Draft European Bank for Reconstruction and Development (Further Payments to Capital Stock) Order 2024
Gareth Davies Excerpts(1 week, 2 days ago)
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Gareth Davies (Grantham and Bourne) (Con)
It is a pleasure to serve under your chairmanship as always, Sir Roger.
It is worth remembering that the European Bank for Reconstruction and Development was founded in 1991 to support the transition to market-oriented economies in central and eastern Europe following the collapse of socialist and communist regimes. Since then, the bank has invested more than €200 billion in more than 7,000 projects across three continents.
As a founding member of the EBRD, the UK is a generous contributor to the bank’s work. It was one of the first donors to contribute to the bank’s Ukraine stabilisation and sustainable growth multi-donor account and, in October 2023, it signed a statement of intent with the bank to help UK companies do business in Ukraine. The draft order enables the Government to make a payment of €343.6 million to the EBRD for the purchase of additional capital stock. As the Minister rightly said, this follows a decision by the EBRD’s board of governors in December 2023 to increase the bank’s capital by €4 billion.
The Opposition fully support the Government’s decision to purchase additional stock in the EBRD. Alongside ensuring that the UK maintains its stake and voting power in the EBRD, the capital increase is vital to sustaining the ongoing work in Ukraine and ensuring the bank’s ability to meet the needs of other countries in its portfolio. However, given the size of the UK’s investment, it is right that the Opposition should seek clarity on three specific, simple points, which I hope will be straightforward for the Government.
First, can the Minister tell us whether other member countries of the EBRD are increasing, decreasing or maintaining their stock shares in the bank? Secondly, as she mentioned, the EBRD has green objectives, so is support for Ukraine subject to the EBRD’s target for at least half of its business volume to be green and does that allow for Ukraine’s most urgent funding needs to be prioritised? Finally, does she believe that this capital increase will be sufficient for the EBRD to fulfil its overall mandate, or should we expect further capital requests in the future? We support the draft order, but we would be grateful for clarification of those points.
Draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024
Draft Consumer Composite Investments (Designated Activities) Regulations 2024
Draft Securitisation (Amendment) (No. 2) Regulations 2024
Draft Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024
Gareth Davies Excerpts(2 weeks, 1 day ago)
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Gareth Davies (Grantham and Bourne) (Con)
It is always a pleasure to see you in your place and to serve under your chairmanship, Mr Efford. I also welcome the Economic Secretary to the Treasury to her place. I have spent many hours with her in these rooms, and that may or may not continue—we will find out soon.
The UK is one of the world’s leading financial centres and our financial services sector is one of the great engines of our economy. We should never forget that the sector employs some 2.3 million people, two thirds of whom are based outside of London—a slightly underappreciated fact about the sector.
Investment trusts are currently subject to disclosure requirements under the EU-inherited packaged retail and insurance-based investment products regulation—or PRIIPs, which is much easier to say—regulation, alongside other assimilated EU legislation. Ensuring that retail investors can make informed investment decisions is crucial for maintaining healthy capital markets. Industry leaders widely agree that the single aggregated figure currently produced under these EU-inherited rules fails to accurately reflect the true cost of investing in shares of an investment trust. The previous Government recognised those concerns completely and launched a consultation on a proposed alternative framework for retail disclosure in the UK. This consultation was designed to ensure that, following the repeal of the PRIIPs regulation, the new framework would be better aligned with the UK’s dynamic capital markets and foster more informed retail participation.
As the Minister quite rightly set out, the draft Consumer Composite Investments (Designated Activities) Regulations 2024 replaced assimilated law relating to PRIIPs regulation, establishing a new legislative framework for the regulation of consumer composite investments. Replacing those assimilated laws was a crucial part of the previous Government’s plans to develop a smarter regulatory framework.
The draft Securitisation (Amendment) (No. 2) Regulations 2024 extend a temporary arrangement, granting preferential prudential treatment for EU origin STS securitisations, and the draft Prudential Regulation of Credit Institutions (Meaning of CRR Rules and Recognised Exchange) (Amendment) Regulations 2024 make amendments to primary legislation in connection with the revocation by the Financial Services and Markets Act 2023 of the EU capital requirements regulation, which currently forms part of assimilated law on financial services.
All that is a long way of saying that His Majesty’s Opposition welcome these draft regulations, and hope that they will provide listed investment companies with the long-term regulatory certainty that they need. However, I will end by saying that the financial services sector thrives on stability and predictability, and I am deeply concerned that such certainty will be undermined by the recent Budget of broken promises and betrayal, though I am happy to leave those discussions for another day.
Oral Answers to Questions
Gareth Davies Excerpts(3 weeks, 2 days ago)
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Gareth Davies (Grantham and Bourne) (Con)
Clearly, the Chancellor is desperately trying to raise old ghosts, along with debt and taxes, but her own broken promises are coming back to haunt her and are frightening investors. It does not have to be Halloween for socialists to spook British business. Why does she think that business confidence has fallen faster in the past three months than at any point since the pandemic?
Rachel Reeves
I would judge this Government on their record: we secured £63.5 billion of investment right across the United Kingdom, creating nearly 40,000 jobs in constituencies up and down our country—good jobs that pay decent wages. That is more than twice the investment that the previous Government secured at their international investment summit. That shows how important it is to return stability to economy and work in partnership with businesses—something that the Conservative party might want to learn a lesson from.
Fiscal Rules
Gareth Davies Excerpts(3 weeks, 3 days ago)
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Gareth Davies (Grantham and Bourne) (Con)
I wondered whether the Chancellor’s announcement of changes to the fiscal rules would survive the weekend, given the five fictitious freeports that came and went. It was a cautionary tale about the uncertainty and confusion that can be created when policy is not announced in the proper way in Parliament. I welcome the delayed statement by the Chief Secretary to the Treasury, and I am grateful for advance sight of it.
Making a £50-billion announcement at an overseas conference, and not at a fiscal event in this House, has understandably and notably moved markets, creating further uncertainty for an already nervous business community. Although the Chancellor announced change last week, she did not provide any details about what that change would be—a common approach by Labour that is now coming back to bite them as the realities of government set in. The Prime Minister has admitted as much in recent days, speaking of the need to “embrace…fiscal reality” by adopting measures that were never listed in Labour’s manifesto. In fact, the Chancellor explicitly said before the election that she would not change the fiscal rules because that would be “to fiddle the figures”. By going ahead with this latest U-turn and broken promise, she has compromised trust and credibility ahead of her first Budget.
That joins the long list of promises already broken by the Labour Government in such a short time: the promise to cut energy bills by £300—broken; the promise that their manifesto was fully costed—broken; the promise to be on the side of pensioners—so obviously broken; and we know that their promise not to raise taxes on working people is about to be broken, too. Try as they might to sell a different story, just like Government bonds right now, people ain’t buying it.
We are left in the ludicrous position in which the UK—the sixth-largest economy in the world—does not have an operative definition of public debt. Quite understandably, markets have responded to this latest uncertainty by applying a premium to UK sovereign debt at a time when they have been discounting the sovereign debt of our international peers. The markets are also perplexed as to why these changes were announced without an accompanying OBR report. In the words of the Chancellor,
“Never have a Government borrowed so much and explained so little.”—[Official Report, 23 September 2022; Vol. 719, c. 941.]
The Government may think that this will all go unnoticed, and that most people do not know enough about the fiscal rules to know what is really going on here, but let me be very clear: the people will know about this. They will know it and feel it when interest rates stay higher for longer. Treasury advice to us was consistently clear: interest rates would stay higher if the rules were changed. What advice did Treasury officials give the Chief Secretary to the Treasury about the impact on interest rates? Does he agree with Paul Johnson of the Institute for Fiscal Studies, who said that the change will mean
“more debt, more debt interest”,
and that it is “no free lunch”?
Of course, we all want to see investment in our public services and infrastructure. We oversaw the largest ever increase in funding for the NHS, we increased defence spending to the highest levels since the cold war, and we attracted the second-greatest foreign direct investment in the world, but we sought that investment with a view to boosting productivity by investing in technology—that approach has now been scrapped by Labour—and spreading opportunity around this country through freeports and investment zones. This Labour Government are quick to spend but unwilling to explain.
Finally, on behalf of the British people, and the markets, which are watching this statement so very nervously, I ask the Chief Secretary to the Treasury: what definition of public debt is the UK offering to lenders today, and how much do the Government plan to borrow under an expanded definition? He will say that we have to wait for the Budget, but the Chancellor did not wait last week, so why should we?
Darren Jones
I am very fond of the hon. Gentleman, but he has some brass neck to stand up in this House and tell this Government how to behave after his party’s maladministration over the last 14 years. May I politely point out that he might be getting slightly ahead of himself? The Chancellor has not set out the detail of the fiscal rules in advance of the Budget; she will do it in this House, in the Budget on Wednesday, and I encourage him to wait for that information. He painted a picture of the country performing so well under his party’s leadership, but he may want to reflect on why he lost the last election so badly.
Oral Answers to Questions
Gareth Davies Excerpts(2 months, 2 weeks ago)
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Gareth Davies (Grantham and Bourne) (Con)
During the general election, the Labour party committed to bring down energy bills by £300. Now that the election is over, energy bills are going up by some 10%. On behalf of the British electorate, especially the 10 million pensioners who are having their winter fuel payment taken away, I ask the Minister to confirm to the House that the £300 cut is still Labour policy. If it is, specifically how is the £300 calculated, and when will it be delivered?
James Murray
I thank the shadow Minister for his comment and welcome him to his new place. He referred to the cost of energy. As we know, the cost of energy is substantially lower than it was this time last year, but we are under no illusions about how much more we need to do to make sure that energy bills are truly affordable and that we tackle the cost of living crisis. That is why we have set to work straight away in establishing Great British Energy, alongside our national wealth fund, which will help to invest in the clean energy sources of the future and bring down energy bills for good.
Budget Responsibility Bill
Gareth Davies ExcerptsTuesday 30th July 2024
(3 months, 3 weeks ago)
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Gareth Davies (Grantham and Bourne) (Con)
Madam Deputy Speaker, congratulations on your election. Let me take my first opportunity to congratulate the right hon. and hon. Members in the new Treasury ministerial team, who have taken up some of the best jobs in government. I loved every minute of my time in the Treasury, even when I had to come to this place to face my shadows. I will always be grateful to the officials who so ably supported me and the team.
As the Member of Parliament for Grantham, the home of our country’s first female Prime Minister, I congratulate our country’s first female Chancellor. It is right that we highlight that. While the two are not politically aligned, we can all recognise when a ceiling has been shattered and no matter who is breaking it, we certainly recognise that on this side of the House.
The Bill before us seeks to amend the Budget Responsibility and National Audit Act 2011—a Bill, introduced by a Conservative Chancellor, that created the Office for Budget Responsibility. The Bill should be understood in that context, building on a previous Bill that replaced the system where His Majesty’s Treasury would produce its own forecasts and the Chancellor of the Exchequer would essentially mark their own homework. Back then, that was an essential piece of legislation, given what had gone on before. Between 2000 and 2010 the then Labour Government’s so-called forecasts for growth in the economy were out by an average of £13 billion and their forecasts for the budget deficit three years ahead were out by an average of £40 billion. Their forecasts therefore lacked any credibility at all.
It was not just their forecasts that led to the creation of the OBR; it was their management of the economy. Much has already been said by the shadow Chancellor about the higher inflation, higher deficit and higher unemployment that the Conservatives inherited from Labour in 2010. What is, however, sometimes forgotten is that total public spending accounted for almost half the national income when Labour last left office. Welfare spending ballooned by a staggering 45%, and that runaway spending meant that we inherited the largest budget deficit of any economy in Europe with the sole exception of Ireland. The idea that Labour has an unblemished record when it comes to the public finances is, therefore, plain wrong. We Conservatives created the OBR, in Parliament, to guard against Labour’s fiscal unaccountability and recklessness with the public finances. We continue to support the role of the OBR in providing open, fully transparent, independent forecasts for all to see, no matter who is in government.
It was genuinely good to hear that the Chancellor recognised the importance of the OBR when she said that because of the OBR, in her words,
“You don’t need to win an election to find out the state of public finances.”
She was absolutely right about that. That is why yesterday’s supposed revelations simply won’t wash. In fact, if she is so supportive of the OBR, I ask a simple question: why was yesterday’s statement based on internal Treasury analysis, not OBR analysis? Surely if they are very supportive of the OBR they would have asked the OBR to conduct the analysis. The OBR has always said that it would be ready to produce analysis at any time, on short notice.
That was yesterday, and today we are here to talk about the Bill before us. While we are supportive of the OBR, we think it is right that the House should consider a number of concerns that we have, on which we will seek clarification. First, the Bill will require the Treasury to request, and the OBR to produce, a report on fiscally significant measures announced by the Government, with the exception of temporary, emergency measures. The definitions of these terms—"fiscally significant”, “temporary” and “emergency”—will be set out in a charter for budget responsibility as the Chief Secretary outlined. The draft charter text, published alongside the Bill, deems measures to be fiscally significant if they cost the equivalent of 1% of GDP in any financial year. It defines as temporary any measure intended to end within two years, and the draft charter text gives the OBR discretion to reasonably disagree with the Treasury’s interpretation of what constitutes emergency.
Despite some of the rhetoric, we note that nowhere in the Bill or the surrounding documents is the OBR empowered to prevent a Government from taking fiscally significant action of any kind. The effect of this Bill is to ensure that an OBR costing accompanies any fiscally significant action the Government take—nothing more, nothing less. The way in which the Chancellor described this Bill as a so-called lock to prevent certain activity is—to be generous on my first outing—overly ambitious. The Bill is described as introducing a fiscal lock, which the Chancellor promises will prevent large-scale unfunded commitments, but that is not what it does. There is no fiscal lock, and if anything, it is a forecast lock. The potential impact of the Bill is so limited and specific as to lead some to wonder whether, for all the animated hyperbole of the Chancellor yesterday, this is the prioritisation of gimmicks over governing, despite what the Prime Minister said on the King’s Speech.
Secondly, and I say this genuinely constructively, the Government need to be better prepared to clarify what is meant by “emergency”. The draft charter gives the OBR the power to reasonably disagree with the Government’s interpretation of what is an emergency, but this raises questions about whether the OBR is equipped to make such a decision in the first place. What counts as an emergency should mostly be clear-cut, but what about instances that are less obvious, or when unforeseen circumstances come down the track? The OBR would then be straying into political decision making, which would rightly raise constitutional issues. Even if it is ultimately for Ministers to decide on such matters, any resulting disagreement between the Government and the OBR about whether the circumstances amount to an emergency could undermine the credibility of the Government, the OBR or both.
Ms Stella Creasy (Walthamstow) (Lab/Co-op)
I am genuinely perplexed whether the hon. Gentleman is with the former Member for South West Norfolk, who wanted to see the OBR abolished and not part of any decision making, or feels that the Bill does not go far enough. Either way, does he recognise and accept, as thousands of mortgage payers in this country now do, the disaster of the previous Conservative Prime Minister’s Budget, the impact it has had and the need never to go back to those days?
Gareth Davies
We support the OBR. I have been clear on that. We created the OBR, so to suggest that we do not support it is incorrect. I would just pull the hon. Member up on some economic facts. The reason interest rates were so high and mortgages went up is that we faced a global challenge, which this Government will now experience. In office, the Government have to deal with events, and what caused inflation around the world was two things: the war in Ukraine, which pushed up wholesale gas prices to record highs; and the fallout from a once-in-a-century pandemic that the Labour party seems to have forgotten about. Those two factors resulted in 11% inflation, which resulted in the Chancellor and Prime Minister at the time prioritising bringing down inflation, which we did, to 2%. We have now handed this Government 2% inflation, half the deficit we inherited in 2010, half the unemployment and the fastest growth in the G7, so it is a little bit rich to suggest that we take lessons from the Labour party on economic performance.
Our third and final concern—we have others, but I am in keeping this short on Second Reading—is that, in the event that the lock is triggered, the OBR does not need to produce one of its standard reports, even though the Treasury, under the Bill, is required to request such a report to avoid breaking the lock. The Bill creates, therefore, the possibility of an entirely new OBR report, which is not envisaged by the original Act. I would be grateful if the Exchequer Secretary explained that and what it means in practice when he sums up. Although standard OBR reports must be published, it is not clear whether that applies to other reports that the OBR may prepare. If this requirement does not apply, are the Government happy to give the OBR the power to decide whether its costings are published? That is potentially very concerning for transparency.
The official Opposition look forward to more detailed scrutiny of the Bill and its practical implications. Be in no doubt: we support the OBR, which we created to bring in much-needed transparency to our fiscal framework after years of fiscal folly and false promises by the Labour party. At the same time, let us not pretend that the OBR should be the ultimate judge of good policy, that nothing bad can happen under its watchful eye and that nothing good can happen beyond its gaze. Labour Members know this: it is precisely what they argued 15 years ago when we first debated the Bill that led to the OBR’s creation. The OBR should not become too political. It should be a referee, not a player, in the fight for fiscal accountability. In the end, we stand by the principle that the British people, through their elected representatives, should always have the deciding say on public policy. We look forward to debating this further in the months ahead. We will not be voting against this Bill on Second Reading. I look forward to the debate.
Treasury
Gareth Davies Excerpts(6 months ago)
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Gareth Davies
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.
—[Official Report, 8 May 2024; Vol. 749, c. 634.]
Written correction submitted by the Exchequer Secretary to the Treasury, the hon. Member for Grantham and Stamford (Gareth Davies):
Gareth Davies
Those thresholds are currently $74.21 per barrel for oil and 57p 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.
Finance (No. 2) Bill
Gareth Davies ExcerptsTuesday 21st May 2024
(6 months ago)
Public Bill CommitteesRead Full debate Finance Act (No. 2) 2024 2023-24 View all Finance Act (No. 2) 2024 2023-24 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 21 May 2024 - (21 May 2024)
Nigel Huddleston
I do not have much more to add, other than to point out the strength of our creative industries in all four nations of the United Kingdom, which I am glad has been recognised across the Committee today. It is an incredible strength, and I am therefore pleased to hear today the very obvious cross-party agreement on continuing support for this vital sector.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clauses 17 and 18 ordered to stand part of the Bill.
Clause 20
Collective investment schemes: co-ownership schemes
Question proposed, That the clause stand part of the Bill.
The Exchequer Secretary to the Treasury (Gareth Davies)
It is a great pleasure, as always, to see you in the Chair, Mrs Latham. Clause 20 begins the process of introducing legislation for a new type of investment fund—the reserved investor fund, which I will refer to from now on as the RIF. At Budget 2020, the Government announced a review of the UK’s funds regime, covering tax and relevant areas of regulation. The review had an overarching objective to make the UK a more attractive location to set up, manage and administer funds, as well as ensuring that UK investors can access a wide enough range of investment vehicles to suit their needs. In the years since, the Government have made a number of successful reforms. In order to build on these successes, the Government announced at spring Budget 2024 that we would be proceeding with the RIF.
The RIF will fill a gap in the UK’s existing fund offering by creating an onshore alternative to existing non-UK fund vehicles that are commonly used to hold UK real estate. Clause 20 provides a definition of the RIF and provides a power for the Treasury to make detailed tax rules through secondary legislation, consistent with the approach taken when introducing tax rules for other investment funds. A later statutory instrument will set out detailed tax rules for the RIF. The regulations will set out supplementary qualifying conditions for a RIF, entry and exit provisions, and rules that deal with breaches of one or more qualifying conditions.
The UK has a world-leading asset management sector. The RIF will play an important role in supporting that leadership by making the UK a more competitive destination for our fund management industry. Indeed, stakeholders from the financial services industry have already shown considerable support for the RIF. I therefore commend the clause to the Committee.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve on this Committee under your chairmanship, Mrs Latham. I am pleased to respond to clauses 20 to 24 on behalf of the Opposition. Clause 20, as the Minister set out, introduces the necessary powers to set the scope and design of the tax regime and rules for the RIF. Labour welcomes the introduction of the RIF, as it will add to the investment products available here in the UK, particularly for the UK commercial real estate sector. However, the trade bodies representing investment managers and real estate fund managers, the Investment Association and the Association of Real Estate Funds, have raised some concerns that I would like to put to the Minister.
There was a widely held expectation across the sector that RIF would broadly mirror the conditions of the existing authorised contractual schemes, or ACSs, but offer less regulatory supervision, freeing the RIF to become a more flexible investment vehicle for a range of more experienced investors. Due, however, to the Government’s decision to categorise the RIF as an alternative investment fund instead of a special investment fund, the RIF and the ACS will now differ in two key aspects. First, the supply of fund management services will be standard-rated at 20% as opposed to being VAT-exempt, and secondly, an alternative investment fund comes with a requirement to raise capital from a number of investors with a view to investing it in accordance with the defined investment policy for the benefit of those investors. That makes sense for large-scale, open-ended funds with an ongoing investment strategy, but it clearly is not designed for funds that do not have a specified investment objective, such as funds of one, joint ventures, co-investment vehicles and acquisition vehicles, which instead were created for a particular purpose such as repackaging and selling existing assets to new markets. Since they do not exist to raise additional capital, the requirements associated with alternative investment funds risk being an unnecessary burden and disproportionate when applied to the RIF.
Gareth Davies
I am always grateful to see the hon. Member for Hampstead and Kilburn in her place in opposition in these forums, and I appreciate her comments. I will first set out the background to the establishment of the RIF, which was based on significant consultation with industry to fill a specific gap for an unauthorised, contractual-based vehicle. As such, it was based on specific feedback from the industry. The hon. Lady asked a very reasonable question about classification of the fund, and I can tell her that that was considered to be part of the consultation, but in the end we decided to proceed with the structure that we have gone with in the legislation. However, we will of course keep that under review and continue to engage with stakeholders, and we will issue a report on the progress of the RIF in due course. Although we have not established it in the way that some may have wished us to, it is based on consultation and will be reviewed in due course.
Tulip Siddiq
I thank the Minister for his response. He said that he considered the options and decided to proceed with it as an alternative investment fund, but he did not actually set out the reasons why. Was there any reason why he decided that it made more sense to do that as opposed to a special investment fund, especially in line with the international comparisons that I gave?
Gareth Davies
This is designed specifically to fill a gap that was previously or currently filled by things such as Jersey property investment trusts. Where there are unauthorised, contractual-based schemes, we do not currently have a vehicle that fills that gap. What we are introducing with the RIF fills that gap and satisfies a vast amount of stakeholders who fed into the consultation, and we are proceeding with that today.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21
Economic crime (anti-money laundering) levy
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clause 21 increases the economic anti-money laundering levy for very large firms, meaning firms regulated for anti-money laundering purposes and which have UK revenue greater than £1 billion per annum. The charge for very large firms increased from £250,000 to £500,000 with effect from 1 April 2024. There is no change to the charge for firms with revenue below £1 billion per annum. The levy was introduced in the 2022-23 tax year as a source of sustainable funding for measures to tackle economic crime and support the delivery of the Government’s commitments contained in the economic crime plan 2. The Government made it clear during the public consultation that levy charges may be adjusted periodically in response to new information, inflation or under-collection. The adjustment is made in response to receipts falling short of the levy’s stated £100 million revenue target.
The clause amends part 3 of the Finance Act 2022 to replace the current charge for very large firms with the new charge of £500,000 per annum. The change will impact an estimated 100 to 110 very large firms across the anti-money laundering regulated sector including, but not limited to, financial services, legal and accountancy firms.
No other aspects of the levy’s calculation or operation are changing and we therefore anticipate administrative impacts on affected firms to be negligible. This adjustment to the economic crime levy for the largest firms will put funding for measures to tackle economic crime on a sustainable footing, helping to protect UK citizens and make the UK a safer place to do business. Only the very largest firms will pay more and burdens will remain low. I commend the clause to the Committee.
Tulip Siddiq
We support the measures in clause 21 to raise the funds needed to tackle money laundering, fraud and other types of economic crime, but I cannot ignore the fact that the Government’s efforts to tackle economic crime have been a complete failure. Fraud and scams, for example, have rocketed under this Government, with at least £7.3 billion stolen directly from consumer bank accounts in the UK through fraud last year alone.
Last year, the Government published their fraud strategy to widespread criticism from industry for largely rebadging old measures and re-announcing existing national teams, such as the re-announcement on the replacement of Action Fraud from 2022. The consensus from experts in the industry is that the measures in the strategy will not significantly move the dial, as they do not establish a regulatory framework for tech companies and telcos to participate in the fight against fraud, including through data-sharing with financial services firms and enforcement agencies to enhance detection and prevention measures.
UK Finance, for example, has stated that it is increasingly difficult to understand the imbalance between the financial services sector’s contribution through the levy and that of other sectors that do not contribute but are known to be introducing risk into the same system. We also know that most scams originate on social media or via telecommunications networks yet those sectors do not face the same obligations regarding contributions, nor do they compensate victims defrauded through their platforms. Does the Minister agree with UK Finance? Does he accept that until the Government find a way to bring the tech giants to the table, efforts to tackle fraud and scams will continue to fail?
UK Finance has also raised concerns about the transparency of the levy and reporting on economic crime. On reporting for anti-money laundering purposes, I have heard from numerous City firms that, despite frequent requests, they receive little granular feedback on the impact their reports make. Does the Minister agree that better feedback and wider publicity around successes could help AML-regulated firms to see the value and importance of work in this area more clearly, keeping it at the forefront of their minds? What are the Government doing to ensure that happens?
Drew Hendry
This is a welcome move in principle and in targeting economic crime, but I would agree with the comments we have just heard—this does not shift things in the way that they need to be shifted in order to deal with the issue. It does not seriously tackle online crime, which is relatively rampant, with people being conned and funds being taken illegally. It does not really do much for fraud and economic crime and fails to tackle issues such as money laundering. There has still not been enough action on limited partnerships, for example, which continue to allow unknown individuals to funnel money through those mechanisms. Why are the Government not taking this issue more seriously than through these minor actions in the Bill?
Gareth Davies
I am grateful for the comments from Opposition Members. I think we all agree that we want to tackle these issues in the most serious way possible, with the most force. I am comforted by the comments from the Financial Action Task Force, which previously said that the UK has one of the strongest regimes when it comes to tackling economic crime. The levy specifically seeks to fund the tackling of anti-money laundering rather than fraud or sanctions, which I will come on to in a second.
It is appropriate to stress that the levy is a targeted measure on the anti-money laundering regulated sector, therefore the proceeds go towards tackling anti-money laundering. That is in the context of the economic crime plan 2, which covers up to 2026 and is backed by £200 million from the levy plus £200 million of Government investment. We are taking broader action on fraud in the technology sector specifically, not least through the online fraud charter, the Online Safety Act 2023 and the telecommunications fraud sector charter.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey mentioned sanctions evasion. We are cracking down on kleptocracy and sanctions evasion through the economic crime plan 2. The Office of Financial Sanctions Implementation actively monitors sanctions evasion every single day.
On corruption, the Foreign, Commonwealth and Development Office leads our efforts to support companies to tackle corruption and strengthen governance across the world. The Government are actively working with partners across the world to strengthen international standards, not least through the UN convention against corruption. In the UK, we also have the National Crime Agency’s international corruption unit. There is significant action to tackle fraud and corruption as well as sanctions evasion, but of course we can always do more and we are vigilant about that.
On the reporting and transparency of the levy, there was a reasonable question from the hon. Member for Hampstead and Kilburn and from the sector. There will be a report on the levy this year and it will be reviewed in 2027. We will engage with stakeholders leading up to that review.
Question put and agreed to.
Clause 21 accordingly ordered to stand part of the Bill.
Clause 22
Transfers of assets abroad
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 22 makes changes to ensure that individuals cannot use a company as a device to bypass anti-avoidance legislation, known as the transfer of assets abroad provisions. Those provisions are designed to prevent individuals from transferring ownership of income-generating assets, such as real estate or stocks, to an overseas individual or entity while still benefiting from the income that the assets generate. The provisions prevent the moving of assets into offshore structures outside the scope of UK taxation being a simple tax avoidance route for UK residents.
The clause has been introduced following a Supreme Court decision. Prior to the decision, HMRC considered that shareholders and directors who controlled a company could transfer an asset and were therefore in scope of the transfer of assets abroad provisions. However, the Supreme Court decision means that a shareholder cannot be determined as a transferor, which therefore opens up a loophole that can be exploited by shareholders transferring assets abroad via a close company to avoid UK tax. A close company is a company with five or fewer participators, usually shareholders or directors, who have ownership or control over the business.
The changes made by the clause will introduce a provision that deems an individual as the transferor where they are participators in a close company that transfers an asset to a person abroad in order to avoid UK tax. The amendment also applies to transfers by non-resident companies that would be treated as a close company if they were UK resident. The changes will have an impact on transactions only where the purpose of the transfer is to avoid tax and will not have an impact on transfers that are genuine commercial transactions. The changes will apply to income that arises after 6 April 2024, regardless of when the transfer took place.
In situations where multiple shareholders are involved in the transfer of an asset, any resulting tax charge will be apportioned between those individuals in proportion to their respective shareholdings. Further details will be provided in HMRC guidance. The measure is expected to affect a small number of individuals a year and will raise about £15 million in tax revenue over the forecast period.
This change was anticipated by external groups and demonstrates that the Government are quick to crack down on tax avoidance loopholes. This clause prevents tax avoidance by ensuring that individuals cannot bypass anti-avoidance legislation by using a company to transfer assets abroad while still benefiting from the income they generate. I therefore commend the clause to the Committee.
Finance (No. 2) Bill
(Except clauses 1 to 4, 12 and 13, and 19)
Gareth Davies Excerpts(6 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Nigel Huddleston
I do not have much more to add, other than to point out the strength of our creative industries in all four nations of the United Kingdom, which I am glad has been recognised across the Committee today. It is an incredible strength, and I am therefore pleased to hear today the very obvious cross-party agreement on continuing support for this vital sector.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clauses 17 and 18 ordered to stand part of the Bill.
Clause 20
Collective investment schemes: co-ownership schemes
Question proposed, That the clause stand part of the Bill.
The Exchequer Secretary to the Treasury (Gareth Davies)
It is a great pleasure, as always, to see you in the Chair, Mrs Latham. Clause 20 begins the process of introducing legislation for a new type of investment fund—the reserved investor fund, which I will refer to from now on as the RIF. At Budget 2020, the Government announced a review of the UK’s funds regime, covering tax and relevant areas of regulation. The review had an overarching objective to make the UK a more attractive location to set up, manage and administer funds, as well as ensuring that UK investors can access a wide enough range of investment vehicles to suit their needs. In the years since, the Government have made a number of successful reforms. In order to build on these successes, the Government announced at spring Budget 2024 that we would be proceeding with the RIF.
The RIF will fill a gap in the UK’s existing fund offering by creating an onshore alternative to existing non-UK fund vehicles that are commonly used to hold UK real estate. Clause 20 provides a definition of the RIF and provides a power for the Treasury to make detailed tax rules through secondary legislation, consistent with the approach taken when introducing tax rules for other investment funds. A later statutory instrument will set out detailed tax rules for the RIF. The regulations will set out supplementary qualifying conditions for a RIF, entry and exit provisions, and rules that deal with breaches of one or more qualifying conditions.
The UK has a world-leading asset management sector. The RIF will play an important role in supporting that leadership by making the UK a more competitive destination for our fund management industry. Indeed, stakeholders from the financial services industry have already shown considerable support for the RIF. I therefore commend the clause to the Committee.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve on this Committee under your chairmanship, Mrs Latham. I am pleased to respond to clauses 20 to 24 on behalf of the Opposition. Clause 20, as the Minister set out, introduces the necessary powers to set the scope and design of the tax regime and rules for the RIF. Labour welcomes the introduction of the RIF, as it will add to the investment products available here in the UK, particularly for the UK commercial real estate sector. However, the trade bodies representing investment managers and real estate fund managers, the Investment Association and the Association of Real Estate Funds, have raised some concerns that I would like to put to the Minister.
There was a widely held expectation across the sector that RIF would broadly mirror the conditions of the existing authorised contractual schemes, or ACSs, but offer less regulatory supervision, freeing the RIF to become a more flexible investment vehicle for a range of more experienced investors. Due, however, to the Government’s decision to categorise the RIF as an alternative investment fund instead of a special investment fund, the RIF and the ACS will now differ in two key aspects. First, the supply of fund management services will be standard-rated at 20% as opposed to being VAT-exempt, and secondly, an alternative investment fund comes with a requirement to raise capital from a number of investors with a view to investing it in accordance with the defined investment policy for the benefit of those investors. That makes sense for large-scale, open-ended funds with an ongoing investment strategy, but it clearly is not designed for funds that do not have a specified investment objective, such as funds of one, joint ventures, co-investment vehicles and acquisition vehicles, which instead were created for a particular purpose such as repackaging and selling existing assets to new markets. Since they do not exist to raise additional capital, the requirements associated with alternative investment funds risk being an unnecessary burden and disproportionate when applied to the RIF.
Gareth Davies
I am always grateful to see the hon. Member for Hampstead and Kilburn in her place in opposition in these forums, and I appreciate her comments. I will first set out the background to the establishment of the RIF, which was based on significant consultation with industry to fill a specific gap for an unauthorised, contractual-based vehicle. As such, it was based on specific feedback from the industry. The hon. Lady asked a very reasonable question about classification of the fund, and I can tell her that that was considered to be part of the consultation, but in the end we decided to proceed with the structure that we have gone with in the legislation. However, we will of course keep that under review and continue to engage with stakeholders, and we will issue a report on the progress of the RIF in due course. Although we have not established it in the way that some may have wished us to, it is based on consultation and will be reviewed in due course.
Tulip Siddiq
I thank the Minister for his response. He said that he considered the options and decided to proceed with it as an alternative investment fund, but he did not actually set out the reasons why. Was there any reason why he decided that it made more sense to do that as opposed to a special investment fund, especially in line with the international comparisons that I gave?
Gareth Davies
This is designed specifically to fill a gap that was previously or currently filled by things such as Jersey property investment trusts. Where there are unauthorised, contractual-based schemes, we do not currently have a vehicle that fills that gap. What we are introducing with the RIF fills that gap and satisfies a vast amount of stakeholders who fed into the consultation, and we are proceeding with that today.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21
Economic crime (anti-money laundering) levy
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clause 21 increases the economic anti-money laundering levy for very large firms, meaning firms regulated for anti-money laundering purposes and which have UK revenue greater than £1 billion per annum. The charge for very large firms increased from £250,000 to £500,000 with effect from 1 April 2024. There is no change to the charge for firms with revenue below £1 billion per annum. The levy was introduced in the 2022-23 tax year as a source of sustainable funding for measures to tackle economic crime and support the delivery of the Government’s commitments contained in the economic crime plan 2. The Government made it clear during the public consultation that levy charges may be adjusted periodically in response to new information, inflation or under-collection. The adjustment is made in response to receipts falling short of the levy’s stated £100 million revenue target.
The clause amends part 3 of the Finance Act 2022 to replace the current charge for very large firms with the new charge of £500,000 per annum. The change will impact an estimated 100 to 110 very large firms across the anti-money laundering regulated sector including, but not limited to, financial services, legal and accountancy firms.
No other aspects of the levy’s calculation or operation are changing and we therefore anticipate administrative impacts on affected firms to be negligible. This adjustment to the economic crime levy for the largest firms will put funding for measures to tackle economic crime on a sustainable footing, helping to protect UK citizens and make the UK a safer place to do business. Only the very largest firms will pay more and burdens will remain low. I commend the clause to the Committee.
Tulip Siddiq
We support the measures in clause 21 to raise the funds needed to tackle money laundering, fraud and other types of economic crime, but I cannot ignore the fact that the Government’s efforts to tackle economic crime have been a complete failure. Fraud and scams, for example, have rocketed under this Government, with at least £7.3 billion stolen directly from consumer bank accounts in the UK through fraud last year alone.
Last year, the Government published their fraud strategy to widespread criticism from industry for largely rebadging old measures and re-announcing existing national teams, such as the re-announcement on the replacement of Action Fraud from 2022. The consensus from experts in the industry is that the measures in the strategy will not significantly move the dial, as they do not establish a regulatory framework for tech companies and telcos to participate in the fight against fraud, including through data-sharing with financial services firms and enforcement agencies to enhance detection and prevention measures.
UK Finance, for example, has stated that it is increasingly difficult to understand the imbalance between the financial services sector’s contribution through the levy and that of other sectors that do not contribute but are known to be introducing risk into the same system. We also know that most scams originate on social media or via telecommunications networks yet those sectors do not face the same obligations regarding contributions, nor do they compensate victims defrauded through their platforms. Does the Minister agree with UK Finance? Does he accept that until the Government find a way to bring the tech giants to the table, efforts to tackle fraud and scams will continue to fail?
UK Finance has also raised concerns about the transparency of the levy and reporting on economic crime. On reporting for anti-money laundering purposes, I have heard from numerous City firms that, despite frequent requests, they receive little granular feedback on the impact their reports make. Does the Minister agree that better feedback and wider publicity around successes could help AML-regulated firms to see the value and importance of work in this area more clearly, keeping it at the forefront of their minds? What are the Government doing to ensure that happens?
Drew Hendry
This is a welcome move in principle and in targeting economic crime, but I would agree with the comments we have just heard—this does not shift things in the way that they need to be shifted in order to deal with the issue. It does not seriously tackle online crime, which is relatively rampant, with people being conned and funds being taken illegally. It does not really do much for fraud and economic crime and fails to tackle issues such as money laundering. There has still not been enough action on limited partnerships, for example, which continue to allow unknown individuals to funnel money through those mechanisms. Why are the Government not taking this issue more seriously than through these minor actions in the Bill?
Gareth Davies
I am grateful for the comments from Opposition Members. I think we all agree that we want to tackle these issues in the most serious way possible, with the most force. I am comforted by the comments from the Financial Action Task Force, which previously said that the UK has one of the strongest regimes when it comes to tackling economic crime. The levy specifically seeks to fund the tackling of anti-money laundering rather than fraud or sanctions, which I will come on to in a second.
It is appropriate to stress that the levy is a targeted measure on the anti-money laundering regulated sector, therefore the proceeds go towards tackling anti-money laundering. That is in the context of the economic crime plan 2, which covers up to 2026 and is backed by £200 million from the levy plus £200 million of Government investment. We are taking broader action on fraud in the technology sector specifically, not least through the online fraud charter, the Online Safety Act 2023 and the telecommunications fraud sector charter.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey mentioned sanctions evasion. We are cracking down on kleptocracy and sanctions evasion through the economic crime plan 2. The Office of Financial Sanctions Implementation actively monitors sanctions evasion every single day.
On corruption, the Foreign, Commonwealth and Development Office leads our efforts to support companies to tackle corruption and strengthen governance across the world. The Government are actively working with partners across the world to strengthen international standards, not least through the UN convention against corruption. In the UK, we also have the National Crime Agency’s international corruption unit. There is significant action to tackle fraud and corruption as well as sanctions evasion, but of course we can always do more and we are vigilant about that.
On the reporting and transparency of the levy, there was a reasonable question from the hon. Member for Hampstead and Kilburn and from the sector. There will be a report on the levy this year and it will be reviewed in 2027. We will engage with stakeholders leading up to that review.
Question put and agreed to.
Clause 21 accordingly ordered to stand part of the Bill.
Clause 22
Transfers of assets abroad
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 22 makes changes to ensure that individuals cannot use a company as a device to bypass anti-avoidance legislation, known as the transfer of assets abroad provisions. Those provisions are designed to prevent individuals from transferring ownership of income-generating assets, such as real estate or stocks, to an overseas individual or entity while still benefiting from the income that the assets generate. The provisions prevent the moving of assets into offshore structures outside the scope of UK taxation being a simple tax avoidance route for UK residents.
The clause has been introduced following a Supreme Court decision. Prior to the decision, HMRC considered that shareholders and directors who controlled a company could transfer an asset and were therefore in scope of the transfer of assets abroad provisions. However, the Supreme Court decision means that a shareholder cannot be determined as a transferor, which therefore opens up a loophole that can be exploited by shareholders transferring assets abroad via a close company to avoid UK tax. A close company is a company with five or fewer participators, usually shareholders or directors, who have ownership or control over the business.
The changes made by the clause will introduce a provision that deems an individual as the transferor where they are participators in a close company that transfers an asset to a person abroad in order to avoid UK tax. The amendment also applies to transfers by non-resident companies that would be treated as a close company if they were UK resident. The changes will have an impact on transactions only where the purpose of the transfer is to avoid tax and will not have an impact on transfers that are genuine commercial transactions. The changes will apply to income that arises after 6 April 2024, regardless of when the transfer took place.
In situations where multiple shareholders are involved in the transfer of an asset, any resulting tax charge will be apportioned between those individuals in proportion to their respective shareholdings. Further details will be provided in HMRC guidance. The measure is expected to affect a small number of individuals a year and will raise about £15 million in tax revenue over the forecast period.
This change was anticipated by external groups and demonstrates that the Government are quick to crack down on tax avoidance loopholes. This clause prevents tax avoidance by ensuring that individuals cannot bypass anti-avoidance legislation by using a company to transfer assets abroad while still benefiting from the income they generate. I therefore commend the clause to the Committee.
Finance (No. 2) Bill
Gareth Davies ExcerptsWednesday 8th May 2024
(6 months, 2 weeks ago)
Commons ChamberRead Full debate Finance Act (No. 2) 2024 2023-24 View all Finance Act (No. 2) 2024 2023-24 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 8 May 2024 - (8 May 2024)
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.
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.
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.