Draft Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024
Draft Tax Credits, Child Benefit and Guardian's Allowance Up-rating Regulations 2024
Nigel Huddleston Excerpts(2 years, 6 months ago)
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The Financial Secretary to the Treasury (Nigel Huddleston)
I beg to move,
That the Committee has considered the draft Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024.
The Chair
With this it will be convenient to discuss the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024.
Nigel Huddleston
As always, Sir Charles, it is a pleasure to serve under your chairmanship. The regulations will be of considerable benefit to our constituents who rely on tax credits, child benefit and guardian’s allowance, and to those who pay national insurance contributions. Regulations are made each year to set national insurance contributions thresholds and uprate tax credit, child benefit and guardian’s allowance.
First, the Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024 set the national insurance contributions limits and thresholds of a number of national insurance contribution classes for the 2024-25 tax year, with all limits and thresholds remaining fixed at their existing level. The regulations also make provision for a Treasury grant to be paid, if required, into the national insurance fund for the same year—a transfer of wider Government funds to the national insurance fund—and for the veterans employer national insurance contributions relief to be extended for a year until April 2025. The scope of the regulations is limited to the 2024-25 tax year.
National insurance contributions are social security contributions. They allow people to make contributions when they are in work in order to receive contributory benefits when they are not working, such as after they have retired or if they become unemployed. NICs receipts fund contributory benefits, as well as supporting funding to the NHS.
On the details of the NICs for employed and self-employed people, the primary threshold and lower profit limits are the points at which employees and the self-employed start paying employee class 1 and self-employed class 4 national insurance contributions respectively. At the autumn statement 2022, the Government announced their intention to maintain the primary threshold’s alignment with the income tax personal allowance, with both rates being fixed at £12,570 until 2028.
Fixing the primary threshold at £12,570 does not affect an individual’s ability to build up entitlement towards contributory benefits such as the state pension. For employees, this is determined by the lower earnings limit—which will remain at £6,396 per annum, or £123 per week, in 2024-25—and for self-employed people by the small profits threshold, which will remain at £6,725 in 2024-25. Fixing the thresholds will mean that more lower-earning working people will gain entitlement to contributory benefits and build up qualifying years for their state pensions.
The upper earnings limit, which is the point at which the main rate of employee NICs drops to 2%, and the upper profits limit, which is the point at which the main rate of self-employed NICs drops to 2%, are aligned with the higher rate threshold for income tax, at £50,270 per annum. It was announced previously that those thresholds would be fixed until April 2028, as part of the Government’s commitment to supporting the public finances.
At the autumn statement 2023, the Government also announced that from 6 April 2024 self-employed people with profits above £12,570 will no longer be required to pay class 2 NICs, but will continue to accrue and receive access to contributory benefits, including the state pension. Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the state pension, through a national insurance credit, without paying NICs as they do currently. Those with profits under £6,725 who choose to pay class 2 NICs voluntarily to get access to contributory benefits, including the state pension, will continue to be able to do so.
I turn now to employers NICs. The secondary threshold is the point at which employers start paying employer national insurance contributions on their employees’ salaries. At the autumn statement 2022, the Chancellor announced that this threshold will remain at £9,100 in 2023-24 and will be fixed at this level until 2028. That supports the public finances while ensuring that the largest businesses pay the most. The employment allowance, which the Government raised from £4,000 to £5,000 in April 2022, means that the smallest 40% of businesses with employer national insurance contributions liability pay no employer NICs. The regulations also fix the thresholds for employers of employees eligible for NICs reliefs—the reliefs for employers of under-21s, under-25 apprentices, veterans, and new employees in freeports and investment zones—at their 2023-24 levels.
The majority of national insurance contributions are paid into the national insurance fund, which is used to pay the state pension and other contributory benefits. The Treasury has the ability to transfer funds from wider Government revenues into the national insurance fund. The regulations make provision for a transfer of this kind, known as a Treasury grant, so that up to 5% of forecasted annual benefit expenditure can be paid into the national insurance fund, if needed, in 2024-25. A similar provision will be made in respect of the Northern Ireland national insurance fund. The Government Actuary’s Department report laid alongside the regulations forecasts that a Treasury grant will not be required in 2024-25 but the Government consider it prudent, as a precautionary measure, to make a provision for a Treasury grant at this stage, which is consistent with previous years.
The regulations also make provision for the national insurance contributions relief for employers of veterans to be extended for a year until April 2025. This measure means that businesses pay no employer NICs—at a rate of 13.8%—on salaries up to the veterans upper secondary threshold of £50,270 for the first year of a qualifying veteran’s employment in a civilian role. The relief is part of the Government’s commitment to make the UK the best place in the world to be a veteran, and is intended to further incentivise employers to take advantage of the wide range of skills and experience that ex-military personnel offer. It supports those who have already given so much to this country, and helps to unleash the great skills and huge potential of our service leavers.
Mrs Natalie Elphicke (Dover) (Con)
The veterans relief that the Minister just mentioned is clearly very welcome, in addition to the other uprating of reliefs. Finding a route back into work for those who are rough sleeping or homeless is a particular issue for veterans. Will the Minister explain why the relief applies only to the first year of employment and whether any consideration has been given to assisting veterans on their return to work following their homelessness journey?
Nigel Huddleston
The Minister for Veterans’ Affairs has explained the wide variety of other measures that we have to support veterans. As I said, it is the Government’s ambition to make sure that we treat our veterans with incredible respect and that the UK is the best place in the world to be a veteran, so there are other measures in place. The relief measure was always intended to be temporary. It was announced as such, but we are now extending it. I cannot promise that further extensions will or will not be forthcoming—that would be for other decisions—but I think the whole Committee agrees with my hon. Friend’s wider point about respect for veterans.
I turn now to the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024. The Government are committed to delivering a welfare system that is fair for claimants and taxpayers while providing a strong safety net for those who need it the most. The regulations will ensure that the benefits for which His Majesty’s Treasury Ministers are responsible and that HM Revenue and Customs delivers are uprated by inflation in April 2024. Tax credits, child benefit and guardian’s allowance will increase in line with the consumer prices index, which had inflation at 6.7% in the year to September 2023. Uprating by the preceding September CPI is the Government’s typical approach.
To reject the regulations would mean that HMRC-administered benefits do not rise at all next year, making our constituents worse off. As usual, the Department for Work and Pensions led a separate debate in this place on the regulations for uprating other benefits and the state pension, for which the Secretary of State for Work and Pensions is responsible, on 31 January 2024. The DWP’s working-age benefits will also rise in line with the 6.7% CPI rate this year.
In summary, the proposed legislation fixes all the limits and thresholds for national insurance contributions at their 2023-24 levels for the 2024-25 tax year; makes provision for a Treasury grant; extends the NICs relief for employers of veterans; and increases the rates of tax credits, child benefit and guardian’s allowance in line with prices. The legislation enacts announcements from the autumn statement and previous fiscal events. Without it, HMRC will be unable to collect NICs receipts, and tax credits, child benefit and guardian’s allowance will be frozen at 2023-24 levels. I therefore hope that colleagues will join me in supporting the regulations.
Nigel Huddleston
I thank my opposite number, the hon. Member for Ealing North, for his contribution, as well as my hon. Friend the Member for Dover. Perhaps we could at some point have regulations on reducing the length of the names of regulations, because we have all had a bit of a mouthful today.
The hon. Gentleman raised many points not strictly relevant to the scope of the regulations, and many points that we have rehashed often, but I will repeat that the reason why taxes have been higher is because of the significant amounts of support that we gladly handed out during the pandemic out of necessity, and also to support with the cost of living crisis that he mentioned. That was £350 billion-plus on the pandemic and a further £100 billion on cost of living challenges—about £3,700 per household—out of necessity, but we are now in a position where we can start to bring taxes down, which is what we did in the autumn statement. The OBR forecast that taxes as a percentage of GDP would fall by 0.7% as a result of the autumn statement changes, so taxes are clearly coming down now. Each fiscal event needs to be taken on its own, but the direction of travel is quite clear.
On the hon. Gentleman’s points about class 2, 3 and 4 contributions as set out in the relevant legislation, the Treasury has provided a report detailing the decisions not to make changes to class 2 and 3 rates and thresholds, and class 4 thresholds, for national insurance contributions for 2024-25. The decision was announced at the autumn statement and reflects the Government’s commitment to keeping taxes low to support working people to keep more of what they earn, as part of our plan to grow the economy. Class 2 rates will be maintained at 2023-24 levels for individuals to pay voluntarily to gain access to contributory benefits, as set out in the autumn statement.
The regulations ensure that tax credits, child benefit and guardian’s allowance increases are in line with September’s CPI rate, at 6.7%, thereby ensuring that those benefits keep their value in relation to prices. The NICs regulations set the limits and thresholds for the 2024-25 tax year, coming soon after the Government’s decision at the autumn statement to return money to taxpayers with a £9 billion tax cut. They allow for the collection of more than £170 billion of NICs to fund contributory benefits, including the state pension, and contribute to NHS funding. They are therefore vital to the livelihoods of all our constituents. I commend the regulations to the Committee.
Question put and agreed to.
Draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024
Resolved,
That the Committee has considered the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024.—(Nigel Huddleston.)
Oral Answers to Questions
Nigel Huddleston Excerpts(2 years, 6 months ago)
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Mr Clive Betts (Sheffield South East) (Lab)
The Financial Secretary to the Treasury (Nigel Huddleston)
Regarding fairness, we have a progressive tax system where the top 5% of income tax payers pay nearly half of all income tax, while the top 1% pay more than 28%. In addition, the national insurance reforms announced at the autumn statement cut taxes for 29 million people. That package also strengthens the fiscal position by helping taxpayers to get their taxes right, while bearing down on the small minority who seek to avoid paying their fair share.
Mr Betts
The Minister talks about tax cuts, but in April most households in this country will receive a 5% increase in their council tax. That is not because local councils have mismanaged their finances, but because after 13 years of austerity, the local government finance system is essentially broken and relies on a regressive and unfair council tax. Why in the autumn statement did the Chancellor freeze the budgets of the Department for Levelling Up, Housing and Communities for the whole of the next Parliament, leading the Office for Budget Responsibility to forecast a further £13 billion rise in council tax? Does that not show that the Chancellor has no regard at all for councils and the services they provide, or is he simply deferring a problem that his Government has created for the next Government to sort out?
Nigel Huddleston
I am afraid that is a ridiculous characterisation. We on this side of the House care, including about our vibrant, important local councils. That is precisely why they just received an additional £600 million, and future spending will be a matter for future fiscal events.
James Gray (North Wiltshire) (Con)
I am a strong believer in fairness in taxation. Would my hon. Friend care to advise the House about who would bear the heaviest burden of taxation, should His Majesty’s Government choose to adopt the £28 billion spending commitment that the Labour party announced on the radio this morning?
Nigel Huddleston
My hon. Friend makes an important point. Of course, we never know from day to day exactly what Labour’s policy is, and I understand there are even differences among its Front Benchers at the moment, but we heard a firm commitment, without any promises at all about where the money would come from. We therefore know where it would come from: it would come out of taxpayers’ pockets or further borrowing, which is deferred taxation. Everybody will pay for it.
Darren Jones (Bristol North West) (Lab)
The Labour party has set out clear proposals to close tax loopholes on non-doms, private schools and private equity to give a much-needed boost to our public services. Will the Treasury Minister confirm whether the Government have assessed, or plan to assess, the merits of such a policy?
Nigel Huddleston
I am pleased to hear the hon. Gentleman’s enthusiasm for closing down tax loopholes and going after the abusers. It begs the question why Labour did not vote in favour of the Finance Bill last night, which included measures along those lines.
Darren Jones
That is a short answer, but the answer to the wrong question—perhaps the Minister can have a second go. While he is thinking about the answer, I point out that the Comptroller and Auditor General has highlighted that the Government are wasting up to £28 billion a year on mismanaged procurement and governance of major projects. Does the Minister agree that the Conservative Chancellor and his predecessors have had to raise taxes so much partly because they are wasting so many billions of taxpayers’ money each and every year?
Nigel Huddleston
The reason we have had to raise taxes is £350 billion of support during the pandemic, which I did not hear the Opposition oppose, and an additional £100 billion to help people during the cost of living crisis, which I did not hear the Opposition oppose. We therefore had to increase taxes out of necessity, but we reduce them out of choice, which is exactly what we are doing. Labour increases taxes out of necessity and then continues to increase them out of choice.
Michael Shanks (Rutherglen and Hamilton West) (Lab)
The Financial Secretary to the Treasury (Nigel Huddleston)
The Government remain committed to increasing economic growth in Scotland and right across the UK. As part of 110 growth measures in the autumn statement 2023, the Government introduced tax policies that are projected to stimulate economic growth in Scotland and across the country. That includes making full expensing permanent and the largest ever cut to employee and self-employed national insurance contributions, which means more people working.
Michael Shanks
The EY Independent Treasury Economic Model Club forecast published yesterday found that the UK’s growth forecast of 0.8% this year is only slightly outperformed by the even more disappointing 0.7% growth in Scotland. Given this Parliament has hiked taxes 25 times, and the Scottish National party now think that those on modest incomes in Scotland should pay even more tax, does the Minister agree that the people of Scotland are simply paying the price for two Governments with no economic credibility?
Nigel Huddleston
No, I do not agree. The hon. Member should be aware that the OECD suggests that in the coming years we will be growing faster than France, Italy and Germany. Of course, the Government have a strong track record against our OECD friends over the last 14 years, and Scotland benefits from this economic growth.
Virginia Crosbie (Ynys Môn) (Con)
As in Scotland, business rates are devolved in Wales. With business rates relief set to fall from 75% to 40%, businesses in Wales will pay almost twice as much as in England. Does my hon. Friend agree that the Welsh Labour Government should be supporting local businesses such as the Kinmel Arms in Moelfre and not increasing the number of Senedd Members by a staggering 60%?
Nigel Huddleston
My hon. Friend puts it well. Of course, we have seen the considerable protections and support given in retail, hospitality and leisure business rates relief in England. That has not been extended to the same extent in Wales, and Scotland failed to extend it as well. She makes an important point.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
Contrary to what the Minister said, OECD forecasts show that the UK will have the lowest growth in the G20 and the highest inflation in the G7. Ministers like to pretend that there is no real cost of living crisis, but there is one, and it is biting hard. How long will Ministers—and their Labour counterparts—continue to peddle the fantasy that Brexit is somehow good for the Scottish people?
Nigel Huddleston
I am afraid that the thing that would most impoverish the people of Scotland is separation from the UK. After 16 years of SNP rule—longer than the Conservatives’ in England—GDP per head in Scotland is lower, productivity is falling, employment is lower and inactivity is higher. That is not exactly a proud record.
Drew Hendry
The Minister talks about GDP. The Office for Budget Responsibility forecast that GDP in the UK will be 4% lower in the long term due to Brexit. Meanwhile, independent Ireland in the EU is booming with a giant fiscal surplus. Given that the Tories, Labour and the Lib Dems are all now champions of Brexit, is it not the case that the only way for Scotland to rejoin the EU is through becoming an independent country?
Nigel Huddleston
The hon. Gentleman knows that the IMF has forecast us greater growth than France, Italy and Germany over the next few years. If he is so enthusiastic about supporting growth, including helping businesses across the United Kingdom, perhaps Scottish National party Members could have joined us in the voting Lobby last night instead of voting against, for example, full expensing and investment in research and development. They voted against that—how on earth is that in the interests of their constituents?
Mrs Flick Drummond (Meon Valley) (Con)
Greg Smith (Buckingham) (Con)
The Financial Secretary to the Treasury (Nigel Huddleston)
I have heard the concerns expressed by hon. Members on the impact of the loan charge, and I have pushed His Majesty’s Revenue and Customs for firm assurances on the safeguards that it has in place. No one will be forced by HMRC to sell their main home or access their pension funds early to pay their loan charge debts, nor has HMRC petitioned for bankruptcy, which would be only a last resort and is in nobody’s interest. There is substantial support in place to help people in debt, including agreeing time-to-pay arrangements with them.
Greg Smith
I am grateful to my hon. Friend for that answer and his engagement with the loan charge and taxpayer fairness all-party parliamentary group, including a meeting this evening with its officers. In an internal document that surfaced as part of the 2019 Morse review, HMRC admitted to around 100 bankruptcies from the loan charge. Can the Minister tell the House why that figure has never been given publicly by HMRC, and what the figure is today?
Nigel Huddleston
Again, I thank my hon. Friend for championing this area and his great concern for the human stories behind the difficult circumstances resulting from some of these schemes. As I have said, I am constantly seeking reassurance from HMRC on this matter, and my understanding is that where bankruptcies have occurred, it has often been because of requirements outside of the loan charge, not from HMRC; indeed, some people have declared bankruptcy of their own volition. However, if my hon. Friend has evidence to the contrary, I would like to know about it.
Tim Farron (Westmorland and Lonsdale) (LD)
The original Treasury impact statement for the loan charge stated that it would have no material impact on
“family formation, stability or breakdown”,
yet there have been countless divorces, family break-ups, mental health breakdowns and bankruptcies, and at least 10 suicides. That impact statement was grossly wrong, but also surely negligent. We now need a full investigation, including how and why Parliament was so misled over the dangerous and unfair loan charge.
Nigel Huddleston
I hear the House’s concern about this issue, on which we had a debate not so long ago. Of course, the suicides the hon. Gentleman mentions concern us, and independent reviews have taken place. However, I want to provide the House and anybody listening with reassurance that the best thing to do if people have concerns is to engage with HMRC, because very generous and long-term plans can be put in place to help people to repay. As I said, there are fears out there—there is a bit of scaremongering—that homes are being taken over or people are having to give up pensions. That is not the case. Engagement with HMRC to establish reasonable time to pay would therefore be reassuring for many of the people who fear much worse consequences. My appeal is to engage with HMRC.
James Murray (Ealing North) (Lab/Co-op)
The Government’s approach to the loan charge has become a nightmare for ordinary people across the country who are the victims of mis-selling and facing financial ruin. The torment and devastating reality is the clearest possible proof that the Government need to think again. Those facing the loan charge ordeal cannot bear to hear yet again that the Morse review is the final word on this matter. Will the Minister finally agree today to commission a new, truly independent review?
Nigel Huddleston
We had an independent review in 2019 under Lord Morse. The Government accepted 19 of its 20 recommendations. The review has taken place, but as I have said repeatedly, I am challenging HMRC and listening to colleagues. If action needs to be taken, I will take it, but I do not believe that there is a case for another review, because we have already had one, and the Government have already taken action.
Mr Laurence Robertson (Tewkesbury) (Con)
Alan Brown (Kilmarnock and Loudoun) (SNP)
The Financial Secretary to the Treasury (Nigel Huddleston)
The Government want the UK to have a fair but internationally competitive tax system, designed to bring in talented individuals and investment that contributes to the growth of the economy. Non-doms play an important role in funding our public services through their tax contributions. They pay tax on their UK source income and gains in the same way as everyone else.
Alan Brown
The Minister talks of fairness, but the fact is that during the cost of living crisis nearly a million more struggling pensioners will start paying income tax, because of the freeze in personal allowance rates, while the Government protect some of the richest members of society through non-domicile status. Scrapping that status could bring the Treasury an extra £3 billion a year. Why do the Government not do the right thing and bring in that extra money to protect pensioners and the lowest paid?
Nigel Huddleston
Non-doms contributed about £8.5 billion in taxes in 2022, and have contributed to investment to the tune of £7 billion since 2012. The hon. Gentleman will be well aware that scrapping their status would not be risk-free in a world in which people can be quite mobile, and could damage the UK’s competitiveness. As for the need for other support, that is exactly why we have been reducing national insurance rates, for example.
Rushanara Ali (Bethnal Green and Bow) (Lab)
Sir Edward Leigh (Gainsborough) (Con)
The Financial Secretary to the Treasury (Nigel Huddleston)
Small businesses are the engines that drive our economy and we support them to thrive using levers right across Government. Our small business rates relief means that one third of business properties in England already pay no business rates. We provide tax reliefs benefiting small and medium-sized enterprises, such as the annual investment allowance and employment allowance, and we support investment in SMEs through British Business Bank programmes and a variety of other support measures.
Selaine Saxby
What consideration has been given to reducing employer national insurance contributions to help small businesses to sustain employment following the record increase in the national living wage from April, particularly in the tourism and hospitality industries?
Nigel Huddleston
My hon. Friend and I have spoken about these policy areas on a number of occasions. In terms of supporting small businesses, the employment allowance enables businesses with employer national insurance contributions bills of £100,000 or less to claim up to £5,000 off those bills. That was increased in April 2022 from £4,000 to £5,000, so the smallest 40% of businesses have already been taken out of paying employer national insurance contributions, and many of those are in the hospitality and leisure sector. We always keep policies under review, and I know that my hon. Friend will always be lobbying on this issue.
Sir Edward Leigh
Becoming an entrepreneur in this country has become increasingly purgatorial over the past 25 years. Does the Minister agree that what small businessmen want is not more handouts and allowances from the Government but lower, simpler and flatter taxes, and less regulation not more? They want the Government to get off their backs and shove off.
Nigel Huddleston
That was very interestingly put by my right hon. Friend. I completely agree with his instincts, though, and those instincts are completely shared on the Conservative Benches. When we are able to reduce tax and release the entrepreneurial spirit, independence and innovation that exist right across the UK, the country thrives and all of us thrive.
Sir Stephen Timms (East Ham) (Lab)
In 2020, the former Chancellor set a public sector net investment target of 3% of GDP, but that was abandoned after the 2022 debacle and today we have the second lowest business investment among advanced economies, partly because of that failure on public sector net investment. Can the Minister offer us any reassurance on the future trajectory of public sector net investment?
Nigel Huddleston
Of course, Labour left us in pretty terrible financial circumstances back in 2010. Instead its figure is up £28 billion in real terms at the start of the next Parliament, an increase of 40% in real terms or 7% annually—the biggest ever published.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
Small businesses are the backbone of our economy, but they have a constant problem with late payments, which increased by 7% last year, and that is driving many of them into insolvency. Given that the Government are a major contractor, what are they doing through project bank accounts to reduce the impact of late payments?
Nigel Huddleston
The hon. Lady makes an important point, and I know there is agreement on this issue across the Chamber. We made statements last year along those lines, putting particular pressure on the public sector. I am sure there will be continuing pressure on the private sector, too.
Bob Blackman (Harrow East) (Con)
Rebecca Long Bailey (Salford and Eccles) (Lab)
The Financial Secretary to the Treasury (Nigel Huddleston)
Eighty-five per cent of the funds recovered from the loan charge so far—about £3.9 billion in total—have come from the employees, therefore those who were running those schemes, so the hon. Lady is mischaracterising where we have gone so far. There has been one criminal conviction so far; others are in place. I repeat what I said to the Opposition spokesman, the hon. Member for Ealing North (James Murray), earlier: if they were that concerned about ensuring we go after the wrongdoers, they would have voted with us last night in the Finance Bill.
Sir Desmond Swayne (New Forest West) (Con)
Nigel Huddleston
I know my right hon. Friend has been campaigning on the issue. I respect and appreciate the information he has provided, and his contributions to the debate. I assure him that I am in listening mode and looking forward to the meeting this evening, because I want to ensure that I hold HMRC to account to make sure everyone involved is treated fairly and respectfully.
Caroline Lucas (Brighton, Pavilion) (Green)
Helen Morgan (North Shropshire) (LD)
Nigel Huddleston
Over the past few years, we have helped to support our high streets by freezing multipliers and, importantly, targeting further relief at the retail, hospitality and leisure sector. Frequent revaluations are now par for the course, because of the recent changes we have made.
Richard Fuller (North East Bedfordshire) (Con)
Last July, following a debanking scandal, I wrote to the Economic Secretary to the Treasury about the risks of implementing so-called diversity, equity and inclusion policies. Far from being inclusive, their implementation has often been divisive, yet Labour put such policies at the heart of its financing and growth strategy just last week. Will my hon. Friend assure us that he will give clear direction to the Prudential Regulation Authority and the Financial Conduct Authority to avoid all the risks of so-called DEI policies?
Finance Bill
Nigel Huddleston ExcerptsMonday 5th February 2024
(2 years, 6 months ago)
Commons ChamberRead Full debate Finance Act 2024 View all Finance Act 2024 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 5 February 2024 - (5 Feb 2024)
The Financial Secretary to the Treasury (Nigel Huddleston)
I beg to move, That the clause be read a Second time.
Mr Deputy Speaker (Sir Roger Gale)
With this it will be convenient to discuss the following:
New clause 1—Review of effectiveness of section 31 measures in preventing fraud involving taxpayers’ money—
“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, conduct a review of the effectiveness of the provisions of section 31 in preventing fraud involving taxpayers’ money.
(2) The review must evaluate the effectiveness of the provisions of section 31 in preventing fraud involving taxpayers’ money through comparison with the effectiveness of—
(a) other measures that seek to prevent fraud involving taxpayers’ money, and
(b) the approach taken in other countries.”
This new clause would require the Chancellor to review the effectiveness of measures in this Act to prevent fraud involving taxpayers’ money, and to compare them with other measures that seek to prevent fraud involving taxpayers’ money and the approach taken in other countries.
New clause 2—Review of reliefs for research and development—
“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, publish a review of the implementation costs of the measures in section 2 incurred by—
(a) HMRC, and
(b) businesses.
(2) The review under subsection (1) must include details of the implementation costs of all measures related to credit or relief for research and development that have been introduced since December 2019.”
This new clause would require the Chancellor to publish a review setting out the total implementation costs of all changes to research and development reliefs in the current Parliament.
New clause 3—Review of measures to tackle evasion and avoidance—
“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, publish a review of the measures in sections 31 to 33 to tackle evasion and avoidance.
(2) The review under subsection (1) must include details of—
(a) the average sentence handed down in each of the last five years for the offences listed in section 31;
(b) the range of sentences handed down in each of the last five years for the offences listed in section 31;
(c) the number of stop notices issued in each of the last five years to which the measures in section 33 would apply; an
(d) the estimated impact on revenue collected in each of the next five financial years resulting from the introduction of the measures in sections 31 to 33.”
This new clause would require the Chancellor to publish details of the sentences given and stop notices issued in each of the last five years to tackle evasion and avoidance, as well as the revenue expected to be generated from the measures to tackle evasion and avoidance in this Act in each of the next five years.
New clause 4—Review of public health, inequality and poverty effects of Act—
“(1) The Chancellor of the Exchequer must review the public health, inequality and poverty effects of the provisions of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) The review must consider—
((a) the effects of the provisions of this Act on the levels of relative and absolute poverty across the UK including devolved nations and regions,
((b) the effects of the provisions of this Act on socioeconomic inequalities, and on population groups with protected characteristics as defined by the 2010 Equality Act, across the UK including devolved nations and regions,
((c) the effects of the provisions of this Act on life expectancy and healthy life expectancy across the UK including devolved nations and regions, and
(d) the implications for the public finances of the public health and NHS effects of the provisions of this Act.”
New clause 6—Assessment of the impact of permanent full expensing—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the measures in clause 1 of this Act on—
(a) business investment, and
(b) economic growth.
(2) The review under subsection (1) must—
((a) assess the impact of full expensing being made permanent, and
(b) consider what other policies would support the effectiveness of the measures in clause 1 of this Act.”
This new clause would require the Chancellor to publish an assessment of the impact on investment and growth of the measures in this Act to make full expensing permanent, and to consider what other policies could support the effectiveness of permanent full expensing.
New clause 7—Review of multipliers used to calculate higher rates of air passenger duty—
“(1) The Chancellor of the Exchequer must, at the next fiscal event, publish a review of the multipliers used to calculate higher rates of air passenger duty for each destination band.
(2) This review must propose options for introducing a multiplier to link the higher rate and the reduced rate within the domestic band.
(3) The Chancellor must, at the next fiscal event, make clear what changes, if any, he will implement as a result of this review.”
This new clause would require the Chancellor to publish a review of the multipliers used to calculate the higher rates of air passenger duty, and to propose options for introducing a multiplier to link the higher rate and the reduced rate within the domestic band.
Government amendments 1 to 6.
Nigel Huddleston
The Government’s aim is to grow the economy for the good of everyone, and our tax system is a key part of that. For households, higher taxes mean less financial freedom and less choice in how they spend their money. For businesses, they can mean less growth and investment, and that means fewer jobs for workers. That is why we need to grow our economy to create jobs and give ourselves the financial headroom to reduce taxes and remove the barriers to private sector investment. We must have a tax system that is supportive of business.
At spring Budget 2023, the Chancellor set out his approach for a highly competitive business tax regime. By announcing generous tax incentives combined with a rate of corporation tax that remains the lowest in the G7, the Government ensured that the UK is one of the best places in the world for businesses to grow and invest, but we should not be satisfied with simply being one of the best. This Bill therefore marks our next step in making the UK the best place in the world to do business.
We are taking huge, ambitious steps to make that a reality in the autumn statement and in the Bill. For example, no other major economy has made full expensing permanent. That is a major step in encouraging more investment by giving a huge tax relief to those who invest. Alongside that, we have introduced a generous new regime for research and development carried out by companies. We are now going further to encourage even more investment by introducing new clause 5, which will exempt receipts from new electricity generating projects from the electricity generator levy.
I will address each amendment in turn, looking first at the details of new clause 5. The electricity generator levy was introduced following the energy crisis to ensure that energy companies with extraordinary returns contribute more towards vital public services and support for households. However, we must balance that against ensuring that the UK remains a brilliant place to invest in renewables. The new clause makes changes to the EGL that will exempt receipts from new electricity generating projects from the levy. It will ensure that all generators in scope of the levy will benefit from the exemption if they choose to proceed with investments in new generation capacity and make a substantive decision to go ahead with a project on or after 22 November 2023—the date of the autumn statement. That will help support continued investment in the UK’s renewable generation capacity by removing new investments from the tax and providing businesses with the confidence to make such new investments.
I turn to Government amendments 1 to 3. To ensure that the research and development tax relief clauses in the Bill work as intended, the Government are proposing technical amendments to the R&D clauses. The Bill introduces a new enhanced support for R&D-intensive small and medium-sized enterprises, such as those in our vital life sciences sector. From April 2024, the R&D intensity threshold will be reduced from 40% to 30%.
Amendments 1 and 2 make changes to ensure that R&D-intensive companies get the relief as intended. Amendment 1 removes two situations where a company would appear less R&D-intensive than it actually is. These issues were raised with us by an industry stakeholder, for which I am grateful. To avoid abuse and to protect the scheme for genuinely R&D-intensive companies, the ratio is worked out at a group level. Currently in the legislation, companies within groups that charge each other for services could have costs double counted and therefore reduce their R&D intensity. The amendment will fix that. The Government do not want to exclude companies from relief because of legitimate commercial arrangements that do not affect the underlying true R&D intensity of the business.
On top of providing more support for R&D-intensive companies, the Bill will simplify and improve our R&D reliefs by merging the R&D SMEs scheme with the R&D expenditure credit. To ensure that those clauses work as intended, the Government propose technical amendments to the R&D clauses. Companies and accountants wanted the merged scheme to be implemented on an accountancy period basis as that makes claims simpler and delays the merged scheme for the majority of current R&D expenditure credit claimants. It therefore gives them a bit more time to prepare.
The new rules for contracted-out R&D will ensure that the company making the decision to do the R&D and bearing the risk is the one that gets the relief. However, that means that, as currently drafted, there could be temporary situations when two companies are in a contractual relationship and one moves into the new R&D tax credit system ahead of the other. For a limited period of time, that could result in situations where both parties could claim on the same R&D or neither could claim, as was raised by stakeholders. Amendment 3 ensures that the legislation works as intended. For temporary double claims, the R&D credit will go to the claimant in the old system until both have started new accounting periods. To avoid a temporary gap where no company can claim, the legislation will be amended to ensure that subcontractors can claim where their customer is still in the old system.
Nigel Huddleston
Thank you, Mr Deputy Speaker. May I join you, Mr Speaker and the whole House in wishing His Majesty a speedy recovery following the announcement this evening?
I wish to thank right hon. and hon. Members for contributing to this debate. I shall respond to as many of the points as I can, and also talk to the amendments that have been moved. On new clause 1, I agree that we must prevent fraud and ensure that all taxpayers pay their fair share. To help achieve that, the new maximum sentences for the most egregious examples of tax fraud, the new criminal offence on the promoters of tax avoidance, and enhanced director disqualification powers will come into force on Royal Assent of this Bill. That will all help.
At 4.8% of total liabilities, the UK’s tax gap is at the joint lowest rate ever recorded and has remained low and stable. The UK’s tax gap compares favourably with that of our international partners. HMRC has already published performance updates that provide information on its compliance performance every quarter, so we believe that this new clause is not necessary.
New clause 2 is pretty much the same as the new clause 1 rejected in Committee of the whole House. As I have said previously, we believe that the provision is unnecessary, as the information has been published in the tax information and impact notes alongside each policy change. That gives a clear explanation of the policy objective together with details of the implementation costs for both HMRC and businesses.
New clause 3 would require the Government to publish details of sentences given and stop notices issued to tackle evasion and avoidance in the past five years, as well as revenue expected to be generated by measures in this Bill to tackle evasion and avoidance in each of the next five years. However, HMRC publishes information on the number of custodial sentences received for tax compliance offences and the average sentence length in its annual reports and accounts. The 2023-24 annual report and accounts will be published this summer, providing a full overview of HMRC’s performance. The Government also publish a list of tax avoidance schemes subject to a stop notice on gov.uk, with the most recent report published on 7 December. HMRC has issued more than 20 stop notices since issuing the first one in 2022. The Government also published revenue estimates for the next five years of the clauses in this Bill in the tax information and impact notes. Therefore, as the information requested by new clause 3 is publicly available in routine HMRC publications, the publication requested by new clause 3 is unnecessary.
New clause 4 would require the Government to report on the likely impact of the measures in the Bill on public health, inequality and poverty—matters that concern us all and that we discussed in Committee. Existing mechanisms already effectively monitor and assess Government policies in those areas, rendering the amendment redundant. Departments such as the Department of Health and Social Care and its arm’s length bodies diligently evaluate policies to enhance health up and down the country. Through the Office for Health Improvement and Disparities and the National Institute for Health and Care Research, they address health inequalities and provide robust evidence for policy development. Various Government units, such as the Cabinet Office equality hub, contribute to levelling-up opportunities and ensuring fairness. The Government Equalities Office, the Race Disparity Unit, the Disability Unit and the Social Mobility Commission all focus on different equality dimensions to guide and support inclusive policy development across the country. We therefore do not believe that new clause 4 is necessary.
On new clause 6, I agree that it is important to regularly review and evaluate policy, and to be transparent, which my right hon. Friend the Member for Wokingham (John Redwood) also highlighted. His Majesty’s Revenue and Customs has published a tax information and impact note setting out the impact of the measure, including the economic impact, and the Office for Budget Responsibility has already conducted and published extensive analysis on the investment and growth impact of full expensing. That is available in its “Economic and fiscal outlook—November 2023”, which therefore negates the need to publish a separate assessment in six months’ time. The impact of permanent full expensing will be monitored through information collected from tax returns, and through regular communication with businesses and representative bodies.
Jim Shannon
The Minister knows that I am particularly fond of him, but if he has heard my request before, let us now have action.
Nigel Huddleston
We always try to act; I cannot do everything, though. I note the hon. Gentleman’s comments. In a similar vein, my hon. Friend the Member for Totnes (Anthony Mangnall) raised the importance more broadly of the tourism, hospitality and leisure sector, and of the creative sector. He is absolutely right. Measures in the Bill and elsewhere will support all those sectors. Of course, business rates relief is vital to the tourism, retail, hospitality and leisure sector. My right hon. Friend the Member for Wokingham made a range of comments, some outside of my direct remit. I assure him that I will raise his points, which ranged from bonds to public sector efficiency—a vital area—with colleagues in the Department.
I was somewhat entertained by the comments of the Labour spokesman, the hon. Member for Ealing North, who was effectively asking me to commit to Conservative party policies as enthusiastically as he does, which is quite a turn up for the books. Of course, we welcome Labour’s support for the policies that we have announced, but there is clear blue water between the Labour party and the Conservative party in terms of principles about the size and scale of Government and the level of taxation. We have seen Labour’s flip-flopping over the £28 billion. I am not sure what the policy is today. It was rather rich of him to ask for commitments from me, given the flip-flopping that is so prevalent in every area of Labour policy.
At one point, the Labour party was supportive of Brexit. Now I do not know. Are Labour Members against it? Were they supportive of the right hon. Member for Islington North (Jeremy Corbyn) being Prime Minister, or do they not want him in the party? Are they in favour of nationalisation, or against it? Are they in favour of private sector involvement in the NHS, or against it? In a whole host of policy areas, we have seen persistent, perennial flip-flopping from the Opposition. I literally have goldfish whose commitments I would trust more than those from the Labour Front Bench. On those points, we will have to respectfully agree to disagree.
As I said, new clause 5 and the six amendments that the Government have tabled will help to ensure that the changes in the Bill apply as intended, and deliver a vital policy to protect renewable investment. They will make the tax environment more easily understood by business and protect vital tax revenue used to fund our public services. I therefore urge that they be added to the Bill. The six new clauses tabled by the Opposition seek to get the Government to publish data and information that is already being published through other sources, as I have outlined. I therefore urge the House to reject them.
Question put and agreed to.
New clause 5 accordingly read a Second time, and added to the Bill.
New Clause 6
Assessment of the impact of permanent full expensing
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the measures in clause 1 of this Act on—
(a) business investment, and
(b) economic growth.
(2) The review under subsection (1) must—
(a) assess the impact of full expensing being made permanent, and
(b) consider what other policies would support the effectiveness of the measures in clause 1 of this Act.”—(James Murray.)
This new clause would require the Chancellor to publish an assessment of the impact on investment and growth of the measures in this Act to make full expensing permanent, and to consider what other policies could support the effectiveness of permanent full expensing.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Nigel Huddleston
I beg to move, That the Bill be now read the Third time.
This Government are backing British business, supporting employment, and creating a simpler and fairer tax system. My right hon. Friend the Chancellor delivered an autumn statement with the clear intention of strengthening the economy, now and for the future. This Finance Bill, which Members of the House have had the opportunity to scrutinise and debate over the past few months, does exactly that. It takes forward important tax measures to help businesses invest for less; encourages innovation and supports our creative industries by elevating rates and simplifying credits; and improves and simplifies our tax system to ensure it remains fit for purpose.
Mr Deputy Speaker, allow me to remind Members of the Bill’s key aims. Our first aim is to support British industry, so that we can solidify our position as world leaders in key sectors. Making full expensing permanent allows UK businesses to invest for less. We have moved to make the UK’s plant and machinery capital allowances the most generous of any major economy. Permanent full expensing has been called the single most transformational thing we could do for investment, and it was welcomed by more than 200 companies and trade associations.
The Bill also merges two significant Government schemes: the SME scheme and the R&D expenditure scheme. In doing that, we are meeting our aim of simplifying the system while providing greater support to British businesses, so that they can spend less time on administration and more time on innovation. The Bill also introduces greater support for loss-making R&D-intensive SMEs and lowers the intensity threshold required to access that support to 30%, helping around 5,000 extra SMEs. To further support investment in renewable energy, we have introduced a new assets exemption for the electricity generator levy, a measure that will continue to drive growth in both our renewables sector and the wider economy. We also continue to support our world-leading creative industries with tax measures that reform the film, TV and video game tax reliefs, turning them into refundable expenditure credits that are easier for business.
Our second aim is to support employment. We must remove barriers to work and incentives to not work, and most of all, must ensure that hard work and expertise are rewarded. That is why the Bill makes changes to encourage people to stay in work and use their expertise for longer. The Bill will complete the abolition of the lifetime allowance, amending pension tax rules so that employees with valuable, hard-earned expertise are no longer encouraged to reduce their hours or retire early. The Office for Budget Responsibility estimates that this will retain 15,000 workers annually, keeping many high-skilled employees and experienced individuals in our labour market while ensuring that they receive their rightful benefits for working.
Our third aim is to create a simpler, fairer and more modern tax system—an aim that the Bill also supports. Making full expensing permanent is a huge simplification for larger firms, but we are a nation of millions of small businesses. In the Bill, we are expanding the cash basis—a simplified way for over 4 million smaller and growing traders to calculate their profits and pay their income tax. While we remain focused on reducing the tax burden, we cannot overstate the role of tax in supporting public services, so we must all do our part. Everyone must pay their fair share, which is why the Bill introduces a new criminal offence for those who promote tax avoidance schemes and continue to promote them after receiving a stop notice. Alongside this, His Majesty’s Revenue and Customs will for the first time be able to bring disqualification action against the directors of companies involved in promoting tax avoidance, including those who control or exercise influence over a company. These are vital steps in ensuring that the system is fair for all, and that those who try to undermine it face the consequences.
I thank right hon. and hon. Members from across the House for their helpful and insightful contributions to the debate on the Bill. I also thank the many stakeholders who have provided their views on the issues raised, the Treasury, HMRC officials and House Clerks who have helped the Bill to get to this point. This Bill backs British business, rewards hard work, nurtures innovation, and supports our leading industries while solidifying long-term economic growth. For those reasons, I commend it to the House.
Hospitality Sector: Fiscal Support
Nigel Huddleston Excerpts(2 years, 6 months ago)
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The Financial Secretary to the Treasury (Nigel Huddleston)
It is a pleasure to serve under your chairmanship today, Ms Bardell. I congratulate the hon. Member for Stirling (Alyn Smith) on securing the debate, and thank everybody who has contributed. Everyone contributed in a very constructive manner—until a few minutes ago. Many hon. Members graciously commented on my previous role. As tourism Minister, I had the real pleasure of visiting the vast majority of their constituencies, and it has been fantastic to have a tour of the UK today. We have heard about the fantastic hospitality, tourism and leisure offerings in everybody’s constituencies, including some absolute gems that make us very proud of this industry.
The hospitality and leisure sector is formidable. Definitions can sometimes be difficult; sometimes when people use the term “hospitality”, they are just talking about pubs, bars and restaurant, but we are thinking more broadly about the tourism, hospitality and leisure offering. To respond to the hon. Member for Ealing North (James Murray), I can say that we engage with the sector all the time. Just yesterday, many of us attended the UKHospitality reception, at which the formidable Kate Nicolls articulated the sector’s asks very well. We hear them all the time, and we are always listening to ideas.
Wera Hobhouse
The Minister mentioned a range of hospitality businesses. Will the Government please look at ensuring the survival of struggling businesses such as small music venues, which will close if they do not get the support they need?
Nigel Huddleston
In this debate we have heard an ongoing request for simplification in recognition of these challenging times—we did, of course, spend £350 billion on the pandemic—and a series of requests for additional relief here, there and everywhere. Everybody recognises—the Welsh and Scottish Governments are also struggling with this—that financial times are tight and that every single one of those requests comes at a cost: either other people would pay more tax or spending would be reduced somewhere else.
We absolutely hear the requests, but as my hon. Friend the Member for St Austell and Newquay (Steve Double) pointed out, over the past few years—certainly during the pandemic—the Government have recognised how vital the sector is and have been absolutely committed to it. It rightly received the immense support that it needed during the pandemic, including through the culture recovery fund to help music and heritage. So many sectors contribute to our tourism and hospitality offering. If we had not made those interventions during the pandemic, many businesses that are here today would otherwise not be. Ongoing asks during the period of recovery, when we need to start paying back that £350 billion, are very difficult because there would be massive consequences for taxpayers and the whole of the economy. I understand the challenges, but I think everybody recognises that every one of those asks comes at a cost.
Tim Farron
We obviously have to be careful with the nation’s finances and act within the envelope available to us, but what does the Minister make of the fact that UKinbound, Cumbria Tourism and others say that a variation of VAT levels would be of net benefit to the Treasury? Has he analysed those assessments? I am sure he has met those outfits personally.
Nigel Huddleston
I suspect I could spend the whole of this debate answering Members’ questions rather than going through my speech, much to the chagrin of my officials. Again, I understand the request. Many hon. Members pointed out that I was the one making these requests to the Treasury not so very long ago, for all the reasons they outlined, but we all recognise that we have to find the balance.
The point about dynamic modelling is really important. I will come on to VAT in a moment, but we must recognise that one of the biggest challenges of all requests for VAT relief is whether it will be passed on. There is not a 100% fantastic record of that happening in the hospitality and tourism sector or across the board, for understandable reasons. Cash flow was key during the pandemic, so not everybody was able to pass on the VAT reductions. When it comes to future requests for VAT reductions, we must be absolutely confident that they will be passed on, and that applies to multiple sectors.
Mr Ellwood
The Minister is being very generous in giving way. My right hon. Friend the Member for Witham (Priti Patel) mentioned the forthcoming Budget. Is there anything the Minister can tease us with? Can we look forward to anything in the Budget to support the hospitality industry?
Nigel Huddleston
I do love it when former Ministers try to tempt me in that way, knowing full well what the answer will be. What I can say is that we are listening.
I have gone off script for the past few minutes to try to respond to hon. Members, who have spoken eloquently and with real consideration of the challenges with their asks. There are no easy answers, given the challenging financial services. I and the other Treasury Ministers, and certainly the Chancellor and the Prime Minister, are always listening. We are always open to listening to evidence-based information. In that context, I cannot make any hints or promises about what may be in the upcoming Budget, but I can say that the view and opinion of the hospitality sector, especially as embodied by talented people such as Kate Nicholls at UKHospitality, and many others right across the UK, is valued. The sector used to be incredibly fragmented, and therefore did not have the voice it has now. Now, the sector comes in with credible, decent asks that need to be assessed with evidence. The voice of the hospitality sector has never been stronger in Government. I applaud all the lobbyists and groups for doing that.
Priti Patel
The Minister mentioned UKHospitality and Kate Nicholls and the way they have come together. Clearly, there are problems with labour markets in the hospitality sector, and there have been for many years—it is not a new phenomenon. What are the barriers to UKHospitality and the Treasury working together to create a labour market strategy for the hospitality sector?
Nigel Huddleston
Again, these are ongoing conversations across multiple Government Departments. In my former capacity as tourism Minister, I certainly had extensive conversations. There were sub-working groups at UKHospitality identifying areas for further work. That has had some impact, including through apprenticeship schemes. My right hon. Friend was absolutely right to highlight this issue. We have debated Brexit, which probably goes slightly beyond the current remit, although I understand the impact—and, by the way, the opportunities that come from that. My right hon. Friend is right that we need to focus on the domestic skills agenda. The hospitality and leisure sector contributes to one in five new jobs, so it is absolutely pivotal to that.
If hon. Members will forgive me, I will try to get through some of my speech—and not try your patience too much, Ms Bardell—because I am not even on page 1 yet.
Hannah Bardell (in the Chair)
Just to clarify, the Minister has a little bit of flexibility. Given the extent of the debate and the number of questions, he is free to go over the 10 minutes and answer everyone’s questions—as he would like.
Nigel Huddleston
I will make sure I leave a minute or two at the end for the hon. Member for Stirling to conclude—I may have shot myself in the foot there by giving everybody the opportunity to ask all the awkward questions they now have.
Like many hon. Members, my first job was in the hospitality and leisure sector, with a travel agent. I then had the very difficult choice at the age of 22 between taking a job for Arthur Andersen and becoming a Club 18-30 rep. I wonder if my life might have been considerably different if I had taken that slightly different path. My right hon. Friend the Member for Witham is right: jobs in the hospitality and leisure sector help people with numeracy skills, self-confidence and interpersonal skills, which can stay with them for life.
We need to recognise that this sector is not just about part-time jobs for students or young people; we should not forget that there are also valuable, often very high-paying, long-term careers in the sector. The sector has evolved and changed, and is now a major contributor to the UK economy, with £140 billion of economic activity. There are masses of opportunities there, but the reputation and image of the sector is sometimes one of its inhibitors. I am therefore a huge champion of the sector for all the reasons we have outlined.
We have had quite a lot of debate today about the various support measures, including business rate relief. It is worth remembering that the Government provided £16 billion of business rate relief in England through the pandemic. In addition, we launched the temporary 50% retail, hospitality and leisure relief scheme at the 2021 Budget. That was built on in the 2022 autumn statement, and the Government announced further tax cuts to the sector in last year’s autumn statement—about £4.3 billion over the next five years—and extended the retail, hospitality and leisure relief scheme at 75% up to a cash cap of £110,000 per business for 2024-25.
As has been recognised, the Labour Government in Wales and the SNP Government in Scotland were not able to extend those reliefs. I recognise that everybody realises there are considerable financial pressures, but with the greatest respect to my opposite numbers, who have been somewhat critical, I do think this is important and it is something I will play up very heavily: we have done things in England, where we have controlled the levers, that have not been done in Wales and Scotland.
Overall, this tax cut is worth about £2.4 billion for around 230,000 retail, hospitality and leisure properties to continue support for our vital high streets and protect so many small shops and businesses. The Government have also decided to freeze the small business multiplier for the fourth consecutive year. That will protect over a million rate payers and 90% of all properties from a multiplier increase.
For example, as a result of the changes, the average independent pub will receive about £11,800 of relief off their final business rates bill in 2024-25. Combined with the small business multiplier being frozen, they will benefit to the tune of about £12,800 of support. I repeat: that is not the level of support that they would get in Scotland or Wales.
A few points were raised about other areas, and I remind hon. Members that reliefs are also available for improvements in property. If there is an incremental rateable value because of improvements, that will not be included for the first year where eligible. I also remind hon. Members about the changes in alcohol duty and the Brexit pubs guarantee, which are designed to support the pubs sector and to help it operate on a level playing field with supermarkets.
My right hon. Friend the Member for Witham (Priti Patel) made many points about skills and jobs. I will not repeat what I said, because I think I have made the point that we are very aware of the importance of that sector and the role we have in developing skills and opportunities.
Cutting VAT was mentioned by nearly everybody, and I want to be clear on this point. As we all know, VAT is a major contributor to the nation’s finances, which we then spend on our vital public services. It is forecast to raise about £173 billion in 2023-24. Since we left the EU, we have been taking advantage of multiple reliefs. I believe that if we were to rank ourselves against all other EU countries for the total number of reliefs we are able to exercise through VAT, we would be about second or third. We have been taking advantage of leaving by reducing reliefs and making real differences where and when we can.
The VAT cut for tourism and hospitality that we made during the pandemic came at a significant cost of more than £8 billion. Reintroducing it would come at a considerable cost. That was just one element of the support for the retail, hospitality and leisure sector during the pandemic, but it was a really important part of it.
Anthony Mangnall
I thank the Minister for that response; it is very helpful to get an understanding of what the costs would be around VAT. Was any modelling done of what would have happened if we had not made that cut and what the impact would have been in terms of lost businesses and rising unemployment numbers? Could those models be produced or published, so that we can make that comparison in Parliament?
Nigel Huddleston
Various pieces of internal and external analysis have been released. We all know anecdotally from experiences in our constituencies that it literally did save businesses around the country. As I said, the Treasury keep tax policy under review all the time—that is a mantra, but it is true. The message I want to get across to colleagues today is that this will not be an easy choice. I understand the asks and we understand the impact, and there are various points of modelling, but it would not be an easy option. I repeat the caution that pass-through is vital when it comes to VAT relief. That did not happen wholly last time, but I understand why, as some of it was cash flow.
Mr Ellwood
Everybody understands the passion with which the Minister is pushing this. I do hope, as I teased last time, that he is having private conversations with the Treasury and making the mathematical case very clear. A business that closes does not pay any VAT at all. A business that thrives because VAT has been reduced somewhat can then pay more corporation tax. That is the mathematical formula that we would like to see, which I think has been presented by UKHospitality, and which justifies reducing VAT to 10% in the hospitality sector.
Nigel Huddleston
My right hon. Friend makes a logical point. I assure him that I am listening, but I am not making any promises.
I will refer to a couple of other areas that hon. Members mentioned. I appreciate the tone adopted by the hon. Member for Stirling. He recognised that there are things that the sector is requesting and looking for that Scotland, Wales and other countries are not able to deliver. That does not mean that any of us are not sympathetic; it is about the balance of the support package that we need to deliver. Like many today, he commented on both business rates and VAT.
My hon. Friend the Member for St Austell and Newquay has one of the most beautiful constituencies in the country, but also, as he said, one of those that is most reliant on this sector. He raised a variety of points, and he and I have had ongoing conversations about this subject, because he is such a champion of it. His point about the ongoing efforts to make sure that we get more inbound tourists outside London is pivotal. There are various opportunities and measures: VisitEngland, VisitBritain, VisitScotland, VisitWales, Discover Ireland and Discover Northern Ireland all do a fantastic job of helping to support and enable that tourism, plus there is a key role for our transport system.
My hon. Friend is right, however, that about 50% of all inbound tourism spend is within the M25. That is great, and we are not saying that that should be less; we are saying that we want it to be “London plus”. That is a key part of the tourism strategy, and I assure my hon. Friend that we are talking about this on an ongoing basis with DCMS and the Tourism Minister.
The hon. Member for York Central (Rachael Maskell) highlighted issues in her fantastic constituency, which I have had the pleasure of visiting on multiple occasions. She highlighted the importance of heritage in the tourism and hospitality ecosystem, and also mentioned flooding. She may or may not be aware that there are opportunities for businesses that are severely impacted by flooding under what is called a “material change in circumstances”. Working with the valuation office, there are opportunities to see, on a case-by-case basis, whether some relief is available. She might want to see whether some of the businesses impacted could consider that, as well as other support measures that we have provided for those impacted by flooding.
My hon. Friend the Member for Totnes (Anthony Mangnall) raised multiple points. He highlighted the upside of some of the trade deals that we are doing, so his constituency is now probably going to be flooded by Australian barmen and barwomen over the next few years. That is not necessarily a bad thing; I wonder whether they are better cocktail waiters and waitresses than he was.
My hon. Friend also raised the important point that, although the headline rates of VAT in some of our European friends’ countries may be lower, there is often a sting in the tail of quite considerable—startlingly high, in some cases—tourism tax, sometimes at a very local level. There is not a huge amount of evidence to suggest that that works either. There is always a balance, and although something may look like a beneficial tax rate system, one only has to scratch beneath the surface to find that there is something a bit more to it.
Anthony Mangnall
The Minister is giving a comprehensive answer to all the points raised in the debate. I re-emphasise the point that, if he is worried about the £8 billion figure that was quoted as a cost for when we reduce VAT by 15%, he could get around that not only by using UKHospitality’s data, but by tiering it and doing a 2% reduction over a five-year period. I hope that would at least comfort the bean counters in the Treasury and reassure UKHospitality that we are going in the right direction.
Nigel Huddleston
I am yet to see the beans being counted, although I am sure that it happens somewhere. My hon. Friend is building on a very clear message that I have received from right hon. and hon. Members today.
The hon. Member for Westmorland and Lonsdale (Tim Farron) and I have had ongoing conversations over multiple years. I do not doubt his passion and support for the sector, or how important the sector is for his constituents. He was right to raise the issue of holiday lettings. I understand that he is disappointed with some of the measures that we have brought in, although some of those measures will make a real difference, including the ability to charge more for some rental properties. All I can say is that we are well aware of some of the additional lobbying for proposed changes and, again, that we are always open to further ideas.
Tim Farron
Although we need labour from outside, we also need to be able to grow our own talent domestically; that is the specific thing that will make a difference. The real problem is the collapse of residential properties for long-term occupation. The answer to that is a separate category of planning use for short-term lets and a separate category for second homes. Will his Government choose to do either of those things? They promised to do at least the first one.
Nigel Huddleston
All I can say to the hon. Gentleman is that we are listening. Some measures are being put in place that local authorities will have powers to implement, but I understand that a lot of people are not happy with the situation. I completely understand the challenges at a local level, particularly when it comes to employment and the unaffordable cost of housing in many parts of the country, as many Members have mentioned.
Rachael Maskell
In my speech I mentioned the extension of covid loans for businesses that have those loans. What is the Treasury’s view on extending them so that investment can be made in those businesses elsewhere?
Nigel Huddleston
I cannot comment on any further changes, but there has been some flexibility with covid loans, as we have announced. This is important. Of course, we want those covid loans to be paid back, but that needs to be done over a period of time that is sustainable for businesses. This is in the context of the overall support, including the comments that I made about business rates relief and other things for the retail, hospitality and leisure sector. We are aware that the sector was hit so hard by the pandemic and is still in the process of recovering—it is recovering remarkably strongly, but it is not out of the danger zone yet.
Steve Double
On the housing issue, one thing that the Treasury could do is level the tax playing field on the tax breaks between short-term holiday lets and residential properties. That would make a significant difference and would really help. Perhaps the Minister will take that message back.
Nigel Huddleston
I thank my hon. Friend and others for their input today. I will briefly comment on a couple of more items before I close, Ms Bardell. The hon. Member for Bath (Wera Hobhouse), which is another beautiful constituency that I visit frequently, raised a range of issues, including the importance of the environment in the tourism eco-system and environmentally sensitive tourism. I think we will respectfully disagree on the efforts being made by the Government on decarbonising and so on. I think we have a very proud record. I recognise that there is a debate in this area, but her broader points about the contribution of tourism to the environment and the importance of sustainability are important.
The hon. Member for Ochil and South Perthshire (John Nicolson) raised a range of issues, and I will present to him the challenge that I also presented to my opposite number, the hon. Member for Ealing North. The hon. Member for Ochil and South Perthshire made a comment about tax cuts just for the rich and wealthy, but that is so far from reality that I will have to respectfully disagree with him. If he does not believe that we are giving tax cuts to everybody—as I said, the national insurance cuts that we made were for 27 million people— I will present him with the same challenge: let us look at his pay packet for this month and see whether the contribution is lower than December’s. If he does not believe that it is lower, with respect, why does he not give that money to charity or back to the Government? It is important that we recognise that the national insurance cuts are meaningful for 27 million people, including many people on low incomes. That is far from the characterisation of saying that these are tax cuts for the wealthy. We have a laser focus on making sure that the low-paid benefit from such tax cuts.
John Nicolson
I am sure the Minister will have heard me: I specifically referred to cuts in inheritance tax. That is what I raised in my speech. If he would like to tell us that that is a red herring and that no such cuts are intended, I would be delighted to hear it.
Nigel Huddleston
No such cuts have been made. As I said, the hon. Member’s point was speculation and that is not anything I can comment on today.
Ms Bardell, thank you for your patience. I thank everyone for their contributions. All points have been taken on board, and I thank hon. Members for their passion for the sector.
Draft Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2023
Nigel Huddleston Excerpts(2 years, 6 months ago)
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The Financial Secretary to the Treasury (Nigel Huddleston)
I beg to move,
That the Committee has considered the draft Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2023.
It is an absolute pleasure to serve under your chairmanship this morning, Mrs Murray.
Business rates are a crucial element of the UK’s tax system. They raise over £20 billion per year, which goes to help local authorities fund our country’s vital local services. While business rates provide crucial revenue, over the past few years the Government have taken extensive action to hold the tax rates steady and target support towards those ratepayers who need it. At autumn statement 2023, the Government announced a package of cuts worth £4.3 billion over the next five years to support small businesses and the high street with local tax cuts, including freezing the small business multiplier for the fourth consecutive year and extending the retail, hospitality and leisure relief scheme at 75% for 2024-25.
It is essential that the business rates system runs smoothly, with continuity and stability. These regulations ensure exactly that: they are crucial to maintaining a healthy, stable system for the financial year 2024-25 and beyond. Their primary purpose is to maintain the threshold between the two business rates multipliers. There are two multipliers in the English business rates system—the higher, standard rate multiplier and the lower, small business multiplier. The threshold between the two has stood at a rateable value of £51,000 since 2017, but due to the passing of the Non-Domestic Rating Act 2023 these regulations are required to preserve it at the same level from 1 April 2024 onwards.
Kevin Foster (Torbay) (Con)
The Minister will know that, certainly in Torbay, things like the discount on tourism and retail are very much welcomed. But will he confirm that the effect of these regulations not being passed would be that thousands of small businesses across the country would end up paying more business rates?
Nigel Huddleston
My hon. Friend has embarrassed me, because he just summarised my eight pages of notes in one paragraph. He is absolutely correct. If we do not do this, hundreds of thousands of businesses across the country—those with a rateable value of between £15,000 and £51,000—would effectively have to pay far higher rates than they otherwise would, and that is the core purpose of the discussion today. I should probably sit down there, but I will carry on just a little bit for the edification of others who probably do not get the principles as keenly, enthusiastically and quickly as my hon. Friend.
The secondary purpose of the regulations is to extend the scope of the small business multiplier to include unoccupied properties, charities and properties on the central list—which I will explain in a moment—with a rateable value below £51,000 and which do not currently receive full rates relief. This will level the playing field for all types of properties, promoting consistency in the system; in other words, it is a simplification. Those properties that move to the small business multiplier for the first time will also receive a tax cut worth around £5 million in total per year.
Hon. Members may appreciate a very brief reminder of the business rates multiplier and what it is. The multiplier is the tax rate used to calculate business rates. The relevant multiplier is multiplied by the yearly rental value of a property, known as rateable value, to calculate its business rates bill before any reliefs are applied. As I have mentioned, there are two multipliers in operation—the small business multiplier and the standard multiplier. The legislative default is for both multipliers to rise by consumer price index inflation each year, but the Government took action at autumn statement 2023 to freeze the small business multiplier for the fourth consecutive year, protecting over 1 million ratepayers from an increase in bills.
The regulations must be made as a result of the passing of the Non-Domestic Rating Act 2023 in October.
Priti Patel (Witham) (Con)
Would my hon. Friend acknowledge that these regulations, and the overarching principle on business rates that he is leading, are helping to secure more jobs in our communities, particularly in constituencies like Witham, where small and medium-sized businesses are at the forefront, with a presence on the high streets, recruiting and employing people? That is, of course, vital to our economic health and wellbeing.
Nigel Huddleston
I thank my right hon. Friend for her comments. I know, and have experienced in many debates, what a champion she has been for small businesses, including in her constituency. She is absolutely right: we want to ensure that the tax level is appropriate but not overly burdensome. Some reliefs that we have given in retail, hospitality and leisure over the past years have been precisely to ensure that such businesses can operate on a level playing field, operate efficiently, and create jobs, economic activity and the all-important tax revenues that we need for a sustainable economy. At the heart of the matter is business success and jobs—my right hon. Friend is absolutely right—and that is what this Government are laser-focused on delivering.
The Non-Domestic Rating Act implemented important reforms to the business rates system, which were announced following the 2020 business rates review. The headline measure of the Act was more frequent revaluations. It also introduced a new improvement relief for those who raise the value of their properties through qualifying improvements and several other measures. Most relevant to this debate, the Act made a series of changes to the administration of the business rates multiplier to streamline and improve the system. One such change granted the Government the power to set the threshold for which properties pay which multiplier in secondary legislation; and as these new reforms will come into force from the 2024-25 financial year, the Government must bring forward these regulations in order to maintain the threshold for which properties pay which multiplier at its existing level: £51,000 rateable value.
If the regulations were not passed, the small business multiplier would instead only apply to businesses in receipt of small business rates relief, which would constitute a tax hike for hundreds of thousands of businesses whose properties have a rateable value of between £15,000 and £51,000—exactly the point made by my hon. Friend the Member for Torbay.
The regulations also widen the eligibility for the small business multiplier, including unoccupied properties, charities and central list properties within its scope for the first time. That brings those properties in line with occupied properties, maintaining consistency across the entire system. The proposal to bring unoccupied properties and charities within the small business multiplier was initially made in the technical consultation following the business rates review, and the Government committed to the change in the summary of responses to that document in March 2023. To promote consistency, we have decided to bring properties on the central list—the centrally managed list of properties that span multiple local authorities areas, including, for example, utilities pipelines—within the scope of the small business multiplier. There are a relatively small number of such properties, but we believe this point of consistency is important.
What this instrument does therefore is very simple: the regulations continue and extend Government policy, setting the threshold for which all property types pay the small business rates multiplier at below £51,000, unless they are subject to full relief. Properties of £51,000 or above will be subject to the standard multiplier. In short, the regulations will largely maintain the status quo for the vast majority of ratepayers. The £51,000 threshold will remain where it has been for the past six years. The regulations will ensure continuity under the legislative reforms made by the Non-Domestic Rating Act 2023, and I therefore commend them to the Committee.
Nigel Huddleston
I thank the shadow Minister and others for their participation. As I said, the Government are committed to ensuring that the business rates system is fair, equitable and as streamlined as possible, and the regulations have been drafted with that in mind. As is usual practice, further guidance will be provided with regard to the policy’s roll-out.
We are well aware of the issues of avoidance and evasion across multiple tax systems; the hon. Member for Ealing North will know that that is an important matter that the Government consider. The inclusion of unoccupied properties is to try to create a level playing field. Nobody wants to see unoccupied properties on high streets or elsewhere, and the intention is to try to ensure that they are not empty for any longer than needed. The definition of an unoccupied property is established in case law, and there is a degree of local authority discretion to decide—but, as I said, further guidance will be forthcoming. The shadow Minister also asked about the response to the consultation; we will be responding in due course.
Ultimately, the regulations promote consistency and stability in the business rates system—important tenets of any tax system. Through them, the Government will continue to protect about 90% of properties by placing them on the small business multiplier, which is now open to a greater range of property types than ever before. The regulations are crucial in ensuring the smooth, consistent operation of the business rates system for the financial year 2024-25 and beyond, and I commend them to the Committee.
Question put and agreed to.
Building Societies Act 1986 (Amendment) Bill
Nigel Huddleston ExcerptsFriday 19th January 2024
(2 years, 7 months ago)
Commons ChamberRead Full debate Building Societies Act 1986 (Amendment) Act 2024 View all Building Societies Act 1986 (Amendment) Act 2024 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Nigel Huddleston)
I, too, congratulate the hon. Member for Sunderland Central (Julie Elliott) on, first, being lucky, and secondly, choosing to be impactful by introducing a Bill that will help to support the future growth and success of the mutuals sector. I understand that her husband, Andrew Fletcher, is in the Gallery today to observe her performance. I am sure he will be rightly proud of the work she is doing with others to make a real impact on people’s lives right across the country. I know that she is driven by a desire to support building societies so that they are able to compete on a level playing field with retail banks, and I am pleased to say that the Government share that desire. That message has also been clear from the Members’ speeches.
I will run through some of the comments we have heard—there were some excellent speeches. The speech by my hon. Friend the Member for Mid Norfolk (George Freeman), with his insights on Labour co-operativism and civic conservatism, was a true tour de force. As always, he spoke passionately about the importance of mutuals in rural areas. My hon. Friend the Member for Stoke-on-Trent Central (Jo Gideon) spoke warmly about the importance of community banking and mutuals in more urban areas, reiterating the importance of those institutions right across the country. I agree completely with her comment about the contribution of the over-70s in society.
My hon. Friend the Member for Dover (Mrs Elphicke) spoke passionately and knowledgably about her experience with mutuals, and with Principality in particular. She raised points about the logistics of arranging virtual meetings and a few other matters. I will certainly ensure that the City Minister, my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami), is aware of some of her comments. She spoke warmly about the human experience she had and about her interactions with Mr and Mrs Jones. In this sometimes remote area of banking, we are dealing still with human beings. In a rare experience, we also heard somebody volunteer to be a member of a Bill Committee.
My hon. Friend the Member for West Bromwich East (Nicola Richards) spoke of her affection for the West Brom and the role of mutuals in the west midlands, particularly in promoting and encouraging the habit of saving among young people and promoting home ownership via mortgages.
My hon. Friend the Member for Bury North (James Daly) laid out the strong case for the social and cultural impact of building societies. He spoke about nostalgia, but made it clear that we all need to work together to ensure that building societies and mutuals also have a thriving future.
My hon. Friend the Member for Southend West (Anna Firth) expressed her appreciation for the physical presence of so many building societies that are still on our high streets, particularly in the context of digital exclusion.
We want to ensure that building societies are supported so that they can continue to give people greater choice in where they put their savings, get their mortgage or, in some cases, open their current account. Today, I want to do two things. First, I will set out why the Government value the mutual sector, demonstrated by recent steps we have taken to ensure that legislation is updated so that they are able to grow, compete and succeed in the future. Of course, many have referred to the recent consultation on some of those matters. Secondly, I will briefly outline why the Government are fully supportive of the objectives and principles of the Bill, and I hope the hon. Member for Sunderland Central will set me right if I misinterpret the details of her Bill in any way.
The Government recognise the valuable contribution that mutual businesses play in the UK economy, as well as in the local communities in which they operate. Their unique ownership model means that those businesses are driven by the core values of openness and collaboration. Every member gets a vote and therefore a direct say in how the business operates. Given their unique ethos and desire to drive positive change in society, as well as the vital role they play in our economy, it is natural that the Government have committed to supporting the mutual sector to ensure their place in our future. For example, through the Financial Services and Markets Act 2023, the Government amended the Credit Unions Act 1979 so that, since last summer, credit unions in Great Britain have been able to offer a greater range of products and services.
To date, the Government have allocated £145 million in dormant asset funding to Fair4All Finance, which works to improve the availability of affordable credit, including through support for community finance providers, thereby strengthening the growth of credit unions. Moreover, last year the Government supported the private Member’s Bill of the hon. Member for Preston (Sir Mark Hendrick), which achieved Royal Assent in June 2023. The Government continue to develop a modern and supportive business environment and have asked the Law Commission to conduct reviews of the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992.
To further support the sector, the Government are also progressing secondary legislation changes to the Building Societies Act 1986, delivering on the Edinburgh reforms. Alongside this Bill, those changes will help to modernise the 1986 Act, helping building societies to grow and compete on a more level playing field with the retail banks.
The Government see this private Member’s Bill as a great way to support building societies, ensuring that they can compete with retail banks on a more level playing field while continuing to provide essential competition within the UK financial services sector. The Bill will deliver on key asks from the building societies sector. As the hon. Member for Sunderland Central set out, it makes provisions in three key areas: funds that can be disregarded by a building society for the purpose of calculating its wholesale funding limit; allowing real-time virtual member participation in building society meetings; and aligning provisions in relation to the execution of deeds and other documents with those of companies law. I will comment briefly on each of those.
The 1986 Act sets out building societies’ distinctive model and other legal requirements. Under the Act, building societies are required to obtain at least 50% of their funding from individual retail deposits, thus ensuring that the members are the primary owners. That funding limit is a key feature of building societies’ unique ownership model, ensuring that these businesses are mutually owned and run for the benefit of their members. While retaining that at-least-50% funding model, and thereby maintaining building societies’ unique characteristics and core values, this Bill will enable the exclusion of three key sources of funding from counting towards the wholesale funding limit, which are accessed or held for regulatory purposes. Those will be further specified by the Treasury in secondary legislation.
The other amendments the Bill makes to the 1986 Act relate to the modernisation of building societies’ corporate governance requirements, so that they can operate under the same modern governance flexibilities as companies. The first of those is an amendment to the 1986 Act to allow for the option of real-time virtual participation at building society meetings, which my hon. Friend the Member for Dover focused on in her speech. That change will help to modernise the day-to-day practices of these societies, promoting greater membership engagement and improving the accessibility of these meetings. This will be updated in line with rules for retail banks operating under the Companies Act 2006, thus ensuring that building societies and retail banks are afforded the same flexibilities.
The second amendment to building societies’ corporate governance requirements relates to common seals and the execution of documents. This Bill will provide the Treasury with the power to make secondary legislation to align the constitutional provisions in part 2 of the 1986 Act with updates to company law concerning common seals and the execution of documents. That will give building societies useful flexibilities that will ensure that they continue to operate on a level playing field with retail banks.
I have outlined the Government’s support for the private Member’s Bill brought forward by the hon. Member for Sunderland Central on Second Reading today, and I again congratulate her on it. We expect that the Bill will be greatly welcomed by the mutuals sector, and it clearly has support from Members across the House. The Government intend to work closely with the hon. Lady in progressing this legislation through Parliament. The Government’s goal, and the goal of this Bill, is to modernise the Building Societies Act 1986, so that building societies are able to scale, grow and succeed into the future. For those reasons, the Bill has the Government’s wholehearted support.
Loan Charge
Nigel Huddleston Excerpts(2 years, 7 months ago)
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The Financial Secretary to the Treasury (Nigel Huddleston)
I would also like to thank the right hon. Member for East Antrim (Sammy Wilson), my hon. Friend the Member for Buckingham (Greg Smith) and others for securing the debate, and I am grateful for all the contributions from hon. Members across the House. I would like to name them all, because it is important that we get on the record all those who have contributed. They include my right hon. Friends the Members for Chingford and Woodford Green (Sir Iain Duncan Smith), for New Forest West (Sir Desmond Swayne), for North East Somerset (Sir Jacob Rees-Mogg) and for Haltemprice and Howden (Sir David Davis); my hon. Friend the Member for North Norfolk (Duncan Baker); the right hon. Member for Hayes and Harlington (John McDonnell); and the hon. Members for Merthyr Tydfil and Rhymney (Gerald Jones), for Chesham and Amersham (Sarah Green), for Kirkcaldy and Cowdenbeath (Neale Hanvey), for Arfon (Hywel Williams), for Strangford (Jim Shannon) and for Bath (Wera Hobhouse); and, indeed, others who have contributed to the debate.
There is no doubt that we have heard today the strength of feeling on the issue. Of course, I stand at the Despatch Box as not only the Minister—Financial Secretary to the Treasury—but a constituency MP who has also had representations on these issues from my constituents.
The loan charge, alongside the wider issue of the use of disguised remuneration schemes, is a complex subject that is deeply impactful for many of our constituents. I can assure hon. Members that the Government take the issue incredibly seriously and recognise the impact the loan charge has had. I will endeavour to address the points that have been raised in the debate, but I also wish to reassure colleagues that many of the questions they have asked, about disguised remuneration, Government policy, the loan charge and the approach and tone taken by HMRC, are precisely the questions that I have been asking officials, for the very reasons they have outlined.
I hope that during the course of my response I can provide some additional reassurance because, particularly in the light of recent circumstances, I want to make sure that I am making the right decisions and asking the right questions. Tax authorities and tax Ministers are never popular—it is the nature of the work—but I want to make sure that we act in a way that is reassuring, correct and fair to all taxpayers. I take that duty and responsibility very seriously. For example, I have had discussions and conversations with Jim Harra, the chief executive of HMRC, in the light of the Post Office scandal, about whether there are commissions or perverse incentives for people that may lead to distorting behaviour, and I have been reassured that there are not. This debate and these conversations are very useful, because they enable me to ask the right questions of my officials.
I will not be able to give everybody the answers they want, and I am going to disappoint some people with this response, because I believe we have taken the right approach. There are certain areas where I will continue to ask questions. I am aware that I will not be able to satisfy everybody today, but that will never stop me from continuing to ask the right questions.
Briefly, by way of context, because not everybody who is listening to this may be aware, the purpose of the loan charge was to ensure that users of disguised remuneration schemes paid their fair share of income tax and national insurance contributions. Disguised remuneration schemes are contrived tax avoidance arrangements that seek to avoid income tax and national insurance on income by disguising it as some other type of payment, typically in the form of a loan that is wrongly alleged to be non-taxable. Hon. Members should be in no doubt that, as has been recognised across the House, those schemes cost the Exchequer and other taxpayers hundreds of millions of pounds a year. Indeed, the total burden is to the tune of billions of pounds.
It is therefore right that, when we identify these completely inappropriate schemes, we take action. From the earliest days of the schemes, HMRC opened thousands of inquiries into their use and challenged their operation through the courts. In 2017, the Supreme Court agreed that the schemes did not work and have never worked to legitimately avoid tax, so tax is due on these payments. However, as I have heard very clearly in this debate, many questions have been raised about how we recover that tax due and who has paid it.
In 2022, the Court of Appeal ruled that, even where other parties may have obligations to withhold tax under PAYE, the liability for income tax is always that of the individual, fully endorsing a long-standing position of HMRC and of Governments of all colours. That is a key point: the individual is ultimately primarily responsible for the tax they owe and for their own tax affairs.
Wera Hobhouse
Does the Minister not recognise that quite a lot of people who used the schemes, who were made contractors against their will, are often just individuals who are not tax experts, who paid the tax they were asked to pay at the time and did not think anything was wrong until years later, when suddenly HMRC came to pursue them? Does he not recognise that he is doing the wrong thing to those people who really did not know better?
Nigel Huddleston
I thank the hon. Lady for her comment and I understand completely where she is coming from, but there are multiple points to discuss there. The schemes were never legitimate; they were always tax avoidance, and therefore there was always a clear path that tax was owed. With respect to who then pays, I will mention that in a moment, but, if we move away from the underlying principle that individuals still have personal responsibility to check their tax affairs, it is very difficult to move back to it. I will also come on to the point she raises about further Government action in a moment, because there are some people are being deceived and forced into errors that are completely inappropriate.
The early stages of such loan schemes involved the very wealthy and people who, I think we can all agree, knew exactly what they were doing, but as the schemes evolved and got more sophisticated, and more people were drawn into them, there was a long tail of people who were acting in good faith, and theirs are many of the cases that we have heard today. Although we keep the principle that ultimate responsibility lies with those individuals, it is important that we do the right thing in ensuring that tax affairs are straightened.
Several hon. Members rose—
Jim Shannon
Further to the point made by the hon. Member for Bath (Wera Hobhouse), I think of those who were unknowingly brought into the scheme by their employers and then found themselves with a financial burden that they were not aware of. I am reminded of the TV programme about the Post Office Horizon scandal, in which the terminology “the little people” was used. With the greatest of respect, these people are “the little people”—people who accept the systems that are put down before them. There must be a way to help them.
Nigel Huddleston
I completely understand where the hon. Gentleman is coming from in relation to going after employers that have been deceptive. The loan charge ensures that tax is paid in respect of individuals who entered into the schemes and received payments with no tax deducted, but where possible, HMRC has been seeking that tax from the employer in the first instance. I would like to reassure hon. Members that 80% of the revenue collected to date has come from employers, so we are targeting the employers, as he rightly points out.
Several hon. Members rose—
Nigel Huddleston
I will take a couple more interventions, but I fear that colleagues will ask about the very things I am about to come to, so I may then resist further interventions.
Sir Jacob Rees-Mogg
My hon. Friend refers to the 2017 Supreme Court judgment. As I understand it, that judgment decided that responsibility for the use of an employee benefit trust for tax fell unequivocally on the employer, so it does not necessarily support him in the way he may think.
Nigel Huddleston
There has been debate and disagreement on that, particularly as it relates to section 44 of the Income Tax (Earnings and Pensions) Act 2003 and so on. HMRC has outlined the policy stance on this. Although I understand that there is disagreement, the line is quite clear at the moment.
Andrew Bridgen
I agree with the Minister that there is responsibility on all individuals to ensure that their tax affairs are in order and the correct tax is paid, but what will he tell the House about HMRC’s responsibility to make the public aware that certain schemes may be seen as tax evasion and therefore do not qualify for tax relief?
Nigel Huddleston
That is another important point to which I will come in a moment. I will now make some progress before I take further interventions, because I fear that otherwise I may ruin my responses.
As I said, the way in which we recover tax owed is important, including the interactions that individuals have with key bodies such as HMRC. The Government recognise that there were areas where the impact of the original loan charge was disproportionate to its aims. We have listened to concerns raised by hon. Members in the years since the loan charge was announced, and I have had conversations with HMRC about how it has, for example, endeavoured to improve the tone of communication with impacted individuals.
Changes in approach were also made following Lord Morse’s review, about which I have heard many comments today. Many people may not be aware, but in September 2019, the Government asked the former Comptroller and Auditor General of the National Audit Office, Lord Morse, to lead an independent review of the loan charge policy and its implementation. Lord Morse had full discretion over how the review was run, who he consulted and the recommendations made. That consultation included the APPG and many of the people in the Chamber today.
Following the review, Lord Morse recommended notable changes to the policy, and the Government accepted 19 of his 20 recommendations. Those changes benefit about 30,000 people and meant that the loan charge would apply only to outstanding loans made on or after 9 December 2010, rather than April 1999. That was the date when the Government announced anti-avoidance legislation that put beyond all doubt that the schemes were taxable—a very important date. The loan charge would also not apply to outstanding loans made in any tax years before 6 April 2016 where a reasonable disclosure of the use of a tax avoidance scheme was made to HMRC, but HMRC did not take action—again, some have made that point today. Taxpayers were also given additional flexibility in the way they pay in line with their individual circumstances, but Lord Morse was clear that the loan charge was necessary and in the public interest, and should remain in force.
Sammy Wilson
Does the Minister accept that HMRC officials helped to service the Morse review, and restricted its grounds and parameters? The original of that review has not been disclosed, and we do not know how it was changed in the meantime. There are great doubts about whether or not the Morse review was ever an independent review, and ever came to conclusions that would have dealt with the issues and the unfairness we have been discussing today.
Madam Deputy Speaker (Dame Rosie Winterton)
Before the Minister replies, I do want to say that I have given him more time than would normally be allocated for a Backbench Business debate. Several colleagues have tried to intervene, but do be aware that we have another important debate to follow. I am sure the Minister will be cognisant of that fact.
Nigel Huddleston
I thank you for that guidance, Madam Deputy Speaker. I will try to proceed through the comments, because I am keen to make a few more points.
The Morse review followed the normal process for such reviews, in terms of the secretariat and support being provided by Government Departments. I have heard the comments made today, but I do not believe a case has been made for another review. I always stand ready to listen, but I think that review stood up quite well. I do not think anybody has impugned the integrity of Lord Morse today, but that review was thorough and significant, and 19 of the recommended changes were implemented. It was a hugely impactful and very thorough review.
Many hon. Members have also made points about tackling promoters, and some individuals facing the loan charge feel rightly aggrieved at the promoters and enablers who facilitated the use of these schemes. Promoters of tax avoidance schemes are parasites on the tax system—let us be in no doubt about that. They cause untold misery to the people they tempt into using those schemes, which almost never deliver the tax savings that were promised. The Government have prioritised tackling promoters of tax avoidance schemes and have given HMRC additional powers to do so, as a result of which many promoters have stopped promoting those types of scheme. One individual involved in the promotion of schemes subject to the loan charge has already been convicted, and others are currently under criminal investigation for offences linked to the loan charge.
Through Finance Acts in 2021 and 2022, the Government also introduced powers that allow HMRC to take action more quickly against promoters. Those include the power to publish details of promoters of tax avoidance schemes and others involved in the implementation of such schemes. In 2022, for example, HMRC issued a penalty of £1 million to a promoter of disguised remuneration schemes, and provisions included in the Finance Bill currently progressing through this House will make it a criminal offence to promote tax avoidance schemes after HMRC has issued a stop notice under the promoters of tax avoidance schemes rules. I am very pleased to say that those measures are receiving support from all parties.
The Government also consulted last summer on measures to address non-compliance in the umbrella company market—again, many hon. Members have commented on that market today—including tackling the types of schemes we have discussed. We will respond to that consultation in due course, but I can let hon. Members know that I and my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), the Minister for small business at the Department for Business and Trade, are already discussing what the next steps should be. In the meantime, HMRC will continue to use its full range of civil and criminal powers to disrupt the operations of promoters.
Madam Deputy Speaker (Dame Rosie Winterton)
I really am getting anxious—we do need to move on very quickly. I call Neale Hanvey, if he can be brief.
Nigel Huddleston
The hon. Member will be aware that I cannot pre-empt the conclusions of the consultation or our response to it, but I hear his point.
Many Members have raised the personal and emotional impact of the loan charge on their constituents. This is something that I, the Government and HMRC do take very seriously. We recognise the distress that loan scheme users may feel when faced with large tax bills on their earnings, often many years after the event, which the scheme promoters wrongly told them they would be able to avoid. We are aware that some people who faced the loan charge have, very sadly, taken their own lives or harmed themselves. HMRC has made 10 referrals to the Independent Office for Police Conduct where a person has taken their own life, and following each referral, HMRC has conducted an internal investigation. Nine of the 10 investigations have concluded, and although no misconduct was found, HMRC is taking forward organisational learning from these matters to further strengthen the support provided in identifying individuals who need extra help. I completely understand the points raised by hon. Members and, indeed, I have myself heard about the emotional distress from individuals impacted by the loan charge. Colleagues have also commented on the nature and tone of interactions with HMRC in the past. Again, I have raised this with HMRC officials, and I will continue to make the point that they should adopt a more understanding tone.
Other points of clarification were raised by hon. Members, and I will endeavour to write to them because there were a few factual inaccuracies. For example, there is an appeals process—it is very important to make that point—and this is not an area in which criminal convictions are acted against the individuals. I will write to hon. Members because there is a lot to debate in this area, but it is very important to make sure that we do not scare people. For example, we must make it clear that there is an appeal process, and there is of course no cost for the appeal process. There are also other matters that I would like to make hon. Members aware of.
I am aware of the timing, Madam Deputy Speaker, and thank you very much for your patience during what has obviously been a very emotive debate today. Finally, I make an appeal. I would encourage those who still have disguised remuneration or loan charge liabilities to engage with HMRC. Thousands of people are still not engaging with it and are therefore not able to seek clarity or the support and guidance available, including emotional support, help from the Samaritans and other measures that HMRC has in place to identify and support vulnerable individuals. I repeat my thanks to hon. Members for their engagement, and I welcome continued engagement, including with the APPG and all MPs who have raised this topic with me on behalf of their constituents.
Madam Deputy Speaker (Dame Rosie Winterton)
I call Sammy Wilson, who has one minute to wind up.
Inheritance Tax
Nigel Huddleston Excerpts(2 years, 7 months ago)
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The Financial Secretary to the Treasury (Nigel Huddleston)
It is a pleasure to serve under your chairmanship, Sir Robert. I join others in congratulating the hon. Member for Hemsworth (Jon Trickett) on securing this debate. I also welcome the participation of other colleagues, in particular my hon. Friend the Member for Darlington (Peter Gibson), the hon. Member for Easington (Grahame Morris), my right hon. Friend the Member for North East Hampshire (Mr Jayawardena), the hon. Members for Wansbeck (Ian Lavery), for Coventry South (Zarah Sultana) and for Strangford (Jim Shannon) and my opposite numbers.
We have had a wide-ranging debate. Everybody knows, and the Government certainly recognise, that individuals do work hard to build up assets over their lives, and it is a very human instinct to want to pass that on to their loved ones, when they pass away. Yes, there has recently been a great deal of speculation in the media and on Opposition Benches about potential future changes to inheritance tax.
I am sorry to disappoint hon. Members and colleagues, although they will not be surprised to hear that I am not going to announce Government policy here today. The Budget is on 6 March, when the Chancellor of the Exchequer will set out any changes to the tax system in the normal way. There is a great deal of speculation and it would be inappropriate for me to comment.
David Linden
Could the Minister confirm something for us? We hear the argument all the time that Ministers will not speculate and that the announcement will be made in the Budget. The blunt reality, however, is that, whether it is speeches at the Conservative party conference, op-eds in The Sun newspaper, or cosy sit-downs with political journalists, the Government do comment on what they are doing before the Budget, do they not?
Nigel Huddleston
The hon. Member will be aware from his own party and the Opposition that there is a wide range of views within parties on policy. I am not going to speculate on tax policy. We always keep tax policy under review and always welcome insights, evidence, information and views when developing tax policy, as do the Scottish Government. We have heard a wide variety of views today. As I said, announcements will be made at the appropriate time and place.
Peter Gibson
Does this not clearly illustrate the distinction between those of us on this side of the House who would love to see inheritance tax reduced and ultimately abolished, and those Members on the other side who only want to tax working people more?
Nigel Huddleston
My hon. Friend makes an important point. We saw that in the recent autumn statement with the national insurance cuts. Our instinct and wish as Conservatives is to lower taxes, wherever appropriate and possible. We are also responsible with public finances and recognise that every single penny of Government spending is paid for through taxation, either immediately or in the future as deferred taxation—that is, borrowing money. We need to, and do, respect every single penny, because it is the public’s money, not Government money, that we are spending. Taxation is an important issue, and I am glad we are talking about it today. I am confident that it will be a major topic in the run-up to the election.
The Government support wealth creation but also understand the importance of ensuring that wealthy individuals make a fair contribution and pay tax appropriately. We do not have a specific wealth tax, as some other countries do, but if we look at the facts, it is clear that the Government do tax wealth, in a number of ways that generate substantial revenue, while remaining fair. For example, OBR forecasts for 2023-24 indicate that we can expect inheritance tax revenues of about £7.6 billion, capital gains tax revenues of £16.5 billion and stamp duty tax revenues of about £13 billion.
We also have a progressive income tax system, so that the top 5% of income taxpayers pay about half of all income tax. The top 1% is projected to pay about 28% of all income tax. It is also important to stress that in 2010, under the previous Labour Government, the top 5% accounted for 43% of income tax and the top 1% for 25%. Therefore, the system under the Conservatives is more progressive.
Grahame Morris
The Minister is putting forward an interesting proposition about progressive policies and taxation. Has he had a chance to consider whether council tax is a progressive form of taxation, when a millionaire, living in a £20 million property in Belgravia, very close to this place, pays less in council tax than my mother in a terraced colliery house worth about £50,000 in Murton?
Nigel Huddleston
The hon. Member needs to recognise that tax needs to be taken in the round. There is a variety of taxations—on income, wealth and other areas. Taxation is a broad topic, and individual taxes affect people differently. The hon. Member for Glasgow East (David Linden) made the point about inequality as well, but it is important to remember that, on average, households in the lowest income decile receive over four times more in public spending than they pay in tax. Nobody doubts the importance of a progressive tax system; my point was that the Opposition often try to make out that the tax system was more progressive under them, but it was not. The facts make that incredibly clear.
Nigel Huddleston
If the hon. Member will give me a moment to proceed, I will allow him to come in later, because I have other points to make in response to some of his comments.
Inheritance tax is a wealth transfer tax and applies to the estate of the deceased. Transfers made in the seven years before death are also taken into account. The estates of all individuals benefit from a £325,000 nil-rate band, and the targeted residence nil-rate band is a further £175,000 available to those passing on a qualifying residence on death to their direct descendants such as children and grandchildren. That means that qualifying estates can pass on up to £500,000, but the qualifying estate of a surviving spouse or civil partner can pass on up to £1 million without an inheritance tax liability. That is because any unused nil-rate band or residence nil-rate band is transferable to a surviving spouse or civil partner.
Peter Gibson
Could the Minister specifically address the point I made about the inherent unfairness to those who do not or are unable to have children, in respect of the nil-rate band that applies to them?
Nigel Huddleston
I thank my hon. Friend for his comments. Again, I cannot make any promises today, but I understand the important point he is making about the nil rate. Changes have been made over the years in that area, and I will come on to that point later.
The vast majority of estates pay no inheritance tax. The combination of nil-rate bands, exemptions and reliefs mean that only 5.1% of UK deaths are forecast to result in an inheritance tax liability in 2023-24. That is forecast to increase slightly to 6.3% in 2028-29: it is still a relatively small number, but it makes an important contribution to the public finances. It is forecast to raise £7.6 billion in 2023-24 and £9.9 billion in 2028-29. That revenue is important because it is spent on a whole variety of public services, levelling up and many other areas of Government policy.
The headline rate of inheritance tax is 40% but, as the hon. Member for Wansbeck acknowledged, a 36% rate is charged when at least 10% of the net estate is left to charity. That is an important point of this system as well. It is important to remember that the rate is charged on the part of the estate that is above the threshold and after the application of reliefs and exemptions.
The Government have made changes since 2010 that have increased the threshold to £1 million, made the system fairer and reduced administrative burdens. For example, in 2017 the Government introduced the residence nil-rate band, mentioned by my hon. Friend the Member for Darlington, to make it easier to pass on the family home to the next generation, but we restricted the residence nil-rate band for the wealthiest by tapering it away for estates over £2 million. More recently, we made changes so that for deaths from January 2022, over 90% of non-paying estates each tax year no longer need to complete inheritance tax forms when probate or confirmation is required. At the same time, we have tightened the rules to make sure that individuals make a fair contribution and pay the tax owed. For example, in 2017 we introduced new rules to limit abuses of the rules by people with non-domicile status who used complicated structures to make their UK homes look like offshore assets.
Several hon. Members talked about loopholes and avoidance. It is important to distinguish between the legitimate use of reliefs and those who engage in avoidance by bending the rules to gain a tax advantage that Parliament and none of us ever intended. It is not true that the wealthiest do not pay inheritance tax: national statistics for the tax year 2020-21 show that taxpaying estates valued at over £1 million accounted for 81% of the total inheritance liability.
David Linden
If it is not true that the wealthiest do not pay inheritance tax, can the Minister tell us how much the King paid upon inheriting the Duchy of Lancaster?
Nigel Huddleston
As I said, estates valued at over £1 million paid 81% of all inheritance tax.
I am aware of the time, and I need to leave a minute or two at the end for the wind-up, but I want to make a final point. We have had a very good discussion about inheritance tax, but we have had an inkling of the differences between the political parties. I am afraid that some Opposition Members started to delve into the politics of envy, which is a well-trodden path for the Labour party, by commenting on elitism, Oxford University and so on. Well, I can tell them that I went to Oxford, and that my Labour-voting trade unionist father, my mum, who worked on the tills at Asda, and the schoolteachers at my comprehensive, instead of being snide about the opportunities and aspiration that I had, actually applauded and supported social mobility. That is what we on the Conservative Benches do. It is disappointing to hear the tone of the Opposition.
The hon. Member for Ealing North, in another well-trodden argument, started trying to lecture us on responsible finances. We still have not had an answer to the question of where the £28 billion of spending promised by the Opposition would come from. We are more than happy to debate the issue, because we have a very clear plan for the economy: we had the very welcome and well-received national insurance cut at the autumn statement, which I do not believe the hon. Member opposed, and nor did he oppose the significant support that we gave during covid or the significant support that we have given households during the cost of living crisis. That all needs to be paid for, which is why we have higher taxes than we would like. But we are on a path to reducing them, because that is what Conservatives do. I thank hon. Members for their contributions; all their comments have been taken on board.
Sir Robert Syms (in the Chair)
I call Jon Trickett to make a brief winding-up speech.
Finance Bill (First sitting)
Nigel Huddleston ExcerptsTuesday 16th January 2024
(2 years, 7 months ago)
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The Chair
With this it will be convenient to discuss the following:
Schedule 2.
Clause 4 stand part.
Schedule 3.
Clause 5 stand part.
Schedule 4.
Clause 6 stand part.
Schedule 5.
Clause 7 stand part.
Schedule 6.
The Financial Secretary to the Treasury (Nigel Huddleston)
It is a pleasure to serve under your chairmanship, Mr Paisley. I thank all members of the Committee in advance for their attention and participation, and I thank all officials, Clerks and the many stakeholders who have engaged with our discussions to date.
We are first considering the cultural support measures in the Bill. Clause 3 and schedule 2 replace the tax reliefs for film, high-end television, children’s TV, animation and video games with refundable expenditure credits. The audiovisual expenditure credit will replace the four film and TV reliefs. Film and high-end TV productions will receive a credit of 34%. Children’s TV and animated TV and film will receive a credit of 39%. The video games expenditure credit will replace the video games tax relief and will have a rate of 34%. Clauses 4 to 7 and schedules 3 to 6 make changes to ensure that the creative sector tax reliefs remain appropriately targeted and administrated efficiently.
I will turn briefly to the detail, starting with clause 3 and schedule 2, which reform tax reliefs to become expenditure credits. That will ensure that they continue to work as intended following the implementation of the OECD pillar two rules in the UK and elsewhere. A company claiming expenditure credits will not see its effective tax rate lowered as a result. That means that companies will not be at risk of needing to pay a top-up tax after claiming the expenditure credits. The expenditure credits will also go further to support businesses in the creative sector by providing greater benefit than the existing reliefs and greater clarity about the amount of credit that companies can expect to receive.
The expenditure credits will change how tax relief is calculated from a super-deduction to a calculation made directly from qualifying expenditure. The expenditure will increase the amount of relief received by film and high-end TV productions and video games by 0.5%. Children’s TV and animated film and TV production will receive a 5.5% increase in relief.
Under the video games expenditure credit, qualifying expenditure will change from cost incurred in the UK—or the European economic area—to expenditure on goods and services that are used or consumed in the UK. There will be no cap on subcontracting. The Government are making that change to refocus video games tax relief on activity that takes place within the UK. That is appropriate now that the UK has left the EU. Those measures are expected to impact about 3,000 businesses claiming the creative tax reliefs, and we expect to see a positive response and high levels of uptake due to the greater benefit provided by the expenditure credits. Reforming the reliefs to expenditure credits is expected to cost about £60 million a year by 2028-29.
Turning to clauses 4 to 7 and schedules 3 to 6, the theatre, orchestra and museums and galleries tax reliefs have been pivotal in the development of new productions and exhibitions. They have collectively supported almost 25,000 productions since they were introduced. The two-year extension of the 45% and 50% rates of relief, announced at spring Budget 2023, will go even further to boost investment in our world-leading cultural sectors. Clauses 4 to 7 make administrative improvements to these reliefs to provide greater clarity about eligible productions and ensure that the reliefs remain safeguarded from abuse.
Now that we have left the EU, we have the opportunity to refocus our tax reliefs on activity that occurs in the UK and to give organisations more choice over where they source goods and services. That is why clauses 4 to 6 remove EEA costs and instead require expenditure to be used or consumed in the UK. This new approach considers where the goods and services are used, rather than where they are from.
Goods and services from the EEA will qualify, provided that they are used and consumed in the UK, but this will go further, because, for example, payments to a US conductor for rehearsals in the UK would also now qualify for relief, so this goes beyond the EEA. That rule is already in place in the film and TV reliefs, and it is also being implemented for video games tax relief.
The changes made by clauses 4 to 6 change qualifying expenditure for the orchestra, theatre, and museums and galleries exhibition tax reliefs to become costs incurred on goods and services used or consumed in the UK. The clauses require companies to disclose transactions between connected parties when making claims for relief, and to charge connected parties for goods and services at the same price as they would charge unrelated companies. This rule will also apply to the audiovisual expenditure credit and the video games expenditure credit.
Clause 7 requires companies to share additional information when claiming relief, and gives His Majesty’s Revenue and Customs additional powers to recover overpayments of relief.
Clauses 4 to 6 are expected to impact approximately 1,200 companies, including orchestras, theatres, museums and galleries, and clause 7 is expected to impact about 3,000 businesses claiming the creative tax reliefs.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to serve on this Committee with you as Chair, Mr Paisley, and I am pleased to be able to respond on behalf of the Opposition on these clauses and schedules.
As we have heard from the Minister, clause 3 introduces a new tax relief regime for the British film, TV and video games sectors. Existing film, TV and video games reliefs will be reformed into a new expenditure credit modelled on research and development tax credits, and specifically the research and development expenditure credit regime. As the sector will have noted from the Government’s policy paper on the measure, under the current schemes, relief is given by way of an additional deduction from profits, or surrendering a loss for a tax credit. Under the new audiovisual expenditure credit and video games expenditure credit regimes, companies will instead receive an above-the-line tax credit based on qualifying expenditure, which will, in turn, be taxable.
We in the Opposition strongly support the UK’s creative sector—one of the areas of the global economy in which Britain is world leading. As such, we will not oppose any measures that provides certainty and greater opportunities for growth in those critical sectors. However, I will seek a few clarifications from the Minister on the details of the legislation.
First, I would be grateful to the Minister if he could provide an explanation for why the Department opted for a 34% credit rate for TV, films and video games—a 0.5% increase from the previous relief, as he set out—while animation and children’s TV production has a greater increase, up to 39%.
Secondly, while the creative sectors have broadly expressed support for a simplified regime based on the research and development expenditure credit, we know that R&D tax credit schemes have been subject to a lot of chopping and changing, year after year, by this Government, as we discussed at earlier stages of the Bill. I would be grateful if the Minister could give assurances to the creative sector that they can expect stability and certainty when it comes to these new expenditure credits, to encourage long-term investment and competitiveness.
Thirdly, I would like to ask about the role of HMRC. We know that the new schemes, although they apply the same qualifying criteria rules as predecessor schemes, will need to be properly explained though new guidance. Could the Minister explain what HMRC is doing to ensure that guidance remains timely and up to date for those wanting to claim, and what HMRC will do to support those wanting to apply for the credits to understand how they operate?
In clause 4, the Government have sought to clarify rules around cultural reliefs following a two-year extension to the higher rates granted for theatre tax relief, orchestra tax relief, and museums and galleries exhibition tax relief in October 2021 to help the sector recover from the pandemic. The clause relates specifically to theatrical productions. It seeks first to clarify the exclusion of capital expenditure for the relief; secondly, to clarify the exclusion of costs incidental to production from the relief; thirdly, to exclude productions from the relief where the main focus is not observing the performance; and fourthly to clarify the “playing of roles” condition.
The Opposition wholeheartedly support the UK’s world-class theatres and actors, and the creative sector more broadly, and we welcome any measures to support their work. However, I would like to raise concerns noted by the Society of London Theatre and UK Theatre in relation to guidance and consistency of claims for theatre tax relief. They have expressed concerns that the wording in proposed new section 1179AB of the Corporation Tax Act 2009, as introduced by schedule 2, that
“‘UK expenditure’ means expenditure on goods or services that are used or consumed in the United Kingdom”
could curb UK productions that originate in the UK but are exported abroad.
We know that the Government do not always have the best record when it comes to supporting members of the creative community to tour and export their productions overseas, and so I would like to ask the Minister what guidance will be issued to make sure UK creative exports are protected and not inadvertently hit by technicalities in the wording of the tax relief rules.
Secondly, SOLT and UK Theatre have expressed their unease at the Government’s definitions of a theatrical production, and the narrow view taken of an audience. Schedule 3 states that
“it is reasonable to expect that the main purpose of the audience members will be to observe the performance (rather than, for example, to undertake tasks facilitated or accompanied by the performance)”.
Could the Minister confirm whether pantomimes are excluded from making claims under this definition? I am sure that members of the public would not miss the irony of a Government clamping down on pantomimes for families across the country while indulging in their own pantomime in Downing Street and Parliament in recent years.
James Murray
I look forward not only to moving on from the current drama in our wider politics, but also to the Minister’s response on the specific point about pantomime productions and claims for tax reliefs.
Finally, having led for the Opposition on five Finance Bills, I know all too well that there can be complexity and indeed unintended consequences when new changes are made to tax relief regimes. Will the Minister therefore again explain what he and HMRC are doing to make sure the appropriate guidance is issued, and support offered, alongside the changes to the rules, to support claimants in navigating them?
On clause 5 on orchestras, the Government have sought to clarify rules around cultural reliefs, again following a two-year extension to the higher rate for orchestra tax relief that we mentioned earlier, which was issued in October 2021 to help the sector recover from the pandemic. Clause 5 seeks to clarify the exclusion of capital expenditure; clarify the exclusion of costs incidental to production; and amend the time limit for concert series elections to either the date of the first concert in the series or the date of the claim.
Although seeking to provide clarity in the operation of creative reliefs is welcome, I am concerned that there is still a lack of clarity on how the rules should be interpreted, and I again ask the Minister to use this opportunity to put some clarification on record. The lack of clarity was brought to my attention by my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley), who is a great champion for the UK’s world-class orchestras. On Second Reading, she made the point that:
“International touring is vital to the survival of many orchestras and makes up a fifth of earned income”
and that
“it boosts cultural exports and enhances the UK’s place on the world stage.”—[Official Report, 13 December 2023; Vol. 742, c. 931.]
She also referred to changes in eligibility for orchestra tax relief that required 10% of expenditure to be on goods or services that are used or consumed in the UK.
I understand the reasoning behind that, as the Minister set it out, but I also understand from my hon. Friend the Member for Worsley and Eccles South that the Association of British Orchestras believes that that means there is a lack of clarity about what orchestras will be able to claim. I am sure the Minister will agree that clarity is crucial for a successful tax system and I would therefore be grateful if the Minister could provide clarity today about how changing eligibility criteria will affect the claims that touring orchestras make.
In clause 6, the Government have again sought to clarify rules, following the higher rate that was granted for museums and galleries exhibition tax relief in October 2021. Galleries and museums are a critical part of our creative sector and of the enjoyment and fulfilment of so many people across the country. The clause seeks to provide clarity on two areas in relation to the relief: namely, the exclusion of costs incidental to production and the requirement for there to be physical admission to exhibitions for the relief to apply. The Opposition will not oppose either of those changes, but I ask the Minister what he is doing to work with key industry bodies, including the Museums Association, to ensure that the appropriate guidance is in place for museums and galleries, large and small, to be able to navigate these changes without confusion.
Clause 7 introduces new administrative measures for companies claiming creative tax reliefs. Claimants will now be required to complete and submit a new online information form. This will include the various new expenditure credits that we discussed in the previous clauses. We understand that these changes seek to streamline the process of making a claim, reduce the administrative burden on HMRC and make it easier to tackle abuse.
Of course, the Opposition support the principle of all those aims. However, as the clause involves the mandatory use of a new online information form from 1 April 2024, I ask the Minister to confirm whether he is confident that the digital systems at HMRC are ready for that to operate from that date. I believe that that is a pertinent question, given the shocking record of the Government in overseeing the implementation of the Making Tax Digital strategy since it was adopted almost a decade ago. Last summer, HMRC admitted that its ageing legacy IT systems meant that HMRC had
“underestimated the scale and complexity”
of delivering Making Tax Digital.
According to the National Audit Office, Ministers set unrealistic ambitions and timescales for implementing MTD. From the very start, HMRC rated MTD as a high-risk programme, and dates were rushed without realistic appraisal. The Financial Secretary to the Treasury is the fifth incumbent of the role since September 2021, and there is no doubt that the churn of Ministers has contributed to the lack of direction in policymaking for digital strategy on tax affairs. I would therefore be grateful if the Minister could outline what steps he has taken to give him confidence in HMRC’s ability to make sure the new online forms for the creative reliefs are operational on time and on budget. That is important for the effective administration of creative reliefs. More widely, it is important that HMRC is equipped with the tools it needs to provide a high-quality online service that individual taxpayers and businesses should expect the Government to deliver.
Nigel Huddleston
Thank you. I do not think anybody in this room or any Members doubt the importance of the creative industries sector. It is an absolute success story for the UK, a huge export earner and something that we can all be proud of. During the pandemic, the sector was among the hardest hit, so we provided more than £1 billion in culture recovery fund money to make sure it was able to survive and do what it does best post pandemic, which it has done incredibly well. I will endeavour to answer the points raised by colleagues in that context.
One area of relative weakness when recovering from the pandemic while other sectors boomed was British children’s content, which declined. That is the rationale for the special difference and the incremental rates specifically for the children’s sector—they need a little more help to recover and boom. We have a great record of children’s TV content, and we want that to be the case again. I can assure the hon. Member for Ealing North that pantomimes will continue to qualify for theatre tax relief—[Hon. Members: “Hear, hear!]—as the main purpose of a pantomime audience is to observe the performance. He raised the point about observance versus participation, where there is some difference in eligibility. Of course, some level of audience participation is normally the case in pantomimes, but it is still predominantly observing, so they will be eligible and not disqualified for production.
On the further points raised by the hon. Gentleman and others about the guidance that will be provided, HMRC is currently working on that and further information will be provided in due course. I have also written to several entities, many of whom participated in the consultation. I should thank all those who participated in the 12-week consultation, which was extensive. We listened carefully and have made many changes. I think we have addressed the vast majority of the issues that were raised during the consultation. Further guidance is needed and will be provided. We are aware of the points that the hon. Gentleman raised.
On his comments about chopping and changing, tax legislation should never remain static because the nature of the economy and the world changes all the time. It is therefore always appropriate to change relevant tax legislation. Signalling and giving stability and assurance to the industry is important. I think that in these measures the support for the creative industries cannot be in any doubt. The creative industries have expressed extreme gratitude for the Government’s support, which has enabled the industries to be incredibly successful over many years. The reason that many film and TV productions are now located in the UK is precisely because of the tax breaks and incentives that have been provided over the last few years.
Several points were raised about orchestras. I explained on Second Reading the rationale behind why we are making changes in relation to EEA expenditure and the UK. There are World Trade Organisation requirements, but I do not think we should underestimate the importance of what is there. In many cases some expenditures that were not previously included will now be able to be included precisely because some of the remit was limited to EEA.
At present, all orchestral productions and touring theatre productions and museums and galleries exhibitions are eligible for a credit rate of 50%. The 50% rate of relief was introduced to support our cultural sectors through the aftermath of the pandemic. At the spring Budget, it was extended for two years in recognition of the temporary but ongoing difficult circumstances that those sectors in particular face. The rate will taper to 35% on 1 April 2025 and return to 25% on 1 April 2026, so support for the sectors is still considerable. As I said, further guidance will be provided, and I will take all the comments that have been made today on board.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Schedule 2 agreed to.
Clause 4 ordered to stand part of the Bill.
Schedule 3 agreed to.
Clause 5 ordered to stand part of the Bill.
Schedule 4 agreed to.
Clause 6 ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 7 ordered to stand part of the Bill.
Schedule 6 agreed to.
Clause 8
Miscellaneous amendments relating to REITs
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss that schedule 7 be the Seventh schedule to the Bill.
Nigel Huddleston
Clause 8 and schedule 7 make changes to enhance the tax rules for real estate investment trusts, or REITs; to alleviate certain constraints and administrative burdens; and to ensure that the rules keep pace with commercial practice.
The Government launched a review of UK investment funds, taxation and regulatory rules at Budget 2020 with the aim of making the UK a more attractive location to set up, manage and administer funds. We have already made great progress, introducing the qualifying asset holding company and long-term asset fund regimes, which will help support a wide range of more efficient investments better suited to investors’ needs and to provide jobs across the UK.
The changes we are introducing for REITs regimes today in the clause and schedule 7 build further on that work. REITs are a specific form of property investment company. The tax rules have the effect of allowing investors to be taxed on their share of a REIT’s income and gains in a way that is broadly the same as if they had invested directly in property. The regime has proven popular since its introduction in 2006, with approximately 140 REITs currently established in the UK.
The Government have already brought forward several reforms to the REIT rules under the Finance Act 2022 and the Finance (No. 2) Act 2023. Following further engagement with industry, this clause and schedule 7 bring forward a third and final tranche of targeted changes to complete the work of better meeting the needs of investors while ensuring that the right tax is paid.
The changes made by clause 8 and schedule 7 include updates to the conditions that ensure a REIT is always widely owned, and that the UK retains effective taxing rights over the rental income distributed by REITs to foreign investors. Those are in addition to a number of further technical and clarificatory changes. The Government are also taking the opportunity to make further changes to related tax rules, including a technical correction to the corporate interest restriction as it applies to REITs, and a consequential change in the related non-resident capital gains rules for collective investment vehicles.
James Murray
As the Minister explained, clause 8 makes a number of amendments to the real estate investment trust rules. The Government’s policy paper on the matter set out that, since 2006, the number of UK REITs has grown to approximately 130, with the real estate sector evolving to increase the number of large institutional investors in REITs. We understand that the objective of the Government’s changes is to modernise the regime and alleviate constraints and administrative burdens through various measures, which include allowing insurance companies to hold group REITs, changing the profit/finance cost ratio, amending rules relating to holding a single property, extending the exemption for gains on disposal of UK property-rich entities, and amending the definition of a holder of excessive rights.
The Opposition agree that it is important to keep pace with changes in the UK’s investor landscape. We welcome measures to make the regime more appealing for real estate investment, and we will not oppose the technical changes that seek to do so in this Finance Bill. We note, however, that the Government recognise the scope for more businesses to enter the UK REIT regime, which entails one-off costs to businesses and greater demands on HMRC’s capacity. At a time when HMRC is already under significant pressure, will the Minister explain what assessment he has made to ensure that businesses that want to enter the REIT regime will be supported by HMRC without other aspects of HMRC’s work suffering?
Nigel Huddleston
I thank the hon. Gentleman for his comments. He will be aware that, while HMRC is operationally independent, I have oversight as part of my ministerial role. We have regular conversations about resources and capabilities, and I am more than confident about its capabilities in this and indeed many other areas. We always keep resources under review.
These changes are reasonable, and I am grateful for the hon. Gentleman’s support; indeed, they have wide support from industries. They will improve the operation of the REITs rules, aligning them with current commercial practices and enhancing the regime’s competitiveness. I therefore commend clause 8 and schedule 7 to the Committee.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Schedule 7 agreed to.
Clause 9
Managers of ships
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss schedule 8 and clause 10 stand part.
Gareth Davies
Let me take the opportunity to congratulate the hon. Gentleman on his fifth Finance Bill. He is looking good on it, and I hope this one goes as badly for him as the others. It is always a genuine pleasure to be opposite the hon. Gentleman and I am grateful to the Opposition for not opposing clauses 9 and 10.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Schedule 8 agreed to.
Clause 10 ordered to stand part of the Bill.
Clause 11
Extension of EIS relief and VCT relief to shares issued before 6 April 2035
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 11 extends the sunset clause for the enterprise investment scheme and the venture capital trust scheme to April 2035. The schemes will continue to support thousands of early-stage, innovative companies each year and ensure that they have access to the investment they need to develop and grow.
The enterprise investment scheme and venture capital trust scheme provide a range of generous tax reliefs to investors to encourage investment into higher risk, early-stage companies, which face the biggest challenges in accessing finance. This will encourage entrepreneurship in the future. The schemes are world-leading in terms of their generosity, with more than £3.4 billion of funds raised across the two schemes in the tax year 2021-22 alone. This extension will ensure that the schemes continue to support the growth of early-stage companies.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve under you, Mr. Paisley. As the Minister has set out, clause 11 extends the availability of the enterprise investment and venture capital trust tax reliefs to shares issued by eligible companies and VCTs by 10 years to 2035. The Opposition welcome the Government’s long overdue decision to take action and extend the schemes, given that the original sunset clause of April 2025 was fast approaching.
Both the EIS and VCT schemes remain crucial funding lifelines for the UK’s start-up community and the uncertainty created by the previous sunset clause deadline has risked hampering investor confidence in backing our high-growth firms. We also know from the latest HMRC data that between 2021 and 2022, nearly 4,500 businesses accessed more than £2.3 billion of funds through the EIS scheme—the highest number since it was introduced. As the Minister will probably know, the ScaleUp Institute has described the relief as pivotal in driving the supply of early-stage risk capital to some of the UK’s most exciting companies.
It is worth noting that the 2025 sunset clause, at which point the schemes were due to be revived, was due to a request from the European Commission to ensure compliance with European Union state aid rules. Given the importance of ensuring that investors are able to plan years in advance when developing a forward pipeline of investments, the Government should have listened to business and tackled the investment uncertainty caused by this potential expiry date far sooner following our departure from the EU. Although people were concerned about the prospect of the schemes expiring, there are those in the VC community who saw the review triggered by the sunset clause as an opportunity to improve the operation of the EIS and VCT schemes, which remain extremely complex. It is crucial that, beyond simply pushing the sunset clause back 10 years, the Government take an active interest in improving these vital schemes, including by delivering the simplification measures that many are calling for to ensure that more companies and more investors can benefit from the tax reliefs available to them.
I can confirm that the Labour party supports clause 11, which is a necessary intervention to ensure that investors can continue to invest with confidence in UK start-ups, but does the Minister acknowledge that we have an urgent need for a Government who listen to business early on, and who create the stable investment climate that we need to deliver growth in our economy, and who do not leave that until the last minute?
Nigel Huddleston
I am afraid that I respectfully disagree with the hon. Lady. We see clearly from feedback from the industry that it very much welcomes the changes. Actually, it is quite transparent throughout the Bill that we are backing business right across the UK. Richard Stone, chief executive of the Association of Investment Companies, has said:
“It’s excellent news that the Chancellor has committed to extending VCTs’ sunset clause…The extension…will help provide certainty to investors and businesses and enable VCTs to continue supporting UK growth companies.”
The British Private Equity & Venture Capital Association has said:
“It is hugely positive that the Chancellor has EXTENDED THE EIS AND VCT SCHEMES until 2035.”
The changes were not subject to a formal consultation, but were part of engagement with industry that Treasury officials and Ministers conduct on an ongoing basis. We are listening to business all the time; we make appropriate changes all the time, and the measures in clause 11 prove exactly that point. The hon. Lady is trying to score political points, but in highlighting some of the scare tactics, she is proving exactly why business can be confident in this Government, and should be somewhat fearful of the Opposition.
The clause will ensure that the EIS and VCT schemes continue to support thousands of early-stage companies each year in raising the funding that they need to succeed. I therefore urge that the clause stand part of the Bill.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Relief for payments of compensation by government etc to companies
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
I should probably explain to anybody wondering about the musical chairs that we have two Ministers here, because the clauses are split across ministerial responsibilities. I explain that for Members and anybody watching—the millions who, I am sure, are watching on television across the world.
Clause 12 is on a very important and newsworthy point, but it also shows that the matter that it deals with has received considerable attention for some time: it makes changes to ensure that all claimants of compensation from a range of Post Office schemes related to the Horizon IT scandal are treated similarly. It will align the tax treatment to ensure that claimants who chose to set themselves up as companies obtain tax relief comparable to that available for claimants set up as individuals.
Following the Horizon IT scandal, a number of schemes were set up to provide compensation to the individuals affected, and although most sub-postmasters are individuals, some set themselves up as corporate entities. Individuals have been exempted from paying income tax, national insurance contributions and capital gains tax on compensation that they received under the schemes that have been announced, which are being legislated for separately, but the Government are determined that postmasters affected by the Horizon IT scandal will receive the compensation that they deserve, regardless of how they arrange their business structure. The clause therefore exempts from corporation tax compensation payments made under the Post Office historical shortfall scheme, the group litigation order schemes, the suspension remuneration review and the Post Office process review scheme. The legislation will align the taxation of onward payments of compensation with that of compensation to individual recipients.
The clause will impact the relatively small proportion of compensation recipients who are structured as corporate entities, but to those impacted it is extremely meaningful. The approach taken in the legislation is consistent with tax principles and precedents, as well as the tax treatment of separate Post Office compensation schemes set up in response to the Horizon IT scandal.
Tulip Siddiq
I would like to spend a long time debating the claim that business is fearful of the Opposition, but I do not feel that this is the right time.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
It is a pleasure to serve under your chairmanship, Mr Paisley. Justice, accountability and compensation for those affected and wronged are required at speed on all aspects of the Post Office-Fujitsu-Horizon scandal. That is why we will support clause 12: to ensure that the fullest possible reparations are made to those who suffered through false accusation, incarceration and worse. The scandal has gone on for far too long, and highlights the worst of Westminster’s indifference and delay, even when presented with overwhelming evidence of wrongdoing. That, along with all other aspects of the scandal, must be dealt with as quickly and thoroughly as possible.
Nigel Huddleston
I thank Opposition Members for their comments. There is very clear alignment on this point. Clause 12 means that postmasters affected by the Horizon IT scandal receive the compensation that they deserve, regardless of how they arrange their business affairs. I should also make it clear that there is additional support for impacted individuals; HMRC has also set up a dedicated extra support team and phone helpline to provide postmasters and sub-postmasters with additional support. I commend the clause to the Committee.
Question put and agreed to.
Clause 12 accordingly ordered to stand part of the Bill.
Clause 13
Enterprise management incentives: time limits
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
We are proceeding at pace. Clause 13 amends the enterprise management incentives, or EMI, provisions to improve the process for granting EMI options by extending the time that participating companies have to notify HMRC of a grant. EMI helps small and medium enterprises to compete with larger firms to attract and retain key talent by bolstering the attractiveness of the share-based remuneration that they can offer to their employees. In the 2021 Budget, the Government launched a call for evidence on the performance of EMI and whether it should be expanded. In the 2022 spring statement, the Government concluded that EMI remains effective and is appropriately targeted. However, the Government listened to those who said that the administrative requirements of the EMI scheme could be improved, particularly the process of granting options. The change we are making will help to address those concerns by making it even easier for companies to use EMI, as requested by industry.
Tulip Siddiq
As we have heard, clause 13 extends the time limit within which employer companies have to notify HMRC that they have been granted EMI options from 92 days after the grant was made to 6 July following the end of the tax year in which they were granted. This change is designed to simplify the process, and so increase small businesses’ ability to benefit from recruiting and retaining staff. It is one of a number of measures that were called for in submissions to a 2021 consultation on the EMI scheme, which cited the overly complex process for notifying HMRC and the need to extend the notification period. We will not oppose the clause.
Nigel Huddleston
I thank the hon. Lady again for her contribution and support. There are many relatively small and highly technical changes that we are making through the Bill, and this is one of them. On paper, it can look somewhat technical and confusing, but it is really meaningful, and I appreciate the fact that the hon. Lady and Opposition Members acknowledge that. The clause supports small and medium-sized businesses in recruiting and retaining key talent by simplifying the process to grant EMI options. For the reasons we have outlined, I urge that the clause stand part of the Bill.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14
Provision in connection with abolition of the lifetime allowance charge
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 14 and schedule 9 make changes to complete the abolition of the pensions lifetime allowance. By completing the work to remove the lifetime allowance charge, the Government will deliver the policy objective of incentivising highly skilled individuals to remain in the labour market or return to the workforce to build up their retirement savings, helping to grow the economy and to protect the quality of our vital public services. The Government have listened to stakeholders from across the public and private sectors, including senior NHS clinicians, air traffic controllers and senior police officers, who have said that pensions tax limits can and, indeed, do influence the timing of retirement and act as a barrier to remaining in or returning to the workforce.
The lifetime allowance limits the total amount of tax-relieved pension savings that an individual can have. It is set at £1,073,100, but individuals can contribute to their pensions over this limit. However, when members previously accessed pension benefits above the limit, they were subject to a tax charge called the lifetime allowance charge. At spring Budget 2023, the Chancellor announced that he would remove the lifetime allowance charge from 6 April 2023. The Office for Budget Responsibility estimates that around 15,000 individuals will remain in the labour market as a result, and many of them will be highly skilled individuals, including senior doctors in the NHS and many other public sector workers. The British Medical Association says that scrapping the lifetime allowance will be potentially transformative for the NHS.
The Chancellor also announced at spring Budget that the lifetime allowance would be removed from tax legislation entirely in a future Finance Bill. Clause 14 will deliver the necessary technical changes to entirely abolish the lifetime allowance from tax legislation. It clarifies the tax treatment of lump sums—that is where some pensions benefits are taken as a cash lump sum—paid from registered UK pension schemes. The new tax treatment ensures that lump sums do not, regardless of their size, become entirely tax-free. It will also clarify the tax treatment of transfers to overseas pension schemes and benefits paid from them. Finally, the clause sets out the arrangements for transitioning to the new pensions tax regime and reporting requirements under the new regime.
James Murray
As we have heard from the Minister, clause 14 intends to complete the abolition of the lifetime allowance, as announced by the Chancellor at last year’s spring Budget. When the Government announced their intention to abolish the LTA and the related charge, we in the Opposition made clear our concerns. Though we recognised the issue that the LTA presented to some professions, including doctors, we were concerned that the Government’s chosen approach would give some of the wealthiest in society a tax cut. We argued that this was not the right approach during a cost of living crisis, and at a time when taxes on working people are rising.
Clause 14, however, focuses not on the principle of the LTA charge but rather on the technical detail of how the Government are implementing abolition of the LTA. The Bill aims to make sure that legal effect is given to the change in time for 6 April this year, which we note is a very tight deadline for such a complex measure.
Let me first turn to how the Government propose to abolish the LTA. The Chartered Institute of Taxation has expressed concerns that the legislation in the Finance Bill on the abolition of the LTA is different from that which was published for consultation last summer. Indeed, the relevant part of the Bill comes in at nearly 100 pages —that is one-third of the Bill and two and a half times the size of the original legislation published last summer. With such a great degree of apparent change between the draft and final versions, there are of course likely to be many questions about details of the version before us, and about the Government’s intent. For example, the Chartered Institute of Taxation notes that the pension commencement excess lump sum aspect of the legislation that replaces the current lifetime allowance excess lump sum charge should be revised to meet the policy intent.
The Institute of Chartered Accountants in England and Wales notes not only the legislation’s length, but that it introduces new terminology and computations, increasing the risk of misunderstanding by taxpayers, advisers and agents. What representations has the Minister heard from industry groups about any approaches, terminology, or computations that are introduced for the first time in the final version of the legislation before us? What action has he taken on any representations he has received?
Given that the new rules take effect from 6 April, to many of those who are following this matter closely, it seems clear that it would have been wise to give more notice to pension schemes and individuals. The CIT notes that, for example, defined contribution pension schemes need to provide information to members about options for retirement at least four months ahead of nominal pension age. That means that scheme communications for those retiring in April this year would need to be clear and updated by December last year. Does the Minister believe that, because of the timing of this legislation, pension schemes may have communicated information to pension-holders that will turn out to be incorrect by April this year?
This legislation will gain Royal Assent presumably just two months or so before the new rules take effect. Clearly, pension funds will need new processes, systems, and member communications to be in place. What meetings has the Minister held with the pension industry about the requirements of this Bill, since its publication? Did any of the funds or groups he spoke to ask the Treasury to consider a different approach, or a different timetable for abolishing the LTA? Finally, on Government guidance and support, could the Minister confirm what he is doing to make sure that any guidance is fully and clearly updated in as much time as possible before 6 April?
Dan Carden
The Minister said that 15,000 will stay in the workforce as a result of these changes. However, the changes have been criticised for actually complicating the pension system. Will he be reviewing the numbers that stay in professions such as healthcare? If 15,000 stay in the workforce, how many others are simply benefiting in other sectors such as banking?
Nigel Huddleston
I thank hon. Members for their comments. We seem to have had a bit of a U-turn from some Opposition Members and some political parties. There was considerable support for these measures across multiple sectors. These measures will benefit swathes of the public sector. I have already given quotes and there are plenty more from swathes of the medical and health service industry. The Royal College of Surgeons, for example, found that 68% of consultant surgeons were considering early retirement because of the old pensions rules. I do not know what more evidence hon. Members need to be convinced that this is a proper and appropriate move.
Dan Carden
None of us disputes that this is a positive move for the public sector and for certain sectors of the economy, but perhaps the Minister could answer the question about those who perhaps are not so worthy.
Nigel Huddleston
The hon. Member is being rather selective. Swathes of the public sector will benefit: headteachers, police chiefs, clinicians, senior armed forces personnel, air traffic controllers, prison governors, senior government scientists, government-employed vets and so on. It is a point of principle that the tax system does not generally distinguish between occupations. To the point of the hon. Gentleman and others about timeliness, this is an issue that we needed to deal with immediately—not in three or five years’ time. There was an appropriate measure, and we took it.
It goes without saying that some people have benefited from similar schemes in the past. The Leader of the Opposition had a unique deal from his time as Director of Public Prosecutions, which allowed him to avoid tax on his savings. It is only appropriate that, in order to make sure that we retain people in the workforce and encourage people to come back to the workforce, we make these changes and make them in a timely manner. That is the broader point of the policy area, as opposed to the specifics of these changes. They have been subject to considerable consultation.
The hon. Member for Ealing North mentioned that there are about 100 pages of legislation. That is true, but let us be very clear: this is a clear and transparent simplification that has been welcomed by large swathes of the public sector. The vast majority of the 100 pages of legislation he talked about remove references and concepts associated with the lifetime allowance. When we make changes, we need to remove references, and that was the bulk of the work.
As I said, this has been the result of extensive consultation. The Government have been consistently clear since the spring Budget of 2023 that the abolition of the lifetime allowance will be effective from April 2024. We have set out the timelines very clearly. We continued to work closely with industry, and HMRC will support the implementation of these changes. As I said, we have listened to stakeholder feedback and confirmed that we would not proceed with the previously proposed changes, for example to pension commencement lump sums and small lump sums. Once the changes have been made, they represent a significant saving for pensions.
Unlike the lifetime allowance excess lump sum, which is charged at 55%, the pension commencement excess lump sum is charged at the member’s marginal rate. So the pension commencement excess lump sum is only paid in connection with the commencement of a pension. The pension commencement excess lump sum allows individuals entitled to receive more of their pension on commencement as a lump sum than is provided for by the standard pension commencement lump sum. As I said, overall, these changes are welcomed and are a simplification. I therefore commend the clause to the Committee.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Schedule 9 agreed to.
Clause 15
MPs’ pension scheme etc: rectification of discrimination
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 15 makes changes in relation to the occupational pensions of Members of Parliament, Members of the Welsh Senedd and Members of the Legislative Assembly in Northern Ireland. It will ensure that these groups receive tax treatment comparable to the wider public sector when their pension schemes remedy age-related unfairness in past pension changes.
In 2015, the Government reformed public service pensions and offered transitional protections to those closest to retirement. The Court of Appeal later concluded that the provision of protections for older members but not younger members was discriminatory on the basis of age. The Government therefore introduced legislation to remedy this in 2022. The pension schemes for Members of Parliament, Members of the Welsh Senedd and Members of the Legislative Assembly were similarly reformed between 2015 and 2016, but the court judgement did not apply to them because of the distinct legal underpinnings of the other pension schemes. To ensure fairness, these schemes are voluntarily providing remedies to eliminate any age-related unfairness in line with broader public service pensions.
The remedies provided by the schemes are not retrospective for tax purposes. Therefore, legislative changes are needed to prevent members from incurring adverse tax consequences. The clause will allow the Government to make technical changes in secondary legislation. This will put members of these schemes in the tax position that they would have been in if any age-related unfairness had not occurred.
James Murray
You beat me to it, Mr Paisley. I do not think this change will affect me personally, given when I was elected, but with an abundance of caution I declare an interest, as I am sure all Members would.
As the Minister explained, clause 15 provides technical updates to pension tax legislation related to elected representatives. It will provide a new power to make tax regulations in secondary legislation to, according to the Government’s explanatory notes,
“redress payments for age related unfairness caused by past changes to the pensions of members of Parliament, members of the Senedd and members of the Northern Ireland Assembly.”
The changes are also designed to be capable of having a retrospective effect to ensure that individuals are, as far as possible, put in the tax position they would have been in had the discrimination not occurred. The Opposition will not be opposing this measure.
Nigel Huddleston
I thank the hon. Gentleman for his comments. Indeed, I believe most of those affected here in Parliament were elected prior to 2015. There has been consultation with the Independent Parliamentary Standards Authority and others on these changes. It is a matter of fairness to make sure this is aligned with the broader public sector.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Clause 16
Provision relating to the cash basis
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 16 and schedule 10 make changes to improve the experience of many small businesses when completing income tax returns by extending the eligibility for the cash basis, which is a simplified way for 4.2 million smaller, growing traders to calculate their profits and pay their income tax. The Government recognise the usefulness of full accruals accounts for many businesses, but for many smaller businesses the cash basis acts as a valuable simplification. By measuring money received and paid out and removing complex tax and accounting rules, the cash basis makes it much easier for many businesses to understand how their taxable profits have been calculated, reducing error and the likelihood of an unexpected tax bill. It also ensures that a taxpayer is not taxed on money that they have not actually received yet, helping cash flow and supporting businesses to manage their tax payments.
There are currently only 1.2 million users of the cash basis from the 4.4 million self-employed businesses, which is only a 29% take-up. Many more businesses could stand to benefit from the cash basis, but are prevented from doing so because of existing restrictions on who can use the simplified regime.
The changes made by clause 16 and schedule 10 completely remove limits on the size of businesses able to use the basis, interest reductions, deductions and loss relief available under the cash basis and set the simpler regime as the default option for small businesses. This increases the number of businesses that are able to use the cash basis and removes barriers preventing businesses from using the regime, encouraging more businesses to benefit from its simplicity.
New businesses that choose not to use the simpler cash basis in order to be able to claim relief for any losses available under the accruals basis will now be able to claim loss relief through the cash basis too. That particularly benefits new self-employed businesses, especially those set up by someone with an employment or other source of income.
These changes are expected, using a conservative estimate, to save small businesses a total of about £13 million per year in administrative burdens. Alongside these changes, and directly responding to consultation feedback, HMRC will be prioritising a review of its guidance on the cash basis, aiming to improve the understanding and awareness of this simpler regime.
James Murray
As the Minister outlined, clause 16 makes the cash basis the default basis for calculating profits of trade for the tax year 2024-25 and beyond. As members of the Committee will know, the cash basis is a method that businesses can use to calculate trading profits for income tax purposes. As things stand, businesses have to elect to use the cash basis, making it an opt-in regime, and the Government have noted that this measure seeks to make the cash basis the default, while removing the current turnover restriction rules entirely, as well as the interest deduction limit of £500 and the unavailability of some types of loss relief.
The Minister will know that the Opposition is supportive of a simplified tax regime that gives certainty to businesses and taxpayers. However, there are a number of areas of the clause that we would like clarified.
First, with the cash basis being made the default, does the Minister have any concerns about some businesses being unsuited to the new system? The Chartered Institute of Taxation has expressed concerns that conducting accounts on a cash basis fulfils the need to report to HMRC, whereas businesses that report on an accrual basis serve several purposes, including for loans and profitability. Could the Minister explain what assessment he has made of the suitability of the cash basis for the full spectrum of businesses, including small businesses?
Connected to that point, could the Minister explain what consultation he has carried out with businesses and sector groups since the autumn statement about the measure ahead of its implementation in 2024-25?
That brings me on to my next point, on guidance. A major reporting change of this kind will require a thorough information campaign, and appropriate and accessible guidance for businesses. That is particularly important for small businesses. What measures is the Minister taking to make sure that guidance is as simple as possible, is accurate and minimises the risk of inadvertent error?
Finally, and related, is the potential increased scope for fraud. As with new tax changes that relax restrictions on access, a small number of actors could spot an opportunity to reduce their tax liabilities. Could the Minister explain what assessment he has conducted of the possibility of fraud, and what steps he is taking to address that?
I note from the Government’s policy paper that no additional staff have been allocated to support the policy change. In the apparent absence of any additional staffing to support the introduction of this new regime, what plan is in place to ensure there are adequate resources for its implementation?
Nigel Huddleston
I thank the hon. Member for his comments. We should be very clear that the Government are not forcing businesses to use cash accounts. A business can still choose the method of accounting that best suits its circumstances, but the Government encourage businesses to use the simpler cash basis where appropriate. However, we of course recognise that many businesses will still benefit greatly from the advice and information provided by an accountant drawing up full accruals accounts, so the Government have set the cash basis as the default to make it easier for businesses to use the simpler regime. All a business will have to do to opt out of that is tick a box on their tax return, so it is fairly simple and straightforward in terms of choice.
On guidance, feedback during the consultation suggested improvements to HMRC and gov.uk guidance that would help many small businesses understand the cash basis. We have listened and will be prioritising a review. We will update the guidance for the cash basis as part of the HMRC small business guidance review, which we announced at spring Budget 2023. That review will be completed by April 2025. The Government recognise the need to update that guidance, particularly for businesses that do not have the support of an accountant or tax advisers, and HMRC is also looking at providing further support through specific communications about the tax bases.
As I said, we understand—and HMRC understands—that many businesses have been using the cash basis anyway, without electing to do so, and these changes will formalise much of that behaviour and make it easier for taxpayers to use the cash basis without the administrative burden of making an election to do so.
Because of that tax simplification, particularly for small businesses, we believe that these measures—clearly simplifying the tax system—will help boost productivity, increase business confidence and reduce the amount of time and money businesses spend on tax administration. The clauses and schedules support our commitment of simplification by making it easier for small businesses to use the cash basis and by expanding the number of businesses that are able to use it. I therefore commend these measures to the Committee.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Schedule 10 agreed to.
Clause 17
PAYE regulations: special types of payer or payee
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 17 makes changes to address a potential overcollection of tax and national insurance contributions by HMRC to resolve an unfairness in the tax system. This will allow HMRC to set off taxes already paid by the worker and their intermediary against the pay-as-you-earn liability of another organisation in the supply chain, preventing double taxation and ensuring that the cost of the liability is shared more fairly between the parties involved.
The off-payroll working rules, commonly known as IR35, were first introduced in 2000. They set out that, where an individual is working like an employee, they should pay tax like an employee, regardless of whether they are working through their own intermediary. Under the current rules, where an organisation is found by HMRC to have incorrectly determined an off-payroll worker as self-employed when they should have been employed, it becomes liable for taxes and national insurance contributions that should have been deducted, at source, from the fee paid to the worker. Current legislation does not allow HMRC to rectify that by setting off taxes already paid by the worker and their intermediary against the PAYE liability of the organisation.
The changes made by clause 17 will give HMRC the power to set off taxes already paid by a worker and their intermediary against the subsequent PAYE liability of the organisation. That aims to address the potential overcollection of tax and national insurance contributions in cases of non-compliance with the off-payroll working rules. It also ensures that the cost of the liability is shared more fairly between the deemed employer and the worker.
James Murray
As we have heard from the Minister, clause 17, on PAYE regulations, aims to give HMRC the power to make regulations that will enable it to set off amounts of tax already paid by a worker and their intermediary, on income from engagements under IR35 rules, against a subsequent PAYE liability of their deemed employer. As the Government’s policy paper on this matter sets out, the core aim of the measure is to address overcollection of tax and national insurance contributions where there are cases of non-compliance with off-payroll working rules.
We in the Opposition will not be opposing this clause. However, we note that the provision comes into effect from 6 April, and will also apply to deemed direct payments made as far back as “on or after” April 2017. The Chartered Institute of Taxation had argued for this set-off to be legislated for since the off-payroll working rules were first introduced seven years ago. Could the Minister explain why it has taken the Government so long to act after the problem was first identified by a respected industry body?
Carol Monaghan (Glasgow North West) (SNP)
To follow on from that, many of us have had a number of people—constituents and otherwise—getting in touch to say that they have fallen foul of IR35. Are there plans to apply the measures retrospectively? If so, how far back are the Government planning to do that?
Nigel Huddleston
I thank hon. Members for their comments. As I say, the measures are separate from the broader debate on IR35, which we have all heard about as constituency MPs. The legislation is complex, and it is right that we work through these complex issues thoroughly to address them properly. HMRC has undertaken a significant amount of informal consultation with key stakeholders to explore a legislative solution to resolve this issue. At the end of the day, we are introducing legislation to address concerns about the double taxation that some people face, which is blatantly unfair.
The Government are grateful for the constructive feedback we have had, which has resulted in the measures being included in the Bill. It is a positive outcome that addresses concerns raised by businesses and hon. Members that HMRC would collect too much tax, and that there are errors in complying with the off-payroll working rules. We have discovered that, so it is right that we have taken action. I therefore urge that the clause stand part of the Bill.
Nigel Huddleston
My understanding is that the measures will not be retrospective, but I will write to the hon. Member for Glasgow North West or explain more in a later response if I am incorrect.
The Chair
Thank you, Minister.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clause 18
Carer’s allowance supplement: correction of statutory reference
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 18 makes changes to ensure that the statutory reference under which the Scottish Government’s carer’s allowance supplement payments are made is corrected in income tax legislation, with retrospective effect. That will provide certainty to taxpayers.
When Parliament enacted section 12 of the Finance Act 2019, it intended to refer to the carer’s allowance supplement as taxable social security income, payable under section 81 of the Social Security (Scotland) Act 2018. Instead, the listing in the Finance Act for the carer’s allowance supplement refers to sections 24 and 28 of the Act. That is a technical drafting error in the legislation, which the amendment seeks to correct. The changes made by clause 18 retrospectively correct a drafting error in the legislation and do not affect the substance of the legislation. There will not be any impact on payments that have already been made or payments going forward. Nobody, therefore, will be financially impacted positively or negatively by these very specific changes.
James Murray
As the Minister set out, clause 18 makes a technical legislative correction to the reference to carer’s allowance supplement payments in table A in section 660 of the Income Tax (Earnings and Pensions) Act 2003. As that was a technical drafting error, which the clause will correct, we will not oppose the clause.
Debbie Abrahams
May I absolutely confirm that there will be no retrospective tax collection deductions of carer’s allowance? That is so important, given the issues around deductions.
Nigel Huddleston
The hon. Lady is right to highlight that—it is the very question that I asked. Nobody will be financially impacted by the change, which applies to a drafting error that has not been executed. It is a clarification purely and specifically on the legislation, as opposed to having any real-world impact on the finances. It is very important to get that point across, because we do not want anybody to be worried about this change. There is no change in circumstances or amounts. Clause 18 provides clarity on the correct statutory reference under which the Scottish Government’s carer’s allowance supplement payments are made.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Clause 19
Growth market exemption: qualifying UK multilateral trading facilities etc
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 19 widens access to the growth market exemption—a relief from stamp duty and stamp duty reserve tax—so that it better supports SMEs and growth businesses to raise capital. It does that by lowering transaction costs, which will support our economy by boosting growth in innovative sectors. The relief will now be available to smaller, innovative growth markets, instead of being restricted to markets operated by large stock exchanges.
The growth market exemption was introduced in 2014 with the aim of boosting investor participation in equity growth markets and improving the conditions for growing companies to raise equity financing. Initially, three UK markets and one Irish market were able to access the exemption. Since then, another 10 markets across the EU and European economic area have applied for and gained access to the exemption, meaning that UK SMEs have greater access to capital.
Previously, in order to be recognised by HMRC as a qualifying growth market, markets that are referred to as “multilateral trading facilities” had to be operated by a “recognised stock exchange” such as the London or Aquis stock exchanges. Once that condition was met, markets also had to meet one of two additional conditions: either the majority of companies on the market had to have a market capitalisation of less than £170 million, or the market’s rules of admission had to require companies to demonstrate at least 20% compounded annual revenue or employment growth over the three years preceding their admission.
However, the requirements have not been updated since the exemption’s introduction in 2014, despite considerable developments in how markets are regulated. Investment firms that are not of the same size and scale as the large stock exchanges can run multilateral trading facilities that are recognised as small and medium-sized enterprise growth markets by the Financial Conduct Authority but, as a result of the current stamp taxes on shares legislation, are barred from accessing the growth market exemption.
The changes made by clause 19 allow multilateral trading facilities that are regulated by the Financial Conduct Authority and run by these smaller investment firms to access the growth market exemption, provided that they meet one of the two additional requirements. That will ensure fairness in the current application of the exemption and increased competition in the market, leading to greater choice for SMEs that are seeking to access finance. That will, in turn, boost growth in UK SMEs.
Clause 19 also updates the market capitalisation condition by increasing the level up to which a majority of companies listed on the exchange can be capitalised from £170 million to £450 million. That change reflects the modern market and demonstrates the Government’s commitment to helping innovative SMEs to grow.
Tulip Siddiq
As the Minister said, clause 19 amends the qualifying criteria to increase access to the growth market exemption relief on any stamp duty or stamp duty reserve tax that is otherwise owed on trades made in UK incorporated companies. The Government have stated that these proposals will update the growth market exemption eligibility to reflect the modern market, ensuring that there is greater fairness in the application of the tax relief and giving greater choice for businesses considering where to list their shares for trading.
We in the Opposition are hugely supportive of efforts to boost our ailing capital markets and are committed to delivering a world-leading listings regime in the UK, building on recent regulatory reforms and ensuring that our scale-ups can access the equity finance they need. We are supportive of the objectives of the clause, but questions remain about what impact the changes will have in practice.
For example, it would be helpful to understand from the Minister how many additional growth markets will potentially be eligible for a stamp duty exemption due to the increase in the capitalisation threshold from £170 million to £450 million. By far and away the largest growth market the exemption applies to is the London stock exchange’s alternative investment market, which, according to the latest data, had an average market capitalisation of £126 million in the summer of 2022. Given that the largest and most established market to benefit from the exemption appears to be well under the original threshold, it remains unclear what difference the change will make. What are the Minister’s views on that?
We do not oppose clause 19, but it is a minor tweak that will not deliver the sea change in the availability of growth capital that British businesses urgently need. Does the Minister plan to do more to increase the availability of growth capital for our businesses?
Nigel Huddleston
I thank the hon. Lady for her comments and questions. Any market that meets the requirements will be able to apply to HMRC to take advantage of the exemptions. The UK’s financial service industry is dynamic and innovative, so it is important that future markets are not restricted by legislation that has not been updated in almost a decade. It is also a question of fairness: it is right that smaller, innovative markets are not barred from the exemptions, for the reasons that she and I outlined. At the moment, there is one market that is likely to benefit—Archax, a digital asset market—but the point of the changes is that other markets could benefit in future and, because of the dynamism in such markets, we need to plan ahead. We cannot anticipate what may come up, so we do not want to restrict options for future growth.
Clause 19 updates the scope of the growth market exemption, reflecting changes that have taken place since its introduction back in 2014. The clause allows the exemption to meet its initial aims more effectively by ensuring fairness in its application, increasing competition, boosting liquidity and facilitating growth. I therefore commend the clause to the Committee.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Clause 20
Capital-raising arrangements etc
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 20 and schedule 11 make changes to ensure continuity in stamp duty and stamp duty reserve tax treatment following changes made by the Retained EU Law (Revocation and Reform) Act 2023 that took effect at the end of 2023.
Stamp duty and stamp duty reserve tax are charged on transfers of securities in UK companies, but not generally on the issue of new securities. The main rate for both taxes is 0.5%. A 1.5% higher rate was applied on the issue or transfer of UK securities into overseas clearance services or depositary receipt systems, to reflect the fact that subsequent transfers of those shares would not be subject to stamp duty or stamp duty reserve tax while the securities remained in those overseas systems and services. A 1.5% higher rate charge was also applied on issues and transfers of bearer instruments. A bearer instrument is a document that constitutes the rights of the holder of that instrument to the securities that the document represents.
Following EU and UK court decisions in 2009 and 2012, HMRC accepted that the 1.5% charge on certain transactions was incompatible with the EU capital duties directive. The incompatible transactions were the issue of securities into depositary receipt systems and clearance services, and certain related transfers known as transfers integral to capital raising. HMRC also recognised that the charge on the issue of bearer instruments was incompatible with the capital duties directive. UK legislation was not amended, because at the time taxpayers could rely on the direct effect of EU law. However, now that the changes in the retained EU law Act have taken effect, that is no longer the case, and UK legislation must therefore be amended to prevent the 1.5% charge from being reintroduced for those transactions.
Clause 20 and schedule 11 will maintain the current position by removing the 1.5% charge in domestic legislation on the issue of UK securities into overseas depositary receipt systems and clearance services, and on certain transfers related to capital raising. They will also remove the 1.5% charge on issues of bearer instruments. The changes provide legislative certainty to businesses that there will be no charge on those transactions going forward.
Tulip Siddiq
The Labour party supports the clause, which is a necessary intervention to ensure that UK companies previously able to rely on the direct effect of EU law are not left at a disadvantage to international counterparts when issuing UK shares and securities on overseas exchanges. The legal certainty and the removal of the potential 1.5% charge will be welcomed by UK firms considering listing on overseas exchanges. It is vital that our tax system remains internationally competitive.
However, our priority in government will be to overhaul our domestic capital markets to ensure that high-growth British companies critical to the future growth of the economy choose to list here in the UK instead of opting for exchanges in the US and Asia. The UK currently lags far behind competitor jurisdictions, and the Government must work in partnership with industry and regulators if we want to regain our status as a top global listings destination.
Although I do not have any issue with the exemption confirmed by clause 20 and schedule 11, I urge the Minister to ensure that, beyond recent changes to the listings rules, he prioritises listening to industry voices such as the Capital Markets Industry Taskforce about the solutions that are desperately needed to resuscitate our own domestic markets.
Nigel Huddleston
I will not stray into a broader debate; we will have that, I am sure, on Third Reading or at another point. I made my points on the broader economy earlier, but I gently request that the Opposition stop talking the UK economy and UK businesses down. By doing so, they are talking down the workers and companies in their own constituencies.
This measure is designed to ensure the competitiveness of the UK’s code in relation to financial services, by providing certainty that unwelcome frictions will not be reintroduced for UK companies that wish to operate globally. I commend the clause and the schedule to the Committee.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Schedule 11 agreed to.
Clause 22
Rates of tobacco products duty
Question proposed, That the clause stand part of the Bill.
Gareth Davies
The clause implements changes announced in the 2023 autumn statement concerning tobacco duty rates. The duty charged on all tobacco products will rise in line with the tobacco duty escalator, with an additional increase for hand-rolling tobacco to reduce the gap with cigarettes.
Smoking rates in the UK are falling, but they are still too high: around 13% of adults are now smokers. Smoking remains the biggest cause of preventable illness and premature deaths in the United Kingdom, killing around 100,000 people a year and up to two thirds of all long-term users.
We are investing in a range of measures to support smokers to quit, including an additional £70 million per year to support local stop smoking services, £15 million per year to fund new national anti-smoking campaigns, and £10 million over two years to provide financial incentives to support all pregnant smokers to quit. In a world first, we are also providing £45 million over two years to roll out the new national “swap to stop” scheme, supporting 1 million smokers to swap cigarettes for vapes. Our policy of maintaining high duty rates for tobacco products will support the Government’s plans to reduce smoking to improve public health.
In the autumn statement, the Chancellor announced that the Government will increase tobacco duty in line with the escalator. The clause therefore specifies that the duty charged on all tobacco products will rise by 2% above retail prices index inflation. In addition, duty on hand-rolling tobacco will increase by 12% above RPI inflation. These new tobacco duty rates will be treated as having taken effect from 6 pm on the day they were announced, which was 22 November 2023.
Recognising the potential interactions between tobacco duty rates and the illicit market, the Government introduced tougher sanctions in July 2023, including penalties of up to £10,000 for any businesses or individuals who are caught selling illicit tobacco products. HMRC and Border Force will shortly be publishing an updated strategy to tackle illicit tobacco, with the aim of making further progress in reducing the size of the illicit market, tackling organised crime and reducing demand for illicit tobacco products.
The clause will continue our tried and tested policy of using high duty rates on tobacco products to make tobacco less affordable. It will help continue the reduction in smoking prevalence, supporting our Smokefree 2030 ambition, and reduce the burden placed by smoking on our public services.
Finance Bill (Second sitting)
Nigel Huddleston ExcerptsTuesday 16th January 2024
(2 years, 7 months ago)
Public Bill CommitteesRead Full debate Finance Act 2024 View all Finance Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 January 2024 - (16 Jan 2024)
The Financial Secretary to the Treasury (Nigel Huddleston)
Good afternoon, Mr Paisley. Clause 35 makes changes to improve the data collected by HMRC. That will enable HMRC to collect more accurate and timely information, helping to make tax easier to get right and harder to get wrong, and providing better outcomes for taxpayers and improving compliance. Clause 36 introduces a new simplified and fairer system of penalties for the late submission of tax returns and late payments of tax, for those taxpayers who voluntarily join Making Tax Digital for income tax self-assessment from 6 April 2024.
Turning to clause 35 in a bit more detail, the Government’s economic response to the pandemic was only made possible through the powerful use of data to make big policy decisions and deliver Government interventions. HMRC’s information about employers, employees and the self-employed was key to delivering both the furlough scheme and its self-employed equivalent, the self-employed income support scheme. The pandemic also highlighted gaps where a lack of data meant that the Government could not provide support to specific groups. For example, in the initial phases of the self-employed scheme, some self-employed people were excluded because they had only recently started a business and HMRC did not have the data needed to identify them and their potential entitlement to support.
James Murray
As the Minister said, clause 35 makes changes to the types of tax return for which HMRC collects data. According to the Government’s policy paper on this matter, the modifications are for the purpose of improving and enhancing the quality of the data HMRC collects. We understand that the changes are designed to enable HMRC to create regulations specifying additional information it considers relevant to the collection and management of tax.
We understand that HMRC intends to implement three new requirements. First, employers will be required to provide more detailed information on employee hours worked by real-time information PAYE reporting. Secondly, shareholders of owner-managed businesses will be required to provide the amount of dividend income received from their own companies separately from other dividend income, and the percentage share they hold in their own companies via their self-assessment return. Thirdly, the self-employed will be required to provide information on start and end dates of self-employment via their self-assessment return.
The Opposition recognise that this is a significant change, and it is clear from the Government’s policy paper on this matter that it will also incur large costs for businesses. The one-off impact covering transitional costs for businesses is estimated to be £44 million, while the extra ongoing annual administrative burden is estimated to be £9.6 million. The Chartered Institute of Taxation has conveyed its concerns that it seems unrealistic that the average transitional costs to businesses of providing the data on employee hours will be just £18.42. Does the Minister believe that the costings are accurate for businesses that will need to plan for the new requirements?
Beyond the forecast costs to businesses, there is also the question of data gathering and its purpose. This clause gives HMRC the power to collect taxpayers’ data. Is the Minister confident that the legislation provides appropriate authorisation for the purposes of the measure? The Institute of Chartered Accountants in England and Wales is concerned that it has not been fully explained why data concerning employee hours is relevant for the purposes of the collection or management of the taxes listed in section 1 of the Taxes Management Act 1970. The Institute believes that the legislation will not work to obligate employers to report hours worked to hours paid, as hours worked are not needed for the collection and management of tax. I would be grateful to know the Minister’s response to this concern.
We recognise that the timescale for introducing these measures is 2025-26, which will require HMRC to be ready and businesses to have got to grips with the necessary processes, guidance and software by then. What engagement has the Minister or HMRC had with businesses about this timescale, and has the Treasury considered drafting regulations for consultation prior to the legislation being enacted?
Clause 36 makes changes to the existing regulation-making powers that enable the Treasury to bring into force the penalties set out in schedules 24 to 27 of the Finance Act 2021. The new system that the schedules in the 2021 Act introduced will impose points-based sanctions for late submissions of returns and penalties for late payment of tax liabilities. We understand that the Government are planning for this system to come into effect with relevant self-assessment customers from 6 April 2026, through Making Tax Digital. Our understanding is that clause 36 will affect only volunteers who agree to test out the MTD system, which will therefore be before 6 April 2026. For the avoidance of doubt, will the Minister confirm that that is the case and make absolutely clear what penalties and sanctions such volunteers could face? Could he also confirm exactly what is meant, in the explanatory notes to the Bill, by the phrase:
“Where a change in circumstances means that HM Revenue and Customs does not have the functionality to support a customer, they may be moved back into the existing penalty regime.”?
There is a wider question about the timetable for delivering Making Tax Digital, which has slipped again and again. I would therefore be grateful if the Minister could make clear whether he has full confidence that the introduction of MTD for the self-assessment customers who are mandated for it is on track to happen by 6 April 2026.
Nigel Huddleston
I thank the hon. Gentleman very much for those questions and comments. I think he has a good understanding of the purpose behind the changes we are making, particularly in the context of the anxiety that many of our constituents face. We all had correspondence on this during the pandemic, when people were frustrated at not necessarily being able to get some of the support mechanisms for which they believed they were eligible because of that lack of information and data.
The macro point and the purpose behind the changes is well understood, and the hon. Gentleman is right to focus on the micro points. When it comes to the voluntary process, for example, which I will come on to in a moment, the whole point of having it is to learn before we make it mandatory. We expect and anticipate that we will need to learn from this experience, but going through that voluntary step first seems like a good process.
The hon. Gentleman mentioned the administrative burden on businesses as a result of this ask. We have chosen three out of the six because the information should be on hand or readily available already, so what we are endeavouring to do should be relatively straightforward. HMRC has been exploring with stake-holders how best to implement the proposals in a way that minimises burdens on businesses. No one wants to put a disproportionate administrative burden on businesses, but for the reasons that I outlined in the introductory comments, we see an upside to asking for the information. In practical terms, it will help nudging and supporting businesses to ensure that their taxes right. Should we face a situation such as the pandemic again, we will be in a much better position to understand the nature of businesses.
The hon. Member for Ealing North mentioned data and gave a total cost of £45 million for implementation of the measures. For the hours-worked data, the total estimated one-off cost to businesses is about £35 million. In subsequent years, the ongoing cost will and should be negligible. For the dividends data, the total estimated up-front cost is about £9 million; again, that remains consistent for subsequent years. For the start and end dates, there are negligible one-off costs, with total year-on-year costs estimated at about £600,000. Those costs are the current estimates based on the standard modelling approach and the measuring of administrative burden. We will of course keep a close eye on the costs.
I mentioned the variety of purposes and means by which that information could be useful, but the hon. Gentleman also made a point about information sharing, an issue that many stakeholders raised in the process of our updating this policy. I should note the work of the House of Lords Sub-Committee that investigated these issues and asked me similar questions not so long ago. I refer hon. Members to the answers I gave there, as well as further support. I want to provide the assurance, however, that there are strict laws about the sharing of data between Departments.
HMRC’s ability to disclose the information it holds to anyone is restricted by the Commissioners for Revenue and Customs Act 2005. Only by acting in accordance with the provisions of the Act can HMRC ensure that information is disclosed in a lawful way. Section 18 of the Act provides that HMRC must not disclose HMRC information to anyone unless there is a lawful authority to do so, and that includes other Departments and their agencies, local authorities, the police or any other public authority.
As I said, I am happy to respond further to the hon. Gentleman or to make further comments if I have not answered all the questions. However, I commend the clause to the Committee.
Question put and agreed to.
Clause 35 accordingly ordered to stand part of the Bill.
Clause 36 ordered to stand part of the Bill.
Clause 37
Abbreviations used in the Act
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Finally, clauses 37 and 38 simply set out the Bill’s legal interpretation and short title in the usual manner for such legislation. I commend them to the Committee.
James Murray
We have no concerns about clauses 37 and 38, you will be pleased to hear, Mr Paisley.
As this may be the last time I get to contribute to the debate today—
Nigel Huddleston
It will not surprise you to learn, Mr Paisley, that I respectfully disagree with many of the comments made by the hon. Member for Inverness, Nairn, Badenoch and Strathspey. The Government are—[Interruption.] As I said and as always, I disagree respectfully. The Government are fully committed to delivering on our legal obligations to reach net zero emissions by 2050. The net zero strategy and the “Powering Up Britain” publication set out the actions that the Government will take to keep the UK on track for its carbon budgets, and establish the long-term pathway to net zero. The UK has already made good progress, reducing emissions by 48% between 1990 and 2021, faster than any other G7 country.
The autumn statement delivered the cross-economy enabling environment for investment that will be vital to deliver the net zero transition. It did so with measures such as permanent full expensing for plant and machinery investments, accelerating grid connections, and reforming planning. The package provides long-term certainty for industry to invest in decarbonisation and supports firms through the transition.
The Secretary of State for Energy Security and Net Zero is responsible for upholding duties under the Climate Change Act 2008, but His Majesty’s Treasury and HMRC consider climate change and the environmental implications of relevant tax measures, with a climate assessment published in all relevant tax information and impact notes. HMT and HMRC are exploring options to strengthen the analytical approach to monitoring, evaluating and quantifying the environmental impacts of tax measures.
Given all the work that is under way and the substantive work on these issues that has already taken place, I urge the Committee to reject new clause 1.
Question put, That the clause be read a Second time.
Drew Hendry
I beg to move, That the clause be read a Second time.
As the explanatory statement suggests, this is the opportunity for the Chancellor to publish an assessment of the impact of the Act on public finances and the cost of living crisis. The cold weather is really biting today across the nations of the UK, and people are having to turn up their heating to be able to simply survive. They are suffering already higher energy bills, boosted by the further 5% increase at the start of this month. The same families are struggling with soaring food costs, higher rents, higher mortgages and much more. The SNP’s issue with the Bill lies primarily in what has been omitted: help for those struggling families.
The UK Government seem determined to completely ignore the realities facing people across the UK. For example, just a few days ago, it was revealed that a quarter of a million children could be lifted out of poverty if the UK Government took the simple and humane step of scrapping the two-child limit, with an additional 850,000 children pulled out of deepening poverty if the policy was removed. In the absence of such measures, and many others to support people suffering from the cost of living crisis, such as the £400 energy rebate that we called for, we believe that it is incumbent on the UK Government to report on the measures that they are taking and how they are affecting the cost of living, particularly in relation to rising household costs.
Nigel Huddleston
I afraid that we are going to have yet another phase of respectful disagreement with the hon. Gentleman.
New clause 2 would require the Government to report on the likely impact of the measures in the Bill on public finances and the cost of living. Numerous Departments and Government bodies already have mechanisms in place to systematically monitor and evaluate the impact of Government policy on public finances and households across the UK. Those mechanisms are effective and ongoing, making the proposed new clause redundant.
It is the role of the Office for Budget Responsibility to produce official forecasts for the public finances twice a year, usually alongside a fiscal event. Those forecasts are produced independent of Ministers, objectively, transparently and impartially, as set out clearly by law. Furthermore, when considering specific pressures on the cost of living, mechanisms are already in place to assess the impact of Government policies on households’ personal finances. The Office for National Statistics plays a role in providing monthly updates through its “Cost of living latest insights” article, offering comprehensive data and showing trends.
In addition, our commitment extends to long-standing surveys and initiatives, including the family resources survey initiated in 1992; the living costs and food survey, which commenced in 2008; and the annual survey of hours and earnings, which has collected data since 1998. The Department for Work and Pensions also plays a crucial role with the annual publication of the “Households below average income” report, which monitors poverty and inequality trends across the UK, with emphasis on the wellbeing of the most vulnerable members of society.
Since 2010, His Majesty’s Treasury has published an “Impact on households” report at major fiscal events, to scrutinise the distributional impact of Government measures on personal finances across income groups. Distributional analysis published at the autumn statement 2023 shows that the typical household at any income level will see a net benefit in 2023-24 and 2024-25 following Government decisions made from autumn statement 2022 onwards. Low-income households will see the largest benefit as a percentage of income. Furthermore, looking across all tax, welfare and spending decisions made since the spending round 2019, the impact of Government action continues to be progressive, with the poorest households receiving the largest benefit as a percentage of income in 2024-25.
We believe that the mechanisms currently in place are effective in providing the necessary insights into the impact of the measures proposed in the Bill. In the light of those efforts and commitments, I urge the Committee to reject new clause 2.
Question put, That the clause be read a Second time.
Nigel Huddleston
I should state at the beginning of my remarks that I completely understand the intent of new clause 3, because the hon. Lady is raising issues that are of great concern to hon. Members right across the House. However, she will not be surprised to hear that, once again, I respectfully disagree with her on the need for these assessments. We believe the proposed new clause is redundant because there are existing mechanisms in place to monitor and evaluate the impact of Government policy on public health inequality and poverty.
Debbie Abrahams
On that basis, I did ask a question at the autumn statement. In relation to the social security measures, I asked what were the anticipated impacts on the health of social security claimants. I have heard nothing back from anyone on that. If that evidence exists, what is it?
Nigel Huddleston
I shall respond to the hon. Lady on the plethora of analysis and support that goes on for a range of policy areas. We are not lacking in either interest in this area or consideration of impact. As I said, there are numerous Government Departments, bodies and other mechanisms already in place to systematically collect, monitor and evaluate the impact of Government policy across the UK.
The Department of Health and Social Care and its arm’s length bodies are responsible for developing and evaluating policies to help people to live more independent, healthier lives for longer. As part of DHSC, the Office for Health Improvement and Disparities works across DHSC, the rest of Government, the healthcare system, local government and industry, to shift focus toward preventing ill health, particularly in places where there are the most significant disparities. DHSC also invests in research and evaluation through the National Institute for Health and Care Research, which delivers robust evidence to inform policy development and implementation, including evaluation of policies and research to fill longer term evidence needs and gaps.
The Treasury carefully considers the impact of its decisions on those sharing protected characteristics, in line with both our legal obligations and our strong commitment to providing fairness. We go beyond our legal requirements by publishing a summary of equality impacts for tax measures within the tax information and impact notes alongside the Finance Bill.
Various parts of Government, including from within the Cabinet Office’s equality hub, promote the Government’s commitment to levelling up opportunity and ensuring fairness for all. The hub includes the Government Equalities Office, the Race Disparity Unit, the Disability Unit, and the Social Mobility Commission, all of which provide valuable input.
As I mentioned in answer to new clause 2, since 2010 the Treasury also publishes an “Impact on households” report at major fiscal events, but I will not repeat the comments I made there. The “Households below average income” report also provides valuable input. For example, in 2021-22, there were 1.7 million fewer people in absolute poverty after household costs than in 2009-10, including 400,000 fewer children, 1 million fewer working-age adults, and 200,000 fewer pensioners. We believe the mechanisms currently in place are effective in providing the necessary insight, so I urge the Committee to reject new clause 3.
Debbie Abrahams
I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
Question proposed, That the Chair do report the Bill to the House.
Nigel Huddleston
On a point of order, Mr Paisley. Before you conclude your comments, I think this is an appropriate opportunity for me to make similar comments and thanks to those made by my opposite number. I agree with everything he said. I put on record my thanks to you, Mr Paisley, and your co-Chair, who did not have the opportunity to participate in this Bill; there will be other opportunities in the future.
Of course, I thank the Clerks and all officials who have worked on this Bill across multiple Government Departments, including His Majesty’s Treasury and His Majesty’s Revenue and Customs, but it goes well beyond that. I thank members of the Committee in this place, and also members of the House of Lords Sub-Committee for their input and work. I also thank all those stakeholders who have provided invaluable input. Some have provided specific input recently in the form of written submissions to this stage of the process, but many have participated over many years in extensive formal and informal consultations. I put on record our deep gratitude and thanks to all those who have taken their responsibilities and interests incredibly seriously, providing great input into this Bill to date.
The Chair
Thank you for those comments, Minister. We have had a brace of Ministers, shadow Ministers and Committee Clerks. We did not have a brace of Chairs, but we did have the Statler and Waldorf-esque Parliamentary Private Secretaries in a brace. Thank you all for this vital work that Parliament does. The line-by- line scrutiny of the Bill is serious work, and people taking their time to really do this line-by-line is appreciated. I know that the staff, Clerks and Hansard will be appreciative of your kind comments, Minister, and yours too, Mr Murray.
Question put and agreed to.
Bill accordingly to be reported, without amendment.