Finance Bill

Baroness Kramer Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 19th March 2025 Lords Chamber

[Baroness Kramer (LD)]

My Lords, from these Benches I welcome the noble Baroness, Lady Caine of Kentish Town. We thoroughly enjoyed her very warm speech. She brings an expertise not only in a key industry but in skills development, and boy, do we need that.

The Finance Bill, in so many ways, feels like old news, but it is relevant and many of its features will go into effect in the next few weeks. We on these Benches approached our response to this Bill with an understanding of the difficult fiscal position Labour inherited from the Tories. Consequently, we have not objected to replacement of the non-dom regime—though we think it could have used much better and proper consultation—and we have accepted the increase in capital gains tax and the rise in the energy profits levy. We would have also closed existing loopholes in the capital gains tax regime and backdated the increase in the energy levy, as outlined in our general election manifesto.

However, we absolutely cannot support a tax on education through the introduction of VAT on independent school fees. Our concerns lie particularly with the thousands and thousands of families with SEN children who do not have an education, health and care plan and who have turned to independent schools because they cannot find available state provision. In some cases, this is because the EHCP assessment process is so long, onerous and costly, but it is also because the hurdle for an EHCP is so high that many children fail to get the early help they need to prevent them falling behind unless they switch to the private sector, and now the VAT costs will further penalise those families.

We are also worried about the impact of the increase in alcohol duty, particularly on the whisky and wine industries and the knock-on to the hospitality sector, which already faces so many stresses and new costs—not least the increase in employers’ NICs. I do not understand the Government’s resistance to at least doing an impact evaluation on this sector and all the many ways in which it has been hit post Budget. The hospitality sector and the high street could be so much helped by a proper reform of business rates; we are dismayed by the delay in that process and call for something much more drastic that would make a fundamental difference—a commercial landowner levy.

I pivot to an issue raised primarily by the noble Lord, Lord Leigh of Hurley, on which I would go farther than he did. Clause 19 and Schedule 4 bring into UK law the undertaxed profits rule, pillar 2 of the OECD’s project to counter the use of artificial arrangements by large multinationals to shift profits away from the country where they should rightly be taxed to a jurisdiction where tax is low or non-existent. This is known as base erosion and profit shifting, or BEPS, and the biggest culprits, as we all know, are the mega US tech companies. This is a crucial piece of international law which, when implemented, would mean that the UK can charge a top-up tax where BEPS is demonstrated. This would replace the UK’s current 2% digital tax, which, as the noble Lord said, raises the pathetic amount of something like £600 million a year, according to the Treasury.

It shocked me—I am not sure whether the noble Lord, Lord Leigh, noticed this, because it slipped by most of us—that on 17 January the PRA and the Treasury announced that they would delay beginning the implementation of this undertaxed profits rule until 2027; it had already been postponed once to 2026. This is even though the anticipated tax revenue is more than £2 billion a year; the noble Lord cited the updated figure of £2.8 billion a year. The reason the Government gave was that:

“This allows … time for greater clarity to emerge about plans for its implementation in the United States”.


Even more significantly, the PRA has paused until further notice its firm data collection exercise, which is a vital step in bringing us to a point where we could support the implementation of this rule. In effect, the PRA and the Treasury might just as well have written that they will close their eyes to tax avoidance by the US mega tech companies because they are afraid to annoy President Trump and Elon Musk. Will the Minister explain to me why—at a time when we are looking at cuts in benefits to disabled people, there is pressure on the public sector in every direction and we have to increase defence—we will make a £2.8 billion annual gift to tax avoiders when these other measures are necessary?

The UK’s economic numbers are not in a happy place, as many have noticed. GDP declined in January and the drop in construction is particularly worrying. The Government seem to be tackling the problem with answers that in some ways are too simplistic, and I do not hear them being challenged much on it. Diverting pension money into illiquid, high-risk investments may sound like an excellent strategy, but it is utterly unconvincing until we get safeguarding for small pots. Not a word has been said on that issue.

Updated public/private partnerships can work to bring in private money, particularly for infra- structure investment, but only under limited and highly controlled circumstances. I had to sit and watch from the board of TfL the last Labour Government enter into a completely insane public/private partnership for the London Underground. It was the flagship PPI arrangement, but predictably collapsed at a cost to the taxpayer and the London fare payer of many billions of pounds. At TfL I was told the loss was £11 billion; the latest reports now estimate it at closer to £20 billion. There are limited circumstances in which this engagement can be used; it has to be done with a very open-eyed and carefully crafted set of rules. I beg the Government not to be naive in the way they were a decade ago.

I accept that the international backdrop of live wars and trade wars would be a challenge to any Government, but in these circumstances we need to know who our real friends are and stand with them. On this theme, I urge the Government not to be naive in dealing with the United States. The UK steel industry is the first UK casualty to the Americans, but it will not be the last. Any trade deal on offer by Trump will be one-sided. If it is not, the Americans will simply renege when it suits them, as they have with Canada and Mexico. That should be a salutary lesson. Getting closer to Europe and into the customs union should be plan A, not plan B or C. That strategy alone would seriously strengthen our hand with the Trump Administration.