Taxation (Energy and Vehicles) Bill

2nd reading & Committee of the whole House
Wednesday 1st July 2026 Commons Chamber

Second Reading

14:38

[The Economic Secretary to the Treasury (Rachel Blake)]

I beg to move, That the Bill be now read a Second time.

The conflict in the middle east has left British families and businesses exposed to volatile gas prices, which has made things more expensive for those who drive for work, including care workers. Even though much of the country’s electricity comes from cheaper renewables and nuclear, electricity prices are still largely set by gas, which means that running a wash, turning on the lights or boiling the kettle has also become more costly for families across the UK. As my right hon. Friend the Chancellor set out in May, the Government are keenly aware of the costs that the conflict in the middle east will impose on British people. The Government have taken steps to put our economic security and national security first. The Chancellor has committed to doing what she can to support families and businesses; to being responsive to a changing world; and to being responsible, in the national interest.

Some legacy renewable energy generators stand to benefit from the disparity when higher gas prices determine the price of electricity. Without any new costs or risks, those generators receive extraordinary revenues. The electricity generator levy already recoups some of the excess returns made by renewable generators when electricity prices are over £82.61 per MWh, but the Government have decided to increase the rate of the levy from 45% to 55% from today, 1 July.

The rate rise will have two main benefits. It will ensure that a larger proportion of any exceptional revenues from high gas prices are passed back to the Government. That will provide a vital revenue stream, so that money is available to the Government to support businesses and families with the impact of the conflict in the middle east. In the longer term, the increase in the EGL rate will also encourage participation in the new voluntary contract for difference scheme, announced in April—part of a broader package of measures that break the link between electricity and gas prices. Importantly, new investment is excluded from the levy. This ensures that the measure is targeted solely at legacy windfall returns, and does not deter future clean energy development.

In March, the Government announced a review of mileage rates for employees who use their own vehicle for work, and for the self-employed who use the simplified expenses rates. In recognition of the pressures facing drivers as a result of the conflict in the middle east, my right hon. Friend the Chancellor announced in May the first uprating of mileage rates in 15 years. It was backdated to April, to provide immediate support to both groups. Mileage rates will increase for 2026-27 from 45p to 55p for the first 10,000 miles and 25p thereafter, with effect from 6 April 2026.

[Matt Western (Warwick and Leamington) (Lab)]

My hon. Friend is making an excellent speech. This is fantastic news for my constituents, my farmers and my businesses. Does she welcome the statement from the End Fuel Poverty Coalition, which said that increasing the rates of approved mileage allowance payments is absolutely the right thing to do right now?

[Rachel Blake]

I thank my hon. Friend for his thoughtful intervention. I absolutely agree that this will make a real difference to those workers who drive for their work. This is a long overdue measure, and I am very happy to put the Bill forward today.

The proposals represent the largest ever increase to the mileage rates, benefiting around 2 million employees and 1 million self-employed individuals, and saving over £120 a year for a worker doing 6,000 business miles. Looking beyond 2026-27, the Government have already committed to a review of the rates, and will set that out at the Budget.

Recognising the key role that the road haulage sector plays in transporting goods across the UK, and its disproportionate exposure to fuel costs, the Government are introducing a 12-month holiday from vehicle excise duty for the majority of heavy goods vehicles for licences taken out between 1 July 2026—today—and 30 June 2027. That will save a typical HGV £600, on top of savings from fuel duty. Fuel costs make up a substantial proportion of HGV operating costs, and this action will help prevent cost pressures arising from the conflict in the middle east spreading across the economy.

The announcements on mileage rates and HGV VED were part of a wider package of measures announced in May, including on fuel duty. In total, the decisions taken since the 2024 general election to freeze fuel duty will save motorists 11p per litre, or £120 for the average car, £250 for the average van and over £2,000 for the average HGV, compared to previous plans. For those reasons, I commend the Bill to the House.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

I call the shadow Minister.

14:45

[James Wild (North West Norfolk) (Con)]

I know that this legislation is fast-tracked, but the Minister did rattle through very rapidly. I will seek to follow her lead as best I can.

It is a pleasure to debate the Bill on Second Reading and its measures on increasing the electricity generator levy, increasing the mileage allowance and introducing the 12-month HGV vehicle excise duty holiday. We are broadly supportive of the measures. However, we must consider the wider context in which we are debating them. The energy price cap has today increased by 13%, inflation is well above target, economic inactivity is rising, we have high borrowing costs, taxes are at record levels and are set to go higher, and, sadly, growth is non-existent. Those things cannot all be blamed on the conflict in the middle east, so it is little wonder that this zombie Government are under pressure to show that they have a plan for energy costs, business costs and the strain on ordinary family finances.

Given the title of the Bill, people might expect ambitious measures in it to deliver cheaper energy for consumers and businesses, make our economy more competitive, and unwind the bills, levies and targets that are increasing costs, but there are not. Instead, this is a small package of measures with no serious plan to ease the burden.

[Noah Law (St Austell and Newquay) (Lab)]

The shadow Minister speaks of the need for ambition, but does he not agree that there is little that is more ambitious than breaking the link between the cost of gas and electricity, which so many of our constituents have called on us to do in recent months?

[James Wild]

I agree with the hon. Gentleman on that point, which I will come to shortly. I just note that when the Secretary of State for Energy Security and Net Zero had the opportunity to really break that link, he backed away from doing so. This measure does so in a limited way, but it does not make the ambitious reforms that could have been made by the Energy Secretary.

The electricity generator levy—[Interruption.] I am sure the Parliamentary Private Secretary, the hon. Member for Hitchin (Alistair Strathern), can intervene if he is allowed. The electricity generator levy was introduced by the previous Government in 2023 as a temporary windfall tax applying to revenue above the benchmark price. It was a short-term response to exceptional circumstances and is due to end in 2028. What do the Government propose? To increase the rate from 45% to 55% and to extend it beyond 2028, with no end date. This is another example of Ministers reaching for higher taxes while offering no certainty in return.

The Government say, to answer the point made by the hon. Member for St Austell and Newquay (Noah Law), that the increased rates will support the decoupling of gas prices by incentivising generators into voluntary wholesale contracts for difference, but while the new higher levy applies from today, those new contracts are yet to be seen, the proposed strike price is not known, the likelihood of generators accepting them is therefore unknown and in question, and the value for money for taxpayers is yet to be proven. Will the Energy Secretary still be in post to oversee the reforms? We all sincerely hope he will not be in the Treasury.

In the winding-up speech, will the Minister provide an update on when the consultation on the CfDs will be launched, when the first contracts are set to be awarded, and if that will be through an auction or an allocation round? The Government have said that their intention is to extend the levy beyond 2028, but with no clarity on when it will end. The Government do not know how long they want it to last and have said there will be further legislation on that point. The Exchequer Secretary, in the debate on the resolutions last week, said that this was something “the Government are considering”. That is hardly a robust approach when bringing legislation before the House. Indeed, it seems like a hasty measure to give the Chancellor something to announce.

The House of Lords Constitution Committee previously recommended that for fast-track legislation, sunset clauses should be the default presumption. An amendment to add one is outside the resolutions of this House, but we have tabled a new clause that would require the Government to come forward before the due end date in March 2028 to say whether they think the levy should continue.

There is an absence of any publicly available costings on the measures. That is true for all the measures, yet this House is being asked to approve an indefinite extension. When the levy was first introduced, the Office for Budget Responsibility predicted that it would raise £2.3 billion a year, but the out-turn in 2024-25 was only £700 million. That matters, because part of the rationale for the higher levy is to generate revenues to support businesses and households. What measures is the Minister proposing in that regard? Surely not the Thorpe Park VAT cut, because that is funded by changes to corporation tax. Can the Minister enlighten us on what other benefits the consumers—my constituents—are getting from the tax?

The levy needs to be seen in the context of the Government promising to reduce energy bills by £300—instead, bills have increased by around that amount. That is what happens when Governments do not have a plan. The Conservatives would cut bills for businesses and consumers through our cheaper energy plan, taking VAT off energy bills, axing the carbon tax and legacy subsidies, and backing the North sea to get drilling.

The second measure on increasing mileage payments to 55p for 10,000 business miles is something that we support. It is right that those workers, including carers, who are using their own vehicles for work should not be left to absorb the rising cost. The measure is backdated to the start of the financial year. When winding up, can the Minister guarantee that His Majesty’s Revenue and Customs will not pursue anyone for any income tax or national insurance contributions that may otherwise have arisen on payments made before the legislation took effect?

The increase applies only to the first 10,000 miles. When we debated the resolution, the Minister said that the Government considered an increase in the 25p rate, but that it did not represent good value for money. If Ministers accepted that the 45p rate needed to be increased, can the Minister explain how they justify leaving the longer-distance rate untouched at 25p? As has been set out, this is the first increase for some time, which raises the question of how we can avoid such a long period between increases in future. I accept that indexation would be complicated, but what commitments will the Minister make to regularly review increases?

Mileage is an important part of motorists’ costs, but the bigger impact comes from fuel duty. At the last Budget, the Chancellor announced plans to scrap both the 15-year freeze and the 5p cut that the Conservatives put in place. It was only after pressure from the Opposition that the Chancellor made a U-turn. However, it was only a partial one, and those costs are going to start hitting from as soon as January. For the logistics sector, which pays £5.4 billion in fuel duty, a 1p increase per litre will increase costs by nearly £83 million. Perhaps the new Chancellor will recognise the folly of that approach and reverse the plans they inherit.

We welcome the HGV vehicle excise duty holiday. That duty had been frozen since 2014 until Labour came into office. For a year from today, HGVs will pay just £1, which will be a significant saving for the sector. However, the Government must recognise the full scale of the pressures facing hauliers and accept responsibility for those they have added; the Chancellor did not have to increase business rates, transport taxes and fuel duty.

More than 95% of road haulage firms are small businesses with small margins, so any increase in costs is a challenge. The Government say that the measure will save £600 for a typical lorry, and £900 for the largest vehicles. At peak prices, filling a single HGV costs more than £1,000. Yes, the measure is helpful, but not markedly so.

Taken together, the measures reveal a Government reaching for short-term fixes while avoiding the harder questions. On the generator levy, they are demanding higher taxes without certainty or proper costings—all while displaying a lack of urgency on reforms to decouple energy prices. Mileage allowances are a partial change, and one that leaves high-mileage workers behind. The vehicle excise duty holiday is a temporary relief without a plan for what comes next.

The Conservatives welcome the measures, as far as they go. However, they have not been brought forward by choice; they have been forced by the consequences of the Chancellor’s decisions. Taxes remain at record highs, and are set to go higher, costs continue to rise, and growth has stalled. Against that backdrop, the measures offer very limited relief.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

I will now announce the results of today’s deferred Divisions.

On the draft Employment Tribunal (Extension of Time Limits) (Miscellaneous Amendments and Transitional Provisions) Regulations 2026, the Ayes were 323 and the Noes were 107, so the Ayes have it.

On the draft Employment Tribunals Extension of Jurisdiction (England and Wales) (Amendment) Order 2026, the Ayes were 318 and the Noes were 107, so the Ayes have it.

I call the Liberal Democrat spokesperson.

[The Division lists are published at the end of today’s debates.]

14:54

[Daisy Cooper (St Albans) (LD)]

We Liberal Democrats support all three measures in the Bill. We recognise that the electricity generator levy is intended to encourage legacy renewable generators to move away from volatile wholesale electricity prices and on to contracts for difference.

As the only party to put in its manifesto a commitment to decoupling gas and electricity, the Liberal Democrats support the Government’s objective. If it succeeds, consumers will benefit from greater protection against future gas price shocks and the volatility that we have seen in recent years. However, if the measure does not achieve that behavioural change, and instead primarily generates additional revenue, I believe that Parliament and the public deserve clarity on how that money will be used. As the Bill progresses through the House, I hope Ministers will say how they intend to report to Parliament the amount of money the levy raises, and how they intend to spend it.

We have consistently argued for an emergency transport package to help Britain keep moving, emergency home insulation schemes, and low-interest loans to support households to adopt energy security measures—something I proposed last autumn that the Government are now consulting on. There are many ways in which the Government could be helping households and businesses with the rising cost of living.

The change to income tax mileage allowance payments is another measure that Liberal Democrats are pleased to support. However, Ministers will be aware that there are many carers who drive their own cars, often hundreds of miles a week, who do not benefit from mileage allowances. Again, I hope that as the Bill progresses through the House, Ministers will say what measures will be taken to ensure that all of our valued and professional care workers can benefit.

The 12-month vehicle excise duty holiday for HGVs is a sensible measure and one that we welcome, but we must also recognise the unprecedented pressures facing the haulage sector. As international instability continues, and global energy markets remain uncertain, we urge Ministers to remain vigilant and responsive to the impact that those pressures are having on households and businesses, as well as industry and haulage.

14:57

[The Exchequer Secretary to the Treasury (Dan Tomlinson)]

Today’s debate is progressing rapidly—so rapidly, in fact, that I am yet to turn to the speech in my folder. It is a privilege to close this rapid debate on behalf of the Government, and I thank Members for their contributions, as well as the Economic Secretary to the Treasury for opening the Government’s arguments. She was right to point out that the conflict in the middle east has imposed additional costs on the British people, which is why the Chancellor and the Prime Minister have been careful throughout the conflict—from the beginning, when other parties took a different approach—to tread carefully, be cautious and not rush to entangle ourselves in a foreign conflict, risking national security and potentially further harming our economic security.

The measures we are considering are an example of how the Government have responded in a proactive and positive way to the impact of the conflict in the middle east on households, families and businesses. Reasonable people can disagree about how the Government could have best responded to the conflict as it played out. It is this Government’s judgment that we have taken the right approach to ensure that we support those families and businesses that most need it. We have been there for them with the changes in this Bill and others—either already passed or making their way through the House via instruments of some form—such as continuing the freeze in fuel duty.

We wanted to ensure that our response was proportionate and targeted so that we could continue on the path that this Government have set out to bring down the deficit and bring down borrowing sustainably over the course of this Parliament. This year, for the first time since the 2000s, we have a lower deficit than the G7 average—something that the Conservatives never managed to achieve, despite all their talk about wanting to manage the public finances well.

I will not run through the measures in detail, as my hon. Friend the Economic Secretary to the Treasury has already done so. Instead, I will take the chance to respond to the questions asked by Opposition spokespeople.

I can confirm that the consultation on the electricity generator levy will come before the end of this year. It is being worked on at the moment by officials in the Department for Energy Security and Net Zero. We will ensure that we consult on this at the end of the year. Questions such as auction allocation and details of the way the wholesale contracts for difference will work will, I am sure, be raised in the consultation or elsewhere in engagement.

[James Wild]

Given that the levy kicks in from today and the Minister said that the consultation will be published before the end of the year, six months henceforth, and then legislation will have to go through, are the Government considering any backdating provision? If a company generator wanted to go into one of these wholesale CfDs, doing so would allow it to have that backdated; at the moment, it would not have the option to go into the wholesale and will just be hit with the higher levy.

[Dan Tomlinson]

No. If prices are slightly above the threshold set in the electricity generator levy, as they are at the moment, I believe, those taxes will be due now, from 1 July, whether or not businesses make decisions down the line after the consultation, after engagement and after the detail of the wholesale contract for difference policy has been set out by the DESNZ Secretary of State.

Both the shadow Exchequer Secretary and the hon. Member for St Albans (Daisy Cooper) asked how much revenue will be raised by this and other measures. It is a good tradition—a tradition set in place, in fact, by the Conservatives and Liberal Democrats—that the Office for Budget Responsibility set out the costings of policy decisions when they are made. That is important. This Government and this Chancellor have been keen to protect the independence and integrity of the OBR, rather than throwing it under the bus and causing market turmoil, as Liz Truss did. At the Budget later this year, the OBR will, in the usual way, confirm the costings of the changes announced by the Chancellor and included in the Bill.

The shadow Exchequer Secretary is right that the costings the OBR put out initially on the EGL ended up being very different from the revenue that it has pulled in. That is why it is right that we have an independent forecaster, so that even if things materialise differently than was forecast, we have forecasts that are robust to the information at the time and can be relied on by all.

The hon. Gentleman questions whether the Government have provided sufficient support more broadly. I would just mention that we have taken the decision to extend the fuel duty freeze. Going into the general election, the previous Government’s plan, as set out by the OBR, which we have already talked about, was for fuel duty to continue to rise and for the 5p cut to unwind. I believe that motorists would be paying a further 11p of fuel duty if it was not for their choice in 2024 to elect a Labour Government and not go ahead with the plans that the Conservatives set out.

A couple more points have been raised. The shadow Minister mentions a review of indexation. We will, of course, keep the mileage rates under review. The Chancellor announced a few weeks back that we will have a review. We have somewhat pre-empted that with this 10p increase, because we wanted to respond to the conflict in the middle east and the impact on households, but that review is still ongoing and will report if further changes are to be made to the policy at the Budget.

The Liberal Democrat spokesperson made the important point that many care workers and people who drive for work may be working for an employer who does not provide a mileage rate. It is not compulsory for employers to set the rate at the HMRC rates. We have increased rates from 45p per mile to 55p per mile up to 10,000 miles, and I encourage employers across the country to adopt that higher rate.

For employees who work for an employer who does not do so or who persists in having a significantly lower rate, as I am aware that some do, it is possible to claim back marginal tax up to that amount, so 55p per mile now. A basic rate taxpayer can in effect get 20% back on that. It was a pleasure to meet care workers and members of Unison, the trade union, a couple of weeks ago at No. 11 Downing Street. Some questions were raised about whether that process could be made any easier for workers to navigate, and that is something I certainly want to look at with my officials. This is a complex area of policy. I encourage Members to inform care workers and others who drive for work and who do not have mileage rates provided by their employer that they can claim the tax back from HMRC.

I hope that responds to many of the points made.

[James Wild]

I think the Minister might be coming to a conclusion, and I would not want him to miss the opportunity to refer to the House of Lords Constitution Committee and the presumption that fast-tracked legislation should include sunset clauses. Could he explain why the Government have chosen not to follow that guidance in this case?

[Dan Tomlinson]

There is a very sensible policy rationale when it comes to the electricity generator levy, which I think is the clause the hon. Member is referring to. We want to ensure that the ending of the EGL and the future decisions made on it are made in the light of the decisions that will be made on the wholesale contracts for difference, which, as I have said, are coming forward. It would not have been the right decision to pick a future end date without considering how it would interact with the decisions that the Government will make and will be consulting on later this year on the detail of the wholesale contracts for difference.

I hope that that has responded to many, if not all, of the points that have been raised by Opposition Members. I encourage Members to support the Bill.

Question put and agreed to.

Bill accordingly read a Second time.