Taxation (Energy and Vehicles) Bill

(Limited Text - Ministerial Extracts only)

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

[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?

--- Later in debate ---

[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.

--- Later in debate ---

[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.