James Murray
Main Page: James Murray (Labour (Co-op) - Ealing North)Department Debates - View all James Murray's debates with the HM Treasury
Finance Bill
James Murray ExcerptsWednesday 27th November 2024
(1 week ago)
Commons ChamberRead Full debate Finance Bill 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (James Murray)
I beg to move, That the Bill be now read a Second time.
Four weeks ago today, my right hon. Friend the Chancellor delivered the first Budget of this new Government. It was a historic, once-in-a-generation Budget—a Budget to deliver economic stability, to fix the public finances and to secure a step change in investment. It was a Budget to lay the essential foundations for growth, which is this Government’s No. 1 mission.
And let’s face it, after 14 years under the Conservatives, the foundations needed some fixing. That is why our Budget is built on tough new fiscal rules that will put a stop to borrowing for day-to-day spending and get debt falling as a share of GDP. Our Budget delivers fiscal responsibility while getting the NHS and other public services back on their feet and protecting working people. That is the difference a Labour Budget makes. That is not to say that the decisions have been easy. The very opposite is true. We have taken difficult decisions on spending, welfare and tax, and this Finance Bill begins to implement some of those decisions.
Before I turn to the measures in this Bill, I will speak about what the Bill does not include. When I was a shadow Minister, shadowing the tax brief, I covered a total of six Finance Bills and probably as many Ministers. Through those Finance Bills, we saw the Conservatives repeatedly extend the freeze in the personal allowance and the higher rate threshold for income tax. The Finance Act 2021 froze income tax thresholds from 2022 until 2026, and then the Finance Act 2023 extended those freezes by another two years until 2028. The Conservatives were responsible for six consecutive years of rising taxes on working people’s payslips.
Our Government will not follow that path. In this Finance Bill, there are no tax rises on working people’s payslips, nor on many pensioners’ incomes, like those the Conservatives put into law. We have made no changes to the basic, higher and additional rates of income tax. We have made no change to the rate of VAT. And in next week’s National Insurance Contributions (Secondary Class 1 Contributions) Bill, we will make no increase to working people’s contributions. We said that we would fix the public finances while protecting working people, and that is exactly what we are doing.
We also said that we would provide stability for businesses making investment decisions, and that we would cap the rate of corporation tax. This Bill delivers on those commitments, too.
In the last Parliament, we repeatedly saw Finance Bills being used to put temporary measures in place, leading to an unstable and ever-changing investment allowances regime. At the start of the last Parliament, the annual investment allowance had been temporarily raised to £1 million. That level was extended twice on a temporary basis before finally being made permanent. Meanwhile, full expensing for expenditure on plant and machinery was also introduced on a temporary basis. And, over the last Parliament, the super-deduction came and went entirely.
We are doing things differently. Our corporate tax road map, which was published at the Budget, and the Finance Bill before us today both make it clear that we are prioritising the stability that we know businesses need to invest.
Graham Stuart (Beverley and Holderness) (Con)
Does the Minister agree with Gary Smith? This was supposed to be a Budget for growth and jobs. The increased energy profits levy is driving investment out of the North sea and will not make the slightest difference to how much oil and gas we consume, yet it is estimated that it will lose £13 billion of much-needed revenue for the taxpayer. This means we will lose environmentally, fiscally and in terms of jobs. Surely even the Minister can recognise how wrong that is.
James Murray
I will come to the energy profits levy in a moment, but we have engaged with the oil and gas industry to ensure that we raise the money we need for the clean energy transition while supporting investment and jobs in that industry. We recognise that oil and gas will play a part in the energy mix for years to come, but we also recognise that the industry must contribute to this essential transition.
This Bill maintains the 25% cap on corporation tax that we set out in our manifesto. It also makes no changes to the permanent full expensing regime or the annual investment allowance.
Before turning to other measures in the Bill, I note that the Leader of the Opposition has already committed to reversing several of them. If Conservative Members disagree with the difficult but necessary choices that this Government have had to make to repair the public finances and protect working people, they have every right to oppose our plans, but they must explain what choices they would make instead. So far, their new leadership has fallen at the very first hurdle of being a credible Opposition by trying to have it both ways. [Interruption.] They make plenty of noise, but I do not hear any alternatives.
The Leader of the Opposition has said that she opposes the measures in this Bill, but she also claims to support the investment that those measures fund. She says that reintroducing the VAT tax break for private school fees would be the very first thing she does if she became Prime Minister, yet she also appears to support the extra £2.3 billion that our Budget puts into state education. In fact, we have calculated that she has made unfunded pledges worth £12 million for every hour since she was appointed. By my reckoning, that is £1 million-worth of pledges since I began speaking five minutes ago.
By behaving this way, the Conservatives simply remind people how very far away they are from being a credible Opposition, and they are getting further away by the day.
Dr Andrew Murrison (South West Wiltshire) (Con)
The then Leader of the Opposition, and now Prime Minister, rightly said that his Administration would go for growth. He made it his No. 1 priority, and he inherited the fastest-growing economy in the G7. [Interruption.] The Minister shakes his head, but this is a fact. Can he say what has happened to growth since 4 July?
James Murray
Every business knows that we can make investment decisions only on the basis of secure public finances and economic stability, which is why this Government’s first priority has been to wipe the slate clean of the mess we inherited from the Conservative party, to deliver economic stability and to provide the environment for businesses to make the investments on which we will grow the economy. That remains our No. 1 mission.
James Murray
I will make some progress.
As the Chancellor set out in the Budget, we believe that before making any changes to the tax rates that people pay, it is vital that we do everything we can to close the tax gap. That is why, in the Budget, the Chancellor announced a step change in our ambition to do so, with a package raising £6.5 billion of additional tax revenue by 2029-30. This package will ensure that more of the tax that is owed is paid, and that taxpayers are supported to pay the right tax first time. Our plan involves boosting the capacity of His Majesty’s Revenue and Customs to ensure compliance and reduce debt, alongside changes to legislation, some of which this Finance Bill delivers, to remove loopholes used to reduce tax liabilities.
That is why this Bill includes measures such as introducing capital gains on the liquidation of a limited liability partnership, closing a route increasingly used to avoid paying tax. The Bill reforms rules for overseas pension transfers, closing a gap that allows individuals to transfer significant pension savings overseas tax-free. And the Bill implements the cryptoasset reporting framework, tackling complex compliance cases where a significant proportion of offshore risk sits.
In our manifesto, we said that we would take on the tax gap, and that is what we are doing in government.
Jerome Mayhew (Broadland and Fakenham) (Con)
The Minister recognises the importance of reducing the tax gap, so will he commend the previous Conservative Government for halving the tax gap they inherited from Labour in 2010?
James Murray
As we all know, efforts to close the tax gap thoroughly stalled under the previous Government, and we have brought renewed focus to this effort. It is one of our top priorities. Before increasing any tax rates, we must ensure that people pay the tax that is owed. Frankly, if the previous Government had been doing such a great job, how is it that our Government have been able to find an extra £6.5 billion to close the tax gap in our first Budget alone? That was in our manifesto, and that is what we are delivering.
In our manifesto, we made other specific commitments on tax, and I will set out now how the Bill seeks to implement them. First, let me turn to non-doms in the tax system. As right hon. and hon. Members will know, this Government believe that everyone who is a long-term resident in the UK should pay their taxes here. That is why this Government are removing the outdated concept of domicile status from the tax system, and why we are implementing a new residence-based regime from 6 April 2025. We have long argued for such a change to be made. Although the previous Government ended up being forced towards our position, they never implemented any changes. Under this Government, we will finally make the reforms necessary to make the system fit for the 21st century.
Our new regime will be internationally competitive and focused on attracting the best talent and investment to the UK. Our reforms will scrap the planned 50% reduction in foreign income subject to tax in the first year of the new regime; introduce a new residence-based regime for inheritance tax; retain and reform overseas workday relief, encouraging employees to spend more of their earnings in the UK; and extend the previously announced temporary repatriation facility to three years, from April 2025.
The new rules mean that, from April 2025, anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains, as is the case for other UK residents. That is a much simpler and clearer test than exists under the current regime. The Office for Budget Responsibility confirmed that these reforms will raise £12.7 billion in revenue over the five year forecast period. That funding is crucial for meeting our commitments to fixing the public finances.
Secondly, in government we have decided to go further than our manifesto commitment to increase the non-resident stamp duty surcharge, and we will instead increase the higher rate of stamp duty on additional dwellings, from three percentage points to five percentage points above the standard residential rate. That increase to the higher rate of stamp duty will raise more money than set out in the manifesto—a total of £310 million by 2029-30—and will go further to rebalance the housing market.
The OBR’s certified costing assumes that an increase in the higher rate of stamp duty by two percentage points is expected to result in 130,000 additional transactions over the next five years by first-time buyers and other people buying a primary residence. We estimate that approximately half those who paid a non-resident stamp duty surcharge also pay the higher rates of stamp duty, so the change will improve the comparative advantage of UK resident home movers, while ensuring that no additional barriers are faced by those coming to the UK and buying their main home.
Thirdly, the Bill delivers our manifesto commitment to introduce the 20% standard rate of VAT on private school fees. That will apply to any charges charged on or after 29 July for terms starting after 1 January 2025, and it sits alongside our changes to private schools business rates relief in the Non-Domestic Rating (Multipliers and Private Schools) Bill. Ending tax breaks for private schools is a tough but necessary decision that will secure additional funding to help the Government deliver their commitments to improve education in state schools across the country, and achieve the aspiration that every parent has for a high-quality education for their children.
Mr Mark Sewards (Leeds South West and Morley) (Lab)
Is it not the case that state school parents work just as hard as private school parents, although they will never be in a financial position to be able to send their kids to private schools, and therefore it falls on this Government to fund state schools properly?
James Murray
My hon. Friend is right that every parent aspires to a high-quality education for their children, and that is exactly what this Government will achieve through the already announced £2.3 billion increase to the core schools budget for the financial year 2025-26, increasing per pupil funding in real terms. That includes £1 billion of additional funding for the special educational needs and disabilities system.
Paul Holmes
The Minister is dedicated to extolling the virtues of his manifesto. When he sat down to write the Budget with his right hon. Friend the Chancellor, did he recall whether the manifesto put to the country at the general election stated that growth forecasts under this Government would be lower than they were under the previous Government? Was the taxing of small family farms for a total revenue of £590 million in his manifesto? He is very keen on the manifesto, but did it outline that growth would be lower under this Government?
James Murray
I am keen on our manifesto, which delivered this Labour majority and this Labour Government. If the hon. Gentleman looks at the manifesto that we went into the election with, he will see the three words that open our pledges: “deliver economic stability”. After the mess that the previous Government made of the public finances, and the damage they did to our public services and our economy, that is crucial. Delivering economic stability, fixing the public finances and putting our public services back on a firm footing are essential to getting the investment and growth that our country badly needs.
Let me be clear about the VAT policy on private school fees: charging the standard rate of 20% does not mean that schools must increase their fees by 20%, because schools can reclaim VAT paid on inputs and reduce the cost to minimise the extent to which they need to increase fees. Many schools have already publicly committed to cap increases at 5%, or to absorb the full VAT costs themselves.
Dr Luke Evans (Hinckley and Bosworth) (Con)
Parents from two private schools in my area have written to me that they will have to move their children into the state system, but the problem is that there are not places in the state system to accomplish that. Will there be a dedicated fund to help those schools when pupils move? Will funds be put aside for the welfare of the kids who are being taken out of school mid-term? Figures that have been released suggest that there could be about 3,000 such pupils. Such a move will have a significant impact on their mental health and their family’s welfare, and I know this Government are committed to ensuring that children have good welfare. Will the Minister consider a ringfenced fund to help support the mental health of those kids?
James Murray
As the hon. Gentleman knows, mental health, more broadly, is a priority for this Government. On the policy around VAT on private school fees, the impact on pupils in private schools having to change to a state school is expected to be very limited. The Government estimate that 35,000 pupils—less than 0.5% of all state school pupils—will leave, or never enter, the private sector as a result of this policy. Those movements will take place over a number of years, and only 3,000 pupils are estimated to move within the current academic year. To put that number in context for the hon. Gentleman, every year many pupils move between schools, including between private schools and the state sector. A Department for Education report published in 2022 looking at moves between state schools and out of state schools, found that almost 60,000 moves take place every year. As he will know, pupil numbers in schools fluctuate regularly for a number of reasons, and the school funding system in England is already set up to manage that.
Chris Vince (Harlow) (Lab/Co-op)
Does my hon. Friend not think it ironic that Conservative Members are talking about the mental health of students? They did not consider that when they made changes to the state system. As a former teacher, I know the massive impact on young people’s mental health of the Conservative party’s decision to move from lettered grades to numbered grades at short notice, to completely change the syllabus and not to provide the resources or textbooks that teachers needed to teach those courses.
James Murray
My hon. Friend is right to point out that the lack of funding that the previous Government put into the state sector has implications. It takes a toll on children if schools are not properly funded. If the capital budgets for schools are not properly funded, as well as their revenue budgets, that has an impact on children’s lives. That is why the funding that we are putting into schools is something for which I will make no apology. The fact that we are having to take difficult decisions to fund it is the nature of government. I note that Conservative Members are happy to support our investment in state schools, but they refuse to support the difficult decisions necessary to generate that funding. Frankly, that underscores how far away they are from even being a credible Opposition.
James Murray
I have already given way to the right hon. Gentleman, so I will make some progress.
Within the policy, provision for pupils with special educational needs is an important matter that a several right hon. and hon. Members have raised with me. The Government recognise the importance of that too, and I am glad to confirm that where pupils have special educational needs that can only be met in private schools, as determined by an education, health and care plan in England or its equivalent in Scotland, Wales and Northern Ireland, local authorities and devolved Governments that fund those places will be compensated for the VAT they are charged on those pupils’ fees.
Fourthly, this Government are delivering on the manifesto commitments to increase the energy profits levy by three percentage points, from 35% to 38%, and to extend the period over which the levy applies by one year. The Government are also ending unjustifiably generous allowances by removing the levy’s core investment allowance, which was unique to oil and gas taxation and not available to any other sector of the economy. We are, however, providing stability within other features of the system, by maintaining the level of tax relief available for decarbonisation investment, by setting the rate of the allowance at 66% and by maintaining the availability of 100% first-year allowances.
Dave Doogan (Angus and Perthshire Glens) (SNP)
The Minister is defending the changes that he is making to the fiscal regime as it relates to the North sea and the production of oil and gas. Can he identify another oil and gas-producing nation that taxes its industry higher than the United Kingdom does?
James Murray
We know that other countries tax in different ways. Norway has a high headline rate, although it has a different set of structures of allowances and so on. It is important for us that we calibrate the headline rate and the allowances in the right way. That is why we have taken the measured decision to increase the rate as I described, to remove the investment allowance but at the same time to retain the 100% first-year allowances and the level of relief available for decarbonisation investment.
Harriet Cross (Gordon and Buchan) (Con)
Does the Minister think that that is the right balance, given that Offshore Energies UK suggests that the changes will cost £12 billion in tax revenues?
James Murray
I am absolutely confident, through all my engagement with OEUK and many firms that work in the oil and gas sector, that our approach strikes the right balance, as needed in our economy. It recognises that oil and gas producers will have a role in the energy mix for years to come, while also being clear that it is crucial we raise money for the energy transition. The energy profits levy seeks to achieve that by providing the money for that transition while also supporting jobs and investment in the sector, as exists at the moment.
Fifthly, the Bill delivers on our manifesto commitment around carried interest by increasing to 32% the capital gains tax rates that apply as an interim measure from 6 April next year, ahead of reforming carried interest more fully in a future Finance Bill. The reforms, which will have effect from April 2026, will ensure that the reward is taxed in line with economic characteristics. They put the tax treatment of carried interest on a fairer and more stable footing for the long term, while preserving the UK’s competitive position as a global asset management hub.
As the Chancellor set out both in July and again at the Budget, the fiscal situation we inherited was far worse than we had expected. We know that the previous Government left us with a £22 billion black hole and so we have had to take tough decisions to fix the public finances and get public services back on their feet. Some of those decisions are outside the scope of this Finance Bill and will be debated during the passage of other Bills. However, this Bill includes a number of those decisions, which we have sought to take in as fair a way as possible.
The Bill makes changes to the main rates of capital gains tax by increasing them to 18% and 24% from 30 October 2024. That decision will raise revenue while ensuring that the UK tax system remains internationally competitive. We are supporting businesses through that transition by maintaining business asset disposal relief, with its million-pound lifetime limit, and by phasing in the increase to that relief’s CGT rate, in line with the changes to investors’ relief, to 14% in April 2025 and then to 18% in April 2026.
The Bill maintains inheritance tax thresholds at their current levels for a further two years to 5 April 2030. It also legislates for air passenger duty rates for 2025-26 and for those announced in the Budget for 2026-27. From 2026-27, all rates of air passenger duty will be adjusted to partially account for previous high inflation, and that change will help maintain the value of air passenger duty rates in real terms.
James Murray
Let me put these decisions into context for the hon. Gentleman. The increase equates to £1 more for people taking domestic flights in economy class and £2 more for those flying to short-haul destinations in economy class. None of the decisions are easy, but we have to take them to fix the public finances and to get our economy back on a stable footing.
James Murray
I will make some progress. That is the impact the changes have on domestic flights and short-haul destinations in economy class. However, in addition to the broad changes in air passenger duty rates, the higher rates for larger private jets will also increase by a further 50% to ensure they contribute fairly to the public finances.
The Bill also renews the tobacco duty escalator and enables His Majesty’s Revenue and Customs to prepare for the introduction of a new duty on vaping products. The Bill increases the soft drink industry levy over the next five years to reflect the 27% increase in consumer prices index inflation between 2018 and 2024, as well as increasing the rate in line with CPI each year from 1 April 2025. Finally, while the Bill increases alcohol duty for non-draught products, in line with retail prices index inflation, duty on qualifying draught products will be cut by 1.7% in cash terms to support pubs, and we will increase the duty discount on products that qualify for small producer relief from 1 February 2025.
The Chancellor has been clear that the Budget was a once-in-a-generation event, at which the Government took difficult but necessary decisions. By taking those tough decisions, the Budget delivers economic stability, sound public finances and stronger public services. On those foundations, we will work day in, day out across the rest of this Parliament to boost investment and growth.
Many of the measures to boost investment are being delivered outside of the Finance Bill, from the planning reform that we got under way within days of taking office to the creation of mega-funds for pension investments, which the Chancellor announced at Mansion House. The Bill introduces additional reliefs for our creative industries, for visual effects within film and high-end TV, which will play a key role in strengthening the UK as a global hub for film and TV. Likewise, the Bill introduces measures to support the transition to electric vehicles, through higher vehicle excise duty first-year rates for hybrid and internal combustion engine vehicles, which boosts the incentive for EVs, and by an extension of first-year allowances for electric cars and charge points until 2025-26.
Above and beyond any individual measures, the impact of the Bill and the Budget that it follows is to lay the foundation for greater investment and growth, through fiscal responsibility, stronger public services and economic stability. We have laid the foundations for creating wealth, jobs and opportunity in every part of this country, enabling people to meet their aspirations for themselves and their families, and making people across Britain better off.
Ben Lake (Ceredigion Preseli) (PC)
One of the measures that has a bearing on the provision of public services is the increase to the employer national insurance contributions. I understand the Treasury is in discussion with the devolved Governments and local Government across England to ascertain precisely how much extra funding support is required to offset the increased cost upon their services. Will the Minister give us an update on those discussions and when he believes local authorities and, indeed, the devolved Governments will know how much money in additional support they will receive?
James Murray
I am afraid I will not give the hon. Gentleman inside information on any ongoing discussions between the Treasury and devolved Governments. The policy for reimbursing increases in employer national insurance contributions is well established. The last Government followed a similar process in relation to the health and social care levy, whereby Departments, employees and other direct public sector employees are typically refunded the entire increase and third parties, contractors and so on are not. As for the devolved Governments’ settlements, they have their own process to go through with the Treasury. I am sure the hon. Gentleman will understand why I cannot give a running commentary on that, but I am sure that his colleagues will pick that up.
James Murray
I will make some progress. I have been generous in giving way to the right hon. Gentleman in particular. [Interruption.] All right, go on, then.
Graham Stuart
I am grateful to the Minister, who has shown his customary good humour and good will to the Chamber. He is unable to discuss the precise numbers for the devolved Governments, but can he confirm what the overall cost is to the Exchequer of compensating the public sector for the impact of NICs? I believe it is around £5.9 billion, but I want to check with the Minister that that is correct.
James Murray
I regret giving way to the right hon. Gentleman. I invite him to return to the Chamber next Tuesday for the Second Reading of the National Insurance Contributions (Secondary Class 1 Contributions) Bill, when I will also be speaking. We can have a full debate on national insurance then, which I am sure he and his colleagues are looking forward to. I hope they will support it in the Lobby because, no doubt, they support the extra investment in the NHS which that decision funds. I thank him in advance for signalling his good grace and support for our measures.
After we were elected, we said that we would take the difficult decisions necessary to fix the public finances. We said that we would close the tax gap, implement our manifesto pledges and protect working people. We said that we would deliver economic stability, fiscal responsibility and the certainty that businesses need to invest and grow. This Bill plays a central role in achieving those goals and I commend it to the House.
