Finance (No. 2) Bill
Wednesday 17th April 2024
(7 months, 1 week ago)
Commons ChamberRead Full debate Finance Act (No. 2) 2024 2023-24 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
18:21 - The House divided: - Ayes: 42 / Noes: 296 - Question accordingly negatived.
18:35 - The House divided: - Ayes: 296 / Noes: 49 - Question accordingly agreed to.
Mr Deputy Speaker (Mr Nigel Evans)
The reasoned amendment in the name of Drew Hendry has been selected.
The Financial Secretary to the Treasury (Nigel Huddleston)
I beg to move, That the Bill be now read a Second time.
Last month, my right hon. Friend the Chancellor of the Exchequer set out a Budget to deliver on the priorities of the Prime Minister and his Government, in the context of an improving economic picture. Inflation has more than halved, down from its peak of 11.1% to 3.2%. Real wages have increased for the ninth month in a row and are now growing at an average annual real rate of 1.9%. The Finance (No. 2) Bill builds on these improvements by seeking to reward work, boosting the housing market, improving the tax system and strengthening the economy. This follows on from our national insurance cuts that, when combined with the autumn reductions, mean 27 million employees will get an average tax cut of £900 a year and 2 million self-employed people will get a tax cut averaging £700 a year, all made possible because we have a plan for growth and for better and more efficient public services. The Bill covers 24 different measures in total and I will outline its most substantive powers.
Sir Desmond Swayne (New Forest West) (Con)
Will the Minister consider a further measure to right a historic injustice? In Committee, will he entertain an amendment to allow those caught up in the loan charge access to a tribunal?
Nigel Huddleston
I thank my right hon. Friend for his comments. We have had a discussion about the loan charge previously. I do not believe an amendment would be in order on this Bill, but I say to my right hon. Friend and others that I am always open to hearing concerns about the loan charge. I have done previously and will happily continue to hear information, evidence and concerns from colleagues.
Jim Shannon (Strangford) (DUP)
I thank the Minister for coming to the House to present the Bill. Over the last six months, particularly the last few weeks, farmers have been under exceptional weather pressure, with the implication that they will be unable to cultivate or plough their land or sow their crops. The Minister referred to inflation coming down. By the way, I am glad that it is dropping; we all should be, and if we are not there is something wrong with us. At the same time, inflation cannot come down if the cost of foodstuffs starts to rise. Has the Minister had the opportunity to consider that issue? How can we help farmers to keep food prices down at this difficult time, and thereby ensure inflation continues to drop?
Nigel Huddleston
I thank the hon. Gentleman for his positive welcome of today’s news about inflation. He is right that it is welcome but we always need to keep an eye on it. I join him in thanking our farmers, who have played a pivotal role in helping food prices to come down. The supermarkets have a role in that area as well. He raises some points that are slightly outside the remit of the Bill, but I assure him I will continue to have conversations with ministerial colleagues and others, and I am sure he will as well. We always listen to the important farming community in this country, who do so much to create employment and provide us with food.
The Bill covers 24 different measures. I will not go through every single one of them, but want to focus on a few key areas. First, I turn to how the Bill rewards work. We all recognise the simple truth that work should pay. We understand how hard many people up and down the country work. This Government want to ensure they are recognised for that because that approach not only benefits individuals and families, but overall growth and the economy. As I mentioned, that is why we have already taken two Bills to cut national insurance through Parliament, but this Bill goes further.
A key measure in the Bill is to increase the high-income child benefit charge threshold from £50,000 to £60,000. In addition, the rate of the charge will be halved, so that individuals continue to receive child benefit until one household member earns £80,000, taking 170,000 families out of paying this tax charge. These changes are a well-earned reward for working families up and down the country and put pounds back into parents’ pockets.
Sammy Wilson (East Antrim) (DUP)
While the changes in the child benefit allowances are important, especially helping parents who want to get into work and have their children looked after, does the Minister accept that one of the biggest impacts of the Budget on people who are working is the way in which they are being dragged into higher tax rates because thresholds have not been raised? That is having a huge disincentive effect on working families.
Nigel Huddleston
The right hon. Gentleman will be aware that, back in 2010, the tax-free allowance was, I think, £6,475. Actions taken by this Government since then have increased the tax-free allowance to more than £12,500, a significant real-terms increase, which means that take-home pay is higher than it otherwise would have been. When taken in combination with other measures, it is a really important move.
Furthermore, I am sure the right hon. Gentleman would not want to detract from the significant changes in national insurance, which have put money back into people’s pockets. We have eliminated by a third a whole category of taxation—national insurance—and that will help working people in this country as well.
Richard Fuller (North East Bedfordshire) (Con)
Just to reinforce this point about the increase in thresholds, the Minister says that it has been a significant real-terms increase, but it is actually a 21% increase, which is very significant indeed. My question is on the part of the HICBCs that were announced in the Budget but that he did not quite mention, which was the plan from 2025-26 to base the benefit on the household budget rather than the individual budget. Can he just reassure the House that His Majesty’s Revenue and Customs will be up to speed to be able to implement that part of what the Chancellor has outlined?
Nigel Huddleston
I thank my hon. Friend for his question, but he has jumped ahead to a later part of my speech. I will get on to that point in a moment, because the movement to a household budget is an important part of the announcements.
I should just reiterate the first points on the changes that we have made. Overall, we estimate that 485,000 families will gain an average of £1,260 in child benefit in 2024-25 from these changes to HICBC. And, of course, what is good for families is also good for the economy at large, as my hon. Friend pointed out. The Office for Budget Responsibility estimates that, through these child benefit changes, the economy will gain additional hours work equivalent to around 10,000 full-time equivalents by 2028-29. Going forward, we want to ensure that the child benefit system fairly rewards families in all their diversity, including those who, for example, have only one working parent. The Government will end the unfairness, for example, of single earner families in the child benefit system by administering the HICBC on a household rather than an individual basis by April 2026. We shall be consulting on this in due course, as my hon. Friend quite rightly highlighted. This is something, we know, that many people have been calling for.
Nigel Mills (Amber Valley) (Con)
Can the Minister give us an indication of what level of household income the Treasury has in mind for that consultation? I presume that it will be much higher than £80,000; otherwise, it would be a more punitive situation. Will it be £100,00 or £120,000? What will it be?
Nigel Huddleston
I appreciate my hon. Friend’s inquisitiveness, but this is the point of the consultation. We will be having a consultation and I am sure that his views and opinions and those of others will be taken into account.
I shall now turn to how the Bill will drive investment in our economy. We all recognise that investment in the economy is crucial for economic growth. It supports everyone across the country and ensures our competitiveness in international markets. That is why, through this Bill, the Government are taking decisions for the long term to support that investment. For example, our creative industries contributed £126 billion in gross value added in 2022 and supported more than 2 million jobs.
By announcing more than £1billion of new reliefs for the UK’s world-leading creative industries at the spring Budget, we have signalled our commitment to ensuring the sector’s continued growth. For example, we will make current tax reliefs for theatres, orchestras, museums and galleries permanent, at a rate of 45% for touring theatres and touring productions by museums and galleries; 40% for non-touring productions; and 45% for orchestras. That will ensure that our creative industries have the support they need after the unprecedented economic shock of the pandemic.
We will also further support the UK’s independent film sector through a new UK independent film tax credit at a rate of 53% for films with a budget of up to £15 million, which is worth about £80 million a year. This will support the production of UK independent films and, of course, the incubation of UK talent, which is admired around the world. This Government are committed to supporting UK businesses and these measures deliver on that.
Neale Hanvey (Kirkcaldy and Cowdenbeath) (Alba)
The amendment in my name sought to address the failure of the Bill to bring in tax measures to ensure the continuation of oil and gas activity in Scotland, including at Grangemouth oil refinery. Almost 90% of levy revenue comes from Scotland, but there is precious little by way of investment in that part of the economy. A good example of that is the UK Government’s denial of £80 million to save Grangemouth, while at the same time signing a loan guarantee of £600 million for INEOS, for activity in Antwerp and Belgium. According to the response to a written question from my hon. Friend the Member for East Lothian (Kenny MacAskill), the UK Government have not even assessed the potential supply of that activity.
Neale Hanvey
Can the Minister not see the perversity of spending Scottish revenue abroad while jobs in Scotland are wilfully put at risk by this Government?
Nigel Huddleston
I could not disagree more with the hon. Member’s premise. If anybody has shown support for the sector, this Government have. We have shown huge support for the sector, in an appropriate and proportionate way, while also encouraging the industry to decarbonise. As I said, we are taking fiscally responsible decisions to extend the energy profits levy for one year. We are also providing confidence and certainty to businesses in the sector by legislating for an energy profits levy price floor. That is what is in the Bill. That will effectively abolish the energy profits levy if the six-month average for both oil and gas is at or below a set threshold. Doing so was the sector’s main ask in the 2024 spring Budget, and it could help to unlock around £9 billion in uncommitted investment spend, according to Offshore Energies UK, which welcomed the decision. I am sorry that he feels unable to welcome it as well.
Those measures will ensure that investment in our economy continues to grow. I will now outline some measures in the Bill’s property package. The Bill will cut the higher rate of capital gains tax on residential property from 28% to 24%, encouraging landlords and second home owners to sell their properties, which could increase revenues because there would be more transactions.
Dr Luke Evans (Bosworth) (Con)
The capital gains tax cut is very welcome, but will the Minister outline whether it will come into play retrospectively? Hypothetically, if a Labour Front Bencher happened to owe some capital gains tax, would they benefit from a Conservative tax cut?
Nigel Huddleston
I think I know where my hon. Friend is heading. Of course I cannot comment on individual tax situations. His point, though, is an important one: everybody should always pay the taxes that they owe. I think that principle is shared across the House. The measure will be implemented from 6 April 2024, so some people may be disappointed that there is no retrospectivity, but as I say, it will make more homes available to purchase for a variety of buyers, including first-time buyers.
We also need to ensure that the property system is fair and working as intended. The Government are clear that where policies are not meeting their policy objectives, we will take action. That is why we are abolishing multiple dwellings relief, a bulk purchase relief in the stamp duty and land tax regime, from 1 June 2024. That follows an external evaluation that found no strong evidence that the relief is meeting its original objective of supporting investment in the private rented sector, and because HMRC has recorded high and clear instances of its abuse. We are also amending rules to ensure that victims of domestic abuse are not unfairly penalised if they wish to buy their first homes anonymously, and that those in difficult circumstances do not face additional barriers to purchasing homes. We will ensure that registered providers of social housing in England and Northern Ireland are not liable for stamp duty land tax when purchasing property with a public subsidy, and exempt public bodies from the 15% anti-avoidance rate.
Finally, I turn to measures that will simplify and modernise our tax system, making it easier to engage with the tax system and closing loopholes that could be used for avoidance. The negative impacts of inefficient, complex taxes on both businesses and the wider economy cannot be overstated. That is why the Government are taking action to ensure that the system works for everyone. As a starting point, we are amending two primary VAT interest provisions in legislation to ensure that they apply to all cases intended by the policy. That will mean that the interest payments that HMRC recovers are correct, and it will save time and resources for HMRC and businesses.
The Government recognise that it is everyone’s responsibility to pay their fair share of tax to support our vital public services, so we are closing another anti-avoidance loophole—one that enables individuals to avoid tax by moving assets abroad via a company. That is one of 200 measures that we have undertaken since 2010 to close loopholes and reduce the tax gap, which now sits at just 4.8%—down from 7.5% under Labour. Yes, that is an inconvenient truth for the Opposition, who recently claimed to be so enthusiastic about tackling tax avoidance yet did not take the actions that we have taken when they were in power. Importantly, Labour failed to support the last Finance Bill, which included further measures to tackle tax avoidance. However, Labour was in good—or, rather, bad—company, because the Lib Dems and the SNP did not support it either.
It is not the first time that we have seen such—how should I put it?—distance between what the Opposition say and what they do. Recently, the Labour party even said that it would support our national insurance tax cuts, but when it came to the vote, I did not see a single Labour MP in the Aye Lobby with the Conservatives. Nor were there any Lib Dems, while SNP Members were in the No Lobby actively voting against tax cuts for their constituents.
The Government are getting on with delivering on our plan to cut taxes, grow the economy and boost investment, but the Labour party would put all that at risk and send us back to square one. Instead of taking the responsible decisions to back businesses, the Labour party wants to saddle them with new regulations. Labour’s so-called new deal for workers is in fact a bad deal for jobs, workers and businesses. The 70 new regulations from the deputy leader of the Labour party and the unions would ban flexible working, disincentivise small businesses from making new hires and unleash waves of low-threshold, zero-warning strikes.
Sammy Wilson
The Minister is quite right to point out the dangers of Labour being in charge of finances and the impact that that is likely to have on tax, but does he have the humility to accept that tax is higher under this Government than it has been for decades?
Nigel Huddleston
I certainly have the humility to accept and recognise that. Taxes are higher out of the obvious and widely accepted necessity of paying for massive amounts of intervention because of the pandemic and in response to supporting families and businesses through the cost of living challenges. We make no apology for intervening to support lives and livelihoods to the extent that it was necessary. It was absolutely vital that we intervened because not doing so would have been a disaster for the UK economy. However, the general level of taxation, as the right hon. Gentleman is probably aware, is much lower in the UK than in many other countries that also had to significantly increase taxes and Government intervention out of necessity in response to the pandemic. We have much lower levels of taxation than Germany, France, Italy and many other countries. As I said, we had high levels of taxation out of necessity, but we are now in a position to start reducing those levels of taxation out of policy intent and choice, and that is exactly what we are doing.
To conclude, this Finance Bill absolutely rewards hard work, supports our vital industries, boosts the housing market and continues to create a fairer, simpler and more modern tax system. It delivers on the Government’s commitment to prioritise economic growth and will ensure a brighter future for our country. For those reasons, I commend it to the House.
James Murray (Ealing North) (Lab/Co-op)
I am grateful for the chance to respond on behalf of the Opposition in this Second Reading debate.
The Finance Bill follows last month’s Budget, in which the record of the Conservatives’ time in office was laid bare. After 14 years, the Conservatives have shown what they can deliver for the British people: higher taxes, falling living standards and lower economic growth. The truth is that after 14 years, they are out of time, out of ideas and out of touch with reality. They are out of time because whatever they say or try to do now, it is too late to repair the damage that they have done to the economy and to people’s standard of living. The Conservatives may now have implemented a reduction in national insurance—a cut that we support—but that comes amid a tax burden that is set to rise to its highest level in 70 years, and to rise in each and every year of the forecast period. The Government simply cannot escape the reality that under their plans, for every £5 they are giving back to families, they will be taking £10 in higher taxes. Giving with one hand and taking twice as much with the other—that is the reality of life under the Conservatives.
The Government are not just out of time, but out of ideas. In the Budget from which this Finance Bill came, the Conservatives performed what may be the biggest U-turn of this Parliament yet, and there is some tough competition on that. After years and years of the Conservatives opposing tooth and nail our plan to scrap non-dom status, the Chancellor stood in this Chamber last month and adopted our approach as his own. I recall the Financial Secretary’s immediate predecessor, the right hon. Member for Louth and Horncastle (Victoria Atkins), being a particularly passionate defender of non-dom status. I remember her declaring less than a year ago, during the Committee stage of a previous Finance Bill, that
“We have come to the conclusion that non-domiciled status is right”.––[Official Report, Finance (No. 2) Public Bill Committee, 16 May 2023; c. 44.]
How times change!
Despite the Government’s apparent U-turn, we have learned since the Budget through our careful analysis of the Government’s plans that loopholes remain in their approach to abolishing non-dom tax status. Alongside an unnecessary discount in year 1, there is a loophole that appears to have been intentionally designed to allow non-doms to stash money away in offshore trusts, so that they can avoid being subject to inheritance tax, as any other member of the public is. Those loopholes must be closed, because if a person makes their home and does their business in Britain, they should pay their taxes here, too. People will look at those loopholes and rightly conclude that despite the Budget’s U-turn, this Prime Minister just cannot bring himself to sort out the non-dom problem once and for all.
Richard Fuller
If I may say so, the hon. Gentleman is clutching at straws. There may be a few hundred million pounds here or there in what the Government propose doing to tighten up supposed loopholes, but as he is aware, the Labour party wants £28 billion spent on its green investment. Which taxes will he raise to pay for that?
James Murray
I fear that the hon. Gentleman is slightly out of date. Going into the general election, we have set out very clearly our plan to invest in the transition that we need in our energy supply and our economy, and how we would pay for that—through a strengthened windfall tax, alongside prudent investment. He may scoff at what we say about the non-dom tax loopholes, but we are talking about £1 billion in the first year and £2.6 billion over the course of the next Parliament. That money should go to our public services, rather than intentional loopholes allowing some people to get away with paying hundreds of millions of pounds less in tax.
The Conservatives are not just out of ideas, but out of touch with reality. They made that very clear in last month’s Budget, from which this Finance Bill arose. At the end of his Budget speech, the Chancellor made an astonishing £46 billion unfunded commitment—leaving a gaping hole in the public finances—when he pledged to abolish national insurance altogether. Since then, Government Ministers have had countless opportunities to row back from or U-turn on that commitment, but they have been determined not to. Earlier today, the Prime Minister had three chances to rule out cuts to the NHS, cuts to the state pension or tax rises to pay for his £46 billion unfunded tax cut. Each time, he refused to do so.
James Murray
I will in a second. It is quite astonishing that the Conservatives are content to go into the general election with a £46 billion black hole in their plans, and that they refuse to say whether that £46 billion commitment will be funded by tax rises elsewhere or cuts to spending. I give way to the hon. Gentleman, so that he can confirm exactly how the Government will pay for that £46 billion black hole.
Nigel Huddleston
I very rarely intervene from the Dispatch Box, but I cannot help myself this time. The hon. Gentleman and I have had multiple conversations about this. He cannot differentiate between an aspiration and a policy commitment. His £28 billion was a policy commitment; what we have laid out is an aspiration. They are two different things.
As for the hon. Gentleman’s scaremongering about the possible hit to pensions or the NHS, he knows full well that those suggestions are absolutely not true, because national insurance does not wholly pay for health, benefits, or indeed pensions. He is either scaremongering or exhibiting complete and utter financial illiteracy. Total spending on the NHS is over £160 billion, and welfare spending is over £260 billion, massively dwarfing the total amount raised by national insurance. He either does not understand that, or is irresponsibly scaremongering, because he has known for a long time that national insurance and other payments are topped up by general taxation. He should know better.
James Murray
I thank the hon. Gentleman for his mini-speech. I feel I may have touched a nerve. He talks about people being scared; yes, I think people are scared when they hear the Government making a £46 billion unfunded spending commitment and not saying how they will pay for it. When the previous Prime Minister made an unfunded tax cut commitment of a similar order of magnitude, we know what havoc that caused in the economy, and people are still paying the price in higher mortgage payments and rent payments. I will just say to the hon. Gentleman that I gave him a chance to rule out cuts to the NHS or the state pension, or tax rises elsewhere, to pay for this black hole. I am not quite sure if he did that—maybe he has not got the line from his boss in No. 10 Downing Street—but the truth is that until the Government rule those things out, people will rightly worry about the impact his unfunded commitment will have on the economy.
The pledge the hon. Gentleman was speaking about sounds like exactly the sort of pledge that the right hon. Member for South West Norfolk (Elizabeth Truss) would approve of, because it comes to almost exactly the same amount as her Government’s unfunded tax cuts. Of course, the previous Prime Minster has been touring the TV studios and talking to newspaper journalists in recent days, saying, among other things, that people who claim that she crashed the economy are
“either very stupid or very malevolent”.
I wonder if the Minister would like to intervene to say whether he shares that view. No? He is not leaping to his feet now. I would have thought he would; I would have thought that Treasury Ministers would want to put as much distance as possible between themselves and the previous Prime Minister. Instead, with their £46 billion unfunded commitment, they seem determined to be a tribute act. Frankly, whatever the previous Prime Minister says, people across Britain know what impact her time in office is having on all of us, as we face higher mortgages and higher rents as a direct consequence of her economic recklessness.
That is the context in which we are debating this Finance Bill. The context is one of a Government who are out of time, out of ideas and out of touch with reality, and of a country that is feeling the impact of 14 years of Conservative economic failure. Even a simple clause such as clause 2, which sets the main rates of income tax, highlights the impact on ordinary people of decisions taken by this Government. Although the basic and higher rates of income tax are unchanged by this Bill at 20% and 40%, the tax burden on working people is rising as a result of the income tax personal allowance and the higher rate threshold being frozen from 2021-22 to 2027-28. Those tax thresholds would ordinarily have risen this April, but instead they are in the middle of a six-year freeze. According to the Office for Budget Responsibility, which I assume the Minister has respect for, these freezes will create 3.7 million extra taxpayers by 2028-29 and mean that 2.7 million more people will be paying the higher rate.
The truth is that, even taking into account any reductions to national insurance rates, the freezes in thresholds and the rises in council tax mean that by the end of the forecast period, the average family will still be £870 worse off. As the Resolution Foundation noted at the time of Budget, despite the reductions in national insurance, there will still be a net rise of £20 billion a year by 2028-29 in personal taxes. It pointed out that those over the state pension age, who do not benefit from national insurance cuts, will be particularly badly hit, and will face an average tax rise of £960 a year. The reality has been summed up by Paul Johnson, the director of the Institute for Fiscal Studies, who said following the Budget:
“This remains a parliament of record tax rises.”
That is the record of the Conservatives in government.
Dr Luke Evans
There is a certain Leader of the Opposition who, when standing for their post, said that as part of their No. 1 pledge, which was for economic justice, they would increase income tax for the top 5% of earners and reverse corporation tax cuts. If the hon. Gentleman’s party was voted into government, would it stand by that pledge? That too would increase the tax burden significantly.
James Murray
I am sorry, but I did not quite follow the hon. Gentleman’s question. I can, however, respond to the general point that I think he was making. We have been very clear that this is a Parliament of record tax rises. The tax burden is set to be the highest in 70 years, and we think that the tax burden on working people should be lower. However, we would only ever support tax rises if they were responsible, and done on a basis of economic security and stability.
James Murray
I will make some progress, because I have made that point quite clearly.
The tax burden has been pushed to a record high, and we have also seen a record number of changes and U-turns on tax rates and reliefs under this Government. That applies not just to personal taxation, but to tax rates and reliefs relating to businesses. Let us consider the Chancellor’s approach to the rate of corporation tax, which the Bill sets at 25% in clause 12. In July 2022, during his leadership bid, the current Chancellor pledged to cut the headline rate of corporation tax from 19% to 15%, yet when he became Chancellor just three months later, one of his first acts was to U-turn on what he inherited and to commit to raising that tax from 19% to 25%. He has been typical of the Conservatives in lacking any certainty, predictability or consistency, and we know how damaging that is to businesses that are trying to make investment decisions.
As the shadow Chancellor set out, if we win the next general election, we will bring back certainty by capping the headline rate of corporation tax at its current rate of 25% for the whole of the next Parliament. We would take action if tax changes in other advanced economies threatened to undermine UK competitiveness. We believe that the current rate of 25%—the lowest in the G7—strikes the right balance between what our public finances need and keeping our corporation tax competitive in the global economy. We also recognise the importance of stability and predictability in the reliefs available to businesses. We have seen a great deal of chopping and changing in capital allowances in recent years—indeed, this is a rare example of a Finance Bill from this Government that does not change the annual investment allowance or expensing regime.
We have made it clear that if we win the next general election, we will publish a road map for business taxation in our first six months in office, to give businesses the stability, predictability, and long-term plan that is so important to those making investment decisions. We have been pushing for a proper windfall tax on the profits of oil and gas companies operating in the North sea. The Government, despite initial opposition, U-turned on that and adopted some of our proposals with the introduction of the energy profits levy. Ahead of the general election, we have set out our plans to make the windfall tax stronger, and to raise more revenue to support our country’s energy transition, but it is also right that we give as much certainty as possible to those companies affected.
Mary Glindon (North Tyneside) (Lab)
Does my hon. Friend agree that we need a domestic oil and gas sector and offshore energy sector to deliver for the economy, to deliver energy security, and to bring in the investment needed for transition? After all, the North sea has powered our economy and our country for decades, and it can do so for decades to come.
James Murray
My hon. Friend is right to say that it is important that we offer as much certainty as possible to those companies affected. We recognise that by its very nature, the windfall tax is expected to be a one-off levy in response to extraordinary profits, and will ultimately come to an end. We have set out that if we win the next general election, the energy profits levy will end no later than the end of the next Parliament. We also fully support the energy security investment mechanism in clause 19, and the signal that it gives, which helps with investor confidence in the UK’s offshore energy sector.
We will not oppose the Bill on Second Reading, and we look forward to detailed consideration of its clauses in Committee. However, the wider context in which the Bill has been published lays bare the record of the Conservatives in government. That record is one of falling living standards for people across Britian, and the highest tax burden in 70 years. It is one of economic stagnation, from a party that is out of ideas and has been unable to provide the stability that businesses need. It is also one of recklessness with the public finances, both when the previous Prime Minister crashed the economy, and now that the current Prime Minister has made a £46 billion unfunded pledge to scrap national insurance. It is time to turn the page and turn a corner—time to give British people the chance to change our country’s Government by calling a general election.
Richard Fuller (North East Bedfordshire) (Con)
I wholeheartedly support the Bill. I have a couple of points to make to the Minister, and a couple of responses that the shadow Minister might be interested to hear. In response to the point made by my right hon. Friend the Member for New Forest West (Sir Desmond Swayne) on the loan charge, the Minister said that he was not minded to accept an amendment, but would always listen. I like the Minister. He will be aware that the loan charge has created significant concerns and problems for people. He will be aware that the loan charge policy has been in place for a long time and has not made the progress anticipated initially. May I say to him that it is time to draw a deadline on that policy and for HMRC to find a different way to provide resolution and, may I say, relief to those affected?
Sammy Wilson
Would the hon. Gentleman accept that the policy has not only failed to bring in the revenue that the Government intended, but led to a number of people committing suicide because of the pressure put on them by HMRC?
Richard Fuller
My right hon. Friend has voiced the concern that I know will rest on the conscience of my hon. Friend the Minister, and he is right to add that. May I put a second conscientious point to the Minister—this point was also made by the shadow Minister, the hon. Member for Ealing North (James Murray)—which relates to the scoring for contaminated blood? That was not included in the Budget, which will have disappointed a considerable number of Members of Parliament from all parts of the House. It would be helpful if the Chancellor came forward with some view on that. Will my hon. Friend look at that?
Thirdly, will the Minister be encouraged by the words of my right hon. Friend the Member for Wokingham (John Redwood) and his analysis of the charges imposed on the Treasury by the Bank of England as a result of the quantitative tightening policies? The UK’s policies on quantitative tightening are exceptional. Few other central banks—many of which indulged in the bizarre quantitative easing policy 15 years ago, after the financial crash under the last Labour Government—do it, and it is now a real charge that has real effects on the real economy in the country. The exceptional way in which we are treating quantitative tightening charges—essentially, we take them on the books, the Treasury gets charged for it, and it has to go into the scoring that the OBR and others do—does not go on in other European countries. There is discretion on how it can be put across, and in the US the charges are absorbed but the Government are not charged. That is an important policy point, and I would be interested to hear whether the Minister would accept an amendment on that in Committee, although I think not.
Prosaically, or simply, HMRC has been in the headlines for not answering phone calls and for saying it would go on holiday. I am pleased that the Minister reversed that straightaway, and I know many taxpayers will be pleased about that. Many who will be looking to fill in their self-assessment forms will be surprised that they cannot download form SA100—they have to call HMRC to download a copy, whether or not they want to file it by paper. That seems a little odd, if HMRC’s phonelines are under pressure. Will the Minister, who has been responsive on points to date, look into that?
I will turn to the shadow Minister’s speech—I like him too. As he in his own mind “prepares for government”, he and his colleagues may wish to get a better grasp on reality. When he rightly talks about the importance of setting clarity for investment, it is important that those looking at investment think that those in charge of the public finances know what is going on. He talked about record tax rises under this Government. Let me ask him these questions. Did he disagree with funding of the furlough programmes? Did he disagree with the energy price support? Did he disagree with the increase in funding for the NHS? Did he disagree with record numbers of police officers? If he did not disagree with any of those, he would recognise, if he had a grasp on reality, that he would have to fund those through increased taxation or increased—[Interruption.] He has an answer, so would he like to come in? [Interruption.] Mr Deputy Speaker, I thought he had an answer.
James Murray
The hon. Gentleman is asking me what I disagree with. I disagree with the low growth that has been true of this Government. I disagree with billions of pounds being wasted in covid fraud and in other ways by the Government. I disagree with how the Government are now overseeing the highest tax burden in 70 years and have no plan to get the economy growing. That is what I disagree with.
Richard Fuller
The hon. Member mentioned growth rates, fraud and the record tax burden. I was making a point about the record tax burden, and he cannot respond to that challenge by repeating that he is concerned about it. He talked about low growth—he should go to Germany or France, which have lower growth than the UK. He should go to the majority of G7 countries, where he will find lower growth than in the UK. He is mistaking—[Interruption.] Would he like to intervene again? No.
I am trying to be helpful, obviously. The hon. Member and the shadow Treasury team wish to be taken seriously, but he will know that the points about growth are difficult to work through, with western economies not growing as fast as they have done. The UK is growing faster on average than other countries, and he needs to give some credit for that rather than just say that low growth is the case.
More importantly, if the hon. Member and the Labour party believe in furlough, the energy price schemes, the record increase in NHS funding and more police—they supported most of those programmes—they must recognise that those must be paid for in government, and that means hard choices. What the Prime Minister and the Chancellor have done is make those hard choices. Making people feel bad about historical hard choices is not a policy for a future Government.
James Murray
We seem to be engaging in an unexpected back-and-forth. The hon. Gentleman did not mention covid fraud. As he might know, we have set out our plans for a covid corruption commissioner. Would he support that—yes or no?
Richard Fuller
Of course, everyone supports cracking down on fraud, and I would be very happy—[Interruption.] If I may, I would be happy to look at the Labour party’s specific proposals. But the hon. Member will also know that when the Labour party talks about fraud, particularly when it comes to personal protective equipment and the furlough programmes, it conflates two things. For example, with the coronavirus loan programmes, Labour is conflating moneys that have not repaid because businesses have gone bust, or because companies have not paid them back yet, with moneys that have been lost fraudulently. When I look at his proposals, I want to ensure that when Labour talks about the amounts that have been lost, they relate to actual examples of fraud and not to the ways in which, in a difficult situation where people’s businesses could have been closed, money was given out by the Treasury to others. If that is the case, I am happy to look at that.
My second point to the Opposition—before I get on to what I want to say—is that I hold no torch for the former Prime Minister, my right hon. Friend the Member for South West Norfolk (Elizabeth Truss), but when the hon. Member and his colleagues talk about crashing the economy and about people’s mortgage rates, as I think the Leader of the Opposition did at Prime Minister’s questions, may I gently urge them to look at the Bernanke review that has just been completed on Bank of England forecasting? That has a number of important points about how the Bank of England could improve its forecasting. It also compares interest rates for the seven central banks that Ben Bernanke, the former head of the US Federal Reserve, has used as his comparators—in figure 12 in the report. If the hon. Member looks at that, he will see that UK interest rates in 2019 were in the middle of the pack, UK interest rates in 2020 were in the middle of the pack, UK interest rates in 2021 were in the middle of the pack, UK interest rates in 2022 were in the middle of the pack and UK interest rates in 2023 were in the middle of the pack. UK interest rates as we enter 2024 are in the middle of the pack. It is simply not true to say that something exceptional happened to UK interest rates in any part of this Parliament. Again, if the hon. Member wishes to be taken seriously in government, he needs to get a grip on reality, not on fantasy.
I will now turn, if I may, to the things that I would like to say. [Laughter.] I did promise the Whips that I would take only 10 minutes, so I promise to take only 10 minutes, from now. Clause 12 sets the corporation tax rate. I see my friend the hon. Member for Mid Bedfordshire (Alistair Strathern) in his place on the Opposition Benches. I think that both he and I are pleased that Government and Opposition Front-Bench Members have made clear their commitments for full expensing. That is particularly important to the people of Bedfordshire because there is a potential investment pending in his constituency. I would like to put on record our thanks to the two Front-Bench teams for setting out the clear future framework for how that will work.
Let me turn to income tax rates in clause 2, because it is important to look at the history. As my hon. Friend the Minister mentioned, the record of successive Conservative Governments from 2010 for working people in this country is strong. He mentioned the increase in the personal allowance from £6,475 in 2010 to £12,570 this financial year. That is a 21% real increase. However, my hon. Friend did not mention the change in the minimum wage, which has gone up from £5.80 in 2010 to the living wage now of £11.44. That is a 23% real increase in wages. Higher wages for working people and lower taxes for those on lowest incomes is a very strong record.
However, my hon. Friend needs to look at the higher rate threshold, because in 2010 it was £37,400, and now it is £37,700. In today’s money, the 2010 amount would be set at £59,800. In essence, there has been a 37% decrease in earnings when people hit the higher threshold. It may not be popular politically, but economically such a substantial differentiation in the way we tax people on middle and high incomes from those on low incomes has long-term implications. After the Budget, people who have retired, have been thrifty and saved money and have a private pension now find themselves complaining that, although they are getting their increase in the basic pension—or maybe not—they are being dragged into the higher rate of taxation. Successive Conservative Governments have rewarded work—they have wanted people to work hard, be entrepreneurial, and grow their businesses and the economy—so please, can we look at the ways in which that particular threshold should change?
Quite rightly, the Prime Minister and the Chancellor have indicated that they wish to simplify taxation on working people. That is completely consistent with the long-run approach of the Conservatives to taxation on work. The aspiration to reduce national insurance is an excellent way of looking at that. Unlike the Opposition, I would say that there is a difficulty in politics of finding times to make quite significant changes. This may be such a time—I know that Ministers will be looking at this—partially because we have quite significant issues of overall taxation that we need to reduce, but there is the opportunity for other reasons as well. Reallocation of existing taxes is easier when the tax burden is exceptionally high. I am a low-tax Conservative. I recognise, unlike some, that when we buy things, we have to pay taxes on them. But we know that this tax rate is unusually high, and we know that we will reduce that tax burden. It is a propitious time to look at ways of reducing national insurance contributions over the next five years.
The Budget forecasts fiscal drag to be £28 billion to £33 billion per annum for the next three or four years. There is an ethical and moral case for wanting to give back more money to people by reducing national insurance contributions. However, my proposal is for the Government to consider not that national insurance reductions should go directly into pay packets, but that national insurance contributions should be added to people’s long-term savings through compulsory savings schemes. Many countries have recognised that the idea of state pensions being based upon the “never, never” is not a secure way to provide for long-term pensions. We have never really grasped the nettle in this country—Singapore did it right at the start and Australia did it in the 1990s. There is an opportunity for us to build on the work that Sir Stephen Webb did in the coalition Government through changes to national insurance contributions. That would ensure that working people are the first generation to have a truly secure pension that is their money, where they do not have to rely on the vagaries of what a particular Chancellor of the day might do to pensions, and they would have only one tax on their wages during their career. Finagling people in other parties like to increase taxes, and having two taxes to increase gives them more flexibility. An opportunity would be provided to extend the savings stake—the way that people save for things—beyond providing for their retirement, so that they could, as they do in Singapore, put money into their first home. By looking in a new way at how we treat citizens in this country, we could move towards a savings state and away from a socialist never-never state. I leave my hon. Friend the Minister to consider those comments.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
I beg to move an amendment, to leave out from “That” to the end of the Question and add:
“this House declines to give a Second Reading to the Finance (No. 2) Bill because it fails to make a much-needed reduction in VAT for the hospitality and tourism sectors; fails to reintroduce tax-free shopping for international visitors; does not establish a more progressive tax system by introducing a starter rate, in line with the Scottish Government’s approach; fails to introduce measures through the tax system that would help alleviate the cost of living crisis and reduce inequality; and fails to introduce tax relief measures to enable vital high-growth sectors, like the renewable sector, to grow the economy; and because it derives from a Budget which proposed to extend the Energy (Oil and Gas) Profits Levy, threatening the security of jobs in north east Scotland and the UK’s ability to achieve net zero.”
The Bill falls woefully short of the mark. The Scottish National party has tabled a reasoned amendment on Second Reading because, frankly, its provisions do not rise to the immense challenges faced by our constituents. The UK Government seem to operate under the illusion that the Tory Brexit cost of living crisis has come to an end, yet the reality on the ground, in homes across Scotland and the other UK nations, tells a different story. Indeed, a UK poll out today shows that 61% of people think the UK Government are not taking the measures required for the cost of living. The bad news for Labour is that they do not believe it is proposing the right things either.
The Bill, as it stands, is a stark testament to a Government who are—as we have heard, and I agree—out of touch, out of ideas and soon to be out of office. But let us be clear that the proposals in the Bill are insufficient to support households in Scotland, who continue to bear the brunt of disastrous decisions made in Westminster. The spring Budget brought devastating cuts to Scottish capital funding, yet there remains a pervasive silence among the Westminster parties about the true scale of cuts planned over the next Parliament to meet the arbitrary fiscal rules that they are both slavishly following. I note that the Labour Front Bench said “hee-haw” about public services funding over the coming years, despite the £20 billion hole that we know will lead to further misery in public services. There are elements in the Bill, such as the marginal increase in child benefit and the limited support for the film sector, which we can view as steps in the right direction, but they are but drops in the ocean compared with the vast needs of our communities.
For a UK Government who claim economic competence, it is astounding how little they understand about nurturing true economic growth, or enhancing productivity. Austerity has failed. It cannot be made to work, yet those in the Labour party continue to pretend that somehow it can. We agree with the Labour party that for every £5 coming out of the Budget for people, they are paying £10 back in, so the question that Labour Members must answer is: why are they not voting against Second Reading tonight? Why are they going to, once again, sit on their hands and allow the Bill to go through? As I have said, not a word on public services. The reality is a continuing decline in disposable incomes, a shameful record on inequality—the highest in any major European country—and a GDP per capita on its longest downward trajectory since records began. Moreover, the Chancellor’s measures are predicted to have a minimal impact on economic turnaround this year and it is highly probable that the Government will have overseen the worst Parliament for income growth in recent history.
Scotland has the highest wages in the UK, according to medium gross weekly incomes, thanks to the work of the SNP Government on promoting fairer wages and leading by example. However, the powers to avoid the scale of falling real incomes resides here in Westminster. That fall is unprecedented over the past six decades. Hundreds of thousands of people in Scotland and across the nations of the UK are locked in a vicious cycle of debt, with over 300,000 having missed a debt payment in the past year alone.
According to a report published recently by the Financial Conduct Authority, 7.4 million people across the UK are
“heavily burdened by their domestic bills and credit commitments.”
In January this year, nearly 6 million UK adults reported having no disposable income at all. The ongoing cost of living crisis continues to degrade living standards, with families struggling under the weight of high food prices, exorbitant mortgage rates and escalating energy costs that are pushing more and more households into debt. Food prices are about to spike yet again, and we can put that squarely down to Brexit—the love child of the Tory right, now adopted by the Labour party and the Liberal Democrats. A report from Allianz Trade suggests that controls to be introduced in May will increase import costs by 10% in the first year, imposing £2 billion of extra costs on UK businesses and exacerbating the cost of living crisis.
Food prices have already risen by more than a quarter since a couple of years ago owing to existing Brexit changes. This is a turbo-boost on top of what people have been facing. Where is the help for people as food bank queues grow longer and the ability to donate to those food banks dwindles? It is non-existent. Whatever the cost to households, whoever starves, “make Brexit work” seems to be the consensus of the Westminster parties, and especially this Tory Government. Even if we put aside our squandered EU membership, the fact is that they will not implement the basic food protections that other Governments have used and we have called for. This is Westminster negligence, and a failure to observe the basic values of fairness.
Particularly pressing is the escalating crisis of fuel poverty that grips many of our communities. How can it be right, in the 21st century, that there exists an energy poll tax of standing charges? In the highlands and islands, the electricity standing charge for households— the charge that has to be paid every single day, cold or warm—is 50% higher than it is in London. How can that be fair? Why have the UK Government sanctioned this blatant inequality? Should the Bill not be doing something to fix it?
This Bill could have provided for the scrapping of standing charges. The Government should be acting with urgency to start providing meaningful rebates for the people who live in the areas with the greatest degree of fuel poverty, including extreme fuel poverty—again, by the way, the highlands and islands. The irony is not lost on people living in an area that exports more than six times the amount of the electricity that it uses, and seeing massive tax returns going to the Chancellor’s Treasury while they suffer this injustice. At a bare minimum, the Bill could have ushered in legislation for a long overdue energy social tariff. Citizens Advice has reported a 14-fold increase in the number of clients seeking advice related to fuel poverty since 2019. The average fuel debt that clients present to Citizens Advice Scotland is now more than £2,300. That is not merely a statistic; it is a damning indictment of the current Government’s policies.
Alison Thewliss (Glasgow Central) (SNP)
My hon. Friend is making some excellent points about fuel poverty. When I conducted a survey of Dalmarnock residents about its impact, I found that it had a hugely detrimental effect on their health and wellbeing. They could not even invite family members round because their houses were cold and they could not afford to switch the kettle on to give them a cup of tea. Pensioners were going to bed together early because they could not afford to keep the heating on. Does my hon. Friend think the Government understand the dire consequences of fuel poverty for people who are living in it?
Drew Hendry
That is a very good point. I do not think that the Government understand what happens to people. I do not think they are paying attention to medical advice, such as an article in The Lancet drawing attention to the health deprivations that result from living in fuel poverty or extreme fuel poverty. They do not understand the effect on children’s learning and wellbeing over this period, or, ironically, the higher costs to public services as a consequence of fuel poverty: for instance, people have to rely on the NHS more because of associated health conditions. The Bill is doing nothing substantial to alleviate such dire circumstances.
Before I move on to other issues, I have to ask why the Bill has no updated actions to stop companies taking advantage of the cost of living crisis. For example, the Government are aware, as is the Financial Conduct Authority, that car insurance in the UK is now 34% higher, and that younger and older drivers have seen bigger premium increases than others. The claims rate is under 18%, premiums have increased by 34%, and average premiums for some age groups have jumped by over 50%.
Surprise, surprise: drivers in Scotland are among those who have seen their premiums rise the most. This time, however, it is something they share with Londoners. The Government cannot put that down to the fact that there are different market forces and so on, because insurance premiums have risen by only 2% in France, 5% in Spain and 6% in Italy, so what is going on? The Bill contains no action on end-of-contract scams by mobile and broadband operators either. The Government are allowing a punishing cost of living free-for-all to continue while they are distracted with feeding their culture wars and giving peerages to their pals and donors.
While the UK Government remain idle, pretending that the cost of living crisis has ended, the Scottish Government have taken proactive steps to tackle inequality and reduce child poverty. They have implemented game-changing policies such as the Scottish child payment, which has lifted 100,000 children out of fuel poverty, yet it is an uphill swim to protect families while Westminster makes the big and wrong decisions. Austerity continues to hinder necessary investments that are essential for Scotland’s burgeoning industries. Brexit has disastrously impacted on our economic activity, international standing and business confidence. Investment in the UK remains the lowest among the G7 countries.
It is common for the Tories, and indeed the Labour party, to say that there is no magic money tree when it comes to public finances, which is why they must always cut, cut, cut to follow their so-called fiscal rules. But here is the rub: the closest thing we had to a magic money tree was our EU membership, which could still be adding to our reserves. According to research by Bloomberg, Goldman Sachs, Cambridge Econometrics and others, around 5% of our annual GDP has been lost because of Brexit. If we had that back, it would generate well over £100 billion per year, generating a potential tax take for the Treasury of over £40 billion per annum. We could plug the holes—we do not have to be going through this—but that is not the path that has been decided for us. The Government have hacked the tree down to mulch, and all that they and Labour can do now is promise more cuts.
The Bill fails business and industry, too. The SNP has long advocated a £28 billion annual investment and a robust green industrial strategy to harness the full potential of the green transition. Labour used to agree—indeed, its advisers are annoyed that the party is not going forward with it—but it has reversed on that policy, as was confirmed earlier. Such an approach is essential if we want to meet our climate change targets. Indeed, as we stand at the moment—with Scotland as part of the UK—it is one of the few industries that the UK could take forward with gusto.
Despite the obvious needs, what have the UK Government done? They have only recently decided to boost funding in allocation round 6 for offshore wind projects—an effort still inefficient to meet the necessary targets. Following the failure of the fifth round of contract for difference allocations to secure any new products, it is unacceptable that the Government have failed to rectify the shortfall in deployed capacity, leaving us well behind our 21 GW target for the upcoming rounds.
This Bill is a testament to the UK Government’s ongoing failure to adequately invest in the renewables sector, thereby endangering our net zero targets, jeopardising energy security and stunting the long-term growth of Scottish communities. It is time for a drastic change, and we need a Government who will be aligned with the needs of the Scottish people in the future—an independent Scottish Government.
Where in the Bill is the action to help our tourism and hospitality industries? Selective cuts to VAT would have been a mechanism that could have been deployed to help those sectors, and it could and should have been used to help struggling high streets and town centres. Where is the VAT-free shopping that business organisations were crying out for?
Gavin Newlands (Paisley and Renfrewshire North) (SNP)
I am grateful to my hon. Friend for giving way on the point about VAT-free shopping. We led the charge a number of years ago on the extra-statutory concession on the removal of VAT-free shopping at airports, which is crucial to Glasgow airport in my constituency. We even managed to get the hon. Member for Moray (Douglas Ross) to vote with us on that occasion, but we have still seen no action from this Government to conclude that. That is one of the excellent points in our reasoned amendment. Does my hon. Friend agree that it is the SNP that will be working for the people of Scotland, not this Government?
Drew Hendry
That is exactly right. This is one of the many things that the UK Government have been called on to do, but they have been deaf to industry asking for them and often begging for help on some of these issues.
This spring Budget has introduced disastrous cuts to Scottish capital funding, with the aforementioned conspiracy of silence that the Institute for Fiscal Studies identified permeating the halls of Westminster concerning the severity of cuts planned over the next Parliament. This Government’s legacy will undoubtedly be marked by the failures of their austerity measures, the calamitous aftermath of Brexit and the misguided policies—“misguided” is a very gentle word—of Trussonomics.
Austerity under the Tories has stripped our public services to the bone, exacerbated inequality and decimated living standards. This addiction to austerity, paired with the Government’s fiscal rules, has proved utterly ineffective at reducing debt, which as a percentage of GDP has tripled in the past 15 years. The House of Commons Library has revealed that the Scottish block grant is set to fall to its lowest-ever level as a percentage of UK Government spending in the history of devolution. Between 2023 and 2025, Scottish capital funding from the UK Parliament is projected to fall by 16.1% in real terms. These Tory cuts continue to wreak havoc across all areas of the UK, with councils across England on the brink of bankruptcy and many already in special measures.
Regrettably, austerity will not end with the demise of the Tory party, as the Labour party is also committed to these same spending plans and fiscal rules. Both the Tories and Labour are engaged in that conspiracy of silence. They have had the opportunity to talk about the level of austerity necessary, in their view, over the next Parliament, but their silence threatens to cripple the already underfunded public services across the UK. With an estimated further £20 billion of cuts needed, by their calculations, over the next Parliament, it is imperative that both Westminster parties come clean ahead of the general election about the level of austerity they intend to impose on Scotland and the rest of the UK. The public have a right to know the extent to which these parties plan to decimate our public services, should they come to office, and to be told explicitly which Departments will suffer the most severe funding cuts. We know that they are both in favour of increasing the privatisation of the NHS to facilitate their plans. Let’s hear the rest.
All we have here today is a zombie Bill from a zombie Government at the fag end of a zombie Parliament, with activity in this Chamber at record lows. The Chancellor’s recent spending plans not only cut funding in Scotland but extended taxes on Scotland’s natural resources, which, as we heard earlier from across the Chamber, have been funding the UK’s economy for so many years. The Government are offering little to stimulate growth in the Scottish economy, and it is abundantly clear that neither of the Westminster parties possesses the ambition required to invest adequately in our economy and reduce inequality.
In Scotland, the SNP is supporting people through the cost of living crisis by freezing council tax, which is already lower by hundreds of pounds a year than in the rest of the UK; by using progressive taxation to ensure that the majority still pay less income tax and the minority who can afford it pay a little more; by supporting working people; by ensuring a strike-free NHS with better-paid nurses and doctors, and committing to keep it in public hands, just like ScotRail, Scottish Water and more; and by helping families with 1,140 hours of free childcare, no tuition fees for students, and much more.
In Westminster, we have been given Brexit, a loss of more than £100 billion to the economy, a reduction in the available and skilled workforce, more than £100 billion of fraud and waste, ballooning and unfair electricity charges, higher fuel debt, higher food prices, higher mortgages, higher rent, higher insurance costs, and a betrayal over the £28 billion a year needed for the just transition to renewables while our natural resources are exploited to the hilt. Our ability to build new things such as hospitals and more has been sabotaged by enormous cuts to the budget for Scotland and more pressure on services to come.
Barnett consequentials are just that—consequentials of decisions in this place. They have consequences, and Scotland sees that. Scotland needs the powers to introduce our own comprehensive industrial strategy, invest robustly in high-growth industry, and effectively reduce poverty. The only path forward for Scotland is to have a Government who truly plan to fix the economy and tackle inequality, and that is through an independent Government in Scotland. I am delighted to have moved our reasoned amendment.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to speak in this debate. When I got my copy of the Bill from the Vote Office, I was a bit worried that the middle 500 pages or so had been missed out. We are used to these Bills being somewhat thicker than this.
I am slightly nervous, Minister, that at this rate the Indians might catch up with us on the length of our tax codes. I hope that a large Finance Bill will be ready this autumn so that we can keep our lead. There are some potentially complicated rules coming, including the new nom-dom rules. We could also base the new inheritance tax on residency rather than domicile, and we also face the question of how on earth we will define “household” for the purposes of the high income child benefit charge? There probably is some meaty stuff to come, but it is fair to say that this Bill does not generate substantial excitement.
There is always a risk with reasoned amendments to a Finance Bill. If we voted for the SNP’s reasoned amendment, we would not get any income tax this year, which would probably do quite a bit of damage to public services—though imagine that might be popular with a few people.
I am slightly intrigued by the fact that, at a time when we are really struggling for tax revenues and to balance the books, anyone would prioritise reducing the price of a Rolex for very rich tourists. That is effectively what reintroducing tax-free shopping does: it saves a lot of money for very expensive tourist purchases. I have never been convinced of the attractions of reducing VAT for the tourism sector, because the problem is that it is a huge boon for hotel operators in London that has to be paid for by taxes elsewhere.
Drew Hendry
I am happy to educate the hon. Gentleman. If he would like to speak to any of the tourism organisations that have been calling for this change, he will find that it is a great way for them not only to cope with some of the increased costs they have just now, which are front-loading their business, but to encourage people to come and use their facilities. It is something that the tourism industry is very keen on, and I would be delighted to introduce the hon. Gentleman to some people who will educate him further.
Nigel Mills
It is a pity that the hon. Gentleman did not make the case for that in his own speech, when he barely touched on this issue. The point I was trying to make was that introducing that tax reduction would be a huge benefit to London hotels, which have high occupancy rates at a very high nightly rate, but then that money would have to be raised elsewhere in the country.
One of the advantages of Brexit—the hon. Gentleman might not like this—is we are now able to do differential tax rates by region. Therefore, if we wanted a tax rate targeted at boosting tourism, we could do it on a regional basis, looking at which have the lowest occupancy rates and the lowest employment rates. It would cost far less, and the reduction could be much smaller. We could boost investment where it is needed rather than where it is not. I suggest to the hon. Gentleman that looking at that would be more sensible than his proposal.
The hon. Gentleman is also criticising the lack of a starter rate. When we had a starter rate of income tax, from 1998 to 2008, it was for very low incomes. It was a 10p rate and it was charged on top of national insurance, which was also over 10% at that point. What we actually have now is income tax and national insurance starting at a much higher point. It is a 0% starter rate, which is a far better idea than introducing a new one, so I certainly will not be voting for the reasoned amendment, as it would be completely against the country’s interests.
The Minister mentioned the high-income child benefit charge. Strangely, the Bill increases the thresholds and promises a radical change at the start of the tax year after the next one, but it does not tell us what the Government are trying to achieve by that. We have rightly upped the starting point, but if we really want to go to a household calculation, either we should be very generous and have it start at £120,000, tapering up to £160,000—the equivalent of two incomes—or we risk making the situation worse by having a very big disincentive for second earners. If the new threshold were £100,000, rather than £80,000, a household with a second earner earning only £20,000 would be brought into the charge despite not being affected by it in the current financial year. I would not want to go down that line.
There is a very real risk that what sounds like a generous idea could have a very negative impact by discouraging second earners, whom I think we want to be encouraging with our childcare and other reforms. Before the Government publish the consultation, I urge them to think carefully about where they are pitching this. Surely there must come a point at which household incomes are pitched so high that almost no one will be paying the charge. What would be the point of all the complexity, uncertainty and cost of collecting it if it does not raise any money? We might be better off putting the 45p rate of income tax up by 0.5p, which would raise the same amount of money while losing all this complexity.
I think it would be better if, in Committee, the Minister introduced an automatic increase by inflation each year. It was a terrible mistake to keep the thresholds where they were. By far the simplest change would be to inflate the thresholds each year, so that we do not drag more people into the charge. Everyone would understand their position, which would be easier than trying to work out what on earth a “household” is for the purpose of this charge.
If we asked the Secretary of State for Work and Pensions, he would tell us that the formation and definition of households is one of the biggest areas of welfare fraud—people are pretending not to be a household to get extra benefits. It can be extremely hard to define a household and to enforce it. How much will it cost to work out who is or is not in a household? I suspect it will be so complicated to try to reintroduce a household definition within the tax regime that it never actually happens. If it does, it will probably cost more than it raises. I question whether it is sensible to retain this charge.
Turning to what is in the Bill, and given that we now have a large range of earnings, what is the Minister’s advice to people who are not sure whether they will earn more than £80,000 because they do not know what bonus they will receive in this financial year? Should they stick with the simple route, as many people have, of disclaiming child benefit so that they do not get caught by this tax at the end of the financial year, for which they need to save in case they have to pay it—it is a bit of shock when they get there—or should they go back to claiming child benefit on the off chance? Should they put the money in the bank and see whether they are entitled to it and, if it turns out that they have not earned more than £80,000, get to keep and spend some of it? We seem to have a position in which many households will not know until very late in the financial year whether they are caught by this. If they disclaim it, they will lose a benefit to which they are probably entitled; and if they do not disclaim it, they might receive a bill that they do not have the money to pay. We need some certainty on that position.
Dame Karen Bradley (Staffordshire Moorlands) (Con)
My hon. Friend is making a very important point. I am also concerned about families who have stopped claiming child benefit and are no longer on the system, but who find, because of the new rules, that they are actually entitled. How can they make sure that they get the full amount of benefit to which they are entitled?
Nigel Mills
I agree with my right hon. Friend. We are in a complex position. My question to the Minister is whether we could have a more generous allowance in this financial year for retrospective claims. People have not understood this change and, if they have not already claimed, I suspect that they are already missing out on several weeks of benefits. Could we be more generous so that, if someone finds out towards the end of the tax year that their household is entitled, they can make a back claim? Child benefit is meant to help households with the extra costs of having children. There is a good reason why child benefit has been around for many decades. It would be wrong to deprive households of it because they are unsure how much they will get and do not want the uncertainty of big bill later in the year. There are ways that we could be a bit more generous in the transition; for example, we could allow people who are in that situation to make a catch-up claim later in the financial year.
With those few remarks, I happily support the Bill, and look forward to voting for it on Second Reading shortly.
Sarah Olney (Richmond Park) (LD)
After years of economic chaos, unfair tax hikes and millions of families suffering from the cost of living crisis, the Liberal Democrats will not be supporting the Bill today.
The Bill is yet more evidence that this Conservative Government have finally run out of ideas. For millions of families and pensioners facing soaring mortgage and rent payments, sky-rocketing energy bills and eye-watering food prices, the measures in the Bill will barely touch the sides. No real help with the cost of living, no plan for economic growth, no real support for our NHS and public services, and no end to this Conservative barrage of stealth taxes—is this really the best the Government have to offer? Thanks to this Government, the British public have endured the biggest fall in living standards since the 1950s. More and more people across the country are rightly saying that enough is enough. Instead of more empty promises, what they want is a general election as soon as possible, to get this tired Government out of Downing Street and our country back on track.
Recent weeks have seen desperate attempts from the Chancellor to convince people that he is cutting taxes, in a veiled attempt to deceive the British public, but everyone can see this for what it really is: a cynical deception that will be wiped out by frozen thresholds, the soaring cost of living and years of unfair Conservative tax hikes. Over this year and next, someone on average earnings will still be £383 worse off because of the Government’s freeze on the tax-free personal allowance. Despite that, the Conservatives now expect people to be grateful for their giving back just a small amount of what they have taken way. That shows that they are totally out of touch.
Meanwhile, the Government are completely failing to use their collected tax revenue in a fair way. For example, they have shown no interest in investing in the NHS. The economy cannot be fixed without fixing healthcare. We need to cut waiting times. We need to allow more of the 2.6 million people who are economically inactive due to ill health to return to work. On doorsteps across the country, people tell us time and again how they cannot get a GP appointment, expect an ambulance to arrive on time or see an NHS dentist. But instead of properly addressing this crisis, the Chancellor merely plugged a hole that he had blown in the NHS budget in the first place.
That is why the Liberal Democrats call on the Government to deliver serious investment for our NHS, recruit more GPs, fix our cancer services, bring down waiting lists and help people get the quality care they so desperately need. Unlike this Conservative Government, the Liberal Democrats will always stand for protecting our health services. The Chancellor either does not understand the damage done by his cruel cuts to public services or just does not care.
The Bill fails to introduce a proper windfall tax on the super-profits of oil and gas producers. That revenue could be used to fund energy support for the most vulnerable—to double the warm home discount or launch a proper home insulation scheme. It could be used to invest in British farming and bring down food prices for the long term. The legislation also fails to reverse tax cuts for big banks, a measure that could fund support for vulnerable mortgage-holders and renters. Worst of all, the Bill and the preceding Budget take none of the vital steps we need to grow the UK economy, such as launching an industrial strategy, reforming business rates and the apprenticeship levy, or reducing trade barriers for small businesses.
The Government have not just wrecked the economy; they have abandoned any strategy or plan for growth. Their lack of joined-up thinking has dire consequences for industry. Recently, we have seen the long and proud history of train manufacturing in the north-east jeopardised, with the Hitachi rail factory in County Durham put at risk of closure due to the Government not signing off an order from FirstGroup. That jeopardises some 800 jobs. The abandonment of the industrial strategy has real consequences for people across the country.
To conclude, although the Liberal Democrats welcome some measures in this Bill, such as changes to the high-income child benefit charge and the provision of tax reliefs for the creative industries, we simply cannot support a piece of legislation that fails to propose the solutions that we need to get our economy moving. In his spring Budget, the Chancellor could have proposed a fair deal for the British people and begun stimulating economic growth. Instead, he gave us more of the same: another underwhelming set of announcements from this Conservative Government, which is out of touch, out of ideas and nearly out of time. Right across the country, voters are sick and tired of this Conservative Government and are ready to vote for change at the next general election.
Nickie Aiken (Cities of London and Westminster) (Con)
As I highlighted in my contribution to the spring Budget debate last month, I support the measures that the Government are taking to grow the economy, boost productivity and ensure long-term prosperity for families. Today, I will focus on two clauses in the Bill, which will have an extraordinarily positive impact on the art and culture sectors in the Cities of London and Westminster, as well as across the country.
First, clause 16 amends the Corporation Tax Act 2009 to permanently set the rate of credit to 45% for touring theatrical productions, and to 40% for non-touring theatrical productions. The rates were due to taper to 30% and 35% respectively in April next year, but will now be set permanently at 40% and 45% from that date. The Bill increases the tax relief available for theatre productions.
Secondly, clause 17 increases the tax credits available for orchestral companies and also amends the Corporation Tax Act 2009 to permanently set the tax credit rate at 45%, instead of there being the taper that was planned for the end of this financial year.
The performing arts sector plays a crucial role in the economy of the west end. According to the Office for National Statistics, 8% of the UK’s arts and cultural businesses in 2023 were based in the Cities of London and Westminster. That equates to around 2,500 businesses and thousands of jobs. World-renowned venues, including the Theatre Royal, Dury Lane, the London Palladium, the Royal Opera House and the Royal Albert Hall, attract audiences from not only around the country, but across the globe. The Society of London Theatre and UK Theatre recently produced a study that underscored the importance of the theatre sector to our economy. Their research showed that UK theatres generate £2.39 billion in gross value added, supporting more than 200,000 jobs and generating a total turnover of over £4.4 billion every year. I am in no doubt that this uplift in tax credits will have a positive impact on actors, musicians, costume designers, set creators, singers and those in a whole host of other jobs that rely on a strong and prosperous performing arts sector.
As we know, the past few years have been difficult for this industry; it first dealt with the shock of the covid pandemic, which closed all shows, and then slowly emerged out of the crisis and rebuilt its businesses and audiences. This Government have worked tirelessly to support the creative sector in the Cities of London and Westminster, and I was proud to work with the performing arts sector and others, such as UKHospitality, to secure the £1.57 billion cultural recovery fund to support large and small performing arts businesses throughout the dark times of the pandemic. I learned from that experience, and the whole pandemic in general, just how connected the west end economy is. It is a jigsaw of complementary pieces: theatres, restaurants, hotels, cafés and bars. During that time, we learned that for every £1 spent in the theatre, an incredible £5 was generated for hospitality and other businesses. The tax clauses in the Bill will not only support the performing arts, but have a positive effect on the wider hospitality and leisure sectors, which will benefit the UK economy as a whole.
While I fully support the Bill and the included changes to tax relief, there is one specific issue that I wish to raise. It concerns the new definition of theatre production that was introduced in the Finance Act 2024. The Society of London Theatre, UK Theatre and theatre companies based in the two cities have told me that immersive theatre companies will now not be eligible for the relief that the Bill offers, due to the new definition of theatre production. The new, narrow definition of an audience means that immersive theatre companies such as Little Lion Entertainment, based in the west end, will be ineligible for the tax relief provided in the Bill. Little Lion Entertainment has been a recipient of theatre tax relief for the past 10 years. It employs 350 people in London and Manchester, and during its time it has welcomed more than 2 million patrons to its performances. Yet because of the change in definition, it fears for its future and that of the entire immersive theatre industry. I would be grateful if the Minister would consider looking again at the definition of theatre production, so that companies such as Little Lion Entertainment are not excluded from the fantastic support that the Bill will provide.
I am proud of the Government’s continued support for the performing arts in the United Kingdom. The Bill will continue ensure that our world-renowned theatres and opera productions flourish, and will safeguard them for future generations.
Peter Aldous (Waveney) (Con)
I am interested in clause 19, which sets out how the energy security investment mechanism will operate: the energy profits levy will cease if the six-month average prices for both oil and gas fall below certain thresholds. That provision follows on from the Chancellor’s announcement in his spring Budget that the energy profits levy would be extended to 2029, though it would be disapplied when energy prices return to normal. My interest in the issue stems from my role as a constituency MP—activity in the North sea energy sector is vital to the local economy—and from chairing the British offshore oil and gas industry all-party parliamentary group. I have no particular issue with the mechanisms in clause 19, though I am worried that the current short-term approach to fiscal policy for the oil and gas sector undermines other Government objectives—in particular, the objective of enhancing the UK’s energy security, which would bring new, well-paid jobs to coastal communities such as Lowestoft, and the objective of delivering our net-zero targets.
I acknowledge that the Chancellor has an unenviable role and faces a significant dilemma. He is, in many respects, between a rock and a hard place. He needs to balance the books, and to support those families who continue to struggle with the cost of living crisis. It is thus understandable that he looks to energy companies to pay more as oil and gas prices have risen. They have been at very high levels; however, it should be pointed out that they have now fallen back to long-term averages. There is a significant risk that in pursuing such a course, he could imperil the inward investment that is needed to create long-term, sustainable jobs in coastal communities for those very people who are struggling to make ends meet.
The North sea has been the UK’s economic saviour for nearly 60 years. Some might say that we are nearing the end of that particular story. That is not the case. The North sea is transitioning from being a source of fossil fuels to the long-term home of renewables. That transition needs to take place as quickly as possible, but in a smooth and seamless way. It requires a stable and long-term fiscal policy, which I am afraid we do not have at present. The decision to extend the levy for a further year was unexpected by industry and presents a significant further challenge to investor confidence.
Energy companies are making investment decisions on projects that quite often have timescales of the order of 40 to 50 years. The fact that in the UK there have been four fiscal changes in the past two years deters investment and deflects it elsewhere. Such businesses are globally footloose, and they will go to countries where the fiscal regime is favourable and has a large degree of certainty about it. In the past, the UK has ticked that particular box, but we are not doing so at present. It should also be emphasised that, as well as operating worldwide, those businesses have interests in a wide variety of energy technologies—not just oil and gas, but the low-carbon businesses of today and tomorrow: offshore wind, hydrogen, and carbon capture, usage and storage. If they find the fiscal regime unfavourable for oil and gas, they will invariably not invest in those renewables, which are so vital for our future.
The initial feedback following last month’s Budget is that those concerns are well founded: investment decisions are being delayed and funds could well be diverted elsewhere. Offshore Energies UK, which provides the secretariat for the British offshore oil and gas industry APPG, has identified that £200 billion of investment that was awaiting the green light may not now happen. Cornwall Insight concludes that prolonging the levy
“could weaken investor confidence, at a time when the UK is seeking record levels of investment to deliver the transition to net zero.”
We are at risk of imperilling the next chapter of the North sea—an ongoing story that can not only deliver economic regeneration, but provide over the remainder of this decade 50 GW of offshore wind, 10 GW of hydrogen, and four carbon capture, usage and storage clusters, as well as supporting the home-grown oil and gas industry and helping us to meet our decommissioning commitments. In short, it could unleash an enormous amount of economic activity that can cascade right around the UK. To be fair to the Government, clause 19 does seek to address those concerns, but I urge them to map out a long-term strategy for offshore energy, building on the success of the 2021 North sea transition deal. They are now adopting a similar course in the nuclear sector. We need to get back to doing the same in the North sea.
It is appropriate to comment on the Opposition’s alternative proposal to extend the windfall tax. There is a real worry in the energy industry that that could exacerbate the worries that I have underlined. Offshore Energies UK has highlighted that those proposals could lead to the loss of 42,000 jobs and the wiping out of £26 billion-worth of economic activity. A concern that I hope the Opposition will allay is that they are looking at removing the capital and investment allowances that are vital to securing inward investment.
We are where we are, and I fear that some damage has been done. However, there is work to do to rebuild the UK’s reputation as a prime destination for investment in the energy sector, and we need to get on with that task without delay. The industry has noted the Government’s commitment to honour the sunset clause, and I urge the two Ministers on the Front Bench—my hon. Friends the Members for Mid Worcestershire (Nigel Huddleston) and for Grantham and Stamford (Gareth Davies)—to provide the further reassurances that are needed to reinforce that message, both this afternoon in their responses and as the Bill progresses through Parliament.
The importance of ongoing and meaningful dialogue between the Government and industry cannot be overemphasised. In the period from 2012, after the last windfall tax, up to 2021, when the North sea transition deal was agreed, that interaction was very much taking place. It has been lost over the past three very eventful years, but it needs to be restored as quickly as possible. If it is, we can still embark on a new golden era for the North sea: an era of home-grown energy transition, not an outsourced one; of reindustrialisation, not deindustrialisation; and of enhanced energy security and economic prosperity.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
As my hon. Friend the Member for Ealing North (James Murray) set out in his opening speech, this Finance Bill and last month’s Budget are nothing but the last gasps of a dying, desperate Government. Neither does anything to address 14 years of Conservative economic failure, and as always with this Government, it is working people who pay the price, because taxes are still rising. The British people, already facing the highest tax burden in 70 years, will see tax rises in every single year of the forecast period. As much as the Government try, they simply cannot hide from that record: after a decade and a half of Conservative rule, people have less money in their pockets.
Unable to defend his own Government’s record, and unable to offer any plan to get the country out of the economic mess that his party has created, this Chancellor has resorted to undeliverable promises. The Chancellor ended his Budget last month with a £46 billion unfunded tax plan to abolish national insurance, which would put our economic stability at risk. That is even bigger than the unfunded tax cuts announced by the right hon. Member for South West Norfolk (Elizabeth Truss) in her Budget, which added hundreds of pounds to people’s mortgages.
In contrast, the Labour party has consistently said that we would reduce the tax burden on families. That is why we opposed the current Prime Minister when he wanted to increase national insurance two years ago, and it is why we supported the measures announced last month to bring national insurance down by an additional 2p.
Although on the surface this Bill leaves the basic and higher rates of income tax unchanged, let us be clear: this is a Government who have raised the tax burden to record levels, and taxes are continuing to rise. Because of the tax choices that this Chancellor has made, households will be, on average, £870 worse off. His decision to freeze tax thresholds will create 3.2 million new taxpayers by 2028, and 2.6 million more people will be paying higher rates. For every £5 that the Government are giving back to families, they will be taking an average of £10 in higher taxes under their plans, and they expect the British public to thank them for it.
While we will always call out the Conservatives for pickpocketing the British taxpayer, we do welcome their recent pickpocketing of Labour policies. Labour has long argued that if people make Britain their home, they should pay their taxes here too. However, the Prime Minister himself has said that scrapping the non-dom tax status would somehow end up costing Britain money, and the Chancellor previously tried to argue that the non-dom status supports jobs and that reforming it would damage long-term growth. I am delighted to say that the Prime Minister and the Chancellor have finally come around to the Labour party’s way of thinking, but it is not quite what it seems. I am not denying that Conservative Members have come a long way after years of opposing our plan to scrap the non-dom status, but there are still some gaping loopholes in the Government’s plans.
The discount in year 1 is unnecessary and unjustified, and particularly concerning is the loophole that will allow non-doms to exploit offshore trusts so that they can avoid inheritance tax. As my hon. Friend the Member for Ealing North made clear, these loopholes must be closed. I hope that the Minister, when he responds, will commit to closing these loopholes, so I wait with bated breath to hear what he has to say on this policy. If not, will he accept that the Conservatives are once again putting the interests of non-doms before those of ordinary British taxpayers and British businesses?
Let us take corporation tax, which clause 12 sets at 25%. All this Chancellor has had to offer British businesses is uncertainty. Despite promising to cut corporation tax from 19% to 15% in his 2022 leadership bid, he has increased it from 19% to 25%. In contrast, our shadow Chancellor has committed to capping the headline rate of corporation tax at its current rate for the whole of the next Parliament, and we would take action if tax changes in other advanced economies threatened to undermine UK competitiveness.
The Opposition will be supporting the energy security investment mechanism in clause 19 of the Bill before us, as it will help investors get the confidence they need. Likewise, we are committed both to strengthening the windfall tax to raise more revenue to support our country’s energy transition, and to giving as much certainty as possible to the companies affected. That is why our shadow Chancellor has made it clear that, under Labour, our one-off, time-limited energy profits levy will cease to apply by the end of the next Parliament.
We will not be opposing the Bill today, but we will be looking closely at the detail in the specific clauses in the coming weeks. However, let us be under no illusions: this is an exhausted and directionless Conservative Government who are out of ideas and out of time. All they have to offer are U-turns, unfunded promises and an ever-growing tax burden on working people and our constituents. In contrast, the Labour party’s offer to the country will be carefully costed and fully funded, and we will always put working people and British businesses first.
The Government have failed to reduce the tax burden, failed to boost business investment, and delivered only stagnation and chaos, whereas our economic plan is built on the pillars of stability, investment and reform: stability brought about by iron discipline, and guarded by strong fiscal rules, robust economic institutions and certainty on corporation tax; investment, working with the private sector, so that we can lead the industries of the future and make work pay; and reform, starting with our planning system, to tackle vested interests. The British people deserve better than this. The British people deserve change. I hope the Minister will agree with me that it is now time to call a general election as soon as possible.
The Exchequer Secretary to the Treasury (Gareth Davies)
It is always a pleasure to see you in the Chair, Madam Deputy Speaker. Let me begin by thanking Members from across the House for their contributions to the debate on this Finance Bill.
Before I address some of the specific points raised, let me briefly reflect on what this Bill is seeking to achieve. It is a Bill for a Budget that rewards work, and it sends a clear message to working people across the country that we support them. We want their work to pay and we want them to have more money in their pocket at the end of the working day. We want to continue to make this country a great place in which to live, work and invest; and to provide our key growth industries with the support and incentives they need to continue to thrive. Taken together, these policies will drive economic growth and productivity for years to come by focusing on workforce participation and stimulating business investment.
Despite going through an incredibly difficult time these past years, with a global pandemic and a war in mainland Europe, our economy has now turned the corner. Inflation is down from its peak of 11% to 3.2%; real wages are consistently rising; and, despite high interest rates, our economy is growing, because of the action that we have taken over the past few fiscal events and the plan that we have put in place—it is always important to have a plan, Madam Deputy Speaker—and this Bill continues our work to execute that plan.
The Bill will support hard-working parents by increasing the high-income child benefit charge threshold and taper, taking 170,000 families out of paying that tax charge, and with almost half a million families gaining an average of £1,260 towards the cost of raising their children. My hon. Friend the Member for Amber Valley (Nigel Mills) made thoughtful remarks about our intention to move to a household basis. We will absolutely take those remarks on board, as he mentioned, and we will be consulting on this issue shortly and his points will also be taken on board in that process.
My hon. Friend the Member for Cities of London and Westminster (Nickie Aiken) pointed out that the Bill will encourage investment in our world-leading creative industries—a key growth sector for the UK—with a new tax relief for UK-made independent films. It will permanently increase the rates of tax reliefs for theatres, orchestras, museums and galleries, backing British talent in film and on the stage, and we will always champion our creative industries, which remain the envy of the world. She raised points about specific challenges, particularly on immersive audiences. Production will qualify for theatre tax relief if the main purpose of the audience is to observe. Some level of audience participation will not necessarily disqualify a production, but it cannot be the main purpose. Further guidance will be issued by the Treasury, and I know that my hon. Friend the Financial Secretary to the Treasury would be happy to meet her to discuss the specific issues her constituents are facing.
My hon. Friend the Member for Waveney (Peter Aldous) has been a consistent champion for the oil and gas industry, and quite right too. He acknowledged that the Bill will provide more certainty to investors in the oil and gas industry, and the finance industry that lends for investment, by putting the energy security investment mechanism into legislation. The ESIM operates on the basic principle that it is only right that when prices of oil and gas come down to normal levels, so too should the tax on exceptional profits. That gives certainty to industry and also brings more fairness.
My hon. Friend the Member for North East Bedfordshire (Richard Fuller) made a typically constructive and, perhaps, creative speech, and made a number of points. In particular, his support for our national insurance contribution cuts was much appreciated. He is right to highlight an under-appreciated policy on auto-enrolment, which has seen 10.3 million people brought in to saving for a pension, with 86% of private pension savers now participating more than they were before. We will look closely and work with him on his specific suggestion relating to national insurance contributions to boost savings. We all want the savings culture in this country to grow and grow, and we are always open to suggestions.
The national insurance contributions had a separate Bill, but they continue to be a subject of debate in Treasury discussions. The Opposition’s suggestion that our ambition to remove the double tax on work is some kind of unfunded policy must be addressed. Let me be clear: this is an ambition; it is obviously not happening overnight. Let us look at what we have done over the past six months for hard-working people across the country: we have cut national insurance contributions by 30%, all while increasing pensions by 8.5%, and providing record funding for our NHS. Indeed, having an ambition in public policy is not new. In 2010 we set out a long-term ambition to raise the personal allowance to £10,000, which we did not just meet but exceeded, and it is now over £12,500, as acknowledged by my hon. Friends the Members for Amber Valley and for North East Bedfordshire.
It is important to set out a direction of travel for the British people, and to show ambition for what we want to do in government. Not only do Labour Members not have any long-term ambitions, but none of their ambitions seem to last very long. They talk about change, but the only change that the Labour party offers is a change in its own policies, week after week after week, and that’s just weak! Labour’s policies are so weak and vague that even its righteous moral compass cannot find a direction. However, there are a few glimmers of what a Labour Government might look like—what five years of hard labour might look like. For example, we know that under Labour’s embattled deputy leader and the trade unions, 70 new regulations will hamper the ability of businesses to hire, stifle their ability to grow, reduce job opportunities, and unleash waves of low-threshold, zero-warning strikes on hard-working British people. Labour calls it a new deal, but let us face it: it is a raw deal for business and workers across the country.
I have not even mentioned the things that the Labour party is doing today where it is in charge, so let us just quickly go through those: 20 mph zones, limited rates relief and longer NHS waiting lists, all in Labour-run Wales; a bankrupt council, adult social care budgets cut and council tax up by 21%, all in Labour-run Birmingham; and knife crime up, relentless National Union of Rail, Maritime and Transport Workers strikes and a cruel ultra low emission zone tax on motorists, all in Labour-run London. The House will forgive me if I will not take lectures from the Labour party.
To conclude, we are delivering a Finance Bill that will see us move forward with the Government’s plan to support long-term growth, encouraging people into work, boosting investment and ensuring that hard-working taxpayers keep as much of their money as possible. We on the Government Benches choose aspiration over envy and ambition over declinism. For those reasons and more, I commend this Bill to the House.
Question put, That the amendment be made.
Proceedings | Time for conclusion of proceedings |
|---|---|
Clauses 1 to 4; any new Clauses or new Schedules relating to the subject matter of those Clauses (income tax charge and rates etc) | 3 hours after the commencement of proceedings on the Bill. |
Clauses 12 and 13; Clause 19; any new Clauses or new Schedules relating to the subject matter of those Clauses (corporation tax charge and rates etc and energy security investment mechanism) | 6 hours after the commencement of proceedings on the Bill. |
Finance (No. 2) Bill
Wednesday 8th May 2024
(6 months, 2 weeks ago)
Commons ChamberRead Full debate Finance Act (No. 2) 2024 2023-24 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 8 May 2024 - (8 May 2024)
15:26 - The Committee divided: - Ayes: 211 / Noes: 276 - Question accordingly negatived.
15:42 - The Committee divided: - Ayes: 212 / Noes: 274 - Question accordingly negatived.
16:40 - divided: - Ayes: 195 / Noes: 266 - Question accordingly negatived.
16:54 - divided: - Ayes: 198 / Noes: 269 - Question accordingly negatived.
The Chairman of Ways and Means (Dame Eleanor Laing)
With this it will be convenient to discuss the following:
Clauses 2 to 4 stand part.
New clause 1—Review of impact of section 2—
“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, publish a review of the expected impact of section 2 of this Act.
(2) The review must include analysis setting out the number of individual taxpayers facing a marginal tax rate in the tax year 2024-25 of—
(a) the basic rate of 20%, and
(b) the higher rate of 40%.
(3) For comparative purposes, the review must take account of—
(a) equivalent actual figures to those in subsection (2)(a) and (b) for the tax years 2021-22, 2022-23 and 2023-24, and
(b) equivalent projected figures to those in subsection (2)(a) and (b) for the tax years 2025-26, 2026-27 and 2027-28.”
This new clause requires a review of how many people will be liable to pay income tax at 20% and 40%, and would compare figures for the current tax year with those for the three preceding and three subsequent tax years.
New clause 4—Review of impact of section 1 on pensioners—
“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, publish a review of the expected impact of section 1 of this Act on those over State Pension age.
(2) The review must include analysis setting out, for the tax year 2024-25—
(a) the total number of people over the State Pension age paying tax under section 1, and
(b) the average tax liability per person of those in subsection (2)(a).
(3) For comparative purposes, the review must take account of equivalent projected figures to those in subsections (2)(a) and (2)(b) for the tax years 2025-26, 2026-27 and 2027-28.”
This new clause requires a review of how many pensioners will be liable to pay income tax this year and in each of the next three years, and what the average pensioner’s tax bill will be in each of those years.
New clause 5—Impact of income tax and corporation tax provisions on Wales, Scotland and Northern Ireland—
“The Chancellor of the Exchequer must, within three months of this Act being passed, publish an analysis of the impact of the measures in sections 1 to 4, 12 and 13 of this Act on—
(a) Wales,
(b) Scotland, and
(c) Northern Ireland.”
This new clause requires an analysis of the income tax and corporation tax measures in the Bill on Wales, Scotland and Northern Ireland.
New clause 6—Report on impact of section 2—
“Within three months of this Act being passed, the Chancellor of the Exchequer must lay before the House of Commons a report setting out—
(a) the number of taxpayers that will pay income tax at each rate during the tax year 2024-2025 under section 2;
(b) the number of those taxpayers that are pensioners or are of State Pension Age;
(c) comparative figures for each tax year since 2021; and
(d) comparative projected figures for each tax year to 2030.”
The Financial Secretary to the Treasury (Nigel Huddleston)
It is an honour to open the debate. I will start by setting out how, because of the progress the Government have made, we have been able to cut taxes as part of our plan to reward work and grow the economy.
The Government cut national insurance at both the autumn statement and the spring Budget and have made above-inflation increases to thresholds since 2010, with the basic rate threshold rising from £6,475 to £12,570 today. Taken together, those measures mean that an average worker on £35,400 in 2024-25 will save £1,500 more in personal taxes than they otherwise would have done. Due to the significant real-terms increases to the personal allowance, it is estimated that 1.8 million people will be taken out of income tax altogether by 2024-25, compared with the threshold rising in line with inflation from 2010-11. All workers can now earn £1,000 a month before paying any tax, due to the significant increases to the national insurance starting threshold, which we changed in July 2022.
Let me turn to the first four clauses of the Bill. Income tax is the largest source of Government revenue and helps to fund the UK’s schools, hospitals and defence, and other essential services we all rely on. In 2024-25, it is expected to raise more than £302 billion. Each year, the Government must legislate to charge and set rates of income tax, which is why we are all here today. Clauses 1 to 3 impose an income tax charge and set the rates of it for 2024-25. The rates are not changed by the Bill; rather, we are confirming that they will remain the same.
Clause 1 imposes a charge on individuals to pay income tax for the year 2024-25. Clause 2 sets the main income tax rates—namely the basic rate of 20%, the higher rate of 40% and the additional rate of 45%—for non-savings and non-dividend income of taxpayers in England and Northern Ireland. Those rates are set separately from those in clause 3, as the income tax rates for non-savings and non-dividend income, such as earnings from employment, are devolved to the Scottish and Welsh Governments, and are set by their respective Parliaments. The decision to separate savings and dividends from other forms of income was made as part of the devolution settlement. It ensures that the UK system works effectively and coherently, recognising that dividend and savings income is generally more mobile and generated across the UK, and has some interactions with corporation tax, which is not devolved.
Clause 3 sets the default income tax rates at the same levels as the main rates—namely 20%, 40% and 45%—across the entire UK. These rates apply to the non-savings and non-dividend income of taxpayers who are not subject to the main rates of income tax or to Welsh or Scottish rates of income tax, such as non-UK resident individuals. The clause also sets the savings rates of income tax for all UK taxpayers, again at 20%, 40% and 45%.
As I mentioned, income tax is a vital revenue stream for our public services, without which we could not fund our schools, hospitals, defence and more. It is important that we keep it at its current level.
Jonathan Edwards (Carmarthen East and Dinefwr) (Ind)
I receive emails from constituents asking me why the Government are not unfreezing the personal tax thresholds.
Nigel Huddleston
We all know that, because of the level of intervention that we had to take, out of necessity, during the pandemic and in response to the cost of living challenges, Government intervention was far greater than any of us anticipated—to the tune of £400 billion in the pandemic and £100 billion for the cost of living challenges. That money has to be paid back, and I think most of our constituents know that. We have seen the same pattern right around the world, where tax levels have had to be higher out of necessity. That means that thresholds have not been able to move in the way that we would normally like. However, now that economic circumstances are changing, we have turned a corner and we are able to reduce taxes, such as for the 27 million people who will receive on average an extra £900 through the national insurance cuts.
Jonathan Edwards
I am grateful to the Minister for giving way a second time. He started by talking about some of the fiscal measures that the Government have taken to reduce tax, but by not unfreezing the personal allowances, are the Government not taking money from one pocket and putting it back in the other?
Nigel Huddleston
No. I advise the hon. Member and others to look at their wage slip from a few months ago—say, in December last year. They will see a direct impact because of the national insurance changes that we made in January and again in April. People will see that they are paying less national insurance than in the past. That is transparently and clearly a tax cut. We are able to reduce taxation because the direction of travel is changing.
Taxes have increased across the whole of the western world. Our tax level is projected to increase to about 37%, compared with around 39% in Germany, around 42% in Italy and around 46% in France. This is a phenomenon whereby Governments have had to intervene and spend more money and, as an obvious consequence, they have had to increase taxation to a greater level than anticipated or desired.
However, now that we are back to growth and on a firmer footing, the economy has turned a corner, and we are able to reward the hard work of the British public by reducing taxation. We are doing that in the form of income tax cuts. As the Chancellor and the Prime Minister have said on multiple occasions, we wish to continue in that direction of travel. As I said, people should look at their pay packets. I recognise that it is one thing to talk in the Chamber about implementing laws, but people will now see that in their pay packets in a meaningful way. An average worker on £35,400 will be £900 better off as a result of the national insurance cuts. That is a meaningful amount for constituents right across the country, including those in the hon. Gentleman’s constituency.
Another principle of taxation is fairness. Income tax is fair: those with the most contribute the most. The income tax system is highly progressive, with different rates of tax sitting above an internationally high personal allowance. The top 5% of income tax payers are projected to pay nearly half of all income tax in 2023-24. The top 1% are projected to pay more than 28% of income tax. Thanks to the personal allowance, almost a quarter of individuals will not pay income tax at all in 2024-25. It is important to note that the percentage paid by the top earners is greater than it was under the last Labour Government. In other words, the tax system is more progressive under the Conservatives.
Income tax is also internationally competitive. According to the OECD, the UK has some of the most generous starting allowances for income tax and social security contributions in the OECD, and the most generous in the G7—more generous than in France, Germany, Italy, Canada, Japan and the US. According to the OECD, in the United Kingdom the average single worker faced a net average tax rate of 23.7% in 2023, compared with the OECD average of 24.9%. In other words, in the United Kingdom, the take-home pay of an average single worker after tax and benefits was 76.3% of their gross wage, compared with the OECD average of 75.1%.
I have talked a lot of statistics, but what they mean is more money in people’s pockets to spend as they wish—a fundamental Conservative philosophy. We have also been able to return some money to taxpayers now that inflation is falling and the economy is improving, by reducing national insurance contributions. We have put money back into people’s pockets. We have prioritised tax cuts for those in work, and we believe that that is the best way to stimulate growth in the economy overall.
Clause 4 continues the theme of maintaining the income tax arrangements by keeping the starting rate limit for savings at its current level of £5,000 for the 2024-25 tax year. Many colleagues may be familiar with this but some may not, so briefly by way of explanation, the starting rate for savings is an extra £5,000 tax-free allowance for interest from savings, specifically for individuals who have earned incomes of less than £17,570. That supports in particular people with low earned income, such as pensioners who are reliant on savings interest.
The Government made significant changes to the starting rate for savings in 2015, when they raised the threshold to get the starting rate for savings from £2,880 to £5,000, and lowered the starting rate for savings from 10% to 0%. As many Members will be aware, the starting rate limit for savings must be legislated for each year to confirm the band of savings income to which it applies. Again, that is what we are doing today. This clause will ensure that the limit is held at this level. It ensures simplicity and fairness in the tax system, while maintaining a generous tax relief and supporting the public finances by taking fiscally responsible decisions. As well as benefiting from the starting rate for savings—whereby, as I have said, individuals with earned income of less than £17,507 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. They can also continue to benefit from the annual ISA allowance of £20,000. Moreover, in the spring Budget 2024 the Government introduced the British ISA, which will provide a new allowance of £5,000 in addition to the existing ISA allowance, along with a new tax-free savings opportunity for people to invest in the UK. Taken together, those generous allowances mean that about 85% of savers pay no tax on their savings income. The Government are committed to continuing to help people on all incomes and at all stages of life to save. The significant increase in the starting limit in 2015 means that the taxation arrangements for savings income remain generous, and the Government therefore believe that it is appropriate to retain the starting rate for savings at its existing value at this time.
The Government are managing the public finances in a balanced and responsible way. Our approach to delivering fiscal sustainability is underpinned by fairness, with those on the highest incomes paying a larger share. By maintaining the current rates of income tax and the starting rate limit for savings thresholds, we will ensure that the highest earners contribute more to the revenue, helping the Government to take a balanced approach to revenue raising while still supporting vital public services.
James Murray (Ealing North) (Lab/Co-op)
I rise to speak on behalf of the Opposition to new clauses 1 and 4, which stand in my name and that of my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq).
“This remains a parliament of record tax rises.”
Those are not my words but those of Paul Johnson, the director of the Institute for Fiscal Studies, following the spring Budget from which this Finance Bill derives. However, the IFS was not alone in its view. In response to the Budget, the Institute for Government was clear as well, saying that taxes were set to rise
“to a post-war high as a result of decisions made by Conservative chancellors over the past 14 years.”
Meanwhile, the National Institute of Economic and Social Research described the Chancellor’s announcements in March as a
“low-key budget…unlikely to unlock the UK’s growth and productivity problems”.
The verdict is clear. People in Britain are facing higher taxes, squeezed living standards and weaker public services, and they have a Government who are unable to undo the damage that they have caused. No matter what the Conservatives now say or do, the truth is that the tax burden is set to rise to its highest level in 70 years. The decisions taken by Conservative Chancellors in this Parliament—and, let’s face it, there have been a few of them—mean that the average family will face a tax bill that is £870 a year higher by 2028-29. For pensioners, it is even worse: people over the state pension ago do not even benefit from any changes in national insurance, which means that pensioner taxpayers will pay an eye-watering £960 more a year by the end of the forecast period.
People across Britain are struggling to make ends meet as they find their wages squeezed and taxes rising relentlessly, yet the Conservatives have decided to tell the British public that they have never had it so good. I note that Ministers are trying to do that again today, telling us that their plan is working, although that is not the reality of life for people who, at the next general election, will be asking themselves whether they and their families feel better off than they did 14 years ago. It is that reality that new clauses 1 and 4 seek to expose: as the Conservatives gaslight the British people, our new clauses are there to call them out.
New clause 1 does that by requiring the Government to come clean over how many people will be liable to pay income tax at 20% and 40% in the current tax year, how the number has changed over the last three years, and how it will change in the three years ahead. We want the Government to admit the impact that their six-year freezing of the income tax personal allowance and the higher rate threshold will have. According to the Office for Budget Responsibility, 3.7 million more people will be paying tax by 2028-29, and 2.7 million more will be paying the higher rate, as a result of the Government’s threshold freezes. Will the Minister repeat those figures and admit that they are correct? We believe that the Chancellor should be honest about this too, and that is what new clause 1 seeks to achieve.
We know that the outcome of the Conservatives’ decisions during the current Parliament is hitting pensioners who pay tax especially hard: because taxpayers over the state pension age do not benefit from any of the changes in national insurance, they will feel the impact of the Conservatives’ tax rises even more. That is why we tabled new clause 4—again, requiring the Chancellor to come clean about the impact of his and his predecessors’ policies. The new clause requires the Chancellor to set out the number of pensioners who will be liable to pay income tax this year and in each of the next three years, and what the average pensioner’s tax bill will be. Pensioners deserve to know the truth about how the Government’s decisions will affect them, and they have good reason to be concerned about this Government.
While Labour has guaranteed that the pensions triple lock will be in our manifesto and protected for the duration of the next Parliament if we win, the Conservatives refuse to say what impact on pensioners their £46 billion unfunded pledge to abolish national insurance altogether would have. As the shadow Chancellor, my right hon. Friend the Member for Leeds West (Rachel Reeves) said yesterday, it is a tax bombshell aimed squarely at Britain’s pensioners. The Conservatives are refusing to say how they would pay for this massive commitment, so it is hard not to suspect that they are concealing their plans to make pensioners pay the bill. Perhaps they will pay for the revenue lost through the abolition of national insurance by making changes to pension rates or to the state pension age, but if they are planning to keep pensions the same and make up the revenue by raising the basic and higher rates of income tax, that would mean an 8% increase in income tax rates.
My colleagues and I have asked Ministers time and again to come clean about how they would pay for their plans, but they resolutely refuse to do so. They could clear this up right here, right now, by either abandoning their unfunded commitment or explaining how they would pay for it. I would happily give way if the Minister would like to do that, but I suspect that he will not. We know that the Conservatives find the reality of their tax-raising record so hard to bear that they would rather hang on to a reckless, unfunded plan to abolish national insurance to make them feel better about themselves and to desperately try to keep their divided party together. It is crystal clear that for the Conservatives it is party first, country second.
We also know that the Conservatives’ high tax record goes hand in hand with their record of low growth in the economy. Indeed, one of the reasons taxes are so high is the fact that economic growth has been so weak over the past 14 years. Again, no matter what the current set of Ministers say, the idea that the economy is turning a corner is simply not reflected in reality. The truth is that our economy is smaller per person than it was when the right hon. Member for Richmond (Yorks) (Rishi Sunak) became Prime Minister. Our country is forecast by the OECD to have economic growth of just 1% next year, weaker than that in every other G20 country except Russia. If, under the Conservatives, the UK economy had grown at the average OECD rate, it would now be £140 billion larger—and that growth would have provided an extra £50 billion in tax revenues to be invested in our public services. Instead, economic growth is on the floor, taxes are going up, and public services are falling over. That is the Conservative doom loop that we are in. We know that the only way out of the doom loop of ever-rising taxes with nothing to show in return is to get the economy growing with Labour’s plan.
Labour’s plan for economic growth is driven by the need for stability, investment and reform. Stability, something so sorely lacking in the recent years of Conservative chaos, must be the basis of a secure and responsible approach to the economy, and with strong fiscal rules, a new fiscal lock and respect for independent institutions, we will put stability at the heart of our approach.
Jonathan Edwards
At the beginning of his speech the hon. Gentleman mentioned Paul Johnson, whom the press has quoted today as saying that the Government and the Opposition are tied to the same fiscal path. Is that an ideological decision or a general election tactic? I am genuinely interested in hearing the answer.
James Murray
We in the Labour party believe that having fiscal rules that are iron-clad is essential to being trusted to manage the economy in a responsible way that puts family security and family finances first. Having strong fiscal rules and stability underpinning every other decision that we make is absolutely essential to everything that a Government might hope to do. Indeed, that stability forms the foundation for getting the economy growing, because with stability we will be able to work in partnership with businesses to remove the barriers to investment, using catalytic public investment to unlock more than £20 billion from the private sector to invest in the industries of the future. To support that investment, we will reform the systems that our economy needs to thrive, from reform of our planning system and employment rights to devolving powers to elected Mayors on transport, skills, enterprise, energy and planning. That is how Labour will begin to grow the economy if we win the next general election.
We know that a new approach and a new Government are needed, because that is what people across the country are telling us. People want a new approach whereby they can feel better off, rather than struggling to make ends meet as their taxes rise relentlessly. The Conservatives are desperate to distract from the mess they have created. They go from the simply unbelievable, like the Chancellor claiming yesterday that they had abolished low pay, to the unbelievably reckless, like their £46 billion unfunded plan to abolish national insurance. But no matter what they say, or how hard they try to pretend that their plan is working and that people in Britain have never had it so good, people know the reality of life. People know that taxes are at record levels.
Today we want the Conservatives to at least come clean and admit how many more people are paying tax as a result of their decisions in this Parliament, and how hard they are hitting pensioners in particular. Frankly, however, no matter whether they come clean, come the general election, people across Britain will ask themselves whether they and their family feel better off today than they did 14 years ago. The answer to that question is the reality from which the Conservatives cannot hide.
Sir John Redwood (Wokingham) (Con)
I have declared my business interests in the Register of Members’ Financial Interests.
I rise to speak in support of tax-cutting proposals. We are not discussing the national insurance reductions in this group of clauses, but both previous speakers have spent some of their time discussing them because they are relevant, as they are the other side of the issues related to the correct levels and thresholds for income tax, which are the proper matter of our current debate. I wanted any kind of tax cut in the Budget, because we are over-taxed and the right kinds of tax cuts can speed up growth, which all the major parties in this House want, although there are some disagreements about the exact mix of policies that might create it.
The first thing we need from the Treasury is for its official forecasts and those of the OBR to have greater belief in the fact that if we promote more growth by cutting some tax rates, we may end up with more tax revenue. The best generator of more revenue to pay for our public services is a growing economy. The best generator of more growth is productivity improvements, and there is particular scope for such improvements in the public sector. The public sector was badly damaged by the covid experience. We lost a lot of productivity through the hasty and unnecessary reorganisation of public services during the pandemic, but we are finding it hard work and slow going to get the lost productivity back.
I welcome the fact that, in the latest set of Budget numbers, the Government have put in future productivity recoveries over the next few years, but it is slow progress, even to get back to the levels of productivity in 2019. I put it to the Government that they do not need to spend extra money on new technology, such as artificial intelligence, to get back to the levels of 2019. They may wish to recommend schemes for AI investment to get above 2019 levels but, by definition, we were able to get to 2019 levels of productivity without AI, because it had not been invented at that stage.
There should be more common agreement about the urgency of productivity recovery in public services. We are missing out on at least £20 billion due to the productivity problems that have developed since 2020 and the lockdown experience. However, there is also a source of extra revenue from lower taxes, because if we cut tax rates in the right way, we will generate more cash, rather than less. I think everybody now agrees that cutting certain taxes has that effect, because it is quite obvious that if we impose certain kinds of turnover or activity taxes, they will lower turnover and activity. Indeed, many taxes are imposed with a moral wish to lower activity or usage rates. For example, alcohol and tobacco attract higher taxes because the wish is that people buy them less or, in the case of tobacco, do not buy them at all. We get the same effect with things that we should be promoting.
The Chairman of Ways and Means (Dame Eleanor Laing)
I call the SNP spokesman.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
As we scrutinise the Finance (No. 2) Bill in detail, starting with clauses 1 to 4, we see that the legislation serves as a profound symbol of a Government who have run aground. The Bill starkly exposes the UK Government’s complacency in the face of the cost of living crisis that continues to devastate homes across Scotland and, indeed, the other nations of the UK. Households are still reeling from the catastrophic decisions made by this Westminster Government.
As we have heard from the Government, clauses 1 to 4 are about household incomes, but the Bill falls dramatically short of meeting the urgent needs in our communities. I am used to this place lacking in humanity, but where is the humanity? It is never shown on these domestic issues. People in our communities need and want help. They want to know how they will pay for their soaring mortgage bills, their food bills—up by more than a quarter in the past two years—their ballooning car insurance premiums, their energy bills, which are still nearly 60% higher than in the winter of 2021-22, according to Library research, and much else. The clauses before the Committee do not really get to that issue.
The shadow Minister is right to talk about the per capita GDP issue in the UK, which is an utter disgrace, but what is Labour’s plan? More Brexit, more austerity and more being wedded to the fiscal rules that got us into this place. This is a damp and ineffective piece of navel-gazing from folk who had the wrong idea in the first place. Time and again, that idea has failed, but they have repackaged it and put it forward once more. Austerity is bust. It does not work, and it is madness for both the Conservative party and the Labour party to continue pursuing it, but that is what they do. This broken institution is not listening to people.
Clauses 1 and 2 could have invested in the economy. The Minister talks about devolution, but instead of devolution of investment, we are getting the devolution of his cuts. The spring Budget slashed Scottish capital funding by 16.1%, severely restricting Scotland’s aspiration for new hospitals and more. I note that the shadow Minister was happy to quote the Institute for Fiscal Studies, and Labour and the Tories are both maintaining what the Institute for Fiscal Studies has called a “conspiracy of silence” on the magnitude of the cuts required in the coming Parliament.
The former Labour leader in Scotland, Kezia Dugdale, makes it clear in an article published today that voting for Labour in Scotland would mean that people have to pay for tuition fees, and possibly for prescriptions and personal care. They are likely to see fewer child poverty interventions such as the Scottish child payment, an SNP initiative that is already lifting 100,000 children out of poverty. If they vote for Labour, people in Scotland are likely to see those things scaled back. That is the reality of the future under Labour: more austerity. Voting for a compliant, so-called Scottish Labour will have real-life consequences for the people of Scotland.
Although we will support Labour’s new clauses 1 and 4, which would offer some scrutiny of what is going wrong with the Government’s policy, Labour is ultimately only slavishly following this horrible, extremist, worn-out and clueless Tory Government, who are hollowed out by their right wing. It is testament to a Government devoid of ideas and vision, in this fag-end Parliament characterised by minimal legislative activity, that the Bill contains a mere 26 clauses, compared with last year’s 352.
Sir John Redwood
Can the hon. Gentleman tell us why Scotland grows less quickly than England, despite having more public spending per head?
Drew Hendry
Had the right hon. Gentleman done any real research, he would know that the figures for the UK are skewed dramatically by the overheated economy of London and the south-east, which buck the UK trend. If he looks at the figures for all the counties of England, including those in the north of England, he will see how the Government are letting down the people of England across the piece. But of course he does not want to do that. He just wants to make a lazy characterisation of what is happening, saying nothing about people’s potential, which is being ignored and run down by this place, this Government and the official Opposition, who have no idea how to change that.
Clauses 1 to 4 aim to maintain the current rates of income tax, including the savings rates, for another financial year. However, they do little to mitigate the Government’s broader fiscal missteps. In contrast, Scotland’s progressive approach to income tax under the SNP— I almost choked when we heard about progressive taxation earlier—has not only shielded public services from Westminster’s austerity but enhanced them, generating approximately £1.5 billion in additional revenue. We are protecting those on lower incomes, because most people in Scotland pay less income tax and dramatically less council tax than people in England.
All the scare stories about people leaving Scotland because of its progressive policies have proved to be rubbish. The report from His Majesty’s Revenue and Customs has shown that more higher-rate taxpayers have moved to Scotland. The revenue that the Scottish Government are attracting supports a wide array of social benefits, from free prescriptions to university tuition, which significantly reduces the cost of living for Scottish residents. Those are all things that this Parliament would attack, and Kezia Dugdale has today posted a warning about what would happen if Labour got its hands on the Scottish Parliament.
Ben Lake (Ceredigion) (PC)
New clause 5, in my name, would require the UK Government to review the impact of the tax measures announced in the spring Budget on Wales, Scotland and Northern Ireland. The Committee will, of course, recognise that the nations and regions of the UK differ in key respects—in their strengths, their weaknesses and their needs. To a large extent, the UK tax system operates as though economic and social conditions are uniform across these isles, so I would like the Government to consider what impact this universal approach to central taxation is having on different parts of the UK, in the hope that a better understanding of such matters will help to inform and improve tax policy decisions.
The laudable ambition to level up the nations and regions of the UK is testament to the different circumstances prevailing across these isles. The Welsh tax base is different from others in the UK. Wages in Wales are much lower than the UK average, productivity is lower, and our proportion of elderly citizens is higher. We should ensure that the tax system reflects that reality and, at the very least, we should make sure that we fully understand the differential impact of tax decisions, whether it be the freezing of the personal allowance, reductions to national insurance contributions, or decisions on corporation tax, on different areas.
I concede, of course, that some fiscal devolution has taken place and that the Welsh Government have the power to set supplementary Welsh rates of income tax. However, these powers are not as advanced as those possessed by the Scottish Parliament, which allow the Scottish Government to create new income tax band thresholds to better tailor their tax system to the specific needs of the Scottish people.
A review of the impact of income tax policy specifically on Wales could include looking at how it interacts with the current Welsh rates of income tax and inform the debate on any further devolution of tax-raising powers to Wales in the future. Extending the reviews to other devolved nations would allow for a comparative study on how UK tax policy interplays with the different fiscal devolution settlements in place across these islands, which would also be to the benefit of future tax policy decisions and any Government levelling-up strategy.
Jonathan Edwards
Following Brexit, the UK Government could have been extremely radical: they could have devolved corporation tax to Wales, Scotland and Northern Ireland, and they could have fully devolved income tax and VAT. Is it not amazing that following Brexit, and all the pain that it has caused, there is a complete lack of ambition about using any powers that Brexit enables?
Ben Lake
I could not agree more. We were told that one of the supposed benefits of withdrawing from the European Union would be the liberty to tailor our tax powers; to devolve them to different parts of the UK in a bespoke way, so as to promote growth and better reflect the needs of the people. I agree that it is remarkable that the UK Government have thus far failed to make real the supposed benefits of Brexit. This review of tax policy could touch on those things. It would also be useful given the important link between tax decisions and public spending and, indeed, economic growth.
Sir John Redwood
Were a future Parliament to grant these tax powers to Wales, would the hon. Gentleman think that in order to promote faster growth in Wales he should cut taxes below English rates, or would he put them higher than English rates?
Ben Lake
I am not one to make up policy on the hoof, but the review could look at that, and if the evidence shows that tax decisions could be made to promote growth and to level up, which I think the right hon. Gentleman is in favour of, we should follow that evidence and do so.
Our continued reliance on the Barnett formula to allocate funds between the UK’s nations is problematic not only due to its flaws, but because of its inconsistent application in recent years, which has meant that Wales has lost out on billions of pounds of much-needed public investment. Members will be familiar with the concerns raised by communities across Wales regarding the way in which HS2 spending has been classified. Although not a single inch of track or rail was to be laid in Wales itself, it was categorised as an England and Wales project under the statement of funding policy, thus depriving Wales of significant consequential funding that the Barnett formula would otherwise have provided. The latest estimates suggest that Wales has lost £4 billion in consequential funding—money that could have transformed the country’s public transport infrastructure.
I understand that there will be reluctance within Government to move away from the Barnett formula, not least because devising a needs-based formula is far from simple. However, if we are to retain the Barnett formula, the funding floor should at the very least be updated to use census data from 2021 rather than the 2001 data it currently uses. I am sure the Minister will agree that much has changed since 2001—when I was actually still in primary school. The needs and population of Wales have changed considerably, so it is only reasonable that the funding floor element of the Barnett formula is at least brought up to date.
Such a consideration could be included in the review that I propose, as well as a review of the implications of UK tax policy in Wales. Again, all of this analysis and information could help inform debate for future tax policy decisions and ultimately ensure that we have a tax system that is fit for purpose and meets the needs of people in Wales.
Nigel Huddleston
I thank the Members who have spoken for their contributions to the debate. As we have discussed, the Government have shown their commitment to keeping taxes low in order to support people to keep more of what they earn. That is why we have nearly doubled the income tax personal allowance since 2010, ensuring that some of the lowest earners do not pay income tax, while also benefiting higher-rate taxpayers.
The Government have shown that we are also committed to ensuring that older people can live with the dignity and respect they deserve, and the state pension is the foundation of state support for them. Thanks to the Government honouring our commitment to the triple lock, the basic and new state pensions increased by 8.5% this April—one of the largest ever cash increases in the state pension. Those on the new full state pension will therefore be £900 per year better off. That £900 figure is significant, because of course that is the average amount by which 27 million employees will benefit from the national insurance cut: £900 additional for many pensioners and £900 additional for 27 million workers. I think most people will agree that is fair.
Drew Hendry
Just to be clear, I was saying that the Tories have been hollowed out by the extremists on the right wing within their Government, not that we have an extremist right-wing Government—that is, of course, for people out there to make their mind up about.
Nigel Huddleston
I think the hon. Gentleman just dug even deeper there. As I say, I like him but I do not always like what he says. On income tax, I do not think that everybody in Scotland would share his enthusiasm for the Scottish tax system, given that the thresholds and rates are higher, to the tune of up to 5%.
Turning to my opposite number, the hon. Member for Ealing North (James Murray), I will try to avoid the déjà vu all over again—we seem to have the same debate again and again. Yet again we have heard a Labour party spokesman constantly talking Britain down, as if we are in some declinist environment of failure upon failure. That is not a characterisation of the UK, its economy or our constituents that I recognise. I wish he had greater optimism and enthusiasm, and could support the UK economy and the workers to a greater degree. After all, the UK is doing incredibly well.
The hon. Member for Ealing North was right to recognise that all of our constituents are facing extraordinarily difficult times, but he is wrong to believe that is something unique to the UK economy; it is as a result of the pandemic and the cost of living challenges, which have had an impact right the way around the world. Given the extraordinary circumstances that the whole developed world has found itself in, what is extraordinary is how the UK has performed so well. I wish he would recognise the great optimism and the potential future of the UK economy.
For example, the International Monetary Fund has forecast that this country will grow faster than Germany, France, Italy and Japan over the next few years to 2028-29. The hon. Gentleman should also recognise that since the Conservatives came to power in 2010, the UK economy has generated an average of 800 jobs per day. Since Brexit, the UK has gone up the global export league tables, from seventh to fourth. We are the second largest exporter of services in the world and have reached record levels of service exports recently. We have overtaken France to become the eighth largest manufacturer in the world. We have the third largest tech economy, after the United States and China. We have the largest film, TV and creative industries sector in Europe, and one of the world’s leading biotech and life sciences industries—again, it is the largest in Europe.
We are leading the world in renewables, with the first, second, third and fourth biggest offshore wind farms in the world. I could go on, but I will not detain the Committee too much longer, Dame Eleanor. If the hon. Gentleman could recognise just one or a few of those success stories, he might have greater confidence in the UK economy and be able to talk it up. Anybody aspiring to be in government must champion the UK around the world, instead of talking us down. Otherwise, the impact they would have on investment in the UK economy is appalling.
Let me deal with the scaremongering in what the hon. Member for Ealing North and others have been declaring in the past few days about national insurance and the impact on pensions—I found that behaviour deplorable. It could be complete scaremongering because, as we have said, he is not aware of how NI impacts health and pensions. The amount of money spent on pensions is about £130 billion. Welfare spending is £260 billion. NHS spending is £160 billion. That is far higher than the total amount paid for by NI. So to try to suggest some direct correlation and say that reducing NI puts pensions at risk all of a sudden is either economically utterly incompetent or it is sheer scaremongering—neither are particularly attractive attributes in somebody aspiring to be in government. I therefore hope that he will have the decency to take that back. As I said, this scaremongering of pensioners, from the whole Opposition Front Bench, is despicable, although we can perhaps expect it from the Opposition.
Moreover, it is utterly hypocritical, because when we had the NI debate not so long ago, the Opposition spokespeople, the Opposition Front Benchers and the Leader of the Opposition said that they supported our NI cuts, but when it came to a vote they did not. That should make the British people ask: why would the Opposition say one thing and do another. First, I should say that is not a surprise to me, but could it also be that at some future point they might hope to be in a situation where they could reverse that decision and say, “We did not actually vote for it, after all”? Again, they should be straight with the British public.
I thank hon. Members for their contributions—some more than others. The debates will continue, but I hope that I have explained why we do not accept the new clauses. I ask that the clauses we have put forward should stand part of the Bill.
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.
New Clause 1
Review of impact of section 2
“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, publish a review of the expected impact of section 2 of this Act.
(2) The review must include analysis setting out the number of individual taxpayers facing a marginal tax rate in the tax year 2024-25 of—
(a) the basic rate of 20%, and
(b) the higher rate of 40%.
(3) For comparative purposes, the review must take account of—
(a) equivalent actual figures to those in subsection (2)(a) and (b) for the tax years 2021-22, 2022-23 and 2023-24, and
(b) equivalent projected figures to those in subsection (2)(a) and (b) for the tax years 2025-26, 2026-27 and 2027-28.”—(James Murray.)
This new clause requires a review of how many people will be liable to pay income tax at 20% and 40%, and would compare figures for the current tax year with those for the three preceding and three subsequent tax years.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)
With this it will be convenient to discuss the following:
Clauses 13 and 19 stand part.
New clause 2—Review of impact of section 12—
“(1) The Chancellor must, within three months of this Act being passed, conduct a review of the impact of section 12 of this Act.
(2) The review must consider how the rate of corporation tax provided for by section 12 affects—
(a) investment decisions taken by businesses,
(b) the certainty of businesses about future fiscal and market conditions.
(3) For comparative purposes, the review must include an assessment of how the factors in subsection (2)(a) and (b) would be affected by maintaining corporation tax at a rate no higher than that set out in section 12 until the end of the next parliament.”
This new clause requires the Chancellor to conduct a review of how the rate of corporation tax set by the Bill set out in clause 12 affects business investment and certainty, including what the effect would be of capping it at its current level for the next Parliament.
New clause 3—Analysis of the impact of the energy security investment mechanism—
“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, publish an analysis of the possible impacts of the energy security investment mechanism on—
(a) revenue from the energy profits levy, and
(b) investment decisions involving businesses liable to pay the energy profits levy.
(2) The analysis under subsection (1) must consider how the impacts in (1)(a) and (1)(b) would be affected by amending the definition of a qualifying accounting period, as set out in section 1 of the Energy (Oil and Gas) Profits Levy Act 2022, to be one that ends before the end of the next Parliament.
(3) In this section, the “energy security investment mechanism” means the mechanism introduced by section 17A of the Energy (Oil and Gas) Profits Levy Act 2022, as inserted by section 19 of this Act.”
This new clause seeks to establish the impact on revenue and investment decisions of the energy security investment mechanism being introduced, and how this impact would be affected in a scenario where end date for the energy profits levy was amended to be before the end of the next Parliament.
New clause 7—Review of impact of section 13 on small and medium enterprises—
“(1) Within 3 months of this Act being passed, the Chancellor of the Exchequer must lay before the House of Commons a report assessing the impact of section 13 on small and medium enterprises.
(2) The report under subsection (1) must consider the extent to which paying corporation tax at the small profits rate, rather than a higher rate, enables small businesses to manage cost pressures including those arising from—
(a) energy costs;
(b) staffing and recruitment costs;
(c) borrowing costs;
(d) raw material costs.”
The Exchequer Secretary to the Treasury (Gareth Davies)
We now move on to debate clauses 12, 13 and 19. Before I delve into the detail of the clauses, however, let me first briefly set out how they fit into this Finance Bill.
The Government remain focused on taking long-term decisions to strengthen the economy by driving productivity, increasing the number of people in high-wage, high-skilled jobs, and boosting investment. The Government are also ensuring that the tax system is as competitive as we can make it under very difficult economic circumstances. We have some of the most generous investment incentives among major economies, including full permanent expensing, which the OBR has forecast will generate almost £3 billion of additional business investment each year, or £14 billion over the next five years. It has forecast that that additional investment will increase GDP by 0.1% by the end of the forecast. In addition to full expensing, we have an internationally competitive corporation tax rate—the lowest headline rate in the G7—which this Bill legislates to maintain.
I will now turn to clauses 12, 13 and 19 in more detail. Clauses 12 and 13 set the charge for corporation tax from April 2025. This includes both the main rate and the small profits rate, as well as the thresholds at which those rates apply. The charge for corporation tax must be set every year. It is important to legislate annually in advance, as this provides certainty to large and very large companies that pay tax in advance on the basis of their estimated tax liabilities. These clauses maintain the current main rate of 25% and the small profits rate of 19%, as introduced in April 2023. Tax certainty is of great importance to businesses—I think that is something we can all agree on—and clauses 12 and 13 ensure that they will continue to benefit from stable and predictable tax rules. By maintaining the current rates, the Government have struck the right balance between remaining competitive and raising vital revenue.
Clause 19 makes changes to ensure that the energy profits levy will no longer apply if oil and gas prices return to historically normal levels for a sustained period of time. It does so by introducing legislation to give effect to the energy security investment mechanism, or ESIM. The EPL was introduced in 2022, at a time of near-record high oil and gas prices, but it is right that should those prices return to historically normal levels, the additional tax would cease to apply. The detail of how the ESIM operates was set out in the technical note published alongside the 2023 autumn statement; this Bill simply puts that detail on a legislative footing and provides for secondary legislation to legislate for the administrative details of how that check is made.
Current oil and gas prices are higher than normal, and OBR projections indicate that high prices will persist over the next five years. The ESIM is a mechanism that switches off the EPL if, for a period of six months, the average prices of both oil and gas fall below set thresholds. Those thresholds are currently $74.21 per barrel for oil and 50p per therm for gas, and are based on a 20-year historical average to the end of 2022—before higher energy prices began—and are adjusted each April based on the annual change in the preceding December’s consumer prices index. By providing certainty on the conditions under which the levy will be disapplied, the Government are supporting investor confidence in the sector and helping to protect domestic energy supply, the economy, and of course jobs.
Clauses 12 and 13 provide certainty to businesses by maintaining the current rates of corporation tax, and clause 19 has been welcomed by the oil and gas operators and their investors, with the ESIM providing the sector with certainty to support future investment in the UK—in jobs and in our energy security—while also ensuring fairness to taxpayers. I therefore commend these clauses to the Committee.
The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)
I call the shadow Minister.
James Murray
Thank you, Mr Evans, for the opportunity to speak on behalf of the Opposition to new clauses 2 and 3, which are in my name and that of my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq).
Earlier this afternoon, we pressed the Government on the impact of tax rises, particularly stealth tax rises, on families and pensioners. Of course, it is not only taxpayers and their families who are struggling to make ends meet under the Conservatives. Businesses in Britain are struggling too, and when I meet those from businesses across all sectors, of all sizes and in different parts of the country, they are clear that they want a Government who support them to succeed and grow. What the people I speak to from businesses want from Government, first and foremost and above all else, is stability, predictability and a plan for growth. Stability is greatly prized by businesses, which want to make decisions about investment and growth, which are critical to creating jobs and making people across Britain better off.
Sir Christopher Chope (Christchurch) (Con)
It is a pleasure to follow the hon. Gentleman. I wish to speak briefly on clause 12 stand part and the new clause to which he has just spoken.
Clause 12 is a simple clause. The title is “Charge and main rate for financial year 2025”, and it states:
“Corporation tax is charged for the financial year 2025…The main rate of corporation tax for that year is 25%.”
Just over four years ago, I was re-elected to this House on a Conservative party manifesto that said that we would keep corporation tax at 19% and would not increase it. As the hon. Member for Ealing North (James Murray) just reminded us, the Chancellor of the Exchequer thought that 19% was far too high, and he had a radical proposal to reduce it to 15%. At the time, I did not buy into that leadership bid of his, but it is clear now that it was an extraordinary gesture, completely at odds with what he must believe, because I presume that he supports clause 12, which sets corporation tax for the following year at 25%. That is far too high. I voted against the increase originally, and if clause 12 stand part was pressed to a Division today, I would certainly vote against it.
It was with some incredulity that I listened to the hon. Member for Ealing North. His new clause 2 talks about reviewing the impact of section 12. The incoherent subsection (1) says:
“The Chancellor must, within three months of this Act being passed, conduct a review of the impact of section 12 of this Act.”
Obviously, section 12 will not come into effect until the 2025 financial year, while the Bill will be on the statute book within a couple of months. What would be the point of conducting, within three months of that date, a review into something that will not come about until next year? If the new clause mentioned reviewing the impact of the current high levels of corporation tax, I would be with him. [Interruption.] He is shouting at me from a sedentary position. I will happily give way to him, so that he can make his point. Let us have a debate. If he does not want to engage in debate, so be it.
All I am doing is reading out the terms of the hon. Gentleman’s new clause 2. If he wishes to resile from that, let him say so. I am sure that, even at this late stage, Mr Evans, you would accept him withdrawing the new clause because its terms do not bear out what he is telling us.
James Murray
The hon. Gentleman invites me to respond. The key point of the new clause, as I am sure he realises, is to make it clear that Labour would cap corporation tax at 25% for the whole of the next Parliament. Does he agree with that?
Sir Christopher Chope
No, I do not, because that would be capping corporation tax at far too high a level. I would like to see it reduced, ideally back to 19%, as soon as possible. I certainly would not support any notion that we should stick with a 25% rate for the duration of the next Parliament.
That intervention was interesting. If that is the purpose of the hon. Gentleman’s new clause, I think we can say that it is rather opaque, because it does not say, for example, “Between 2025 and 2030, corporation tax shall be set at the rate of 25%”. It says that there should be
“a review of the impact of section 12 of this Act.”
What would the review look at? One thing would be how the 25% rate of corporation tax provided for by section 12 had affected
“investment decisions taken by businesses”.
Surely we know—I think he said so in his remarks—that having corporation tax set at 25% adversely affects businesses making investment decisions, including decisions on whether to increase their investments, or whether to invest in the United Kingdom for the first time. It is because such adverse investment decisions have been taken by businesses that, as he accepts, we have low growth, coupled with rising taxes and a stagnant economy.
It surprises me that more of my colleagues do not wish to engage in this debate. I very much support those Government Members who believe that the Chancellor of the Exchequer’s main objective should be to grow our economy, rather than stifle it through high taxes and more regulation, which seems to be what is happening.
In a sense, the hon. Gentleman has answered his own question—high rates of corporation tax adversely affect investment decisions taken by businesses—so why do we need a review to establish that? How can he both want a review because he does not know the answer to that question, and be so confident about its results that he can announce today that corporation tax will be at 25% for the next five years? It seems a pointless exercise. One is left with the feeling that the main parties have very similar policies on many aspects of taxation.
Sir Christopher Chope
Both parties support very high levels of tax. They are not as high as the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) would like them to be, but who knows? If there is a Labour Government, then where Scotland leads on taxation, I am sure that the rest of the United Kingdom will follow. When he responds, I would like the Minister to take up the challenge from the hon. Member for Ealing North and tell us whether he supports 25% for the next four or five years. I would like him to say, “No, 25% is far too high. Perhaps we have to put up with 25% for 2025, but thereafter, if re-elected, we the Conservatives will reduce corporation tax steadily back to 19%, or even to 15%, as the Chancellor of the Exchequer aspires to do.”
Drew Hendry
I agree with the hon. Gentleman’s contention that there is no real difference between the Tories’ proposals and those of the Labour party—a point I have made many times. Does he agree that progressive taxation in Scotland has seen the majority of taxpayers pay less, and those who have a bit more pay more? More higher-rate taxpayers have moved to Scotland during that time, which has protected some of the services. That is not on offer on either side of this House.
Sir Christopher Chope
The hon. Gentleman misunder-stands the dynamic effects of taxation. I was privileged to be in this House when the then Chancellor of the Exchequer, the late Lord Lawson of Blaby, announced the dramatic reduction in the top rate of tax to 40p in the pound. As a consequence of that reduction, the overall tax yield went up. The burden on individuals was reduced, thereby causing them to work harder to retain their energies for what was happening in our economy, rather than taking their talents overseas. The hon. Gentleman talks about wanting a progressive tax rate in Scotland, but that leads to people becoming collectively poorer. We can see from recent statistics that the Scottish economy is stumbling and failing, because of the misguided policies of the Scottish National party.
That is a bit off the point of whether we support keeping corporation tax at 25%. I certainly do not, and I hope we get confirmation that the Government have aspirations to reduce corporation tax. When my hon. Friend the Minister opened the debate, he said that we need to be stable and predictable. He praised our system of complicated allowances against corporation tax. I would support more tax simplification. If we keep the basic rate down and reduce the allowances, that makes taxation simpler and reduces the need for extra people in His Majesty’s Revenue and Customs to deal with all that. It probably undermines the burgeoning accountancy profession, but that is not necessarily a bad thing.
Whatever happened to tax simplification? A specific committee was set up to deal with tax simplification and measures used to be brought before this House. That has all been abandoned in favour of evermore complex tax arrangements. Far from being stable and predictable, they are unstable and unpredictable because no one knows how those extra complications will be avoided or exploited by those affected. Hon. Members can tell that I am not a happy bunny on this issue, because we are not committed to reducing corporation tax in the long term. We do not seem to recognise the adverse impact that it has on our productive economy and our ability as a nation to grow that economy and thereby provide the extra revenue we need for public services.
I also despair that there are so few of my own colleagues who wish to reinforce the point and get the message out to our constituents and to businesses in our constituencies. That message is “Stick with us, because we find the current levels of corporation tax intolerable. We introduced them because of extraneous circumstances over which we say we had too little control, but do not worry: as soon as those extraneous circumstances are removed from the equation, we will revert to being a low corporation tax party.” Let us have an announcement to that effect today. In the meantime, however, let me say that if clause 12 is put to the vote, I shall vote against it, and I shall certainly vote against new clause 2 for the reasons I have given.
The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)
Order. Given that we are not really pressed for time today, unless Mr Hendry intends to speak for up to four hours—
The Second Deputy Chairman
Yes, I can see that.
As both candidates are present, I will now announce the results of the ballot held today for the election of the Chair of the Public Administration and Constitutional Affairs Committee: 290 votes were cast, two of which were invalid, and Dame Jackie Doyle-Price was elected with 161 votes. She will take up her post immediately. I congratulate her on her election. The results of the count will be made available as soon as possible in the Vote Office and will be published on the internet.
We now come to the four-hour speech from Drew Hendry.
Drew Hendry
Thank you, Mr Evans. I will do my best to accommodate your request, as usual.
I am grateful for the opportunity to speak to clauses 12 and 13. The fact is that these clauses maintain the status quo on corporate taxation while failing to support sectors in dire need, such as our hospitality industry, which has seen more than 500 closures in the past year alone. The SNP has repeatedly called for measures such as VAT relief for that sector to alleviate the pressures, but the UK Government have consistently ignored our calls, thus demonstrating a clear disregard for the economic challenges facing Scotland.
Where is the support for our town centres and high streets? Enterprise initiatives such as “VAT-free streets” could help to breathe new life into our vital centres. The SNP has called for urgent help, but again Westminster just shrugs its shoulders and ignores its responsibilities for the damage caused through its calamitous but—as we have seen, and it is worth repeating—unanimous devotion to a disastrous Brexit, to waste and to mismanagement.
The proposed energy security investment mechanism, adjusting the parameters for windfall taxes on the basis of oil and gas prices, represents a missed opportunity to genuinely bolster our energy security and accelerate our transition to net zero. Rather than leveraging these revenues to mitigate energy costs for households who, as I said in our previous debate, are struggling under the current punishing cost of living crisis, or to invest in sustainable growth—and probably the only industrial strategy available to us is investment in renewable energy—this mechanism is poised to jeopardise up to 100,000 jobs and hinder our environmental goals.
Moreover—and there is no hiding place—the Labour party’s screeching U-turn on the £26 billion a year required to stimulate the industrial green transition, which its members know their own advisers have said is the minimum required, and on its proposal to intensify the windfall tax to fund nuclear projects in England is entirely unacceptable, meaning the utilisation of Scotland’s resources for projects that contravene our national interests.
We will support Labour’s new clause 3, because at the very least it will show the opportunity that has been wasted, and the squandering of Scotland’s natural resources, in a clearer light. However, the Bill underscores a critical disconnect between the needs of the Scottish people and the actions of this Government, and indeed this place of Westminster. It is a Bill that perpetuates inequality, neglects economic innovation and leaves our most vulnerable citizens to bear the brunt of its failures.
Having debated these clauses today, let us be mindful of the stark reality: only a Government attuned to the aspirations and challenges of Scotland can genuinely deliver the change we urgently need. That Government should have all the powers to make the changes needed to represent the values of the Scottish people. That needs to be the Government of an independent Scotland that seeks to regain our equal seat at the centre of the European Union.
Gareth Davies
I was waiting for a four-hour speech and it never came—that was four minutes, but what a four minutes!
Let me thank hon. Members for their contributions to today’s debate. I will respond to some of the points that have been raised at the end of my remarks, but before doing so let me directly address some of the new clauses that have been tabled.
New clause 2 seeks the publication of a review into how the rate of corporation tax set by the Bill, as set out in clause 12, affects business investment and certainty, including what the effect would be of capping it at its current level over the next Parliament. I agree that it is important to regularly review and evaluate policy, and the Government keep all tax policy under review. The Office for Budget Responsibility produces regular forecasts, including of projected corporation tax receipts and business investment. These forecasts are based on the rates and thresholds that currently apply, and which clause 12 maintains from April 2025 to provide advance certainty to businesses. The latest of the forecasts already looks as far ahead as 2028-29 on the basis of the corporation tax rate, which currently stands at 25%, so no further action is required from the Government.
Sarah Olney (Richmond Park) (LD)
The Bill maintains the small profits rate of corporation tax at 19%, but does the Minister not agree that this is a drop in the ocean compared with spiralling costs in energy, staffing, borrowing and a host of other areas? The Chancellor could have used the opportunity to give small businesses a boost by reforming business rates, or by helping them with their energy bills through a proper windfall tax. Does the Minister support new clause 7, tabled by the Liberal Democrats, which would ensure that the Government must lay before the House a review of the impact of the small profits rate to look at whether it really helps small businesses to manage their costs.
Gareth Davies
I will give the hon. Lady the courtesy of addressing new clause 7 in due course. She is right to highlight that the new rate for small businesses will keep around 70% of businesses in the country at 19% when those that are most profitable move to 25%, but look at the entire package of support for small businesses. It shows that the Government are supportive of our high streets and small business entrepreneurs across the country, whether that is through the increase in VAT thresholds, the 75% rate relief for retail, hospitality and leisure businesses, or all the support that we provided during the covid pandemic and throughout the energy shock, including the energy bill relief scheme and the energy bills support scheme. I put it to her that we are behind our small businesses. We regard them as the engine of our growth, and we will continue to do everything we can to support them. I will come on to new clause 7 in a moment, if I may.
New clause 3 would require a review of the possible impacts of the energy security investment mechanism on energy profits levy revenues, and on investment decisions in the oil and gas sector. It would require this assessment to be made on the basis of the end date of the EPL falling before the end of the next Parliament.
The Government have already published the tax information and impact note, which sets out the anticipated impact of the energy security investment mechanism—the ESIM. This indicates clearly that the mechanism will give operators and lenders to the oil and gas industry confidence in the fiscal regime while the EPL remains over the next Parliament. Based on the OBR’s current price projections, the ESIM is not predicted to trigger before the end of the EPL in March 2029, and is therefore expected to have no impact on EPL revenues. In addition, should there be interest in calculating forgone revenue if the EPL were to end in a particular year, the OBR has published projected EPL revenues over the forecast period, and the impact of the EPL ending early can be calculated from this publicly available information that is there for all to see.
Sir Christopher Chope
Looking ahead to the next Parliament, and hoping that there will be a Conservative Government, can my hon. Friend say to all those in the business community who are watching eagerly that a 25% headline rate of corporation tax is too high, and that we want to lower it?
Gareth Davies
We agree. We want taxes to come down, but we are not going to announce tax decisions from this Dispatch Box outside fiscal events. It is clear for all to see that this Conservative Government believe in lower taxes. We have reduced national insurance contributions for 29 million people by some 30% in just the last six months, and the record is very clear on that.
James Murray
The hon. Gentleman says that the Government are not in the habit of making policy commitments outside the normal fiscal process. Does that mean the £46-billion unfunded black hole created by the promise to abolish national insurance is no longer a policy of this Government?
Gareth Davies
It is neither unusual nor incorrect for a Government, or any party, to set out a long-term ambition to let the public know where we stand on taxation and what we want to see in the future. In 2010, for example, we said that we wanted to increase the personal allowance for income tax to £10,000, and we met that. Actually, we exceeded it. It is now over £12,500, so a person in this country can earn £1,000 every month without paying any tax at all. That is a long-term ambition that we have delivered.
James Murray
The Minister is being generous in giving way. I notice that he is keen to talk about a long-term ambition to abolish national insurance. Yesterday, the Chancellor of the Exchequer said at Treasury questions that
“our policy is to abolish employees’ national insurance”.—[Official Report, 7 May 2024; Vol. 749, c. 437.]
Was the Chancellor wrong?
Gareth Davies
As I said, it is a long-term ambition. It is right for a party that is serious about governing to set a direction for the country. I know it is an unusual idea for the hon. Gentleman that having a plan for government is the right thing to do, but we have made it very clear to the British people that, if they vote for a Conservative Government at the next general election, their taxes will come down.
The amendments before the Committee propose that we publish information that is already publicly available. They are not needed, so I urge the Committee to reject them.
Question put and agreed to.
Clause 12 accordingly ordered to stand part of the Bill.
Clauses 13 and 19 ordered to stand part of the Bill.
New Clause 2
Review of impact of section 12
“(1) The Chancellor must, within three months of this Act being passed, conduct a review of the impact of section 12 of this Act.
(2) The review must consider how the rate of corporation tax provided for by section 12 affects—
(a) investment decisions taken by businesses,
(b) the certainty of businesses about future fiscal and market conditions.
(3) For comparative purposes, the review must include an assessment of how the factors in subsection (2)(a) and (b) would be affected by maintaining corporation tax at a rate no higher than that set out in section 12 until the end of the next parliament.”—(James Murray.)
This new clause requires the Chancellor to conduct a review of how the rate of corporation tax set by the Bill set out in clause 12 affects business investment and certainty, including what the effect would be of capping it at its current level for the next Parliament.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Finance (No. 2) Bill
Tuesday 21st May 2024
(6 months ago)
Public Bill CommitteesRead Full debate Finance Act (No. 2) 2024 2023-24 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 21 May 2024 - (21 May 2024)
The Chair
I remind Members that Hansard would be grateful if they emailed their speaking notes or handed them to a colleague in the room, and to please switch their phones to silent.
The selection list for today’s sitting is available in the room. It shows how the clauses and the selected new clause have been grouped for debate. Matters grouped together are generally on the same or a similar issue. A Member may speak more than once in a single debate.
I call the Minister to move the programme motion standing in his name, which was discussed yesterday by the Programming Sub-Committee.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 21 May) meet—
(a) at 2.00 pm on Tuesday 21 May;
(b) at 11.30 am and 2.00 pm on Thursday 23 May;
(2) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 23 May. —(Nigel Huddleston.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Nigel Huddleston.)
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.
Clause 5
Increase in thresholds to £60,000 and £80,000
The Financial Secretary to the Treasury (Nigel Huddleston)
It is a pleasure to serve under your chairmanship, Mrs Latham, and I thank all hon. Members for their participation in today’s debate. I also thank those who have submitted written evidence on a variety of the clauses we will discuss today, including the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Taxation, the Low Incomes Tax Reform Group and others, and all those who have contributed to consultations as part of this Finance Bill process.
Clause 5 makes changes to the high income child benefit charge, or HICBC, as it is commonly called. It increases the threshold at which child benefit begins to be withdrawn, from £50,000 to £60,000. The Government are also increasing the threshold at which child benefit is fully withdrawn, from £60,000 to £80,000. That means that 1% is withdrawn for every £200 of income that exceeds £60,000; previously, the rate was 1% for every £100 of income that exceeded £50,000, and child benefit was fully removed once individuals earned £60,000 or above.
The HICBC is a tax charge and was introduced in January 2013 for recipients of child benefit payments, or their partners, on higher incomes. It applies where the highest earner has an adjusted net income—that is, their total taxable income, less certain reliefs, such as pension contributions—above the threshold, which is rising to £60,000. For individuals with incomes above the top of the taper, which is rising to £80,000, the tax charge is equal to the full amount of the child benefit payment.
The changes will ensure that the HICBC continues to withdraw child benefit from high-income families, as it was designed to, without unfairly penalising those on middle incomes. By halving the rate at which HICBC withdraws the child benefit gain, the Government are improving people’s incentives to continue working or to take up more hours. The Office for Budget Responsibility estimates that, as a result of both changes, those already working will increase their hours by a total equivalent to those of around 10,000 full-time individuals by 2028-29.
The changes made by clause 5 will have a positive impact for around 485,000 families, who will gain an average of £1,260 in 2024-25, which they can put towards the cost of raising their children. That includes around 170,000 individuals who will no longer be liable for HICBC, and 135,000 individuals currently paying the HICBC who will have it reduced. The remaining 180,000 are the families currently not claiming child benefit or families opting out of getting child benefit payments who are now eligible to receive payments without incurring a tax charge.
The increase in the HICBC’s adjusted net income threshold reaffirms the Government’s commitment to rewarding working families, by allowing them to keep as much of their hard-earned money as possible in a sustainable way. I therefore commend the clause to the Committee.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to serve on this Committee with you in the Chair, Mrs Latham. I am pleased to respond on behalf of the Opposition in the Public Bill Committee stage of the Finance (No. 2) Bill.
As we have heard from the Minister, clause 5 increases the adjusted net income threshold for the high income child benefit charge from £50,000 to £60,000, with effect from the 2024-25 tax year. The clause also amends the rate at which the high income child benefit charge applies to individuals with adjusted net incomes of between £60,000 to £80,000 in a tax year, and contains an administrative easement to prevent backdated child benefit payments from triggering a charge in 2023-24.
As we all know, due to high levels of inflation during the current Parliament, families across the country have felt the impact of threshold freezes, particularly in relation to income tax. Millions of people will be paying income tax for the first time or paying it at higher rates as a result of high inflation and the frozen thresholds. Similarly, the fixed nominal thresholds for the high income child benefit charge mean that more and more people will have been affected by the charge as a result of inflation. The adjustment to the thresholds in this clause will therefore be a welcome step for many families, and brings the number of individuals affected by the high income child benefit charge closer to what Parliament envisaged when the policy was introduced in the Finance Act 2012.
Although we support the measures in the clause and will not oppose them, we would appreciate some clarification from the Minister on one point. In particular, we understand that subsection (2) effectively halves the rate of clawback in the calculation of the charge, so the child benefit is fully withdrawn when the relevant adjusted net income reaches £20,000 above the initial threshold —that is, £80,000. I am grateful to the Chartered Institute of Taxation for pointing out that, because the clawback happens across a wider range of incomes, some individuals will be caught out by higher marginal rates of tax and will therefore likely need to file a self-assessment return. Is the Minister concerned that that will introduce more complexity into the tax system, and if so, what is he doing to communicate these changes so that taxpayers are not caught out?
Finally, we understand that the Government will be moving the assessment of the charge to a household basis from April 2026. I would be grateful if the Minister confirmed when the Government will announce further details about the consultation on that change. Will he also set out the details of what he is doing to consult industry and professional bodies about it?
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
It is a pleasure to serve under your chairmanship, Mrs Latham. We will not be opposing the clause, but I do want to make some comments about this paltry measure, which will help very few people in a cost of living crisis that the Conservative Government are trying to pretend is over and done with—in fact, they are saying that that is the case. That is not the reality for people in their homes across the nations of the UK.
The Minister said that the intention of this provision —I think I am quoting him correctly—was to allow people to “keep as much of their hard-earned money as possible.” That reflects incredibly badly on the way that this Government have conducted themselves by artificially boosting the cost of living through reckless actions such as Brexit and, of course, the mini-Budget. If they wanted to do something that was meaningful to help families, they could have copied the Scottish child payment in Scotland, which has lifted 100,000 children out of poverty. But no: they have decided to do this. They have also decided to keep the two-child limit on universal credit. That should be scrapped, and the Labour party should be joining in calls for that to be scrapped. The rape clause has no place in our society, and this measure will not go far enough to help families.
Nigel Huddleston
I thank my opposite numbers for their comments. I respectfully disagree with several of their points, and I will remind my opposite number, the hon. Member for Ealing North—as I do on almost every occasion—of the significant changes to the income tax threshold that the Conservative Government have brought in. It was £6,475 under Labour; it is now £12,570. That is a significant increase and it has taken many people out of paying income tax altogether, which is something we are very proud of.
The hon. Gentleman will be well aware that, as we have discussed on multiple occasions, the reason why taxes are higher than any of us would desire is the level of intervention required to support households and livelihoods during the pandemic and, more recently, the cost of living challenges since the invasion of Ukraine and the energy price shocks in particular. I would make a similar point to the hon. Member for Inverness, Nairn, Badenoch and Strathspey, who also made those points. I remind him that we have made interventions in cost of living support to the tune of about £100 billion. With respect, half a million people will benefit from the changes that we are introducing. HICBC is not a small amount. It is a meaningful amount of money for a large number of people, and it comes on top of the many other support measures that we have introduced.
I thank the hon. Member for Ealing North for pointing out the easements and the fact that there will be automatic backdating. Hopefully, that will be a relief and good news, and be positive for many families. Child benefit is normally backdated by three months, but because of the timing of the implementation, some could overlap two tax years. We are trying to make that simple and bring it into one tax year.
The hon. Gentleman mentioned the increase from £60,000 to £80,000 and the impact on marginal rates. The changes that were announced will reduce the total marginal effective tax rates, which includes income tax, employee national insurance contributions and HICBC, from about 64% to 53% for someone with, for example, two children. That is a good thing.
We recognise that high marginal rates introduce complexity to the tax system, but that needs to be weighed against other considerations when designing tax policy. The Government must ensure sure that they are committed to a fair tax system that supports strong public finances. Individuals will, as the hon. Gentleman pointed out, still be required to submit a self-assessment tax return to declare and pay their HICBC liability. However, the Government announced in July last year that we are taking steps to allow newly liable taxpayers to pay the HICBC through their tax code without the need to register for self-assessment. Further details on this improvement will be shared in due course.
The hon. Gentleman also mentioned the consultation on moving to a household basis. We will announce further details of the consultation in due course and, as with all tax policy, any changes would be considered as part of future fiscal events. The Chancellor announced that the Government will be consulting on moving the HICBC to a system based on household incomes, and that change will be delivered by April 2026. If the hon. Gentleman is patient, we will announce further details on that consultation in due course.
A point was made about communication. There have already been significant communications on the changes to HICBC. There has been a lot of online and offline activity from His Majesty’s Revenue and Customs, various Government Departments and others. The campaign to raise awareness also includes working with, for example, parenting platforms such as Bounty and Emma’s Diary, and issuing emails through third party partners, including childcare providers. The hon. Gentleman raised an important point about not just making the changes, but ensuring that everybody is aware of them, so that everybody who is intended to benefit is able to.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
Reduction in higher CGT rate for residential property gains to 24%
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clauses 6 to 11 are related to the property tax measures in the Bill. I hope that Members will forgive me, but this is a slightly longer speech, as I will talk through each clause. Indeed, it is the longest speech that I plan on giving today, although it is not too long—please do not have a heart attack; I will not be reading every one of these pieces of paper.
Clause 6 cuts the higher rate of capital gains tax, or CGT, charged on residential property gains from 28% to 24% from 6 April 2024. CGT is of course charged on the disposals of buy-to-lets and second homes. Main homes are exempt through private residence relief, which means for that the majority of residential property sales no CGT is paid at all. Where a disposal is liable to CGT, gains are taxed at a lower rate of 18% for any gains that fall within an individual’s basic rate band and at a higher rate for any gains above that.
The 28% higher rate was deterring some sales of residential properties, so the Government announced a 4 percentage point cut to the higher rate at spring Budget 2024. That will encourage more landlords and second home owners to sell their residential properties, making more homes available to the market for a variety of purchasers, including first-time buyers. The OBR forecasts that there will be around 60,000 more residential property transactions over the next five years owing to the cut. As more homes are bought and sold, the Exchequer is expected to raise an additional £690 million in revenue over that period. There will be no change to the lower rate of 18% for private residence relief.
Clause 7 concerns multiple dwellings relief, or MDR, which is a bulk purchase relief in the stamp duty land tax regime. The clause abolishes multiple dwellings relief from 1 June 2024. Multiple dwellings relief allows anyone purchasing two or more dwellings in a single transaction or in linked transactions to calculate their stamp duty based on the average value of the properties purchased, as opposed to their aggregate value. Multiple dwellings relief was introduced in 2011 with the intention of promoting investment in the private rented sector, but a recent external evaluation found no strong evidence that it has done so, meaning that the relief is not cost-effective and is therefore not acting as intended.
His Majesty’s Revenue and Customs has seen a high number of incorrect and abusive claims for the relief. Those have been driven by tax repayment agents, who often convince private individuals to make relief claims for the purchase of two dwellings when individuals have in fact only purchased one. One such example is somebody buying a large house with a separate indoor entertainment area, including a swimming pool and toilet, and that being counted as two properties when it is transparently one.
The changes made by clause 7 will abolish multiple dwellings relief for property transactions that complete on or after 1 June 2024. However, for contracts that were exchanged on or before 6 March 2024, relief will continue to apply regardless of when the contracts complete. The change will not impact those purchasing a single property. It will only increase the stamp duty payable by individuals or businesses purchasing two or more properties in a single transaction or as part of the same deal. Individuals or businesses purchasing six or more dwellings will continue to qualify for the non-residential rates of SDLT.
Clause 8 makes changes to ensure that first-time buyers’ relief from stamp duty land tax can be accessed by those purchasing new residential leases through a nominee or bare trustee, including victims of domestic abuse. A nominee is a person who holds the legal title of a property, while the beneficial ownership—the person who ultimately owns or controls the assets—is held by another person. A bare trust is a trust under which property is held by a person as trustee for another person who is fully entitled to all of the capital and income of the trust.
The measure also changes the definition of first-time buyers to ensure that individuals who use such arrangements cannot claim relief more than once. First-time buyers’ relief from SDLT is available where an individual who has not previously owned a dwelling purchases a home they intend to use as their only or main residence, but that is not currently available to individuals purchasing a new residential lease through a nominee or bare trustee.
The changes made by clause 8 will benefit certain first-time buyers of residential leasehold properties purchasing through a nominee or bare trustee, reducing the up-front cost of buying a home by allowing them to claim the relief they are entitled to. The changes bring those purchasers in line with purchases of residential freeholds and pre-existing leases using similar arrangements.
James Murray
Clause 6 applies to residential property gains by individuals, trustees and personal representatives. As the Minister set out, it reduces the higher rate of CGT that applies to such gains from 28% to 24%. The new rate will apply to disposals made on or after 6 April 2024. As we understand it, the lower rate is intended to remain at 18%, and the CGT rates that apply to carried interest gains remain unchanged.
The Government’s policy paper on this matter claims that the measure will be revenue positive for the Treasury and will generate more transactions in the property market, benefiting individuals who are looking to move home or get on to the property ladder. The Opposition will not oppose moves that reduce the rates of tax while also raising greater income. However, I would like to ask the Minister for more detail on the Exchequer impact of this measure. The Government’s policy paper reports expected spikes in revenue of an additional £310 million and £350 million in 2024-25 and 2025-26 respectively. That then falls significantly to an additional £45 million in 2026-27, and to just £5 million by the end of the forecast period in 2028-29. I would be grateful if the Minister set out his explanation for this pattern of expected income. Is he confident that there will be a permanently higher level of income as a result of this change after the end of the forecast period?
Clause 7 abolishes multiple dwellings relief—a relief from stamp duty land tax available on the purchase of two or more residential properties in a single transaction or linked transactions. The change will apply to purchasers of dwellings in England and Northern Ireland that have an effective date of transaction on or after 1 June 2024.
SDLT is a tax on the purchase of land or property, and ordinarily the amount of tax chargeable is calculated on the basis of the total amount paid for land or property. MDR, meanwhile, was introduced in 2011 with the intention of reducing a barrier to investment in residential property and to promote the private rented sector housing supply. We know that the Government evaluations have shown very little evidence that MDR achieved its original aims in a cost-effective way. We believe that clamping down on dubious claims and abusive tax reliefs is the right thing to do, so we will support the clause, but I have a few points of clarification to which I would be grateful for the Minister’s response.
First, I would like to ask the Minister about the reasoning behind the introduction of MDR in 2011. I understand that in September 2010, the coalition Government said in response to a consultation that
“the Government will not be taking these proposals forward at the present time”.
However, at the Budget of March 2011, a few months later, they announced that they would indeed introduce changes to the SDLT rules for bulk purchases of residential property. Does the Minister know why the Government at the time changed their mind?
Secondly, the Minister referred to abuse of the relief, so I would be grateful if he shared with us any figures or estimates of the cost of abuse of MDR since its introduction in 2011. Thirdly, we note that the Government said that they will engage with the agricultural industry to assess whether there are specific impacts of their changes to MDR that should be given further thought. Will the Minister let us know whether he is consulting with any other sectors?
Finally, the Chartered Institute of Taxation has indicated that for the domestic buyer in the build-to-rent sector, the divergence between the rates of SDLT applicable to residential property and those in the non-residential sector is large. There is a great deal of complexity in the system, so is the Minister aware of the potential for anomalies and for new behaviour to emerge around the acquisition and definition of property? I would welcome his assurance that he will work closely with relevant stakeholders to ensure there are no unintended consequences to the changes in the clause.
Clause 8 makes changes to the rules for claiming first-time buyer relief from stamp duty land tax in cases where the purchaser is buying a new lease via a trust or nominee. It applies to purchasers of dwellings in England and Northern Ireland, with an effective date on or after 6 March. We know there have been instances of first-time buyers using trusts or nominees to conceal their identities to protect themselves from behaviours such as domestic violence and stalking. The clause corrects issues arising over the eligibility of such claims. It provides an amendment to correct a defect in the relief in order to ensure that the underlying buyer, not the nominee, is eligible for SDLT, and we will not oppose it.
As we have heard, clause 9 amends out-of-date references and definitions used in legislation relating to the SDLT exemption for registered providers of social housing. As the explanatory notes make clear, that is to ensure that all registered providers of social housing that purchase property with the assistance of a public subsidy are not liable for SDLT. The measure seeks, first, to update outdated references following changes to social housing legislation; secondly, to extend the definition of public subsidy to include receipts from the disposal of social housing; and finally, to amend the definition of registered providers of social housing to confirm that certain entities such as English local authorities are eligible for the exemption, which removes an uncertainty.
The changes are set to apply to transactions on or after 6 March 2024, but we understand from stakeholder representations that there is some uncertainty relating to the “clarifications” set out in the measure. Can the Minister confirm whether purchases made before 6 March by local authorities will be treated as separate to this clause, or has any scope been given in the exemption for those purchases made before that date?
Clause 10 removes public bodies from the scope of the higher rate of SDLT of 15%. As the explanatory notes set out, that is consistent with the treatment of public bodies in relation to the annual tax on enveloped dwellings, which does not apply to public bodies. Given that this is a corrective measure, we will not oppose it, although the Chartered Institute of Taxation has pointed out that with the measure not being retrospective, there are concerns among stakeholders. We understand, again, that the measure will apply from 6 March, the date of the Budget when the measure was announced. Can the Minister clarify what the situation will be for a public body such as a local authority that may have incurred a 15% SDLT liability in the weeks immediately before this change was announced?
As the Minister set out, clause 11 restricts the scope of agricultural property relief and woodlands relief to property located in the UK. As the Government’s policy paper states, the former measure was put in place to ensure compatibility with EU law; it expanded the scope of agricultural property relief and woodlands relief to property located in the European economic area. Now that the UK has left the EU, this measure reverses those changes, so that property located in the EEA will again be treated the same as property located in the rest of the world. This is a technical measure, and we will not oppose it.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Nigel Huddleston
If I may respond briefly, I will answer the perfectly reasonable questions raised by the hon. Member for Ealing North in relation to several points in multiple areas. Regarding the overall impact, and if I may reference the change of the capital gains tax rate from 28% to 24%, the OBR estimates that this costing will have a positive impact beyond the current forecasting period and generate a small long-term yield, too. Of course, beyond the forecasting period, it is difficult to estimate the exact amount.
On the points that the hon. Gentleman raised about MDR and other measures, it is interesting that although there are examples of abuse, it is also the case that only 32% of businesses buying property to let said that this relief had an important influence on their purchase decision at all and only 45% were aware of multiple dwellings relief before making a purchase decision. That feeds into the overall picture of MDR not fulfilling the original intent and purpose, which of course was to support investment in the private rented sector. Again, it is building the picture that the relief is no longer cost-effective. The Government are continuing to engage with stakeholders in the build-to-rent sector and other sectors to ensure that we understand their concerns and we will continue to listen to representations made to highlight any exception or unforeseen impacts that the abolition of MDR could have in the future.
I welcome the hon. Gentleman’s welcoming of many of the other measures. He asked whether they would be applied before the April deadline. They will not be applied retrospectively—for example, the updates on the registered social landlord exemption will not be applied retrospectively.
The hon. Gentleman mentioned the number of public bodies that have paid stamp duty at the 15% higher rate. The number of transactions—of those impacted previously —has been very small, and we therefore do not anticipate a huge impact.
Clauses 7 to 11 ordered to stand part of the Bill.
Clause 14
Additional relief for low-budget films with specified UK connection
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clauses 14 and 15 make changes to better support the UK independent film industry. That is in recognition of the sector’s cultural importance and its role in growing and supporting UK talent. The Government have heard from several representatives of the British film industry, including the British Film Institute, about the specific challenges that the independent film industry faces. The Government also recognise the vital role that independent film plays in incubating UK talent.
The changes made by clauses 14 and 15 substantially increase the level of audio-visual expenditure credit available to smaller budget films from 34% to 53%. This increased rate for qualifying films is referred to as the UK independent film tax credit. The 53% tax credit will be applied on up to 80% of a film’s production costs, up to a cap of about £15 million. That translates into £31.80 back for every £100 spent, after accounting for corporation tax at 25%.
Films will also need to meet the criteria of a new British Film Institute test, with the expectation that films will have either a UK writer, a UK director or be certified as an official co-production. Clauses 14 to 15 set out the bulk of the measure, but further detail, including on the additional test, will be provided in a statutory instrument in due course.
Productions that start principal photography from 1 April 2024 will be eligible, and companies will be able to make claims from 1 April 2025 on expenditure incurred from 1 April 2024. The UK independent film tax credit is a transformational, generous, enhanced tax credit, which will boost the production of UK independent films and incubate UK film talent.
James Murray
As we have heard from the Minister, clause 14 introduces a higher rate of expenditure credit for independent films, defined as films below a maximum budget that have either a UK director or writer, or are an official international co-production. As the Government’s policy paper on this measure makes clear, the basic rate of credit under the audio-visual expenditure credit scheme is 34%. Independent films will now receive a rate of 53%, with the amount of credit capped to relevant global expenditure of £15 million. The Opposition strongly support the UK’s creative sector as one of the areas of the global economy in which Britain is world leading. As such, we will not oppose any measures that provide certainty and greater opportunities for growth in that critical sector.
Clause 15 provides the administrative framework for the previous clause and sets out that the higher rate will be available only on expenditure incurred from 1 April for films that commenced principal photography on or after that date. We understand that claims can in turn be made from 1 April 2025, so I would like to ask the Minister about the role of His Majesty’s Revenue and Customs, because we know that the new schemes will need to be properly explained through new guidance and may require new staff, as the Government’s policy paper makes clear. What is HMRC doing to ensure that the guidance remains timely and up to date for those wanting to make a claim? What will HMRC do to support those who want to apply for the credit so that they can understand how it operates? Similarly, what allocation of staff will be made to administer the measure?
Nigel Huddleston
I thank the Opposition for their support. I think there is agreement across the House on the vital role of the world-leading UK creative industries, and, in particular, our thriving film sector. In answer to the broad question put by the hon. Member for Ealing North, further information will provided by a statutory instrument that we will discuss in due course. His Majesty’s Revenue and Customs will have a role in that, and the precise resource allocation is an operational decision for it. As the Minister who oversees HMRC, I will pay close attention to the issue and I will ensure that it is properly resourced. This is a very important policy area and we want to ensure that it is successful. Again, I am afraid that I will ask the hon. Gentleman to be a little patient and wait for the details in the statutory instrument, but we are consulting key stakeholders on that.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Clause 15 ordered to stand part of the Bill.
Clause 16
Increase in theatre tax credit
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
We are powering through this— I have on my notes “tea break” by now, but it is not going to happen. That is no bad thing, and I appreciate the comments and input from hon. Members. I will repeat my thanks as well—a lot of work has gone into the measures that we are discussing today and many stakeholders have already contributed significant amounts, including through consultations.
One such area is what we are debating now: clauses 16 to 18 make changes to ensure that our world-leading theatres, orchestras and museums and galleries may continue to put on outstanding home-grown productions and attract inward investment. The orchestra, theatre, and museums and galleries exhibition tax reliefs have had rates of 45% for non-touring productions and 50% for touring productions and orchestral productions since October 2021, reflecting the unique challenges faced by those sectors during the covid-19 pandemic and the recovery period, which of course we are still in.
The rates were due to be reduced to 30% and 35% on 1 April 2025 and then return to their original levels of 20% and 25% on 1 April 2026. Clauses 16 and 17 change that so the tax reliefs will reduce to only 40% for non-touring productions and 45% for touring productions and orchestral productions on 1 April 2025, and will then remain at that level permanently. That was a key ask of the sector. Clause 18 removes the expiry date of the museums and galleries exhibition tax relief so that the relief similarly becomes permanent rather than ending on 1 April 2026.
The changes will benefit approximately 1,300 theatre companies, orchestra companies and museums and galleries that claim those tax reliefs on an annual basis. Our creative sector is vitally important to our national life and one of the fastest growing sectors in the UK economy. These clauses will bolster our theatres, orchestras and museums and galleries, ensuring that they remain among the best in the world. I commend the clauses to the Committee.
James Murray
As the Minister has set out, from 1 April 2025 the rates of theatre tax relief, orchestra tax relief, and museum and galleries exhibition tax relief will be set permanently at 40% for non-touring productions and 45% for touring productions and all orchestra productions. As we know, the so-called creative reliefs were previously set at 20% and 25% respectively. They were temporarily increased on 27 October 2021 to help the sector in its economic recovery from covid-19. As the Government’s policy paper notes, the rates were due to taper to 30% and 35% from April 2025. We welcome the fact that they will now be set permanently at 40% and 45% from next year.
We also note that, by way of these clauses, the Government are removing the 2026 sunset clause on the museums and galleries exhibition tax relief so that it becomes a permanent relief with no expiry date. In previous debates on earlier Finance Bills, I have asked the Minister to give clarity and certainty to the creative sectors, so I am pleased to say that that has been given to the UK’s world-leading theatres through these clauses. As I have said, we in the Opposition stand wholeheartedly behind the UK’s creative industries, and we will of course not oppose the measures set out today.
Drew Hendry
I briefly want to endorse the comments about these sectors requiring support. It is good to see some support for the sectors here, but we would like to see more in the future.
Nigel Huddleston
I do not have much more to add, other than to point out the strength of our creative industries in all four nations of the United Kingdom, which I am glad has been recognised across the Committee today. It is an incredible strength, and I am therefore pleased to hear today the very obvious cross-party agreement on continuing support for this vital sector.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clauses 17 and 18 ordered to stand part of the Bill.
Clause 20
Collective investment schemes: co-ownership schemes
Question proposed, That the clause stand part of the Bill.
The Exchequer Secretary to the Treasury (Gareth Davies)
It is a great pleasure, as always, to see you in the Chair, Mrs Latham. Clause 20 begins the process of introducing legislation for a new type of investment fund—the reserved investor fund, which I will refer to from now on as the RIF. At Budget 2020, the Government announced a review of the UK’s funds regime, covering tax and relevant areas of regulation. The review had an overarching objective to make the UK a more attractive location to set up, manage and administer funds, as well as ensuring that UK investors can access a wide enough range of investment vehicles to suit their needs. In the years since, the Government have made a number of successful reforms. In order to build on these successes, the Government announced at spring Budget 2024 that we would be proceeding with the RIF.
The RIF will fill a gap in the UK’s existing fund offering by creating an onshore alternative to existing non-UK fund vehicles that are commonly used to hold UK real estate. Clause 20 provides a definition of the RIF and provides a power for the Treasury to make detailed tax rules through secondary legislation, consistent with the approach taken when introducing tax rules for other investment funds. A later statutory instrument will set out detailed tax rules for the RIF. The regulations will set out supplementary qualifying conditions for a RIF, entry and exit provisions, and rules that deal with breaches of one or more qualifying conditions.
The UK has a world-leading asset management sector. The RIF will play an important role in supporting that leadership by making the UK a more competitive destination for our fund management industry. Indeed, stakeholders from the financial services industry have already shown considerable support for the RIF. I therefore commend the clause to the Committee.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve on this Committee under your chairmanship, Mrs Latham. I am pleased to respond to clauses 20 to 24 on behalf of the Opposition. Clause 20, as the Minister set out, introduces the necessary powers to set the scope and design of the tax regime and rules for the RIF. Labour welcomes the introduction of the RIF, as it will add to the investment products available here in the UK, particularly for the UK commercial real estate sector. However, the trade bodies representing investment managers and real estate fund managers, the Investment Association and the Association of Real Estate Funds, have raised some concerns that I would like to put to the Minister.
There was a widely held expectation across the sector that RIF would broadly mirror the conditions of the existing authorised contractual schemes, or ACSs, but offer less regulatory supervision, freeing the RIF to become a more flexible investment vehicle for a range of more experienced investors. Due, however, to the Government’s decision to categorise the RIF as an alternative investment fund instead of a special investment fund, the RIF and the ACS will now differ in two key aspects. First, the supply of fund management services will be standard-rated at 20% as opposed to being VAT-exempt, and secondly, an alternative investment fund comes with a requirement to raise capital from a number of investors with a view to investing it in accordance with the defined investment policy for the benefit of those investors. That makes sense for large-scale, open-ended funds with an ongoing investment strategy, but it clearly is not designed for funds that do not have a specified investment objective, such as funds of one, joint ventures, co-investment vehicles and acquisition vehicles, which instead were created for a particular purpose such as repackaging and selling existing assets to new markets. Since they do not exist to raise additional capital, the requirements associated with alternative investment funds risk being an unnecessary burden and disproportionate when applied to the RIF.
Gareth Davies
I am always grateful to see the hon. Member for Hampstead and Kilburn in her place in opposition in these forums, and I appreciate her comments. I will first set out the background to the establishment of the RIF, which was based on significant consultation with industry to fill a specific gap for an unauthorised, contractual-based vehicle. As such, it was based on specific feedback from the industry. The hon. Lady asked a very reasonable question about classification of the fund, and I can tell her that that was considered to be part of the consultation, but in the end we decided to proceed with the structure that we have gone with in the legislation. However, we will of course keep that under review and continue to engage with stakeholders, and we will issue a report on the progress of the RIF in due course. Although we have not established it in the way that some may have wished us to, it is based on consultation and will be reviewed in due course.
Tulip Siddiq
I thank the Minister for his response. He said that he considered the options and decided to proceed with it as an alternative investment fund, but he did not actually set out the reasons why. Was there any reason why he decided that it made more sense to do that as opposed to a special investment fund, especially in line with the international comparisons that I gave?
Gareth Davies
This is designed specifically to fill a gap that was previously or currently filled by things such as Jersey property investment trusts. Where there are unauthorised, contractual-based schemes, we do not currently have a vehicle that fills that gap. What we are introducing with the RIF fills that gap and satisfies a vast amount of stakeholders who fed into the consultation, and we are proceeding with that today.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21
Economic crime (anti-money laundering) levy
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clause 21 increases the economic anti-money laundering levy for very large firms, meaning firms regulated for anti-money laundering purposes and which have UK revenue greater than £1 billion per annum. The charge for very large firms increased from £250,000 to £500,000 with effect from 1 April 2024. There is no change to the charge for firms with revenue below £1 billion per annum. The levy was introduced in the 2022-23 tax year as a source of sustainable funding for measures to tackle economic crime and support the delivery of the Government’s commitments contained in the economic crime plan 2. The Government made it clear during the public consultation that levy charges may be adjusted periodically in response to new information, inflation or under-collection. The adjustment is made in response to receipts falling short of the levy’s stated £100 million revenue target.
The clause amends part 3 of the Finance Act 2022 to replace the current charge for very large firms with the new charge of £500,000 per annum. The change will impact an estimated 100 to 110 very large firms across the anti-money laundering regulated sector including, but not limited to, financial services, legal and accountancy firms.
No other aspects of the levy’s calculation or operation are changing and we therefore anticipate administrative impacts on affected firms to be negligible. This adjustment to the economic crime levy for the largest firms will put funding for measures to tackle economic crime on a sustainable footing, helping to protect UK citizens and make the UK a safer place to do business. Only the very largest firms will pay more and burdens will remain low. I commend the clause to the Committee.
Tulip Siddiq
We support the measures in clause 21 to raise the funds needed to tackle money laundering, fraud and other types of economic crime, but I cannot ignore the fact that the Government’s efforts to tackle economic crime have been a complete failure. Fraud and scams, for example, have rocketed under this Government, with at least £7.3 billion stolen directly from consumer bank accounts in the UK through fraud last year alone.
Last year, the Government published their fraud strategy to widespread criticism from industry for largely rebadging old measures and re-announcing existing national teams, such as the re-announcement on the replacement of Action Fraud from 2022. The consensus from experts in the industry is that the measures in the strategy will not significantly move the dial, as they do not establish a regulatory framework for tech companies and telcos to participate in the fight against fraud, including through data-sharing with financial services firms and enforcement agencies to enhance detection and prevention measures.
UK Finance, for example, has stated that it is increasingly difficult to understand the imbalance between the financial services sector’s contribution through the levy and that of other sectors that do not contribute but are known to be introducing risk into the same system. We also know that most scams originate on social media or via telecommunications networks yet those sectors do not face the same obligations regarding contributions, nor do they compensate victims defrauded through their platforms. Does the Minister agree with UK Finance? Does he accept that until the Government find a way to bring the tech giants to the table, efforts to tackle fraud and scams will continue to fail?
UK Finance has also raised concerns about the transparency of the levy and reporting on economic crime. On reporting for anti-money laundering purposes, I have heard from numerous City firms that, despite frequent requests, they receive little granular feedback on the impact their reports make. Does the Minister agree that better feedback and wider publicity around successes could help AML-regulated firms to see the value and importance of work in this area more clearly, keeping it at the forefront of their minds? What are the Government doing to ensure that happens?
Drew Hendry
This is a welcome move in principle and in targeting economic crime, but I would agree with the comments we have just heard—this does not shift things in the way that they need to be shifted in order to deal with the issue. It does not seriously tackle online crime, which is relatively rampant, with people being conned and funds being taken illegally. It does not really do much for fraud and economic crime and fails to tackle issues such as money laundering. There has still not been enough action on limited partnerships, for example, which continue to allow unknown individuals to funnel money through those mechanisms. Why are the Government not taking this issue more seriously than through these minor actions in the Bill?
Gareth Davies
I am grateful for the comments from Opposition Members. I think we all agree that we want to tackle these issues in the most serious way possible, with the most force. I am comforted by the comments from the Financial Action Task Force, which previously said that the UK has one of the strongest regimes when it comes to tackling economic crime. The levy specifically seeks to fund the tackling of anti-money laundering rather than fraud or sanctions, which I will come on to in a second.
It is appropriate to stress that the levy is a targeted measure on the anti-money laundering regulated sector, therefore the proceeds go towards tackling anti-money laundering. That is in the context of the economic crime plan 2, which covers up to 2026 and is backed by £200 million from the levy plus £200 million of Government investment. We are taking broader action on fraud in the technology sector specifically, not least through the online fraud charter, the Online Safety Act 2023 and the telecommunications fraud sector charter.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey mentioned sanctions evasion. We are cracking down on kleptocracy and sanctions evasion through the economic crime plan 2. The Office of Financial Sanctions Implementation actively monitors sanctions evasion every single day.
On corruption, the Foreign, Commonwealth and Development Office leads our efforts to support companies to tackle corruption and strengthen governance across the world. The Government are actively working with partners across the world to strengthen international standards, not least through the UN convention against corruption. In the UK, we also have the National Crime Agency’s international corruption unit. There is significant action to tackle fraud and corruption as well as sanctions evasion, but of course we can always do more and we are vigilant about that.
On the reporting and transparency of the levy, there was a reasonable question from the hon. Member for Hampstead and Kilburn and from the sector. There will be a report on the levy this year and it will be reviewed in 2027. We will engage with stakeholders leading up to that review.
Question put and agreed to.
Clause 21 accordingly ordered to stand part of the Bill.
Clause 22
Transfers of assets abroad
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 22 makes changes to ensure that individuals cannot use a company as a device to bypass anti-avoidance legislation, known as the transfer of assets abroad provisions. Those provisions are designed to prevent individuals from transferring ownership of income-generating assets, such as real estate or stocks, to an overseas individual or entity while still benefiting from the income that the assets generate. The provisions prevent the moving of assets into offshore structures outside the scope of UK taxation being a simple tax avoidance route for UK residents.
The clause has been introduced following a Supreme Court decision. Prior to the decision, HMRC considered that shareholders and directors who controlled a company could transfer an asset and were therefore in scope of the transfer of assets abroad provisions. However, the Supreme Court decision means that a shareholder cannot be determined as a transferor, which therefore opens up a loophole that can be exploited by shareholders transferring assets abroad via a close company to avoid UK tax. A close company is a company with five or fewer participators, usually shareholders or directors, who have ownership or control over the business.
The changes made by the clause will introduce a provision that deems an individual as the transferor where they are participators in a close company that transfers an asset to a person abroad in order to avoid UK tax. The amendment also applies to transfers by non-resident companies that would be treated as a close company if they were UK resident. The changes will have an impact on transactions only where the purpose of the transfer is to avoid tax and will not have an impact on transfers that are genuine commercial transactions. The changes will apply to income that arises after 6 April 2024, regardless of when the transfer took place.
In situations where multiple shareholders are involved in the transfer of an asset, any resulting tax charge will be apportioned between those individuals in proportion to their respective shareholdings. Further details will be provided in HMRC guidance. The measure is expected to affect a small number of individuals a year and will raise about £15 million in tax revenue over the forecast period.
This change was anticipated by external groups and demonstrates that the Government are quick to crack down on tax avoidance loopholes. This clause prevents tax avoidance by ensuring that individuals cannot bypass anti-avoidance legislation by using a company to transfer assets abroad while still benefiting from the income they generate. I therefore commend the clause to the Committee.
Tulip Siddiq
We believe that individuals or companies generating wealth in the UK should pay their fair share, so we are in complete support of the aims of this clause. However, we have heard concerns raised by the Chartered Institute of Taxation about the effectiveness of the Government’s proposals and I would be interested to hear the Minister’s views on those concerns.
First, the Chartered Institute of Taxation has argued that the clause adds complexity to the tax system, because it uses income tax legislation to tackle perceived corporate tax avoidance. Clause 22 extends provision within the Income Tax Act 2007 to cover avoidance of any tax through transfer made by a closely held company. Could the Minister explain the thinking behind the Government’s decision to tackle corporate tax avoidance in this way, rather than through the corporate tax regime? Does he agree with the Chartered Institute of Taxation that it could add unnecessary complication to the tax system?
Secondly, the Chartered Institute of Taxation made the case that the Government’s position that any participator in a company is deemed to be involved in a company’s decision to move assets abroad is unfair. For example, a company may have several minority shareholders who have no participation in the running of the company. What is the Minister’s assessment of the case made by the Chartered Institute of Taxation that only major shareholders, directors and shadow directors should be assumed to be involved for the purposes of this legislation?
Thirdly, the Chartered Institute of Taxation has warned that these changes could damage the UK’s international competitiveness, because the test as set out in the legislation leaves too much discretion to HMRC, which compounds uncertainty for businesses. For example, a UK holding company that provides a loan to an offshore subsidiary that in turn generates profits could be caught by the changes, despite that being a routine transaction. The Chartered Institute of Taxation argues that that could lead to an increased number of inquiries and appeals to the tax tribunals and could seriously undermine the UK’s attractiveness for international headquarters.
What does the Minister make of those concerns? What steps will HMRC take to ensure that involvement and objection defences under the clause are not ambiguous or uncertain, and to ensure that those charges do not prove to be increased excessively for taxpayers?
My final point is that the changes introduced by clause 22 appear to be retrospective, as no date is specified whereafter transactions are affected; the clause says only that income arising after April 2024 is caught by the regime. Can the Minister confirm whether that is the case? Will commercial transactions that were carried out many years ago, but from which income arises after April 2024, still be caught?
Nigel Huddleston
I thank the hon. Member for Hampstead and Kilburn for her comments. We very much appreciate the input that we have received from stakeholders and interested parties, including the Chartered Institute of Taxation. Some of those points are about broader issues around the TOAA regime, rather than specific to this legislation, but we do hear what they have to say.
I will respond to the hon. Lady’s points about the changes that apply to companies when the TOAA regime is primarily about individuals. The transfer of assets abroad legislation is an anti-avoidance provision aimed at preventing individuals from avoiding a tax charge by transferring an asset to a person overseas while still being able to enjoy the income of that asset in some way. It would be easy for an individual to sidestep the legislation by transferring such an asset to a company that they controlled before the company then made the transfer abroad. The legislative changes are aimed at preventing that situation and ensuring that the TOAA rules are applied as intended.
On the point about the legislation being broad, let us not forget that it is being brought in in response to the Supreme Court judgment; we are trying to make sure that it acts as intended throughout. The intention of the legislation is to put the situation involving transfers by companies back to how HMRC considered it operated before the Supreme Court decision. The transfer of assets abroad legislation aims to stop that tax avoidance.
It is also important to remember that the legislation does not bring a tax charge when the transfer is for genuine commercial reasons or when tax avoidance was not the purpose of the transfer. The new legislation gives individuals the opportunity to exclude themselves from the tax charge if certain conditions are met. We respectfully disagree with the CIOT on some of those conditions. We have outlined some of those, and HMRC will produce further guidance in due course.
On the retroactive criticism, the clause has retroactive effect because if it did not, it would have allowed individuals to abuse the loophole between the date of the Fisher judgment and the enactment of the legislation. Again, we do not believe that there will be a significant increase in complexity. The purpose behind the legislation is primarily to ensure that the regime acts as intended.
I will not go into the weeds on HMRC’s determination process—further guidance will be given—but HMRC will review the facts of a case to judge whether someone is directly or indirectly involved in the decision making of a company. It will accept evidence that shows whether someone is involved or not. However, any arrangements that are put in place purely to be used as evidence that an individual is not involved in the decision making of a company will be disregarded and a charge will be levied if the other conditions are met. As I said, HMRC will issue guidance on how it will approach the matter in due course. Decisions will be made based on the facts of each individual case.
I hope that I have given the hon. Member for Hampstead and Kilburn some assurance. We appreciate the concerns that have raised by key stakeholders, and further information and guidance will be forthcoming.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Minor VAT amendments
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 23 makes some minor, technical changes to VAT legislation relating to the DIY house builders’ scheme and VAT credit in the penalty reform regime, and allows for reform of the VAT terminal markets order. I will speak briefly about each measure in turn.
The DIY house builders’ scheme allows individuals building their own home, or converting a non-residential building to their own home, to recover VAT incurred on the cost. That puts individual house builders in the same position as property developers, who are able to sell new build residential property at a zero rate and recover the VAT they incur in the process of constructing new build properties. The scheme was simplified and made digital in December last year, which has significantly reduced the time taken for claims to be paid. Under the new process, only essential details are required on the claim form, eliminating the need for claimants to submit certain evidential documents up front. Based on the information provided on the claim form, HMRC can then request evidential documents to verify the claim.
Clause 23(1) will give HMRC a clear power under the DIY house builders’ scheme to require further evidential documentation, such as invoices, from the person who submitted a claim under the scheme. That will assist HMRC in verifying claims.
Clause 23(3) is a minor update to the existing powers that allow for reform of the VAT terminal markets order. The order reduces VAT administration burdens on commodities traded on specified markets, so the power will allow for simplifications to support businesses trading those commodities. The Government previously announced their intention to reform the order to reflect current market practices and to keep pace with market changes, such as trades in new products, including carbon credits. This clause takes that commitment forward.
Finally, subsections (4) and (5) make changes to ensure that VAT interest rules operate as intended. For most major taxes, the Finance Act 2009 requires HMRC to pay interest on amounts due from HMRC to taxpayers, and to charge interest on late payments to HMRC. Historically, that regime did not apply to VAT, which had its own interest rules. Harmonising the rules on interest was an important step in delivering the Government’s ambition to build a trusted, modern tax administration system. Changes made by the Finance Act 2021 brought VAT interest in line with taxes such as income tax from 1 January last year. In implementing the new interest rules for VAT, HMRC has discovered some minor defects in the legislation, which without correction would force it to act in a way that conflicts with policy intent.
Clause 23 will therefore make two changes to the interest rules. The first will address the situation in which interest ought to be repaid to HMRC because, following an assessment or amendment that reduces the amount of VAT credit, the repayment interest due is also reduced. It was always intended that HMRC could recover all these amounts through a simple automated process that does not add to burdens for taxpayers and HMRC alike. The IT system can already operate, but the legislation, mistakenly, does not always allow that automated recovery. The change will ensure that HMRC can do so in all cases instead of needing a different, onerous process for a minority of cases that the original legislation did not cover.
The second change will make sure that VAT-registered businesses are always protected by a provision that creates a fairer basis for the calculation of interest where they owed money to HMRC over the same time that HMRC owed money to them. The original legislation failed to extend that safeguard to all scenarios in which that could happen with VAT, undermining the fairness of the interest regime. To ensure that all VAT-registered businesses are treated equally, the changes will be given backdated effect to 1 January 2023, when the interest rules were introduced for VAT.
Clause 23 makes some small changes to ensure that policy works as intended and to further Government commitments on reforming the VAT terminal markets order. I commend it to the Committee.
Tulip Siddiq
The Opposition support the changes that will assist with compliance checks by making online applications equivalent to paper applications. Has the Minister considered adding the online application as a service to the agent services accounts so that an agent can prepare and submit the claim on behalf of their client?
We also support the provisions for modifying the application of VAT for terminal markets, as that will allow for further reforms such as bringing trades in carbon credits within the scope of the Value Added Tax (Terminal Markets) Order. We feel that is a vital and necessary step in developing this important market.
We support the changes to legislation that governs the interaction between late payment interest and repayment interest for VAT. Has the Minister given any thought to reinstating HMRC’s ability not to charge interest on VAT errors where the supplier did not charge VAT, with no loss to the Exchequer because the customer could claim in full?
Drew Hendry
On clause 23’s minor VAT amendments, there is very little to disagree with. VAT should be paid where it is due, and HMRC should pay interest where it should pay interest. That is to be welcomed.
However, on Second Reading I pointed out the paucity of thought and imagination that had gone into providing real help for people across the nations of the UK, and the kinds of thing that the Government could have done but have not. The clause title, “Minor VAT amendments”, just highlights the problem with the entire Bill. The Government could have taken some action to deal with the issues for people in hospitality by cutting VAT and doing something meaningful for tourism, but no: they have chosen to make these minor adjustments. They could have used VAT as a mechanism for helping our high streets to create economic zones that could boost life back into vital high streets and centres. Instead, they have taken to tinkering with the VAT rules.
My question to the Minister is why there is such a lack of ambition in his Government. Is it that this is a fag-end Government in a fag-end Parliament that has run out of ideas, or is it just that they do not care?
Nigel Huddleston
The hon. Member for Inverness, Nairn, Badenoch and Strathspey has been charming until this point, and now he goes back to this. I know him very well; I am sure he does not mean it. First, he knows as well as anybody in this House that everybody who comes into Parliament cares: they care about their constituents and they care about the country. We are motivated to come here because we want to make the country a better place for our children and grandchildren.
I know that the hon. Gentleman occasionally gets rather vocal on some of these points, but I politely request that he be a little bit careful with some of his comments. I would never criticise the motivation, incentives or purposes of any colleague in this place. I may fundamentally disagree with some of their policies, but I will not disagree with their motivations. In saying things like “People don’t care” or “The Government don’t care,” I am afraid he is straightforwardly wrong.
Drew Hendry
I am very fond of the Minister, as he knows. We often have these back and forths, and I often have to rise to my feet to correct what he has said. I did not make any assertion about any individual; I was talking about his Government. I was very explicit about that. I just want to make that clear.
Nigel Huddleston
Yet again, I appreciate the hon. Gentleman’s trying to clarify, but I am a member of the Government and therefore I am afraid that I do take offence, direct or indirect. But that is a side point to the matters under discussion.
The hon. Gentleman is making fair and valid points about the support that has been given, but I repeat that this Government, like every Government around the world, have had incredibly difficult circumstances to deal with. I do not think that there is any doubt whatever that the support measures that we have put in place to support lives and livelihoods have been incredible and stack up pretty well when compared internationally. That includes cost of living support, as I have mentioned.
I know that the hon. Gentleman is a huge supporter of the tourism, hospitality and leisure industry. We have spoken about that many times, and I know that it is particularly important to Scotland, where it is a disproportionately larger share of the economy than in England, for example, although it is important and large across every single constituency in the UK—and I do mean every single constituency. But the hon. Gentleman is being a little bit rich, because he knows as well as I do that there are other measures beyond VAT to support the hospitality and leisure industry. Of course, in England we have extended the 75% business rates reduction to the retail, hospitality and leisure sector, but that has not been done in Scotland, nor has it been done to its full extent in Wales.
Drew Hendry
I am grateful to the Minister for allowing a bit of back and forth on this. It is generous of him to do so. He fails to mention that in Scotland, 100,000 businesses are lifted out of business rates altogether through the small business bonus scheme. The record in Scotland shows that we are supporting businesses, and those businesses are very prevalent in the tourism sector.
Nigel Huddleston
I acknowledge the efforts made by the Scottish Government to support various sectors, but as I say, on that particular item, the hon. Gentleman will know as well as I do that it is a key ask of the industry in Scotland for the Scottish Government to follow suit with England and elsewhere.
The hon. Member for Hampstead and Kilburn raised several points. Some were slightly out of the scope of the specific measures under discussion, including IT systems and other considerations, but I take on board what she says, as does HMRC, because there is a constant need to review and assess the scope of IT systems and so on. We do so on a regular basis; I spend a lot of time talking to HMRC about this, so I can assure the hon. Lady that the points that she raised are constantly under consideration. I will probably leave it at that.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Clause 24
Collective money purchase arrangements
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 24 makes further provision for collective money purchase arrangements. CMP arrangements are a new type of pension that have the benefit of pooling individuals’ pension pots to provide better incomes in retirement while limiting the liability of employers.
These changes will enable the Government to authorise the transfer of benefits to a member’s beneficiaries, such as their dependants, in the unlikely event that a member dies while a CMP arrangement is being wound up. That will ensure that such transfers do not incur an unauthorised payment charge of 55%, and it will deliver the Government’s commitment to provide the correct tax outcome for CMP arrangements.
The Pension Schemes Act 2021 introduced legislation to allow collective money purchase schemes to operate in the United Kingdom. This measure authorises the transfer of survivor benefits in collective money purchase pension schemes. This will ensure that Royal Mail Group, the first provider of a collective money purchase pension scheme, can launch its scheme as planned.
It is a complicated title, but with a simple purpose. As a result of these changes, an employee of Royal Mail will be able to sign on to a CMP, with all the benefits, without the risk of transferring survivor benefits being put through as unauthorised transactions. I therefore commend the clause to the Committee.
Tulip Siddiq
This clause is so uncontroversial that we give it our full support. For the first time, I agree with everything the Minister has said, and the Committee will be happy to know that I have no further questions for him.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
Interpretation
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
I will be very brief, because the clause is fairly straightforward. It provides for the use of abbreviations for a variety of Acts. For example, it provides for the use of “CTA 2009” as an abbreviation for the Corporation Tax Act 2009. I commend the clause to the Committee.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Short title
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
The clause provides for the Bill to be known as the Finance (No. 2) Act 2024 upon Royal Assent. I commend it to the Committee.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Question proposed, That the Chair do report the Bill to the House.
Nigel Huddleston
We have moved forward very quickly today. I thank everybody for their participation: you, Mrs Latham, all the officials in the House, the Clerks, and all those who have been working on the Bill at HMRC, HMT and other Government Departments. I repeat my thanks to the external stakeholders for their comments and to all those who have been involved in consultations. In particular, I thank the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales, and the Low Incomes Tax Reform Group for their contributions to this Committee, including in written form, and all those who have participated today.
I look forward to the Bill progressing smoothly through its final stages. I thank everybody involved.
James Murray
I add my thanks to my colleagues in the Opposition: my fellow shadow Minister, my hon. Friend the Member for Hampstead and Kilburn; the Opposition Whip, my hon. Friend the Member for Gower; and, of course, the Back Benchers who have joined us for this lengthy Committee session. [Laughter.] I place on the record my thanks to all the House authorities and to third parties, particularly the Chartered Institute of Taxation, whose expertise is always greatly valued.
Drew Hendry
I, too, rise to pass on my thanks: to you, Mrs Latham, for chairing, and to all the staff and others who have been involved. Whether we agree or vehemently disagree—often, as we have seen today, there are big disagreements—we never forget those people who work hard to produce the documentation and supporting information in all the arms of Parliament, including the House of Commons Library. Thank you.
Question put and agreed to.
Bill accordingly to be reported, without amendment.
Finance (No.2) Bill
Thursday 23rd May 2024
(6 months ago)
Commons ChamberRead Full debate Finance Act (No. 2) 2024 2023-24 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 21 May 2024 - (21 May 2024)
15:14 - The House divided: - Ayes: 215 / Noes: 19 - Question accordingly agreed to.
The Financial Secretary to the Treasury (Nigel Huddleston)
I beg to move, That the Bill now be read the Third time.
May I take the opportunity to thank you, Madam Deputy Speaker, and the other Madam Deputy Speaker for your professionalism, kindness and robustness in this place? You will be sorely missed, and I express my appreciation to all those who have announced that they will be standing down at this election and thank them for their service in this House. I think I speak for everybody when I say that everybody who comes into this place does so with very positive motivations, because they want to make the world a better place for their children and grandchildren. That may sound trite, but it is a motivation we all share. We may disagree on the route to achieve that, but anybody who comes into this place does so with incredible professionalism, and we should all thank them for that service.
Moving on to the politics and policy of today, this Bill helps to deliver the priorities of the Prime Minister and the Government following the autumn statement and the spring Budget. The economy has vastly improved. It is growing again. Real wages are increasing and, as we found out this week, inflation is down to its lowest figure in nearly three years. The Finance Bill builds on that economic improvement by rewarding work, encouraging investment in our economy and boosting home ownership.
As the two recent fiscal events outlined, we have rewarded work by making national insurance tax cuts. Some 27 million employees will get an average tax cut of £900 a year, and 2 million self-employed people will get a tax cut averaging £700. That is the largest ever cut to employee and self-employed national insurance, and this Bill furthers the work done on rewarding work by increasing the high income child benefit charge threshold from £50,000 to £60,000. In addition, the rate of the charge will be halved, so that child benefit is not repaid in full until someone earns £80,000, taking 170,000 families out of paying this tax charge. Some 485,000 families will benefit by an average of £1,260 from these child benefit changes.
Jim Shannon (Strangford) (DUP)
I put on record my thanks to the Minister and the Government for that change. It is a policy that my party and I have pursued over a number of years. The Government took it on board and they are very kindly changing the law. I thank the Minister, but also the Government, because it is one of the things that we can put to our constituents, including my constituents in Strangford, and say, “Here is delivery of what you asked for. Here is what we did.”
Nigel Huddleston
I thank the hon. Gentleman for his gracious and pertinent intervention, as ever. I thank him and all those who have campaigned for this change, because we know it will make a difference to the budgets of many households across the country in what we recognise are still challenging times.
The Bill will drive investment in the economy through various measures, including additional support for our world-leading creative industries, and we are making tax reliefs for theatres, orchestras, museums and galleries permanent, at a rate of 45% for touring theatres, museums, galleries and touring productions, 40% for non-touring productions and 45% for orchestras. That will ensure that our creative industries have the support they need after the unprecedented economic shock of the pandemic.
We will further support the UK’s independent film sector through a new UK independent film tax credit, at a rate of 53% for films with lower budgets. That will support the production of UK independent films and the incubation of UK talent. Our creative sector is vital to our national life, and the Government are committed to supporting UK businesses in the sector.
This is also a Bill that will boost transactions in the housing market. It will cut the higher rate of capital gains tax on residential property from 28% to 24%, encouraging landlords and second home owners to sell their properties, which would in fact increase revenues because there would be more transactions. That will make more homes available to purchase for a variety of buyers, including, of course, first-time buyers.
We need to ensure that the property system is fit for purpose. The Government are clear that where policies are not meeting their objectives, we will take clear and decisive action. That is why we are abolishing multiple dwellings relief—a bulk purchase relief in the stamp duty land tax regime—from 1 June 2024. Abolition follows an external evaluation that found no strong evidence that the relief is meeting its original objective of supporting investment in the private rented sector. His Majesty’s Revenue and Customs has recorded many instances of abuse and attempted abuse.
We are amending the rules so that individuals buying a new lease over a leasehold residential property through a nominee or bare trustee will be able to claim first-time buyers’ relief on their stamp duty land tax bill. That change will ensure that, for example, victims of domestic abuse are not unfairly penalised if they wish to buy their first homes anonymously. It will ensure that those in difficult circumstances do not face additional barriers to purchasing homes.
The Bill will also make the tax system fairer by closing tax avoidance loopholes and making relevant changes to VAT.
I thank right hon. and hon. Members from across the House for their helpful and insightful contributions to the debates during the Bill’s quicker than expected passage. I thank the many stakeholders who have provided their views on the issues raised and provided evidence to the Public Bill Committee, as well as Treasury and HMRC officials and, of course, the House Clerks and officials who have supported us in getting the Bill to this point so quickly.
The Bill rewards work, encourages investment in our economy and boosts home ownership. It is part of the Government’s clear plan of action. For those reasons, I commend it to the House.
James Murray (Ealing North) (Lab/Co-op)
Madam Deputy Speaker, may I begin by paying tribute to you for your years of service and thank you for your guidance? If I may, I will tell one brief anecdote, which is actually from a previous Finance Bill. I had not quite realised that it was my duty to move the Opposition’s amendments before the time of voting, as I was distracted by being in conversation with my hon. Friend the Member for Hove (Peter Kyle) at the time. The Chamber was full. I think that you cleared your throat three times at me until I finally moved the amendment. On the way out, the right hon. Member for Maidenhead (Mrs May) said to me, “You will never forget that, will you?” It is true—I will not. That was great advice and guidance that will stick with me throughout any future years that I may have in this place, depending on the election. Thank you very much.
We are here to consider the Third Reading of the Finance Bill, which the Opposition hope will be the last in the line of 14 years’ worth of Conservative Finance Bills. The Bill comes after 14 years of Conservative failure on the economy and leaves a legacy of higher taxes, falling living standards and stagnant economic growth. The truth is that whatever the Conservatives say or try to do, whether in the Chamber today or on the campaign trail over the next six weeks, it is too late to repair the damage that they have done to the economy and to people’s standard of living.
I do not think that any of us were expecting to be completing the Bill’s remaining stages in the rushed end of this Parliament. Many of us had assumed that the Prime Minister would call the election later in the year, and I still have not heard why he ultimately decided to call it for July. I have one theory, which is that he realised that prolonging the general election would raise the prospect of there being another Finance Bill in which the Government may have had to legislate to end the non-dom tax status.
Let us face it: the Prime Minister really does not want to get rid of the non-dom tax status. Maybe he thought this was a way to avoid the Conservatives having to keep their promise to end it. I am afraid that he may still be disappointed as, if Labour wins the general election, we will end the non-dom tax status and the new loopholes planned by the Conservatives once and for all. Now that we are to have a general election, perhaps the Conservatives will finally tell us how they will pay for their £46 billion unfunded spending commitment to abolish national insurance altogether. Given their track record, I will not be holding my breath.
The Opposition have tried to amend the Bill during its passage to force the Government to come clean about the impact that their six-year freezing of the income tax personal allowance and the higher rate threshold is having on taxpayers across the country. We have tried to force the Chancellor to set out what impact his and his predecessors’ policies are having on pensioners, and how more of them will pay tax and more of them will have higher tax bills as a result of decisions made by the Conservatives. Alongside the impact on individual taxpayers, we have tried to amend the Bill to encourage the Government to follow our plan to bring back certainty for businesses by capping the rate of corporation tax at 25% for the whole of the next Parliament.
Finally, we sought to give certainty to the oil and gas industry by being clear that our strengthened windfall tax or energy profits levy would end no later than the end of the next Parliament. We were disappointed, though sadly not surprised, that none of our amendments became part of the Bill.
The Opposition will not oppose the Bill’s Third Reading, but let me close by saying two things. First, I pay thanks to the Clerks and the House of Commons staff for all their support throughout the Bill’s passage and to outside organisations, including the Chartered Institute of Taxation in particular, for all their help not just with this Finance Bill, but with all six Finance Bills for which I have been responsible as a shadow Minister. May I also put on record my appreciation for the way in which the Financial Secretary to the Treasury and the Exchequer Secretary to the Treasury have drawn a line between the tough and sometimes barbed exchanges we have in the Chamber and their courtesy and respectfulness outside the Chamber? That is not always the case in politics, but when it happens, I believe that it makes the House of Commons a better place while not for a second compromising on the sharpness of the political questions that we are here rightly to contest.
Ultimately, we are all here to do what is best for our country, and I do not believe that five more years of the Conservatives would serve that goal. Not only have they become defined by chaos and division, and put party before country at every turn, it is also clear that they have done too much damage to the economy. They have squeezed living standards too much, and they have stretched public services to breaking point. I hope that this is the last in a 14-year line of Conservative Finance Bills, because the country needs change. We finally have the chance to ask the British people what Government they want for the next five years. I hope that they will put their trust in our changed Labour party to change our country for the better.
Peter Aldous (Waveney) (Con)
May I start by paying tribute to you, Madam Deputy Speaker? The best type of umpire or referee is one who is formidable but fair and greatly respected, and you tick all three boxes. I am most grateful to you for calling me to speak. I do so as I have some concerns about unintended consequences arising from clause 7, which is on the abolition of multiple dwellings relief for stamp duty land tax. My hon. Friend the Minister set out some of the reasons for abolishing it. I wish to go a little further and perhaps pry a little more response out of him to allay those concerns.
I make these observations as a former chartered surveyor, as the MP for a constituency that might be adversely affected and having received representations from the British Property Federation. I am aware that a number of pension funds, investors, builders and professional advisers have written to my right hon. Friend the Chancellor of the Exchequer expressing their concerns.
The build-to-rent sector rose from a combination of the introduction of stamp duty land tax multiple dwellings relief in 2011 and the implementation of some of the Montague review’s recommendations in 2012. Subsequently, it has been extremely successful. Some £40 million has been invested in the build-to-rent sector, resulting in 100,300 additional homes being completed, with a further 166,000 in the planning and delivery pipeline. The sector still represents a relatively small proportion of the delivery of new homes, but it is growing rapidly. The number of completed build-to-rent homes increased by 17% year-on-year in the fourth quarter last year. Investors and developers initially focused on London, then the larger cities such as Manchester, Birmingham and Leeds. Now, their interest is rippling right out across the UK.
Build to rent acts as an anchor in large development schemes. It helps get homes of other tenures built, and multiple dwellings relief enables much-needed homes to be built outside London and the south-east in areas where there are lower property values and development otherwise would not be financially viable. My concern is that the abolition of multiple dwellings relief in the form proposed could have a variety of unintended consequences, which I will go through briefly. First, as I know from my own inbox and postbag, which I anticipate is the case for all colleagues, we need to build more homes to rent. The Bill potentially removes one of the ways of doing that. Secondly, it will have an impact on specialist sectors—student accommodation and sheltered housing—where, in response to demand, developers are increasingly looking to provide units to let.
Thirdly, the relief is most needed in areas where the property market is weaker—outside London and the south-east—and often in areas where the need for more housing is most acute. Fourthly, we have a problem in the UK of too few house builders. The small and medium-sized house builder is an increasingly endangered species. Clause 7 could undermine an alternative means of housing delivery.
Finally, I am mindful of the enormous task of urban regeneration and town centre renewal that we face right across the UK—in other words levelling up, which has been the theme of much of this Parliament. This task is enormous and incredibly expensive. It is neither practical nor possible for the state to do that heavy lifting on its own. Private finance must be leveraged in from pensions funds and investors. Multiple dwellings relief is a means of doing that. Some might say it is a small thing, but its abolition could send a negative message that there is no place for the public and private sectors to work together.
We could amend clause 7 to retain the multiple dwellings relief for transactions of six or more dwellings, on the basis that it would underpin the development proposals of large rented housing schemes, and would result in significantly more rental homes being built than if the relief were completely abolished. The threshold of six mirrors the existing rule that purchases of six or more dwellings can be treated as a commercial property transaction for stamp duty land tax purposes, and is at a level at which multiple dwellings relief is hard to abuse.
I would be grateful if my hon. Friend the Financial Secretary to the Treasury, who has been incredibly patient listening to my various concerns about this Bill during its course, could comment a little more and seek to allay my genuinely held concerns.
Kirsty Blackman (Aberdeen North) (SNP)
I very much liked the earlier comment, Madam Deputy Speaker, about your being a good example to women in this place and someone whom people look up to. I agree with that, and I wanted to begin by thanking you.
Let me now say something about the washing up of Finance Bills in general, and about this particular Bill in the context of washing up. It seems to me that I have spent a great deal of my time in Parliament dealing with Finance Bills, and I have also spent far too much time dealing with Finance Bills during the washing-up process. I do not know whether anyone remembers the Finance Act 2017, but because an election was called the Bill had to go through that process, and it was massively gutted beforehand. My problem was that I had tabled amendments to all the clauses that were now being removed, and I was somewhat unhappy about the fact that I had done a significant amount of work that would never see the light of day.
On that occasion I gave a speech that I think lasted more than 50 minutes, in which I spoke about every amendment I had tabled, but I can reassure that House that I will not be doing the same today. I have not tabled amendments to this Bill, and neither has my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry). In fact, I have come in at the last moment to take over from my hon. Friend, because, sadly, he had returned to Inverness before the Prime Minister made the announcement of the election, and there was no physical way for him to get back in time today. I appreciate the hard work that he has done during the Bill’s earlier stages. He is sorry that he cannot be here, and unfortunately I am a poor substitute, but I will do my best.
We will be voting against the Bill’s Third Reading. I am sure that no one will be surprised by that, given that we tabled a reasoned amendment on Second Reading and that this is consistent with the approach that we have taken throughout the Bill’s progress.
Let me say a little about the way in which Finance Bills—specifically this Finance Bill, and other recent Finance Bills—go through the House. There has been an ongoing issue with Ministers, including Chancellors, refusing to include “amendment of the law” resolutions. Refusing to include a Budget resolution for amendment of the law is a genuine constitutional change, and it has taken place without much of a fanfare—pretty much on the basis that it was done during that wash-up in 2017, or in the case of a Finance Bill that was introduced with a very tight timescale. After that, the resolution was never brought back, although it is important to Finance Bills and it is important for scrutiny purposes. I hope that, should they become a Government at some time in the future, the official Opposition will commit themselves to bringing it back.
I am also concerned about the fact that Finance Bill Committees continue not to take oral evidence. The Procedure Committee will be sick of hearing me talk about this, because I bring it up at nearly all its meetings, but the lack of oral evidence means that scrutiny is not as good as it could be. I appreciate that the Minister mentioned those who submit written evidence, but I do not think that that is an adequate substitute. I understand the argument of Ministers that Finance Bills are taken by a Committee of the whole House followed by Public Bill Committee sessions, but much of the stuff that is considered in the Public Bill Committee is extremely technical, and it would benefit Members to be able to question external organisations with real experience. The Association of Accounting Technicians, for example, would be able to give us a significant amount of information about how such measures would work. When Committees dealing with Bills with which I have been involved have taken oral evidence, Members have relied heavily on quoting that evidence throughout the progress of those Bills, and I think that this would greatly improve both the Finance Bill and its scrutiny.
Let me now turn to our specific concerns about this Bill. The Chancellor made a number of comments on Radio 4 yesterday morning, before the announcement of the election. One of the excellent journalists on the programme pushed him to say whether or not he felt he was better off now than before. The Chancellor did not answer that question, but the reality is that if we ask people up and down these islands what their biggest concern is at the moment, they overwhelmingly say it is the cost of living crisis. They are massively concerned about the fact that food, electricity and gas prices have gone through the roof, and about the extra money that they are having to shell out.
The Budget was an opportunity for the UK Government to recognise that concern, take it seriously, and do what we did in Scotland: we have put tackling child poverty front and centre of decision-making processes. We have the Scottish child payment, which has taken 100,000 children out of poverty. We are doing everything that we can to mitigate the UK Government’s policies, but the reality is that all we can do is mitigate, given that the block grant is the lowest percentage of UK Government spending that it has been since devolution. With capital budgets for the Scottish Parliament being slashed, we find that increasingly difficult, because we are not in control of all the levers. We are not in control of all our finances. We cannot increase the minimum wage to a proper living wage, rather than a pretendy living wage. We cannot scrap the two-child cap. We mitigate as far as we possibly can, but we do not have all the powers that we require.
People in Scotland are better off as a result of the decisions taken by the Scottish Government. They are getting a free university education, and they can go to the dentist for free; I cannot believe the low percentage of NHS dentists in the rest of the UK. People in Scotland can receive the Scottish child payment, and a higher number of children from deprived areas go to university in Scotland. There is a huge amount of good being done in Scotland, but it is being done by the SNP Government, who have one hand tied behind their back by Westminster.
The Chancellor’s refusal to say whether he felt better off shows the difference between the haves and the have- nots throughout these islands. If we ask people who come to receptions in Parliament—people who have high salaries—how they feel about the cost of living crisis, they might say that they feel it a bit, and that they will have slightly fewer holidays or slightly fewer cars, but they do not have to make decisions, every moment of every day, about every penny that they spend. They are not, like our constituents, lying in bed at night worrying about how they will pay the rent and electricity bills, and how they will manage to buy bread, potatoes or pasta.
The inflation figures announced yesterday do not show that things are better. They show that inflation is less high than it was, but does it really make a difference to those buying pasta that it has gone up by only 47%, rather than 49%, over the past few years, given that there has been a 25% overall increase in the cost of food, and that benefits and social security have not kept pace?
The UK Government had the opportunity to provide help with the cost of living crisis in the Budget, and they did not take it. They talk about the changes that they are making to national insurance and tax, but those changes impact only people who are working and earning above the thresholds, and a good chunk of them, particularly those on the lowest earnings, also get universal credit. There are major issues with universal credit, particularly for single people but also for those with larger families, because of factors such as the two-child cap.
The reality is that this UK Government had an opportunity to make a difference to people’s lives, and they refused to take it. They do not have the same priorities as us. We will always put Scotland first. We will always fight in this place against UK Government decisions that the people of Scotland are unhappy with. Whether under a Tory or Labour UK Government, we will do everything that we can to ensure that Scotland’s voice is heard. We will do everything that we can to disagree with legislation that the people of Scotland disagree with, and everything we can to work cross party when legislation is in the interests of the people of Scotland. I have made it very clear that we disagree with this legislation, and will oppose Third Reading.
Nigel Huddleston
I thank those who contributed to the debate, and, of course, those who have contributed to debates on the Bill throughout its progress. I turn first to comments made by the hon. Member for Aberdeen North (Kirsty Blackman). I respect her views about scrutiny of Bills in this place. However, I hope that she recognises that finance Bills often contain many, many clauses, some of which have been developed over many years, been subject to multiple consultations, and had a huge amount of input. I appreciate that she acknowledged that a lot of written evidence, which is hugely valuable and very much appreciated, is also provided. The fact that she and her colleagues are pressing for a Division on the Bill this evening evidences that there is scrutiny, holding to account, and a diversity of opinion on these matters.
I disagree with many of the hon. Lady’s other comments. On who is better off, 27 million workers are better off because of the national insurance cut, and 2 million self-employed people are better off. If she does not believe that, I suggest that she looks at her payslips; she will see that national insurance is going down. That makes a meaningful difference. She may be sniffy about it, but £900 is a meaningful difference for an average worker—for many of my constituents, and constituents across the country. For those not in work, of course, we also increased benefits by 6.7%, and pensions by 8.5%. We Conservatives always make sure that all people in society are looked after.
The hon. Lady made comments about support with the cost of living. The Opposition consistently seem to have a collective sense of amnesia, and have completely forgotten the last five years and the global challenges that all economies faced, with the pandemic followed by the global cost of living crisis. This Government have had to intervene in a way that nobody anticipated. It meant that taxes had to be higher, but as soon as we get the opportunity—as soon as we have the choice—to bring them down, that is exactly what we will do, because we know how difficult this has been for people and want to put more money in their pockets as soon as we can. We have a plan, and it is working.
I always respect the opinions and views of my hon. Friend the Member for Waveney (Peter Aldous), and I am never alarmed or disturbed by his frequently holding me, and the Government, to account for policy decisions. I can give him some reassurance, though. The multiple dwellings relief is being abolished for very good reason: it is not working as intended. Of course, a considerable amount of money is involved. When we spend taxpayers’ money or allow a relief, we need to make sure that it has the intended impact. The relief was not working as intended, and was subject to considerable abuse, so we are abolishing it.
However, I can give my hon. Friend some assurance, particularly on certain issues that he mentioned. For example, large investors, including those in the build-to-rent sector who purchased six or more properties in a single transaction, can still continue to benefit from the non-residential rates of stamp duty land tax, which can be quite beneficial. We are engaged in discussions with stakeholders, including some of the bodies that he has mentioned, because we do not want there to be unintended consequences. We appreciate their input on this Bill, as always. I thank my hon. Friend for his fantastic interventions, as always. He is an amazing MP for his constituents, and I always appreciate his contributions.
I thank the hon. Member for Ealing North (James Murray) for his gracious comments. He is correct that what is written in Hansard and what the public see of our sometimes rather robust debates is not always a reflection of our generally positive relationships on a personal level. However, that does not mean we do not have robust disagreements on policy, and I am afraid that I will have to raise quite a few points of disagreement today.
Every single time I have appeared at the Dispatch Box, the hon. Gentleman has complained about the Government not calling a general election, and now that we have called a general election, he is still complaining. That really takes the biscuit. He continued with his familiar refrain; he never misses an opportunity to talk Britain down. I refer him to my earlier comments about our interventions during the pandemic and their immense £400 billion cost to the UK economy. I do not believe the Opposition opposed a single one of our interventions at the time, so it is a bit rich to complain about the obvious impact on taxation. If he had an alternative plan, I would have loved to have heard it then, and I would love to hear it now, but it is non-existent. The hon. Gentleman is hoping to alarm, disturb and depress the British public into voting Labour, which is not a particularly bright strategy. The British public deserve better, and we need to hear confidence and optimism, not pessimism, about the UK economy.
I will not repeat the comments I have made on many occasions about Labour’s ridiculous scaremongering on the national insurance cuts and the impact they could have on pensions. He knows that the cuts will not have a negative impact on pensions, for the obvious reason that I had hoped he would now understand. National insurance does not wholly pay for pensions, welfare or the NHS, so why on earth is Labour going around the country trying to scaremonger old people and people who rely on the NHS into believing otherwise? I do not know. It is not an admirable way to try to win an election.
The hon. Gentleman and his colleagues keep repeating the mantra of “a changed Labour party”. Maybe in some ways that is true. Labour has certainly gone from embracing the hard left of British politics to embracing the hard right. That unbelievable journey speaks volumes about Labour’s values: it has none. Or, as the old saying goes, “These are our values. If you don’t like them, don’t worry: we have others.” On policy, too, there is a constant string of flip-flops, U-turns and uncertainty, which I am sure we will see during the general election. We will be holding Labour to account.
For example, Labour has abolished its £28 billion green spending commitment, but it seems to have retained the policy. Is Labour abolishing tuition fees? Maybe not. Will it abolish the House of Lords? Maybe not. Will it return to free movement and the single market? Maybe not. Will it abolish universal credit? Maybe not. Will it increase income tax on top earners? Maybe not. Rent caps, the ultra low emission zone, bankers’ bonuses and zero-hours contracts—we have had constant flip-flops from the Opposition. Not even they know what their actual policy is. It completely lacks credibility. As I said, they cannot expect the British public to be taken for such a ride.
The British public know where they stand with the Conservatives, because we have a plan. They can see it in the recent autumn statement, the spring Budget and this Bill. No matter what stage of life they are at, they can be confident that the Conservatives are there to support them. With our childcare measures and the child benefit changes in this Bill, it is clear that when they bring children into this world, we are there for them. Through our national insurance cuts and our measures to support businesses, it is clear that we are there for those in work or running a business. If they have finished work and have retired, we have shown through the triple lock and other measures that we are always there for them.
We can have strong public services and a strong welfare system that helps the most vulnerable in society only if we also have a strong economy to generate the taxes to pay for them. A strong recovery is vital for both the public and the private sector. That means that we on this side of the House are unapologetically pro-business.
Despite the challenges of the past few years, we are now on a clear path to recovery: the economy is growing again; inflation is falling; real wages are increasing; and people who look at their pay packet will see that their national insurance taxes have been cut too. That is more money in people’s pockets because of the actions and decisions of this Government—we have a plan, whereas the Opposition do not. We cannot put that at risk, so stick with the Conservatives for a brighter future. I commend this Bill to the House.
Question put, That the Bill be now read the Third time.
Madam Deputy Speaker (Dame Eleanor Laing)
Before I suspend the House pending the arrival of Lords messages, may I take a moment to thank everyone for being so kind to me this afternoon and for their good wishes? It had not occurred to me when I put out a tweet—or whatever it is now called—just before 1 pm that, by 1.30 pm when I came into the Chamber, people would actually have read it. That was a real surprise to me. It would appear that the power of social media is great and I really ought to use it more.
I have been very touched by the kind comments, which show that we all make friends on all sides and in every corner of this House. That is because we all have something in common. We are not the people who sit at home moaning and shouting at the television; we are the people who get up and do something about it. Everyone who sits in this House has come here with the object of making the world a better place. We have different ways of doing it, but we all have that one objective.
As I mentioned earlier, to me, being Chairman of Ways and Means is the best job in the world by far, and I have been very privileged to be allowed to do it. When I was a little girl studying Oscar Wilde’s “The Importance of Being Earnest”, it was my ambition to play Lady Bracknell and, since I first climbed the steps of this Chair 10 and a half years ago, I have had the great pleasure of playing Lady Bracknell every day—[Hon. Members: “A handbag?”] Order! The House will now suspend pending the arrival of Lords messages. I will cause the Division bells to ring five minutes before the sitting resumes.
Finance (No. 2) Bill
Friday 24th May 2024
(6 months ago)
Lords ChamberRead Full debate Finance Act (No. 2) 2024 2023-24 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 21 May 2024 - (21 May 2024)
Baroness Vere of Norbiton
That the Bill be now read a second time.
The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
My Lords, it is a pleasure to open this debate on the Finance Bill on the final sitting day of this Parliament. The Bill follows on from the Budget set out by the Chancellor in March and puts in place many of the measures announced at that time. I look forward to the contributions from all noble Lords, in particular the noble Baroness, Lady Hazarika, who has chosen this debate for her maiden speech.
As I explained in the Budget debate, the fundamental economic picture has improved—and that trend has continued since then. As many noble Lords will know, since the beginning of 2023, we have been working on five priorities, three of which are economic: to halve inflation, grow the economy and reduce the national debt. A year on from when we set out those priorities, I am pleased to report that there has been significant progress. Inflation has now fallen to 2.3%, reaching the Prime Minister’s goal of halving inflation, and real wages are rising faster than inflation. This week, the International Monetary Fund upgraded its forecast for UK growth in 2024, and in April it said that the UK is expected to see the fastest cumulative growth of any major European economy over the next six years. Finally, our national debt is on track to fall as a share of the economy.
The work is not yet done, and I recognise that times are still too tough for too many. However, we should also recognise that we are making real progress. We are seeing robust evidence that the economy is improving, which is why we need to stick to our plan, so that we can deliver the long-term change that our country needs to deliver a brighter future. The Finance Bill builds on those improvements through four key pillars: rewarding work, encouraging investment in the economy, boosting home ownership and improving our tax system. The Bill covers 24 different measures; I do not intend to go through each today, but I will outline some of the more substantive elements.
First, the Bill rewards work. A simple truth that the Government adhere to is that work should pay. That approach benefits not only individuals and families but overall growth and the UK economy. A key measure in the Bill is to increase the high-income child benefit charge threshold from £50,000 to £60,000. The rate of the charge will also be halved, meaning that child benefit will not be repaid in full until you earn £80,000. That will take 170,000 families out of paying this tax charge. Overall, we estimate that 485,000 families will gain an average of £1,260 in child benefit in this tax year. The OBR estimates that these policies will result in the economy gaining additional hours worked equivalent to around 10,000 full-time individuals by 2028-29.
Secondly, the Bill will drive investment in the economy. Our creative industries, for example, contributed £126 billion in gross value added in 2022 and supported 2 million jobs. By announcing £1 billion of new reliefs for the UK’s world-leading creative industries in the Spring Budget, we have signalled our commitment to ensuring the sector’s continued growth. We will make current tax reliefs for theatres, orchestras, and museums and galleries permanent, at a rate of 45% for touring theatres and for museum and gallery touring productions, 40% for non-touring productions and 45% for orchestras.
We will also further support the UK’s independent film sector through a new UK independent film tax credit at a rate of 53% for films with a budget of up to £15 million. Our support does not stop there. We are also legislating for an energy profits levy price floor, which will, in effect, repeal the energy profits levy if the six-month average for both oil and gas is at or below a set threshold. Doing so was the sector’s major ask at Spring Budget 2024 and will unlock billions of pounds of investment.
Thirdly, I turn to the property package in the Bill. These measures will not only encourage more transactions in the housing market but boost supply and opportunities for home ownership for first-time buyers, as well as making the property tax system fairer. Cutting the higher rate of capital gains tax on property from 28% to 24% will encourage landlords and second home owners to sell their properties. However, we need to make sure that the tax system is fair, which is why we are abolishing multiple dwellings relief. External evaluations have shown no strong evidence that it was meeting its original objective and there were clear instances of abuse. We are also amending rules so that individuals buying a leasehold residential property through a nominee or bare trustee will be able to claim first-time buyers’ relief on their stamp duty land tax bill. That change will ensure that victims of domestic abuse are not unfairly penalised if they wish to buy their first homes anonymously.
Finally, I turn to the tax system. We want a simple and modern tax system, and we need to close loopholes where they exist. We are amending two primary VAT interest provisions in legislation, to ensure that they apply to all cases intended by the policy. We are also closing a loophole that allows individuals to avoid tax by moving assets abroad via a company.
This Finance Bill boosts our vital industries, rewards hard work, drives forward home ownership and continues to build a fairer, simpler and more modern tax system. It reinforces this Government’s commitment to prioritise economic growth, and, in turn, it will help deliver a brighter future for this country. I beg to move.
Baroness Hazarika (Lab) (Maiden Speech)
My Lords, it is my huge pleasure, although a bit of a scramble, to be making my maiden speech on the very last day of this Parliament. However, I have always liked cutting it fine in life. Indeed, I should thank the Prime Minister for calling this snap election because, as a journalist, I do respond well to a deadline. I am also very pleased to be making this important speech indoors; I do have an umbrella just down here.
The economy will take centre stage as citizens ponder who to vote for over the next six weeks, so I am very grateful to be able to contribute to this important debate. Before I address some of those points, I would like to thank everyone here in this House for being so patient and so kind since my introduction two weeks ago. I especially thank Black Rod, the House staff, the wonderful doorkeepers and the catering staff for making my friends and family feel so welcome. It was a day they will never forget. I would like to think that the sight of me in my ermine taking my oath was their highlight but, as they have all confessed, it was the visit to the gift shop. They have spoken of little else since. Sadly, my father is not in good health, but he was so well looked after here. Black Rod said to me, “He will not be a burden. He will be very much welcomed”; that meant the world to us.
I am incredibly proud to have been able to get agreement that my title would be Baroness Hazarika of Coatbridge. I grew up in Coatbridge in the county of Lanarkshire, near Glasgow. My father was the local GP there for many, many years. It was tough for my parents when they first arrived from a different country. People were very curious. One of my dad’s patients said to him, “What are you?” “A Muslim”, he replied. “Aye, but what kind? A Rangers Muslim or a Celtic Muslim?” That is about all the football banter you will get from me for the rest of my time in this House.
My mum and dad came from Assam in India, where the tea comes from. Many of you will have enjoyed a cup of Assam tea. It is an area to the north of the country where it rains a lot and they are fighting for independence. My parents fancied a real change of scene so they moved to Scotland, an area where—you get the picture. I am immensely proud to be the first person of Indian Assamese heritage to enter British politics. I thank everyone for all the good wishes I have had from so many people in India.
I am so glad that my parents chose to settle in Coatbridge. They say that to be Scottish is a gift and I very much believe that to be true. I feel truly humbled by my parents’ courage. Theirs is the classic story of the immigrant. They came here in the 1960s to work and build up the NHS, with £3 in their pocket, in a cold climate, yet they built such a good and happy life here for me and my brother. I pay tribute to them as first-generation immigrants for their work ethic, decency, good humour and desire to make friends with people from all different backgrounds—qualities that I hope to replicate in this House. On the big day, my father’s former receptionist, Monica, messaged me to say, “Ayesha, they are so very proud of you, but they do still wish you had become a doctor”.
I also wish to put on record my appreciation to my sponsors, my noble friends Lord Dubs and Lady Kennedy of The Shaws. They have introduced me to individuals who embody the best of humanity and who have very much inspired my politics. I would also like to thank my noble friends Lady Smith of Basildon and Lord Kennedy of Southwark, as well as their brilliant advisers, for all their support and advice. I have been here for only two short weeks but I have already been struck by how warm and courteous noble Lords from all across the political spectrum have been to me. I really thank you all for that.
It is so heartening to see that, although there is much spirited disagreement in this Chamber on so many issues, there is also a great deal of consensus and cross-party collaboration on so many others. The quality of the discussions, the rich and varied experience of so many noble Lords, and the focus on the big arguments and policy over just the raw politics make me feel immensely privileged to be here. In an era of polarisation and division, driven particularly by social media, it is important to show that, in this Chamber, although we may come from many different political tribes and none, as the late Jo Cox said, we have more in common. Although I am so proud to be here on these Benches, I have always enjoyed working across the political divide, whether in drafting policy on women and equality issues or on my Times Radio show, on which many noble Lords have appeared.
In that spirit, as we examine the Finance Bill at Second Reading, I welcome many of the measures that have been outlined, particularly the tax breaks for the creative industries, theatres, orchestras and the arts. However, I also make the important point that people all over the country, from different earning brackets—bar the super-wealthy—share a common lived experience: they are really struggling with their personal finances right now. It is of course a good thing that inflation has come down. This morning, we see a much-welcome reduction in the energy price cap, but fuel and food bills are still high compared with where they were. People are struggling with soaring mortgages, rents and childcare costs. Taxes are at their highest level in 70 years. For many in this great country, everyday life has become a financial endurance test.
As we draw proceedings to a close here today ahead of the general election, we must recognise and be honest that this is the first Parliament in modern history to see a fall in household incomes, according to the Resolution Foundation. Whoever wins the election, they must address the feeling of so many people out there that, no matter how hard they work, things are stacked against them; that, on a structural level, the economy does not work for them and their families. We must speak up for those hard-working people and small businesses.
I conclude by saying how happy, humbled and excited I am to be here with noble Lords. It is a great privilege and honour to be able to serve my country in Parliament. I hope I will live up to it; I know I will try, and provide a voice for people who are less fortunate than us. I look forward to working with noble Lords and learning from the great collective wisdom that resides within this House.
Lord Davies of Brixton (Lab)
My Lords, it is such a pleasure to follow the maiden speech of my noble friend Lady Hazarika, of Coatbridge—Ayesha Hazarika. We must all congratulate her on a tremendous speech; hers is a particularly tough act to follow. It is clear from her speech and biography that she has a sound political background, but she also has, to use Denis Healey’s memorable word, a hinterland—more experience.
I am particularly pleased to welcome my noble friend as a fellow resident of Brixton and a fellow graduate of the University of Hull, where she studied law. My recollection—it is a long time ago—is that the law students were particularly serious and I am glad to say that she breaks that convention. Clearly, they are important influences, but I suspect that most noble Lords will be keen to talk to my noble friend about her appearances on “Have I Got News For You”.
She has demonstrated that she will be a popular speaker. People may well come for the jokes, but they will stay for the serious political points being made. To conclude this part of my speech, it is important that she is here, particularly on this side of the Chamber, representing an underrepresented group: people under 50.
I turn now to the content of the Bill. I have found that speaking on finance Bills, even though there is nothing we can actually do, is the ideal opportunity to seize the attention of the Minister and, through her, the officials, on points which perhaps do not get sufficient coverage. I want to talk about Clause 24 on collective money purchase arrangements. I can read the Explanatory Notes, but when I try to understand what the amendment does, my mind glazes over. I do not know whether the Minister has a better understanding of what it does, but I think it illustrates two points.
First, the Government have still to get their act together on the introduction of this new type of pension scheme. Many of us with considerable experience on pensions believe that this is important for the future development of pension coverage across the economy, yet we are still getting these regulation-making powers. It is important to understand that this does not make any actual changes but, principally, creates further regulation powers, and we will have to wait for the regulations to understand what will happen. Will the Minister accept that it is a matter of priority to get this law straight, so that people can get on with introducing these important new types of schemes?
The second point, which is narrower, is contained in the heading “Collective money purchase arrangements”. Nobody in the pensions arena talks about collective money purchase arrangements; they always talk about collective defined contributions schemes. That is what they are, yet for some bizarre reason, lost in the policy-making process, we have ended up with them legally being described as collective money purchase arrangements—which in fact is a misleading title. The whole point of collective defined contribution schemes is contained in the objective of providing a pension. Calling them collective money purchase schemes gives the appearance that they are simply savings arrangements, with the infamous freedom of choice when people get to retirement. What people want is pensions. Adopting this terminology is grossly misleading about where this area of policy has to go.
The ship has sailed; it is in the legislation—I think there were 300 references to collective money purchase arrangements in the pensions Bill—but I say to the Minister that the Treasury and the Pensions Regulator together need to get a clear understanding of the terminology here. This initiative is about providing pensions; it is not about money purchase.
Baroness Kramer (LD)
My Lords, I welcome the noble Baroness, Lady Hazarika—talk about getting in under the wire in this Parliament. It was a brilliant maiden speech, in both tone and content, and it seemed to me that it reflected someone intending to challenge, but with respect, and that surely is the very best of this House. I very much look forward to hearing her in the next Session. One of the great joys for all of us here is that we know we will be back.
I will also use this opportunity to pay my respects to the Minister, the noble Baroness, Lady Vere. She has served with real vigour in her role and mastered an incredibly complex portfolio. If anyone doubts that, they should listen to today’s speech from the noble Lord, Lord Davies of Brixton. She has always treated all of us on our Benches with courtesy, even in the rough and tumble of politics. We do not know what will happen in the coming election, but I thought it was important to mark our appreciation of the service that she has given on this portfolio.
I will turn to the topic of the day. This is definitely a No. 2 Finance Bill, and it is mostly a tidying up exercise. I am so glad that I do not have to pursue the point raised by the noble Lord, Lord Davies—I leave that to the Minister to cope with—but, knowing the noble Lord, it is a significant point, and it is worth a follow-up.
I am particularly pleased with the support in the Bill for the creative industries. Most of the measures that are being dealt with in a wash-up process are relatively minor. We dealt with the key elements of the last Budget in numerous debates on many pieces of previous legislation and Statements, so I have decided that my comments will be fairly brief because we have behind us a whole queue of legislation, and people will be anxious to move forward.
The Government keep using phrases, as they talk about the economy, such as “turning the corner” and “returning to normal”. If the Government think that the economy has returned to normal, they really have absolutely no understanding of normal people’s lives. People are facing relentless cost of living pressures and, when I am on the doorstep, I find there is a general horror at the collapse of so many public services. I will not detail those, but I say to the Minister: if this is the new normal, my sense on the doorstep is that people do not want it.
The freezing of tax thresholds has squeezed people on low and modest incomes in some of the harshest times, while oil companies really got away with it thanks to loopholes in the windfall levy; and today in this Bill, they were handed some additional goodies. Again, when I am out on that doorstep, the anxiety about the state of the NHS and social care is dominating so many people’s minds, and we have come to a terrible pass when the police are told not to arrest criminals because we cannot provide prison places. We heard today about the new energy cap—that is, obviously, good news. But people will still pay on average £400 more for their energy in a year than they did before the pandemic—and, frankly, any benefits on that side look as though they will be stripped away by the behaviour of the water companies. I looked at the applications that they made to Ofwat; it looks like my personal bill will go up by something like £350 a year. Today, I read the assessment of bonuses going to senior managers within the water companies—they amount to £54 billion for this year. The Government are completely hapless in trying to deal with these issues, and I hope that we will get some real change following the election.
In the corporate sphere, which underpins our economy, we have low and stagnant business investment and productivity. We face worker shortages and a shortage of skills. Trade has diminished significantly. We have ongoing trade weakness—for a country that lives or dies by trade. The emergency summit this week on the Stock Exchange is just one example of the worsening scarring of Brexit. We hear that our problems are caused by the pandemic and Ukraine—that is true—but the biggest and most persistent scarring is coming from Brexit and that is worsening, not easing.
My party will fight for a fair tax strategy, a proper industrial strategy and an apprenticeship scheme that actually works. We will rebuild exports, including to our former markets in Europe. I say to the Minister that, as we come to the end of this Session, there is hope for our economy. We are right to try to take an optimistic and positive line, but we cannot rebuild our economy until her party leaves office.
Lord Livermore (Lab)
My Lords, it is a pleasure to take part in this debate on the Finance Bill. I begin by congratulating my noble friend Lady Hazarika on her genuinely brilliant maiden speech. Her experience, warmth and great humour were evident from her contribution. She will be a huge asset to your Lordships’ House, and I very much look forward to her future contributions to debates such as this. I join the noble Baroness, Lady Kramer, in paying tribute to the noble Baroness, Lady Vere, for her incredible command of the detail in such a complex brief, and particularly for her good spirit and kindness to me in all our exchanges across these Dispatch Boxes.
This Finance Bill follows the March Budget, which laid bare the Government’s record on the economy over 14 years: higher taxes, falling living standards and lower economic growth. Yet despite their record, the Government have now set off on some kind of victory lap, with the Chancellor and Prime Minister patting themselves on the back. But Ministers popping champagne corks will not sit well with families across Britain as they continue to struggle with the cost of living.
When the Prime Minister claims that the economy is “back to normal”, what the British people hear is a Government who are out of touch with the realities on the ground. When he claims that the economy has “turned a corner”, he should try telling that to the 6.4 million households who last year saw their rent increase or had to remortgage, or the 950,000 families whose mortgage deal is due to expire before the end of this year. When he claims that the plan is working, he will rightly be asked whether that is the same plan that means this will be the first Parliament ever with living standards lower at its end than at its start; a plan that means real household incomes will have fallen by £250 per person in that time; a plan that means our economy is now smaller per person than it was when the current Prime Minister entered office; and a plan that means our economy is now forecast by the OECD to grow by just 1% next year, weaker than every other G20 country except Russia.
The Government say that what the British economy now needs is more of the same—more of what they have delivered over the past 14 years: the highest tax burden for 70 years; the average household £870 worse off; national debt at its highest since the 1960s; families paying hundreds of pounds more every month on their mortgage bills; and economic growth on the floor. Now committed to delivering more of the same and having crashed the economy, the Government are intent on rerunning the disastrous Liz Truss experiment.
At the end of his Budget speech in March, the Chancellor announced a £46 billion unfunded plan to abolish national insurance contributions. Two months on, and despite countless opportunities to clarify their plans, there are still no answers from Ministers on how they will pay for it. What services will they cut? What other taxes will they put up? What changes will they make to pensions? Replacing national insurance revenues with higher rates of income tax would mean an income tax increase of 8%—a tax bombshell aimed squarely at Britain’s pensioners. Britain cannot afford to repeat that ill-fated experiment.
We have said consistently over the course of this Parliament that taxes on working people should be lower. Two years ago, when the current Prime Minister tried to increase national insurance, we opposed it. We supported the previous cut to national insurance, and we supported the measures announced in the Budget to bring it down by a further 2%, but those measures come in the context of a rising, not falling, tax burden. The tax burden is now set to rise every single year for the next five years, making this the biggest tax-raising Parliament since the Second World War. As Paul Johnson, the Director of the Institute for Fiscal Studies, said:
“This remains a Parliament of record tax rises”.
We are under no illusions about the scale of the challenge we may inherit if we are fortunate enough to form the next Government, nor the scale of the task in rebuilding our economy. Our plan is built on three pillars of stability, investment and reform: stability underpinned by strong fiscal rules and robust independent institutions—the Treasury, the Bank of England and the Office for Budget Responsibility; investment in partnership with business, embodied in a modern industrial strategy, and a new national wealth fund providing the catalytic investment to unlock private sector investment for our towns, cities and regions; and reform, starting with our planning system, the single biggest obstacle to growth in this country.
Rather than believing the Prime Minister’s claims that the British economy has turned a corner, the questions the British people will ask at this general election are simple. Do they and their families feel better off than they did 14 years ago? Do our hospitals, our schools and our police work better than 14 years ago? Frankly, is there anything in Britain that works better than when this Government came to office 14 years ago? The choice at this election is clear: five more years of chaos that will continue Britain on a path of economic decline or stability with a changed Labour Party that can offer hope and a long-term plan to make working people better off. It is time to turn the page to start a new chapter for Britain’s economy.
Baroness Vere of Norbiton (Con)
My Lords, I am enormously grateful for the contributions of noble Lords in this relatively short debate, and for the kind words of the noble Baroness, Lady Kramer, and the noble Lord, Lord Livermore. It has been an extraordinary seven and a half years as a Minister in your Lordships’ House. I have enjoyed almost every minute of it and I hope for many more.
I pay tribute to the noble Baroness, Lady Hazarika; her maiden speech showed warmth, wisdom and wit. She has yet to discover that it can indeed rain inside your Lordships’ House, despite the best efforts of our maintenance teams. She was introduced just two weeks ago—I know that because I was a supporter at somebody else’s introduction on the same day. This maiden speech is a worthy down payment on many more to come, and I am sure that we will all welcome her insightful and interesting interventions.
I will be relatively brief in my response, because I am well aware that there is much to get through today, but it is worth reflecting on a couple of points that were raised. Many noble Lords talked about the cost of living and living standards. As I said in my opening remarks, we recognise that things are still too tough for too many and we are very focused on improving that. However, again, we must remember that, over this Parliament in particular, the economy has faced an unprecedented series of shocks—shocks the like of which have not been seen for a generation—so it is also worth looking at the longer view. The OBR forecast from March 2024 states that real household disposable income per capita, a measure of living standards adjusted for inflation, is estimated at £1,700 higher in 2023-24 than it was when we came to power in 2009-10. It is the case that income has risen. I accept that the unprecedented challenges that have happened over this Parliament have put a dampener on things, but the forecasts now show that real household disposable income will increase. We also know that real wages are rising faster than inflation.
We remain very sympathetic to all the pressures felt by people, families and communities across the country. That is why all noble Lords will welcome the movement of the energy price cap today. It is worth reflecting on the input that the Government have had over the last few years: £94 billion in help with the cost of living is worth an average £3,300 per household across 2022-23 to 2023-24. That built on the support that the Government put in place, at very short notice, to ensure that millions of people had sufficient money to get them through the pandemic and that hundreds of thousands of companies could come out of the pandemic in a strong fashion.
I have noted before, and will again, that all these interventions were supported by the Front Benches opposite. In many cases, those Benches asked for much more money. Guess what? More money costs. The noble Lord, Lord Livermore, says that taxes should be lower—of course they should be lower; I agree 100% and cannot complain about that. But you can have lower taxes only if you control spending. Demanding much more money will not lead to lower taxes, and I suspect the country will realise that too.
The noble Baroness, Lady Hazarika, noted the impact of changing the income tax thresholds. Following the NICs cuts announced in the Autumn Statement and the spring Budget, plus the above-average increases to thresholds since 2010, an average worker on £35,400 will pay over £1,500 less in personal taxes this tax year than they would otherwise have done. A UK employee can earn more money before paying income tax and social security contributions than an employee in any other G7 country. We still have a relatively low-tax system compared to other major economies, but we would like that tax to fall further and we have a plan in place to do that. We have said that we will do it as we can afford to do it. It will have absolutely no impact on pensions. No doubt we will hear that a lot in the general election, but I cannot quite get my head around where that suggestion came from, because it is not the case.
I warmly welcomed the contribution from the noble Lord, Lord Davies of Brixton. My officials and I will take back his comments on the terminology. On what Clause 24 does, I am advised that the Pension Schemes Act 2021 introduced legislation to allow these schemes to operate in the UK, but this clause resolves tax issues related to transferring survivor benefits in these schemes to ensure that these transfers are authorised and do not incur tax charges. I think that is fair. It will ensure that the Royal Mail Group, which was one of the first providers of these schemes, is able to launch its scheme as planned. We are taking more regulation-making powers, because the Government’s policy intention has always been that payments made from a collective money purchase pension scheme and wind-up should be treated as authorised payments, and there were various powers available.
As I said in my opening remarks, this Bill ensures that hard work is rewarded, encourages investment in our economy and improves the outlook for prospective home owners. Its measures will deliver the long-term economic future that I know all noble Lords want for this country and provide stability in uncertain times.
Royal Assent
Friday 24th May 2024
(6 months ago)
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