National Insurance Contributions Increase

James Murray Excerpts

Tuesday 8th March 2022 Commons Chamber

[James Murray (Ealing North) (Lab/Co-op)]

Today, we have heard from hon. Members representing people across the country about why it is so important that the Government cancel their national insurance hike on working people and their jobs. My hon. Friends the Members for Merthyr Tydfil and Rhymney (Gerald Jones), for Easington (Grahame Morris), for Vauxhall (Florence Eshalomi), for Ellesmere Port and Neston (Justin Madders), for Cynon Valley (Beth Winter), for Birkenhead (Mick Whitley) and for Liverpool, Riverside (Kim Johnson) all spoke powerfully about how so many of their constituents are struggling with the costs of living and how those pressures have been rising rapidly in recent months. My hon. Friends the Members for Sheffield South East (Mr Betts), for Salford and Eccles (Rebecca Long Bailey) and for Luton South (Rachel Hopkins) spoke about the fundamental unfairness of the Government’s approach with their national insurance hike.

In September last year, the Government pushed their national insurance hike through Parliament in a day. From the very start, it was clear that this was a deeply unfair tax hike that would hit working people and their jobs. We urged the Government to think again and reverse course, but they refused do so, and they have kept refusing to reverse course, despite people facing mounting difficulties in making ends meet. Inflation, already at its highest rate in decades, is forecast to hit 8% in April. Energy bills that have been rising rapidly are set to soar next month, and now the crisis in Ukraine will bring even greater pressure on the cost of energy, petrol and food. Yet in four weeks’ time, the Government’s tax rise will kick in, costing the average family £500 a year. It is the worst possible tax rise at the worst possible time.

Back in September when the Government pushed this tax rise through Parliament, we immediately knew how unfair it would be. The Government’s own published assessment of this tax rise made that clear. Their tax information and impact note, which Ministers had to approve, set out what effect this tax rise would have. The note looked at this tax rise from a number of angles, including how it performed against the Government’s so-called family test. As hon. Members may remember, the family test was introduced by David Cameron in 2014. When the then Prime Minister announced this new test, he said he wanted to

“strengthen and support family life in Britain”.

His plan to do so was to make sure that

“every single domestic policy that government comes up with will be examined for its impact on the family.”

That test was applied to the national insurance increase last September, and the outcome of that test was to warn of

“an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce.”

That warning alone should have given Conservative MPs reason to stop in their tracks and think again. They should have stopped and listened to the Institute for Fiscal Studies warning of this tax rise involving

“a large, unjustified and problematic bias against employment and labour incomes”.

They should have listened to the TUC general secretary, Frances O’Grady, warning of the hit faced by young and low-paid workers with this tax rise. They could have listened to any of the many voices against their plans, as the impact of this tax rise on people’s ability to make ends meet was clear back in September.

The impact on jobs and businesses was clear then, too. Again, the Government’s own assessment made that clear. It admitted the tax rise would impact on business decisions on wage bills and recruitment. The Federation of Small Businesses described the tax rise as

“devastating for small businesses and the local communities they serve.”

The British Chambers of Commerce described it as a

“hammer blow to jobs growth”.

Despite all those warnings, the Prime Minister and the Chancellor refused to think again. The Conservatives refused to listen to our calls for those with the broadest shoulders to contribute more. Their response to the low-growth, high-tax economic cycle they have created was to make working people foot the bill.

Even if some Conservative Members managed to hold their noses and vote with the Prime Minister and the Chancellor last September, it is astonishing that they still feel able to do so after all that has happened since then. Energy bills have been rising fast and now are set to soar. We know that energy bills will rise by an average of more than £600 this April. Inflation is already—[Interruption.]

[Madam Deputy Speaker (Dame Rosie Winterton)]

Order. I said this a few minutes ago but as I have a larger audience I think it is worth repeating. We have been having a debate, the shadow Minister and the Minister are responding to that debate, and hon. and right hon. Members want to hear what they have to say. I hope those present will do them the courtesy of being quiet, so we can listen to the shadow Minister first and then the Minister.

[James Murray]

Thank you, Madam Deputy Speaker. As I said, if Conservative Members managed to hold their noses last September to vote with the Prime Minister and the Chancellor, it is truly astonishing that they still feel able to do so now after all that has happened. Energy bills have been rising fast and are set to rise by more than £600 in April. Inflation is at its highest rate in decades and is set to rocket to 8% next month.

What is more, the Government’s arguments that they need this money for social care have been left in tatters. Not only have they failed to produce a plan to fix social care, but we know that Ministers looked the other way as billions of pounds of public money were handed out to fraudsters and written off. They ignored the warnings on fraud, they were careless with waste and they are now expecting working people to foot the bill for their mistakes.

If that was not bad enough, it is now clear that private sector workers will be asked to pay twice. As our new analysis shows, private sector workers will face a double whammy as almost all the rise in their employers’ contributions is set to be passed on to workers through lower wages.

Ministers, and indeed some of their Back Benchers, often try to pretend that the cost of living crisis is entirely the result of global factors, but that argument simply does not hold true. Most damagingly, it ignores the fact that the Government could, and should, be doing far more to help people to make ends meet. The truth is that decisions by this Government over many years have left us uniquely exposed to rising gas prices. From cutting gas storage, to leaving our homes poorly insulated and failing to invest in renewables and nuclear, this Government’s approach means that rising energy costs hit people in the UK much harder than they should.

The truth is that the Government have failed to step up and offer people the help they need with energy bills now. Labour’s plan is to give everyone £200 and those in greatest need £600 to help to meet energy costs. That would be funded with a one-off windfall tax on North sea oil and gas producers’ profits. The alternative from the Chancellor is to land everyone with a buy now, pay later loan and to announce a council tax rebate that some of those in the greatest need will never even see.

The truth is that, when it comes to the tax rise we are debating today—an unfair tax rise on working people, a tax rise of £500 for the average family, a tax rise on businesses and jobs—the responsibility begins and ends here. Conservative MPs voted six months ago for that tax rise. Last week, the Minister admitted to me that the Government recognise the impact the tax rise will have on working people. Today, they have a chance to change course.

Today, we are asking all Members to join us in asking the Government to think again. When the Government first introduced this tax rise on working people and their jobs, it was blindingly unfair. Far from asking those with the broadest shoulders to contribute more, the Tories showed their true colours and went straight for a tax rise on 27 million working people. Since then, the case against the tax rise has got stronger and stronger. With energy bills rising and about to soar and with inflation set to hit 8%, the struggle for millions of people to make ends meet is getting harder by the day. Now is the time to change course and help people to face the tough months ahead. Now is the time to send a message to the Chancellor ahead of his Budget on 23 March. Now is finally the time to do the right thing and cancel this unfair tax rise.

National Insurance Contributions Bill

James Murray Excerpts

Consideration of Lords amendments
Tuesday 1st March 2022 Commons Chamber

Lords amendments 10, 11 and 12 relate to changes the Government are proposing in response to the Delegated Powers and Regulatory Reform Committee’s report on the Bill. These Government amendments, tabled in the other place, provide for additional parliamentary scrutiny over certain powers in the Bill. Our approach here demonstrates the seriousness we place on those recommendations and the Government’s commitment to act upon them. Lords amendment 10 ensures that regulations to specify future self-isolation support schemes that would be exempt from self-employment NICs under clause 10 must be subject to the negative procedure. Originally, these regulations were subject to no procedure. Lords amendments 11 and 12 provide for regulations under clause 3(1) and 6(6) to be subject to the draft affirmative procedure. Regulations may be made under these powers to extend the end date of the freeport and veterans’ relief. These powers were previously subject to the negative procedure. So I hope that hon. Members will agree with the position I have set out today.

[James Murray (Ealing North) (Lab/Co-op)]

I thank the Minister for setting out the reasoning behind the Government’s amendments in the other place. Although we support many of the measures in this Bill, we cannot ignore the fact that we are discussing the Government’s plans for specific relief from NICs just one month before they raise national insurance for workers and businesses across the board. That is the crucial context for the Lords amendments we are being asked to consider.

Five weeks from today, a typical full-time worker will see their annual tax bill rise by £274. That will be the direct result of the Government’s decision to raise NI. It is the worst possible tax rise, at the worst possible time. We argued it was wrong last September, when the Government pushed this tax rise through Parliament. Since then, energy bills have begun to soar, making our case even stronger. Now, as we stand alongside the Ukrainian people, we know that that conflict will impact people here, with further price rises for petrol, energy and food. The Conservatives must think again. The impact of their NI hike is getting worse and worse. The Chancellor should finally do the right thing and scrap April’s tax rise on businesses and working people.

As we said when this Bill was being debated in the Commons last year, we support the intention behind many of its measures. However, throughout its passage, we and our colleagues in the other place have raised important questions with Ministers about some of the approaches the Government have decided to take. With that in mind, I turn to Lords amendments 2 and 4, which were successful in the other place and which we will be supporting here today. Lords amendment 2 seeks to add one further condition to those that already exist in the Bill for freeports. When it was introduced, this Bill included the conditions under which employers in a freeport could benefit from a zero rate of secondary class 1 NICs. This amendment adds one further condition to freeport employers’ relief. It would make sure this relief is available only if the freeport maintains a public record of the beneficial ownership of businesses operating within it. We, alongside right hon. and hon. Members from across the House, have long argued for transparency over the ownership of UK assets. In recent days, that has come to a head, with the Government finally admitting and accepting the urgent importance of establishing a public register of the overseas owners of UK property. Yesterday, when the Business Secretary made a statement to the House on “Corporate Transparency and Economic Crime”, no one could deny the damage caused by the Government’s failing to prioritise transparency of the overseas ownership of UK interests. As my hon. Friend the Member for Feltham and Heston (Seema Malhotra) told the House yesterday, although we clearly support the Government’s introducing a register of overseas owners of UK property, we are clear that:

“The UK would have been in a much stronger position to act with speed and our national security would have been better protected if the register had already been up and running.”—[Official Report, 28 February 2022; Vol. 709, c. 736.]

As my hon. Friend went on to say yesterday, we hope lessons will be learned for the future. The Government have a chance today to prove that they have learned those lessons. Let us avoid their pressing ahead today without that transparency condition, only to return to the matter in a rush at a later date when the opportunity for greatest impact may already have been missed. That is why we will support Lords amendment 2, and I urge Government Ministers and hon. Members on all sides to do likewise.

I turn now to Lords amendment 4, which was also successful in the other place and which we will support today. The Government’s Bill introduces a zero rate of national insurance contributions for employers of armed forces veterans for the period of one year beginning with the earner’s first day of civilian employment after leaving the armed forces. We believe it is crucial to ensure that all veterans get the support they need as they seek civilian employment.

Lords amendment 4 enables the Treasury to change the period of support offered if it is found to support employment. We believe it is a simple measure, giving the Government flexibility to adjust the operation of the relief if doing so might improve veterans’ ability to find long-term employment.

As the Financial Secretary may know, when the Bill was debated in the Commons last year we raised questions about the time period for which the relief would be available. When I discussed this Bill with her predecessor, the right hon. Member for Hereford and South Herefordshire (Jesse Norman), I asked him to explain in greater detail why the Government had chosen a period of one year for veterans’ employers. In response, he said that one year was appropriate because,

“the goal is to support a very specific process of transition”.

When we pressed him further on the importance of helping to maintain long-term employment, he acknowledged:

“If it were the case that veterans still had a serious problem of finding secure and stable employment, of course that would be a matter that the Government would wish to reflect on and consider.”

He assured me and several of my hon. Friends that he would,

“continue to reflect on this policy”,

and that those at the Treasury,

“already have in place processes of evaluation and assessment.”––[Official Report, National Insurance Contributions Public Bill Committee, 22 June 2021; c. 18-20.]

I am sure the right hon. and learned Member for South East Cambridgeshire (Lucy Frazer) will want to honour those commitments made by her predecessor.

Through Lords amendment 4, we seek simply to give the Government the power to change the period of relief, should their ongoing analysis conclude it is in the best interests of veterans to do so. On that basis, I urge the Financial Secretary and her colleagues to reconsider the Government’s position. I hope that Ministers and hon. Members on the Government Benches will see the value that Lords amendments 2 and 4 add to this Bill and that, even at this late stage, they might reconsider their position on them.

I end by urging Ministers to ensure that next time we are in this Chamber with national insurance on the Order Paper, it will be to agree to cancel the tax rise coming next month. The Chancellor has five weeks to do the right thing—five weeks to change his mind and avoid hitting working people and businesses with the worst possible tax rise at the worst possible time.

[Richard Thomson (Gordon) (SNP)]

I rise to support Lords amendments 2 and 4, but I will deal first with amendment 4.

As I said at earlier stages of this Bill, those who have experience of serving within the armed forces bring tremendous qualities to the workforce through both the skills they have learned while in uniform and their breadth of life experience. Despite our awareness of that and the best efforts of Governments and the third sector, for too many of our ex-servicemen who are leaving the services, the transition to civvy street is far more difficult than it often needs to be.

Having this exemption for national insurance contributions is therefore a very positive step as far as we are concerned, making it even more attractive to employers to hire those ex-service personnel and to bring their skills and experience into the workforce, helping to bring to fruition all the many economic and social benefits that can come from that. In that regard, we are attracted to Lords amendment 4 simply because it gives the Treasury that power to extend the eligibility period attached to the zero rate relief for armed forces personnel and veterans, should that be deemed desirable. That seems to us to be a perfectly reasonable addition to make to the Bill, giving the Treasury a degree of flexibility on how to implement the measure that would otherwise be lacking in the Bill as drafted.

On amendment 2, let me first place on record my satisfaction at the agreement that has eventually been reached by the Scottish Government and the UK Government over freeports, or green ports, of which two will now be established in Scotland, with the bidding process opening in spring this year and the first sites opening, hopefully, in spring 2023. I will go a little bit off piste here to say that that outcome was not always guaranteed, and at times, in at least some of the public discussions, there has been a bit more war-war than jaw-jaw, certainly on the part of individual Conservative politicians rather than between Ministers in Edinburgh and London. For example, the Scottish Business Minister, Ivan McKee, had to write six times to the UK Government to even try to get green port discussions under way in order to get them over the line. He said that the silence was deafening. That is a pretty damning account that rather sits at odds with the impression that we are often given from those on the Treasury Bench as to how they would like to work constructively with the Scottish Government.

The reason for holding out on the variation on the freeports option was quite simple. We felt very strongly that given the scale of the financial support that was on offer, it was vital to ensure that wider policy objectives such as environmental obligations, the commitment to net zero and fair play for those employed within freeport sites, were met. While it is up to the UK Government to decide how those objectives can be met in England, applicants for green port status in Scotland will be required to set out robust plans at the outset on how they plan to contribute to Scotland’s just transition to a net zero economy and how they will benefit the wider supply chain alongside embedding fair working practices such as at least paying the real living wage.

Freeports, it is fair to say, have had a somewhat mixed reception abroad, particularly as regards the relationship that they are perceived to have with criminality and tax evasion. While hardly the “Grand Theft Auto”-style dystopia that they have sometimes been portrayed as, the potential for criminality and non-compliance with taxation, employment rights, health and safety or environmental regulations and obligations is clear, as is the potential for broader economic displacement.

That brings me to the nub of amendment 2. In recent weeks, we have seen significantly increased demand from this House for scrutiny and visibility of financial transactions that take place in this country. We need to have that increased scrutiny over those who spend and invest in the UK, and also over where their money originates. It is very important when setting up freeports that we are able to answer the age-old question, “cui bono?” That is absolutely paramount. A requirement that the freeport deliverance body should be able to make reasonable efforts to verify who the beneficial owners of the business are and to ensure that that information is accessible not just to the relevant enforcement agencies but to the general public is the minimum amount of due diligence that we should expect in exchange for the status and the exemptions on offer.

I listened carefully to the Minister’s arguments about the beneficial register that will be in place and her view that as a third party under the local governance arrangements it would be inappropriate to release that information. Respectfully, I disagree with that. We all know how labyrinthine and byzantine corporate structures can be. Irrespective of any requirement in future legislation that may be coming into force, certainly on freeports, my party firmly believes that we should have transparency and accountability baked into the corporate structure and public reporting at the outset. On that basis, both Lords amendments have our support and we shall be voting accordingly.

Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2022 Draft Tax Credits, Child Benefits and Guardians Allowance Up-rating Regulations 2022

James Murray Excerpts

Tuesday 22nd February 2022 General Committees

[James Murray (Ealing North) (Lab/Co-op)]

I am grateful for the opportunity to respond on behalf of the Opposition to the two statutory instruments. The first statutory instrument gives effect to the annual re-rating of various national insurance contribution rates, limits, and thresholds for the purposes of calculating liabilities for the coming tax year. The regulations increase the primary threshold above which people start to pay NICs by the rate of CPI in September 2021, while freezing the upper earnings limit in line with the income tax higher rate threshold also being frozen. We support the increase to the primary threshold, as any help for lower paid workers is particularly needed at the moment, given lower wage growth and the highest inflation in decades.

However, while the primary threshold is being increased by the draft regulations, the explanatory notes remind us that the Government are increasing employees’ national insurance contributions by 1.25% for tax year 2022-23, ahead of an equivalent charge being introduced by way of the health and social care levy. I would be grateful if the Minister could tell me the combined effect on the tax liability of someone on average earnings of both the increase to the primary threshold and the increase in employees’ national insurance contributions in 2022-23.

The second SI before us sets the annual rates of working tax credit and child tax credit and the weekly rates of child benefit and guardian’s allowance for the coming financial year. We support those increases as, again, any help for people who are struggling in the face of soaring energy bills and inflation is particularly needed at this time. Although the explanatory notes do not mention it, we know that the working tax credit basic element was cut last year, along with universal credit, by £20 a week. I would be grateful if the Minister could confirm what the level of the working tax credit basic element will be in April 2022 compared with the same time two years previously.

--- Later in debate ---

[Lucy Frazer]

In response to the hon. Member for Ealing North, in my opening speech I set out in some detail how the thresholds will increase for those starting to pay NICs. I am happy to combine information on those thresholds with that on the social care levy in writing to the hon. Gentleman.

[James Murray]

On a point of clarification, I was asking about the increase in the primary threshold and the increase in NICs for 2022-23. As the Minister will know, the health and social care levy is not due to come in for another year.

[Lucy Frazer]

In my introductory remarks, I set out how each threshold will be increased, but I am happy to set that out in writing to him. He also spoke about the steps we are taking to protect the most vulnerable. He will know that, last September, we put in place a support package of half a billion pounds to support the most vulnerable. He will have heard the Chancellor’s statement only last month about the steps we are taking in response to the energy price increases. He will also be aware of the £400 billion support provided by the Chancellor in the past two years.

The SIs before us are important to ensure that we continue to uprate the thresholds.

--- Later in debate ---

[Lucy Frazer]

I value the hon. Gentleman’s contribution to the debate. He has obviously followed the issue very closely so he will know of the steps the Chancellor has taken to ensure that we combat fraud not only in relation to the coronavirus schemes but more broadly. The hon. Gentleman will have heard the Chancellor talk about the coronavirus fraud taskforce that has been set up—more than 1,000 people are now engaged to tackle fraud and the taskforce has already recovered half a billion pounds and is set to recover a further billion.

[James Murray]

May I again ask the Minister to respond to my second point about the second SI before the Committee and confirm what the level of the working tax credit basic element will be in April 2022 compared with the same time two years previously?

[Lucy Frazer]

As I said earlier, I am happy to write to him on the subject.

Finance (No. 2) Bill

James Murray Excerpts

Report stage & 3rd reading
Wednesday 2nd February 2022 Commons Chamber

[Lucy Frazer]

My right hon. Friend is right. We are not seeking to raise revenue; we are seeking to prevent certain circumstances from coming about, and we hope that this deterrent will be sufficient. Of course, if it were not, we would be able to recoup the money by way of tax. He will have spotted that the legislation is only in force for a short period to allow Ofgem to take regulatory action to ensure that we deal with this issue in the appropriate way through regulation rather than by bringing preventive action by way of a tax.

As I was saying, this new tax will have effect where steps are taken to obtain value from assets that materially contribute to a licensed energy supply business entering into special measures or to the increased costs of the business where it is a subject of special measures on or after 28 January this year and before 28 January next year. The tax will apply to the value of the assets that are held in connection with a licensed energy supply business where the assets in scope of the tax exceed £100 million, including assets held by connected persons. This is to ensure that the tax would capture only the very largest energy businesses. The tax will apply at a rate of 75% so as to be an active and effective deterrent against actions that are not in the public interest, and to recoup a substantial proportion of the costs that would otherwise fall to the Government under special administration measures in the event that such action was taken, as my right hon. Friend the Member for Central Devon (Mel Stride) pointed out.

In order to ensure that the tax is robust against avoidance activity, and given the sums at stake, the Government consider it necessary for Her Majesty’s Revenue and Customs to be able to recover the tax from other persons if it cannot recover it from the relevant company. These joint and several liability provisions will apply only to companies under common ownership, as well as investors and persons connected with those investors in limited circumstances. Safeguards are also in place to permit certain affected persons to make a claim for relief to limit the amount of joint and several liability to the amount that they potentially benefit from such transactions. It is our hope and expectation that no business would pursue such action and that the tax will not be charged. The tax is a temporary and necessary safeguard that will protect the taxpayer and energy consumers in the interim period before the regulatory change takes effect.

The Government amendments will ensure that the legislation works as it should and protects the interests of the people of this country. I therefore commend to the House amendments 1 to 33, new clauses 1 and 3, and new schedules 1 and 2, and I urge Members to accept them.

[James Murray (Ealing North) (Lab/Co-op)]

Any member of the public hearing that the Government were today voting their Finance Bill through the House of Commons might expect such a Bill to do something to help with the cost of living crisis facing families up and down this country. Our new clause 6 makes this simple point. It asks the Government to set out how the measures in the Bill will affect household finances, the amount of tax working people are paying, and the rate of growth in the economy in the coming year.

I suspect that Ministers will want to avoid our new clause 6 because they know what the answers will be. The truth is that whether through this Bill or any other means, the Government are letting energy bills soar, refusing to cancel their national insurance hike, and failing to set out a plan for growth. The Conservatives’ failure to grow the economy over the last decade, and their inability to plan for growth in the future, has left them with no choice but to raise taxes. This low-growth, high-tax approach to the economy has become the hallmark of these Conservatives in power.

Let me make it clear why our new clause 6 might make such difficult reading for Conservative Members. People see their energy bills going up and about to soar, inflation at its highest rate in decades, and their wages falling in real terms—and what do the Tories do? They raise national insurance by £274 for a typical full-time worker. It is the worst possible tax rise at the worst possible time. We warned that it was wrong when the Government pushed it through Parliament last year. Our arguments have only got stronger since then, so instead of digging in, the Chancellor and the Prime Minister should do the right thing and scrap this tax hike on working people and their jobs. Despite calls on the Government from all sides, they are so far refusing to budge. In this Bill, they offer no relief to working people, who face soaring prices and tax bills. They have managed to find time, however, to put into law a tax cut for banks, as we see in clause 6.

Clause 6, which our amendment 35 seeks to delete, would see the rate of the banking corporation tax surcharge fall from 8% to 3%, with the allowance for the charge raised from £25 million to £100 million. That will cost the public finances £1 billion a year by the end of this Parliament. Throughout the passage of the Bill, the Financial Secretary to the Treasury has used smoke and mirrors desperately to pretend that the Government are not cutting taxes for banks. She has tried to hide this tax cut under a separate change to corporation tax that may never even come to pass.

[Anthony Browne (South Cambridgeshire) (Con)]

Including corporation tax and the surcharge, the taxation of banks is currently at 27%. After this legislation, it will be 28%. Does the hon. Member agree that 28% is higher than 27%, and therefore taxes on banks are actually going to rise, not go down?

[James Murray]

It is the same tired doublespeak by Government Members trying to hide this tax cut for banks. However they try to present it, in this Bill the banking surcharge is cut from 8% to 3%; it is there in the policy costings from the Treasury that the measure will cost the public purse £1 billion a year by the end of this Parliament. If Government Members do not like this tax cut, they can simply vote with us to delete it at the end of Report, rather than pretend it does not exist.

[Anthony Browne]

Will the hon. Member give way?

[James Murray]

No, I am going to make some progress.

The truth is that this tax cut is going ahead at a time when bankers’ earnings are on the rise, with investment banks’ profits soaring off the back of a wave of takeovers and mergers caused by the pandemic. The UK arm of Goldman Sachs—a business that the Chancellor will know well—boosted its pay by more than a third last year, Barclays is set to raise bonus payments by more than 25% in its corporate investment bank, and boutique banks in the City are expected to do especially well, as they are exempt from rules that limit bonuses.

These measures show just how out of touch this Government and this Chancellor are: they are championing a tax cut for banks while ignoring calls from the TUC, the Federation of Small Businesses, the Institute of Directors, Labour MPs, some on their own side, and the British public, to abandon their tax cut on working people and their jobs. If Ministers are still refusing to listen, today we are giving their Back Benchers an opportunity to say, “Enough is enough.” They can vote with us tonight to cancel the banking tax cut and make the Government think again.

The national insurance hike is wrong because it threatens people’s financial security. I will now turn to other aspects of the Bill that relate to wider economic security and the threat of economic crime.

[Simon Hoare (North Dorset) (Con)]

Just before the hon. Gentleman leaves the rise in national insurance contributions—a difficult decision for any Government, particularly given the backdrop of a manifesto commitment—surely he would criticise the Government were they to put the ideology of a manifesto front and centre, instead of trying to find a way of ameliorating what would clearly be growing waiting lists and people queuing at all our advice surgeries and offices, complaining that they could not get the treatment they needed, which they were denied during the pandemic. Surely that is the right thing to do for public health and all our citizens.

[James Murray]

No one denies that the NHS needs more money, but hiding behind the hon. Member’s intervention is the idea that there is no other way to raise the £12 billion that the national insurance rise will raise. It takes some cheek to hear that from Conservative Members, when just yesterday we heard of £8.7 billion being wasted on PPE procurement and £4.3 billion of fraud being written off by the Chancellor—there is the £12 billion. Frankly, the Chancellor should stop wasting money, stop letting criminals get away with fraud, and stop expecting working people to pick up the bill.

[Peter Grant]

I commend the hon. Member for reminding the Government just how much of our money they have wasted in the last year. Does he remember a message on the side of a bus that promised a huge cash boost to the NHS if we left the European Union, and has he wondered what happened to that money?

--- Later in debate ---

[James Murray]

I remember many slogans that the Conservative party has used and I would not trust many of them. However, I would like to make some progress and talk about what the Government are doing, or failing to do, to tackle economic crime.

--- Later in debate ---

[James Murray]

When we first debated this Finance Bill on Second Reading in November last year, it was clear to us that it offered nothing to help people struggling with the rising costs of living and facing tax rises this April. Since that time, pressures on people across this country have only become more intense, and the need for the Government to act has only become more urgent.

Inflation is now at its highest rate in decades and energy bills are set to soar in April, just as the Chancellor is set to hike national insurance on working people. That tax rise, when combined with energy price rises and other tax hikes, will leave families on average £1,200 worse off a year. Yet there is nothing in the Bill to help with the cost of living. There is, however, a tax cut for banks in the Bill, despite bankers being widely expected to receive large bonuses this year, as investment banks’ profits have soared off the back of a wave of takeovers and mergers caused by the pandemic. It shows just how out of touch this Chancellor is. At the weekend, he decided to dig in over his tax rise for working people. By the middle of the week, he is using the Bill to cut taxes for banks by £1 billion a year.

In earlier debates on the Bill, we were critical of the Government for not doing enough to combat economic crime. We welcome the principle of a levy, but we are left wondering why on earth legislation that would set up a register of overseas owners of UK property—a critical tool to tackle money laundering—has been left to gather dust. On Second Reading, we challenged the Government over their failure to establish such a register. Our country has earned the shocking reputation as the world’s laundromat for illicit finance. A new public register would bring desperately needed transparency to the overseas ownership of UK properly, and would help to stop it being used for money laundering.

Since that time, the need to bring transparency to the question of who owns high-end property in the UK has only become more urgent. Economic sanctions against Russia will never have the effect that they should as long as our Government let those who are linked to Putin and his regime hide their wealth in the mansions of Knightsbridge and Belgravia.

We also asked what the Bill does for another type of property: buildings with unsafe cladding that need to be remediated. We questioned Ministers on how they had arrived at their decision on the level of the residential property developer tax when so much more was needed to protect leaseholders from bearing the cost. Since we first raised our concerns about the detail of that tax, the Government have realised that they were wrong to make leaseholders in buildings of between 11 metres and 18 metres take out forced loans to cover the cost of cladding remediation in their buildings. The Housing Secretary now says that he is planning to convince developers to hand over £4 billion voluntarily. If he fails, we want to know how leaseholders and those in need of affordable homes will be protected. Despite our questioning earlier today, Treasury Ministers have been unable to offer people the reassurance they need.

Finally, there is no plan for growth in the Bill. We are stuck in a low-growth, high-tax cycle. With strong growth, we would have the chance to create new jobs, with better wages and conditions, in every part of this country. With low growth, it gets ever harder to meet the challenges we face, and the Tories have no choice other than to put up taxes.

The shadow Chancellor, my hon. Friend the Member for Leeds West (Rachel Reeves), has set out Labour’s plan for growth: investing in skills, research and development, and the industries of the new green economy; choosing to buy, make and sell more in Britain; and creating jobs in every part of the country. We would build a stronger economy with our plan to give working people the respect they are due, to give people real economic security, and to ensure prosperity in every part of Britain. That is the approach that our country needs in order to grow and meet the challenges of the future.

Right now, people across the country need the Government to protect them from the cost of living crisis and protect our country from dirty money from Russia. All we have instead is a Prime Minister who does everything he can to protect himself. We opposed the Bill on Second Reading and, as our reasons for doing so have only grown stronger, we will vote against it tonight.

Oral Answers to Questions

James Murray Excerpts

Tuesday 1st February 2022 Commons Chamber

[The Exchequer Secretary to the Treasury (Helen Whately)]

Like my hon. Friend, I am keen to support high streets in towns such as Barnstaple. At the autumn Budget, we announced business rates relief for thousands of retail, hospitality and leisure businesses to help them get through the pandemic and adapt to wider economic changes. I would also point my hon. Friend to the £4.8 billion levelling-up fund and encourage Barnstaple to apply for round 2, which will be opening this spring.

[James Murray (Ealing North) (Lab/Co-op)]

Last month, the Government came out against Labour’s plan to help people on modest incomes pay their energy bills using a one-off £1.2 billion windfall tax on the profits of oil and gas producers. The Education Secretary complained that oil and gas companies are “already struggling”. The truth is that pensioners and people on modest incomes are the ones who are struggling. Oil and gas companies are expected to report near-record income this year. Will Ministers now admit that the Government have got it wrong and commit to looking again at our plan?

[The Financial Secretary to the Treasury (Lucy Frazer)]

The hon. Member will know that the oil and gas industry pays a significant amount in taxation—I mentioned the figure earlier. In terms of helping people who are struggling with their bills, he will know that we already have the energy price cap, the winter fuel payment, the warm home discount and the cold weather payment. We are looking out for and supporting those on the lowest income to enable them to get through this difficult period.

Local Government Finance Act 1988 (Non-domestic Rating Multipliers) (England) (No.2) Order 2021

James Murray Excerpts

Tuesday 25th January 2022 General Committees

[James Murray (Ealing North) (Lab/Co-op)]

It is a pleasure to serve under your chairship for the first time, Mrs Miller.

As we heard from the Minister, we know that national non-domestic rates are calculated as the product of a hereditament's rateable value, as determined by the independent Valuation Office Agency, and the relevant multiplier. The small business non-domestic rating multiplier applies in relation to hereditaments with rateable values of less than £51,000. The national non-domestic rating multiplier applies in relation to hereditaments of £51,000 or more. We understand that the delegated legislation effectively maintains the non-domestic rating multiplier rates in the financial year 2022-23 at the same level as they were in 2021-22 in relation to the payment of business rates.

The Opposition will not oppose the SI, but I have a few small points to raise. The impact assessment in the explanatory memorandum notes that no impact assessment has been made of the order because

“it amends a local tax regime”,

and because businesses, charities, voluntary bodies and public and private sector entities will not see an increase to their rates. However, we know that inflation is at its highest level in decades, and businesses continue to face challenges associated with the pandemic. What assessment has the Minister made of the recovery of UK businesses? Can she outline what further support her Government will offer businesses that are still struggling?

Furthermore, the explanatory memorandum notes

“The operation of this instrument will be monitored and reviewed as part of the operation of the national non-domestic rates system as a whole.”

I would be grateful if the Minister outlined the detail of that review process.

Of course, we in the Opposition have set out our broader position in relation to business rates. We would scrap the current system and replace it with a fairer system in the future. On a wider point, we are disappointed that the Government have abandoned their promise to review business rates fundamentally. However, we will not oppose the SI and we welcome any benefit that it is able to bring to businesses at this difficult time.

[Lucy Frazer]

I thank the hon. Gentleman for saying that the Opposition will not oppose this sensible measure, which will support and protect businesses. As he rightly said, there was no need for an impact assessment for the reasons that he outlined. If we were to conduct one, of course it would show that the proposal is hugely beneficial to businesses, which will not be paying a significant amount of business rates that they would otherwise pay. They can therefore use that money in their own businesses, benefiting the economy.

The hon. Gentleman asked me to outline the support that we are giving to businesses. He will know that in the past 18 months, we have given significant support to businesses through the provision of loans and grants, and he will have seen the extensive measures contained in the Finance Bill that we had the pleasure to debate together. They include not only the multiplier that we are debating today, but the business rate relief, the investment allowance and a number of other measures.

On business rates, we did a review of those rates and as a result made changes that will benefit businesses to the tune of around £7 billion. But that is not all we have done. The hon. Gentleman will know that we announced our intention to review the online sales tax. That will be conducted shortly.

[James Murray]

To clarify, I asked about the detail of the review process of the SI. The explanatory memorandum says

“The operation of this instrument will be monitored and reviewed as part of the operation of the national non-domestic rates system as a whole.”

I am sure the Minister has a copy of the explanatory memorandum. Can she outline the detail of that review process?

[Lucy Frazer]

As the hon. Gentleman will know, we keep all our taxes under review. The SI will be reviewed in due course, and I would be happy to update him when any such reviews are undertaken.

I commend the order to the Committee.

Question put and agreed to.

Rebated Fuel Rules: Construction Industry

James Murray Excerpts

Wednesday 19th January 2022 Westminster Hall

[James Murray (Ealing North) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Mr Bone. Thank you for the opportunity to speak on behalf of the Opposition. I congratulate the hon. Member for Upper Bann (Carla Lockhart) on securing the debate.

As we know, from April 2022, measures in the Finance Act 2021 will come into effect to reduce the number of businesses that can benefit from red diesel tax breaks, as well as extend fuel duty to biodiesel, bio-blend and fuel substitutes used in heating. The measures in the 2021 Act maintain a number of exceptions, however, for situations in which red diesel tax breaks will continue, including for vehicles and machinery used in agriculture, horticulture, fish farming and forestry, and for the heating of non-commercial premises, including homes and buildings such as places of worship, hospitals and town halls.

Historically, the existence of red diesel tax breaks arose from the use of that fuel in off road machinery or vehicles. Duty has historically been charged on fuel used by motor vehicles to reflect the damage caused to public roads. The rebated rate for red diesel reflected the fact that it was only used in off-road situations. The dyeing of the diesel has also allowed law enforcement agencies to identify it as rebated fuel and therefore to detect when red diesel is being used wrongly, providing a deterrent to fuel fraud.

During the Committee stage of the Finance (No.2) Act 2021, the Exchequer Secretary to the Treasury, the hon. Member for Faversham and Mid Kent (Helen Whately), set out the Government’s motivation behind restricting access to red diesel. The Minister explained that the restrictions on red diesel were designed so that taxation

“reflects the negative environmental impact of the emissions produced.”

She said:

“Reducing tax breaks on red diesel will mean that approximately 3.6 billion litres of diesel, equivalent to 9.5 million tonnes of CO2, will now be taxed at the standard diesel rate.”––[Official Report, Finance (No.2) Public Bill Committee, 27 April 2021; c. 72.]

Like many Members who have spoken in today’s debate, Labour supports the principle behind cutting the use of diesel fuel and encouraging a move towards more environmentally friendly alternatives. We know that red diesel accounts for around 15% of all diesel used in the UK and is responsible for the production of nearly 14 million tonnes of carbon dioxide a year. We also know that red diesel used in the construction and infrastructure building sectors causes PM10 emissions, a type of particulate matter, so it being used less will help to improve air quality. However, we would like to raise two specific concerns on behalf of representatives of the construction industry, and would welcome the Minister’s response.

First, during discussion of the Finance (No.2) Act 2021 in Committee, the Exchequer Secretary explained that one aim behind the measures was to make sure that the tax system incentivises users of polluting fuels such as diesel to invest in cleaner alternatives. Representatives from the construction sector have therefore questioned why the legislation increases fuel duty on lower-carbon alternatives such as hydrotreated vegetable oil, which has lower carbon emissions and emits less sulphur than standard diesel. For instance, Niki Holt of Certas Energy, writing in The Construction Index, has noted that HVO fuels offer

“an improved burn efficiency and reduced carbon emissions, which accounts for a significant decrease in GHG”—

greenhouse gas—

“emissions. Hydrogen is used as a catalyst rather than methanol, which means that HVO is cleaner-burning and has a longer shelf life than standard biodiesel.”

Although HVO is by no means a perfect solution, members of the construction sector have questioned why the Government are restricting the use of HVO fuel as well as red diesel. They argue that, as a lower-carbon alternative, HVO fuel would presumably be preferable to white diesel. I would be grateful if the Government set out why they are including HVO fuel at this stage.

Alongside those environmental concerns, the other key worry we have heard from the construction sector relates to fuel theft. Research by Crown Oil found that there were over 25,000 confirmed fuel thefts in 2018, which represented over £1.75 million lost to businesses and domestic users. It has estimated that that figure could be up to £9 million if all constabularies reported the relevant data to researchers. Construction sites are already targets for theft, as they tend to be unoccupied at night, and we know that the Civil Engineering Contractors Association and its members are deeply concerned about the heightened risk of fuel theft and subsequent fraud.

CECA has therefore proposed the use of blue dye within standard diesel solely within the construction industry, with duty paid at the full rate, to maintain a deterrent against theft and to enable detection of its illegal use. The colour itself is not important; what matters is that CECA sees this as a way to deter theft that would not be possible with undyed diesel, and it would like legal recognition of that fuel when HMRC and its associated bodies conduct inspections. I would therefore be grateful if the Minister could outline the Government’s response to CECA’s proposal and highlight what measures will be introduced to support the construction industry, both in reducing the risk of fuel theft and in their wider recovery from the pandemic.

To conclude, we support measures to encourage the use of alternatives to diesel, which help to reduce carbon emissions and improve air quality. Our questions today, however, seek to press the Minister on concerns raised about the detail of this policy and its impact on the construction sector in particular. I look forward to her response.

Finance (No. 2) Bill (Fifth sitting)

James Murray Excerpts

Committee stage
Tuesday 11th January 2022 Public Bill Committees

This new requirement to notify will encourage earlier and open communication with HMRC about areas of tax uncertainty. It is designed to protect the public finances by reducing the legal interpretation portion of the tax gap. I commend clause 94 and schedule 15 to the Committee.

[James Murray (Ealing North) (Lab/Co-op)]

As we heard from the Minister, the purpose of clause 94 is to introduce schedule 15, which, in turn, introduces a new requirement for large businesses to notify HMRC when they have taken a tax position that is uncertain. The new requirement has effect for returns within scope that are due to be filed on or after 1 April 2022. We understand that large businesses are defined as those with a turnover above £200 million, or a balance sheet total of over £2 billion. Uncertain tax amounts with a tax advantage below the threshold of £5 million will not need to be notified to HMRC. We also understand that uncertain tax treatments are defined as those that meet one of two criteria: either a provision has been made in the accounts for the uncertainty, or the position taken by the business is contrary to HMRC’s known interpretation of the law.

The stated intention of the clause and schedule is to reduce the gap between taxes paid and taxes thought by HMRC to be owed that is attributable to differences in legal interpretation. The measure aims to ensure that HMRC is aware of all cases where a large business has adopted a treatment with which HMRC may disagree, and to accelerate the point at which discussions occur on these uncertain tax treatments. It also claims to identify areas of law that are currently unclear and to allow HMRC to focus on clarifying these areas of uncertainty, ultimately resulting in fewer disputes caused by uncertainty in the tax law.

We know from HMRC figures that in the financial year 2019-20, the tax gap attributable to differences in legal interpretation was £5.8 billion. Of this, £3.2 billion was attributed to large businesses. We do not oppose the broad intention of the measure. It is important that revenues are not lost to legislative ambiguity, and that tax liabilities are clear to large businesses. Measures that seek to reduce the administrative cost of dealing with uncertain tax treatment for both HMRC and businesses are worth pursuing. However, we note concerns raised by the Chartered Institute of Taxation. It was unconvinced that the measure would achieve its aim. It points to the additional compliance burden that all businesses will face, regardless of whether they have been transparent and open with HMRC about their tax dealings.

HMRC’s own figures suggest a cost of £1,300 for each business impacted, and the House of Lords Finance Bill Sub-Committee described that cost as disproportionate. I would be grateful if the Minister could tell us approximately how many large businesses the measure aims to change the behaviour of. I am sure that HMRC or Treasury officials will have estimated the scale of the problem before proposing a remedy, so I would be grateful if the Minister could share any figures she has.

On the operation of the measure, we understand that HMRC does not expect the legal interpretation part of the tax gap to be impacted immediately by the introduction of the measure alone, and it expects to have to take further action. It is therefore not immediately obviously why this extra measure is needed, and why HMRC’s existing powers are not enough. As the Chartered Institute of Taxation said,

“it is not clear to us how this measure will itself additionally impact on the legal interpretation tax gap, given that HMRC already have extensive powers to open an enquiry into, and investigate, a tax return, from which any disputes in respect of legal interpretation can be addressed.”

I would be grateful if the Minister addressed that point directly. Could she explain what practical advantage the new measures lend HMRC? Could she also comment on the penalties levied for non-compliance with the measure? Given that it targets a minority of non-compliant large businesses with a tax advantage above £5 million, the penalties for non-compliance seem rather small: £5,000 for a first offence, £25,000 for a second, and £50,000 for repeated failures to notify HMRC of uncertain tax treatments. Those amounts seem rather low for businesses with a £5 million-plus tax advantage. I would be grateful if the Minister explained how these figures were arrived at, and confirmed whether she believes these measures serve as a robust disincentive for large businesses to use differing legal interpretations to alter their tax liability.

[Richard Thomson (Gordon) (SNP)]

It is a pleasure to serve under your chairmanship, Sir Christopher. I apologise for arriving slightly behind schedule this morning. It was good to see the ministerial team picking up exactly where we left off, getting their rebuttal in first, and telling us what was wrong with our new clauses before we had the chance to utter a syllable. I look forward to that continuing this morning—and this afternoon, if we get that far.

HMRC estimates that a potential £5.8 billion of the UK’s estimated £35 billion tax gap for the tax year 2019-20 is attributable to a difference in legal interpretation between HMRC and the businesses concerned. It is that situation that motivated us to draft new clause 7, which is in the name of my hon. Friend the Member for Glasgow Central. We support all and any reasonable and proportionate measures to try to narrow the gap. I would add, in passing, that it is disappointing that the third trigger has been dropped, which is that HMRC should be made aware by companies if there is a substantial possibility that either a court or tribunal might find that the taxpayer’s position was incorrect in certain material respects.

While there will always be a level of uncertainty around tax, it is useful to try to get a measure of the tax gap on its own terms—one that is as objective as possible. It is also very useful to compare, as far as possible, the estimated size and scale of our tax gap with the gap in other comparably advanced economies, so that we can see what we might learn from others.

I accept that direct comparisons might not be possible, but I do not accept the Minister’s argument that meaningful comparisons are impossible, because we can get an understanding of practices and of analysis; that is at the heart of the matter. This is about trying to get to grips with the scale, and developing an understanding of what will be a continually moving target, as entities seek to minimise their overall liability as legitimately as they can within the confines of the broader tax code. That backdrop of information would allow policy makers to reflect adequately on how the domestic tax code might be amended to ensure greater clarity and better compliance. It is on that basis that we tabled new clause 7.

--- Later in debate ---

[Lucy Frazer]

Clause 98 introduces regulation-making powers to allow the Government to make temporary changes to provide income tax relief on certain benefits in kind or expenses in a disaster or emergency of national significance.

Covid has highlighted the limited scope to respond quickly to make changes to the current benefits-in-kind and expenses tax system to support people during the pandemic. The Government are determined to learn from that experience and ensure that we are prepared for future crises. It is expected that during any future disaster or emergency of national significance, it may be necessary to make similar changes on a temporary basis. The current legislation allows only for changes to be made through secondary legislation in limited circumstances. The clause introduces regulation-making powers that will allow the Government to respond quickly and effectively to various future emergency situations—including, but not limited to, pandemics—if deemed necessary.

The clause introduces regulation powers to allow employers to support their employees through the provision of a certain benefit in kind or expense in a disaster or emergency of national significance without creating an additional income tax charge. The powers can be exercised only in a way that provides support to taxpayers, as changes can be wholly relieving only and cannot create a tax charge. The Treasury can determine when it is appropriate to use the powers, but may make changes only to the income tax expenses and benefit-in-kind rules. Any changes made through the powers will have effect only for a limited time, up to a maximum of two complete tax years. The clause allows the Government to respond quickly and effectively to provide support to taxpayers in disasters or emergencies of national significance, and I commend it to the Committee.

[James Murray]

As we have heard, clause 98 relates to the power to make temporary modifications of taxation of employment income. The clause will grant the Treasury the power to make regulations to modify temporarily parts 3, 4 and 5 of the Income Tax (Earnings and Pensions) Act 2003 under ministerial direction, in the event of a disaster or emergency of national significance. The regulations must set out which disaster or emergency they are made in respect of, and the powers can be exercised only in a way that is wholly relieving to the taxpayer and cannot be used to create a tax charge.

This measure has been introduced in the context of the covid-19 pandemic, and indeed covid has highlighted the limited scope to make changes to the current benefits in kind and expenses rules to respond quickly to the pandemic. We understand that the aim of clause 98 is to enable changes to primary legislation to be made rapidly in response to significant national events. In that respect, we do not oppose this clause, provided that it is applied in strictly exceptional circumstances of national importance.

The clause uses the terms “emergency” and “disaster”, but a specific description of these criteria is missing. I would be grateful if the Minister set out what the Treasury would consider to be an emergency or disaster. Without a doubt, the onset of the covid-19 pandemic was a good example, but without a robust and transparent framework to guide the Treasury—given that the use of the power seems to be at its sole discretion—it is important that we are clear about the circumstances in which income tax liability can effectively be waived. Moreover, clause 98 notes that such measures would be temporary and would not apply longer than necessary. Again, guidance and a framework are conspicuously lacking, as the Government has provided no definition of “temporary”.

Early in the covid pandemic, emergency measures were needed, but as the pandemic has gone on the need for emergency measures has lessened. I would be grateful if the Minister assured us that a clear and transparent framework for establishing what constitutes “emergency”, “disaster” and “temporary” will be published, and when. If not, why not?

I am sure that we agree that this is a matter of effective policy rather than politics. As I have said, the context in which the clause has been introduced is uncontroversial, but I would be grateful if the Minister addressed this ambiguity and assessed whether the measure could be applied in a manner that deviates from its stated intention.

[Alison Thewliss]

I agree very much with what the Labour Front-Bench spokesman has said. Clause 98 is very wide-ranging, and vague in a lot of ways. It is important to understand its scope, because one person’s definition of a disaster or emergency might be quite different from another’s. It is important that we define that slightly more than is the case in the clause, which states that the regulations

“may only specify a disaster or emergency which the Treasury considers to be of national significance.”

That could be a lot of things, depending on how the Treasury considers it.

I wonder whether the Minister, in looking at the clause, has taken into account the findings of the Public Accounts Committee and the National Audit Office on the Government’s lack of financial preparedness, specifically coming into the pandemic. There was a lot of talk about medical preparedness, stockpiling and things like that, but both the National Audit Office and the Public Accounts Committee found that there was no preparedness in the Treasury for a pandemic or national emergency of this type.

It would be useful to know what further work, in addition to clause 98, Treasury officials are putting in place to ensure that, should something like this occur in future, the box of learning from this pandemic can be taken off the shelf and easily applied, without having to make a load of new provisions and regulations, so that things are ready to go, and we do not have to scratch around, trying to figure out what happened last time. Another pandemic may occur in five years or 50 years—we do not know. Certainly, our hope in the SNP is that we will not be here in 50 years, if not five, but it would be useful to know what provisions are being considered in the Treasury to ensure that the learning from this pandemic sits very tightly with this clause and can be applied very easily.

--- Later in debate ---

[Lucy Frazer]

The hon. Lady is right to say that a number of measures were reactive, but they were brought it at extremely quick pace and were effective pretty much immediately. She makes a valid point about learning; I know the Treasury is learning and has learned throughout the pandemic. The schemes we put in place at the outset have been refined, including the self-employment income support scheme, the furlough schemes and the coronavirus job retention scheme.

The hon. Lady mentioned the level of fraud; as the pandemic went on and the measures were refined, fraud reduced. She makes a valuable point about learning, and I am sure all Departments are learning. We do not want to be in this position again, which is precisely why we are bringing forward this legislation, to ensure that we are ready for any other emergency that should come our way.

[James Murray]

For the avoidance of doubt, I would like to clarify the point I raised with the Minister earlier. I was not seeking to ask the Government to be entirely prescriptive about what an emergency or disaster is; I merely asked them to publish a clear and transparent framework for establishing what constitutes “emergency”, “disaster” and “temporary”. If the Minister is saying that the Government will refuse to publish a clear and transparent framework for establishing the meaning of those words, will she confirm that it will remain at the sole discretion of the Treasury, based on unpublished guidance or frameworks, as to what constitutes “emergency”, “disaster” and “temporary”?

[Lucy Frazer]

The hon. Member is being a little unfair in his categorisation of what would happen and what we are seeking. That has not been defined in legislation because it is very hard to predict, and we do not want to limit severely the opportunities to exercise that power. The hon. Member has seen how the Treasury would react by the way it has reacted. That should give him some comfort.

Question put and agreed to.

Clause 98 accordingly ordered to stand part of the Bill.

Clause 99

Vehicle CO₂ emissions certificates

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[James Murray]

As we heard from the Minister, clause 100 relates to an increase of two members in the maximum independent representation on the board of the Office of Tax Simplification, bringing the overall membership to 10. The OTS was brought in by the coalition Government in 2010 and put on a statutory footing by the Finance Act 2016. It is an independent body that sits alongside the Treasury to advise the Chancellor on the simplification of the tax system and suggest ways to increase system efficiency. We recognise the value in adding further expertise to the board, although we also recognise the important principle in the SNP’s new clause 9, which would require the Government to report on the diversity of the OTS board.

We note the wider concerns of the Chartered Institute of Taxation, which questions whether the broader changes suggested by the OTS will be implemented. Between 2010 and 2015, only 166 of the OTS’s 403 recommendations to Government were wholly accepted. It is therefore surprising that there is so much enthusiasm for increasing the size of the OTS board, given that the Government do not always seem to listen.

We note a suggestion from the Chartered Institute of Taxation that the Government formally respond to every OTS recommendation within a prescribed timeframe. I would be grateful if the Minister set out whether she is willing to commit to doing so.

[Lucy Frazer]

I thank the hon. Members for Gordon and for Ealing North for their contributions. I was very interested to hear about the new clauses from the hon. Member for Gordon. New clause 9, which was tabled by the hon. Member for Glasgow Central, would require the Government to publish

“an assessment of the composition of the Office of Tax Simplification”

to ensure that it is diverse. I assure hon. Members that the OTS is an independent office of HMT, so all appointments are made in line with the principles of the Office of the Commissioner for Public Appointments. Public appointments to the OTS should therefore reflect the diversity of the society in which we live and increase in diversity. The Government have an ambition that, by 2022, half of all new appointees should be women and 14% of appointments should be made to those from ethnic minorities.

I know that the Government are very committed to this issue, as my first appointment to Government was as a Parliamentary Private Secretary in the Cabinet Office. I dealt with and saw the work of the Cabinet Office on this issue, and it is doing a broad amount of work across Government to ensure diversity.

New clause 10, which was also tabled by the hon. Member for Glasgow Central, would require the Government to publish

“a review of the membership and capacity of the OTS”.

The Government remain committed to supporting the OTS to provide advice on the simplification of the tax system, and published their first five-year review of the OTS’s effectiveness this autumn. The review makes a number of recommendations on the resourcing and governance of the OTS and recognises the value of a mix of skillsets and expertise on the OTS board. It recommends that HMT build on that further and, following the nomination by the chair, appoint additional independent members to bring in expertise in areas not currently represented. Given the recent examination of the OTS’s resourcing and governance, the Government do not believe that a review of the membership and capacity of the OTS is necessary.

To respond to the point the hon. Member for Ealing North made about the value of the work of the OTS, as he will know, the OTS will be looking into how it produces its reports and carries out its reviews. The fact that the Government do not always fully accept the recommendations of the OTS is not a sign that the OTS is not performing an important function: it is performing an important function in making recommendations that the Government can look at. The OTS also has a power to make suggestions on proposals that the Government themselves are thinking about, and it works with officials to make suggestions as to how we can change and improve the legislation and proposals that we are putting forward.

For those reasons, I encourage Members to reject the new clauses.

[James Murray]

The Minister may have missed my question in my earlier comments, which was whether she would commit to responding formally to every OTS recommendation within a prescribed timeframe.

[Lucy Frazer]

I understand why the hon. Member has made that suggestion, but the OTS is independent and can look at what it wishes to look at. That might not necessarily be what the Government are focusing on at any particular moment, so for those reasons and others, I will not be accepting that proposal today.

Question put and agreed to.

Clause 100 accordingly ordered to stand part of the Bill.

Clause 101

Interpretation

Question proposed, That the clause stand part of the Bill.

[Lucy Frazer]

This might be the shortest speech in this sitting. Clauses 101 and 102 simply set out the Bill’s legal interpretation and short title in the usual manner for such legislation. I therefore commend them to the Committee.

[James Murray]

Clauses 101 and 102 are entirely reasonable, and we do not oppose them. I take this opportunity, however, on behalf of myself and my hon. Friend the Member for Erith and Thamesmead to thank other members of the Committee, including of course our Whip, my hon. Friend the Member for Blaydon. I also thank you, Sir Christopher, and all the House of Commons staff who have supported us through this Committee, in particular Chris Stanton, whom I thank for all his help and advice.

[The Chair]

We have not quite got there yet. We have some new clauses to consider after these clauses, but thank you very much for those comments.

Charter for Budget Responsibility and Welfare Cap

James Murray Excerpts

Monday 10th January 2022 Commons Chamber

[James Murray (Ealing North) (Lab/Co-op)]

Today could have been a chance for Treasury Ministers to come to the House and set out plans to help people facing the rising costs of living in 2022. They could have come here to offer immediate help to people now, alongside a plan to invest what is needed in the long-term future of our country, but that is, sadly, not what we have seen. Despite widespread anxiety across the country about soaring energy bills, we have heard nothing on that front from the Government today.

Nor it seems did the Chancellor reflect over Christmas on the Government’s plans to ratchet up national insurance contributions in April. Treasury Ministers could have come here today to announce that they would not go ahead with the tax hike on working people and their jobs, but we have heard nothing from them on that front, either. Instead, we have seen Ministers defending their harmful and economically illiterate cap on investment in our country’s future.

Treasury Ministers should be using their first outing of the new year at the Dispatch Box to explain how they will help with the rising cost of living, which, as my right hon. Friend the Member for Hayes and Harlington (John McDonnell) and my hon. Friends the Members for Cynon Valley (Beth Winter) and for Liverpool, Walton (Dan Carden) all pointed out, is affecting so many of our constituents. If the Government do not know what to do, they are welcome to use Labour’s plans. As the shadow Chancellor, my hon. Friend the Member for Leeds West (Rachel Reeves), set out over the weekend and as my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) set out earlier, our plan would bring energy bills down this year, partly funded by a one-off windfall tax on North sea gas and oil profits. It is a bold and balanced package that would help everyone in the country, and it is a fair and fully costed plan that would help families on low incomes the most.

The Government could also follow Labour’s lead when it comes to their national insurance increase on working people and their jobs. As we set out in September last year, that tax hike is wrong when the burden should be borne by those with the broadest shoulders. While the Conservatives’ failure to help people now will cause hardship for many in 2022, their failure to invest in our country’s future will cause damage for years to come. Their approach shows that they have learned nothing from their failures of 12 years in power. They are not listening to business groups and economists, who have made clear how vital they think investment in our country is, and they have learned nothing from countries overseas. Even if the Government get investment up to their 3% of GDP target, we will still be at the bottom of the OECD countries behind Ireland, the US and Mexico. Is that really their vision for global Britain?

The truth is that the Government’s position simply confirms that Ministers do not understand what our country needs for the future, and their failure to invest has a direct impact on people’s lives. Their failure to invest what was needed in the past 12 years in gas storage and additional energy sources has made the jump that we face in energy bills far worse. Their failure to invest in safe and affordable housing has made the housing crisis that we face far worse. Their cap on investment now means that they will fail to invest what is needed to decarbonise our economy, making the damage to our country in the long run far worse, too.

Ministers could have come here today to follow Labour’s lead by committing to £28 billion of capital investment in our country’s green transition in every year of this decade. Our fiscal rules set out how we would make that investment in the future while balancing the books and getting debt falling. That level of capital investment is needed to tackle the climate crisis and to create jobs for the future, from insulating homes across the country to ensuring that wind turbines are manufactured here in Britain. However, that would not be possible under the Chancellor’s charter, which as a result will cost our economy and our country more in the future.

When the case for investment is so strong, why is the Chancellor so keen to stop it? We would ask him, but, as my right hon. Friend the Member for Wolverhampton South East drew to the House’s attention, he has not turned up. We wondered where he was and whether he was in California again. I can tell you, Madam Deputy Speaker, that he has been spotted in the building. He is so contemptuous of his own fiscal rules that he has not even bothered attending the debate. I suspect he has realised that he has called it wrong—the stunt has not worked—and, true to form, when he finds questions too uncomfortable or too difficult, he is nowhere to be seen. He may have thought it was clever to have a parliamentary vote to distract from the Government’s record of high taxes, high prices and high levels of waste, but his plan to cap investment will only make things worse by stunting the economy and trapping us further in the Tories’ low-growth cycle.

The Tories are putting up taxes on working people in 2022 despite energy bills being set to soar, and they are spending their time struggling to defend their damaging investment cap rather than tackling the climate crisis, creating jobs and heeding calls from business to invest in the future. The Opposition will not vote to lock us further into a low-growth, high-tax cycle. We will back British businesses and workers by supporting the investment needed in net zero growth to create jobs for the future, fund first-class public services and improve living standards for everyone in our country.

Finance (No. 2) Bill (Third sitting)

James Murray Excerpts

Committee stage
Wednesday 5th January 2022 Public Bill Committees

[The Financial Secretary to the Treasury (Lucy Frazer)]

It is a pleasure to serve under your chairmanship, Dame Angela. Like you, I wish all members of the Committee a happy new year. As the Committee will know, the Government are determined to bring an end to unsafe cladding, to reassure homeowners and to support confidence in the housing market. As part of the building safety package announced in February 2021, we are introducing a new residential property developer tax, which will raise at least £2 billion over the next decade to help to pay for building safety remediation.

As announced on 10 February 2021 by the previous Secretary of State for Housing, Communities and Local Government, my right hon. Friend the Member for Newark (Robert Jenrick), the RPDT is one of two new revenue-raising measures that will ensure that developers make a fair contribution to the costs of remediation. Clauses 32 and 33 introduce a new residential property developer tax to be charged at a rate of 4% on the profits of businesses carrying out residential property development activity that exceed its allowance for an accounting period. The clauses confirm that the RPDT is charged as if it were an amount of UK corporation tax.

Clause 52 is an anti-avoidance provision, which prevents taxpayers from adjusting their profits arising in an accounting period in order to obtain a tax advantage. The clause will apply where trading profits derived from residential property development activities arise in the accounting period ending before the commencement of RPDT, and arose only because of arrangements made on or after 29 April 2021.

New clause 3, tabled by the hon. Member for Glasgow Central, seeks to require the Government to publish an assessment of the impact of RPDT on the tax gap, and of whether it has increased opportunities for tax evasion and avoidance. As the RPDT has been designed to be aligned with UK corporation tax, the existing corporation tax compliance mechanisms, such as inquiries, information powers and penalties, will apply to RPDT, as well as anti-avoidance rules including transfer pricing and the general anti-abuse rule.

Her Majesty’s Revenue and Customs regularly reports on the taxes that it is responsible for collecting, and the RPDT will be no exception. HMRC will assess the impact of RPDT on the tax gap in its annual “Measuring tax gaps” reports, and will monitor RPDT revenue in its annual tax receipts statistical publications. The Government also carefully assessed the impacts of RPDT throughout the consultation period and published a detailed impact assessment of RPDT at the autumn Budget. For those reasons, I believe that a further impact assessment is not appropriate, and I therefore ask the Committee to reject the new clause.

New clause 18, tabled by the hon. Members for Ealing North, for Erith and Thamesmead and for Blaydon, seeks to require the publication of an annual review of the tax, including the revenue raised, the estimated yield that would have been raised had the tax been set at various differential rates—6%, 8% and 10%—and the wider effects of the higher rates. HMRC regularly reports on the taxes that it is responsible for collecting, and the RPDT will be no exception. The revenue raised from RPDT will be published in HMRC’s annual tax receipts statistics publications.

The RPDT rate was carefully considered in the context of the upcoming increase in the main rate of corporation tax in 2023, other taxes and forthcoming regulatory changes, as well as the wider macroeconomic environment. The 4% rate of RPDT balances the need to raise £2 billion over a decade—at the same time as seeking a fair contribution from the residential property development sector—against the need to ensure that the tax does not have a significant impact on housing supply. The Government monitor the tax system continuously and will keep the tax under review. For those reasons, I believe that a further annual review of RPDT is not appropriate, and I therefore ask the Committee to reject new clause 18.

In conclusion, the clauses in this group form the first part of the legislation needed to introduce RPDT in April 2022 and the necessary anti-avoidance provisions. I therefore recommend that the clauses stand part of the Bill.

[James Murray (Ealing North) (Lab/Co-op)]

It is a pleasure to serve on a second Finance Bill Committee under your chairship, Dame Angela.

I will address the clauses that the Minister set out in her remarks, starting with clause 32, which notes that the new residential property developer tax will be applicable from 1 April 2022, as announced at the spring Budget of 2021. As we have heard, this is a new, time-limited tax on the profits of residential property development companies’ property development activity, with a rate of 4% over a £25 million allowance. The Government estimate that it will generate £2 billion over the course of a decade, and they said that the funds are earmarked to help with cladding remediation costs, according to the former Secretary of State for Housing, the right hon. Member for Newark (Robert Jenrick), who spoke to the Building Safety Bill in February 2021. The explanatory note for the clause states that the tax is to

“ensure that the largest developers make a fair contribution to help fund the Government’s cladding remediation costs.”

We support the principle behind the new tax, but I intend to use this Committee sitting to question the Ministers on the detail of its design and to probe their views on its place in the Government’s wider response to the cladding scandal. We know that the Bill has been consulted on, but we also note stakeholders’ disappointment that the consultation process was truncated, as stage 1 —setting out objectives and identifying options—was cancelled. Although we recognise the importance of moving quickly to raise revenue in order to help meet the costs of remediating unsafe cladding on buildings, it is disappointing that the Government were not able to conduct a thorough consultation.

Clause 33 sets the rate of the RPDT charge at 4% on profits that exceed the allowance of £25 million. The tax is charged as if it were an amount of corporation tax chargeable on the developer. As I mentioned earlier, the Government expect that £2 billion of revenue will be generated while the tax is in effect, so I will ask the Minister several questions in order to try to clarify the reasoning behind some of the Government’s decisions on the detail of the tax. First, we note that the tax does not come with a sunset clause, and therefore active legislation will be required to repeal it when it comes to an end. Will the Minister explain the reasoning behind that decision? If the tax is intended to be time-limited, why have the Government have chosen to leave it in need of active repeal, rather than simply adding a sunset clause?

Secondly, I mentioned that the expected revenue from the tax is £2 billion. We know, however, that that is just a fraction of the total cost of remediating unsafe cladding, which was estimated by the then Housing, Communities and Local Government Committee in April 2021 to be about £15 billion. What is more, labour and material shortages have significantly driven up the cost of construction. That is thought to add £1.2 billion to the overall cost of remediation, wiping out most of any gain from this tax. With the cost of cladding remediation already thought to be so much greater than the amount that the tax is expected to raise, and with that gap likely only to increase, will the Minister try to explain further why the rate was set at 4%? Will she confirm whether, if the amount raised should fall short of £2 billion or if costs should increase substantially, the Government would be open to considering raising the level of the tax?

It was in pursuit of an answer to that question that we tabled new clause 18, which would require the Government to publish a review of the residential property developer tax within three months of the end of the first year of it applying, and thereafter annually, within three months of the end of each subsequent year that the tax applies. The review, as updated, must assess how much the RPDT has raised in each year of its operation so far and how much it is estimated that it would have raised at levels of 6%, 8% and 10%.

As I mentioned, the cost of remediating unsafe cladding was estimated last year to be about £15 billion, and the cost of labour and materials has increased due to supply chain crises. Industry experts have estimated an 8% increase in the cost of cladding jobs, compared with last year. As I mentioned, that could increase the total cost by £1.2 billion. As I said, this tax aims to raise £2 billion, which is just a fraction of the total cost and much of which, it seems, will be wiped out by rising costs.

We have therefore tabled this new clause to ask the Government to assess how much they could raise through the tax and how much they could raise with different rates. Given the significant discrepancy between the estimated revenue raised by the RPDT and the estimated cost of remediation, will the Minister set out in further detail, when she responds, exactly how the rate of 4% was reached and what specific consideration was given to alternatives? It was with that in mind that we tabled the new clause. We will not seek to put it to a vote, but we hope that it will help us to debate and probe the important and central issue of the rate at which the RPDT has been set.

In summary, I will be grateful if, in her reply, the Minister could set out exactly how the figure of 4% was arrived at and, furthermore, how she expects the rest of the cost of cladding remediation to be met. I would be grateful if she could set out, either in her reply now or in writing, what other sources of funding she anticipates being used to meet the total cost of cladding remediation.

Finally in relation to this group, I will briefly mention clause 52, which is an anti-avoidance provision preventing taxpayers from adjusting their profits arising in an accounting period in order to obtain a tax advantage for the purposes of this tax. We welcome the intent behind that clause and will not oppose it.

[Richard Thomson (Gordon) (SNP)]

It is a pleasure to serve under your chairmanship, Dame Angela. I rise to speak to new clause 3, in the name of my hon. Friend the Member for Glasgow Central. As the Minister outlined, this new clause would require a Government assessment of the impact of the residential property developer tax being introduced by the Bill and of its effect on opportunities for tax evasion and avoidance.

We are all familiar with what this tax sets out to achieve and those on whom it should fall. There is a £25 million annual allowance for construction firms, and the tax will be levied above that at 4%. That does not take a great deal of time to say, but unfortunately, giving it effect requires 16 pages and a further eight pages across two schedules in the Bill and a great many more pages in the explanatory notes to say exactly how it will work in practice. Therefore, the opportunity for genuine confusion, for interpretation and, sadly, for evasion and avoidance is certainly a real and present danger in the legislation.

The anticipated impacts are set out in table 5.1 of the “Autumn Budget and Spending Review 2021”. We are not talking huge sums from this tax, but given its stated purpose and the means to which the revenues are going to be put, I think that reviewing its impact—not just in a financial sense, but in the sense of the unintended consequences that it could have and the havoc that it could wreak in terms of confusion, differences of interpretation, and avoidance and evasion—seems to be an eminently reasonable thing to do. I urge the Minister to reconsider how the Government intend to tackle that once the tax is implemented.

[Lucy Frazer]

I very much welcome the initial comments of the hon. Member for Ealing North, and that he welcomes the points in principle. That is important, given that we are trying to help those people who have suffered a terrible tragedy and ensure that we have the necessary funds to remedy the situation. He asked several questions, the first of which related to consultation. I reassure him that the Government undertook extensive stakeholder engagement as part of the 12-week consultation —holding 40 consultative meetings—to help ensure that the issues raised in the consultation about the design and impact were considered fully.

The hon. Gentleman also mentioned a sunset clause. We have been clear that this is a measure to raise £2 billion-worth of revenue by way of tax, and that it will be time limited and will be repealed once sufficient revenue has been raised. As with all other taxes, the Government will keep this tax under review.

The hon. Gentleman asked whether the 4% rate was sufficient. However, at the same time, he also mentioned the supply chain issues that might mean that the cost of construction has gone up. It is, of course, important to ensure that what we ask from developers is fair, in order to ensure that their businesses remain viable and sustainable at the same time as contributing to this issue. The rate was carefully considered in the context of the upcoming increase in corporation tax, other taxes, the regulatory changes and the wider macroeconomic environment. We feel that 4% represents the right balance, raising the £2 billion over a decade while being fair and not having an impact on housing supply. The hon. Gentleman asked how we came to this rate; we considered it very carefully and decided on 4%.

[James Murray]

For the sake of clarity, I would be grateful if the Minister could help my understanding. She said that the tax was intended to raise £2 billion over 10 years, but she may have implied that if it has not raised £2 billion over 10 years, it would keep applying until £2 billion was raised. Is it for 10 years, or is it for £2 billion? The Government will not necessarily raise £2 billion over exactly 10 years; one has to come before the other. Is it going to be for 10 years and then finish—no matter what it has raised—or will it keep going until it has raised £2 billion?

[Lucy Frazer]

The Government have made clear that they propose to raise £2 billion from this tax. They have done extensive analysis as to what the appropriate rate is to recover that amount. At a rate of 4%, we anticipate that we will raise that £2 billion—in fact, slightly more than that—in 10 years, and that is when the tax will come to an end.

I will address the points made by the hon. Member for Gordon, because he rightly raised an important point about tax avoidance. It is HMRC’s duty to ensure that we do not have tax avoidance and evasion. However, I reassure him that the existing corporation tax compliance mechanisms that currently exist—which include inquiries, information powers and penalties—will apply to this tax, as well as anti-avoidance rules, including transfer pricing and the general anti-abuse rule. He did not specifically raise any particular measures that he thought would be anti-avoidance or abuse—if there are any, I would be very interested to hear them in due course and discuss that with him.

For those reasons, we ask the Committee to reject the two new clauses and to agree that clauses 32 and 33 stand part.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.

Clause 33 ordered to stand part of the Bill.

--- Later in debate ---

[Lucy Frazer]

Clauses 34 to 38 set out key definitions for the residential property developer tax, which collectively set out the conditions that need to be satisfied for a business to be in scope of the tax. Clauses 47 to 51 and schedule 9 address a mix of aims within the tax, including the definition of a group, excluding a deduction for the tax when calculating profits or losses for other tax purposes, and the application of transfer pricing principles for the purpose of the residential property developer tax.

Clause 34 defines a residential property developer, and confirms that to be in scope of the RPDT, a business must be a company that undertakes residential property development activities as further defined in clause 35. Clause 34 provides an exclusion for non-profit housing companies and their wholly owned subsidiary companies from being treated as residential property developers for the purposes of the RPDT. The clause defines a non-profit housing company by reference to existing legislation, and a power has been taken that allows the definition to be updated in future in line with any changes to regulatory frameworks.

Clause 35 provides a non-exhaustive list of what amounts to residential property development activities, and confirms that profits from these activities undertaken by the developer on or in connection with UK land in which it has an interest will form the tax base.

Clause 36 explains that a residential property developer or a related company will have an interest in the land for the purposes of the tax where it has an interest in or over the land that forms part of its trading stock used in its development trade. It explains the tax’s application to related companies and joint venture companies.

Clause 37 provides a definition of residential property and sets out the types of properties that will not be regarded as residential property. The clause excludes certain types of buildings from the definition of residential property, so that any profits or losses from their development are not taken into account when computing profits that are subject to the tax. These include, typically, specialised institutions that provide temporary or longer-term accommodation for a specific class of residents, and buildings that are occupied purely under licence to occupants who do not hold any lasting rights over the property. Finally, the clause sets out the criteria to be met in relation to buildings that are excluded from the definition of residential property as student accommodation. Clause 38 sets out the formula used to calculate the residential profits or losses from residential property development activity by a developer for an accounting period.

Clause 47 introduces an exit charge that applies when a non-profit housing company ceases to meet the conditions to be exempt from the RPDT, and sets out the operation of the exit charge. This rule has been welcomed by the non-profit sector.

Clause 48 provides the definition of a group of companies for the purposes of the RPDT, other than for the group relief rules in schedule 7. Since a group of companies is entitled to a single £25 million allowance, it is important to set out clearly what constitutes a group for that purpose.

Clause 49 introduces schedule 9, which introduces a rule preventing a residential property developer from obtaining any deduction for the tax when calculating any profits or losses for income tax or corporation tax purposes. Clause 50 sets out where the meaning of various terms used in the RPDT legislation can be found.

Clause 51 confirms that the RPDT will apply for an accounting period for UK corporation tax purposes of a developer that ends on or after 1 April 2022. It sets out the treatment of accounting periods that straddle the commencement date of 1 April 2022. The RPDT will be chargeable only in respect of profits calculated from 1 April 2022 to the end of the accounting period, with an apportionment being made of the profits for the whole accounting period on a time basis.

In summary, this group of clauses defines key terms needed for the RPDT to work and provides the essential framework for the administration of the tax. The clauses will be supported by guidance to provide further clarity for taxpayers.

[James Murray]

As we have heard, clauses 34 to 38 concern the key concepts contained in the RPDT legislation. Clause 34 sets the basic conditions that, when satisfied, mean that a company is to be designated as a residential property developer, potentially within the charge of the RPDT. Subsection (1) defines an RP developer as either a company that undertakes residential property development activities or one that holds

“a substantial interest in a relevant joint venture company.”

The company’s interest in such a joint venture is aggregated with those of other members of the same group to determine whether that is a substantial interest.

Subsection (3) clarifies that a non-profit housing association or organisation is not treated as an RP developer for the purposes of the tax. That is a very important distinction that we support. My colleagues in the shadow housing team pressed the Government on that point during Committee stage of the Building Safety Bill, and I welcome that being reflected in this Bill.

Subsection (4) is a logical extension of subsection (3), determining that wholly owned subsidiary companies of non-profit housing companies are also excluded from being treated as RP developers for the purposes of the tax. It makes sense to exclude non-profit housing associations from RPDT, particularly given that they have already made a much more substantial contribution to cladding remediation than private developers. Research by the National Housing Federation in October 2021 found that private developers and cladding manufacturers had allocated £643 million of future profits to remediate unsafe cladding, while non-profit housing associations have estimated that their remediations will cost in excess of £10 billion.

Subsection (5) allows the Treasury to amend the definition of a non-profit housing company by regulation, and to make any consequential changes to this part of the legislation. As we have heard, that allows the definition to be updated, in line with any changes to the regulatory framework for registered social housing providers. It may be understandable that the Government want to be able to adjust definitions to match any changes in the way that social housing providers operate, as well as to recognise the impact of any changes to the regulatory framework. However, so that we can better understand the Government’s concerns, I would be grateful if the Minister could indicate why it may be necessary to amend the definition of a non-profit housing company.

Clause 35 sets out the criteria and definitions of residential property development activities for the purposes of the tax, as well as setting the territorial scope of the legislation. Subsection (1) brings within scope anything that is done by an RP developer or in connection with land in the United Kingdom for the purposes of the development of a residential property. A developer must have an interest in the land at some point for the activity there to be RP developer activity for the purposes of the tax. Land in that respect is taken to include buildings or structures on a piece of land. The requirement for an interest in land means that profits from similar activities undertaken by companies acting purely as third-party contractors, who are not RP developers, do not come within the charge of the tax.

Clause 36 raises an important question about who the RPDT applies to. Subsection (1) sets out the definition of an interest in land for the purposes of the tax. Broadly, it sets out that, when an RP developer has an interest in land, it must have

“an estate, interest, right or power in or over the land”.

That estate, interest, right or power must form

“part of the RP developer’s, or the related company’s, trading stock”.

Subsection (4) elaborates what “trading stock” refers to and makes clear the importance of an estate, interest, right or power in or over land being disposed of. It is the point about disposal that I would like to probe further. Discussions with Clerks about whether new clause 19 was selectable drew out the fact that the residential property developer tax is aimed at developers that do development work in order to trade property once the work has been done. It seems clear to me that the RPDT would apply in the case of a developer who builds homes and sells their freehold interest once the development is complete, but what happens when the developer retains some sort of interest for a specific period of time, or indefinitely?

--- Later in debate ---

[Lucy Frazer]

Clauses 39 to 42 set out how to calculate the tax base for the purposes of RPDT for an accounting period. Clause 39 sets out what adjustments are made to the UK corporation tax trading profits or losses to arrive at the adjusted trading profits or losses of a residential property developer for the purposes of RPDT. The clause provides that any apportionment of in-scope activity and other activities are to be made on a just and reasonable basis. The clause also provides for an exclusion for any trading profits from residential property development activities that are carried out by a company for charitable purposes.

Clause 40 sets out how any joint venture profits or losses attributable to a developer are determined for the purposes of calculating RPDT profits or losses. The clause confirms the criteria for a relevant joint venture company to fall within the charge to RPDT and how the joint venture profits or losses will be attributed to the developer.

Clause 41 introduces parts 1 to 4 of schedule 7, which make provisions for loss relief and group relief for the purposes of RPDT. As they largely replicate the rules that apply generally for corporation tax, I do not propose to spend long taking the Committee through them. Part 1 of schedule 7 allows any unrelieved RPDT loss to be carried forward against RPDT profits in the next accounting period. Parts 2 to 4 of schedule 7 apply equivalent rules for UK corporation tax group relief for the purposes of RPDT.

Clause 42 restricts the amount of a carried forward loss that can be set against profits of a later period for the purposes of RPDT. This ensures that carried forward losses do not reduce profits above the annual allowance that are chargeable to RPDT by more than 50%, in line with the treatment of carried forward losses under UK corporation tax.

In summary, these clauses and the schedule set out important mechanics for the calculation of the base of the tax, and I therefore recommend that they stand part of the Bill.

[James Murray]

As we have heard, clause 39 concerns adjusted trading profits and losses relating to the calculation of the RPDT charge. Subsection (2) lists the circumstances in which trading profit and loss can be ignored in the calculation of the charge. These are those profits, losses, and any allowances or charges under the Capital Allowances Act 2001 that do not relate to residential property development activity, corporation tax loss relief, and group relief, and any amounts that are taken into account in calculating trading income by the operation of the loan relationship and the derivative contracts rules.

Also, any trading profits from residential property development activities that are carried out by a charitable company and apply for the purposes of the charitable company are ignored. Furthermore, we can see that in subsection (3) there is provision whereby corporation tax profits, losses or capital allowances and charges that relate to both the company’s residential property development activity and any other activities may be apportioned between the RP developer activities and other activities on a just and reasonable basis.

Clause 40 focuses on attributable joint venture profits and losses. The clause sets out how an amount a joint venture profits or losses attributable to a developer is determined for the purposes of calculating RP developer profits or losses under clause 38 for the purposes of this tax. The clause confirms the criteria for a relevant joint venture company to fall within the charge of this tax. Notably, we see that where there are five or fewer persons who between them own at least 75% shareholding, the holdings of members of the group are to be aggregated and treated as one holding.

Clause 41 introduces schedule 7 and relates to RPDT reliefs where provision is made for loss relief and group relief for the purposes of RPDT. Part 1 of schedule 7 clarifies that an unrelieved RPDT loss is to be carried forward against RPDT profits in the next accounting period, but its use is subject to the restriction to setting off against 50% of the profits of any future accounting period, as provided for by clause 42, which I shall refer to shortly. Part 2 concerns RPDT group relief, which is comparable to corporate tax group relief that has been set out specifically for the purposes of the tax under discussion today. Part 3 is similar, in that it applies the principles of carried-forward group relief from corporation tax to the RPDT.

Relatedly, we see clause 42 impose a restriction on the use of carried-forward losses for the purposes of the RPDT. That ensures that carried-forward losses do not reduce profits above the annual allowance that are chargeable to RPDT by more than 50%. That corresponds to the treatment of carried-forward losses for the purposes of corporation tax on trading profits. We will not be opposing the clauses or the schedule.

[Lucy Frazer]

I am grateful for the indication that there will be no opposition, so I ask that the clauses stand part of the Bill.

Question put and agreed to.

Clause 39 accordingly ordered to stand part of the Bill.

Clauses 40 and 41 ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 42 ordered to stand part of the Bill.

Clause 43

Allowance

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Lucy Frazer]

Clauses 43 and 44 provide for the operation of the annual allowance. The RPDT will be charged on the profits that exceed a residential property developer’s £25 million annual allowance. Clause 43 provides for the operation of the £25 million annual allowance that is available to each group of companies before profits become chargeable to RPDT. A power is included that allows HMRC to set the process for a group of companies to allocate its allowance in secondary legislation.

Clause 44 provides for the calculation of the annual allowance for the RPDT where the profits of a member of a joint venture company are not chargeable to UK corporation tax. It provides for the allowance of a JV company to be reduced and for the exempt member to instead have an annual allowance that can be allocated to its joint venture interests. Although the rule may seem complicated at first glance, it will ensure that where a non-taxable investor, such as a pension fund, has interests in several joint ventures, those joint venture companies do not benefit from multiple allowances. In summary, clauses 43 and 44 ensure that RPDT is proportionate, administrable and targeted at the largest developers.

[James Murray]

As the Minister has described, clause 43 relates to allowances and provides for the operation of the allowance that is deducted from profits chargeable under the RPDT. Under clause 43, the £25 million allowance is adjusted pro rata when an accounting period is less than a year. Within a group of developers, the allowance can also be allocated between member companies at the direction of an allocating member. In the absence of an allocating member, the allowance is to be evenly split between the total number of members.

Clause 44 applies a similar principle to joint venture companies and sets out the terms of allowance within the RPDT. Critically, where a member of a joint venture company is outside the scope of corporation tax because it is an offshore entity, a sovereign immune entity or an institutional investor, the allowance afforded to the joint venture company is reduced in proportion to the percentage competition of members that are outside its scope. We support the principle of removing unfair tax advantages and maintaining fair competition in the market, and therefore we will not oppose the clauses.

[Lucy Frazer]

Again, I am very grateful for that indication. I commend the clauses to the Committee.

Question put and agreed to.

Clause 43 accordingly ordered to stand part of the Bill.

Clause 44 ordered to stand part of the Bill.

Clause 45

Application of corporation tax provisions and management of RPDT

Question proposed, That the clause stand part of the Bill.

[Lucy Frazer]

Clause 45 and schedule 8 provide for RPDT to be treated for administrative purposes as an amount of UK corporation tax. Clause 45 outlines the framework within which RPDT will operate and makes necessary amendments to existing administrative legislation to accommodate RPDT. It also introduces schedule 8, which makes further provisions about the management of RPDT, including setting out the circumstances in which a company will not be required to report its RPDT profits, which will reduce any administrative burden for groups with profits that are unlikely to exceed the annual allowance.

In summary, the clause and schedule set out important mechanics for the collection, management and payment of RPDT.

[James Murray]

As the Minister has described, clause 45 and schedule 8 concern the application of corporation tax provisions and management. The clause applies general corporation tax principles to the RPDT and provides that RPDT be treated for administrative purposes as an amount of corporation tax. The clause and schedule outline the framework within which RPDT will operate and make necessary amendments to administrative legislation to accommodate RPDT.

As pointed out by the Chartered Institute of Taxation, the alignment with corporation tax and other existing mechanisms should reduce some administrative burdens for both developers and HMRC, which we welcome. However, we note that the turnaround on this novel tax, as mentioned earlier in this Committee sitting, is rapid. Given the truncated consultation period, I seek reassurances from the Minister that HMRC’s systems will be ready for the collection, management and payment of RPDT. I would be grateful if the Minister could also confirm whether any additional budget allocation has been offered to HMRC to support the roll-out of RPDT and, if so, what the value of the allocation is.

[Lucy Frazer]

I assure the hon. Gentleman, as I assured the hon. Member for Glasgow Central some moments ago, that HMRC will be ready to bring in the tax that we are legislating for. As he will know, we have just gone through a spending review. HMRC will have sufficient funds to ensure that it can comply with its duties and obligations.

Question put and agreed to.

Clause 45 accordingly ordered to stand part of the Bill.

Schedule 8 agreed to.

Clause 46

Requirement to provide information about payments

Question proposed, That the clause stand part of the Bill.

[Lucy Frazer]

Clause 46 provides for RPDT receipts to be monitored. It introduces a requirement for residential property developers making an RPDT payment to state the amount of the payment to HMRC in writing in order to ensure that RPDT receipts can be monitored. It also provides for a penalty if there is a failure to comply with that requirement. In summary, the clause sets out an important requirement to enable HMRC to monitor RPDT revenue.

[James Murray]

As we have heard, clause 46 introduces a requirement for companies making a payment of RPDT to provide information about a payment to HMRC so that receipts for the tax can be monitored. The clause sets out the definition of the responsible company—the company making payment on behalf of the RP developer under relevant group payment arrangements or, in any other case, the RP developer itself.

The clause further requires that the responsible company must notify an officer of HMRC in writing, on or before the date when the payment is made, of the amount of the payment due under RPDT. In addition, the clause refers to penalties for failing to inform HMRC about payments owed. Penalties are aligned with previous legislation on corporation tax notices. We will not oppose the clause.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.

Clauses 47 to 49 ordered to stand part of the Bill.

Schedule 9 agreed to.

Clauses 50 to 52 ordered to stand part of the Bill.

Clause 67

Securitisation companies and qualifying transformer vehicles

Question proposed, That the clause stand part of the Bill.

[Lucy Frazer]

Clause 67 introduces a power enabling changes to be made by secondary legislation to stamp duty and stamp duty reserve tax in relation to securitisation and insurance-linked security arrangements. The Government are keen to ensure that the UK’s stamp duty and SDRT rules contribute to maintaining the UK’s position as a leading financial services sector.

On 30 November, the Government published a response document and a draft statutory instrument following consultation on reform of the tax rules for securitisation companies. The consultation explored issues including the application of the stamp duty loan capital exemption to securitisation and ILS arrangements. The consultation sought views on whether uncertainty as to how the existing stamp duty loan capital exemption applies increases the costs and complexity of UK securitisation and ILS arrangements, and whether that is a factor in arrangements being set up outside the UK.

Clause 67 will allow Her Majesty’s Treasury to make regulations to provide that no stamp duty or stamp duty reserve tax charge will arise in relation to the transfer of securities issued by a securitisation company or a qualifying transformer vehicle. A qualifying transformer vehicle is the note-issuing entity in an ILS arrangement. The power will also allow HMT to make regulations to provide that stamp duty or SDRT is not chargeable on transfers of securities to or by a securitisation company. The power allows the Government to make changes to allow UK securitisation and ILS arrangements to operate more effectively, and reduce cost and complexity. There is currently no power to make changes through secondary legislation to the stamp duty and SDRT rules in relation to securitisation and ILS arrangements.

In summary, clause 67 will support the Government to respond flexibly to the evolving commercial practices of the securitisation and ILS markets, and ensure that the UK’s securitisation and ILS regimes remain competitive. I therefore commend the clause to the Committee.