National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Mackinlay of Richborough Excerpts

Committee stage
Tuesday 24th February 2026 Grand Committee

I apologise for the time it has taken me to make all these points, but this is a complicated area and we have quite a bit of time to cover a relatively small number of amendments. I look forward to the Minister’s reply, but I would be equally happy if he felt that a written response or a meeting would be more effective.

[Lord Mackinlay of Richborough (Con)]

My Lords, let me make my declaration. I am a chartered accountant and chartered tax adviser, so such legislation is the thing I live for on a daily basis.

My noble friend Lady Neville-Rolfe has laid out the ambitions of pensions. Unfortunately, in the first 18 months of this new Government, pensions are seemingly no longer protected as something desirable—that is, something we wish on our population so that they can build for the future and have a good, well-funded retirement.

Let us consider what this new Government have already done. One of their first moves in their first Budget in 2024 was to lay out the framework for bringing private pensions into the net of inheritance tax. As an adviser, I have to say that, when my previous Government introduced a measure to take personal pensions out of IHT, it was a very generous measure, but it has, I think, proved its worth. I was somewhat sceptical— I am one of those people who likes a low tax regime—but having IHT-free pensions was always quite a generous measure. Over time, it has shown itself to be a very good measure, because people are contributing towards pension funds in a way they may not have been encouraged to do. That has to be to the good.

I am sure that I do not need to tell this Committee about a lot of the planning behind pensions and why people do it. The reason outlined by my noble friend Lady Neville-Rolfe for exempting lower rate taxpayers from this regime is a good one. I say this as a practitioner: if the thought is that this is some loophole that is massively exploited by the great body of UK taxpayers, that has never been my experience, I am afraid. I do not see levels of salary sacrifice that would be sufficient to have even put this on the radar in the first place, frankly.

Why do basic rate taxpayers pay into pensions? I am afraid that not enough do. Thankfully, the implementation of auto-enrolment under our last Government will, I think, bear fruit as one of the most positive footprints that we left. We will, in time, have hundreds of billions of pounds put aside in good funds. Nest has been a great success, offering a variety of funds that taxpayers can choose, from lower risk to higher risk, and there is even a sharia fund, which was news to me. No matter what, the whole spectrum of the UK taxpaying base in auto-enrolment will be building up a fund for the future. During our time in government, we thought pensions were a good; they will restrict the number of people who may be looking for or needing pension credit in the future, because they have built up a decent amount for themselves.

For the 40% taxpayer, of course, putting aside for a pension is almost a no-brainer, because the tax saving is a good in itself, even if one is putting into a slightly riskier equity-based fund. Because you protected it through a good amount of tax relief, the downside still makes taking a bit of a risk worth while. Again, over time, risk usually means a potentially higher return. For those stuck over that £100,000 to £125,140—whatever it is—threshold for the 60% rate, one does not really need to be a rocket scientist to know that using pension planning to try to get back below £100,000 is a good deal. Beyond that, at 45%, pension planning is a very good way to go. For the higher rate taxpayer, it is so obvious to do that type of pension planning. That follows some of my noble friend Lady Neville-Rolfe’s thinking that the higher rate taxpayer does not particularly need that additional help, even though I am never one to say that more taxes should be paid.

For the basic rate taxpayer, however, we need to encourage as much as we can. There is not much encouragement from the 20% relief; that is not very dynamic or exciting. Dare I say that if one stays a basic rate taxpayer, the risk of inheritance tax will potentially not fall on that type of family, given that you have two £325,000 thresholds and the relief for domestic property, potentially allowing £1 million for a couple? It is a broad-brush but perhaps reasonable guess that, if one stays a basic rate taxpayer throughout life, the £1 million threshold will probably be exempt from inheritance tax. It is exactly those people who need the help and support.

What we see with this legislation is not any grand plan for pension planning; there is a grand plan to take a little more money from a lot of taxpayers for the benefit of the Treasury. In so doing, I am afraid that this Government are in serious danger of destroying those really good foundations that we laid—with the support of the Labour Party at the time, broadly—in personal planning, particularly in auto-enrolment, and all that good work done over many years.

In support of my noble friend Lord Leigh of Hurley’s very clever observation, which had escaped me, about the recognition of income for the purpose of calculating income for the student loan, it may be that the Financial Secretary to the Treasury’s interpretation is that there is nothing to worry about and this is already covered and will never be pursued. If that is the case, a statement from the Floor today would be helpful in that regard. Even if there is some ambiguity, which I have no doubt that there is between this multitude of regulations —for national insurance, student loan and taxation purposes—I see no reason why the Government would not adopt this amendment as very sensible. I thank my noble friend for pointing out something that the drafters had perhaps not seen in the first place.

I will be speaking, no doubt, at regular points during the day, but these are my initial observations. The Government should be very careful: they are destroying a very good bedrock, which we created, of pensions that were to benefit many millions of people across this country. This is a small tax-raiser too far, which will bear dreadful fruit into the future.

[Lord Londesborough (CB)]

My Lords, I support all the amendments in the first group but will restrict my comments to Amendment 1 in the name of the noble Baroness, Lady Neville-Rolfe. This concerns the £2,000 cap in Clause 1, which unfortunately hits a crucial cohort of workers: those going through the gears, where their earnings are moving up from around £25,000 per annum to £50,000. There is a disproportionate impact on the younger end of the workforce—those getting promotions and taking on added responsibilities —whom we as a nation need to encourage to increase their pension contributions, given our rapidly ageing population. This cohort’s life expectancy may be nearer 90, if current trends continue.

There is also a disproportionate impact on our SMEs, which I will address in more detail later. Given the high preponderance of basic rate taxpayers in their workforces, the Bill will, as it stands, make growth, recruitment and retention of staff that much harder, at a time when they are still absorbing the £25 billion hike in employers’ national insurance contributions.

My final point at this stage is on bonus payments, specifically bonus sacrifice arrangements, which are a particular target of the Bill. This really is not smart economic policy, given our need for a performance-driven workforce, where bonuses on merit play a critical role in improving productivity, especially in the private sector. Frankly, they should also feature more, not less, in the public sector.

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Amendments 17A and 17B would allow one year’s income perhaps for an umbrella salesman or an ice-cream vendor to be consistent with farmers’ or market gardeners’, who can smooth their tax arrangements over three years to average it. My Amendments 4A and 4B would allow the principle that already exists by which you can catch up previous years’ untaken pension entitlements to make it consistent for national insurance and salary sacrifice. That is only fair, because we must allow people to carry forward so that it comes with equity and consistency between the sort of employees who need all the help they can get. Perhaps the Minister will be able to explain how he sees all this working for the hardest workers, those juggling multiple jobs, and perhaps those with seasonal variations.

[Lord Mackinlay of Richborough (Con)]

Perhaps I may make some comments on Amendment 33 put forward by the noble Baroness, Lady Altmann, and my noble friend Lord Leigh. My noble friend recommends that there be some Treasury advice on this. I do not think Treasury advice is good enough. Surely we are in the thicket of drafting legislation. Let us have those rules very open and clear within the legalisation before us.

I am confused about what is intended here. It is intended to be a £2,000 limit for the employee across all employments? At the wind-up of the previous group, the Minister, the Financial Secretary to the Treasury, quite correctly said that there would be excess complication in the system proposed by my noble friend Lady Neville-Rolfe’s amendment because an employer would have to know about their employees’ tax arrangements and whether they had rental income or income from other employments or investments. That was a very reasonable observation by the Minister. However, this legislation is, as it stands, somewhat silent on a similar complication that would exist across multiple employments.

There is an attempt to smooth out monthly variations in the directors’ arrangements for national insurance calculations, because directors are obviously able to adjust their income a bit more fluidly. I am sure that the Minister is aware that if a normal employee has a very big bonus, potentially in one month, the monthly threshold for maximal class 1 deductions for national insurance will be breached for that month and there will be technically an avoidance of national insurance, because the following month, when employment income goes back to a normal level, full national insurance would be taken. For those able to manipulate their income—and I use that advisedly in a broader sense, but directors can have a little more influence on how they are remunerated—there is a procedure within legislation to iron out those peaks and troughs on an annual basis.

Accepting within the tax and national insurance legislation that a normal employee should be able to benefit from a big peak one month and avoid national insurance, is it the intention that across multiple employments that £2,000 per year will be available to each employment? I think that, as the Bill stands, it does, and I welcome that, because it almost matches what happens in other national insurance legislation applying to an employee. However, it will not be good enough simply to have Treasury advice post-legislation. I would rather that that be clarified today so that we can discuss it further and amend as appropriate on Report. However, my thanks, as ever, go to my noble friend Lord Leigh and the noble Baroness, Lady Altmann, for highlighting the point in question, because it is what life is all about. Currently, it is not uncommon for people to have a multitude of employments.

The main things that I want to discuss on this group are the amendments put forward by my noble friend Lord Fuller—Amendments 4A, 4B, 17A and 17B —which all cover aspects of a similar theme. Call me simplistic, or perhaps old-fashioned, but I would prefer there to be similarities in different parts of the tax system. We have accepted in the tax system the three-year carrying forward of unused pension contribution relief within income tax. It used to be £40,000 a year; now, it is £60,000, and it remains unaffected thus far by two Budgets. I do not want to give Chancellor Reeves any ideas for the future but that sum of £60,000 seems to have survived two Budgets, so perhaps we may live in some hope. In income tax regulations, we have a situation where you can carry forward three years of unused relief, so, in year 4, one could—if one had sufficient income and this was a sensible thing to do in the tax regime in which one found oneself for that year—make a contribution of £240,000. The Treasury is very comfortable with that and, so far, there have been no efforts to amend that in the Budgets we have seen.

I go back to our discussion of the basic rate taxpayer, who may have multiple employments, who may be between employments and who may have both good and bad years. It would seem to stand to reason that we should have a similar idea of carrying forward to allow that sum of £2,000, as it currently stands. Obviously, I would rather it were higher; other amendments laid by noble Lords seek to amend it to £5,000 or £10,000, but I am talking just about the £2,000 limit. I know that my noble friend Lord Leigh gave some examples from real life but there may be situations where, for whatever reason, a pension contribution or a salary sacrifice cannot be made because the taxpayer—for example, a student, and potentially a newly employed one at that—simply needs the cash that year and is prepared not to have the tax and national insurance relief.

Again, this would be neither a difficult nor unusual situation. Someone’s child may be getting married, or they may need private healthcare because the NHS is not providing what is needed. Whatever it is, there are a multitude of real-life situations where cash may be king for a year. Following the income tax arrangements, surely it cannot be unacceptable for that small £2,000 limit to go forward for three years in exactly the same way so that the national insurance shield—that is, the benefit of making a contribution—is at least maintained for years when it was not needed.

Drawing on my professional experience, I can be absolutely sure that many of these brought-forward years are never used. They are used on a “first in, first out” basis, so year 1 carries forward to year 4. If it is not needed to be used, that falls out of bed, then you have years 2 and 3; in the fourth year, if any years are unused, you are carried forward to year 5, whereafter year 2 disappears. It is extremely rare for the full carry-forward to be used. The amounts involved in this sensible carry-forward measure proposed by my noble friend Lord Fuller seem very reasonable and not that costly for the Treasury, whose demand in all this has nothing to do with pensions but is about raising cash. I ask the Minister to look at this carefully—not today, obviously, as I am sure he will say no to most everything—on Report, to see whether we can consider this matter more carefully.

Finally, I go back to the amendments in the names of my noble friend Lord Leigh and the noble Baroness, Lady Altmann. If there is an intention behind the multiple employment arrangement, let us please see it in the Bill, not just in guidance from HMRC at a later date.

[Baroness Altmann (Non-Afl)]

My Lords, first, I need to declare my interests as set out in the register as a non-executive director of a pensions administration company and as a board adviser to a pension provider.

I believe that the Bill is premature—the extent of the amendments being proposed to it is evidence that it has been rushed, and I do not quite understand what the rush is, given that the policy is not intended to start until 2029. I must admit that I immediately thought at the Budget, when the measure was announced, that it was simply a means for the Chancellor to find some revenue to make the books balance in the way that she had hoped. That is not necessarily a criticism, I just felt that it seemed to be the reality. Then suddenly, a few weeks, effectively, after that Budget, we get the primary legislation.

I apologise to the Minister because I have enormous respect for him and I know that he has a very difficult task. I think he understands very well a number of the points we are making, but so many of the issues we are covering here do not seem to have been thought through. The list of potential banana skins and uncertainty seems to be growing by the day, and the practical issues simply have not been recognised, let alone resolved, as has already been evident. We will come to more as we go through Committee.

Let us just consider the risks highlighted in some of the amendments. For example, Amendments 4 and 17 from my noble friend Lord Leigh, to which I have added my name, are trying to clarify what is actually caught by the Bill. If an employer increases workers’ pension contributions, will it automatically be assumed that that was in some way a salary sacrifice? The employer may just have decided to increase its contributions for some other reason. How will we know? How will anyone know?

The uncertainties do not stop there. What about Amendment 33, to which I have also added my name? If someone has multiple jobs, how will anyone be able to track the salary sacrifice pension contributions made through a tax year? We will come on to what happens when someone changes jobs.

We saw in the previous group the effect on student loan costs for students. I know the Minister said that can be dealt with elsewhere in regulations because those student loan rules are set in other regulations, but if they are not in the Bill then they will be caught, it seems to me. I did not hear an argument that says they will not be.

Who is responsible for compliance? Who is responsible for reporting to HMRC? Again, we have heard about the problem with privacy. They are just the uncertainties that we are trying to sort out with some of these amendments.

Then we have the unknowns, which seem to be skirted over. We certainly know that take-home pay will fall for a number of workers who currently get salary sacrifice, either by the 2% or the 8% of the national insurance contribution offset they will potentially lose. Employer costs will rise.

I have huge respect for the noble Lord, Lord Davies, and all the calculations he does, and I recognise that, in some ways, the amounts of money, as he correctly calculated, perhaps seem rather small to us. However, as an economist, I know that decisions, incentives and behavioural changes occur at the margin. It is marginal changes, however small, that can make a significant overall impact over time. If employer costs are rising because they are paying extra national insurance on the pension contributions that they have always been making, it is bound to affect future pay rises and employment levels. We have no modelling of how much that impact might be.

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[Lord Davies of Brixton (Lab)]

I accept the noble Lord’s reprimand. I was actually making another point, which is about how many ice-cream salespeople are operating salary sacrifice arrangements. That may not be immediately germane. In fact, the remarks that the noble Lord just made support my point. Those part-time employees and part-time employers are already having to cope with the problems that arise from multiple employments and how the national insurance system is not, in truth, tailored very well for those circumstances. I accept that.

[Lord Mackinlay of Richborough (Con)]

I would like to assist the noble Lord, Lord Davies, on multiple employments. For an employer faced with an employee with multiple employments, which is not uncommon, it has no reference at all to the individual employer—it is of no interest. An employer runs a payroll scheme only for the amounts that that employer pays that employee. If there is a second employment, it is for that employer to deal with how much they are paying that employee. There is no interaction between the employers to say, “Do a management of NIC”. This goes to the heart of the problem with Amendment 33.

There is only one example where an employer has to take any notice of multiple employment, which is when their employee may have a second employment that is above the ceiling for paying the maximal national insurance. That is where you have a system of form CA72A, which is supplied by the employee to the DWP. The DWP may not actually do anything about it; I have found in most cases in my professional career that the DWP seems to lose the paperwork and the employee has to make an after-year claim for the excessive NIC that has been deducted. That is the only example where the second employment may receive advice from the DWP to say, “Ah, only deduct 2% from this employee because they are paying maximal amounts on a primary employment”. I wanted to clarify the current situation across national insurance administration for double or triple employments. I hope that is of assistance.

[Lord Davies of Brixton (Lab)]

Yes; I thank the noble Lord for his advice. As I said, I have operated the system myself, and so he is really just making my point: the structures are there to deal with multiple employments. It is not being introduced to the issue by this particular measure. Obviously it would be more complicated with this measure—I accept that, and I look forward to my noble friend the Minister’s response on that issue—but it is not a new issue.

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[Lord Livermore (Lab)]

I suppose I would ask the noble Baroness: who does she mean when she asks, “How would one know”? Who is “one” in that instance? HMRC? That would be reported to HMRC, would it not?

[Lord Mackinlay of Richborough (Con)]

HMRC.

[Noble Lords]

No.

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[Lord Mackinlay of Richborough (Con)]

My Lords, I will ask the question in a slightly different way, which may flush out what I think we are trying to get there. Say, for instance, that there is an inflationary rise by an employer every year—there always has been and, one would have expected, always will be—and, in the world post this legislation, the employer has decided not to give a salary increase, for the first time ever, but the equivalent amount has gone into an additional employer contribution to a pension. If HMRC was to come in and investigate the payroll records of that employer, would it conclude that this was a contrived arrangement that fell within this legislation, or would it just be something that the employer can do, which the Minister seems to be describing as being perfectly good and dandy?

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[Lord Livermore (Lab)]

I have set out very clearly which will be approached with the negative procedure and the affirmative procedure, and I do not think it is our intention to deviate from that very clear precedent.

Amendment 33, tabled by the noble Lord, Lord Leigh of Hurley, and the noble Baroness, Lady Altmann, relates to the operability of the contributions limit for those with multiple concurrent jobs. Amendments 4A, 4B, 17A, 17B and 29A, tabled by the noble Lord, Lord Fuller, also relate to operability of the contributions limit, with a focus on those with fluctuating earnings and their employers.

I fully understand the concerns that noble Lords have raised about how this measure will operate in practice, particularly for those with more complex employment arrangements and irregular patterns of remuneration. While the Bill provides the necessary powers, the full operational detail of the £2,000 cap will be set out in regulations that are yet to be published. The purpose of this two-stage process is to ensure that when the cap is introduced, it operates effectively across a wide range of real-world circumstances, including for individuals with multiple jobs, complex payroll arrangements, changing employment or fluctuating remuneration patterns over the course of a year.

[Lord Mackinlay of Richborough (Con)]

Is the Minister’s understanding of the Bill that the £2,000 threshold will be in the entirety of a single employee or across each employment? At the moment, with NI regulations the employee benefits from different thresholds in each employment that is held. That means that with less than £12,570 in each multiple employment no employee national insurance is paid at all. Is the intention for it to be £2,000 in total across any number of employments, or £2,000 per employment?

[Lord Livermore (Lab)]

That intention will be set out in the regulations once we have fully consulted relevant employers.

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[Lord Ashcombe (Con)]

My Lords, the amendments in this group either increase the level of pension contributions exempt from national insurance or seek to prevent fiscal drag. Both aims are very welcome. In many respects, the higher the exempt amount, the better; on the face of it, Amendment 9, in the name of the noble Baroness, Lady Altmann, is the most attractive in that regard. Although it does not provide protection against fiscal drag, she did explain why. That said, assuming inflation remains under control, it would take many years for average contributions to reach the equivalent of £10,000, one hopes, just as it would take a fair amount of time—half, obviously—to reach the £5,000 level proposed in Amendment 7 by the noble Baroness, Lady Kramer, and others. Both would, however, offer meaningful support to average earners who receive a windfall. My noble friend Lord Leigh of Hurley addressed the issue of bonuses earlier. Those earners may wish to act prudently by making a significant one-off pension contribution, without being caught by this punitive tax charge.

The amendment in the name of the noble Lord, Lord de Clifford, offers a simple and workable approach, which he explained, yet this modest uplift would not be free of any fiscal drag, as we already know the basic tax rate on which the salary sacrifice threshold will be based. However, the amount would move if the tax bands increased—if only. I fear that, in the long term, this would work against the very employees the noble Lord seeks to protect, but it is better than the £2,000 mentioned in the Bill.

Finally, I turn to the amendments designed to counter fiscal drag, a mechanism that, as we all know, is one of the least transparent ways in which Governments of all colours raise revenue. Who does it fall upon most heavily? Once again, it is the middle and lower earners of this country: the teachers, nurses, engineers and shop owners—the list goes on—the people on whom the nation depends. Yet the Bill risks penalising them for doing exactly what we encourage: saving responsibly for a decent pension in retirement. The amendments in the names of my noble friends Lady Neville-Rolfe and Lord Altrincham anchor the thresholds to the consumer prices index, while those in the names of the noble Baroness, Lady Kramer, and the noble Lord, Lord Londesborough, use the retail prices index, and we have just heard why.

However, taken together, this group of amendments is of real importance and I support them all, to a greater or lesser extent. We have to try to move this absurdly low number. Each of them, in different ways, seeks to protect the middle and low earners who are trying to do the right thing and save for their futures.

[Lord Mackinlay of Richborough (Con)]

My Lords, I support a number of the amendments within this group. Obviously, the one that catches my eye the most is the one in the name of the noble Baroness, Lady Altmann, which proposes the highest increase to £10,000. But I am very reluctant that we put into legislation more figures that become fixed and then become fiscal drag in future.

I write a regular column in the Money section of the Daily Telegraph—I am not sure it is declarable for this particularly, but it is on issues of tax. I wrote an article just a couple of weeks ago on inheritance tax. The threshold has been fixed at £325,000 since 2009, and I say with no great enthusiasm that we had 14 years of government, from 2010 to 2024, where we did not increase that. The Government with the blue flavour have not been good at increasing and uprating thresholds in line with inflation.

As has been said quite widely, it becomes the quiet hand that just increases more money to the Treasury in a fairly underhand way, you could say, because the Government have done nothing new: they have simply sat with the legislation that they have and, lo and behold, the magic of inflation cuts in and more money is raised from the same tax. If the 2009 threshold of £325,000 for IHT had been uprated to today, it would now represent £569,000, reflecting that in parts of the country, a house at £325,000 in 2009, which was intentionally free of inheritance tax, is not free of inheritance tax today. With this legislation, we are potentially implementing a fixed £2,000, which, with fiscal drag and inflated or inflating wages over time, will drag more and more people into the net.

The Financial Secretary to the Treasury has said in glowing terms during the course of this debate how good pensions are. I have no doubt that everyone in the Room thinks that pensions are a good thing. Unfortunately, it seems that that good thing is being whittled away. It does not take much for people to change their behaviour. I am concerned that the £2,000 threshold will mean those on the edge will only ever make a £2,000 salary sacrifice. They will not, under any circumstances, particularly if they are a basic rate taxpayer, ever go to £2,001—with an additional pound —or beyond. They will simply have smaller pension pots, as was very adequately described by the noble Lord, Lord Londesborough, in his good contribution.

There is the magic of compounding—I believe that Einstein even called it the eighth wonder of the world. It is the magic by which, just with plain inflation, £1 is put away in a very dull, FTSE-based equity plan—or even, should one wish, into government gilts over a very long period—and it goes up. By receiving just 4% or 5% of interest per year, those small pounds from years ago become very big pounds by the time one comes to retirement. As the noble Lord, Lord Londesborough, very ably said, people have small pots. Even with the great success of auto-enrolment, those pots still remain pretty small; they are not quite enough to supplement a long retirement as people live longer.

I support the good things that the Minister said about pensions. There always seems to be a bit of a cover from a Government who say “Well, only 26% of people will be caught”—I think the Minister said 74% of basic rate taxpayers will not be caught—as if that 74% is more than half and so we need not worry. I am afraid that I do worry about the 26% who will be caught and may do different things—namely, they will not put money away for their savings. For administrative ease, I think the higher the better, so that we do not implement into our tax and national insurance legislation yet another fiscal drag that gets worse and worse over time.

The plea repeated by many in Committee today is to pause and wait, because this will not come in until 2029. Our wide-ranging debate has highlighted a lot of flaws and problems. One of the big flaws seems to be that the Minister who has drafted this legislation remains a little unclear, dare I say it, whether this applies per person or per employment. That seems to go somewhat to the heart of what we are debating. I would almost suggest that we draw stumps and come back another day when the Minister is clear on that, after having asked somebody—I suppose someone in HM Treasury—what is intended. Is it £2,000 per person or per employment?

On the basis of that ambiguity, however, I recommend that we have an uprating to £10,000 at the highest level. Given all the uprating measures that noble Lords have described today—whether an inflationary index is applied or a flat £5,000 becomes the new base level, as the noble Baroness, Lady Kramer, proposed—I am afraid that the £2,000 threshold is looking very threadbare. It drags far too many basic rate taxpayers—the normal end of taxpayers—into its potential net. The danger is that they will not save and will not grow their own pots into the future. People on low pension income in the future will become reliant on the state.

What we are doing here is trying to get a bit of sugar today into the Treasury coffers. A sugar rush, where the future will have to be paid for as more people fall into pension credit and other forms of retirement benefit payments, could so easily be avoided by introducing every measure we possibly can, here and now, to get people saving for their own future.

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[Lord de Clifford (CB)]

I have had the privilege of putting my name to Amendment 27 in the name of the noble Baroness, Lady Kramer; the noble Baroness, Lady Altmann, has added her name to it as well.

I own an SME business, and this Government’s changes to NIC have significantly affected it. Of the 8% rise in salary costs to my business in the past 12 months, 25% of that figure—or 2%—was the NIC change. The changes proposed would increase that further.

This amendment seeks a review of the effect of the change on SME businesses and on employment rates within SMEs. SMEs are the bedrock of employment in this country, as was covered by my noble friend Lord Londsborough. The addition of this pre-profit tax does nothing to encourage growth, investment or employment. This review is very much welcome to identify any changes within SME businesses, to ensure that we remain healthy and can create opportunities for growth and jobs for all generations, especially the young.

[Lord Mackinlay of Richborough (Con)]

My Lords, I normally do not support measures that carve out certain sectors from others in the normal weft and weave of enterprises in the country, but I support this one, particularly Amendments 12 and 24 which seek to carve out small and medium-sized companies under the Companies Act 2006 and charities and social enterprises. I think a tipping point has now been reached, particularly on the back of the Employment Rights Act, increased national insurance and higher minimum wages, particularly those applying to younger employees.

We are seeing that already with the highest rate of NEETs—younger people out of work—than I think we have ever seen before: 700,000 at present. What always happens under a Labour Government is certainly happening. It usually happens over a longer period—over the full five years of a Labour Administration—but it is happening very quickly within their first 18 months. Levels of unemployment are higher than we have seen. We now have higher rates of youth unemployment than the EU average. In days of old, we used to point our fingers over the channel, laugh at the level of youth unemployment over there and wondered how on earth they got it so wrong—but no more. The finger-pointing is now coming from that side of the channel to us, wondering how we could be so stupid so quickly. I think that tipping point has been reached.

A reality for small and medium-sized enterprises, particularly the smaller ones, is that they do not run their own payrolls; they contract out their payroll requirements to payroll bureaus. It is very commonplace. I would say the tipping point could be even up to 50 employees, where the company will pay a bureau to do all the complicated stuff—processing the real-time information, taking in the coding notices, working out the statutory sick pay—that comes with running a payroll. Smaller and medium sized enterprises want to get on with the business they do. Whatever the business might be—whether a retailer, a pub, a printing company or whatever—it does not particularly want to add to the administrative burden internally and deal with the cost of it, so they tend to outsource it.

My thoughts on these amendments might be a little different if we knew—and I will say it for a third time today—whether this £2,000 threshold measure applied for the employee across all their employments or across each employment. If it does apply to the employee across multiple employments, then the payroll bureau way of doing things becomes extremely complex. It will have an additional burden to speak to the payroll bureau and the tax office for the details of the employee’s other employments. Until we have an understanding of what that really means within this legislation, I think we are a little bit out at sea.

However, there are other things going on in the employment market at the moment. We have one sector that is growing quite well in terms of the employment numbers and the number of new employees: the public sector. It is about the only sector that is growing, and of course it does not really do much for the GDP of the nation because every penny has to come on the back of proper profits and taxes that are derived from the private sector.

As someone who was once involved in the SME sector, I know that there is often a competition going on between a potential employment available to a good and skilled potential employee in the market. They have the choice of going to the public sector, which gives six months of paid illness leave and another six months of half pay—there are not too many questions asked. There is lots of working from home and lots of other lovely benefits—such as an accumulating index-linked pension—which few in the private sector can match anymore. The days of the final salary pension really only exist in one place, and that is now in the public sector. Therefore, the SME sector has a struggle to recruit, especially when the market is good.

A skilled employee, when given the choice of working in the public sector with all those benefits or working in the private sector—where the pension, sickness benefits and holiday benefits are not so good, and the requirement to worked damned hard is different in expectation—will choose the public sector. There is a conflict going on in employment. The one thing that small businesses might be able to offer, however, is a better pension provision, and these measures will stop that. It is the one thing they can use to attract a good employee. To deprive the small business sector, charities and those in social enterprises of the opportunity to offer a little bit of gold plate in the employment offer to a very good employee is a very backward step.

For perhaps one of the first times, I actually support these amendments because employment rights and running payrolls have become so complex, and there are more and more burdens for businesses, which are negatively impacting them. A carve-out for smaller enterprises under the measures proposed by Amendments 12 and 24 are to be supported because the backs of small and medium-sized enterprises are breaking, and they need support that, I am afraid, this legislation does not provide them.

Covid Counter-Fraud Commissioner

Lord Mackinlay of Richborough Excerpts

Wednesday 5th February 2025 Lords Chamber

[Lord Mackinlay of Richborough (Con)]

My Lords, I wish the Government well in their counter-fraud investigations into Covid, because public money is of course of the utmost importance, but there is a clear and present daily problem with government procurement. Some years ago, I did a piece of work with the TaxPayers’ Alliance, looking at the price of photocopy paper across public institutions. It was vastly different: from £1.99 to £5.33 for a ream, within a health trust on the south coast. Can the Minister assure me that work is being done to maximise procurement gains throughout the system?

[Lord Livermore (Lab)]

Yes, I can, and I agree with the noble Lord. At the Budget, the Chancellor launched the Office for Value for Money, which will assess where and how to root out waste and inefficiency and to unlock value-for-money studies in specific high-risk areas of cross-departmental spending, and scrutinise investment proposals to ensure that they offer value for money.

UK–China Economic and Financial Strategy Dialogue

Lord Mackinlay of Richborough Excerpts

Tuesday 4th February 2025 Lords Chamber

[Lord Mackinlay of Richborough (Con)]

My Lords, does the Minister have any discomfiture at all about his Government going to China and begging for investment and trade while many parliamentarians in this Palace remain sanctioned by the Chinese regime?

[Lord Livermore (Lab)]

I completely disagree with the noble Lord’s characterisation of the Chancellor’s visit to China. As I said, we must and will continue to engage with our international partners in trade and investment, and that includes engaging with China. We cannot ignore the fact that China is the second-largest economy worldwide and our fourth-largest trading partner, with exports supporting close to half a million jobs in the UK. We need to help British businesses export around the world, and that includes to China. On human rights and the parliamentary sanctions that the noble Lord talks about, the Chancellor did raise those—absolutely—but she believes that, unless we open that dialogue, we will be unable to raise the concerns that we have.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Mackinlay of Richborough Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Mackinlay of Richborough (Con)]

My Lords, I refer the House to my registered interests. I am an employer. I admire the noble Lord, Lord Livermore, for his patience and stamina at these debates on tax matters—and I think that there will be many more.

I am fearful that the Government are heading us down what I would call the Corinth Canal conundrum. One might wonder how I can bring that marvellous wonder of the world and national insurance into a debate. In the early 1990s, I had the great pleasure of taking a small pleasure craft through the Corinth Canal—just 3.9 miles long. I was rather surprised when I got to the other end to find that it was £92 for a boat that was about 30 feet long. I asked the lock keeper at the other end how on earth it could be £92 for such a small pleasure craft, and he said, “Ah, because nobody is using this Corinth Canal very much these days, we keep putting the price up—and, funnily enough, fewer and fewer people use it, so we then put the price up again”. I fear that this is exactly what this Labour Government will be doing over the years ahead. They have had a very large Budget proposal of £40 billion, but it will not be enough, because in so doing they have shattered and damaged the economy. We have seen that in figures in terms of growth—or, should I say, the start of recession—and there is more of that ahead.

Manifestos matter. Why do they matter? They matter because at election time they are the bond that an incoming Government try to form with the electorate. There used to be an old saying that words are my bond. That seems to be long gone. I am sure that the Labour manifesto has been quoted this afternoon. It said:

“Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT”.


That sounds quite clear to me, and I am sure that the electorate were fairly clear that tax proposals would not affect them. For this Government to be wordsmithing now, at best, and saying, “Employers’ national insurance does not count—that is something rather different”, does not convince me. But you do not need to try to convince me—you need to try to convince the electorate that something else is being proposed. I suppose that we should not be at all surprised, when we heard the then shadow Secretary of State for Defra saying that there were no proposals for changing agricultural property relief—and here we are, to the dismay of the farming community and, under BPR changes, to the dismay of the business community.

What this has shown, more than anything else, is that this Cabinet has never run a business before. It thinks that tax simply comes out of thin air, nobody is affected and we can take £40 billion out of the economy with no problem at all. I shall give an example of what this measure will really mean to, say, the mythical shopkeeper, who perhaps earns just shy of £40,000 per year. That shopkeeper has an expectation to earn that type of money. This Government are going to hit them in two ways—on the employees that they have, particularly the lowest paid of their employees, starting at £5,000, where an increased tax will be suffered. Beyond that, their business rate relief will be reduced.

So what will the earnings of that shopkeeper go down to in the face of these two taxes? Will it be to £30,000, or perhaps even less? They have a choice—they can get rid of an employee, perhaps, so we will see a rise in unemployment. They can perhaps think, “Well, that pay rise I was thinking about for the year ahead, I just can’t afford to do that any more”. What is the next thing that that shopkeeper or small business owner may do? They will reach for putting prices up. So, uniquely, this measure will depress wages while increasing inflation. Very few measures that you can come up with are that bad, yet this Government have managed to do so.

National insurance has a long history. It goes back to 1911. In those days, it was considered to be a properly hypothecated type of levy on employment: a levy so that, if you were made unemployed, you had some sort of support. I suppose that, as the NHS was created, after the war, there was also an expectation that your national insurance was somehow a proper insurance that paid for such things. I have to say that that old hypothecation has long gone. The only two remnants I can think of that exist now are the added years towards your state pension—you need 35 years of NI record to receive a full state pension and you have to have 10 years, as a minimum, to get any at all. The benefits, I suppose, would be paternity and maternity benefits, which are still framed within a work environment that your NICs have paid for. Beyond that, it has become just A N Other tax, just part of the tax pool. To call it anything else is, I think, disingenuous.

Something a little similar came to us when I was at the other end of this Palace. In 2021, under Boris Johnson’s Administration, there was the health and care levy. Proposed as a national insurance measure, it was actually rather more widespread in its effects, in some ways, than this, because it would have hit class 4 national insurance for the self-employed, proper employees’ national insurance and employers’ national insurance. It was an all-encompassing national insurance rise. To that Administration’s credit, they were at least looking at how to solve the social care problem. This new Government, having had 14 years on the opposition Benches to think about such things, have simply batted this off until 2028 or 2029 with yet another consultation. We seem to be having a consultation most weeks of this Administration so far.

There was a big discussion in the other House at the time, which I took part in, in opposition to the national insurance rise, and that was for a few reasons. The first was that it was not in our manifesto. To me, the commitment that we made to our electorate, that I made to my electorate then in South Thanet, was an important one. It was not in the manifesto, so I was minded not to support it. I understand that things change, and things changed rapidly during and after the Covid period. I get that, but this was not in the manifesto.

Generally, I feel that we should tax things that are bad, and we do a lot of that in this country. We tend to tax alcohol and tobacco—excessively, some might say—because we are trying to reduce their consumption. That is what taxes generally do: they make us do less of those things because, frankly, we have not got enough money in our pocket to spend on them. We all generally accept that taxing alcohol and tobacco, perhaps excessively, is a good thing. But should we then think that jobs are similarly bad? That went through my mind in the other place: I would not support this because I was not prepared to accept an additional tax on good things, and jobs and employment are good things.

I served on the Public Accounts Committee for two years. We had the full muscle of the National Audit Office at our fingertips and there was an independent OBR. I say to the noble Lord, Lord Livermore, that I find it all a little bit last year, all a bit 2024, to be re-raising the fiscal black hole of £22 billion. I know very few countries around this planet that have such a transparent Government, with an independent OBR, a fully fledged Public Accounts Committee that is chaired by the Opposition and the full ambit of a very big institution, the National Audit Office, at their fingertips, publishing reports regularly for all to see.

One of the discussions we regularly had, with HMRC in the room, was about the tax gap. The tax gap is very interesting and I am sure that the noble Lord, Lord Macpherson, is well aware of it. The last HMRC report stated that the tax gap was now £36.7 billion. It is in the realms, strangely enough, of what the Budget was trying to raise, and certainly higher than these NIC proposals. I will give the House the following example, which we see on every high street in this country. Among the businesses we all face, there has been a massive proliferation of barber shops and we are all familiar with hand car washes. Most of us in this place take our car to them from time to time. We have restaurants and takeaways—any number of cash businesses. There are four potential frauds going on in those cash businesses. First, the cash is not rung up: no VAT. Secondly, that cash, not rung up, does not form the trading profits for income tax or corporation tax. Thirdly, that cash is possibly used to make up the salaries, in cash, of various employees, so there are no PAYE deductions and no employers’ or employees’ national insurance. I can but imagine what increasing that rate still further is going to do to those types of businesses, which may be tempted to do such things.

The fourth fraud is of course the depressed wages that are recorded, if they are recorded at all, on monthly returns to HMRC by the employer and will then be the basis on which universal credit or tax credits are paid out to those seemingly low-paid employees. So, there are lots of places we can look for the tax gap.

My worry, which was raised by noble friend Lord Jackson, is that the status of employees is a very grey area. We have full employment and self-employment and we now have the rather widening gig economy. HMRC does not always get it right. It loses plenty of status cases in the courts. There are status tools available for employers to use, but every employment is slightly different. My worry is that tax-compliant big organisations will be tempted to say to their service providers, “Ah, let us consider you to be self-employed, because we are in a grey area”. So, instead of 15% employers’ national insurance deducted and handed over to HMRC, there will be none. Given the extent of the tax gap and my experience on the Public Accounts Committee, HMRC does not have the resources to look into every nook and cranny.

So that is my main concern: we have a tax code that is becoming more complex and rates that are becoming excessive, and that will mean that behaviour will go against tax collection. But then, this Cabinet has never run a business, so I am not surprised that it has reached for this, the worst of the tax levers.

Finance (No. 2) Bill

Lord Mackinlay of Richborough Excerpts

Report stage
Tuesday 20th June 2023 Commons Chamber

Labour believes that if people make Britain their home, they should pay their taxes here. That patriotic point should be accepted in all parts of both sides of the political divide, but Ministers in this Government, under this Prime Minister, seem desperate to defend the non-dom loophole. We will keep pressing the Government to think again and to follow our plan to abolish non-dom status, replace it with a modern system, and use the money raised to strengthen the NHS, childcare and the economy.

[Craig Mackinlay (South Thanet) (Con)]

Does the hon. Gentleman really believe that non-doms who could pay zero inheritance tax in other places around the world and need not spend money any at all in the UK will just stay here and be taxed under his plans? Or will they up sticks and go elsewhere—which they are very capable of doing—in which case we would lose the VAT and everything else that comes with non-dom spending in the UK?

[James Murray]

I would welcome a more extended debate about non-dom tax status. That might be slightly outside the remit of today’s debate, but I refer the hon. Gentleman to some very good research conducted by the London School of Economics and Warwick University on the impact of people potentially leaving the UK as a result of any changes in non-dom status. Getting rid of non-dom status would still net £3.2 billion a year according to the work done by the LSE and Warwick, which is based on HMRC data which they have looked at and which constitutes reputable evidence showing what would happen in that event. As I have said, we would replace non-dom status with a modern system like the one that operates in many other countries around the world.

Let me link the hon. Gentleman’s point to the point made earlier by the hon. Member for South Dorset (Richard Drax). This is about priorities. What is the priority for expenditure of £3.2 billion a year? Is it protecting non-dom tax status, or is it strengthening the NHS and childcare? That is at the heart of the question we are asking today.

As well as closing the non-dom loophole—about which I could speak at length— we will keep pressing the Government to close gaps in their approach to the windfall tax on oil and gas giants. Our new clause 8 presses them to think again about their investment allowance loopholes. We believe it is wrong for Ministers to leave billions of pounds of windfall profits for oil and gas giants on the table when some of that money should be helping to support families through the cost of living crisis.

We know, of course, that making our tax system fairer is not just a question of having the right legislation in place domestically; it is also a question of working with other countries to end the race to the bottom among large multinationals around the world. As our new clause 7 makes clear, we want the Government to remain committed to implementing the global agreement on a minimum rate of corporate tax. This landmark deal from the OECD is an important step towards ending the international race to the bottom on tax, as it calls time on large multinationals which operate in the UK but use low-tax jurisdictions overseas to avoid paying their fair share of tax. When large multinationals do that, it flies in the face of the British sense of fairness, it deprives public services in our country of much-needed funding, and it undercuts and undermines British businesses that play by the rules.

As we have made clear throughout consideration of the Bill, we are glad to see this legislation being implemented. We want to see the global agreement in place so that large multinationals pay a minimum level of 15% tax in each jurisdiction in which they operate. We have raised the need for such an international deal many times with the Government. Indeed, I first pressed Treasury Ministers on the subject more than two years ago, on 13 April 2021, during Second Reading of an earlier Finance Bill. At the time, we suspected that the Government might be dragging their feet because they wanted to keep alive the possibility of a race to the bottom in the future, but now, with Ministers having finally agreed to implement the deal—albeit in a version that they allowed to be weakened from what was originally proposed—opposition to it has galvanised those on the Tory Back Benches.

Two days ago, the right hon. Member for Witham (Priti Patel) published an opinion piece in The Sunday Telegraph. The headline described the common-sense approach taken with the global minimum corporate tax rate—the approach that her colleagues on the Conservative Front Bench want to implement—as a

“radical plan for permanent worldwide socialism”.

The right hon. Member has tabled an amendment to this part of the Bill, which she said in her piece on Sunday was

designed to be helpful and easy to adopt.”

I would be interested to hear whether the Minister agrees, and how helpful she thinks the amendment is, because we believe that it is designed to undermine fatally the implementation of the landmark deal on a global minimum corporate tax rate. Efforts to scupper the implementation of the deal constitute an astonishing act of self-sabotage on our public finances. The reality is that if the UK walks away now from implementing these rules, businesses will simply be taxed by other countries which have implemented the deal. Let me reassure the Minister that if the amendment is pushed to a vote by Conservative Back Benchers, we will oppose it, so Ministers need not worry about whether they will be able to vote it down even if they lose their majority through a Back-Bench rebellion.

What on earth does this situation say about the state of the Conservatives and about the weakness of the Prime Minister? The amendment, which brazenly undermines the Government’s position, has been signed by right hon. and hon. Members who, within the last 12 months, have held the offices of Prime Minister, Chief Secretary to the Treasury, Secretary of State for Levelling up, Housing and Communities, Secretary of State for Business, Energy and Industrial Strategy, and a raft of other ministerial positions. What would happen to the implementation of these rules if the right hon. Member for Richmond (Yorks) (Rishi Sunak) became the third Conservative Prime Minister to be forced from office in 12 months, and an MP who supports this amendment took over his role? The truth is the Conservatives have now become totally incapable of offering any certainty or stability, but that certainty and stability is what businesses and investors so desperately want so that they can play their part in growing our economy and raising living standards for people across Britain.

Finance (No. 2) Bill

Lord Mackinlay of Richborough Excerpts

2nd reading
Wednesday 29th March 2023 Commons Chamber

[James Murray]

I thank the hon. Gentleman for his comment. The geographical impact of policies should always be considered, but we should also ensure that the Government consider targeting sectors. Rather than having a scheme that applies to everyone with a large pension pot, let us have a targeted scheme for NHS doctors, which is something we can all agree on.

Alongside the changes to the taxation of individuals’ pensions, this Finance Bill includes measures that will affect the taxation of businesses. Disappointingly, but unsurprisingly, there is no sign of the fundamental reform of business rates once promised by the Conservatives. The Bill does, however, include changes to corporation tax and allowances. In fact, making changes to corporation tax and allowances is something the Government have become quite experienced in. Under the Conservatives, corporation tax has changed almost every year since 2010, and as the Resolution Foundation has pointed out, the introduction of the latest temporary regime for corporation tax represents the fifth major change in just two years. Businesses deserve better than this. When I meet businesses across the country, they are clear that they want stability, certainty and a long-term plan, yet after 13 years in office, this Government are incapable of providing those crucial foundations for success.

The truth is that Conservative MPs have become deeply inward-looking and riven by division, and their default when faced with difficult choices is to put party before country. No matter what they say, this means that Conservative Ministers are simply incapable of providing stability and certainty in government. We can see that reality in the policies they announce. As Paul Johnson of the IFS said in response to the latest temporary tweak to the tax regime for businesses:

“There’s no stability, no certainty, and no sense of a wider plan.”

Indeed, we can see that by looking at the Government’s decision to allow temporary full expensing for expenditure on plant and machinery. We know how important it is to get capital allowances right as the rate of corporation tax is being increased, yet, as the Office for Budget Responsibility reveals, the Government’s approach will make no difference whatever to medium-term levels of business investment. Rather than a long-term permanent change, this change is for only three years. As a result, it only brings forward investment rather than increasing its overall level.

[Craig Mackinlay (South Thanet) (Con)]

The hon. Gentleman has talked about certainty and stability, and they are qualities that I would have some sympathy with, but can he rule out, here and now on the Floor of the House, that it is not going to be Labour’s plan under any circumstances to harmonise capital gains tax with income tax?

[James Murray]

As we have said several times, we will set out our plans in our own time. But let us be clear, if the hon. Member has concerns over capital gains tax, he might want to talk to those on his own Front Bench, because they raised it in the last Finance Bill by cutting the annual exempt amount. I suggest he talks to his colleagues before he raises questions with us.

--- Later in debate ---

[Craig Mackinlay (South Thanet) (Con)]

I will start with a depressing fact. We have talked about the Office of Tax Simplification, and I struggle because the Bill before us runs to 456 pages and the explanatory notes run to 679 pages. Perhaps we are not going in the right direction.

As I am sure Ministers are aware, I will air my views on this Finance Bill, both the bits I like and the bits I most certainly do not like. Starting with clause 2, we know that the income tax rates are 20%, 40% and the additional rate of 45%, but that does not tell the whole story, does it? We have this peculiar rate of 60%, as the annual allowance is taken away at £1 for every £2 of extra earnings over £100,000. The tax rate for those earning between £100,001 and £125,140 is, in fact, 60%.

At the autumn statement, we debated whether the 45% additional rate is the right measure at the right time, the right measure at the wrong time, or the wrong measure at any time, but I would have been more comfortable—this may surprise Ministers—if the 45% rate started at £100,000 and we got rid of the 60% band.

My entry in the Register of Members’ Financial Interests notes that I am a chartered accountant and a chartered tax adviser, and I recommend that the Treasury considers the number of people in that £100,001 to £125,140 band. It is all very well once people push their way through the band, but there are behaviours that can enable people to avoid the band, not least with the expansion of the annual allowance for pension contributions. I foresee that there will be very few people in that band, because they will use pension planning to make sure their income is always below £100,000 if there is any threat of being in that band.

I suppose this comes down to the whole concept of tax. I am not talking about a spreadsheet in the Treasury; I am talking about people’s behaviour. We sometimes forget that making such a change does not automatically spring a certain amount of tax out of the system, as people do other things. Additional money might be raised because people spend and pay VAT. We are all very familiar with the multiplier.

[Anthony Browne]

I thank my hon. Friend for his interesting speech.

[Craig Mackinlay]

Don’t worry; there is a lot more yet.

[Anthony Browne]

I am sure there is, and I might intervene later.

My hon. Friend makes an interesting point about moving the 45% additional rate to £100,000, which I have previously recommended. Does he agree that it would be a good guiding objective for this Government, and indeed any Government, to try to reduce all marginal tax rates below 50%? It is a good, Conservative principle, but it applies to everyone, that people who work extra should keep at least half the money. People should never have to give more than half to the Government.

[Craig Mackinlay]

My hon. Friend speaks a truism that should not need to be spoken from the Conservative Benches, as it should be patently clear.

A sole trader who is running a good little business and doing quite well might be knocking on the door of £100,000 in profits—I would have thought that is not an unusual amount for some in the south-east of England, even in the building trades. Too many of them will say, “I’m not going to pay 60%, plus 2% national insurance. I will work four days a week and spend the fifth day on the golf course.” We are losing out through the 60% rate.

Ministers will not be surprised by my objection to corporation tax being increased from 19% to 25%.

[Richard Drax]

Raising corporation tax from 19% to 25% is a 31% increase. That figure is not often used.

[Craig Mackinlay]

My hon. Friend makes a very good point. This 6 percentage point increase is actually very big in percentage terms.

The corporation tax increase is in clauses 5 and 6, and corporation tax has a story in this country. I went back to April 1973, a mere 50 years ago, and it was at 42% in those days. Corporation tax has generally fallen over time, both in the Conservative years and under the Labour Administration between 1997 and 2010. Peculiarly, the Labour Administration even introduced a 0% rate on small profits up to £10,000 between 2000 and 2006. I was more vigorously in practice at the time, and the 0% rate was a bizarre move that caused a rash of incorporations, which people did not need the wisdom of Solomon to foresee. The rate was deemed to be malused, shall we say, so things changed again.

Under us, since 2010, the maximum rate of corporation tax has reduced from 28% to 19%, and what have we seen? We used to have discussions about Laffer-curve economics, to which I am an adherent. There is a sweet spot at which reducing the rate raises more tax. That was behind the thinking of George Osborne, a previous Chancellor. I would not say that I agree with everything he did—I think he meddled rather too much with the tax system; hence, we now have a tax code that runs to about 23,000 pages—but he believed that reducing corporation tax would increase returns, which is exactly what happened. The money we are looking to raise to pay for the NHS, and to do all the good things that public services provide for us, was being delivered through a lower corporation tax rate. Is it any surprise that Ireland decided to put this on steroids by taking corporation tax down to 12.5%? The rate per head of receipt in corporation tax is four times the rate in the UK. Ireland’s corporation tax returns are way in excess of what is raised from one of our primary taxes, VAT.

We lived through the 19% rate era, however, which was very welcome. It attracted international business and, on the other side of this, made domestic businesses think that the risk reward was better and they therefore took their business forward. We had a lot of complications in the old days, when we had marginal rates and businesses had to go from the lower small company rate to the bigger company mainline rate. It was a complicated calculation, and my hon. Friend the Financial Secretary referred to that. It was not only that that was complicated; those with a number of associated companies had to divide the limits, and it was a dreadfully complex calculation. She said clearly that the lower rate of 19% will remain for companies on up to £50,000 of profits, which is welcome and will catch a lot of the numbers as a percentage of the entirety registered at Companies House, so many companies will not be affected.

[Richard Fuller]

I do not want to disagree with my hon. Friend, but we on these Benches must stop being grateful when some of our businesses are exempted from increased taxation. We are the party that believes people know best how to spend their own money. We should be arguing for the widest spread of low taxes. He is talking about history, and the other aspect of corporation tax is the ability to attract capital. Back in the 1970s and ’80s, the largest source of capital to support our businesses was from a domestic pool of capital, but now we are competing for an international pool of capital. What effect does he think this increase in corporation tax will have on our ability to tap into those competitive global markets?

[Craig Mackinlay]

I do not think that was a criticism from my hon. Friend, but I was trying to be kind and find some good news in what is a fairly miserable story on corporation tax. He makes a good point: the world potentially has an almost limitless amount of global capital looking for a home, and I want that home to be here, and having a lower headline rate of corporation tax would be a very good way of achieving that. I want to develop the argument about the complication we have now added to the system.

[Kit Malthouse (North West Hampshire) (Con)]

I draw attention to my entry in the register. My hon. Friend is making a powerful point and is right about the impact of thresholds on behaviour. There are a number of thresholds, including the VAT threshold and income tax rates, and these marginal rates have a massive impact. Does he think that during the passage of this Bill the Government should consider whether the threshold of £50,000 to £250,000 ought to be higher, not least because catching a company just as it makes £50,000, on an ellipse of growth, and taxing it more is effectively to punish it for success?

What is his view on the notion that not just the rate but also consistency has an impact on the national and international sentiment about investment? The fact that we do not muck about with our rates all the time and they do not vary very significantly from year to year has a big impact on businesses’ ability to plan for the future. The Americans have a higher corporation tax rate than we do, but they have not touched it for years—it has been the same for many years—which allows businesses to trade a higher rate for a longer planning horizon. We might benefit from such a perspective.

[Craig Mackinlay]

My right hon. Friend makes a powerful point on the lower threshold for where 19% goes into the higher rate, and I am going to expand on what that rate actually is. He is right that £50,000 is not a king’s ransom these days; this should be in the phase of growth of a company as it goes on to higher levels.

I have some sympathy with my Front-Bench colleagues on the stability point. We need only think of the journey we have been on in just the last year. The former Chancellor, now the Prime Minister, declared that the rate would be going up to 25%. Then in autumn statement No. 1, it was going to stay where it was at 19%, but then we had autumn statement No.2, which confirmed that it would be going up to 25%. I was hopeful—I am sure my right hon. Friend and others were in a similar camp. I thought, “I will have a yo-yo this time; I am happy with a yo-yo. Let’s keep it at 19%.” However, my right hon. Friend makes the powerful point that stability is good. The rate might not be the one we prefer, but we can at least see to the horizon of where rates are likely to be quite a few years hence.

I want to expand on the point made by my hon. Friend the Member for South Dorset (Richard Drax) that the rise from 19% to 25% represents a 31% increase. I am afraid it is far worse than that on the marginal pound—say, if a company earns £50,001. To start at a 19% rate for up to £50,000 and get to a 25% rate at £250,000, the rate has to be more than 25% in between. The real rate on that marginal pound above £50,000 is 26.5%, so it is actually far worse. As I have said, we are going back to the bad old days where we have to divide those levels by the number of associated companies involved.

The full expensing is, of course, very welcome. I am sure that the Treasury has offered that as a quid pro quo in trying to encourage behaviour, so that companies can invest or are encouraged to invest in new plant, machinery, equipment and all the other stuff that will perhaps help our productivity gap, which we all know has been fairly poor for some time.

My hon. Friend the Financial Secretary mentioned the seed enterprise investment scheme under clause 15. There is also the old EIS, which is even more attractive to the small investor and is a means by which growth companies in early phases can get some capital from investors who may be looking for a home. The new higher levels are welcome, but I hope HMRC has the administration to cope with the applications. As my hon. Friend will know, we have had some problems with HMRC recently.

What does the message on higher corporation tax say to international investors? Big international investors will probably have a global accountancy firm that will analyse the tax rates, the deductions, the super deductions and the weave of things that go on in different countries, but the headline rate of 25% is not appealing. If a company is doing a first sort through Europe deciding where to go, Britain will not be appealing with one of the higher rates.

I worry that we are going for a sugar rush today that will lead to a deferred tax loss in the future because of the lack of domestic and international investment that otherwise might have come our way. That is a game of sliding doors—the title of a film I rather like—and one will never quite know what the future might have held, but this cannot be attractive to international investors. We raise taxes on things that are bad, such as cigarettes, to try to stop their use; why are we raising tax on something we want a lot more of?

I made a fairly lengthy speech on Budget day about the dividend tax—the dividend-free amount—and there is nothing on that in any of the clauses. I explained on the day that it has been through a story very much like the corporation tax story—up and down, with rates all over the place. We settled on the £5,000 amount of dividend-free allowance in about 2016. That did not last very long and went down to £2,000, and it is due to go down to £1,000 from next week. I stated on Budget day how I could live with £1,000 because it accords with other small amounts of income that HMRC is quite happy to disregard.

We have a disregard on trading allowance. Where someone has an eBay business that has advanced from selling the contents of the loft to doing a bit of trading, HMRC is not interested if it is under £1,000—it does not want to know and they do not have to do a tax return. A similar £1,000 allowance is in place for rent. Where someone rents their driveway out to a commuter or someone rents out their holiday home, if they are lucky enough to have one, for a couple of weeks a year, as long as the income is less than £1,000 they do not have to do a return, as no one is interested. A similar thing applies in respect of interest for basic rate taxpayers; £1,000 of interest may be earned and it does not need a tax return, as we are just not terribly interested.

The £1,000 level for dividends therefore has some common sense behind it. Obviously, as a low-tax Conservative, I would rather it were more, because this has already been taxed through the corporation tax system—it is not a deduction against corporate profits, so it is already a double tax. Reducing it further to £500 in 2024-25 breaks that £1,000 rate that we have established as reasonable. Not only that, but do we really want to drag in people who have been PAYE—pay-as-you-earn—all their lives?

We are talking about people with fairly simple affairs, who are perhaps retired and, for all the right reasons, have been in the Sharesave scheme. Let us suppose someone has accumulated a mere £10,000 over years of Sharesave in Lloyds Bank plc. The dividend from Lloyds, now that it is back paying dividends, is generally 5%. So for a mere £10,000 of Sharesave, which may have been accumulated over 20 years of work—hardly high amounts—these taxpayers, who have been PAYE all their lives, will now need to do a tax return in order to recover 8.75% on that marginal pound over £500. This seems to be unduly parsimonious, and I sincerely beg those on the Front Bench to look at it again. It will cost more for HMRC to administer these small amounts of tax receipts; there is no sensible intention here at all.

Clause 18 deals with the lifetime allowance for pensions. We are having a debate this afternoon, and Labour Members obviously think that this should be carved out just for those in the NHS and nobody else. We already have a carve-out for senior judges, and there is even a special one for the Leader of the Opposition. Why have this just for doctors? There is a saying in tax, which is that we should never allow the tax tail to wag the commercial dog, and that is exactly what has been happening with pensions: people have been retiring early and not taking up extra work because of this tax trap. I am delighted that we are getting rid of that trap. Surely a senior teacher who has been in employment for a number of years, a senior civil servant, or someone senior in the police or the armed services will be accumulating in excess of the old threshold of £1,073,000. Those very senior people are now likely to stay in post for longer, offering their services to the nation.

I could have lived with the £40,000 annual threshold, so I am delighted that it has gone up to £60,000. Why should a taxpayer—not a civil servant paid for by the public purse in any way—be penalised for good management of their pension fund? I have always found that bizarre. If they have been clever, they have had a great independent financial adviser or they have managed their own self-invested personal pension and they have exceeded that limit because of their own research and endeavours—and perhaps a bit of good luck—I say, “Good luck to them.” Why should there be a tax hit on that? Clause 20 and the annual allowance increase from £40,000 to £60,000 are therefore very welcome. The £40,000 threshold has been in place from 2014-15 and I calculated that, with inflation, it would be at £52,000 today. We have therefore done something outside the fiscal drag here, so that must be very good news. I would have thought that the Labour party, which has mentioned fiscal drag, would be grateful for that.

May I pay a particular tribute to the Financial Secretary to the Treasury, because I believe that I have had a success in this Finance Bill, and I do not get too many of those? I spotted it! It comes in clause 29, which deals with estates in administration, and in parts 1 and 2 of schedule 2, under the heading “Low income trusts and estates”. I am ignoring the complication of multiple settlements, so let us put that aside. There has been a concession by HMRC for many years that if someone had an estate in administration and the tax payable was £100 or less, HMRC did not want to know. What a lovely simplifying measure that is. However, it did not apply to small trusts, for example, where granny had left the Lloyds shares. I am being very nice to Lloyds this afternoon, so let us use a different share—

[Kit Malthouse]

Standard Life.

[Craig Mackinlay]

I thank my right hon. Friend for the prompt.

Let us suppose the Standard Life shares had been left for the grandchildren to get the capital when they are 18—I am talking about the usual little family trust. Under the changes that were made some years ago, any small amount of dividends required a full tax return, because 7.5% of dividend tax had to be found and the stopping of withholding tax on bank interest received required that to be returned. We therefore had the mad situation where people with the smallest trusts, created perhaps many moons ago for austere reasons and with parsimonious amounts, were having to do a full trust return.

I have been pushing on this since 2017, when my right hon. Friend the Member for Central Devon (Mel Stride) was the Financial Secretary, and I saw in the Bill that we are not going to have the £100 disregard on tax and that there will be a £500 income in total disregard. Thankfully, these small trusts will be able to save their accountant’s fees, if they had even thought they needed one thus far. I hope that this measure will have a degree of retrospection and HMRC will not be raising £100 fines and more all over the place for the granny trusts with a few Standard Life shares in them. This could have been achieved just by HMRC practice or an old-fashioned extra statutory concession, but it is being done legislatively and I am delighted about that.

So we are up to clause 29 of the 352 in the Bill. Members will be grateful to hear that I will leave it to others to comment on the alcohol duty changes, which range from clauses 44 to 120. So we have cut out a good amount there, Mr Deputy Speaker. What I am going to say now will perhaps be aired by others this afternoon. There was nothing on Budget day—not even the barest word—about these OECD pillar two proposals. To the Financial Secretary’s credit, she did mention them, but perhaps rather more briefly than required, given that half the Bill relates to them. In easy terms, as the Bill mentions, this is about the “multinational top-up tax”. It sounds cosy, does it not? Additionally, between clauses 265 and 312, there are measures on the “domestic top-up tax”. The House might be pleased to know that I am now up to clause 312 of 352. I have, constitutionally, an extreme disquiet, not about the proposal itself, but about what such a major international treaty commitment is doing within a Finance Bill. This has far-reaching consequences for UK corporation tax rules, yet it has been barely mentioned before today, and it is in a Finance Bill when it should be standing alone as an international treaty.

What worries me further, and it has been raised in interventions, is that most of the rest of the world is saying, “Thanks, but no thanks.” It seems that only the UK and South Korea are making substantial progress on this. I know that Switzerland, Holland, Germany and Japan have begun drafting, but 100 other countries are doing absolutely nothing at all at the moment and the EU has allowed a six-year run-on for the directive to take full effect. Four countries—Hong Kong, Thailand, Singapore and the USA—are saying that it is not for them at all.

Why, having had multiple years of Brexit battles, which were, at their core, over the sovereignty and independence of this nation, would we wish to outsource our own international corporation tax affairs to a supranational body? We are already having battles in the House with the Illegal Migration Bill about how the 1951 convention and the ECHR obligations are coming home to roost. Those conventions and treaties were signed with the best of intentions at the time, when the world was a rather different place, but they are now coming home to roost in ways that we perhaps did not expect.

The manifesto commitment on which I and every Conservative MP stood in 2019 was to take back control of our money and our laws. To see us almost unilaterally adopting this international accord on corporation tax seems rather strange. I am afraid that we are seeing rather a lot of this, including in terms of climate change commitments. We seem to be promoting a Betamax when the rest of the world is waiting for the VHS to come down the line. Being first in the field is not always the best place to be.

Perhaps it is thought that this will be a new tax-raising measure—I have seen it written that £2 billion could be raised by it. I stand to be corrected, but over many years Finance Bills have had substantial anti-avoidance legislation to stop transfer pricing. That has been the feature of much tax legislation over many years, which I would have thought would catch and overcome any mischief on low-tax profit shifting. But will this actually raise anything? I wonder what the OECD is trying to achieve. Will low-tax jurisdictions, particularly those involved in the insurance industry, just sit back and say, “Oh well, profits will be taxed up the line in the UK or elsewhere”—a very limited number of companies are taking this onboard—or will they raise tax themselves? That seems the obvious place they will go, but there is a conundrum. Much of the legislation is to do with how we calculate that profit. We have our means of calculating profit according to our corporation tax law, and other countries do the same. This is trying to overlay a determination of OECD profit out of the books and records of large, multinational corporations in the UK. That is what this is all about. It is about trying to create a new form of profit.

We have seen that—I have commented on it in the past—in something that is quite simple: whether one qualifies for support for childcare. We have three forms of calculation of profit in our tax code relating to the simple sole trader. That is the normal taxable profit in accordance with our tax law. We have a different assessment—it is marginally different—for calculation of profit to qualify for universal credits. Then there is something completely different, if someone wants to calculate their due profit for qualification of child help and support. Therefore, we are overlaying more complication on that OECD framework.

[Kit Malthouse]

Again, I draw attention to my entry in the Register of Members’ Financial Interests. Does my hon. Friend think that there is a risk that countries may seek to manipulate their tax code in such a way that, while their headline rate might comply with the international minimum, the effective rate could be manipulated by the creation of all sorts of bonkers and crazy allowances, as we have seen in the past? We have full expensing of capital. That is fine for a capital-intensive company, but we have lots of items that are disqualified for corporation tax, which could be allowed if we wanted to make the effective rate lower than the minimum 15% in future. In many ways, that encourages even more gaming of the system by countries, rather than the system that we have at the moment, where it is a bit more transparent, if indeed complex.

[Craig Mackinlay]

My right hon. Friend highlights the problem that different countries could indeed game the system. The peculiarity here is the domestic top-up tax. Even if, under the UK calculation of profit, a business had a profit rate of more than 15%, it could be under 15% using the OECD way of calculating profit and therefore there would be a top-up tax. That is truly perverse. In accordance with UK tax law, perfect rates of corporation tax are being paid, but because it does not comply with these new strictures, of which there are hundreds of pages in this legislation, someone could find themselves paying a domestic top-up.

My concern is whether we will see a rash of new statutory instruments, as we have new external nation-UK tax treaties needing to be looked at and unwound. I wonder, too, whether any thought has been given to potential trade deals; I am given to understand that the US is looking quite negatively at countries that are looking to implement the OECD pillar 2 proposals.

I am just about to conclude, which I am sure will be a great relief to many. What would I like those on the Treasury Front Bench to look at carefully before we get to Committee stage, Report and beyond? I recommend that we strip out the multinational top-up tax clauses, or implement what other hon. Friends have suggested, a start date more in accordance with when the rest of the world thinks this is a great idea as well. Otherwise, as I have said before, we could be buying the Betamax when we should be waiting for VHS.

These measures occupy half of the Bill. I would like to hear assurances that for 2024-25 we can have the £1,000 as a general disregard threshold applied to dividend taxes under a simplification measure. However, given that the Bill runs to such a huge volume, I would like to hear more about how we are going to replace the Office of Tax Simplification. I think it would be fair to say that I know many of the characters in there—there were a number of ex-presidents of the Chartered Institute of Taxation. I do not know quite how wide a remit they had, but one has to assume they did not really get very far with tax simplification.

When I qualified as a chartered accountant in 1991, there was big talk about the tax law rewrite to change seven pages explaining first in, first out with perhaps one word, FIFO. We have a lot of verbiage in our tax system, and to address and simplify the 23,000 pages would aid everybody. Those are my brief observations on the Finance Bill.

[Mr Deputy Speaker (Sir Roger Gale)]

I notice that my two predecessors in the Chair this afternoon have paid tribute to Baroness Boothroyd, and I would like to do the same. Betty was one of the two great Speakers of my parliamentary lifetime, the other being Jack Weatherill—that is excluding the current Speaker, of course, who will no doubt take his own place in those annals. Not all Speakers have a facility with names and faces, and Betty freely admitted she was one who did not—something you may have noticed I sometimes suffer from myself. She just used to say, “You, lovey—no, no, not you, lovey; you, lovey.” Happily, I can remember Stewart Hosie’s name.

Stamp Duty Land Tax (Reduction) Bill

Lord Mackinlay of Richborough Excerpts

Committee stage
Tuesday 10th January 2023 Commons Chamber

[Abena Oppong-Asare]

In fact, the statistics quoted by the hon. Member show that the Bill will not help people. It will not help first-time buyers, and it is not just Labour Members who are saying that: the Resolution Foundation has provided statistical evidence that it will not help them. We want to help first-time buyers as well, but this is not the right solution. It will be mainly second and additional homes that benefit. Our two amendments would amend Government amendment 1 to remove the relief for buyers of additional dwellings, and would remove clause 1 (3), which raises the threshold for them. They would prevent the Bill from giving relief from stamp duty to buyers of second homes. I hope the hon. Member will support our proposals, particularly our amendment to enable first-time buyers to get on to the ladder as he wishes them to do.

As I have made clear, we do not believe that this stamp duty cut is the right or responsible way in which to spend £3.2 billion of public money, but if the Government are not willing to cancel the cut altogether, I urge Conservative Members at the very least to support our amendment to prevent second home buyers from receiving a £2,500 tax cut.

New clause 1, which Labour has also tabled, requires the Chancellor to be up front and transparent about the costs of the partial U-turn on the stamp duty cut, and to set out the measures that the Government will take to mitigate the impact of the abrupt end of the stamp duty relief at the end of March 2025. We know from the Government’s policy paper on this tax change that His Majesty’s Revenue and Customs will have to incur costs in the region of £300,000 to change IT systems, and about £2.4 million in extra staff costs. That is ridiculous. Through new clause 1, we aim to push Ministers further by asking them to set out specifically the costs of implementing their U-turn

“for the Government, the property industry, and homebuyers”,

as well as

“any wider costs and impacts of the change…on the housing market”.

We are also asking them to set out the measures they are

“planning to ease the impact on tax revenues, home purchases and the housing market of the reduction in stamp duty…coming to an abrupt end on 31 March 2025.”

We know from Government amendment 12 that Ministers are introducing measures to ensure that transitions that straddle the end of the temporary relief benefit from the reduction, but the question of the impact of ending the stamp duty relief goes much further than that. In 2016, the Office for Budget Responsibility published a paper on property tax changes and forestalling when transactions are brought forward to benefit from lower tax rates. The OBR found that in each historic case that was analysed, the preannouncement of an upcoming tax increase led to a sizeable forestalling. Forestalling is therefore expected to be an important issue in relation to the end of the temporary stamp duty cut, and we urge the Government to set out the measures they are planning ahead of that. If they are not willing to accept our new clause 1, I urge the Minister to set out the detail that we request, either at the end of the debate or subsequently in writing.

When our country is suffering the consequences of 13 years of low growth and of the Conservatives’ economic chaos at the end of last year, now is not the time to be spending £3.2 billion on this tax cut, particularly when hundreds of millions of pounds will go to the buyers of second homes. We urge Members in all parts of the Committee to support our amendments to remove the tax cut for second-home buyers, and to join us in opposing the Bill on Third Reading.

[Craig Mackinlay (South Thanet) (Con)]

I think that the Government have made a number of admissions today about the importance of property taxes, and stamp duty land tax in particular. During the covid period we used a reduction to try to stimulate the market and keep it afloat, for good reasons. I heard what was said by the hon. Member for Westmorland and Lonsdale (Tim Farron). There are often flipsides, downsides and unintended consequences from tax changes, but the implicit admission from the Minister was that lower stamp duty encourages market transactions. In my mind that has to be a good thing, because property sales refresh housing stock. I imagine that the first thing any of us who are lucky enough to own a property will do when we purchase it is to do stuff. We might improve the bathrooms—or whatever we fancy, if pockets are deep enough—but those transactions that we make with local builders and others add to the local market. They add jobs, and there are VAT revenues and profits for B&Q and elsewhere. This all comes with it.

A trap that the Liberal Democrats and the Opposition Front Bench fall into is that they do not see tax as a game of chess. Too often we—the Treasury included—see tax as a one-step move: if we do this, it will create just that. It is far more complicated than that, because there are other outcomes in terms of economic activity that are not always recognised. But the strict admission by the Government Front Bench today is that lower stamp duty makes the wheels turn, and that has to be to the good.

We are currently seeing a modest reduction in house prices, so this type of measure to reduce stamp duty is very much to be welcomed, but I have a rather more long-standing objection to SDLT and to this form of capital tax generally, but most particularly to SDLT, because it stops labour mobility. If one of my constituents, someone with a family, were offered a job elsewhere in the country, the most natural thing would be to sell their property and move to that new area. But when they are faced with a stiff bill for SDLT, they have to be doubly or triply sure that this is the right move, because it is likely to cost tens of thousands of pounds. It worries me that people are not taking up roles elsewhere because they need to be absolutely sure. What probably happens is that they take a rental property elsewhere to get a feel for the area and find out whether the job is right. That is not helpful for their family life in the longer term.

The Government Front-Bench team made another admission this afternoon. Not surprisingly, the Minister announced with great fanfare the very good news that in vast areas of the country, the majority of transactions will fall outside of stamp duty. That is particularly true for those buying a property for the first time. We often talk about tax, and people’s idea of fairness will probably be different depending on where they sit in this House, but can it really be fair that a constituent in South Thanet who is trying to purchase a modest property will face this SDLT charge just because they are in Kent in the south-east, whereas someone buying the self-same kind of property in another part of the country will not pay that tax at all? I am not entirely sure of the fairness of that. I would rather that everyone paid a similar amount in a property transaction, possibly based on the size of the property.

Another area that I have discussed with many colleagues over the years, including at a few roundtables, is retirement mobility. Too often, people who have lost their partner, a husband or wife, are stuck in their old property. We are very much aware of the cost of heating that type of property. They do not have the ability to do more work to increase their annual income, and they are stuck in a property that is too big for them, with all those memories of old. They realise that they really ought to move somewhere smaller that is more energy efficient and closer to services. However, if they live in an area of the country that is expensive, they might find an ideal property that is smaller and has all those good things, but there will be a very big SDLT charge.

I know the thoughts of older people, because I have had these discussions with my father and friends, and when they look at the potential bill just for doing the right thing through retirement mobility, they often say, “Do you know what, I’m not prepared to pay it. I’m just not going to pay £10,000 or £20,000 or whatever the price may be to do the right thing.” They do not want to pay that much to move somewhere more appropriate for older living.

I implore the Minister to receive a document from me and to have a conversation about the concept of a downsizing relief for older people. It could be fixed to retirement age, when people’s ability to earn has gone because they have retired. Perhaps they could get some credit, such as free stamp duty, for doing the right thing in moving to a smaller home, which is sensible for them, the family and everyone else. In so doing, they would be releasing those bigger homes for the families who need them.

The Growth Plan

Lord Mackinlay of Richborough Excerpts

Friday 23rd September 2022 Commons Chamber

[Kwasi Kwarteng]

If bankers are working in London, they are taxed in London; if they move out of the UK, they are taxed elsewhere, and we do not see a penny of tax revenue. Financial services are not just about the City of London; they are also provided in Edinburgh and a whole range of other towns. We have to be at the apex of the global financial system. We have to attract the talent, then we can tax it and use the revenue for public services.

[Craig Mackinlay (South Thanet) (Con)]

May I offer the Chancellor my congratulations on his growth plan? He will know of my interest in tax; the Register of Members’ Financial Interests will show it. I am delighted to see lower and simpler taxes. I think it is fair to say that the Conservatives’ inheritance of the claim to be a party of low taxes had become somewhat opaque and confused in recent years. Does he agree with my simplistic summary of what he is saying today: that this party believes in taking a smaller percentage out of a bigger pie, rather than in the state nicking more from a static and diminishing pie? The latter seems to be the message of the Opposition parties—except for the Democratic Unionist party, of course.

[Kwasi Kwarteng]

We openly repudiate a socialist vision of society. We do not believe that the state should take more and more of people’s income. We think that people should keep more and more of their earnings.

Energy (Oil and Gas) Profits Levy Bill

Lord Mackinlay of Richborough Excerpts

Committee stage
Monday 11th July 2022 Commons Chamber

Let us take a step back from the details. We simply do not believe this tax break is right; it undermines the windfall tax, it does not even work on its own terms and it flies in the face of the urgent need to respond to the climate crisis. That is why we have tabled amendments 2 to 7. When we conclude this debate, we intend to vote against clause 2 to remove this tax relief in its entirety. For months, we have opposed the Government’s tax rises on working people. In the past few days, we have heard Conservative leadership candidates talking a lot about tax cuts. If potential Tory leaders refuse to back us tonight, one of the very first votes they cast since launching their campaigns will be to cut taxes for oil producers. If they keep refusing to back us tonight, they will be opposing our fully funded plan to cut VAT on home energy bills. That will simply confirm what we all already know to be true: that changing the person at the top of the Conservative party is not going to change anything at all. We need a change of Government, and that means we need a Labour Government.

[Craig Mackinlay (South Thanet) (Con)]

I was asked on 26 May by one of the main newspapers what I thought about this proposal of a windfall tax, on the back of what Labour had proposed some time before. I gave this fairly high-octane statement:

“Whichever way you look at it, a 65% tax rate applied to an industry that we need to encourage to help us through our energy policy mess seems topsy-turvy.

Higher taxes can never mean lower prices.”

And this was the statement that caused some alarm and was widely reported:

“All in all, I’m disappointed, embarrassed and appalled that a Conservative Chancellor could come up with this tripe.”

With the change of Chancellor, I had hoped that we would have quietly disposed of the Bill and not progressed to Second Reading. It should sensibly have been scrapped, but although the former Chancellor has gone, the Chief Secretary to the Treasury, my right hon. Friend the Member for Middlesbrough South and East Cleveland (Mr Clarke), is still here and presented the Bill this afternoon. I fully understand public disquiet about the supranormal profits that have been earned by the oil and gas industry over the period. The hon. Member for Ealing North (James Murray), who speaks from the Labour Front Bench, has made those points, which form the backbone of some of Labour’s new clauses.

The comments of various chief executives of the oil and gas industry—calling their profits “cash machines” and all that—were particularly unhelpful; they did not do themselves too many favours. Such companies lost similar amounts of money during covid, when, as we all recall, the gas and oil price completely collapsed. Owing to storage issues, there were a few days when oil was trading at a negative rate, which was rather bizarre; I wish I had had a few barrels to fill at the time.

We already did some rather strange things in years past. Under the Finance (No. 2) Act 2017, we restricted the carry-forward of losses. There is an allowance of £5 million, but the amount of profit that can be relieved with carried-forward losses is restricted to 50% on the rest. We have created a tax regime whereby we are happy to take the profits and tax them, but we are not willing appropriately to relieve the losses, and I am not sure that any of Labour’s new clauses would address that.

I have had discussions with various Front Benchers prior to today. Labour has objected to many parts of the Bill, because in its analysis of life—shadow Ministers have given quite a lot away— anything less than taking 100% of everything is a loss of tax. I am not sure that it was quite what the hon. Member for Ealing North intended to say, but he clearly suggested that that is Labour’s view of tax: it is necessary to take the lot, as anything less is a sort of tax give-back.

[Geraint Davies (Swansea West) (Lab/Co-op)]

The hon. Member may know that over the last few decades, the five biggest oil companies have made $2 trillion of profit, and the profit that they have been making is over the normal operational costs. What we have now, thanks to Putin’s war, is a massive price hike. That windfall profit is literally that—the companies have done nothing to earn it; they have simply stolen money from the pockets of people using transport and filling their cars. Is the hon. Member saying that that theft should simply be kept by the oil companies, which have done nothing other than exploit an illegal war? What sort of statement is that?

[Craig Mackinlay]

The hon. Gentleman has merely clarified what I have been trying to say; yes, of course there were supranormal profits on the back of Ukraine war and coming out of covid, when the entire planet was getting its factories back up and running and life was returning to normal. I had hoped I was making the clear point that there were substantial losses by similar companies in years past. Given the hon. Gentleman’s analysis, I assume that grain wholesalers would face a similar tax from Labour. Semiconductor manufacturers supplying their goods from South Korea would similarly, through artificial means, have earnt good profits at this time. It seems that the Labour party would definitely want to tax everybody on anything that it considered to be an inappropriate amount of profit, whatever that might be.

I have a number of objections to the levy. Labour’s new clauses 7 and 8 go some way to clarifying a little of what I am saying, although I will not support them tonight. Let me turn to the relevant North sea businesses that will be caught by the levy. Since 1 January 2002, we have had the ringfenced corporation tax at 30%—more than our current headline rate of corporation tax. The supplementary charge, which goes on top of that, has been up and down over the years. It commenced on 17 April 2002 and peaked during the coalition period—very relevantly, between 24 March 2011 and 31 December 2014 —at 32%. Of course, the then Department for Business, Innovation and Skills was held by the Liberal Democrats in the coalition, so that gives us a little insight as to what they think of tax: it is generally a high one.

We had a 62% tax during that period, but immediately prior to this legislation the supplementary charge had been down to 10%. We were bobbling along with massive profits and were taking 40% of the total to the Treasury. Whichever way I look at it, I see that as a goodly rate of tax. However, under clause 1, which has just been outlined by the Financial Secretary to the Treasury, my right hon. and learned Friend the Member for South East Cambridgeshire (Lucy Frazer), this new energy profits levy is 25%.

Let me be very clear about my objections: a 65% tax rate is excessive in any tax regime. We are asking the self-same companies to go all out—“Please go all out!”—for more oil and gas in the North sea at this time of energy crisis, energy insecurity and very high prices. Why have they not, thus far, explored those parts of the North sea that we are now asking them to explore? It is because they are more complicated, deeper and more hostile environments. The profits derived from those tougher locations—the higher hanging fruit, rather than the lower hanging fruits—will be less, as the costs are higher.

I am aware of what I perceive as the tax nudge, but I am afraid that it is a little bit like Baldrick’s cunning plan. We are trying to nudge companies—this is about the only good thing about the Bill—by saying, “You make the right investments to get more oil and gas out of the North sea that we desperately need, and we will give you a very substantial tax relief.” And that tax relief is substantial, at 91.25%. I am afraid that the Chief Secretary to the Treasury has let the cat out of the bag; if that is the Baldrick cunning plan, which I can see the benefit of, how can we have estimated £5 billion as the amount of tax to be raised? That cunning plan is not going to work fully; many companies will not take the option of relieving the variety of taxes that are now before them, they will not invest, and we will be taking £5 billion out of the industry.

We are not only asking the companies to undertake new investment in the North sea. We are asking them to undertake some rather fresh thinking and research, with unknown outcomes, on the net zero pathway. I know for a fact that BP is doing a lot of work in this field—its people have been in one of the dining rooms of this House—and good luck to it, but as has been highlighted by the Labour Front Benchers, there is nothing in the Bill that nudges such investment in the net zero field.

“Profit” is not a dirty word. Profits pay our salaries, every salary of every civil servant, and every single pension in this country; they are all on the back of profits. “Profit” is a good word—a word that makes the world turn. Another objection I have to the levy is that the self-same companies, which are earning good profits, are the backbone of many blue chip investments that can be found in practically every pension fund in the land, because they are good dividend payers. Millions of pensioners rely on those dividends—a long and usual flow that can be relied on year in, year out. By the Government taking the extra 25%, those dividend flows will have to be lessened. We cannot take another 25% out of a profit and expect the dividends to flow at the same rate.

--- Later in debate ---

[Alan Brown]

Is the hon. Member seriously saying that the companies that currently work in the North sea—companies that are environmentally responsible, take workers’ rights very seriously and look after their workers—might just move somewhere else in the world and give up on workers’ rights and the environment? That does not sound like responsible companies, yet that is what he seems to be saying they would do.

[Craig Mackinlay]

I am saying very clearly that big companies can make investments anywhere they please in the world, perhaps with tax regimes that are more suitable to them and where they are not being taxed at 65%. I would rather that they were investing here and staying here than going abroad to invest, with all the potential consequential impacts on the environment and employment. It seems that the hon. Gentleman agrees with me.

[David Duguid (Banff and Buchan) (Con)]

I rise in response to the hon. Member for Kilmarnock and Loudoun (Alan Brown). I declare an interest: I used to work for BP. I worked in the oil and gas industry for 25 years. I worked for BP in the North sea in this country, and in Angola, Venezuela and a range of different places. I worked for other companies in other countries as well. It is true that these companies have made their bread and butter in this country, and cut their teeth in the North sea, particularly from a safety point of view. The hon. Member for Aberdeen South (Stephen Flynn) mentioned Piper Alpha, which led to our having one of the highest regulatory regimes on the planet. It is not true to say that companies abandon that when they work elsewhere; it does make it a lot more difficult for them to work in those environments, but it does not stop them.

May I take the opportunity to totally agree with what my hon. Friend was saying before? This legislation, for all its flaws, compared with what Labour is proposing—

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

Order. The hon. Member for Banff and Buchan (David Duguid) will resume his seat. We are getting interventions on interventions, because the interventions are perhaps a little long, and people are mistaking them for speeches. Please remember that interventions are supposed to be quite short.

[Craig Mackinlay]

Thank you, Dame Rosie, for clarifying that. I think that we will find that the hon. Member for Aberdeen South (Stephen Flynn) was being a touch facetious.

[Caroline Lucas (Brighton, Pavilion) (Green)]

Will the hon. Member give way?

[Craig Mackinlay]

I had not developed a point, but, please, make an intervention.

[Caroline Lucas]

I am grateful to the hon. Member for giving way—I am intervening on a previous point on which he was intervened on. Is he aware that the 65% tax that the Government are proposing is still below the global average? The figure in Angola is actually higher at 70%, so there is not any real logic to what he is saying. These oil companies are already operating in places where the tax is higher.

[Craig Mackinlay]

Let me take a couple of those points. The hon. Lady makes the point that tax rates on the oil and gas industry are higher elsewhere in the world. Well, that may be the case. I know that some will be fundamentally opposed to the whole concept of being energy secure in the UK. Gas, in my view, is part of an interim solution as we get on the path to net zero, but it is a fact of life. I do not have an awful lot of time for the output of the Climate Change Committee, but even it is saying very clearly that we will be using gas and oil up to 2050 and probably beyond. My view is that that gas and oil should be sourced in the UK. Hence my support for the nudge part of this legislation, which may encourage businesses to stay here and invest here.

I did not address properly the point from my hon. Friend the Member for Banff and Buchan (David Duguid). He makes the point that we have the most fantastic environmental standards not just in oil and gas technology, but in practically everything that we do in the manufacturing space in the UK. There will be very few regimes around this world that have such high standards. On the issue of methane venting, which we have not really addressed, I can be absolutely sure that, with a very robust and advanced regulatory regime, the advanced oil and gas companies of this country will be telling the truth and doing the right thing rather more than may be the case elsewhere, and I think we have to accept that as a fact of life.

[Caroline Lucas]

First, the hon. Member seems to think that just because gas is exploited in the UK, it will get used in the UK, yet he must know that it gets sold on global markets and therefore might get used anywhere. Secondly, he talks about our environmental standards being higher than others. He will know that we get most of our gas from Norway, where, actually, its carbon footprint is significantly less than it is here in the UK. His argument just does not stand up.

[Craig Mackinlay]

I am so delighted that the hon. Lady has expanded this debate. This is not somewhere that I wanted to go, Dame Rosie, but I think it is my duty to respond to the intervention. Surely it is obvious, no matter where on the spectrum on net zero we are—I am obviously on the rather more critical part of that spectrum—that we will be having gas in this country. We have a choice: do we import it halfway across the world on a liquefied natural gas ship, with the CO₂ cost of chilling it, transporting it and regasifying it, or do we try to do that domestically?

[Caroline Lucas]

We sell it on international markets.

[Craig Mackinlay]

If I may, Dame Rosie, I will address the hon. Lady’s questions. On international markets, I do not know any more about economics than this: if we add more capacity to any system, the price should drop. Even if her view of economics holds water and the price does not drop, which I think is the basis of what she is saying, would I prefer the pounds of gas revenue to be at least retained and spent in the UK, or do I want to export those pounds to Qatar? I do not think there is much choice, and the answer is obvious.

I will finish now, Dame Rosie—I am sorry for the time I have taken, but I am grateful for your indulgence. If we take up this type of proposal of penal taxes that can be changed within a month, we will lose in future deferred taxes the opportunity cost of investment. Big companies will say, “Do you know what? The UK is not a place for good investment. I think I will take my money elsewhere.” We may get £5 billion out of this tax as a windfall, but over time, in my view, we will lose more than £5 billion in the lost opportunity of businesses being attracted to the UK.

I have never believed, as has said in the House this afternoon, that the investment plans of the big oil and gas companies will be unaffected by this. I have been having discussions with them. There are already signs that they are scaling back their investment activities to the detriment of UK energy security, and I am afraid this Bill does not help with that all. If there is a Division on Third Reading, I will be voting against the Bill this evening.

[Stephen Flynn]

Repetition is of course a convention of this House, but I am not much for many of the conventions of this House, so I do not intend to say much more than I did earlier about the Bill in general. I will just reflect very briefly on the amendments in my name and the names of my hon. Friends.

Amendment 9 relates directly to the electrification of North sea assets. We have heard comforting words about that from two Ministers now. I am sure the Minister for Energy, Clean Growth and Climate Change, now sitting beside the Financial Secretary to the Treasury, would agree that it will be in guidance that the electrification of assets will be able to get the taxation incentives. We cannot escape the fact that Ministers come and go, as we have seen so clearly in this place over the course of recent times, but what industry needs in relation to this issue is certainty. The best way—the only way—to provide certainty on the electrification of grids is to put that on the face of the Bill.

I agree with the hon. Member for South Thanet (Craig Mackinlay) on one point he made: it is deeply disappointing that there is not additional scope for the wider renewable sector to get these incentives. If the Government were serious about combating climate change and reaching their net zero ambitions, they would have extended those incentives to that industry.

That takes me on to new clause 6, again in my name and those of my hon. Friends, which aptly relates to net zero. The Government have rightly promoted, and will continue to promote, climate compatibility checks. I think we all in this place agree about those. What we need to be clear about, however, is the implications of this Bill for reaching net zero. The easiest, indeed the obvious, way to do that is to ensure that those climate compatibility environmental checks take place in relation to any investments. I thought that would be a very straightforward thing for the Government to agree with, and I hope they will do so.

Finally, in relation to new clause 7, I have teased this argument out on a couple of occasions in exchanges with Ministers: we know there is going to be a sunset clause on this levy, to end it in a couple of years’ time. However, the phrase “normal oil and gas prices” keeps being used again and again. We heard inferences from the former Chancellor that somewhere around $60 to $70 a barrel was normal. I just did a very quick calculation of prices. Between 2015 and 2021 the price was $56 a barrel, but between 2010 and 2015 it was double that, at $101.4 a barrel. I again ask the Minister—[Interruption.] Indeed, oil and gas is a good argument for independence.

Customs (Amendment) (EU Exit) Regulations 2022

Lord Mackinlay of Richborough Excerpts

Monday 14th March 2022 General Committees

[Craig Mackinlay (South Thanet) (Con)]

It is a pleasure to serve under your chairmanship, Mr Sharma. Perhaps the Minister could explain the benefits of the regulations? I understand that they are technical, and I am sure that the intention is to solve the mischief of the back-door route via the Republic into Northern Ireland and GB, but I will read what it says in the Northern Ireland protocol. In the preamble it is pretty clear that

“Northern Ireland is part of the customs territory of the United Kingdom and will benefit from participation in the United Kingdom’s independent trade policy”.

Article 4 says very clearly:

“Northern Ireland is part of the customs territory of the United Kingdom.”

I am sure it comes as no surprise to the Minister that when we see a statutory instrument of this type, which highlights a difference of approach in customs arrangements under section 63 of the CEMA—I have looked it up—then that raises alarm bells when a part of the United Kingdom, accepted in the protocol as fully and absolutely within the customs union of the United Kingdom, is treated separately from the UK as a whole.

Those are my concerns. If the Minister could lay them to rest, I might be in a different situation. However, as things stand, the SI almost exemplifies the difference that we need to be solve, not expand. Such SIs seem to expand and highlight that difference, particularly in the light of the recent court judgment in Northern Ireland and the fact that the Act of Union highlighted a long, long time ago—200 years ago or thereabouts—that there were complete and absolute freedoms to conduct business between any part of our Union, with no differences in tariffs, arrangements or anything else.

However, it would seem that the protocol, with its flaws, is being shown up as rewriting parts of that ancient Act of Union, with which we are all very familiar. Changes to the Act of Union seem to have crept through the back door, and that was not the promise that was given. Such statutory instruments make alarm bells ring in my head that we are not terribly serious about getting a proper solution to the protocol. Instead, we are giving into the inevitable and simply have to lump it, and I say to my respected right hon. and learned Friend that I really do not want to lump it. I have grave concerns about the statutory instrument and the direction in which things are going.