Finance (No. 2) Bill (Fourth sitting)

James Murray Excerpts

Committee stage
Thursday 18th May 2023 Public Bill Committees

[The Exchequer Secretary to the Treasury (Gareth Davies)]

Clause 321 introduces a new domestic air passenger duty band for flights within the UK to bolster connectivity within the Union and a new ultra-long-haul band to further align the tax with the Government’s environmental objectives. The clause also sets the 2023-24 rates for both the new bands and the two existing bands that are operated by the retail price index.

Clause 322 enables the Northern Ireland Assembly to set the rate for the new ultra-long-haul band for direct flights departing Northern Ireland. The primary purpose of air passenger duties is to ensure that the aviation sector contributes to public finances, since tickets are VAT-free and aviation fuel incurs no duty.

Following a consultation on aviation tax reform in 2021, the Government announced a package of APD reforms at the autumn Budget 2021. First, the reforms will bolster air connectivity within the Union through a 50% cut in domestic APD. Some of the nations and regions of the UK are separated by sea so aviation has a critical role to play in facilitating the necessary links across our Union.

Secondly, by adding a new ultra-long-haul distance band, the reforms further align APD with the Government’s environmental objectives, recognising that aviation is responsible for 8% of the UK’s greenhouse gas emissions. In particular, emissions from international aviation have more than doubled since 1990, and we were responsible for 96% of the sector’s greenhouse gas emissions in 2019.

The new ultra-long-haul band, which covers flights that are greater than 5,500 miles from London, will ensure that those who fly furthest and have the greatest impact on emissions incur the greatest duty. The annual uprating for APD rates in line with RPI to the nearest pound is routine and has occurred every year since 2012. To give airlines sufficient notice, the Government announce the rates at least one year in advance.

The changes made by clause 321 implement the APD reforms and the 2023-24 rates announced at autumn Budget 2021. APD for domestic flights, except private jets, will be reduced by 50%, from £13 to £6.50 for passengers flying economy class. Overall, the Government expect that more than 10 million passengers will benefit from the reform.

The new ultra-long-haul band will be set at £91 for passengers flying in economy—a £4 increase compared with the existing long-haul band. That is expected to affect less than 5% of passengers. For the remaining 2023-24 rates where the standard uprating applies, the clause increases the long-haul rate by a nominal increase of just £3 for economy class. The rounding of APD rates to the nearest pound means that short-haul rates will remain frozen in normal terms for the 10th year in a row. That benefits more than 70% of passengers.

Clause 322 enables the Northern Ireland Assembly to set the rates for the new ultra-long-haul band for direct flights departing Northern Ireland. The rates for direct long-haul flights from Northern Ireland are already devolved. The reforms to air passenger duty will bolster Union connectivity and further align the tax with our environmental objectives. These are a routine uprating of existing rates, which represents a real-terms freeze and ensures that airlines continue to make a fair contribution to our public finances. I therefore move that the clauses stand part of the Bill.

[James Murray (Ealing North) (Lab/Co-op)]

As we heard from the Minister, clause 321 will introduce a new domestic band for flights within the UK and a new ultra-long-haul band covering destinations with capitals located more than 5,500 miles from London. Until the end of March 2023, there were two destination rate bands for air passenger duty: band A included those countries whose capital city is less than 2,000 miles from London, with band B covering all other destinations. From 1 April, there have been four destination bands: the domestic band for flights within the UK; band A for non-domestic destinations whose capital is up to 2,000 miles from London; band B for destinations whose capital is between 2,001 and 5,500 miles from London; and band C for all other destinations.

As the Minister explained, clause 322 makes consequential amendments to the provisions that devolve to the Northern Ireland Assembly the power to set the direct long-haul rates of APD. I understand that the changes in the clause do not impinge on the devolved powers, and the devolved rates are not affected. Rather, it updates the provisions to reflect the introduction of clause 321 and the ultra-long-haul band.

Before I address our concerns about this measure, I would be grateful if the Minister could help the Committee to understand what the situation would be if the clause passed by confirming what rates of air passenger duty would apply in a few specific instances. First, if someone were to travel by helicopter around the UK—for instance, from London to Southampton—would that be subject to air passenger duty? Secondly, if someone travelled on a private jet around the UK—say, from London to Blackpool—that was, for argument’s sake, a Dassault Falcon 900LX, what rate of air passenger duty would apply? Finally, if someone lives in the UK but was travelling to another home of theirs—say, in Santa Monica, California—what rate of air passenger duty would apply? I would be grateful if the Minister could answer those three questions.

I turn to our concerns about the clause. As the Minister might know, when this measure was first announced at autumn Budget 2021, we raised our concerns about it during the debates on the subsequent Finance Bill. We pointed out then—it is even truer today—that it could not be right for the Government to prioritise a tax cut that would be of greatest benefit to people who are able to be frequent flyers in the UK at a time when working people across the country have been hit again and again by tax rises.

As well as being the wrong priority for public money, the Chancellor announced the cut in air passenger duty just days before COP26. What is more, as the Institute for Fiscal Studies pointed out at the time, the cut in air passenger duty would in fact flow through the UK emissions trading scheme and push up electricity prices for people at home. The Government have pointed out that the introduction of a reduced domestic rate of air passenger duty has been accompanied by the introduction of an ultra-long-haul rate. However, when taken together, all the changes in the clause are still set to cost the taxpayer an additional £35 million a year. We cannot support this as a priority for spending public money, so we will oppose the clause.

[Dame Angela Eagle (Wallasey) (Lab)]

Will the Minister tell us how clause 322(4), which devolves these issues to the Northern Ireland Assembly, will work, given that the Assembly is not sitting at the moment? Does it mean that this will be decided centrally at Westminster? What arrangements are made for that, since, if there was no change in these areas, in the absence of the Assembly sitting, there would be a divergence between air passenger duty in one place and the other? How has the Treasury modelled that divergence, given that air passenger duty is a devolved issue, even though the devolution settlement is not working at the moment because the Assembly is not sitting?

Will the Minister update the Committee on where we are with the aviation treaties that zero-rate aviation fuel? It is an ongoing issue, given the nature of the environmental damage that is done—particularly by aviation fuel—in the higher atmosphere when airplanes fly at higher levels, which they normally do on long-haul flights. How will private jets be treated and affected, if at all, by the reduction in domestic air passenger duty, since we have a Prime Minister who seems to think that public transport is chartering a private jet for short-haul flights?

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[Gareth Davies]

Clauses 323 to 325 and schedule 22 provide for the 2023-24 vehicle excise duty rates and the new, reformed heavy good vehicle levy from August 2023.

The clause sets the 2023-24 vehicle excise duty rate. Since 2010, rates of VED have changed only in line with inflation, which means that drivers have not seen a real-terms increase. The clause will result in nine in 10 car drivers seeing a change to their VED liability of £20 or less next year. The Government continue to support drivers who will benefit from the extended cut and will freeze fuel duty in 2023-24, worth £100 to the average driver.

Clause 324 and schedule 22 introduce the new, reformed HGV levy from August 2023, following the end of the levy suspension period. The reforms are a further step towards reflecting the environmental performance of heavy goods vehicles. Given that the HGV levy suspension period is coming to an end, HGV VED will remain frozen for 2023 to 2024 to support the haulage sector. Finally, clause 325 removes certain circumstances in which the levy suspension period for a given HGV is extended longer than intended.

I will now go through the measures in detail. A long-standing feature of VED is that it is uprated in line with inflation, using a measure based on the retail price index. Since 2010, rates for cars, vans and motorcycles have increased only in line with inflation. The standard annual rate of VED for cars first registered since April 2017—the most common annual rate—will increase by £15, from £165 to £180. Drivers will continue to benefit from the extended cut and freeze to fuel duty in 2023-24, which taken together represent a saving of £100 per average motorist.

As for the HGV levy, which applies to all HGVs of 12 tonnes or more, it was introduced in 2014 to ensure that all hauliers, both UK and non-UK, make a contribution when they drive on UK roads. The levy was suspended in August 2020 to support the haulage sector and aid the covid-19 pandemic recovery efforts. The suspension is due to end in August 2023.

In June 2022, the Government consulted on HGV levy reform options. The consultation sought views on proposals to align a reformed HGV levy with the environmental performance of the vehicle, ensuring that levy liability is as closely aligned as possible to when a foreign vehicle is used on a major road. Having considered views on the subject, the Government decided to take forward the proposals, as announced at the Budget.

Clause 323 will result in changes to some drivers’ vehicle excise duty liabilities. That includes changes to first-year rates of VED for cars. The most polluting vehicles will pay up to £2,605, while those with lower emissions will pay nothing. Rates for vans, motorcycles and motorcycle trade licences will also change in line with RPI.

Clause 324 and schedule 22 will increase the new reformed HGV levy. That is effective from August 2023. On average, UK HGVs will pay around 20% less than under the previous HGV levy, with both UK and non-UK hauliers benefiting from a much simplified levy structure based on weight proxying CO₂. The number of rates will reduce from 22 to 6, which will make administration easier. For non-UK hauliers, the reforms also ensure that the levy is focused on road usage and is more clearly aligned with the Government’s international obligations. The most common type of HGV hauliers will pay £576 per year. The second most common type will pay £150—less than the cost of a tank of fuel. For many types of HGVs, operating costs are more than £100,000 a year; the HGV levy represents a small fraction of that.

Clause 325 is a technical anti-avoidance change. In the final year of the three-year levy suspension period, each vehicle should benefit from only up to 12 months of levy-free period. The clause ensures that by providing for a transitional payment where a vehicle has benefited from additional months of levy-free period.

The Government have tabled amendments 9 and 10 to those clauses, which address minor legislative errors to ensure that vehicle excise duty for rigid HGVs pulling trailers continues to apply as intended following the introduction of the new reformed levy. Where VED was partly set according to the vehicle weight bands of the previous HGV levy, the amendments specify the same weight bands independently of the new reformed levy. As a result, the VED due for HGVs pulling trailers does not change, in line with the Government’s policy intention.

In conclusion, a new reformed HGV levy will ensure that all hauliers continue to make a contribution when they use UK roads after the levy suspension period ends. VED has been frozen for HGVs, and for other vehicles it is rising in line with RPI only, so drivers will not see a real-terms increase in their VED liabilities. I therefore commend the clauses, the schedule and amendments 9 and 10 to the Committee.

[James Murray]

As we have heard from the Minister, clause 323 provides for changes to certain rates of vehicle excise duty by amending schedule 1 to the Vehicle Excise and Registration Act 1994. As we know from announcements in the spring Budget, vehicle excise duty rates for light passenger and light goods vehicles and motorcycles will increase in line with inflation, based on RPI. We understand that the changes to rates will take effect for vehicle licences taken out on or after 1 April this year.

Clause 324 and associated schedule 22 change the HGV road user levy; they amend, as the Minister said, how it is calculated and the rates. They also remove the requirement to provide a register of HGV levy paid. The HGV levy was introduced in 2014, and is payable by both UK and non-UK HGVs when using UK roads. The Government suspended the levy in August 2020, and it will return in August this year. The Department for Transport consulted on changes to the HGV levy in June 2022. The reforms implemented by the clause and the accompanying schedule move the levy towards better reflecting the environmental performance of vehicles.

On a minor point of clarification, the explanatory note to the clause states:

“For non-UK HGVs, the reforms also ensure that the levy is…more clearly aligned with the government’s international obligations.”

Could the Minister explain what international obligations the note refers to, and how the reforms better align the UK with them? Finally, clause 325 operates alongside clause 324. It deals with circumstances where the levy’s suspension period for a given HGV is extended longer than the Government intended. As the explanatory notes on the clause make clear, in the final year of the three-year levy suspension period, which ends in August this year, each vehicle should benefit from only another 12 months of levy-free period. I understand that the clause ensures that that is the case by providing for a transitional payment where a vehicle has benefited from additional months of levy-free period, so Labour will not oppose the clause.

[Gareth Davies]

I am grateful to the Opposition for not opposing clause 325. The hon. Member rightly asked about the international aspect of the provisions on international hauliers. Perhaps I can offer additional clarification. The measures will apply only to A roads and motorways, which is in line with what happens in many other countries. On the specific international obligations that he asked about, I do not have the exact detail to hand, but I am happy to follow up on that. However, what we propose is in line with what is done by many other countries around the world.

We are often asked why the levy is restricted to certain roads. It has been assessed that rerouting to avoid the levy would not be cost-effective for hauliers. We have every confidence that the Driver and Vehicle Licensing Agency, the police and our extensive automatic number plate recognition technology will enable us to enforce this measure. On the question about international obligations, I understand that the obligations may be those under the trade and co-operation agreement. I will confirm that to him later.

Question put and agreed to.

Clause 323 accordingly ordered to stand part of the Bill.

Clause 324

Reform of HGV road user levy

Amendment made: 9, in clause 324, page 245, line 34, after “provision” insert “(including consequential provision)”.—(Gareth Davies.)

See the explanatory statement for Amendment 10.

Clause 324, as amended, ordered to stand part of the Bill.

Schedule 22

Reforms of HGV road user levy

Amendment made: 10, in schedule 22, page 449, line 25, at end insert—

‘10A “(1) In consequence of the amendments made by paragraph 10, in Part 8 of Schedule 1 to VERA 1994 (annual rates of duty: goods vehicles), paragraph 10 (relevant rigid goods vehicles) is amended as follows.

(2) After sub-paragraph (2) insert—

“(2A) In this paragraph, references to “the tables” are to the tables mentioned in sub-paragraph (6).”

(3) In sub-paragraph (3)—

(a) in the opening words omit “following”;

(b) in paragraph (c), for “appropriate HGV road user levy band” substitute “vehicle excise duty band”.

(4) For sub-paragraph (5) substitute—

“(5A) The “vehicle excise duty band” in relation to a vehicle is determined in accordance with the following table—

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[The Financial Secretary to the Treasury (Victoria Atkins)]

Again, out of an abundance of caution, I refer hon. Members to my entry in the ministerial register of interests. I am recused from any consideration, in a ministerial capacity, of this levy.

[James Murray]

As we have heard, clause 326 increases both rates of the landfill tax in line with inflation, rounded to the nearest 5p. The increased rates apply to any disposal of relevant materials made, or treated as being made, at a landfill site in England or Northern Ireland on or after 1 April.

The landfill tax was introduced in 1996. It increased the cost of waste disposal at landfill to encourage waste producers and the waste management industry to switch to a more sustainable way of disposing of waste material. The tax was originally UK-wide, but it was devolved in Scotland from April 2015 and in Wales from April 2018. We will not oppose the clause, but I ask the Minister to fill us in on the wider context of the landfill tax, and specifically landfill tax fraud. In a Backbench Business Committee debate on landfill tax fraud in January, my hon. Friend the Member for Cambridge (Daniel Zeichner) said:

“Landfill tax fraud is a blight on communities across the country. It causes lasting damage to the environment and, of course, deprives the Exchequer of revenue.”—[Official Report, 12 January 2023; Vol. 725, c. 793.]

As Members discussed during that debate, according to His Majesty’s Revenue and Customs’ most recent annual estimate of the tax gap, the gap between landfill tax due and revenue collected in 2021 is £125 million. That is a gap of 17.1%—much higher than the overall tax gap for that year. According to HMRC’s report, the uncertainty rating for the landfill tax gap estimate is high. The then Exchequer Secretary, the hon. Member for South Suffolk (James Cartlidge), conceded in the debate that “non-compliance is high.” In responding to the debate, he set out some details of the operational resource dedicated to landfill tax non-compliance; however, I do not think that he directly answered a question that the shadow Minister, my hon. Friend the Member for Cambridge, put to him: how much of the £125 million tax gap identified in 2021 has been recovered by HMRC? I would be grateful if the current Exchequer Secretary could address that point.

Clause 327 amends the main rates of the climate change levy on gas and other taxable commodities, and the reduced rate percentages on those commodities paid by participants in the climate change agreement scheme from 1 April next year. The climate change levy is a tax on the non-domestic use of gas, electricity, liquefied petroleum gas and solid fuels. Energy-intensive businesses that participate in the climate change agreement scheme run by the Department for Energy Security and Net Zero pay reduced rates expressed as a percentage of the four main rates of the climate change levy on the taxable commodities supplied to them.

We understand that the changes introduced by the clause were announced in the 2022 autumn statement, which froze the electricity rate, and in which it was confirmed that the climate change levy rate for LPG will continue to be frozen until 31 March 2025. It was further announced that the reduced rates of the levy for 2024-25 on gas and other taxable commodities paid by qualifying businesses in the climate change agreement scheme would be amended, so that participants will not pay more under the levy than they would have if the rates had increased in line with the retail price index.

Clause 328 increases the plastic packaging tax in line with the CPI. The plastic packaging tax was introduced in April 2022 to provide an economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging. That was expected to create greater demand for the material, which would in turn stimulate increased recycling and collection of plastic waste, diverting it from landfill or incineration. I understand that the new rate maintains the real-terms value of the incentive to include 30% or more recycled plastic and plastic packaging components in a product by increasing the rate of tax in line with the CPI. As that tax has now been in place for a year, what evaluation have the Government made of it? In particular, can the Minister tell us what impact the tax had in 2022-23, in terms of fulfilling its stated aim of stimulating increased recycling and collection of plastic waste?

Clause 329 makes changes to the aggregates levy exemptions for some types of aggregate from construction sites. We understand that it replaces four exemptions for by-product aggregate arising from certain types of construction with a broader and more general one. The explanatory notes state:

“Following a review of the levy in 2019, some concerns about the operation of the levy were raised by different stakeholder groups.”

I understand that the changes were consulted on in 2021. Draft legislation was published in July 2022 for technical consultation, which has now concluded. On that basis, we will not oppose the clause.

[Aaron Bell (Newcastle-under-Lyme) (Con)]

It is a pleasure to serve under your chairmanship, Sir Gary. I will confine my remarks to clause 326. I am grateful to the hon. Member for Ealing North for raising landfill tax fraud and the debate on 12 January, which I contributed to at some length. As Members may know, I have the worst landfill in the country in Walleys Quarry in my constituency of Newcastle-under-Lyme. The Opposition Whip, the hon. Member for Blaydon, also has some experience in this area, because her constituents have suffered at Blaydon Quarry. She contributed to that debate, too.

The hon. Member for Ealing North mentioned that the tax was introduced in 1996. The differential between the rates for regular waste and inert waste has grown immensely. Now, they are £3.25 and £102.10 respectively; back in 1996, they were £2 and £7. Just as the hon. Member for Wallasey said earlier in relation to tobacco, that has increased the incentive for people to break the rules, and unfortunately, many people in the waste industry are breaking the rules. What goes on at Walleys Quarry causes misery for my constituents, as fly-tipping and everything else that goes on in the waste industry does for people around the country.

The responsibility falls primarily on the Environment Agency, which I continue to press to do more about Walleys Quarry, as well as about Staffordshire Waste Recycling Centre, which is just over the border in the constituency of my hon. Friend the Member for Stoke-on-Trent North (Jonathan Gullis), who mentioned it just yesterday at Prime Minister’s questions. Will the Minister focus on the role of HMRC in helping the EA to do its work, because prosecutions for fraud may ultimately have more effect than prosecutions under environmental regulations?

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[James Murray]

I thank the Minister for his commitment to a review of the effectiveness of the plastic packaging tax and for his clarification of some of the statistics around the tax gap. Comparing the figures that he cited with the figure of 17.1% for landfill tax fraud shows just how big the tax gap is for landfill tax fraud, and how important it is that specific action be taken. Will he explain what specific action, rather than just talk about generalities, is being taken on landfill tax fraud, which we all agree is a problem that must be tackled?

May I also remind the Minister about a question I asked earlier? I am sorry if I missed it, but I do not think he responded to my question about the £125 million tax gap identified in 2020-21 and what has been done to recover that money.

[Gareth Davies]

As I have laid out, the Joint Unit for Waste Crime is a very effective organisation. It works with more than 100 agency partners to tackle all types of waste crime, including the type that we are talking about. HMRC is targeting businesses and has the powers to compulsorily register and to issue penalties. That action is being taken by not just HMRC, but by the JUWC.

I will get back to the hon. Member on his last point; I do not have the information in front of me right now.

Question put and agreed to.

Clause 326 accordingly ordered to stand part of the Bill.

Clauses 327 to 329 ordered to stand part of the Bill.

Clause 330

Designation of sites

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

[Victoria Atkins]

Clauses 330 and 331 will make changes to ensure that tax sites in investment zones can benefit from an optional single five-year offer of tax reliefs, identical to those available in freeports. That will mean that businesses within the tax sites can benefit from tax and national insurance reliefs to incentivise investment and reduce the cost of hiring employees.

The Government have set out an ambitious plan for growth and prosperity, rooted in boosting the UK’s potential as an innovation nation, growing strengths in key industries to support national priorities and levelling up communities across the country. At the spring Budget, the Chancellor confirmed that the investment zones programme will catalyse 12 high-potential, knowledge-intensive growth clusters around the UK, including four across Scotland, Wales and Northern Ireland. Each investment zone will bring together local partners to drive the growth of our key future sectors, bringing investment into areas that have traditionally underperformed economically. Each English investment zone will be able to benefit from access to interventions of £80 million over five years, which can be used flexibly between spending and a single, optional five-year tax offer. The changes made by clauses 330 and 331 will enable special tax sites in English investment zones to have access to that single, optional five-year tax offer.

Clause 330 will amend existing legislation to allow investment zone tax sites to be designated via secondary legislation in the same way as freeport tax sites. Clause 331 will allow the sunset date for the investment zones, tax reliefs and special tax sites to be set in that secondary legislation. Businesses investing or hiring new employees in investment zone tax sites will have access to the following tax reliefs: first, a full stamp duty land tax relief for land and buildings bought for commercial use or development for commercial purposes; secondly, a 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in investment zone tax sites; and thirdly an enhanced capital allowance, a 100% first-year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.

Furthermore, there is an enhanced structures and buildings allowance, which provides accelerated relief to allow businesses to reduce their taxable profits by 10% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over 10 years. [Interruption.] It is always delightful to hear from the Speaker.

Finally, there is employer national insurance contributions relief—zero-rate employer national insurance contributions on salaries of any new employee working in the tax site for at least 60% of their time, on earnings up to £25,000 per year, with employer NICs being charged at the usual rate above that level. The relief applies for 36 months per employee. The precise costs of tax sites will vary by site; however, the estimated value of 600 hectares of tax reliefs is £45 million, to be deducted from the overall £80 million funding envelope available to an investment zone.

These clauses will help to enable the investment zones tax offer to operate in special tax sites in England. That will drive private sector activity in investment zone tax sites, which will be key to catalysing the agglomeration of businesses in high-potential, knowledge-based sectors in investment zones across England.

[James Murray]

As we have heard, clause 330 and its associated schedule, schedule 23, will extend the power to designate special tax sites to allow designation of such sites in or connected with investment zones located in Great Britain, while clause 331 makes provision related to the sunset date for tax reliefs available in special tax sites.

We know that these provisions are being introduced effectively to extend the tax reliefs available in freeport tax sites to such sites in or connected with investment zones. We know that those tax reliefs include an enhanced capital allowance for qualifying expenditure and plant machinery; enhanced structures and buildings allowance for qualifying expenditure on non-residential buildings and structures; and a stamp duty land tax relief for certain acquisitions of land. Furthermore, a secondary class 1 national insurance contributions relief for eligible employers on the earnings of eligible employees up to £25,000 per annum, which is available in freeport tax sites, is also being extended to special tax sites in or connected with investment zones.

It is worth being clear that the investment zones with which the Government are currently proceeding are different from the investment zones that the right hon. Member for South West Norfolk (Elizabeth Truss) announced when she was Prime Minister. A significant number of councils put in bids for investment zones when they were announced under her premiership. According to the Association of Local Authority Chief Executives, councils had to spend an average of £20,000 to £30,000 on each bid, and may well have lost staff hours to work on preparing the submissions. Since then, investment zones have been relaunched, but it seems clear that the process for proceeding with the relaunched investment zones is entirely separate from the bidding process in operation for their former incarnation.

I would be grateful if the Minister confirmed how much money is estimated to have been wasted by councils, and indeed by central Government civil servants, on the now-abandoned bidding process for the original incarnation of investment zones. I assume that councils will be left out of pocket with respect to any money that they have spent on bids, and that the Government will not be considering refunding any of those costs, but I would be grateful if the Minister at the very least apologised to taxpayers for the money wasted as a result of this aborted policy.

I know that apologies can be hard to come by. Just last night, in fact, we heard the former Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng), brazenly denying the harm that the mini-Budget last autumn caused to family finances. He refused to take responsibility for the impact of soaring rates on mortgage payers across the country and on renters, who are seeing higher costs passed on to them. However, I urge the Minister to do the right thing and take this opportunity to apologise more generally for the harm caused by the mini-Budget last autumn, and indeed by Conservative failures over the past decade.

[Mark Jenkinson (Workington) (Con)]

Would the hon. Gentleman like to clarify whether it is Labour party policy to intervene in Bank of England decisions?

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[Victoria Atkins]

I hope that clause 332 will be of real interest to hon. Members and their constituents. In recent years, there has been a growth in what are commonly called repayment agents. Hon. Members may have received a great deal of correspondence from their constituents about such agents. They are paid tax agents who specialise solely in making claims for income tax relief on behalf of their clients.

Repayment agents can provide a useful service to taxpayers by helping them to claim reliefs or allowances to which they are entitled from HMRC, but last year HMRC received around 2,800 complaints about repayment agents from taxpayers who were unclear about the terms or conditions to which they had signed up. Those taxpayers were unaware that they were claiming through a third party and that they would be charged a fee of up to 50% of the repayment, and they were unaware of the use of assignments. Clause 332 prohibits the assignment of income tax repayments and, where such rights have been assigned, renders the assignment void. It is a consumer protection measure that is aimed at ensuring that taxpayers have better control over their income tax repayments, and I hope that hon. Members will advertise the measure to their constituents.

I turn to clauses 333 to 335. New late payment penalty and interest legislation was approved by Parliament in 2021. The new system is built on fairness and proportionality. In implementing penalty reform and interest harmonisation for VAT, we have identified some minor defects in the legislation that the clauses seek to correct. Clause 333 ensures that, for customers who use the VAT annual accounting scheme, late payment interest will not be charged on interim instalments of VAT that are paid late. Clause 334 ensures that late payment penalties do not apply to instalments payable under the VAT annual accounting scheme, and clause 335 makes a minor technical change to repayment interest on VAT to ensure that the rules operate as intended.

Clause 336 gives HMRC a power to move insurance premium tax administration forms out of secondary legislation and into a public notice. Currently, whenever administration forms need to be updated, a statutory instrument needs to be passed. Moving administration forms out of that regime will enable them to be updated without the need to pass legislation each time an update is required. That will simplify the administration of tax and support HMRC in keeping pace with developments in tax policy and insurance industry practices.

Finally, clause 337 relates to the plastic packaging tax. Currently, late payments in respect of plastic packaging tax by liable businesses and businesses that are held secondarily liable or joint and severally liable incur the same penalties. In contrast, late payments of assessments made by HMRC where a business has failed to submit a return incur different penalties. Clause 337 addresses that anomaly and amends schedule 56 to the Finance Act 2009, so that all late payments of plastic packaging tax incur the same penalties.

[James Murray]

As we heard, clause 332 introduces a new provision that renders void assignments of income tax repayments. We understand that the clause removes the ability of a taxpayer to legally transfer their entitlement to an income tax repayment to a third party such as an agent. It enables HMRC to disregard assignments when issuing income tax repayments, although we understand that it does not remove a taxpayer’s ability to use a non-legally binding nomination where they wish their repayment to be made to a third party. The decision to prohibit assignments seems to have been driven largely by the practices of Tax Credits Ltd, which ultimately led to HMRC having to issue tax refunds directly to 60,000 affected taxpayers.

The changes in the clause have been broadly welcomed by groups including the Low Incomes Tax Reform Group, which pointed out that they mean that taxpayers will no longer be able to assign their rights to an income tax repayment to a third party repayment agent, and that includes taxpayers who have been tricked or misled into doing so by an unscrupulous agent. However, LITRG highlights that issues remain around the nomination process—the alternative way that I mentioned of enabling an agent to receive a payment. It is concerned that the provisions in the clause will not stop taxpayers being tricked or misled into nominating an unscrupulous agent to receive an income tax repayment. LITRG also raised its concern that responsible repayment agents, who were not misusing assignments, may exit the market, given the risk of non-payment for their work. LITRG therefore suggests that HMRC carefully monitors the impact of the provision on taxpayers and their ability to obtain refunds.

I am sure that the Minister will try to assure us that HMRC carefully monitors all its operations, but I would press her to give a more specific commitment in response to LITRG’s concerns. In particular, will she commit to publishing certain metrics proposed by LITRG, such as the total number of refund claims made and the total number made by third party companies?

Clauses 333 to 335 amend legislation governing a new penalty regime and rules on interest for VAT, which the Government announced at spring Budget 2021. As we heard, clause 333 makes two technical changes to the late payment interest rules. The first change ensures that late payment interest does not apply to instalments payable under the VAT annual accounting scheme. The second change means that when HMRC is recovering a VAT payment, the late payment interest start date is the date from which HMRC paid that amount. Clause 334 amends the Finance Act 2021 to ensure that late payment penalties do not apply to instalments payable under the VAT annual accounting scheme. Clause 335 amends the Finance Act 2009 to remove a restriction on the accrual of repayment interest on VAT paid by HMRC to the taxpayer. We will not oppose these clauses.

We understand that clause 336 will broaden existing powers, thereby enabling HMRC to move insurance premium tax forms from secondary legislation and into a public notice by way of a statutory instrument. As the Minister outlined, these technical changes are intended to reduce the administrative burden and make it easier to make administrative updates to the forms without the need for legislation. We also understand that this provides a necessary step for future legislation allowing HMRC to further digitise the insurance premium tax forms. We will not oppose the measure.

Finally, clause 337 amends schedule 56 to the Finance Act 2009, to align inconsistent late payment penalty provisions and ensure that all businesses liable for a late payment penalty in respect of the plastic packaging tax are charged the same penalty, however that liability arises. As we discussed earlier, the plastic packaging tax was introduced from 1 April last year to provide an economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging, which was intended in turn to create greater demand for that material. The clause introduces a technical, administrative change and we will not oppose it.

[Victoria Atkins]

We are pleased that LITRG is one of the many groups that we work closely with. We listen to them very carefully. Indeed, I met the head of the group only last week, I think, to listen to their concerns or thoughts about the tax system.

Just to reassure hon. Members, some people want to nominate tax agents to reclaim their taxes, and we do not want to shut down that route if people want to use it and do so in a fully informed and consenting manner. That is why we are moving from the assignment process through to nominations, and taxpayers will be able to withdraw easily from nominations. The point is that nominations are not permanent; they can be changed if taxpayers should wish to do so.

That is a really critical consumer protection. It is why we have put it in the Bill. It took immediate effect, because we wanted to apply it as soon as possible to prevent taxpayers from being tied into agreements that they could not rescind. Repayment agents were made aware of the Government’s intentions to legislate in January and we would say that they will have had time to adjust to the new forms, if you like, by the time that this Bill receives Royal Assent.

In relation to the other matters, I understand that the Opposition are not challenging them, so I will stop there.

Question put and agreed to.

Clause 332 accordingly ordered to stand part of the Bill.

Clauses 333 to 337 ordered to stand part of the Bill.

Clause 338

Approval of aerodromes

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

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The changes therefore create a new power to allow HMRC a discretion to extend temporary approvals in respect of the control schemes covered by certain regimes that contain similar fit and proper criteria. This does not alter the position that HMRC has judged the business to no longer satisfy the requirements to hold an approval.

[James Murray]

As we heard from the Minister, clauses 338 and 339 relate to regulated aerodrome approvals. Clause 338 introduces a power for HMRC to grant approvals to aerodromes for the purposes of the customs and excise Acts and to amend and revoke those approvals. The clause also introduces a requirement that operators of aerodromes take reasonable steps to ensure that no aircraft lands or departs in contravention of the Customs and Excise Management Act 1979.

Clause 339 introduces consequential amendments following the provisions of clause 338. The clauses together aim to strengthen aerodrome operator accountability by establishing an approval regime for aerodromes, which handle movements of people and goods and are not designated as customs and excise airports. We will not oppose the clauses.

Moving on to clause 340, excise businesses must be approved by HMRC to conduct certain controlled activities. HMRC can revoke a business’s approval where it fails to meet HMRC’s fit and proper criteria. Current legislation allows a temporary approval to be granted pending a review or appeal, and the temporary approval automatically ends once that review or appeal has finally been determined. We recognise, however, that that may cause hardship to an affected business as, after the final determination, there is at present no time for such a business to wind down its operations without incurring a penalty.

The measure has a new discretionary power to allow HMRC to extend a temporary approval following a final determination of a decision to revoke an approval, or a temporary approval granted during the review or appeals process. That will enable a business to wind down its operations without incurring a penalty, so we will not oppose this clause, either.

Question put and agreed to.

Clause 338 accordingly ordered to stand part of the Bill.

Clauses 339 and 340 ordered to stand part of the Bill.

Clause 341

Licensing authorities: requirements to give or obtain tax information

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

[The Chair]

With this it will be convenient to discuss clause 342 stand part.

[Victoria Atkins]

Clause 341 makes the renewal of certain licences to trade conditional on licence applicants completing tax checks in Scotland and Northern Ireland from 2 October 2023. Clause 342 makes amendments to licensing legislation in Scotland, which are consequential on clause 341

This is an extension of existing principles of conditionality that already apply to renewal applications in England and Wales for taxis and scrap metal dealer licences. The checks will confirm applicants are registered for tax and have notified HMRC of their income tax or corporation tax liability. This will make it harder for traders to operate in the hidden economy. It will also help licence holders get their tax affairs right and give honest businesses confidence that their competitors are playing by the same rules. New licence applicants will be supported and directed to HMRC’s guidance on tax obligations.

[James Murray]

We know that the Finance Act 2021 made provision for tax conditionality connected to the application for certain licences issued in England and Wales, namely licences to drive taxis, licences to drive and operate private-hire vehicles and licences to deal in scrap metal. We understand that clauses 341 and 342 extend the existing tax conditionality legislation to similar licences issued in Scotland and Northern Ireland. In Scotland, this applies to licences to drive taxis and private-hire cars, operate a booking office, and be a metal dealer, while in Northern Ireland it applies to licences to drive taxis.

We will not be opposing these clauses, but I would be grateful to the Minister if she can explain what, if any, additional resources will be made available to HMRC to effectively implement this extension of tax conditionality legislation.

[Victoria Atkins]

I wrote to the hon. Gentleman to set out the amounts and estimates that HMRC has given in its annual report and accounts about the collection protection in compliance yield, and this includes the compliance officers that would be put forward to help reduce the tax gap. They are changes to existing tax exemptions, reliefs and policies that HMRC is already resourced to administer, and it undertakes compliance interventions based on risk, with investigations normally covering multiple taxes and duties, as opposed to narrowly focusing on a single area of taxation. For example, we do not have a compliance team solely dedicated to investigating cases relating to the HGV levy, but if HMRC opened a tax inquiry into an HGV business, this would be one of many areas of taxation that it would look into to ensure that the business is compliant with its total tax obligations.

Question put and agreed to.

Clause 341 accordingly ordered to stand part of the Bill.

Clause 342 ordered to stand part of the Bill.

Clause 343

Definition of “charity” restricted to UK charities

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

[Gareth Davies]

Clauses 343 and 344 will restrict UK tax reliefs to UK charities and community amateur sports clubs. Having left the EU, it is right that UK taxpayer money should support UK charities and community amateur sports clubs.

The UK is a world leader in the charitable sector. This reflects many factors, including our geography, our connectivity and our recognised legal and regulatory expertise, but also because our tax regime for charities is among the most generous of anywhere in the world. As a result, there is a thriving UK charity sector, which includes numerous charities working across the globe, comprising both UK-based charities and UK branches of international charities.

Charitable tax reliefs in the UK are given in the following areas: income tax; capital gains tax, corporation tax, VAT, inheritance tax, stamp duty, stamp duty land tax, stamp duty reserve tax, annual tax on enveloped dwellings, and diverted profits tax. Additionally, charities and CASCs can also claim gift aid of 25p for every £1 of eligible donations made by UK taxpayers. In 2021-22, UK charitable reliefs were worth £5.5 billion to the sector, up from £4 billion in 2013-14. That has remained strong despite covid-19, with the value of reliefs remaining at about £5.5 billion from 2019-20 until 2021-22.

Before the introduction of that measure, charities based in the EU or European economic area could qualify for UK tax reliefs. Now it is time to take advantage of the UK’s exit from the European Union and to restrict UK tax reliefs so that they are available only to UK charities and community amateur sports clubs. That will protect the integrity of the tax system, as UK charities and community amateur sports clubs that are located outside the UK are harder for HMRC to police.

Clauses 343 and 344 will restrict UK tax reliefs to UK charities and community amateur sports clubs. Importantly, they do not discriminate between UK charities undertaking charitable activity here in the UK or abroad. The key factor is that the charity must be governed by a UK court. The measure took effect from Budget day, but the Government have allowed a short transition period until April 2024 for those charities that HMRC has recognised will be affected by the change. That provides a window for them to register in the UK if they are eligible or, if not, to reformulate their affairs.

The measure will ensure that UK taxpayer money will be used to support UK charities and community amateur sports clubs, and the effective policing of charitable reliefs through HMRC compliance activities. I commend the clauses to the Committee.

[James Murray]

As the Minister set out, clauses 343 and 344 introduce a restriction on the availability of tax reliefs so that only UK charities and UK community amateur sports clubs can gain access to UK charity tax reliefs. UK charitable tax reliefs were extended to organisations equivalent to charities and community amateur sports clubs in the EU and in the EEA countries of Norway, Iceland and Liechtenstein following a judgment of the European Court of Justice in January 2009. Following the UK’s exit from the EU, however, the Government are progressing to restrict UK tax relief to UK charities and community amateur sports clubs. We will not oppose the clauses.

Question put and agreed to.

Clause 343 accordingly ordered to stand part of the Bill.

Clause 344 ordered to stand part of the Bill.

Clause 345

Exemptions from tax

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

[The Chair]

With this it will be convenient to consider that schedule 24 be the Twenty-fourth schedule to the Bill.

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[James Murray]

As we heard, the clause and schedule introduce income tax and corporation tax exemptions for thank-you payments made by local authorities to sponsors under the Homes for Ukraine sponsorship scheme. They also introduce temporary reliefs on the annual tax on enveloped dwellings and on the stamp duty land tax in connection with the provision of accommodation under the scheme.

The reliefs and exemptions were announced by the Financial Secretary to the Treasury in a written ministerial statement on 31 March 2022. In that statement, she explained that

“those companies that currently qualify for the existing reliefs available from the annual tax on enveloped dwellings (ATED) and the 15% rate of stamp duty land tax (SDLT) for dwellings used in a property development or property trading business or let on a commercial basis will continue to be able to claim the relief while the dwellings are being used under the Homes for Ukraine Scheme.”

Since March 2022, many people across the country have volunteered to sponsor Ukrainians fleeing the war in their home country, and have warmly opened their homes and hosted them accordingly, and it is right that the Government support them.

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If the Minister will not agree to these changes and give the OTS a reprieve, at least for a while, will she give us the details of how she and the Department plan to insource this important issue? If the Office of Tax Simplification ceases to exist, what guarantee can she give that this important work will continue, when there are so many other things for Treasury officials to do? Will the Minister confirm, just for my peace of mind, that the sudden abolition of the OTS was not as a result of it causing too many internal annoyances in the Treasury? It appears to have been pretty friendless. I wonder why that might be. Perhaps the Minister will give us some insight.

[James Murray]

It is a pleasure to follow my hon. Friend the Member for Wallasey, who spoke to new clause 1. I will address some of the points she raised, as well as amendment 2 and clause 346.

As several Members have said, the Office of Tax Simplification was set up in July 2010. It was an independent office in the Treasury before being placed on a statutory footing by the Finance Act 2016. As we have heard, on 23 September last year, the right hon. Member for Spelthorne (Kwasi Kwarteng) announced that it would be abolished. He said:

“Instead of having a separate arms-length body oversee simplification, the government will embed tax simplification into the institutions of government.”

I will return to that quote in a moment.

As hon. and right hon. Members have said, the policy was announced during the tenure of the previous Prime Minister and is being continued under the current leadership. That makes the abolition of the OTS one of the few elements of the so-called growth plan of that premiership to survive. In an earlier sitting of this Bill Committee, I commented:

“There is at the very least something ironic about a Government who use one clause of a Finance Bill to implement a recommendation of the Office of Tax Simplification and another clause of the same Bill to abolish that institution.”––[Official Report, Finance (No. 2) Public Bill Committee, 16 May 2023; c. 47.]

As was mentioned, the Chartered Institute of Taxation has pointed out that almost every Finance Act of the last decade has included measures that owe their genesis to the OTS.

To return to the reason originally cited for abolishing the OTS, the right hon. Member for Spelthorne said that the Government wanted to

“embed tax simplification into the institutions of government.”

We therefore have great sympathy with amendment 2, which was tabled by the hon. Member for Aberdeen North and has been spoken to. It would at least require the Chancellor to publish an analysis of the cost and benefit of the policy. That has been entirely lacking so far.

If the Government press ahead with abolishing the OTS, it is important that they make clear how they will deliver on their commitment to tax simplification. As was mentioned by my hon. Friend the Member for Wallasey, the Chartered Institute of Taxation sent a joint letter with the Low Incomes Tax Reform Group, the Association of Taxation Technicians, the Institute of Chartered Accountants in England and Wales, and the Institute of Chartered Accountants of Scotland to the Financial Secretary to the Treasury on 5 April. The letter covered identifying the characteristics of tax simplification; ensuring that someone is accountable for the delivery of tax simplification; including simplification declarations in tax information and impact notes; gaining external input on policy design and implementation; seeking feedback from a broad range of stakeholders; ensuring that HMRC and Treasury engagement groups have tax simplification as a standing objective; increasing awareness and improving guidance; allowing time for the development and integration of systems; and adopting a consistent approach across tax regimes.

I would be grateful if the Minister updated us on her response to the specific points set out by the Chartered Institute of Taxation. I also ask her again to set out clearly what costs and benefits, including the cost impact of any proposed new operational arrangements, she believes the abolition of the OTS will have, so that members of the Committee can consider this matter with all the relevant information to hand.

[Victoria Atkins]

For ease and convenience, I will speak to all the amendments and new clauses as well as clause 346. First, I thank the OTS—

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[Victoria Atkins]

Clause 347 makes changes to support the expansion of the dormant assets scheme to a wider range of assets, including insurance assets, pension assets, investment assets, client money assets and security assets such as shares. The Government estimate that up to a further £880 million will be made available for good causes across the UK thanks to the expansion of the scheme to the new sectors.

[James Murray]

As we know, under the UK’s dormant assets scheme, dormant asset funds are transferred to an authorised reclaim fund, Reclaim Fund Ltd. People can reclaim from that fund what they otherwise would have owned if their asset had never been transferred into the scheme. In some cases, it will be the monetary value of the dormant asset that will be transferred into the RFL rather than the original asset.

We understand that clause 347 ensures that the payments from an authorised reclaim fund are treated, for the purposes of income tax, as if they were from a pension asset that was initially transferred. We understand that it also seeks to ensure that, where an asset has been transferred from an authorised reclaim fund and its owner was alive at the time but subsequently dies before the asset has been reclaimed, the owner will be treated for inheritance tax purposes as still owning the original asset. We do not oppose the clause.

Question put and agreed to.

Clause 347 accordingly ordered to stand part of the Bill.

Clause 348

International arrangements for exchanging information

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

[The Chair]

With this it will be convenient to discuss clauses 349 to 352 stand part.

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[James Murray]

As we have heard, clause 348 consolidates existing automatic exchange of information powers that allow the Treasury to implement the domestic requirements of certain international instruments, relating to, among other things, the automatic exchange of information between tax authorities. We recognise that the purpose of the consolidation is to create a general power to allow the Treasury to give effect to existing and future international exchange of information instruments. We understand that once the Bill is enacted, the previous powers will be repealed. We do not oppose the clause.

We understand that clause 349 will allow the transfer of moneys that have remained unclaimed in the Courts Fund Office account for many years, despite attempts to trace the beneficiaries and the account titles being available to the public via the unclaimed balances database on gov.uk. We recognise that at present such moneys are being held in perpetuity unless claimed. I also noted that some moneys have apparently been held since 1726. Does the Minister know what rate of interest those moneys have been earning for the last 300 years, and how much money is expected to be earned from that interest at the point of transfer?

Clause 350 defines how HMRC’s payment functions across the taxes, duties and benefits it administers interact with financial sanctions regulations and seeks to ensure that relevant changes to UK financial sanctions regulations are automatically reflected in HMRC’s functions. I understand that subsection (1) prohibits the making of a payment, whether directly or indirectly,

“to or for the benefit of a person who is, at that time, a designated person for the purposes of financial sanctions regulations.”

We will not oppose the clause. However, the fact that subsection (1) is necessary could be seen to imply that payments have in fact been made to, or the benefit of, a person who was at the time

“a designated person for the purposes of financial sanctions regulations.”

Will the Minister confirm whether that was the case, and tell us how many payments have been made to such people, what the total value of such payments was in each of the last 10 years and under which financial sanctions regulations the people involved have been designated? Clauses 351 and 352 relate to the interpretation and short title, and we will not oppose them.

Very briefly, Mr Stringer, may I take this opportunity to thank people? I thank all Ministers and Committee members, particularly my hon. Friends the Members for Wallasey, for City of Chester, for West Lancashire, for Ilford South, for Erith and Thamesmead, and for Blaydon. I thank the Clerks, parliamentary authorities and third parties, including the Chartered Institute of Taxation. I also thank you, Mr Stringer, and of course Ms McVey, who chaired the sitting on Tuesday.

[Victoria Atkins]

The shadow Minister asked about the amount of money that is expected to be paid into the consolidated fund in 2024-25. It is some £50 million. I am afraid that I do not know the interest rate charged in 1726; I obviously have room to improve on that—apologies. I suppose that in an idle moment we may put our minds to it and see whether we can come up with something, but I do not commit to that. I regret that I did not hear the detail of his questions on financial sanctions.

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[James Murray]

I thank the Minister for giving way. The fact that clause 350(1) is necessary could be seen to imply that payments have in fact been made

“to or for the benefit of a person who is, at that time, a designated person for the purposes of financial sanctions regulations.”

My question was, if that is the case, will the Minister tell us how many payments have been made to such people, the total value of such payments in each of the last 10 years and which financial sanctions regulations the people involved were designated under?

[Victoria Atkins]

I am in the situation that I find myself in from time to time, which is that, although I am extremely conscious of the desire for transparency, there is still the principle of taxpayer confidentiality. Given the sensitivities of the subject matter, and given that, I suspect, a small group of individuals would be subject to the measure, I regret that I am unable to give those details. I have to give that answer from time to time, and I know that it is frustrating for hon. Members, because I can understand why they want answers. I regret that I cannot assist the hon. Member for Ealing North on this occasion.

Question put and agreed to.

Clause 348 accordingly ordered to stand part of the Bill.

Clause 349 to 352 ordered to stand part of the Bill.

New Clause 1

Reports to Treasury Committee on measures to simplify tax system

“(1) The Treasury must report to the Treasury Committee of the House of Commons on steps taken by the Treasury and HMRC to simplify the tax system in the absence of the Office of Tax Simplification.

(2) Reports under this section must include information on steps to—

(a) simplify existing taxes, tax reliefs and allowances,

(b) simplify new taxes, tax reliefs and allowances,

(c) engage with stakeholders to understand needs for tax simplification,

(d) develop metrics to measure performance on tax simplification, and performance against those metrics.

(3) A report under this section must be sent to the Committee before the end of each calendar year after the year in which section 346 (abolition of the Office of Tax Simplification) comes into force.”—(Dame Angela Eagle.)

This new clause would require the Treasury to report annually to the Treasury Committee on tax simplification if the Office of Tax Simplification is abolished.

Brought up, and read the First time.