Finance (No. 2) Bill

Gareth Davies Excerpts

Committee of the whole House
Wednesday 8th May 2024 Commons Chamber

[The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)]

With this it will be convenient to discuss the following:

Clauses 13 and 19 stand part.

New clause 2—Review of impact of section 12—

“(1) The Chancellor must, within three months of this Act being passed, conduct a review of the impact of section 12 of this Act.

(2) The review must consider how the rate of corporation tax provided for by section 12 affects—

(a) investment decisions taken by businesses,

(b) the certainty of businesses about future fiscal and market conditions.

(3) For comparative purposes, the review must include an assessment of how the factors in subsection (2)(a) and (b) would be affected by maintaining corporation tax at a rate no higher than that set out in section 12 until the end of the next parliament.”

This new clause requires the Chancellor to conduct a review of how the rate of corporation tax set by the Bill set out in clause 12 affects business investment and certainty, including what the effect would be of capping it at its current level for the next Parliament.

New clause 3—Analysis of the impact of the energy security investment mechanism—

“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, publish an analysis of the possible impacts of the energy security investment mechanism on—

(a) revenue from the energy profits levy, and

(b) investment decisions involving businesses liable to pay the energy profits levy.

(2) The analysis under subsection (1) must consider how the impacts in (1)(a) and (1)(b) would be affected by amending the definition of a qualifying accounting period, as set out in section 1 of the Energy (Oil and Gas) Profits Levy Act 2022, to be one that ends before the end of the next Parliament.

(3) In this section, the “energy security investment mechanism” means the mechanism introduced by section 17A of the Energy (Oil and Gas) Profits Levy Act 2022, as inserted by section 19 of this Act.”

This new clause seeks to establish the impact on revenue and investment decisions of the energy security investment mechanism being introduced, and how this impact would be affected in a scenario where end date for the energy profits levy was amended to be before the end of the next Parliament.

New clause 7—Review of impact of section 13 on small and medium enterprises—

“(1) Within 3 months of this Act being passed, the Chancellor of the Exchequer must lay before the House of Commons a report assessing the impact of section 13 on small and medium enterprises.

(2) The report under subsection (1) must consider the extent to which paying corporation tax at the small profits rate, rather than a higher rate, enables small businesses to manage cost pressures including those arising from—

(a) energy costs;

(b) staffing and recruitment costs;

(c) borrowing costs;

(d) raw material costs.”

[The Exchequer Secretary to the Treasury (Gareth Davies)]

We now move on to debate clauses 12, 13 and 19. Before I delve into the detail of the clauses, however, let me first briefly set out how they fit into this Finance Bill.

The Government remain focused on taking long-term decisions to strengthen the economy by driving productivity, increasing the number of people in high-wage, high-skilled jobs, and boosting investment. The Government are also ensuring that the tax system is as competitive as we can make it under very difficult economic circumstances. We have some of the most generous investment incentives among major economies, including full permanent expensing, which the OBR has forecast will generate almost £3 billion of additional business investment each year, or £14 billion over the next five years. It has forecast that that additional investment will increase GDP by 0.1% by the end of the forecast. In addition to full expensing, we have an internationally competitive corporation tax rate—the lowest headline rate in the G7—which this Bill legislates to maintain.

I will now turn to clauses 12, 13 and 19 in more detail. Clauses 12 and 13 set the charge for corporation tax from April 2025. This includes both the main rate and the small profits rate, as well as the thresholds at which those rates apply. The charge for corporation tax must be set every year. It is important to legislate annually in advance, as this provides certainty to large and very large companies that pay tax in advance on the basis of their estimated tax liabilities. These clauses maintain the current main rate of 25% and the small profits rate of 19%, as introduced in April 2023. Tax certainty is of great importance to businesses—I think that is something we can all agree on—and clauses 12 and 13 ensure that they will continue to benefit from stable and predictable tax rules. By maintaining the current rates, the Government have struck the right balance between remaining competitive and raising vital revenue.

Clause 19 makes changes to ensure that the energy profits levy will no longer apply if oil and gas prices return to historically normal levels for a sustained period of time. It does so by introducing legislation to give effect to the energy security investment mechanism, or ESIM. The EPL was introduced in 2022, at a time of near-record high oil and gas prices, but it is right that should those prices return to historically normal levels, the additional tax would cease to apply. The detail of how the ESIM operates was set out in the technical note published alongside the 2023 autumn statement; this Bill simply puts that detail on a legislative footing and provides for secondary legislation to legislate for the administrative details of how that check is made.

Current oil and gas prices are higher than normal, and OBR projections indicate that high prices will persist over the next five years. The ESIM is a mechanism that switches off the EPL if, for a period of six months, the average prices of both oil and gas fall below set thresholds. Those thresholds are currently $74.21 per barrel for oil and 50p per therm for gas, and are based on a 20-year historical average to the end of 2022—before higher energy prices began—and are adjusted each April based on the annual change in the preceding December’s consumer prices index. By providing certainty on the conditions under which the levy will be disapplied, the Government are supporting investor confidence in the sector and helping to protect domestic energy supply, the economy, and of course jobs.

Clauses 12 and 13 provide certainty to businesses by maintaining the current rates of corporation tax, and clause 19 has been welcomed by the oil and gas operators and their investors, with the ESIM providing the sector with certainty to support future investment in the UK—in jobs and in our energy security—while also ensuring fairness to taxpayers. I therefore commend these clauses to the Committee.

[The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)]

I call the shadow Minister.

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[Drew Hendry]

Thank you, Mr Evans. I will do my best to accommodate your request, as usual.

I am grateful for the opportunity to speak to clauses 12 and 13. The fact is that these clauses maintain the status quo on corporate taxation while failing to support sectors in dire need, such as our hospitality industry, which has seen more than 500 closures in the past year alone. The SNP has repeatedly called for measures such as VAT relief for that sector to alleviate the pressures, but the UK Government have consistently ignored our calls, thus demonstrating a clear disregard for the economic challenges facing Scotland.

Where is the support for our town centres and high streets? Enterprise initiatives such as “VAT-free streets” could help to breathe new life into our vital centres. The SNP has called for urgent help, but again Westminster just shrugs its shoulders and ignores its responsibilities for the damage caused through its calamitous but—as we have seen, and it is worth repeating—unanimous devotion to a disastrous Brexit, to waste and to mismanagement.

The proposed energy security investment mechanism, adjusting the parameters for windfall taxes on the basis of oil and gas prices, represents a missed opportunity to genuinely bolster our energy security and accelerate our transition to net zero. Rather than leveraging these revenues to mitigate energy costs for households who, as I said in our previous debate, are struggling under the current punishing cost of living crisis, or to invest in sustainable growth—and probably the only industrial strategy available to us is investment in renewable energy—this mechanism is poised to jeopardise up to 100,000 jobs and hinder our environmental goals.

Moreover—and there is no hiding place—the Labour party’s screeching U-turn on the £26 billion a year required to stimulate the industrial green transition, which its members know their own advisers have said is the minimum required, and on its proposal to intensify the windfall tax to fund nuclear projects in England is entirely unacceptable, meaning the utilisation of Scotland’s resources for projects that contravene our national interests.

We will support Labour’s new clause 3, because at the very least it will show the opportunity that has been wasted, and the squandering of Scotland’s natural resources, in a clearer light. However, the Bill underscores a critical disconnect between the needs of the Scottish people and the actions of this Government, and indeed this place of Westminster. It is a Bill that perpetuates inequality, neglects economic innovation and leaves our most vulnerable citizens to bear the brunt of its failures.

Having debated these clauses today, let us be mindful of the stark reality: only a Government attuned to the aspirations and challenges of Scotland can genuinely deliver the change we urgently need. That Government should have all the powers to make the changes needed to represent the values of the Scottish people. That needs to be the Government of an independent Scotland that seeks to regain our equal seat at the centre of the European Union.

[Gareth Davies]

I was waiting for a four-hour speech and it never came—that was four minutes, but what a four minutes!

Let me thank hon. Members for their contributions to today’s debate. I will respond to some of the points that have been raised at the end of my remarks, but before doing so let me directly address some of the new clauses that have been tabled.

New clause 2 seeks the publication of a review into how the rate of corporation tax set by the Bill, as set out in clause 12, affects business investment and certainty, including what the effect would be of capping it at its current level over the next Parliament. I agree that it is important to regularly review and evaluate policy, and the Government keep all tax policy under review. The Office for Budget Responsibility produces regular forecasts, including of projected corporation tax receipts and business investment. These forecasts are based on the rates and thresholds that currently apply, and which clause 12 maintains from April 2025 to provide advance certainty to businesses. The latest of the forecasts already looks as far ahead as 2028-29 on the basis of the corporation tax rate, which currently stands at 25%, so no further action is required from the Government.

[Sarah Olney (Richmond Park) (LD)]

The Bill maintains the small profits rate of corporation tax at 19%, but does the Minister not agree that this is a drop in the ocean compared with spiralling costs in energy, staffing, borrowing and a host of other areas? The Chancellor could have used the opportunity to give small businesses a boost by reforming business rates, or by helping them with their energy bills through a proper windfall tax. Does the Minister support new clause 7, tabled by the Liberal Democrats, which would ensure that the Government must lay before the House a review of the impact of the small profits rate to look at whether it really helps small businesses to manage their costs.

[Gareth Davies]

I will give the hon. Lady the courtesy of addressing new clause 7 in due course. She is right to highlight that the new rate for small businesses will keep around 70% of businesses in the country at 19% when those that are most profitable move to 25%, but look at the entire package of support for small businesses. It shows that the Government are supportive of our high streets and small business entrepreneurs across the country, whether that is through the increase in VAT thresholds, the 75% rate relief for retail, hospitality and leisure businesses, or all the support that we provided during the covid pandemic and throughout the energy shock, including the energy bill relief scheme and the energy bills support scheme. I put it to her that we are behind our small businesses. We regard them as the engine of our growth, and we will continue to do everything we can to support them. I will come on to new clause 7 in a moment, if I may.

New clause 3 would require a review of the possible impacts of the energy security investment mechanism on energy profits levy revenues, and on investment decisions in the oil and gas sector. It would require this assessment to be made on the basis of the end date of the EPL falling before the end of the next Parliament.

The Government have already published the tax information and impact note, which sets out the anticipated impact of the energy security investment mechanism—the ESIM. This indicates clearly that the mechanism will give operators and lenders to the oil and gas industry confidence in the fiscal regime while the EPL remains over the next Parliament. Based on the OBR’s current price projections, the ESIM is not predicted to trigger before the end of the EPL in March 2029, and is therefore expected to have no impact on EPL revenues. In addition, should there be interest in calculating forgone revenue if the EPL were to end in a particular year, the OBR has published projected EPL revenues over the forecast period, and the impact of the EPL ending early can be calculated from this publicly available information that is there for all to see.

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[Sir Christopher Chope]

Looking ahead to the next Parliament, and hoping that there will be a Conservative Government, can my hon. Friend say to all those in the business community who are watching eagerly that a 25% headline rate of corporation tax is too high, and that we want to lower it?

[Gareth Davies]

We agree. We want taxes to come down, but we are not going to announce tax decisions from this Dispatch Box outside fiscal events. It is clear for all to see that this Conservative Government believe in lower taxes. We have reduced national insurance contributions for 29 million people by some 30% in just the last six months, and the record is very clear on that.

[James Murray]

The hon. Gentleman says that the Government are not in the habit of making policy commitments outside the normal fiscal process. Does that mean the £46-billion unfunded black hole created by the promise to abolish national insurance is no longer a policy of this Government?

[Gareth Davies]

It is neither unusual nor incorrect for a Government, or any party, to set out a long-term ambition to let the public know where we stand on taxation and what we want to see in the future. In 2010, for example, we said that we wanted to increase the personal allowance for income tax to £10,000, and we met that. Actually, we exceeded it. It is now over £12,500, so a person in this country can earn £1,000 every month without paying any tax at all. That is a long-term ambition that we have delivered.

[James Murray]

The Minister is being generous in giving way. I notice that he is keen to talk about a long-term ambition to abolish national insurance. Yesterday, the Chancellor of the Exchequer said at Treasury questions that

“our policy is to abolish employees’ national insurance”.—[Official Report, 7 May 2024; Vol. 749, c. 437.]

Was the Chancellor wrong?

[Gareth Davies]

As I said, it is a long-term ambition. It is right for a party that is serious about governing to set a direction for the country. I know it is an unusual idea for the hon. Gentleman that having a plan for government is the right thing to do, but we have made it very clear to the British people that, if they vote for a Conservative Government at the next general election, their taxes will come down.

The amendments before the Committee propose that we publish information that is already publicly available. They are not needed, so I urge the Committee to reject them.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Clauses 13 and 19 ordered to stand part of the Bill.

New Clause 2

Review of impact of section 12

“(1) The Chancellor must, within three months of this Act being passed, conduct a review of the impact of section 12 of this Act.

(2) The review must consider how the rate of corporation tax provided for by section 12 affects—

(a) investment decisions taken by businesses,

(b) the certainty of businesses about future fiscal and market conditions.

(3) For comparative purposes, the review must include an assessment of how the factors in subsection (2)(a) and (b) would be affected by maintaining corporation tax at a rate no higher than that set out in section 12 until the end of the next parliament.”—(James Murray.)

This new clause requires the Chancellor to conduct a review of how the rate of corporation tax set by the Bill set out in clause 12 affects business investment and certainty, including what the effect would be of capping it at its current level for the next Parliament.

Brought up, and read the First time.

Question put, That the clause be read a Second time.