Draft Double Taxation Relief and International Tax Enforcement (Taiwan) Order 2021

Lucy Frazer Excerpts

Thursday 25th November 2021 General Committees

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

I beg to move,

That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Taiwan) Order 2021.

It is a pleasure to appear before you again, Ms Rees.

The draft order will give effect to a protocol that was agreed in August to amend the existing double taxation agreement, or DTA, in relation to Taiwan. The order inserts into legislation important provisions recommended by the Organisation for Economic Co-operation and Development and the G20’s project on base erosion and profit shifting, or BEPS, to prevent abuse of the DTA and to improve dispute resolution.

The draft order also includes the latest exchange-of-information provisions following the OECD model tax convention, which informs bilateral treaty negotiations and is largely followed by the UK. Furthermore, the order adds a rule to protect the UK’s taxing rights over dividends paid from investment vehicles linked to land and property such as UK real estate investment trusts, or REITs.

I will now give a brief explanation of the draft order’s context before talking in more detail about the changes that it makes. As Members may recall, the BEPS project was an international effort co-ordinated by the OECD to tackle tax avoidance and improve the operation of double taxation agreements generally. It recommended a range of provisions that could be adopted in DTAs to ensure that they continued to fulfil their main purpose of supporting global trade and investment while limiting the opportunity for the agreements to be used for tax evasion or avoidance.

The draft order includes all the minimum standards that were recommended by the BEPS project to prevent avoidance through the abuse of tax treaties and to improve dispute resolution in relation to the Taiwan DTA. Specifically, the order gives effect to the minimum standard on preventing treaty abuse by adding a rule known as the principal purpose test. This ensures that the DTA does not provide opportunities for non-taxation or reduced taxation through evasion or avoidance, including through so-called treaty shopping arrangements, where transactions are routed through particular jurisdictions to take advantage of benefits provided by its DTA. Furthermore, the order changes the preamble of the DTA to make it clear that the contracting parties do not intend it to be used to avoid tax.

The draft order gives effect to the minimum standard on improving dispute resolution set out in the final recommendations of the BEPS project by changing the provisions that govern how disputes involving the application of the DTA are resolved. Those changes mean that, where a taxpayer considers that the DTA has not been applied correctly, they can present their case to either tax authority, rather than just that of the territory where they are resident. It will also ensure that any resolution of the dispute must be implemented even if the time limits in the domestic law of either territory would otherwise prevent that.

The draft order includes other changes that were optional recommendations of the BEPS project. Such provisions clarify the treatment of fiscally transparent entities and insert a so-called saving clause, which makes it clear that the DTA cannot be used to sidestep domestic anti-avoidance rules. In addition, the order updates the tiebreaker rule, which determines the residence of dual resident companies under the DTA. Furthermore, a new provision ensures that, where a dividend is paid out of investment vehicles linked to land and real property, such as UK real estate investment trusts, the UK has the right to withhold tax at 15% on the dividend. That is an important provision included in recent UK DTAs and it protects the UK’s taxing rights over income from land and property situated in its territory.

Finally, the draft order updates the provision relating to capital gains. This allows the UK to tax gains on shares and comparable interests that derive at last 50% of their value from immovable property. I hope hon. Members have found this explanation of the context and detail of the order helpful. To sum up, the order implements improvements to the DTA in relation to Taiwan to tackle tax avoidance and evasion and to improve dispute resolution in line with current international standards. I commend the order to the Committee.

--- Later in debate ---

[Lucy Frazer]

I thank both Opposition Members for their contributions; it is helpful to hear from the hon. Members for Dunfermline and West Fife and for Ealing North that they will not be opposing the instrument today. The hon. Member for Ealing North gave a very clear summary, and he will know that on matters of international taxation we are very grateful to work with our international partners. I am very happy to discuss those wider matters of international taxation with him on another occasion. I am also happy to take up the point that the hon. Member for Dunfermline and West Fife mentioned. He will know that we always review our laws at appropriate times.

To sum up, the order strengthens the integrity of our network of DTAs, which play such an important part in facilitating the UK’s cross-border trade and investment. This legislation will ensure that our DTA in relation to Taiwan continues to meet the latest international standards on preventing treaty abuse and improving dispute resolution. In doing so, it will further support the already warm relationship we share with Taiwan.

Question put and agreed to.

Treasury

Lucy Frazer Excerpts

Friday 19th November 2021 Ministerial Corrections

[Rushanara Ali]

The Minister mentioned fairness a few times, and also the challenges facing the country. Why have her Government decided to give banks a reduction in the surcharge taxes they pay, which will cost the taxpayer £1 billion a year, when increasing numbers of our constituents are going hungry because of the failure to support them in the challenges they have faced over the last 18 months?

[Lucy Frazer]

I am grateful for the opportunity to answer that question, because the hon. Lady talked about a reduction in the amount banks are paying but that is not accurate: the banks will actually be paying a higher rate than previously. The hon. Lady might have noted that I referenced in my speech the fact that corporation tax was going up to 25%, and banks will be paying a higher rate than everybody else, who will be paying 25%; the banks will now be paying 28%, not the 27% they are currently paying. We are also ensuring that we have a competitive operating environment for these banks, because the banking sector not only contributes to the economy but employs 1 million people.

[Official Report, 16 November 2021, Vol. 703, c. 496.]

Letter of correction from the Financial Secretary to the Treasury:

An error has been identified in my response to the hon. Member for Bethnal Green and Bow (Rushanara Ali).

The correct information should have been:

[Lucy Frazer]

We are also ensuring that we have a competitive operating environment for these banks, because the banking sector not only contributes to the economy but employs almost half a million people.

Tax Administration and Maintenance Plans

Lucy Frazer Excerpts

Thursday 18th November 2021 Written Statements

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

Autumn Budget and spending review 2021 announced that the Government would bring forward a further set of plans for tax administration and maintenance later in the autumn, which follows a similar set of announcements published in “Tax policies and consultations: Spring 2021” [CP 404] after the spring budget. I am pleased to confirm that the Government will set out these announcements on 30 November. The tax administration and maintenance Command Paper will outline further steps the Government are taking to further progress tax simplification, tackle non-compliance and ensure our tax system is fit for the modern world.

[HCWS403]

Value Added Tax (Distance Selling and Miscellaneous Amendments No. 2) Regulations 2021 Customs Tariff (Establishment and Suspension of Import Duty) (EU Exit) (Amendment) (No. 2) Regulations 2021

Lucy Frazer Excerpts

Thursday 18th November 2021 General Committees

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

I beg to move,

That the Committee has considered the Value Added Tax (Distance Selling and Miscellaneous Amendments No. 2) Regulations 2021 (S.I. 2021, No. 1165).

[The Chair]

With this it will be convenient to consider the Customs Tariff (Establishment and Suspension of Import Duty) (EU Exit) (Amendment) (No. 2) Regulations 2021 (S.I. 2021, No. 1191).

[Lucy Frazer]

It is a pleasure to be here under your chairmanship, Ms Rees. I am discussing two measures that ensure that UK tax legislation is consistent with intended policy aims and brings in the latest updates to the UK’s tariff suspensions policy.

The first measure is the Value Added Tax (Distance Selling and Miscellaneous Amendments No. 2) Regulations 2021, which relate to two VAT simplification schemes that are optional for businesses to use. These were introduced as part of the VAT e-commerce changes in Northern Ireland in July of this year. Before I explain what the changes do, I will tell the Committee how the schemes work. The first is the optional One Stop Shop scheme: a simplified VAT reporting scheme available to all UK businesses selling goods from Northern Ireland to EU customers where their annual total sale of goods to final customers based in EU member states or Northern Ireland exceeds £8,818. It allows those businesses to register in just one EU member state or Northern Ireland. The businesses can then account for VAT on all their sales of goods to final consumers located in the EU and Northern Ireland on one single quarterly VAT return. The alternative is for businesses to register for VAT in each EU member state to which they sell goods.

The second scheme is similar. It is the optional Import One Stop Shop scheme. In contrast to the One Stop Shop, which applies only to goods sold from Northern Ireland to the EU, the Import One Stop Shop is a simplified import VAT scheme available to UK businesses importing low-value goods into Northern Ireland or the EU from elsewhere. It allows businesses that import low-value goods worth up to £135 into the EU or Northern Ireland to register and account for the VAT in one EU member state or Northern Ireland on a single return, without any import VAT being charged at the port of importation. The alternative is for the recipient to account for import VAT in each country into which goods are imported.

In summary, the two schemes provide benefits to UK businesses that are selling goods from Northern Ireland to consumers in an EU member state, or are importing low-value goods into the EU or Northern Ireland. The statutory instrument makes a number of minor and consequential changes to the VAT legislation and to the e-commerce schemes to improve clarity.

The other measure that we are debating today, the Customs Tariff (Establishment and Suspension of Import Duty) (EU Exit) (Amendment) (No. 2) Regulations 2021, extends and introduces new tariff suspensions, as well as correcting minor errors in previously made secondary legislation.

I will deal in more detail first with the Value Added Tax (Distance Selling and Miscellaneous Amendments No. 2) Regulations 2021. Following a review of the e-commerce legislation, a number of minor issues were identified that required legislative change. First, existing legislation requires that a person who holds goods in Northern Ireland to trade with the EU must be a person who is identified, for the purposes of VAT, in Northern Ireland. Those who register for the One Stop Shop scheme need to be so identified. This SI ensures that anyone who is registered for the One Stop Shop scheme is entitled to be a person who is identified, for the purposes of VAT, in Northern Ireland.

Secondly, this instrument removes superfluous references to “third country” or “third territory” in respect to Great Britain, which might otherwise be confusing to readers.

Thirdly, the instrument makes a change to describe a person who is registered for the OSS scheme in an EU member state as a participant in a non-UK scheme. This brings it into line with the same terminology used elsewhere in the Value Added Tax Act 1994.

Fourthly, shortly after the Finance Act 2021 received Royal Assent, a number of minor drafting errors and omissions were identified. These were addressed at the time in a time-limited transitory instrument—the Finance Act 2021, Section 95 and Schedule 18 (Distance Selling: Northern Ireland) (Appointed Day No. 1 and Transitory Provision) Regulations 2021. The instrument before this Committee retains one of those transitory changes, which clarifies that references to the IOSS scheme apply to all qualifying participants of the scheme in EU member states and Northern Ireland. The remaining transitory changes have been addressed in the VAT (Distance Selling and Miscellaneous Amendments) Regulations 2021—a negative procedure instrument, which was laid at the same time as this instrument.

Fifthly, this instrument also clarifies that references to Great Britain in the IOSS legislation equally apply to the Isle of Man.

Finally, in connection with EU Exit, this measure corrects a cross-referencing error in the legislation, ensuring that claimants who construct or convert an eligible building under the Northern Ireland DIY housebuilders’ scheme are able to recover VAT incurred on relevant goods obtained from EU suppliers. Claimants building in Great Britain would incur import VAT on the purchase of such goods from EU suppliers, which is already claimable under the DIY housebuilders’ scheme.

I now turn to the second instrument to be debated today: the Customs Tariff (Establishment and Suspension of Import Duty) (EU Exit) (Amendment) (No. 2) Regulations 2021. This instrument makes some amendments to existing tariff legislation that was laid before the House on 16 December 2020 to ensure that the UK’s first independent tariff schedule was ready for implementation.

I want to highlight two parts of this instrument. First, it updates our tariffs and suspensions policy to provide continuity for businesses and supports the Government’s healthcare response to covid-19. Approximately 2,200 tariff suspensions are currently in force, supporting UK businesses by relieving tariffs on imports for domestic production, such as raw materials for manufacturing and chemicals used for pharmaceutical products.

Those suspensions were due to expire at the end of this year. The instrument extends them for a further two and a half years, avoiding cost pressures on businesses that could arise from tariffs being applied to these goods. Given the adjustments that businesses have had to make this year, these extended suspensions will provide welcome certainty and support businesses across the country, with potential knock-on benefits for consumers.

The instrument also extends 89 tariff suspensions already in place for covid-19 critical goods, such as medical oxygen, plastic face shields and hand sanitiser. It also includes 14 new suspensions related to imports of vaccine inputs, as identified by the World Trade Organisation. These new and extended suspensions should support the UK’s wider healthcare response to the pandemic.

The second part of the instrument rectifies some administrative errors related to six tariff lines for articles of worn clothing and textiles, cosmetic products, and certain cables used in vehicles, aircraft and ships. These areas relate to missing tariff duties on these goods in the legislation, which, for some context, is six out of around 16,000 tariff lines.

Although traders were previously charged on the relevant goods at the rates intended, and as traders expected, that was inadvertently done, without those six rates being set out formally in tariff reference documents. After that was discovered as part of an ongoing review, systems were changed so that traders were no longer charged tariffs on these goods.

This instrument inserts the rates that were always intended to be charged, allowing Her Majesty’s Revenue and Customs to properly and lawfully correct these rates. It is worth noting that the majority of these lines saw little or no trade, although HMRC is in the process of contacting traders that were charged the intended rates, which were nevertheless missing from the legislation. More broadly, I emphasise that the vast majority of customs duties are being collected as intended.

In conclusion, the charges in the VAT instrument merely correct minor errors and make consequential changes to ensure that the VAT system operates as was always intended. While the tariff instrument makes limited corrections to address administrative errors, it also makes substantive updates to the UK’s suspensions policy, providing continuity for businesses and supporting the Government’s healthcare response to covid-19. I commend the regulations to the Committee, and I hope colleagues will join me in supporting them.

--- Later in debate ---

[Lucy Frazer]

It is great to see Parliament working at its best—when there are constructive comments in which everybody agrees with the principle of what the Government are doing. I am grateful that the Opposition Members are not opposing these necessary measures.

The hon. Member for Ealing North mentioned errors. I want to highlight that there are 16,000 tariff lines and 8,000 pages of legislation, and we are correcting six errors. The legislation was put in place at pace. Of course, errors are unfortunate, but these were very small. he also asked about a cumulative impact statement. We do produce impact statements, but I will take his suggestion away.

I would like to address the points made by my right hon. Friend the Member for Wycombe—

[Mr Baker]

Only honourable!

[Lucy Frazer]

Then I will address the points by my hon. Friend the Member for Wycombe. It is the Government’s policy to simplify taxation more broadly. We want to simplify our relationship with Northern Ireland, and we are progressing negotiations to achieve that. He has asked me a couple of questions that, unfortunately, go beyond the ambit of this narrow debate on VAT legislation and correcting minor errors about the relationship between businesses, EU law, the jurisdiction of the Court and the Northern Ireland protocol. I know that those matters are dear to his heart, but all I can say is that we are trying to achieve an appropriate landing point that is satisfactory to the people of Northern Ireland and the EU in the negotiations between Lord Frost and the EU negotiators. On that basis, I commend the statutory instruments to the House.

Question put and agreed to.

CUSTOMS TARIFF (ESTABLISHMENT AND SUSPENSION OF IMPORT DUTY) (EU EXIT) (AMENDMENT) (NO. 2) REGULATIONS 2021

Resolved,

That the Committee has considered the Customs Tariff (Establishment and Suspension of Import Duty) (EU Exit) (Amendment) (No. 2) Regulations 2021 (S.I. 2021, No. 1191).

Finance (No. 2) Bill

Lucy Frazer Excerpts

2nd reading
Tuesday 16th November 2021 Commons Chamber

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

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

On Sunday, MPs across the House remembered all those who died in conflict. It is now 76 years on from the time we started to rebuild our country from the devastation of world war two. The bombs that rained down during that war caused enormous loss of life. They tore our cities apart. In London, air raids wrecked or razed to the ground some 116,000 buildings, and in Liverpool and Bristol tens of thousands of buildings were damaged or destroyed.

While the war left a mark on the nation that lasts to this day, those dark years were followed by a period of reconstruction and renewal. In 1951, the iconic Royal Festival Hall opened in London as the centrepiece and legacy of the Festival of Britain. In the 1960s, Liverpool built its extraordinary Metropolitan Cathedral, while the iconic Severn bridge was constructed near Bristol.

Today, we are living in very different times, and we have thankfully not experienced such devastation here again, but we share some parallels with our wartime predecessors. As we emerge from the pandemic, our cities’ buildings may remain intact, but jobs, families and livelihoods have been at risk, and some have been damaged by the worst economic shock in 300 years. It is right, therefore, that we too now rebuild and turn our attention to creating a better future for this country and its people. Last month, the Chancellor started that work. His Budget set out our plans for the stronger economy that will allow Britain to succeed: an economy of stronger growth, stronger employment and stronger public finances, with higher wages, high skills and rising productivity. This Finance Bill will achieve that.

Before I turn to the Bill’s main measures, I will talk about its context. Our economic situation has improved since the last Finance Bill. We have moved away from emergency support to focusing on our recovery, which is now well under way. In fact, the economy is expected to bounce back to its pre-covid levels by the turn of the year—earlier than was expected in March—while our economic plan to safeguard jobs, livelihoods and businesses has worked. As a result, we can now invest in better public services, in jobs and skills, and in levelling up the country so that we open opportunity to everyone everywhere.

However, we should not forget that debt is still at its highest level as a percentage of GDP since the early 1960s and is set to pass £1.3 trillion. While this level of borrowing is still affordable, it leaves us vulnerable if another crisis hits, so we must continue to create a stronger economy that can withstand financial shocks. That is why the Chancellor announced a new charter for budget responsibility, with two fiscal rules that will keep us on the right track.

I want to focus on three aspects of the Budget in this Finance Bill: support for people, support for businesses and growth, and some underlying aspects of fairness. This is a Government who put people first, and this Bill’s measures complement the wider action we took in the Budget to support individuals and working families right around the country. We have reduced the universal credit taper rate and increased the national living wage so that work really does pay. We have continued our fuel duty freeze, helping to lower the cost of everyday life. We have announced that public sector workers will receive fair and affordable pay rises across the whole spending review period.

This Bill will improve people’s lives by backing the businesses that generate jobs and growth. In March, we extended the temporary £1 million level of annual investment allowance on plant and machinery assets. The allowance was due to revert to its previous level of £200,000, but as the Chancellor said:

“Now is not the time to remove tax breaks on investment”.—[Official Report, 27 October 2021; Vol. 702, c. 283.]

This Bill extends the £1 million level until the end of March 2023, encouraging firms to invest more and invest earlier.

While the changes to business rates that we announced in the Budget will encourage more firms to grow and invest, the Bill will also help the UK’s financial services industry became even more successful. In the March Budget, we said we would increase the corporation tax rate to 25% from 2023, for which we have now legislated. However, to make sure that our banks stay internationally competitive while still paying their fair share of tax, this Bill sets the bank surcharge rate at 3%. In addition, we are increasing the bank surcharge annual allowance from £25 million to £100 million, a move that will help smaller, challenger banks.

The Bill also supports another important industry—shipping. It does this by making our tonnage tax regime simpler and more competitive, and by rewarding companies that adopt the UK red ensign.

Finally, we should not forget that our cultural industries also contribute to our economic success. This Bill therefore extends the tax relief on museum and gallery exhibitions for another two years until the end of March 2024, and it doubles the tax relief for theatres, orchestras, museums and galleries until April 2023, to revert to the normal rate only in April 2024. This tax relief for culture is worth a quarter of a billion pounds.

Tax is of course central to our economic health and to funding the public services that make people’s lives better, but the way we collect tax must be fair and simple too, and the measures in this Bill will help us to achieve that. As Members will be aware, we are tackling the social care crisis with a new UK-wide 1.25% levy on national insurance contributions. This Bill will increase the tax rate on dividends by the same amount, so that those receiving this income will also contribute in line with employees and the self-employed.

[Clive Efford (Eltham) (Lab)]

Can the Minister tell the House just exactly how much of that national insurance increase is going to go to social care?

[Lucy Frazer]

The hon. Member will know that this has been set out. First, the money will go to the NHS, and then afterwards it will be going to social care. It is absolutely essential that we do that. £12 billion will be collected and will be going through to our social care services, as well as to the NHS.

[Clive Efford]

Will the Minister give way again?

[Lucy Frazer]

I will just carry on to my next point, which is that there will be an increase in the social care budget in the spending review period.

A fairer tax system also means tackling those who avoid paying their share. A new economic crime levy will help to fund measures that will prevent criminals from laundering money in the UK. It will apply to about 4,000 businesses and bring in £100 million. The Bill also contains tougher measures to prevent promoters from marketing tax avoidance schemes. In addition, it includes sanctions to tackle tobacco duty evasion, which costs the Exchequer an estimated £2.3 billion a year. The Bill also clamps down on electronic sales suppression, a form of tax evasion in which a business deliberately manipulates its electronic sales records to reduce its recorded turnover and corresponding tax liabilities.

[Peter Grant (Glenrothes) (SNP)]

I am pleased to hear about the Government’s commitment to taking on those who make money by promoting tax avoidance schemes. One such scheme that has been on the go for a long time is the loan charge. Can the Minister give us an update on progress towards bringing to account not the thousands of small-time self-employed people who have been caught, but the big players in that scandal? How many people have actually been surcharged or prosecuted for promoting loan charge schemes?

[Lucy Frazer]

I am grateful to the hon. Member for that question because I appreciate, since being in this role, that the loan charge is an issue that has affected many people across the country and that many MPs feel very strongly about. I have spent quite a considerable amount of time already talking about this issue not to only the chief executive officer of Her Majesty’s Revenue and Customs, but to officials. I have also had the opportunity to meet HMRC officials who are dealing with the vulnerable people who may be subject to the loan charge and to ask questions about how they are treating them.

The hon. Member makes a really good point, because the real perpetrators in relation to the loan charge are those who offer these schemes and getting people on low pay into them. An issue I have raised directly with HMRC is how we can further prosecute and bring these people to justice. Unfortunately, I understand that many of them are located offshore, but we will be doing everything we can to ensure that those who are responsible for promoting this are brought to justice.

This Bill deals with those who try to get out of paying tax, but it also creates a simpler and easier system. Its measures make capital gains tax easier to navigate, doubling the window for reporting and for paying CGT on residential property from 30 days to 60 days. This will give people longer to work out what they owe and make it less likely that they will make a mistake. For businesses, we are creating a simpler tax system through reforms to basis periods, leading to a simpler, fairer and more transparent set of rules for the allocation of trading income to tax years.

There is no doubt that the pandemic has cast a long shadow over this country and our finances, but just as our wartime predecessors rebuilt from the blitz, now is the time to open a new chapter in our national story—one of economic growth and renewal, and with it, transformed lives.

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

The Minister mentioned fairness a few times, and also the challenges facing the country. Why have her Government decided to give banks a reduction in the surcharge taxes they pay, which will cost the taxpayer £1 billion a year, when increasing numbers of our constituents are going hungry because of the failure to support them in the challenges they have faced over the last 18 months?

[Lucy Frazer]

I am grateful for the opportunity to answer that question, because the hon. Lady talked about a reduction in the amount banks are paying but that is not accurate: the banks will actually be paying a higher rate than previously. The hon. Lady might have noted that I referenced in my speech the fact that corporation tax was going up to 25%, and banks will be paying a higher rate than everybody else, who will be paying 25%; the banks will now be paying 28%, not the 27% they are currently paying. We are also ensuring that we have a competitive operating environment for these banks, because the banking sector not only contributes to the economy but employs 1 million people.[Official Report, 19 November 2021, Vol. 703, c. 5MC.]

The hon. Lady also said people were going hungry, but it is important to recognise what this Finance Bill and Budget do for those on the lowest pay. I have talked about the universal credit taper rate, bringing in an additional £1,000 for those in work who will benefit from it. We have also increased the national living wage, which will benefit people by an average of £1,000. There are a number of other measures, too, that benefit people who are not in work.

[Rushanara Ali]

But the reality is that there has been a UC cut, and the taper rate reduction, which is welcome, will help only a third of the 6 million affected. What about the 4 million others? This is not a fair Budget and it is wrong for this Government to treat the British people in this way given what they have faced in the pandemic over the last 18 months.

[Lucy Frazer]

The UC taper sends out a message that it is important to get into work and that work pays. We on the Government side of the House believe that the way to help people is to get them into work and into good jobs so they can support themselves, and we have a number of schemes to help those on UC to get into work. It is also important that when they are in work, they are paid well for it.

The hon. Lady also asked about those who are not in work, and I remind her of all the measures we have put in place for them, because not everybody can work. Before the Budget the Chancellor announced half a billion pounds for the most vulnerable—millions of vulnerable people will benefit from that. There are also more than 2 million people benefiting from the warm home discount and all the people who benefit from the council tax rebates we help them with. So it is right that we support the most vulnerable, but the UC credit taper is about making work pay.

We will invest in people, in businesses and in public services, just as we are doing with the 40 new hospitals, the 20,000 new police officers and the extra money we are providing to schools.

[Clive Efford]

I am grateful to the Minister for giving way again; she is being very generous. It is important that we nail down the issue of where the national insurance increase is going. The Minister said earlier that it was going to the NHS and then it was going into social care, but it cannot be spent twice, so when will that money be switched, and what level of cuts will the NHS face then in order to shift that money into social care?

[Lucy Frazer]

I find it disappointing when people talk about cuts when actually there is significant investment—record amounts—going into the NHS. This Budget highlighted not just £5 billion for the diagnostic centres the Department of Health and Social Care will be operating around the country, but £9 billion for covid support, and the hon. Gentleman will know that £36 billion was put into the NHS before that—a significant sum. So it is dangerous when people talk inappropriately about cuts. There are not any cuts; this is investment going into the NHS.

[Richard Thomson (Gordon) (SNP)]

One concern many have about the national insurance increase is that there is an understanding about how much that will raise but no understanding whatsoever about how much will eventually make it through the NHS to social care in England. I am sorry to say that leads many of us to think the Government might not have much of a plan for how they are going to use it first in the NHS and then to benefit service users in the social care sector. Will the Minister have another go at helping those of us with that mindset to understand?

[Lucy Frazer]

The Government have been very clear that the money will first go to the NHS; there is a significant number of backlogs that we need to tackle and it is important that people can get to see their GP so therefore it is essential that that £13 billion is right now going to the NHS. But we have been clear about this: we are the first Government to tackle the issue of social care—the first Government to put it on the table and put in a plan to raise the money to tackle the social care issue.

As I said at the outset, a number of cities were devasted by the second world war, and I return to my analogy. In London, £65 million is going from the first round of the levelling-up fund to local infrastructure projects to improve everyday life; in Liverpool and the wider north-west, that figure stands at £232 million; separately, in Bristol and the west of England, we are providing £540 million over five years to transform local transport networks.

At the same time, we will never forget our responsibility to strengthen the public finances. The tax changes in this Bill will allow us to achieve all these things, and for those reasons I commend it to the House.

Oral Answers to Questions

Lucy Frazer Excerpts

Tuesday 2nd November 2021 Commons Chamber

[Mohammad Yasin (Bedford) (Lab)]

10. What fiscal steps he is taking to contribute towards achieving the Government’s net zero emissions target.

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

As 120 world leaders gather in Glasgow today, the hon. Member for Greenwich and Woolwich (Matthew Pennycook) asks a very pertinent question. Our net zero strategy outlines measures to enable us to make the transition to a green and sustainable future. As for fiscal measures, the Budget and spending review commit us to £30 billion of public investment towards net zero.

[Matthew Pennycook]

There is an obvious and pressing need for all fiscal announcements to be fully aligned with our country’s net zero target. To that end, will the Minister commit herself to at least the publication of the estimated emissions impact of decisions in future Budgets and spending reviews?

[Lucy Frazer]

The hon. Member will know that in our Budget we set out a number of measures to enable us to make the transition to a net zero world. We have made announcements relating to transport and warmer, greener buildings as well as energy and industry, and of course the Treasury always considers the impact in relation to net zero targets.

[Mohammad Yasin]

The Chancellor claims to want to tackle climate change and improve air quality through measures including the decarbonising of transport. If he is serious, this week of COP26 presents him with a great opportunity to commit himself to the electrification of the East West Rail line from day one to avoid the need for diesel locomotives and the future costs of retrofitting. Will he make that commitment today?

[Lucy Frazer]

The hon. Gentleman has raised the important issues of electrification and the importance of making our transport green. As he will have seen, the Budget provided research and development funding to commercialise low and zero emissions technologies. I would be happy to talk to him about the local issue he raised.

[Fay Jones (Brecon and Radnorshire) (Con)]

I thank the Chancellor and the Treasury team for the significant levelling-up funds awarded to my constituency in the Budget last week. Hydrogen will be key to net zero, and one project that will be able to benefit from that investment is Riversimple, a hydrogen fuel cell car manufacturer in Llandrindod Wells. So that we can reach our net zero targets as early as possible, may I urge the Minister to visit Llandod, meet representatives of Riversimple, learn about what they do, and above all give us the chance to say thank you in person?

[Lucy Frazer]

I am very pleased that my hon. Friend’s constituency has benefited and is taking part in the progress towards net zero. I should be happy to visit her there.

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

In his Budget statement last week, the Chancellor did not use the word “climate'” once. On the biggest issue of our time, he had nothing to say.

As well as deciding to cut domestic air passenger duty, which will lead to 400,000 more domestic flights a year, the Chancellor failed to invest in public transport. He is subsidising those who can already afford to take domestic flights, while putting up taxes on ordinary people. How on earth does he think that this sends the right message as the COP26 summit begins? Is not the reality that he is flying in completely the wrong direction when it comes to tackling climate change?

[Lucy Frazer]

I am sure the hon. Lady will have seen the net zero strategy, which was published the week before the Budget. I am sure she will also know about the significant progress that the Chancellor has made on bringing other countries together to increase the international effort on climate finance. Yesterday, we set out our commitment to increase our international climate finance by £1 billion by 2025, on top of the £11 billion that we have already announced. The Chancellor, together with other Finance Ministers, is making sure that we help to reduce to net zero emissions through a number of measures. I am very happy to—

[Mr Speaker]

Order. I call Alison Thewliss.

[Alison Thewliss (Glasgow Central) (SNP)]

COP26 is under way in my constituency, and the Scottish Government have set an ambitious target to reach net zero by 2045. In contrast, the Minister has completely failed to justify the cut to air passenger duty on internal flights while allowing the already eye-watering price of train tickets to rise again at the turn of the year. This is no pro-Union policy, as the Government like to pretend, because 62% of Scots think that cutting APD is entirely the wrong priority. So, in this week of COP, will the Minister do her bit for the planet and scrap this climate-damaging policy once and for all?

[Lucy Frazer]

I am grateful to have this opportunity to address the issue of air passenger duty. The hon. Member will know that, as well as cutting the duty on domestic flights, we have increased taxation on long-haul flights. She will also know that domestic flights are contributing less than 1% of the UK’s carbon emissions.

[Mr Gagan Mohindra (South West Hertfordshire) (Con)]

11. What steps his Department is taking to manage the public finances effectively.

--- Later in debate ---

[David Johnston (Wantage) (Con)]

16. What steps his Department is taking to increase wages and support the lowest-income households.

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

We are increasing the national living wage to £9.50 an hour from April 2022. We are also cutting the universal credit taper rate from 63p to 55p. Those measures will increase the incomes of millions of people and support the lowest-income households.

[David Johnston]

I thank my right hon. and learned Friend for that statement. I strongly welcome the increase in the national living wage to £9.50 and the cut to the UC taper rate. Those are strong work incentives, which will help people to keep more of their money. However, given that not everybody will read the Budget, may I ask what her strategy is to make sure that those who can benefit from these changes will know that they have taken place?

[Lucy Frazer]

I thank my hon. Friend for his support. He will agree that the best way to support people is by supporting them into work and helping them to progress once they are in work. He makes an important point about communications. The Government run an annual public communications campaign to inform workers and employers of the change to the minimum wage rates. Her Majesty’s Revenue and Customs also has a dedicated team who actively provide information to individuals and employers on minimum wages, and the UC changes will also be reflected in the claimants’ statements once they are in effect.

[Peter Grant (Glenrothes) (SNP)]

All those announcements are, of course, welcome for low-earning households in which somebody has a job, but none of them will deliver a single penny into the pockets of the very lowest-income households in which nobody is able to get a job. They are being hit by a £1,000 a year cut in universal credit. What is there in the Budget that will reinstate that £1,000 cut for the very lowest-income households on these islands?

[Lucy Frazer]

We want to encourage as many people as possible into jobs. The Chancellor has put forward a plan for jobs, with a number of work programmes to ensure that we get both young people and the over-50s into work. Crucially, through the restart scheme we will get people off universal credit and into jobs. We also recognise that some people cannot work, which is why six weeks ago the Chancellor announced £500 million to help those who need our support, to be distributed through local authorities.

[Duncan Baker (North Norfolk) (Con)]

T1. If he will make a statement on his departmental responsibilities.

--- Later in debate ---

[Caroline Ansell (Eastbourne) (Con)]

T7. I thank my right hon. Friend the Chancellor for £19.8 million from the levelling-up fund that will put Eastbourne on the map and really bill it as the gateway town to the South Downs national park. I also thank him for the investment that sits behind the kickstart scheme, which has so far delivered hundreds of new opportunities in my town. I promote the scheme everywhere I go, as I travel from north to south and east to west. Will the Minister join me in encouraging local businesses to step up ahead of the 17 December deadline to provide these golden opportunities for young people in my home town?

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

I know that my hon. Friend will have campaigned hard for the funds that have come through. We will continue to support people across the House and in her constituency to level up.

[Kerry McCarthy (Bristol East) (Lab)]

Rather than talk about competitive bids for funding, could we talk for a moment about mainstream council finances? We know that this Budget will significantly shift the burden to local authorities and require a significant rise in council tax, which people can ill afford. We also know that councils’ finances have not fully recovered and they have not been fully compensated. What is the Chancellor doing to talk to local councils about the pressures that they are facing?

Carbon Emission Charges

Lucy Frazer Excerpts

Monday 1st November 2021 Westminster Hall

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

It is a pleasure to serve under your chairmanship, Mr Robertson. As many other Members have, I begin by recognising that today is a significant day for international efforts to tackle climate change. Like other hon. Members, I suspect that that is why the Chamber, which I would have expected to be extremely full, is a little sparser than we expected. I am sure that all those who would have wanted to attend are debating this very issue in Glasgow. I thank, recognise and congratulate the more than 100,000 petitioners on securing a debate on this important subject. I do not think that there is any disagreement among the Members present, from both sides of the House, that this is a fundamental issue that we in the UK, as well as others across the world, need to address. As the Prime Minister said at the G20 meeting yesterday,

“If we don’t act now, the Paris agreement will be looked at in the future not as the moment that humanity opened its eyes to the problem but the moment we flinched and turned away.”

I cannot, of course, pre-empt the outcome of the discussions in Glasgow, but I repeat for the record that the Government are absolutely focused on tackling climate change, and we are taking action on a number of different fronts. As the hosts of COP26, we have been determined to promote ambitious action to deliver the urgent transformational changes required by the Paris agreement. We are also seeking to play our own part, as any responsible nation should. As I am sure hon. Members know, between 1990 and 2019 the UK reduced its greenhouse gas emissions by 44%, compared with 5% for the G7 as a whole. Since 2000, the UK has reduced emissions faster than any other country in the G20.

Turning to the specifics of the petition, and some of the points that hon. Members raised, I was grateful to the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) for recognising the importance of the Government’s net zero strategy, which sets out the plan to reduce our emissions, and outlines measures to transition to a green and sustainable future. As my hon. Friend the Member for Broadland (Jerome Mayhew) recognised, we cannot reach net zero by Government action alone. The plan leverages up to £90 billion of private investment by 2030 and confirms £26 billion of public capital investment since the 10-point plan. That investment, and the package of policies in the net zero strategy, will keep the UK on track to meet its carbon budgets and our 2030 nationally determined contribution and to reach net zero by 2050. In doing that, we will lay the foundations for a clean and resilient energy supply by investing in wind, nuclear and carbon capture and storage, as well as accelerating decarbonisation in sectors such as transport and buildings.

The hon. Member for Erith and Thamesmead suggested that the funding was not enough. I reiterate the commitment to a total of £30 billion of domestic investment for the green industrial revolution from 2021-22. She also suggested that the Chancellor was not doing enough, but he is leading on COP26 in liaising with other Finance Ministers on this subject. We will see $100 billion investment by a variety of countries to support developing countries to reduce carbon emissions in their own countries by 2023. We expect to exceed that investment of $100 billion between 2023 and 2025. The Prime Minister is obviously also leading the work at COP26.

A key part of the debate has been about carbon pricing, which most hon. Members talked about. The petition specifically calls for a carbon charge to

“encourage industries and organisations to reduce their carbon emissions”.

The 2020 energy White Paper set out our aspirations to continue to lead the world on carbon pricing in the run-up to COP26 and beyond. The Government believe that carbon pricing is indeed one of the most efficient tools of decarbonisation and has a key role to play in helping the UK to achieve net zero emissions by 2050. That is why we have committed to maintaining an ambitious carbon price to ensure in turn that those who pollute with their emissions pay for them.

The UK already has two carbon pricing policies: the carbon price support and the UK emissions trading scheme. Hon. Members will know that the carbon price support rate is a tax on the fossil fuels used in electricity generation. Since the CPS rates were introduced in 2013, they have contributed to a fall in coal use for electricity generation. The amount of electricity generated from coal fell from 40% in 2012, prior to the CPS, to just 5% in 2018.

At the beginning of the year, the UK launched its own emissions trading scheme, which covers a third of UK emissions and applies a carbon price to the power, industrial and aviation sectors. We have committed to exploring expanding the UK ETS to other sectors. It works on the cap and trade principle by setting a cap on the total amount of certain greenhouse gases that can be emitted by covered sectors. Companies in covered sectors must obtain and surrender sufficient carbon allowances to cover their emissions.

My hon. Friend the Member for Broadland and the hon. Members for Newcastle upon Tyne North (Catherine McKinnell) and for Erith and Thamesmead highlighted that, at the moment, the scheme covers only a third of those emissions and asked what more we would do. I reiterate that we have committed to exploring expanding that scheme to the two thirds of emissions that are not currently covered. The hon. Member for Newcastle upon Tyne North also asked when we will review the carbon price trajectory in the ETS. I reassure her that we remain committed and intend to bring forward a consultation in the coming months. That commitment was reiterated in our net zero strategy.

Several hon. Members, such as the hon. Member for Newcastle upon Tyne North and my hon. Friend the Member for Broadland, recommended that the Government introduce a carbon border adjustment. I reassure them that we are following developments on the EU carbon border adjustment mechanism closely. As COP and G7 president, our instinct is, obviously, that we need to work together with our international partners on how to tackle climate change. We are continually assessing a range of options on that issue.

[Catherine McKinnell]

I apologise to the Minister for pushing the issue, because I can see that she does not have a clearer response. “In the coming months” is as vague as the timings that we have already been notified of. Can she give either a clearer picture of the timescale that we are talking about or a reason why there is no clear timescale for the consultation?

[Lucy Frazer]

I do not expect anything other than for the hon. Member to push me on the timing. At the moment, however, all I can say is that we will bring it forward in the coming months. I am happy to keep her updated about the timing as we progress.

[Catherine McKinnell]

I thank the Minister for giving way again. I will not push her again on that point, as I can see that she does not have a clearer timeframe. Obviously, it is of keen interest to those who are following the debate.

The other issue that I will flag is that she has so far made no reference to ensuring that this is a just and equitable transition so that polluters pay and we do not expect consumers to continue paying more to enable the net zero transition. I wonder whether the Minister just has not got to those comments yet or whether she can say something to assure us that the Government are looking to spread the cost, as well as the responsibility, of meeting our net zero targets.

[Lucy Frazer]

I thank the hon. Member for her intervention. The two schemes that we already have in place are obviously ones through which the polluter pays; they are about industry recognising that when it pollutes, it must pay for that.

The hon. Lady, as well as the hon. Member for Kilmarnock and Loudoun (Alan Brown), talked about what the Government could do to support individuals. The issue of heat pumps, and the importance of such measures not being too burdensome on those who need to implement them, has been raised on two occasions. A number of Ministers have made this point clearly, but I reiterate that we are not forcing people to take measures such as installing heat pumps: we are saying that if they wish to do so, a grant is available to them. Regarding heat pumps in particular, I would like to make it clear that we expect the price to come down. I suspect that that will happen when we have a requirement for all new homes to be net zero by 2025. When there is the volume of supply of heat pumps that we need, I suspect that their price will come down, as we have seen in relation to electric cars, for example.

[Jerome Mayhew]

My understanding is that it is not the price of the product that will go down, because France is already installing 400,000 heat pumps, so there is volume in product. Interestingly, it is about the mechanism of installation: when the big electricity suppliers begin to install heat pumps, rather like British Gas does with boilers today, that is when the prices will really come down.

[Lucy Frazer]

I am grateful to my hon. Friend for that interesting intervention. I hope that the prices of installation will fall as well.

[Catherine McKinnell]

The Minister is being very generous with her time. I am sure she appreciates that it is important that the polluter pays, but many polluting businesses will pass that cost on to consumers, and we need to be really transparent about where those costs are going to land. I hope the Government are going to take steps to ensure that we do not push people further into fuel poverty and that, if we are installing fuel pumps, we help people to insulate their homes. There is a lot that the Government can do to make sure the poorest do not pay, even if it is by the back door.

[Lucy Frazer]

I assure the hon. Member that as we bring in policies—I am responsible for tax, and I know this is the case for my area—we are always very conscious of whether the prices are going to be passed down to consumers. As she knows, we already have a number of mechanisms through which we protect those on the lowest incomes: for energy costs, for example, we have the warm home discount and the energy price cap. Of course, we are conscious that we do not want costs to just be passed down.

[Alan Brown]

Will the Minister give way?

[Lucy Frazer]

I will make a little bit of progress, because I am about to address a point that the hon. Member himself mentioned, which was about aviation duty. The point about a domestic increase in air passenger duty has been made over the past few days, but I would like to highlight some other work that is being done in this industry to try to ensure that it is compliant with our net zero targets and ambitions. We have the Jet Zero Council, which is looking at how we revolutionise this industry and make it more carbon neutral.

[Alan Brown]

I know about the work of the Jet Zero Council, but what measures were in the Budget to help the airline industry decarbonise?

[Lucy Frazer]

The Budget set out a number of measures to ensure decarbonisation. There was a significant amount of spending in relation to decarbonisation in various transport areas, including the electrification of cars. We have already talked about heat pumps, and in relation to the airline industry, the hon. Member will remember that as well as reducing the tax on domestic airlines, we increased the tax on long-haul flights, recognising that it is not particularly carbon friendly for people to travel further.

I would like to address two important points that were not really raised in the debate but which were in the petition. The petition makes the link between air quality and subsidies to fossil fuel companies. I want to highlight that the UK has been a long-standing supporter of the multilateral efforts to promote fossil fuel subsidy reform since they were first proposed in 2009, including through the G7 and the G20. In December 2020, the UK announced its support for the statement on global fossil fuel subsidy reform. Inefficient fossil fuel subsidies encourage wasteful consumption, reduce our energy security, impede investment in clean energy resources and undermine efforts to deal with the threat of climate change. In March of this year, the Government went further, confirming that the UK

“will no longer provide any new direct financial or promotional support for the fossil fuel energy sector overseas”

other than in tightly defined and limited circumstances, such as technical or regulatory assistance that supports health and safety or to support decommissioning.

The other important matter raised in the petition was air quality. I want to underline that the Government are taking significant steps to improve air quality in the UK. It is not just tax measures, but non-tax measures, that achieve our aims, which is why we have a strong and proportionate regulatory framework that requires industry to reduce emissions, including of carbon dioxide, nitrogen oxide and particulate matter. The industry has responded with investment and innovation to meet those standards.

I would like to conclude by saying that it is a pleasure for the Government to answer on this extremely important topic. The petitioners’ success in securing this debate should not come as a surprise to any of us—it is simply evidence of the widespread recognition of the challenge we face, the importance of the issue and the cross-party support for tackling climate change. As the Prime Minister said yesterday,

“The UK has proved it can be done—we have lowered our greenhouse gas emissions by 44%... And we’re cutting our contribution to climate change more and more every day.”

I reassure hon. Members and the thousands of petitioners that the Government take the issue extremely seriously. We will continue to act on many fronts, both nationally and internationally.

Finance Bill 2021-22

Lucy Frazer Excerpts

Tuesday 19th October 2021 Written Statements

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

The Finance Bill will be published on 4 November. Explanatory notes on the Bill will be available in the Vote Office and the Printed Paper Office and placed in the Libraries of both Houses on that day. Copies of the explanatory notes will also be available on gov.uk.

As usual, a full copy of the Budget resolutions will be made available after the Chancellor’s Budget statement on 27 October. This includes resolutions made under the Provisional Collection of Taxes Act 1968 for those measures that are expected to come into effect ahead of Finance Bill Royal Assent.

In line with the approach to tax policy making set out in the Government’s documents “Tax policy making: a new approach”, published in 2010, and “The new Budget timetable and the tax policy making process”, published in 2017, the Government published draft legislation for Finance Bill 2021-22 on 20 July 2021, which is available on gov.uk. Further legislation was also published on 20 and 21 September 2021. The Government remain committed to legislating for these measures, subject to confirmation at Budget in the usual way.

[HCWS330]

Agreement Between British Trade and Cultural Office and Taipei Representative Office

Lucy Frazer Excerpts

Thursday 23rd September 2021 Written Statements

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

A protocol to the agreement with the Taipei Representative Office in London was signed in London on 11 August and in Taipei on 19 August. The text of the protocol is available on HM Revenue and Customs’ pages of the gov.uk website and will be deposited in the Libraries of both Houses. The text of the protocol will be scheduled to a draft Order in Council and laid before the House of Commons in due course.

[HCWS306]

Making Tax Digital

Lucy Frazer Excerpts

Thursday 23rd September 2021 Written Statements

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

The Government have set out an ambition to become one of the most digitally advanced tax authorities in the world.

Making tax digital (MTD) is the first phase of our move towards a modern, digital tax service fit for the 21st century. It supports businesses through their digitisation journey and provides a digital service that many have come to expect in their everyday lives. MTD helps businesses reduce common errors in their tax affairs and allows for better customer interaction and guidance through digital prompts and nudges.

Since the introduction of MTD for VAT in 2019, over 1.5 million businesses have joined and many are already experiencing benefits. MTD users are reporting that preparing and submitting returns is easier, and that MTD has increased their confidence in managing tax affairs and using technology. MTD also puts businesses on a path to further digitisation: integrating tax management with a range of business processes can contribute to productivity gains.

During the pandemic, UK businesses increasingly turned to digital tools to communicate remotely and work collaboratively. Businesses adapted rapidly to the challenges posed by the pandemic, using digital solutions to maintain resilience and reduce disruption.

Over the past year, HMRC has worked closely with partners in the business and tax communities on the proposed design and scope of MTD for income tax (ITSA).

Today the Government have laid regulations in Parliament to help those impacted by the changes to prepare, and for their representatives to develop their own support and guidance.

The Government recognise the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic over the last year. In recognition of this and of stakeholder feedback, we will now be introducing MTD for ITSA a year later, in the tax year beginning in April 2024.

General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025. The date at which all other types of partnerships will be required to join will be confirmed later.

In March 2021, the Government announced a new system of penalties for the late filing and late payment of tax for ITSA. This will now be introduced for those who are mandated for MTD for ITSA in the tax year beginning in April 2024, and for all other ITSA customers in the tax year beginning in April 2025.

Alongside the regulations, HMRC has also today published a tax information and impact note (TIIN) setting out the projected benefit and cost impacts of MTD for ITSA, as well as a policy paper to help different businesses understand what their transition to MTD could look like in more detail.

A later start for MTD for ITSA provides more time for those required to join to make the necessary preparations and for HMRC to deliver the most robust service possible, affording additional time for testing in the pilot.

HMRC will continue to work in close partnership with business and accountancy representative bodies and software developers to ensure taxpayers are well supported as they adopt MTD for USA.

The Government have also recently consulted on a reform of the complex basis period rules that govern how self-employed profits are allocated to tax years. Many respondents said that the reform was a sensible simplification but asked for more time to implement the changes. In recognition of these concerns, these changes will not come into effect before April 2024, with a transition year not coming into effect earlier than 2023. The Government will respond to the consultation in due course providing the next steps.

[HCWS308]