James Cartlidge
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Energy (oil and gas) profits levy
James Cartlidge Excerpts(2 years ago)
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The Exchequer Secretary to the Treasury (James Cartlidge)
It is a privilege to open the second day of debate on the autumn statement for the Government. Last Thursday, my right hon. Friend the Chancellor presented this House with a plan to tackle the cost of living crisis and rebuild our economy—a statement that was honest about the challenges we face and fair in its response. His three priorities, and the priorities of this Government, are simple: stability, growth and public services. The people of this country need us to take the difficult decisions on their behalf, and that is what we will do.
In yesterday’s debate, we heard how our plan leads, among other things, to lower energy bills, higher long-term growth and a stronger NHS and education system. The subject of today’s debate is sustainable public finances and taxation, and the House will understand if I focus my remarks on those aspects of the statement.
For the record, and as the Chancellor revealed, the Office for Budget Responsibility judges that the UK, like other countries, is now in recession. Overall this year, the economy is still forecast to grow by 4.2%. GDP then falls in 2023 by 1.4%, before rising by 1.3%, 2.6% and 2.7% in the following three years. The OBR says that higher energy prices explain the majority of the downward revision in cumulative growth since March. It also expects a rise in unemployment from 3.6% today to 4.9% in 2024, before it falls to 4.1%.
One of the most salient points, and an issue we cannot and will not ignore, is inflation. Last week, the Chancellor called inflation “the enemy of stability”, noting its impact on mortgages, household bills, businesses and unemployment. We are experiencing very high levels of inflation, the primary cause of which, according to the OBR, is global factors. Those who question that should remember the following: yes, inflation is high in the United Kingdom, but it is higher in Germany, at 11.6%, in Italy, at 12.6%, and in the Netherlands, at 16.8%. The reality is that the pandemic is still casting an economic shadow, with the lasting impact on supply chains having made goods more expensive. As Members will understand, this has been significantly exacerbated by Putin’s illegal invasion of Ukraine.
The OBR forecast the UK’s inflation rate to be 9.1% this year and 7.4% next year, although I note that the OBR has said that actions taken as part of the autumn statement will help inflation to fall sharply from the middle of next year. Tackling high inflation needs fiscal and monetary policy to work together, with the Government and the independent Bank of England acting hand in glove. It also needs the world to believe that this country will always pay what it owes. Thanks to the decisions this Government have already taken, the OBR has said that the peak of interest rates is likely to be lower than it would otherwise have been, in turn benefiting our economy and public finances.
But we cannot be complacent. That is why we are committed to rebuilding the public finances. The decisions the Chancellor made last week will mean that over the next five years, borrowing is more than halved. This year, we are forecast to borrow 7.1% of GDP, or £177 billion. Next year, it is 5.5% of GDP, or £140 billion, then by 2027-28, it falls to 2.4% of GDP, or £69 billion.
The Chancellor also confirmed two new fiscal rules. The first is that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period. The second is that public sector borrowing over the same period must be below 3% of GDP.
Peter Dowd (Bootle) (Lab)
Given that the Government since 2012 have broken virtually every fiscal rule they have set themselves, why should we pay a blind bit of attention to this new fiscal rule? Why would we believe anything that those on the Tory Front Bench say about their fiscal rules, which are brushed aside as and when they feel like it?
James Cartlidge
I always enjoyed intervening on the hon. Gentleman when he was a shadow Minister and I was a Back Bencher, and I have great respect for him. The Opposition may want to airbrush from history the extraordinary events of recent years—the pandemic and now the invasion of Ukraine—but any Government would have to adjust to those circumstances. These were not minor events; they were once-in-a-generation events, and they have had a huge impact.
Overall, the autumn statement delivers a consolidation of £55 billion, with just under half from higher taxation and just over half from spending reductions. The consolidation ensures that excessive borrowing does not add to inflationary pressures and push interest rates up further. In the short term, we are taking difficult decisions to make sure that fiscal policy keeps inflation in check, but doing it in a compassionate way that still provides support to the most vulnerable.
Chris Stephens (Glasgow South West) (SNP)
I thank the Minister for giving way; he is being very generous. The OBR says that Her Majesty’s Revenue and Customs compliance measures and chasing social security fraud against the Department for Work and Pensions will bring in £2.8 billion, but the Green Book says that social security fraud is £2.2 billion, which suggests only £0.6 billion coming in from tackling tax avoidance and evasion. Why is that figure so low, when the estimate is £70 billion of tax avoidance and evasion?
James Cartlidge
The hon. Gentleman asks a perfectly good question. He will be aware that we have made huge progress on closing the tax gap, which effectively means that we are making huge progress on cracking down on tax avoidance. There is always further to go, but we have scored significant savings from those measures over the forecast period.
The upshot is what the Chancellor rightly called a “balanced path to stability”. We are tackling inflation to help all our constituents with the cost of living, while at the same time providing the stability that business needs to be able to invest and grow. We want low taxes and sound money, but sound money has to come first.
Jonathan Edwards (Carmarthen East and Dinefwr) (Ind)
What worries me about the Budget is the lack of focus on how the economy will grow in subsequent years. If we have an austerity Budget, public investment is falling; exports are falling because of Brexit; and consumer spending is going to fall because household budgets are being crushed by the cost of living crisis. That leaves business investment. Are businesses seriously going to invest when all other areas of growth are collapsing?
James Cartlidge
I am grateful to the hon. Gentleman. The key issue for growth at the moment is inflation. What on earth do we think is causing consumers to rein back spending? The answer is that this year, this country will have to find an additional £150 billion to pay for the higher cost of energy—that is the equivalent of an entire NHS. Yes, we are taking difficult decisions, but that is the best way to ensure that we get inflation down, in partnership with the independent Bank of England, and build the platform of stability that businesses need to grow and invest. On the point about Brexit, if it was causing the problems, why do the Netherlands and Germany have higher inflation? He should think about that.
On tax, the House will have heard the Chancellor say that we will be fair by asking those who have more to contribute more, and by avoiding tax rises that most damage growth. That means, for example, that while some taxes are rising, we have not raised headline rates of taxation. Tax as a percentage of GDP, meanwhile, will increase by just 1% over the next five years.
On personal taxes, we are reducing the threshold at which the 45p rate becomes payable from £150,000 to £125,140, which means that those earning £150,000 or more will pay just over £1,200 more a year. At the same time, we are maintaining at current levels the income tax personal allowance, the higher rate threshold, the main national insurance thresholds and the inheritance tax thresholds for a further two years until April 2028.
Jonathan Gullis (Stoke-on-Trent North) (Con)
In the summer leadership contest, the Prime Minister set out his plan to see a dramatic cut to the 20p tax rate at the end of this decade. Is that ambition still held by the Prime Minister and the Chancellor?
James Cartlidge
As I have said before, my hon. Friend is a champion for his constituents. In oral questions, he raised an important point about tax on fuel and he now mentions tax on income. We face an extraordinarily difficult position and I am sure that even he would agree that inflation is the ultimate tax. Inflation undermines savings, hits the poorest the hardest and hits the entire economy in every part of the country. We have had to take difficult decisions on income tax, but of course, in future fiscal events, we will announce what we will be doing with taxes.
The current tax changes include the fact that the dividend allowance will be cut from £2,000 to £1,000 next year and then to £500 from April 2024. The annual exempt amount for capital gains tax will be cut from £12,300 to £6,000 next year and then to £3,000 from April 2024. Those are not insignificant changes, but they still leave us with more generous core personal allowances than countries such as Germany, Ireland, France and Canada.
To make our motoring system fairer, we have also decided that electric vehicles will no longer be exempt from vehicle excise duty from April 2025. We are keeping previously announced cuts to stamp duty to support the housing market, but only until 31 March 2025, following which we will end the measure.
Moving to the all-important business taxes, we have decided to freeze the employer’s national insurance contributions threshold until April 2028, but we will retain the employment allowance at its higher level of £5,000. That means that the smallest 40% of all businesses—the ones that are crucial to our growth—will still pay no NICs at all.
On VAT, we already have a registration threshold more than twice as high as the EU and OECD averages, but we will maintain it at that level until March 2026. We will implement the internationally agreed OECD pillar 2 global corporate minimum tax rate to make sure that multinational corporations pay the right tax in the right place. At the same time, we will take further steps to tackle tax avoidance and evasion. Further to the intervention of the hon. Member for Glasgow South West (Chris Stephens), that will raise an additional £2.8 billion by 2027-28.
Ahead of the autumn statement, there was much discussion on the merits or otherwise of windfall taxes applied to profits resulting from unexpected increases in energy prices. Our view is that any such tax should be temporary, not deter investment and recognise the cyclical nature of many energy businesses.
Chris Stephens
The Minister is being generous on these points. Of the 6,000 additional staff who are estimated to be going to HMRC and DWP, what is the split between the new posts that are going to DWP and those that are going to HMRC?
James Cartlidge
In my short time in this job, I have tried to cram a lot of facts into my head, but I do not have that split immediately to hand. I will write to the hon. Gentleman after raising the matter with my officials.
To return to windfall taxes, in that context, we will increase the energy profits levy from 25% to 35% from 1 January until March 2028. We have also decided to introduce a new temporary 45% levy on electricity generators to reflect the fact that the way our energy market is structured also creates windfall profits for low-carbon electricity generation. Together, those taxes will raise more than £14 billion for the public purse next year.
Christine Jardine (Edinburgh West) (LD)
The Minister is being generous with his time. On the specific point of the windfall tax, there have been calls in this place since October last year for a temporary windfall tax on the extra profits of oil and gas companies. Does he accept that, had the Government moved more quickly to do that, they might not have faced as much blame for not reacting quickly enough to the global events that he mentioned and that people would perhaps think that the Government were managing the crisis better? At the moment, a great deal of the criticism is about not the events themselves, but the Government’s lack of reaction and poor management of them.
James Cartlidge
I am grateful to the hon. Lady. We introduced a windfall tax in May. When we consider the timeline relative to the invasion of Ukraine, that is pretty swift. By that point, it was clear that we had an extraordinary surge in energy prices. Of course, as a Government, we would not ordinarily want to take such steps, but I think there is consensus that, when profits are rising so sharply and consumers are having to pay such high prices, we should look at putting that kind of regime in place.
Alexander Stafford (Rother Valley) (Con)
Can the Minister tell us more about what he means by “temporary”? Earlier this year, we heard that the windfall tax would be temporary. We have heard about lots of taxes, such as the 45p tax, being temporary. Indeed, income tax, which was introduced in 1799 by William Pitt the Younger, was going to be a temporary measure to deal with the Napoleonic wars, yet here we are dealing with it. What does the Minister mean by temporary, and when will it end?
Stephen Crabb (Preseli Pembrokeshire) (Con)
In response to the criticism of the hon. Member for Edinburgh West (Christine Jardine) about not responding fast enough to proposals to extend the windfall tax, I would say that changing the rules of the game regarding tax for some of the biggest investors and employers in different regions of the United Kingdom is a huge thing for a Government, so proceeding cautiously in response to changing events and to the precise quarterly profits that those companies posted was exactly the right thing to do.
James Cartlidge
My right hon. Friend puts it perfectly. These are significant changes for the industries concerned and one should not go about it in a wanton fashion. We have to try to carry the industry with us, which is why, for example, we have a very generous investment allowance in the North sea levy. As I said, I think the wider public support that but he is right that we have to go about it pragmatically to ensure that we balance the interests of investment with raising the revenue.
Let us not forget that that revenue is going to fund support for energy bills at an extraordinary level through the energy price guarantee, which the OBR now estimates will cut £900 from the typical energy bill this winter. Next year, with the new energy price guarantee, a further £500 will be cut. We are taking these difficult measures to be compassionate and help those at the bottom the most: earlier this year, the amount of energy support for the most vulnerable was £650; next year, it will be £900. We are taking serious steps to support the most vulnerable.
Neale Hanvey (Kirkcaldy and Cowdenbeath) (Alba)
It is extraordinary to hear that response to the question about levying a windfall tax and those comments about the pragmatic approach that the Government took when the oil industry companies themselves were saying, “We’re happy to pay more tax. Take more money from us. We’re making so much money.” So the Government were incredibly slow to act.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
It’s a stock answer.
James Cartlidge
It is not a stock answer. How could it be a stock answer when I have not taken an intervention like that before?
The hon. Member for Kirkcaldy and Cowdenbeath (Neale Hanvey) will I am sure forgive me but, on his substantive point, we have delivered a significant windfall tax, but with the investment allowance that balances the interests of investment in the sector against needing to raise revenue. I repeat, where is that revenue going? It is to help families throughout the United Kingdom, including in Scotland, because we are stronger together when the support of the Treasury, at the heart of the United Kingdom, helps everyone in every part of this country.
The final issue to address with regard to taxation is business rates, which I know many colleagues feel strongly about. We believe that bills for business rates should accurately reflect market values, so we will proceed with the revaluation of business properties from April 2023. However, we will soften the impact on businesses with a £13.6 billion support package over the next five years. Nearly two thirds of properties will not pay a penny more next year and thousands of pubs, restaurants and small high street shops will benefit. Furthermore, we are extending and increasing the retail, hospitality and leisure relief scheme from 50% to 75% in 2023-24, showing that this is a Government committed to protecting the businesses that make our high streets and town centres successful.
These are not easy times to bring in these sorts of measures, but that does not mean the Government will shy away from difficult decisions. Our priorities, expressed through the autumn statement, are stability, growth and public services. Today, we are debating specific tax measures and the importance of sustainable public finances, but what the Government are delivering is much more comprehensive than that—an integrated response to what the Chancellor last week called
“a global energy crisis, a global inflation crisis and a global economic crisis”.—[Official Report, 17 November 2022; Vol. 722, c. 855.]
The bottom line is this: because of the difficult decisions that I have outlined today—the decisions this Government are not afraid to take—the OBR confirms we will see less severe inflation and a shallower recession, but perhaps most importantly, unemployment is forecast to be 70,000 lower than would otherwise have been the case. That is 70,000 real families who will benefit. At the same time, when growth returns, we will be in a better position to pay our debts, ensuring those are not simply passed on to future generations. That is the promise of this autumn statement—a statement that is balanced, honest and fair—and I commend it to the House.
Several hon. Members rose—