Finance Bill
Wednesday 27th November 2024
(2 months ago)
Commons ChamberRead Full debate Finance Bill 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
18:50 - The House divided: - Ayes: 112 / Noes: 333 - Question accordingly negatived.
19:06 - The House divided: - Ayes: 332 / Noes: 176 - Question accordingly agreed to.
The Exchequer Secretary to the Treasury (James Murray)
I beg to move, That the Bill be now read a Second time.
Four weeks ago today, my right hon. Friend the Chancellor delivered the first Budget of this new Government. It was a historic, once-in-a-generation Budget—a Budget to deliver economic stability, to fix the public finances and to secure a step change in investment. It was a Budget to lay the essential foundations for growth, which is this Government’s No. 1 mission.
And let’s face it, after 14 years under the Conservatives, the foundations needed some fixing. That is why our Budget is built on tough new fiscal rules that will put a stop to borrowing for day-to-day spending and get debt falling as a share of GDP. Our Budget delivers fiscal responsibility while getting the NHS and other public services back on their feet and protecting working people. That is the difference a Labour Budget makes. That is not to say that the decisions have been easy. The very opposite is true. We have taken difficult decisions on spending, welfare and tax, and this Finance Bill begins to implement some of those decisions.
Before I turn to the measures in this Bill, I will speak about what the Bill does not include. When I was a shadow Minister, shadowing the tax brief, I covered a total of six Finance Bills and probably as many Ministers. Through those Finance Bills, we saw the Conservatives repeatedly extend the freeze in the personal allowance and the higher rate threshold for income tax. The Finance Act 2021 froze income tax thresholds from 2022 until 2026, and then the Finance Act 2023 extended those freezes by another two years until 2028. The Conservatives were responsible for six consecutive years of rising taxes on working people’s payslips.
Our Government will not follow that path. In this Finance Bill, there are no tax rises on working people’s payslips, nor on many pensioners’ incomes, like those the Conservatives put into law. We have made no changes to the basic, higher and additional rates of income tax. We have made no change to the rate of VAT. And in next week’s National Insurance Contributions (Secondary Class 1 Contributions) Bill, we will make no increase to working people’s contributions. We said that we would fix the public finances while protecting working people, and that is exactly what we are doing.
We also said that we would provide stability for businesses making investment decisions, and that we would cap the rate of corporation tax. This Bill delivers on those commitments, too.
In the last Parliament, we repeatedly saw Finance Bills being used to put temporary measures in place, leading to an unstable and ever-changing investment allowances regime. At the start of the last Parliament, the annual investment allowance had been temporarily raised to £1 million. That level was extended twice on a temporary basis before finally being made permanent. Meanwhile, full expensing for expenditure on plant and machinery was also introduced on a temporary basis. And, over the last Parliament, the super-deduction came and went entirely.
We are doing things differently. Our corporate tax road map, which was published at the Budget, and the Finance Bill before us today both make it clear that we are prioritising the stability that we know businesses need to invest.
Graham Stuart (Beverley and Holderness) (Con)
Does the Minister agree with Gary Smith? This was supposed to be a Budget for growth and jobs. The increased energy profits levy is driving investment out of the North sea and will not make the slightest difference to how much oil and gas we consume, yet it is estimated that it will lose £13 billion of much-needed revenue for the taxpayer. This means we will lose environmentally, fiscally and in terms of jobs. Surely even the Minister can recognise how wrong that is.
James Murray
I will come to the energy profits levy in a moment, but we have engaged with the oil and gas industry to ensure that we raise the money we need for the clean energy transition while supporting investment and jobs in that industry. We recognise that oil and gas will play a part in the energy mix for years to come, but we also recognise that the industry must contribute to this essential transition.
This Bill maintains the 25% cap on corporation tax that we set out in our manifesto. It also makes no changes to the permanent full expensing regime or the annual investment allowance.
Before turning to other measures in the Bill, I note that the Leader of the Opposition has already committed to reversing several of them. If Conservative Members disagree with the difficult but necessary choices that this Government have had to make to repair the public finances and protect working people, they have every right to oppose our plans, but they must explain what choices they would make instead. So far, their new leadership has fallen at the very first hurdle of being a credible Opposition by trying to have it both ways. [Interruption.] They make plenty of noise, but I do not hear any alternatives.
The Leader of the Opposition has said that she opposes the measures in this Bill, but she also claims to support the investment that those measures fund. She says that reintroducing the VAT tax break for private school fees would be the very first thing she does if she became Prime Minister, yet she also appears to support the extra £2.3 billion that our Budget puts into state education. In fact, we have calculated that she has made unfunded pledges worth £12 million for every hour since she was appointed. By my reckoning, that is £1 million-worth of pledges since I began speaking five minutes ago.
By behaving this way, the Conservatives simply remind people how very far away they are from being a credible Opposition, and they are getting further away by the day.
Dr Andrew Murrison (South West Wiltshire) (Con)
The then Leader of the Opposition, and now Prime Minister, rightly said that his Administration would go for growth. He made it his No. 1 priority, and he inherited the fastest-growing economy in the G7. [Interruption.] The Minister shakes his head, but this is a fact. Can he say what has happened to growth since 4 July?
James Murray
Every business knows that we can make investment decisions only on the basis of secure public finances and economic stability, which is why this Government’s first priority has been to wipe the slate clean of the mess we inherited from the Conservative party, to deliver economic stability and to provide the environment for businesses to make the investments on which we will grow the economy. That remains our No. 1 mission.
James Murray
I will make some progress.
As the Chancellor set out in the Budget, we believe that before making any changes to the tax rates that people pay, it is vital that we do everything we can to close the tax gap. That is why, in the Budget, the Chancellor announced a step change in our ambition to do so, with a package raising £6.5 billion of additional tax revenue by 2029-30. This package will ensure that more of the tax that is owed is paid, and that taxpayers are supported to pay the right tax first time. Our plan involves boosting the capacity of His Majesty’s Revenue and Customs to ensure compliance and reduce debt, alongside changes to legislation, some of which this Finance Bill delivers, to remove loopholes used to reduce tax liabilities.
That is why this Bill includes measures such as introducing capital gains on the liquidation of a limited liability partnership, closing a route increasingly used to avoid paying tax. The Bill reforms rules for overseas pension transfers, closing a gap that allows individuals to transfer significant pension savings overseas tax-free. And the Bill implements the cryptoasset reporting framework, tackling complex compliance cases where a significant proportion of offshore risk sits.
In our manifesto, we said that we would take on the tax gap, and that is what we are doing in government.
Jerome Mayhew (Broadland and Fakenham) (Con)
The Minister recognises the importance of reducing the tax gap, so will he commend the previous Conservative Government for halving the tax gap they inherited from Labour in 2010?
James Murray
As we all know, efforts to close the tax gap thoroughly stalled under the previous Government, and we have brought renewed focus to this effort. It is one of our top priorities. Before increasing any tax rates, we must ensure that people pay the tax that is owed. Frankly, if the previous Government had been doing such a great job, how is it that our Government have been able to find an extra £6.5 billion to close the tax gap in our first Budget alone? That was in our manifesto, and that is what we are delivering.
In our manifesto, we made other specific commitments on tax, and I will set out now how the Bill seeks to implement them. First, let me turn to non-doms in the tax system. As right hon. and hon. Members will know, this Government believe that everyone who is a long-term resident in the UK should pay their taxes here. That is why this Government are removing the outdated concept of domicile status from the tax system, and why we are implementing a new residence-based regime from 6 April 2025. We have long argued for such a change to be made. Although the previous Government ended up being forced towards our position, they never implemented any changes. Under this Government, we will finally make the reforms necessary to make the system fit for the 21st century.
Our new regime will be internationally competitive and focused on attracting the best talent and investment to the UK. Our reforms will scrap the planned 50% reduction in foreign income subject to tax in the first year of the new regime; introduce a new residence-based regime for inheritance tax; retain and reform overseas workday relief, encouraging employees to spend more of their earnings in the UK; and extend the previously announced temporary repatriation facility to three years, from April 2025.
The new rules mean that, from April 2025, anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains, as is the case for other UK residents. That is a much simpler and clearer test than exists under the current regime. The Office for Budget Responsibility confirmed that these reforms will raise £12.7 billion in revenue over the five year forecast period. That funding is crucial for meeting our commitments to fixing the public finances.
Secondly, in government we have decided to go further than our manifesto commitment to increase the non-resident stamp duty surcharge, and we will instead increase the higher rate of stamp duty on additional dwellings, from three percentage points to five percentage points above the standard residential rate. That increase to the higher rate of stamp duty will raise more money than set out in the manifesto—a total of £310 million by 2029-30—and will go further to rebalance the housing market.
The OBR’s certified costing assumes that an increase in the higher rate of stamp duty by two percentage points is expected to result in 130,000 additional transactions over the next five years by first-time buyers and other people buying a primary residence. We estimate that approximately half those who paid a non-resident stamp duty surcharge also pay the higher rates of stamp duty, so the change will improve the comparative advantage of UK resident home movers, while ensuring that no additional barriers are faced by those coming to the UK and buying their main home.
Thirdly, the Bill delivers our manifesto commitment to introduce the 20% standard rate of VAT on private school fees. That will apply to any charges charged on or after 29 July for terms starting after 1 January 2025, and it sits alongside our changes to private schools business rates relief in the Non-Domestic Rating (Multipliers and Private Schools) Bill. Ending tax breaks for private schools is a tough but necessary decision that will secure additional funding to help the Government deliver their commitments to improve education in state schools across the country, and achieve the aspiration that every parent has for a high-quality education for their children.
Mr Mark Sewards (Leeds South West and Morley) (Lab)
Is it not the case that state school parents work just as hard as private school parents, although they will never be in a financial position to be able to send their kids to private schools, and therefore it falls on this Government to fund state schools properly?
James Murray
My hon. Friend is right that every parent aspires to a high-quality education for their children, and that is exactly what this Government will achieve through the already announced £2.3 billion increase to the core schools budget for the financial year 2025-26, increasing per pupil funding in real terms. That includes £1 billion of additional funding for the special educational needs and disabilities system.
Paul Holmes
The Minister is dedicated to extolling the virtues of his manifesto. When he sat down to write the Budget with his right hon. Friend the Chancellor, did he recall whether the manifesto put to the country at the general election stated that growth forecasts under this Government would be lower than they were under the previous Government? Was the taxing of small family farms for a total revenue of £590 million in his manifesto? He is very keen on the manifesto, but did it outline that growth would be lower under this Government?
James Murray
I am keen on our manifesto, which delivered this Labour majority and this Labour Government. If the hon. Gentleman looks at the manifesto that we went into the election with, he will see the three words that open our pledges: “deliver economic stability”. After the mess that the previous Government made of the public finances, and the damage they did to our public services and our economy, that is crucial. Delivering economic stability, fixing the public finances and putting our public services back on a firm footing are essential to getting the investment and growth that our country badly needs.
Let me be clear about the VAT policy on private school fees: charging the standard rate of 20% does not mean that schools must increase their fees by 20%, because schools can reclaim VAT paid on inputs and reduce the cost to minimise the extent to which they need to increase fees. Many schools have already publicly committed to cap increases at 5%, or to absorb the full VAT costs themselves.
Dr Luke Evans (Hinckley and Bosworth) (Con)
Parents from two private schools in my area have written to me that they will have to move their children into the state system, but the problem is that there are not places in the state system to accomplish that. Will there be a dedicated fund to help those schools when pupils move? Will funds be put aside for the welfare of the kids who are being taken out of school mid-term? Figures that have been released suggest that there could be about 3,000 such pupils. Such a move will have a significant impact on their mental health and their family’s welfare, and I know this Government are committed to ensuring that children have good welfare. Will the Minister consider a ringfenced fund to help support the mental health of those kids?
James Murray
As the hon. Gentleman knows, mental health, more broadly, is a priority for this Government. On the policy around VAT on private school fees, the impact on pupils in private schools having to change to a state school is expected to be very limited. The Government estimate that 35,000 pupils—less than 0.5% of all state school pupils—will leave, or never enter, the private sector as a result of this policy. Those movements will take place over a number of years, and only 3,000 pupils are estimated to move within the current academic year. To put that number in context for the hon. Gentleman, every year many pupils move between schools, including between private schools and the state sector. A Department for Education report published in 2022 looking at moves between state schools and out of state schools, found that almost 60,000 moves take place every year. As he will know, pupil numbers in schools fluctuate regularly for a number of reasons, and the school funding system in England is already set up to manage that.
Chris Vince (Harlow) (Lab/Co-op)
Does my hon. Friend not think it ironic that Conservative Members are talking about the mental health of students? They did not consider that when they made changes to the state system. As a former teacher, I know the massive impact on young people’s mental health of the Conservative party’s decision to move from lettered grades to numbered grades at short notice, to completely change the syllabus and not to provide the resources or textbooks that teachers needed to teach those courses.
James Murray
My hon. Friend is right to point out that the lack of funding that the previous Government put into the state sector has implications. It takes a toll on children if schools are not properly funded. If the capital budgets for schools are not properly funded, as well as their revenue budgets, that has an impact on children’s lives. That is why the funding that we are putting into schools is something for which I will make no apology. The fact that we are having to take difficult decisions to fund it is the nature of government. I note that Conservative Members are happy to support our investment in state schools, but they refuse to support the difficult decisions necessary to generate that funding. Frankly, that underscores how far away they are from even being a credible Opposition.
James Murray
I have already given way to the right hon. Gentleman, so I will make some progress.
Within the policy, provision for pupils with special educational needs is an important matter that a several right hon. and hon. Members have raised with me. The Government recognise the importance of that too, and I am glad to confirm that where pupils have special educational needs that can only be met in private schools, as determined by an education, health and care plan in England or its equivalent in Scotland, Wales and Northern Ireland, local authorities and devolved Governments that fund those places will be compensated for the VAT they are charged on those pupils’ fees.
Fourthly, this Government are delivering on the manifesto commitments to increase the energy profits levy by three percentage points, from 35% to 38%, and to extend the period over which the levy applies by one year. The Government are also ending unjustifiably generous allowances by removing the levy’s core investment allowance, which was unique to oil and gas taxation and not available to any other sector of the economy. We are, however, providing stability within other features of the system, by maintaining the level of tax relief available for decarbonisation investment, by setting the rate of the allowance at 66% and by maintaining the availability of 100% first-year allowances.
Dave Doogan (Angus and Perthshire Glens) (SNP)
The Minister is defending the changes that he is making to the fiscal regime as it relates to the North sea and the production of oil and gas. Can he identify another oil and gas-producing nation that taxes its industry higher than the United Kingdom does?
James Murray
We know that other countries tax in different ways. Norway has a high headline rate, although it has a different set of structures of allowances and so on. It is important for us that we calibrate the headline rate and the allowances in the right way. That is why we have taken the measured decision to increase the rate as I described, to remove the investment allowance but at the same time to retain the 100% first-year allowances and the level of relief available for decarbonisation investment.
Harriet Cross (Gordon and Buchan) (Con)
Does the Minister think that that is the right balance, given that Offshore Energies UK suggests that the changes will cost £12 billion in tax revenues?
James Murray
I am absolutely confident, through all my engagement with OEUK and many firms that work in the oil and gas sector, that our approach strikes the right balance, as needed in our economy. It recognises that oil and gas producers will have a role in the energy mix for years to come, while also being clear that it is crucial we raise money for the energy transition. The energy profits levy seeks to achieve that by providing the money for that transition while also supporting jobs and investment in the sector, as exists at the moment.
Fifthly, the Bill delivers on our manifesto commitment around carried interest by increasing to 32% the capital gains tax rates that apply as an interim measure from 6 April next year, ahead of reforming carried interest more fully in a future Finance Bill. The reforms, which will have effect from April 2026, will ensure that the reward is taxed in line with economic characteristics. They put the tax treatment of carried interest on a fairer and more stable footing for the long term, while preserving the UK’s competitive position as a global asset management hub.
As the Chancellor set out both in July and again at the Budget, the fiscal situation we inherited was far worse than we had expected. We know that the previous Government left us with a £22 billion black hole and so we have had to take tough decisions to fix the public finances and get public services back on their feet. Some of those decisions are outside the scope of this Finance Bill and will be debated during the passage of other Bills. However, this Bill includes a number of those decisions, which we have sought to take in as fair a way as possible.
The Bill makes changes to the main rates of capital gains tax by increasing them to 18% and 24% from 30 October 2024. That decision will raise revenue while ensuring that the UK tax system remains internationally competitive. We are supporting businesses through that transition by maintaining business asset disposal relief, with its million-pound lifetime limit, and by phasing in the increase to that relief’s CGT rate, in line with the changes to investors’ relief, to 14% in April 2025 and then to 18% in April 2026.
The Bill maintains inheritance tax thresholds at their current levels for a further two years to 5 April 2030. It also legislates for air passenger duty rates for 2025-26 and for those announced in the Budget for 2026-27. From 2026-27, all rates of air passenger duty will be adjusted to partially account for previous high inflation, and that change will help maintain the value of air passenger duty rates in real terms.
James Murray
Let me put these decisions into context for the hon. Gentleman. The increase equates to £1 more for people taking domestic flights in economy class and £2 more for those flying to short-haul destinations in economy class. None of the decisions are easy, but we have to take them to fix the public finances and to get our economy back on a stable footing.
James Murray
I will make some progress. That is the impact the changes have on domestic flights and short-haul destinations in economy class. However, in addition to the broad changes in air passenger duty rates, the higher rates for larger private jets will also increase by a further 50% to ensure they contribute fairly to the public finances.
The Bill also renews the tobacco duty escalator and enables His Majesty’s Revenue and Customs to prepare for the introduction of a new duty on vaping products. The Bill increases the soft drink industry levy over the next five years to reflect the 27% increase in consumer prices index inflation between 2018 and 2024, as well as increasing the rate in line with CPI each year from 1 April 2025. Finally, while the Bill increases alcohol duty for non-draught products, in line with retail prices index inflation, duty on qualifying draught products will be cut by 1.7% in cash terms to support pubs, and we will increase the duty discount on products that qualify for small producer relief from 1 February 2025.
The Chancellor has been clear that the Budget was a once-in-a-generation event, at which the Government took difficult but necessary decisions. By taking those tough decisions, the Budget delivers economic stability, sound public finances and stronger public services. On those foundations, we will work day in, day out across the rest of this Parliament to boost investment and growth.
Many of the measures to boost investment are being delivered outside of the Finance Bill, from the planning reform that we got under way within days of taking office to the creation of mega-funds for pension investments, which the Chancellor announced at Mansion House. The Bill introduces additional reliefs for our creative industries, for visual effects within film and high-end TV, which will play a key role in strengthening the UK as a global hub for film and TV. Likewise, the Bill introduces measures to support the transition to electric vehicles, through higher vehicle excise duty first-year rates for hybrid and internal combustion engine vehicles, which boosts the incentive for EVs, and by an extension of first-year allowances for electric cars and charge points until 2025-26.
Above and beyond any individual measures, the impact of the Bill and the Budget that it follows is to lay the foundation for greater investment and growth, through fiscal responsibility, stronger public services and economic stability. We have laid the foundations for creating wealth, jobs and opportunity in every part of this country, enabling people to meet their aspirations for themselves and their families, and making people across Britain better off.
Ben Lake (Ceredigion Preseli) (PC)
One of the measures that has a bearing on the provision of public services is the increase to the employer national insurance contributions. I understand the Treasury is in discussion with the devolved Governments and local Government across England to ascertain precisely how much extra funding support is required to offset the increased cost upon their services. Will the Minister give us an update on those discussions and when he believes local authorities and, indeed, the devolved Governments will know how much money in additional support they will receive?
James Murray
I am afraid I will not give the hon. Gentleman inside information on any ongoing discussions between the Treasury and devolved Governments. The policy for reimbursing increases in employer national insurance contributions is well established. The last Government followed a similar process in relation to the health and social care levy, whereby Departments, employees and other direct public sector employees are typically refunded the entire increase and third parties, contractors and so on are not. As for the devolved Governments’ settlements, they have their own process to go through with the Treasury. I am sure the hon. Gentleman will understand why I cannot give a running commentary on that, but I am sure that his colleagues will pick that up.
James Murray
I will make some progress. I have been generous in giving way to the right hon. Gentleman in particular. [Interruption.] All right, go on, then.
Graham Stuart
I am grateful to the Minister, who has shown his customary good humour and good will to the Chamber. He is unable to discuss the precise numbers for the devolved Governments, but can he confirm what the overall cost is to the Exchequer of compensating the public sector for the impact of NICs? I believe it is around £5.9 billion, but I want to check with the Minister that that is correct.
James Murray
I regret giving way to the right hon. Gentleman. I invite him to return to the Chamber next Tuesday for the Second Reading of the National Insurance Contributions (Secondary Class 1 Contributions) Bill, when I will also be speaking. We can have a full debate on national insurance then, which I am sure he and his colleagues are looking forward to. I hope they will support it in the Lobby because, no doubt, they support the extra investment in the NHS which that decision funds. I thank him in advance for signalling his good grace and support for our measures.
After we were elected, we said that we would take the difficult decisions necessary to fix the public finances. We said that we would close the tax gap, implement our manifesto pledges and protect working people. We said that we would deliver economic stability, fiscal responsibility and the certainty that businesses need to invest and grow. This Bill plays a central role in achieving those goals and I commend it to the House.
Mel Stride (Central Devon) (Con)
I beg to move an amendment, to leave out from “That” to the end of the Question and add:
“this House declines to give the Finance Bill a Second Reading because it derives from the 2024 Autumn Budget which will lead to jobs being lost, curtailed investment and prices being raised; because the Finance Bill constitutes an assault on business by increasing taxes on investment; because it will reduce the competitiveness of the United Kingdom’s tax regime; because it levies the first ever tax on educational choice and will increase pressure on state schools; because it will drive up rents by increasing tax on homeownership; because it will substantially increase the size of the state without a sustainable plan to fund it; and because it will reduce living standards, increase borrowing and debt, drive up inflation and interest rates, with the result that the OBR growth forecast for the Autumn Budget is lower than that accompanying the Spring Budget of the last Government.”
This Finance Bill, this Budget, are a disgrace. They are a disgrace because they are built on a deceit—a deceit that was propagated by the Labour party during the last general election. It told the British people that they need not worry about taxes being raised left, right and centre, yet what have we discovered? The figures of the Office for Budget Responsibility clearly show that this country is now heading to its highest tax burden in the history of our nation.
During the general election, we were also told by the Labour party that it had no intention of increasing national insurance. In fact, it stated exactly that in the manifesto on which the now Government stood. It broke that commitment. Do not take my word for it; Paul Johnson of the Institute for Fiscal Studies says exactly that.
Dr Evans
Is it not the case that the manifesto said that there would be no rise in national insurance, but when Ministers went to defend this policy, they said, “not on working people”, but then could not define working people? Now the language has slipped to “payslips”. Is the shadow Minister aware of this translation? I am pretty sure that the “payslip” was not mentioned in the manifesto.
Mel Stride
My hon. Friend makes an important and valid point. As he says, Labour is now claiming that there will be no incidence of this tax increase on working people, although it seems to have a problem defining exactly what a working person is. None the less, try telling that to those people who will see their wages depressed as a consequence of this measure. Try telling that to the 50,000 full-time equivalents who the OBR says will lose their jobs as a consequence of this measure. Try telling that to the young people up and down our country who, because it is not just an increase in the rate but also an approximate halving of the threshold, will be disproportionately affected.
Labour also reassured farmers. The then shadow Secretary of State for the Department for Environment, Food and Rural Affairs—the now Secretary of State—reassured farmers. He went to the National Farmers Union and said that nothing would be done on inheritance tax and the annual percentage rate. And on that basis, the NFU told its members that, at least on that measure, there was nothing to fear from a future Labour Government. How wrong it was. Only last week, we saw, tens of thousands of farmers, in their dignified way, coming up to the very gates of our democracy to ask a simple question of the Labour Government: “Why did you lie to us?” That is the nub of it. The measure will see the break-up of our farms and it will do nothing for food security.
Dave Doogan
Does the shadow Minister agree that the Government could not conceivably have been so ignorant about British agriculture that they did not know that inheriting the family farm is no form of enrichment whatsoever? So introducing this change to APR is just pure bad government.
Mel Stride
The hon. Gentleman is absolutely right. It demonstrates that this Government do not understand farming and do not understand the countryside. There are 100 Labour Members who represent rural constituencies. I will not guess how many there will be after the next general election, but some number fewer than 100, I suspect.
Perhaps the cruellest deception of all was of our pensioners, who were reassured that there would not be any means-testing of the winter fuel payment, yet what happened? 10 million pensioners are to face a cut. Before somebody on the Government Benches stands up and tells us that some of those pensioners can afford it, I say that many of them simply cannot. Of those under the poverty line, two thirds will actually lose these benefits.
Dr Evans
While the Prime Minister was out of the country on the 19th, something else was snuck out: a letter from the Department for Work and Pensions, explaining that, at the point of reaching its decision on this, it knew from its own internal analysis that it would impoverish 100,000 pensioners into relative poverty and 50,000 pensioners into absolute poverty. This information was asked for time and again in readiness for a debate in this House. Is it not right that information relevant to these measures should have been available in time for a debate?
Mel Stride
My hon. Friend is absolutely right. It is disgraceful that Labour waited until the farmers were at the gates of Westminster to sneak out that impact assessment, which showed that, by 2027, 100,000 more pensioners would be in relative poverty, after housing costs, than is the case today. Indeed, the analysis by the Labour party back in 2017, when it was against this proposal, was that up to 4,000 pensioners would prematurely die in the cold as a consequence of this measure. Now, Madam Deputy Speaker, when you deal in deceit, you need a pretext for so doing. And a further deceit has been brought forward, and it was raised again at the Dispatch Box this afternoon, which is the £22 billion black hole. Where is it?
Torsten Bell (Swansea West) (Lab)
I wish to reflect on the tone of the shadow Minister’s remarks. Looking at chart 4.5 in the OBR’s document, I can see a big rise in the tax to GDP ratio, but from the right hon. Gentleman’s indignant tone, one would think that there had never been a tax rise under the previous Government. What the chart shows is a significantly larger rise in the tax to GDP ratio, because of the decisions taken by the previous Government, so is it not the case that the right hon. Gentleman’s tone does not reflect the facts of the decisions he took?
Madam Deputy Speaker (Ms Nusrat Ghani)
Order. Before the shadow Minister responds, may I caution him against using the word “deceit” in the Chamber? No doubt he will now want to respond to the intervention.
Mel Stride
Madam Deputy Speaker, I will of course be guided by you on that matter. On the hon. Gentleman’s point, there is no doubt that, as we went into the last general election, the analysis of the manifestos of the three major parties showed that Labour’s manifesto would have by far the greatest increase on the tax burden. What Labour has done is to break its manifesto and go still further to take us, as the OBR has said, to what will be the highest tax burden in the history of our country. It is as simple as that.
Phil Brickell (Bolton West) (Lab)
I thank the right hon. Member for giving way. I did want to indulge him, but as he has now mentioned the OBR three times during the course of his speech, I wonder whether he would share with the House what conversations he had with former Prime Minister Liz Truss about respecting the OBR before she crashed the economy and sent inflation to 11%?
Mel Stride
As Chair of the Treasury Committee at the time, I had quite a lot to say about it, and I would point the hon. Gentleman to the public record in that regard.
Let me return to Labour’s claims of a vast £22 billion black hole, which one senses can even be seen from the moon. When the OBR looked at this matter, it concluded that the fiscal pressure was less than half that figure. It also made the point that, had it been known at that time, there would have been discussions between Treasury officials and the OBR, and that number might well have been smaller still. And it is equally the case that Governments manage down in-year fiscal pressures as a matter of course. To use another astronomer’s analogy, this is not so much a black hole as a red dwarf. [Interruption.] Or a red herring—even better. This is about not just misleading the British people, but economic incompetence.
The Government have set great store by growth. They say that they will generate the fastest consistently, sustainably growing economy in the G7—I see Labour Members nodding their heads. How is that going? Our friends at the OBR clearly forecast a lower level of growth following the Budget than they had forecast based on our Budget the preceding spring. That is a direct consequence of the kind of growth-destroying policies in which the Government are engaged. What happened when the Office for National Statistics came out with its figures recently for the third quarter of this year? [Interruption.]
Madam Deputy Speaker (Ms Nusrat Ghani)
Order. The hon. Member for Swansea West (Torsten Bell) has twice used the word “you” when heckling. I will not let him off in the future.
Mel Stride
I take it as a familiar mark of respect from the hon. Gentleman.
The fact of the matter is that the ONS’s figures for the third quarter of this year show growth of 0.1%. That is one seventh of what has been achieved in the United States. In September, the third month of the quarter, there was negative growth. The reason for that is very clear. When this Government came to office, the first thing that they did was talk down the economy, and talk about black holes and what a terrible mess everything was in, as cover for what they intended to do all along. That had an impact on purchasing managers’ index surveys. We can see the slump in business confidence in the data, and the Government are now reaping the whirlwind. We have now had a Budget that will do even more damage to growth.
What will happen to inflation? Let us go back to our friends at the OBR. In every single year of its forecast, inflation is higher than in every single year of the forecast based on our last Budget back in the spring—a fiscal splurge up front that will translate into higher prices and higher interest rates for longer, meaning higher mortgage rates. Before Labour Members start jumping up and down at the M-word, the Government now own mortgage interest rates, and they are being affected in the wrong direction as a result of their policies. What about living standards? They are down and flatlining. The Joseph Rowntree Foundation says that by October 2029 the average family will be £770 worse off in real terms than they are today.
Mel Stride
On the Government’s watch. A number of measures in the Bill will further weigh on growth. Capital gains tax will go up, destroying wealth creation. The energy profits levy will destroy jobs, making us less secure when it comes to energy. Stamp duty will go up, and that is one of the worst taxes. The hon. Member for Swansea West (Torsten Bell) will accept that, as he shares that view—I think he makes the point in his recent book. The level of activity in the housing market will be dampened, people will be discouraged from downsizing, which will put pressure on the housing supply, and labour mobility—an important component of growth—will be impacted.
Graham Stuart
My right hon. Friend is painting an accurate but bleak picture, as reflected by the IFS, the OBR and all the independent analysts of what the impact of the Budget will be. However, I put it to him that he is understating the weakness that the Budget will create for this country. Look back at the last 14 years. We were recovering from the financial crash. We had the pandemic, Brexit and the energy crisis. We are unlikely to make it to the end of this decade without some form of further shock. Is it not central to the weakness of the Budget that it makes this country so much more vulnerable to what we do not yet know is coming?
Mel Stride
My right hon. Friend makes a perceptive point, to which I will come momentarily, but first let me deal with VAT on private schools. We have already heard about the displacement effect—the behavioural effect—and the thousands of pupils who will have their education disrupted and the impact on their families, but does not this measure tell us all we need to know about socialism? Those who stretch to try to make ends meet to send their children to those schools are to be denied. Their aspiration is to be sacrificed on the altar of envy. Is it not as simple as that?
My right hon. Friend the Member for Beverley and Holderness (Graham Stuart) is right: the Budget will not create strong foundations for the future; it will create a vulnerable and brittle economy. The Chancellor has very little headroom against her fiscal targets. Against the stability target, because the Government have talked down the economy and gilt rates have responded in turn, it is conceivable that almost all that headroom has already disappeared. I will prophesy that, without doubt, perhaps if the forecasts turn in the wrong direction, or the pressure on departmental spending over the next two years becomes difficult for a profligate Labour Government, or because of some external factor, as my right hon. Friend suggested—maybe tariffs from Donald Trump’s America, or if his deficit-funded tax cuts lead to higher bond yields and higher interest rates here—I almost guarantee the House that, however it occurs, this Government will come back for more in due course.
Sir Desmond Swayne
To be fair to the Prime Minister, he made it absolutely clear that things would have to get worse. The difficulty is—this is my prophecy, if you like—that there is no prospect of them getting better thereafter.
Mel Stride
That is an extremely astute observation. The prophecy is that things will get tougher further down the line. It will then be the case that this Government took decisions that left us in a weak and vulnerable position to withstand them. Why has this happened? The Labour party has very little business experience. Very few Members on the Government Front Bench have started up a business or grown a company in any significant manner.
Mel Stride
I will give way to the hon. Gentleman. Perhaps he is an example of somebody who has done just that.
Jim Dickson
If the right hon. Gentleman and his colleagues are against all the revenue-raising measures in the Budget, perhaps he could explain which of the many investments in the health service, roads, the justice system and schools he and his colleagues would cut?
Mel Stride
It is not a binary decision like that. The hon. Gentleman is clever enough—[Interruption.] I am sorry, but I will not disrespect him by claiming that he truly believes that. Had the Government brought forward a Budget that would have grown the economy, as the Conservatives would have done, the Government would have more money. Had Labour grasped the nettle of welfare reform, as we did when we were in office, and we had very clear plans in our manifesto for a saving of £12 billion a year, the Government would not have to go around caning companies, beating up on pensioners and so on as an alternative. There are better ways of doing things, and we had a much better way.
Dr Murrison
Earlier this week, the Chancellor of the Exchequer said in her conversation with the Confederation of British Industry, which did not go terribly well, that her tax-raising days are over. Yet significantly, the Exchequer Secretary to the Treasury failed to reiterate that assertion. Does he believe her?
Mel Stride
My right hon. Friend raises an interesting point because the Chancellor did say at the CBI conference, when asked, that she would not raise taxes in the future, but this very afternoon, at the Dispatch Box, the Prime Minister appeared to resile from that. We now do not even have clarity on that vital point.
Surely the point is that the Chancellor is no economist, no matter how much puff one applies to try to disguise the fact. I thought I would take a leaf out of her book, even though that page was apparently written by somebody else. I can inform the House that I am an economist. Speaking as a former Governor of the Bank of England and president of the International Monetary Fund, and having run the World Bank and the World Trade Organisation at the same time—yes, for 10 years—I have as much experience as our Chancellor. That flight of fancy is, of course, all mine, but the inspiration came from the Government Benches.
This is a Finance Bill of broken promises and breathtaking incompetence—a Finance Bill that represents a present danger to the future of our economy. Was there ever a Bill more injurious to what we Conservatives love—to our pensioners, our farmers, our businesses, the poor, the vulnerable and, yes, working men and women right up and down our country? They say that astrologers are there to make economists look good. Well, they cannot make this lot look good. It is written in the stars—it is a story foretold—that unchecked, this Budget and this Finance Bill would take Britain down. That is why we will never tire of the trials of opposition, and why we will be the party that stands up for working men and women across our country, and fights this Government.
Madam Deputy Speaker (Caroline Nokes)
To make her maiden speech, I call Samantha Niblett.
Samantha Niblett (South Derbyshire) (Lab)
That caught me off guard; I did not expect to be called quite so soon. Thank you so much, Madam Deputy Speaker.
It is with great humility and immense pride that I stand here today delivering my first speech in this Chamber as the Member of Parliament for South Derbyshire. I would like to begin by expressing my gratitude to the people of South Derbyshire for placing their trust in me. I was visible, accessible and active right across the constituency before the election was called, and I took great pride in proving that by directing people to my “Samantha spotting” interactive online map. I am committed to continuing in the same vein, working incredibly hard for the people I represent.
I want to thank my predecessor Heather Wheeler, who has dedicated so much of her life to local and national politics. She spent 14 years as an MP and, if an internet search result is not tricking me, began her career in local politics in 1982 when she was just 23 years old. She became an elected councillor in South Derbyshire in 1995, and went on to be leader of the council. Her commitment to public service was rewarded in the 2023 birthday honours list. I also hear on repeat, and on good authority, that she was jolly good fun in this place.
As the most recent MP for South Derbyshire, I join this House from the private sector, having built a career in data and technology, and I am still a relative newbie to politics. I joined the Labour party in my late thirties, swiftly finding my home and sense of purpose in trying to make things better for people through political activism, at a time when data and technology are key to driving economic growth to help make people better off. When I discovered that the two things that I am most proud of this country for were Labour Government creations—the welfare state and our precious national health service, which both look after people when they are at their most vulnerable and in most need of support—I knew that I had found the party that I belonged to. The NHS has saved both my parents’ lives more than once, and I am delighted that now that Labour is in government, we will save the NHS’s life.
Deciding to throw your hat in the ring for the longest ongoing job interview, for a job without a job description, when some people will instantly loathe you for simply being an MP—they are particularly harsh online—is not for everyone. Were it not for my wonderful 17-year-old daughter Lillian, I probably would not be standing here. She is the reason for my being. I could not tell her that she can be anything she wants to be if I did not show her. I want her to feel brave and able to change her career later in life, just as I have, if she so wishes. I will not stand by and let her be horrified, as she is, at the gender pay gap without trying my best to help close it. Thank goodness we have the first ever female Chancellor of the Exchequer in my right hon. Friend the Member for Leeds West and Pudsey (Rachel Reeves), who, having smashed a glass ceiling herself, wants to level the playing field for other women.
The desire for fairness and to look after people is what drives me, and it is one of the defining features of South Derbyshire, too. It has a strong sense of community and people who look out for one another. The many local Facebook groups, including “I love Swad”, “This is Overseal” and “Spotted: Repton”, have some interesting posts and colourful comments, and people there frequently, shall we say, hold me to account; but more often than not, when people ask for help, others rally round to support them. That community extends to local businesses, who support and work with local charities, such as South Derbyshire CVS. It not only runs a food bank—something I hope to see an end of as we make people better off again—but provides services and support to individuals and voluntary groups, of which there are very many. Then we have the Maple Tree community café in Repton village hall, whose volunteers make people so welcome. It has the best coffee, not to mention the beloved doughnuts on the first Saturday of every month. There is also the small business group Been Networking, which meets at Been Coffee, which does the most amazing bagels. There is a bit of a food theme here. People are there for one another.
South Derbyshire has something for everyone. I encourage everyone to go online to visitsouthderbyshire.co.uk to see for themselves, and then to come and see us. We have events ranging from the Melbourne festival of art and architecture, which celebrates its 20th anniversary next September, to the festival of leisure at Maurice Lea memorial park in Church Gresley, a short walk from the home of Gresley Rovers. The last time a Labour MP, Mark Todd, who people still speak so fondly of today, delivered his first speech in this Chamber in 1997, he was hoping to help Gresley Rovers move their football ground. This Labour MP hopes to help them finally make that dream a reality.
Turning from the beautiful game to the beautiful places, we have Calke Abbey in Ticknall, part of our wonderful National Trust. There, people do great work to preserve and restore woodlands and ensure visitor areas are inclusive, so that as many people as possible can enjoy them. Mercia Marina, just outside Willington, is the largest inland port in Europe and is a fantastic spot for tourism, leisure and local business. Speaking of local business, Acres Engineering is a wonderful family-run company that opens its doors to school visits. It trains and develops apprentices, and has an armed forces covenant gold award for its work to support the armed forces community and defence. As I am partaking in this year’s armed forces parliamentary scheme in the RAF, I am ever more grateful to Acres Engineering for being committed to that work. It really does go above and beyond for people.
It is not just home-grown businesses in South Derbyshire; we are home to sites for Toyota, Rolls-Royce and JCB. Those global companies provide high-quality jobs, apprenticeships and vital skills training to local people, making South Derbyshire a hub of innovation and industrial excellence. Their expertise in hydrogen-powered vehicles can help deliver a reduction in carbon emissions, and will ideally place us at the forefront of the green revolution, helping us to fight the climate crisis.
I also want to highlight the critical role of Burton and South Derbyshire college. While its main site is not technically in my constituency, it has sites and programmes that are. It provides vital education and training to the next generation of workers and entrepreneurs. It is the gold standard of technical colleges, and this Labour Government want to see more like it right across the country. Our college is helping to equip our young people, including those with special educational needs and disabilities, with the skills needed to thrive in the jobs of the future, in today’s fast-changing world. I hope many of those jobs will be in the tech sector, and I will strive to encourage tech businesses to base themselves in South Derbyshire, so that no one has to leave where they live to build a secure, successful, rewarding and well-paid career.
Our motto, “The Earth Our Wealth”, speaks of a time when our industry was about coalmining and pottery. Now, it makes me think of our stunning rural landscapes, and of the hard-working farmers who are increasingly diversifying to adapt to changing economic landscapes. Whether they are producing their own biogas from food waste, converting agricultural buildings into business units to let or running farm shops, our farmers continue to show resilience and creativity.
In closing, whether in Etwall, Egginton or Stenson Fields in the north, or in Lullington, Coton in the Elms or Walton in the south, I want people to know that I promise to represent them with integrity, dedication, and a deep sense of responsibility. Thank you for giving me that opportunity.
Madam Deputy Speaker (Caroline Nokes)
I call the Liberal Democrats spokesperson.
Daisy Cooper (St Albans) (LD)
It is an honour to follow the hon. Member for South Derbyshire (Samantha Niblett), and I congratulate her on her very heartfelt maiden speech. I commend her for her commitment to the NHS, and for her desire to be a role model for the next generation of women, who will follow up the ladder behind us. Her skills in data and tech will be incredibly helpful in this House as we grapple with the challenge of online harms, and the threats and opportunities of AI, and I wish her well in her career in this House.
There is no doubt but that the Government have received a terrible inheritance. Under the former Conservative Government, our economy flatlined, people’s living standards plummeted and our public services were left on their knees, so inevitably the incoming Government have had to make some difficult decisions. [Interruption.] Conservative Members might like side B. [Interruption.] Steady on. Some of those decisions we Liberal Democrats agree with. To start with, the Government have decided to borrow for productive investment, and in principle we agree with that. They have raised the levy on the oil and gas giants and closed the loophole, and we agree with that. They have decided to invest in the NHS, and we also agree with that. However, we cannot support the Bill, for many of the reasons set out in our reasoned amendment.
The first question is who should pay for fixing our NHS and social care. We Liberal Democrats have always said that it should be those with the broadest shoulders. Unfortunately, the Government’s Finance Bill does not reverse the tax cuts given to the big banks by the Conservatives; it does not raise the digital services tax on the big tech companies; and it does not increase the remote gaming duty. Those three measures, outlined in our reasoned amendment, would have raised billions of pounds to help fix our NHS and social care, and that money could also have been used to reverse the cut to the winter fuel payment.
The inheritance tax measures are not included in the Finance Bill, but it does pave the way for them. I must say that it is a bit rich of the Conservatives to pretend suddenly to be the friends of the farmers when they ushered in the very trade deals that have undermined so many farmers. However, I urge the Government in the strongest terms to think again about the family farm tax. That measure is badly thought through and leads to the worst of both worlds. It does not close the loophole that results in big equity companies and investors buying up land—it is still more tax-efficient for them to do that than to place their money elsewhere—yet family farms are being caught up as collateral damage. There are rumours that the Government may be thinking again, and I urge them to do so. It is possible for them to look at introducing a genuine family farm test, as exists in France and Ireland. If the Government look at this issue, the Liberal Democrats will, in the spirit of constructive opposition, work with them to get this right and to protect family farmers.
Our reasoned amendment also outlines our opposition to the increase in alcohol duty, because it will hit not only consumers, but small businesses—and not just any businesses. The businesses in this sector are bastions of new craftsmanship and innovation in our small-batch distilleries.
In summary, we know that the Government had an awful inheritance and had to make difficult decisions, but we Liberal Democrats would have made different choices.
Kanishka Narayan (Vale of Glamorgan) (Lab)
Has the hon. Member reflected on the fact that the Liberal Democrats, instead of being just the party of no, were the party who enabled the coalition Government, which she is criticising?
Daisy Cooper
I think we can all say that a lot of water has passed under the bridge since those times. Since 2015, we have seen what the Conservatives did when they were left in government on their own. I hope that people will have seen at the most recent general election that we Liberal Democrats put health and social care front and centre; that led us to become the largest third party in the last 100 years.
To conclude, we Liberal Democrats would have made different decisions from the Government, and for that reason, we will not support the Bill.
Phil Brickell (Bolton West) (Lab)
It is a pleasure to speak in this debate on the first Labour Finance Bill in 14 years, and an even greater pleasure to respond to the very first Budget delivered by a female Chancellor. It is also an honour to speak on Lancashire Day, and I would like to put on record my congratulations to all my constituents in Bolton West and further afield who are celebrating this important day.
As others have done, I congratulate the Chancellor and thank her for blazing a trail for girls in my constituency to follow. In response to the remarks from the shadow Chancellor, the right hon. Member for Central Devon (Mel Stride), I would say that having spent 14 years working in FTSE 100 companies, I believe that the measures in the Bill will be a turning point for our country. They are the first step in fixing the foundations of a broken economy after 14 long years of economic vandalism by the Conservative party.
Let me be clear: the Labour Government inherited a difficult financial situation, with debt above 90% of GDP, millions of pounds of public money wasted during the pandemic, including via contracts awarded through the VIP fast line, inflation at 11%, and a cost of living crisis that bore down not just on the most vulnerable in my constituency, but on working families, young people and many businesses. That is the economic inheritance bequeathed by Conservative Members, and we should take no lessons from them on how to manage the public finances. To that end, I very much welcome the measures in the Bill.
Graham Stuart
To take the hon. Gentleman back just a few months, he may remember that inflation was at 2% and down at target, and the level of employment was up by 4 million people on where it was in 2010. It would be fair for the hon. Gentleman, who is new to the House, to want to give a balanced picture, and he may want to reflect on those 4 million additional jobs, the fact that inflation was down, and the fact that the UK was the fastest growing economy in the first quarter in the entire G7.
Phil Brickell
I thank the right hon. Member for his contribution, but I will return to the point I mentioned earlier about inflation at 11%. Frankly, the work was not done by the previous Government to mitigate that.
I very much welcome measures in the Bill that will increase stamp duty on those who own a second home. The blight of second home ownership in certain parts of our country has destroyed the housing market for local people, massively inflating prices and denying those otherwise invested in the local area the ability to put down roots. I am pleased to see the Chancellor delivering on our election promise to scrap the non-dom loophole, which has been abused for far too long by those who wish to enjoy all the privileges of life in this country without paying into the system. I applaud the Chancellor’s commitment to delivering fairness into the tax system through the Budget and the Bill.
In the light of the debate we have been having in the country at large over the past few weeks, I wish briefly to focus my comments on three key topics, which I hope the Government will soon revisit at some juncture during this Parliament. The first topic, tax justice, has been overlooked for far too long. According to His Majesty’s Revenue and Customs, the tax gap—the difference between what it should collect annually and what it actually collects—is almost £40 billion. Let me repeat that figure—forty thousand million pounds. Closing that gap by just 20% could pay for 60,000 nurses, 40,000 teachers, and 40,000 police officers. Imagine the transformative impact that could have on our public services, on education, on health, and on tackling crime. Simply put, working people in Bolton West are expected to pay the taxes they owe, so why should big multinationals and the super-rich be able to avoid contributing their fair share?
The renewed focus on tax avoidance and evasion in the Budget is much needed, but we sometimes have to spend money to make money. We all know that tough decisions about public finances have to be made, but that does not have to come at the expense of boosting enforcement through our public bodies, including HMRC, which should be self-funding, with a greater proportion of cash raised from fines, asset seizure and the like returned to the relevant agencies. Our enforcement agencies work incredibly hard to claw back billions of pounds that are lost every year to economic crime in the UK, but they do not have the resources to protect us from all manner of crimes from fraud to money laundering and tax evasion. It should be criminals who are made to pay, not the hard-working taxpayer, and for me, that would be a sensible way to both combat economic crime and bolster our public finances.
We already know that every pound invested in the Serious Fraud Office returns three pounds to the Treasury—a 317% return on its budget—while every pound spent on the National Crime Agency’s international corruption unit results in £21 of illicit wealth frozen. As it happens, research published this month by Spotlight on Corruption—I hope the Minister will take note of this—found that just 17.6% of the £4 billion generated for the Government by law enforcement agencies and anti-money laundering supervisors between 2017 and 2024 was reinvested in those agencies or in crime reduction and community projects. If just 50% of those enforcement receipts had been reinvested, economic crime regulation and enforcement would have received an extra £233 million a year—nearly double the annual investment underpinning the 2023 to 2026 economic crime plan—at no cost to the taxpayer but with potentially substantial rewards.
The second area of focus that I would like the Government to attend to during this Parliament is council tax. For almost three decades, successive Governments have sat on their hands when it comes to reforming the levy, which is regressive and disproportionately targets the wealth of lower-income families and the young, as well as affecting local authorities. Bolton council finds that it does not provide an adequate funding base to provide critical services for my constituents. Last year, a modest property in Hartlepool worth £150,000 would have been taxed at over 1% of its value, while the owner of an £8 million mansion in Westminster would have seen a bill equivalent to just 0.02%.
The Fairer Share campaign has called for a proportional property tax, which would see homeowners pay a flat rate based on current and annually updated valuations, not the absurdly outdated 1991 numbers. It calculates that that would put an average of £600 into the pockets of households in Bolton West and leave 96% of people in my constituency better off. Indeed, in total, Fairer Share reckons that that reform could save households outside central London and the south-east £6.5 billion a year, helping to level up communities and genuinely boost local economies.
Finally, I would very much like to see the spending commitment to 2.5% of GDP on defence reached as soon as fiscally possible. I welcome the Government’s commitment to that effect. The increase of £2.9 billion for defence already announced by the Government is indeed welcome. We must continue to invest in defence to ensure that the UK will have the capacity to keep us safe in what is becoming an increasingly dangerous world.
This Finance Bill demonstrates that after 14 years of dither and delay, the Labour Government are taking the difficult decisions head on. With the measures announced last month by the Chancellor, I am confident that my constituents across Bolton West will be able to realise their full potential and that together we can build the healthier, more prosperous society that I want to see, with tax justice at its heart and those with the broadest shoulders paying their fair share to fix the crises in our schools, our hospitals and our prisons.
Alison Griffiths (Bognor Regis and Littlehampton) (Con)
I commend the hon. Member for South Derbyshire (Samantha Niblett) for her maiden speech. She and I share many interests, not least in technology, promoting women in technology and accessibility. I wish her well.
Turning to the matter in hand, the measures in the Bill are in addition to others announced as part of a Budget that has caused serious concern for businesses in Bognor Regis and Littlehampton. Re-energising our high streets has been one of my key priorities, but the Budget pushes us further from that goal.
The Government plan to increase employers’ national insurance contributions from 13.8% to 15% and to lower the threshold from £9,100 to £5,000. That will force businesses to pay more sooner. Meanwhile, business rates relief for retail and hospitality will drop from 75% to 40%. Research shows that that will cause a 140% increase in rates, with the average UK restaurant seeing costs rise from £5,051 to £12,122l, a £7,000 hike that could force closures. Those changes come on top of existing pressures caused by covid, the war in Ukraine and energy price inflation. A local business has shared the impact of that on its profit and loss: its freight costs are up 126% since 2019, raw materials are rising by 6%, warehouse rents were up 24% last year, with another 6% rise in 2024, and utility costs were up 58% in 2023. Businesses already stretched thin cannot absorb the additional costs that the Budget imposes. Piling on national insurance contributions and higher business rates alongside steep minimum wage hikes, without supporting productivity and growth, is a recipe for disaster.
Graham Stuart
In painting this stark picture, my hon. Friend has not mentioned the Employment Rights Bill, which is expected to impose particular burdens on hospitality businesses, including those on her high streets—a total of £5 billion in addition to the measures in this Budget.
Alison Griffiths
My right hon. Friend makes a valid and important point. I have restricted my comments to the Finance Bill and the Budget, but the Employment Rights Bill places significant additional pressures on businesses, and I thank him for that point.
For towns such as Bognor Regis and Littlehampton where businesses already operate on razor-thin margins, these measures could be existential. Highly regarded local employers, including family-run small and medium-sized enterprises such as Temple Spa and Meridian Medical, are gravely concerned. Entrepreneurs like those take immense personal and financial risks to create jobs and support our economy, yet this Government treat them as an endless revenue source instead of engines for growth. The Chancellor’s projections may work on paper, but they are disconnected from reality. Our high streets, SMEs and family businesses need support, not policies that make survival—let alone growth—harder. I urge the Government to rethink their approach or take steps to mitigate the impact on our communities.
Jim Dickson (Dartford) (Lab)
I am grateful for the opportunity to contribute to this very important debate as we move to put the measures announced at the Budget on the statute book but, first, I add my congratulations to my hon. Friend the Member for South Derbyshire (Samantha Niblett) on a superb maiden speech, demonstrating the commitment and expertise that we are lucky to have on the Government Benches, and the House is lucky to have as a whole.
I suspect that this was not the Budget that my right hon. Friend the Member for Leeds West and Pudsey (Rachel Reeves) envisaged as her first as Chancellor, but it was the one that was needed once the economic inheritance received by this Government became fully understood. I want to touch on the very difficult financial situation that this Government have inherited, and what difference the measures announced in the Budget will make to residents living in my constituency.
We should be clear about what the inheritance from the Conservative party was: an economy that, over the past 14 years, has seen productivity and wages flatlining, leaving British families significantly poorer than those in France and Germany; and a country exposed to fossil fuel markets, which led directly to the worst cost of living and energy bills crises in generations. Whatever the Conservatives may like to say to wriggle out of that inestimable fact, they left a £22 billion black hole in the public finances, with no plan to fix it and—this is the worst part—unfeasible departmental spending targets stretching into future years.
Our response of capital gains tax rises, air passenger duty and agricultural property relief undoubtedly falls on those with the broadest shoulders who are most able to bear those increases.
Harriet Cross
May I clarify whether the hon. Member believes that the farmers making on average less than £45,000 year, and the 25% making less than £20,000 a year, are those with the broadest shoulders?
Jim Dickson
I thank the hon. Lady for that intervention. We are very clear: the numbers from HMRC show that very few of the sorts of farms that she is referring to will be affected. Actually, it said everything to me that the person leading the march last week had boasted that he had spent £4.25 million on a farm in order to avoid inheritance tax.
This was a Budget to reset our finances after years of chaos, with difficult but necessary decisions—decisions we have not dodged, unlike the previous Government. This Labour Government were elected to fix the foundations of our economy and to begin to rebuild the public services that people across our country—including my residents in Dartford, whom I am privileged to represent in this place—really need. The measures in the Bill will rebalance the tax system, protecting working people and raising the crucial revenue so desperately needed for our public services at a time when their performance is unfortunately at a historic low.
What does this Budget mean for people living in my constituency, in Dartford, Swanscombe, Greenhithe and Ebbsfleet? People living across my constituency rely on their excellent district general hospital at Darent Valley, which is full of brilliant, hard-working staff who do their absolute best; however, after 14 years of a Conservative Government, capacity in the hospital has just not kept up with need. Dartford borough was the second fastest growing local authority area in the period covered by the last census, thanks largely to the development of Ebbsfleet Garden City, but investment in services has not kept up with the needs of a growing population. The more than £25 billion announced in the Budget over two years for our health service will cut waiting times, thanks to 40,000 extra elective appointments each week and the capacity for more than 30,000 additional procedures.
Thanks to the new homes in Ebbsfleet and across Dartford, we are also becoming a much younger constituency, as younger couples settle in our community and start families. We warmly welcome these new residents, and I am confident they will welcome the Chancellor’s decision to increase the core schools budget by more than £2 billion a year, meaning the recruitment of 6,500 teachers, and the additional £1 billion investment to address the broken special educational needs system in Dartford and across our country. If Conservative Members disapprove of the revenue-raising measures in the Budget, it really is incumbent on them to say which bit of that extra investment they would cut. I am afraid we are back to magic money tree economics—we heard that very clearly from the shadow Chancellor. All these measures form part of our manifesto commitment to break down the barriers to opportunity, of which sadly far too many remain.
Finally, and perhaps most importantly for the long-term prospects of our country, I hope the whole House will support the Government’s strong focus on boosting public investment by more than £100 billion over the next five years. This is an area where we have been sadly lacking when compared with our international competitors. The announcement has been further enhanced by the Chancellor’s Mansion House speech, which included proposals to unlock the power of our pension funds to invest in our country.
Against that background, it would be remiss of me not to mention a project that hon. Members across the Chamber might remember me describing in previous contributions as shovel-ready. The proposed new lower Thames crossing is crucial to unlocking the growth that the new Government are seeking, both in the south-east and beyond, and could be started very quickly, with much of the preparatory work already having been undertaken. It would create jobs and unlock investment across the Thames estuary, addressing the largest traffic bottleneck in the UK, and allow freight to move much more easily from ports in the south-east to destinations across the country.
I will end as I began. I recognise that these are difficult decisions and that they will not be welcomed by all; however, we must not duck the tough choices needed to restore the foundations of economic stability in our country and our public services.
Graham Stuart (Beverley and Holderness) (Con)
It is a pleasure to take part in this debate. Let us travel back in time to those halcyon days for the Labour party: so confidently predicting victory in the election, so far ahead in the opinion polls and so clear on the prospectus they laid before the British people. It had a fully funded, fully costed programme. When the now Chancellor was challenged about whether she had a full insight into the public finances, she assured the interviewer, if I recall correctly, that absolutely she did. Therefore, people could rely on the cast-iron promise, which all Labour Members stood on, that Labour would not raise national insurance, would not raise income tax, would protect farmers and would not cut pensioners’ benefits. That was the promise.
But it is better than that. It is not just that Labour was not going to bring in all those taxes, but that it was going to make growth their No. 1 mission for a mission-led Government. Those who feared a return to a sort of socialist job-destroying and enterprise-wrecking past could be reassured that this was a moderate party that had put the right hon. Member for Islington North (Jeremy Corbyn) well behind it, no matter how many Labour Members had said he was a great friend and would make a great Prime Minister. They had changed their mind. There was a moderate promise.
It was not only members of the public who were led to believe in the Labour mission and what it could bring for the country. Imagine Labour Members, the people who were selected as candidates for the Labour party, who came in not to Jeremy Corbyn’s Labour party but to this Labour party of enterprise, protecting workers and encouraging a low-tax system, but doing so in a way that none the less would prioritise the healthcare system, special educational needs children and the like. That was the promise and it did not just beguile many people in the country—although not that many, as only 34% of people actually did vote Labour, but none the less enough. Imagine what it was like—I say this to Opposition Members—to come to this place and be a part of that fantastic crew of hundreds and hundreds of Labour MPs to deliver that manifesto. And where are we now at the historic Second Reading of the Finance Bill of the central policy measures of this new Government. Where are they?
Graham Stuart
They have been humiliated in the Budget debate, as one after another repeated their rote words. It was the most intellectually empty Budget debate I have ever taken part in. I listened to Labour Member after Labour Member trot out their “14 years of chaos” and their “£22 billion black hole”.
Graham Stuart
It would be entirely wrong of me, given how few Labour Members there are in the Chamber prepared to defend the Budget, if I did not now give way to one of them.
Nesil Caliskan
I thank the right hon. Gentleman for finally giving way. I wonder if he might use the opportunity to reflect on the economic record of the previous Government, which saw the highest interest rates and inflation through the roof that affected people’s pockets and their ability to get on in life. Will he also reflect on the fact that his party lost the election and perhaps show some humility?
Graham Stuart
I am grateful to the hon. Lady. I am happy to do so, although it is worth pointing out that we are supposed to reflect today on the actual proposals put forward by the Government of which she is now a member.
But the hon. Lady is right to highlight the Conservative’s economic record. I have a criticism of those of us on the Conservative Benches: I do not think we do enough to talk about it. From 2010 to 2024, which economy in Europe grew the most? Was it Germany or the UK? Oh, it was the UK! Was it France or the UK? Oh, it was the UK! Which country in Europe created 4 million more jobs? For which Government did the horrible scar of youth unemployment, which was a permanent feature even in the good years prior to the crash—for those interested in the history of employment—stay horribly high, with its long-term scarring impact on young people? It was the Labour Government.
All that was turned around. People were paying tax at £6,500 when Labour left power. That was lifted to £12,500. They may be decrying and disowning their part in the coalition Government, but the Liberal Democrats should have some pride in what we were able to do together. We inherited an economic basket case. We brought discipline back. But while we were fixing the foundations, we did not lose sight of the fact that we knew where the wealth comes from. It comes from the private sector, not the public sector—from those small shops, those restaurants, all those other businesses on which the country relies for its wealth. This Budget has gone down and damaged each and every one of them, one by one. It has looked around for targets—the “broad shoulders” for the socialist envy to vent itself on—and who better than landowners?
So the Budget focuses on people. I am not an expert on every area of the economic life of this country, but let us suppose that I looked across the entire economy and tried to find people in private enterprise using their own assets. Where would people have millions of pounds in assets and be prepared to receive a 1% return on them? Who would keep that up, year after year, simply in order to feed the nation as part of a pact—a compact—between them and the Government, indeed the whole country? Who would be prepared to do that, and to feed us, while asking so little in return? Attacking farmers, of all groups in society, is one of the most retrograde and regrettable of attacks.
Joe Robertson (Isle of Wight East) (Con)
As my right hon. Friend knows, I worked for a charity for six years—or a decade, as the Chancellor of the Exchequer likes to call it. Would he care to reflect on the damage done to charities by this Government’s Budget? They are already in a squeeze, and the Government have squeezed them further through their decisions on employment rights and also through taxation in the Budget.
Graham Stuart
We are seeing a kind of socialist envy and attack on misguided targets. For instance, children with special educational needs in private schools will be pulled out of those schools mid-year because their families can no longer afford to send them there. That was not the intent; not only did Labour Members want to stand on an honest prospectus, but that is not, I am sure, what they wanted. Nevertheless, that is what is happening. [Interruption.] It is exactly what is happening.
My hon. Friend is right, however, to point out that this is not just about a class-based assault on people who do not deserve to be assaulted. It is also about sheer ineptitude. Let us consider the £22 billion for the NHS. Why so little for social care? Surely Labour Members, however green and new to the House, must be aware that the NHS depends on the social care system, but because of the increases in national insurance contributions and the minimum wage, its costs are rising by about £2.5 billion and it is getting £600 million. Hospices will be affected, and so will small charities.
Madam Deputy Speaker (Caroline Nokes)
Order. I remind the right hon. Gentleman, and indeed all other Members, that this is, specifically, a Finance Bill Second Reading debate. We are not having a general debate on the Budget.
Graham Stuart
I am extremely grateful to you for your guidance, Madam Deputy Speaker. I will try not to refer too much to the impact of national insurance contributions, because we will have that opportunity next Tuesday. None the less, my hon. Friend was right to talk about the impact of this Budget overall, and the effect on hospices and charities in particular.
Yesterday I met the chief executive of HICA, a large not-for-profit provider of social care homes and in-home care. HICA is a brilliant organisation, which has made real progress over the last few years. It finally managed to make a surplus last year, so it can pay its staff more than the minimum wage and invest in its stock. Now it is facing a £3.5 million impact on its £40 million turnover as a result of this Budget and this Finance Bill.
As well as farmers, oil and gas have been touched on today. When I was the Minister for Energy Security and Net Zero, it always struck me as absurd to look at the production of oil and gas rather than the consumption. It is the consumption that is the problem. We must change our factories, our vehicles, our buildings, so that they no longer need oil and gas if we are to move away from them. Attacking production when it is driven by demand is attacking the wrong end. In this measure, the Labour Government are raising the energy profits levy, on top of refusing to issue new licences. The net effect of that, notwithstanding the Liberal Democrats’ saying that they support the policy—I do not know why or how they can do so—
Graham Stuart
I will in a moment.
This does not make the slightest difference to how much we consume, but it means that we import more from abroad, and, in the case of liquefied natural gas, those imports have embedded emissions four times higher than the emissions of what we produce domestically. We are going to bring this in from places that are less careful than we are in its production. We are going to lose tens of thousands of jobs and £13 billion of tax revenue, and we are going to lose the engineering expertise and companies that we need for the transition. There is literally no way to make that make sense, and I hope the hon. Lady will now do a U-turn and see the logic of my argument.
Daisy Cooper
I will resist that invitation. Does the right hon. Gentleman understand the nature of a windfall tax? It raises money on the windfall that a sector was not expecting. We know that the big oil and gas giants base their investment plans on the profits that they were expecting, but clearly they raised a lot more money because of Russia’s illegal invasion of Ukraine. Windfall taxes have been placed on the big oil and gas giants for the profits over and above what they were expecting to receive.
Graham Stuart
The hon. Lady did not actually refer to the measure in front of us. I know it is the Liberal Democrats’ policy to have a windfall tax on anyone who does not sound popular—big banks, big tech, and oil and gas. That is their answer. If anyone says, “How would you do it?”, they trot that out and lose not a single vote, because the very definition of not taking a tough choice is suggesting that there is easy money.
The measure in front of us, which the hon. Lady specifically said she supported, is not a windfall tax. It is a further tax, in tandem with the removal of any new licences, which effectively destroys investment in the North sea. I point to Apache—which says it is looking to withdraw by 2029, risking 500 jobs—Harbour Energy, JAPEX and Chevron, to name just a few. They are pulling out, and there is no environmental benefit. We are losing all that tax, all those jobs and all that expertise, which is exactly what we need for carbon capture, and for hydrogen, for the green economy. It is utterly insane.
I note that there are very few Labour Members present. I watched them as they came in for the Budget, full of cherry-cheeked enthusiasm and reading out their Whip-prepared rote remarks about the disaster left behind, which, as we know, was the fastest-growing economy in the G7, with inflation at target, debt coming down and the economy coming up. They are not all mad, socialist loons, and day by day we can see them losing spirit in the Tea Room and in the corridors as they realise that the deceit that their Front Benchers practised not only on the people, but on them, is coming home to roost.
The Government will pour all of the £22 billion into the NHS in the next year—it is in the figures—and we are supposed to believe that public services will rise by 1.3% or 1.4% in the rest of the period up to the next general election. Is that credible? It is not. I think Labour Members know that, which is what they have signalled by their absence, because they realise, as we do, that this Finance Bill and the Budget are ruinous for this country. My right hon. Friend the Member for Central Devon (Mel Stride) was absolutely right to say that they make this country more vulnerable to the shocks that may and most likely will come, and it will be the Labour party that owns the mistakes that are being sown today.
Alex Ballinger (Halesowen) (Lab)
It is a pleasure to follow my hon. Friend the Member for South Derbyshire (Samantha Niblett), who gave a wonderful maiden speech. I am sure that her daughter Lillian will look on her as a lovely role model as she moves forward.
Earlier this month, we witnessed an historic moment as the first ever female Chancellor delivered the Government’s Budget—a comprehensive plan that is designed to support working people, rebuild our economy and bring fiscal responsibility back to the heart of Government. The Budget delivered a plan for recovery, a plan to undo the damage left by the previous Government and, most importantly, a plan that will benefit the people of Halesowen and the wider community.
However, let us be clear: this Government inherited a dire financial situation. [Interruption.] It is true. The Chancellor exposed a £22 billion black hole that was left by the previous Government, and a series of undeliverable promises that the Conservatives knew they would never have to keep. The last Government knew that they had no money to deliver their agenda, yet they concealed the truth from the British people, leaving the incoming Government to pick up the pieces. The Budget was about sorting this out, and we are committed to doing just that.
Our economy faces multiple challenges, including high debt, underfunded public services and rising youth unemployment, but the true cost of the past 14 years is felt most acutely by the people who have been left behind. In Halesowen I hear from residents every day: people who have been waiting weeks for a doctor’s appointment; people who are forced to travel miles to receive healthcare; and people who are completely unable to access their NHS dentist. Fourteen years of cuts have left our NHS in crisis, and no matter someone’s political affiliation, no one can deny the challenges our health service faces.
But it is not just in healthcare. Our schools, roads, railways—all of this infrastructure—has suffered from years of under-investment. Our public services are falling apart.
Graham Stuart
It is tempting for Members to read out the rote stuff that is given to them—as some of the hon. Gentleman’s colleagues have been prepared to do, but are mostly not prepared to do today—but I just gently point out that there was never a reduction in NHS spending; in real terms it went up in every single year. If there is a belief that the NHS can be magically turned around by having above-inflation increases in spending alone, I can assure the hon. Gentleman that that is not true, because we did it every year and we still had demand going beyond the resource.
Alex Ballinger
The right hon. Gentleman will have noticed that we reached record NHS waiting lists under the last Government, more than 7 million people waiting and many of my constituents waiting over two years. If he thinks the investment in the NHS by the last Government was enough, he is completely wrong.
Our roads are literally crumbling, working families are struggling and the hope of upward mobility is slipping further out of reach. We cannot let this continue. The Government are faced with what the Institute for Fiscal Studies has described as a genuinely difficult inheritance. The truth is that the last 14 years can be described as, at best, a period of managed decline; or at worst, wilful neglect. The last Government will be characterised as an Administration that allowed services to erode and future generations to be abandoned.
We must take a different approach and offer real change. We are not pretending that the work ahead will be easy, but we are determined to rebuild and restore. A key part of this recovery is investing in our most vital public services, especially the NHS, which cannot survive on good will alone. The Budget commits to injecting much-needed funds into our healthcare system, securing a lifeline for the NHS that will allow it to begin this recovery.
The Budget is also about presenting an offer to working people who have been neglected for so many years, including a rise in the minimum wage to boost the living standards of 3 million low-paid workers; NHS funding to support 2 million more operations, scans and appointments every year; fuel duty frozen for another year, providing relief to drivers and families; a £500 million investment to fund the construction of 5,000 more social homes; a significant increase in the carer’s allowance earnings limit, because those who care for our loved ones deserve our support; and a crackdown on tax avoidance, fraud and waste, ensuring that the super-wealthy pay their fair share of tax.
The decisions in the Budget, though some are difficult in the short term, are the right ones for the long-term good of our country. This is a Finance Bill that prioritises public services and working people without raising taxes on the majority. It is about restoring fairness, rebuilding trust and setting the country on a new path towards growth. It is also important to remember that fiscal responsibility is central to this Government’s approach. The IFS has praised the soundness of our fiscal rules, ensuring that our efforts to drive growth are sustainable and the public finances remain on a stable footing. Changing the fiscal rule to allow more investment is both sensible and necessary, and this investment will boost long-term growth.
The Bill is not just about recovery; it is about securing a prosperous future. Businesses in Halesowen have been struggling, especially on our high streets, where many have been forced to close their doors in recent years. I have heard the concerns of small business owners and the concerns shared by the Black Country chamber of commerce, and I am pleased that the Chancellor’s plans include support for high street businesses, including business rates reform, which will give local shops the chance to compete against tax-avoiding multinationals.
Matt Rodda (Reading Central) (Lab)
My hon. Friend is making an excellent speech highlighting a whole series of important points. I just wondered whether he was going to come to the cut in beer duty. I know there are a number of famous brewers in his area and this is an important measure for many brewing towns—[Interruption.] This is an important point for many brewing towns and many small, related businesses in that sector. I have a number of SMEs in my own constituency that will benefit from this, as well as pubs. Does my hon. Friend welcome this measure, as well as the important measures he has mentioned for small businesses in town centres?
Alex Ballinger
I welcome the 1p reduction in tax on beer. I have spoken to many businesses in my constituency’s hospitality sector, including many pubs, that are happy with this measure, which they hope will increase the footfall in our town centres and in their businesses.
I am also delighted that the Budget confirmed £20 million of investment in the redevelopment of Haden Hill leisure centre in Cradley Heath in my constituency, and £20 million of investment in Halesowen town centre, to redevelop what is becoming a difficult area.
The Bill will ensure that local assets that serve the community are protected and enhanced. It marks a turning point for our country, laying the groundwork for a better future. It is a plan that protects our public services, supports working people and puts the economy on a sustainable path. I fully support this Bill for Halesowen and beyond. It delivers hope, invests in communities and fixes the foundations of the economy, so that we can deliver the change for which the country voted.
Mr Will Forster (Woking) (LD)
This Finance Bill is bad news for my Woking constituency. In the Budget, the Government announced an extra £1.3 billion for local authorities. That might sound good, but the reality is stark. Inflation, rising wages and increased demand for services mean that councils are facing a £6.2 billion funding gap over the next two years. By failing to provide adequate funding in this Budget and Finance Bill, the Government are pushing some councils to the brink of bankruptcy.
The situation is even worse in Woking, as our local authority has already gone bankrupt. Woking borough council, a small authority in a two-tier structure, is carrying £2.1 billion-worth of debt. Members can guess which political party ran the council at the time: the Conservatives. It is an eye-watering figure, and taxpayers should never be put in the position of footing such a bill, but they will have to shoulder it. As part of the Government intervention in Woking, the borough council will have to sell a lot of its assets to try to pay off the debt. However, at current values, those assets are worth £1 billion, which is a huge gap that puts the council in massive negative equity.
The Government like to talk about a £22 billion black hole, but I fear the black hole is worse than they realise. To understand these issues, Ministers need to look at local government bad debt and off-balance-sheet debt. It is quite possible that my local authority alone will not repay £1 billion of debt that this Finance Bill assumes will be repaid. Woking is just one local authority in one constituency out of 650. This Finance Bill makes mistakes, but it could be even worse if it is built on flawed foundations.
One way for my constituency to get out of the mess we have inherited is to grow the town, so that our economy grows and improves. However, I worry that this Budget and Finance Bill undermine that goal. The measures go after small businesses, which are the lifeblood of my high street and community. I am particularly concerned that the increase in alcohol duty will hit small breweries, such as Thurstons in my constituency.
Like many of my constituents and neighbours, I use buses all the time. Buses are a lifeline for us. The £2 fare cap was helpful during the cost-of-living crisis and encouraged people back on to the buses after the covid pandemic. However, the Government are now scrapping it. A resident from Knaphill told me:
“The rise is concerning. With a £1 increase each way, it will put even more strain on pensioners like me.”
It amounts to an extra £500 a year for someone who commutes by bus every day. That is a huge burden at a time when households and families in my constituency and elsewhere are already struggling.
Buses are not just a convenience or a luxury; they are the backbone of local economies, connecting people to work, schools, colleges, shops and healthcare. If this Government are serious about economic growth, they should be investing in buses, not hitting passengers with what is effectively a bus tax on working people. In their election campaign, the Labour party promised not to increase taxes on workers, but this Budget and Finance Bill do just that. At a time when people are facing the worst cost of living crisis in decades, this Finance Bill increases the tax burden on everyone.
The Liberal Democrat manifesto and our reasoned amendment show that there is a fairer way. We have bold plans to properly fund the NHS, social care and other public services by asking big banks, oil and gas giants and big tech companies to pay their fair share. Our plan is ambitious, which is what this country needs; Labour’s Budget does not come close. The Finance Bill does not go far enough to protect people and the services that they rely on.
The Government need to get their priorities right. The Liberal Democrats are against the Bill because it does not effectively tackle the crisis in social care, or reverse cuts to winter fuel support. It does not support people with the cost of living crisis, and it introduces a shocking tax on education. Woking deserves better, and this country deserves better.
Tim Roca (Macclesfield) (Lab)
I congratulate my hon. Friend the Member for South Derbyshire (Samantha Niblett) on her phenomenal maiden speech. She is already proving to be a powerful advocate for her constituents.
The Finance Bill is a necessary corollary to the Budget. It is the beginning of a process that the new Labour Government are undertaking to rebuild the foundations of our country, after an incredibly poor inheritance from the predecessor Government. I have been quite shocked to hear the joy with which Conservative Members have been speaking about the phenomenal economy that they left the country with. It is an economy in which wage growth has flatlined at the lowest level since the Napoleonic wars, leaving households £10,000 worse off per person. Trade has fallen 15% lower than our neighbours’, and national debt went from 64% in 2010 to 96% just before the pandemic. I know they love blaming the pandemic for everything, but things were pretty bad before the pandemic. The heart of the problem is that the Conservatives lack credibility.
In 2010, the right hon. Member for Beverley and Holderness (Graham Stuart) stood for election on a manifesto that said that the Conservatives would “eliminate” the deficit by the end of the Parliament. In 2015, he stood for election on a manifesto that said the same thing, as he did in 2017. In 2019, he and his colleagues decided to give up entirely on tackling the national debt, which is one of many things that we now have to tackle. Of course, that was the more rational end of the previous 14 years, and there were seven Chancellors in 14 years, by the way. We had the blip, which I know Conservative Members do not like talking about, when one of their Chancellors, with the backing of a Prime Minister, Liz Truss, promised £45 billion—2% of GDP—of unfunded tax cuts. I am incredulous that the Conservatives were talking about gilts earlier. Gilts moved more in one week under Liz Truss than in a whole year on average. There is no comparison—
Madam Deputy Speaker (Caroline Nokes)
Order. The hon. Gentleman was in the Chamber when I asked Members to return to debating the Finance Bill, rather than the rather context of the Budget.
Tim Roca
I was, Madam Deputy Speaker. I tried to intervene on the right hon. Member for Beverley and Holderness a number of times, but he would not give way, so I felt I had to squeeze in a couple of points before getting to the Finance Bill.
The Finance Bill includes many important measures that I support. The freeze on fuel duty is an important and welcome decision by the Chancellor. The Conservatives imposed a stealth tax on the country by freezing thresholds on income tax, and the Chancellor rightly committed to changing that in 2028. It was a revenue-raising Budget, but despite all the changes, we will have capital gains and corporation tax rates that are very competitive with those of our G7 colleagues.
My constituency needs this Budget because it needs stability. It needs the investment that this Budget will bring. That investment is crucial because the legacy that I talked about spanned a number of areas, including a lack of public investment. The Institute for Public Policy Research said that nearly £500 billion less was invested in the public sector than in comparable economies, as we can see in our public services, hospitals and schools. The Budget was about choices. It was a difficult Budget, and not a perfect Budget, because of the inheritance. We have to deal with the facts. There was disagreement on the Budget, but people who disagree with the revenue-raising measures and agree with the spending have to say what taxes they would have increased. I say gently to Liberal Democrat colleagues, who have found other sources of income, that the Institute for Fiscal Studies effectively said that their plans to raise income elsewhere had no real credibility.
This is a difficult Budget, but it is the beginning of plotting a course for stability, economic growth and investment in public services in our country. That is what my constituents very much hope will be the legacy.
Damian Hinds (East Hampshire) (Con)
It is a very long-standing principle, observed all but universally around the world, that we do not tax education, because it is a public good. Some families find that independent education caters to needs that the state simply does not; that is the case with schools in the music and dance scheme or in certain faith communities. In some cases, a family chooses an independent school because of their child’s special needs—or because, for whatever reason, that is the place where their child can be happy. Whatever the circumstances and whatever the reason, we believe in the sanctity of the principle of parental choice. Many places around the world recognise the value of that choice through the tax system. This country is not one of them. There is no tax break for using independent education providers. Everybody contributes—[Interruption.] Does someone want to make an intervention? I would love to hear it.
Nesil Caliskan
I thank the right hon. Member for inviting me to intervene. I remind him that the IFS has confirmed that there is enough capacity in the state sector for the transfer of pupils. Also, on the point of special educational needs—
Madam Deputy Speaker (Caroline Nokes)
Order. The right hon. Member will know full well that it is for me to decide if the hon. Lady’s intervention is too long.
Nesil Caliskan
The right hon. Member may also recognise that the Government have been clear that when special educational needs are being met in the private sector, VAT will not apply.
Damian Hinds
On three counts, I am afraid that is incorrect. First, it does not cover everybody with special needs at a private school. Secondly, the IFS has not said that there is ample space in state schools, nor could it possibly know that. Thirdly, and most importantly, the point on which I was heckled, and on which I invited somebody to intervene, was a completely different one. My point was that unlike in quite a large number of countries, here there is no tax break for those using independent education providers. Everybody contributes towards state education through general taxation; if we take up a private school place, that contribution does not reduce.
In the modelling that goes with the Finance Bill, the Government say that they expect a little over £1.5 billion to be raised from the measure in maturity. We do not know the detail of the modelling and how robust the analysis is. However, I agree, intuitively, with the Treasury that a small part of the effect will be felt immediately in January, but that the effect will really start from September 2025. It will be felt gradually, through some children leaving the independent sector; the bigger effect will probably be from those who do not start in the independent sector in the first place, or who do not start their next phase of education in the sector.
I am not totally clear from what the Treasury has published whether it factors in all the effects of the change. It obviously factors in families who are directly priced out of the independent sector, but what about those who are indirectly displaced, because they were at a school where a number of other families were priced out and the school had to close? Does it factor in the higher number of education, health and care plan applications that will be made, and the much higher than average per-place cost that the state will have to meet for those displaced?
I am also unclear whether the Treasury’s analysis looks at all the effects on independent education cumulatively. Yes, there is the VAT, which is in the Finance Bill, but there are also a number of other measures being taken this year that materially affect the cost base of independent schools, and that is likely to be reflected in fees. They include the increased contribution to the teacher pension scheme; business rates changes, which affect about half of independent schools; and the massive hike in employer national insurance contributions, which will affect so many sectors.
All those are transfers from the independent state sector to the Exchequer, so the real increase in the cost base for that sector will be considerably more than 20% over the course of the year. In the Minister’s summing up, I would love her to tell us what assumption was made about the total average price increase. Whatever it was, the Government calculate that, in the policy’s maturity, 37,000 children will be displaced from the independent sector, and of those, 35,000 will go to the state sector. Ministers say, “Don’t worry; there are loads of places available in the state sector.” In fact, the hon. Member for Barking (Nesil Caliskan) suggested that a third party had said that as well, and the Exchequer Secretary said it again in his remarks. He said that we are talking about 0.5% of the total population in state schools. It is useless to have places available in primary schools in inner London if that is not the age group of people leaving the independent sector. The effect will be uneven across the country, and need is concentrated largely in secondary schools and sixth forms.
There are plenty of places where even a small number of children being displaced from one sector to the other could have a big effect on the state school system. What discussions have Ministers had with colleagues, and with councils in Salford, Stockport, Sale, Bury, Bedford, Bristol and so on? I could name considerably more. What contingency plans are in place?
Damian Hinds
The hon. Gentleman shakes his head. I take it that means that he has not had those conversations. [Interruption.] I am happy to take an intervention from him. What contingency plans are in place for September if the displacement is greater than anticipated? We know that the money will follow the pupil if more pupils turn up in the state sector, but we have not heard whether that money is coming out of general Exchequer receipts—in other words, that the Department for Education will not be expected to find that money from elsewhere in its budget. Similarly, what are the contingency plans, and what capital has been set aside in case extra capital funding is needed? As well as the displacement of pupils, there is also potential displacement of teachers, as we have heard from the unions.
Chris Vince
As the right hon. Gentleman encouraged me to intervene, I will agree that there will be a movement of teachers from the private sector back to the state sector. As a former teacher, I know a number of former colleagues who left the state sector because of the failings of the last Conservative Government, and they are considering going back into state education only because of the hope that the new Labour Government have given them.
Damian Hinds
Well, we shall see. As a teacher, he will know that teachers move between the state and independent sectors all the time. They move in both directions, but that is not what the Association of School and College Leaders was talking about. It was talking about the fact that the change is being made mid-year, and said that it carried a risk of redundancies, and of the permanent loss of teachers to the profession.
Labour Members—the hon. Member for Harlow (Chris Vince) is one of them—frequently like to say to Opposition Members that we have to choose. They say: “Are you on the side of the many or the few? Are you with 94% or the 6%?”. Well, we refuse to choose. It is not a question of whether we care about the 94% or the 6%. We care about the 100%—all the children. It is definitely true and right that at the Department for Education—this was true when I was a Minister there—Ministers spend way more than 94% of their time and effort on the state sector. In our time in government, between 2010 and 2024, that paid off with huge results. When we supported our brilliant teachers in their great work, our results went up. We went from 27th in the world to 11th for maths, and from 25th in the world to 13th for reading. We had the best primary school readers in the western world. Free school meal eligible children were 50% more likely to go on to university, and the number of schools rated less than good was down from one in three to fewer than one in 10. That was through supporting teachers, academy trusts, a broad knowledge-rich curriculum and the propagation and spread—from school to school and teacher to teacher—of proven methods, such as maths mastery and synthetic phonics.
Yes, the system does also need money. Per-pupil funding under the last Government was higher than it was under previous Labour Governments. Among the G7 nations, it was middle of the range in cash per child, and the highest as a proportion of national income. Of course, we have to keep increasing the resourcing that we put into key services, none more so than education, but the Conservatives did that as a priority from general taxation, not by taking from another part of the wider education system. I repeat: the Government do not have to choose. These are all children.
Damian Hinds
No, they do not. If the hon. Gentleman is talking about the OECD figures, they are for primary, secondary and college-based education in the state sector, but I am grateful to him for his intervention.
When Government Members talk about “the 6%” in the same tone in which they sometimes talk about “the 1%”, I think they believe that they are about to topple the toffs and achieve some sort of great victory in the class war. They are not. Eton college will not miss a heartbeat over this measure. The pupils who will be hit will be those in smaller town schools—the ones that are significant employers locally and a big part of the local community. They do not have big endowments; they do have pretty thin margins. Schools that cater to children with special educational needs will be hit. Denominational schools will be hit.
There have been some concessions from the Government. They are not the most massive concessions in the world, but they are not nothing either. We should acknowledge them, and I thank the Government for them. The first is on the music and dance scheme, with extra help for families with children at the schools in question, albeit that the concession will benefit only a little less than half the total number of families in what is a means-tested scheme anyway. There is also the confirmation that centres for advanced training will be exempt, and of what the Government plan to do on the continuity of education allowance. We need to ensure that those mitigations are more comprehensive than they are now, and that they become permanent.
Of course, the Opposition would prefer the Government to drop this measure altogether and not be the international outlier by taxing education, but if they are determined to bulldoze on, we must have key changes in Committee. We must have an exemption for all children with an EHCP—not only if it specifies the individual school—children who have SEN support, and those who are currently applying for an EHCP. We must have exemptions for schools whose fees are lower than the average charge in the state sector, and for religious denominations where there is no faith school provision in the state sector.
I do not accept the notion that, as Ministers have said at the Dispatch Box, members of religious faith communities are not discriminated against by this measure. It may well be that, as a whole, people of faith are not discriminated against more than others because the vast majority of people of religious faith are in the state sector anyway, where there are plenty of Catholic schools, Anglican schools and other denominational schools, but it is not credible in the slightest to claim that there is no discrimination, and that the effect will not be felt much more strongly by members of certain traditions within Judaism, Christianity and Islam.
We also need key postponements. Children who are already in public exam years, or the year before public exams, cannot have their education disrupted in this way. The school that they move to may not even offer the same GCSEs or A-levels, the same exam board or the same syllabus. Most significantly of all, the Government must for good reasons, including simple practical reasons, at least postpone the introduction of the measure in areas where state schools are already full, or almost full, at that stage of education, because the biggest effect of this divisive, destructive tax attack will be on state schools. It will be felt in class sizes, and ultimately in all parents’ ability to get the preferred choice of school for their child.
Lola McEvoy (Darlington) (Lab)
I pay tribute to Conservative Members for embracing their role in opposition. They are throwing their whole heart into it, and it is wonderful to see them in their rightful place—long may it continue.
I am the Member for Darlington, where a quarter of the Treasury is based, and my wonderful home town is filled with people from all walks of life. We share the unifying belief that despite our rich railway heritage we do not like to be taken for a ride. The coalition of people who elected me came from every part of the town, from people working two jobs, worried about keeping their children fed, right across to people earning six figures who voted Labour for the first time because they were worried about the lack of opportunities for their children to succeed. The people in that coalition lead different lives but agree completely on their reasons for voting Labour. Their reason was the same as for those up and down the country who voted for Labour for the first time in droves: the Conservatives had crashed our economy and stifled growth, and all those people were worse off because of it.
As a member of the prestigious Treasury Committee, I am privileged to hear the views of the top economic leaders in our country. Their advice is clear: growth and investment require economic stability, and this Finance Bill will deliver economic stability. Our Labour Government were elected to offer industry and the markets the assurances they need that Britain is back in business. The Bill does just that. Our Labour Government were elected to ensure that people in every corner of the country can be better off. This Finance Bill will create the conditions to do just that. Our Labour Government were elected to get our children’s future back—a future that they can be excited about, with a life filled with opportunities, prosperity and public services that work when they need them. The Bill is essential to deliver just that.
I am proud to stand here to champion a Bill that will create the conditions for long-term investment in my area. The huge amount of investment from big business that this Government have already crowded in is testament to the fantastic reputation our country has on the global stage—a reputation that the last three Prime Ministers nearly destroyed. While the Conservatives chopped and changed their leaders, Chancellors and policies, the markets, business leaders and global investors stepped back. They watched and waited to see if the new Prime Minister knew what they were doing, or if the next new Prime Minister had the backing of their colleagues. They watched and waited to see the new Prime Minister’s long-term vision for the country, but scandal after disastrous scandal led them to lose confidence—
Madam Deputy Speaker (Caroline Nokes)
Order. The hon. Lady should sit when I am on my feet. This needs to be a debate about the Finance Bill, not other matters, and certainly not a general debate on the Budget again.
Lola McEvoy
The Conservatives stopped answering the phone to Labour; the industry ghosted them; and then the country rejected them. But, on the Finance Bill, not 100 days into this new Labour Government, Britain is back open for business with billions of pounds of investment in green technology, new nuclear, solar and hydro projects being given the go-ahead, and a whopping £63 billion of private investment crowded in. Tough choices were taken to fix the foundations and to stabilise the economy—choices only necessary because of the incompetence, inertia and wilful ignorance of the last Government. To govern is to choose, and I am proud to have chosen to stabilise the economy, invest in net zero and energy independence, balance the books and begin to rebuild our public services, all in the service of working people. This House will pass the Bill; the economy will be stabilised; and every corner of our great country will be better off, and not a moment too soon.
Dave Doogan (Angus and Perthshire Glens) (SNP)
It is a great pleasure to have an opportunity to speak to the Bill. I would have thought it would be a pleasure enjoyed by many more people on the Government Benches. Last time I checked—it has been a while since I was at university—it was quite important to have constituents’ views heard on the Finance Bill and the Budget. It is scandalous how quiet the Government Benches are. We will have in the order of eight Labour speeches today, which is just unbelievable. If one were a Unionist, and I am not—[Interruption.] Was that an intervention? No, it was not. If I were, this would be an opportunity. The Government had an opportunity, with the mandate they had, to create a Budget for change, but this Budget will leave millions worse off.
The Budget last month had some moments of cheer in it, and I will touch on them now because it will not take long. There is scope within the Finance Bill for increased investment, which the SNP has called for. There is scope within the Budget for increased funding for the NHS all across the United Kingdom; again, the SNP has called for that, and it is welcome to see. Tackling the most elite of all the elites, the non-doms, is also welcome, as is the ambition to tackle the scourge of vapes.
Thereafter, though, we get into serious difficulty. I will start with the Bill’s clauses 15 to 18, a further and final attack on North sea oil and gas, Scotland’s natural endowment. The UK has drawn hundreds of billions of pounds from the North sea over the course of my lifetime, the past 50 years. It is almost as though the UK is addicted to it—so much so that it is going to kill the goose that lays the golden egg. The Government are hiking taxes, eroding allowances and driving investment from the North sea, including precisely the businesses that we need to drive the just transition to net zero in the places where we need them. What other state would attack one of its own industries in this way? It beggars belief. It will come home to roost in spades, and it will not shift the dial one bit towards the net zero future that we are trying to get to. The oil and gas that is being displaced from the Scottish sector by this Government’s ineptitude will be replaced by oil and gas from other jurisdictions, where the tax will be paid and where, doubtless, human rights are very much worse.
Clause 61 contains the universally detested provisions on agricultural property relief. The way in which this Government have manipulated the figures to justify this mendacious attack on one of the most noble professions anywhere in the world, and certainly across these islands, is simply unbelievable, as is the idea that 70% of farms will not be affected by these provisions. The fact that the Government habitually quote a circumstance in which two parents bequeath a farm at the same time—which almost never happens—shows that they themselves know that they are on shaky ground. If the problem is non-farming enterprises investing in the purchase of agricultural land in tax-efficient ways, tax that. That is what the Government should have had the bravery to do. There is no material enrichment from inheriting the family farm—other Members have talked today about the return on capital employed in farming being miserably low. It is as much a vocation as it is an employment, and we should never forget that the product of what farmers do feeds us all. It is ridiculous, single-minded, myopic nonsense from another dysfunctional, fiscally incompetent Labour Government who would not know which way up was if somebody did not point it out to them.
Because farms are a business, we can add the imposition across the economy of the increase in employer’s national insurance charges. If that were not enough, the Government have stuck the boot in on four-door pick-ups, turning them into family cars for taxation purposes. Pick-ups are the backbone of the agricultural economy, but it seems that nothing is off limits for this Labour Government when it comes to sticking the boot into agriculture. What Government seriously take on the people who produce our food? I remind the Government—I am guessing, but I am pretty certain that they will not know—that malting barley is the prime ingredient in the Scotch whisky industry, which again produces billions for the UK Exchequer.
Harriet Cross
On the topic of the Scotch whisky industry, does the hon. Member agree that increasing the levy by 3.65%, so that a bottle of whisky now has £12 of tax added before it is even out of the door, is another attack on one of Scotland’s main industries?
Dave Doogan
I could not agree more with the hon. Member. That is absolutely right, and I am going to touch on that topic a little later.
We see in clause 75 that the rates of landfill tax are going up by 25%. I wonder what discussions Government Ministers have had with local authorities on the impact of this increase. It would be just like this Government to not have put two and two together and realised that it will be a significant upward pressure on costs for councils.
Clause 78 deals with high-sugar drinks. A public health emergency exists in this country—in this state—and the Government are proposing to increase the tax on high-sugar drinks from 24p per litre to £2.59 per 10 litres. That is scarcely an increase at all. A tax of 24p per litre is going up to 25.9p per litre, an increase of 1.9p per litre. We do not sell sugary drinks in litres, we sell them in 330 ml cans, so that is an increase of 0.6p per can. Are the Government kidding? It is a public health emergency—the clue is in the title. Have they got no ambition at all?
This Bill, and the Budget that led up to it, will impose billions of pounds of tax rises and cuts that will hit working Scots in the pocket. We see our old folk freezing in their houses as a result of this Bill and the Budget that underpins it. As a result of the Bill, young people will be chasing fewer and fewer jobs with lower and lower wages. The CBI said this week that the tax rises in the Budget had sent businesses into “crisis containment” and “damage control”, because this Chancellor’s £40 billion raid on businesses is the single biggest tax increase since Norman Lamont’s in 1993. The Chancellor’s decisions hinge on 2% departmental efficiencies that will never ever be realised—we know this because it has never ever been done—so further cuts are coming down on top of these taxes.
This is pure fiscal poison for communities and businesses across these islands. The Government are inflicting the same pain on the Northern hotel in Brechin, Perthshire Timber and Montrose port as they are inflicting on Nissan and Tesco. I am not implying that it is fine for big business and bad for small business; this is a “one size fits nobody” Finance Bill, and the Budget that goes along with it is the same. The clawback that they are applying to the devolved nations, which the Exchequer Secretary would not speak about earlier, does not come close to meeting the cost of the national insurance increase. There is £300 million of compensation for the Scottish Government, who are facing a £750 million exposure, and that is the nature of what this Government are doing. What of the reward for this fiscal pain? Lower growth in the economy, lower profits, increased debt, lower investment, lower wages, falling output, capital flight and the risk of default as the ultimate conclusion. It is almost as though the Chancellor has forgotten that her job is to run the economy, not ruin the economy.
This would be a matter for separate debate—I know that, Madam Deputy Speaker, and I do not want to test your patience—but the raid on employer’s national insurance will devastate small businesses, charities and the care sector. It will cost Scottish public services—the public sector with direct employees in Scotland— £600 million, and when we include the partner agencies working with our NHS and our care services, that figure will be very much higher. Supermarkets and other retailers have also said that the inevitable result of the Chancellor’s changes will be higher prices for consumers. The Government make great play about not raising taxes, but it amounts to the same thing when wages are suppressed and prices are going up.
As the hon. Member for Gordon and Buchan (Harriet Cross) mentioned, the duty on Scotch whisky has been hiked in this Bill, which the industry has called an “indefensible tax grab”. This was despite Labour’s leader in Scotland—for Labour Members’ interest, he is a gentleman called Anas Sarwar—claiming that he spoke to the Chancellor about it. I would be very interested to know about that conversation, but perhaps it was: “Is it okay if I hike up duties, Anas?” with the reply, “Yes, no bother, Chancellor. You carry on.”
One of the glaring omissions in the Bill is any provision for the WASPI women. It is of course welcome that the Budget will address the great impositions put on people affected by the infected blood scandal and on postmasters. However, those were caused by the Post Office, or the NHS and others, whereas the WASPI women issue was caused by the UK Government. That great tragedy was caused by the Government, yet it is the one that is not addressed in this Bill or in the broader Budget.
It is therefore little wonder that polling in Scotland last week showed that 75% of Scots feel they are going to be worse off, or certainly no better off, as a result of the Budget. Since the Chancellor delivered her Budget, supermarkets, farms, pubs and telecom providers have all warned that these decisions will be inflationary.
Sarah Edwards (Tamworth) (Lab)
Does the hon. Member think it was fiscally responsible for the SNP Finance Secretary to have used all of the £460 million from offshore wind? He has spoken a lot about this Government, but does he think that that was appropriate?
Dave Doogan
To my great regret, I am not entirely sure what the hon. Member is talking about. If she would like, I am very happy to catch up with her afterwards. We can find out exactly what is concerning her, and I will make sure she has all the facts she needs.
Just when mortgage payers thought things were going to stabilise and that the worst of the last UK Government’s fiscal incompetence was over, the major banks have been talking since the Budget about an increase in the rates they are able to offer.
Many hon. Members have talked about what was said before the election, and what has come to pass after it, but during the election the Prime Minister promised that there would be a £300 reduction in energy prices. We have seen that that is not the case, and that energy prices are £149 higher and will go up by £21 in January. There is a £470 honesty tax on energy bills across the United Kingdom as a result of what people were told was going to happen before the election, and what has come to pass at the hands of this Labour Government.
Dr Scott Arthur (Edinburgh South West) (Lab)
The hon. Gentleman talks about honesty. It sounds like he has read our manifesto, so did we say that we would reduce energy prices by November 2024? Did we say that we would raise the minimum wage, and did we do it?
Dave Doogan
I am pleased with the hon. Gentleman’s intervention. I can only assume he was a used car salesman in a previous life. We need to read the small print from Labour: “We will reduce your energy bill by £300. Terms and conditions apply.” Honestly, you couldn’t make it up—[Interruption.] I think they are probably speaking to the hon. Gentleman, rather than me, Madam Deputy Speaker.
Things do not end with the honesty tax I mentioned. This is a serious point, because 900,000 pensioners in Scotland will be stripped of their winter fuel payment in the coldest part of these islands, without so much as a by your leave to the Scottish Government—
Dave Doogan
No, I will not—we have touched on a number of issues there. In closing, earnings are set to grow by just 1.6% in real terms over this Parliament as a result of the Bill and the Budget that goes with it, and that will extend the UK’s long pay stagnation. The Resolution Foundation has found that
“By 2028, average weekly earnings are set to be just £13 higher than they were in 2008.”
Furthermore, the Institute for Fiscal Studies states:
“Labour’s spending plans after 2025-26 are unlikely to survive contact with reality”
Those are—[Interruption.] I will take an intervention from the hon. Member for Edinburgh South West (Dr Arthur) because he has goaded me.
Dr Arthur
The Government have taken the difficult decision to means-test the winter fuel allowance and protect the poorest pensioners, but my understanding is that that is a devolved power in Scotland. The Scottish Government could have made the decision to use the resources they have, perhaps from wind as was discussed, to extend the allowance to more pensioners in Scotland, but they did not. They decided to enforce that cut in Scotland when they could have taken a different path, particularly given the additional uplift of money that has come from this Budget.
Dave Doogan
I do not know the hon. Gentleman. I have never set eyes on him, but I will make the assumption that he is a Scottish Labour MP. I do not know who he is, because he has only just appeared in the Chamber, despite the fact that we are two and a half hours into the debate—[Interruption.] We have heard a lot from the hon. Member for Barking (Nesil Caliskan) as well. The hon. Gentleman asks me what the Scottish Government will do about the winter fuel payment, so let me tell him for the next time he is an apologist for the United Kingdom. The Labour Government devolved control over the winter fuel payment, and then effectively took the budget away by cutting it for pensioners elsewhere in the United Kingdom. That is the trap of devolution. He does not want to see it, but I can see it fine. I do not know it, so I do not know how he knows what the Scottish Government will do regarding the winter fuel payment, and what targeted support they will provide in the winter ahead. One thing for sure, however, is that whoever in Scotland is standing up for pensioners, it certainly will not be the Labour party.
In closing, it is no surprise that the Bill and the Budget hold nothing but pain for communities, services and business in Scotland. Labour takes Scotland for granted. The Labour Government even ignore representations from their Westminster apologists with Scottish constituencies who sit on their own Benches. This is another tragic Budget for Scotland, and another push factor inexorably moving us closer to independence—at least the Budget is good for one thing.
Connor Naismith (Crewe and Nantwich) (Lab)
I congratulate my hon. Friend the Member for South Derbyshire (Samantha Niblett) on a fantastic maiden speech. I am sure that her expertise in the tech sector will be an asset to this place.
I welcome the ability to contribute to the debate on the Finance Bill. I am wholly supportive of the measures announced in the Budget that form the legislation. After 14 years of Conservative mismanagement of our economy and the country, the public spoke on 4 July and gave a clear mandate to repair the dire circumstances we found ourselves in that left my constituents footing the bill.
The electorate knew and showed at the ballot box that they were in dire need of a grown-up Government that would not shy away from the hard decisions. We have heard many contributions from Opposition Members setting out the things they do not like about the Budget. If they support the benefits of the Budget, we have not heard much about how they would fund those measures or what they would cut.
My constituents voted for a Government who would finally ensure, after years of failure, that we would grow our economy, lower the tax burden on working people and restore the fantastic public services that once upon a time made this country a world leader. My constituents understand that there are difficult decisions to be made. They know that government is about making choices and deciding what country we want to be in the future. They made their decision at the ballot box, doing away with the Conservatives.
My constituents chose to no longer be a country with crumbling roads, a country that dipped in and out of recession, a country with low investment ultimately steered by the hands of the Conservatives in a chaotic fashion that clobbered their living standards. They voted for Labour, and with that they decided that they wanted to live in a country with monumental investment in its national health service, which will reduce waiting lists—we are already seeing the benefits of that—and rebuild key hospitals such as Leighton hospital in my constituency. They want to be in a country where their work is rewarded fairly and where minimum wage increases will put £1,400 a year into their pockets. Not only that; they want to live in a country—
Madam Deputy Speaker (Caroline Nokes)
Order. I am going to make the request that I have made at least twice—this could be third time or the fourth. Please can Members debate the Finance Bill’s Second Reading, which is what we have on the Order Paper this afternoon? This is not a general debate on the Budget. We debated the Budget several weeks ago and we cannot keep covering old ground.
Connor Naismith
My apologies, Madam Deputy Speaker. I am about to move on to points covered by the Finance Bill.
My constituents want to live in a country that levels the playing field and ensures that working families have as much opportunity at all stages of their life, regardless of their postcode or their background. That is why I support the Government’s decision to end VAT relief on private schools, aiming to equalise educational opportunities. I know that many families work hard to send their child to private school, but I have never met a constituent who does not work hard just to make ends meet, and their children also deserve the very best education that our country can provide. [Hon. Members: “Hear, hear!”] Conservative Members say “Hear, hear!” but we do not often hear them advocating for state schools.
Simon Hoare (North Dorset) (Con)
As a former state school pupil with three daughters in a state school, let me assure the hon. Member that, despite the caricature that sometimes he and others like to paint, not all Conservative Members are privately educated. I say to him quietly that it is not a choice of either/or; we want to see excellence and choice in education right across the board. It is not one against the other.
Connor Naismith
I thank the hon. Member for making that intervention. He says that it is not a choice between one and the other, but for 14 years under the previous Government we heard his side talk about state schools having to make difficult decisions and tighten their belts. As the husband of a state schoolteacher, I know that our state schools were severely underserved by the previous Government. The money generated by ending the VAT relief on private schools will be vital to recruit the 6,500 more teachers that we need in our state schools and to roll out free breakfast clubs across the country, to ensure that no child in education goes hungry.
Damian Hinds
Does the hon. Member know how many additional teachers were recruited in the last Parliament without putting VAT on private education? Does he know how many breakfast clubs are already in state schools in this country? There are thousands of them, thanks to the national school breakfast programme.
Connor Naismith
We have heard lots of contributions from the Opposition Benches about the fantastic record of the previous Government, but that does not stand up to the lived reality of our constituents. That is exactly why we saw the result that we had in the general election. The sooner Opposition Members come to terms with that result, the better.
Connor Naismith
I am sorry, but I have given way several times already.
I welcome the Government going even further in the Bill to level the playing field and ensure that those with the broadest shoulders take the heaviest burden. That is why we need the legislation to close loopholes such as the non-dom status, change the furnished holiday lettings tax regime and provide more resources to HMRC to tackle the tax gap. That will help us address the financial black hole that the Conservative party clearly had no regard for, claims does not exist and has failed to apologise for. The Bill will allow us to fix what the Leader of the Opposition admitted today were broken foundations. I believe that the Government’s Budget and the Bill will be a vital starting point on a long road to recovery for this country. I commend the Government for their work and support this Bill’s progression through the House.
Dr Neil Shastri-Hurst (Solihull West and Shirley) (Con)
May I start by congratulating the hon. Member for South Derbyshire (Samantha Niblett) on her excellent maiden speech? Not only will her daughter have been inspired by her words, but so too will countless other young women.
I must declare a personal financial interest in relation to independent school fees. I want to start by telling a story of aspiration, sacrifice and hard work. This story was told to me by a parent who is going into Christmas feeling devastated. They have worked tirelessly, missing valuable time with their child, and sacrificing holidays and any form of luxury because of an aspiration to give their child an education that otherwise would have been out of reach. This parent said to me, “I am not a rich person; I hustle every day to make the money I need to send my child to this school.” This parent will now see all those sacrifices come to nothing, as her child faces the upheaval of moving schools in the middle of the academic year.
Let us imagine that child’s first day in their new state school, their school year having been disrupted, and their efforts to catch up on the missed learning as a consequence of being forced to change schools part way through the academic year. They join 35,000 other students across the country who are expected to do the same as a consequence of this policy. Their classroom sizes swell as the promise of 6,500 new teachers remains years away from becoming a reality, and the school struggles to stretch its existing budget to accommodate the new intake. There are not enough textbooks, computers or teachers.
Let us imagine the child with special educational needs and disabilities. Their routine having been overhauled, they start to fall behind in their class. Despite the very best efforts of their teachers, who want to provide the extra support so desperately needed, they simply do not have the bandwidth. The consequences of that are children’s future prospects slipping through their fingers every day, because the school they now attend has not been adequately resourced for the arrival of them and their fellow new classmates.
Imagine being the parents of these children. They are not rich; they just want the best for their child. As a consequence of one ill-conceived, ideologically driven policy, that dream has been snatched away, with no consideration of the impact it will have on families, on schools and on teachers, who will be left redundant.
While the Government speak of a hope to bring aspiration to all, their policy to charge VAT on independent school fees will do the precise opposite. It will not deliver high standards across the board. This is not a policy that lifts up; on the contrary, it will deliver the worst for all children. It is the very definition of levelling down.
A Government cannot be expected to get things right all the time, but it is not unreasonable to expect a Government to recognise when they have got something wrong. It is not unreasonable to expect a Government to hold up their hands and to pause, reflect and recalibrate. If the Government’s true endeavour is to bring about policies for positive change, they must be willing to recognise when they need to change course, and this is that moment. I ask the Government to demonstrate some moral courage, admit that they have erred and abandon this policy of folly.
Nesil Caliskan (Barking) (Lab)
The Budget that was presented to the House will turn the page on what has been a chaotic few years under the last Government. It is also an opportunity for my constituents to welcome a Budget that demonstrates a responsible Government who will take tight fiscal rules seriously. The truth is that economic growth comes when there is financial stability, and the first step towards financial stability is to ensure that the books are balanced.
This Budget protects working people from higher taxes in their payslips and provides an increase in the national minimum wage, which my constituents will absolutely benefit from. It speaks volumes that the majority of the time spent by Opposition Members has focused on a subsidy that used to exist for private schools and now does not because this Government are ensuring that we invest in the state sector.
Nesil Caliskan
No. I can tell those Members that when additional money is spent on the state sector, it improves the life chances and opportunities of my constituents.
Jerome Mayhew
I am grateful to the hon. Lady for giving way. Could she identify which subsidy she is talking about?
Nesil Caliskan
I am talking about the VAT relief that existed for private schools. [Interruption.] Yes, it was a subsidy. Politics is full of choices, and a Government’s first responsibility is to ensure that they balance the books. If a Government are responsible, they will invest in decent public services and create conditions for economic stability. I want to concentrate on that final point for a moment. We have heard remarks from Opposition Members on small and medium-sized businesses; I say to those Members that when I speak to local businesses in Barking, they say that the economic instability over the past few years is what has created pressure for them.
I welcome, in particular, the Government’s tax announcements on non-dom loopholes. The Government changing the residential base means they will increase revenue by almost £13 billion. The rate changes on capital gains mean we will maintain our position as having the lowest capital gains tax of any European G7 economy. These measures are a collection of decisions that show we are prioritising investment in public services, alongside an absolute commitment from the Government to create economic stability to achieve the future growth that this country deserves.
Harriet Cross (Gordon and Buchan) (Con)
I will speak about the impact of the Government’s changes to the energy profits levy on people and businesses in my constituency, and on the UK as a whole, in terms of the energy security the Government are meant to ensure and the Government’s ever-more ambitious decarbonisation targets, which are being put at risk.
The Chancellor’s decision to increase the EPL rate to 38% and extend it to 2030, while also removing investment allowances, demonstrates a fundamental misunderstanding of our energy sector—indeed, the global energy sector—and the communities here that depend on it. According to Aberdeen and Grampian chamber of commerce, 100,000 energy-related jobs across the UK, but disproportionately in Aberdeen and Aberdeenshire, are being put at risk because of the changes. The OBR’s figures project that capital expenditure will fall by 26%, with oil production down 6.3% and gas production down 9.2%. For businesses across my constituency, that means fewer contracts, reduced investment and diminishing opportunities. Or to put it another way: fewer jobs, fewer prospects and more redundancies.
What is incomprehensible about the changes to the EPL is that they make no economic sense. Studies by Offshore Energies UK show that the changes will cost the Treasury £12 billion in lost tax revenue—£12 billion. If the Chancellor is so convinced that she is in a hole, maybe not digging deeper would be a good idea. The OEUK put that down to a rapid decline in production due to under-investment. While we are still going to use oil and gas for years to come, the Government are therefore choosing to take it from overseas producers where there are low environmental credentials and worse employment standards, rather than from the UK where we will be able to increase employment, secure employment, help our tax revenues and secure our economic growth both locally and nationally.
Labour’s changes in the Budget will see a wholly punitive regime, with the effective tax rate being 78% on oil and gas companies—the highest of any comparable off-sea mature basin. What other industry in the UK would be expected to deliver something as fundamental as our heating, lighting or transport fuel—indeed, energy to ensure the NHS can operate and schools can run—while also being taxed to such an extent that the Government are driving away investment in a sector so crucial to our national security?
What is particularly concerning about the EPL is the impact on home-grown energy businesses. These are not global multinationals that are often used as examples of the energy giants who make massive profits; companies that can and do buffer the impacts of EPL by increasing their overseas investments and reducing their investments in the North sea. Instead, this policy hits hardest the companies that have emerged and grown out of north-east Scotland, employing local people, supporting local supply chains and helping our local economies.
Harriet Cross
I thank the hon. Gentleman for his question. We must remember that investment allowances have now been reduced and taken away. Increasing the EPL by a further 3% while decreasing investment allowances makes the North sea a really difficult place to invest in.
Dave Doogan
Apache has announced that it is set to pull out of the North sea basin. How does the hon. Lady think that announcement relates to the fiscal decisions of this Government? Does she think that it is inextricably linked to this Government’s ambitions for North sea oil and gas, and their failure to fully understand how the industry works?
Harriet Cross
The fact that Apache’s announcement came within a week of the Budget speaks for itself when it comes to the question of the final straw that broke the camel’s back.
As I was saying, the energy profits levy has the greatest impact on our local, home-grown businesses. It is turning the lights off in the very businesses that we should be supporting and championing. By removing investment allowances, the Government are forcing companies to scale back their North sea projects, thereby increasing our reliance on expensive imported energy from overseas.
North-east Scotland is already leading the charge on renewable energy. We have hydrogen projects in development, wind farms off our shores, and expertise that could and should position us as a global leader on clean, renewable energy technologies. However, a rushed, ill-thought-out transition—to which the EPL contributes—will undermine our efforts. The skills of our oil and gas sector are precisely what we need in order to deliver a sustainable transition. The companies that will be penalised by this levy are the ones that we need to invest in green technologies. Just yesterday I met developers of floating offshore wind farms, and I asked them about the EPL. They hope that one of their projects will involve collaboration with an oil and gas field; the floating wind farm will help to decarbonise the rig, and in return, the oil and gas producer will help to fund the cabling back to shore. However, now they fear that the increasing and extended EPL will jeopardise the oil and gas company’s ability and willingness to invest.
This Labour Government are turning what was a windfall tax into a permanent feature of our tax system, creating long-term uncertainty that will drive investment away from north-east Scotland. The energy profits levy is a blunt instrument, not a balanced strategy. The Government must listen to industry experts, local businesses, and communities like mine in Gordon and Buchan. We need a competitive, open business environment that attracts investment and will support our energy transition, while protecting jobs and supply chains and securing our energy supplies. The nation’s energy security depends on it.
Kanishka Narayan (Vale of Glamorgan) (Lab)
It is a pleasure to speak while you are in the Chair, Madam Deputy Speaker. It was also a pleasure to hear the brilliant maiden speech from my hon. Friend the Member for South Derbyshire (Samantha Niblett). We are colleagues and partners in crime in the cause of technology. I know that she has a glittering career in front of her, and I look forward to witnessing it.
In view of the instruction from your predecessor in the Chair, Madam Deputy Speaker, I studiously read the Budget briefing from the House of Commons Library, which explained the history of the Finance Bill. Broadly, that history commends this country’s stability and its financial institutions—broadly, but with one great blip. Let me start by recognising the context of the Bill: the wreckage from which we emerge—the wreckage of the “growth plan”, as the Conservatives called it under their Prime Minister Liz Truss. The briefing, for which I thank the Library’s staff, tells us that not setting out the prospective flow of a Finance Bill from that was a total aberration. From the wreckage, however, has come the return of stability.
In fairness, I recognise that at the time, the present shadow Chancellor—the right hon. Member for Central Devon (Mel Stride)—called the party leader out. He said that she was “flying blind”, and others were following her blindly. It seems that blind flight is contagious on the Opposition Benches today. The right hon. Gentleman talks about opposing, about being the party of “no” rather than the party of government. He did not tell us how he would fund public services; he did not tell us what taxes he would raise if he opposed all of ours. I am conscious that he also once called the pension triple lock “unsustainable”. This is not someone to be trusted with government or with opposition.
I note that the right hon. Member for East Hampshire (Damian Hinds) has just left the Chamber, having said that he was not interested in choosing. He stands for the 100%. As my hon. Friend the Member for Darlington (Lola McEvoy) said, to govern is to choose. To avoid choice is to play the fantasy politics of opposition, and I am glad that the right hon. Gentleman has found the warm Benches opposite.
Dave Doogan
The hon. Gentleman says that the Tories have no plan for public services. I accept that the Labour Government do have a plan, but it is completely unbelievable, so where does that leave us?
Kanishka Narayan
May I recognise, with warm comfort, the traditional place of the Scottish nationalists as total enablers of Conservative Governments? The hon. Gentleman talks about fiscal credibility. May I point out the absolute wreckage of the Scottish Government, who have wasted almost half a billion pounds of offshore wind proceeds on day-to-day spending because of their fiscal mismanagement? If he is taking tutorials alongside the Conservative party, may I ask him to invite his colleagues in Scotland to them? Those will serve them very efficiently.
From my experience of the City of London, and of investing in this country and abroad, the broad lesson I have learned is that finance is always contingent, but the fundamentals matter. For that reason, the Bill has to be seen in the context of what it enables. Where the Conservatives treated the working people of this country as their cash machines, we are protecting payslips. Where they did not support healthcare in this country and wrecked the waiting list system, as I experienced growing up in this country, we are supporting the NHS. Where they slashed public investment and took cowardly decisions across their Finance Bills, we are investing in our future.
I want to mention a proposal in the Bill that is close to my heart: the relief on draught duty, which will affect the Lamb and Flag in Wick, the Three Golden Cups in Southerndown and, closest to my heart, Finnegans on Barry Island. When the “Gavin and Stacey” Christmas special is shown, I will make sure to make the most of the draught duty relief—particularly at Finnegans, but across the Vale of Glamorgan.
Let me return to the choice at the heart of this Bill. As the Treasury’s distributional analysis shows, the overall context of what we have done, both in the Bill and more broadly, is that 90% of households in this country will be better off. That is the amazing distributional context, after 14 years of what we experienced under the Conservative party.
What a daffodil-laden Budget we have! The Bill offers the biggest ever budget settlement for Wales; it means £1.7 billion for Welsh public services. Some 70,000 minimum-wage workers in Wales will be better off. There is £100 million for our coal and steel communities, and a timely £25 million of support for coal tips. For the daffodil-laden Budget and the Bill that undergirds it, I am very grateful to the Chancellor.
Chris Coghlan (Dorking and Horley) (LD)
It is a pleasure to speak in this debate as a member of the Treasury Committee. After suffering the highest fall in living standards since records began, the United Kingdom desperately needs economic growth, yet the OBR forecasts that the policies in the Government’s Finance Bill and Budget will have no impact on growth over the next five years. The recessionary impact of the tax rises, combined with a focus on current spending that crowds out the private sector, largely offsets the fiscal stimulus of one of the largest fiscal events in recent decades, and of borrowing an extra £32 billion a year.
There are potential upsides to the growth forecasts in the Budget, mainly from the impact of planning reform, but this Budget and Finance Bill are a missed opportunity for growth. That matters, because there are chronic structural problems in the British economy that we must address. Indeed, given that public sector net debt is now approaching 100% of GDP, the Government’s ability to borrow to invest in the future, or to cope with an unforeseen shock, is severely constrained.
Many Labour Members have spoken about the importance of public investment, which I agree with, so I would like to address the following points. Since the 2008 financial crash, the UK economy has been hampered by productivity growth collapsing to 0.6% per year—the second worst in the G7. Unless and until we solve the productivity crisis, the UK will not escape its downward economic spiral of higher taxes, an ageing population, ever crumbling public services and ever higher debt. A key cause of that is chronically low public and private investment. In 24 of the last 30 years, the UK has had the lowest total investment of any G7 economy, yet as the OBR testified, under the Budget, public investment will remain flat as a share of GDP, so the Budget is unlikely to help solve the productivity crisis. This is why the OBR is forecasting that for every £1 borrowed by the Government, the economy will grow by only 60p next year, and that these effects will reverse in five years.
Mr Luke Charters (York Outer) (Lab)
The hon. Gentleman knows that I hold him in high regard, but I am slightly perplexed because he welcomes this Government’s investment in public services, the NHS and so forth, yet his colleagues oppose many of the revenue raisers in this Finance Bill—and perhaps he does, too. Can he help me square that circle?
Chris Coghlan
As the hon. Member will know, the Liberal Democrats have alternative measures for raising those revenues, but my fundamental point is that, yes, I welcome public investment, but it is flat in the Budget; it is not enough, in my view, and furthermore, it is not focused on the right areas.
By contrast, economists have found that optimal forms of public investment are able to raise GDP by £1.50 for every £1 invested. The best public investments for raising economic growth are investments in intangible capital such as knowledge, research and development, patents and licenses. That can bring greater gains in productivity because knowledge can build on existing knowledge, and it can crowd in private investment, as it lowers the financial risk of participation for private investors.
Indeed, the most effective form of R&D is targeted on a specific goal. For example, the Kennedy Administration in the ’60s had stunning success in increasing US productivity and growth by having the very specific goal of the moon landings. I was excited to see that R&D to solve targeted problems was in the Budget, on page 76, but then I saw that of the £70 billion in spending in the Budget, only £25 million will be spent on the best type of R&D to drive economic growth. That is about double the budget of my local district council. That is not really appropriate for the world’s sixth-largest economy.
We stand on the cusp of a new industrial revolution in artificial intelligence, and this country has just one chance to gain the first mover advantage, and to harvest the productivity gains and growth that could result. Indeed, combined with innovations in the life sciences and climate technology, which are mentioned in the Budget, this could be our route out of this downward economic spiral, yet in the 164-page Budget, the words “artificial intelligence” appear once. I call on the Government to redouble their efforts on public investment and R&D, because I would like to live in a country that has the resources that it needs to provide opportunities for our citizens, and this Budget is a missed opportunity to do that.
Mr Luke Charters (York Outer) (Lab)
My hon. Friend the Member for South Derbyshire (Samantha Niblett) has left the Chamber, but I praise her for her maiden speech. I am pleased to speak on this Finance Bill. It underpins the first Labour Budget in 14 years. It also raises the revenue that this country needs in order to recover, rebuild and renew. I will not spend ages talking about the Conservatives and the mess they have made, but—cue groans from Conservative Members—we all know about the £22 billion black hole, the mini-Budget and their reprehensible record on public finances.
However, I want to take a moment to praise the shadow Chancellor, the right hon. Member for Central Devon (Mel Stride), because I genuinely enjoyed his astronomy references. It is just a shame that he is not quite on planet Earth when it comes to recognising that we need to not only invest in public services but pay for them—the vehicle for that being this very Finance Bill. Even while this Government are tackling the Tories’ toxic inheritance, we are, through this Finance Bill, protecting payslips, when it comes to income tax and employee national insurance.
Let me get on to other key measures in the Bill that I welcome. Measures on tobacco duty, non-dom tax status and the oil and gas windfall mean that public services in my constituency of York Outer will be all the better off. Let me start by talking about the NHS. This week, I met Yorkshire Cancer Research to talk about the vital work that it does. As we discussed on Second Reading of the Tobacco and Vapes Bill yesterday, the tobacco duty increase will act as a deterrent to smoking, and it will save lives. Taken together, these measures are important to changing habits, but the tobacco duty increase will also raise extra cash to fund our NHS.
Primary care services such as the York Medical Group, which I recently visited, and York hospital will undoubtedly welcome extra investment. I certainly welcome it, as a parent who recently had to wait many hours in York A&E with a screaming toddler after a trapped finger. It is vital that we get the NHS back up and running for constituents like mine. One constituent has been waiting seven years for surgery. Let that sink in: it is half the time that the Tories were in power. I am clear that this Bill raises the revenue to put the NHS on a much surer footing.
Dr Luke Evans
The hon. Gentleman is a conscientious Member of Parliament, and I understand what he is saying, but does he accept that, in the words of a former Labour leader, we invest in public services with the proceeds of growth? When he stands for re-election, will he tell his constituents that he advocated for a Budget to cut growth in his country?
Mr Charters
That is slightly laughable, if I may say so as an affable Yorkshireman. Things like the national planning policy framework will drive growth, and some of these measures were not included in the OBR blue book. This pro-growth Government are doing so much for growth, so I find the hon. Gentleman’s question slightly perplexing.
The Bill will abolish the non-dom tax loophole and replace it with a residence-based regime. I had a look, and this change will raise £12.7 billion. Just last week, the Transport Secretary kindly visited me and the Mayor of York and North Yorkshire to announce £12.7 million of funding for our buses, which will transform our region. My quick maths shows that closing the non-dom tax loophole will pay 1,000 times more than that sum, which is the difference this Bill will make.
I will soon be having my office Christmas do. I am sure there is a joke to be made about liquid assets, but I recently visited Elvington brewery, and this Bill rightly cuts alcohol duty on draught products. That is wonderful news for our Yorkshire pubs. I need to declare an interest for myself and my hard-working team, because these measures mean that we are looking forward to enjoying a cheaper pint of the wonderfully named Fairytale of Brew York, which will be launched by Brew York over the festive period. Conservative Members back investment in our public services, but they do not support the revenue raised by this Bill. Perhaps they have been having too many fairytale economic pints.
The VAT increase on private school fees will bring in £1.7 billion a year, which will go directly to schools like those in York Outer. The Budget announced a £1 billion uplift for SEN provision and a £2.3 billion increase in the schools budget, which will make a huge difference to places like Applefields school and Manor Church of England academy.
I have also visited Askham Bryan college, a fantastic agricultural college in York Outer. Its great students, who are studying T-levels, will benefit from £300 million of extra funding for colleges, directly stemming from this Finance Bill. While making some proportionate tax rises in the Budget, we have maintained our position of having the lowest capital gains tax in Europe. We have struck the right balance, because we will have extra cash for our schools, and it is a real lifeline.
For all the Conservatives’ obfuscation, we have actually kept so many of our manifesto promises, one of which was to deliver a windfall tax on oil and gas companies—a policy so good that the Conservatives stole it when they were in government. The additional revenue raised by the EPL will help us to set up GB Energy, which will deliver for the British people by delivering the green jobs of the future.
May I briefly refer to the first Bill I ever spoke on in this House, which is now the Budget Responsibility Act 2024? I said the Bill was important because it was
“the only way we can grow those public services with a stable economy.”—[Official Report, 30 July 2024; Vol. 752, c. 1253.]
That is as true now as it was back then—[Interruption.] I hear grumbles from the Opposition Benches. Conservative Members do not seem to think that economic stability matters when it comes to investing in public services; they certainly know quite a lot about economic instability. This Government have been tasked with ripping out the rot following 14 years of chaos. The Bill helps to fix the foundations by providing the revenue to restore public services in York Outer and beyond.
Jerome Mayhew (Broadland and Fakenham) (Con)
We are debating the Finance Bill following an election. In usual times, such a Bill would enact what was said in the winning party’s manifesto, but not this time. On the electoral trail, all the Labour Members who are now Ministers repeated what was said in the Labour manifesto time and again: their plans were “fully costed” and “fully funded”. They repeatedly said that they had no plans to raise taxes beyond VAT on private schools or to increase public borrowing. The manifesto said, in bald terms, that
“we will not increase National Insurance”.
There was no qualification to that—it was there in black and white.
It is extraordinary that we are debating a Finance Bill that has no correlation to the manifesto that it comes after. The electorate were profoundly misled. The reality is that the Labour party is increasing spending by more than £70 billion. Labour Members use the argument of their fantasy black hole, which has been thoroughly debunked by the independent Government body, the Office for Budget Responsibility, the independent IFS and the Financial Times. No one believes Labour, because that black hole is not there. It is not a black hole; it is more like a red herring.
The reason for that red herring is that Labour needed it as the excuse to do what it always intended to do—put up taxes and increase spending on public workers. Why did it do that? Because Labour Members—all of them— knew that if they had been honest with the electorate and told them that Labour was going to be a tax and spend party, no one would have voted for them. Even then, only 34% of the public did. It was a big con on the electorate. That is why we have a petition live on the Government website that says:
“I believe the current Labour Government have gone back on the promises they laid out in the lead up to the last election.”
As of this afternoon, 2.75 million people have signed that petition because they feel misled by this Government.
Tom Hayes (Bournemouth East) (Lab)
The Budget provided £2.6 billion for education, £1 billion for SEND, £22 billion for the NHS and several billion more for things like councils. Would the hon. Gentleman’s constituents in Broadland and Fakenham welcome the contribution of those funds to the NHS, schools and councils, or would he not like that investment to go into his constituency?
Jerome Mayhew
There were a number of points in the hon. Gentleman’s intervention. First, how much money should be spent? Secondly, what should it be spent on? And thirdly, where should we get it from? I will go straight to the heart of where we can get the money from: if we return public service productivity back to 2019 levels, there are tens of billions of pounds to be saved; if we return the size of the civil service to the 2019 level, before the big covid expansion, there are tens of billions of pounds to be saved; and if we return welfare spending on disability back to pre-covid levels, which my right hon. Friend the Member for Central Devon (Mel Stride) was in process of doing before the general election, there are tens of billions of pounds to be saved.
Jerome Mayhew
In a moment. If we add that all up, there would be £50 billion that could be spent on the frontline. However, the problem with the Labour party is that it takes money and spends it on inflation-busting wage rises for its union paymasters, but not on increasing and improving the outcomes for the people who use services. That is the big difference between the Conservative party and the Labour party. The focus of our spending is not the people providing the services; we are for the people who use those services—the people of this country.
Paul Holmes
My hon. Friend is making a typically eloquent and excellent speech. I challenged a number of Labour Members to outline that public services can be invested in if, in addition to some of the tax-raising mechanisms they have chosen, we have economic growth. Will my hon. Friend outline how much growth has been cut by under the Government’s proposals compared with ours? Am I correct in thinking it is 0.7% over the Parliament?
Jerome Mayhew
My hon. Friend is entirely correct: over the course of the forecast period, the Office for Budget Responsibility estimates that growth will be cut by 0.7%. It is worse than that, however, because we also have an increase in taxes on businesses of £25 billion through the national insurance contributions, which the OBR tells us will be paid for overwhelmingly by reduced pay for workers, amounting to £7.5 billion. It also forecasts that more than 50,000 full time-equivalent jobs will be lost as a result of the policies that Labour Members plan to vote for.
Kanishka Narayan
The hon. Member keeps talking about his Government having been in the process of making a mark on productivity. Having left us with the worst productivity slowdown in 250 years, will he tell us how long the process would have taken?
Jerome Mayhew
The hon. Gentleman’s intervention was not on the point that he rose for, but there is one thing that he does not mention, and that is the covid impact. [Interruption.] Hon. Members can laugh about it, but we spent £400 billion supporting the economy and the people of this country in a once-in-a-century impact on our economy.
Paul Holmes
Does he agree with me that there seems to be a collective amnesia among colleagues on the Labour Benches? If we had taken their advice during covid, when we were making reasonable decisions, not only would we have seen the longer lockdowns that the now Prime Minister was calling for, but more economic damage, which they now deny ever happened in the first place.
Jerome Mayhew
My hon. Friend is absolutely right, and there is a point worth making here. Since covid, the private sector has improved productivity by about 6%. Productivity in the public sector has yet to improve, although before the general election it was starting to do that.
Jerome Mayhew
I will not. I want to make some progress because I have been quite generous in giving way.
The OBR says that more than 50,000 jobs will be actively lost as a direct result of the decisions Members on the Labour Benches are about to take. I think that is an underestimate. I have been talking to businesses in my constituency of Broadland and Fakenham over the past few weeks and, as a former entrepreneur, I have been taken aback by quite how badly the tax and spend decisions of the Labour party have gone down with my small and medium-sized employers. Their accounts to me suggest that those choices are affecting their decisions on employment, and particularly on employing young people.
One employer said to me just two weeks ago that 18-year-olds are harder to employ than, say, 25 or 26-year-olds because overall more of them will fail in their job as they get used to the working environment. Employing 18-year-olds used to be worthwhile because the national minimum wage was lower and national insurance contributions did not have to be paid on the first £9,200 of their employment. That advantage has been removed and it is now disproportionately more expensive to employ an 18-year-old than older members of staff. That is a real-life case, where the employer told me they will stop employing young people in their business. Is that really what Labour Members wanted to achieve? That is what is happening already.
Jerome Mayhew
I am not telling anyone anything; I am reporting what businesses are telling me. As a direct consequence of the actions of the Members on the Labour Benches, young people are not being employed who otherwise would have been. The OBR says that will lead to more than 50,000 jobs being lost. Time will tell, but I think that is an underestimate.
We have a reduction in recruitment, a reduction in the employment of young staff, a reduction in investment and, as a result, we will have a reduction in growth over the course of the forecast period. But worse than that, we will have a reduction in living standards. This cost of living crisis, which has now been caused by Labour, will reduce living standards by 1.25% by 2029. That reduction is a direct result of the Budget, so if Labour Members vote for this Bill, they will be voting for increasing the cost of living crisis by 1.25%.
None the less, we have seen some increases: debt costs are increasing; inflation is increasing, which will exacerbate the cost of living crisis; and mortgage costs are increasing.
Tom Hayes
You talk about increasing inflation, yet we saw record levels of inflation—11%—under the Conservative Government, one third of which was caused by our exposure to gas shocks. Does he agree with this Labour Government that we need to invest in clean energy, so that we are no longer left vulnerable to foreign dictators and their control of fossil fuel markets?
Madam Deputy Speaker (Judith Cummins)
Order. Before the hon. Member answers that intervention, I remind Members not to use the word “you”. Moreover, this is a debate on the Second Reading of the Finance Bill, so can we please make comments, interventions and speeches relevant to the Finance Bill?
Jerome Mayhew
I am grateful for that intervention. Inflation 11% was a direct consequence of the Russian invasion of Ukraine, as everyone knows, but what is important is that the Conservative Government took the difficult decision to get it down to a target of 2%. It is already creeping up under Labour, and it will be higher than it otherwise would have been as a direct consequence of these measures. Do not trust my word for that; that comes directly from the OBR. Again, the OBR tells us that mortgage rises will occur directly because of the decisions of Government Members. Union activity will be up, with the consequential impact on productivity and efficiency of our private sector. The size of the state will go up and, shamefully, the tax take will be the highest since records began. I will not support this Finance Bill, or its Second Reading, so Labour Members will have to take the consequences of their own decisions.
Josh Simons (Makerfield) (Lab)
May I start by congratulating my hon. Friend the Member for South Derbyshire (Samantha Niblett) on her excellent maiden speech? As a fellow technologist, she has done so much to make sure that women in particular are part of the technology sector. That is vital as we work to get more women involved in the technology sector and in technology policy.
Last week, a constituent who had voted Labour at the election came to see me. She was an elderly woman and she asked me this very simple question: what makes this a Labour Budget? As a corollary of that, she said, “If I were to vote now, why should I vote Labour to make sure that we have another Budget like the one you have just passed?” And I had a particular answer for her. We talked about some big things. We talked about the big choices that were in the Budget underpinned by this Finance Bill. We talked about, for example, the choice to make hard decisions in order to fund our NHS properly, to make sure that we shift from a national health service to a neighbourhood health service, so that, in my constituency we can ensure that there is proper health provision in towns like Hindley Green and Orrell, which over the past 14 years, have lost all their primary care provision. She thought that was compelling.
I then said that another of the bigger choices that we made in the Budget, which this Finance Bill underpins, is to invest, instead of accepting the slow decline that the Conservative Members have presided over for 14 years. We then discussed some of the less well covered measures that this Finance Bill supports, and it is those that I wish to talk about today. In these measures, we can see the values that make the Budget, and this Finance Bill, a Labour Budget: care, respect, and pride in our communities. These are the measures that answer her question: what is it that made the Budget that this Finance Bill pays for a Labour Budget?
Let me talk about a few of the smaller things that will benefit my constituents and working people right across the country. Most importantly for those I represent, we will end the injustice of the mineworkers’ pension scheme. Just yesterday, my constituents remembered the Springs colliery disaster in Hindley. Tens of thousands of people who used to live in the constituency of Ince, which preceded my own, came together in what was a powerful and emotional moment for them. By ending the injustice of the mineworkers’ pension scheme, the Chancellor ensured that as we build the next generation of energy, reducing bills and ensuring that foreign dictators no longer have a hold over energy production in this nation, we also remember the last generation of energy production: the workers who powered our industrial revolution and built this nation’s wealth.
Kanishka Narayan
Does my hon. Friend agree that the proceeds from the Finance Bill will allow us not just to invest in the future but to recognise our heritage, compensate mineworkers, and in particular support coal tips in Wales?
Josh Simons
I entirely agree with my hon. Friend. To be specific about the benefits that will accrue, there are 500 families in my constituency who for decades have watched the Government take out of their pension scheme and refuse to rectify the ongoing justice. We all know what Conservative Members think of miners. By ensuring that they get a 32% increase in their pension we are not only putting money directly into the pockets of the working people who built this nation but signalling our respect for an industry and profession that made this country’s wealth.
The second smaller, subtler, sometimes missed thing that demonstrates the values that lie behind the measures that the Finance Bill will pay for is the £44 million funding increase for kinship and foster carers. My council in Wigan is a pioneer in the provision of adult social care and care for children. It has blazed the way in ensuring that it works with third sector organisations and maintains the budget to fund its own care provision publicly. Now it is backed by a Government who care about what carers do. As the hon. Member for South Derbyshire has argued, the flipside of a high-productivity and high-technology economy is caring. Caring is the most human thing that we will do more and more of as we build a higher-tech and higher-productivity economy. The Government’s £44 million increase will ensure that caring is properly funded in this country.
Alex Ballinger
I thank my hon. Friend for mentioning carers. I was also really pleased to see in the Budget an increase in the carer’s allowance eligibility limit to £196 a week, which will allow many carers to work longer and earn more money before their allowance is withdrawn. Does he welcome that commitment, which shows the real commitment of the Labour Government to supporting carers?
Josh Simons
Not only do I agree with my hon. Friend’s point about the carer’s allowance, which will benefit 8,000 people in my region of the north-west, the increase demonstrates a wider point about respecting those who provide care in our society and economy. For too long, we have thought the profession to be unskilled, and have undervalued it as a path of work. In several of the measures that the Finance Bill will pay for, the Government have demonstrated that caring is a vital part of the economy that we wish to build. I have said this before, and will say it again: higher productivity and more technology mean more care. We must respect and value that most human of professions if we are to build an economy in which we all want to live in the future.
Tom Hayes
Every Thursday during the pandemic, we clapped, cheered and made noise to signal to our NHS carers that we cared about them. It was not just about noise; it was about the promise of a better future on the other side of the pandemic, which is where we are now. Does my hon. Friend agree that one of the most important things that this Labour Government have done is give a much-deserved pay rise to our teachers and NHS staff? Under the Conservatives, 1.5 million NHS appointments were cancelled and 25 million teaching days were lost. Because of Conservative policies, the NHS was forced to spend £9.3 billion on temporary staffing, and we lost school days that cost the economy £900 million. Conservative Members ask how much our public sector workers are paid, and how much they are worth. Does my hon. Friend agree that they are worth every single penny that they will be paid under this Labour Government?
Josh Simons
I absolutely agree with my hon. Friend that those who kept this nation going, who kept teaching our children and who kept looking after those who were sick and dying deserve every penny of the pay rise that this Government awarded them.
Since the subject of the pandemic has come up, I would add that the moral credibility of Conservative Members to ever use the sacrifices that our nation made during the covid pandemic as a rebuttal to anything that this Government do was lost the moment the Prime Minister told the nation to stay at home while he invited his colleagues to a booze-up in No. 10 Downing Street.
Dr Arthur
My hon. Friend mentioned partygate, but it goes far beyond that. We have to remember that the dodgy contracts that went to mates and donors brought our country into utter disrepute. In this Finance Bill debate, does he recognise the financial impact of that on the country?
Madam Deputy Speaker (Judith Cummins)
Order. I once again remind Members that interventions should be on what is in front of us: the Second Reading of the Finance Bill.
Josh Simons
I absolutely take that point, but I will remind Conservative Members of the simple argument I am making in case they have lost the thread of it. I am going through the measures in the Budget that may have been lost by media scrutiny of some of the bigger measures. My question is: how would they pay for those measures? If they support them, they need to answer that question posed by the Bill today. As the Minister said earlier, the first words in Labour’s manifesto were about restoring economic stability. If Conservative Members support some of the measures I am describing, they must themselves answer the question of how they would pay for them.
I will mention three more measures before I close. These measures specifically benefit the region that I am proud to represent in the north-west, and they will drive growth not just here in London and the south-east, but right across the country, including in Wigan and the towns across Makerfield. The first measure is the electrification of the Wigan to Bolton line, which will mean that constituents in Hindley will benefit from more reliable train services that do not get cancelled, as they have repeatedly been over the past two weeks due to the weather.
The second measure is an increase in the household support fund of £66 million in the north-west. That will specifically help those just above the pension credit threshold who none the less need support this winter.
The third and final measure is the integrated settlement with our trailblazing Labour Mayor Andy Burnham in Greater Manchester, meaning that we can cap bus fares at £2. It also means that we will trailblaze the Live Well centres, which working people will benefit from and those out of work will be provided with the holistic support they need to get back into work.
Those are the measures that this Finance Bill supports. The question for Conservative Members is: will they support the measures that pay for those provisions? If they will not, they will continue to be the party that does not restore economic stability, that crashed the economy and that sent mortgage rates spiralling. The first and most important thing this Labour Government have done and will always do is protect the economic stability of this nation.
A person’s character is most on display in watching what they do when nobody else is looking. I cannot remember who said that—either a former Prime Minister or a baseball coach in the United States. A Government’s character is often in the things that get less attention, that demonstrate whose side that Government are on. In the provisions, the Government have demonstrated that they are on the side of miners, carers, commuters and workers in Makerfield, Greater Manchester and the north-west. What this Finance Bill shows me is that this is a Government who will tear down any barrier that gets in the way of us delivering for working people in the United Kingdom.
Adrian Ramsay (Waveney Valley) (Green)
This Finance Bill should be a chance to begin the vital work of transforming our economy to make it fairer, to restore public services, and to make our economy greener by investing in urgent climate and nature action. As such, I welcome the focus on public investment.
However, overall, the Green party’s view is that the Bill lacks vision for our future and does not deliver the ambitious and hopeful change that people voted for in July. I would argue that that is because it seeks to answer the wrong question. The Bill should not be designed to focus purely on growth for growth’s sake, but should instead focus on more modern and rounded ways of measuring economic success that deliver wellbeing, a liveable future, better standards of living and good-quality jobs. When delivering the Budget, the Chancellor referred to growth 32 times, but she did not mention climate or nature once. When the Joseph Rowntree Foundation’s analysis warns that current spending plans will see inequality and poverty increase while average disposable incomes fall, the Government’s plans clearly are not going to deliver a fairer future for us all.
The Finance Bill was an opportunity to set things on the right track, because that is possible with the right choices. I was elected advocating specifically for a transformative wealth tax—for those with the broadest shoulders to bear the greatest financial responsibility for transforming our economy. Therefore, I very much hoped that this Finance Bill would seek to tax all kinds of wealth much more ambitiously to fund our future.
Ms Polly Billington (East Thanet) (Lab)
Does the hon. Gentleman have a model of a wealth tax from another country that has been successful in raising the amount of money he claims it would have raised?
Adrian Ramsay
I thank the hon. Member for that question—I always enjoy her contributions. Later in my speech I will talk about a specific model that I would propose, one that I put forward in the general election and that has the support of a number of researchers and academics. There are lots of models out there, including those that look at examples from other countries.
I am glad that the Government are taking steps to close the unfairness gap in the tax system, whereby income from working is taxed at a higher level than income from wealth or assets. Reforming capital gains tax has been a major policy priority for the Greens for some time; it is long overdue, and I commend the Chancellor for grasping that particular nettle. However, the Finance Bill could and should go even further, focusing on the very wealthiest in society. Over the past 10 years, the UK has become an increasingly unequal country. Between 2020 and 2022 alone, billionaire wealth in the UK increased by almost £150 billion. The five richest families in the UK are wealthier than the bottom 20% of the entire population. That last stat can be replaced with a more recent one: according to the Equality Trust, the UK’s five richest families now own more wealth than the bottom 13 million do. Both are startling facts.
To answer the question posed by the hon. Member for East Thanet (Ms Billington), a wealth tax of 1% annually on assets above £10 million, and of 2% on assets above £1 billion, would demonstrate that this Government are serious about fairness. Figures that are backed up by researchers and academics suggest that such a wealth tax could raise tens of billions during this Parliament—much bigger than a number of the figures quoted by other Members today. It would show that the Government are serious about fairness, about transforming the economy and about investing for a better future.
Josh Simons
If the hon. Member is so concerned about inequality and poverty in this country, why does he refuse to support the building of pylons, thereby adding about £4 billion to the cost of increasing electricity production in this country? Those costs will, above all, go on to the bills of working people. Is that not a measure to reduce inequality and poverty in this country that the hon. Member would support?
Adrian Ramsay
If the hon. Gentleman is aware of my campaigning background, he will know that I have been one of the strongest advocates for accelerating to move to renewable energy for decades, with all the benefits that brings for reducing bills. If he heard the Westminster Hall debate yesterday, he will know that we need to combine speed on renewables with bringing communities with us and assessing all the options available, and we had cross-party support in arguing for that.
Adrian Ramsay
Perhaps the right hon. Gentleman would let me make a little more progress first, please.
A wealth tax would go a long way towards funding the public services that our economy relies on and to delivering nature and climate-friendly policies that will benefit us all. For example, by maintaining the winter fuel allowance for pensioners, while investing in the roll-out of the street-by-street insulation programme, we could bring down household bills and carbon emissions and at the same time support the most vulnerable households with energy bills over the winter months, preventing hundreds of avoidable deaths. There are also nature-based solutions that would help to protect against the flooding chaos and misery caused, for example, by Storm Bert recently. Preparedness or adaptation is often neglected when it comes to climate action, yet this week has demonstrated what a difference it can make.
A wealth tax could see charities and not-for-profit health and social care providers, for example, exempted from the planned increases in national insurance contributions for employers, in recognition of the significant work they do in our communities and the significant further strain that this planned change will put them under. As Community Action Suffolk has warned, this financial challenge may be a step too far for some organisations that
“deliver vital services keeping Suffolk residents safe and well”,
and reduce pressure on other public sector systems, including the NHS.
The Government have taken, or have sought to take, some steps towards taxing wealth in addressing the real problem of very wealthy people investing in farmland to avoid paying inheritance tax. However, the way in which they have gone about doing so is resulting in huge problems. It is clumsy because it is impacting on small farms that may, on paper, have assets worth several million, but if the farmer is not actually earning any income, or very little, they never actually see the benefit of that.
The Exchequer Secretary is back in the Chamber, and I would ask him whether, in considering the agricultural property relief—I know it is planned for a further year’s Budget, so there is time for the Government to look at this—he will look at the work of tax analyst Dan Neidle. Dan Neidle has highlighted that the Government’s own intentions of rightly clamping down on tax avoidance will not be met under the current plans, which will impact far more small, ordinary farms than the Government have admitted. His proposals include an alternative suggestion for meeting the Government’s stated aim of clamping down on tax avoidance, not affecting ordinary farmers.
Dr Arthur
Too often we find that the Greens talk a good game, but when it comes to making decisions, whether on pylons or inheritance tax, they begin to get a little bit nervous, so I would be interested to know the hon. Gentleman’s view. While he may have concerns about the threshold that has been set for inheritance tax for farms, where does he think it should be set?
Adrian Ramsay
First, I have welcomed the measures in this Budget on non-doms and capital gains tax, and I have argued for the Government to go much further and be much bolder with a genuine wealth tax on the very richest. I am very happy to set out the measures I want, which are bolder than the Government’s, to raise capital. On farms, as I say, I would urge the hon. Member and the Minister to look at the work of people such as Dan Neidle, which suggests ways in which the Government could better achieve their own stated aim of rightly preventing people who often have no interest in farming from investing in farmland in order to avoid inheritance tax.
I spoke to many farmers last week, as I am sure did Members across the Chamber, and those with ordinary farms in my constituency told me that typical Suffolk farms of 320 acres may be worth £3 million to £5 million on paper, but if they are always in the family—if they are never sold and those farmers are earning very little income—they are not realising the benefit of that. The farmers I spoke to were extremely distressed about how much pressure they are under for generating very little income, with all the work they do and want to do for our natural environment. We need to look at the detail of what is being proposed, while welcoming the main aim of clamping down on tax avoidance that the Government are setting out.
I make these points conscious that the Government chose to table an income tax charge motion on Budget day, thereby restricting scope for amendments to the Bill today. I wish to put on record my disappointment at that decision, because an “amendment of the law” motion would have demonstrated a commitment to a much broader debate, greater scrutiny, and a healthy willingness to engage with alterative views. I expected better on that, as I know did my constituents. Although I will seek to amend the Bill to take account of the compelling case for a wealth tax, the scope for doing so has been deliberately and unnecessarily constrained by the Government in what Ruth Fox of the Hansard Society called a decision to prioritise
“ministerial control and convenience over robust parliamentary scrutiny.”
Before concluding my remarks, I wish to mention one other aspect of the Bill that relates to the urgent climate action we need to take. That must be about scaling up renewables, but it is also about the transition away from fossil fuels. Hidden in the Bill and the Budget is the Government’s intension to subsidise carbon capture and storage—a fig leaf for new fossil fuel projects—and failing to end the obscene subsidies, including tax reliefs, that are handed out to the oil and gas sector. I hope to pick that up further, and for it to get more scrutiny as the Bill progresses.
Adrian Ramsay
I am about to finish.
In conclusion, Green MPs will vote for the Bill on the basis that we welcome a number of improvements and investments. We are constructive in supporting improvements that move in the right direction and the investment that has started in the NHS, and I want to see that committed to and expanded for the NHS and social care in further years. We look forward to further debates about how that can be strengthened to deliver a coherent vision of a greener, fairer future for all.
Chris Vince (Harlow) (Lab/Co-op)
I wish first to pay tribute to my hon. Friend the Member for South Derbyshire (Samantha Niblett) for her fantastic maiden speech. Knowing that I had the graveyard spot—or, as we call it in this place, the “Jim Shannon spot”—I took a moment to pop to the Tea Room to have a cup of tea, and I visited southderbyshire.co.uk. I own a dog named after a previous Labour Prime Minister, and I am looking forward to taking him to South Derbyshire—
Chris Vince
I don’t really want to give away my dog’s name—I don’t know why.
Thank you, Madam Deputy Speaker, for the opportunity to speak in support of the Bill. This is not just another piece of legislation; it is a crucial step towards boosting growth in some of our most dynamic industries, from the creative sector to financial services. It is aimed at repairing our public finances and bringing much-needed economic and fiscal stability, and it considers every person from every walk of life to create a fairer future for everyone. Last week the Chancellor outlined the Government’s plans for growth, focusing on high-growth sectors that will drive our economy forward. The Bill is a key part of that vision, introducing important tax changes to support the UK’s creative industries, speed up our shift to clean energy and enhance our financial markets.
For too long the burden of taxation has fallen disproportionately on working people. The Bill addresses that imbalance—it finds that balance and the fairest way to do it. By choosing not to extend the freeze on income tax and national insurance thresholds, the Government are ensuring that personal tax thresholds will rise with inflation from April 2028. That protects hard-working families from what I would consider stealth tax increases. The Bill also delivers on the promise to maintain the fuel duty freeze and a temporary 5p cut. I know that is welcome for residents and motorists in Harlow, as they have suffered for many years with the appalling state of the roads. We all know about the dreaded potholes, and the Government are doing what they can on that as well.
I will not go on too much about the removal of the VAT exemption on private schools, because I spent a lot of time talking about that on Monday. However, I am delighted that it will generate additional revenue to invest in our public services, including our schools. A number of schools in Harlow have suffered with reinforced autoclaved aerated concrete, and one school—Sir Frederick Gibberd college—is having to be completely rebuilt because of the previous Government’s failings.
This Finance Bill is more than just a collection of tax adjustments; it is a forward-looking plan that lays the foundation for a resilient economy. It reflects the Government’s commitment to supporting key industries that are vital to our nation, investing in sectors that promise sustainable growth, and ensuring that the UK remains at the forefront of global innovation. It creates a fair and balanced future for all.
James Wild (North West Norfolk) (Con)
It is a pleasure to respond to the debate on behalf of His Majesty’s loyal Opposition. It has been a good debate, with more than 20 Members contributing, but I am a little surprised that we did not hear more from Labour Members wanting to defend their first Budget for 14 years. Some have now appeared miraculously in the Chamber, but they were not here for the rest of the debate.
Let me start with the maiden speech from the hon. Member for South Derbyshire (Samantha Niblett). I join others in congratulating her on an excellent maiden speech. I was interested to hear about her tech background and the “Samantha spotting” map. She mentioned the influence of her daughter. Family is important in overcoming the instant loathing that some people can take to MPs, which she talked about. In my experience, it is not as bad as some might fear. [Interruption.] That is just me.
James Wild
Thank you. We all appreciated the kind words from the hon. Member for South Derbyshire about Heather Wheeler’s work. I am sure that the hon. Lady will continue that manufacturing event with Rolls-Royce and the other world-class businesses in her constituency. I know from personal experience that she will enjoy taking part in the armed forces parliamentary scheme with the RAF.
There was a familiar theme in the speeches of other Government Members, which the Whips will have been pleased to hear, with lots about fixing the foundations and black holes, although the hon. Member for Macclesfield (Tim Roca)—I cannot see him at the moment—did concede that it was not a perfect Budget. Perhaps he has been taken away by the Whips to reflect.
I turn to Opposition Members’ speeches. I congratulate my hon. Friend the Member for Bognor Regis and Littlehampton (Alison Griffiths), who spoke powerfully about the impact of the Bill and the damaging impact of the Budget on high streets, hospitality and family firms in her constituency. My right hon. Friend the Member for Beverley and Holderness (Graham Stuart), in a masterly contribution, took us back in his time machine to the time when cast-iron promises were made. He focused on what is happening in reality and the importance of enterprise. He also highlighted that economic shocks may come, as they have done in the last few years, for example through covid and energy prices, and that the Chancellor may have already boxed herself in.
My right hon. Friend the Member for East Hampshire (Damian Hinds) displayed his considerable knowledge as a former Education Secretary. He talked about caring for 100% of pupils, and about the damaging impact that the education tax will have. There will be serious consequences for smaller schools, religious schools and parents and pupils involved with them. That theme was also drawn on by my hon. Friend the Member for Solihull West and Shirley (Dr Shastri-Hurst), who talked about his constituents and put us in the footsteps of the pupils who will be affected, as well as their parents.
My hon. Friend the Member for Gordon and Buchan (Harriet Cross) returned to her consistent theme of the real-world consequences for energy firms of the energy profits tax, the lost revenue, and the self-defeating nature of that measure. Finally, my hon. Friend and neighbour the Member for Broadland and Fakenham (Jerome Mayhew) focused on young people’s employment prospects, which will take a hit as a result of the Bill.
There were two very different takes in the debate. Unlike some, I would not claim to be an economist, but the OBR is full of them, and its verdict on the Budget and the Finance Bill is clear: they mean lower growth, higher inflation and higher borrowing. As the Shadow Chancellor, my right hon. Friend the Member for Central Devon (Mel Stride), put it, the British people put their trust in Labour to stay true to its promises. What did they get in response? A Finance Bill that is stuffed full of tax increases and breaks trust with the British people. It has £40 billion of annual tax rises. It is the biggest tax-raising Budget in modern history, and it is working families and businesses who will pay the price.
As we heard, the Government have said that their priority is growth. We will not let them forget that they inherited an economy growing at the fastest rate in the G7. Following the Budget, the OBR has downgraded its growth forecasts for the period by 0.7%. Inflation, which went up to 2.3% last week, is now expected to be higher in every year of the forecast period. The tax burden will increase to the highest level since records began. Borrowing will increase by an additional £140 billion over the Parliament. It is little wonder that business confidence is plummeting. The Labour party has consistently talked our economy down. The consequences are clear. The latest purchasing manager’s index output data shows that private sector activity has shrunk for the first time in more than a year. Businesses are rightly blaming the Chancellor and this anti-aspiration, anti-enterprise Government.
Let me turn to some of the parts of this broken promises Budget that were covered in the debate. First, the Bill deliberately undermines incentives for investors, entrepreneurs and people willing to take a risk and back enterprise. It hikes the main and lower rates of capital gains tax. The Treasury states that this measure alone will hit over a quarter of a million people, who will pay more tax as a result. It puts up tax rates on investor relief. It is little wonder that experts have warned that this Government risk stymieing the very investment that they seek to stimulate.
Secondly, the Bill continues the fundamentalism of the Government’s energy policy, which fails to put our energy security first. It will increase the energy profits levy to 38%, bringing the headline rate on oil and gas activities to 78%. The Exchequer Secretary could not name a country that had a higher rate. I am sure that Denis Healey would approve. It extends the rate by a year and removes investment allowances. On the real-world consequences, Offshore Energies UK has said that the hike will choke off investment and put 35,000 jobs at risk. We should be maximising our home-grown energy, not undermining domestic production and relying on imports that have a higher carbon footprint.
Having highlighted the Government’s broken promises, I turn to a single promise that they are actually keeping, unfortunately—the education tax. For some who do not seem to understand, the Labour party is not ending a relief, but bringing in a new tax. It is a vindictive tax, being imposed partway through the academic year, deliberately designed to disrupt the education of thousands of children. Putting VAT on independent schools will particularly hurt parents on modest incomes who choose to save and send their children to a school that they think is best for them. More than 100,000 children with special needs who are without an education, health and care plan, and are in independent schools, will be hit by this charge—something that Government Members who are not in their place at the moment did not seem to understand, but really should. This is an attack on aspiration, pure and simple, and we oppose it.
Other hon. Members have referred to the family farm tax. Next week, every Member will have the opportunity to vote and show whether they stand with their farmers or with Labour’s family farm tax, which will do so much damage to our countryside and food security.
As I mentioned, the consistent theme in this debate from Government Members has been blaming a fantasy black hole for this tax-increasing Bill. Those claims were thoroughly debunked by the OBR, and by the shadow Chancellor in his opening remarks. Before the election, the Chancellor said that she would not pretend to have not known the state of public finances in order to justify tax rises. Then she did just that. Let us hope that she meant what she said to the Treasury Committee on 6 November:
“We have now set the envelope for spending for this Parliament, and we are not going to be coming back with more tax increases or, indeed, with more borrowing.”
There we have it. Read her lips: no more tax increases. That was the commitment, not to the Confederation of British Industry, but to this House; but at Prime Minister’s questions today, the Prime Minister failed to repeat that pledge. He hung the Chancellor out to dry. If the Chancellor breaks that promise, how can she credibly continue in post?
Labour inherited the fastest growing economy in the G7, inflation at target, unemployment halved and the deficit halved. Labour Members may not like it, but it is true. [Interruption.] It is absolutely true. The measures in the Bill do not boost growth but target working people, pupils and parents, small businesses, and the wealth creators we need to grow the economy. Many Government Members have loyally clung to the idea that the Government are fixing the foundations of the economy. Not many would agree—not Tesco, Lidl or the other retailers who have warned that the £25-billion-a-year jobs tax will mean job losses and people’s weekly food shop going up; not the two thirds of firms who say that they will scale back on taking on new people; not the pubs, bars, restaurants and hospitality sector, which is hit by an extra £1 billion of costs.
The Prime Minister has found someone who agrees with him, although he did have to go to Rio to do so. However, while President Xi is so well practised in parroting meaningless slogans that he could be a Labour MP, the British public and British businesses are not buying it. They know that this Government do not back enterprise and do not keep their promises. The difference could not be clearer: we stand with working people, people taking a risk to start businesses and take people on, and people investing in companies. Unlike the Labour party, we are on their side. I urge Members to support our amendment tonight.
The Economic Secretary to the Treasury (Tulip Siddiq)
Just as it was an honour to close the Budget debate on behalf of the Government, it is an honour to close the debate on Second Reading of the Finance Bill—the first Finance Bill by a Labour Government in 14 years. I thank hon. Members for their contributions, and look forward to hearing further contributions during the Committee of the whole House and the Bill’s remaining passages, alongside the Exchequer Secretary to the Treasury.
Before I address the numerous points raised in the debate, it is worth reflecting briefly on the points made by the Exchequer Secretary in his opening remarks on what the Bill will achieve. The Bill legislates for key measures in the Budget—a Budget in which we took tough decisions on tax, spending and welfare to restore Britain’s economic stability. The Bill delivers on our manifesto commitments and starts the work of moving to a fairer, more sustainable tax system while raising the revenue needed to adequately fund our public services. The Government have taken a balanced approach that will create a fairer system while still promoting growth and wealth creation.
We are adjusting the rate of capital gains tax, for example —a tax paid by fewer than 1% of adults every year—to raise some of that revenue. Although rates have increased, the Government will maintain the UK’s position as having the lowest CGT of any European G7 economy. There are no changes to CGT rates on property or the annual exempt allowance, and there is a phased increase to business asset disposal relief, to give entrepreneurs time to adjust. That is just one of the many measures in the Bill that will move us to a fairer system, where those who can pay do pay. [Interruption.] I will get on to farmers, hon. Members will be pleased to know.
I congratulate my hon. Friend the Member for South Derbyshire (Samantha Niblett) on an excellent maiden speech. She is absolutely an inspiration to her teenage daughter, but also to young women across the country, including my daughter. I thank her for that. We are very pleased to have her. We need more people with careers in tech in the House. She is very welcome.
We also heard powerful contributions from my hon. Friends the Members for Darlington (Lola McEvoy), for Crewe and Nantwich (Connor Naismith), for Macclesfield (Tim Roca), for Barking (Nesil Caliskan), for Vale of Glamorgan (Kanishka Narayan), for Makerfield (Josh Simons) and for Harlow (Chris Vince). I pay particular tribute to my hon. Friend the Member for York Outer (Mr Charters) for his play on words—as an English graduate, I always enjoy that, and I thought he was excellent.
Hon. Members have extensively discussed the agricultural property relief changes announced in the Budget, and will note that they are not included in the Bill. That is because the Government are committed to technical consultation on tax legislation. We feel it is important to get complex legislation right, and to give businesses and those affected by tax changes the certainty that they need ahead of the measures coming into force. The Government will publish draft legislation on this measure before legislating for it in a future Finance Bill.
Tulip Siddiq
We will set out plans in due course. The Bill does, however, extend the scope of agricultural property relief from 6 April 2025 to land managed under certain environmental agreements. That supports the UK Government’s wider environmental objective of supporting farmers and land managers so that they can deliver, alongside food production, significant and important outcomes for the climate and environment. The measure is intended to prevent the loss of APR being a barrier to the involvement of agricultural landowners and farmers in land use change under environmental agreements including, but not limited to, the environmental land management schemes in England and equivalent schemes elsewhere in the UK.
I want to address something the hon. Member for St Albans (Daisy Cooper) talked about: family farms. This is not in the Finance Bill, but I will still refer to it. Individuals can pass on a sum of up to £325,000 inheritance tax-free; £500,000 if that includes a residence being passed to a direct descendent; and £1 million when a tax-free allowance is passed to a surviving spouse or civil partner. There is also a full exemption from inheritance tax when passing assets to a spouse or civil partner.
Daisy Cooper
I am grateful to the Minister for giving way. Madam Deputy Speaker, I beg for your patience as I retread some of the remarks I made earlier. It is my view that the family farm tax gives us the worst of both worlds at the moment. It does not prevent equity companies from buying up land, but it does treat family farms as collateral damage. I urge her to think again on this measure and think about introducing a genuine family farm test. If she were to do that, she would certainly have the Liberal Democrats’ support.
Tulip Siddiq
It was a difficult decision, and I understand the point the hon. Lady is making, but the reforms to agricultural property relief mean that farmers can access 100% relief for the first £1 million and 50% relief thereafter, meaning an effective 20% tax rate. It was a difficult decision, but we had to do it to fund public services.
My hon. Friend the Member for Bolton West (Phil Brickell) talked about tax avoidance and fraud. To stop people taking unfair advantage of our system, the Government announced in the Budget the most ambitious ever package to close the tax gap, raising £6.5 billion in additional tax revenue per year by 2029-30.
Tulip Siddiq
The right hon. Gentleman has spoken enough times in the debate, so I will not be taking yet another intervention from him.
The hon. Member for Bognor Regis and Littlehampton (Alison Griffiths) raised questions about SMEs and high streets. The Government have been absolutely clear that we need to take difficult decisions to deliver long-term stability and growth, and that stabilising public finances is the only way to create long-term stability in which businesses can thrive. But we recognise the need to protect small employers, which is why we have more than doubled employment allowance—she may like to know that—meaning that half of businesses with mixed liabilities will either gain or see no change at all next year.
The right hon. Member for East Hampshire (Damian Hinds) raised questions about VAT on private schools hitting SEND pupils. To protect pupils with special educational needs and disabilities who can only have their needs met in a private school, the local authorities and devolved Governments that fund those places will be compensated for the VAT they are charged on those pupils’ fees. I hope that reassures him.
The right hon. Gentleman also raised a point about faith schools. Of course the Government value parental choice and recognise that some people want their children to be educated in a school with a particular faith ethos. My hon. Friend the Exchequer Secretary met the Partnerships for Jewish Schools and the Association of Muslim Schools during the consultation period on this policy. To ensure fairness and consistency between all schools that charge fees, faith schools will remain in the scope of the policy. It is worth noting for the right hon. Member that some faith schools are likely to be less impacted by the policy if some of their income is derived from voluntary donations from the community, because donations that are freely given and for which there is no obligation are outside the scope of VAT. As such, not all the income that small faith schools receive will necessarily be subject to VAT. I hope that reassures him a bit.
Marie Goldman (Chelmsford) (LD)
I thank the Minister for giving way. I want to ask her specifically about what she just said about special schools still getting funding. Is she aware that many parents of children with special educational needs choose to send their children to special schools even though they do not have education, health and care plans, so do not have funding through local authorities and so will still be affected by this measure? I wonder what she thinks about that.
Tulip Siddiq
My hon. Friend the Exchequer Secretary says that he will write to the hon. Lady about this, but we note the points that she has made, and we are looking into them.
The hon. Member for Gordon and Buchan (Harriet Cross) asked about oil and gas investment. We recognise that oil and gas will continue to have a role in the energy mix during the transition, but we need to drive public and private investment towards cleaner energy. The money raised by these changes will contribute to public investment while the sector continues to benefit from £84.25 in relief for every £100 of private investment. To reflect our commitment to facilitating cleaner home-grown energy, the Government have confirmed that the sector will continue to benefit from a decarbonisation investment allowance with a value similar to the relief that it received prior to the November energy profits levy rate increases.
I end by saying that the Bill delivers on key manifesto commitments from this Labour Government. It provides stability, it supports businesses, and it moves us to a fairer, more sustainable tax system. For those reasons, I commend it to the House.
Question put, That the amendment be made.
First day | |
|---|---|
Second day | |
Clause 7 and Schedule 1; Clauses 8 to 11 and Schedule 2; Clause 12; any new Clauses or new Schedules relating to the subject matter of those Clauses and those Schedules | 3 hours after the commencement of proceedings on the Bill on the first day. |
Clauses 15 to 18 and Schedule 3; any new Clauses or new Schedules relating to the subject matter of those Clauses and that Schedule | 6 hours after the commencement of proceedings on the Bill on the first day. |
Clauses 47 to 49; any new Clauses or new Schedules relating to the subject matter of those Clauses | 3 hours after the commencement of proceedings on the Bill on the second day. |
Clauses 50 to 53; any new Clauses or new Schedules relating to the subject matter of those Clauses | 6 hours after the commencement of proceedings on the Bill on the second day. |
Finance Bill
Tuesday 10th December 2024
(1 month, 3 weeks ago)
Commons ChamberRead Full debate Finance Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 10 December 2024 - (10 Dec 2024)
14:17 - The Committee divided: - Ayes: 105 / Noes: 340 - Question accordingly negatived.
15:56 - divided: - Ayes: 74 / Noes: 350 - Question accordingly negatived.
16:11 - The House divided: - Ayes: 184 / Noes: 359 - Question accordingly negatived.
The Chairman of Ways and Means (Ms Nusrat Ghani)
I remind Members that, in Committee, Members should not address the Chair as “Deputy Speaker.” When addressing the Chair, please use our name. “Madam Chair” or “Chair” will also suffice.
Clause 7
Main rates of CGT for gains other than carried interest gains
Question proposed, That the clause stand part of the Bill.
The Chairman
With this it will be convenient to consider the following:
Schedule 1.
Clauses 8 to 11 stand part.
Schedule 2.
Clauses 12 stand part.
New clause 1—Impact assessment: capital gains tax—
“The Chancellor of the Exchequer must, within six months of the passing of this Act, lay before Parliament a review of the impact of the measures contained in clauses 7 to 12 and schedules 1 and 2 of this Act, on—
(a) long-term investment;
(b) disposable income across different income deciles, and
(c) tax revenue.”
This new clause would require the Government to produce a report setting out the impact of changes to Capital Gains Tax made in this Act on investment and the disposable income of taxpayers across different income deciles.
New clause 4—Section 12: review—
“The Chancellor of the Exchequer must, within three months of this Act coming into force, publish a review of the expected impact of the measures in section 12 of this Act on—
(a) the timing of asset disposals or transactions;
(b) shifting between different assets;
(c) shifting between gains and income;
(d) tax planning;
(e) migration; and
(f) non-compliance by non-payment, misreporting or underreporting of chargeable assets, gains or income.”
New clause 5—Business asset disposal relief: review of increase in rate—
“(1) The Chancellor of the Exchequer must commission and publish an assessment of the expected impact of the provisions of section 8 on the number of Business Asset Disposal Relief claims involving the sale of a business.
(2) The assessment must compare estimates for the number of claims involving the sale of a business in the tax year 2024-25 with the number of such claims in the tax year 2025-26.
(3) The assessment must compare the impact under the provisions of section 8 with what impact could have been expected had the rate remained unchanged”.
The Economic Secretary to the Treasury (Tulip Siddiq)
Since 2010, the UK has experienced low productivity, rising debt levels and declining public services. Public sector net debt is at its highest since the early 1960s, at 98.5% of GDP. Per capita, GDP remains lower that before the covid-19 pandemic.
In July this year, the Government uncovered a challenging fiscal and spending inheritance, with a £22 billion in-year pressure in the public finances. The Office for Budget Responsibility’s review into March’s spending forecasts concluded that had the information that has since been shared by the Treasury been made available to it at the time of the March Budget, there would have been a materially higher departmental expenditure limits forecast for 2024 to 2025. This was the result of the previous Government not factoring in the impact of a series of new, challenging pressures on the public finances, not taking the difficult decisions needed to address these pressures, and instead making a series of commitments that they could not fund.
This Government are committed to fixing the foundations and delivering a decade of national renewal. To do so, we must turn the page and take a different approach. In the autumn Budget, the House will have heard the Chancellor set out the Government’s first steps to repair the public finances, by taking the tough decisions needed to address the £22 billion in-year pressures to avoid further damage to our public services, including securing £5.5 billion of savings.
We are also putting in place significant reforms to strengthen our fiscal and spending framework that will improve certainty, transparency and accountability, and ensure that the situation can never happen again. This Government are taking the tough decisions on tax, spending and welfare that are necessary to repair the public finances and restore economic and fiscal stability. Those choices are not easy, but they are transparent, they are responsible and, with such a difficult position, they will ensure that the Government can deliver on our commitments not to increase taxes on working people.
The changes to the main rates of capital gains tax in clauses 7 to 11 will help to address the gap in public finances while retaining the UK’s internationally competitive investment climate. The new rates are revenue-maximising in the current design of the tax system, generating an additional £8.9 billion over the forecast period. The UK’s headline CGT rates will remain lower than those of France, Germany and Italy, and the highest rate is still lower than it was between 2010 and 2016. The new rates will mostly affect people who earn income from selling financial assets. The Government are taking the difficult but responsible decision to ask that group to pay a little bit more tax in order to restore economic stability.
Clause 12 represents the first step in a package of reforms to the taxation of carried interest by increasing the applicable rates of capital gains tax to 32% for carried interest arising on or after 6 April 2025. The reforms will put the tax treatment of carried interest on a fairer and more stable footing for the long term, while preserving the UK’s competitive position as a global asset management hub.
I will begin with clauses 7 to 9, concerning the capital gains tax package. CGT is charged on individuals’ annual capital gains, net of losses and allowable costs. Less than 1% of adults pay CGT per year. There are lower rates available for reliefs, including business asset disposal relief and investors’ relief. CGT has an annual exempt amount of £3,000 for individuals, which keeps people with lower levels of capital gains out of the system.
To repair the public finances and help raise the revenue required to increase funding for public services, the Government are increasing the main rates of CGT. The clauses will increase the lower main rate of CGT from 10% to 18% and increase the higher rate from 20% to 24%. Those changes affect disposables made on or after 30 October 2024. The clauses also increase the CGT rate at which business asset disposal relief and investors’ relief are charged in a phased way from 10% to 14%, effective from 6 April 2025, and from 14% to 18%, effective from 6 April 2026. Phasing in the rate increases for those CGT reliefs demonstrates the Government’s commitment to a predictable tax system.
The Government accept that for some entrepreneurs, a lower CGT rate will be factored into their plans for exiting the business, which can be a once-in-a-lifetime event. Although it is right to increase CGT rates to raise revenue, it is also fair to give business owners some time to adjust. The changes will raise £2.5 billion per year by the end of the forecast period, while ensuring the UK’s headline CGT rates remain below those of France, Germany and Italy.
Turning to clause 10, investors’ relief offers access to the lower rates of CGT on the disposal of qualifying unlisted shares. Its objective is to provide the financial incentive for individuals to invest in unlisted trading companies over the long term and help companies in accessing other forms of investment. The lifetime limit for investors’ relief was previously £10 million, compared with business asset disposable relief’s lifetime limit of £1 million. We feel that that disparity in lifetime limits is unfair towards entrepreneurs and could encourage harmful tax planning strategies. The changes made by clause 10 will reduce the lifetime limit for investors’ relief to match that of business asset disposal relief at £1 million of qualifying gains per person. Investors’ relief has received little take-up since its introduction in 2016, and so the Government expect that the measure will affect a very small number of individuals.
Turning to clause 11 and schedule 2, which introduce transitional arrangements and anti-forestalling rules, the transitional arrangements are consistent with similar rules put in place when CGT rates were charged in-year in 2010. The anti-forestalling rules draw on the approach taken when changes were made to business asset disposal relief in 2020. Transitional arrangements are needed for a small group of taxpayers in some specific circumstances. Those taxpayers will have capital gains that are ascribed to the 2024-25 tax year in general and not to any particular point in the year, and because clause 7 makes in-year changes, the Government have a legal responsibility to clarify the capital gains tax liabilities of those taxpayers. To avoid taxing those individuals retrospectively, the legislation puts in place transitional arrangements. The relevant capital gains are treated as arising in the earlier part of the year and are therefore subject to the previous rate schedule. From April 2025, there will be no need for those arrangements to remain.
I now turn to anti-forestalling rules. Some taxpayers will have tried to lock in the old rate by entering into various artificial arrangements and specific anti-forestalling rules are needed to prevent abuse. The anti-forestalling rules target disposals entered into before 30 October 2024 but completed after that date for the main rate change and the investors’ relief lifetime limit reduction. They also target disposals entered into on or after 30 October 2024 for the phased rate changes applying to business asset disposal relief and investors’ relief. The provisions ensure that such people can still access the previous rates and the previous investors’ relief lifetime limit, but only where the disposal has not been artificially structured for the purpose of securing a tax advantage.
I now turn to clause 12, which concerns CGT on carried interest gains. Carried interest is a form of performance-related reward that is received by a small number of individuals who work as fund managers and, unlike other such rewards, carried interest can, where certain conditions are met, be subject to capital gains tax. Hon. Members will have heard the Chancellor announce at the Budget that the Government will reform the way carried interest is taxed, ensuring that that is fairer and in line with the economic characteristics of the reward. From 6 April 2026, a revised regime will tax all carried interest within the income tax framework with a 72.5% multiplier applied to the amount of qualifying carried interest that is brought into charge. The Government are also consulting on potential new conditions of access to the regime. Legislation to implement that revised regime will be included in a future finance Bill.
In advance of the implementation of the revised regime, the Government are acting now to increase the rates of capital gains tax that apply to carried interest. Clause 12 therefore increases the rates of capital gains tax for carried interest arising on or after 6 April 2025 from 18% and 28% to 32%, and from that date, the single CGT rate will apply to all relevant carried interest, subject to the same conditions as currently.
To conclude, the increases to the main rates of CGT to 18% and 24% represent a balanced and responsible approach to revenue raising, which will help the Government to improve the UK’s public finances and services while remaining competitive for investment. The clauses phase in the rate increase for business asset disposal relief over 18 months to mitigate impacts where the previous level of relief was factored into anyone’s plans to exit their business in the short term. That underlines the Government’s commitment to supporting entrepreneurs and recognising the vital role that small businesses play in our economy. In addition, the move to a single higher rate of CGT on carried interest at 32% demonstrates the Government’s commitment to decisive action now, while we rightly take the time to undertake technical consultation on the revised regime.
Madam Deputy Speaker (Ms Nusrat Ghani)
Just before I call the shadow Minister, I remind Members that, in Committee, I am Madam Chair or Madam Chairman.
Gareth Davies (Grantham and Bourne) (Con)
Thank you very much, Madam Chair. It is always a pleasure to see you in Committee and to serve under your chairmanship.
On behalf of the Opposition, I rise to speak to new clauses 4 and 5, which stand in the name of my right hon. Friend, the shadow Chancellor. Before I do so, let me set the scene for clauses 7 to 12.
When announcing these changes in her Budget, the Chancellor said:
“We need to drive growth, promote entrepreneurship and support wealth creation”.—[Official Report, 30 October 2024; Vol. 755, c. 818.]
She said something similar to the BBC in 2023:
“We want Britain to be the best place to start and grow a business”
and that was why, she said
“I don’t have any plans to increase capital gains tax.”
This Bill corrects the record. Labour wants to increase capital gains tax, so clearly it does not have any plans for Britain to be the best place in which to start and grow a business. Is it any wonder that business confidence is now at the lowest level we have seen since the pandemic?
Clause 7 increases the main rates of capital gains tax from 10% and 20% to 18% and 24% respectively, with schedule 1 making consequential changes to reflect that these rates are now equal to those on residential property. The Office for Budget Responsibility rates the costings on this policy as “highly uncertain”. It says that
“these costings are among the most uncertain in the policy package, reflecting the range of potential behavioural responses.”
This Government are far too quick to ask others to explain how they would pay for Labour’s policies, when they are clearly failing to explain convincingly how their own policies would pay for themselves.
I wish to take this opportunity to highlight an issue raised with me by the Chartered Institute of Taxation. First, let me place on record my thanks to the organisation for its invaluable support. It has been informed by His Majesty’s Revenue and Customs that it is too late to change the format of the relevant 2024-25 tax return pages to accommodate this in-year change. I would therefore be very grateful if the Minister could provide the following assurances to HMRC: first, that it will be properly equipped to implement this measure; secondly, that the changes will be published as widely as possible; and, thirdly, that an appropriate level of understanding will be shown to taxpayers contending with these complications.
Clauses 8 and 9 increase the rates for gains that qualify for business asset disposal relief and investors’ relief. From 6 April 2025, the 10% rate will increase to 14%. From 6 April 2026, it will rise again to 18%. As the Chartered Institute of Taxation has highlighted, because the increase to the main rates of capital gains tax is effective immediately, this leaves a window where people selling their business can save up to 14% in capital gains tax until April 2025. In other words, the tax changes in this Bill do not cultivate a start-up Britain; they incentivise British business owners to sell up and sell up soon. This could have been avoided—along with the administrative complications that I have already outlined—had measures in clause 7 been implemented from the start of the new financial year.
Will the Minister explain why the timings of these provisions appear to be so untidy, and, for that matter, how exactly they drive growth, promote entrepreneurship and support wealth creation? I simply say that if hon. Members are not satisfied with the Minister’s explanation, I encourage them to vote for new clause 5, which would require a proper assessment of the impact of this perverse incentive.
Clause 10 reduces the lifetime limit for investors’ relief from £10 million to £1 million, while clause 11 and schedule 2 bring in transitional rules and anti-forestalling provisions. On those anti-forestalling provisions, the Chartered Institute of Taxation notes that the anti-avoidance measures risk being “unfairly retrospective”, capturing those who entered into commercial contracts in good faith before the Budget, on the grounds that they do not satisfy the stringent requirement put down by the Treasury to be “wholly commercial”. Will the Minister tell the House why the wording is so tight? Widespread concern over being hit with “unfairly retrospective” taxation would have a chilling effect on parts of the economy. It would exacerbate uncertainty among those who already feel that they have been blindsided by this Government.
Yuan Yang (Earley and Woodley) (Lab)
It is a pleasure to serve under your chairship, Madam Chair. I will talk mostly about new clause 5 on capital gains tax, but, given the remarks by the shadow Minister, I will make a few points on the broader matter and on incentives to start a new business.
My constituency of Earley and Woodley in the Thames Valley is one of the hottest destinations for business investment and for new start-ups in the tech and pharmaceutical sectors. I have met a number of those inspiring entrepreneurs to talk about their start of the business journey. As is widely known, when entrepreneurs start passionately with a project, they are thinking not about the disposal and taxation regime at the end of their journey, but about the infrastructure and the support that they will have around them that brings their idea to fruition. For the tech and pharmaceutical entrepreneurs in Earley and Woodley, that is about a transport infrastructure, a skills base, and schools, colleges and universities in the area that can produce the kinds of graduates who will then staff their company. It is about a regime that is welcoming to entrepreneurship and is welcoming for people to live in and to prosper in. For all those reasons, I very much support our Budget and the Budget that brings more investment to infrastructure across the UK.
First, I welcome the measures on capital gains tax introduced in new clause 5. Let me remind Conservative Members that it was Chancellor Nigel Lawson who, in a much more dramatic measure than that proposed today, equalised the rate of capital gains tax with income tax in 1988. That equalisation was proposed because of tax avoidance. To many people listening to the debate, capital gains tax will not be familiar because, like me, their main means of taxation will be income tax and they will not have come into contact with CGT.
For the purposes of understanding, let me illustrate what I mean by “tax avoidance”. The issue was raised with me by a retired consultant when I was canvassing in the summer in the north of my constituency. When I knocked on his door, he said, “What are you going to do about capital gains tax? I want you to ensure that this doesn’t happen any more.” He then proceeded to illustrate the means by which he had paid less income tax than he otherwise would have done through the capital gains tax system. It was a principled and honourable admission for him to make to his then parliamentary candidate on the doorstep.
Many of us pay income tax, and we are all familiar with the way that it is structured. Among those of us who do not receive income from payroll—that is, who do not work for a company—but have the ability to structure it as self-employed or consultancy income and funnel it into a business of our own creation, that is a channel by which many people avoid paying income tax on activities that are arguably income-like. That happens, as I said, for a minority of people in the UK. The vast majority do not have access to that route because they earn through working for other people through companies, and they are on the payroll and not able to structure their own companies. When those companies holding the—arguably—income revenues are disposed of, that is when capital gains tax comes into the picture. Of course, the rate of capital gains tax is much lower than the rate of income tax, and that is where the gap comes from that was illustrated by my retired constituent.
Madam Deputy Speaker, it is important that the tax system is efficient in raising revenues, which is what our Budget sets out. The tax system must also be principled in ensuring that the tax purposes to which we have allocated certain measures raise the right taxes and are targeted towards the kinds of activities that are meant to be taxed. All of us in the Committee would probably agree that we should pay tax through a progressive system that distinguishes between different forms of revenue-raising activities, but that allocates people fairly and proportionately to those right and relevant activities.
I am reminded of the announcements that came out during the last Government regarding the tax affairs of the former Prime Minister, the right hon. Member for Richmond and Northallerton (Rishi Sunak), who paid 23% in average tax on his £2.2 million in earnings. That was of course possible because of the relatively low rate of capital gains tax that he was paying on the vast majority of his earnings, which came through capital and not through earned income.
Again, to the vast majority of people listening to the debate, I am sure that that is a reality far outside their understanding. The vast majority of people in the UK earn income through going out to work and working hard every day. It is for those people—the working people of this country—that this Budget has been made, so that we can lift livelihoods across the country by properly funding our public services and by closing the significant in-year overspend that the previous Government made of £22 billion. Through those measures, and by ensuring the financial stability of our tax system and the economic stability of our country, we will start to raise living standards across the UK. For those reasons, I very much support the measures.
The Chairman of Ways and Means
As colleagues will notice, the Speaker’s Chair is vacant, so I remind Members that the Chair should be addressed as Madam Chair or Madam Chairman. I call the Liberal Democrat spokesperson.
Daisy Cooper (St Albans) (LD)
I commend the Government for looking at capital gains tax as a potential source of revenue to get public services back on their feet, but we Liberal Democrats believe there was a better way of doing it. Right now, capital gains tax is unfair for everyone. Most people already pay too much capital gains tax when they sell a property or a few shares because the system does not account for inflation over the time they have owned them. At the same time, a tiny number of super-wealthy individuals—the top 0.1%—are able to exploit the capital gains system as effectively one giant loophole to avoid paying income tax like everyone else.
According to the latest HMRC statistics, 12,000 multimillionaires used the loophole to pay less than half the top rate of income tax on their combined £50 billion of income. Instead of raising capital gains tax across the board, we Liberal Democrats would have liked to see the Government properly reform CGT to make it much fairer. To provide a comparison, under the Labour Government’s proposals, the main rate of capital gains tax for basic rate taxpayers is being increased from 10% to 18% and, for higher and additional rate taxpayers, from 20% to 24%. According to the Government’s own statistics, the change will raise about £2.5 billion per year by 2029 to 2030. Under the Liberal Democrat proposal, we would have separated out capital gains tax from income, raised the tax-free allowance, provided a new allowance for inflation and had three different rates of capital gains tax. That would have raised £5.2 billion, more than twice the Government’s proposals.
As colleagues will hear, key to our proposal is the reintroduction of indexation—effectively, an allowance keeping people from paying tax on gains that are purely the result of inflation. That would be fair for ordinary people selling a family home or a few shares, but it would also incentivise long-term investment by ensuring that taxpayers are not penalised due to inflation if they hold their assets for a long period of time.
To summarise, the Liberal Democrat proposals for reforming capital gains tax would be fairer and would raise twice as much. The Institute for Fiscal Studies said our proposals would move CGT in a “sensible direction”. Our new clause 1 is incredibly simple. It would require the Government to produce a report setting out the impact of the changes to capital gains tax under the Bill on investment and on the disposable income of people in different income brackets. The objective behind the new clause is to illustrate to the Government that there is a fairer way to reform capital gains tax and to encourage the Government, in the spirit of constructive opposition, to look at our proposals in future years.
Jim Dickson (Dartford) (Lab)
It is a pleasure to serve under your chairship, Madam Chair. I am grateful for the opportunity to take part in Committee of the whole House on a crucial Bill that underpins the new Government’s aim of fixing a tax system that has become less fair and less sustainable over 14 years of Conservative government. We will ensure that the wealthiest pay their fair share, and we will increase funding for public services. I will not detain hon. Members long as we have debated the measures at length already, but I want to make a few brief comments on the portions of the Bill that relate to capital gains tax.
As other Members have pointed out, we need to remind ourselves of our starting point. As the director of the Institute for Fiscal Studies, Paul Johnson, said in his response to the Budget:
“It does bear repeating that the fiscal inheritance”
—that this Government face—
“is truly dire.”
It is in that context that the Bill and the wider measures announced at the Budget should be seen. As the IFS has set out, and Members have mentioned, capital gains tax is paid by less than 1% of the adult population—about 350,000 people. If we break that down further, around 12,000 people—0.2% of the adult population—realise gains of more than £1 million, which account for two thirds of capital gains tax. That is 12,000 people—the main contributors to capital gains tax—paying a little bit more.
Clause 7 raises the headline rates of capital gains tax to 18% for gains within the basic income band for basic rate taxpayers and to 24% for those who pay higher rate income tax. Those levels have risen to match the unchanging residential property rates. The changes are welcome and perhaps not as substantial as was widely speculated in advance. It is important that we look at comparators with neighbouring countries. Those rates, even after the changes, compare well with our European neighbours. In France, as the Minister already said, capital gains tax sits at 30%, rising to 34% for high earners. Our closest neighbour Ireland—often seen as a haven for entrepreneurs who feel that the UK is not a good place to do business—charges 33%, and in Germany it is charged at 25%, plus a 5.5% solidarity surcharge on the tax paid.
Clause 12 includes a long-needed reform in the treatment of carried interest, and I am pleased that the Government are proceeding carefully with this long-overdue measure, moving us towards a tax regime where carried interest is within the income tax framework.
These measures will, I believe, contribute to the crucial revenue that must be raised to fix the foundations of our economy and repair our public services. We need to remind ourselves of the words of George Dibb, the associate director of economic policy at the Institute for Public Policy Research, who said of the changes in the Budget:
“After at least a decade of under-investment, there is now real hope that the government can start to fix the UK’s economic foundations.”
Dave Doogan (Angus and Perthshire Glens) (SNP)
We in the SNP and the Scottish Government believe in progressive taxation. I think that is evident from the changes we have made to income tax since those matters were devolved. We would like a more progressive influence in the changes before us, rather than simply clawing at allowances and increasing the rate. Nothing in clauses 7 to 12 is designed to make matters better in Scotland, but at least the Labour party is consistent on that.
Inheritance tax and capital gains tax are increasingly out of step with modern activity in the UK economy. As the IPPR points out, since the 1980s, household wealth in the UK has risen from three times the national income to more than seven times, yet over the same timeframe wealth taxes have not risen at all as a share of that income. Taxing unearned wealth more fairly and efficiently is a legitimate long-term ambition in a state where the economy is on life support. Taxpayers are left wondering from this Budget whether more tax rises are on the way, after a substantial lack of clarity from the Chancellor, who said a week or so ago that the Government would not come back for more tax rises, or indeed more borrowing, but has since refused to echo those rather injudicious remarks. If she does not have the confidence to stand by her own statements, it is hard to imagine the effect on business and investor confidence across the UK.
The Chancellor should have worked with economic experts, such as those at the IFS, to create a fairer and more growth-friendly capital gains tax, but instead she has been captured by the same old Treasury dogma that has served the UK so badly over recent decades. Capital gains tax raises a growing amount of revenue—about £15 billion last year—partly reflecting the increased role of wealth accumulation in the UK, but it is still less than 2% of all tax take, and although CGT is paid by about 350,000 people each year, two thirds of receipts are from just 12,000 people with an average gain of £4 million.
CGT rates vary significantly across assets, and are almost always significantly lower than income tax rates. That rate differential is unfair and creates undesirable distortions, including to what people invest in and how long they choose to work. The IFS has criticised the Chancellor for choosing simply to increase CGT rates with no effort to carry out what it describes as much-needed reform. It also describes the whole design of CGT as “flawed”, adding:
“There are steps the government could and should take to make the tax fairer and less harmful to economic growth and well-being.”
Moreover, the Centre for the Analysis of Taxation proposes further changes to CGT, including aligning capital gains tax rates with income tax rates, introducing allowances to incentivise investment, taxing the increase in an asset’s value when it is inherited, and implementing an exit tax to prevent individuals from dodging UK taxes on gains made while residing in the UK. It estimates that that package would generate £14 billion, but none of those measures is in the Bill.
The IFS says that if the Chancellor chose to raise CGT rates while leaving the flawed tax base unchanged, she would be choosing to raise some limited revenue at the expense of weakening savings and investment incentives, and of further distorting which assets people buy and how long they hold on to them. The IFS says that that would not be the decision of a Chancellor who is serious about growth. Well, what a portent that turned out to be. She did not reform CGT, and look what happened to growth: forecasts were down immediately after first contact with this inverse Midas-touch Chancellor. It is clear that, in preparing for the Budget, she could have done with a full hour or more with the IFS, but I doubt that she would have listened.
The Chairman of Ways and Means (Ms Nusrat Ghani)
We come to the final Back-Bench contribution, and have saved the best until last. I call Bobby Dean.
Bobby Dean (Carshalton and Wallington) (LD)
Before I address capital gains tax directly, I will make a few short remarks about the state of the national conversation about tax more generally, which I think is highly relevant. I note that tax is always something to be “hit by” in politics—it is violent; we are “hammered” by it—so the debate ends up focusing on who is deserving or undeserving of such punishment. As a result, few organisations are viewed as legitimate targets for taxation. Very rarely do we in politics have the bravery to talk about the virtue of paying tax—what it pays for, how it benefits us all, and why collectively contributing to schools, hospitals and physical infrastructure is sensible investment that we should be proud to make.
That is where the political conversation falls slightly out of step with the mood of the public. Believe it or not, I have had conversations about tax on the doorstep, and I mostly meet people who are proud to make that contribution. Let me be clear: this is not some special plea to talk about tax in a warmer, fuzzier way in order to improve the civility of public discourse. Nor should it be confused for advocacy of a high-tax based economy. I raise that point because our distorted public conversation means that we end up with a dysfunctional tax system that is neither efficient nor equitable. Where we are with capital gains tax is a good example of that.
Decades of wrangling over whether capital gains tax stifles entrepreneurship or is merely a ruse for the rich often results in a pretty reductive focus on rates. It seems that that happened again in the Budget, and I fear that we have missed an opportunity to make that tax better. As others have explained in putting capital gains tax into context, it is paid by around 350,000 people and raises around 2% of total tax revenue, and 12,000 people account for two thirds of that revenue. That tax does not necessarily affect a broad section of society, but it does play an important role in investment in the economy and in the overall sense of fairness in our system.
Let me start with the economy. It makes no sense to me for the Government to make changes to capital gains tax without sorting out the tax base. If we do not index capital gains for inflation, we are not really taxing the thing that we say we are taxing. We should be focused on the real gains—otherwise, we risk taxing those who simply hold on to an asset for a long time, and ultimately we end up discouraging long-term investment.
Secondly, we ought to be targeting capital gains tax at those making the larger gains—if large gains are to be had, those investments will be made anyway. Smaller gains, however—the stuff at the margins—are where investment decisions could be at risk. Raising the CGT allowance a bit would go a long way towards addressing that, as would designing better-targeted reliefs that more precisely encourage investment.
Finally, we come to capital gains tax rates, whose alignment with income tax rates is often called for. The Government have of course moved a bit on that, but a focus on rates alone means that an inherent unfairness remains. There would still be the sense that there is one rule for small businesses and another for the giants. When he appeared before the Treasury Committee, Paul Johnson of the IFS remarked on another unfairness: someone can simply leave the country for a few years and dispose of an assets overseas—somewhere like Monaco—and they are then no longer responsible for capital gains tax. That is another inherent unfairness.
Ultimately, with the proposed changes only, the system will continue to disproportionately benefit the very wealthiest. It is for that reason that I cannot support the measure. If it passes, I hope the Government will consider carefully the impact of the change in isolation, and whether further reforms are necessary in future. Our tax system needs to ensure that everybody pays their fair share, and I do not think the Government have quite got this one right yet.
The Chairman of Ways and Means (Ms Nusrat Ghani)
We come to the Front-Bench wind-ups. Does the shadow Minister wish to speak?
Tulip Siddiq
I thank hon. Members for their contributions to today’s debate. I will take a few moments to respond to some of the points, and will then give the Government’s views on the proposed amendments. If there are questions that I do not answer, I will write to hon. Members.
I thank my hon. Friend the Member for Dartford (Jim Dickson) for his important speech and agree with his points about much-needed reform to our tax system. I also thank my hon. Friend the Member for Earley and Woodley (Yuan Yang) for her powerful speech and wholeheartedly agree with her constituent, who seems very principled and knowledgeable.
To respond to the points made by the Conservative spokesperson, the hon. Member for Grantham and Bourne (Gareth Davies), about the revenue impacts of the carried interest measure, the OBR-certified costings demonstrate that this measure raises revenue over the scorecard period. The Budget does deliver on the Government’s manifesto commitments on tax: estimated revenues for these policies have been adjusted for final policy decisions and to account for underlying changes in the OBR’s forecast, but overall, the hon. Gentleman may be interested to know that the tax measures raise over £1 billion more than was in the manifesto.
To answer the hon. Gentleman’s question about why the changes are being made in-year, the in-year rate changes were made to protect Exchequer revenues from the impacts of forestalling. It is common practice for tax changes to take effect from the date of the Budget. As for anti-forestalling, we would not expect the anti-forestalling provisions to apply to an ordinary commercial sale of an asset where the contract was entered into prior to 30 October. Those provisions target those who enter into artificial arrangements to lock in the pre-Budget tax treatments.
The Lib Dem spokesperson, the hon. Member for St Albans (Daisy Cooper), talked about inflation indexation of CGT. Indexation previously existed when CGT rates were charged at income tax levels with a top rate of 40%. A rate schedule of 18% and 24% is significantly below those levels, so for the important reason of simplicity, indexation is not a part of the system.
New clause 1 would require the Government to present to Parliament a review of the capital gains tax package’s impacts on long-term investment, disposable income across the distribution, and tax revenue. In deciding on these changes to capital gains tax, the Government have already considered all three factors. On long-term investment, the OBR assessed the CGT package to have no measure-specific macroeconomic impact. On impacts across incomes, distributional analysis for all Budget measures combined is set out in the “Impact on households” publication. The Government do not normally publish the impacts of individual measures. Finally, the Government’s projection of the revenue raised by these CGT changes has been certified by the OBR and published in the Budget document. Every year, the Government publish the amount of CGT paid in the most recent tax year with available data, where table 3 breaks down gains by income. For those reasons, the proposed report is unnecessary, and I implore Members to reject the new clause.
New clause 4 would require the Government to publish a review within three months of the passing of this legislation covering various issues in connection with our reforms to the tax treatment of carried interest. As set out earlier, the CGT rates applicable to carried interest will increase to 32% from April 2025. This is a first step in advance of moving to a revised regime fully within the income tax framework from April 2026. The Government believe that their reforms will deliver increased fairness and place the tax rules on a more sustainable footing, while preserving our country’s position as a global fund management hub. We will also be undertaking extensive technical consultation ahead of legislating for the revised regime in a future finance Bill, which the House will of course have the opportunity to scrutinise. We therefore do not consider that new clause 4 is a necessary addition to the Bill that is before us today.
Gareth Davies
I am very grateful to the Minister for explaining all the things she has just set out, but I did not quite get an answer to the specific question of why it costs HMRC £4.5 million to execute this tax rise, which will not raise any money in the next year or the year after. Could she explain why this specific measure that only affects 3,100 people costs HMRC £4.5 million, but other tax increases cost hundreds of thousands of pounds?
Tulip Siddiq
If the shadow Minister looks carefully at the documents we have published, he will find all his answers written out very clearly there.
New clause 5 would require the Government to publish an impact assessment of the changes to business asset disposal relief, and to compare the impact of those changes with the number of claims that would have been expected if the rate had not been changed. Every year, the Government publish capital gains tax statistics, which include the number of business asset disposal relief claims for the most recent tax year with available data. The number of claims in 2024-25 compared with upcoming tax years will therefore become public information in time. Meanwhile, the fiscal impact of the changes are is out in the tax information and impacts note for this measure, which has been published online.
The Chairman
With this it will be convenient to consider the following:
Clauses 16 to 18 stand part.
Schedule 3.
New clause 2—Report on fiscal effects: relief for investment expenditure—
“The Chancellor of the Exchequer must, within six months of the passing of this Act, lay before Parliament a report setting out the impact of the measures contained in clause 16 of this Act on tax revenue.”
This new clause would require the Government to produce a report setting out the fiscal impact of the Bill’s changes to the Energy Profits Levy investment expenditure relief.
New clause 3—Changes to energy (oil and gas) profits levy: review—
“The Chancellor of the Exchequer must, within three months of this Act coming into force, publish a review of the expected impact of the measures in sections 15 to 18 on—
(a) employment in the UK oil and gas industry;
(b) capital expenditure in the UK oil and gas industry;
(c) UK oil and gas production;
(d) UK oil and gas demand; and
(e) the Scottish economy and economic growth in Scotland.”
The Exchequer Secretary to the Treasury (James Murray)
At the Budget in October, the Chancellor set out the decisions that we are taking to restore economic stability, put the public finances on a firm footing, and embed fiscal responsibility in the work of Government. Having wiped the slate clean of the mess we inherited, our Government can now focus on boosting the public and private investment that is essential for sustainable long-term growth. It is through sustainable economic growth across the UK that we will create wealth and provide security, making people across the country better off.
That goal of raising living standards in every part of the UK so that working people have more money in their pocket is at the heart of the Government’s plan for change that the Prime Minister set out last week. That plan also set out the Government’s commitment to securing home-grown energy, and to protecting bill payers by putting us on track to secure at least 95% clean power by 2030. Making the transition to home-grown energy has required us to take immediate action to unblock investment, including deciding to reverse the de facto ban on onshore wind. The Government have their part to play, alongside the private sector, in making sure that investment happens on the scale and at the pace that we need. That is why the clauses that we are debating are so important—they are a key mechanism for raising the funding that is needed for that investment to be delivered.
We are taking a responsible approach that recognises the role of businesses and their employees in the energy industries of today and tomorrow. Since we formed a Government, my colleagues and I have been working closely with the sector affected by the energy profits levy to make sure that the transition is managed in a way that supports jobs in existing and future industries. Our approach recognises that oil and gas will have a role to play in the energy mix for many years to come, during the transition, and it balances that with ensuring that oil and gas help to raise the revenue that we need to drive investment towards the energy transition. Our legislation delivers that approach, and I welcome the chance to set out the details of how it does so.
The clauses that we are debating concern the energy profits levy, a temporary additional tax on profits from oil and gas exploration and production in the UK and on the UK continental shelf. The levy was introduced by the previous Government in response to the extraordinary profits being made by oil and gas companies—and, it is fair to say, in response to substantial political pressure from Labour Members.
Harriet Cross (Gordon and Buchan) (Con)
Does the Minister believe that oil and gas companies are still making extraordinary profits?
James Murray
I believe that it is fair that the oil and gas industry makes a reasonable contribution to the energy transition. We need to ensure that during the transition from oil and gas, which will play a key role in our energy mix for years to come, the industry contributes to the new, clean energy of the future. The way to have a responsible, managed transition is to work with the industry and make sure that it makes a fair contribution, but to not shy away from making that transition at the scale and pace needed.
Sammy Wilson (East Antrim) (DUP)
Let me try to understand the Minister’s logic. First, he recognises that we will need oil and gas. Secondly, he is going to tax oil and gas companies. Thirdly, he is telling them that his Government are creating an environment in which there is no future for oil and gas, but he still expects them to invest. Where is the logic?
James Murray
I am glad that the right hon. Gentleman has given me a chance to set out why the Government plan is the right and balanced approach. We are ensuring that the oil and gas sector is supported in making the contribution that we know it will to our energy mix for many years to come, while asking it to contribute to the transition to clean energy. The oil and gas industry recognises that a transition to clean energy is under way. It wants to support investment and jobs in the industry but also to contribute to the transition. Taking a fair and balanced approach is the right way to protect the jobs and industries of today and tomorrow and, crucially, to protect bill payers, giving them permanently lower bills and greater energy independence. [Interruption.]
Tristan Osborne (Chatham and Aylesford) (Lab)
In the last financial year, the oil and gas industry made £6.1 billion in profit, despite the chuntering from Opposition Members. Does my hon. Friend agree that the Conservatives introduced the energy levy? We are simply ensuring that our oil and gas sector pays an equivalent sum, so that we can transition to a green energy future. This money is necessary for that transition to occur.
James Murray
My hon. Friend is absolutely right that we are asking oil and gas companies to make a fair and reasonable contribution towards our transition to clean energy. That transition is under way, and it is important for oil and gas companies to make a contribution, but that should happen in a way that protects the jobs and industries of today and tomorrow.
Wera Hobhouse (Bath) (LD)
The oil and gas giants were making eye-watering profits when the Conservative Government finally introduced a levy, although it had a loophole that let the oil and gas companies off the hook. The Government should support the Liberal Democrat amendment, which demonstrates how much of a missed opportunity that was, and how much money we could have raised, had the loophole been closed earlier.
James Murray
I am not entirely clear that that is what the Liberal Democrat amendment does. We have been clear that our intention is to end unjustifiably generous allowances. That is exactly what we are doing by abolishing the core investment allowance, which was unique to oil and gas taxation and is not available to any other sector in the economy.
Perran Moon (Camborne and Redruth) (Lab)
New research published in the last few days has found that fossil fuel companies reported profits of nearly $0.5 trillion during the 2022 energy crisis. By contrast, people struggled with fuel poverty and had to choose between heating and eating. One in seven households in my constituency is in fuel poverty. Does the Minister agree that the ability to extend and increase the energy profits levy is a key lever for addressing this imbalance and supporting households?
The Chairman
Order. That was neatly done, but interventions have to be very closely related to what we are debating here and now.
James Murray
I hope that my hon. Friend’s constituents will benefit from lower bills as a result of the investment that we are ensuring, by the public and private sectors, in the clean energy sources of the future.
We knew, when the Conservatives introduced the energy profits levy, that the extraordinary oil and gas profits were driven by global circumstances, including resurgent demand after covid-19, and the Russian invasion of Ukraine. Households in the UK, however, were particularly badly hit by higher oil and gas prices, as the Government at the time had failed to invest adequately in energy independence, or in measures such as home insulation. When the energy profits levy was introduced, an 80% investment allowance was also introduced, and this was later reduced to 29% when the levy rate increased from 25% to 35% in January 2023. An 80% decarbonisation investment allowance was later put in place for decarbonisation expenditure, which is money spent on the reduction of emissions from the production of oil and gas. The levy was initially set at 25%, but the previous Government increased it to 35% and extended it beyond 2025, first to 2028, and later to 2029.
As I mentioned, the Government recognise the continued role for oil and gas in the UK’s energy mix during the energy transition. We are committed to managing the transition in a way that supports jobs in existing and future industries, recognising that our offshore workers have the vital skills to unlock the clean industries of the future. I put on record my thanks to the offshore workers I met in Aberdeen in August for giving me some of their time and their views when I was there for a meeting with Offshore Energies UK and representatives of the sector. As I mentioned, it is essential that we drive both public and private investment in the transition to clean energy. Clause 15 therefore increases the energy profits levy by three percentage point—from 35% to 38%—from 1 November 2024. The clause also sets out the rules for apportioning profits for accounting periods that straddle the start date. As I have made clear, the money raised by these changes will help to support the transition to clean energy, enhancing our energy security and providing sustainable jobs for the future.
Clause 16 concerns allowances in the levy. The clause removes the 29% core investment allowance for general expenditure incurred on or after 1 November 2024, as I mentioned to the hon. Member for Bath (Wera Hobhouse). The Government have been clear about our intention to end unjustifiably generous allowances, and that is exactly what we are doing by abolishing the core investment allowance. We are bringing the level of relief for investment in the sector broadly in line with the level of capital allowances available to other companies operating across the rest of the economy through full expensing, which we have committed to maintaining. The energy profit levy’s decarbonisation allowance will be retained to support the sector in reducing emissions.
Qualifying expenditure includes money spent on electrification of production, or on reducing venting and flaring. The retention of the decarbonisation allowance reflects the Government’s commitment to facilitating cleaner home-grown energy. However, in the light of the increase to the levy, clause 16 also reduces the rate of the decarbonisation allowance to 66% in order to maintain the same cash value of the tax relief per £100 of investment.
Clause 17 extends the sunset of the levy by one year from 31 March 2029 to 31 March 2030. To provide the oil and gas industry with long-term certainty and confidence in the fiscal regime, we are retaining the levy’s price floor, the energy security investment mechanism.
Dave Doogan
Certainty is only good if it relates to a positive outlook, not a negative outlook. The hon. Member for Gordon and Buchan (Harriet Cross) asked a clear question about the duration. It was not about whether the sector pays fair taxes; we all believe that people should pay fair taxes. Does the Minister still believe that the industry is making extraordinary profits?
James Murray
I would like to explain to the hon. Gentleman how the energy security investment mechanism works, because that, to be fair, was put in place by the previous Government, and we are maintaining it. It says that if prices drop below a certain threshold for six months, the energy profits levy ceases early. That gives some certainty and predictability to the oil and gas sector. If prices go below that level, the sector can have confidence that the energy security investment mechanism will end the levy early. If that does not happen, the levy will continue, as we have said, until March 2030.
I am keen—I will set out a few more details later—to engage with the oil and gas sector on the regime post the energy profits levy, because it is important for oil and gas companies making decisions about investment to have certainty about what will happen up until March 2030, and to understand what the regime might be like thereafter. That is why I am looking forward to my conversations with the sector on what the post energy profits levy regime will look like.
Long-term certainty and confidence is being provided to the oil and gas sector by our retention of the levy’s price floor, the energy security investment mechanism, which I was explaining to the hon. Member for Angus and Perthshire Glens (Dave Doogan). It means that the levy will cease permanently if oil and gas prices fall below a set level for a sustained period. Furthermore, as I also just said, to provide stability for the long term, the Government will publish a consultation in early 2025 on how the tax regime will respond to price shocks once the energy profits levy comes to an end. That will give oil and gas producers and their investors predictability and certainty on the future of the fiscal regime, which will support their ability to continue investing, while also ensuring that the nation receives a fair return at a time of exceptional crisis.
The Chairman of Ways and Means (Ms Nusrat Ghani)
I call the shadow Minister.
Gareth Davies
I rise to speak on behalf of the official Opposition on new clause 3, which stands in the name of the shadow Chancellor, my right hon. Friend the Member for Central Devon (Mel Stride).
Clauses 15 to 18 concern the taxation of the oil and gas industry, which meets 75% of the UK’s household and industrial energy needs, with 50% of that need being met by the North sea. The sector supports more than 200,000 high-skilled jobs in this country, and that talent, along with the rest of the supply chain, will be crucial to our domestic energy transition. These realities underscore the imperative of a smooth and efficient transition and a fiscal regime that facilitates that, not least because the timeline for investment in the oil and gas industry is so long. If the fiscal regime is not calibrated correctly, the damage may be irreversible and the costs will be significant.
To recap the measures in the Bill, clause 15 increases the rate of the energy profits levy from 35% to 38%, bringing the headline tax rate on the sector up to 78%. Clause 16 removes the 29% investment allowance and reduces the rate of the decarbonisation investment allowance to 66%, so that the cash value of that allowance remains the same. Clause 17 extends the energy profits levy to 2030, at which point the Government are committing to implementing a successor regime to respond to price shocks once the levy expires. Clause 18 and schedule 3 legislate for certain payments into decommissioning funds to be treated as decommissioning expenditure so that they can attract tax relief.
The question that many are asking is this: do these measures add up to a fiscal regime that facilitates a smooth and efficient energy transition? Not according to the Office for Budget Responsibility, which concludes that on average over the forecast period, capital expenditure will be 26% lower, oil production 6.3% lower and gas production 9.2% lower compared with our March forecasts. Those are dramatic movements. The University of Aberdeen has warned:
“A rise in the EPL and loss of investment and capital allowances may have the unintended effect of accelerating decommissioning and decelerating the energy transition as companies face an additional cost burden.”
The Government have thankfully carried out a partial U-turn, retaining the decarbonisation allowance and the 100% first-year allowance introduced by the Conservative party, but if they were persuaded of the importance of those investment allowances and that removing them would do more harm than good, why persist with removing the main 29% investment allowance? What was it about that relief compared with the others that made them want to scrap it?
The Government talk about closing loopholes—we saw how well that went with carried interest—but these measures will contribute just 1% of the new revenue raised by the Budget across this Parliament. Does the Minister really think it is worth jeopardising some 50% of our domestic gas supply for that? The measures in the Budget essentially throw a massive spanner in the works for oil and gas, and it is unclear exactly what the Government’s rationale is for doing that.
When we brought in the levy, it was to tax extraordinary profits in extraordinary times. The revenue that we raised contributed to our efforts through policies such as the energy price guarantee and the energy bills support scheme to reduce energy bills for the British people. Today, as those extraordinary circumstances subside, Labour is ratcheting up the levy. That sends a mixed message to the industry ahead of the consultation on a successor regime. The terms of that regime will supposedly be set by the need to respond to price shocks, yet the Government’s justification for these measures has nothing to do with price shocks. Instead, they are all dressed up in language about the sector making a “fair contribution”, as the Minister said, to the Energy Secretary’s environmental ideological ambitions. What is the Government’s vision for the taxation of oil and gas in this United Kingdom—temporary windfall taxes or permanent climate levies? The Bill suggests the latter. I would be grateful for the Minister specifically commenting on that when he responds.
One way in which the Minister could give an indication and provide some long-term certainty would be to confirm further the future of the energy security investment mechanism, which he mentioned. As he kindly said, we introduced the ESIM so that when prices returned to normal levels, the energy profits levy would end; no more windfall profits would mean no more windfall tax. Will he confirm that the ESIM will remain in place up to 2030? I think he said so at the Dispatch Box, but I would be grateful for his reconfirming its end date. Will he go further and confirm that it will remain in the same condition as today? Will the price floor continue to be consumer prices index-adjusted?
The Treasury and the Minister have said that the ESIM will be retained, but the industry would like further confirmation, as I have set out. Will he also write to me with the Treasury’s latest modelling of future oil and gas prices to prove that the expected revenues are not at the expense of the ESIM? That modelling will be important for us to understand and get that reassurance and certainty on the ESIM. Having been in the Treasury, I know that that modelling is continually reviewed and produced; I would be grateful if he would write to me with that.
These are not purely academic questions. Our concern is for the hundreds of thousands of people employed by the UK oil and gas industry, for the UK’s energy security and for the efficient and smooth energy transition that we all care about. The Government should be not ideological but empirical in their approach, which is why we have tabled new clause 3, which would require a review of the impact of these measures on employment, investment, production, demand and the whole Scottish economy. If the Government have already made detailed assessments on those specific areas, we would be grateful for the Minister publishing them.
On every measure, the Budget has not survived contact with reality. Growth has been downgraded, real incomes depressed and business investment reduced, with broken promises and credibility completely shattered. It is not so much that the Labour Government take a different view on economic matters; it is that they take the wrong view. Labour is the party of the tax rise that loses money. We are the party of the tax cut that raises revenue. That is why Labour Governments always leave office with more unemployment, larger debt and higher taxes. They always run out of other people’s money, and this Government are set to do so in record time.
The Chairman of Ways and Means
I call the Liberal Democrat spokesperson once again.
Daisy Cooper
At the heart of the debate is a stark injustice, understood by every man, woman and child on the streets of Great Britain. In the last few years, oil and gas giants have made eye-watering profits—in many cases, they are profits that they did not expect to make—and they have made them off the back of Putin’s brutal invasion of Ukraine and global supply chain issues that caused energy prices to soar. At the same time, people have seen their living standards drop and their energy prices soar. In too many cases, people have had to choose between heating and eating.
We Liberal Democrats were the first party to call for a tax on oil and gas windfall profits back in October 2021, but it was not until May 2022 that the previous Government eventually introduced the energy profits levy. It was half-hearted and woefully late. If it had been brought in when we had called for it, there would have been additional revenue to reduce people’s energy bills and launch an emergency home insulation scheme, reducing energy consumption, which would have been good for the climate, and reducing people’s bills, which would have been good for their pockets.
The previous Government effectively let oil and gas giants off the hook, by initially setting the energy price levy at just 25% and putting in place a massive loophole in the form of the investment allowance. That allowed the oil and gas giants to get away with vast sums at taxpayers’ expense, with the excuse of investments that they would have made anyway. In essence, the Conservatives gave them tax relief on polluting activity when they should have been doing everything to raise funds to reduce people’s bills and urgently insulate homes.
Thanks to the investment allowance—the big loophole—in 2022, Shell admitted that it had paid zero windfall tax despite making the largest global profit in its 115-year history: a profit of £31 billion. As some colleagues in the Committee have referred to, energy prices have come down since those record levels of 2022, but the oil and gas producers have still seen huge profits. In 2023, Shell saw its profit come down from £31 billion, but it still made £22.3 billion.
Harriet Cross
How much of that profit was made in the UK versus globally?
Daisy Cooper
To be honest, I do not know what the distinction is between global profits and UK profits. The point is that the levy is put on UK profits made out of UK operations. I hope that the hon. Lady will agree that when her constituents cannot afford to put their heating on, she should not miss the opportunity to raise taxes from the big oil and gas companies.
As I said, Shell made a profit of £22.3 billion in 2023, and BP saw profit of £11 billion, its second highest in a decade. I hope the Committee agrees that where those profits are made on UK operations, they should pay their fair share. We are glad that the current Government have listened to calls from Liberal Democrats and others and finally scrapped the unfair investment allowance loophole, but we would like the Minister to give the Committee some clarity on how much money will be raised, particularly through the abolition of the carve-out. By extension, we would be able to see how much money could have been raised under the previous Government but was gifted to the large gas giants. [Interruption.] Conservative Members may not like it, but their constituents are choosing between heating and eating. People should know just how much money could have been raised and how much will now be raised through this measure.
Harriet Cross
I will speak to clauses 15 to 18 briefly, but mainly to new clause 3 in the name of my right hon. Friend the Member for Central Devon (Mel Stride). It would require the Chancellor to publish within three months a review of the expected changes introduced by the Bill on employment, capital expenditure, production, demand and the economy. It is inherently sensible, and considers the importance of the oil and gas sector to regional and national employment and economic growth in the UK.
On the need to review the impact on employment, 82% of direct jobs in the oil and gas sector are located in Scotland. My Gordon and Buchan constituency is at the heart of that. New clause 3 would review the impact of the changes to employment across the country, as it is not just direct jobs that are on the line but supply chain and other indirect jobs. Of those, 90,000 are in Scotland and 200,00 are across the UK.
Dave Doogan
The hon. Member highlights the economic consequences of this heading south on jobs in Scotland. Is she surprised and disappointed, as I am, that not a single Scottish Labour MP has turned up to take part in this vital debate?
Harriet Cross
We were saying a moment ago how extraordinary it is that they are not here to stand up for their main industry. That shows how much they value or care about jobs across Scotland.
We are seeing warning signs already of the impact of these measures. Just a week after the Budget, Apache confirmed that it would cease operations in the North sea, saying:
“The onerous financial impact of the EPL, combined with the substantial investment that will be necessary to comply with regulatory requirements, makes production of hydrocarbons beyond 2029 uneconomic.”
According to the Aberdeen and Grampian Chamber of Commerce, 100,000 jobs may be at risk across the UK because of the changes. Offshore Energies UK says that 35,000 jobs directly related to projects that may not now go ahead are at risk. New clause 3, which would allow the Government the opportunity to assess and account for the impact of the Bill’s changes on jobs relating to the oil and gas sector, the supply chain and the wider economy, should be welcomed across the Committee.
Mr Andrew Snowden (Fylde) (Con)
On the impact that increased tax on the industry will have on jobs, was my hon. Friend as disappointed as I was to hear the Liberal Democrats talking only about how much cash can be raised from an industry, without asking how many jobs would be affected across Scotland and the UK, or about the impact on the economy as a whole?
Harriet Cross
Absolutely; sometimes there is a complete disconnect in this place between how much we can tax and squeeze something dry and what that does to investment. These companies, especially the global ones, do not have to invest in the UK—they can invest across the world. They are choosing to invest here at the moment, and therefore we get jobs, opportunities and employment. That investment can go abroad, and if it does, it will take jobs with it, to the detriment of all of us, but particularly us in north-east Scotland.
Wera Hobhouse
Does the hon. Lady not recognise that we are in a transition period, which we need in order to get to net zero? Of course, we need to protect jobs, but the transition to net zero is essential.
Harriet Cross
I recognise that, which is why it is so important that we protect the jobs and the investment. The companies in our supply chain have the skills and expertise that will drive the transition, as will the investment that comes in, and that is why we need to keep them.
Sammy Wilson
The hon. Lady makes a good point about the mobility of investment in the oil and gas industry. Is it not ironic that, since we will need oil and gas, if we tax companies on production in the United Kingdom, they will simply produce elsewhere, other Governments will get the revenue from the tax on that production and we will pay more for imports?
Harriet Cross
Exactly. There must be a balance between production and demand—I will come to demand later. There is no point reducing our domestic production while our demand stays the same, because we will only fill the gap with oil and gas from abroad, which is produced with a higher carbon intensity in poorer working environments, where overseas jobs and investment will take precedence over investment at home. It makes no sense that while we are using oil and gas—the Minister himself confirmed that we will be for a while—we do not prioritise taking it from our own North sea domestic basins.
New clause 3 also asks for a review on capital expenditure and investment in the UK. In Scotland alone, oil and gas contributed £19 billion of gross standard volume. In the UK, it contributed £27 billion. A 2022 report by Experian showed that for every £1 million of investment by the oil and gas industry, 14 jobs and £2.1 million of GVA are added. This industry is blatantly a net benefit to the UK and the Exchequer, and one in which we should encourage investment and capital expenditure, not an environment where the returns do not justify the risk of investment.
As my hon. Friend the Member for Grantham and Bourne (Gareth Davies) said, the OBR’s own figures show that capital expenditure will fall by 26%, and therefore production of oil by 6.3% and gas by 9.2%, because of these changes. We must ask, can the UK afford this? Maybe those were the parameters that the Exchequer and the Treasury are looking for, if they see them as allowable. But if that is the case, what assessment has been made of the impact on the economy and jobs across the UK?
The OEUK has put the projected drop in production down to a rapid decline due to underinvestment over the decade. Under new clause 3, we can assess the impact of the changes to the EPL and head this off to begin with because, as I said, it is important that while we have demand, we have production. It has been confirmed that we will need oil and gas in the UK for years to come, but through the changes to the EPL in the Bill, in particular clauses 15 and 16, which increase the EPL by 3% and remove the investment allowances, the Government are choosing to make our homegrown domestic energy sector so uncompetitive that current investment falls away and future investment is no longer on the cards.
We cannot afford to lose investment because, as I said, it will drive the transition. It is so important that it is protected now, to help us bring the transition forward quickly and efficiently into the future. Clauses 15 to 18 were introduced without adequate consultation on the impact assessment. New clause 3 simply asks for proper scrutiny of their impact. If the Government are confident in their approach, why resist a responsible request for transparency? My Gordon and Buchan constituents, and people in Scotland working in the oil and gas sector and across the UK, deserve to understand how these changes will impact their livelihoods.
Madam Deputy Speaker
Before I call Dave Doogan, I remind Members that if they wish to speak, they need to be bobbing consistently—I cannot read people’s minds to put together a speaking list.
Dave Doogan
The changes to the EPL, particularly those set out in clauses 15 and 17, will have a hugely damaging effect on jobs and the Scottish economy. This is also an inauspicious day for Scotland in this so-called United Kingdom as Norway’s sovereign wealth fund records a €1.7 trillion breakthrough, while Scotland’s oil wealth has been squandered by successive Westminster Governments. Norway gets financial security in perpetuity; Scotland gets Labour’s bedroom tax, cuts to winter fuel payments for our elderly and the highest energy prices in the G20—that is the Union dividend wrapped up and served on a plate right there. More than £400 billion has flowed from our waters to the Treasury over the years, with very little coming back in the other direction. Rather than reverse the train, the Labour Government have, with this increase to the EPL, chosen to accelerate it.
The cumulative effect of clauses 15 to 18 will sound the death knell for Scotland’s hydrocarbon production in advance, crucially, of the transition—economically illiterate, fiscally incompetent and with industrial suicide as the result. A windfall tax is supposed to be a tax on extraordinary profits, yet the extraordinarily high global oil and gas prices that preceded the introduction of the tax have long since abated. Through these changes, the Labour party jeopardises investment in Scotland’s offshore energies and risks the future of our skilled workforce and our ability to hit net zero while employing those workers. Analysis from Offshore Energies UK shows that the increase and extension of the EPL risks costing the economy £13 billion and putting 35,000 jobs at risk.
The analysis from OEUK also shows a collapse in viable capital investment offshore under these changes from £14.1 billion to £2.3 billion in the period ’25-29. It is increasingly apparent that the Government do not really understand how investment horizons work offshore. They are not on a month-to-month basis; they take years to work up. This loss of economic value impacts on not only the core sector, but domestic supply chain companies, many of whom exist in my constituency, which have an essential role to play in the just transition.
The Labour party promised that there would be no cliff edge, yet it has concocted one for the 35,000 workers whose jobs this EPL change puts at risk. Labour had claimed that these changes would keep the UK in line with Norway, but the regime after Labour’s changes cannot be compared to that of Norway, which allows companies a maximum £78 of relief per £100 expenditure —in the UK, this relief would be £46.25. After these past couple of weeks, I am given to wondering if those on the Treasury Front Bench can actually count.
Changes to the EPL will hinder the just transition. The Government argue that the reduction in the rate of the decarbonisation investment allowance to 66% will maintain the overall cumulative value of relief for investment expenditure following the rate increase, reflecting the fact that this relief will increase in value against a higher levy rate. However, the policy still reflects a political choice by Labour to deprioritise investment in decarbonisation. Rather than allowing more valuable decarbonisation relief as the solitary positive by-product of its tax hike, Labour has striven to ensure that there is absolutely no silver lining to this fiscal attack cloud on Scotland’s energy industry.
Mr Snowden
At the heart of this, when we have comparisons to Norway, is a sheer focus on trying to squeeze as much taxation out of the industry as possible, without a focus on how to become more competitive. Does the hon. Gentleman agree that what we need for jobs and for energy security in the UK is to compare ourselves to the most competitive oil and gas economies in the world, and not those that squeeze and tax the most out of the industry and kill jobs?
Dave Doogan
Exactly. The hon. Gentleman raises the question of jobs, and the Government are playing fast and loose with jobs in the oil and gas sector. They are playing Russian roulette. They do not seem to understand that when what they have got wrong comes home to roost, they cannot just say, “Sorry, we got that wrong.” When it is gone, it is gone—they cannot bring it back. This is 2024, not 1972. We are already in the closing chapter of the sector; it will not be coming back. This Government seem to completely misunderstand that.
The simple truth is that the UK state cannot meet net zero or create green growth if Labour’s policies to hack away at investment in both the domestic workforce and the sector are allowed to progress. It is clear that the Labour party is abandoning Scotland’s existing energy sector, and putting at risk the just transition into the bargain. With these changes to the EPL, Labour will be creating the worst of all worlds: it will starve industry of investment, sacrifice the jobs of those who can deliver net zero, threaten energy security, keep energy bills high and harm the economy of Scotland, while at the very same time failing to invest the money required to truly deliver against a green transition.
Wera Hobhouse
I rise to speak briefly in support of new clause 2. I welcome the Government finally scrapping the unfair investment allowance loophole for the oil and gas giants, which the Liberal Democrats have advocated for and called for since the previous Government introduced the levy—too late, and half-heartedly—in May 2022. Oil and gas companies made eye-watering profits off the back of Russia’s invasion of Ukraine and global supply chain problems that caused energy prices to soar. While the oil and gas giants saw record profits, my constituents in Bath and others across the country faced a cost of living crisis.
The previous Government have a lot to answer for. They sat and watched as the oil and gas giants lined their pockets off the back of people struggling with their bills. It did not have to be that way. [Interruption.] Conservative Members do not want to hear it, but it did not have to be that way. Those were the political choices the previous Government made.
The measures announced by the Government in this Bill are welcome, in particular the removal of the 29% investment allowance except for investments on decarbonisation. This has been a Liberal Democrat policy, and I am pleased the Government have picked up on it and that it will now become a reality.
We Liberal Democrats were the first to call for a tax on oil and gas windfall profits back in October 2021. While the previous Government did eventually introduce the energy profits levy, they did so half-heartedly and woefully late in May 2022. It matters that we repeat that again and again: it is something that the previous Government failed to do. That Government let the oil and gas giants off the hook by putting in place a massive loophole in the form of the investment allowance. It was thanks to that allowance that in 2022, Shell admitted it had paid zero windfall tax, despite making the largest global profits in its 150-year history of £31 billion. That cannot be right while our constituents have been struggling to pay their bills.
My hon. Friend the Member for St Albans (Daisy Cooper) has tabled new clause 2, which would require the Government, as we have already heard, to produce a report about the fiscal impact of the Bill’s changes to the EPL and relief for investment expenditure. We cannot lose sight of the bigger picture. To avoid a repeat of the energy crisis, we must end our reliance on oil and gas. Investing in renewables would mean cheaper energy across the country. We would no longer be reliant on dictators such as Vladimir Putin who use natural gas as a weapon. As well as being more affordable, renewables are the best route to energy security. It is very disappointing to hear Conservative Members advocate for business as usual. We need to transition away from oil and gas.
Harriet Cross
I thank the hon. Lady for giving way. At what point does she believe we will be fully reliant on renewables?
Wera Hobhouse
I thank the hon. Lady for her intervention. It is absolutely by putting in place the measures for transition that we will meet net zero. If we continue with business as usual and continue to listen to people who ultimately do not understand that unless we get to net zero our whole economy will suffer, then people will suffer. We will also have big, big problems with issues such as huge migration if climate change can rule unchallenged. This is why the Liberal Democrats believe the transition to net zero is important and why we need to put measures in place to make that happen. It is disappointing that the Conservatives, as the previous Government and now the Opposition, still do not understand how urgently we require climate action.
Dave Doogan
I am very grateful to the hon. Lady for giving way. What is her understanding of what will happen to domestic consumption of oil and gas products in the United Kingdom if the domestic industry atrophies but domestic demand still exists? What will happen in that scenario? Where will the oil and gas come from, or will we just give it up overnight?
Wera Hobhouse
I thank the hon. Gentleman for that intervention. The whole argument is that we will continue to rely on oil and gas for the time being, but unless we start to change something, on the current projection we will not get to net zero as urgently as we need to. Progress has been too slow, so the longer we hesitate the more difficult it will become. The new Government have understood that urgency, and the Liberal Democrats support them in dealing with this issue with more urgency than we saw from the previous Government. I therefore repeat that we support the measures, but we would like the Government to support our new clause 2. As I said, it will show what we can raise by closing the loophole. It would by extension, as my hon. Friend the Member for St Albans clarified, show what has been squandered by the previous Government—money that could have been invested.
Tristan Osborne
According to the New Economics Foundation, the previous Government’s levy raised £10.6 billion for the oil and gas industry, but the industry invested only £3.6 billion of that in new capital projects, taking the remainder as sheer profits. Does the hon. Lady agree with me that that is exactly why it was a foolhardy proposal? The profits made did not go into investing in new capital assets, but largely went into shareholders’ pockets.
Wera Hobhouse
Indeed. I could not agree more and I thank the hon. Gentleman for clarifying the figures. That is why something needed to change and something needed to give. I repeat that I hope Government Members can support our new clause 2, because it matters. It will lay open what has been squandered and what difference we could make if we close the loophole.
Yuan Yang
Thank you, Ms Ghani. I apologise for my inconsistent bobbing. I am still learning when to stand up, but what has gone up and stayed up are the record profits of the oil and gas majors. I will start my speech on that topic, and will go on to speak about where those profits have come from and, finally, what the proceeds of our EPL will go to fund.
First, on those record profits, I think all Members of the Committee agree that the record profits in the oil and gas industry in 2022 were excessive. In 2023, however, the profits for Shell, the largest oil and gas major in Europe, barely decreased from the previous year. In fact, if we take its profits from the first half of this year, Shell looks likely to eclipse even those of last year. In the first half of this year, Shell has had profits of $14 billion. Half of that went to share buybacks, which do nothing to fund the decarbonisation that is so necessary to secure the future of energy production here in the UK and around the world. Those record profits, much of which have been handed back to shareholders, are going in the opposite direction of what ordinary families and working people need. Rather than reinvest in the transitions of the future, I would argue that the Conservative party is looking at the industries of the past and clinging on to a past that is quickly fading from reality.
Secondly, let us look at where those profits have come from. The House of Commons Library states that generally lower wholesale prices in the last year led suppliers to start offering fixed tariffs, as of summer 2023. However, they have been far more cautious in pricing those tariffs, with prices close to the level of the energy cap. Any return to competition in the market is expected to be slow. That reflects the state of affairs we face today. The wholesale prices of oil and gas—as an example, look at the price of Brent crude in the market today—are back below the levels they were pre the Russian invasion of Ukraine, yet the retail prices facing ordinary working families in the UK are still far above those levels. What happens in the middle? The profits are being taken by the oil and gas companies. Largely, they are not being reinvested in the productive sectors of the future, but being paid back to shareholders.
In any market where the return of competition is expected to be slow, there is a role for the Government to regulate the fair share of proceeds—who gets the surplus from that market. Here I pause and say that when we look across the Committee to who is arguing for the interests of working people and who is arguing for the interests of the oil and gas profit-making giants, the political divisions are clear. There are schools in my constituency that are fundraising to insulate themselves. The Maiden Erlegh school where I live is asking its parent association to provide better wooden frames for its windows, because they leak in winter. That is the public estate that our Government have been elected to fix and repair. We will set about doing so with the profits from the levies set out in the Bill we are discussing today.
Harriet Cross
I thank the hon. Member for giving way. She says it is clear who is on the side of working people versus the companies. My constituents are the people working in the oil and gas sector. They are the ones most at risk of losing their jobs if the changes brought in through the EPL go wrong. I am on the side of working people, and I am on the side of my constituents. No matter what MPs across the House say, I will always fight for my working people in Gordon and Buchan who just happen to be working people in the oil and gas sector.
Yuan Yang
I thank the hon. Lady for her intervention, and, at this point, refer to my entry in the Register of Members’ Financial Interests and my support from the unionised voices of those who work in the sector to which she referred. I commend the Government’s green prosperity plan to initiate a skills transition, and provide funding for it, so that those workers can profit from the industries of the future rather than the industries of the present and the past.
As the Minister said, the energy profits levy will raise £2.3 billion over the current Parliament, which will go towards the funding of, for instance, Great British Energy. GB Energy, whose headquarters are in Aberdeen, will bring innovation in green technologies not only to Scotland but to the whole of the UK. I will forgive, for a moment, the hon. Member for Angus and Perthshire Glens (Dave Doogan) for perhaps not recognising my hon. Friend the Member for Hamilton and Clyde Valley (Imogen Walker)—I know that an awful lot of new Scottish Members were elected in the last general election, and it must be difficult to learn all their faces. I ask the hon. Member to reflect on the possible reasons for the election of a record number of Scottish Labour Members while he sets about learning their names and faces.
The Government’s auction of 130 wind, solar and tidal energy projects in the latest round of the contracts for difference scheme points the way to the future. It points the way to the generation of 95% of the UK’s energy through green and decarbonised energy by 2030; to a transition that everyone in this Committee, and certainly everyone on the Government Benches, is looking forward to seeing in the next 10 years; and to the delivery of the local power plan, which will support local energy projects in communities such as mine. I welcome the funding of local projects such as Reading Hydro, which takes hydroelectric energy from the Thames, and the work of Reading Community Energy Society, which generates solar energy on the rooftops of the University of Reading and rooftops across my constituency. I look forward to all those projects and to the projects of the future, which is why I commend the measures that we are discussing today.
Sammy Wilson
The Government have set a number of objectives that they wish to achieve over the next five years. Central to those objectives are growth, highly paid jobs, energy security, and increased investment. However, when I look at clauses 15 to 17, I ask myself, “Have the Government gone mad?” They are undermining the very objectives that they are seeking to achieve through their policy of taxation, a policy that I believe is driven more by green ideology and by prejudice against some high-earning companies than by any economic logic. The economic logic of these proposals, and indeed the predictions made by those who have fed in the data and the information about them, indicate that, at least in our major oil and energy industry, investment will go down, production will go down, and highly paid jobs will go down.
The hon. Member for Earley and Woodley (Yuan Yang) said that hers was the party that was interested in ordinary workers. As has already been pointed out, no Scottish Labour Members are taking part in the debate. I suggest that the 100,000 workers in Scotland who depend on the oil and gas industry feel abandoned today because there is no one here to defend them—although I have to say that if I were a Scottish Member I might not want to stick my head over the parapet, defend measures such as these, and then have to go back to my constituents to explain. I suspect that they will go through the Lobby and vote for those measures, but—[Interruption.] The hon. Member for Hamilton and Clyde Valley (Imogen Walker) is opening her arms and saying that she is from Scotland. I look forward to hearing her speak later in the debate in defence of these measures, which will cost jobs.
We have heard that those jobs will be replaced by highly paid, skilled jobs in the renewables industry, but there is little evidence of that so far. Indeed, if we look at the sources of the materials and the providers of, for instance, wind turbines, we see that the skilled jobs are not in Britain. We are making ourselves dependent on countries such as China which have control of the earth metals and valuable metals that are required to provide the necessary equipment for the renewables industry.
Mr Snowden
The right hon. Member has touched on an important point. Meeting the Government’s 2030 target and creating the green jobs to which he has referred will require two technologies that have not yet been tried and tested at scale, carbon capture and battery storage. Why would we gamble such an important 100,000-job industry in favour of technologies that have not even been tried and tested at scale?
Sammy Wilson
It is not just that they have not been tried and tested. There is also an acceptance—indeed, it is the Government’s own stated position—that even with those technologies, we will be reliant on, and will need, oil and gas not until 2030 and not even until 2040, but beyond 2050. If we do not extract as much oil and gas from our own resources here in the United Kingdom, where will we get it from? We will get it from abroad, which brings us to the issue of energy security.
The places where energy is likely to be produced will not be stable countries, countries that will always be favourable towards us, or countries that are ruled by rational rulers. It will come from countries where rulers are irrational, and take political decisions about who they do or do not trade with on a whim. The idea that we will rely on fossil fuels until well beyond 2050 but not produce them ourselves—in fact, we are going to discourage companies from producing them in the United Kingdom, even though we know that we have the resources—and somehow or other we will still guarantee security of supply, and security of energy, for our constituents is just madness.
Wera Hobhouse
I have a very simple question to ask the right hon. Gentleman: does he believe that climate change is happening and that we need to get to net zero by 2050, or does he believe it is all a hoax?
Sammy Wilson
Only a fool would say that climate change is not happening. Climate change has occurred in all the time that the earth has been in existence. Of course it happens, and of course it is happening. The hon. Lady asks me a question to which I think anybody could give an easy answer. Yes, climate change is happening, but does that mean that we have identified all the sources of the change in our climate? Does it also mean that we should distort our economy, in such a way as she would suggest, to try to make changes to the world’s climate, especially given that other countries are not making any changes to their economy and are not following our lead? They are simply ignoring us and doing what they believe is best for their own economies.
The second point I want to make is that we are leaving ourselves open to a situation in which companies that we need to invest in energy production will not do so. The OBR has made that quite clear, but even if it had not made its predictions, economic logic should make us understand that if we take investment allowances away from people and tax them, they will have less money to invest.
The Minister makes a great point: by putting all these measures on the statute book, he creates certainty for the industry. He does create certainty, because anybody looking at the Bill knows for certain what the future entails: they are going to be taxed until the pips squeak, so they will look for other places to go and make their investment. He argues that putting out a tax plan somehow gives assurance to companies, but sometimes it confirms their prejudice that Britain will not be a place where they have a future, or where they wish to invest.
I turn to the third impact of these measures, building on a point made by the hon. Member for Earley and Woodley. The Government’s whole approach is to tax oil and gas companies, get money, and help working people by putting it into schools and so on. But the predictions are that we will not get more revenue, because if there is less production, there is less tax to be paid. If there is less tax to be paid, the Government have less revenue to invest in the things that hon. Members on both sides of the House would wish them to invest in. Where does that tax go? It will go to foreign countries, because that is where production will take place and where the oil companies will be taxed. They will get taxed where they make their profits. If they are not making any profits in the United Kingdom, they will not pay any revenue in the United Kingdom. They will take their production and tax revenue elsewhere.
There does not appear to be any economic logic to this proposal, other than that the oil companies are seen as bad so the Government have to tax them, even though they are taxed heavily already, and that the Government want to ensure that we have this transition to net zero, even though we know that we will still need the product that the oil companies produce for many decades into the future and we will be turning our back on that production in the United Kingdom.
If the Government are so sure that this cunning plan is going to work—I think Baldrick would have been embarrassed by this cunning plan, I have to say—they should not fear any examination of it. They should welcome it. In fact, maybe once the assessment is done, they will be able to point to red faces on the Opposition side of the House. If I were as certain as the Minister is that his plan was going to work, I would be saying, “Right, we’ll do the assessment and we’ll make you eat your words.” I suspect that the reason that new clause 2 will be rejected today is that the red faces and the eating of words are going to be on the Government’s side of the House. Unfortunately, the people who will suffer will be the hundreds of thousands of people facing rising fuel bills, the 100,000 workers who will face redundancies and an industry that we very much need in this country going into decline.
Dave Doogan
On a point of order, Madam Chair. The last but one speaker, the hon. Member for Earley and Woodley (Yuan Yang), called me out regarding my perfectly legitimate comment that there was not a single Scottish Labour MP in here. I chose my words carefully, taking part in this debate. I appreciate that there is a Labour Member here who, unless I am very much mistaken, is fulfilling the role of a Parliamentary Private Secretary and therefore will not be taking part in the debate. I ask your guidance, Madam Chair, on whether it is legitimate to call somebody out in a debate and not give them an opportunity to respond. I tried to intervene on the hon. Member for Earley and Woodley to correct the record, but she refused to give way. How can we correct the record to underline the fact that there is not a single Scottish Labour MP in here taking part in this debate on Scotland’s energy?
The Second Deputy Chairman of Ways and Means (Caroline Nokes)
The hon. Gentleman will be aware that that is not a matter for the Chair, and therefore I cannot provide advice as to how he can put that on the record. He will know as well as other hon. Members do that it is entirely at the discretion of the individual contributing at that time whether or not they take an intervention, but he has done good work in putting his point on the record via the mechanism of a point of order.
Adrian Ramsay (Waveney Valley) (Green)
I would like to echo the arguments made by the hon. Members for Earley and Woodley (Yuan Yang) and for Bath (Wera Hobhouse) . I rise to speak to whether clause 18 and schedule 3 should stand part of the Bill. I argue that both should be omitted, to remove the proposed new tax relief for carbon capture and storage installations as currently drafted. The tax regime for oil and gas is riddled with reliefs, exemptions and loopholes. The windfall tax introduced by the last Government was widely reported, but was slightly less reported was the increased tax relief that went along with it, which allowed oil and gas companies to deduct 91% of their capital investment costs from their tax bill.
We are now many years into an escalating climate crisis, and one that the oil companies have known they were causing since at least 1977. There is absolutely no excuse for public subsidies that incentivise fossil fuel companies to expand their operations. So while I welcome the increase in the rate of the energy profits levy and the reduction of the investment allowance, I want to highlight the fact that, because of other reliefs that still exist, North sea oil and gas companies will still be able to offset 84% of capital expenditure against tax in relation to their expansion of operations.
Mr Snowden
Does the hon. Gentleman accept that capital reliefs are about attracting investment that creates jobs and secures energy security for this country? If UK countries are to make such investments, we have to be competitive in the global market. If we do not make those investments, what does he think will happen to the industry and the 100,000 jobs that go with it?
Adrian Ramsay
As we heard earlier, it is vital that there is strong Government support and a dedicated plan to ensure transition to alternative job opportunities for anyone working in the oil and gas sector. Having a background in the renewable energy sector, I strongly support Government incentives and policies that will help that sector to expand, so that we create jobs and skills. My amendments would reverse the Government’s tax relief on the conversion of oil and gas infrastructure to carbon capture and storage installations. There are many other reliefs in the tax regime that should be addressed, but they are out of the scope of the Bill.
Carbon capture and storage is a complex area. There are different types of technology that use different techniques. I support further research and development in relation to the hard-to-abate sector, but CCS cannot be used as a fig leaf to hide the expansion of fossil fuel operations. In reality, after years of hype, the result is very little carbon—less than 0.1% of annual emissions—being captured globally. Most of the carbon dioxide that has been successfully captured has been used to extract more oil. The UK has also been criticised for targeting most of its CCS at so-called blue hydrogen, the use of which would increase our long-term reliance on gas and generate more carbon emissions.
The proposed tax relief is too blunt an instrument to make a useful contribution to decarbonisation. The role of CCS is still relatively untested, so it is vital that we do not bake in over-reliance on that technology. Public funding for CCS should be restricted to research and development, and to projects that would clearly help to decarbonise hard-to-abate sectors. It absolutely must not be a green light for fossil fuel companies to carry on with business as usual and an expansion of operations. Will the Minister explore the idea of reviewing the measures, in the light of what I have suggested?
Adam Dance (Yeovil) (LD)
In October 2021, we Liberal Democrats were the first to call for a tax on oil and gas windfall profits, so I am glad that the Bill is finally scrapping the unfair investment allowance loophole, after years of oil and gas companies not paying their fair share under the Conservatives. I urge the House to adopt our amendment, which calls on the Government to set out exactly how much money is being raised through the scrapping of the investment allowance loophole, and how much money was gifted by the last Government to the oil and gas giants. My constituents in Yeovil deserve full transparency.
I encourage the Government to use the money raised by closing the loophole to address energy and environmental issues impacting my constituents in Yeovil, such as fuel poverty, particularly among pensioners; the need to protect homes and businesses from flooding; the need to support farmers with green investments; and helping homeowners to install clean heating.
In conclusion, we must ensure that our constituencies get a fair deal out of the Bill. If the average taxpayer is expected to pay their fair share, then so must the wealthiest individuals and companies in this country. There cannot be one rule for them and another for the rest of us.
James Murray
I thank hon. Members for their contributions to the debate. I will respond to some of the points raised, and set out the Government’s views on the new clauses. The Opposition spokesperson, the hon. Member for Grantham and Bourne (Gareth Davies), asked for confirmation of our decision to retain the energy security investment mechanism. I hope that he will take yes for an answer, because yes, I can confirm that the ESIM will remain in effect until 31 March 2030, when the energy profits levy is due to end. It will continue to be adjusted in line with consumer prices index inflation in future financial years. I hope that sets his mind at rest on that point.
The hon. Gentleman asked about modelling the impact of the energy profits levy. I am sure that he will remember from his time in the Treasury the role that the Office for Budget Responsibility plays. He will see that in the report that it published alongside the Budget, it forecast £12.6 billion being raised from the levy over the forecast period. Of course, the OBR will provide updated forecasts next year.
The hon. Gentleman and other hon. Members kept raising the phrase “extraordinary profits” when talking about trying to understand the position that the oil and gas sector is in. That links directly to the energy security investment mechanism, because prices remain higher than the price floor that we set. The energy security investment mechanism means that if prices fall sufficiently and return to historically normal levels, the levy will be disapplied. The relationship between the levy, profits and the maintenance of the energy security investment mechanism is key to understanding the Government’s approach.
The Liberal Democrats spokesperson, the hon. Member for St Albans (Daisy Cooper), asked about our choosing a 78% rate, how we set the rate for the energy profits levy, and about other attributes of the system being set up by the clauses under debate. We seek to achieve a balanced approach. We are raising the rate to 78%, extending the levy for a further year and removing the investment allowance, which we deem to be unjustifiably generous; yet we are maintaining 100% first-year allowances, the decarbonisation allowance, and the energy security investment mechanism. That strikes the right balance between ensuring that oil and gas companies continue to invest in oil and gas for years to come, and ensuring that they contribute to and support the transition to clean energy.
The hon. Member for Angus and Perthshire Glens (Dave Doogan) spoke about the need for long-term stability. I entirely agree that we need it. That is precisely what we seek to achieve by saying that the energy profits levy will come to an end in March 2030, by having a price floor in the ESIM—we have mentioned that several times—and by proceeding with our consultation on the post energy profits levy regime. That will give confidence to those thinking about investing in the oil and gas sector not just before the end of the energy profits levy, but post 2030.
The right hon. Member for East Antrim (Sammy Wilson) also mentioned long-term stability. He seems distracted right now, but I hope that will be of some reassurance to him. The hon. Member for Angus and Perthshire Glens said that a £78 investment relief is available in Norway, whereas the figure is £46 in the UK. I want to put on record that in the UK, while the energy profits levy remains in place, the sector continues to benefit from an £84.25 relief for every £100 of investment. I hope that gives him some reassurance on the points that he raised.
I thank my hon. Friend the Member for Earley and Woodley (Yuan Yang) for her thoughtful and informed contribution, which explained that our approach strikes the right balance. I must say, however, that I was disappointed by the contribution from the hon. Member for Waveney Valley (Adrian Ramsay), because he seemed not to support our moves to ensure that tax is not a blocker to CCUS, which will play an essential role in our progress towards net zero. The UK has a chance to be a world leader in that sector; I hoped that he would support our efforts to ensure that it is.
Two new clauses were tabled, which hon. Members spoke about. They require reports to be published. I can remember tabling many such new clauses over the last few years. New clause 2, tabled by the hon. Member for St Albans, would require the Government to produce a report setting out the fiscal impact of the removal of the energy profits levy investment allowance and the change to the decarbonisation investment allowance rate. New clause 3, tabled by the right hon. Member for Central Devon (Mel Stride), would require the Government to produce a report on the expected impact of the levy changes in a number of areas, including on capital expenditure in the UK oil and gas industry and on the Scottish economy.
The Government oppose new clauses 2 and 3 on the basis that they are unnecessary. We have already set out the impact of our measures in a tax information and impact note, which was published at the time of the Budget. That note states that the changes made to the energy profits levy will raise an additional £2.3 billion over the scorecard, and further data on the UK oil and gas industry is regularly published on gov.uk.
I hope that I have addressed some of the points raised by hon. Members, and have reassured them that the new clauses are not necessary. I urge the House to let clauses 15 to 18 and schedule 3 stand part of the Bill, and to reject new clauses 2 and 3.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Clauses 16 to 18 ordered to stand part of the Bill.
Schedule 3 agreed to.
New Clause 2
Report on fiscal effects: relief for investment expenditure
“The Chancellor of the Exchequer must, within six months of the passing of this Act, lay before Parliament a report setting out the impact of the measures contained in clause 16 of this Act on tax revenue.” —(Daisy Cooper.)
This new clause would require the Government to produce a report setting out the fiscal impact of the Bill’s changes to the Energy Profits Levy investment expenditure relief.
Brought up, and read the First time.
Question put, the clause be read a Second time.
Finance Bill
Wednesday 11th December 2024
(1 month, 3 weeks ago)
Commons ChamberRead Full debate Finance Bill 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 11 December 2024 - (11 Dec 2024)
16:42 - The Committee divided: - Ayes: 338 / Noes: 170 - Question accordingly agreed to.
16:57 - The Committee divided: - Ayes: 332 / Noes: 170 - Question accordingly agreed to.
17:12 - The Committee divided: - Ayes: 167 / Noes: 329 - Question accordingly negatived.
18:03 - The Committee divided: - Ayes: 105 / Noes: 314 - Question accordingly negatived.
18:18 - The Committee divided: - Ayes: 104 / Noes: 313 - Question accordingly negatived.
The First Deputy Chairman of Ways and Means (Judith Cummins)
I remind Members that in Committee they should not address the Chair as Madam Deputy Speaker. Please use our names when addressing the Chair. “Madam Chair”, “Chair” and “Madam Chairman” are also acceptable.
Clause 47
Removal of exemption for private school fees
Question proposed, That the clause stand part of the Bill.
The Chairman
With this it will be convenient to consider the following:
Clauses 48 and 49 stand part.
New clause 8—Statements on charging VAT on private school fees—
“(1) The Secretary of State must, within six months of this Act being passed, make a statement to Parliament about the removal of the exemption for private school fees introduced by section 47 of this Act, and other changes to private school fees introduced by sections 48 and 49 of this Act.
(2) The statement under subsection (1) must include details of the impact on—
(a) pupils with special educational needs and disabilities,
(b) small rural schools, and
(c) faith schools.
(3) The Secretary of State must, within 18 months of this Act being passed, make a statement about the impact of the removal of the exemption on schools that take part in the music and dance scheme.”
This new clause requires the Secretary of State to make a statement about the impact of charging VAT on private school fees.
New clause 9—Pupils with SEND without an Education Health and Care Plan: review of VAT provisions—
“(1) The Chancellor of the Exchequer must, within six months of the passing of this Act and every six months thereafter, lay before Parliament a review of the impact of the measures contained in sections 47 to 49 of this Act on pupils with special educational needs and disabilities.
(2) The review must consider in particular the impact of those measures on—
(a) children with special needs who do not have an education health and care plan (EHCP); and
(b) the number of children whose families have applied for an EHCP.”
This new clause would require the Government to produce an impact assessment of the effect of the VAT provisions in the Act on pupils who have special educational needs but do not have an Education Health and Care Plan.
The Exchequer Secretary to the Treasury (James Murray)
This Government believe that all children should have the opportunity to succeed. That opportunity should not be limited by who they are, where they are from or how much their parents earn. We are determined that a young person’s background should not limit what they can achieve. That is why, despite the dire fiscal situation that we inherited and the numerous tough choices that it has entailed, the Chancellor prioritised investment in education at the Budget in October.
At that Budget, the Chancellor announced real-terms growth of 3.4% in education funding, including a £2.3 billion increase to the core schools budget in England for the next financial year. This funding supports the recruitment of 6,500 additional teachers, in line with the Government’s commitment, and includes £1 billion for the special educational needs and disabilities system, to help the 1 million pupils in the state system with special educational needs.
This Government will make sure that all children get the high-quality education that they deserve, as well as high-quality school buildings; funding has been announced for the school rebuilding programme, and for school maintenance, so that we can begin to tackle the maintenance backlog. These changes are crucial first steps to improving education for all children and meeting the aspirations of parents across the country.
Investment in education has to be paid for, so I turn to the focus of this debate: our decision to end the VAT exemption for private school fees. In July, the Chancellor announced that the Government will end tax breaks on VAT and business rates for private schools. These policies are expected to raise £1.5 billion in their first full year, rising to over £1.8 billion a year by 2029-30.
Graham Stuart (Beverley and Holderness) (Con)
Has the impact on the market of children being withdrawn from schools been greater than expected? In my time as a Minister, I always found that the Treasury rather underestimated the dynamic impact of policy change. I would be interested to hear his reflections.
James Murray
I thank the right hon. Gentleman for his question on the impact of the policies on children’s education. I will come to the details shortly, but to give him an overview of the forecast impacts, we estimate that ultimately there will be around 37,000 fewer pupils in the private sector. That is a combination of pupils who will never enter the private sector in the first place and those who will leave. They represent around 6% of private school pupils. We expect most of the moves to take place at natural transition points, such as when a child moves from primary to secondary school or at the beginning of exam courses.
Sir Oliver Dowden (Hertsmere) (Con)
If the intention of the Government is that the moves should happen at natural transition points, why did they decide to impose the change from January? Whatever one’s views on the merits of the policy, that is not really fair on the parents affected. Indeed, one could say it is cruel.
James Murray
It is right that these changes be implemented as soon as possible to raise the funding that we need to deliver on our education priorities. As a result of the policies coming into effect in January, we will raise a forecast £460 million of additional revenue in 2024-25. We are ambitious for the state education system, and we want to get on with delivering the changes that we committed to in the manifesto.
Dr Ben Spencer (Runnymede and Weybridge) (Con)
I must declare that I, like many parents in Surrey, have chosen independent education for my children. A freedom of information request earlier this week regarding empty school places in Surrey showed that in the ’25-26 academic year, there are zero spare places in year 9, zero in year 10 and zero in year 11. The Minister will know that in independent schools, many children in those years take international GCSEs and baccalaureates. What is his message to those children, who have no place and will have their exam training disrupted because of his spiteful policy?
James Murray
Local authorities and schools already have processes in place to support pupils who move between schools at any point in the academic year. Analysis carried out by the Department for Education under the previous Government suggests that each year, almost 60,000 secondary school moves take place not at normal transition points or over the school holidays. We fully expect the majority of moves to take place at natural transition points or in the school holidays, rather than within the school year.
I have been clear that ending these tax breaks for private schools has been a difficult decision, but it is necessary to secure additional funding that will help us to fulfil the commitments we made to improving education for all.
Simon Hoare (North Dorset) (Con)
The Minister continually refers to tax breaks. They are not tax breaks. Why can he not just be honest with the House and admit that this is the first time that any Government in a civilised democracy has imposed a tax on learning and education?
James Murray
Let me explain to the hon. Gentleman how public finances work. Funding a tax relief or a tax break is equivalent to public spending, because it is money that cannot be spent on something else. The Conservatives have committed, through their new leadership, to repealing this policy if they win the next general election. That implies cutting state education—cutting the investment in education for all that we are prioritising.
James Murray
I will not give way because I am making a clear point. We have to make choices in politics about what to prioritise. We have said that the VAT tax break for private school fees is not something that we want to prioritise. We want to spend that money instead on improving state education for all children.
Simon Hoare
I am grateful to the Minister for giving way a second time, and I am so grateful for the public finance lesson. Surely he has to accept that as no tax is placed on learning in any sector in the educational landscape across the United Kingdom, this measure is not a tax break. It is not that there is a tax break for one sector while others have a tax imposed. This is an imposition of a new tax in the educational sphere. It is not a tax break because no educational establishment pays VAT.
James Murray
Given the record of the Conservatives over the past 14 years, I do not think it is ridiculous to assume that they might need some education on how public finances work, with the mess that we inherited and the desperate need for us to restore fiscal responsibility to public finances. Restoring that fiscal responsibility requires us to take decisions that are difficult but necessary to raise the finances to fund our priorities. We have taken the decision that we will not support a VAT exemption for private school fees and that we will invest the money that we raise in state education to ensure that the aspirations of every parent across this country can be fulfilled. That is a decision I will defend every time I am in this Chamber.
Josh Fenton-Glynn (Calder Valley) (Lab)
My constituents would be surprised that there is no tax exemption on tampons, which are used by close to 50% of society, yet there is a tax exemption for VAT on private schools, which are used by less than 5% of the country. Does my hon. Friend not agree that it is a mark of the priorities of Conservative Members that they are so quiet about the former but not the latter?
James Murray
My hon. Friend is right to point out that decisions on VAT reliefs are political choices. Indeed, the Opposition are showing which side of that choice they land on when it comes to education; through their new leadership, they are choosing to prioritise a tax break for private school fees over investment in state education. That is a political choice. I am very happy to stand behind where we are on that side of the debate.
I will turn to some of the clauses in detail. The changes made by clause 47 will remove the VAT exemption from which private schools currently benefit on the education, vocational training and boarding they provide. Let me be clear: this policy does not mean that schools must increase fees by 20%, and the Government expect schools to take steps to minimise the increases for parents. Schools can reclaim VAT paid on inputs and make efficiency savings to minimise the extent to which they need to increase fees. Many schools have already committed publicly to capping fee increases at 5% or absorbing the full VAT costs themselves.
Dr Luke Evans (Hinckley and Bosworth) (Con)
One of the schools in my area has posed a question on VAT. It has combined fees, within which things like meals are included. It is not clear from Treasury guidance whether the school would have to separate those fees out, creating another accounting problem—in order to have separate VAT and travel, for example, as part of the fees—when currently it is all one unit. Could the Minister provide clarity on that? When I met the Schools Minister, he was unable to give me an answer, and was going to go away and speak to the Treasury about what that looks like. This will have real impacts for this school, which will have to decide how to set out its accounting, and whether it has to include the fees or separate them out into several different blocks.
James Murray
I thank the hon. Gentleman for his specific question. Let me just be clear that I am not giving tax advice for that particular school in my response, because I would always assume that any school would get its own tax advice. In general, the VAT treatment of a particular supply is determined by the predominant supply, so there are options available to schools. I am happy to pick the matter up with him outside the Chamber and to make sure he has the details in writing. As I said, I would not want to give specific advice to that school, but it is worth the school getting advice on the VAT treatment of the fees it charges based on the predominant supply.
I will return to the impact of the policy we are proposing and the changes in clause 47. Government analysis suggests that the impact of the VAT policy on private and state school sectors is likely to be very small—ultimately leading, as I was saying a few moments ago, to 37,000 fewer pupils in the private sector, which includes both pupils who will never enter the private sector and those who will move.
Dr Neil Shastri-Hurst (Solihull West and Shirley) (Con)
A particular subset of pupils affected by this policy are those in receipt of the continuity of education allowance. The revised figures for the CEA, released recently, do not fully protect those pupils from the uplift on VAT on school fees. What assessment have the Government made of the impact of this policy on retention and recruitment into our armed forces and our diplomatic service?
James Murray
I thank the hon. Gentleman for raising the continuity of education allowance, because the Government greatly value the contribution of our diplomatic staff and serving personnel. The continuity of education allowance is therefore provided to ensure that the need for frequent mobility does not interfere with the education of their children. As he may know, the Ministry of Defence and the Foreign, Commonwealth and Development Office have increased the funding allocated to the continuity of education allowance, to account for the impact of any private school fee increases on the proportion of fees covered by the CEA, in line with how the allowance normally operates.
The Government have carefully considered the impacts of the policies set out in clause 47 and received a wide range of representations covering topics that have already been raised in the debate today. The Government received more than 17,000 consultation responses, and my officials and I have met those representing schools, local authorities and devolved Governments. As a result of these representations, the Government have made several changes to the legislation, including to clarify the treatment of nurseries. In deciding on the final design of the policy, we have made sure that schools are treated fairly and consistently.
A number of hon. Members have raised with me concerns about the impact of this measure on particular types of schools and on different pupils, so I am glad to have this chance to address some of those points. First, to protect pupils with special educational needs that can be met only in a private school, the local authorities and devolved Governments that fund these places will be compensated for the VAT they are charged on those pupils’ fees. Secondly, as I just mentioned in response to the intervention on military and diplomatic families, the Ministry of Defence and the Foreign Office have agreed to increase the funding allocated to the continuity of education allowance to account for the impact of private school fee increases.
The Government are aware that while many schools have always offered schemes enabling the prepayment of fees, there were concerning reports of some parents using such schemes in an attempt to avoid these fees being subject to VAT. The Government believe that allowing fees paid from the date of the July statement to the date this policy comes into force to be paid without charging VAT on them would be unfair on the vast majority of families who will be unable to pay years-worth of fees in advance. The changes made by clause 48 will therefore introduce anti-forestalling provisions that will apply to all prepayments of private school fees and boarding services on or after 29 July 2024 and before 30 October 2024. Finally, clause 49 sets out the commencement date for these changes, which will apply to any fees paid on or after 29 July 2024 relating to the term starting in January 2025.
To conclude, the reason the Government are raising funding from the changes we are debating today is to increase investment in the state education system. Every parent aspires for high-quality education for their children. The removal of the VAT exemption for private schools will help to support the Government’s investment in schools and ensure that every child has a chance to thrive. We are determined to be a Government who enable the aspirations of all parents to be met and who ensure that all children have the opportunity to succeed. I therefore commend these clauses to the Committee.
The First Deputy Chairman of Ways and Means (Judith Cummins)
I call the Opposition spokesperson.
James Wild (North West Norfolk) (Con)
I rise to speak on behalf of the Opposition, and particularly to new clause 8. Let me start by briefly considering the context in which we are debating the Bill. It comes after a Budget in which the Chancellor said that we must have
“an economy that is growing, creating wealth and opportunity for all”—[Official Report, 30 October 2024; Vol. 755, c. 811.]
But that is not what this Finance Bill delivers. Instead, the Budget is forecast to deliver lower growth, higher borrowing and higher inflation.
The Minister referred to choices, and the Government have indeed made choices. They have chosen to tax enterprise, to tax the wealth creators and to tax the farmers who are, again, outside Parliament protesting against the family farm tax—I wonder whether, on one of his rare jaunts to this country, the Prime Minister has gone out to speak to them. Rather than promote opportunity, it was the Government’s choice to bring in a new tax on aspiration.
Dr Luke Evans
My hon. Friend talks about choices, and one of the choices that independent schools are now going to have to make is how to use their own resources, such as their sports pitches, bursaries and scholarships. The kinds of things that benefited the wider local community may now have to be turned into fundraising and revenue-making machines to be able to deal with this change, which in turn means that other schools will not be able to use their community facilities, such as their football pitches. Those may all have to be charged more for, or indeed cut completely, as the independent schools have to make those difficult choices. That is not good for community cohesion at all.
James Wild
My hon. Friend makes an important point. Over our 14 years in government, one of the things that consecutive Education Secretaries did was to work with the independent sector precisely to open up those facilities, in recognition of the public good and benefit to their communities that they were delivering.
Sir Oliver Dowden
Further to the excellent intervention from my hon. Friend the Member for Hinckley and Bosworth (Dr Evans), that is exactly what happens with schools in my constituency. Haberdashers’ school partners with 1,400 state school pupils every single week. When the Minister talks about finding efficiencies, these are exactly the sorts of programmes that will suffer. There is no other place for those students to go if they leave private schools in my constituency, so on both counts everyone is worse off. That is one of the inequities of the policy.
James Wild
My right hon. Friend makes a powerful point, which reflects the rash nature of the policy and the inadequacy of the impact assessment, which does not address those issues.
Baggy Shanker (Derby South) (Lab/Co-op)
The shadow Minister speaks about a tax on aspiration, but what is his problem with having aspiration for all children in all our schools?
James Wild
We are about the 100% of pupils. We are not trying to divide and rule like the Labour party.
James Wild
I will make a little progress, if the hon. Gentleman does not mind.
Sadly, this cruel tax, which is being imposed midway through the academic year, will damage the education of thousands of pupils. It is sadly typical of the ideological approach that we have seen the new Government take on education, where they are trashing the record of schools, pupils, teachers and governors over the past 14 years when we rose up the international league tables.
Simon Hoare
Given that there are many on the Government Benches who had almost as their life’s work the destruction of the private school system, is my hon. Friend as shocked as I am that for this flagship policy, which the red flag has so often demanded, the Government Benches are so underpopulated? I thought that they would be there to cheer the Minister on.
James Wild
My hon. Friend makes an important point. He will have been here throughout many of the debates on the Finance Bill, the national insurance and jobs tax Bill, where very few Labour Members have made contributions to defend their first Budget for 14 years. I think we all know why.
Clause 47 removes the exemption for private school fees and spells out what Labour’s education tax will mean from 1 January. As my right hon. Friend the Member for Hertsmere (Sir Oliver Dowden) said, doing that mid-year is a cruel measure.
Graham Stuart
Further to that point, I think one of the reasons there may be so few colleagues on the Labour Benches is because they stood on a manifesto that was all about economic growth, protecting farmers and holding down tax. That is what they stood on, but it turns out that they have a leftist Front Bench which has introduced this pernicious tax midway through the year, and we have an Education Secretary so filled with malice and spite that she cannot even bring herself to congratulate the state school that has been No. 1 in the country three years in a row.
James Wild
My right hon. Friend makes a typically salient point. I agree, in particular about the lack of congratulations. The Education Secretary was not prepared to congratulate the head of Michaela school, which is the best performing school in the country.
Putting VAT on independent schools will particularly hurt those parents on modest incomes who are saving to send their children to a school that they think will best serve their needs. None of those parents is getting a tax break. They are also contributing to funding places in the state system, whether or not their child takes one up. The clause excludes the teaching of English as a foreign language, education at nursery and higher education courses from the new tax, but the Government have already crossed the line. They are taxing education and learning for the first time. Will the Minister rule out widening the scope of the education tax to include university fees, for example?
The Opposition are deeply concerned about the impact the tax will have on pupils with special educational needs, small rural schools, faith schools and schools taking part in the music and dance scheme. We have consistently warned of the damage it will do to young people’s education, and we voted against the measures in the Budget resolutions. New clause 8, in the name of my right hon. Friend the Member for Central Devon (Mel Stride), the shadow Chancellor, would require the Chancellor, within six months of the Act being passed, to make a statement to Parliament on the impact of the changes on those groups in particular, as well as the music and dance scheme. That is needed because there is such a wide gap between what the Minister is telling us and what the limited impact assessment is saying, and what all hon. Members who are actually talking to schools and parents know will be the case.
Josh Fenton-Glynn
The shadow Minister talks about talking to schools. I have spoken to schools in my constituency for many years, and I am sure he has spoken to the schools in his. The “School Cuts” website tells us that North West Norfolk has seen a £2.2 million cut in its state schools since 2010. Perhaps he could point to the record where he spoke out against those cuts.
James Wild
I am grateful to the hon. Gentleman. If he checks the record, he will see that the level of per pupil funding actually increased over the last 14 years. I congratulate the schools in my constituency that have just received good ratings from Ofsted—a number of them have done so.
James Wild
No, I won’t at this stage.
There are more than 100,000 pupils with special educational needs and disabilities in independent schools who do not have education, health and care plans, so they will be subject to this tax. That could make it unaffordable for the parents of those children to send them to the school that they think is best placed to look after them. There will be demand in places where there is not capacity as a result. A number of local authorities have pointed that out. That will just make the problems that councils face with their SEND budgets worse, despite the record amounts we have put into high needs.
Sir Ashley Fox (Bridgwater) (Con)
Does my hon. Friend agree that this disastrous education tax risks having a severe impact on those children and pupils with SEND in independent schools? It will force children with SEND out of independent schools as fees become unaffordable for their parents and it risks overwhelming the state provision, as there is not sufficient state provision at the moment.
James Wild
Absolutely. My hon. Friend makes the point very well. The knock-on impact and the damage to those children’s education will be considerable.
More than 40% of independent schools are small schools. They are at the heart of their local communities. They do not have big endowments. They operate on wafer-thin margins and simply cannot absorb changes of this magnitude, so it is likely that those schools will cut bursary places that exist due to this new tax that puts their viability at risk.
Charlie Dewhirst (Bridlington and The Wolds) (Con)
On SEND funding, the East Riding of Yorkshire is the lowest funded local authority for SEND per pupil. Children in the Prime Minister’s constituency get three times more funding than children in mine, which is a travesty in itself. This policy will put even more strain on my local authority and the children who desperately need support from it.
James Wild
Absolutely; I completely agree with my hon. Friend. The Government hide behind the cloak of saying, “If you have an EHCP, everything is okay,” but 100,000 children in schools across our country will be impacted.
The next area we are concerned about is faith schools, which tend to be smaller and charge lower fees. The Independent Schools Council has warned that
“Low-cost faith schools will be faced with deficit and closure, communities will lose vital assets”.
There are small religious groups that do not have any state sector provision that can meet their needs as a denomination. Religious groups are mounting legal challenges as a result, battling for the right to educate their children and battling for the right to choose, which we on the Conservative Benches certainly support.
New clause 8(3) refers to the music and dance scheme, which provides grants to talented young people who could not otherwise attend world-class institutions such as the Royal Ballet school. We welcome the Government’s decision, under pressure, to delay taxing schools in this scheme until September next year, but that exemption should be made permanent.
To return to one of the points that has been made, in the Budget statement the Chancellor said:
“94% of children in the UK attend state schools. To provide the highest-quality support and teaching that they deserve, we will introduce VAT on private school fees”.—[Official Report, 30 October 2024; Vol. 755, c. 821.]
That is a deliberately divisive approach. The Opposition support 100% of pupils. We care about all children. We simply believe that parents should be able to choose.
We have consistently raised the situation of military families, to which the Minister referred, and argued that they should be exempt from this tax. The Government did not agree to that, but in response to our campaign they said:
“We will uprate the continuity of education allowance to reflect the increase in school fees from January.”—[Official Report, 18 November 2024; Vol. 757, c. 3.]
Well, the new continuity of education allowances have been announced and, as my hon. Friend the Member for Solihull West and Shirley (Dr Shastri-Hurst) pointed out, they fall short of protecting service families from the changes. That will have a direct impact on the retention and recruitment of our armed forces. There are 4,200 children who benefit. The allowance is in place to meet the needs of the armed forces when they have to move around the country or serve overseas and boarding schools or other provision is the only available option. Given the importance of this allowance for the retention of military personnel, why have the Government not met the commitment that they made to our armed forces?
Dr Luke Evans
Does my hon. Friend agree that the veterans’ commissioner that will be introduced by the new Government will be perfectly primed to look at this kind of problem to ensure that both Departments—the Ministry of Defence and the Department for Education—get the best? Is that not the purpose of the commissioner?
James Wild
I very much hope so. I know from my years as an adviser in the Ministry of Defence just how important the allowance is for retention. That is why it is so disappointing that the Government have broken their promise.
I am grateful to the many organisations that have shared concerns about the implementation of these clauses, especially as the measure is rushed and is taking place in the middle of the school year. The Chartered Institute of Taxation has called for a delay, saying that it is
“concerned that neither HMRC nor the private schools will be ready to implement the change in VAT liability effectively”.
In order to meet the mid-term deadline, HMRC has to register the schools in just five working weeks—an issue that new clause 8 could address.
Rachel Gilmour (Tiverton and Minehead) (LD)
Let me start by saying how deeply and genuinely grateful I am to the Secretary of State for Education for providing the money to rebuild Tiverton high school following a 20-year campaign. I also want to disassociate myself from some of the comments made by Conservative colleagues. Some of them were personalised and vituperative, and I do not wish to be associated with them. That said—
The First Deputy Chairman
Order. May I remind Members that interventions need to be on the point and to pose a question?
Rachel Gilmour
Blundell’s school is also in Tiverton. Would the hon. Member be surprised to hear that when canvassing in Tiverton, in areas that might be considered relatively poor, I met numerous grandparents who were saving money every month to help their children to pay for a better future for their own children at Blundell’s school, through bursaries?
James Wild
I entirely agree with that point. Families come together to help out, perhaps to fund a place for grandchildren to give them the best chance in life. We are not going to criticise people who make that choice, but unfortunately the Government are singling them out with their vindictive measure.
This change also represents a significant complication of the tax system. Even HMRC seems confused. The guidance on VAT registration for private schools has undergone seven technical updates since its publication, and there is confusion—as has been mentioned—about the meaning of “closely related supply”.
Graham Stuart
On the subject of confusion, my hon. Friend will have observed that the hon. Member for Calder Valley (Josh Fenton-Glynn) appears not to have noticed that VAT was removed from tampons on 1 January 2021 by the Conservative Government. Is my hon. Friend, like me, hopeful that the hon. Member—however ignorant he may be of changes in our tax law—may join us in the Lobby tonight to oppose this pernicious policy? That would be consistent with the views that he tried to espouse a little earlier.
James Wild
We can but hope that the hon. Member will join us in the Lobby tonight, and also that he will one day develop the attuned knowledge that my right hon. Friend has of the tax system and the changes that were introduced in the last Parliament.
Let me add that the Association of School and College Leaders has said that there is
“increased anxiety among school leaders”
who are having to deal with the change in the middle of the academic year.
This is the first time an education tax has been introduced, which is why we need to oppose it and review its impact. The Government’s very limited impact assessment estimates that 37,000 more pupils will come into the state sector, at a cost of £270 million a year. It also concedes that there will be a loss of places equivalent to the closure of 100 more independent schools over the next three years than would otherwise be predicted. That assessment is thin, and the Government’s consultation was flawed.
Sir Oliver Dowden
My hon. Friend is making an excellent speech. The Government’s impact assessment also assumes that the loss of places will be spread uniformly across the country, which will not be the case. In many constituencies, particularly those represented by Conservatives, a large number of students are at private schools, and the loss of those places will have a significant impact on local schools where there are not the places to absorb them.
James Wild
My right hon. Friend has his finger right on the pulse. The Government claim that there are plenty of places, but they are not in the areas where they will be needed. Members representing constituencies in Hertfordshire, Worcestershire and Buckinghamshire, for example, have already drawn attention to their concern about that.
The new education tax is damaging and unfair. We oppose it, and our new clause would ensure that the true consequences of this tax on aspiration become clear.
Euan Stainbank (Falkirk) (Lab)
I will try to confine my remarks to the subject of state education, because the scope of the debate has gone somewhat beyond what I have either the expertise or the time to discuss.
In view of the critical and urgent relevance of state education funding to the parents, pupils and other people of Falkirk, I support the removal of the VAT exemption on private school fees. When Labour entered government in July, we inherited dire public finances and broken public services, which required necessary decisions to be taken to renew the foundations of the country. The guiding principle of the tax decisions taken in the Budget was clear: those with the broadest shoulders should pay their fair share so that we could invest in our public services.
A critical part of investing in the future is investing in state education. I speak from experience as a former local councillor. Through no fault of the brilliant teachers and education officers who deliver state education, local authorities such as SNP-controlled Falkirk council have sought to reduce teacher numbers, close school swimming pools, cut additional support and even reduce valuable initiatives such as music lessons. This broader trend of council underfunding in Scotland, and throughout the United Kingdom, has left schools underfunded, newly qualified teaching posts scarcer and resources overstretched, and has left councils with very little room for manoeuvre. Tomorrow, at a meeting of Falkirk council, there will be a proposal on the table to cut learning hours across the Falkirk district, depriving a child educated in Falkirk of a year of learning time across his or her primary and secondary schooling journey, and leading to the lowest number of school hours anywhere in school. The Falkirk Labour group oppose that proposal, as do I, and they will vote for it to be taken off the table tomorrow.
In stark contrast to this crisis in our state education system, spending per pupil in private schools is nearly 90% higher than in the state sector as of 2022-23, and the gap between private school and state school spending per pupil has more than doubled since 2010. For all the chat about this measure leading to an unworkable hike in fees, its opponents must match their rhetoric with the fact that fees have soared, on average, by 55% in real terms since 2003 for those who choose to pay for their kids’ education. Lifting the VAT exemption on private school fees will raise £1.8 billion annually by 2029-30—funds that will, and should, go directly into state education. This is an essential funding stream that will help to relieve the financial pressures on local authorities’ education budgets, and it is being delivered by this UK Labour Government.
I welcome the Scottish Government’s commitment to spend all the consequential funding that will flow from this UK Labour Government’s decision on education, and I also welcome the tepid and understated support of SNP colleagues. I note that, again, no SNP Members are in the Chamber. It is predictable but disappointing that the Opposition say this measure sacrifices aspiration.
Dr Scott Arthur (Edinburgh South West) (Lab)
I apologise for interrupting my hon. Friend in mid-flow. Is he surprised that SNP MPs are not here, given the absolutely shocking record in Scotland on education?
Euan Stainbank
I am surprised that our SNP colleagues are not here, but, again, I welcome their eventual and tepid support for this measure during the general election campaign—something that they have tried to distance themselves from.
I was proudly educated at two Falkirk state schools: Ladeside primary and Larbert high. Neither I nor the 94% of young people in the UK who are educated at state schools should ever feel like our parents or our teachers lacked aspiration for us. From my conversations with parents, pupils and teachers in Falkirk about their concerns about our state education system, I know that their overwhelming opinion is that we must now invest in our state education system as a priority.
If today’s decision is between billions of pounds going into state education annually and having £1.5 billion to £1.8 billion less for state education by maintaining a tax exemption for fee-paying institutions, I know what the people of Falkirk’s preference is. Falkirk does not need tax breaks for institutions that largely serve the wealthiest. Falkirk does need well-funded state schools.
The Chairman of Ways and Means (Ms Nusrat Ghani)
We come to the Liberal Democrat spokesperson.
Munira Wilson (Twickenham) (LD)
I rise to speak in support of new clause 9, tabled in my name. It would require the Government to produce an impact assessment of the effect of the imposition of VAT on school fees on pupils who have special educational needs, but who are without an education, health and care plan.
The Liberal Democrats have been absolutely crystal clear: we are opposed to this tax on education, and we call on the Government to rethink their decision. It is an unnecessary, unfair and counterproductive policy. In our manifesto for the general election, we laid out our ambitious plan for education, from putting a dedicated mental health professional in every primary and secondary school to expanding free school meals to all children in poverty and tripling the early years pupil premium. At the heart of that vision was the principle that education is the single best investment we can make. All our children deserve the opportunity to reach their potential, yet too many children are not being supported to achieve that potential. In our manifesto, we set out a whole host of fair tax rises to pay for our ambitious plan, which did not penalise parents for choosing to invest in their children’s education.
I gently point out to Conservative colleagues—who have rightly pointed out that this is the first time we are seeing a tax on education, which is quite wrong in principle—that the only reason why the Labour Government are able to do this is Brexit. The Conservatives supported the Brexit deal, so I gently point out to them that this is something that they supported in principle.
Graham Stuart
Like so many Liberal Democrats, the hon. Lady seems to have forgotten that her party was the first major party to call for a referendum. Brexit was supported by the British people, not the Conservative party. The leadership of the Conservative party at the time was in favour of remain. The people decided. It is about time the Liberal Democrats learned to respect the people’s choice.
Munira Wilson
I remind the right hon. Gentleman that it was his Government who negotiated the Brexit deal. I want to put that on the record.
Colleagues from across the House have spoken frequently in recent months about the crisis facing SEND provision in this country, and we have heard so many stories of struggling families fighting within a failing system to get their children the education they deserve. After years of Conservative neglect, the system is on its knees. Just this week, we have heard from the Institute for Fiscal Studies about the scale of the problem. Once again, its report laid out clearly the huge costs that have left local councils on the brink, while failing to deliver better outcomes for children. Two out of every three special schools are oversubscribed. Just half of education, health and care plans are granted within the statutory 20-week limit, and 98% of those rejected are granted on appeal when parents go to tribunal.
It is clear that the system is failing families and our vulnerable young people, so is it any wonder that parents who feel that their children’s needs cannot be met in the state system are turning to the independent sector if they can just about manage it? Small schools of less than 100 pupils make up some 40% of the independent sector. In so many cases, those are the schools that struggle and strive each day to provide desperately needed support for SEND pupils—support that, sadly, is all too often unavailable in their local state school. Those are the schools that will be punished under this measure, and the families who will need to bear the load. The Government have said that pupils who have been placed by a local authority in an independent school to fulfil the terms of their EHCP will be exempt from the VAT hike. Taken in isolation, that is a welcome mitigation to this damaging policy, but there are a whopping 100,000 SEND pupils in the independent sector who do not have an EHCP, and their families will be saddled with this VAT hike.
One such family came to see me in my surgery a few weeks ago. The parents were in tears in front of me. Their son has autism and various other needs. When he was in an excellent local state primary school, he was at risk of exclusion because of the behaviours that were manifesting as a result of his additional needs, which could not be supported in that state primary school. Those parents made the difficult decision to remove him and put him in a local private school, where he is thriving. He is coping well and his conditions are being well managed. His parents are not just paying the basic school fees; they are paying an extra £18,000 a year on top of the school fees for the additional support their child needs. All of that will be subject to VAT, which is why they were in my office in tears. They do not know how they are going to meet those costs to keep their child, who was at threat of being excluded from a state school, thriving. That is the individual human reality of this policy, which the Minister just waves away with numbers, as if these statistics do not have human stories and faces behind them.
Dr Arthur
The hon. Member is doing a fantastic job representing her constituents, but she is describing a failed system where people with money can get access to better treatment for their children. No one envies a parent put in that position, but my hope and expectation is that through this policy we can improve outcomes for all children. I expect that she shares that objective, but we cannot do it by defending the existing system at all costs. This measure will raise income to solve the very problem that she describes.
Munira Wilson
The hon. Gentleman says that I am describing a failed system, and I am; I set that out. The SEND system is failing many children across this country, but I say to him gently—I made this point to the Minister in a similar debate a few weeks ago—that I do not think the level of investment that this measure will make in our state SEND system will fix that system. That will take many years and many billions of pounds, which I suspect that the Chancellor of the Exchequer does not have, and I do not think the answer to that is to penalise those who have scrimped and saved to be able to offer their children opportunity.
If I may, I will give the hon. Gentleman an example of another constituent who emailed me. She remortgaged her home, cashed in her pension plan and is struggling to be able to send her children to a local independent school after the local state school could not meet her children’s special needs. She said something that I think partly echoes what he is saying:
“Is this fair when other children with the same difficulties as mine are not able to access the same level of help? No. Definitely not. Believe me, I would never have chosen this route but I have been left with no choice. Is it fair to punish us further financially for the failings of the state education system? No!”
So I think the hon. Gentleman and I are in agreement, but I do not think the state SEND system is going to be fixed quickly or adequately enough, and I do not think the answer to that is to level down everybody’s opportunities. We need to level up opportunities for all and not penalise the parents who have made the often very difficult choice to ensure that their child has the opportunity that they wish to give them.
Christine Jardine (Edinburgh West) (LD)
Further to the point made by the hon. Member for Edinburgh South West (Dr Arthur), one of the complicating factors in Scotland is that we have no way of knowing for sure whether the money raised from VAT on schools throughout the United Kingdom will go back into our state education system in Scotland, which is struggling just as badly as the system in England, if not more so. On the point about parents of children with SEND, is there not a danger that, rather than paying the extra fees, because they cannot pay them they will take their children out of independent schools and put them into the state sector, whose already overstretched resources will then be stretched even further, and everybody will suffer?
Munira Wilson
I thank my hon. Friend for her important intervention. I am interested in how this money will flow back into the Scottish system, if at all. The point, raised not just by me but by a number of hon. Members in the various debates we have had on this issue, is that this will actually put a much greater strain on the state system, and particularly the SEND system. That is my real concern here.
Faced with the coming price hike, many of the families I have described will be forced to choose between returning to the overstretched state sector, as my hon. Friend has just said, where their child’s needs may not be met, and trying to home-educate their child. This choice has wide-ranging implications not only for those individual families but for our economy and our society. My new clause 9 would force the Government to see through the implications of this damaging measure.
I repeat that my party and I are opposed on principle to the imposition of VAT on school fees, but if the Government insist on pursuing this damaging and counterproductive measure, they should do so with their eyes open. They should be clear about the damage this measure will do, they should be clear about how it will affect parents, and they should be particularly clear about how it will affect children with special educational needs and disabilities. New clause 9 aims to ensure that by laying bare the impact of this measure on those families and children, who are already struggling with a broken SEND system. It would also require consideration of the additional children who will be coming forward to apply for an EHCP, so that their parents may be spared the fee hike the Government are imposing on them for trying, as any parent would, to do the very best for their child.
I received an email from one parent who, when his child was in an excellent local state secondary school, was discouraged from applying for an EHCP because of the challenges involved. He made the decision to send his child quite far away to an independent school where his child is doing well. This gentleman emailed me to say: “Well, I am now thinking that we might try to get an EHCP because, over a seven-year period, it will save us an awful lot of money if our son is eligible for one.” We know the EHCP system is overloaded and in crisis, so how much more pressure is going to be put on that system? New clause 9 seeks to measure that.
I urge colleagues on both sides of the Committee to support the new clause, and I urge the Minister once again to rethink this ill thought through policy.
Several hon. Members rose—
The Chairman
No doubt the whole House will join me in congratulating the next speaker on his engagement. How lucky you are. [Hon. Members: “Hear, Hear!”]
Dr Jeevun Sandher (Loughborough) (Lab)
Thank you very much, Madam Chair. I thank the entire House for its well wishes.
I rise to speak of how our reforms will raise tax revenues from the wealthiest and use that money to build prosperity for all, because that is at the heart of our governing spirit.
Building prosperity for all means creating prosperity for those who cannot afford a decent life, no matter how hard they work, including non-graduates who cannot earn enough to live and the young who cannot earn enough to afford the homes they need. Today, we are proudly raising money from those who can best afford it to create good jobs and build homes across our nation, to create an affordable life for everyone.
Christine Jardine
I take exception to this idea of “the people who can best afford it.” A lot of parents who send their children to independent schools cannot really afford it—they scrimp and save. I do not think it is fair to characterise them that way. If they are forced to remove their children from those schools, it will not be the schools that suffer, it will be their children, and an extra burden will be put on the state system. This is hardly raising money to help other people.
Dr Sandher
In my constituency, private school fees are £15,000 per child per year. As a point of fact, almost no one in the bottom 80% sends their children to private school. Overall, it is 6%, while more than half of the top 1% send their children there. While I appreciate the hon. Lady’s point, it is not where the numbers are.
The tax changes we are debating today go to the heart of our governing philosophy that those with the broadest shoulders who benefit the most can carry the heaviest load. We all benefit from roads to drive on, a healthy workforce and hospitals when we need them. Those who gain the most benefit the most, and they are the ones we will ask the most from.
Dr Spencer
I think we all, across the Committee, share the general principle of the hon. Member’s vision of a future, more prosperous UK. Surely it makes more sense, though, to encourage people to not use the state for provision, that way saving the state money that can be used for other things.
Dr Sandher
The difference in our approaches is that I do not believe in running down the state sector so people have to use the private sector to get a decent education. Half of schools do not have the specialist maths teachers they need and a third of students fail their maths GCSE. We do have a difference in our governing philosophies.
Graham Stuart
I join everyone else in congratulating the hon. Member. He has talked about trying to create a fairer society. Does he want to see one in which the 100,000 children with special educational needs who attend independent schools cease to do so? As he will remember, another great economist, like himself, Milton Friedman said, “If you want less of something, tax it.”
Dr Sandher
I thank the right hon. Member for his kind words. As he will know, the Government are fixing things for those who need special education—there is a huge amount we have to fix in this country—and he should remember the VAT exemption for those with EHCPs.
For those who cannot currently afford a decent life, the situation has become increasingly bleak. Non-graduates and young people are locked out of the opportunities their parents had. Before the 1980s, non-graduates could leave school and find good jobs with decent wages in their local factory. Then came deindustrialisation that destroyed mid-pay manufacturing jobs and led to a divided nation, where non-graduate men have seen their employment rates fall by 20 percentage points since then. Today, twice as many young men as young women are unemployed and we see the political shocks reverberate around us. Manufacturing jobs have been destroyed and replaced by low pay and insecure service jobs that do not pay enough to live on.
A couple with two children, both on average wages, do not currently earn enough for a decent living. On top of that, young people cannot afford the homes they need. Around 40% of my generation are living with their mum and dad.
Matt Rodda (Reading Central) (Lab)
May I also extend my congratulations to my hon. Friend on this wonderful day for him and his family? He is making an excellent speech. On the specific point about housing, can my hon. Friend say a little more about his vision? [Interruption.] He was coming on to housing. Can he speak, in particular, about the needs of young families? In many medium-sized towns and cities across the country, such as Reading, which I represent, there is a need for more affordable housing, both to buy and to rent.
The Chairman
Order. Can we ensure that the interventions are clearly related to the debate in hand? I have no doubt that the answer will be.
Dr Sandher
By building the houses we need, we get the revenue from the tax changes we see today. Indeed, that is the entire point of our programme, in addition to the planning reforms that my hon. Friend the Member for Reading Central (Matt Rodda) referred to. From the tax revenue we raise from the measure we are debating and others, we will build a nation where every person has a stake in our society and a nation where working hard makes a difference.
Freddie van Mierlo (Henley and Thame) (LD)
Will the hon. Gentleman give way?
Dr Sandher
I will make some progress. We are creating good jobs through our measures in the green transition and the caring economy and yes, building homes for the young to live in. Our warm homes plan will upgrade 300,000 homes and create tens of thousands of good construction jobs. Our expansion in early years childcare will see more women in work and tens of thousands more jobs. Our affordable homes programme means more homes for young people, and for those who are struck down by hopelessness—
Graham Stuart
Is this what we are supposed to be discussing this afternoon? I obviously fail to follow its relevance to VAT on private schools, which is what I thought we were discussing, but I may be mistaken.
The Chairman
We are discussing private schools and VAT. I do not think that is an appropriate point of order, but, Dr Sandher, there is no doubt that you will bring your contribution very close to VAT and schools. I look forward to hearing that.
Dr Sandher
The point is that by ending the tax breaks for the wealthiest, we are able to raise the revenue that we need to invest in our nation’s prosperity. That is the point of the programmes that we are setting out—programmes such as “Get Britain Working”, the affordable homes programme, and the expansion of early years childcare. We need to raise that money from somewhere, which is why we are proud of the tax changes that we are making. We are creating a great nation where every single person and every single child can get a decent education and a great job and afford a decent home, and where we all know that working hard means that we can achieve a decent life. We are raising tax revenue from the wealthiest and ensuring that the broadest shoulders carry the heaviest load, so that we can build a nation where every single person thrives.
Damian Hinds (East Hampshire) (Con)
I rise to speak to new clause 8, and to refer to clauses 47 to 49.
Clearly, just six or so months in, we will not have seen the full effects of these measures, but we will have started to see them. We will have heard whether there are concerns from faith leaders, and what the early effects are on the number of applications for EHCP plans and so on. It is also right that we have asked that, within 18 months of this Act being passed, we report back on the impact of the music and dance scheme, on which we know there has been a partial concession from the Government, but it remains a very sensitive area none the less.
The Government say that they expect to raise £1.5 billion from this measure in 2025-26, rising to £1.7 billion—I think—in 2029-30. They expect 3,000 children to be displaced in academic year 2024-25; 14,000 in academic year 2025-26; and 35,000 eventually. These are enormous numbers of children who could have their education disrupted. Parents will be denied a choice that would be open to them in most other places in the world. It is also important that we look at the assumptions behind these numbers from HMRC’s policy paper—they are the exact assumptions that may then come into question in that post-legislative review, which our new clause 8 calls for.
The Government first expect fees to rise by 10% on average as a result of these measures. In fact, the actual mathematical cost of putting 20% VAT on fees is, in fact, an increase in cost of about 15%, by the time we net off the ability to reclaim cost on inputs. More significantly, we must put it in the context of everything else that is going on. This year, we are also seeing a business rates increase for about half of private schools, an increase in contributions on the teachers’ pension scheme, and as with so many other sectors, a massive hike in national insurance contributions. Those are on top of any other normal cost pressures that other organisations might have. Those are three things, as well as the VAT increase, that are direct transfers from the independent school sector to the Exchequer. Although, technically speaking, they may not be the measures that we are discussing today, they very much affect the ability of schools to be able to absorb any of those price increases.
To inform their conclusion on how many children will be displaced in the private sector, the Government have, to an extent, relied on one statistic. They say that the number of private pupils has remained steady, despite a large real increase in average school fees since 2000. Considering price elasticity is a mathematically flawed approach. Up until very recently, we used to talk about 7% of children going to private schools. Now we say that it is 6%, because the proportion has come down. But at a time when pupil numbers have been growing, other things being equal, we would expect the number of children at private schools to have been increasing as the proportion stayed roughly constant.
Moreover, it makes no sense at all to look at gradual price increases over a 10, 20 or 20-plus year timeframe and to say we could conclude anything from that on the effect of an overnight price increase of 15%, 20% or more. The Government have come to the conclusion that we will end up with a long-run steady state of 37,000 fewer pupils in private education in the UK.
Freddie van Mierlo
The right hon. Gentleman is right to interrogate the Government’s numbers. Does he share my concern around SEND provision with children returning to state schools and the fact that teaching assistants are not fully paid for in state schools? That will be an additional burden on those schools.
Damian Hinds
Of course, there has been a huge increase in the number of teaching assistants over the past 14 years, but the hon. Member is right that there are particular issues for children with special educational needs, which I will come on to.
The Government estimate that there will be 37,000 fewer children in private schools and of those, 35,000 will go to state schools. What happens to the others? Some will be international students who will not come to this country, so that is a loss of export earnings, and some will be home-schooled. The hon. Member for Twickenham (Munira Wilson) mentioned that, and we have not talked about it a great deal, but it is significant. The Government will say, “It’s only 35,000.” That is like a pretty substantially sized football stadium if we picture the number of children whose education will be changed by the measure. They say, “Don’t worry because it is only a small proportion of the total number in state schools.” At the end of the day, the number is from a spreadsheet; there is no guarantee that it will be 35,000 or any other particular number. In fact, it is rather odd that they came up with a single number at all. I would think that in any economic analysis like this we would at least have a range in which there is a central planning assumption, but also a reasonable worst-case scenario.
More importantly, as my right hon. Friend the Member for Hertsmere (Sir Oliver Dowden) mentioned earlier, the effect will not be even. I have lost count of the number of parliamentary questions I have put down trying to get out of the Government where they think those 35,000 children will show up, because there is a huge difference in where they show up. It is worthless having empty places in primary schools in inner London if that is not where the children will be displaced to from private schools. In broad terms, there will not be that much of an impact on state primary schools. There will be on state sixth forms in London, but the big effect will be on individual places, particularly in 11-to-16 education. They include not only in counties we might guess, but also Bristol, Bury, Surrey, Salford and a much longer list besides.
On why the proposed review is so important, and we need to examine this in the post-legislative scrutiny, the Government say the revenue costs will be £270 million a year. That is, in other words, the cost of educating those extra 35,000 in the state sector. They go on to say that they have calculated the number based on the average spend per pupil in England in 2024-25. That is wrong. It is a mistake to base it on the average pupil because we know children with special educational needs will disproportionately have to transfer, and that will have a higher cost to their education.
Moreover, we will get more families—we do not know how many—applying for an EHCP. The limiting case is where a child is in a private school right now and their parents are paying considerably more than the average place. They will find that they cannot afford the extra 20%, so they will apply for an EHCP and the child could get placed back in the same school, with the entire cost now being picked up the state.
Edward Morello (West Dorset) (LD)
Those at an independent primary school in my constituency told me that approximately 20% of their students would be in receipt of an education, health and care plan if they were in the state system, but have no additional requirements in their educational establishment, and a number of West Dorset pupils receive six-figure support. Does the right hon. Gentleman agree that more students going into the state system will increase costs for local councils, and that independent schools save the taxpayer money?
Damian Hinds
The hon. Gentleman raises an important point. I will come to exactly where the money to meet the costs will come from. We have talked about revenue costs, and the policy paper from His Majesty’s Revenue and Customs covers that, but what about capital costs? What if whole new places need to be created? What if entire new year groups need to be created—or even entire new schools in some cities or local authority areas? Where is the allowance for the capital costs? Then there is, as the hon. Gentleman rightly says, the question of how the costs will be met. The money follows the pupil, so a school will be reimbursed for any pupil who presents there—but after the census date, so it depends on exactly when the pupil turns up—but the question is: from where does the money come? Does it come out of central Treasury coffers, or will the Department for Education be told, “No, we have given you your annual budget, so if more children come into the state sector, you must fund them”?
Will councils be reimbursed additionally if more children come out of independent schools and get EHCPs, or will they also be told that they have to absorb the cost of that, and meet it from their already stretched budgets? Then there are the indirect costs, as trade unions have pointed out, such as teachers being made redundant and, because it is not the turn of the academic year, potentially dropping out of the profession altogether.
Mr Jonathan Brash (Hartlepool) (Lab)
The right hon. Gentleman has spoken eloquently and at great length about the needs of children with special educational needs. Does he regret the state of special educational needs provision in this country, and that some people feel that they have to pay because they cannot otherwise get the service that they would like for their children? Does he regret that legacy of the previous Government?
Damian Hinds
Look, I want every child to have the best education available to them. When I was working at the Department for Education, I regarded it as part of my job to ensure that nobody thought, “I have to send my children to a private school”—but I would not have denied them the choice. State school improvement over that time will be one of the things that drove the figure I mentioned from 7% to 6%. A huge amount of additional money is going into high needs. The hon. Member for Dartford (Jim Dickson) shakes his head, but it is true; that is in the Treasury’s own figures. It is also true that demand has greatly increased. There is much more to do to ensure that we have the high-needs system and resourcing that we all want.
On the equalities impacts, it may surprise some people to learn that Independent Schools Council census figures show that the proportion of children from ethnic minorities, and, as we have been discussing, the proportion of children with special educational needs, is higher at independent schools than in the state sector. However, the really big equalities issue relates to faith. I am pleased that the Treasury seems to have dropped its earlier assertion that people of faith will not be disproportionately affected by the measures. That assertion can only have been based on the notion that most children of a religious faith are in state education anyway, and are mostly Catholic or Church of England and in denominational or non-denominational schools. However, we cannot pretend for a moment that families of the Haredi Jewish community, or who have children in Muslim independent schools, or who are of certain Christian traditions, will not be affected more than others.
To come to a close, this is a bad policy overall. Education is a public good that simply should not be taxed. That principle is observed by Governments of the left and right all but universally, right across the world. In this country, in education, there is no tax break; in fact, families whose children go to independent school save the state money. Independent schools cater for some needs, such as those met through the music and dance scheme and the needs of small faith groups, that the state sector simply does not. In any case, parents are entitled to choose what they think will be right for their child, whatever the reason.
This measure does not even do what we think gets Labour MPs excited about it. It does not hit its target, because not every parent with a child at a private school is rich, and believe it or not, in some of those schools, including some of the fee-paying Muslim or Jewish Haredi schools I mentioned, the cost of a place is less than the average cost at a state school. Here is the bigger point: there are plenty of parents with children at state schools who are wealthy. If Labour Members really wanted to soak the rich, to tax the wealthy, there are more efficient ways of doing so—and more honest ways of doing so.
Most importantly of all, this policy will have an adverse effect on state education, especially in places where secondary schools are already or almost full. Labour challenges us to say whose side we are on—do we stand with the 94%, or with the 6%? We refuse to choose, because they are all children. There is no need to set one part of our education system against the other, and this tax will be bad for both.
Shivani Raja (Leicester East) (Con)
In my constituency, thousands of hard-working families diligently strive to give their children the best possible start in life. Some choose our excellent state schools, while others opt for independent schools that they believe more closely meet their child’s individual needs. The crucial point is that until now, parents have enjoyed the freedom to make that choice, rather than the decision being imposed on them from on high. Today, more than 1,000 pupils in Leicester East attend independent schools, and their families are not the super-rich. These are ordinary, hard-working people who have scrimped, saved and carefully budgeted.
Chris Vince (Harlow) (Lab/Co-op)
Is the hon. Lady suggesting that those people who send their children to state schools do not budget?
Shivani Raja
We are talking about people who have often sacrificed luxuries and gone without to afford the education that they believe is best for their children. This is not the preserve of billionaire hedge fund managers; we are talking about nurses, small business owners and tradespeople who have managed their finances meticulously to secure a particular educational path. They are the very working families who Labour claims it would never tax.
This new measure is fundamentally a tax on education, and the reality on the ground is deeply concerning. As a result of Labour’s policy of slapping VAT on independent school fees, the careful financial planning of hard-working people in my constituency has been shattered. Children are being forced out of stable, nurturing learning environments mid-term. Their friendships and routines are being severed, not by parental choice or educational necessity, but by a Chancellor’s whim. To add insult to injury, some families find themselves unable to secure a state school place locally, leaving them in educational limbo as a result of the Chancellor’s twisted game. I have already heard from one mother who, no longer able to afford her daughter’s independent school, cannot find a suitable state alternative in her catchment area. As we have heard in the Chamber today, that is not an isolated case, but a troubling sign of the turbulence that this policy is creating.
What do the Government propose for the children who are caught in the crossfire of envy-driven politics? Labour’s attempt to penalise perceived privilege has ended up punishing ordinary, aspirational families. Meanwhile, the notion that this policy will somehow improve state education is fanciful at best. Instead of supporting better standards and opportunities for all, this tax is about pitting one group of parents against another—and what is worse, this was done without a proper impact assessment. Instead of looking at the real-world consequences—the strain on families, the sudden influx of pupils into our already stretched state schools and the emotional turmoil placed on children—the Government rushed forward, blinded by the politics of envy. I call on Ministers to think again. This is not about reform or fairness; it is an attack on parental choice and on hard-working families who dare to hope for something different for their children. If Labour truly stands for working people, it must listen to their voices, look at the damage this will cause and scrap a measure that so clearly undermines the interests of children and families in Leicester East and beyond.
Edward Morello
The proposal to impose VAT on independent school fees is a misguided approach that risks harming families, undermining educational freedom and failing to address the deeper issues in our education system. Let me start by acknowledging that our state education system is in dire need of funding. Years of mismanagement by previous Governments have left schools struggling with inadequate resources, overworked teachers, and outdated and undersized facilities.
We must confront this crisis, and I fully agree that we need long-term sustainable funding to support our schools, but introducing VAT on independent school fees is not the answer. This measure will not impact elite institutions or those at the very top of the income ladder. The wealthiest families will simply absorb the cost. Instead, it is middle-income families—parents who are saving every penny, working multiple jobs and making sacrifices to help their children—who will be impacted, as well as families whose children have special or complex needs that cannot be serviced in state schools.
Smaller and more affordable independent schools, which already operate on tight budgets and cater to working families, will be at risk of closure. Those closures will displace students into the already overstretched state sector, exacerbating the very challenges that this policy is supposed to address. Independent schools also contribute to their local communities. They work in partnership with state schools, offering shared resources, facilities, teaching support and extracurricular activities. Instead of imposing VAT, we should encourage more of these collaborations to strengthen both the state sector and the independent system.
The Liberal Democrats believe in parental choice and in policies that unite, not divide, our communities. We must focus on finding equitable solutions to fund our state schools, but we must do so without undermining the choices and aspirations of families or the stability of our broader education system. Families should have the freedom to choose the best educational path for their children without being penalised by the state. I urge the Government to work with all parties to find a fairer way to address the funding crisis in our schools—one that does not come at the expense of parents, students and the principles of educational freedom.
Dr Kieran Mullan (Bexhill and Battle) (Con)
I rise to support new clause 8 in the name of the shadow Chancellor, because it will help ensure accountability on this policy, and ensure that its impacts are fully understood. I want that because of the policy itself, but perhaps more because of how the Labour party has framed it, which I have found deeply concerning. I know all parties in this place are sometimes less than accurate in how we describe tax and spending, and about how it works for political advantage at different times, but the one thing out of all the things that the new Labour Government have done that I find genuinely appalling is the vindictive way in which they have rolled the ground for this measure by pitching schoolchild against schoolchild and parent against parent. I have genuinely found it really deplorable.
We do not have hypothecated tax or spending in this country. Money from road taxes goes on things other than roads, and our national insurance payments do not get put into a pension pot. The Government know that, so to suggest that someone spending money on their own child without being taxed is taking money away from other children is completely and utterly wrong. The UK Government spend more than £1 trillion a year, and the Government can choose what they spend that money on. The suggestion that this money is going into a legally defined pot of money for education, and that if it was not there, there would be less money available for education, is completely without merit, not least because if there was such a pot, the parents we are talking about would for many years have been contributing to it, not taking money out of it. They would already have been subsidising mainstream education, according to the Government’s own arguments.
The idea that schoolchildren in mainstream education are going without directly because we did not have VAT on private schools—that all sorts of parents for all sorts of reasons are choosing to invest some of their money in their own children’s education, but because we have not been taxing that, children elsewhere are missing out on their education—is a deeply unpleasant and unnecessary way to frame this argument.
Imagine being a parent who—like people I know—had a modest start in life but then perhaps went on to medical school and became a GP. They are honest, hard-working people, and the fact that they were not being taxed on that spend means that they are now being made to feel that somehow that has been taking away from the education of other children. That is completely wrong. It really is the worst sort of politics. It was exemplified by the despicable tweet from the Education Secretary, which was rightly and roundly criticised. A private school having a swimming pool does not in any way affect the availability of mental health support in other schools, any more than spending extra money on potholes or defence or healthcare does. I reiterate that the Government have more than £1 trillion to spend every year on what they want, and ways in which to raise that.
Dr Ben Spencer
It is difficult not to take this vindictive policy of taxing education personally. That is not just because, like many parents in Surrey, we as a family have chosen independent education for our children, or because as a Conservative I support all our schools and I want all our children to have the best start in life; it is because lots of different data points show that the Runnymede and Weybridge constituency will be one of the most heavily punished areas as a result of this policy.
It is interesting to hear the Minister talk about the estimated numbers of children who will move out of the independent sector and into the state sector. I speak to the many independent schools in my constituency pretty much all year round. They have met me, and they tell me that they are desperately concerned about this policy. They have estimated that about 5% to 10% of children will need to move out. That is probably 500 to 1,000 children in my constituency, many of whom have already been disrupted by covid. Many of them are studying for their exams, have friendships groups that will be disrupted, and will potentially be moving to schools that will be unable to provide the same courses or exam specifications that they are currently receiving.
I hear from state schools that already face lots of pressure on places. As the Minister will have heard in my earlier intervention about admissions and the empty spaces that we have in years nine to 11, and the intake for the next academic year there is no space—we have lots of pressures. This policy will cause long-lasting damage to many children. I hope it will not, but in reality it will.
It is clear, given the numbers and the full-throated support on the Government Benches, that this policy is going ahead and we will not be able to stop it. But will the Government, at very least, support our new clause 8? If they are so proud of this policy, which they clearly are, and so happy to defend what they see as the limited impact on young people, why are they afraid of a proper analysis? I would ask them please to think again, but I would be at risk of misleading the House, because clearly they never thought in the first place.
Sarah Olney (Richmond Park) (LD)
The Liberal Democrats do not support imposing VAT on private school fees. We do not support treating independent schools differently from other independent education providers for VAT purposes, and that is why I wish to speak in favour of new clause 9, tabled by my constituency neighbour and hon. Friend the Member for Twickenham (Munira Wilson). I thank her for tabling the amendment, which would require the Government to produce an impact assessment of the effect of the VAT provisions in the Bill on pupils with special educational needs but who do not have an education, health and care plan. Of the 615,000 children in private schools in this country, almost 100,000 are being educated privately because they have special educational needs but do not have an EHCP.
The Lib Dems are glad that the legislation exempts from VAT on school fees those privately educated pupils who have an EHCP that requires the local authority to fund a private school place. That is a welcome step, but it does not protect those who do not have an EHCP from a steep rise in fees. The parents of many of those children will find that they cannot afford the increase, throwing the future of their children’s education into doubt.
Moreover, there will be an increase in demand for local authorities to issue EHCPs stating that the local authority must fund a private school place. Local authority resources for special educational needs and disabilities are already stretched to breaking point, and additional demand will be impossible to manage.
Graham Stuart
The hon. Lady is right. The Government share the analysis that our special educational needs provision in our state schools is under massive pressure already and there is a shortage of capacity, notwithstanding the vast increases in expenditure since 2019. However, the Government’s policy, recognising that, is to tax and therefore deter and reduce expenditure on children with special educational needs out of people’s private pockets. It does not make any sense, does it?
Sarah Olney
I trust that that means the Liberal Democrats can look to the right hon. Gentleman to support our new clause today, because the inevitable result of the legislation, if unamended, will be thousands of children with SEND forced into the state sector all at once, which will be enormously disruptive, and not just for them but for pupils already in the state sector. It will be potentially traumatic for those children, as well as being immensely difficult for the state schools to manage. New clause 9 would protect both the children and the schools affected by the impact of these measures—the children who have special educational needs but do not yet have an EHCP, as well as the children of families who have applied for one.
However, it is not just children with SEND who will be affected. The parents of many thousands of other children across the country will find that they can no longer afford to keep them in their current school, and those children will experience enormous disruption to their education as they are forced to change schools. Many will face the upheaval of being separated from their friends and a familiar environment. The Government should reflect carefully on whether the benefits of this policy that they are intent on pursuing are worth the damage caused to these children’s education and wellbeing.
The influx will not be evenly distributed. In my constituency of Richmond Park, more than 45% of children attend a fee-paying private school. In common with other parts of London, demand for state primary places is down, so younger children will be easily accommodated, but secondary schools are experiencing great pressure for places and a rise in requests for in-year admissions will be difficult to meet. There may only be a small proportion of children whose parents are no longer able to meet the fees, but a drop in headcount at private schools could see them closing because they become unviable. That means that the effect of children needing to transfer out of independent schools and into the state sector could be much greater than is currently forecast.
I want to reflect on what the shadow spokesperson, the hon. Member for North West Norfolk (James Wild), and others have said about the music and dance scheme. The Royal Ballet school at White Lodge in the middle of Richmond park in my constituency is a world-leading ballet school, and it has expressed great reservations to me about the effect of this policy, and I would very much like the Government to reflect on that.
If the survey done by The Times of private school parents earlier this year is accurate, and 25% of parents have to withdraw their children from private education due to the Government’s proposals, that could have a huge impact on children in communities such as mine across the country. The Government propose that their new tax treatment should be applied only to the provision of private schooling, but taxing some forms of education and not others will almost inevitably create loopholes.
Creative accountants will find ways of delivering education services that fall outside the VAT legislation while other education providers that the Government did not intend to tax will unwittingly find themselves caught up in it. The risks of these distortions increase if legislation is hastily framed with insufficient time for scrutiny. Between parents who cannot afford to pay their children’s fees and schools that cannot keep their doors open, the state will need to find space and resources for an influx of new students.
The Liberal Democrats are opposed to the Government’s plans to impose VAT on private school fees because we believe it is wrong to tax education. Imposing this increase in fees will have a disproportionate impact on children with SEND, which will create not just hardship for those children and their parents but enormous difficulties for the local authorities and state schools that will be required to provide alternative schooling. That is why I join the calls of my colleagues to urge the Government to back new clause 9.
The Chairman
We come to the final Back-Bench contribution, no doubt saving the best till last.
Lewis Cocking (Broxbourne) (Con)
I am a Hertfordshire county councillor, and it is that authority that will have to pick up the pieces if parents cannot afford the VAT on private schools or if private schools close. A bit like in the farming debate, I have a specific example from my constituency that tears down the Government’s argument on adding VAT to private school fees.
Turnford was a secondary school in my constituency in decline. Academic standards and behaviour were poor and the quality of teaching was inconsistent, leading to students becoming demotivated and achieving less than the national expectations. Staff suffered from low morale and there were significant recruitment challenges. The school buildings, on a poorly laid-out site, were dilapidated. But thanks to a unique partnership with Haileybury, an independent school in my constituency, the tide began to turn. In 2015 the school was relaunched as Haileybury Turnford academy, with Haileybury as the sole sponsor. A generous annual improvement grant was established worth £200,000 a year; that has gone on for about five years, so more than £1 million has gone directly into that state school in my constituency. That has enabled Turnford to recruit much-needed staff and retain high-quality specialist teachers.
Haileybury also gives additional financial support for Turnford’s SEN students and provides opportunities for a wide breadth of academic and extracurricular activities, such as supporting programmes for gifted and talented pupils. Because of that partnership between state and private schools, academic standards have been transformed. We have had new classrooms constructed, and in 2022 Haileybury Turnford was judged by Ofsted to be “good” for the first time in the school’s history.
Torsten Bell (Swansea West) (Lab)
The hon. Member seems to be making the case that he has been seeing a pilot for this national policy in his own constituency, with higher fees, which presumably funded that £200,000 a year grant to the state school, paid by the attendees of the private school. His example therefore makes the case for exactly the Government’s policy on a wider scale.
Lewis Cocking
I thank the hon. Member. If he just waits for the next part of my speech, he may get the answer to his intervention.
The Government’s plan will put all that at risk. Notably, Haileybury is planning to absorb as much of the financial hit as it can, rather than place the extra burden on parents. To do so, it must look at reducing expenditure and therefore its ability to offer financial support to Haileybury Turnford, painfully contradicting the Government’s argument that their policy will result in more spending on state school pupils. It is not just about money; greater financial pressures on Haileybury will inevitably lead to staff having less time and resources available to share with Turnford, and fewer opportunities for state school students at Haileybury Turnford as a result.
Ministers think that their policy will impact only the rich, but for nearly a decade a genuinely working-class community in my constituency has benefited from a state school and an independent school working together, which is exactly the kind of partnership that we should be encouraging. We should not be encouraging the politics of envy. Sadly, the changes that the Government are introducing through the Bill will bring all that to an end.
James Murray
Let me begin by thanking all hon. Members for their contributions. I will take a few moments to respond to some of the points raised and then to set out the Government’s view on the proposed new clauses.
The shadow Minister, the hon. Member for North West Norfolk (James Wild), addressed new clause 8, which was tabled by the right hon. Member for Central Devon (Mel Stride). I will come to the new clause in a moment, but for the avoidance of doubt let me reassure the shadow Minister that higher education and teaching English as a foreign language are both exempt from and not affected by this policy. I also reassure him that HMRC stands ready to support schools. It has already published bespoke guidance for schools, run webinars, updated registration systems and put additional resources in place to process applications.
Damian Hinds
In principle, what is the distinction between full-time private schooling and private tuition, from the point of view of what it is right to tax? Will he guarantee that no tax will be put on private tuition?
James Murray
If the right hon. Gentleman is referring to the comments I just made in response to the shadow Minister’s remarks, teaching English as a foreign language and higher education are exempt from the provisions of the Bill.
Damian Hinds
No, I mean families who send their child once or twice a week for an hour for academic study or something extra-curricular. Why should that be tax exempt, when if it is done for all the hours in the school week, it is not?
James Murray
In designing the Bill and making sure that it is clear, we decided to focus on those schools that provide full-time education. Following feedback during the consultation on the Bill, we decided to clarify some of the treatments, such as for nurseries, which I mentioned earlier, to ensure that they are treated appropriately. If they are fully stand-alone nurseries, they are not covered. In the original drafting of the legislation, we referred to nurseries that wholly comprise children below the compulsory school age. We changed that to wholly or almost wholly to ensure that having, for example, one pupil over compulsory school age would not trip a nursery into being covered.
James Murray
I am going to make some progress, because I will come to the right hon. Gentleman’s point in a moment, and I want to mention the points made by other hon. Members in the debate.
We heard from the hon. Members for Twickenham (Munira Wilson) and for Richmond Park (Sarah Olney). Yet again from the Liberal Democrat Front Bench, we see a party that is happy to support our extra investment in education for all children, but that cannot bring itself to support the measures that we put in place to help pay for that investment in education.
Sarah Olney
We have heard this point time and again from the Labour Benches. I want to say, one more time, that the Liberal Democrats put forward a fully costed programme in our 2024 general election manifesto, which had a range of tax-raising measures that would have paid for the changes we proposed and did not include VAT on school fees, for all the reasons the Minister has heard today.
James Murray
The reason why the Liberal Democrats hear this time and again from the Government Benches is that, time and again, they want all the benefits of investment without having to pay for it. That is a pattern that we see again and again in this Chamber.
James Murray
I am going to make some progress.
I thank my hon. Friends the Members for Falkirk (Euan Stainbank) and for Loughborough (Dr Sandher) for their comments. I feel that I am duty bound to add my congratulations to my hon. Friend for Loughborough on his engagement.
The hon. Member for Hinckley and Bosworth (Dr Evans) is not in his place—sorry, he is at the Bar. Perhaps he could come and take a seat on the Benches. He asked an important question to try to get some clarity about the VAT treatment of combined fees that cover school meals, transport and other services. I hope that my earlier answer gave him some reassurance on that.
I reiterate that I cannot provide advice for individual schools, but it is worth emphasising that the general principle is that if a school supplies a package of education for a single fee, that will normally be a single supply for VAT. That package could include a number of other elements such as transport or meals, alongside the main element of education. If it is a single supply, it is a single VAT liability. However, where a school supplies education and also supplies other elements for a separate fee, that will normally be treated as a separate supply. For example, if a school offers school meals alongside the education for a separate charge, those will normally be two different supplies, and they may have different VAT liabilities. Although the education would be subject to the standard rate of VAT, the school meals may be exempt, if they meet the conditions.
Dr Luke Evans
I am grateful for the Minister’s clarification on that point; I think he is hitting towards it. The school itself has everything grouped into one fee, which includes the transport, schooling and food. Its contention, therefore, is that it will have to break that all out, which means it will have to deal with all the accounting issues on top of this. It is just another burden to think about. I wonder whether the Treasury has thought about that and whether there will be further guidance—there is literally just one line in a piece of written guidance put out by the Treasury. Is there anywhere the school can raise this issue to work through the exact advice it needs? I appreciate that the Minister cannot give that advice directly to the school from the Dispatch Box.
James Murray
The way that we treat private school fees and the other charges that private schools may levy has to be consistent with the VAT principles more broadly, which is why I have tried to explain how the supply of education and the supply of other elements would interact with the VAT system more widely. I will hold back from giving specific advice about that individual school, but I would encourage it to contact HMRC to get advice about its specific registration. If the school staff read what I have just said in Hansard, I hope they will see some information that will help them to understand how to approach this issue.
Graham Stuart
As ever, the Minister is being very gracious in giving way. If someone were to establish a new educational establishment providing entirely modular educational elements that people could choose between, would that be subject to VAT, individually or collectively, or not?
James Murray
The right hon. Gentleman is tempting me into hypotheticals and into trying to give advice to a school that does not yet exist—I will hold back from that, because I think the principles of our Bill are very clear on what VAT at the standard rate is applied to and what can be made exempt, in line with the existing rules on VAT.
We heard several times from the right hon. Member for East Hampshire (Damian Hinds). I assure him that the Government costing has, of course, been fully scrutinised and certified by the Office for Budget Responsibility. He also spoke about capital funding. Obviously, pupil numbers fluctuate for a number of reasons. The Government have already announced more than £700 million to support local authorities over this academic year and the next to provide places in new schools and expand existing schools. I did note, however, that in response to an intervention by my hon. Friend the Member for Hartlepool (Mr Brash), the right hon. Gentleman seemed implicitly to admit to his Government’s failure to improve high-needs education in the state sector, which is precisely why our measures today are so important.
Damian Hinds
First, the Minister knows I said no such thing. I spoke about the additional investment that had gone into the high-needs budget under the previous Government, particularly since 2019, and said that there was more to do.
Since I am on my feet, can I ask him to expand on what he just said about capital? What he has just spoken about is capital for places that are already planned, but what if a lot more children present in some places? Has he budgeted for that capital? Does he guarantee that whatever capital goes to the DFE will be on top of the existing capital budget?
James Murray
As I said to the right hon. Gentleman, pupil numbers in schools fluctuate regularly for a number of reasons, and the Department for Education, and indeed the devolved Governments, already work with local authorities to identify pressures and take action where necessary. As I said in my earlier remarks to him, the Government already provide capital funding through the basic need grant to support local authorities in England to provide school places, and the Government have already announced £700 million over this academic year and the next, which can be used to provide places in new schools and to expand existing places.
Finally, the hon. Member for Bexhill and Battle (Dr Mullan) raised the motivation behind our policy, which other Opposition Members also spoke to. Let me be clear on this: our decision to fix the public finances to fund public services, including education, means that difficult decisions have to be taken. Our choice to end the VAT exemption for private school fees has been a difficult but necessary decision that will secure additional funding, which will help to deliver on our commitments to improve education for all.
Dr Mullan
I did not talk about motivation in my speech; I spoke about how the Minister has framed it. Does he accept that with a general taxation pot, where all the money goes into one amount that is doled out as the Government see fit, there is absolutely no basis for saying that children in the state sector have less because of the exemption of VAT for private schools? The two things are totally unconnected in the Budget and the financing of the Government.
James Murray
What is connected is that if we want to fund public services and fix the public finances, we have to take difficult decisions. This is one of those difficult decisions we are taking today: a difficult but necessary decision to restore fiscal responsibility after the mess we inherited from the Conservative party and to fund our public services. It is necessary to take those decisions, so that we can get that funding into education for all. If the hon. Gentleman does not want to take that decision, he is, in effect, denying the choices that we are making about funding public services.
I will now make some progress to address the new clauses tabled by Opposition Front Benchers. New clause 8, which was tabled by the right hon. Member for Central Devon, would require the Government to make a statement to Parliament about the impact of removing the VAT exemption for private school fees within six months of the Act being passed. It states that it
“must include details of the impact on…pupils with special educational needs and disabilities…small rural schools, and…faith schools.”
It would require the Government to
“make a statement about the impact of the removal of the exemption on schools that take part in the music and dance scheme”
within 18 months of the Act being passed.
I want to make it clear that in developing this policy, the Government carefully considered the impact it would have, including the impact it would have on pupils with special educational needs and disabilities, rural and urban schools, faith schools, and schools that take part in the music and dance scheme. As I said before, the Government considered a wide range of representations, including over 17,000 consultation responses, before finalising the policy design. The Government set out the expected impact of the measure in a tax information and impact note published at autumn Budget 2024 in the usual way.
I set out earlier today how the Government will ensure that those children with an EHCP, or its equivalent in other nations, will not be subject to VAT on any private school fees. I am not clear whether the right hon. Gentleman’s new clause, when it refers to “pupils with special educational needs and disabilities”
refers to only those in the private sector, or whether he intends the new clause to consider also the 1 million or more pupils with SEND in the state system. If it is the latter, I am sure he will welcome the extra £1 billion for high-needs funding next year that we have been able to announce thanks to our decisions on tax policy, including that which we are debating today. In addition, based on the evidence provided, it is not apparent that small faith schools will be more affected by this policy than other schools.
The hon. Member for Twickenham, the Front Bench spokesperson for the Liberal Democrats, tabled new clause 9. I think I have addressed most of those points already in my remarks today.
To conclude, I hope I have been able to reassure Members that the new clauses are not necessary, for the reasons I have set out. I therefore urge the Committee to reject new clauses 8 and 9.
Question put, That the clause stand part of the Bill.
The Chairman
With this it will be convenient to consider:
Clauses 51 to 53 stand part.
New clause 6—Sections 50 and 51: impact on private rental sector—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by sections 50 and 51 of this Act on the private rental sector in England and Northern Ireland.
(2) The assessment in subsection (1) must consider—
(a) the effects of the provisions of sections 50 and 51 of this Act on the cost of private rent in each region within England and in Northern Ireland,
(b) the effects of the provisions of sections 50 and 51 of this Act on the supply of private rental properties in each region within England and Northern Ireland,
(c) any other implications of the changes introduced by sections 50 and 51 of this Act.”
This new clause requires the Chancellor to review the impact increased rates of stamp duty for additional dwellings are having on the private rental sector in England and Northern Ireland.
New clause 7—Review of effects of sections 50 and 51 on housing market—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by sections 50 and 51 of this Act, on the housing market in England and Northern Ireland.
(2) The assessment in subsection (1) must consider—
(a) the effects of the provisions of sections 50 and 51 of this Act on the demand for houses in each region within England and Northern Ireland, and
(b) the implications for the housing market of the provisions of sections 50 and 51 of this Act.”
This new clause requires the Chancellor to review the impact increased rates of stamp duty for additional dwellings are having on the housing market in England and Northern Ireland.
The Economic Secretary to the Treasury (Tulip Siddiq)
This is a Budget to fix the foundations of the economy and deliver change by protecting working people, fixing the NHS and rebuilding Britain. The Government are achieving this by taking difficult decisions on tax, spending and welfare to repair the public finances and increase investment in public services and the economy, to rebuild Britain and unlock long-term growth. This Finance Bill delivers on a number of the Government’s priorities for tax reform, prioritising stability for businesses making investment decisions and ensuring fairness and sustainability in the long term. We will discuss the full range of manifesto commitments delivered in this Bill throughout its passage, but today, I will talk about an area in which the Government have decided to go further than our manifesto commitment.
The clauses we are debating increase the higher rates of stamp duty land tax on purchases of additional dwellings by individuals and of dwellings by companies from three percentage points above the main residential rates of SDLT to five percentage points. These clauses also increase the single rate of SDLT payable by companies and other non-natural persons when purchasing dwellings worth more than £500,000 from 15% to 17%. They will support home ownership by ensuring that those looking to move house or purchase their first property have a greater advantage over second home buyers, landlords and companies purchasing dwellings. These changes will raise £310 million per year by 2029-30, which will be used to support the Government’s first steps and other priorities.
One of our manifesto commitments was to increase the non-resident SDLT surcharge by one percentage point. The Government have decided to go further than that commitment and increase the higher rates of SDLT, known as higher rates for additional dwellings. This will raise more money than the manifesto policy, helping to restore economic stability and address the £22 billion-worth of unfunded pressures, as well as supporting delivery of the Government’s first steps. Increasing the higher rates for additional dwellings will also go further to rebalance the housing market in favour of first-time buyers and those moving house.
Dr Luke Evans
The Minister mentions first-time buyers. However, the change to stamp duty is likely to affect them, because they are now being brought into paying stamp duty. How does that help first-time buyers to realise their aspiration of getting into the housing market?
Tulip Siddiq
I can tell the hon. Gentleman very confidently that the thing that will help first-time buyers in this country most is building more houses. His Government absolutely failed to do that, but we will be doing it.
Returning to the Bill, we estimate that approximately half of those paying the non-resident surcharge will also pay the higher rates for additional dwellings. This means that a non-resident purchasing an additional residential property worth £300,000 now pays £23,500 as a result of the change in rates, compared with £17,500 before the change, an increase of £6,000. This compares with a UK-resident purchaser buying their first home, who pays no SDLT, and a UK-resident home mover, who currently pays £2,500. This change therefore improves the comparative advantage of UK-resident home movers and first-time buyers—as the hon. Member for Hinckley and Bosworth (Dr Evans) might be pleased to know—while ensuring that no additional barriers are faced by those coming to the UK and buying their first or only home.
Those buying an additional property before they can sell their main residence will be liable for the higher rates for additional dwellings. However, this will be refunded if the previous main residence is sold within three years of the purchase of a new main residence, or longer if there are exceptional circumstances, such as delays in cladding remuneration. This ensures that only those who are genuinely liable for higher rates will be required to pay them.
Clause 50 increases the higher rates of SDLT on the purchase of additional dwellings by individuals and dwellings by companies from three percentage points above the main residential rates of SDLT to five percentage points. This applies to transactions with an effective date on or after 30 October this year and before 1 April next year.
Noah Law (St Austell and Newquay) (Lab)
Does the Minister agree that this Government’s decision to raise stamp duty in such a manner is vital for tackling the plague of second homes that we have seen in communities such as Cornwall?
Tulip Siddiq
This is something I have seen in my own constituency, so I know what my hon. Friend is referencing. It is our intention to tackle that, but we have had to make these decisions because of our economic inheritance when we got into government, which the Conservative party obviously hid during the election. We have had to make some difficult decisions, and this is how we plan to fix the foundations of our economy.
Kit Malthouse (North West Hampshire) (Con)
I am grateful to the Minister for giving way, but I am surprised she has not declared her interest because I believe she is herself a landlord. She presumably owns another property, so to cast aspersions on people who do as some kind of plague is, I think, a little unfair.
I assume from this measure that the Minister would expect there to be some impact on the rental market. This is designed to deter people from becoming landlords. Given that 90-odd per cent of our rental properties in the UK are owned by people who have two or fewer properties, what is the scale of the impact she is expecting? How many people are likely to either exit being a landlord or, particularly in somewhere like London, not bother being a landlord at all? What will be the wider impact given that in the capital, such as where she represents, lots of people have no option but to rent, because they are unable to accumulate the deposit required to buy a property at an inflated value? Are we going to see fewer rental properties in the capital?
Tulip Siddiq
I thank the right hon. Gentleman for his intervention. I am a landlord, and that is absolutely declared in my entry in the Register of Members’ Financial Interests. If I was meant to declare it for the purposes of this debate, I do apologise, but it is referenced very clearly in my entry. I would say that, as a landlord, I am very happy to pay extra tax if it is necessary to fix the foundations of our economy.
I do not agree with the right hon. Gentleman’s assessment of London. I think we are more resilient than that, especially in Camden, and I think we will be fine.
Clauses 50 and 51 will provide an advantage for first-time buyers and those moving home, and it will help to support home ownership. The OBR-certified costing estimates that increasing the higher rates for additional dwellings by 2 percentage points is expected to result in 130,000 additional transactions over the next five years by first-time buyers and others buying a primary residence. I hope that addresses some of the concerns of Conservative Members.
Clause 52 introduces special transitional rules to ensure no additional tax is payable for land transactions substantially performed before 1 April 2025. In most cases, SDLT is charged at the point of completion in the property-buying process. In some cases, however, such as where the buyer has performed their purchase by paying for the property or taking possession of it, the tax is chargeable at that earlier point. The clause in question ensures that buyers who have performed their transactions will not pay more tax as a result of the changes in rates brought about by clauses 50 and 51 when they complete their purchase.
Clause 53 increases from 15% to 17% the single rate of SDLT payable by companies and other non-natural persons when purchasing dwellings worth more than £500,000. The single rate of SDLT was introduced alongside the annual tax on enveloped dwellings to deter the practice of buying and owning UK residential properties within a corporate wrapper by increasing the rate companies pay. The single rate applies where companies and other non-natural persons buy a dwelling for more than £500,000 that they do not intend to use for a relievable purpose such as renting the property or developing it. Increasing the single rate keeps it aligned with the highest rate of tax paid on purchases of the most expensive residential properties, so that the tax remains effective as a deterrent to enveloping.
In summary, increasing the higher rates of SDLT will ensure that those looking to move house or purchase their first property have a greater advantage over second home buyers, landlords, and companies purchasing dwellings. The measure will raise more money than the manifesto policy, and go further to rebalance the housing market. The changes will raise £310 million per year by 2029-30, which will be used to support the Government’s first steps and other priorities.
James Wild
We turn to the important issue of taxes on residential property, and another set of tax rises from this tax-raising Labour Government. I will speak to clauses 50 to 53, and new clauses 6 and 7. Over 14 years in government we delivered 2.5 million additional homes. Our manifesto pledge to build 1 million homes in the course of the last Parliament was met, and we delivered on our commitment to build the homes that people need for a more secure future. The Bill introduces measures that dampen the housing market, increase pressure on housing supply, and reduce labour mobility. The Government talk about helping renters, but experts warn that these measures could increase rents, and they do nothing for those who cannot afford to buy their own home.
James Wild
Indeed, and representing an area with some of the most attractive coastline in the country, I certainly recognise and share those concerns. There has been warning that the measures could make that issue worse. People also need to be able to rent in those areas, and if local people who need to work where the jobs are have to move from long-term lets to short-term, that does nothing to help.
Dr Luke Evans
The point is valid. The Government are trying to get more properties for people to buy, but at the same time they are changing back the threshold for first-time buyers. Those first-time buyers will be stifled when they want to buy a house because they will have to pay more tax. Introducing both measures simultaneously seems to cause a rub. Does my hon. Friend agree?
James Wild
I do. This is just another example of the impact of the Bill. The impact assessments, such as they are, are incredibly thin and do not get into the detail of the measures and the complications that arise. They are, I would say, wholly inadequate. Under clauses 50 to 53, taxes on property purchases will, as the Minister said, go up by £310 million. Clauses 50 and 51 increase the rate for additional dwellings, such as buy-to-let and residential properties, from 3% to 5%. Nationwide estimates that that could bring extra costs of £4,000 on the purchase of a typical rental home. At least clause 52 ensures that if transactions have been substantially performed before the increases come in, no additional tax will be charged. Clause 53 amends the single rate on purchases by companies of dwellings for more than £500,000. Let us not forget that the Government have also chosen not to renew the nil-rate stamp duty threshold, which is currently £250,000 but will halve to £125,000—I do not think the Economic Secretary to the Treasury mentioned that.
As I said, experts have warned that the changes could have damaging effects on the rental market, making it less attractive to provide homes for private rent; rents could increase as a result of the limited supply. Every hon. Member will know from their constituency the huge demand for rental properties. According to Zoopla, on average around 21 people are chasing every property that is put up for rent. This tax will do nothing to encourage the supply of new, decent, rented housing.
Kit Malthouse
I hope that the shadow Minister shares my surprise at the Minister agreeing to pay the stamp duty retrospectively on her flat. Let us hope that the cheque makes its way to HMRC. When stamp duty reaches penal rates, it not only diverts people away from becoming landlords, but means they may operate differently. Is there not a strong possibility that we might see a large number of properties in places such as London owned by foreign corporations that are domiciled in other jurisdictions? Transfer of those properties could take place by transferring the corporation’s ownership in the Isle of Man or the Caymans or somewhere like that. That would mean that no stamp duty was payable at all on the transfer of the property. If that proliferated, we might find that large numbers of properties in the UK were owned by overseas entities, precisely because of the penal taxation here.
James Wild
My right hon. Friend makes an interesting point, and I bow to his knowledge of the situation in London, which is far greater than mine. Our new clauses are about reviewing the impact of the measure, partly so that if we saw such activity, which would go against the Government’s objectives and weaken the rental market, action could be taken. I hope that the Government will look at the evidence.
The Institute for Fiscal Studies has also criticised the change, stating:
“It again reduces transactions, increases again the bias in favour of owner occupation, and against renting, and at least part of the consequence will be to reduce the supply of rental housing and so increase rents.”
The National Residential Landlords Association has said that the tax changes in the Budget will make it less attractive to provide homes for private rent. It has warned that the measure will exacerbate the shortfall that Members will all be familiar with, and an assessment it commissioned a couple of years ago showed that increasing the rate to 5% could lead to the loss of more than 500,000 private rented homes over 10 years.
Josh Fenton-Glynn
Norfolk county council, which covers the area that the shadow Minister represents, has a housing waiting list of 1,341 homes sought. That is up 400 since he was elected in 2019. If the new clauses are about reviewing the impact of actions, perhaps he could take a moment to review the impact of the last Government’s actions, which saw the housing waiting list increase in his constituency?
James Wild
I am grateful for the hon. Member’s interest in my constituency. He intervened on me earlier to talk about education in North West Norfolk.
James Wild
I do not doubt the figures. I simply note that King’s Lynn and West Norfolk borough council, which is the council for my constituency, has met the housing need target it was set. Thousands of homes are being built in and around King’s Lynn, which will be a mixture of tenures—to rent and to buy. One of the big blockers is that the Government have not yet approved schemes that the previous Government were committed to—schemes for the roads and infrastructure needed to bring that housing online. I hope that the Minister will take that up with her colleagues, because if the Government are to meet their target of building 1.5 million homes, they need councils to deliver. That means funding the infrastructure. I am grateful to the hon. Member for enabling me to make that point.
We are concerned about the increased cost of private rent and a decreasing supply of rental properties due to this latest tax increase. New clause 6 would require the Chancellor to publish an assessment of the impact of the increased stamp duty rates on the private rental sector within six months of the Bill passing into law.
Dr Evans
It is important to have transparency. It is not controversial to say that we need more houses—Members on both sides of the House agree—but take Leicester, where new housing targets have been reduced by 31%. We will now have an exodus of people offering rental residences. Will that not compound the problem acutely? We will not have the number of homes. The target has dropped in Leicester, but we will have more people needing to rent. The homelessness rate could go up, because people are leaving the market. The Government need to think carefully about that. The new clauses would give transparency on whether there is a problem.
James Wild
My hon. Friend draws attention to the unintended consequences of the stamp duty measure. I wonder how much involvement the Deputy Prime Minister and her Department had in drawing it up, or whether it was drawn up in the Treasury just to get a line into the Red Book and fill out the Government’s spending plans.
New clause 7 would require the Chancellor to publish an assessment of the impact that increased rates for additional dwellings are having on the housing market as a whole, and in particular on the demand for homes in England and Northern Ireland. Pegasus Insight has reported that nearly 20% of landlords across England and Wales sold homes in the last 12 months, significantly more than the 8% who purchased properties in that period. We see increased rents as a result. The latest figures from the Office for National Statistics show average UK private rents increasing by 8.7% in the 12 months to October. When the cost of living is high and rents are increasing, why are the Government taking steps that could make matters worse for our constituents?
On the point made by the hon. Member for St Austell and Newquay (Noah Law), clauses 50 to 53 may increase the chance of properties switching from long-term to short-term lets, which is a concern in my constituency. We need a balance of properties—some that people can rent and those that people can buy—so that people can live and work in the area where they grew up.
The Government’s stated policy objective for the stamp duty measures is to disincentivise the acquisition of buy-to-let properties and free up housing stock for main and first-time buyers, but nowhere in their impact note is the private rental sector mentioned. My right hon. Friend the Member for North West Hampshire (Kit Malthouse) asked the Minister what impact she thought the changes could have, and what modelling had been done of the effect on the rental market; I am afraid that answer came there none. Hopefully she will have had some inspiration by the time she winds up the debate and can give some answers, because the impact note does not have any information on that point. I find that surprising. Once again, that is why it is essential that we review these measures to see what the real-world impact is on the rental market. Our new clauses would enable us to do just that.
Encouraging home ownership and helping first-time buyers to get on the housing ladder is the right thing to do. However, that should not come at the expense of the private rental sector. As the shadow Chancellor, my right hon. Friend the Member for Central Devon (Mel Stride), put it in the Budget debate, activity in the housing market will be dampened and people will be discouraged from downsizing, which will put pressure on housing supply and labour mobility.
I am proud that while in government, the Conservatives helped more people get on to the housing ladder through schemes such as First Homes, shared ownership, right to buy and the lifetime individual savings account, and doubled the threshold for stamp duty. However, with only one in eight renters able to afford to purchase a home in the area where they live, renting is the only viable option for many. What is the Minister’s response to those who say that increasing stamp duty will reduce the supply of rental housing, and that rents will increase as a result?
I must briefly address the structural tax issues that the clauses create. I am grateful to the Chartered Institute of Taxation for the discussions that we have had. There is now a top residential rate of 19%, compared with a top rate of 5% for purchase of a non-residential or mixed property, so taxpayers may be incentivised to argue that the property that they are buying is non-residential or mixed-use—for example, it may have a paddock that they would use—to take advantage of the lower rate. A number of those cases have come to the first-tier tribunal and higher court. I would be grateful if the Minister addressed the risk that she sees there, and told us what HMRC has advised her and whether increased compliance costs will arise as a result of the divergence.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
The hon. Gentleman has made an interesting point about people who may wish to claim that they have a paddock at the back of their house. Does he have any numbers to back that up? If he does, I would be really interested to know them. I am racking my brains, thinking of how many homes in Stoke-on-Trent Central could claim that they had a paddock that allows mixed-use tenure. He may have that information to hand; I do not.
James Wild
I am sure that Stoke-on-Trent is a great place, but not everyone lives there. As I said, a number of such cases have gone to the first-tier tribunal, so the hon. Member can probably look that information up or ask the House of Commons Library. The point is that none of that information is in the impact note that the Government have provided on a measure that they are bringing forward. The onus is on the Government to give the information to Parliament, and they have failed to do so in this case.
We share the concerns of experts about the impact that the increases will have on the private rental sector and the wider housing market. The Government have ambitious plans for house building, which we have mentioned, but debates on their proposed changes to the planning system to enable that are for another day. This afternoon, our focus is on whether people looking to rent will find that harder to do as a result of the measures that the Government are introducing, with reduced supply and higher costs. Our new clauses would make the Government publish an assessment so that we can tell.
Rachel Taylor (North Warwickshire and Bedworth) (Lab)
I declare that I am a landlord, and I happily paid the 3% stamp duty that I was required to pay, introduced by the Conservatives when they were in government.
For too long the dream of homeownership has been unachievable for young people in my constituency. Properties are snapped up by landlords, and that is even more acutely felt in our coastal towns, where so many properties are locked up for large parts of the year and used as holiday homes, sometimes for only a few weeks.
Jayne Kirkham (Truro and Falmouth) (Lab/Co-op)
I am from Cornwall. The point was made earlier that this change will help us. Some of our coastal villages are 50% second homes. In Cornwall, 5% of our houses are second homes. This change can do nothing but good in Cornwall. We do not have the long-term lets that the hon. Member for North West Norfolk (James Wild) talked about dissuading. We have short-term lets and second homes. I welcome this measure.
Rachel Taylor
Increasing rates of stamp duty land tax for second properties to 5% more than those buying their home will free up housing stock for first-time buyers, and hopefully stop prices continuing to skyrocket. Before I came to this place, I was a property solicitor in a high street firm in my constituency. Part of the reason I loved that job was that I got to be part of so many brilliant projects that transformed communities, but I was always so happy when I helped first-time buyers who would come through my door, proud that they had saved up and were able to buy their first home. They would tell me their plans for the future. We would overcome mountains of paperwork. I love being part of the moment when they got the keys to their first home, and they were finally homeowners.
I got to know my clients well. Each new homeowner would talk to me about how they would become part of their local community—supporting the local football club, or working at local businesses, hospitals and schools. They were planning to have kids who would go to local schools and shops in the town centre. But the longer I worked in that role, the fewer first-time buyers came into my office. Becoming a homeowner became out of reach for most young people. There are already half a million fewer young homeowners than in 2010. Millions are stuck in expensive, poor quality and insecure rented housing. The average cost of a home is over 10 times the average income of my constituents.
The Conservative party left a legacy of the most acute housing emergency in living memory. This Government could have ignored it and let more people miss out on becoming homeowners, but they decided to act and boost the supply of affordable homes. In addition, this policy will free up more housing stock for first-time buyers. For those who can afford the luxury of a second home, it will bring much-needed income into the Treasury in the form of an increased one-off tax—stamp duty land tax—that will help to pay for the much-needed improvements in health and education that this Government promised to deliver.
The status quo is unacceptable. Our housing market is not a fair market, and I am glad that this policy will help to remedy that. It will ensure that those buying properties as investments pay a fair level of tax at the start, so I urge all Members to vote for this important change.
Daisy Cooper (St Albans) (LD)
We Liberal Democrats have long campaigned against what has become, in some places, the scourge of second homes. In too many cases they disrupt or destroy local communities. However, I argue, as does my party, that this is not the best way of doing it. Clauses 50 to 53 raise the stamp duty surcharge on second and subsequent homes. I can see why it is attractive—it is an easy way of raising tax revenue for central Government—but it does not tackle the root problem. I urge the Government to look at the Liberal Democrat proposals, which would do both.
The impact of holiday homes, and short-term lets in particular, has been well rehearsed in the House over the years, but without any action by the previous Conservative Government to tackle it. In my constituency we have seen an absolute explosion of Airbnbs, which have become a magnet for antisocial behaviour and noise. Properties are taken out of the rental market, increasing demand and pushing up rental costs, squeezing many people out of the market and out of our area all together.
The shadow Minister, the hon. Member for North West Norfolk (James Wild), highlighted the risk that this measure may pose of properties being moved from long-term let to short-term let. It may come as some surprise that the previous Conservative Government failed to regulate short-term lets properly. Indeed, when this House was considering the Levelling-up and Regeneration Act 2023, we Liberal Democrats tabled amendments to the Bill to give local authorities the power to regulate the number and location of Airbnbs—a power that is desperately needed. Every single corner of our country should be able to strike the right balance between tourism and homes for local people, where they can build their lives and their community.
We also called for a separate planning class to be created for local authorities, and we want local authorities to have the powers to levy higher council tax for newly bought second homes, with an additional surcharge on overseas residents. That would provide regular income for our hard-pressed councils, not just infrequent money for central Government.
We all know that we have a national housing crisis, but it is also a local housing crisis, because it presents differently in different parts of the country. We urge the Government to look at our proposals to raise regular tax revenue for our hard-pressed councils while tackling this problem at its root. I invite Ministers to speak to the Secretary of State for Housing, Communities and Local Government to ensure that we can give our local authorities the power to regulate the number and location of short-term lets such as Airbnbs, so that our communities are no longer disrupted and destroyed.
The Second Deputy Chairman of Ways and Means (Caroline Nokes)
I call the Minister.
Tulip Siddiq
I thank all hon. Members for contributing to the debate today, and especially my hon. Friend the Member for North Warwickshire and Bedworth (Rachel Taylor)—it is refreshing to hear someone with genuine knowledge of the housing market speak in the Chamber. I point out gently that the Office for National Statistics’ private rents index shows that renting in England is now 50% more expensive than 14 years ago, and that rents in London reached a record high this February, when we were not in government.
Rachel Taylor
I am slightly perplexed as to why the Opposition continue to disagree with this policy, which is almost a replica of one they introduced a few years ago, for exactly the same reason. Why do they continue to oppose it? They fail to understand that landlords did not stop buying properties to rent out and rich people did not stop buying holiday homes just because they had to pay a little more in a one-off tax.
Tulip Siddiq
I have to admit that I have found this debate a little baffling, given some of the arguments made from the Opposition Front Benches. However, I will respond to some of them now.
Kit Malthouse
Our concern is that there has been no assessment of the impact on the rental market. All that the Opposition new clauses are asking for is a review, because no evidence has been adduced in this debate. There are three people who have spoken in this debate who have second properties—who are landlords—and that is completely fine. What we are saying is that there will be an impact on future landlords and on future behaviour from this tax, as there was from the tax that was introduced by the previous Government.
The second thing to say—forgive me for the slightly extended intervention, Madam Chair—is that when the Government are setting levels of tax, there is an optimal point at which to levy tax in order to collect the maximum revenue, beyond which it starts to become penal and has a deterrent effect on activity. I suppose what we are saying is that we have got this far, and wish to go no further.
Tulip Siddiq
I thank the right hon. Gentleman for his speech. I will be referencing everything; he should probably listen carefully, because I will be responding to all the points he has made about private rental markets and the impact this policy will have.
I will turn to some of the new clauses tabled by the Opposition—I do not think the right hon. Member for Central Devon (Mel Stride) is present. New clauses 6 and 7 would require the Government to report on the impact of the changes introduced by clauses 50 and 51 on the cost and supply of private rental properties and on the housing market, respectively, in England and Northern Ireland. Although it is important to understand the impact that the measures could have on rental costs, supply and the housing market—and, in turn, tenants, who have been mentioned—the Government consider the new clauses to be unnecessary because the information is publicly available. The Ministry of Housing, Communities and Local Government publishes regular updates, as the House will know, on the level of housing supply in England, as well as the English private landlord survey, which provides data on supply in the private rented sector. In addition, HM Land Registry publishes extensive data on house prices in England, including regional and local authority area breakdowns. HMRC also publishes statistics and data on property transactions and stamp duty land tax receipts.
On housing supply, the Budget set out a series of new investments to kick-start the biggest increase to social and affordable housebuilding in a generation. This is an important step to providing the conditions needed for the market to deliver 1.5 million homes—homes that are desperately needed by our constituents. The Government recognise that the rented sector is often a key part of someone’s home ownership journey. The Renters’ Rights Bill will improve the current system for both the 11 million private renters and 2.3 million landlords in England. It will give renters much greater security and stability, so they can stay in their own homes for longer, build lives in their communities and avoid the risk of homelessness.
The measures in the Bill to increase the highest rate for additional dwelling are intended to support home ownership among first-time buyers and those moving home, giving them an advantage in the housing market. The OBR certified costing assumes that increasing the higher rates of SDLT by two percentage points is expected to result in 130,000 additional transactions over the next five years by first-time buyers and other people buying a primary residence.
In summary, the Government have already considered the impact of clauses 51 and 52 on the private rented sector and housing market. We will continue to publish housing market statistics in the usual way, keep all tax policy under review and evaluate the impacts of all changes. Therefore, the proposed reports are unnecessary and I urge the House to reject the new clauses. I hope I have been able to reassure the hon. Members who tabled the new clauses that the additions and changes are just not necessary, for the reasons I have set out, and I urge the House to reject new clauses 6 and 7.
Question put and agreed to.
Clause 50 accordingly ordered to stand part of the Bill.
Clauses 51 to 53 ordered to stand part of the Bill.
New Clause 6
Sections 50 and 51: impact on private rental sector
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by sections 50 and 51 of this Act on the private rental sector in England and Northern Ireland.
(2) The assessment in subsection (1) must consider—
(a) the effects of the provisions of sections 50 and 51 of this Act on the cost of private rent in each region within England and in Northern Ireland,
(b) the effects of the provisions of sections 50 and 51 of this Act on the supply of private rental properties in each region within England and Northern Ireland,
(c) any other implications of the changes introduced by sections 50 and 51 of this Act.”—(James Wild.)
This new clause requires the Chancellor to review the impact increased rates of stamp duty for additional dwellings are having on the private rental sector in England and Northern Ireland.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Finance Bill (First sitting)
Tuesday 28th January 2025
(4 days, 11 hours ago)
Public Bill CommitteesRead Full debate Finance Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 28 January 2025 - (28 Jan 2025)
The Committee divided: - Ayes: 10 / Noes: 4 - Question accordingly agreed to.
The Chair
Will everyone please ensure that all electronic devices are turned off or switched to silent mode? Tea and coffee are not allowed in the Public Bill Committee.
We are here today for line-by-line consideration of the Finance Bill. The selection list for today’s sitting is available in the room and on the parliamentary website. It shows how the clauses, schedules and selected amendments have been grouped together for debate. A Member who has put their name to the lead amendment in a group is called first. In the case of a Government amendment or stand part debate, the Minister will be called to speak first. Other Members are then free to indicate that they wish to speak in the debate by bobbing.
At the end of the debate on a group of amendments, new clauses and schedules, I shall call the Member who moved the lead amendment or new clause again. Before they sit down, they will need to indicate whether they wish to withdraw it or to seek a decision. If any Member wishes to press to a vote any other amendment in a group, including grouped new clauses and new schedules, they need to let me know.
Ordered,
That—
1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 28 January) meet—
(a) at 2.00 pm on Tuesday 28 January;
(b) at 11:30 am and 2.00 pm on Thursday 30 January;
(c) at 9.25 am and 2.00 pm on Tuesday 4 February;
2. the proceedings shall be taken in the following order: Clauses 1 to 6; Clauses 13 and 14; Clause 19; Schedule 4; Clauses 20 to 25; Schedule 5; Clauses 26 to 31; Schedule 6; Clauses 32 to 35; Schedule 7; Clauses 36 to 38; Schedule 8; Clauses 39 and 40; Schedule 9; Clause 41; Schedule 10; Clause 42; Schedule 11; Clause 43; Schedule 12; Clauses 44 to 46; Schedule 13; Clauses 54 to 86; any new Clauses or new Schedules relating to the subject matter of those Clauses or those Schedules; remaining proceedings on the Bill.—(James Murray.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(James Murray.)
The Chair
Copies of the written evidence that the Committee receives will be made available in the Committee Room.
I remind Members about the rules on declarations of interest as set out in the code of conduct. Does any Member wish to declare any interests? No. Then let us begin.
Clause 1
Income tax charge for tax year 2025-26
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 2 to 4 stand part.
New clause 3.
The Exchequer Secretary to the Treasury (James Murray)
It is a pleasure to serve on the Committee with you as the Chair, Mr Mundell. Clauses 1 to 3 impose a charge to and set the rates of income tax for 2025-26, and clause 4 maintains the starting rate for savings limit at its current level of £5,000 for the ’25-26 tax year.
Income tax is the largest source of Government revenue and helps to fund the UK’s schools, hospitals and defence, and other public services that we all rely on. In ’25-26, it is expected to raise around £329 billion. The starting rate for savings applies to the taxable savings income of individuals with low earned incomes of less than £17,570, allowing them to benefit from up to £5,000 of income from savings interest before they pay tax. It specifically supports those taxpayers with low levels of earned income.
As Committee members will be aware, both the income tax rates and the starting rate limits for savings must be legislated for each year. The Bill will not change the rates of income tax. We are confirming that they will remain the same, thereby meeting our manifesto commitment not to increase the basic, higher or additional rates of income tax.
Clause 1 imposes a charge to income tax for the year ’25-26. Clause 2 sets the main rates of income tax, namely the basic rate of 20%, the higher rate of 40% and the additional rate of 45%. These will apply to non-savings, non-dividend income of taxpayers in England and Northern Ireland. Income rates in Scotland and Wales are set by their respective Parliaments.
Clause 3 sets the default rates at the same levels as the main rates, namely 20%, 40% and 45%. These rates apply to the non-savings, non-dividend income of taxpayers who are not subject to the main rates of income tax, Welsh rates of income tax or Scottish rates of income tax. For example, they might apply to non-UK-resident individuals. The clause also sets the savings rates of income tax—again at 20%, 40% and 45%.
Clause 4 will maintain the starting rate limit at its current level of £5,000 for the ’25-26 tax year. The limit is being held at this level to ensure fairness in the tax system while maintaining a generous tax relief. In addition to the starting rate for savings, whereby eligible individuals can earn up to £5,000 in savings income free of tax, savers are also supported by the personal savings allowance, which provides up to £1,000 of tax-free savings income for basic rate taxpayers. Savers can also continue to benefit from the annual individual savings account allowance of £20,000. Taken together, as a result of these generous measures, around 85% of savers will pay no tax on their savings income.
Finally, I should mention the Government’s efforts to encourage those on the lowest incomes to save through the help to save scheme. We recently extended the scheme until 5 April 2027, and we have extended the eligibility to all universal credit claimants who are in work from 6 April 2025. I encourage Committee members to do what they can to promote the scheme to their constituents.
New clause 3 would require a review of how many people who receive the new state pension at the full rate are liable to pay income tax this year and in the next four tax years, and specifically what the tax liability of their state pension income will be. The Government consider the new clause to be unnecessary, given the information that is already publicly available.
His Majesty’s Revenue and Customs has published statistics for this tax year and past tax years that cover the number of income taxpayers, including breakdowns by marginal rate, tax, band and age, and the Department for Work and Pensions has published figures for pensioners’ average incomes. The Office for Budget Responsibility is the Government’s independent economic forecaster and most recently published projections of the number of income taxpayers for future years in its “Economic and fiscal outlook” at autumn Budget. Those projections include a breakdown by marginal rate.
Income tax is a vital revenue stream for our public services and the clauses will ensure that that remains the case in 2025-26, while also retaining the starting rate of savings at its very generous existing value. I therefore commend clauses 1 to 4 to the Committee, and I urge the Committee to reject new clause 3.
Gareth Davies (Grantham and Bourne) (Con)
It is a great pleasure to see you in the Chair, Mr Mundell. This is one of many Finance Bill Committees that I have participated in. The subjects have changed somewhat each time, but something has remained consistent: the presence of the hon. Member for Ealing North. It is a pleasure to see him in his place, and I hope that his experience as the Treasury Minister in a Finance Bill Committee is as unpleasurable as mine when I was facing him.
As the Minister rightly set out, clause 1 imposes a charge to income tax for the year 2025-26, which is a formality. Clause 2 sets the main rates of income tax in England and Northern Ireland for 2025-26—the 20% basic rate, the 40% higher rate and the 45% additional rate—leaving them unchanged. Clause 3 sets the default rate and savings rate of income tax for the tax year 2025-26 for the whole of the United Kingdom. Clause 4 freezes the starting rate limit for savings at £5,000.
Of course, the Government’s big announcement on income tax in the Budget was that they would not extend the freeze to income tax thresholds beyond April 2028. Committee members will be aware that that announcement does not need to be legislated for, as the income tax personal allowance and the basic rate limit are subject to consumer prices index indexation by default, unless Parliament overrides that via a Finance Bill, and Parliament has not overridden indexation beyond the 2027-28 tax year.
As the current legislative framework did not allow the Government to enact their announcement on income tax thresholds at the Budget, we must take them at their word that they will keep their promise and not succumb to the temptation to override the thresholds in future. Given the possibility that rising borrowing costs have eliminated the Chancellor’s headroom under the Government’s own stability rule, I would be grateful if the Minister could reconfirm that they will allow CPI indexation to resume from 2028-29 and that they will not renege on that promise.
On a point of clarity, I would be grateful if the Minister could confirm whether the unfreezing of income tax thresholds in 2028-29 will involve an increase to the fixed portion of the income tax higher limit, which he will be aware of. The limit is set at £100,000 plus twice the personal allowance, and that £100,000 is not indexed to CPI by default. Should we expect the additional rate to rise only in so far as the personal allowance rises, or will that £100,000 be unfrozen too? I would appreciate an explanation on that.
I leave it to others to interpret what it says about this Labour Government and Budget that a non-binding commitment merely not to raise some tax thresholds in three years’ time is presented as a big win for the British taxpayer. On income tax, as with most of the Government’s more positive policy announcements, the benefits are prospective and entirely speculative.
Meanwhile the pain, as we have seen with national insurance contributions and in other areas, is very much immediate and certain. Pensioners left out in the cold by the Government this winter will recognise that all too familiar pattern. A pensioner who receives the full rate of the new state pension without additional income—whose income from April is roughly £12,000—is now in most cases no longer receiving the winter fuel payment. The Government have defended that decision by referring to the triple lock.
Will the Minister update the Committee on when the Government now project the full rate of the new state pension to exceed the income tax personal allowance, and how many pensioners they expect will be newly taken into income tax as a result of the development? If he cannot tell the Committee, perhaps he and his colleagues will vote in favour of new clause 3, which would require the Treasury to produce and publish forward projections for the number of people receiving the full rate of the new state pension who are liable to pay income tax, and specifically what the tax liability of their state pension income will be.
Pensioners cannot easily alter their financial circumstances, yet they were given less than six months’ notice of the withdrawal of the winter fuel allowance. They must not be blindsided for a second time by the taxman—especially not those who are just about getting by without additional income beyond the state pension. I urge Members and the Minister to vote for new clause 3 to prevent that from happening.
James Murray
I thank the shadow Minister for the comments at the beginning of his speech, if not for all the questions subsequently. First, on the question about whether the £100,000 threshold will be unfrozen in due course, that threshold does not move, and it sets the personal allowance taper beyond that level.
The shadow Minister asked broader questions about the personal allowance and our decision to change the policy we inherited from the previous Government. In the many Finance Bill Committees that he and I served on before the general election, the personal allowance would routinely be frozen for more and more years into the future. That is what we have inherited: the personal allowance is frozen up until April 2028. We made clear that we would do things differently. As well as not increasing the basic higher and additional rates of income tax, as we set out, we did not freeze the personal allowance beyond April 2028, which means that it will continue to rise with inflation.
The shadow Minister asked specific questions about how the change affects pensioners, and referred to new clause 3, which I addressed earlier. I will repeat what I said: new clause 3 is not necessary because the data the shadow Minister requests is already in the public domain. We need to ensure that as the personal allowance begins to rise from April 2028, that will benefit not just people in work but pensioners, because they will see the personal allowance that applies to their pension income rising as well. That is underlined by the fact that we are maintaining the triple lock, which will see generous increases in the state pension as the bedrock of state support for pensioners.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 to 4 ordered to stand part of the Bill.
Clause 5
Appropriate percentage for cars: tax year 2028-29
Question proposed, That the clause stand part of the Bill.
James Murray
Clauses 5 and 6 make changes to ensure long-term certainty on company car tax by setting the rates for 2028-29 and 2029-30. The increases in the appropriate percentages will help to ensure that the tax system contributes to supporting the sustainability of the public finances. The effect of the clauses is to gradually narrow the differential between zero emission and electric vehicles and their petrol and diesel counterparts, while ensuring that significant incentives to support the take-up of EVs remain in place. The provisions also increase rates for hybrid vehicles.
Company car tax applies when a company car is made available to an employee or their family member for private use. Company car tax rates were confirmed by the previous Government up until 2027-28. In the 2024 autumn Budget, the Government set out the rates for 2028-29 and 2029-30, to provide certainty.
The Government recognise that the company car tax regime continues to play an important role in the EV transition by supporting the take-up of EVs and their entry into the second-hand car market. Although it is important to maintain strong incentives to encourage the take-up of EVs, the Government need to balance that against the responsible management of the public finances by gradually withdrawing them over time, as EVs become more normalised. That is why we have committed to raising the company car tax rates—or appropriate percentages—for EVs, hybrids, and petrol and diesel vehicles in 2028-29 and 2029-30, gradually narrowing the differential between EVs and other vehicle types, and bringing the treatment of hybrids closer to that of petrol and diesel cars.
The changes made by clauses 5 and 6 will set the company car tax appropriate percentages for the tax years 2028-29 and 2029-30. Appropriate percentages for EVs will rise by two percentage points per year, rising to 9% by 2029-30. Meanwhile, the appropriate percentages for cars with emissions of 51 grams of carbon dioxide per kilometre or over will rise by one percentage point per annum. By 2029-30, the appropriate percentages for petrol and diesel cars will rise to between 20% and 39%, depending on the car’s specific emissions. Together, the measures will gradually narrow the gap between EVs and their petrol and diesel counterparts, while maintaining a generous incentive for EVs.
On the changes to the hybrid appropriate percentages, I draw the Committee’s attention to recent research from the European Commission that has shown that the real-world emissions of hybrid vehicles are in fact three and a half times higher than previously thought. Consequently, the Government have announced that they will align the treatment of hybrids more closely with that of petrol and diesel cars.
Harriet Cross (Gordon and Buchan) (Con)
On aligning hybrid cars more closely with petrol and diesel cars, what assessment has been made of the impact on the hybrid car market and the take-up of hybrid cars, if we are ultimately looking to move away from petrol and diesel in the long term?
James Murray
Over the coming years we need to make the transition to electric vehicles. Hybrid cars obviously play an important part in the car market and car manufacturing in the UK. The clauses are about a plan over the next five years or so regarding what will happen to the appropriate percentages. This is not an overnight change. Actually, one of the important principles of our setting out the appropriate percentages now for some years in advance is to give car manufacturers and everyone interested in the car industry certainty about what will happen. That is why, as I have been setting out, the appropriate percentages for EVs will rise, thereby narrowing the gap between them and petrol and diesel vehicles, but there will still be a generous incentive to help to shift people towards purchasing EVs.
Hybrid vehicles obviously fit within the general scheme of appropriate percentages. However, as I was setting out, European Commission research shows that emissions from hybrid vehicles are in fact three and a half times higher than previously thought, so in setting the rates for 2028-29 and 2029-30, we have decided to reflect that fact in the appropriate percentages that we are legislating for. That means all cars with emissions between 1 gram and 50 grams of carbon dioxide per kilometre—those that largely fall in the hybrid category—will see their appropriate percentages rise to 18% in 2028-29 and to 19% in 2029-30. As I outlined to the hon. Member for Gordon and Buchan, by setting out the rates until 2029-30 we will give the industry and consumers certainty about the future rates.
The company car tax system offers generous incentives to encourage EV take-up and makes an important contribution to the EV transition. The Government, however, must balance incentives against responsible management of the public finances. We are announcing the rates for 2028-29 and 2029-30 to start to narrow the differentials between EVs, hybrids, and petrol and diesel vehicles. I therefore commend clauses 5 and 6 to the Committee.
Gareth Davies
As the Minister set out, clauses 5 and 6 set the appropriate percentage used for calculating the taxable benefit for a company car for tax years 2028-29 and 2029-30. In those tax years, the appropriate percentage for EVs will increase by 2% to 7% in 2028-29 and 9% in 2029-30. For most other vehicles, the appropriate percentage will increase by a further 1% in each year, up to a maximum of 39%. Hybrid vehicles are the standout exception. The effect of these clauses for vehicles capable of operating on electric power while producing between 1 gram and 50 grams of CO2 per kilometre is to introduce a steep increase in the appropriate percentage of as much as 13% in 2028-29 to reach 18%, before rising to 19% in 2029-30.
Whereas previously the appropriate percentage for cars with emissions between 1 gram and 50 grams of CO2 per kilometre would rise as the electric range reduced, from 2028-29 that system will be replaced with a single flat rate, regardless of the electric range. That means that hybrid cars with the greatest electric range, which are presumably the least polluting, will see the steepest tax rise. Any distinction between hybrid vehicles will be eliminated for the purposes of these provisions. Indeed, as the explanatory notes make very clear, rates for hybrid vehicles will align more closely with the rates for internal combustion engine vehicles, as the Minister just pointed out.
It will not have escaped Members that these new rates take us to 2030. The Government have confirmed their intention to ban the sale of new petrol and diesel cars by that date. What has not yet been confirmed is the future of hybrid vehicles. The Department for Transport is consulting on which hybrid cars can be sold alongside zero emission models between 2030 and 2035. The Minister, naturally, will not pre-empt the outcome of that consultation, but these measures effectively do just that. While the Department for Transport parses the differences between plug-in hybrid electric vehicles and hybrid electric vehicles, the Treasury is eliminating that distinction altogether by 2028, let alone by 2030.
Not only that, but the Treasury is effectively lumping all hybrid vehicles in with those powered by internal combustion engines. Treasury Ministers will be aware that the manufacturing of hybrid vehicles and engines supports thousands of British jobs, as my hon. Friend the Member for Gordon and Buchan alluded to, and car manufacturing firms operate on a multi-year investment cycle. The contradictions between the Bill and the Department for Transport’s consultation send a less than clear signal, which puts those jobs at risk. I would therefore be grateful if the Minister clarified the Government’s intention in making these changes, especially when the House of Lords Environment and Climate Change Committee has heard that these rates have been the single most effective intervention to date in changing consumer behaviour around different types of vehicles.
I would also be grateful if the Minister outlined what steps the Treasury and HMRC are taking to make the general public aware of these changes. I grant they are quite technical, but they could impose a significant additional tax bill on certain taxpayers with plug-in hybrid vehicles. The Chartered Institute of Taxation raised that as a key area of concern, which could confront unsuspecting taxpayers—those seeking to do the right thing by purchasing a less-emitting vehicle— with a massive and steep tax rise. A higher rate taxpayer on £51,000 whose company car is a plug-in hybrid VW Golf could face an additional tax bill of as much as £1,600 in 2027-28. That strikes me as neither fair nor proportionate.
It has been reported that this Labour Government ordered no fewer than 10 petrol hybrid Jaguars upon assuming office to supplement the existing departmental, chauffeur-driven pool cars. If the Minister is confident that the consequences of the changes have been communicated and fully understood, I am sure he will be able to inform the Committee of the extra tax liability in 2028-29 of someone on a salary similar to that of a Treasury Minister—£110,000—whose full-time work car is a plug-in hybrid Jaguar F-Pace valued at roughly £60,000 with an electric range of just under 40 miles.
As the Committee can tell, we have serious reservations about the communication of the changes, the unfair overnight tax hikes they impose on taxpayers just trying to do the right thing, and the mixed messages they send to vehicle manufacturers by contradicting other areas of Government policy and consultation. The measures concern the ’28-29 and ’29-30 tax years, so the Government have time to think again and to bring back a better calibrated policy in a future Finance Bill. For the reasons that I have set out, we will vote against the clauses.
James Murray
I listened to the shadow Minister’s comments, and he must have a different definition of “overnight” from me. Legislating now for changes that will come in in 2028 does not feel like overnight. Some Budget changes come in on the day of the Budget—had he called one of those overnight, I might have had some sympathy with the description, but not for legislating now for changes that will come in in 2028, toward the end of this decade. Part of the point of legislating now for changes that will happen some years down the line is precisely to give that signal to consumers and manufacturers, to ensure that the consumers are aware of what is to happen and manufacturers know what is planned.
Harriet Cross
People might be buying cars now—that is, overnight—that they still have in ’28-29, when the changes come in. They will be making decisions now that will be caught up in future changes.
James Murray
The hon. Lady makes a similar point to that made by the hon. Member for Grantham and Bourne, which is that the changes will come in further down the line, but they are critical of the fact that we are pre-announcing the changes now so that we give greater certainty and stability. I cannot understand that criticism, because I thought that giving as much forecasting, certainty and stability as possible would be welcomed by the industry and consumers. People expect taxes to change over time, and the greater the forecasting and advance notice they have, the better for consumers and for manufacturers. Without making this too political, I know that the Opposition were not a great fan of certainty and stability when they were in office, but we are rather different. That is why we are setting out the changes now.
The shadow Minister referred to the DFT consultation, and of course, he is right that I would not pre-empt its outcome. In combination, our giving information about what the appropriate percentages will be towards the end of the decade, thereby providing certainty and stability, will help us to work closely with other Departments to ensure that consumers are well informed about what is likely to happen towards the end of the decade and manufacturers have the certainty and stability that were so desperately lacking under the previous Administration.
Question put, That the clause stand part of the Bill.
James Murray
Clause 13 sets the charge for corporation tax for the financial year beginning April 2026, setting the main rate at 25%; and clause 14 sets the small profit rate at 19% for the same period. As Members know, the charge for corporation tax must be set every year, so it is important to legislate on the rate for 2026 now to provide certainty to large and very large companies, which will pay tax in advance on the basis of their estimated tax liabilities. That is also why we have committed to cap corporation tax at 25% for the duration of the Parliament, as set out in the corporate tax road map published at the autumn Budget. The changes made by clause 13 will establish the right of the Government to charge corporation tax from April 2026. The clauses maintain the current rates of 25% and the small profits rate of 19%. Tax certainty is of great importance to businesses, and clauses 13 and 14 ensure that they continue to benefit from stable and predictable tax rules. I commend both clauses to the Committee.
Gareth Davies
As the Minister set out, clauses 13 and 14 set the charge and rates of corporation tax for financial year 2026. The main rate remains unchanged at 25%, with the standard small profits rate at 19%, and the standard marginal relief fraction remains three 200ths.
In Committee on the last Finance Bill, the Exchequer Secretary to the Treasury, who was then the shadow Financial Secretary to the Treasury—a great Opposition role—told the House that if Labour won the election, they would bring certainty back for businesses by capping the rate of corporation tax at 25% for the whole of the next Parliament. At that point, he spoke of capping corporation tax and publishing a business taxation road map as though they were two separate things.
This year’s Budget makes clear that there is no cap outside the road map, and once again, as with income tax, we must take Labour at their word that they will stick to a non-binding commitment, which is not legislated for in this Finance Bill. It is unclear how much certainty or stability such a loose commitment will bring, especially when the Budget blindsided businesses with a £25 billion tax hike. Not only that, but the corporate tax road map itself says that, while the Government are committed to providing stability and predictability in the business tax system, they cannot rule out changes to the corporate tax regime over the course of this Parliament.
Given the Government’s ongoing worries about headroom and the uncertainty and instability that has created, will the Minister reconfirm for the parliamentary record the Government’s commitment, first, not to raise the headline rate of corporation tax for the duration of this Parliament; secondly, not to raise the small profits rate or reduce the marginal relief currently available; and thirdly, to maintain full expensing and the annual investment allowance, as well as writing down allowances and the structures and buildings allowance without meaningfully altering their eligibility?
James Murray
I was expecting a series of amendments from the Opposition; I was not expecting the shadow Minister to quote back at me an amendment I tabled several years ago. It is a new, although interesting, approach to opposition to rely on what I tabled in opposition and quote that back at me. I am sure it was an excellent amendment, although I cannot remember its exact detail.
On the hon. Gentleman’s questions about corporation tax rates, I am sure he will remember from his time in the Treasury that it is standard practice to legislate the charge to corporation tax on an annual basis, even when the rates remain unchanged. That is a long-standing convention that applies to income tax as well. However, because we were so determined to give businesses stability and certainty, we published the corporate tax road map alongside the Budget. In that road map, we made clear our commitment to maintaining the main rate—or, indeed, to capping it—at 25% for the duration of the Parliament.
The small profits rate and marginal relief will also be maintained at their current rates and thresholds. Full expensing and the annual investment allowance are also guaranteed for this Parliament. When it comes to corporation tax, full expensing and the annual investment allowance, the various Finance Bills in this Parliament will be quite a different experience compared with those in the previous Parliament.
Harriet Cross
Although we of course welcome a road map as a way to give businesses confidence on corporation tax, we should not get mixed up in the smoke and mirrors of what business taxes are. Because of the Budget, businesses now face many taxes and the uncertainty that they bring. Will we also see road maps for things such as the national insurance rises, the increase in business rates, minimum wage increases and measures in the Employment Rights Bill, all of which have an impact on business?
James Murray
The hon. Lady mentions business rates. I do not know whether she has read the discussion paper “Transforming Business Rates”.
James Murray
I am glad the hon. Lady has read it, because it sets out our approach to business rates in the coming year, from April 2026, and what we want to do over this Parliament. Businesses want stability and certainty from Government; they recognise that, over a five-year period, things will happen that cannot be predicted on day one, but they want that certainty and predictability. That is why, in the corporate tax road map, we give certainty on capping the main rate and on the small profits rate, marginal relief, full expensing and the annual investment allowance—everything on which we can give full certainty. However, where there are areas that we seek to explore or consult on, we are also clear about that. We developed that approach in partnership with business to make sure that we give as much certainty up front as we can, while also signposting those areas that we want to discuss.
Gareth Davies
Let us be clear: it is good when a Government set out a tax rate over a multi-year period; we accept that that is a good thing. However, does the Minister accept—to the point raised by my hon. Friend the Member for Gordon and Buchan—that although a road map has been set out on corporation tax, the Labour party has created uncertainty by saying, before the election, that it would not increase national insurance contributions and then, immediately after the election, hitting businesses with a £25 billion tax rise, including not only a rate change but a threshold change that brings many new businesses into the tax regime? Does the Minister accept that the problem is about more than corporation tax? It is about the entire business tax ecosystem. On that basis, the charge is very clear: his Government have caused great uncertainty and great damage to British businesses.
James Murray
Although I am mindful that the clauses are on corporation tax, Mr Mundell, let me briefly respond to the shadow Minister’s comments. This Government were elected to bring an end to the instability that had become endemic under the previous Government. I like the hon. Gentleman a lot, but for him to imply that the previous Government had stability from day to day is for the birds. I was in the House of Commons Chamber so many times for debates on Finance Bills. I think we went through the entire introduction and repeal of the health and social care levy in the space of a few months. There was no stability under the previous Government, and that was a large part of what led people to vote for change at the last general election. They wanted us to sort out the public finances, get public services back on their feet and restore the economic stability that is the bedrock on which investment can rise and on which we can get the economy growing as we know it can, supporting British businesses, entrepreneurs and wealth creators to do what they do best.
To bring us back to the clauses, publishing the corporate tax road map shows our commitment to not just campaigning on the prospect of bringing stability but delivering it in our very first Budget. The corporate tax road map clearly sets out our approach to corporation tax, related allowances and other areas we will look at. I may have discerned support for it in the shadow Minister’s comments; it was bound up in other comments but, reading between the lines, I think he supports the publication of the corporate tax road map. He is welcome to intervene if he disagrees.
Gareth Davies
I will intervene anyway. As I said, any certainty that can be provided to businesses regarding the tax system is a good thing. The point I am trying to make—I will try again—is that corporation tax is just one tax paid by businesses. They also pay national insurance contributions. They also use reliefs such as the business rates relief the Minister talked about—by the way, the Government have cut that from 70% to 40%, although I am not sure that it was clear before the election that they would do that. The uncertainty has been caused by all the things that the British public were told would not happen, but that then did happen.
We are talking about corporation tax today, and I can see that you are, quite rightly, about to bring us back in scope, Mr Mundell. I will leave it here by saying that British businesses pay more than just corporation tax, and what they need is certainty across the board. We have a corporation tax road map, but why do we not have a holistic, comprehensive business tax road map that includes national insurance, business rates and other taxes borne by businesses? That is my point.
James Murray
With your indulgence, Mr Mundell, I would like to briefly address—
James Murray
Yes. In the context of this discussion on corporation tax, I will address the comments about other taxes. The shadow Minister again mentioned business rates and business rates relief, but he might want to recall the situation we inherited on business rates relief. This year it is operating at a 75% discount for retail, hospitality and leisure properties, up to a cap of £110,000, and it was due to expire entirely in April 2025. What we inherited was not just instability, but a cliff edge—it was going to go entirely in April this year. I notice that that part of the story is conveniently erased from the shadow Minister’s account of history.
Business rates relief was going to expire entirely in April 2025, so we were keen to ensure that we continued it, while being mindful of the public finances. Our decision to continue it for a further year at 40% was the right thing to do while we ensure that we are ready from April 2026 to have permanently lower tax rates for retail, hospitality and leisure businesses with a rateable value of below £500,000. That is the stability that businesses so badly need. Frankly, the shadow Minister, who is talking about business rates in the context of corporation tax, overlooked that fact entirely. Under the previous Government, the reliefs were extended one year at a time, with the rates going up and down, which provided no stability for businesses trying to make investment decisions. From April 2026, with our permanently lower rates, we want to provide exactly that stability.
To return to corporation tax, which is the subject of these two clauses, one of the conversations that I had many a time with businesses while in opposition was about their desire for certainty on corporation tax and the system of allowances. I recall challenging the shadow Minister, when he was a Treasury Minister himself, about the number of changes there had been to full expensing, the annual investment allowance and indeed to the super-deduction, which came and went entirely within one Parliament. That instability is what prompted our desire to provide stability for businesses, and publishing the corporation tax road map and these clauses begins to implement the commitments we made.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14 ordered to stand part of the Bill.
Clause 19
Pillar Two
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendments 1 to 3, 21 to 23, 4 to 11, 24 to 29, 12 and 13, 30, 14, and 31 to 37.
Schedule 4.
James Murray
Clause 19 and schedule 4 introduce the undertaxed profits rule—the third and final part of the internationally agreed global minimum tax known as pillar two. They also amend the existing legislation on multinational top-up tax and domestic top-up tax to incorporate the latest international agreements and stakeholder feedback.
It is essential that multinationals pay their fair share of tax in the UK. Pillar two protects the UK tax base from large multinationals shifting their profits overseas to low-tax jurisdictions, by requiring multinationals that generate annual revenues of more than €750 million to pay an effective tax rate of 15% on their profits in every jurisdiction in which they operate. Where their effective tax rate falls below that, they will pay a top-up tax.
James Wild (North West Norfolk) (Con)
It is a great pleasure to serve on the Committee under your chairmanship, Mr Mundell. As we heard from the Minister, clause 19 and schedule 4 amend the parts and schedules of the Finance (No. 2) Act 2023 that implement the multinational top-up tax and domestic top-up tax. Part 2 of schedule 4 introduces the undertaxed profits rule into UK legislation, and part 3 makes amendments to the multinational top-up tax and domestic top-up tax. These taxes represent the UK’s adoption of the OECD pillar two global minimum tax rules, and we are supportive of the measures before us.
In October 2021, under an OECD inclusive framework, more than 130 countries agreed to enact a two-pillar solution to address the challenges arising from the digitalisation of the economy. Pillar one involves a partial reallocation of taxing rights over the profits of multinationals to the jurisdictions where consumers are located. The detailed rules that will deliver pillar one are still under development by the inclusive framework. As the Minister said, pillar two introduces a global effective tax rate, whereby multinational groups with revenue of more than €750 million are subject to a minimum effective rate of 15% on income arising in low-tax jurisdictions.
The multinational and domestic tax top-ups were introduced in the Finance Act 2023, as the first tranche of the UK’s implementation of the agreed pillar two framework. Measures in the Bill extend the top-up taxes to give effect to the undertaxed profits rule. That brings a share of top-up taxes that are not paid under another jurisdiction’s income inclusion rule or domestic top-up tax rule into charge in the UK. The undertaxed profits rule will be effective for accounting periods beginning on or after 31 December 2024.
Following discussions with the Chartered Institute of Taxation, I have a number of points to raise with the Minister. First, as the institute points out, there is an open point around the application of the transitional safe-harbour anti-arbitrage rules. The OECD’s anti-arbitrage rules for the transitional safe harbours are drafted very broadly, and may therefore go further than originally anticipated. Will the Minister clarify HMRC’s view of the scope of those rules?
There are also questions about taxpayers’ ability to qualify for the transitional safe harbours. A transitional safe harbour is a temporary measure that reduces the compliance burden for multinationals and tax authorities. There has been some uncertainty as to whether a single error in a country-by-country report could disqualify all jurisdictions from applying the transitional safe harbours. HMRC has recently indicated that it would be open to permitting re-filings of country-by-country reports where errors are spotted. Can the Minister provide further clarity on HMRC’s proposed approach?
The UK’s legislation will need to be updated regularly to stay in line with the OECD’s evolving guidance. What steps is the Minister taking to ensure that clear guidance is provided in a timely manner? The new top-up taxes and undertaxed profits rule are complicated. Schedule 4 runs to over 40 pages and includes an eight-step method to determine the proportion of an untaxed amount to be allocated to the UK. It is important that the Government minimise the cost of implementation and compliance. How will the Minister ensure that it is kept to a minimum?
While I welcome the work the UK is doing at a global level, there are still significant issues. I was interested, as I am sure the Minister was, to see that one of the first actions of President Trump, just hours after he took office, was to issue a presidential memorandum stating:
“This memorandum recaptures our nation’s sovereignty and economic competitiveness by clarifying that the global tax deal has no force or effect in the United States.”
It states in clear and unambiguous terms:
“The Secretary of the Treasury and the Permanent Representative of the United States to the OECD shall notify the OECD that any commitments made by the prior administration on behalf of the United States with respect to the global tax deal have no force or effect within the United States absent an act by the Congress adopting the relevant provisions of the global tax deal.”
The OBR estimates that pillar two is expected to generate £2.8 billion by the end of this Parliament. What impact could the US position have on the future operation of pillar two and the UK’s ability to levy top-up taxes on multinationals as planned? The same memorandum issued by President Trump notes that
“a list of options for protective measures”
will be drawn up within 60 days. What action are the Government taking to engage with the US Treasury and to prepare for such actions? Has the Chancellor raised this with her opposite number?
The Minister referred to the more than 30 Government amendments that have been tabled to schedule 4, which correct errors in the calculation of the multinational top-up tax payable under the UTPR provisions that would have resulted in an excessive liability; secure that eligible payroll costs and eligible asset amounts are allocated from flow-through entities in a manner that is consistent with pillar two model rules; and ensure that multinational top-up tax and domestic top-up tax apply properly in cases involving joint ventures. They are all perfectly sensible, but the number of amendments tabled underlines the complexity of the issue.
As I mentioned, this is a two-pillar system. The corporate tax road map confirmed the Government’s support for the international agreement on a multilateral solution under pillar one and the intention to repeal the UK’s digital sales tax when that solution is in place. The digital sales tax raised £380 million in 2021-22, £567 million in 2022-23 and £678 million in 2023-24. I would welcome an update from the Minister on pillar one and the future of the digital sales tax.
The Opposition will not be opposing the clause, but I look forward to the Minister’s response to the specific points I have raised, including those on developments under the new Trump Administration and on implementation.
James Murray
I thank the shadow Minister for his support for the provisions before us and our general approach.
First, it is the case that we are amending the Bill in Committee, but that is because, as his colleagues may remember from their time in government, these are complex rules and it is important that pillar two rules work as intended. This is a complex international agreement and it represents one of the most significant reforms of international taxation for a century. It is to a degree inevitable that revisions would be needed as countries and businesses introduce pillar two and set it in progress. It is complex, but we should not forget that pillar two applies only to large multinational businesses, and the reason it is being introduced is to stop those businesses shifting their profits to low-tax jurisdictions and not paying their fair share here in the UK. The rules need to respond to that, and we need to make sure that they work for all sectors and all types of businesses.
James Murray
The clause repeals the offshore receipts in respect of intangible property legislation, known as ORIP, which was aimed at disincentivising large multinational enterprises from holding intangible property in a low-tax jurisdiction if the intangible property was used to generate income in the UK. Such enterprises could thereby gain an unfair competitive advantage over those that held intangible property in the UK. The policy is no longer required, because pillar two—the global minimum tax—will more comprehensively discourage the multinational tax planning arrangements that ORIP sought to counter.
As set out in the corporate tax road map, which we debated earlier, the Government are committed to simplification of the UK’s rules for taxing cross-border activities in the light of pillar two. Repeal will take place alongside the introduction of pillar two’s undertaxed profit rules in the UK from 31 December 2024, which we debated with clause 19. Clause 20 simply repeals chapter 2A of part 5 of the Income Tax (Trading and Other Income) Act 2005, and I commend it to the Committee.
James Wild
As we heard from the Minister, clause 20 repeals the ORIP rules, which are about ensuring that profits derived from UK consumers are taxed fairly and consistently, regardless of where the underlying intangible property is held. The previous Government announced in the 2023 autumn statement that they would abolish ORIP, so we support the clause.
The ORIP rules were a short-term, unilateral measure introduced in the Finance Act 2019 to disincentivise large multinational enterprises from holding intangible property—assets such as patents, trademarks and copyrights—in low-tax jurisdictions if it was used to generate income in the UK. Such multinationals could thereby gain an unfair competitive advantage over others that hold intangible property in the UK, as well as eroding the UK tax base. However, the legislation is no longer required, because the OECD/G20 inclusive framework pillar two global minimum tax rules will comprehensively discourage the multinational tax planning arrangements that ORIP sought to counter.
As the Minister said, the repeal will happen alongside the introduction of the pillar two undertaxed profits rule from 31 December 2024. Has he assessed how successful the ORIP rules have been since their introduction? HMRC’s tax information and impact notes state that this measure will have a negligible impact on around 30 large multinational groups and a negative impact on the Exchequer, peaking at £40 million in 2026-27. Can the Minister clarify why the repeal of the ORIP rules is having a negative impact on revenues to the Exchequer? I note that the Chartered Institute of Taxation has welcomed the measure and specifically said that
“any reduction in the legislative code to minimise overlap and unnecessary measures is welcome.”
We say amen to that.
As I have set out, we will not oppose the clause, but I look forward to the Minister’s response to my specific points about ORIP.
James Murray
I thank the shadow Minister for his support for the clause. I think his question was about the impact of repealing ORIP. A fundamental point here is that pillar two, which we debated previously, will now tax the profits that were the target of ORIP. Pillar two is expected to raise more than £15 billion over the next six years, so ORIP is simply no longer needed. The Government believe that simplifying and rationalising the UK’s rules for taxing cross-border activities is important, and as such it is right that we use this opportunity to repeal ORIP.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21
Application of PAYE in relation to internationally mobile employees etc.
James Murray
I beg to move amendment 15, in clause 21, page 11, line 21, after “is” insert “or has been”.
This amendment makes it clear that new section 690 applies if an employee has been internationally mobile in a tax year, even if the employee is no longer internationally mobile.
The Chair
With this it will be convenient to discuss the following:
Government amendments 16 to 19.
Clause stand part.
James Murray
I will briefly address clause 21 before explaining what the amendment seeks to achieve.
The clause makes changes to simplify the process for operating pay-as-you-earn where an employee is eligible for overseas workday relief. It relates to some of the reforms we are making around non-UK domiciled individuals, which we will return to later in Committee, because those clauses are in a different part of the Bill. More broadly, the context of this measure is that the Government are removing the outdated concept of domicile status from the tax system, and replacing it with a new, internationally competitive, residence-based regime from 6 April 2025.
Currently, where an employer makes an application to treat only a portion of the income that they pay to an employee as PAYE income, they are required to wait for HMRC to approve an application, which can result in delays. The changes made by clause 21 will mean that from 6 April 2025, an employer will be able to operate PAYE only on income relating to work done in the UK once they have received an acknowledgment from HMRC of their completed application, rather than having to wait for HMRC to approve it. That approach will simplify the operation of overseas workday relief for employers, while still allowing HMRC to direct employers to amend the proportion of income on which PAYE is operated, should it be necessary to do so.
Amendments 15 to 19 are needed in order to ensure that the legislation regarding the correct operation of PAYE works as intended. The Government are committed to making the tax system fairer so that everyone who is a long-term resident in the UK pays their taxes here. The new regime ensures this, while also being more attractive than the current approach, as individuals will be able to bring income and gains into the UK without attracting an additional tax charge. That will encourage them to spend and invest those funds in the UK.
James Wild
As we have heard from the Minister, clause 21 amends the process by which employers can operate PAYE on a proportion of payments of employment income made to an employee during the tax year. It is a welcome change. We will be supporting the clause and the simplification that it introduces.
By way of background, the clause amends section 690 of the Income Tax (Earnings and Pensions) Act 2003. Section 690 provides a mechanism for an individual or employer to seek a decision from HMRC regarding the tax treatment of certain earnings. The resulting determination under section 690 is an agreement between HMRC and a UK employer on the estimated percentage of duties that an internationally mobile employee expects to carry out in a tax year. Once that determination is provided, the employer can operate PAYE on only that percentage of the employee’s salary.
Unfortunately, that is easier said than done. According to the Institute of Chartered Accountants in England and Wales, historically HMRC has missed its four-month target to agree employers’ applications, and in some cases it has taken up to a year to obtain HMRC’s approval. This is just one example of the difficulty that taxpayers have in engaging with HMRC. I welcome the comments that the Minister made at Treasury questions last week about the work that he is doing—he chairs the board of HMRC, I believe—to ensure that HMRC delivers a better service for customers. We all wish him well on that.
Perhaps this is an opportune time to remind the 3.4 million people who have to submit self-assessment tax returns to do so before the 31 January deadline. Colleagues may wish to ensure that they have submitted theirs.
In the absence of an agreement, PAYE must be operated on the whole salary, meaning that the employee would be overtaxed and must claim relief after the year end. That is not a satisfactory outcome for anyone. These changes will allow employers to immediately operate PAYE on only the proportion of earnings that they believe relates to UK duties, rather than having to wait for HMRC to approve the application. This new process is a welcome step forward in dealing with an issue that HMRC has had in meeting its legal obligations under the current tax system.
James Murray
I thank the shadow Minister for his support for the clause and the amendments. He rightly recognises that this is a simplification to make things happen quicker in the tax system, and we can all agree on that. He raised some specific points, and I will write to him on the detail of the operation of the clause so that he has a record of that. I endorse his call for anyone who has not already submitted their self-assessment tax return to be mindful of the deadline of the end of the month.
Amendment 15 agreed to.
Amendments made: 16, in clause 21, page 12, line 4, after “being” insert “or having been”.
This amendment is consequential on Amendment 15.
Amendment 17, in clause 21, page 12, line 22, after “is” insert “or has been”.
This amendment makes it clear that a notice under new section 690A can be given during the mobile tax year if the employee has been internationally mobile during that year, even if the employee is no longer internationally mobile.
Amendment 18, in clause 21, page 13, line 22, leave out “public notice given” and insert “general direction made”.
This amendment means that the requirements of notices under new section 690A will be specified in a general direction made by HMRC rather than a public notice.
Amendment 19, in clause 21, page 15, line 38, at end insert—
“(3) Any direction given by an officer of Revenue and Customs under section 690 of ITEPA 2003 (employee non-resident etc) has no effect in relation to tax year 2025-2026 or any subsequent tax year.” —(James Murray.)
This amendment means that any direction given under the old section 690 will cease to have effect in relation to future tax years.
Clause 21, as amended, agreed to.
Clause 22
Advance pricing agreements: indirect participation in financing cases
Question proposed, That the clause stand part of the Bill.
James Murray
Clause 22 introduces technical amendments to provide certainty that advance pricing agreements are available for all financing arrangements covered by the transfer pricing rules, in line with the existing HMRC guidance.
The transfer pricing rules ensure that transactions between related parties, such as companies in the same multinational group, are priced as though they were between independent entities, in line with the arm’s length principle. This makes sure that each related party pays the appropriate amount of tax in the country in which it operates. That ensures a fair distribution of tax revenues across different jurisdictions and prevents companies from manipulating intra-group prices to shift profits to lower tax jurisdictions.
The UK’s advance pricing agreement legislation provides for agreements to be entered into between HMRC and businesses in scope of the transfer pricing rules, which determine the transfer pricing method that businesses should use to determine the arm’s length price. An advance pricing agreement is not special treatment for that taxpayer; rather, it provides improved certainty to taxpayers in areas where the correct application of the transfer pricing rules may be in doubt.
HMRC has recently become aware of a technical gap in the legislation that was contrary to its long-established statement of practice. The said statement of practice allows for an advance pricing agreement to be entered into where the parties are acting together in relation to financing arrangements. The changes made by this clause fix that gap and will ensure that HMRC can provide businesses with tax certainty in relation to the application of the transfer pricing legislation to all in-scope financing arrangements, in line with HMRC’s statement of practice.
The intention of this clause is to fix a technical gap in existing legislation and to ensure that HMRC can provide certainty in line with its existing published guidance.
James Wild
As we heard from the Minister, clause 22 makes amendments to parts 4 and 5 of the Taxation (International and Other Provisions) Act 2010 concerning the meaning of indirect participation in relation to advance pricing agreements. Once again, we welcome these changes. An APA is a procedural agreement between one or more taxpayers or one or more tax authorities on the future application of transfer pricing policies. Advance pricing agreements can help to provide certainty and avoid transfer pricing disputes.
HMRC recently became aware that there is a technical gap in the circumstances in which an advance pricing agreement may be entered into. Clause 22 aims to rectify that gap and provide clarity on what constitutes indirect participation in the context of APAs. The clause amends both the transfer pricing and APA legislation to ensure the validity of advance pricing agreements in cases where the parties to the provision are connected only by virtue of acting together in relation to the financing arrangements.
The clause will ensure the validity of advance pricing agreements with businesses in such circumstances and is intended to ensure that HMRC can provide businesses with tax certainty in relation to the application of transfer pricing legislation. We have spoken a lot during this Committee about the importance of certainty for business, so that is a welcome step.
By providing clarification on what indirect participation means, the Government are confirming the scope of advance pricing agreements, which should improve certainty and dispute resolution. The Chartered Institute of Taxation notes that
“this measure will be helpful for taxpayers that have applied to or want to apply to HMRC for APAs in relation to financing arrangements (such as Advance Thin Capitalisation Agreements) in circumstances where the UK’s transfer pricing rules are only in scope due to persons acting together in relation to those financing arrangements.”
The clause will likely improve the process both for businesses and HMRC. It is, however, a little hard to understand the real-world impact from the tax information and impact notes. Now that indirect participation has been defined and the scope of advance pricing agreements effectively broadened, will there be any extra enforcement cost? I would be grateful if the Minister could confirm how many businesses the change is likely to impact. It would also be useful to know whether the Government have calculated the economic benefits of advance pricing agreements and, subsequently, how the change will impact the Exchequer. As I have set out, we welcome this technical change, but I would welcome the Minister’s comments on the issues I have raised.
James Murray
I thank the hon. Gentleman for his support for the clause. We are on a roll of him supporting clause after clause—may this continue throughout the rest of the Bill.
The hon. Gentleman rightly recognises that this is a simplification measure on which all Members can agree. As it is a simplification measure, it is non-scoring, so it does not have an Exchequer impact—it simply provides certainty on how the rules as intended will apply. It does not change how the rules apply or make a policy change to the Government’s approach; it makes sure that there is total certainty and clarity about how they will apply. Only a limited number of taxpayers will be affected, and we expect them to welcome the change because of this certainty.
I welcome the Opposition’s support for this clause, because I think we can all agree on giving as much certainty to taxpayers and businesses as possible.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Expenditure on zero-emission cars
Question proposed, That the clause stand part of the Bill.
James Murray
Clauses 23 and 24 make changes to extend the 100% first-year allowances for qualifying expenditure on zero emission cars and plant or machinery for electric vehicle charge points by a further year to April 2026. The first-year allowance for cars was originally introduced for expenditure incurred from 17 April 2002 for low CO2-emission cars, including electric vehicles, and eligibility was later restricted to cars with zero CO2 emissions from April 2021. The first-year allowance for electric vehicle charge points was originally introduced for expenditure incurred from 23 November 2016. These first-year allowances were introduced to support the UK’s transition to cleaner vehicles and were due to expire in April 2025.
The changes made by clauses 23 and 24 will extend the availability of the capital allowances for a further year to 31 March 2026 for corporation tax purposes and 5 April 2026 for income tax purposes. This ensures that investments in zero emission cars and charge point infrastructure continue to receive the most generous capital allowance treatment. By extending the first-year allowances for zero emission cars and charge point infrastructure, the measure will provide continued support for the transition to electric vehicles.
Gareth Davies
As the Minister set out, clauses 23 and 24 extend the availability of the 100% first-year allowance for business expenditure on zero emission cars and for expenditure on plant or machinery for an electric vehicle charging point. Both allowances are extended for a single year from April 2025. In their current forms, both allowances were introduced by Conservative Governments. Although we will not oppose the clauses, there are a few questions that I would like the Minister to address.
The first relates to a point that has been highlighted by the Association of Taxation Technicians concerning clause 24. The ATT has queried why the specific allowance for charging points is being extended when this expenditure has been covered by both the annual investment allowance and full expensing since the Conservative Government made those reliefs permanent in 2023. That means that the allowance is really relevant only to unincorporated business—for example, a partnership or sole trader— that has already used its annual investment allowance in full, which is a scenario that the ATT considers to be quite rare.
According to the ATT, we should be able to tell how rare this is from the number of claims made for this specific allowance on tax returns. Will the Minister provide any information that he has to hand on that? HMRC has said it expects 6,000 unincorporated businesses to be impacted by clauses 23 and 24. Does the Minister have a figure for clause 24 alone and for specific unincorporated businesses that have exhausted their annual investment allowance? At the very least, I would be grateful if the Minister explained to the Committee the rationale behind that specific extension, given the context that the ATT has so clearly set out.
The cost to HMRC of implementing the clauses is a cool £1.2 million—a relatively high figure for the extension of a pre-existing allowance for a single year. If clause 24 is largely redundant, this hardly seems good value for money on HMRC’s part. I therefore ask the Minister to provide a clause-by-clause breakdown of the £1.2 million of taxpayers’ money that HMRC will spend to be able to execute the relief.
Turning back to clause 23, electric vehicles, unlike charging points, are not in scope of the annual investment allowance or full expensing, so I will not question the extension of that specific allowance, which we welcome. However, given the Government’s ambition to accelerate our transition to electric vehicles, I cannot help but wonder why they are putting a brake on the allowance after just a single year.
The Red Book states that the allowance will
“help drive the transition to electric vehicles”,
yet from April 2026, a business investing in these cars will receive relief only through annual writing-down allowances of either 18% or 6%, depending on the car’s emissions—those incentives are less generous and less immediate. At Budget 2020, we extended the EV allowance by four years to provide the support and certainty to businesses that the Minister says he so desperately wants. This Labour Government have declined to do the same, creating what some—not me—may call a cliff edge. As Labour increases the pace and the burden of the transition to net zero, they are also shifting the burden away from His Majesty’s Government and on to British businesses and British consumers. Once again, it is they who will pay the price for the Government’s obsession with decarbonising our grid and imposing net zero policies on the British public.
James Murray
I thank the shadow Minister for his questions and his support for the clause. He mentioned a question that the ATT raised about the interaction between the extension of the 100% first-year allowance we are proposing, particularly for charge points, and the context of full expensing in the annual investment allowance. For businesses that are investing over the annual investment allowance limit, there may be circumstances where, if the first year allowance were not extended as it is by these clauses, some investment in EV charge point equipment would qualify for only a 50% first-year allowance rather than 100% full expensing. The Government want to support investment in EV charge point infrastructure by providing full relief for investment in equipment for EV charge points. That is why we have introduced this measure.
The shadow Minister asked for a specific figure. I do not have that to hand, but I am happy to look into what information is available and get back to him. More broadly, the 100% first-year allowance was due to expire in April 2025. This conversation has echoes of an earlier discussion we had around retail, hospitality and leisure business rates relief, and reliefs or allowances that we inherited and which are due to expire in April 2025. We have decided to extend this, and the reason why is to help support businesses and individuals who are buying or making electric vehicles and associated infrastructure. We see this as one of a series of measures to support the EV transition. It has come up in relation to a number of clauses, so I think it is clear to the Committee that the Government are pursuing a range of different interventions and policies to carefully calibrate the right level of Government support.
Blake Stephenson (Mid Bedfordshire) (Con)
In the interest of providing certainty, would the Minister explain why the Government did not choose a multi-year allowance on this, rather than going for an extension of only one year?
James Murray
As I was saying, we are seeking to calibrate the incentives carefully for the transition to EVs to support manufacturers and consumers and to give as much certainty as possible, while making sure that we have the right support in different parts of the tax system to provide value for money and support the transition in the right way. It is not a question of a single measure being responsible for supporting the transition. This relies on manufacturers and consumers playing their part, but the Government need to play their role, too, which is why this measure sits alongside others we have debated, including those that are not part of the Finance Bill but are part of the Government’s broader agenda. Collectively, they will support this transition.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Clause 24 ordered to stand part of the Bill.
Clause 25
Commercial letting of furnished holiday accommodation
Question proposed, That the clause stand part of the Bill.
James Murray
The clause and the schedule abolish the furnished holiday lettings tax regime from April 2025, removing the tax advantages that landlords who offer short-term holiday lets have over those who provide standard residential properties. Furnished holiday let owners benefit from a more generous tax regime than landlords of other property types, such as standard residential properties. The advantages of that tax regime include capital gains tax reliefs: FHLs can qualify for gains to be charged at 10%, unlike buy-to-let properties and second homes. FHLs also benefit from unrestricted income tax relief on their mortgage interest, rather than the 20% restriction on relief for standard lettings, and from capital allowance on furniture and furnishings. FHL profits are also counted as earned income for pension purposes.
The previous Government announced at the spring Budget 2024 that they would abolish the FHL tax regime to level the playing field with landlords of standard residential properties. We are now legislating for that measure and abolishing the FHL tax regime from April 2025, which will raise around £190 million a year by 2029-30 and thereby support the vital public services we all rely on. The changes made by clause 25 and schedule 5 mean that FHL landlords will be treated the same as other residential landlords for the purposes of income tax, corporation tax and capital gains tax.
Harriet Cross
Does the Minister recognise the difference between properties with a use clause compelling them to be used for holiday let accommodation and houses that do not, and that can therefore be used as residential properties? Those two things do not necessarily line up in terms of what the owner can use the property for.
James Murray
If I understand the hon. Member’s question correctly, it might relate to clauses in the lease of the property, but I am not quite sure what her point was. I will come back to this if I have misunderstood her question, but clause 5 relates specifically to the tax treatment of these properties. It is about how FHLs, which can still operate in the same way as they have previously in terms of lettings, will be treated by the tax system to bring them in line with standard residential property tax treatment. This is about equalising the tax treatment of FHL landlords and standard landlords, rather than seeking broader changes, which may be what she was alluding to, but I am happy to return to it later in the debate if I have misunderstood her question.
This measure does not penalise the provision of FHLs; it simply brings their tax treatment more in line with long-term lets. It does that to remove the tax advantages that FHL landlords have received over other property businesses in four key areas. First, finance cost relief will apply in the same way as for long-term lettings, with income tax relief on their mortgage interest restricted to the basic rate. Secondly, it will remove the capital allowances rule for new expenditure and allow replacement of domestic items relief. Thirdly, it will withdraw access to reliefs from taxes on chargeable gains for trading business assets. Fourthly, FHL income will no longer count as earned income for pension purposes. After repeal, former FHL properties will form part of a person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses.
However, the Bill does not equalise tax treatment entirely. Holiday lets, whether they qualify as FHLs or not, are subject to VAT, whereas longer-term, private rented sector accommodation is not. Withdrawal of finance cost relief will mainly affect higher rate and additional rate taxpayers, with basic rate payers largely unaffected. The Government have also introduced transitional arrangements. FHL properties will become part of a person’s overall property business and past FHL losses can be relieved against profits of that business in future years. Existing capital allowance claims can be continued, but new capital expenditure will be dealt with under the rules for standard residential let properties. The legislation also confirms that where a business has ceased prior to April 2025, business asset disposal relief may continue to apply to a disposal that occurs within the normal three-year period following cessation, which is in line with current rules.
Mr Angus MacDonald (Inverness, Skye and West Ross-shire) (LD)
Did the Minister consider the different legislation in Scotland, where we have short-term letting licences, visitor tax and a whole load of extra legislation coming in, which is making it difficult and reducing the amount of holiday letting available? How relevant is the proposal for Scotland?
James Murray
The hon. Gentleman’s question goes slightly beyond the ambit of the tax measures we are discussing. As I understand, he is talking about the wider regulation and the approach to lettings in Scotland. To echo my response to the hon. Member for Gordon and Buchan, the measures really relate to the tax treatment of FHLs in comparison to standard property lettings, making them more equal. It does not make them entirely equal—VAT remains a point of difference—but it is about levelling the playing field between FHL landlords and the landlords of standard lettings in the tax system.
Mr MacDonald
My point was really about the cumulative effect of many different taxes and restrictions making it more and more difficult for people in the letting business, which is crucial to the economy of tourist areas.
James Murray
We know that in any local area there needs to be a balance between visitor accommodation and long-term accommodation. I am sure that the hon. Member and others recognise the tension inherent in getting that balance right. We need to ensure not only that we are supporting our visitor economy, but that the tax system supports long-term accommodation for people who live in those areas—not least because those who work in the tourism sector need somewhere to live near their place of work. It is about the balance between supporting visitor economies and long-term residential lets. We agree with the previous Government, who introduced the reform, on this point. The tax treatment of FHL landlords is better if brought more in line with standard residential lets.
I will briefly mention the anti-forestalling rule, which is also introduced as part of the Bill. It will prevent the obtaining of a tax advantage through the use of conditional contracts to receive capital gains relief under the current FHL rules. That rule applies from 6 March 2024.
In summary, the changes made by the provisions will make the tax system fairer by eliminating tax advantages for landlords who let out their properties as short-term furnished holiday lets compared with those who let out properties for longer periods. FHL landlords will now be treated the same as other residential landlords for the purposes of income tax, corporation tax and capital gains tax. We are grateful to all the stakeholders who have already fed in following the publication of the draft legislation and supporting documents.
Gareth Davies
As the Minister set out, clause 25 and schedule 5 repeal special tax rules relating to the commercial letting of furnished holiday accommodation. The changes were first announced in our Government’s Budget in March 2024, and we will not oppose them. However, it is important to view the measures in the context of the wider changes to the circumstances of the hospitality sector as a result of Labour’s Budget—most notably the hike in national insurance contributions.
Yuan Yang (Earley and Woodley) (Lab)
Might it not be more appropriate to view the measure in the context of the housing crisis that our country is currently in, and the record proportion of under-35s living at home with their parents rather than being able to live in their own accommodation? Does the hon. Member agree that there should be no tax incentives for accommodation to be turned into short-term furnished lets as opposed to long-term living places?
The Chair
Order. Can we keep the discussion within the context of the clause and the schedule?
Gareth Davies
Thank you, Mr Mundell. I am grateful for the hon. Member’s intervention; we all want to see people able to get on the housing ladder, particularly younger people. There is much work to be done on that. However, I would say two things. First, I question how much of an impact the measures will have on that, but I am happy to see evidence and data from the Treasury to prove her point. Secondly, we cannot deny that the hospitality sector is in different circumstances to when the previous Government announced the measures in March 2024. As I will discuss, the measures will have an impact on the sector. I think the hon. Member would agree that it is important to support our hospitality sector, hear their concerns and for me, as the official Opposition spokesperson, to make remarks on their behalf.
As I was saying, this is not just about national insurance contributions, but the reduction in the secondary threshold for that tax, as well as the reduction in business rates relief, which has gone down from 70% to 40%. Each of those measures creates significant new costs for the hospitality sector, which is crucial to rural and coastal economies across the country. It is those same rural and coastal economies that will be disproportionately affected by the provisions of clause 25 and schedule 5.
Blake Stephenson
Does my hon. Friend think that, by suggesting that farmers should diversify into holiday lets, the Environment Secretary intends that farmers should pay even more tax to the Treasury?
Gareth Davies
It is clear that the Government have launched an attack on farmers across rural communities in our country. The family farm tax is a disgrace. Farmers have protested and tried to make their voices heard, but still cannot get a meeting with the Chancellor of the Exchequer. I urge the Minister, who is very open to meetings, to have a word with his Chancellor, who is consistently in hiding and running out of the country when things get difficult as a result of her decisions.
Perhaps it is true that the Environment Secretary wants farmers to pay even more tax. Why else would he say to farmers in Oxford, “Convert your barns into holiday lets,” while over the road the Treasury is taking away these reliefs and making it more tax inefficient for them to do so? This is yet another area where the Labour Government seem intent on cancelling out genuinely pro-growth deregulation, which we welcome, with anti-growth taxation.
Gareth Davies
Does the Labour Member who is about to intervene on me support holiday lets?
Yuan Yang
I am glad that we have returned to this topic, because I was about to ask the hon. Gentleman whether he might clarify the relationship between his remarks and the commercial letting of furnished holiday accommodation—[Interruption.] But of course I support the equalisation of tax measures provided for by the clause.
Gareth Davies
I am sorry, but there was a very loud cough when the hon. Lady intervened. Would she repeat her intervention?
Gareth Davies
Oh, so it was more of a heckle than an intervention, but that is very welcome too; it makes it a bit more lively for the very large audience we have today.
I would be grateful if the Minister could set out the policy of this Labour Government. Do they support holiday lets? The Environment Secretary clearly supports them and wants farmers to diversify into them, while at the same time the Treasury—yes, we announced the policy in March—clearly wants to tighten up the rules on taxation. It would be great to hear the Minister clarify that, but it seems that the answer depends on which Minister one talks to on any given day. Let us see what the answer is in this Committee, from this Minister, today.
Clause 25 also touches on a long-standing issue of whether letting constitutes a trading activity or a property business. The FHL regime created a clear distinction by deeming a letting business to be considered a trade for certain purposes. Some organisations, such as the excellent Chartered Institute of Taxation, are concerned that removing the regime removes this distinction and could open up a whole can of worms, leading to costly disputes for both the taxpayer and HMRC. Can the Minister clarify what defines a letting as a trading activity in the absence of the FHL regime, or at least commit to the publication of updated, clearer guidance for the industry on that subject? The Chartered Institute of Taxation is also seeking confirmation on the following points—
Rachel Blake (Cities of London and Westminster) (Lab/Co-op)
I am confused as to why a party that brought in the proposals is now arguing so vehemently against them—perhaps it is still attached to its chaotic approach to government. What I am not following in the hon. Gentleman’s remarks is the argument that the equalisation of the taxation could have negative consequences. Has the hon. Gentleman interrogated the evidence that has been brought forward by those people who are letting out their holiday lets, and does he really think that there would not be an economic benefit to supporting a change in use of those homes?
Gareth Davies
These sittings are long, but I did say at the beginning of my speech that we announced in March 2024 that we would bring in this same measure and that we will support it today.
I am not saying that we are against it, but I am saying two things. First, as I was saying at the beginning of my speech, the context in which the measure is being introduced is very different from the context in March 2024. The context today is that hospitality businesses across the country, but particularly in rural communities, are being hit by a series of taxes that they did not ask for, did not vote for and were told would not happen. That is the context in which we find ourselves.
Secondly, His Majesty’s official Opposition have a duty to communicate the concerns of the British public and the sectors that will be directly impacted by this measure. It is vital that His Majesty’s Opposition scrutinise whatever policies are put in front of us, with a forward look at how that will economically damage or benefit communities. As you can tell, Mr Mundell, and as the hon. Member for Cities of London and Westminster can tell, I take a constructive tone. When we do support measures, we will say so, and when we do not, or we feel that additional scrutiny is needed, Members better believe that I will be there. That is what I am doing today. I hope that addresses the intervention from the hon. Member for Cities of London and Westminster.
In the interests of scrutiny on behalf of the many thousands of people that will be impacted by the measure and in a context of a wider hammering through the tax system by this Labour Government, let me continue my questions on behalf of the Chartered Institute of Taxation.
First of all, I seek confirmation from the Minister that an FHL disposal must be made before 6 April 2025 in order for a qualifying replacement asset to be eligible for roll-over relief, even though the replacement asset itself can be purchased up to three years after FHL disposal. Secondly, I seek confirmation that lettings must cease altogether before 6 April 2025—not just furnished holiday lettings, but even unfurnished long-term rentals—for an FHL disposal to qualify for business asset disposal relief. Thirdly, I seek confirmation that married couples or civil partners who jointly own an FHL must make an election if they are to continue to split the income unequally, rather than reverting to the normal 50:50 rule, and make a declaration to HMRC before 6 April 2025 if this is to have effect in the 2025-26 tax year. I ask those questions constructively, on behalf of the Chartered Institute of Taxation, and if the Exchequer Secretary is not able to answer them, of course I will take a written answer by way of letter following this sitting.
In addition to the confirmation on those three points, I would be grateful if the Minister could provide reassurance that HMRC guidance has been specifically and sufficiently clear on these points, so that those affected are aware of the implications of the changes. It is important to remember that when the Government make changes and when we made changes, we were very conscious—I am sure he is too—that the public are aware. He should take all measures possible to ensure that people are aware of these changes, but I appreciate his guidance on what measures are being taken.
Finally, on the case of joint ownership—
The Chair
It is finally, because we are at 25 minutes past 11, and the Committee will now adjourn.
Finance Bill (Third sitting)
Thursday 30th January 2025
(2 days, 11 hours ago)
Public Bill CommitteesRead Full debate Finance Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 30 January 2025 - (30 Jan 2025)
The Committee divided: - Ayes: 2 / Noes: 10 - Question accordingly negatived.
The Chair
Good morning everyone. Will Members please ensure that all electronic devices are turned off or switched to silent? We continue line-by-line consideration of the Finance Bill. The selection list for today’s sitting is available in the room and on the parliamentary website. It shows how the clauses, schedules and selected amendments have been grouped together for debate. If any Member wishes to press an amendment in a group to a vote—this includes the new clauses that have already been debated—they need to let me know before we reach them on the amendment paper.
Clause 57
Rate bands etc for tax years 2028-29 and 2029-30
Question (28 January) again proposed, That the clause stand part of the Bill.
The Exchequer Secretary to the Treasury (James Murray)
It is a pleasure to serve on this Committee with you as Chair, Ms Vaz. Tuesday’s debate on this clause concluded before we came to the decision, but I think the Opposition indicated that they would not oppose it. I commend the clause to the Committee.
Question put and agreed to.
Clause 57 accordingly ordered to stand part of the Bill.
Clause 58
EBTs: prohibition on applying property for benefit of participators etc
Question proposed, That the clause stand part of the Bill.
James Murray
Clauses 58 to 60 make changes to strengthen the conditions that must be met for transfers of shares into an employee benefit trust to be exempt from inheritance tax. An employee benefit trust is a trust that provides benefits and rewards to employees of a company, often in the form of shares in the company. Under certain conditions, such shares are exempt from inheritance tax. All or most employees need to be capable of benefiting from the trust for the inheritance tax exemption to apply, so it cannot be limited to shareholders of the company or family members, for example.
In 2023, the previous Government launched a consultation on employee ownership trusts and employee benefit trusts. The consultation set out concerns that such trusts were increasingly being used as a tax planning vehicle for shareholders and their families, rather than for a wider class of employees. At the autumn Budget, the current Government responded to that consultation and announced changes to strengthen the conditions that must be met for the transfer of shares into an employee benefit trust to be exempt from inheritance tax.
The changes made by clause 58 will mean that restrictions on shareholders and their family members benefiting from an employee benefit trust must apply for the entire lifetime of the trust. The clause will address cases in which the trust deed allows individuals who are closely connected with a shareholder to benefit after the participator’s death. The clause ensures that the Government’s position is explicitly clear in legislation. The change will come into effect on Royal Assent.
Previously, family members of the shareholder who were excluded from benefiting from the capital of the trust could still receive income payments from the trust. The changes made by clause 59 will ensure that no more than 25% of employees who can receive income payments from an employee benefit trust may be family members of the shareholder. This reinforces the original policy intent of employee benefit trusts to reward and motivate a wide group of employees.
Previously, an individual could set up a company, immediately make a transfer of shares to an employee benefit trust, and obtain an inheritance tax exemption. The changes made by clause 60 will mean that shares must have been held for at least two years before being transferred into the employee benefit trust. The provision will take into account shares held prior to any share reorganisation, and will strengthen protections against employee benefit trusts being used purely for inheritance tax planning purposes.
Clauses 59 and 60 are treated as having come into effect for transfers of value to new and existing trusts on or after 30 October 2024. The clauses will ensure that the tax treatment of employee benefit trusts is consistent with the original policy intent of rewarding and motivating employees, while minimising opportunities for abuse. I commend them to the Committee.
Gareth Davies (Grantham and Bourne) (Con)
It is, as always, a great pleasure to see you in the Chair, Ms Vaz.
As the Minister set out, clauses 58 to 60 make amendments to requirements for inheritance tax exemptions involving employee benefit trusts. Clause 58 provides that restrictions on shareholders and connected persons benefiting from employee benefit trusts will now apply for the lifetime of the trust. Clause 59 provides that no more than 25% of employees who receive income payments from an EBT can be connected to the shareholders in the company. Clause 60 provides that shares will now need to have been held for at least two years prior to being transferred to the EBT.
As the Minister said, the measures follow on from the consultation launched in 2023, which we referred to when we discussed clause 31 and employee ownership trusts. Although we will not oppose the clauses, I would be grateful if the Minister could comment on one specific issue that was raised during the consultation on the changes. In response to the measure introduced by clause 59, concerns were raised at consultation on behalf of smaller companies using EBTs that may now be forced to exclude certain employees from participating in share scheme arrangements in order to comply with the new requirement. What was the Minister’s assessment of that particular impact? Is he content that the benefits of the changes outweigh that particular risk cited in during the consultation?
James Murray
I welcome the Opposition’s support for the clauses, which build on the consultation that started when they were in office. The shadow Minister’s question related to what effect the changes might have on small businesses in particular. I will try to answer now, but he is free to contact me if he feels I have not covered his point fully.
The changes we are making to employee benefit trusts will not have an adverse effect on small businesses, because the original policy intent of exempting transfers of value to employee benefit trusts from inheritance tax was to encourage businesses to reward and motivate a wide range of employees. To qualify for the exemption, conditions need to be met that ensure that EBTs that benefit only shareholders and their families, or other people closely connected to shareholders, do not receive preferential inheritance tax treatment. Given that that is the aim in the principles behind the clauses, I am confident that they will not have the adverse effect that the shadow Minister fairly raised. I hope that provides him with some reassurance.
Question put and agreed to.
Clause 58 accordingly ordered to stand part of the Bill.
Clauses 59 and 60 ordered to stand part of the Bill.
Clause 61
Agricultural property relief: environmental management agreements
Question proposed, That the clause stand part of the Bill.
James Murray
The clause extends the scope of agricultural property relief from 6 April this year to land managed under certain environmental agreements. Agricultural property relief is an inheritance tax relief that reduces the amount that farmers and landowners must pay on land and other property that is owned and occupied for the purposes of agriculture. That will usually be land or pasture that is used to grow crops or to rear animals. Currently, access to APR may be lost where such land is taken out of agricultural production. Some tax advisers and industry representatives believe that provides a potential barrier for some farmers, particularly tenant farmers, to enter certain environmental land management agreements. Following consultation, the previous Government announced that they would extend agricultural property relief to such agreements.
Harriet Cross (Gordon and Buchan) (Con)
It is of course welcome that more land is to be brought under the scope of agricultural property relief, but given the introduction of the £1 million cap on agricultural property, is it not somewhat redundant? I know the Government use different numbers, but the industry believes that the majority of farms will be over that threshold anyway, so bringing more land within the scope of APR does not actually make much difference to the bill they will have to pay at the end.
James Murray
As the hon. Lady knows, because we have debated this many times, the data that we have published, based on His Majesty’s Revenue and Customs data, shows that the large majority of small farms will not be affected. I am sure she knows well the statistics on the 530 farms affected by the reforms to APR and business property relief in ’26-27, because she will have seen them in the Chancellor’s letter to the Treasury Committee and we have discussed them many times in this place.
Clause 61 relates specifically to land managed under certain environmental agreements, and was a measure proposed by the last Government. If the hon. Lady allows me to continue explaining why the clause is important, she might feel able to support it, given the benefits it will bring. The clause was welcomed by the sector, and the Government agree with the approach. I can confirm that there have been no changes to the design outlined by the previous Government in March 2024, which is why I hope to get the Opposition’s support for the clause.
As a result of the changes made by clause 61, from 6 April 2025 APR will be available for land managed under an environmental agreement with or on behalf of the UK Government, devolved Governments, public bodies, local authorities or approved responsible bodies. This includes but is not limited to the environmental land management schemes in England and equivalent schemes elsewhere in the UK, as well as any agreement that was live on or after 6 March 2024.
The Government are fully committed to increasing the uptake of environmental land management schemes in England, and we are providing the largest ever budget of £1.8 billion for this in 2025-26. The changes made by clause 61 will ensure that the tax system is not a barrier to uptake, thereby supporting farmers and land managers to deliver, alongside food production, significant and important outcomes for the climate and environment. I commend the clause to the Committee.
Gareth Davies
As the Minister said, clause 61 brings land managed under an environmental agreement—be that with the UK Government, devolved Governments, public bodies, local authorities or approved responsible bodies—within the scope of agricultural property relief.
I am afraid we have here Labour taking with one hand and providing far less with the other. For the £5 million, which we welcome, that they will give back to farmers each year with this measure, they will take away some £500 million a year through the family farm tax, if the Office for Budget Responsibility’s highly uncertain costings are to be believed. Many farmers, and bodies such as the National Farmers Union, have raised concerns about this. The Chartered Institute of Taxation has queried why the relief remains limited to schemes entered into with public authorities, rather than allowing enterprising landowners to enter into other schemes. I would be interested to hear the Minister’s thoughts on that, but we will not oppose the measure.
James Murray
I thank the hon. Gentleman for his support for the measure. He made wider points about reforms to agricultural property relief, which we have debated several times. The clause focuses in a targeted way on environmental land management schemes.
The hon. Gentleman asked why private environmental land management that is outside of agreements is not included. I confirm that relief will be available for land managed under an environmental agreement with or on behalf of the UK Government, devolved Governments, public bodies, local authorities or approved responsible bodies. This will ensure that the extension of the relief applies only where there are high, verifiable environmental standards.
Question put and agreed to.
Clause 61 accordingly ordered to stand part of the Bill.
Clause 62
National Savings Bank: statements from HMRC no longer to be required
Question proposed, That the clause stand part of the Bill.
James Murray
The clause makes changes to remove requirements in limited circumstances that the National Savings Bank, more commonly known as NS&I, obtains from HMRC a statement of inheritance tax paid before making a payment. The regulations concerned are consolidated regulations that confer powers and administrative obligations on NS&I which, before paying out a deceased person’s national savings and securities to personal representatives, must make due diligence checks, such as whether the payee has a grant of probate.
The changes made by the clause remove the requirement to contact HMRC directly to check inheritance tax paid in limited circumstances, including certain domicile conditions. This is no longer required in line with the modern compliance processes. This is a minor change that is connected to, but slightly out of scope of, the reforms for non-UK-domiciled individuals. It is consequential on the non-UK-domicile reforms. I commend the clause to the Committee.
Gareth Davies
The Minister may think that this is a minor issue—and he will be pleased to know that I agree with him. [Laughter.] I am just waking everybody up. The requirement is redundant and we will not oppose the clause.
James Murray
I applaud the hon. Gentleman’s theatre in delivering his response, and welcome his support.
Question put and agreed to.
Clause 62 accordingly ordered to stand part of the Bill.
Clause 63
Rates of alcohol duty
Mr Angus MacDonald (Inverness, Skye and West Ross-shire) (LD)
I beg to move amendment 66, in clause 63, page 68, line 10, leave out “£32.79” and insert “£31.64”.
The Chair
With this it will be convenient to discuss the following:
Clause stand part.
Clause 64 stand part.
New clause 2—Review of sections 63 and 64—
“(1) The Chancellor of the Exchequer must, within six months of the passing of this Act and every six months thereafter, review the impact of the measures contained in sections 63 and 64 of this Act.
(2) Each review must consider the impact of the measures on—
(a) Scotch whisky distilleries,
(b) small spirit distilleries,
(c) wine producers and wholesalers,
(d) the hospitality industry, and
(e) those operating in the night-time economy.
(3) Each review must also examine the expected effect of the measures on exports and the domestic wine trade.
(4) A report setting out the findings of each review must be published and laid before both Houses of Parliament.”
New clause 4—Statements on increasing alcohol duty—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to Parliament about the increase to alcohol duty introduced by section 63 of this Act.
(2) The statement under subsection (1) must include details of the impact on—
(a) hospitality sector,
(b) pubs, and
(c) UK wine sector.”
This new clause requires the Secretary of State to make a statement about the impact of increasing alcohol duty.
Mr MacDonald
The amendment would mean the relevant rate of duty would be unchanged from last year. I am one of the few MPs from Scotland on the Committee, but I am sure I am not alone in understanding the vital importance of the Scotch whisky industry not just to Scotland but to the UK economy. However, it bears repeating just how significant the industry is, and I would like to highlight a few key statistics.
Scotland is home to the production of 70% of UK spirits—whisky, gin and vodka. In 2023, Scotch whisky accounted for 74% of Scotland’s food and drink exports, and the industry employed 41,000 people in Scotland and an additional 25,000 throughout the UK. The Prime Minister himself recognised the importance of the industry. He went to the InchDairnie distillery in November 2023, and afterwards tweeted:
“Labour will put growth at the heart of our government and back Scotch producers to the hilt.”
The hon. Member for West Dunbartonshire (Douglas McAllister) echoed this sentiment when he co-signed a letter to the Chancellor prior to the Budget, urging her to:
“Back one of our great industries, undo the damage of last year’s duty increase, and allow Scotch Whisky to deliver for the economy.”
Despite those commitments, the 2024 autumn Budget fails to deliver the support that the Scotch whisky industry so urgently needs.
A new survey reveals that 43% of 18 to 34-year-olds have given up drinking alcohol entirely. The share prices of the biggest two spirit companies halved over the past year. The Bill proposes 1p off a pint of beer, which I think we can all agree is a bit of a stunt, while increasing the tax on spirits by 32p, with a related VAT increase of 6p. That means that the duty is £9.18 on a standard bottle of vodka, gin or Scotch whisky.
Over the past 16 years, the duty on spirits has doubled. I am concerned, and so are many others, that we are plucking the golden goose one time too many. UK alcohol duty is the highest in the G7. A double measure of spirits is taxed four times more than the average-strength pint of cider in pubs, even when the cider contains more alcohol. Effectively, we are taxing whisky, gin and vodka four times as much.
What is worse, this punitive duty does not even deliver more revenue for the Treasury. This is an important point. Last year, the previous Government increased the duty on spirits by 10.1%, but according to HMRC the revenue from the duty fell by £237 million in the following 17 months. That clearly demonstrates that higher taxes on Scotch and spirits do not lead to higher revenue. The increase was forecast to bring in £800 million. Revenue from the duty has therefore fallen dramatically.
I understand that in recent years alcohol duty has risen in line with inflation under the new system. However, freezing it in this Budget would send a clear message that the Government stand behind one of our greatest industries. The troubled hospitality industry and the Scotch whisky industry do not need hollow words of support: they need meaningful action. I urge the Government to freeze alcohol duty on Scotch whisky and other spirits, and keep their promise. The Prime Minister said that we need to
“back Scotch producers to the hilt.”
Let us give this industry the angels’ share that it deserves.
Gareth Davies
My hon. Friend the Member for North West Norfolk will speak to this clause, Ms Vaz.
James Wild (North West Norfolk) (Con)
I apologise for the confusion on our side, Ms Vaz. The Committee will be pleased to know that I have lots to say on this clause, so we can all settle in for a while.
Clause 63 increases the headline rate of alcohol duty in line with the retail price index, provides a reduction to the rates for draught alcoholic products and cuts to the rates paid by eligible small producers. The Government have also chosen not to extend the temporary easement for certain wine products. I say at the outset that His Majesty’s Opposition is a strong supporter of the broader alcohol sector, and we have some concerns about the impact that some of the provisions will have on important sectors. As well as speaking to clauses 63 and 64, I will speak to new clause 4, which stands in my name and that of my hon. Friend the Member for Grantham and Bourne.
In 2023, the previous Government introduced a progressive strength-based duty system following the alcohol duty review, which was the biggest review of alcohol duties for more than 140 years. The new and simplified alcohol duty rates system was based on the common-sense principle of taxing alcohol by strength, with the aim of modernising the existing duties, supporting businesses and meeting our public health objectives. That was the first time that public health objectives had been inserted into the alcohol duty system. The reforms also introduced two new reliefs: the draught relief to reduce the duty burden on draught products sold at on-trade venues, and small producer relief.
At the autumn statement 2023, the previous Government froze alcohol duty rates until August 2024, and that was extended until February 2025 at the following Budget. According to the OBR, alcohol duty receipts are expected to raise £12.4 billion this year, falling by 0.6% compared with last year as the rates remain frozen, but receipts are then forecast to increase by 5% a year on average, to reach £15.9 billion by the end of the Parliament.
Pubs make a huge contribution to our culture, economy and communities. When the Conservatives were in government, we recognised that and introduced a raft of supportive measures, including draught relief, small producer relief and the Brexit pubs guarantee, which I am sure all hon. Members remember and welcome. I therefore welcome the increased draught relief from February, from 9.2% to 13.9%, and the fact that the relative value of small producer relief will be maintained. Although we welcome the inclusion of both reliefs, the increase to draught relief will mean that beer duty on a 5% pint of beer is reduced from 54p to 53p—a 1p saving. I fear that drinkers will not be toasting the Exchequer Secretary over that.
Turning to whisky—although it is a little early in the day for me—as the hon. Member for Inverness, Skye and West Ross-shire set out, Scotch whisky is one of our most iconic and successful industries. Some 43 bottles of scotch whisky are exported per second and the industry supports more than 66,000 jobs across the UK, many of which are in rural areas. The decision to uprate duty rates by RPI has been met with deep concern by the industry—indeed, the Scotch Whisky Association said that it represents a broken commitment, after the Prime Minister claimed last year that his Government’s trade strategy would
“back Scotch producers to the hilt.”
That sounds rather like the promise that he gave to farmers, which Labour’s family farm tax has broken. The managing director of Diageo said:
“This betrayal will leave a bitter taste for drinkers and pubs, while jeopardising jobs and investment across Scotland.”
I would be interested to hear the Minister’s response to those comments. Have the Government calculated the risk to jobs in the sector more widely?
A similar picture is painted by the cider industry, which supports more than 11,500 jobs and attracts more than 1 million tourists each year. The National Association of Cider Makers has raised fears that raising the headline rate, alongside the national insurance increases and the family farm tax, could put elements of the UK cider industry at risk. Has the Minister calculated the cumulative impact that these tax rises will have on the sector?
At this point, we should consider the wider context in which we are discussing these increases. Time and again we hear about the Budget placing a range of cost pressures on the hospitality industry, which is a key contributor to the UK economy. According to UKHospitality:
“In the past six years, hospitality has increased its annual economic contribution by £20 billion to £93 billion.”
The tax rises in the Budget, including the £25 billion a year jobs tax, will make it much harder for the industry to succeed. Just look at the impact of recent measures. Colliers, a professional property services company, reported that cutting the hospitality business rate relief from 75% to 40% means that restaurants will face a bill of, on average, over £13,000 a year, up from £5,500.
Mr MacDonald
Will the Minister comment on whether, when the Government fix all these additional taxes, they take into account what happens in Scotland, where many in the hospitality industry do not get business rate relief? We are getting it twice on exactly the same issue.
James Wild
The hon. Gentleman makes an important point that I am sure the Minister will want to cover when he responds.
The average bill for pubs will go from £4,000 to £9,642 a year. Any hon. Member who talks to hospitality businesses in their constituency will know the real-world challenges they are facing. As it happens, my favourite pub in my constituency closed its doors on Sunday, in part due to the increased costs and taxes the sector is facing. Have the Government considered the impact of the combination of these tax rises on pubs and the wider sector?
Turning to wine, as part of our reforms we introduced a wine easement for 18 months until February 2025. The Minister will be aware of the concerns of some in the sector that because that easement is coming to an end, duty will increase by 98p in just over 18 months. While we support the transition to the new regime and the end of the easement, I would be grateful if the Minister clarified what engagement he has had to understand how prepared the industry is for the new system.
We have many incredible wineries here in the UK. In 2023, sales rose 10% to reach nearly 9 million bottles. Supporting domestic wine producers should be a priority. In my constituency, I am fortunate to have Burn Valley winery, Cobble Hill winery and others. They are producing great products, proving very popular and helping to improve the rural economy and employment. However, growers have higher production and establishment costs, which will be made more challenging by the tax rises in these clauses and the wider Budget.
To support the industry, WineGB has proposed the introduction of a cellar door duty relief scheme modelled on the Australian scheme, to promote wine tourism, which a VisitBritain survey demonstrated could attract 16 million visitors. The Government have an ambitious target to increase annual visits to the UK to 50 million by 2030—up from 38 million last year. In the spirit of trying to help the Government lift their foot off the growth brake lever, perhaps the Minister will have a look at that idea and consider whether introducing it has any merit.
It is because of the challenges facing producers and the hospitality sector that we have tabled new clause 4, which would require the Chancellor, within six months of the Bill being passed, to make a statement to Parliament about the impact on various sectors of the increases in alcohol duties. As we have heard, increases to duty rates place significant additional costs on hospitality, pubs, whisky, spirits, wine, cider and other sectors, and we are concerned that this could inhibit growth and business investment. The previous Government recognised the significant contribution made by those sectors and saw an increase in business investment in the hospitality sector. Given the headwinds facing alcohol producers and hospitality businesses, which support so many jobs, it is only right that the Government report back to Parliament on the impact of their choices.
Clause 64 abolishes the duty stamps scheme for spirit drinks from 1 May 2025, fulfilling a commitment made by the Conservative Government in the spring Budget. We welcome this. The scheme was important when it was introduced, but it became an increasingly diminishing part of HMRC’s compliance response. Unnecessary regulation should of course be removed where possible, and I welcome this Government’s apparent commitment to deregulation, as set out in the Chancellor’s speech, though it would have more credibility if the Government were not also bringing forward the unemployment Bill that will add £4.5 billion to business costs.
As I set out, we support this change to reduce administrative burdens. I look forward to the Minister’s response to the concerns I have raised on behalf of the sector and producers in relation to these clauses.
Mr Paul Kohler (Wimbledon) (LD)
It is a pleasure to serve under your chairship, Ms Vaz. May I draw Members’ attention to my entry in the Register of Members’ Financial Interests? I own a bar called Cellar Door—though not the same cellar door as the ones the hon. Member for North West Norfolk just referred to.
I want to speak about wine and the hospitality and night-time economy in general. Under the current regime of the wine easement, 85% of all wine sold in the UK is subject to the same rate of duty. That is now to be replaced by 30 different rates. That fails to take account of fundamental differences between wine and other manufactured alcoholic drinks.
The alcohol by volume of wine cannot be predicted with precision before or during the wine-making process. The alcohol content is stable only at the point when the wine goes into the bottle. The ABV varies between different years and different vats. Until bottling, we do not know the ABV of a particular bottle of wine. It therefore creates huge uncertainty about price and profit margins for the industry if there are different rates of duty depending on the specific ABV, down to a gradation of 0.1% ABV. This is particularly important with low-cost wines. The point is that this regime is utterly impractical for wine producers and wine merchants.
Hal Wilson, co-founder of Cambridge Wine Merchants, told me:
“In my business this feels like death by a thousand cuts, or even two thousand cuts. We sell over 2,000 different wines each year and from February will need to know the precise ABV of each and every one before being able to calculate their full cost. For each 0.1% ABV difference there is a different amount of tax to be paid.”
I wrote to the Minister about this and got a long and detailed response, for which I am grateful. He made the point that HMRC will change its practices and accept the ABV on the label of the bottle to the nearest 0.5%, but that is current practice; it is not in the legislation as I understand it, and it is still far too complex and much of my criticism still holds. Secondly, the letter fundamentally misunderstands why people drink wine. Wine is consumed for the taste, not the strength. An ABV goes through the taste profile. Compare a light Beaujolais with a robust Rioja. It is all about taste, not about whether it is stronger so one can get more drunk. That is not how people consume wine.
The hospitality and the night-time economy industry is facing an existential crisis owing to rising energy prices, recent inflation, labour shortages following Brexit, changes to commuting patterns and the more than doubling of business rates. Now, alcohol duties are to be another burden. It is death by a thousand cuts. Every incremental cost makes survival more difficult. That is why we are asking for a review after six months to see the effect on the wine industry, hospitality industry, night-time economy and other industries.
James Murray
I will attempt to address the points raised by the Opposition parties. Let me make it clear that clause 63 makes changes to the alcohol duty rates from 1 February 2025. Alcohol duty rates for products qualifying for draft relief will be cut by 1.7% to take a penny of duty off an average-strength pint, while rates of all other products will increase by the retail price index.
The Chair
You can respond to the debate at the end. Would you still like to make an intervention?
James Murray
As I was saying, the clause also increases the relative value of small producer relief for both draught and non-draught products, and clause 64 ends the alcohol duty stamps scheme. To reassure Members, in consideration of what position to take at the autumn Budget, I had meetings and officials had further meetings with representatives from the wine, beer, spirits and cider industries, as well as with public health people, to understand the full range of opinions and how we could carefully calibrate our policy response.
Harriet Cross
The Scotch Whisky Association is not on the list of people the Minister met. Can he confirm whether he did meet the association?
James Murray
The association is included under “spirits”.
As we know, alcohol duty is frozen until 1 February. The OBR’s baseline, reflected in its forecast, is that alcohol duty will be uprated by RPI inflation each year. The Government have decided to maintain the value of alcohol duty for non-draught products by uprating it from 1 February. At the same time we are recognising the social and economic importance of pubs, as well as the fact that they promote more responsible drinking, by cutting duty for draught products, which account for the majority of alcohol sold in pubs.
A progressive strength-based duty system was introduced on 1 August 2023 by the previous Government following the alcohol duty review. The reforms introduced two new reliefs: a draught relief to reduce the duty burden on draught products sold in on-trade venues, and small producer relief that replaced the previous small brewers relief. The clause increases the generosity of both reliefs.
The alcohol duty stamps scheme is an anti-fraud measure applied to larger containers of high-strength alcoholic products, typically spirits. It requires the mandatory stamping of certain retail containers with a duty stamp. In 2022, HMRC was commissioned to review the effectiveness of the scheme. It found that it is outdated, susceptible to being undermined and now plays a diminished compliance role, and concluded that the cost and administrative burdens imposed on the spirits industry could no longer be justified. The previous Government announced the end of the scheme at spring Budget 2024. That is a decision that this Government will implement from 1 May 2025. That date was chosen after consultation with businesses, which requested sufficient time to prepare.
Clause 63 makes four changes. First, it increases the rates of alcohol duty for non-draught products to reflect RPI inflation. Secondly, it reduces the rates of alcohol duty on draught products by 1.7%. Thirdly, it amends the tables in schedule 9 to the Finance (No. 2) Act 2023 that are used by small producers to calculate their duty discount under small producer relief. This increases the value of small producer relief for both draught and non-draught products in relation to the main rates for these products.
In cash terms, the current cash discount given to small producers for draught products is maintained, while the discount provided to small producers for non-draught products is increased. Small producer relief provides the same relative discount, irrespective of whether a product also qualifies for draught relief. As a consequence of the RPI increase in non-draught rates, it increases the simplified rates in schedule 2 to the Travellers’ Allowances Order 1994, which is used for calculating duty on alcoholic products brought into Great Britain.
Some hon. Members raised questions about the impact of these measures on pubs and the hospitality industry. To support the hospitality industry, particularly recognising the role that pubs play in local communities, the Government have announced a reduction in the alcohol duty rates paid on draught products. This reduces businesses’ total duty bill by up to £100 million a year and increases the duty differential between draught and non-draught products from 9.2% to 13.9% for qualifying beer and cider.
As we have mentioned a couple of times in this debate, the reduction to draught relief rates will also result in the average alcoholic strength pint at 4.58% ABV paying 1% less in duty. Draught relief provides a reduced rate of duty on draught products below 8.5% ABV packaged in containers of at least 20 litres designed to connect to a qualifying system for dispensing drinks.
Clause 64 ends the alcohol duty stamps scheme from 1 May this year, removing the provisions in the Finance (No. 2) Act 2023 and the secondary legislation in the Duty Stamps Regulations 2006. It also makes consequential changes and removes references to the scheme where they appear elsewhere in legislation.
Amendment 66 would freeze alcohol duty for alcoholic products above 22% ABV. That is contrary to the Chancellor’s decision at the autumn Budget to increase those duty rates to reflect inflation, and would cost the Exchequer £150 million a year.
Specifically in relation to the Scotch whisky industry, I would like to set out that the overall alcohol package balances commercial pressures on the alcohol industry with the need to raise revenue for our vital public services and reduce alcohol-related harms. Consumers and brewers in Scotland will benefit in line with the rest of the UK, with consumption and production patterns roughly equal nationwide. Of course, 90% of Scotch whisky is exported, which means it pays no duty. The Scotch Whisky Association’s own figures show the health of the industry. The Budget offers support to the Scotch whisky industry by removing the alcohol duty stamps scheme, which we have just considered, and through investment in the spirit drinks verification scheme by reducing fees for geographical verification.
New clauses 2 and 4, which were also tabled by Opposition Members, would require the Chancellor to make additional statements about the impact of the alcohol duty measures. The Government do not believe further statements to be necessary. As usual, a tax information and impact note was published at the autumn Budget, outlining the anticipated impacts of the measures on alcohol producers and the hospitality sector. Alcohol duty, like other taxes, will be reviewed in future Budgets.
New clause 2 also requires a review of the impact on trade, but UK alcohol duty is, of course, not charged on exports. Some hon. Members raised the impact of the changes to business rates on the hospitality sector in Scotland, but business rates are, of course, devolved. The Scottish Government are accountable to the Scottish Parliament on devolved areas.
Hon. Members also raised questions around the wine easement and why it had not been extended or made permanent. I remind them that the wine easement was intended as a transitional arrangement to give the wine industry time to adapt to the strength-based duty calculation for wine. The revised alcohol duty system simplified and reduced differences between categories of alcohol. Making the wine easement permanent would introduce a new differential into the system and add to the complexity of that system. It would further lead to a duty regime in which stronger ABV wines pay less in proportion to their alcohol content than lower ABV wines. Making the wine easement permanent would, therefore, undermine the simplification and public health objectives of the revised alcohol duty system.
In conclusion, the changes to the alcohol duty balance public health objectives, fiscal pressures, cost of living pressures and the economic and social importance of pubs, while also supporting small producers by increasing the generosity of small producer relief. Furthermore, the end of the alcohol duty stamps scheme will simplify procedures for approximately 3,500 registered alcohol importers and producers, reducing overall costs on the spirits industry by an estimated £7 million a year. I therefore commend the clause to the Committee, and urge it to reject amendment 66 and new clauses 2 and 4.
Mr MacDonald
I do not have a great deal to add. I did miss out, when we declared our interests earlier, the fact that I own a pub, which hon. Members are very welcome to visit when they are next in Fort William—do not all rush at once. It never rains there.
I want to come back, briefly, to the 1p a pint reduction that we were promised. The whole hospitality industry and beer industry have come together to agree that that is a stunt, and that that 1p will not be passed on to the customer. It is just not relative at all, because the reduction in business property relief and the national insurance and minimum wage increases effectively mean that the cost to the hospitality industry is going through the roof. The Minister knows that perfectly well, but he still continues to trot out his line.
On the whisky industry, I am not sure that account has been taken of the potential tariffs. We talk about exports being very strong, but they are not actually very strong at the moment.
Lastly, on tax overall, when I make a submission to Scottish Government Ministers about the tax on hospitality, the whisky industry and so on, they all blame Westminster, but when I speak to Westminster Ministers about it, they all blame Scotland. The net result is that industries such as hospitality in Scotland are suffering from both sides, and that is simply not fair.
Gregor Poynton (Livingston) (Lab)
On business rates, they are clearly devolved to the Scottish Government, so it fully sits within their remit to help the hospitality industry. If we are talking about standing behind the whisky industry, one of the first things that the Secretary of State for Business and Trade did was go to Brazil to work out that protected status for the Scotch whisky industry, which will mean millions of pounds extra in exports to Brazil.
We are also discussing clause 64, which deals with the abolition of duty stamps for alcoholic products, and that will also help the whisky industry. The Government are doing a number of things to support the whisky industry and stand behind it, including the provisions on its tax status and the Secretary of State’s efforts to increase exports. The hon. Member should perhaps reflect that in his comments.
The Chair
With this it will be convenient to discuss the following:
New clause 5—Review of effects of section 65 on illicit tobacco market—
“The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by section 65 of this Act, on the illicit tobacco market.”
This new clause requires the Chancellor to review the impact increased rates of tobacco duty on the illicit tobacco market.
James Murray
The clause implements changes announced at the autumn Budget 2024, concerning tobacco duty rates. The duty charged on all tobacco products will rise in line with the tobacco duty escalator, with an additional increase being made for hand-rolling tobacco to reduce the gap with cigarettes. Smoking rates in the UK are falling but they are still too high; around 12% of adults are now smokers. Smoking remains the biggest cause of preventable illness and premature death in the UK, killing around 80,000 people a year and up to two thirds of all long-term users.
We have plans to reduce smoking rates further to achieve our ambition of a smoke-free UK. To realise that ambition, we announced our intention to phase out the sale of tobacco products for future generations, as part of the Tobacco and Vapes Bill, along with powers to extend smoke-free legislation to some outdoor areas.
At the autumn Budget, the Chancellor announced that the Government will increase tobacco duty in line with the escalator. Clause 65 therefore specifies that the duty charged on all tobacco products will rise by 2% above RPI inflation. In addition, duty on hand-rolling tobacco increases by 12% above RPI inflation. These new tobacco duty rates will be treated as taking effect from 6 pm on the day that they were announced, 30 October last year.
Recognising the potential interactions between tobacco duty rates and the illicit market, HMRC and Border Force launched their refreshed illicit tobacco strategy in January 2024. The strategy is supported by £100 million of new funding, which will be used to scale up ongoing work and support new activities set out in the strategy, including enhanced detection and intelligence capabilities.
New clause 5 would require the Chancellor to review the impact of increased tobacco rates on the illicit tobacco market within six months of the Bill being passed. The Government respectfully will not accept this new clause, as the potential impact on illicit markets is already one of several factors the Government take into account when a decision on tobacco rates is made. I also note that the approach used in the costings at the Budget, certified by the Office for Budget Responsibility, accounts for behavioural responses to changing excise rates, including the impact of illicit markets. HMRC also publishes tobacco tax gaps annually, which allow for an analysis for the long-term trends in illicit trade.
Although the Government are rejecting new clause 5, I assure Committee members that the Government will continue to monitor illicit trade and to support the efforts of our enforcement agencies to counter it. HMRC and Border Force have had strategies in place to reduce the illicit trade in tobacco for over 20 years, which have helped to reduce the tobacco tax gap from 21.7% in 2005-06 to 14.5% in 2022-23. That happened during a prolonged period in which tobacco duties were consistently increased, as the attitude of all Administrations, including I believe the last one, has been that the threat of illicit tobacco needs to be addressed by reducing its availability, rather than allowing it to dictate our public health and tax policies.
On that matter, I hope that all Committee members, and I assure them that that will continue to be this Government’s approach. The clause will continue the tried and tested policy of using high duty rates on tobacco products to make tobacco less affordable. It will help to continue the reduction in smoking prevalence, supporting our ambition for a smoke-free UK, and will reduce the burden placed by smoking on our public services. I comment the clause to the Committee and urge it to reject new clause 5.
James Wild
As we have heard from the Minister, clause 65 increases excise duty on all tobacco products and the minimum excise tax on cigarettes by the duty escalator RPI plus 2%. In addition, the excise duty rate for hand-rolling tobacco increases by an additional 10%. This is a one-off increase in addition to the restated policy of increasing rates in line with RPI plus two percentage points. We are broadly supportive of these measures but I have some questions around purchaser behaviour and its impact on the illicit market and enforcement. In addition to speaking to clause 65, I will also speak to new clause 5, which stands in my name.
Tobacco receipts are expected to be £8.7 billion this year, down by 2.7% on last year. They are forecast to decline by 0.5% a year on average over the rest of the forecast period to £8.5 billion, as declining tobacco consumption offsets increasing duty rates. The tax information and impact note explains that over the four years from 2019 to 2023, the tobacco escalator coincided with a reduction in smoking prevalence from 14.1% to 11.9% of people aged over 18. That is clearly welcome. The Government are bringing forward the Tobacco and Vapes Bill, which the Minister referred to and which includes lots of measures to make vapes less attractive to children and harder to get hold of. There is a lot to be said about that Bill, but fortunately, that is the job of another Committee.
Increasing the price of tobacco clearly comes with the risk of boosting the illicit market. The tax information and impact note suggests that some consumers might engage in cross-border shopping and purchase from the illicit tobacco market. HMRC will monitor and respond to any potential shift. Indeed, the OBR has suggested that the duty rate is beyond the peak of the Laffer curve—the revenue-maximising rate of tax. Can the Minister confirm what measures will form HMRC’s response to any shift in illegal consumption?
There are also questions around the figures. Although HMRC estimates that 10% of cigarettes and 35% of hand-rolling tobacco consumption is from illegal and other non-UK duty paid sources, evidence submitted by the industry believes that is a significant understatement. Its data shows that the consumption of tobacco from non-UK duty paid sources currently accounts for 30% of cigarettes and 54% of hand-rolling tobacco consumption. Has the Minister discussed with HMRC the difference between those figures and the basis on which they have been put together?
The Tobacco Manufacturers’ Association said that the illegal market is not in decline but that, contrary to HMRC’s claims, it is expanding. As well as providing more accurate figures on the scale of the illegal market, it would be useful to know whether the Government have calculated the potential consequences for retailers and law enforcement of an expanding illegal market.
Alex Ballinger (Halesowen) (Lab)
Does the hon. Member agree that the tobacco market’s estimates are not unbiased? It has form in exaggerating the scale of the illicit tobacco market in the UK.
James Wild
The hon. Member has probably seen the same evidence produced by the industry as I have; I do not think that we should dismiss it out of hand. Representatives from the industry do, for example, go around football terraces, pick up the empty packets, see where they came from, and do sampling or take other measures. Of course the industry’s evidence should be challenged and tested, but my point is about whether HMRC has worked with the sector to see if its figures are wrong. If they are, and HMRC’s are perfectly right, we can follow the HMRC figures. I am raising a legitimate concern about the accuracy of the data to make sure that we are all operating from the same page because, as the OBR has pointed out, we may already have reached the peak point where the tax will be doing harm.
The Minister referred to the success of enforcement over the last couple of decades. In March last year, the previous Government set out a new strategy to tackle illicit tobacco. With evidence of a substantial illegal market—and whichever set of figures we take, it is substantial—what steps are the Government taking? Are they taking the previous Government’s strategy forward or will they introduce their own strategy?
The industry has specifically proposed that the Government provide trading standards with full access to the powers granted to HMRC under the Tobacco Products (Traceability and Security Features) (Amendment) Regulations 2023. At present, the legislation allows trading standards to refer cases to HMRC, which will then consider imposing on-the-spot penalties of up to £10,000 on those selling tobacco.
The industry proposed that it would be far more effective for trading standards to apply the penalty at the point of enforcement rather than having to refer the case to HMRC. It also suggested allowing trading standards to keep the receipts from any such penalties to reinvest in its enforcement action—we are all familiar with the pressures that trading standards is facing. Will the Minister say whether the Government have considered those proposals and, if they have not, will he?
I have tabled new clause 5 to ensure there is better understanding of the risk around the illicit market. The Minister respectfully dismissed the need for it, but it would require the Chancellor to, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by clause 65 of the Bill on the illicit tobacco market. As we have heard, increasing tobacco duty could alter the behaviour of consumers, and we could see greater illicit market share.
Evidence from the industry—which may be contested—shows that non-UK duty paid sources are significant. There is clearly a risk that a further increase to tobacco duty could boost the illicit market, and HMRC needs to act to protect lawful revenues for the taxpayer. We would therefore welcome the Chancellor publishing an assessment of the impact of the changes. As I set out, we will not oppose clause 65, but I look forward to the Minister’s response to my points, particularly on the illicit market.
James Murray
I welcome the Opposition’s support for these measures. I will write to the hon. Gentleman in response to some of the queries he raised about specific figures. I will address the points that he made about the illicit tobacco market, because that is obviously something we all want to consider in some depth in connection with anything that we do around the tobacco duty.
As I mentioned in my earlier remarks, HMRC and Border Force launched their refreshed illicit tobacco strategy in January 2024. That is being implemented under this Government. It is supported by £100 million of new funding, which will be used to scale up the ongoing work and support the new activities outlined in the strategy, including enhanced detection and intelligence capabilities.
The hon. Gentleman also asked about the impact of increasing tobacco duty on the demand for illicit products, and whether increasing duty rates might push some smokers towards illicit products. It will be helpful if I set out the context for this discussion. Under the assumptions that were used in the tobacco costings for the autumn Budget, which were of course certified by the OBR, the overall level of increase decided on by the Government raises revenue while continuing to reduce tobacco consumption.
The approach used in costings, certified by the OBR, takes into account a number of potential behavioural responses to changing excise duty rates, such as quitting or reducing smoking, substituting with vapes, and moving from UK duty paid consumption to the non-UK duty paid market, including the impact on illicit products. However, the threat from illicit tobacco needs to be addressed by reducing its availability, rather than allowing it to dictate our tax and public health policies.
Finally, the hon. Gentleman asked whether HMRC had worked with the sector to authenticate its figures. HMRC has analysed how external figures are calculated, but World Health Organisation rules prohibit extensive engagement with the industry on such issues.
Question put and agreed to.
Clause 65 accordingly ordered to stand part of the Bill.
Clause 66
Rates of vehicle excise duty for light passenger or light goods vehicles etc
The Chair
With this it will be convenient to discuss new clause 6—Review of effects of £40,000 expensive car supplement threshold—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the £40,000 expensive car supplement threshold included in section 66.
(2) The assessment in subsection (1) must consider the effects of the threshold on the proportion of new cars sold which are Electric Vehicles.”
This new clause requires the Chancellor to review the impact of the £40,000 expensive car supplement threshold.
James Murray
Clause 66 makes changes to the uprating of standard vehicle excise duty rates for cars, vans and motorcycles, excluding first-year rates for cars, in line with the retail prices index, from 1 April. The clause will also change the VED first-year rates for new cars registered on or after 1 April, to strengthen incentives to purchase zero emission and electric cars.
As announced at the autumn Budget, the clause will freeze the zero emission rate at £10 until 2029-30, while increasing the rates for higher-emitting hybrid, petrol and diesel cars from 2025-26.
Vehicle excise duty—VED—is a tax on vehicle ownership, with rates depending on the vehicle type and the date of first registration. Vehicle excise duty first-year rates were introduced as part of the wider changes to the VED system implemented in 2017, and they vary according to emissions. Vehicle excise duty first-year rates are paid in the first year of a car’s life cycle, at the point of registration. From the second year, cars move to the standard rate of VED. From 1 April, new zero emission vehicles registered on or after that date will also be liable for the VED first-year rates.
Vehicle excise duty first-year rates have been routinely uprated by the RPI since their introduction in 2017, and as announced by the previous Government at the autumn statement in 2022, from April 2025, electric cars, vans and motorcycles will begin to pay VED in a similar way to petrol and diesel vehicles.
The clause will set the VED rates for 2025-26, increasing the standard rates for cars, vans and motorcycles in line with the RPI. As part of this uprating, the standard rate of VED for cars registered since 1 April 2017 will increase by only £5. The expensive car supplement will also be increased by £15, from £410 to £425. The rates for vans will increase by no more than £15, and motorcyclists will see an increase in rates of no more than £4.
From 1 April 2025, the VED first-year rate for zero emission cars will be frozen at £10 until 2029-30. For 2025-26, first-year rates for cars emitting 1 to 50 grams per km of carbon dioxide will go from £10 to £110, and cars emitting 51 to 75 grams per km of CO2 will go from £30 to £130. Rates for cars emitting 76 grams per km or more of CO2 will double.
New clause 6 would require the Chancellor to review the impact of the £40,000 expensive car supplement threshold and consider its effects on the proportion of new cars sold that are electric vehicles. As set out at the autumn Budget, the Government have already committed to considering increasing the £40,000 threshold for EVs at a future fiscal event. The Government recognise that new electric vehicles can still often be more expensive to purchase than their petrol or diesel counterparts, and we acknowledge the need to ensure that EVs are affordable as part of our transition to net zero. In the light of that commitment, a separate review is unnecessary so I urge the Committee to reject new clause 6.
The changes to the VED first-year rates outlined in clause 66 will increase the incentives to buy new zero emission cars at the point of purchase and support the uptake of new electric vehicles. Revenue from that change will also help to support public services and infrastructure in the UK. An increase in VED standard rates for cars, vans and motorcycles by the RPI in 2025-26 will ensure that VED receipts are maintained in real terms. I commend clause 66 to the Committee.
James Wild
As we heard from the Minister, clause 66 provides for increasing certain rates of VED for light passenger and light goods vehicles in line with the RPI. There will also be changes to the first-year rates for zero emission vehicles and low emission vehicles. We broadly support the measures, but as well as discussing clause 66, I will consider new clause 6, which is in my name and that of my hon. Friend the Member for Grantham and Bourne.
According to the OBR, VED receipts are expected to raise £8.2 billion in 2024-25, up by £0.5 billion compared with 2023-24. It expects an increase through the forecast period to £11.2 billion, driven by an increasing number of cars, more cars paying the expensive car supplement and the extension of VED to electric vehicles from 2025. It was the last Government who decided that EVs would no longer be exempt from VED and moved to make the system fairer. I will raise some points about the implications of that, and particularly the expensive car supplement for electric vehicles. New zero emission cars, registered after 1 April, will be liable for that charge, which currently applies to cars with a list price exceeding £40,000. That threshold has not changed since 2017, despite inflation and changing technologies. The Society of Motor Manufacturers and Traders has called on the Government to look at that.
The current ECS threshold will add more than £2,000 to the cost of a zero emission vehicle in the first six years of ownership, and more than £3,000 including the standard rate VED that must also be paid. That will deter potential buyers from purchasing zero emission vehicles and will have an impact on residual values. According to figures quoted by the SMMT, the ECS is likely to capture more than half of the zero emission vehicle market from 2025.
The Minister referred to the Government saying that they may look at the threshold in future, and I will come on to that when I discuss new clause 6. Can he confirm how much the ECS currently raises and how much it is forecast to raise as a result of the changes? Given that the Government are committed to a 2030 ban on new petrol and diesel vehicle sales, what impact will the ECS have on the Government’s progress towards that goal?
For those reasons, we have tabled new clause 6, which would require the Chancellor, within six months of the Bill being passed, to publish an assessment of the impact of the £40,000 expensive car supplement threshold in clause 66. The assessment must consider the effects of the threshold on the proportion of new car sales that are electric vehicles.
As we have heard, the threshold has remained unchanged since 2017 and the Government are pushing ahead with the 2030 date. My right hon. Friend the Member for Richmond and Northallerton (Rishi Sunak) introduced some welcome common sense to the debate by moving the date for the ban on new petrol and diesel car sales back to 2035. That is the date that the major car manufacturing countries in Europe and the rest of the world have adopted, and one that we should have stuck to.
The Government’s policy is odd because it makes people less likely to move to EVs—because it makes it more expensive to do so. Perhaps the Treasury is not quite as signed up to the Energy Secretary’s dogmatic approach as he is; perhaps it secretly agrees with Opposition Members who certainly think that he is the most expensive Cabinet member in many ways. Although I recognise that the Minister said that the Government have committed to look at the threshold, the new clause would make that binding and make sure that it happened within a specific timeframe. We therefore want the new clause to be taken forward. As I have set out, we will not oppose the clause, but I will press new clause 6 to a Division.
Hybrid vehicles will start paying road tax at the standard rate, as well as paying the ECS where applicable. Those changes will hasten the departure from hybrids, as my hon. Friend the Member for Grantham and Bourne said earlier. I would be grateful if the Minister provided an assessment of the decision to disincentivise hybrids and if he could say how many jobs in the UK are based on producing hybrid vehicles.
James Murray
I thank the shadow Minister for indicating the Opposition’s support for the clause. I understand what the Opposition are doing by proposing new clause 6, and the points that they want to raise, and the Government have considered it. We consider our commitment, which was made at the autumn Budget in the public domain, to be a strong commitment from the Government: we will consider increasing the £40,000 threshold for EVs only at a future fiscal event.
We recognise that when electric vehicles are new, they can still often be more expensive to purchase than their petrol or diesel counterparts. There is a need to ensure that EVs are affordable as part of the transition. We also recognise that, as transport is currently the largest-emitting sector, decarbonising it is central to the wider delivery of the UK’s cross-economy climate targets.
As I said, it was announced at Budget ’24 that the Government will consider raising the threshold for zero emission cars only at a future fiscal event. The Government have no current plans to review the threshold for petrol, diesel and hybrid vehicles, but we keep all taxes under review as part of the Budget process.
Question put and agreed to.
Clause 66 accordingly ordered to stand part of the Bill.
Clause 67
Rates of vehicle excise duty for rigid goods vehicles without trailers etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider the following:
Clauses 68 and 69 stand part.
Clause 71 stand part.
Government new clause 1—Rate of vehicle excise duty for haulage vehicles other than showman’s vehicles.
New clause 7—Statements on HGV Vehicle Excise Duty (VED) and HGV Road User Levy—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to Parliament about the increase to HGV VED introduced by sections 67 to 69 and increase to the HGV Road User Levy under section 71 of this Act.
(2) The statement under subsection (1) must include details of the impact on—
(a) the haulage sector,
(b) the decarbonisation of the logistics industry, and
(c) the UK economy.”
This new clause requires the Chancellor to make a statement about the impact of increasing Vehicle Excise Duty on HGVs.
James Murray
Clauses 67, 68 and 69 make changes to upgrade VED rates for heavy goods vehicles in line with the retail prices index from 1 April. They also make changes to the VED rates for rigid goods vehicles without trailers, rigid goods vehicles with trailers and vehicles with exceptional loads. Clause 71 uprates the heavy goods vehicle levy in line with the RPI from 1 April.
The registered keeper of a vehicle is responsible for paying VED. The rates depend on the vehicle’s revenue weight, axle configuration and Euro emission status. Furthermore, the HGV levy, which was introduced in August 2023 and frozen at the autumn statement in 2023, is payable for both UK and foreign HGVs using UK roads. Similarly to VED, the levy rates depend on the vehicle’s weight and Euro emissions status. Clauses 67, 68 and 69 will set the VED rates for heavy goods vehicles for ’25-26, increasing them in line with the RPI. For example, the annual VED liability of the most popular HGV—tax class TC01, VED band E1—will increase by £18, from £560 to £578. Hauliers will not see a real-terms increase in VED costs, as rates have increased to keep pace with inflation only.
The changes made by clause 71 will increase the annual rates for domestic and foreign HGVs using UK roads and the associated daily, weekly, monthly and six-monthly rates in line with the RPI. For example, the annual rate for the most common type of UK HGV will increase by £21, from £576 to £597. As part of that uprating, the £9 and £10 caps on the daily rates paid by foreign HGVs, which are a consequence of retained EU law and are now obsolete, will be removed.
Government new clause 1 corrects an omission in the Bill of an uplift to the general haulage rate announced at the autumn Budget. We are inserting a new clause to ensure that the legislation operates as intended by updating the currently recorded rate for the general haulage tax class—tax class 55—from £350 to £365 in line with the RPI.
New clause 7 seeks to require the Chancellor to make a statement about the impact of increasing VED on HGVs. The new clause is not necessary, as the Government have already published the tax information and impact note that sets out all the expected impacts of the measure. It makes clear that hauliers will not see a real-terms increase in their VED or HGV levy liabilities, as rates are being increased in line with the RPI to keep pace with inflation only. The measure is not expected to have any significant macroeconomic impacts.
Increasing both VED rates for HGVs and the HGV levy by the RPI for ’25-26 will ensure that VED receipts are maintained in real terms and that hauliers continue to make a fair contribution to the public finances in the wider context of a Budget in which hauliers have benefited from a further freeze in fuel duty, worth nearly £1,100 a year to the average HGV. I therefore commend clauses 67, 68, 69 and 71 as well as Government new clause 1 to the Committee, and I urge the Committee to reject new clause 7.
James Wild
As the Minister says, clauses 67, 68 and 69 provide for changes to certain rates of VED, and clause 71 increases the rates for the HGV road user levy. We will not oppose the provisions, but we have some concerns and points to make about the timing of the changes and the lack of support for impacted industries, such as the logistics sector. As well as discussing those clauses, I will consider new clause 7, which is in my name and that of my hon. Friend the Member for Grantham and Bourne.
Heavy goods vehicle VED is a complex picture, with more than 80 different rates. The characteristics of HGVs determine their rates, and the increases to HGV VED represent the first rise since 2014. Heavy goods vehicles may also be liable for the additional HGV road user levy, which was introduced in 2014 and is a charge for using the road network, ranging from £150 to £749 a year. The levy was suspended in August 2020, demonstrating the previous Government’s support for the haulage sector during the pandemic. A reformed levy was introduced in 2023 and was frozen at the autumn statement in 2023. The new levy divides qualifying HGVs into six levy bands rather than the previous 22, which is a welcome simplification.
James Murray
I thank the hon. Gentleman for confirming that the Opposition will support these clauses. He asked about the wider challenges faced by the road haulage industry. Road haulage is key to the UK’s economy, and the Government acknowledge the pressures the industry has faced in recent years. As a result of the changes in these clauses, hauliers will not see a real-terms increase in their VED or HGV levy liabilities, as rates will be increased in line with the RPI to keep pace with inflation only.
Of course, revenue from HGV VED and the HGV levy helps to ensure that we can continue to fund the vital public services and infrastructure that people across the UK expect, so it is right that the taxes are regularly reviewed. In the wider context, hauliers will also benefit from the further freeze in fuel duty for 2025-26 that the Chancellor announced in the Budget, which is worth nearly £1,100 a year for the average heavy goods vehicle.
Question put and agreed to.
Clause 67 accordingly ordered to stand part of the Bill.
Clauses 68 and 69 ordered to stand part of the Bill.
Clause 70
Vehicle excise duty: zero-emission vehicles
Question proposed, That the clause stand part of the Bill.
James Murray
The clause makes minor amendments to ensure the legislation for the application of vehicle excise duty to zero emission vehicles operates as intended. In the 2022 autumn statement, the former Government announced that from April 2025, zero emission cars, vans and motorcycles would begin to pay VED in line with their petrol and diesel counterparts. The clause will ensure that the legislation governing the application of VED to zero emission vehicles operates as intended by making minor technical amendments to the legislation. The changes will clarify the current VED exemption for electric vehicles, clarify the interpretation of data entries on the certificate of conformity and ensure that all zero emission vans registered between 1 January 2007 and 31 December 2008 pay VED, in line with their petrol or diesel counterparts, from 1 April 2025. The clause will ensure that the legislation for the application of VED to zero emission vehicles operates as intended.
James Wild
I will be very brief on this one. It is a perfectly sensible measure, and we will not be opposing it.
Question put and agreed to.
Clause 70 accordingly ordered to stand part of the Bill.
Clause 71 ordered to stand part of the Bill.
Clause 72
Rates of air passenger duty until 1 April 2026
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 73 stand part.
New clause 8—Review of bands and rates of air passenger duty—
“(1) The Chancellor of the Exchequer must, within eighteen months of this Act being passed, publish an assessment of the impact of the changes to air passenger duty introduced by section 73 of this Act on—
(a) the public finances;
(b) carbon emissions; and
(c) household finances.
(2) The assessment under subsection (1)(c) must consider how households at a range of different income levels are affected by these changes.”
This new clause requires the Chancellor to publish an assessment of this Act’s changes to air passenger duty on the public finances, carbon emissions, and on the finances of households at a range of different income levels.
James Murray
Clause 72 sets the rates of air passenger duty for 2025-26, as announced in the 2024 spring Budget, and they will take effect on 1 April 2025. Clause 73 sets the rates of APD for 2026-27, as announced in the 2024 autumn Budget, and they will take effect a year later, on 1 April 2026.
APD rates have fallen in real terms, because they are set more than a year in advance using forecast RPI, and inflation has subsequently been much higher than originally forecast. The former Government announced that in 2025-26, rates would be uprated by forecast RPI and non-economy rates would be adjusted to account partially for previous high inflation. For 2026-27, the current Government are making a broad-based adjustment to all rates to compensate in part for previous high inflation and are raising the higher rate on larger private jets by an additional 50%. These changes aim to ensure that the aviation industry continues to make a fair contribution to the public finances. As is standard practice, the Government have given the industry more than 12 months’ notice.
Let me go into some detail. The changes made by clause 72 will raise all APD rates by forecast RPI, rounded to the nearest pound, for 2025-26. Non-economy rates will be further adjusted to correct partially for previous high inflation. For domestic and short-haul international economy passengers, these changes mean that rates will stay at their current level in 2025-26. Rates for other economy-class passengers will rise by £2. For non-economy international passengers, rates will rise by between £2, for short-haul commercial passengers, and £66, for those travelling ultra-long haul in larger private jets that incur the higher rate.
The changes made by clause 73 will raise all APD rates in 2026-27 to account partially for previous high inflation, and increase the higher rate on larger private jets by an extra 50% above the increases to other rates. For economy-class passengers, this means that those flying domestically will face an increase of £1. Rates for short-haul economy passengers will increase by £2, and those for long-haul economy passengers will increase by £12. The increases for non-economy passengers and those travelling in private jets will be greater. Whereas the short-haul international rate for economy passengers is increasing by £2, that for non-economy passengers is rising by £4 and that for private jet passengers by £58.
Taken together, the corrections to non-economy rates announced at the spring and autumn Budgets do not raise rates by more than RPI over the period since 2021-22, based on the latest figures. From 2027-28, rates will be rounded to the nearest penny, to ensure that they track forecast inflation more closely.
New clause 8 would require the Chancellor to publish an assessment of the impact of the APD changes on the public finances, carbon emissions and the finances of households at a range of income levels. At the autumn Budget, the Government published a TIIN that outlined the expected impacts of the APD changes, including the Exchequer, household and environmental impacts. New clause 8 is therefore unnecessary, and I urge the Committee to reject it.
These changes will help to maintain APD rates in real terms, following high inflation. I therefore commend clauses 72 and 73 to the Committee and urge it to reject new clause 8.
James Wild
As we heard from the Minister, clause 72 sets the rates of air passenger duty for the year 2025-26—those rates were announced in the 2024 spring Budget, precisely to give the sector time to plan—and clause 73 sets the rates for 2026-27. The higher rates that apply to larger private jets will increase by an additional 50%, as the Minister said. We will not oppose these measures, but we want to raise some points and seek more detail about their impact.
APD was first introduced on 1 November 1994. Initially, it was charged at a rate of £5 on flights within the UK and to other countries in the European Economic Area, and £10 on flights elsewhere. Since then, it has been reformed by successive Governments. Currently, it is chargeable per passenger flying from UK airports to domestic and international destinations, and rates vary by destination and class of travel. According to the OBR, APD receipts are expected to be £4.2 billion in 2024-25, and then they are forecast to increase by 9% a year, on average, to £6.5 billion in 2029-30, driven by increasing passenger numbers and the higher duty rates. The changes mean that a family of four flying economy to Florida, for example, will be taxed £408—a 16% increase on the current rates.
I turn first to the changes in clause 73 that relate to the higher rate, which will increase by an additional 50% on business and private jets. There is some concern from the industry about the impact of the measure on economic growth—the Government’s driving, No. 1 mission, in which we support their efforts. In reality, most private jets are corporate aircraft that are used as capital assets. One industry commentator said:
“They allow businesses to increase productivity and the amount of time they have in the day, which means they can make more money, employ more people and pay more in taxes. ”
That is something I think we all support. Has the Minister calculated what impact the 50% increase will have on economic growth and developing our trade relationships? The Prime Minister rightly travels a lot around the world to make connections and promote trade in our economy. Can the Minister confirm whether the Royal Squadron is subject to the higher rates, or is it exempt?
There has also been some concern about the impact on our constituents—people going on holiday or to see family and friends. The changes may limit flight options. Airlines UK has said that the rise will make it harder for British carriers to put on new routes. Does the Minister think the increase will impact the ability to consider new routes? It will certainly increase ticket prices; I woke up this morning to hear the boss of Ryanair on the radio saying that the increases in APD will mean that a third of an average £45 fare will now be tax.
It is because of the impacts that the rate rises might have on consumers, industry and economic growth that we tabled new clause 8, which would require the Chancellor to publish an assessment of the impact of the changes introduced by clause 73 within 18 months of the Bill being passed. The assessment would have to consider the impact of the changes on the public finances, carbon emissions and household incomes. The industry has been clear in its warnings in this regard, and we need to take them seriously. The Minister said that the new clause is unnecessary and that a review has been covered anyway, but reviews should be an important part of the Treasury’s toolkit in understanding impact.
We will not oppose these measures, but we will continue to raise industry’s concerns, particularly on behalf of our constituents and people who want to go on holiday.
James Murray
It might be worth my saying at the outset that our support for the aviation industry more broadly is very clear. I am sure the hon. Gentleman was listening to the Chancellor’s growth speech yesterday, in which she announced that we will no longer shy away from decisions about airport expansion, which can be delivered to support economic growth while meeting our climate obligations. People in the aviation industry can have no doubt about this Government’s desire and willingness, and concrete actions, to work with them to drive economic growth in this country.
In relation specifically to APD, which is the subject of these clauses, I say to the hon. Gentleman that the adjustment to the APD rates for ’26-27 is proportionate, because the rates have fallen significantly behind inflation in recent years. These changes will help to compensate for that fact. The short-haul international rate on economy passengers will increase by £2 on 1 April 2026. That rate has not increased since 2012. Even after 1 April 2026, for a family of four—two adults, two children—flying economy class to Spain, the total APD increase will be only £4, since under-16s travelling in economy class are exempt from APD.
By contrast, the increases for non-economy passengers and those travelling in private jets will be higher, to ensure that they make a fair contribution to the public finances. One other bit of context is that, unlike other sectors, no VAT applies to plane tickets and there is no tax on jet fuel. It is only fair that aviation pays its fair share through APD.
Question put and agreed to.
Clause 72 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Christian Wakeford.)