Finance (No. 2) Bill (First sitting)

Angela Eagle Excerpts

Committee stage
Tuesday 16th May 2023 Public Bill Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

I will make a brief comment in relation to the programme motion. It is the convention of the House that a Finance Bill does not take oral evidence. That continues to be a significant issue for the knowledge of the Committee. Written evidence is very important, and everybody does their best to read it, but nothing quite compares to asking questions in an oral evidence session. The programme motion does not allow for oral evidence. The Government have made it clear on previous Finance Bills in previous years that that is because part of a Finance Bill is considered by the whole House and the rest is considered in Committee.

Given the extent of this Finance Bill and how incredibly complex it is, particularly when it comes to corporation tax, it would have been beneficial for the Committee to ask questions of experts. It would not have taken us past any potential dates. We could have scheduled an oral evidence session with, for example, the Association of Taxation Technicians and the Chartered Institute of Taxation, and taken evidence on the parts of the Bill that we are yet to consider in order to better understand what is in the Bill and the issues that it presents for professionals.

Although I will not oppose the Programming Sub-Committee’s recommendations in the programme motion, I raise my concerns, as I do for every Finance Bill Committee on which I sit, that oral evidence sessions would have made a positive difference. They would not have held up the machinery of government and the progress of the Bill, but they would have allowed us to make more informed decisions.

[Dame Angela Eagle (Wallasey) (Lab)]

It is a great pleasure to serve under your chairmanship, Ms McVey, I think for the first time. I have a great deal of sympathy with what hon. Member for Aberdeen North has just said, and I look forward to what the Minister has to say about it. It may well be that an innovation that has worked well in other Committees should spread to the Finance Bill. In the absence of any progress on that, I refer the hon. Member for Aberdeen North to the work of the Treasury Committee, of which I am a member, alongside one of her colleagues. We do extensive work pre and post Budgets and take a great deal of evidence. While it is not the same as having oral evidence to this Public Bill Committee, it is a pretty good alternative, and at the moment it is all we have.

[The Financial Secretary to the Treasury (Victoria Atkins)]

May I say what a pleasure it is to serve under your chairmanship, Ms McVey? I am delighted if this is the first Finance Bill over which you are presiding. I should declare that I used to prosecute tax fraudsters for His Majesty’s Revenue and Customs, but I have not done so since being elected to this place. I ought also, while we are in housekeeping mode, welcome all Committee members to this scrutiny. It is an important part of our legislation-making process. Particular thanks go to my hon. Friend the Member for Totnes who—I hope he will not mind my sharing—got married at the weekend and so is perhaps the first parliamentarian to spend his honeymoon in a Finance Bill Committee. My sincere apologies to Mrs Mangnall.

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[The Chair]

I call Dame Angela Eagle.

[Dame Angela Eagle]

Thank you very much, Ms McVey. I think that the comment that I made earlier about this being your first Committee was about it being your first Committee that included me, not it being your first Committee completely. I am sure that we have an extremely experienced Chair, or you would not have been put in the position of having to Chair a Bill Committee where the Bill is this thick. I think that everyone can have great confidence in your ability to take us through the proceedings today.

I want to raise some questions for the Minister about levels of income tax, so that she could perhaps talk to us about the Government’s thinking. We have here—it is not explicitly referred to in the legislation, but it is there nevertheless—the fact that the thresholds have been frozen until 2028. That effectively drags many more people into paying these rates of income tax, at whatever level. It is called “fiscal drag” in the business.

When we analyse precisely what the Government are doing, we see that, without the headline rates of income tax being affected, 8 million people will be forced to pay higher levels of income tax the threshold has been frozen. That is particularly exacerbated in an era of high inflation, when more people will get dragged into paying higher levels of income tax because prices are going up yet thresholds are frozen.

This has been estimated to be the biggest stealth tax put into place since the doubling of VAT in the early 1990s. Looking at the situation that is expected to prevail in 2027-28—on the plans that the Government are putting forward—8 million people will be affected by fiscal drag. In other words, they will have their income tax increased even though the headline rates have stayed the same. That will mean that one in five taxpayers—20%—will actually be paying the higher rate, at 40% or above, as a result of this Government’s stealth tax.

That is at a time when people’s incomes are being squeezed from all directions. Many of us know that we have a cost of living squeeze that is driving millions to food banks, having to make the choice between heating and eating, and sometimes not being able to do either satisfactorily because of the amount of cash available at the end of a working week to buy essentials.

I will demonstrate just how many people have been dragged into the higher rates of tax by the stealth tax manoeuvre that the Government have turbo-charged for the next few years. In the 1990s, no nurses at all paid the higher rate of tax, and only 5% to 6% of machinists or electricians did. The Minister might have noticed information from the Institute for Fiscal Studies on the front page of quite a lot of newspapers this morning that demonstrates that the situation has totally changed. One in four teachers and one in eight nurses will be higher-rate taxpayers by 2027—presumably, that is before their disputes have been settled one way or the other. That is bad in itself, because it is a stealth tax.

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[Craig Whittaker (Calder Valley) (Con)]

The points that the hon. Lady makes are valid. Another valid point is this: while it is true that more people are paying tax, is it not also true that more people are earning a lot more money than they used to?

[Dame Angela Eagle]

I am all in favour of people earning more money, but it is important that they are doing so in in real terms. Someone can earn more money in terms that do not take account of inflation, but they can actually be earning less. If the right hon. Gentleman talked to people and asked them whether they were any better off than they had been when this series of Governments came into office in 2010, he would find that people’s nominal salaries and wages might be higher in some cases, but a lot of them are worse off in reality because those earnings have not kept up with inflation. The point about the tax burden and fiscal drag makes that much worse.

[Kirsty Blackman]

On the point about how well-off people feel, does the hon. Member know that in 2008, 12% of people in the UK believed that their children would be worse off than them? Now, IPSOS has found that that number is up to 41%—some 41% of people now believe that their children will be worse off than them. Does she feel that that needs to be tackled, and that the Government are not taking it seriously?

[Dame Angela Eagle]

I agree, and the hon. Lady makes a valuable point. For societies to advance in a sensible, healthy way, succeeding generations must have optimism about things changing for the better. That also tends to lead to happier societies with people who are more likely to innovate and go the extra mile. We all want that so that we can rebuild prosperity for our nation in the years ahead in the new, more isolated circumstances in which we find ourselves, as a result of which we must remake the economic foundations of our country. I wonder how much fiscal drag helps us to do that, and I am interested to hear the Minister’s observations on how that approach will help.

There are other undesirable effects of threshold freezes of the kind encompassed by clause 1, including very high marginal tax rates for people in particular circumstances. We know from the Prime Minister’s tax return that he effectively pays 22% on his millions of earnings every year, if one combines the income tax that he pays with the way that he takes out his money through capital gains and in other areas. However, given the present tax thresholds and fiscal drag, there are people who will face marginal tax rates of 45% and 60%, which are very high—much higher than those that the Prime Minister faces.

The Treasury Committee is so concerned about that that we have begun an inquiry into spiky marginal tax rates and cliff edges. As you will know, Ms McVey, from having been Secretary of State for Work and Pensions, cliff edges and high marginal tax rates can often combine to create even greater losses of income. That is a disincentive to work harder, get more hours and move jobs when the increased wage may not compensate for the higher marginal tax rate, or a combination of the higher marginal tax rate and the cliff edge for a particular allowance. When we took evidence a few weeks ago, we discovered a marginal tax rate combined with a cliff edge that was over 100%.

There are issues surrounding the £50,000 threshold, at which point high earners start having child benefit clawed back. That has remained unchanged. It has not gone up; it is another frozen threshold. That is dragging far more people into the means test for child benefit than even the Conservative Chancellor George Osborne—we can say his name now, as he is no longer a Member of this House—intended when he introduced the policy. The Government should be aware of the combined effect of fiscal drag and unindexed rates on real people’s choices.

Freezes are a stealthy and arbitrary way to raise tax revenues. They often have a bigger impact on household incomes than more eye-catching discretionary measures do. They are particularly expected to have an impact on lower earners. By 2028, someone earning £20,000 will be £1,165 poorer under the current fiscal drag system than they would if income tax had been raised by 1%. There have been various calculations of how many pennies this stealth tax raises on the up-front rate of income tax, and they range from 3p to 4p per £1. I hope that the Minister will confirm that and try to justify why on earth the Government are raising money in that way, rather than being more transparent and up-front about rates of income tax. What will they do about the high marginal rates that the fiscal drag and frozen threshold system is landing our entire structure with? It is distorting the structure and making it very difficult to justify much of how it works for the future.

[Rob Butler (Aylesbury) (Con)]

I am interested in what the hon. Lady is saying. Will she clarify the latter point about the increase in the rate that would have been necessary had it not been frozen? Is she saying that she would rather the basic rate of income tax had been put up by 3% or 4%, such that lower-paid workers—nurses, for example, to whom she has referred—who are in the lower tax bracket would pay more tax? That seems to be the logical end point of what she has suggested.

[Dame Angela Eagle]

I am not suggesting any policy—far be it from me to do so from this side of the House. I am a mere Back Bencher, and it is not for me to make tax policy from the Opposition Back Benches. I am merely pointing out some problems that the choices that the Government appear to have made with this stealth tax are causing real people out there.

The problems are exacerbated by high marginal rates, and by very difficult and bad incentives that are quite hidden. That is why I am raising some of them here—I am attempting to draw attention to them to see whether the Minister has a response. If the Government are working on those areas, I am trying to find out what they aim to achieve by doing things this way. That is precisely what these Standing Committees are about—one gets to talk in more detail about choices that are made.

The hon. Gentleman must not imagine that I am putting forward a completely costed, different alternative, because this is not the place or time to do that. I am pointing out some of the problems, about which there is cross-party concern. I am not even making highly party political points. Far be it from me to do so—it is too early in the morning for me to do too much of that—but there are issues that we need to surface so that we can hear the Government’s official response.

I fear that we are driving into a cul de sac that will cause more problems than it solves, particularly in the interaction of the income tax system with a range of benefits, not only for the very low paid, but for medium earners. That is not being properly talked about, so by raising the matter at this point in the Bill, I am trying to get a handle on the Government’s thinking. I look forward to listening to what the Minister has to say about it, and perhaps even intervening further if she says something that piques my interest.

[Victoria Atkins]

In that case, I will try to be extremely dull. I am genuinely grateful to the hon. Lady for her questions. If I may take issue with her challenge that this is somehow hidden or a stealth tax, we debated these thresholds in the previous Finance Bill in the autumn. My right hon. Friend the Chancellor was very clear in his statement and in the following debate, as well as during the consideration of the Bill, about the difficult decisions, and we very much include the threshold decisions in that category. We were up-front and transparent about what we had to do to address some of the underlying issues we face in the economy.

I do not for a moment underestimate the hon. Lady’s intentions in raising the matter, but I must push back on the idea that this is somehow being hidden. Indeed, I remember being asked about it on many occasions both in this place and, dare I say it, on media rounds—understandably so, because this matters to people.

There is one point of agreement across the House, however, and that is the impact of inflation on people’s take-home pay. That is why the Prime Minister has set it as his first of five priorities to halve inflation by the end of this year, because it hurts all of us, but it hurts the poorest in society the most. We have heard the ongoing debate about food inflation, and none of us wants to see the difficult situations that people on the lowest incomes are finding themselves in. That is why the Treasury is doing everything that we can to support the Bank of England, which is of course operationally independent, in lowering the rate of interest.

The hon. Member for Ealing North asked me about the OBR. I am happy to quote the Chancellor, who has said in relation to the OBR’s figures overall that we respect them. It is an independent forecaster, whose job it is to make a forecast. As we all know, however, and as we have seen very recently with the Bank of England, forecasts are exactly that—forecasts. They can change, so we are working to support the Bank of England in its work. We respect the OBR, but fundamentally we are trying to ensure that the lowest paid receive as much of their income without having to pay any tax as we can afford as a country.

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In terms of what this means nationally, it is estimated that more than 3 million people will be taken out of tax by 2023-24, compared with what would have happened if the personal allowance had risen with inflation from 2010-11. That means that as a result of our policies, we have been able to take more people out of tax completely. Indeed, 30% of individuals do not pay tax as a result of the personal allowance. It remains one of the most generous internationally, and the UK higher rate threshold is still high enough to protect the vast majority of people from paying the higher rate of income tax. Around 80% of taxpayers pay the basic rate. Indeed, average median earnings for an employee are £28,000 a year—well below the higher rate threshold of £50,270.

[Dame Angela Eagle]

I assume that those figures are for now. Is there a calculation of where fiscal drag will have left them after 2027-28? The figures will undoubtedly go down, especially if inflation persists for any length of time. It is 10% now, which means that anyone who is within 10% of the next threshold will go over it this year.

[Victoria Atkins]

The hon. Lady has hit on exactly the point. We have to be so careful with forecasts, because there are so many variables. As she has identified, inflation is one of them. Please do not think that I am speculating about what may or may not be in future fiscal events, but if there are changes to the rate of national living wage, for example, that will have an impact. There are many variables, and that means that our figures are both costed from a Treasury perspective and examined by the OBR. We very much stand by the figures set out in the autumn statement and as part of Budget considerations in the spring.

[Dame Angela Eagle]

The Office for Budget Responsibility has said that the frozen thresholds will drag 2.1 million people into the higher rate of tax, raising £26 billion a year, which is the equivalent of 4p on the basic rate. One presumes that that is net of all the other things that the Minister is talking about.

[Victoria Atkins]

The shadow Minister asked that question. We respect the work of the OBR, and of course we understand that it is an independent forecaster. However, as I said, we have never shied away from the fact that this a difficult set of circumstances. I know it is not for the hon. Lady to set tax policy on behalf of her Front-Bench team, but my hon. Friend the Member for Aylesbury posed an interesting question: what is Labour’s alternative? Outside observers may wish to take that into account.

We believe in sound money, and the rate of debt interest that we are paying each year—some £120 billion—is money that we would much rather spend on our NHS, police and defence. However, precisely because of our extraordinary efforts to protect our constituents throughout the pandemic, to help Ukraine and to provide support through the cost of living crisis that has emerged from that, we are having to take these difficult decisions in a fiscally responsible way.

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[Kirsty Blackman]

First, given the inflation that we are facing, it is incredibly important that people who are caring, and taking on caring responsibilities, can afford to do so and are not forced to stop because of an impact on their income. This is a positive step. A not insignificant number of those who are cared for face a specific issue, such access to special diets, for which inflation has increased much more than even for food inflation. Individuals caring for anybody who is on a special diet will have seen a differentially large impact on their household spend specifically as a result of having to cater for those special diets. The changes being made therefore could not have come at a better time.

It is also positive to hear recognition for kinship carers, who are so often missed out in conversations about caring, even if people are taking on a formal role as kinship carers. We could not do without the significant amount of work that kinship carers do, so I am pleased, having previously had to argue in my council role for similar benefits for kinship carers as those that foster carers were receiving, that the Government have as a matter of course included kinship carers in the qualifying care relief, and ensured that the changes being made extend to them.

[Dame Angela Eagle]

I think that this measure will be welcomed across the Committee. As the Minister said, no one will vote against it. All of us know locally, from our constituency advice surgeries and our general work, the pressure that the entire care system is under. We know many of the things that are wrong with it and difficult in it, and how crucial it is to try to get it right, not least for the life opportunities of those people who are caught up in the system.

In the context of a welcome change, could the Minister explain the decision to index to CPI rather than RPI? The retail price index takes into account the costs of rent or housing in a way that I would have thought was directly relevant in this context. Why was it decided to use CPI rather than RPI for future indexation?

[Victoria Atkins]

We use CPI across the board. What we have tried to do is bring the value of the QCR back to its intended level. As I said, it had not changed since 2003. Index linking protects its value to foster carers in the future, so that a future Finance Bill Committee does not have to consider a similar uprating in the future.

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[Dame Angela Eagle]

I thank the Minister. It is obviously a good thing that there will be indexation. In fact, I was talking about the lack of indexing when we were talking about the freezing of tax thresholds earlier, so I understand that point.

However, I am asking a very technical, specific question about why the Government are using CPI rather than RPI. RPI includes the cost of housing, and the cost of rent, or whatever, for the place where the caring is being done seems to me to be a relevant cost in this context. Indexing to RPI would actually be a better way of representing and indexing those costs going forward. I am asking: why CPI, rather than RPI?

[Victoria Atkins]

It is because that tends to be our measure across the board. I take the hon. Lady’s point about housing, but if someone needs help with the cost of housing, depending on their income levels, there are other ways in which they can get help from the state for that. This relief was specifically to reflect the extraordinary public service that families across our constituencies provide in helping those most vulnerable of children.

Question put and agreed to.

Clause 28 accordingly ordered to stand part of the Bill

Clause 29

Estates in administration and trusts

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

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Finally, clause 33, which operates alongside clause 32, as I mentioned, extends the circumstances in which a pre-6 April 2015 lifetime annuity or dependents annuity under a registered pension scheme can be reduced without incurring unauthorised payment charges. That will ensure that those who receive financial services compensation scheme top-up payments as a result of the write-down under the Financial Services and Markets Bill’s proposed new section 217ZA of the Financial Services and Markets Act 2000 will not face a tax disadvantage. The primary legislation for those pensions tax changes will also apply from the date of Royal Assent of this Finance (No. 2) Bill, while additional consequential pensions tax changes concerning unauthorised payments will be made via a statutory instrument. We will not oppose clause 33.

[Dame Angela Eagle]

We often plead for financial services legislation to be made simpler, but from listening to the debate, it seems that we have not quite succeeded yet. I have a few questions, but the changes seem to be sensible; they ensure that there is no game-playing when it comes to reinsuring those bits of business that might need to be transferred from an ailing or failing insurance company to something stronger, so that those who rely on payments for their pensions or other costs can be assured that they will not lose out.

Have these technical changes been proposed as a result of an issue in the insurance world? Do insurers who wish to join larger companies or pass on some of their insurance policies want to do so because they thought that they had a tax advantage, and have buyers not been wanting to buy because they think that they might be left holding the baby, and face a big tax issue? Is this a structural problem, or does the Treasury see this as a potential problem that it wants to iron out before it manifests in the market? I suppose that is the question I am asking. If we are talking about a problem that has been holding up the efficient working of the market, what will the effect of the change be? Will it be beneficial? Has the Treasury modelled it, so that it knows the implications of the change? I am trying to get a handle on whether this is a theoretical issue, or whether there is an actual problem that has led to these changes, which seem sensible, if complex.

[Victoria Atkins]

First, in answer to the hon. Member for Ealing North, the Exchequer impact is plus-£15 million for 2022-23—all the figures are positive—plus-£50 million in 2023-24, plus-£55 million in 2024-25, and the same for 2025-26 and 2026-27. That is how long the measure has been scorecarded for. The hon. Member for Wallasey asked whether the risk was possible or actual. We legislated before significant further risk could arise on the adoption of the new accounting standard, IFRS 17.

Clause 30 addresses a possible tax mismatch in the BLAGAB reinsurance rules. Clause 31 addresses a matter brought to HMRC’s attention by the insurance sector, which has a long-standing concern that the current scope of the legislation, which treats certain sums received under a reinsurance contract as taxable income, may be unnecessarily wide and is blocking commercial transactions. In relation to the hon. Lady’s laments about the simplification of financial services legislation, I speak with the scars of having tried to prosecute insider dealing cases in my time, so I can understand why she asks about that.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clauses 31 to 33 ordered to stand part of the Bill.

Clause 34

Corporate interest restriction

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

Finance (No. 2) Bill (Second sitting)

Angela Eagle Excerpts

Committee stage
Tuesday 16th May 2023 Public Bill Committees

Finally, clause 49 provides for the determination of the excise duty point, the amount of alcohol duty chargeable and how it is to be paid. The clauses lay out the framework and definitions for the new duty regime, so we will not oppose them.

[Dame Angela Eagle (Wallasey) (Lab)]

I take this opportunity to welcome the hon. Member for Grantham and Stamford to his new position as Exchequer Secretary to the Treasury. I am told that this is his first Committee as a Minister. I trust that he has been having sleepless nights about it in the run-up, and that he has had his advisers put every size of bottle and every alcohol stamp on his desk, so that he could get to understand how the system works.

[The Chair]

But has not been sampling them.

[Dame Angela Eagle]

Of course not; otherwise, I am sure the Minister would be in a much worse situation than we find him in today. However, we will make that judgment after he has finished answering our questions. I genuinely welcome him to his position. It is a fantastic job, and he will be fascinated by it. He will wake up suddenly to realise that his job is to tax all vices, and how interesting that can be.

The Minister is inheriting a completely different regime of alcohol taxation from the one that is about to make an exit. As he heard from my hon. Friend the Member for Erith and Thamesmead, in principle, the Opposition are not opposed at all to the changes, but although there is that agreement, there is an awful lot of detail, potential issues and problems. He will find that definitional issues are not always easy, not least because if tax and duty are to be based on alcohol by volume, the manufacturers will switch the volumes around to get from one band into another. I am interested, philosophically, in what he thinks the right banding is to prevent too much of that.

The public policy reason for having that kind of duty system is, I presume, to persuade people gently that if they are to drink alcohol products with a higher percentage of alcohol in them, they will have to pay more tax, because in general higher-alcohol products are thought to have a greater effect on health than products with less alcohol. That was always the reason, philosophically, for moving to such a system. The Minister will find that, at the margins, manufacturers will try to ensure that their products are in a lower rather than a higher band, although some of the most glorious alcoholic beverages cannot begin to do that. I am thinking of spirits, such as whisky, which are much higher in alcohol.

If we look at the reaction of business and manufacturers to this change, there seems to be an equal division between those with higher alcohol by volume percentages, who find themselves in the higher-taxed bands, and those in the lower-tax bands, such as beer manufacturers. There is an inverse relationship between manufacturer satisfaction and where they are in the ABV bands. The beer and cider manufacturers are basically happy, whereas the wine and spirit manufacturers are less happy. Presumably the Minister will, if he has not already, have them in his office, making it quite clear to his face precisely what they think about that.

Issues other than definitional ones will come to bear on the new system, which will come into being on 1 August. I assume the entire system and HMRC are ready for that; it is a big change. The Minister is presumably confident that when 1 August comes along, the system will come into place seamlessly, and as the old system exits, the new system will appear. I assume he will confirm today that he is more than confident that this large change will come off without any problems. Obviously, we eagerly await his reassurance that there will not be some disaster as the new system comes in.

What, if any, work has been done on the implications for our export trade of changing the way we tax alcohol products? Obviously, countries have different ways of categorising products for tax purposes. I seek reassurance our deviating from a system that used to be EU-wide will not have any deleterious effect on our capacity to export what are often well-known products. I am thinking of not just Scottish whisky—we know how important that industry is to the Scottish economy, but other well-known products associated with this country, which we see when we are on holiday abroad. I assume that he is happy with that.

The OBR has said that it expects alcohol revenue to be £13.1 billion this year. Again, I assume the Minister is confident that the changes will not have an unpredictable effect on alcohol revenue. The OBR expects that to rise to only £15.8 billion by 2027-28. Given that we will have a 10.1% increase—I assume that will happen on 1 August, when the uprating happens—that seems like quite a small amount of increased revenue. I note the uprating is by retail price index when that suits the Government, because it means that they get more revenue, but we learned from our earlier conversations that they link by the consumer prices index when indexing something that gives money out. RPI makes some sense, but I just note that in passing.

Will the Minister talk about the transitional arrangement? There is quite a lot of worry in the trade about certain products that do not qualify for wine industry support. The more general rate is meant to be a transitional arrangement, lasting for the 18 months before the different ABV levels are brought it, in full force. Will he talk about draught relief? When I was Exchequer Secretary, there were big issues between the on-trade and the off-trade. It looks like the trade relief is trying to deal with some of the issues between the on-trade and the off-trade through tax. If I have understood correctly, it looks like there will be tax relief for the on-trade in order to balance out the price differential with the off-trade, and presumably to prevent people from loading up down the shop before they go into a pub. I assume it is an attempt to support the licence trade and the on-trade at the expense of the off-trade, given the “buy one, get one free” discounting that goes on in our supermarkets.

This may make the Minister very unpopular in the southern part of the country, but I note that there is still what is known as cider exceptionalism in the levels. Cider is taxed less than other alcoholic beverages, even though it is the same ABV as them. He might have an explanation for the cider exceptionalism. Now that we are not in the EU, he does not have the excuse that I had that: we could not do anything about cider exceptionalism because of EU rules. I note that he has decided to continue with cider exceptionalism. Perhaps he will tell us why. Does the Treasury prefer cider as a drink, or is there some terrible prejudice against beer that is being found out through this?

The changes introduce a huge range of different forms of taxation. Nobody objects to the principle, but there are quite a lot of anomalies. There are issues between the on and the off-trade, definitional issues, and issues surrounding revenue—why does it continue to be so flat, unlike the beer being taxed? I look forward to the Minister’s response, and I hope that he will not mind me leaping up if he says something that piques my interest, so that we can have a debate about it.

[Kirsty Blackman (Aberdeen North) (SNP)]

Who knew that a debate on alcohol would be so popular in this place? I will try to limit myself to the clauses that we are talking about, but I will mention a couple of general issues. In Committee of the whole House, we discussed our specific issues with rates. In particular, we discussed the concerns raised by the Scottish whisky industry. We gave our wholehearted backing to the amendment on the subject tabled by the right hon. Member for Orkney and Shetland (Mr Carmichael), because we had concerns about the changes and increases. However, as I said, that has already been discussed, so I will not major on that.

This is a direction of travel for which we have been calling for a very long time. We are pleased that the Government are moving towards applying differential tax rates based on the alcohol in beverages. I share the concerns raised just now about cider, and about exceptionalism for a certain type of product, rather than going simply by the alcohol by volume ratio. It would have been more sensible and fairer across the board to be more consistent.

It is pretty unusual for me to criticise explanatory notes, but those on this part of the Bill are not particularly good. They mention that 77 clauses relate to the changes to alcohol duty, but they give a very general explanation of what the clauses do, rather than a specific explanation of what each clause does. Therefore, we cannot see easily by looking at the explanatory notes what each clause is intended to do. For example, I will ask questions later about clause 87. The explanatory notes could have answered my questions, had an actual explanation been written in there, but the notes just say, “This is what we intend to do with the entirety of the alcohol regime,” rather than providing a commentary on each clause. I understand that a commentary on each clause would have been significantly more work, but presumably the Treasury has an idea of why it is putting forward each clause; it would not have cost it too much to expound on that in the explanatory notes.

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[Gareth Davies]

That was an extensive display of preparation and reading, and quite right too, because that is exactly what we are here to do—scrutinise the Bill. Let me try to answer some of the many points that were raised in the three speeches. First, let me thank Opposition Members for their very generous and kind words. It is a great pleasure to serve in this position in the Treasury.

First out of the gate, let me say that the reforms were extensively consulted on; a lot of the comments related to that. As was pointed out, the reforms were first mentioned in 2020. The hon. Member for Wallasey is quite right: one of my first meetings was on this subject. Engagement with industry is paramount, and that is an ongoing process. Many in the various industries affected by the reforms very much welcome the public health focus that is driving this significant change. Many also welcome the simplification that we are bringing in across the board, and the fact that we are correcting several inconsistencies. I was asked by Opposition Members to give several examples. I can do that. One that springs to mind is the fact that sparkling wine pays 28% more duty than still wine, yet has significantly less or the same alcohol content. The driving principle behind the reforms is that the more alcohol in a product, the more tax that the producer pays. That is very clear for businesses to understand.

We were asked at the beginning about our support for businesses, and were told that businesses require certainty. I completely accept that, and we are providing it with the reforms. This is a massive simplification of our tax system for alcohol, and it builds on all the support that the Government have provided through covid and the energy crisis, as hon. Members will be well aware.

Let me try to rattle off a couple of quick responses to the hon. Member for Wallasey. I was asked about the differences in banding and how certain categories of alcohol can fall into different bands. That is true of spirits; Scotch whisky is required to be over a certain level of alcohol, but cocktails in a can and other items that I am aware of are lower in alcohol content, and so will have a lower tax requirement. That is very pertinent to businesses that have a portfolio of different products in their range.

The question about HMRC readiness is absolutely fair, and we are very confident that the processes have been put in place and businesses are ready to adapt to the new system. As I say, it is based on an extensive programme of consultation and engagement. The hon. Lady asked about exports. They are not subject to alcohol duties, although we are aware of the importance of exports to our alcohol industry. That is a live discussion that we have with the Scotch whisky industry all the time.

Let me address the point about the wine easement, which also relates to the question that the hon. Member for Aberdeen North asked about engagement with industry and others. There is a unique circumstance involving wine that comes from fresh grapes: the alcohol content changes by season, according to seasonal factors. That is different from fortified wine, which involves a more artificial process in which spirits are put into the wine to achieve a specific alcohol content. As part of the consultation that I mentioned, we listened to the wine industry, and for 18 months we have put in place a transitional arrangement for still wine of between 11.5% and 14.5% derived from fresh grapes to enable the industry to transition accordingly.

The hon. Member for Wallasey asked about draft relief. If she will forgive me, that was fully covered in Committee of the whole House, but she is right that it will benefit drinkers of pints in a pub over supermarkets. Draft relief applies to all alcohol below 8.5%. It is something that we are doing in support of beer drinkers and to support our community pubs, which are a vital part of all our communities.

Finally, I will just say that cider is also subject to the general principle that we seek to adhere to—namely, that the higher content of alcohol, the more cider producers will pay. Producers of super-strength ciders above 8.5% will pay more duty, but those of fruit ciders will pay significantly less. At the moment, on certain fruit ciders that are not apple or pear cider, producers pay two to three times the amount of duty. The outcome of these reforms will be a range of differential impacts for the cider industry. I will always support the cider industry, because it is incredibly important to the south of our country, but also to those across the country who enjoy drinking cider in the pub or at home.

[Dame Angela Eagle]

The Minister talked about simplification, and changing the system to make it easier for people to understand often brings important benefits. However, the reliefs that are coming in complicate it again. Is he satisfied that he has the right balance in extending the reliefs to the new simplified system, particularly the draft relief and the transitional relief?

As the person who brought in the small brewers relief, I have a certain attachment to it, although we will not be talking about that. What revenue does the Treasury believe these reliefs will rob it of, and does he think he has the right balance in imposing a more complicated relief-based system on his simpler system?

[Gareth Davies]

It is a fair question. We are seeking to simplify the entire system of alcohol taxation, and in the round that is broadly what we are doing. However, we are conscious that certain sectors are under acute pressure—smaller cider makers may have particular vulnerabilities to some of these reforms, for example, and we are mindful of that.

However, we are still applying the principle that I have discussed: the higher the alcohol content, the more tax will be paid. As I mentioned, the wine easement is a reflection of the particular and unique circumstances that I heard about from the wine industry. That is a transitional arrangement, not a permanent reform; overall, we are seeking to simplify the system.

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[Gareth Davies]

We all take parliamentary scrutiny incredibly seriously and of course we will allow appropriate time for scrutiny of the Bill and all the guidance in the appropriate way.

[Dame Angela Eagle]

Given the newness and thoroughness of the changes that the Minister has outlined, and obviously extensively consulted on, I am presuming that the Treasury will also have a review process once the introduction has happened, so that it can look at how the changes have gone and whether further tweaks are necessary. Certainly, but not surprisingly, some aspects of the industry at the higher ABV end wish the transitional arrangements for wine to be extended beyond 18 months, as the Minister would expect. Is there going to be a review process? Could the Minister briefly outline the kind of time scales that are on his mind?

[Kirsty Blackman]

Does the hon. Lady share my concern that the post-legislative review scrutiny that is supposed to take place in Government Departments does not always take place—and does not always take place timeously? Does she also share my sense of thanks to the Treasury Committee, which does get hold of and scrutinise the post-legislative review guidance? I am hoping that, as part of the Treasury Committee, she will be keen for the review to take place and for the information to go to the Committee so that it can do the appropriate scrutiny of whether the legislation has achieved what was intended.

[Dame Angela Eagle]

I agree with the hon. Lady’s comments about the potential role of the Treasury Committee, although I am not the Chair—I am only one modest member. She might want to have a word with the current Chair to ask whether that is appropriate. We are clearly all interested and want the system to work effectively. We do not, however, want to see a sudden reduction in revenue, unless that is because people have started drinking less high-ABV products, and are out running and being very healthy all of a sudden. In that case, they are going to live longer and put much less pressure on our NHS.

Will the Exchequer Secretary give an outline of the Treasury’s thoughts on when it will do a review? Will he also bear in mind the balance between having changes to definitions and those detailed things that make up the essence of a system such as this, which are required by negative and affirmative procedures in this House, and guidance, which does not get to be looked at in the House? That would ensure that his welcome comments about respecting the rights of this House to effectively scrutinise how the system beds in and evolves in the future are realised.

Will the Exchequer Secretary give us an undertaking that he will bear in mind the right of the House to have appropriate scrutiny rights over some of those things—not just shove everything into guidance, which does not have to come before the House at all?

[Gareth Davies]

All taxes are always under review, as the hon. Lady knows. The Treasury Committee, of which we were both members, plays a vital part in the scrutiny process—of course it does. That process started when the Chancellor appeared before it, and carries on through the parliamentary procedures we are going through right now. The Treasury is unusual in that it has two fiscal events per year—

[Dame Angela Eagle]

Or more!

[Gareth Davies]

I was waiting for that.

The Treasury has two fiscal events in which the full House has the opportunity to scrutinise our decisions. That also gives the Treasury the opportunity to review existing rates and systems, which is what we are doing as part of the spring Budget.

Question put and agreed to.

Clause 44 accordingly ordered to stand part of the Bill.

Schedule 6 agreed to.

Clauses 45 and 46 ordered to stand part of the Bill.

Clause 49 ordered to stand part of the Bill.

Clause 61

Mergers: general provisions

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

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I am aware that not everybody is quite as geeky about this issue as me—I had a constituent come to me and spend many hours explaining it in huge detail, so I have a specific interest in it—so if the Minister does not have answers today, I am happy to receive them later.

[Dame Angela Eagle]

It is obviously important, when we get on to enforcement, that we are confident that HMRC is on top of this. The Minister was a bit coy about when these clauses will come into being, so perhaps he can explain that, given that they are quite important. They are about the fitness, rightness and properness of the characters out there producing alcohol, who must be properly registered by HMRC.

The Minister gave the impression that this is just a technical thing—that it is a hold-over from older laws dealt with in a more simplified and perhaps modernised way—but he was not very explicit about how it will be simpler or modernised. Can he give us some idea? Will it all be done online? Is there some modernisation such as that? If he can give us a handle on how the administration of the scheme will change, that might give us an idea of HMRC’s intention.

The Minister is about to introduce a new scheme, whereby the taxation of alcohol is based on the alcohol by volume level. That creates a completely different incentive for adulteration along the production process. HMRC’s decisions about which category of duty a product is in become important in terms of what tax is due. That creates new forms of incentives for fiddling. I am not saying that everyone in the alcohol industry, by definition, wants to fiddle and avoid tax, but there will be temptations along that line, given the new focus on alcohol by volume as a way of calculating what tax is due. That makes adulteration and fiddling potentially much more valuable for avoiding tax. It also means that HMRC has to be vigilant in protecting revenue from those taxes.

Will the Minister therefore say a little about enforcement? Given the new dangers around alcohol by volume and the approach to what duties are due, will HMRC beef up its enforcement regarding not only approved producers but checking along the production line when decisions are made on what tax will be due on the particular product being manufactured?

[Gareth Davies]

Let me respond to those questions in turn, but I will come to the post-duty point dilution last, if that is okay. I was asked about scrutiny in the first instance by the Labour spokesperson, the hon. Member for Erith and Thamesmead. The powers mirror those that we have already, and we are putting exactly the same procedures in place in the Bill, but I will outline, and give an example of, how the Government could use the powers.

The powers allow HMRC to make adjustments to the new reforms by regulation, if needed. It will have that flexibility, given the scale and novelty of the reforms. That is a sensible precaution to allow HMRC to make changes quickly if the reforms are not working as intended. Today, reviewing and tweaking as necessary have come up consistently. We are carrying over a lot of the legislation, and this is one power, in particular, that we are able to use.

The overarching policy is one of simplification and putting in place a simpler, streamlined process, where we have one single approval process for all alcohol products, to answer the hon. Member for Wallasey. She also asked about HMRC’s readiness and, as I have already said, I have full confidence in our colleagues at HMRC to be able to process the changes and—she also asked about this—to enforce the rules, regulations and laws we are putting in place. Furthermore, we are looking to deliver a digitised application process, which will happen at a later date, once robust systems are put in place. As she would rightly expect, we want to get that absolutely right for producers first.

Let me directly answer the question of post-duty point dilution. The hon. Member for Aberdeen North raised that with my predecessor in 2018, and she is a great champion of her constituent, who raised the issue with her. Following the question to my predecessor, we introduced post-duty point dilution specifically to address wine, I think. We now go further by extending the provisions to all alcohol products and not just wine. That goes back to the overarching principle that we are trying to impose a consistent, simplified approach to all alcohol categories. That is why we are doing it, and we believe that it is impactful. I have no anecdotes, but if I obtain any, I will certainly write to her.

Finance (No. 2) Bill (Third sitting)

Angela Eagle Excerpts

Committee stage
Thursday 18th May 2023 Public Bill Committees

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

It is a pleasure to serve in Committee with you as Chair, Mr Stringer.

The acquisition of certain properties by registered social landlords is exempt from stamp duty, provided that the purchase is funded with the assistance of public subsidy. As the Minister set out, in December last year the Department for Levelling Up, Housing and Communities announced an additional £500 million in funding for local authorities to secure additional housing stock for those fleeing conflict, including those from Ukraine and Afghanistan. We understand that that additional funding was allocated under section 31 of the Local Government Act, and the clause will add that section to the list of public subsidies that enable a purchase to qualify for the stamp duty exemption. For the purposes of the stamp duty exemption, we understand that local authorities that intend to register with the Regulator of Social Housing are treated as not-for-profit registered providers of social housing.

The explanatory notes state that £500 million was announced for the local authority housing fund in December 2022, and I welcome the Minister’s assurance that the additional £250 million announced since will also be covered by this clause. We will not oppose the clause, as any support it offers to local authorities that buy homes to provide social housing is welcome.

[Dame Angela Eagle (Wallasey) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Stringer. This is not the first time that I have been on a Committee with you in the Chair.

Will the Minister give a view about how many extra homes this change to stamp duty land tax will enable local authorities to fund? Has any analysis been done? There will obviously be a positive effect, but how large will it be? Many Afghans are still in hotels and are unable to put down roots so that they can begin to establish themselves in this country and flourish. For large families living in hotels, this is a difficult time, so I would have thought that Members from both sides of the House are anxious to see this scheme work. Knowing the Treasury, it will have done some analysis of the positive benefit of the proposal, so will the Minister share it with the Committee?

How long does the Department for Levelling Up, Housing and Communities expect these extra moneys to last? Will the Minister come back to Parliament to extend this exemption further, or will that happen in a spending review?

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[Victoria Atkins]

I must direct the hon. Lady to the Minister for Veterans’ Affairs, who is now leading on that. He has overall control of the programme of rehousing for Afghan refugees, and the Homes for Ukraine scheme—obviously that is a very separate system. The scheme is one of the tools available to the Government, which is why we are making the stamp duty changes to assist local authorities in their efforts to find homes for refugees. It will not be the only way in which we find accommodation for those families; there are other ways, including the military helping with accommodation for those who formerly served or helped the armed forces when they were in Afghanistan. It is one tool, and we want to make it as easy as possible for local authorities to use. I encourage the hon. Lady to speak to the Minister for Veterans’ Affairs, who is leading on the issue.

[Dame Angela Eagle]

Another question occurs to me: is the scheme only for Afghans and Ukrainians, or does it accommodate other homeless people who are fleeing conflict? It is clear that those who have fled Afghanistan and Ukraine are in a pretty unique position, with special schemes attached. Could the Minister put it on the record that the exemption may then also help others who are in a similar situation, but not in those categories?

[Victoria Atkins]

I am very happy to. The scheme is certainly not restricted to Ukrainian and Afghan refugees. It is designed to meet all local authority social housing needs. It is a measure to help alleviate overall social housing pressures on local authorities, precisely because we realise that the enormous generosity of the United Kingdom in helping Ukrainian and Afghan refugees has put increased pressures on local authorities when it comes to social housing. We want to ensure that this is sorted out for local authorities, as part of our humanitarian response to those crises—we are also long enough in the tooth to understand that there may be other humanitarian crises in the future.

Question put and agreed to.

Clause 313 accordingly ordered to stand part of the Bill.

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[James Murray]

As we have heard, the clause introduces rules for VAT accounting for deposit return schemes. As the Minister set out, it means that when making sales within the scope of the relevant deposit scheme, no VAT will be charged in relation to the deposit amount. However, VAT on unreturned deposit amounts will be paid by the first seller of a deposit scheme product.

We recognise that, under existing legislation, deposit return schemes may be introduced across the UK, and we recognise that the clause helps to facilitate the operation of such schemes by introducing VAT accounting rules. The clause ensures that no VAT will be charged at any point in the supply chain in relation to the deposit element of the price for a deposit scheme product. There will only be a requirement to account for VAT where suppliers make the first sale of standard-rated deposit scheme products that include a deposit amount.

More widely, we have been disappointed by the delays in the introduction of a deposit return scheme. It was only after multiple consultations that the Government finally announced in January 2023 that they would introduce a deposit return scheme for plastic and cans, but not for glass, in England, Wales and Northern Ireland from 2025. We will not oppose the clause. Indeed, we want to see a deposit return scheme introduced as soon as possible, so I would be grateful if the Minister could use this opportunity to confirm whether the Government are still committed to introducing one in England, Wales and Northern Ireland by 2025.

[Dame Angela Eagle]

Obviously, the VAT rules account for some of the most complex parts of the duties and excise that the Minister has to wrestle with on a day-to-day basis. When one talks to businesses of all sizes, often one of the biggest complaints is about the complexity of the VAT rules. Given how much revenue VAT brings in and how all-encompassing it is, perhaps that is not surprising, but I wonder whether the Minister is happy with increased complexity that the changes bring. Perhaps she could give us a flavour of her thoughts and considerations in dealing with the issue of deposit schemes and the complexity of the VAT rules.

Given that VAT will be levied only on the first seller, the Minister has clearly tried to make the rules as simple as possible. But how much complexity does she think the clause will introduce, given that it will be applicable to plastic and cans—presumably aluminium—both of which are easily recyclable, but not to glass? I assume that she is not introducing glass straight away because of the sheer number of glass bottles and the size of the task. Again, perhaps she could give us a flavour of the thinking behind excluding glass, and tell us whether the intention is to include it at a later stage. How complex does she think doing that might be?

I am old enough, as I am sure—I am going to put this politely—you are, Mr Stringer, to remember when we had deposit return schemes for glass, long before anyone thought about digitally scanning anything or any of the computer-based structures that I assume will facilitate the VAT inspectors’ task. Perhaps the Minister could give us some indication of that. Again, how much revenue does she think will have to be forgone?

What assumptions have His Majesty’s Revenue and Customs and the tax inspectors made about the actual cost of schemes such as this in revenue forgone? Clearly, the idea—to incentivise good behaviour that will assist in increasing recycling—is one we would all support. We all want that to work, but if it is not done properly, it could be an enormous fiddling thing that does not really have much effect at all. All of us would applaud the decision not to impact the customer and, clearly, we want to see the containers for recycling brought back.

Can the Minister say a little about whether she has considered how the scheme might interact with the packaging regulations? Again, they are a moveable feast, given that we have left the EU and they have had to be changed as well, but there is clearly a direct connection between the two. We must make certain that the way the packaging regulations work increases, if possible, the incentive for the recycling to work.

There is also the landfill tax, which might have an impact on behaviour. I am sure that the Minister has had a towel on her head thinking all that through to try to make certain that it works as intended. It is currently due to come into effect in 2025. Given the complexity, is she confident that that will happen, given that there have already been delays and the scheme itself is now smaller than most people want it to be, because it excludes glass?

Given the complexity of VAT—when it must be done, when the returns must be made and how difficult that can be for businesses—does the Minister think that moving on without a set timescale, and the uncertainty created by that, give the best background for a successful introduction? The delivery of the scheme in Scotland seems to have run into trouble. I do not know whether the hon. Member for Dunfermline and West Fife has insights that he can share with us—it is almost as late as a TransPennine Express train.

I am interested in what the Minister has to say about some of my questions. The scheme might seem to be a fiddling little thing, but it fiddles with a very complex tax and interacts with many other things. A bit more insight into the Minister’s thinking and her confidence about whether the scheme can be delivered on time would be really welcome.

[Douglas Chapman]

I will take the towel off my head before I reply. There have been difficulties in Scotland with the implementation of the deposit return scheme. In general, I am reading that this is a simplification, and it maybe brings a bit of clarity to what is possible in a DMS scheme. The important point is that, as pointed out by the previous speakers, it would be fantastic if we could operate across the whole UK. It is not often I say that, but there are opportunities with such a big environmental project that we could all share in.

Although this is not for debate as part of the Finance Bill, I hope that the Minister will take the opportunity to listen to some of the comments made and see whether we can work with other Departments—and Wales, Northern Ireland and Scotland—to see what combinations can be brought to bear. I notice that the Nordic Council, for example, had a discussion session not so long ago where it talked about operating almost a Scandi food waste policy, which would cover all the various countries in the Nordic Council. I do not see why we cannot be working in a positive way like that across the whole UK, albeit that we in the SNP have other ambitions to take our country in a slightly different direction.

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[James Murray]

As we heard from the Minister, clause 316 introduces schedules 19 and 20, which relate to the Trade Remedies Authority. When the UK left the EU, the UK Government established their own UK Trade Remedies Authority to undertake work on trade remedies previously carried out by the EU. The organisation was established in June 2021 to carry out investigations and recommend remedies related to dumping, foreign subsidies and safeguards for internationally traded goods.

The explanatory notes to the Bill explain that schedule 19 is intended to allow the Secretary of State to exercise a great deal of flexibility when making decisions on trade remedy cases. The notes also explain that schedule 20 extends the TRA’s remit to include bilateral safeguards in some of the UK free trade agreements. It also seeks to enable Ministers to request that the TRA open an investigation to determine whether the criteria to apply a measure has been met and what form a potential measure should take. It further provides Ministers with the power to apply a measure to ask the TRA to reassess its determination and recommendation, and to enable Ministers to take a different decision from the TRA’s recommendation.

It seems clear that the schedules represent a significant increase in the power of Ministers over the Trade Remedies Authority, which was established just two years ago. Despite its short life, the Trade Remedies Authority found itself at the heart of a political storm in Downing Street last year. Right hon. and hon. Members might recall that in June 2022 Lord Geidt resigned from his position as the ethics adviser for the right hon. Member for Uxbridge and South Ruislip (Boris Johnson) when he was Prime Minister. In his resignation letter Lord Geidt wrote:

“I was tasked to offer a view about the Government’s intention to consider measures which risk a deliberate and purposeful breach of the Ministerial Code. This request has placed me in an impossible and odious position.”

In his response, the then Prime Minister confirmed what the dispute concerned. He wrote to Lord Geidt:

“You say that you were put in an impossible position regarding my seeking your advice on potential future decisions related to the Trade Remedies Authority.”

Despite that brush with the former Prime Minister, the Trade Remedies Authority has continued to exist. The measures being introduced by the two schedules that we are discussing will have a significant impact on its relationship with Ministers. This is a fair amount of change for an organisation that has existed for less than two years.

To help members of the Committee put the proposals in context, will the Minister explain the Government’s reasoning behind the initial arrangements for the Trade Remedies Authority two years ago, and how the changes to the arrangements that we are considering today were decided? Will she explain whether there has been any international benchmarking of similar authorities in other countries? What are their levels of independence and their relevant relations with politician?

Clause 316 would allow customers to apply to HMRC for advance valuation ruling decisions. Advance rulings provide traders with a legally binding decision from customs authorities in advance of a shipment, which gives them certainty about how their goods are treated with implications for duty levied. The UK currently issues advance rulings in respect of tariff classification and origin of goods but has not provided advance rulings on customs valuation. That is because customs valuation rulings were not provided for in the EU. However, as the Minister said, they are widely offered by customs authorities worldwide.

We understand that the measures would allow HMRC to provide businesses with more certainty when they are deciding on the most appropriate method of customs valuation for valuing their goods for import. Anything that gives businesses greater certainty is to be welcomed, so we will not be opposing the clause. On a specific point of clarity, however, I would be grateful if the Minister could confirm that the clause’s advanced rulings provision is required as a condition of the UK’s accession to the comprehensive and progressive agreement for trans-Pacific partnership.

Finally, clause 317 updates legislation to permit HMRC to require financial guarantees to be given for duty amounts payable on imported goods and ensure that decisions to require such guarantees will be subject to review and appeal rights. Since January 2021, section 119 of the Customs and Excise Management Act 1979 has been used to require a financial guarantee from importers as a condition of releasing imported goods from the control of an HMRC officer where the amount of customs duty due for the goods is unclear. However, there has been no statutory right for an importer to request a review of, or an appeal against, such a guarantee requirement. Those appeal and review rights were inadvertently omitted when EU legislation was transposed into domestic legislation, which seems to have been an oversight by the Government. We will not oppose the clause, which seeks to remedy the Government’s mistake, but will the Minister explain what impact that mistake has had? Specifically, how many appeal and review requests by importers have been lodged but denied consideration since January 2021, and what steps are being taken to rectify any individual grievances that have arisen as a result?

[Dame Angela Eagle]

The clause seems quite mild, but it seems to have many implications for the policing of import duties; the prevention of widespread dumping or misuse of products on our markets, which could destroy establishing domestic industries; and the regulation of free trade agreements that we make around the world. Will the Minister give us some indication of how the Trade Remedies Authority changes that are encompassed in clause 315 and schedules 19 and 20 will impact on its independence? From listening to the Minister, it seemed to me that that was one of the most important aspects of the changes, and the Committee needs to understand it as we continue to scrutinise the Bill.

Clearly, a trade remedies body must be independent of those it oversees, so that it is seen as an appropriate body to make decisions that might have serious economic consequences for one side or the other. It is, effectively, a trade judiciary; if it is to be effective, it has to be seen to be independent and widely respected for its independence. The changes made by the clause seem to eat away at some of that. The Minister was talking about different changes to the way in which the authority can pursue its job, including increases in different kinds of information and having to notify Ministers before initiating reviews. It is a quite a big step to put that in legislation, rather than have it as memorandum of understanding. Reading between the lines, that implies that Ministers are not happy with the way in which the Trade Remedies Authority is behaving. Why have the Government decided to put these changes in legislation, rather than in a memorandum of understanding, and why do they think that the Trade Remedies Authority needs to be constrained by law? Is it because there has been a breakdown in the relationship between Ministers and the people who run the authority? Is because there is a lack of trust, or is it simply because Ministers want more direct control over the way in which the authority behaves? That would have implications for the TRA’s independence, and it would certainly have implications for how its independence would be perceived by those wishing to approach it for a jurisdictional reason or for decision making.

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[Craig Whittaker (Calder Valley) (Con)]

On the Government’s ambition to reduce smoking, I briefly want to mention heating tobacco, in preference, I might say, to vaping.

The only problem with vaping, of course, is that there is absolutely no evidence of any health benefits or health risks. However, with heating tobacco, there is a huge amount of evidence, particularly from Japan, about its health benefits, in helping people to reduce and stop smoking. I just wondered whether the Minister has had any indication that heating tobacco has been looked at as an alternative to vaping. Of course, adding extra duties to it is an inhibitor to people reducing or stopping smoking.

[Dame Angela Eagle]

We are obviously dealing with a product that kills and, as the Minister said, cost the public purse £21 billion a year. That is why there is cross-party support for the tobacco duty escalator, which the Minister just outlined, explaining how it applies to current costs. It will increase the average price of a packet of cigarettes by 95p and the average price of a 30-gram packet of hand-rolling tobacco by £1.75. I have to say that hand-rolling tobacco is the tobacco product that is smuggled most, so we have to be particularly aware of that. The Minister will know that, if he has been to see Border Force. A 10-gram packet of cigars will go up by 48p, a 30-gram packet of pipe tobacco—again, that is a tobacco product that is often smuggled—by 63p and a typical 6-gram pack of tobacco for heating by 24p.

The Office for Budget Responsibility estimates that these increases will raise the amount of revenue taken by tobacco from £10 billion last year to £10.4 billion next year, which will actually return it to where it was the year before. Clearly, that is just an OBR estimate, but I presume that it is based on the work of and information given by Border Force and HMRC. If we are trying to get to a tobacco-free place by 2030, surely we need more progress than this kind of stasis on receipts. I wonder whether the Minister might wish to comment on that.

Clearly, the innovation of vaping is helping many people to give up smoking, but there are unknown health risks to vaping. In particular, would he comment on the way that vapes are being marketed at the moment in our society, with sweer flavours like bubble gum and melon, in a way that is clearly aimed at children. I do not think we should tolerate that. Will he give us a view rather than just saying that vaping is better than smoking cigarettes, which is clearly true?

What that does not include is the alarming rise in vaping among children, which is addicting them to nicotine in a way that might have difficult implications for public expenditure, health and their wellbeing if we allow it to continue. Will the Minister give us at least an early indication of his Department’s thinking on this juxtaposition?

Some organisations that do not think we are going far enough fast enough to eliminate tobacco as a habit to get to a smoke-free 2030 are proposing capping net profit margins on UK tobacco sales to no more than 10%—currently it is 50%—in line with the average for UK manufacturing. That could directly raise £700 million, which could fund the Khan review proposals, which contained a more radical way of trying to get us to the smoke-free target. Is the Department considering something more radical on revenue raising from tobacco products, given that progress has stalled?

As the Minister mentioned, and it is no surprise that he did, as soon as the tax goes up on tobacco products, the financial incentives to smuggle get greater. He mentioned there would be another smuggling strategy, which presumably will try to prevent the complete loss of revenue and lack of any capacity to prove whether the products being smuggled are even vaguely acceptable, because they are adulterated by all sorts, including brick dust. Will the Minister give us more information about what effect that will have on smuggling, because it is a constant problem?

[Gareth Davies]

There was quite a bit in there, but a lot of it was related, so I will do my best to address those points. First, to my right hon. Friend the Member for Calder Valley, I will need to educate myself a little better on heated tobacco, but if he would like to write to me, I will provide a more detailed response. I will address his comments on vaping, together with those of the hon. Member for Wallasey, in a moment.

The hon. Member for Wallasey mentioned hand-rolling tobacco and the connection to illicit trade. I want to clarify for the Committee that the fact we are raising the rate so significantly—6% plus RPI—is to help hand-rolling tobacco prices catch up with cigarettes to help us towards our Smokefree 2030 ambition. I wanted to provide that clarity because I did not in my opening remarks. The hon. Lady alluded to various calls to do more and to raise prices even more, and she referenced the OBR’s estimates for that. I will take that, together with the point she raised about the Khan review recommendations. We have to get the balance right with this taxation, as the hon. Lady said. If it is too high, it is likely to push people into the illicit trade. That is a known fact. That is one of the reasons why we have not proceeded with the 30% suggestion from the Khan review. At every review, we are trying to get that balance while also seeking to improve our enforcement action on illicit trade.

I referred to the updated review from HMRC and Border Force that is coming out later this year. I do not want to pre-empt what it is going to say or what it may achieve, but I certainly await it with eager anticipation. I would also add that the Finance Act 2022 included new sanctions, such as enhanced penalties, to strengthen the agencies’ enforcement abilities. That is a key focus of the Government right now.

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[Victoria Atkins]

Out of an abundance of caution, I refer Members to my entry in the Register of Members’ Financial Interests and my ministerial interests. I am recused from this subject matter in a ministerial capacity.

[Dame Angela Eagle]

I wonder which sugary drinks the Minister is addicted to—perhaps she will tell us when we are not sitting in public.

We are dealing here with a technical change to the successful sugar tax, if we can call it that. Again, when we are dealing with Ministers whose job is to get money into the Exchequer, it is strange to have to congratulate them for the declining level of soft drinks industry levy receipts. The tax has successfully delivered on the intention behind the policy, and receipts are down by £21 million for April 2022 to March 2023. That is an awful lot of ruined teeth and extra weight avoided, often for children, whose life chances can be negatively impacted by becoming addicted to sugar.

The consensus among public health officials is that the sugar tax has caused a decline in sugary drink sales, and the total amount of sugar in soft drinks sold by retailers and manufacturers decreased by 35.4% between 2015 and 2019, from 135,500 tonnes to a mere 87,600. That is a success as far as things go, but perhaps the Minister might assure the Committee that the Government will take credit for the success and that they intend to continue to push for lowering even further the 87,600 tonnes of sugar that are currently put in drinks, because there is uncertainty about the Government’s direction.

Two previous Prime Ministers have challenged the existence of sugar taxes. The right hon. Member for Uxbridge and South Ruislip said that, on the current evidence, it is ambiguous whether they work, but I have just raised some evidence that shows unambiguously that they do. Similarly, the Prime Minister’s immediate and very short-lived predecessor, the right hon. Member for South West Norfolk (Elizabeth Truss), said that

“taxes on treats hit those on the lowest incomes.”

If I may say so, they might also account for the development of a trend that is quite shocking when one thinks about it. There is now a positive correlation being between poor and being obese.  As a society, we ought to tackle that, partially by using such methods, so that we can ensure that the correlation does not survive. We could bring to bear a range of other measures to ensure that happy outcome, but they would be completely outwith the scope of the Bill, so I will not talk about them.

We must, however, congratulate the Government on their introduction of sugar taxes. Since the current Prime Minister’s position is unclear, because he has both supported and rejected furthering a sugar tax, will the Exchequer Secretary tell us what the Government’s position is? Is he willing to stand up and take unambiguous credit for the success of the sugar tax and confirm to us that the Government’s intention is to continue making progress in this area in an appropriate way, with more than just technical changes for drinks fountains?

[Gareth Davies]

I am always grateful for the hon. Lady’s comments. I can answer her quickly. We are committed to the SDIL—the soft drinks industry levy—and we share her positive recognition of the sugar decline. With any tax considerations, however, we have to achieve a balance; we have to balance tax against cost of living concerns, as she pointed out, so all taxes remain under review.

Question put and agreed to.

Clause 320 accordingly ordered to stand part of the Bill.

Schedule 21 agreed to.

Ordered, That further consideration be now adjourned. —(Andrew Stephenson.)

Finance (No. 2) Bill (Fourth sitting)

Angela Eagle Excerpts

Committee stage
Thursday 18th May 2023 Public Bill Committees

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

As we heard from the Minister, clause 321 will introduce a new domestic band for flights within the UK and a new ultra-long-haul band covering destinations with capitals located more than 5,500 miles from London. Until the end of March 2023, there were two destination rate bands for air passenger duty: band A included those countries whose capital city is less than 2,000 miles from London, with band B covering all other destinations. From 1 April, there have been four destination bands: the domestic band for flights within the UK; band A for non-domestic destinations whose capital is up to 2,000 miles from London; band B for destinations whose capital is between 2,001 and 5,500 miles from London; and band C for all other destinations.

As the Minister explained, clause 322 makes consequential amendments to the provisions that devolve to the Northern Ireland Assembly the power to set the direct long-haul rates of APD. I understand that the changes in the clause do not impinge on the devolved powers, and the devolved rates are not affected. Rather, it updates the provisions to reflect the introduction of clause 321 and the ultra-long-haul band.

Before I address our concerns about this measure, I would be grateful if the Minister could help the Committee to understand what the situation would be if the clause passed by confirming what rates of air passenger duty would apply in a few specific instances. First, if someone were to travel by helicopter around the UK—for instance, from London to Southampton—would that be subject to air passenger duty? Secondly, if someone travelled on a private jet around the UK—say, from London to Blackpool—that was, for argument’s sake, a Dassault Falcon 900LX, what rate of air passenger duty would apply? Finally, if someone lives in the UK but was travelling to another home of theirs—say, in Santa Monica, California—what rate of air passenger duty would apply? I would be grateful if the Minister could answer those three questions.

I turn to our concerns about the clause. As the Minister might know, when this measure was first announced at autumn Budget 2021, we raised our concerns about it during the debates on the subsequent Finance Bill. We pointed out then—it is even truer today—that it could not be right for the Government to prioritise a tax cut that would be of greatest benefit to people who are able to be frequent flyers in the UK at a time when working people across the country have been hit again and again by tax rises.

As well as being the wrong priority for public money, the Chancellor announced the cut in air passenger duty just days before COP26. What is more, as the Institute for Fiscal Studies pointed out at the time, the cut in air passenger duty would in fact flow through the UK emissions trading scheme and push up electricity prices for people at home. The Government have pointed out that the introduction of a reduced domestic rate of air passenger duty has been accompanied by the introduction of an ultra-long-haul rate. However, when taken together, all the changes in the clause are still set to cost the taxpayer an additional £35 million a year. We cannot support this as a priority for spending public money, so we will oppose the clause.

[Dame Angela Eagle (Wallasey) (Lab)]

Will the Minister tell us how clause 322(4), which devolves these issues to the Northern Ireland Assembly, will work, given that the Assembly is not sitting at the moment? Does it mean that this will be decided centrally at Westminster? What arrangements are made for that, since, if there was no change in these areas, in the absence of the Assembly sitting, there would be a divergence between air passenger duty in one place and the other? How has the Treasury modelled that divergence, given that air passenger duty is a devolved issue, even though the devolution settlement is not working at the moment because the Assembly is not sitting?

Will the Minister update the Committee on where we are with the aviation treaties that zero-rate aviation fuel? It is an ongoing issue, given the nature of the environmental damage that is done—particularly by aviation fuel—in the higher atmosphere when airplanes fly at higher levels, which they normally do on long-haul flights. How will private jets be treated and affected, if at all, by the reduction in domestic air passenger duty, since we have a Prime Minister who seems to think that public transport is chartering a private jet for short-haul flights?

[Craig Whittaker (Calder Valley) (Con)]

May I declare a loose interest?

I have an elderly mother who lives in Australia. As she is elderly, I am spending more and more time going down there. That aside, has the Minister done any evaluation of air passenger duty and the economic competitiveness of the UK versus our European partners?

I ask that because I know from previous years travelling down to Australia that it has been much more viable for me to catch a flight to Amsterdam, Oslo or wherever and pick up a flight from there, because the cost of flights from the UK has been phenomenally more expensive than those from our European partners. From speaking to people, I know that more and more people are doing that. APD has the adverse effect of making us uneconomical and perhaps at some future point even taking a reduced rate because more and more people will be doing that. Has the Minister or anybody in the Treasury done any evaluation of our air passenger duty versus those of our European counterparts?

[Gareth Davies]

Let me try to answer those questions in order. Just to clarify for the Committee, there is no APD other than on fixed-wing aircraft. Private jets pay a higher rate than any other flight domestically, and they are not, to answer the hon. Member for Wallasey, subject to the 50% cut that we are talking about here. Any ultra-long-haul flights will face a new band, as I described in my opening remarks.

To answer the excellent and reasonable question from my right hon. Friend the Member for Calder Valley (Craig Whittaker), I understand there was a review in 2021 of the economic impact of APD. As I said in my opening remarks, all factors are considered as part of that process, but I am happy to provide more detail in due course if that is warranted.

The point on Northern Ireland that the hon. Member for Wallasey raised is a good one. It is a devolved matter, as she points out, and Northern Ireland has the ability to set the rate for ultra-long-haul flights. Let me look into the matter of the arrangements we are putting in place, given the specific circumstances that we find ourselves in with the Executive. It is a fair question, and it deserves a fair answer, so I will come back to her.

[Dame Angela Eagle]

I thank the Minister for undertaking to let us have that information, given the particular circumstances that prevail in Northern Ireland. Can he say a little bit about whether there is any progress with the aviation treaties? I know how difficult it is, but it is a complete anomaly that there is no taxation of aviation fuel simply because most flights pass through an international area, given the worse damage that use of aviation fuel does when aeroplanes are travelling at high altitude. Something that we aspired to do when I was in the Treasury was to get some kind of agreement in international treaties to bring that matter into tax. Has any progress been made in the ever-elongated period between when I was in the Treasury and the present day?

[Gareth Davies]

First, let me apologise to the hon. Lady. I had that in my notes to address, and I did not. She is referring to the Chicago convention, which basically is an international agreement whereby we have agreed not to tax aviation fuel. That was, as I understand, enacted in the 1940s. I was told in a briefing yesterday that it may have been updated some eight times since then, but she raises an interesting point. We are committed to all current international agreements, but it is certainly something that I will look into. I still regard myself as fairly new in this job, but I commit to look into it in due course.

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

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On the SNP Benches, we believe that new clause 5 is essential if the focus on climate change is to be reflected not only in energy and environmental policy, but in Treasury matters. Economic policies can be the real driver for necessary change.

[Dame Angela Eagle]

This is a group of clauses on environmental taxes, and the Minister has taken us through some of the technical changes and some of the upratings that are required by law. There is a gap on the landfill tax, as my hon. Friend the Member for Ealing North pointed out from the Front Bench, which implies that people are avoiding it rather than paying it. What comfort can the Minister give us that HMRC and the tax authorities are on to that issue? We have heard from both sides of the House, particularly on landfill tax, about the fraud that is perpetrated. I suspect that all of us in this room regularly spend our time as constituency MPs phoning various authorities to try to get the evil effects of fly-tipping in our constituencies dealt with.

The Minister has not said anything about enforcement of the tax and anti-fraud measures. He has said a little about how some of the taxes will be redesigned to try to design out some fraud, and I suspect he has done that particularly with the aggregates levy and his attention on so-called borrow pits. Perhaps he will correct me if I have got that wrong, but, having listened to what he had to say on that, I suspect it is about avoidance issues, focusing the aggregates levy on taking away the incentives to use virgin aggregate rather than recycling existing aggregates, and filling in other loopholes.

We all know from our constituencies that the landfill tax is not working as well as it should. Many of us have closed and managed landfill sites in or close to our constituencies. Not all of us have quarries, with the difficulties that occur there, but we all see the baleful effects of fly-tipping and people who save money by dumping rubbish, and sometimes far worse things, into the environment.

Clearly, HMRC and those who collect taxes have a role to play in dealing with fraud, but so has the Environment Agency. Perhaps the Minister will give us some comfort on this, but the weakening of enforcement authorities over the past few years is a real problem. We could have the perfect law, with the perfect text, designed perfectly so that incentives are fantastic, but if it is not enforced properly, it fails. We are certainly seeing that happen with the landfill tax.

Can the Minister give us some comfort that he is on to the issue and that the Treasury knows that it has to spend to save? The Treasury has to enforce the taxes that it levies, but it also has to empower other regulators and agencies that have a policing role, such as the Environment Agency and local authorities, to ensure that enforcement on these very important issues, which have a huge bearing on quality of life in all our constituencies, is properly resourced. Will the Minister give us some guarantees on that? At the moment, particularly with respect to the landfill tax, it is failing.

[Gareth Davies]

First, let me acknowledge that the landfill tax has been an overarching success, with local authority waste into landfill down by some 90% since 1990. I think we can all agree that that is a very good thing for England. I want to emphasise that, because it is a great success story.

A number of questions have been asked about waste crime. I completely agree that any type of waste crime is a blight on all our communities. As constituency MPs, we see the damage that it does, whether it is fly-tipping or other waste crime. That is why we have the joint unit for waste crime.

There have been questions about the effectiveness of the unit and the actions it has taken. I can tell the Committee that the unit is actively engaged in seeking to tackle waste crime. In particular, a special operation was undertaken from April 2020 to November 2022, in which some 100 partner agencies were engaged with the JUWC, and some 2,500 illegal waste sites were closed and a number of criminals engaged. But this is an ongoing problem and something we take very seriously. Of course, the Environment Agency has a role to play. The Government are engaged with all the agencies, not least the joint unit for waste crime, and we will continue to be so for some time to come.

There was a series of questions about the tax gap. For clarity, that is the difference between the amount that should be paid in theory and the amount that is collected by the Exchequer. The overall tax gap was 7.5% in 2005. It reduced to 5.1% in 2020-21. Any percentage of tax gap is too much, so it is important that we keep pressing HMRC to do everything that it can. I am confident that HMRC is tackling businesses that it suspects of waste crime that are not registered with it but could be liable for tax. The Government have given powers to HMRC to compulsorily register those businesses and, if necessary, issue penalties.

[Dame Angela Eagle]

I am fascinated by the work of the joint unit for waste crime. I am slightly horrified that 2,500 illegal waste sites were closed. It is good that they are closed, but it is horrifying that there were so many of them to begin with. I wonder what estimates there are for how many remain. Could the Minister give us some information about what fines were levied and what prosecutions have been successfully undertaken by the joint unit for waste crime?

[Gareth Davies]

I am grateful for the question. I can tell the hon. Lady that in the period I referenced with the 2,500 waste units, 51 arrests were made as a result of that action. I apologise that I do not have further details to hand, but I am happy to provide them later.

As I was saying—this goes back to what my hon. Friend the Member for Newcastle-under-Lyme talked about—HMRC does have powers to intervene and issue penalties if necessary.

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[The Chair]

Order. I did not realise that that was an intervention; I thought the hon. Gentleman wished to make a speech. The shadow Minister had sat down. If the hon. Gentleman wants to make a contribution, I will be happy to call him, but otherwise I will call Angela Eagle.

[Dame Angela Eagle]

There is an ongoing issue in this country, and in our economy, with investment and with the ability to ensure that we can remake our prosperity as a country and make our way in the 21st century as we did in previous centuries, thereby maintaining our position in the G7, perhaps, as the rise of other economic powers in other parts of the globe puts that under pressure. [Interruption.] Everybody cheers for that, Mr Stringer. Everybody on this Committee wants to see positive progress in this area.

This Bill is enacting some of the Budget—that is why we are in Committee, considering this legislation—but the OBR report on it had a pretty grim picture to show us of how investment has stalled in our country. On page 48, at chart E, it states that

“business investment stalled…after the EU referendum”.

By the time this document was published, investment was at fully 16.2% below the OBR’s pre-referendum expectations. Those who have sat in the main hot seat in No. 10, and those who have been progressing all too rapidly through the Chancellor’s hot seat, have been aware of that and have tried to do something about it. Most notably, there was the current Prime Minister’s super deduction, which paid people to invest in plant and machinery. It not only deducted the entire cost, but gave even greater tax incentives for them to invest. Effectively, it failed: it made no difference whatever to the stalling levels of investment in plant and machinery in our economy. That has now been replaced.

[Craig Whittaker]

It is interesting to hear what the hon. Lady says about levels of investment in plant and machinery. From the point of view of my patch, Calder Valley, where we have 19.2% of people working in manufacturing, the super deduction has been a huge boost to manufacturing. Will the hon. Lady acknowledge the huge investment of £17.7 billion that has been achieved only this week by the Prime Minister’s trip to Japan? That is an amazing boost to our economy.

[Dame Angela Eagle]

I am glad that there are positive examples of investment, but what I am talking about is the macroeconomic levels, which demonstrate that we are not where we should be. Essentially, investment has “stalled”—that is the OBR’s word, not mine. That stalling is not disproved by individual examples of investment in particular places. I congratulate the right hon. Gentleman and all the people who have been involved in doing whatever has happened in Calder Valley—no problem—but I am talking about the macroeconomic effects. The investment zone policy that we are discussing is presumably designed to kick-start investment in particular areas where the zones are marked out, which hopefully will create local prosperity. That is my understanding of what the Minister said.

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[Victoria Atkins]

I thank my hon. Friend for his comments, with which I agree. I will not pretend that the Labour party is in politics for different reasons from us. I genuinely believe that most Members of Parliament are in politics to do good for their local residents and for the country as a whole. The point of contention is on how we achieve that.

I am interested in the contrast between the submission of the hon. Member for Ealing North and the submission of the hon. Member for Wallasey. She represents part of Liverpool, and I grew up in the north-west, so I know Liverpool and Manchester very well. I think we would all agree that Liverpool and Manchester have seen a revitalisation over many decades. It takes a village to raise a child, as the old saying goes, and I fully accept that the previous Labour Administration may have done a great deal to help those areas. Going back a long way—a little before my time, perhaps—Lord Heseltine played his part in helping both Liverpool and Canary Wharf. We are trying to revitalise areas in the same way that Liverpool, Manchester and Canary Wharf, and indeed many other areas, have been revitalised.

[Dame Angela Eagle]

The Minister would be very, very unpopular in my constituency if she referred to it as Liverpool. I represent the Wirral, which is over the river, where the Mersey ferry goes when it ferries across the Mersey. People can still listen to Gerry singing “Ferry Cross the Mersey” on the ferry as it goes from Liverpool to the Wirral. I appreciate her comments, but the people of the Wirral regard themselves as a bit different from those in Liverpool.

[Victoria Atkins]

I apologise to the hon. Lady. I meant to refer to the wider area. I thoroughly respect the independence of the good people of the Wirral.

We saw the regeneration and revitalisation of the great city of Liverpool in the wonderful displays at last weekend’s Eurovision celebrations. The regeneration of that great city has, of course, had a much wider ripple effect.

We want to channel the focus and private sector investment to which the hon. Lady rightly refers in revitalising these areas. We want to do that in a way that takes notice and full advantage of the opportunities of the 21st century. The Chancellor set out the sectors that we will concentrate on, because we want to build that investment for the future. There is some extraordinarily good news in our economy in terms of innovative technologies, life sciences and advanced manufacturing. Indeed, I saw in a WhatsApp group only this morning that Rolls-Royce has just unleashed its latest aircraft engine, to great acclaim, here in the UK. That is an extraordinary achievement, which we want replicate across the country. That is the thinking behind investment zones.

When the shadow Minister talked about these exciting proposals, he said nothing about the principles of the investment or the enormous opportunities for communities outside London. I know that he is a Member of Parliament for London, so perhaps he does not have the natural affinity with constituencies outside London that Conservative MPs have, and which I certainly have as a proud Lincolnshire MP. We really want to focus on the excitement for what we can achieve around the rest of the country. The shadow Minister, however, just focuses on process.

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[Douglas Chapman]

I am sure that Members gathered here agree on the importance of data gathering, impartial analysis and evidence-based decision making. We can make informed decisions only if the facts are laid out in front of us in black and white. It would seem wise, then, that data be gathered on the costs and benefits of doing away with the Office of Tax Simplification before a final decision is made.

I will also be so bold as to point out that the recommendation to abolish the OTS came from a rather short-lived and now infamous Chancellor in his ironically named growth plan Budget of September 2022. Suffice it to say that the growth plan went down like a lead balloon after weeks of market turbulence, with unprecedented condemnation from the International Monetary Fund. That is not to mention the important—indeed, massive—£60 billion fiscal hole left in its wake. The then Chancellor and his Prime Minister swiftly exited stage left before more damage was done to the economy, our global reputation and citizens’ livelihoods.

Interestingly, of the many gung-ho announcements made in that growth plan, abolition of the OTS is one of the few that has not been reversed. When it comes to gathering evidence and data for making evidence-led decisions, and listening to experts and a broad group of stakeholders on tax simplification, we still have a long way to go, if this still seems to the Government to be a wise decision. One such expert is George Crozier, head of external relations at the Association of Taxation Technicians and the Chartered Institute of Taxation. He has argued that the OTS achieved a significant amount during its 12 years of existence and, with greater ministerial support for its proposals, could have achieved much more. Mr Crozier and the CIOT argue that among the OTS’s achievements since it was established in 2010 are the abolition of more than 40 unnecessary tax reliefs that were “clogging up” the tax system, as well as

“useful reforms to employee expenses and inheritance tax reporting,”

which have all had a positive impact. In fact, the CIOT informs us that

“every Finance Act of the last decade has had measures in it which owe their genesis to the OTS, and which have made navigating the tax system easier for one group or another.”

Does the Minister not believe that is a good thing?

Importantly, the ATT believes that there are many benefits to maintaining independent advice to the Government on tax simplification; for example, the OTS drew directly and effectively on the skills and expertise of tax professionals, professional bodies and taxpayers when making its recommendations for simplification. The ATT believes that the OTS maintained that level of engagement only due to the trust and belief that the OTS would treat its comments and views impartially and fairly. The ATT’s concern is that without the perceived independence of the OTS, taxpayers and professionals will be more reluctant to come forward with relevant evidence and experience. Does the Minister not believe that relevant evidence and experience are good things?

If analysis leans in the direction of abolishing the OTS, it seems fair to back up calls from Mr Crozier and his colleagues to question the UK Government on how they will deliver the promise to embed tax simplification in the institutions of government. Will the Minister confirm that he will at least give the OTS a stay of execution until further evaluation is carried out, or will the OTS baby be thrown out with the bath water? In the run-up to an election, it may be popular with the public if the Government of the day were seen to be taking the thoughtful and sensible decision to retain the services of the OTS.

[Dame Angela Eagle]

New clause 1 is also part of this group. As a member of the Treasury Committee, which fairly collectively signed new clause 1, I will speak to the new clause, as well as to the Scottish National party amendment to clause 346.

It came out of the blue that the Office of Tax Simplification was to be abolished as part of the mini-Budget—the catastrophic event last September that created the worst of all events in the Treasury. Interesting times. As an ex-Treasury Minister, I can assure you, Mr Stringer, that boring times are the best; interesting times, when bond markets soar and pension funds teeter, are not the best. We were thrown into that situation with the mini-Budget, out of which came the sudden announcement that the Office of Tax Simplification would be abolished. The reason given for that abolition was that we would boost economic growth and simplify the tax system by having tax simplification in house. That is one of the more Orwellian reasons for abolishing something that I have heard. It was set up by a previous Conservative Chancellor, George Osborne; I can use his name because he is no longer a Member of this House and has gone on to other—I will not say better—things.

When the OTS was set up, the idea was to identify areas where complexities in the tax system for business and taxpayers could be reduced. We need only look at the thickness of this modest Bill to realise how complex financial legislation can be. This is the Finance (No. 2) Bill, and others will be along soon, I am sure. Yesterday, we had a hearing of the Treasury Committee on tax reliefs and cliff edges, and we were told that there were 1,180 tax reliefs in the system. Of them, 841 are structural, and 339 are non-structural, which apparently means that they are aimed at behaviour. That is a lot of tax reliefs. Every relief, whether for a good or a bad reason, creates a complexity. I am not arguing at all that tax systems should be completely simple—complexity is sometimes important and inherent to the way that a tax works—but as with all these things, it is possible to have too much of a good thing. It tends to go beyond complexity for a good reason and become complexity for complexity’s sake.

I do not know why—perhaps the Minister could enlighten us—it was suddenly decided that the Office of Tax Simplification was such a thorn in the side of the Treasury that it could be abolished forthwith without much notice, and that a job that has not really been done routinely in the Treasury could suddenly be done in house without any kind of preparation. When the Treasury Committee had staff from the Office of Tax Simplification give evidence in a hearing, they did not really know why it had been abolished, either. Nobody likes to be abolished. I cannot think that they were enamoured of the idea, but they were very diplomatic. They did not really have any confidence that the more systematic look at how taxes could be simplified over time would continue once the office had been abolished.

Could the Minister give us some insight as to why the abolition was announced? Why was it reconfirmed by the new Administration—one of the four that we have had in the last year—when they came into office that they would go ahead with the abolition? It is one of the few things that the previous Prime Minister and her Administration inaugurated that has survived the shake-up of the system.

The Institute for Government argues that the Office of Tax Simplification should not be abolished, but that if it is, it should be replaced with a body with a wider remit that can make extensive recommendations on tax administration beyond just simplification. It points to the utility of having an independent body that provides options for tax reform.

Our political structures are littered with huge, all-encompassing reviews, such as the Mirrlees review of the entire taxation system. They are always so controversial, but it is rare that their recommendations are implemented. Having a body that could undertake some of this work in smaller bites may help us to reduce the complexity of our system while not compromising on fairness.

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[Victoria Atkins]

Thank you, Mr Stringer

I thank the members of the Office for Tax Simplification for their contribution to the tax debate over the years. I had the pleasure of meeting some of them just after I was appointed. As I said to them at the time, although the OTS will longer exist once the Bill has passed, their expertise will none the less not be lost to the Government, and I very much look forward to working with its members in different ways over the coming months and years.

The closure of the OTS does not mean that simplifying tax is no longer a priority. In fact, I have set three criteria for tax policy across the Treasury and HMRC: for any document or proposal that I am given, officials must tell me, first, how it meets the expectation that it will make tax fairer; secondly, how it meets the expectation that it will make tax simpler; and, thirdly, how it meets the expectation that it will help to support growth. Having that in the document—I have said this many times, because it was a very early commitment that I put down—has really helped our discussion of those principles when forming tax policy.

As I have mentioned in Budget debates and so on, one of the tensions between those first two criteria is that to make a tax fairer, sometimes we end up making it more complicated—for example, when we talk about tapering schemes, as we are doing in the Bill more widely. We have a scheme whereby we are tapering the rise in corporation tax for businesses that have smaller profits. That makes it more complicated but also fairer, so there is sometimes a trade-off between the interests and wishes of those involved in administering tax or helping taxpayers. With the best will in the world, the OTS, as an arm’s length body set up to comment on simplification alone, could not help with those sorts of balancing acts, which is why the Chancellor has set a clear mandate for officials in the Treasury and HMRC to focus on simplicity in tax policy design as part of our decision-making process.

[Dame Angela Eagle]

There is clearly a difference between the accrued complexity across a particular tax from end to end, which can gather barnacles over time, and a ministerial decision on whether to opt explicitly for a bit more complexity to achieve fairness, which is not a design issue but a political choice. Surely the Office for Tax Simplification was good at looking at the former, while leaving decisions on the latter to those who ought to be making them: the Ministers in charge at the time.

[Victoria Atkins]

Of course, pretty much every decision that comes across my desk is political in nature. Officials have very much taken on board their responsibilities in this regard.

The hon. Member for Ealing North asked about a letter sent to me in April from important tax specialists and organisations. In fact, I met them last week to discuss that very letter. I wanted to meet the organisations to discuss, for example, how to make tax simpler for the lowest paid in society and how we can try to help tax agents to navigate their way around the tax system, because that will help not just taxpayers but also, importantly, HMRC. We really have begun to embed this in our decision-making process.

The reason we want to make this change is that people were concerned that there was a tendency to rely on the OTS to look at simplification because that was its job, and we wanted to bring it very much into the Treasury. Of course, that does not mean that there is never going to be any commentary or analysis or observations about simplicity. My goodness me, I do not think anyone could claim that the world of tax lacks analysis, commentary and often criticism—hopefully constructive—of the tax system. I do not perhaps have quite the same concerns about us being accountable for the political decisions we make.

[Dame Angela Eagle]

Will the Minister give way?

[Victoria Atkins]

If I may, I will make some progress, because I want to deal with new clause 1 and amendment 2, which are important.

On new clause 1, the Chancellor committed to Select Committee colleagues that he is asking officials about tax simplification ahead of every Budget and fiscal event. That will mean that hon. Members will have the opportunity to scrutinise the Government’s progress. In the last Budget, we were able to bring forward measures such as the cash basis for business, which will help enormously by helping more than 4 million sole traders to calculate and pay their income tax. We also introduced the permanent £1 million limit to the annual investment allowance, which will simplify the tax treatment of capital expenditure for 99% of businesses. There are also other measures.

In relation to the point about measuring and metrics in simplification, the Government are genuinely considering how to develop a suite of metrics to measure progress on simplification, working with businesses and representative bodies to ensure that measures reflect the real-world experience of taxpayers.

On amendment 2, it is right that the Chancellor has responded to the Committee, having written on 20 March to explain the rationale for the decision. I hope that helps to answer some of the questions that the hon. Member for Dunfermline and West Fife may have had. I refer again to the point that simplification is a vital principle to bear in mind when looking at the tax system, but it is not the only one. As the hon. Member for Wallasey rightly says, I have to make political decisions on a host of matters.

[Dame Angela Eagle]

I agree about that and I am glad to hear that the Minister is making decisions on a host of issues, although politically we may not always have the same approach to them. She was talking about there being plenty of commentary on tax issues. There always is, but the point about the Office of Tax Simplification was that it was not doing it from a set stance. For example, one will get plenty of commentary from accountants about particular things, and it will tend to be mainly about the interests of the people who use accountants—their clients. That comes from a particular space, as a user of the tax system, or someone that helps comment or advise on the tax system. The Office of Tax Simplification could look at a tax from its start all the way through its process—look at what it was intended to do and whether it would be possible to administer it in a different way, for simplification purposes, without coming from a particular viewpoint. If the OTS goes, I do not think there is anybody out there now that will do that in a neutral way. As such, a lot of the commentary that one gets on the tax system comes from a very particular, interested place, which often gives a bigger voice to small groups of taxpayers than to larger numbers of taxpayers. Is the Minister not worried that by making this decision, she is going to lose objective oversight of a system that is not coming from a biased place, but is looking purely at the criterion of simplicity?