management incentive scheme. We also announced at spring Budget our efforts to simplify the customs import and export processes. That includes opportunities to streamline customs declaration requirements and engage with traders on plans to rationalise and digitise HMRC’s authorisation processes, all of which is obviously essential with our bright new future out of the EU.
The Chancellor has also set out that he is asking officials to consider tax simplification ahead of every fiscal event. Of course, hon. Members will have ample opportunity to scrutinise the Government’s progress on simplification through the finance Bill process each year. We also continue to publish tax information and impact notes, which set out the expected impact of tax policy changes on individuals and businesses, and HMRC’s annual customer experience surveys, which measure taxpayers’ overall experience of interacting with HMRC.
Dame Andrea Leadsom
Just to clarify, will the Minister include in her assessment a simplification of the cliff edges that the Chair of the Treasury Committee raised? We have taken quite a lot of evidence on that, and it really does create disincentives to invest, to work and so on.
Victoria Atkins
That is a very interesting point. I hope the Chair will not mind my saying so, but when I gave evidence last week, quite rightly I was challenged about how we measure success. This is incredibly complex, as my right hon. Friend will appreciate. For example, with the corporation tax rises, we have introduced the tapering because we have the policy intent of trying to help businesses that are small or perhaps finding their feet, and we do not want to be charging them 25% corporation tax if they have not reached the levels of profit set out in the Bill. The metrics we will use are very much being considered. I am not in a position to commit to those metrics at the moment, but I promise I will come back to her when we have a settled package that we think will address not only the concerns of the Committee but the wider concerns beyond simplification, such as fairness and encouraging growth.
HMRC also reports annually in its reports on its objective to make it easy to get tax right. As I have just set out, we are actively considering how to develop a suite of metrics to measure progress on that. Precisely because we recognise the concerns and the thoughtful considerations of the Treasury Committee and others across the House, I was very pleased at being able to intervene on my hon. Friend the Member for West Worcestershire to commit today to reporting annually—that is, in each tax year—to the Committee to provide an overarching summary of the Government’s progress on the simplification. To be very clear, I intend that to start this tax year, because I take this very seriously and I very much hope that Committee members and others in the House will share my intentions in so doing. I therefore hope that my hon. Friend and Committee members will not feel the need to press their amendments and new clauses.
I turn now to the subject of the global minimum tax legislation, which is again a complicated area. If I may, Madam Deputy Speaker, with your munificence, I will just spend a little bit of time on it, precisely because I understand the concerns that my hon. Friends have and, indeed, the level of scrutiny they have quite rightly given it as the Bill has made its journey through the House. First and foremost, if I may—I am very keen to get this on the record, because I know that my right hon. Friend the Member for Witham (Priti Patel) will rightly expect such commitments on the record—before I make the commitments that the Chancellor has made in his letter, I will set out the background to pillar 2. Although my right hon. Friend the Member for Witham clearly has a great deal of knowledge about this area, it is fair to say that not everybody in Parliament will have the same understanding.
By way of an explainer, pillar 2 will ensure that large multinational groups with revenues of more than £750 million pay a minimum effective tax rate of 15% in every jurisdiction they operate in. It is designed to protect against the risk of harmful tax planning by multinational groups and to promote fair and open competition on tax policy. It is really to prevent those large multinationals from shifting profit out of the UK to those parts of the world that charge far lower tax rates than us. This will help to ensure that profits generated here in the UK are taxed in the UK, and it will strengthen the UK’s international competitiveness through placing a floor on the low tax rates that have been available in some countries.
A lot of questions have been asked about implementation, and I shall go into detail on them in a moment, but if we do not implement these rules, the tax will still be collected, but by another jurisdiction. That is because pillar 2 is designed as an interlocking set of rules ensuring that low-taxed profits will be taxed even if the UK or other countries do not move ahead. This is why we are determined to introduce or implement pillar 2 from 31 December this year, along with other EU member states and with Australia, Canada, Japan and Switzerland, so that we are moving in lockstep with our international peers.
Before I answer some of the questions that my right hon. Friend the Member for Witham has rightly raised, let me put on record my sincere thanks to her, and to other colleagues and friends who signed her amendment—and to whom I have spoken over many months in the run-up to today—to scrutinise what this means for the United Kingdom and for businesses. I absolutely understand why they are asking the questions. As I said, this is Parliament at its best, and I am genuinely grateful to her for raising these questions. What is more, the Chancellor is grateful. My right hon. Friend wrote to the Chancellor, and I am pleased to inform the House that he replied to her in the following way, to ensure that we all understand and appreciate the levels of scrutiny that have taken place.
The Chancellor maintains that the Government are sadly not in a position to support the amendment, but we recognise the importance of these matters to hon. Friends and Members of the House. On that basis, the Chancellor and I are happy to provide an update on pillar 2 implementation as part of the forthcoming fiscal event in the autumn, and if necessary in the spring. That update will include the latest revenue forecast from the OBR—that is an important point—and a status update on international implementation, which is a point that hon. Members are focused on. It goes without saying—I hope my right hon. Friend and others know this—that the Chancellor and I stand ready and are happy to continue to discuss such issues with her and others, as we move towards implementation towards the end of the year.
Quite rightly, my right hon. Friend and others have posed questions, and I will try to answer some of them. I was asked about implementation, which I completely understand. The member states of the EU are committed to implementation, and the EU directive in place is legally binding. The directive allows small member states—defined as those with 12 or fewer parent entities, and, therefore, those that are much smaller than our economy—more time to introduce the rules. Those countries are very few, and are not in the same economic position as the United Kingdom. They will not get an advantage from delaying implementation, as the directive requires other EU member states to collect the tax instead.
I have also looked to countries such as Thailand, Singapore and Hong Kong. The UK has a large and mixed economy, where it is appropriate for us to take action to combat aggressive tax planning and support measures that support competition. Australia, Japan and Canada, which are our peers by size and shape of economy, are also implementing that rule. Indeed, Japan’s 2023 tax reform Bill was enacted after passing Japanese procedures in March. It will be introducing the income inclusion rule from 1 April, four months after us next year.
On the States, I understand why the question is being posed, and my hon. Friend the Member for Amber Valley set out some of the history behind where America has got to. In 2017, the US introduced a minimum tax on the foreign income of its multinationals, and it has recently introduced a minimum tax on the domestic income of large groups, including foreign headed multinationals. The US already has in place rules that operate on a similar basis to pillar 2, and it has been one of the strongest advocates for developing a global standard. It has maintained its commitment to align its rules with the agreed pillar 2 template, but until that happens, the OECD inclusive framework members, including the US, have agreed how the US rules and pillar 2 rules should interact, to ensure that US multinationals are subject to the same standard as groups in other countries. That is an important context.
If it is not implemented in the UK, what does that mean? Again, the question posed is a fair one. Generally, the international top-up tax is applied at the top of the business, and at the level of the ultimate parent entity. If that jurisdiction has not implemented the rule, the taxing right passes down the ownership chain of the business, until there is an entity in a jurisdiction that has implemented the rule. This is why without UK rules, this tax—chargeable in the UK, if it did apply—would be payable to another jurisdiction unless and until we implement the rules.
I very much understand the concerns raised about sovereignty. We retain the sovereignty to set our corporation tax rate. It is still the lowest in the G7, and we can use important tax levers to boost investment, including the UK’s world-leading R&D credit and full expensing regimes announced in the Budget. We have also ensured that UK tax reliefs such as the refundable R&D credit will not be treated as depressing the effective tax rates of claimants. We have been able to achieve that because we have been at the forefront of discussions and negotiations on these rules.
On the point about how these rules are agreed, implemented and who holds who to account, the model rules were agreed by consensus requiring the agreement of each country and jurisdiction. It is then up to each country and jurisdiction to implement the rules. There is not a higher body than jurisdictions here to do so. I very much understand the concern about innovation and growth. We will remain free to use the corporation tax system to support innovation, business investment and regional growth through R&D tax credits, enhanced capital allowances and tax reliefs in investment zones. We must continue to work together with our partners to avoid a subsidy race that could distort trade or impact sectors.
In answering those questions, I hope I have addressed some of the issues that Members have raised in relation to pillar 2. I very much hope that my right hon. Friend the Member for Witham, having brought the scrutiny which would be expected from her, will feel able not to press her amendment to a vote.
On the lifetime allowance and the Opposition’s new clause 1 and amendments 1 and 6, the Opposition just do not seem to get it. This measure has been brought forward to help the NHS retain those doctors and consultants whom we are so desperate to have in our NHS looking after our constituents and helping to cut the backlogs, as the Prime Minister has set out as one of his five priorities. That is why we have introduced this policy. The hon. Member for Ealing North (James Murray) seems to think—and we have had this conversation many times before—we could have dreamt up a proposal dealing just with doctors in the same amount of time it took us to bring in this policy—two weeks. The fact is that this measure started having an impact on our doctors, our consultants, our chief constables and others this tax year, as hon. and right hon. Friends have set out. We want to make that change precisely because we believe that our NHS and public services deserve it, and that is why we are bringing that lifetime allowance forward.
Moving to the non-doms point, this is again a conversation we have had repeatedly with those on the Opposition Front Bench. The hon. Member for Ealing North asked about the £830 million and seemed to question it. I am sorry to break it to him, but that has been scorecarded by the Office for Budget Responsibility. It has certified it, costed it and said that it will bring in £830 million over the scorecard period.
My right hon. Friend the Member for Vale of Glamorgan (Alun Cairns) raised important questions regarding alcohol duty. He welcomes the changes in the round, but as the chair of the all-party parliamentary beer group, it is understandable that he is asking whether the draft relief is designed to apply to off-trade pints as well as on-trade pints. I am afraid that it is not, because we want to support consumption of beer in pubs. It is one of many ways not only to support our local pubs, but also to secure opportunities arising out of our exit from the European Union. Only pints in pubs will be subject to this measure, not pints poured into takeaway containers. The industry body the Campaign for Real Ale has lobbied to ask that that could happen. We have looked at the idea carefully, as has the Economic Secretary to the Treasury, my hon. Friend the Member for Arundel and South Downs (Andrew Griffith), but we have serious concerns that it would overcomplicate the draft relief. I hope to reassure my right hon. Friend and CAMRA that takeaway services can continue so long as the beer comes from a full-duty barrel. I am reminded that takeaway off-trade beer accounts for 0.1% of beer sales, but, when the Bill passes its Third Reading today, I am sure that we will all be raising a pint in celebration.
We touched briefly on the electricity generator levy, which is payable only on the portion of revenues that exceeds the long-run average for electricity prices. We have done that carefully to try to ensure that we achieve the Government’s wanted net zero ends while looking after customers. New clause 12 perhaps misunderstands how the EGL operates, so we urge colleagues to reject it. In relation to the energy profits levy, it is important to note that the Government expect it to raise just under £26 billion between 2022 and 2028, helping to fund the vital cost of living support that we have discussed.
In relation to air passenger duty and new clause 10, we have made changes to take advantage again of our post-EU freedoms and to support the United Kingdom. We want friends and family to be able to fly to see each other across the United Kingdom. I am not quite clear whether Labour understands that or is now against helping friends and family across the UK to reunite. I am sure that all will become about as clear as its £28 billion U-turn.
I turn to new clause 5. The right hon. Member for Dundee East (Stewart Hosie) asked why are we making this change on Report. It became apparent that a welcome clarification by the Home Office on how information is obtained for criminal investigations means that some data that is genuinely needed by His Majesty’s Revenue and Customs to check a person’s tax position is deemed as communications data. The clarification aims to secure that into law. We are trying to do it as quickly as possible, which is why it is in the Finance Bill.
The hon. Member for Oldham East and Saddleworth (Debbie Abrahams) raised the duty to report on public health and the poverty effects of the Bill. We already publish data on people in both relative and absolute low-income households each year through the “Households below average income” publication. The Welfare Reform and Work Act 2016 also requires us to publish statistics on the percentage of children in relative and absolute low income, combined low income and material deprivation and persistent low income. I very much hope that she will welcome the £3,300 on average of help that we are securing for families across the United Kingdom in these difficult times.
To conclude—[Interruption.] I thought that the House might be interested in some of the details; apologies for that. The Bill contains a number of important measures that will support the UK economy, people and businesses. I therefore urge the House to reject the proposed non-Government amendments for the reasons that I detailed, and agree to the Government’s amendments and new clauses. In closing, I thank everybody involved for their contributions to our discussions not just today but in the months that have led up to this.
Question put and agreed to.
New clause 4 accordingly read a Second time, and added to the Bill.
New Clause 5
Communications data
‘(1) Section 12(2) of the Investigatory Powers Act 2016 (restriction of powers to obtain communications data) does not apply to a power falling within subsection (2).
(2) A power falls within this subsection if it is conferred (whether before, on or after the passing of this Act) by or under—
(a) any Finance Act of any year (including this Act and any other numbered Finance Act);
(b) the Taxes Acts (within the meaning of TMA 1970);
(c) the customs and excise Acts (within the meaning of CEMA 1979);
(d) any enactment relating to value added tax;
(e) any enactment, not falling within paragraphs (a) to (d), that relates to tax.
(3) But subsection (1) does not apply in relation to the exercise of such a power by a public authority in the course of a criminal investigation by the authority.
(4) In section 12 of the Investigatory Powers Act 2016, after subsection (2) insert—
“(2A) Subsection (2) is subject to section (Communications data)(1) of the Finance (No. 2) Act 2023 (no restriction on tax related powers).”
(5) In Schedule 36 to FA 2008 (information and inspection powers), in paragraph 19, omit sub-paragraphs (4) and (5).
(6) In consequence of the repeal made by subsection (5), omit paragraph 10 of Schedule 2 to the Investigatory Powers Act 2016.
(7) The modification and amendments made by subsections (1) to (6) are to be treated as having always had effect.
(8) Subsections (9) and (10) apply where—
(a) before the day on which this Act is passed, a public authority imposed a requirement on a person under a power falling within subsection (2), and
(b) as a result of section 12(2) of the Investigatory Powers Act 2016 the public authority did not, ignoring this section, have the power to impose it.
(9) The requirement is to be treated as having been imposed on the day on which this Act is passed (and accordingly the period in which it must be complied with is to be treated as starting on that day) unless—
(a) the requirement was withdrawn by the public authority before that day, or
(b) the person complied with the requirement before that day.
(10) Where, before the day on which this Act is passed, the public authority imposed a penalty on the person for contravening the requirement—
(a) the penalty is of no effect, and
(b) if already paid, the authority is liable to repay it.’—(Victoria Atkins.)
This new clause removes a restriction on the exercise of civil information powers (for example, Schedule 36 of the Finance Act 2008 which HMRC use to obtain information from, and about, taxpayers) which otherwise might prevent their use in certain cases (for example, where online banks or other financial institutions are regarded as telecommunications or postal operators).
Brought up, read the First and Second time, and added to the Bill.
New Clause 7
Statement on efforts to support implementation of the Pillar 2 model rules
“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, make a statement to the House of Commons on how actions taken by the UK Government since October 2021 in relation to the implementation of the Pillar 2 model rules relate to the provisions of Part 3 of this Act.
(2) The Chancellor of the Exchequer must provide updates to the statement at intervals after that statement has been made of—
(a) three months;
(b) six months; and
(c) nine months.
(3) The statement, and the updates to it, must include—
(a) details of efforts by the UK Government to encourage more countries to implement the Pillar 2 rules; and
(b) details of any discussions the UK Government has had with other countries about making the rules more effective.”—(James Murray.)
This new clause would require the Chancellor to report every three months for a year on the UK Government’s progress in working with other countries to extend and strengthen the global minimum corporate tax framework for large multinationals.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Madam Deputy Speaker (Dame Eleanor Laing)
I am aware that the card readers are not working in either Lobby. I can assure the House that steps are being taken to count this Division manually, in the old-fashioned way. We will have the result quite soon.
Victoria Atkins
I beg to move, That the Bill be now read the Third time.
My right hon. Friend the Chancellor delivered a Budget for growth. He was clear that this Government’s focus is not just growth from emerging out of a downturn, but long-term, fiscally sustainable, healthy growth.
The Finance (No. 2) Bill, which Members of this House have had the opportunity to scrutinise and debate over the last three months, delivers on these commitments. It takes forward measures to support enterprise and grow the economy by encouraging business investment and helping to increase employment. It legislates for announcements made at previous fiscal events, which take advantage of our opportunities outside the EU, and it implements the tax measures needed to continue improving and simplifying our tax system to ensure that it is fit for purpose.
As the Bill has received such scrutiny, I do not propose to go into a detailed summary of the Bill. I just wish to thank the many people involved in bringing such a piece of legislation forward, because they work tirelessly behind the scenes and rarely receive the thanks they deserve.
First and foremost, I thank officials across the Treasury and HMRC for all their help, advice and expertise in creating the Bill and the proposals within it. In particular, I thank the Bill manager, Mikael Shirazi, who has navigated the Bill with great aplomb, often managing teams of tens of officials on my screens as I was having briefings. I am extremely grateful to him and all the Bill team for their very hard work.
I must also thank my private office—again, the unsung heroes of any ministerial office. They have worked extremely hard, particularly Holly, a member of my private office. I thank the Parliamentary Counsel; the Bill Committee Chairs on the Committee Corridor; the Doorkeepers; the Clerks; the Whips, of course; other Treasury Ministers who have helped in this; and, of course, you, Madam Deputy Speaker, for your consideration. I thank your fellow Deputy Speakers for their consideration, too.
Finally, I thank all hon. and right hon. Friends and Members across the House who have contributed to the scrutiny of this important Bill. I hope that, at the end of this, we can be very proud of the measures that have been taken forward as part of our Budget for growth.
James Murray
I take this opportunity to thank the many people who have supported me and my colleagues throughout the consideration of this Bill, not least all my colleagues on the shadow ministerial team, the Whips and the Opposition Back Benchers. I also thank the Clerks and parliamentary staff, and third parties, including the Chartered Institute of Taxation, which always provides invaluable support and evidence for us and all Members of the House.
Let me speak briefly to this Bill, which we have considered in detail over recent months. Our feeling as we approach the end of this is that it could have been a chance to make the tax system fairer. A fairer tax system is desperately needed after 13 years of low growth and stagnant wages, and after 25 tax rises by the Government in this Parliament alone—increases that have pushed the tax burden in this country to its highest level in 70 years. But instead, we see the Government prioritise £1 billion of public money a year to benefit the 1% of people with the biggest pension pots. They are prioritising a tax cut for frequent flyers. They are refusing to scrap the non-dom tax status. They are refusing to close windfall tax loopholes. And they are spending their time battling their own MPs over implementing common-sense plans to stop multinationals race to the bottom on tax.
Beyond any individual tax changes, what British businesses and families need now is a credible, ambitious plan from the Government to grow the economy and to make everyone in every part of our country better off. The failure to do that is perhaps the greatest failure of this Bill and the approach of this Government.
The Conservatives have had 13 years and they have failed. As long as they stay in power, the vicious cycle of stagnation stays, too. It is time for a new Government who will get us off this path of managed decline and make sure that people and businesses in Britain succeed.
Stewart Hosie
Loth as I am to disagree with the Minister, there was little by way of substantial growth in the Budget and there is almost nothing by way of immediate cost of living support in this Bill. We can only hope—although it is hope over expectation—that the Bill at least delivers some of the growth and some of the investment that the Government’s rhetoric would suggest they expect to see. I hope that happens, even though I doubt it will, and that the forecasts we see at the next fiscal event will be rather better than the ones we have seen over the past three or four years.
Madam Deputy Speaker (Dame Eleanor Laing)
I am pausing in case there is a speech about to erupt, but there is not. Therefore, I will put the Question.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Finance (No. 2) Bill
Tuesday 4th July 2023
(9 months, 4 weeks ago)
Lords ChamberRead Full debate Finance (No. 2) Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 20 June 2023 - (20 Jun 2023)
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
My Lords, we are here to debate the annual finance Bill, introduced in the House of Commons following the Budget on 15 March. At the Budget, my right honourable friend the Chancellor was clear-sighted about the global headwinds we are facing. We are all familiar with the challenge on inflation as we work through the impacts of the pandemic and of the energy crisis triggered by Putin’s invasion of Ukraine.
In the face of these challenges, the Prime Minister has set out his key economic priorities: to halve inflation, get our national debt falling and secure economic growth. The finance Bill we are debating today is an essential plank in our plan to deliver this. It takes forward measures to support enterprise and grow the economy by encouraging business investment and helping to increase the number of people in work. It legislates for announcements made at previous fiscal events which take advantage of our opportunities outside of the EU and which reinforce our commitment to financial stability and sound money, and it implements the tax measures needed to continue improving and simplifying our tax system to ensure it is fit for purpose.
I turn to the substance of the Bill in those areas, starting with measures to support growth. This Government recognise how important private sector investment is to growth. That is why the Chancellor has set out his long-term vision to make the UK an attractive location for innovators and entrepreneurs, with a particular focus on key growth sectors of digital technology, green industries, life sciences, advanced manufacturing and the creative industries.
That is also why this Bill lowers business taxes to incentivise investment and tackle the productivity gap. Following the end of the super-deduction, the Bill introduces full expensing for the next three years. This means that for every single pound a company invests in qualifying plant or machinery, its taxes are cut by up to 25p. This will result in a corporation tax cut worth £9 billion that the OBR has said will increase investment by 3% for every year it is in place. It will also make us the only major European country with full expensing and give us the joint most generous capital allowance regime of any advanced economy—securing the UK’s position as a global leader.
The Government are committed not only to supporting the growth of established businesses but to providing a boost to start-ups and young companies. The Bill therefore legislates for an increase in the amount of seed enterprise investment scheme funding that companies can raise over their lifetime from £150,000 to £250,000, an increase in the company gross asset limit from £200,000 to £350,000, an increase in the company age limit from two to three years and an increase in the annual investor limit from £100,000 to £200,000. It also introduces changes to the enterprise management incentives, or EMI, scheme to simplify the process to grant options and reduce the administrative burden on participating companies, as well as changes to the company share option plan, or CSOP, rules and limits. Since 6 April 2023, qualifying companies have been able to issue up to £60,000 of CSOP options to employees, which is double the current £30,000 limit. These changes provide a boost to young companies by widening access to the schemes and increasing the limits, encouraging additional investment and helping to attract talent.
To encourage research and development, the Bill legislates for previously announced reforms to R&D tax reliefs, such as changes to support modern research methods by expanding the scope of qualifying expenditure for R&D reliefs to include data and cloud computing costs, and a range of measures to reduce error and fraud to ensure that our tax reliefs are well targeted and offer value for money. By encouraging more businesses to invest in R&D, this Government are helping them to create the technologies, products and services which advance living standards.
The finance Bill will also extend for another two years the current 45% and 50% rates of tax relief for theatres, orchestras and museums. This builds on wider support for the sector through the cultural recovery fund and the public bodies infrastructure fund, and will continue to offset ongoing pressures and boost investment in our cultural sectors.
The Bill will also support the Government’s ambitions for employment. To achieve the dynamic economy we all want and to support action to halve inflation, we need to get more people back into work. This means removing the barriers that stop people who want to work from doing so.
The Government recognised that senior clinicians felt they had to leave the workforce just when the NHS needs them most because of unexpected tax charges on their pension. To make sure that they and those in other professions are not deterred from working, this Bill increases the pensions annual allowance to £60,000. The Bill also removes the lifetime allowance charge altogether. This will incentivise our most experienced and productive workers across our economy to stay in work for longer, easing pressures in the economy while increasing the knowledge and experience of the UK’s labour force.
It is vital that the growth this Bill will support is felt across all corners of the United Kingdom and not concentrated in London and the south-east. The Spring Budget set out the creation of 12 new investment zones, helping to spread the benefits of economic growth around the UK, with at least one zone in each of Scotland, Wales and Northern Ireland. The Government continue to work with stakeholders to establish how investment zones will be best delivered in these areas. This Bill will deliver important aspects of that ambition. It will ensure that investment zones have access to a single optional five-year tax offer in specific sites, matching that in freeports. This will consist of enhanced rates of capital allowances, a structures and buildings allowance, full relief from stamp duty land tax and business rates, and a reduced rate of employer national insurance contributions.
This finance Bill will also deliver on previous commitments, including delivering on the UK’s freedom to set its own course outside the EU. Among these opportunities was a major review of the alcohol duty system on which the Government have worked closely with industry over the past two years. The UK can now implement a system that aligns with public health goals and is fairer for hard-working producers. The Bill simplifies the alcohol duty regime and moves to a progressive tax structure in which products are taxed according to their strength. It also legislates for two reliefs, draught relief and a new small producer relief, which will support a wider range of small businesses to grow and provides a recognition of the vital role that pubs and other on-trade venues play in our communities.
We are also able to take action to better connect our country. As announced in the Autumn Budget 2021, this Bill delivers a package of air passenger duty reforms that will bolster air connectivity across the UK through a 50% cut in domestic APD. The new domestic rate applies to flights between airports in England, Scotland, Wales and Northern Ireland, benefiting more than 10 million passengers this year. These reforms will also further align with the UK’s environmental objectives by adding a new ultra-long-haul distance band, ensuring that those who fly the furthest and have the greatest impact on emissions incur the greatest duty.
This finance Bill takes forward measures that support sustainable public finances, helping to provide the stability and confidence that underpin the economy and supporting businesses and households across the country. The Bill legislates for a tax on the extraordinary electricity generator returns resulting from the spike in gas prices driven by Russia’s war. This will raise billions of pounds over the next five years to help fund public services and the interventions to support households and businesses with increased energy bills. We are also taking steps to decouple electricity and gas prices permanently by reforming the energy market and using technologies such as energy storage to balance the system and reduce our reliance on imported fossil fuels.
To further ensure that businesses pay their fair share of tax, the Bill contains significant measures to protect the UK tax base against aggressive tax planning and reinforce the UK’s competitiveness. This Bill implements the G20-OECD pillar 2 rules in the UK, building on the historic agreement reached with more than 135 countries and jurisdictions and brokered by the current Prime Minister during the UK’s 2021 G7 presidency. This is a two-pillar solution to the tax challenges of a globalised digital economy. Pillar 2 will ensure that multinational enterprises pay a minimum tax rate of 15% in each jurisdiction in which they operate, meaning that those companies operating in the UK will contribute their fair share. The UK is implementing the global minimum tax in unison with many of our international peers, such as Germany, France and Ireland—indeed, all EU member states—as well as Japan, Australia, South Korea and Canada. Acting alongside others is crucial in meeting the aims of this global reform while ensuring that the top-up taxation on UK operations is not imposed by other countries.
Finally, the Government want to deliver a tax system that is simple, fair and fit for purpose. As announced last year, this Bill legislates for the abolition of the Office of Tax Simplification. Rather than an arm’s-length body to oversee simplification, this Government set a clear mandate for officials in the Treasury and HMRC to put tax simplification at the heart of policy-making. A great example of this introduced by the Bill is the previously announced permanent £1 million limit on the annual investment allowance. This measure allows businesses to write off the cost of qualifying plant and machinery investment in the first year up to £1 million, simplifying the tax treatment of capital expenditure for 99% of businesses. As is usual for a finance Bill, this Bill also legislates for a range of administrative changes to deal with technical issues, improving and modernising the tax system and making it easier for businesses to interact with it.
To conclude, this finance Bill takes forward important measures that are needed to support enterprise and growth, including incentivising investment and supporting employment, including in the NHS. It seizes freedoms that are available now that we are outside the EU. It deals with threats to the sustainability of our public finances posed by the energy crisis and international tax avoidance. It supports our long-standing goals to modernise and simplify the tax system. This delivers on an important part of the Government’s commitments made in the Spring Budget to long-term economic growth. For these reasons, I beg to move.
Lord Sikka (Lab)
My Lords, I thank the Minister for her speech. This Bill fails to address the fundamental problems that we all face. Economic recovery is hampered because the Government have depleted people’s disposable income through real wage cuts, high inflation, high interest rates and high taxes. This Bill depletes incomes even further by continuing the freeze on personal allowance and income tax thresholds. Without adequate income, people simply cannot buy goods and services and there will not be investment.
The poorest fifth of households in this country pay 22.9% of their income in indirect taxes. The richest fifth pay 9.1%. The Government could have helped the poorest by cutting the rate of VAT or even abolishing VAT on domestic fuel, but they have not done so.
There is nothing in the Bill for women although they are on the receiving end of real wage cuts. The majority of public sector workers are female and their wages have been cut in real terms—so this Bill does not help women either.
Tax cuts for the rich are disguised as tax relief on pension contributions; the Bill estimates that they may be worth more than £1.1 billion a year. The Government say that this is really to help doctors but, of course, it helps accountants, lawyers, architects, engineers and many others too—and the Government are inflicting a real wage cut on doctors as well, which does not help in any way.
The Bill offers nothing to the millions of people who earn less than £12,570 a year or the 28.8 million basic rate taxpayers. The biggest winners are the rich, who will benefit from the pension tax changes. Can the Minister explain why tax cuts for the rich are not matched by tax cuts for low-income and middle-income earners?
The Bill is also unjust. It taxes salaries and wages at rates between 20% and 45% but capital gains are taxed at between 10% and 28%. Why is the return on the investment of human capital taxed more heavily? Why are the Government taxing workers highly? The recipients of capital gains also do not pay any national insurance, even though they use the NHS and social care. Why are they given a free ride? I hope that the Minister can explain that.
There is a sleight of hand on corporation tax. The headline rate will go up from 19% to 25%, but it is estimated that only 10% of companies will pay that because of numerous tax reliefs, some of which the Minister mentioned. Can the Minister say now, as we are possibly heading towards a recession, how many companies will pay the full tax rate of 25%?
The Bill does not expand the tax base at all. It does not consider a financial transaction tax, wealth tax, sugar tax, salt tax or any other tax, which would at least broaden the tax base. None of that is there.
The Government’s central claim is that lower corporation tax rate will somehow encourage investment. Well, we had a corporation tax rate of 19% from 2016 to 2022. That era also had low interest rates, a low inflation rate, negative real wage growth and high tax incentives, but that did not lead to any higher investment. I hope that the Minister can explain the real reasons why the UK is a laggard in investment.
On the basis of private and public sector investment in the UK, the OECD ranks the UK 35th in its league of international investment—below Portugal, Lithuania, Latvia, Mexico, Colombia and Costa Rica. That is a total policy failure, yet all the Government are doing is repeating the same thing—which will get exactly the same results. Hopefully, the Minister will confirm that.
The OBR says that the 4% loss of UK productivity is due to Brexit, but nothing in the Bill or any ministerial Statement deals with Brexit. The Government say they are creating 12 new investment zones and that the businesses operating inside them will receive £80 million over five years. Well, the cost of that will be borne by people outside. Why penalise those who operate outside those investment zones? The OBR says that the Government have not provided enough information to enable it to
“estimate the impacts that these investment zones might have”.
Can the Minister provide us with an estimate of what will happen inside these investment zones?
A few days ago, HMRC published its tax-gap figures. It said that it failed to collect £36 billion of taxes for the year 2021-22, mainly due to avoidance, evasion, fraud and error. Adding up the years from 2010, that is about £450 billion. Other models estimate the number to be over £1,500 billion. What is the Government’s response? It is to cut HMRC’s budget from £5.9 billion for 2022-23 to £5.6 billion in 2023-24 and £4.6 billion in 2024-25. Dealing with tax abuse is a labour-intensive job, but the Government are not providing resources to HMRC.
On 23 March 2023, in response to my Written Question, the Minister said that only eight enablers who devised the tax abuses—accountants, lawyers, bankers—had been prosecuted in the last two years. That is pitiful. The Government clearly are soft on tax cheats and, despite strong court judgments, have failed to investigate, fine or prosecute even one of the big accounting firms. I challenge the Minister to name even one, if she can. I will never ask this question again, so I hope that the Minister will rise to that challenge and tell us which of the big four accounting firms is being challenged. In Australia, the Government have come down hard on PwC. Here, we give it public contracts. We reward it. That is a real failure of the Government.
Can the Minister explain why HMRC’s budget is being cut and why the Government are soft on the tax abuse industry—especially the big accounting firms?
Lord Leigh of Hurley (Con)
My Lords, I declare my interests as set out in the register. I am a chartered accountant and member of the Institute of Chartered Accountants in England and Wales, and a member by qualification of the Chartered Institute of Taxation. I am pleased to welcome this excellent finance Bill and congratulate the Minister and her team on it. I hope that she will not be seduced by the siren calls of my noble friend to confuse capital and income. Taxation on capital is taxation on a risk, where capital may appreciate or may be lost, and therefore merits a different rate from taxation on income, where one is paid a salary by another person without any risk whatever. That is why the rates are different.
It is a great credit to the Chancellor and my noble friend the Minister that His Majesty’s Treasury is tackling a number of difficult issues head-on. I congratulate them on producing 350 clauses and 460 pages with the perennial plea for less not more, which I quite appreciate is difficult to achieve. I also appreciate that they would probably ask the same of me. So I will focus on a few key areas, the first being R&D tax credits. I had the honour to serve as chairman of the Economic Affairs Finance Bill Sub-Committee, which looked into research and development tax relief and expenditure credit. We looked at this area because the sums are enormous. In this regard I think that the noble Lord, Lord Sikka, will agree with me. Since the scheme started, it is estimated to have cost £46.8 billion, and some £7 billion in the most recent year.
What concerned us greatly was the level of fraud, which was estimated to be some £500 million but is so unquantifiable that the National Audit Office has qualified its accounts of HMRC due to this single issue. Research and development are crucial to our economic success. I know from the response that the Minister in the other place gave to our report that HMRC has studied it carefully and will honour the commitment to keep listening and improving the system, particular in respect of the new requirements to give notice.
I ask my noble friend to have regard to the detailed comments from the Chartered Institute of Taxation, particularly in respect of the new powers that HMRC has to remove a claim. I am all in favour of giving HMRC new powers to stop suspected fraud but, as I read the wording, it seems flawed. For example, there is no right of appeal. We all want to stop the ambulance chasing that we have seen by rogue operators seeking credits for clients and then taking a percentage of the amount that is claimed. However, there remains concern about the nature of the additional information to be required and, of course, HMRC’s ability to capture and process all this.
Since our report was published, I have been contacted by practitioners highlighting real concerns. I have been sent a detailed letter by Mr Stuart Rogers of PKF accountants, which he sent to the Minister in the other place, in which he describes his frustration at HMRC’s compliance team not having the necessary training and skills in research and development. He points to clients now thinking of transferring their R&D to the United States, and to other high-tech clients who have been refused credit where it is clearly due. That is not good news. Will my noble friend agree to hear specific complaints that the R&D compliance check team is causing havoc, and satisfy herself that action needs to be taken here?
Just today, the Chartered Institute of Taxation wrote to HMRC with 11 pages of concerns. In particular, it says that the feedback from its members is that the way that R&D inquiries are being conducted by the individual and small business compliance team remains concerning. Further problems, for example around how penalties are being assessed and how inquiries are being concluded, are emerging as cases progress. The institute wrote:
“We are receiving a significant number of reports from our members about the difficulties that are being encountered in practice and they have provided numerous examples of unfairness and negative taxpayer/agent experience in their interactions with the ISBC team in respect of R&D”.
I will ensure that my noble friend receives a copy of that letter.
I will briefly mention the energy profits levy, as amended in the finance Bill. It is a really important part of the Bill and has caused havoc in the sector. The price floor will never bite—unless, heaven forbid, there is another six-month lockdown. Consequently, there has been a real flight of capital, mainly to oil and gas exploration elsewhere, specifically Asia. We need a long-term—six to 10-year—energy security policy that includes a sensible real price floor. I have made this case before and will continue to do so.
The final area that I will talk about is the taxation of multinationals. I have spoken on this issue many times in this House. Sad person that I am, I made this the subject of my maiden speech. I very much welcome the Government’s move in this direction to deal with base erosion and profit shifting on a two-pillar basis. Pillar 1 seeks to ensure that multinationals with revenues over €20 billion pay taxes where their customers are based. Pillar 2 looks for a minimum 15% tax rate for companies with presence here and revenues of over €750 million. This Bill sets out more details on pillar 2.
There are some 50 amendments to Part 3 of the Bill to try to deal with this very difficult and complicated problem of definitions, safe harbours, exemptions and so on. Creating new definitions of profit is a real challenge, but it is the only way the income inclusion rule can possibly work.
Very recently, HMRC helpfully established draft partial guidance for consultation in relation to the UK’s implementation of the OECD’s pillar 2 rules. It provides a helpful map showing how existing UK draft legislation cross-references to the OECD’s GloBE model rules, commentary and agreed administrative guidance. I accept the argument made by CIOT and others that pillar 2 may not necessarily generate more tax for the UK coffers, because multinationals may just raise the lower tax rates they currently pay in other countries. However, that does not mean that this is not the right way forward; it is the right way forward.
I noted Priti Patel’s comments on this issue in the other place. She is concerned that we end up gold-plating rules, as we tend to do, and we are hamstrung by other rules at exactly the time when, finally, post the Windsor Framework, we can liberate ourselves to determine our own tax policy. As the Minister knows, I am very keen that we do that, particularly on EIS and SEIS issues. I noted her opening comments about how she has increased the rate of SEIS particularly, which is very welcome.
Priti Patel has had assurances from the Chancellor that the Government have committed to regularly updating the Commons on what the OECD is proposing in respect of pillar 2. Can the Minister repeat this assurance to our House that updates on policing pillar 2 will be presented to your Lordships, and will she commit to presenting an assessment of the progress countries are making on pillars 1 and 2 and on the policy itself? It will not work unless every other major country adopts it.
The whole world should recognise the UK Government’s track record of leadership on international tax reform. It has continued in this role and been an early mover in implementing pillar 2 rules. We need the USA in particular to do likewise with Biden’s proposals, and I am keen to know what steps HMRC is taking to pressure other countries to follow our lead. Personally, I was a fan of a reformed digital services tax, which Labour has now abandoned, but I could not persuade HMT to bring it in, so we need to make this alternative route of pillar 2 work.
To reiterate, this is the right way forward and the Government are to be commended for pursuing it.
Lord Eatwell (Lab)
My Lords, I am grateful for the privilege of saying a few remarks in the gap. I will refer to the change in the lifetime allowance. As noble Lords will recall, this change was initially mooted because pensions anomalies were occurring in respect of better-paid consultants in the National Health Service. Then the Government decided to abolish the lifetime allowance altogether, thus creating a tax giveaway, estimated at the time at £1 billion. As the noble Baroness said in her speech, it was given to the
“most experienced and productive workers”.
Since this is just the top 1% of earners in this country, does she not think the other 99% might be rather offended by her words? Would it not be politic to withdraw that phrase when she sums up?
When the LTA was abolished, it was realised that there would be a significant impact on inheritance tax. At the time of the Budget, I asked the Minister what the impact would be and she was unable to give me a figure. Can she tell me now what the impact on inheritance tax revenues was, and therefore what the total tax giveaway from the abolition of the LTA has been? Will she also confirm that this tax giveaway is being funded by the Government’s increased borrowing? In doing so, will she give her assessment of the impact of this increased borrowing and government indebtedness on the rate of inflation?
Baroness Kramer (LD)
My Lords, this is a Bill of limited scope, despite its enormous size and the Explanatory Notes. It covers a range of issues and, typically, we have debated nearly all of them in this House before, so I will limit my comments. There is a fair amount in the Bill that is not satisfactory.
I start with the issue on which the noble Lord, Lord Leigh, focused: tax credits for research and development. As this House knows, the Government scrapped their original and rather generous scheme because, they claimed, there was so much fraud in the system. I would have preferred that they found a way to deal with the fraud, rather than remove that support to a wide range of SMEs. The Bill brings in a tax credit scheme for SMEs that are heavily engaged in R&D, but it ignores the many other SMEs that had planned on an understanding that the old scheme would be available to them, made a series of investments and undertook a great deal of development. Those programmes have now been interrupted or shelved, because the cuts have not just deprived those companies of tax relief but had the knock-on effect of drying up private funding. There are limited financing options for growing SMEs in the UK.
My colleagues in the other place put down amendments to require a review of the impact of the change in reliefs on SMEs—on their funding, job creation and, more broadly, UK economic growth. The flip-flopping which this policy represents is one of the reasons for the pervasive uncertainty that is undermining growth in the UK economy. I would be glad if the Minister could tell me whether there will be a broader review.
I will pick up an issue that the noble Lord, Lord Eatwell, focused on. The Bill includes an increase in the annual tax-free allowance for pension contributions and the abolition of the lifetime allowance. This should stem the loss of senior doctors, military personnel and others in the public sector who had been put in the ridiculous situation of receiving incremental salary only to find that it triggered incremental taxes far greater than that salary. I honestly suspect that this could have been done through a much more targeted and far less costly set of reforms. It really feels wrong to spend £1 billion a year on some of the best off in our workforce. Will the Government look at a much more targeted approach to achieve this goal, rather than this wider, sweeping giveaway? The scheme fails to touch even the tip of our labour shortage problems, which is where one would have thought this money would be focused. Right now, businesses in the UK and the public sector are foundering for lack of staff.
We have talked endlessly about the windfall tax on oil and gas, and I will not repeat my concerns in that arena. My colleagues in the other place sought to strengthen this country’s green policies with amendments to the Bill to allow generators of renewable energy to offset money reinvested in renewable projects against the energy generator levy. It is offensive that the fossil fuel industry can offset investments, but not renewable generators. When I read this, I felt it was no wonder that the noble Lord, Lord Goldsmith, was so scathing about the current environmental commitment in his resignation letter.
Ironically, the Bill abolishes the Office of Tax Simplification, presumably because it is viewed as unnecessary, but it does so just as it introduces far more complexity into the tax system—a point highlighted not by my colleagues but by Harriett Baldwin, Conservative chair of the Treasury Select Committee. As the noble Lord, Lord Leigh, said, the two top-up taxes designed to discourage profit shifting are welcome but, as he pointed out, they are not going to deliver a lot more money to the Treasury. It is good to get thinking about this area and to try to work through the complexity; but let us not pretend that this will be a flow of cash into the Treasury’s coffers.
Frankly, the problem with the full expensing of capex is that it is a short-term stimulus for three years. All that means is that you upfront expenditure and then drop off expenditure when that period is over. The benefit is an extremely limited stimulus.
I received an email very late in the day from the Local Government Association. I will be very quick in mentioning its contents. It is a real expression of regret from the industry, which the Minister should hear, that the Bill was not used to deal with concerns about the implementation of the building safety levy. As the Minister will know, that was originally designed to deal with high-rise development activity, reflecting the greater building safety risk. However, the Government have broadened its scope to cover frankly all development. It could be rolled into other forms of taxation, such as the residential property developer tax. As it stands, it requires
“309 local authorities to set up separate, individual processes to act as a collection and administration agency for the Levy—with all funds raised being returned to Government.”
It is hugely inefficient and very unreasonable. Frankly, if we kept the Office of Tax Simplification, it would have jumped on that issue.
From listening to the Government in the debates on the finance Bill, one would have assumed that all was well with the UK economy. My great fear is that the Government simply do not understand how dire the cost of living crisis is for so many people. Recent reports that many have exhausted their Covid savings is not good news. The voluntary mortgage contract, much touted by the Government, will delay for some the immediate impact of interest rate rises but those high rates—they will be even higher because of the measures people will undertake—will still undermine family finances for both owners and renters.
Inflation in the UK remains stubbornly high. By contrast, eurozone inflation has fallen to 5.5%. Last week, the Minister claimed that lots of other European countries had higher inflation than the UK. I looked at the numbers, and I realised that she and the Government have taken to comparing the UK not with major economies such as Germany or France but with Hungary and Estonia. When did our economy, in the Government’s eyes, become comparable with those of Hungary and Estonia rather than those of other G7 countries?
Core inflation, which excludes volatile food and energy prices, rose last month to 7.1%. That is the number that is driving interest rate increases and that captures the sheer economic incompetence of this Government, as well as their wholly inadequate trade relationship with Europe post-Brexit: the sharp drop in exports, British firms removed from supply chains, a collapse in business investment, the fall in sterling, customs friction driving up the cost of imports, labour shortages, and incredibly low productivity.
This finance Bill is a missed opportunity. It could have dealt with so much. It seems to confirm that the Government’s primary goal is to engineer a pre-election tax giveaway next year because the fiscal rules might possibly allow it. All I can say to the Government is that the British people will not be fooled.
Lord Livermore (Lab)
My Lords, the Spring Budget that this finance Bill seeks to implement was billed as a “Budget for growth”, yet growth in the UK is barely above 0%, the UK remains one of only two G7 economies to be smaller than before the pandemic, and productivity growth in the UK is the second lowest in the G7. Now, despite growth flatlining, the UK economy is already overheating. Inflation is stuck at 8.7%: the highest in the G7 and the highest in the UK since 1990. Core inflation last month rose to 7.1% —a 31-year high—while in other advanced economies, including in the eurozone and the US, it has started to fall. With growth stalled, one of the Chancellor’s most senior economic advisers has even now called on the Bank of England to “create a recession” to deal with the UK’s persistent inflation problem—a far cry from a Budget for growth.
Last autumn, the Government’s disastrous mini-Budget sent markets into meltdown. Since then, things have only got worse. Today, with inflation higher for longer than in similar economies, the two-year gilt yield stands at 5.38%—a new 15-year high, and above its US equivalent. It is the hard-working people of this country who are paying the price. Interest rates have risen 13 times to a 15-year high of 5%. The average two-year fixed-rate mortgage has increased from 2.6% to well over 6%, and average mortgage costs will this year increase by £2,900 per year. These increases in mortgage payments come after 13 years of low growth and stagnant wages, the biggest fall in living standards since records began and 25 tax rises in this Parliament alone—increases that have pushed the tax burden to its highest level for 70 years.
Spending public money is about priorities; it is about making choices to spend wisely and tax fairly. That is important at any stage for any Government, but in the middle of a cost of living crisis, when household budgets are stretched and mortgage payments are rising relentlessly, after 13 interest rate rises and 25 tax rises, it is more important than ever that we see a fair tax system and a plan to raise the living standards of everyone, in all parts of our country.
Let us look at the priorities for this Government, as revealed by what is included in, and what is absent from, this finance Bill. Although the Bill contains no mention of introducing stealth tax rises for working people, as my noble friend Lord Sikka observed, we know that is exactly what the Government are doing. We know that, in the Budget of March 2021 and the Finance Act that followed it, the then Chancellor, now the Prime Minister, froze the basic rate limit and personal allowance for four years. In the recent Autumn Statement of 2022 and in the Finance Act that followed, the current Chancellor extended those freezes by a further two years. Now, following this Budget, the Office for Budget Responsibility has made it clear that the Government’s six-year freeze in the personal allowance will take its real value in 2027-28 back down to its level in 2013-14.
We called for the freeze in fuel duty and the provisions to ensure that large multinationals pay a minimum level of 15% tax in each jurisdiction in which they operate, so we of course welcome those measures, but while the tax burden for working people is up, other important measures we have been calling for to make the tax system fairer are nowhere to be found in this Bill. There is nothing to close the loopholes in the windfall tax on oil and gas giants, which we have been urging the Government to do for so long. We pressed for an extension of the energy price freeze for many months, and we were glad that the Government followed our lead in the Budget, but it is wrong to still leave billions of pounds of windfall profits for oil and gas giants on the table when those windfalls should be helping support families through the cost of living crisis.
Also missing is any action to tackle non-dom tax status. We believe that those who make Britain their home should pay their taxes here. That patriotic point should be uncontroversial. Yet, while families across the UK face higher taxes year on year, the Government are helping a few at the top avoid paying their fairer share of tax when they keep their money overseas. The non-dom rules that allow this to happen cost more than £3 billion every year. Ending that outdated, unfair loophole and replacing it with a modern system could fund measures to strengthen our NHS, childcare and the economy.
So there are no measures to reduce the tax burden on working people and no measures to make the tax system fairer. Instead, the Government chose to abolish the lifetime limit on tax-free pension savings. In the middle of a cost of living crisis, this giveaway for the very wealthiest costs £1.2 billion, benefits only those with the biggest 1% of pension pots and increases the value of a £2 million pension pot by some £250,000. As my noble friend Lord Eatwell said, it also opens up an inheritance tax loophole, whereby it is now possible to accumulate unlimited sums within a pension fund and pass them on entirely free of inheritance tax.
The Minister said that this measure was necessary to keep doctors working rather than retiring early, but, as the noble Baroness, Lady Kramer, said, the Government could have introduced in this Bill a targeted scheme to do just that. Indeed, that is what the current Chancellor suggested less than a year ago. The British Medical Association has said that a scheme targeted at doctors could be introduced at a fraction of the cost.
The Government claim that their policy is about keeping people in work. Yet, as Paul Johnson, the director of the Institute for Fiscal Studies, says, it will cost in the region of £100,000 per job retained, and as the Resolution Foundation says, it may
“actually encourage some people to retire earlier than they otherwise would have done”.
The Government’s approach and the choice they have made fails the test of providing value for money. In the middle of a cost of living crisis, a blanket giveaway for some of the very wealthiest in our country is simply the wrong priority for more than £1 billion of public money every year.
That same failure to spend public money wisely is evident again in this Bill’s proposal to reduce air passenger duty for domestic flights. Again, at a time when public finances are under severe pressure, when household budgets are stretched in all directions and when the cost of inaction on climate change grows by the day, it is baffling that this is the Government’s priority for spending public money.
While we need action to make the tax system fairer, a proper plan for growth is the only long-term, sustainable way to make our country more prosperous and the British people better off. The UK has the lowest investment as a percentage of GDP in the G7, so it is disappointing that, as the Office for Budget Responsibility reveals, this Bill’s changes to corporation tax and allowances will make no difference whatever to medium-term levels of business investment. Rather than a long-term permanent change, these changes are for only three years. As a result, they only bring forward investment rather than increasing its overall level. The Government’s policy paper on temporary full expensing, published on the day of the Budget, makes that clear. It says:
“This measure will incentivise businesses to bring forward investment to benefit from the tax relief”.
Meanwhile, the OBR forecast makes it clear that business investment between 2022 and 2028 is essentially unchanged as a result of these measures. If anything, there is a very slight fall. That cannot be good enough. That is why, as part of Labour’s mission in government to secure the highest sustained growth in the G7, we would review the business tax system and set out a clear road map to provide certainty and boost investment. We believe that the UK’s long-term underperformance on capital investment needs long-term measures as part of a tax framework that supports and incentivises investment.
A fairer and more certain tax system, underpinned by a long-term economic plan, is crucial to helping businesses invest and grow, but an ambitious plan for growing our economy must go further, and we have made it clear that this would be Labour’s first mission in government. At the heart of our plan to grow the economy, create jobs and wealth and make everyone in our country better off is the partnership we would build between government and business. We understand, as do businesses, that growth comes from the Government supporting private enterprises to succeed in the industries of the future. That is why we would support growth in the digital economy and the life sciences, update our planning system to remove barriers to investment and improve access to capital for new and growing businesses. We would make sure that government and business work together and invest together for the good of everyone in every region and nation of the UK.
Our country needs a fairer tax system after 13 years of low growth and 25 tax rises that have pushed the tax burden to its highest level in 70 years. Britain’s businesses need stability and certainty in order to boost investment, create jobs and grow our economy. Our economy needs a credible, ambitious plan for growth that gets us off this path of managed decline, provides security for family finances and makes people across Britain better off. That it does none of these things is perhaps the greatest failure of this finance Bill and the Budget it seeks to implement.
Baroness Penn (Con)
My Lords, I thank all noble Lords for their contributions to the short debate that we have had on the finance Bill today. Noble Lords reflected on the economic circumstances in which we find ourselves. We recognise that high inflation increases costs for households and businesses and that, as my right honourable friend the Chancellor has said, low inflation is necessary for growth. The energy shock from Russia’s unlawful invasion has been felt more in the UK, partly due to our historic dependence on gas, and domestic factors such as record tightness in the labour market and high inactivity rates have put pressure on UK inflation, but that does not remove the fact that we are not alone in facing the global challenge of high inflation rates. Despite this, the IMF has said that the UK has taken decisive and responsible steps to tackle inflation, and all major forecasters expect inflation to fall this year.
Turning to noble Lords’ comments around the level of taxation in our economy and the suggestion—I am not sure whether it was from the Labour Front Bench—that we should change the decisions that we made on tax thresholds to consolidate our public finances and that this should be the route that we take to help people with the cost of living, as my right honourable friend the Chancellor has made clear, the Government’s number one priority is reducing inflation. Not only will this be the most effective tax cut for people and businesses across the UK, but we must not to do anything to prolong inflation, which unfunded tax cuts would only fuel.
It is important to reflect on the action taken since 2010. We have increased the personal allowance and the national insurance contribution threshold above inflation, taking millions of people out of paying tax altogether. Consequently, we have some of the most generous starting allowances for income tax and social security contributions in the OECD and the most generous in the G7.
Outside the tax system, to support household we have focused our help on those who are most vulnerable to the impact of rising prices. Our cost of living support includes the energy price guarantee, cost of living payments and the household support fund, as well as uprating benefits in line with inflation. I say to the noble Baroness, Lady Kramer, that the Government recognise the impact that rising inflation and increases in the cost of living are having on households across the country. That is why cost of living support for households totals £94 billion, or around £3,300 per household, on average, this year and next, which represents one of the most generous packages of support in all of Europe. I say to the noble Lord, Lord Sikka, that looking at the impact of the decisions made from the Autumn Statement 2022 onwards, government support for households in 2023-24 provides low-income households with the largest benefit in cash terms and as a percentage of income. On average, households in the bottom half of the income distribution will see twice as much benefit as households in the top half of the income distribution in cash terms.
My noble friend Lord Leigh welcomed the implementation of the G20/OECD pillar 2 rules. We take our international obligations very seriously. We were instrumental in negotiating this agreement and these rules and as such do not see them as at odds with our sovereignty. We retain sovereignty to set our corporation tax rate as one of the lowest in the G7 and to use important tax levers to boost investment in the UK, including our world-leading full expensing regime and our generous R&D tax reliefs. In fact, pillar 2 will boost the international competitiveness of the UK because it places a floor on low and no tax rates that have been available in some countries. It is designed to protect against the risks of harmful tax planning by multinational groups. As my noble friend said, it is important that the UK legislates for these rules now but, to repeat the assurance that the Financial Secretary to the Treasury gave in the Commons, we will provide an update on pillar 2 implementation as part of the forthcoming fiscal event in the autumn and, if necessary, in the spring, too. This will include the latest revenue forecast from the OBR and an update on the status of international implementation.
I turn to my noble friend’s comments on research and development relief. He asked whether I would have regard to the Chartered Institute of Taxation’s detailed comments, in particular in respect of the new powers HMRC has to remove a claim. While it is correct to assert that customers do not have a right of appeal, they do have a new statutory right of representation to provide HMRC with evidence within 90 days if they think the claim has been removed in error. They also retain the right to apply for judicial review if they do not think HMRC has applied the process correctly.
My noble friend also raised concerns about the R&D compliance check. The Government acknowledge that there is currently a high level of non-compliant claims in R&D tax reliefs and that it is right that HMRC takes action, as I think my noble friend also recognised. HMRC has increased the action it is taking, which means addressing more of the non-compliance. As part of this, it has been rapidly upscaling its numbers of people, and this can sometimes come with teething problems. HMRC ensures that less experienced caseworkers can call on technical support or specialist advice from more senior colleagues. HMRC will continue to work with stakeholders to ensure that the department is managing checks professionally and in line with the HMRC charter, and I would happily hear any further representations by my noble friend or others on how we can ensure that we are delivering in this area.
On company tax rates, the noble Lord, Lord Sikka, asked how many companies will pay the full 25% rate, which is an increase in the headline rate of corporation tax. The noble Lord is absolutely right that the small profits rate will keep the rate at 19% for companies with profits of £500,000 or under, and marginal relief is available for companies with profits from £50,000 to £250,000, meaning that companies will pay somewhere between 19% and 25%. That means that 70% of actively trading companies will not see an increase in the rate of corporation tax they pay, and only 10% will pay the full rate.
I am grateful to the noble Lord for giving me the opportunity to make those points. Sometimes, there is concern among those in business that our corporation tax rate is either uncompetitive or targeting smaller businesses. What we have done in changing the rate is to ensure that businesses pay their fair share of returning our public finances to a sustainable footing after the shocks of Covid and the invasion of Ukraine. We have reinstated some of those exemptions to ensure that the smallest businesses do not face those burdens. That is entirely how we have designed our approach.
Baroness Kramer (LD)
Can the Minister tell us—this is not to make a point but just for clarification and to understand the numbers better—is it 70% by number of companies or 70% by a value number of some sort, such as an asset value, a market value or a revenue generation value? How is that number calculated?
Baroness Penn (Con)
What I have before me is that 70% of actively trading companies will not see an increase, so I would take it as the former. If it is calculated in a different way, I will write to the noble Baroness to clarify that.
Baroness Kramer (LD)
To strengthen the Minister’s own point, it might be helpful if we had a calculation that gave us a better feel. One multinational could easily produce revenues many times those of dozens and dozens of small companies, so she might be getting a bigger tax take than the number that she is using implies.
Baroness Penn (Con)
The noble Baroness is exactly right. The increase in the headline rate of corporation tax makes a significant contribution to our public finances and to the consolidation of our public finances after Covid. All I meant to say is that, for some of the reasons set out by the noble Baroness, we have been able to exempt smaller businesses from that increase while also ensuring that bigger businesses—which often benefited a large amount from government support put in place during the pandemic—contributed their share to returning our public finances to a sustainable footing.
The noble Lord, Lord Sikka, also asked why HMRC’s budget had been cut. HMRC will receive a £0.9 billion cash increase over the Parliament, from £4.3 billion in 2019-20 to £5.2 billion in 2024-25, so I do not quite recognise the picture that the noble Lord has put forward. HMRC’s budget includes funding to tackle avoidance, evasion and other forms of non-compliance, to deliver a modern tax system and to support a resilient customs border.
I turn to another area of tax, the energy profits levy, which, I remind noble Lords, has helped to pay a significant proportion of households’ and businesses’ energy costs through the support that we have been able to provide. I want to be clear to noble Lords that the allowances in place are not a loophole. The OBR’s latest forecast is that the EPL will raise just under £26 billion between 2022-23 and 2027-28, inclusive of the EPL’s investment allowances. That is on top of £25 billion over the same period from the permanent regime for oil and gas taxations, totalling around £50 billion.
Abolishing the investment allowance would be counterproductive. The UK is still reliant on oil and gas for its energy supply and will be for several years; reducing incentives to invest would lead to investors pulling out of the UK, damaging the economy, causing job losses and leading to lower tax revenue in future.
My noble friend Lord Leigh asked about the impact of the price floor and the Government’s long-term plans for energy security. By introducing the energy security investment mechanism, the Government are providing certainty about the future of the energy profits levy. This allows companies to invest confidently in the UK and supports our economy, jobs and energy security.
On the long-term fiscal regime for oil and gas, the Government are also conducting a review to ensure that the regime delivers predictability and certainty, supporting investment, jobs and the country’s energy security. I wonder whether that predictability and certainty would be covered in Labour’s review of business taxes. I do not think the oil and gas sector sees predictability and certainty in its policy approach in recent weeks.
I turn to the electricity generator levy. Unlike the EPL, this not a tax on total profits that is calculated after the recognition of total revenues and costs. Instead, the EGL is payable only on the portion of revenues that exceeds the long-run average for electricity prices. The Government took into account the potential impact on investment when setting the benchmark price.
The Government are supporting renewables deployment through a range of policy levers, including the contracts for difference scheme, through which generators have received almost £6 billion net in price support to date. The electricity generator levy will not be payable on renewable generation produced under contracts for difference, which is the Government’s main form of support for green energy and will account for most new large renewable generation.
I turn to the point raised by the noble Lord, Lord Livermore, on non-doms. The Government recognise that issues of taxation come down to fairness. We need to have a fair but internationally competitive tax system which brings in talented individuals and investment that contribute to growth. Reforming the non-dom regime could potentially damage the UK’s international competitiveness, leading to a loss of international investment and talent. There is a great deal of uncertainty over the wider economic impacts of complete abolition.
Non-doms play an important role in funding our public services through their tax contributions. They pay tax on their UK income and gains in the same way as everyone else, and they pay tax on foreign income and gains when those amounts are brought into the UK. The latest information shows that that non-UK domiciled taxpayers are estimated to have been liable to pay almost £7.9 billion in UK income tax, capital gains tax and national insurance contributions in 2020-21 and have invested over £6 billion in the UK using the business investment relief scheme introduced in 2012.
Lord Leigh of Hurley (Con)
On another point of clarification, is my noble friend saying that HM Treasury’s calculations are that, if the reliefs that apparently exist for non-doms were withdrawn, as has been suggested elsewhere, there would be a net loss to Treasury revenue, given the mobile nature of such non-domiciled persons?
Baroness Penn (Con)
I am saying that that is most certainly a risk. There is a high amount of uncertainty about the impact of any changes in that area, and it would not necessarily lead to an increase in revenue, as is being relied upon by the Labour Party.
Lord Eatwell (Lab)
My Lords, surely there is not that degree of uncertainty, since the Government did raise a base levy on non-doms. Surely, then, we have evidence from the mobility of non-doms reacting to that base levy. What is the evidence? I suggest it is evidence of no mobility at all.
Baroness Penn (Con)
My Lords, I was speaking about the difference between changes to any scheme and abolition of the status altogether, but I would say that there is a high degree of uncertainty about the impact of changes made in this area.
Finally, I turn to the pension tax changes made through this Bill and the Budget, which many noble Lords have spoken about. To respond to the noble Lord, Lord Eatwell, I was not implying that only the most highly skilled and productive workers benefit from these changes, but many of them will. They have been designed in response to feedback from the NHS in particular that there was an impact on retention of the most skilled staff.
Regarding the suggestion that a doctors-only change could have been implemented instead, unlike more targeted policies, the Government have considered a range of options to address this issue over a number of years. One of the elements which means that a more targeted approach would not be appropriate in these circumstances is the time it would take to implement. These changes could be implemented quickly, from April 2023, minimising the risk of early retirements in the NHS before any changes take effect.
In the Statement taken before this debate, we heard about the pressures on our NHS workforce and the pressing need to address those immediately. If we were to take a targeted approach to one profession—NHS doctors—we may well come back to the same issue, as the same issues are faced by employees in other sectors, such as air traffic controllers, the police, the Armed Forces and senior teachers. To introduce targeted measures for each profession would not be an effective way to deal with challenges across those different workforces.
The Government are aware of the concern raised by the noble Lord, Lord Eatwell—
Lord Sikka (Lab)
I am grateful to the Minister for giving way. Will she take up my challenge and tell me which of the big four accounting firms, with strong court judgments against them in the cases brought by HMRC, has been investigated, fined, disciplined or denied government contracts because they are peddling tax abuses? If the Minister cannot name such a firm, can she tell me why the Government are soft on tax abuses by big accounting firms?
Baroness Penn (Con)
I think one of the reasons why I frustrate the noble Lord in this area is that the Government do not normally comment on individual taxpayers. On his more general point, the Government have taken action to tackle tax avoidance and evasion over many years and to reduce its incidence in our economy.
Finally, I turn to the impact of the change to the annual allowance and its potential inheritance tax impacts. Noble Lords are right that the annual allowance has meant that there has been a limit on how much individuals can put into their pensions and therefore pass on. The Government are aware of concerns that some may be using their pension pots to reduce future inheritance tax liabilities, rather than for their purpose: to fund their retirement. As with all taxes, the Government keep the rules under review.
Lord Eatwell (Lab)
My Lords, before the noble Baroness moves away from the lifetime allowance, I asked her if it was true that this £1 billion was funded by increased borrowing. In her summing up just now, she said very clearly that unfunded tax cuts increase inflation; those were her exact words. Is this not an unfunded tax cut?
Baroness Penn (Con)
The OBR has been clear about its forecast for the public finances, which has shown that they are more resilient than previously expected. Debt is lower in every year of the forecast compared with the November forecast. Borrowing falls year on year and the current Budget is in a surplus from 2026-27. All these decisions are taken in the round and assessed against the Government’s fiscal rules and the independent OBR’s forecasts for government borrowing and debt.
We have had a wide-ranging debate today, but if we return to the measures in the Bill, they form an essential part of our plan for the economy. They support enterprise, business investment and employment, including in the NHS. The Bill seizes the freedoms now available to the UK outside of the EU, addresses international tax avoidance and the problem it causes for the sustainability of our public finances, and will help simplify our tax system. For these reasons, I beg to move.
Royal Assent
Tuesday 11th July 2023
(9 months, 3 weeks ago)
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