Finance (No. 2) Bill

Helen Whately Excerpts

2nd reading
Tuesday 16th November 2021 Commons Chamber

[The Exchequer Secretary to the Treasury (Helen Whately)]

It is a pleasure to close this debate on behalf of the Government. In a moment I will address many of the points raised in the debate, but I want to begin by reminding the House of the announcements made by the Chancellor in the Budget: more investment in infrastructure, innovation and skills; business rates cut by £7 billion, including the 50% business rates discount for the retail, hospital and leisure sectors; a cut in the universal credit taper; a £500 increase in work allowances; and an increase in the national living wage, rewarding people for their hard work. Those are announcements that the Finance Bill builds upon.

Let me remind the House what the Bill is designed to achieve. First, it will deliver a stronger economy for the British people by encouraging businesses to invest in the UK’s future growth and prosperity. Secondly, it will help to deliver stronger public finances. Thirdly, it will improve our ability to tackle economic crime, tax avoidance and tax evasion. Finally, it will contribute to a simpler and more sustainable tax system, in turn supporting businesses and consumers.

A stronger economy and a strong, dynamic business environment go hand in hand. As a Government, we will always do everything that we reasonably can to encourage business investment. The previous Finance Bill delivered the super deduction, the biggest business tax cut in modern British history, and extended the annual investment allowance, to the end of this year, at its higher level of £1 million. Now is not the time to remove tax breaks on investment. That is why the Bill extends the £1 million level again until the end of March 2023, encouraging businesses to bring forward investment—because this is a Government who back business. It is also why the Bill will make our creative tax reliefs more generous by extending the relief for museums and galleries for another two years and doubling the reliefs for theatres, orchestras, museums and galleries until April 2023.

A number of Opposition Members spoke about the taxation of banks. I should like to put everyone straight on that. As the Bill explains, the surcharge will be set at 3% from 2023, which means that the combined tax rate on banks’ profits will increase—I emphasise that: the tax rate will increase—from 27% to 28%. [Interruption.] There seems to be some problem with doing maths. Opposition Members are shouting at me, but it is a simple fact: the rate will go up from 27% to 28%. Banks will be paying more tax. It may be convenient for Opposition Members to suggest something different—they like the rhetoric—but it is simply not true.

[Richard Thomson]

Will the Minister give way?

[Helen Whately]

I should be delighted to give way to the hon. Member.

[Richard Thomson]

As the Minister is so good at maths, can she tell us what the tax rate would be if the surcharge was not being reduced?

[Helen Whately]

The answer to that question is 33%, but the fact is that the rate is going up, from 27% to 28%. That is an increase in tax; it really is quite simple maths.

While supporting investment and competitiveness in our key industries, we must also continue to fund our crucial public services and strengthen our public finances. To keep this Government on the path of discipline and responsibility, the new charter for budget responsibility sets out two key fiscal rules. First, underlying public sector net debt, excluding the impact of the Bank of England, must, as a percentage of GDP, be falling. Secondly, in normal times the state should only borrow to invest.

That is the context for the introduction of the health and social care levy, which we have already voted on, and the 1.25% increase to tax rates on dividend income, delivered through this Bill. This funding is to provide a new long-term funding stream for health and social care, raising more than £12 billion a year over the spending review period, of which £5 billion is earmarked for social care—that picks up on the question from the hon. Member for Gordon (Richard Thomson). I would be delighted to tell him more about the plans involved in that, but I would be digressing too much from the context of the Bill and that is probably one for another occasion. However, what I will say to Opposition Members who want to scrap that extra funding is that they have no other plan to finance getting down the NHS backlog or social care reform, other than through borrowing—they would pass the cost on to future generations. The Government are taking a responsible, fair and progressive way to raise revenue. Additional and higher-rate taxpayers are expected to contribute more than three quarters of the revenue from this increase in 2022-23. Those with the broadest shoulders will pay more.

A number of hon. Members asked about the funding of net zero. Taking a step back for a moment, let me say that the net zero strategy sets out our path to net zero by 2050. Overall, we have earmarked £30 billion-worth of investment in net zero, but that is a long-term investment. Net zero funding in this spending review and Budget specifically includes £1.3 billion of energy innovation funding, £1.4 billion of public sector decarbonisation funding, £1.8 billion to help low-income households to transition to net zero, £620 million extra for the transition to electric vehicles and up to £1.7 billion for large-scale nuclear energy. So, as hon. Members can see, there is funding for net zero in the spending review and Budget. In addition, the revised Green Book means that all policy objectives need to align with net zero.

Let me turn to measures in the Bill that tackle economic crime, and tax avoidance and evasion. The Government are committed to making the UK a hostile place for illicit finance and economic crime, helping to protect our security and prosperity. In recent years, we have taken a series of steps to combat economic crime, including the creation of a new National Economic Crime Centre to co-ordinate the law enforcement response, as well as passing the Criminal Finances Act 2017, which introduced new powers for enforcement authorities to investigate cash believed to be derived from criminal proceeds. The Bill builds on those steps by introducing the new economic crime levy, which will help fund further action on money laundering, including the ambitious reforms that the Government announced in the 2019 economic crime plan, and help safeguard the UK’s global reputation as a safe and transparent place to conduct business. It is a proportionate measure, which will be paid by entities that are regulated for anti-money laundering purposes.

We are also taking action through the Bill to clamp down on promoters of tax avoidance schemes. In response to the question from the hon. Member for Brentford and Isleworth (Ruth Cadbury), we are giving HMRC new powers: to freeze and secure a promoter’s assets; to introduce a new penalty on UK entities who support offshore promoters; to petition the courts to close down companies or partnerships that promote avoidance schemes; and to share more information on promoters to support taxpayers to steer clear of such schemes.

[James Murray]

Will the Minister explain when the register of overseas entities owning UK property will be in place?

[Helen Whately]

I am happy to write to the hon. Member on that question.

Finally, I turn to the administration of the tax system. Only last year, the Government published a 10-year tax strategy that seeks to improve the tax system and its support for taxpayers. The House will recall that the Chancellor was clear in his Budget speech that we must deliver a simpler, fairer tax system that supports consumers and is also competitive for business, and we have, for example, the most radical simplification of alcohol duties for more than 140 years. As part of that, community pubs can look forward to a new and simpler system of alcohol duties, including draught relief, which will cut duty on beer and cider served in pubs by 5%, as celebrated in the contribution of my hon. Friend the Member for Broadland (Jerome Mayhew). Alcohol duties will also be reformed around the simple, common-sense principle that the stronger the drink, the higher the rate. That will be legislated for next year after a detailed consultation.

In the meantime, the Bill does more to build a simpler and more sustainable tax system. Basis period reform, for example, will remove the existing highly complex requirements around basis period rules, including double taxation of early years of trading. Anyone who, like me, has studied accountancy will appreciate that.

As my right hon. and learned Friend the Financial Secretary said at the beginning of the debate, the Bill comes before us when we are seeing significant improvements in the economic situation. The Government are rightly focused on economic recovery, and let there be no doubt that our plan is working. A year ago, the country was experiencing the deepest recession on record, but thanks to our plan for jobs, which the Office for Budget Responsibility has called “remarkably successful”, we are recovering fast. The OBR expects the economy to return to pre-pandemic levels at the turn of the year, several months earlier than it thought in March. We do still have historically high levels of debt, but new fiscal rules together with measures in the Bill will ensure that the public finances remain on a sustainable path.

It is a Bill that encourages business investment, delivers stronger public finances, tackles tax avoidance and evasion, contributes to a simpler and more sustainable tax system and fundamentally delivers a stronger economy for the British people. For those reasons and more, I commend it to the House.

Question put, That the amendment be made.

Finance (No. 2) Bill (Second sitting)

Helen Whately Excerpts

Committee stage
Tuesday 14th December 2021 Public Bill Committees

[Lucy Frazer]

I thank the hon. Lady for indicating her support for clause 24, and I commend it to the Committee.

Question put and agreed to.

Clause 24 accordingly ordered to stand part of the Bill.

Schedule 4 agreed to.

Clause 25

Tonnage tax

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

[The Exchequer Secretary to the Treasury (Helen Whately)]

It is a pleasure to serve under your chairmanship, Sir Christopher.

Clause 25 reforms the UK’s tonnage tax regime from April 2022, with the aim that more firms will base their headquarters in the UK, using the UK’s world-leading maritime services industry and flying the UK flag. The UK tonnage tax regime was introduced in 2000 to improve the competitiveness of the UK shipping industry. It is a special elective corporation tax regime for operators of qualifying ships. Now that the UK has left the European Union, the Government will make substantive reforms to the regime for the first time since it was introduced, to help the UK shipping industry grow and compete in the global market. The reforms will make it easier for shipping companies to move to the UK, make sure that they are not disadvantaged compared to firms operating in other countries and reduce administrative burdens.

Clause 25 will make changes to the tonnage tax legislation contained in schedule 22 to the Finance Act 2000 to reform the regime from April 2022. Specifically, it will give effect to the following measures announced at the autumn Budget in 2021. The Government will give HMRC more discretion to admit companies to the regime outside the initial window of opportunity, where there is a good reason. The Government will reduce the lock-in period for companies participating in the tonnage tax regime from 10 to eight years, aligning the regime more closely with shipping cycles.

Now that the UK has left the EU, the Government will remove the consideration of flags from EU and EEA countries. Following this legislative change, HMRC will update its guidance to encourage the use of the UK flag by making it an important factor in assessing the value that companies who want to participate in tonnage tax will bring to the UK in the strategic and commercial management test. Finally, following the UK’s departure from the EU, the Bill will simplify a rule that may include distributions of related overseas shipping companies in relevant shipping profits.

These changes to modernise the tonnage tax regime will make sure that the UK’s maritime and shipping industries can compete in the global shipping market, bringing jobs and investment to nations and regions across the UK. I commend the clause to the Committee.

[Abena Oppong-Asare]

I thank the Minister for her explanation of clause 25, which makes amendments to the tonnage tax regime. Tonnage tax is a special elective corporation tax regime open to operators of qualifying ships that fulfil certain conditions. The amendments will have effect from 1 April next year. At the autumn Budget in 2021, the Government announced that they would introduce a package of measures to reform the UK’s tonnage tax regime from April 2022, which they say aims to ensure that the British shipping industry remains highly competitive in the global market. As part of the package, the Government say these amendments support their aim of simplifying the operation of tonnage tax legislation and making it more flexible following the UK’s departure from the European Union. Clause 25 gives effect to some of these measures by amending the tonnage tax legislation contained in schedule 22 to the Finance Act 2000, as the Minister said.

In his Budget speech on 27 October, the Chancellor of the Exchequer said:

“When we were in the old EU system, ships in the tonnage tax regime were required to fly the flag of an EU state, but that does not make sense for an independent nation. So I can announce today that our tonnage tax will, for the first time ever, reward companies for adopting the UK’s merchant shipping flag, the red ensign. That is entirely fitting for a country with such a proud maritime history as ours.”—[Official Report, 27 October 2021; Vol. 702, c. 282.]

--- Later in debate ---

[Alison Thewliss (Glasgow Central) (SNP)]

I support the comments made by the Labour Front-Bench spokesperson on this issue. Switching flag is the most crazy kind of gesture politics. Would it not have been better to look at green shipping? That would create a tax incentive for the industry, which is one of the leading contributors to emissions, to transfer to better forms of power, to reduce its carbon emissions and to have some positive impact on global emissions and the net zero target, rather than pursuing the gesture politics of switching flags on a ship.

[Helen Whately]

As I set out, the clause reforms the UK’s current tax regime to help the UK shipping industry grow and compete in a competitive global market. Overall, this will be to the benefit of our maritime industry and, therefore, to the UK as a whole, supporting GDP, tax revenues and jobs in the UK.

I will pick up on a couple of comments made by the Opposition Front-Bench spokespeople. On the points made by the hon. Member for Erith and Thamesmead, the clause is all about helping our shipping industry compete in a global market and making sure firms are not disadvantaged compared to those operating in other countries. It comes at a minimal cost to the Exchequer and we expect to see tax revenues in the sector increase as a result, because it will mean that more shipping groups are likely to headquarter in the UK. That will bring tax advantages and benefits to the UK, as well as tens of thousands of jobs that relate to that.

On the second point that the hon. Member made, I emphasise that the Treasury takes the recommendations of the Macpherson review very seriously and follows them in full. The reforms to our tax regime were rightly announced some months before they will come into force, in April next year.

The hon. Member for Glasgow Central talked about environmental factors. As part of the reforms, HMRC expects to update the guidance on assessing eligibility for the tonnage tax regime, and environmental factors will be considered as part of that, so it can help us on decarbonisation actions and ambitions.

[Abena Oppong-Asare]

I thank the Minister for her explanations. Has an assessment been made of whether anyone profited as a result of the Chancellor’s premature announcement to the press? Has any assessment been carried out?

[Helen Whately]

I emphasise what I said a moment ago: the Treasury followed in full the approach that should be taken, as set out in the Macpherson review in 2013. The Government’s tonnage tax reforms will ensure that the UK’s maritime and shipping industries remain highly competitive and bolster our reputation as a great maritime nation.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Clause 26

Amendments of section 259GB of TIOPA 2010

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

[Lucy Frazer]

Clause 26 makes a change to ensure that corporation tax rules for hybrids and other mismatches operate proportionately in relation to certain types of transparent entity. Following recommendations by the OECD, the UK was the first country to implement anti-hybrid rules in 2017. These rules tackle aggressive tax planning by multinational companies that seek to take advantage of differences in how jurisdictions view financial instruments and entities.

With the benefit of three years’ experience of operating the rules, and with other countries following suit and introducing their own version of the rules, the Government launched a wide-ranging consultation on this area of legislation at Budget 2020. Following that consultation, several amendments were made to the rules in the Finance Act 2021, but the change that we are now considering, relating to transparent entities, was withdrawn from that Bill to allow the Government additional time to consult stakeholders, so that they could ensure that the amendment had no unintended conse-quences.

We have had further engagement with stakeholders, and the amendment now provides for the specific change for transparent entities that the Government committed to making following last year’s consultation. The change made by the clause is technical and will impact multinational groups with a UK presence that are involved in transactions with certain types of entity that are seen as transparent, for tax purposes, in their home jurisdictions. Following the changes, this type of entity will be treated in the same way as partnerships in the relevant parts of the rules for hybrids and other mismatches. It is important that these rules are robust in tackling international tax planning, but also that they are not disproportionately harsh in their application.

Finance (No. 2) Bill (Third sitting)

Helen Whately Excerpts

Committee stage
Wednesday 5th January 2022 Public Bill Committees

[The Chair]

With this it will be convenient to consider that schedule 10 be the Tenth schedule to the Bill.

[The Exchequer Secretary to the Treasury (Helen Whately)]

It is a pleasure to serve under your chairmanship, Dame Angela.

Clause 75 and schedule 10 make technical amendments to the existing legislation that restricts the entitlement to use rebated red diesel and biofuels from 1 April 2022, to adjust restrictions and ensure that the legislation operates as intended.

To help achieve net zero and improve UK air quality, the Government announced at Budget 2020 that they would reduce the entitlement to use rebated diesel and biofuels, which currently enjoy a duty discount, from this April. These tax changes will ensure that most current users of rebated diesel use fuel taxed at the standard rate for diesel from April 2022, like motorists, which more fairly reflects the harmful impact of the emissions they produce. The changes will also incentivise users of polluting fuels, such as diesel, to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives or just use less fuel.

Following consultation in 2020, the sectors that will be allowed to continue to use rebated diesel and biofuels beyond April 2022 were confirmed at spring Budget 2021, with the changes legislated for in the Finance Act 2021. Clause 75 and schedule 10 will make technical amendments to the Hydrocarbon Oil Duties Act 1979 and the Finance Act 2021 to adjust restrictions on the entitlement to use rebated diesel and rebated biofuels, clarify how the changes to the new rules work, and allow the legislation to operate as intended.

In summary, the changes will alter the circumstances in which the use of rebated diesel and rebated biofuels will be permitted from 1 April 2022, including provisions aimed at transition to the new rules. They will also amend definitions relating to certain vehicles, machines and appliances. Some of these changes follow feedback received from stakeholders since the Finance Act 2021 received Royal Assent. Overall, the technical changes in this clause and schedule will ensure that the Government’s reforms to the tax treatment of rebated diesel and biofuels from April 2022 work as intended.

[Abena Oppong-Asare]

I thank the Minister for her explanation of the clause, which introduces technical amendments to the changes introduced to restrict the entitlement to use rebated fuel, more commonly known as red diesel. We discussed the substance of that change in Committee on the last Finance Bill. As I said then, we support the intention behind the Government’s measure. There is a clear need to ensure that fuel duty rebates are as limited as possible in order to meet our net zero commitment.

The amendments made by this Bill are technical in nature, and we do not oppose them. However, will the Minister set out which, if any, industries will be affected by the changes and what work is being done to ensure that they are prepared, given that we are now only a few months from the introduction of the changes? Will she also update us on preparations by Her Majesty’s Revenue and Customs and other agencies for the changes? Is she confident that the Government will be able to ensure compliance from April this year? The Minister’s colleague, the Financial Secretary to the Treasury, mentioned that there has been some restructuring around HMRC, but I echo the earlier comments by the hon. Member for Glasgow Central and my hon. Friend the Member for Ealing North, who explained that HMRC has been busy for a number of years. Will the Minister update us on what work has been done to ensure that we are prepared for this change?

[Alison Thewliss]

I am glad that the definitions are being amended to include fairs and circuses, of which there are many in my constituency, to allow them to continue to use rebated diesel and biofuels after 1 April 2022. In that industry it is quite difficult to adapt machines to use other sources. The showpeople I represent will be pleased that the Government have listened on this measure, and I thank the Minister for that.

[Helen Whately]

I welcome the support that the hon. Member for Erith and Thamesmead expressed for the intention behind this measure and her recognition that the changes are of a technical nature and that the Opposition therefore will not oppose the clause. I assure her that there has been substantial consultation on the overall policy. Indeed, as the hon. Member for Glasgow Central said, the Government have listened, and that is reflected in some of the changes. I am confident in HMRC’s ability to monitor compliance.

Question put and agreed to.

Clause 75 accordingly ordered to stand part of the Bill.

Schedule 10 agreed to.

Clause 76

Rates of tobacco products duty

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

[Helen Whately]

The clause implements changes announced in the autumn Budget 2021 on tobacco duty rates. The duty charged on all tobacco products will rise in line with the tobacco duty escalator, with additional increases made for hand rolling tobacco and to the minimum excise tax on cigarettes.

Smoking rates are falling in the UK, but smoking remains the biggest cause of preventable illness and premature deaths in the UK, killing around 100,000 people a year and about half of all long-term users. All those factors mean that we need to continue to encourage more people to kick the habit. We have already set out ambitious plans to reduce the number of smokers from 14% to 12% of the population by 2022, as set out by the Department of Health and Social Care in its tobacco control plan. We have announced that we aim to reduce smoking prevalence in England to 5% or less by 2030. That includes a commitment to continue the policy of maintaining high duty rates for tobacco products to improve public health.

According to Action on Smoking and Health, smoking costs society almost £14 billion per year, including a £2 billion cost to the NHS because of the disease caused by smoking. At autumn Budget, the Chancellor announced that the Government would increase tobacco duty in line with the escalator. The clause specifies that the duty charge on all tobacco products will rise by 2% above retail price index inflation. Duty on hand-rolling tobacco increases by a further 4%, to 6% above RPI inflation. The clause also increases the minimum excise tax—the minimum amount of duty to be paid on a pack of cigarettes—by an additional 1%, to 3% above RPI inflation.

The clause will continue our tried-and-tested policy of using high duty rates on tobacco products to make tobacco less affordable and to continue the reduction in smoking prevalence. That will reduce the burden placed on our public services by smoking. I commend the clause to the Committee.

[Abena Oppong-Asare]

As the Minister set out, the clause raises the duty on tobacco products, in line with the duty escalator, by RPI plus 2% for cigarettes and RPI plus 6% for hand-rolling tobacco. The minimum excise tax has been increased. We do not oppose those increases, but I will take this opportunity to make a couple of wider points about action to prevent smoking and the Treasury’s role in it.

Action on Smoking and Health stated that last year’s Budget was

“a small step forward on tobacco, but on its own won’t deliver on the Government’s commitment to a Smokefree 2030.”

In fact, projections show that the Government will miss that target by seven years, and double that for the poorest in society. As the Minister knows, tobacco duty has a dual role: raising revenue for the Government and reducing smoking rates. The latter role is most effective when combined with a comprehensive funded strategy to reduce smoking. Unfortunately, the funding for such a strategy has been repeatedly cut in recent years as part of broader cuts to public health grants. The Minister mentioned that smoking has fallen, but recently published evidence shows a 25% increase in smoking among young adults since the first lockdown, so it is clear that there is a lot of work to be done.

In a debate on smoking last year, the Under-Secretary of State for Health and Social Care, the hon. Member for Erewash (Maggie Throup), said in response to a question on taxation:

“That is a matter for Her Majesty’s Treasury. However, the Department continues to work with HMT to assess the most effective regulatory means to support the Government’s smoke-free 2030 ambition, which includes exploring a potential future levy.”—[Official Report, 16 November 2021; Vol. 703, c. 181WH.]

Will the Minister tell us what work the Treasury is doing to design a levy on tobacco manufacturers, along the lines of the “polluter pays” principles, to pay for campaigns to stop smoking and other public health measures? Those large and profitable companies often pay relatively little tax in this country, while those who smoke rightly pay a large amount of tax every time they buy a pack of cigarettes. Many public health experts urge the Government to look at the idea of a levy, and I strongly hope that the Minister will say more on that.

[Helen Whately]

I am glad to hear that the Opposition will not oppose the clause. The hon. Lady has said that it is not enough on its own, and the Government agree. Our tax treatment of tobacco is just one of a set of policies in place to reduce smoking. I assure her that the UK is seen as a global leader on tobacco control. Over the last two decades, we have implemented regulatory measures to stop young people smoking and non-smokers from starting, and to support to help smokers quit.

The hon. Lady also asked about a tobacco levy. I can tell her that the Government consulted on proposals for a tobacco levy in 2015. That consultation concluded that a levy is not the most effective way to raise revenue or protect public health. It would add complexity and additional costs, while the amount of revenue it could raise is uncertain.

--- Later in debate ---

[Helen Whately]

I am happy to take that point away and look into the position taken by my colleagues in the Department of Health and Social Care and the Treasury. I will get back to the hon. Lady on the question of the levy. I can assure her that work is currently happening on a tobacco control plan. The Government are considering policy and regulatory changes, which will be part of our ambition to be smoke-free by 2030. Those will be set out in due course in our tobacco control plan. I commend the clause to the Committee.

Question put and agreed to.

Clause 76 accordingly ordered to stand part of the Bill.

Clause 77

Rates for light passenger or light goods vehicles, motorcycles etc

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

[The Chair]

With this it will be convenient to discuss the following:

New clause 5—Vehicle taxes: effect on climate change goals—

“The Government must publish within 12 months of this Act coming into effect an assessment of the impact of sections 77 to 79 on the goal of tackling climate change and on the UK’s plans to reach net zero by 2050.”

New clause 15—Review of VED revenue from light passenger or light goods vehicles, motorcycles etc in context of future demand for electric vehicles—

“(1) The Government must publish within twelve months of this Act coming into effect an assessment of the expected level of revenues of Vehicle Excise Duty from light passenger or light goods vehicles, motorcycles etc in future years in the context of the expected uptake of electric vehicles.

(2) The Review must also consider possible alternatives to Vehicle Excise Duty on these vehicles.”

[Helen Whately]

Clause 77 makes changes to uprate vehicle excise duty—or VED—for cars, vans and motorcycles in line with the retail prices index from 1 April 2022. VED is paid on vehicle ownership, and rates chargeable are dependent on various factors, including the vehicle type, date of first registration and carbon emissions. The Government has uprated VED for cars, vans and motorcycles in line with inflation every year since 2010, which means that rates have remained unchanged in real terms during this time. The changes made by clause 77 will uprate VED rates for cars, vans and motorcycles by RPI only for the 12th successive year, meaning that VED liabilities will not increase in real terms. The standard rate of VED for cars registered since 1 April 2017 will increase by only £10. The flat rate for vans will increase by £15 and motorcyclists will see an increase in rates of no more than £5.

New clause 5, tabled by the hon. Member for Glasgow Central, asks the Government to publish within 12 months of this Bill coming into effect an assessment of the impact of sections 77 to 79 on the goal of tackling climate change and on the UK’s plan to reach net zero by 2050. Similarly, new clauses 4 and 8 tabled by the hon. Lady ask the Government to publish, within 12 months of this Bill coming into effect, impact assessments on the goal of tackling climate change and on the UK’s plan to reach net zero by 2050, first on the Act as whole, and, secondly, on section 99 and schedule 16. These amendments are unnecessary and should not stand part of the Bill.

The Government are proud of our world-leading climate commitments, most recently set out in the net zero strategy. The latest Budget and spending review confirm that since March 2021, the Government will have committed a total of £30 billion of domestic investment for the green industrial revolution. That investment will keep the UK on track to meet its carbon budgets and nationally determined contribution, and to reach net zero by 2050. The net zero strategy sets out how the Government will monitor progress to ensure that we stay on track for our emissions targets. That includes commitments to require the Government

“to reflect environmental issues in national policy making”.

At fiscal events, including the spending review 2021, all Departments are required to prepare their spending proposals in line with the Green Book, which sets out the rules that we use in the Treasury to guide individual spending decisions. The Green Book already mandates consideration of climate and environmental impacts in spending, and it was updated in 2020 to emphasise that policies must be developed and assessed against how well they deliver on the Government’s long-term policy aims such as net zero.

Furthermore, the Treasury carefully considers the climate change and environmental implications of relevant tax measures. The Government incorporated a climate assessment in all relevant tax information and impact notes for measures at Budget—they are published online—and we will continue to do so in future TIINs. For example, the TIIN for the new plastic packaging tax incorporates an assessment of anticipated carbon savings—nearly 200,000 tonnes of carbon dioxide in 2022-23. In addition, HMRC is exploring options further to strengthen the analytical approach to monitoring, evaluating and quantifying the environmental impacts of tax measures.

Given the substantial work already under way on these issues, the proposed amendment would add unnecessary bureaucratic requirements and layers of complexity. I therefore urge the Committee to reject new clause 5 and, for the same reasons, I will urge the Committee to reject new clauses 4 and 8 when we turn to those.

New clause 15, tabled by the hon. Members for Ealing North, for Erith and Thamesmead and for Blaydon, asks the Government to publish, within 12 months of the Act coming into effect, a review of the impact on VED revenue of future demand for electric vehicles. This new clause is also unnecessary and should not stand part of the Bill. The Government are committed to achieving net zero carbon emissions by 2050, and the transition towards electric vehicles and the phase-out of new petrol and diesel cars and vans will make a vital contribution to that. The Government have committed to ensuring, as we move forward with this transition, that revenue from motoring taxes keeps pace with this change, to make sure that we can continue to fund the excellent public services and infrastructure that people and families across the UK expect.

Analysis that projects the possible impact on VED revenues of future demand for electric vehicles is already in the public domain. First, since 2016, the Government have asked the Office for Budget Responsibility to publish a fiscal risks statement to improve disclosure and management of fiscal risks. The OBR’s 2021 fiscal risks report makes an assessment of the fiscal impact of achieving net zero, including the impact on VED and fuel duty receipts, which it explores under different climate change modelling scenarios.

Secondly, the net zero review published by the Treasury in October of last year also examines the possible decline in tax revenues, including VED and fuel duty receipts, as part of the transition to net zero. It notes that, were the current tax system to remain unchanged across the transition period, tax receipts from most fossil fuel-related activity would decline towards zero across the first 20 years of the transition, leaving receipts lower in the 2040s by up to 1.5% of GDP in each year relative to a baseline where they stayed fixed as a share of GDP.

Given that analysis of future VED revenues has already been published by both the Government and the OBR, the review of this issue sought by this new clause is unnecessary. I therefore urge the Committee to reject new clause 15.

Overall, the changes outlined in clause 77 will maintain revenue sustainability by ensuring that motorists continue to make a fair contribution to the public finances. I therefore urge that this clause stand part of the Bill.

[Abena Oppong-Asare]

Clause 77 raises the rate of vehicle excise duty for various categories of vehicle by RPI. This is a regular update to VED to ensure that it remains the same in real terms, and we do not oppose it. I do wish to make broader points about taxes affecting drivers and, in particular, to speak to our new clause 15.

Electric vehicles are not liable for vehicle excise duty, and of course their owners do not pay fuel duty. New clause 15 calls on the Government to report on expected future levels of vehicle excise duty in the context of the increasing uptake of electrical vehicles. It is designed to encourage the Government to begin to think and talk publicly about that critical question.

The transition from petrol and diesel cars to electric vehicles is critical as part of our broader transition to net zero. The Opposition have constantly raised concerns about the fact that the Government are not doing enough to support the take-up of electric vehicles, whether through supporting consumers and producers or improving the critical charging infrastructure. We continue to believe that the Government must do more in that area, but we also believe that they must begin to set out how they will deal with the fiscal consequences of the transition.

Fuel duty and VED currently raise around £35 billion for the Treasury each year. They are by far the largest revenue-raising environmental taxes. It is a truly significant amount of Government revenue, equivalent to nearly half the Education budget, but as electric vehicles become an increasing share of vehicles on the roads, that revenue will decline rapidly. One estimate shows that tax revenues from car usage could fall by around £10 billion by 2030, £20 billion by 2035, and £30 billion by 2040. The Treasury’s own net zero review stated that much of the current revenue from taxing fossil fuels was likely to be eroded during the transition to a net zero economy.

We might have expected the review to set out what the Treasury planned to do about that, but it was notably silent on that matter. When the Minister responds, can she tell us what work the Treasury is carrying out on that important issue and when it will set out its plans? Can she tell us what alternatives to VED the Treasury is considering—for example, road pricing or other taxes? Crucially, how will the Treasury balance the need to maintain income from driving with the need to incentivise the switch to electric vehicles? Those are critical questions, which cannot and must not be left to the last minute. We deserve to have an open debate about the best way forward. Motorists and taxpayers deserve clarity about how they will be taxed in the future. I hope that the Minister can begin to give us some insight into the Treasury’s thinking on this issue.

Finance (No. 2) Bill (Fifth sitting)

Helen Whately Excerpts

Committee stage
Tuesday 11th January 2022 Public Bill Committees

[The Chair]

With this it will be convenient to discuss the following:

That schedule 16 be the Sixteenth schedule to the Bill.

New clause 8—Emissions certificates—

“The Government must publish within 12 months of this Act coming into effect an assessment of the impact of sections 99 and Schedule 16 of this Act on the goal of tackling climate change and the UK‘s plans to reach net zero by 2050.”—(Alison Thewliss.)

I think we might try to see whether we can let SNP Members speak to new clause 8 before the retaliation from the Government Benches, because I think that will make it easier to follow the debate.

[The Exchequer Secretary to the Treasury (Helen Whately)]

I thank you, Sir Christopher—and the hon. Member for Gordon, who duly flagged the order of proceedings. Clause 99 and schedule 16 make technical amendments to capital allowances, company car tax and vehicle excise duty legislation so that the tax system continues to function as intended when vehicles are certified through the new domestic comprehensive vehicle type approval scheme due to be introduced this year.

A vehicle manufacturer is able to apply for a type approval to allow specific types of vehicles to be used on the road and can then certify that each vehicle manufactured within that type conforms with the specifications of the approval obtained. Since the end of the transition period on 31 December 2020 following the UK’s withdrawal from the European Union, European type approvals have no longer been automatically recognised for vehicles for use on roads in Great Britain.

Since 1 January 2021, a provisional domestic type approval scheme has been in operation. Manufacturers with an EU type approval have been required to apply for a provisional domestic type approval, which is valid for a maximum of two years. During 2022, the provisional domestic type approval scheme will be gradually replaced with a new comprehensive domestic type approval scheme, which will introduce new certificates of conformity. This will be implemented through separate legislation in 2022 by the Department for Transport.

Clause 99 and schedule 16 make technical amendments to relevant legislation to update the types of official vehicle approval certification recognised for determining the level of a vehicle’s carbon dioxide emissions for the purposes of capital allowances, company car tax and vehicle excise duty, including new certificates of conformity that will be introduced through the domestic type approval scheme, allowing manufactures to continue to report their CO₂ emissions. This will ensure that vehicle owners and keepers continue to pay the tax for their vehicles as intended from 2022 following the introduction of the new scheme.

For the purpose of capital allowances, the clause and schedule will also confirm in legislation that the applicable CO₂ emission figure from the official documentation will be that certified under the worldwide harmonised light vehicle test procedure. The technical changes in the clause and schedule will ensure that the tax system continues to function as intended when vehicles are certified through the new domestic comprehensive vehicle type approval scheme due to be introduced in 2022.

[Abena Oppong-Asare]

I thank the Minister for her explanation of clause 99, which introduces schedule 16, which concerns emissions certificates for vehicles. When purchasing a car, capital allowances are in part determined by the level of CO₂ emissions. A 100% first-year allowance is available for new cars that have zero CO₂ emissions, including electric cars. Otherwise, writing down allowances are available at the main rate of 18% per annum for electric cars and those with low CO₂ emissions—up to 50 grams per kilometre driven—or 6% per annum for those with emissions exceeding 50 grams per kilometre. The measures in the clause allow for greater CO₂ emissions figures to be used for purposes of capital allowances, taxable benefits arising from provisions of cars and vehicle excise duty. For that reason, we will not oppose the clause.

[Richard Thomson]

Thank you, Sir Christopher, for your opening comments on this group. My party does not get too many advances or victories in this place, so it is important to savour them when we can. I will certainly savour this one. I have a sense of clairvoyance about what the Minister will say in response.

We fully support the intention behind schedule 16. It is important to have the certification regime in place. However, as I argued when discussing the SNP’s new clause 5 in the previous group, it is important not only that consumers have confidence in the figures that are published, but to understand the impact that their publication has on behaviour. When we discussed new clause 5, we talked about the very incremental changes to vehicle excise duty, and my party proposed that we should look at the impact of those on consumer behaviour. Similarly, we feel we must understand how emissions certification changes consumer and manufacturer behaviour.

As a fundamental point, when we are as engaged in trying to achieve net zero as all Governments in these islands say that they are, it is important that Government have clear oversight of how spending and taxation influence behaviour in driving movement towards net zero. This measure should be no exception, and that is what our new clause seeks to achieve. In the fairly safe assumption that it will not be accepted by the Government, I would like to know how they intend to monitor how the changes drive behaviour.

[Helen Whately]

It is a pleasure to hear the hon. Member for Gordon argue for new clause 8. It would require the Government to publish, within 12 months of the Bill coming into effect, an assessment of the impact of clause 99 and schedule 16 on the goal of tackling climate change and the UK’s plans to reach net zero.

For the reasons we set out in detail during the Committee’s debate on new clause 5, this similar new clause is simply not necessary. Moreover, clause 99 and schedule 16 make only minor technical amendments to vehicle tax legislation to ensure that it continues to function as intended. The measure is not expected to have any significant climate change impacts. I therefore urge the Committee to reject new clause 8.

I thank the hon. Member for Erith and Thamesmead for expressing the Opposition’s support for clause 99 and the schedule. I commend the measures to the Committee.

Question put and agreed to. 

Clause 99 accordingly ordered to stand part of the Bill. 

Schedule 16 agreed to. 

Clause 100

Increase in membership of the Office of Tax Simplification

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

[The Chair]

With this it will be convenient to discuss the following:

New clause 9—Composition of the Office of Tax Simplification—

“The Government must publish within 12 months of this Act coming into effect an assessment of the composition of the Office of Tax Simplification membership with a view to ensuring it is diverse and representative.”

New clause 10—Capacity of the OTS—

“The Government must publish within 12 months of this Act coming into effect a review of the membership and capacity of the OTS, including consideration of the capacity the membership would have to deal with an expansion of its remit to include fairness in the tax system.”