Oral Answers to Questions

Debate between James Cartlidge and Paul Holmes

Monday 15th May 2023 Commons Chamber

[The Minister for Defence Procurement (James Cartlidge)]

The UK scores highly in the global rankings for defence exports, which create jobs and prosperity across the country, building the industrial resilience and capacity we need for our national security. Through the defence and security industrial strategy, we and the industry are strengthening our position by diversifying our exports and target markets, and by collaborating more closely.

[Paul Holmes]

I welcome the Department’s announcement that both Germany and the United Kingdom will work together on the development of advanced armour-piercing tank ammunition. Given that these new rounds will be able to be fired from both British and German tanks, supporting compatibility within NATO, what export potential does this new capability have?

[James Cartlidge]

I am grateful to my hon. Friend, who is right to highlight this important collaboration with one of our major allies. Enhanced kinetic energy munitions are a key part of the Challenger 3 and Leopard 2 main battle tanks programmes, and will deliver battle-winning capabilities to UK and German armed forces. I am confident that their advanced performance will be recognised as world-leading, and their export potential to NATO and other allies will be promoted by the MOD, as ever in close partnership with the Department for Business and Trade.

Finance Bill

Debate between James Cartlidge and Paul Holmes

2nd reading
Monday 28th November 2022 Commons Chamber

[James Cartlidge]

I am grateful to my hon. Friend and will of course check with the Chief Secretary’s office; my officials will have heard the point he makes and will ensure he receives a response. On inflation in infrastructure costs, obviously that will apply across the board and cannot in itself be a reason to reconsider such fundamental investment. There are strong views on this project; from the Government’s point of view, it creates thousands of jobs and apprenticeships and builds much greater connectivity. But of course, as the Chief Secretary himself has been clear—I am sure he will emphasise this in the letter to my hon. Friend—we need to see discipline on cost control whatever is happening to wider macroeconomic factors.

Turning to the substance of the Bill and the specific measures, I shall start with the energy profits levy. Since energy prices started to surge last year there have been calls for the Government to ensure that businesses that have made extraordinary profits during the rise in oil and gas prices contribute towards supporting households that are struggling with unprecedented cost of living pressures. This Bill takes steps to do exactly that by ensuring oil and gas companies experiencing extraordinary profits pay their fair share of tax. We are therefore taxing these higher profits, which are due not to changes in risk taking or innovation or efficiency, but as the specific result of surging global commodity prices driven in part by Russia’s illegal invasion of Ukraine.

The measure increases the rate of the energy profits levy that was introduced in May by 10 percentage points to 35%. This will take effect from January next year, bringing the headline rate of tax for the sector to 75%, triple the rate of tax other companies will pay when the corporation tax rate increases to 25% from April next year or 30% for the largest companies. The Bill also extends the levy until 31 March 2028, but as the Government have made clear, it is important that such a tax does not deter investment at a time when shoring up the country’s energy security is vital.

[Paul Holmes (Eastleigh) (Con)]

I thank the Minister for outlining the detail on the energy profits levy. Does he agree that the measures he has announced will raise £52 billion over six years? Although in previous debates the Labour party has said that that does not go far enough, it is more than Labour’s proposed energy profits levy would raise.

[James Cartlidge]

My hon. Friend is extremely astute: he has noted the significant contribution these taxes will make to the Exchequer. As I have just said, although this generous allowance is to ensure that we still encourage investment at a time when energy security is critical and where the long-term solution is having secure energy in this country, he is right to highlight the revenue being raised. After all, it goes a long way to funding the support that our constituents are receiving. In fact, they are receiving it this very week: payments are going out to support people facing these very high energy bills. The energy support guarantee this winter will save a typical household £900. We are putting in place extensive support, and as my hon. Friend says, a significant amount of that revenue comes from this new tax.

Putin’s barbaric illegal invasion of Ukraine and the utilisation of energy as a weapon of war has made it clear that we must become more energy self-sufficient. That is why this Bill also ensures that the levy retains its investment allowance at the current value, allowing companies to continue claiming around £91 for every £100 of investment. This investment will support the economy and jobs while helping to protect the UK’s future energy security, and in future the Government will separately legislate to increase the tax relief available for investments which reduce carbon emissions when producing oil and gas, supporting the industry’s transition to lower-carbon oil and gas production. Together these measures will raise close to £20 billion more from the levy over the next six years. As my hon. Friend said, that brings total levy revenues to more than £40 billion over the same period—of course he added on top of that the electricity generators levy, which we will be consulting on. The Government are also taking forward measures to tax the extraordinary returns of electricity generators, as I have just said, but we will do so in a future Finance Bill to ensure that we can engage with industry on these important plans.

The autumn Finance Bill also introduces legislation to alter the rates of the R&D tax reliefs. Making those changes will help to reduce error and fraud in the system, ensuring that the taxpayer gets better value for money while continuing to support valuable research and development needed for long-term growth. Over the last 50 years, innovation has been responsible for about half of the UK’s productivity increases. That is an extremely important statistic. We all know the value of R&D to all of our constituencies—I look in particular at my hon. Friend the Member for South Cambridgeshire (Anthony Browne), who will know of its importance in our university cities and all of our key clusters. R&D is a key way of raising productivity, which is why we have protected our entire research budget and will increase public funding for R&D to £20 billion by 2024-25 as part of our mission to make the United Kingdom a science superpower. These measures are significant, but ultimately businesses will need to invest more in R&D. The UK’s R&D tax reliefs have an important role to play in doing that.

--- Later in debate ---

[Richard Fuller]

rose—

[Paul Holmes]

rose—

[James Cartlidge]

I have already given way to both my hon. Friends, but I will go to Bedfordshire.

[James Cartlidge]

As a Conservative who wants taxes to be lower, I do not stand here with any relish in putting forward a Finance Bill that will increase taxes. The Chancellor was very clear that we will have to pay more tax, but my hon. Friend understands the aggregate reason, I hope, which is the need for fiscal stability. The overall rate will have an impact of £1,200 a year, as I have said; I do not deny that it will be significantly impactful for our constituents. We want to cut taxes if we can, but before we do so we have to get on top of inflation.

I give way to my hon. Friend the Member for Eastleigh (Paul Holmes).

[Paul Holmes]

I thank the Minister for giving way. It is a good job I can remember what I was about to say.

The hon. Member for Eltham (Clive Efford) asked where the money has gone. The support that the Government have given has kept a lot of small businesses in business, as I know he recognises. Does the Minister agree that the money actually went to the medium-sized businesses that keep people in our constituencies employed and on the payroll? That is where the money went, thanks to the actions of this Government. Opposition Members should not pooh-pooh those actions, because they kept businesses going and people in work.

[James Cartlidge]

My hon. Friend is an absolute champion of small businesses and of businesses of all sizes in his constituency. We and our colleagues believe in free enterprise. We knew that the pandemic was an extraordinary situation in which, to keep businesses and free enterprise going, we had to step in an extraordinary way and be a force for maintaining aggregate demand and expenditure. My hon. Friend is absolutely right. What did those businesses do by staying in business? They maintained employment in our communities and maintained the services that they provide. We should all be proud of the extraordinary effort that was made.

We have announced a reduction in the dividend allowance from £2,000 to £1,000 from April 2023 and to £500 from April 2024, as well as a reduction in the capital gains tax annual exempt amount from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024. We have also announced that we are abolishing the annual uprating of the AEA with the consumer prices index and are fixing the CGT reporting proceeds limit at £50,000. The current high value of these allowances can mean that those with investment income and capital gains receive considerably more of their income tax-free than those with, for example, employment income only. Our approach makes the system fairer by bringing the treatment of investment income and capital gains closer in line with that of earned income, while still ensuring that individuals are not taxed on low levels of income or capital gains. Although the allowance will be reduced, individuals who receive a high proportion of their income via dividends will still benefit from lower rates of 8.75%, 33.75% and 39.35% for basic, higher and additional rate taxpayers respectively. These two measures will raise £1.2 billion a year from April 2025.

We are maintaining the income tax personal allowance and the higher rate threshold at their current levels for longer than was previously planned. They will remain at £12,570 and £50,270 respectively for a further two years, until April 2028. This policy will have an impact on many of us, as I said to my hon. Friend the Member for North East Bedfordshire (Richard Fuller), but no one’s current pay packet will reduce as a result. By April 2028, the personal allowance, at £12,570, will still be more than £2,000 higher than if we had uprated it by inflation every financial year since 2010-11.

I reiterate that these are not the kinds of decisions that any Government want to take, but they are decisions that a responsible Government facing these challenges must take. I remind the House that this Government raised the personal allowance by more than 40% in real terms since 2010, and that this year we implemented the largest ever increase to a personal tax starting threshold for national insurance contributions, meaning that they are some of the most generous personal tax allowances in the OECD. Changing the system to reduce the value of personal tax thresholds and allowances supports strong public finances. Even after these changes, as things stand, we will still have the most generous set of core tax-free personal allowances of any G7 country.

Let me now turn to the subject of inheritance tax. As we announced in the autumn statement, the thresholds will continue at current levels in 2026-27 and 2027-28, two more years than previously announced. As a result, the nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million. That means that qualifying estates will still be able to pass on up to £500,000 tax-free, and the estates of surviving spouses and civil partners will still be able to pass on up to £1 million tax-free because any unused nil-rate bands are transferable. Current forecasts indicate that only 6% of estates are expected to have a liability in 2022-23, and that is forecast to rise to only 6.6% in 2027-28. In making changes to personal tax thresholds and allowances, the Government recognise that we are asking everyone to contribute more towards sustainable public finances, but—importantly—we are doing this in a fair way.

I am almost there, Madam Deputy Speaker, but I will be assisted by an electric vehicle, because I am now moving on to that method of transport. Earlier this month I attended COP27, where I met international finance Ministry counterparts and reaffirmed the Treasury’s commitment to international action on net zero and climate-resilient development. The Government welcome the fact that the transition to electric vehicles continues apace, with the Office for Budget Responsibility forecasting that half of all new vehicles will be electric by 2025. Therefore, to ensure that all motorists start to make a fairer tax contribution, we have decided that from April 2025, electric cars, vans and motorcycles will no longer be exempt from vehicle excise duty. The motoring tax system will continue to provide generous incentives to support electric vehicle uptake, so the Government will maintain favourable first-year VED rates for electric vehicles, and will legislate for generous company car tax rates for electric vehicles and low-emission vehicles until 2027-28.

These are difficult times, but that does not mean we will shy away from difficult decisions; it means we must confront them head-on. Today the Government are tacking forward specific tax measures in this Bill to help stabilise the public finances and provide certainty for markets. This is an important part of the Government’s broader commitments made in the autumn statement on fiscal sustainability, ensuring that we take a responsible approach to fiscal policy, tackling the scourge of inflation and working hand in hand with the independent Bank of England.

We will do this fairly; we will give a safety net to our most vulnerable, we will invest for future generations, and we will ensure that we grow the economy and improve the lives of people in every part of the United Kingdom. The measures in this autumn Finance Bill are a key part of those plans, and I therefore commend it to the House.