Oral Answers to Questions

James Murray Excerpts

Tuesday 6th February 2024 Commons Chamber

[Nigel Huddleston]

I hear the House’s concern about this issue, on which we had a debate not so long ago. Of course, the suicides the hon. Gentleman mentions concern us, and independent reviews have taken place. However, I want to provide the House and anybody listening with reassurance that the best thing to do if people have concerns is to engage with HMRC, because very generous and long-term plans can be put in place to help people to repay. As I said, there are fears out there—there is a bit of scaremongering—that homes are being taken over or people are having to give up pensions. That is not the case. Engagement with HMRC to establish reasonable time to pay would therefore be reassuring for many of the people who fear much worse consequences. My appeal is to engage with HMRC.

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

The Government’s approach to the loan charge has become a nightmare for ordinary people across the country who are the victims of mis-selling and facing financial ruin. The torment and devastating reality is the clearest possible proof that the Government need to think again. Those facing the loan charge ordeal cannot bear to hear yet again that the Morse review is the final word on this matter. Will the Minister finally agree today to commission a new, truly independent review?

[Nigel Huddleston]

We had an independent review in 2019 under Lord Morse. The Government accepted 19 of its 20 recommendations. The review has taken place, but as I have said repeatedly, I am challenging HMRC and listening to colleagues. If action needs to be taken, I will take it, but I do not believe that there is a case for another review, because we have already had one, and the Government have already taken action.

Finance Bill

James Murray Excerpts

Report stage & 3rd reading
Monday 5th February 2024 Commons Chamber

I have outlined the case for each of the Government amendments, and I therefore urge the House to accept them.

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

In speaking to new clause 6, which relates to permanent full expensing, I remind the House of the context in which this Finance Bill was published. It followed the Chancellor’s statement on 22 November last year, in which he claimed that he was delivering an “autumn statement for growth”. Members will remember, however, that the same day, the Office for Budget Responsibility confirmed that growth forecasts had been cut by more than half for the coming year, cut again for the year after that, and cut yet again for the year after that. Independent analysts confirmed that even after all the changes that the Government had announced, personal taxes would still rise. They are set to rise by £1,200 per household by 2028-29, with the tax burden on track to be the highest since the second world war.

That was the context in which this Bill was published: flatlining wages, higher taxes, higher mortgage payments and worsening public services—all the product of 14 years of Conservative economic failure. Our country needs change. A critical part of making that change will be to get our country’s growth rate up. We need a plan for growth, to make people across Britain better off, and to ensure sustainable funding for our public services. Labour has been developing our plan for growth by working hand in hand with businesses across the country and across the economy.

We know how highly businesses that are considering investing in the UK rate stability, predictability and a long-term plan. For that reason, we welcome the fact that, as our new clause 6 highlights, the Bill makes full expensing permanent. Permanent full expensing is something we have long called for, as a policy that can support greater business investment and economic growth. Because Labour knows how important stability and predictability are to businesses, the shadow Chancellor, my right hon. Friend the Member for Leeds West (Rachel Reeves), announced last week that Labour is committed to maintaining permanent full expensing in the UK tax system, as well as the annual investment allowance, if we win the next general election. The shadow Chancellor has made this commitment to offer businesses certainty for the years ahead. Businesses considering plant and machinery investment across Britain can be confident that the tax treatment of that investment would not change with a Labour Government.

Of course, there is still a general election to face, so I use this opportunity to invite the Minister to put on the record whether the Conservatives will follow our lead by confirming that should they win the general election, they will maintain permanent full expensing. I am sure many businesses would welcome the certainty that would come from knowing both the main parties are going into the election fully committed to keeping permanent full expensing. I urge the Minister, when he responds, to confirm whether that will be his party’s policy going into the general election.

After all the chopping and changing we have seen in capital allowances in recent years, the Minister needs to make the commitment explicit. As I mentioned during earlier stages of the Bill, the annual investment allowance had been temporarily raised to £1 million when this Parliament began; that temporary basis was extended by the Finance Act 2021, again by the Finance Act 2022, and then made permanent by the Finance (No. 2) Act 2023. Meanwhile, over the course of this Parliament, the super-deduction came and went. Last year, full expensing for expenditure on plant and machinery was introduced on a temporary basis for three years. In this Bill, the Government are finally making it permanent. After so much instability, a commitment from Treasury Ministers at the Dispatch Box that the Conservatives, like Labour, will commit to maintaining permanent full expensing feels like the least they can do.

Our new clause 6 would require the Chancellor to publish not only an assessment of the impact of permanent full expensing, but a consideration of what other policies would support its effectiveness. We believe this is important to ensure that business investment is supported as much as possible. The Opposition have begun to set out what some of our policies would be if we won the next general election. As the shadow Chancellor has set out, if we were in government, we would consider the outcome of technical consultations on whether leased assets can be included in full expensing and on simplifying the UK’s capital allowance regime. I would be grateful if the Minister updated us on the progress of those consultations.

Last week, the shadow Chancellor also made clear the commitment that if Labour wins the next general election, we will ask HMRC to produce simple and comprehensive guidance making clear which assets are eligible for each type of capital allowance. That guidance would give businesses clarity over how their investments will be treated, and businesses will be able to use it as a single point of reference when making investment decisions. Will the Minister confirm whether the Government have considered taking such steps, or making such a commitment?

To give further certainty, the Shadow Chancellor has also said that in government, Labour would explore the greater use of rulings and clearances. Under such an approach, businesses would be able to get a written ruling from HMRC about the tax treatment of potential investments, making clear, for instance, whether they qualify for full expensing or other capital allowances. We know that businesses benefit from other countries’ tax administrators being able to provide such rulings and clearances. As certainty is crucial to encourage investment in Britain, I would be grateful if the Minister confirmed whether the Treasury has asked HMRC to consider the greater use of rulings and clearances for investment, and, if so, what its conclusion has been.

Of course, any policies on expensing or other capital allowances sit under the headline rate of corporation tax. It is hard to conclude anything other than that the Conservative party is rather unclear and confused about its approach to corporation tax rates in the UK. For evidence of that, we need look no further than the current Chancellor: in July 2022, during his leadership bid, he pledged to cut the headline rate of corporation tax from 19% to 15%, yet when he became Chancellor just three months later, one of his first acts was to promise to raise the tax instead from 19% to 25%. It is no wonder that businesses, and indeed Conservative Back Benchers, find it so hard to understand the Conservatives’ policy on corporation tax rates.

Let me be clear about the certainty we would offer if we won the next general election. As the shadow Chancellor has set out, we believe the current rate of 25% strikes the right balance between what our public finances need and, as the lowest rate in the G7, keeping our corporation tax competitive in the global economy. That is why we are pledging to cap the headline rate of corporation tax at its current rate of 25% for the whole of the next Parliament. We would take action if tax changes in other advanced economies threaten to undermine UK competitiveness. That choice provides predictability and has a clear rationale. That is the pro-business choice and the pro-growth choice. The promise to cap corporation tax at 25% is clear from us. Again, to offer businesses as much certainty as possible, will the Conservatives follow our lead and also pledge, today, to cap corporation tax at 25% for the next Parliament?

These commitments—to cap corporation tax, to maintain permanent full expensing and to keep the annual investment allowance—will all form part of the road map that we would publish in the first six months of a Labour Government, setting out our tax plans for businesses for the whole of that Parliament. That would put stability, predictability and a long-term plan at the heart of our approach. To give businesses as much certainty as possible, I would be grateful if the Minister confirmed whether a corporation tax cap at 25% and keeping full expensing in place will be in the Conservative party manifesto too.

[Richard Fuller (North East Bedfordshire) (Con)]

I was interested in what the shadow Minister was saying about what would happen if other countries changed their corporation tax. As he will know, Mr Trump, the former President, has said that he would cut US corporation tax, potentially from 21% to 15%. Given such examples, does the hon. Gentleman anticipate that a Labour Government would look to cut the headline rate of corporation tax, as we would be looking at a significant tax cut by the world’s largest economy?

[James Murray]

I thank the hon. Gentleman for his intervention. As we have made clear, we would take action if tax changes in other advanced economies threatened to undermine UK competitiveness, but the headline commitment from us is to cap corporation tax at 25% for the duration of the next Parliament. I recall that in earlier consideration in this debate, he and I had an exchange about permanent full expensing, so I hope he will welcome our commitment to maintaining permanent full expensing if we are in government. Perhaps he will put pressure on his Front-Bench colleagues to join us today in making that a cross-party commitment from the House.

New clause 7 focuses on the multipliers used to calculate higher rates of air passenger duty. As we have discussed at earlier stages of the consideration of this Bill, clause 24 makes no changes to band A rates, while in band B, the reduced, standard and higher rates will increase by £1, £3 and £7 respectively. In band C, the reduced, standard and higher rates will rise by £1, £2 and £6 respectively. In each of those three bands, which cover international travel to a range of destinations, a simple principle is followed: if the duty for passengers on economy flights goes up, the duty for those flying business class and by private jet goes up too. In the domestic band, however, which covers flights within the UK, that simple principle of fairness does not apply. Instead, under the Bill, for domestic UK flights, the reduced rate of APD rises by 50p and the standard rate rises by £1, yet the higher rate is unchanged. Let me be clear what this means in plain English: from 1 April, passengers flying economy and business class within the UK will see their taxes rise, whereas passengers taking exactly the same flights by private jet will enjoy a tax freeze. Although the changes kick in on 1 April, this is no April fools’ day joke, although the Prime Minister may be laughing; it is the result of a hidden loophole that that the Conservatives have introduced. We discussed this matter in Committee, when the Exchequer Secretary tried to provide an explanation for this unfairness. He said that APD rates are

“uprated by a forecast of RPI and those rates are then rounded to the nearest pound.”

As for the different rates I highlighted in Committee, he said:

“It largely depends on how they”—

the rates—

are rounded to the nearest pound; the actual rate is determined by whether the figure is rounded down or up.”––[Official Report, Finance Public Bill Committee, 16 January 2024; c. 34-35.]

I know that the Exchequer Secretary always tries to give me a straight answer—let me put it on the record that I genuinely appreciate his efforts to do so—but I fear that his explanation in Committee may have been unintentionally misleading or, at the very least, only partial. Since that Committee stage, the House of Commons Library has given me information confirming that it does not tell the full picture to say that the duty rates are, as the Minister claimed,

“uprated by a forecast of RPI and those rates are then rounded to the nearest pound.”––[Official Report, Finance Public Bill Committee, 16 January 2024; c. 34.]

In fact, my understanding is that the Minister’s statement applied only to the reduced rates of air passenger duty. Those are indeed adjusted each year in line with forecast RPI and rounded to the nearest pound. However, the standard and higher rates are not calculated by separate reference to RPI; rather, they are generally set as multipliers of their respective reduced rates. For instance, the standard and higher rates in band B are set as 2.2 and 6.6 times the band B reduced rate respectively, rounded in both cases to the nearest pound.

--- Later in debate ---

[James Murray]

I begin by wishing His Majesty the King the very best for a speedy recovery. My colleagues and I are thinking of him and the royal family at this time, and we wish him a swift return to full health.

Throughout consideration of the Bill, the Opposition have made it clear that it contains a number of measures for which we have been calling for some time. For instance, we welcome the Government finally making full expensing permanent after so many years of chopping and changing capital allowances; we have made it clear that we will maintain that policy if we win power this year. We have also made it clear that we will maintain the system of R&D tax credits introduced by the Bill—again, after so many years of this Government chopping and changing the design of the scheme. In both cases, that is because we prize stability and predictability for businesses; they have made it clear to us that they value that greatly.

We know that providing certainty is a critical factor in boosting business investment and economic growth. If Labour won the next general election, we would put that certainty and stability at the heart of our approach in government by publishing a road map in the first six months, setting out our business tax plans for the whole Parliament. We have set out our approach to full expensing and to corporation tax, so I am disappointed that the Minister was not able to give us a clear guarantee that the Conservatives will maintain full permanent expensing and cap corporation tax at 25% for the whole of the next Parliament. Businesses can have confidence, however, that both of those commitments are locked in with Labour.

Of course, there are provisions in the Bill of which we have been critical, not least the fact that it freezes tax for passengers flying around the UK on private jets, while hiking taxes for everyone else who is flying economy or business class. Also, the Government admit that some provisions will need to be returned to and corrected. That is a far from ideal position to be in before a Bill has even become law. We know this is the case because, towards the end of last month, HMRC admitted that the way in which the Government have legislated to remove the lifetime allowance has

“created unintended consequences for members with multiple pension schemes”.

HMRC says that further legislation will be necessary to fix three areas in schedule 9 relating to the abolition of the lifetime allowance. That clearly indicates rushed legislation that runs the risk of creating problems for all involved. The legal firm Wedlake Bell, for instance, has said:

“The proposed new tax regime replacing the LTA at breakneck speed from 6 April 2024 is very risky for all parties including trustees, administrators, members and indeed HMRC itself.”

More widely, our concern with this Bill, as with the autumn statement it followed, is that the Conservatives cannot hide or move on from their 14 years of economic failure. Those 14 years of failure have left economic growth languishing and people across Britain worse off. Last November’s autumn statement for growth was the 11th attempt at an economic growth plan from the Conservatives. The truth is that the Conservatives are incapable of getting our country back on track. We need a general election so that Labour can offer the change and the plan that families and businesses across Britain need.

[Mr Deputy Speaker (Mr Nigel Evans)]

I call the Chair of the Treasury Committee.

Hospitality Sector: Fiscal Support

James Murray Excerpts

Wednesday 31st January 2024 Westminster Hall

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

It is a pleasure to speak in this debate with you in Chair, Ms Bardell. I begin by congratulating the hon. Member for Stirling (Alyn Smith) on securing this debate on fiscal support for the hospitality sector. I am pleased to be able to respond on behalf of the Opposition. We have heard Members from across the House speaking passionately about the importance of the hospitality sector, in the jobs it brings to local economies, the vitality it brings to our high streets and the enjoyment it brings to all our lives. My hon. Friend the Member for York Central (Rachael Maskell) in particular spoke about the importance of Government policy to the many hospitality venues in her constituency. Not only does the sector provide 3% of the UK’s economic output and billions in tax revenues for the Treasury; it is a central part of our social lives. That is why our constituents value the hospitality sector so greatly and are so keen to support it.

This debate has been an opportunity not only to speak about the policy but to recognise the sector’s central role in British life, including the way that it underpins high streets as places that communities take pride in. Because of time constraints, I will resist the temptation to mention all the cafés, pubs and other venues in my constituency, although I congratulate other Members on their valiant efforts to do so— I particularly commend the hon. Member for Totnes (Anthony Mangnall) for getting so many references into his speech.

In my constituency of Ealing North, it is hard to imagine Pitshanger Lane without Cinnamon café, where I first went with my grandparents many years ago. I thank the café for its excellent coffee and sandwiches, which keep me sustained and happy whenever I pop in as a customer. A few hundred yards away is the Duke of Kent, which is a gem of a pub that I am glad to be able to enjoy, but a couple of miles away is one of my favourite pubs, the Black Horse, which sadly closed just over a year ago. It is such a deep shame to see it boarded up whenever I walk or drive past. It is a sad reminder of the struggle that many hospitality venues face and of the real loss that local communities can feel when they close.

Our analysis shows that we have lost over 6,000 pubs from our high streets since 2010. Many hospitality venues are finding it harder and harder to succeed, because of high inflation, staff shortages, rising rents and the burden of business rates. At the same time, their customers have less money to spend on enjoying what pubs, cafés and restaurants have to offer, because their wages have flatlined, while taxes and the cost of living climb relentlessly.

Many hospitality businesses may have been hopeful when they heard about the Government’s 2019 manifesto promise of a fundamental review of the business rates system. However, the fundamental review never materialised, and trade groups representing businesses on the high street have expressed their disappointment. In March last year, the Federation of Small Businesses stated that

“the 2019 Manifesto commitment to hold a fundamental downward review of business rates has not happened…these changes do not amount to the fundamental overhaul the system needs”.

Meanwhile, the British Retail Consortium said that the Government’s rates review report

“falls far short of the truly fundamental reform that is needed and was promised in the government’s 2019 manifesto.”

In the absence of fundamental action from this Government, Labour is committed to scrapping the current system of business rates and replacing it with a new approach that is fit for the current economy. As the shadow Chancellor, my right hon. Friend the Member for Leeds West (Rachel Reeves), has set out, if Labour were in government, we would scrap and replace business rates, and shift the burden away from hospitality and retail businesses on the high street, which continue to shoulder a heavy burden compared with those that operate primarily in the digital economy. Our new system would incentivise investment, promote entrepreneurship and reward businesses that move into empty premises. It would help the hospitality sector to thrive once again. Our plans for business rates form just one part of our five-point plan to reverse years of decline and revitalise local high streets, alongside our commitments to stem rampant energy bills, stamp out late payments, revamp empty shops and tackle antisocial behaviour.

Before the next general election, we expect another Budget, so I would be grateful if the Minister explained what representations he has had from the hospitality sector ahead of the Budget in March and what proposals he is considering to support hospitality this year. I am sure that many businesses will be interested in the Minister’s response. In this year’s general election, the Opposition will offer the change that businesses need: a Government that are ready to work hand in hand with businesses, get the economy growing and do everything we can to support the hospitality sector to thrive.

Draft Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2023

James Murray Excerpts

Wednesday 24th January 2024 General Committees

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

It is a pleasure to serve on this Committee with you in the Chair, Mrs Murray. I welcome the opportunity to address the draft regulations on behalf of the Opposition.

As we know, business rates are determined according to the formulas defined in the Local Government Finance Act 1988. The rates are calculated as the product of the property’s rateable value, as determined by the independent Valuation Office Agency, and the relevant multiplier. As we heard from the Minister, this statutory instrument continues the existing policy under which the majority of occupied properties with a rateable value below £51,000 pay rates calculated by reference to the small business multiplier, and extends it by making charities and unoccupied properties eligible for the small business multiplier too.

Specifically, as the Minister set out, the statutory instrument seeks to do three things: first, to maintain the threshold for the small business multiplier to be applied at below £51,000 of rateable value, which, as the Minister notes, has been Government policy since 2017; secondly, to give effect to the announcement that charities and unoccupied properties will be eligible for the small business multiplier; and thirdly, to implement the Government’s decision to extend the small business multiplier to central list properties below the £51,000 rateable value threshold, of which we understand there are seven.

We will not oppose this statutory instrument. However, I would be grateful if, when the Minister responds, he could provide further detail about his and the Government’s understanding of what constitutes an unoccupied property. As he will know, the Government consulted on business rates avoidance and evasion in July last year. In the consultation document, the Government made it clear that Ministers were concerned about potential abuse of empty property relief by owners who use a brief period of apparent occupation to reset their property’s eligibility for that relief. The consultation document that I am referring to made clear that,

“There is no statutory definition of what constitutes ‘occupation’ of a property, and minimal occupation possibly of no material benefit to the occupier, except as a method to avoid paying rates, may be sufficient to allow ratepayers access to a further rate-free period.”

As there is no statutory definition of what constitutes occupation of a property, I would be grateful if the Minister could explain to the Committee what definition the Government are using to identify unoccupied properties for the purposes of this SI.

I would also be grateful if the Minister would confirm when the Government intend to set out their response to the business rates avoidance and evasion consultation, and when they plan to bring forward any actions they intend to take to combat avoidance and evasion in the business rates system.

Inheritance Tax

James Murray Excerpts

Wednesday 17th January 2024 Westminster Hall

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

It is a pleasure to speak in this debate with you as the Chair, Sir Robert.

I begin by congratulating my hon. Friend the Member for Hemsworth (Jon Trickett) on securing this debate. I am pleased to respond to it on behalf of the Opposition, following the contributions of Members from right across the House, including those of my hon. Friends the Members for Easington (Grahame Morris), for Wansbeck (Ian Lavery) and for Coventry South (Zarah Sultana).

Any debate about tax in this country must begin by recognising that under the Conservatives the tax burden is set to be the highest since the second world war. We have seen 25 tax rises in this Parliament alone and the decisions taken by this Government will leave the average family £1,200 worse off. No wonder the Prime Minister and the Chancellor are feeling pressure to cut taxes. However, the problem for them is that the average family will still be £1,200 worse off even after the recent national insurance cuts. Indeed, the Conservatives have put up taxes so much that there is now nothing they can do to repair the damage they have done to the economy and to family finances.

The truth is that the personal tax rises introduced by this Government will far outweigh any relief arising from their recent change to national insurance. Even taking this year in isolation, many of those on lower incomes will see their taxes rise. Consequently, with a general election approaching, we can expect the Conservatives to get more and more desperate, and—frankly—more and more reckless, in what they are prepared to throw at holding on to power. The Opposition will always stand with working people; that is why we have made it clear that we want the tax burden on working people to come down. We are also always clear that, unlike what we have seen from the Conservatives during this Parliament, we will always set out exactly how we would pay for any tax cuts.

As the 6 March Budget approaches, we are again beginning to hear rumours that the Prime Minister and Chancellor are considering abolishing inheritance tax, as they feel growing pressure to assuage their Back Benchers and members. All parents have a natural desire to pass on to their children what they have worked hard for in life, but the truth is that an inheritance tax cut would benefit only the top few per cent. of estates. In the middle of a cost of living crisis, when families across Britain are struggling and our public services are on their knees, that cannot be the right priority.

According to figures from HMRC, in 2020-21 only 3.7% of estates paid inheritance tax, while the Institute for Fiscal Studies suggests that the cost of abolishing the tax would be £7 billion. The IFS also notes that about half the benefit of abolishing inheritance tax would go to those with estates of £2.1 million or more, who make up the top 1% of estates and would benefit by £1.1 million on average. Given the state of public finances and services, that simply cannot be justified as a priority when taxes for working people are already so high and set to keep rising.

[Peter Gibson]

I am very interested to hear what the hon. Gentleman has to say about hard-working families. Will he outline how much those hard-working families would be hit by his party’s plans to borrow an extra £28 billion each and every year?

[James Murray]

I thank the hon. Member for his intervention, but, as we have set out, all our plans are within our fiscal rules. Frankly, that was the hon. Member’s attempt to distract from the fact that he is a member of a party presiding over a Parliament that has put up taxes 25 times and is on track to have the highest tax burden since the second world war. There is simply no getting away from that record and from the burden that his party has increased on working people during this Parliament.

[Peter Gibson]

I am grateful to the hon. Gentleman for giving way again; he is being incredibly generous with his time. I am incredibly proud of my party and the track record of what it has delivered for our country over the past few years: the incredible support given throughout covid and to working families up and down the country through the cost of living crisis.

[James Murray]

Frankly, I think that an increasing number of people across Britain would disagree. The one question that they are going to be asking themselves as we approach the next general election is: am I and my family any better off than we were 14 years ago? Is anything working better or in a better state in this country than it was 14 years ago? The answer to that question is a resounding no.

[Peter Gibson]

rose—

[James Murray]

I see the hon. Gentleman gesturing, but I have given way twice; I am going to make a bit of progress before taking any more interventions.

We are not concerned just that inheritance tax would be the wrong priority; we are also concerned about the damage that the Government might do to our economy if the tax cut were unfunded. People across Britain will remember the chaos unleashed by the disastrous mini Budget, when the previous Prime Minister and Chancellor promised irresponsible unfunded tax cuts for the wealthiest. I ask the Minister: how would the Government pay for the £7 billion abolition of inheritance tax that it appears they are briefing the media about?

Which of our public services would see their funding reduced? What other taxes would the Government expect to increase? What investment in our future would they plan to cut and how much more do they want to push up debt? I would welcome it if the Minister were upfront about what the Government are considering. If they are not considering abolishing inheritance tax, they should say so now.

Perhaps, though, it is unfair to ask the Minister to be clear about what the Government are thinking, as the Prime Minister and Chancellor may, in all honesty, not know what to do. The Conservatives need to call an election in the next 12 months and they know that they are out of options when it comes to what to say. After 14 years of Conservative government, public services have been run into the ground, the economy has stagnated and the tax burden is set to be at its highest in generations. Yet what we hear from their briefings to the media is speculation that they want to cut inheritance tax—something that would benefit the top 4%, while taxes on working people keep rising. That is the wrong priority when both public and household finances are so stretched.

What the country needs is a Labour Government with fiscal responsibility at their heart and a plan to reform public services while growing the economy. That is the way to make people across Britain better off.

Finance Bill (Second sitting)

James Murray Excerpts

Committee stage
Tuesday 16th January 2024 Public Bill Committees

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

It is great to see you back in the Chair, Mr Paisley, and a pleasure to serve under your chairmanship. The clause increases the lower and standard rates of landfill tax, from 1 April 2024, in line with the retail prices index as forecast by the Office for Budget Responsibility at the time of the spring Budget 2023. Landfill tax is charged on material disposed of at landfill sites or unauthorised waste sites in England and Northern Ireland. The objective of the tax is to divert waste away from landfill, and support investment in more circular waste management options, such as recycling, composting and recovery.

Since 2000, landfill tax has contributed to a 90% decrease in local authority waste to landfill in England. Increasing the lower and standard rates of landfill tax by RPI in recent years has helped maintain a strong price incentive to divert waste away from landfill. The clause will increase the lower rate of landfill tax from £3.25 per tonne to £3.30 per tonne. It will increase the standard rate of landfill tax from £102.10 per tonne to £103.70 per tonne.

In conclusion, the clause increases landfill tax in line with RPI from 1 April 2024, to maintain a strong price incentive for diverting waste from landfill. I hope that it can stand part of the Bill.

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

It is a pleasure to be back with you in the Chair, Mr Paisley. As we heard from the Minister, clause 28 is about rates of landfill tax. As he outlined, the clause seeks to increase landfill tax in line with inflation, to £103.70 per tonne for the standard rate; the lower rate will be £3.30 per tonne. The landfill tax was introduced in 1996 to encourage recycling, composting and recovery, and reduce landfill. 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 has been devolved to Scotland from April 2015, and to Wales from April 2018.

We will not oppose the clause, but will the Minister provide an update, given that I raised the issue of landfill tax fraud during the passage of the last Finance Bill, in May 2023? As he may recall, we then discussed the most recent estimate by His Majesty’s Revenue and Customs of the landfill tax gap—the gap between the landfill tax due and the revenue collected—which was £125 million in 2021. We recognise that at 17.1%, that gap was much larger than the overall tax gap for that year. He may recall that I asked how much of the £125 million tax gap identified in 2021 had been recovered by HMRC. He said that he would get back to me on that point, as he did not have the information in front of him. I wondered if he had it to hand now, so that he could put it on the record in Committee this year. I would also be grateful if the Minister shared with us whether HMRC has annual estimates of the landfill tax gap for years more recent than 2021.

[Gareth Davies]

I am grateful to the hon. Gentleman for that. I recall that exchange, and he is right to raise the issue of tax gap. Clearly, we all agree that we need it to be lower, and I assure him that at HMRC, every effort is being made to tackle the tax gap. I can update him; in 2021-22, the tax gap was 18.4%. As I say, HMRC is committed to continuing to tackle the gap, principally through two measures: first, through increased data sharing across Government agencies, and secondly, through the better use of intelligence-led interventions. Those two measures, particularly in 2022-23, recovered £280 million of compliance yield. If there are additional pieces of information and data that I do not have to hand, I am happy to follow up on those in writing.

Question put and agreed to.

Clause 28 accordingly ordered to stand part of the Bill.

Clause 29

Rate of aggregates levy

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

[Gareth Davies]

The clause increases the rate of aggregates levy from 1 April 2024 in line with the retail price index as forecast by the Office for Budget Responsibility when the rate was announced in the 2023 spring Budget. Aggregates levy is a charge on the commercial exploitation of virgin aggregate, which includes rock, sand and gravel. The objective of the aggregates levy is to encourage the use of recycled rather than virgin aggregate in construction. Returning to index-linking the aggregates levy rate following a period of rate freezes will ensure the value of this price incentive does not fall in real terms. The changes made by clause 29 will increase the rate of aggregate from £2 per tonne to £2.03 per tonne.

[James Murray]

As the Minister set out, the clause increases the rate of the aggregates levy in line with inflation. As the Government policy paper on this matter sets out, the aggregates levy was introduced on 1 April 2002. It is a tax on primary virgin rock, sand or gravel, which is mainly used for bulk fill in construction works. We understand the levy provides an incentive to aggregate producers and construction businesses to use recycled or secondary aggregate.

Interestingly, the rate of the levy has remained frozen at £2 per tonne since 2009. Could the Minister explain why the Government have chosen to raise the levy now, after 15 years of it being frozen? We recognise, of course, that levy rates will need to go up from time to time, but I would be grateful if the Minister could share the Treasury’s thinking behind the timing of this increase. It may, of course, be because there has been such high inflation under this Government in recent years that the increase in a nominal rate has become necessary. I would like to fully understand the Government’s thinking on this, so I would appreciate if the Minister could also confirm what representations were made to the Treasury as it was considering the decision over this rate, and what data was provided to him in making this decision.

[Gareth Davies]

The hon. Gentleman raises an understandable and legitimate question that many have asked, and I am happy to provide an answer today. As he points out, the aggregates levy was introduced many years ago and, at its introduction, was designed and introduced with the intention of being index-linked to inflation. However, over a number of years, the tax was subject to a specific piece of ongoing litigation; as a result of that litigation, the Government decided over many years that it would be inappropriate to change the tax and revert to index-linking during that litigation period. As that litigation has now concluded, and a review of the aggregates levy has concluded on the back of that, the Government have decided that it is now the appropriate time to increase the tax and return to how it was originally intended: to index it to inflation.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Clause 30

Rate of plastic packaging tax

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

[Gareth Davies]

The clause makes changes to increase the rate of the plastic packaging tax from 1 April 2024 in line with the consumer price index. The plastic packaging tax is charged on plastic packaging that does not contain at least 30% recycled plastic. It was introduced on 1 April 2022, as part of the Government’s resources and waste strategy. The tax provides an economic incentive to use recycled plastic rather than virgin plastic in packaging. It is designed to create greater demand for recycled plastic, which, in turn, will stimulate more investment in the collection and recycling of plastic waste, diverting it away from landfill and incineration. Increasing the rate of the plastic packaging tax in line with CPI will maintain the real-terms value of the price incentive to use recycled plastic in packaging. Clause 30 increases the rate of the plastic packaging tax from £210.82 to £217.85 per tonne from 1 April 2024.

[James Murray]

As we heard from the Minister, clause 30 raises the plastic packaging tax in line with CPI, and the change will take effect from 1 April. The Opposition have made clear throughout the introduction and the implementation of the plastic packaging tax that we are supportive of it as an important tool in tackling plastic pollution. The tax was introduced in April 2022 to provide an economic incentive for businesses to use recycled plastic in the manufacture of plastic repackaging. By applying such a tax on products that contain less than 30% recycled plastic, the tax was expected to create greater demand for recycled plastic, which would in turn stimulate increased recycling and the collection of plastic waste, diverting it from landfill or incineration.

As I set out in a Westminster Hall debate in October last year, we in the Opposition agree it is important to tackle less sustainable packaging products, including those from overseas. We also believe that it is important to build resilience here in the UK and that we have a clear, stable policy environment to encourage investment in our country. I was therefore concerned to note that, in response to the Government’s recent announcement that they would consult on a new mass balance approach to chemical recycling, the British Plastics Federation said:

“The lack of clarity to date has prevented companies from investing in the UK and some have looked elsewhere to build facilities.”

With the tax now having been in place for almost two years, what evaluation has the Treasury made of its success, including in building the domestic sector?

[Gareth Davies]

I am grateful to the hon. Gentleman and I am glad that he supports the taxation, which we were pleased to introduce in 2022. He is right to challenge us on the impact of the tax, and we have been clear that we intend to evaluate this when enough years have passed to be able to fully assess the impact. In December 2023, the Government came forward with a plan to evaluate the plastic packaging tax, and that is now published on gov.uk. I am happy to write to him with the provisions of that plan, which will be carried out to 2026.

The hon. Gentleman talked about the chemical recycling and mass balance approach. He should know that we engage very closely and extensively with industry ahead of fiscal events. On that specific point, we recognise that chemical recycling is a legitimate form of reprocessing plastic waste. However, following the constructive engagement with stakeholders that I described, and across the whole plastic value chain, the Government understand that is not currently possible for businesses to use chemically recycled plastic in packaging and claim a relief from the tax due to the way in which the recycled content is calculated. I assure him that we will continue to engage with the industry, and we know that it is a matter of great importance to it. My hope is that that can form part of the plan to evaluate PPT in due course as well.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 35

Additional information to be contained in returns under TMA 1970 etc

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

--- Later in debate ---

For taxpayers volunteering for the service from April 2024, the reformed penalties will be applied only where an annual filing or payment obligation is not met. They will not be penalised for the late submission of the quarterly updates required by Making Tax Digital. No taxpayers are required to join Making Tax Digital for income tax self-assessment until at least 2026, and that is not changing.

[James Murray]

As the Minister said, clause 35 makes changes to the types of tax return for which HMRC collects data. According to the Government’s policy paper on this matter, the modifications are for the purpose of improving and enhancing the quality of the data HMRC collects. We understand that the changes are designed to enable HMRC to create regulations specifying additional information it considers relevant to the collection and management of tax.

We understand that HMRC intends to implement three new requirements. First, employers will be required to provide more detailed information on employee hours worked by real-time information PAYE reporting. Secondly, shareholders of owner-managed businesses will be required to provide the amount of dividend income received from their own companies separately from other dividend income, and the percentage share they hold in their own companies via their self-assessment return. Thirdly, the self-employed will be required to provide information on start and end dates of self-employment via their self-assessment return.

The Opposition recognise that this is a significant change, and it is clear from the Government’s policy paper on this matter that it will also incur large costs for businesses. The one-off impact covering transitional costs for businesses is estimated to be £44 million, while the extra ongoing annual administrative burden is estimated to be £9.6 million. The Chartered Institute of Taxation has conveyed its concerns that it seems unrealistic that the average transitional costs to businesses of providing the data on employee hours will be just £18.42. Does the Minister believe that the costings are accurate for businesses that will need to plan for the new requirements?

Beyond the forecast costs to businesses, there is also the question of data gathering and its purpose. This clause gives HMRC the power to collect taxpayers’ data. Is the Minister confident that the legislation provides appropriate authorisation for the purposes of the measure? The Institute of Chartered Accountants in England and Wales is concerned that it has not been fully explained why data concerning employee hours is relevant for the purposes of the collection or management of the taxes listed in section 1 of the Taxes Management Act 1970. The Institute believes that the legislation will not work to obligate employers to report hours worked to hours paid, as hours worked are not needed for the collection and management of tax. I would be grateful to know the Minister’s response to this concern.

We recognise that the timescale for introducing these measures is 2025-26, which will require HMRC to be ready and businesses to have got to grips with the necessary processes, guidance and software by then. What engagement has the Minister or HMRC had with businesses about this timescale, and has the Treasury considered drafting regulations for consultation prior to the legislation being enacted?

Clause 36 makes changes to the existing regulation-making powers that enable the Treasury to bring into force the penalties set out in schedules 24 to 27 of the Finance Act 2021. The new system that the schedules in the 2021 Act introduced will impose points-based sanctions for late submissions of returns and penalties for late payment of tax liabilities. We understand that the Government are planning for this system to come into effect with relevant self-assessment customers from 6 April 2026, through Making Tax Digital. Our understanding is that clause 36 will affect only volunteers who agree to test out the MTD system, which will therefore be before 6 April 2026. For the avoidance of doubt, will the Minister confirm that that is the case and make absolutely clear what penalties and sanctions such volunteers could face? Could he also confirm exactly what is meant, in the explanatory notes to the Bill, by the phrase:

“Where a change in circumstances means that HM Revenue and Customs does not have the functionality to support a customer, they may be moved back into the existing penalty regime.”?

There is a wider question about the timetable for delivering Making Tax Digital, which has slipped again and again. I would therefore be grateful if the Minister could make clear whether he has full confidence that the introduction of MTD for the self-assessment customers who are mandated for it is on track to happen by 6 April 2026.

[Nigel Huddleston]

I thank the hon. Gentleman very much for those questions and comments. I think he has a good understanding of the purpose behind the changes we are making, particularly in the context of the anxiety that many of our constituents face. We all had correspondence on this during the pandemic, when people were frustrated at not necessarily being able to get some of the support mechanisms for which they believed they were eligible because of that lack of information and data.

The macro point and the purpose behind the changes is well understood, and the hon. Gentleman is right to focus on the micro points. When it comes to the voluntary process, for example, which I will come on to in a moment, the whole point of having it is to learn before we make it mandatory. We expect and anticipate that we will need to learn from this experience, but going through that voluntary step first seems like a good process.

The hon. Gentleman mentioned the administrative burden on businesses as a result of this ask. We have chosen three out of the six because the information should be on hand or readily available already, so what we are endeavouring to do should be relatively straightforward. HMRC has been exploring with stake-holders how best to implement the proposals in a way that minimises burdens on businesses. No one wants to put a disproportionate administrative burden on businesses, but for the reasons that I outlined in the introductory comments, we see an upside to asking for the information. In practical terms, it will help nudging and supporting businesses to ensure that their taxes right. Should we face a situation such as the pandemic again, we will be in a much better position to understand the nature of businesses.

The hon. Member for Ealing North mentioned data and gave a total cost of £45 million for implementation of the measures. For the hours-worked data, the total estimated one-off cost to businesses is about £35 million. In subsequent years, the ongoing cost will and should be negligible. For the dividends data, the total estimated up-front cost is about £9 million; again, that remains consistent for subsequent years. For the start and end dates, there are negligible one-off costs, with total year-on-year costs estimated at about £600,000. Those costs are the current estimates based on the standard modelling approach and the measuring of administrative burden. We will of course keep a close eye on the costs.

I mentioned the variety of purposes and means by which that information could be useful, but the hon. Gentleman also made a point about information sharing, an issue that many stakeholders raised in the process of our updating this policy. I should note the work of the House of Lords Sub-Committee that investigated these issues and asked me similar questions not so long ago. I refer hon. Members to the answers I gave there, as well as further support. I want to provide the assurance, however, that there are strict laws about the sharing of data between Departments.

HMRC’s ability to disclose the information it holds to anyone is restricted by the Commissioners for Revenue and Customs Act 2005. Only by acting in accordance with the provisions of the Act can HMRC ensure that information is disclosed in a lawful way. Section 18 of the Act provides that HMRC must not disclose HMRC information to anyone unless there is a lawful authority to do so, and that includes other Departments and their agencies, local authorities, the police or any other public authority.

As I said, I am happy to respond further to the hon. Gentleman or to make further comments if I have not answered all the questions. However, I commend the clause to the Committee.

Question put and agreed to.

Clause 35 accordingly ordered to stand part of the Bill.

Clause 36 ordered to stand part of the Bill.

Clause 37

Abbreviations used in the Act

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

[Nigel Huddleston]

Finally, clauses 37 and 38 simply set out the Bill’s legal interpretation and short title in the usual manner for such legislation. I commend them to the Committee.

[James Murray]

We have no concerns about clauses 37 and 38, you will be pleased to hear, Mr Paisley.

As this may be the last time I get to contribute to the debate today—

[The Chair]

Order. We still have the new clauses to debate.

[James Murray]

I am not intending to speak to any new clauses, so I thought to take this opportunity simply to thank you, Mr Paisley, for chairing, and to thank all the Clerks and House authorities. I thank all Members, Opposition Members in particular, and the third parties, including the Chartered Institute of Taxation, the Low Incomes Tax Reform Group, the Association of Taxation Technicians and the ICAEW, whose input has been invaluable.

[The Chair]

Thank you for those comments. I am sure people will appreciate what you have said. I also thank you for your contributions.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.

Clause 38 ordered to stand part of the Bill.

New Clause 1

Assessment of impact of the Act on compliance with climate change target

“(1) The Chancellor of the Exchequer must, within one year of this Act being passed, publish an assessment of the impact of this Act on the Government's ability to meet—

(a) the duty under section 1 of the Climate Change Act 2008 (the target for 2050), and

(b) its obligations and commitments under the Paris Agreement of 2015.”—(Drew Hendry.)

This new clause would require the Chancellor to publish an assessment of the impact of the Act on the UK Government's ability to meet its duty to achieve Net Zero by 2050 and its obligations under the Paris Agreement.

Brought up, and read the First time.

Finance Bill (First sitting)

James Murray Excerpts

Committee stage
Tuesday 16th January 2024 Public Bill Committees

[The Financial Secretary to the Treasury (Nigel Huddleston)]

It is a pleasure to serve under your chairmanship, Mr Paisley. I thank all members of the Committee in advance for their attention and participation, and I thank all officials, Clerks and the many stakeholders who have engaged with our discussions to date.

We are first considering the cultural support measures in the Bill. Clause 3 and schedule 2 replace the tax reliefs for film, high-end television, children’s TV, animation and video games with refundable expenditure credits. The audiovisual expenditure credit will replace the four film and TV reliefs. Film and high-end TV productions will receive a credit of 34%. Children’s TV and animated TV and film will receive a credit of 39%. The video games expenditure credit will replace the video games tax relief and will have a rate of 34%. Clauses 4 to 7 and schedules 3 to 6 make changes to ensure that the creative sector tax reliefs remain appropriately targeted and administrated efficiently.

I will turn briefly to the detail, starting with clause 3 and schedule 2, which reform tax reliefs to become expenditure credits. That will ensure that they continue to work as intended following the implementation of the OECD pillar two rules in the UK and elsewhere. A company claiming expenditure credits will not see its effective tax rate lowered as a result. That means that companies will not be at risk of needing to pay a top-up tax after claiming the expenditure credits. The expenditure credits will also go further to support businesses in the creative sector by providing greater benefit than the existing reliefs and greater clarity about the amount of credit that companies can expect to receive.

The expenditure credits will change how tax relief is calculated from a super-deduction to a calculation made directly from qualifying expenditure. The expenditure will increase the amount of relief received by film and high-end TV productions and video games by 0.5%. Children’s TV and animated film and TV production will receive a 5.5% increase in relief.

Under the video games expenditure credit, qualifying expenditure will change from cost incurred in the UK—or the European economic area—to expenditure on goods and services that are used or consumed in the UK. There will be no cap on subcontracting. The Government are making that change to refocus video games tax relief on activity that takes place within the UK. That is appropriate now that the UK has left the EU. Those measures are expected to impact about 3,000 businesses claiming the creative tax reliefs, and we expect to see a positive response and high levels of uptake due to the greater benefit provided by the expenditure credits. Reforming the reliefs to expenditure credits is expected to cost about £60 million a year by 2028-29.

Turning to clauses 4 to 7 and schedules 3 to 6, the theatre, orchestra and museums and galleries tax reliefs have been pivotal in the development of new productions and exhibitions. They have collectively supported almost 25,000 productions since they were introduced. The two-year extension of the 45% and 50% rates of relief, announced at spring Budget 2023, will go even further to boost investment in our world-leading cultural sectors. Clauses 4 to 7 make administrative improvements to these reliefs to provide greater clarity about eligible productions and ensure that the reliefs remain safeguarded from abuse.

Now that we have left the EU, we have the opportunity to refocus our tax reliefs on activity that occurs in the UK and to give organisations more choice over where they source goods and services. That is why clauses 4 to 6 remove EEA costs and instead require expenditure to be used or consumed in the UK. This new approach considers where the goods and services are used, rather than where they are from.

Goods and services from the EEA will qualify, provided that they are used and consumed in the UK, but this will go further, because, for example, payments to a US conductor for rehearsals in the UK would also now qualify for relief, so this goes beyond the EEA. That rule is already in place in the film and TV reliefs, and it is also being implemented for video games tax relief.

The changes made by clauses 4 to 6 change qualifying expenditure for the orchestra, theatre, and museums and galleries exhibition tax reliefs to become costs incurred on goods and services used or consumed in the UK. The clauses require companies to disclose transactions between connected parties when making claims for relief, and to charge connected parties for goods and services at the same price as they would charge unrelated companies. This rule will also apply to the audiovisual expenditure credit and the video games expenditure credit.

Clause 7 requires companies to share additional information when claiming relief, and gives His Majesty’s Revenue and Customs additional powers to recover overpayments of relief.

Clauses 4 to 6 are expected to impact approximately 1,200 companies, including orchestras, theatres, museums and galleries, and clause 7 is expected to impact about 3,000 businesses claiming the creative tax reliefs.

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

It is a pleasure to serve on this Committee with you as Chair, Mr Paisley, and I am pleased to be able to respond on behalf of the Opposition on these clauses and schedules.

As we have heard from the Minister, clause 3 introduces a new tax relief regime for the British film, TV and video games sectors. Existing film, TV and video games reliefs will be reformed into a new expenditure credit modelled on research and development tax credits, and specifically the research and development expenditure credit regime. As the sector will have noted from the Government’s policy paper on the measure, under the current schemes, relief is given by way of an additional deduction from profits, or surrendering a loss for a tax credit. Under the new audiovisual expenditure credit and video games expenditure credit regimes, companies will instead receive an above-the-line tax credit based on qualifying expenditure, which will, in turn, be taxable.

We in the Opposition strongly support the UK’s creative sector—one of the areas of the global economy in which Britain is world leading. As such, we will not oppose any measures that provides certainty and greater opportunities for growth in those critical sectors. However, I will seek a few clarifications from the Minister on the details of the legislation.

First, I would be grateful to the Minister if he could provide an explanation for why the Department opted for a 34% credit rate for TV, films and video games—a 0.5% increase from the previous relief, as he set out—while animation and children’s TV production has a greater increase, up to 39%.

Secondly, while the creative sectors have broadly expressed support for a simplified regime based on the research and development expenditure credit, we know that R&D tax credit schemes have been subject to a lot of chopping and changing, year after year, by this Government, as we discussed at earlier stages of the Bill. I would be grateful if the Minister could give assurances to the creative sector that they can expect stability and certainty when it comes to these new expenditure credits, to encourage long-term investment and competitiveness.

Thirdly, I would like to ask about the role of HMRC. We know that the new schemes, although they apply the same qualifying criteria rules as predecessor schemes, will need to be properly explained though new guidance. Could the Minister explain what HMRC is doing to ensure that guidance remains timely and up to date for those wanting to claim, and what HMRC will do to support those wanting to apply for the credits to understand how they operate?

In clause 4, the Government have sought to clarify rules around cultural reliefs following a two-year extension to the higher rates granted for theatre tax relief, orchestra tax relief, and museums and galleries exhibition tax relief in October 2021 to help the sector recover from the pandemic. The clause relates specifically to theatrical productions. It seeks first to clarify the exclusion of capital expenditure for the relief; secondly, to clarify the exclusion of costs incidental to production from the relief; thirdly, to exclude productions from the relief where the main focus is not observing the performance; and fourthly to clarify the “playing of roles” condition.

The Opposition wholeheartedly support the UK’s world-class theatres and actors, and the creative sector more broadly, and we welcome any measures to support their work. However, I would like to raise concerns noted by the Society of London Theatre and UK Theatre in relation to guidance and consistency of claims for theatre tax relief. They have expressed concerns that the wording in proposed new section 1179AB of the Corporation Tax Act 2009, as introduced by schedule 2, that

“‘UK expenditure’ means expenditure on goods or services that are used or consumed in the United Kingdom”

could curb UK productions that originate in the UK but are exported abroad.

We know that the Government do not always have the best record when it comes to supporting members of the creative community to tour and export their productions overseas, and so I would like to ask the Minister what guidance will be issued to make sure UK creative exports are protected and not inadvertently hit by technicalities in the wording of the tax relief rules.

Secondly, SOLT and UK Theatre have expressed their unease at the Government’s definitions of a theatrical production, and the narrow view taken of an audience. Schedule 3 states that

“it is reasonable to expect that the main purpose of the audience members will be to observe the performance (rather than, for example, to undertake tasks facilitated or accompanied by the performance)”.

Could the Minister confirm whether pantomimes are excluded from making claims under this definition? I am sure that members of the public would not miss the irony of a Government clamping down on pantomimes for families across the country while indulging in their own pantomime in Downing Street and Parliament in recent years.

[Nigel Huddleston]

You just couldn’t resist, could you?

[James Murray]

I look forward not only to moving on from the current drama in our wider politics, but also to the Minister’s response on the specific point about pantomime productions and claims for tax reliefs.

Finally, having led for the Opposition on five Finance Bills, I know all too well that there can be complexity and indeed unintended consequences when new changes are made to tax relief regimes. Will the Minister therefore again explain what he and HMRC are doing to make sure the appropriate guidance is issued, and support offered, alongside the changes to the rules, to support claimants in navigating them?

On clause 5 on orchestras, the Government have sought to clarify rules around cultural reliefs, again following a two-year extension to the higher rate for orchestra tax relief that we mentioned earlier, which was issued in October 2021 to help the sector recover from the pandemic. Clause 5 seeks to clarify the exclusion of capital expenditure; clarify the exclusion of costs incidental to production; and amend the time limit for concert series elections to either the date of the first concert in the series or the date of the claim.

Although seeking to provide clarity in the operation of creative reliefs is welcome, I am concerned that there is still a lack of clarity on how the rules should be interpreted, and I again ask the Minister to use this opportunity to put some clarification on record. The lack of clarity was brought to my attention by my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley), who is a great champion for the UK’s world-class orchestras. On Second Reading, she made the point that:

“International touring is vital to the survival of many orchestras and makes up a fifth of earned income”

and that

“it boosts cultural exports and enhances the UK’s place on the world stage.”—[Official Report, 13 December 2023; Vol. 742, c. 931.]

She also referred to changes in eligibility for orchestra tax relief that required 10% of expenditure to be on goods or services that are used or consumed in the UK.

I understand the reasoning behind that, as the Minister set it out, but I also understand from my hon. Friend the Member for Worsley and Eccles South that the Association of British Orchestras believes that that means there is a lack of clarity about what orchestras will be able to claim. I am sure the Minister will agree that clarity is crucial for a successful tax system and I would therefore be grateful if the Minister could provide clarity today about how changing eligibility criteria will affect the claims that touring orchestras make.

In clause 6, the Government have again sought to clarify rules, following the higher rate that was granted for museums and galleries exhibition tax relief in October 2021. Galleries and museums are a critical part of our creative sector and of the enjoyment and fulfilment of so many people across the country. The clause seeks to provide clarity on two areas in relation to the relief: namely, the exclusion of costs incidental to production and the requirement for there to be physical admission to exhibitions for the relief to apply. The Opposition will not oppose either of those changes, but I ask the Minister what he is doing to work with key industry bodies, including the Museums Association, to ensure that the appropriate guidance is in place for museums and galleries, large and small, to be able to navigate these changes without confusion.

Clause 7 introduces new administrative measures for companies claiming creative tax reliefs. Claimants will now be required to complete and submit a new online information form. This will include the various new expenditure credits that we discussed in the previous clauses. We understand that these changes seek to streamline the process of making a claim, reduce the administrative burden on HMRC and make it easier to tackle abuse.

Of course, the Opposition support the principle of all those aims. However, as the clause involves the mandatory use of a new online information form from 1 April 2024, I ask the Minister to confirm whether he is confident that the digital systems at HMRC are ready for that to operate from that date. I believe that that is a pertinent question, given the shocking record of the Government in overseeing the implementation of the Making Tax Digital strategy since it was adopted almost a decade ago. Last summer, HMRC admitted that its ageing legacy IT systems meant that HMRC had

“underestimated the scale and complexity”

of delivering Making Tax Digital.

According to the National Audit Office, Ministers set unrealistic ambitions and timescales for implementing MTD. From the very start, HMRC rated MTD as a high-risk programme, and dates were rushed without realistic appraisal. The Financial Secretary to the Treasury is the fifth incumbent of the role since September 2021, and there is no doubt that the churn of Ministers has contributed to the lack of direction in policymaking for digital strategy on tax affairs. I would therefore be grateful if the Minister could outline what steps he has taken to give him confidence in HMRC’s ability to make sure the new online forms for the creative reliefs are operational on time and on budget. That is important for the effective administration of creative reliefs. More widely, it is important that HMRC is equipped with the tools it needs to provide a high-quality online service that individual taxpayers and businesses should expect the Government to deliver.

[Dan Carden (Liverpool, Walton) (Lab)]

It is a pleasure to speak with you in the Chair, Mr Paisley; I am delighted to serve on the Committee.

I just wanted to raise an issue that has come to my attention in relation to the Liverpool Philharmonic Hall. The Liverpool Philharmonic Hall is the home of our orchestra in Liverpool. It has a unique model whereby the orchestra owns the hall, and the hall is also rented out for external events. That is unique compared with any other set-up in the country. I understand that, in clause 5, the Government are proposing changes to the detail of how creative tax reliefs are claimed. They are proposing that external events with connected companies —as might happen in the case of the Liverpool Philharmonic—will not be eligible for those tax reliefs. That is the model that the Liverpool Philharmonic has relied on and that has made it such a great success. I wish to use this opportunity to ask the Minister to look again and to seek assurances that the minor changes proposed in clause 5 will not affect the Liverpool Philharmonic Orchestra negatively.

--- Later in debate ---

[Nigel Huddleston]

Clause 8 and schedule 7 make changes to enhance the tax rules for real estate investment trusts, or REITs; to alleviate certain constraints and administrative burdens; and to ensure that the rules keep pace with commercial practice.

The Government launched a review of UK investment funds, taxation and regulatory rules at Budget 2020 with the aim of making the UK a more attractive location to set up, manage and administer funds. We have already made great progress, introducing the qualifying asset holding company and long-term asset fund regimes, which will help support a wide range of more efficient investments better suited to investors’ needs and to provide jobs across the UK.

The changes we are introducing for REITs regimes today in the clause and schedule 7 build further on that work. REITs are a specific form of property investment company. The tax rules have the effect of allowing investors to be taxed on their share of a REIT’s income and gains in a way that is broadly the same as if they had invested directly in property. The regime has proven popular since its introduction in 2006, with approximately 140 REITs currently established in the UK.

The Government have already brought forward several reforms to the REIT rules under the Finance Act 2022 and the Finance (No. 2) Act 2023. Following further engagement with industry, this clause and schedule 7 bring forward a third and final tranche of targeted changes to complete the work of better meeting the needs of investors while ensuring that the right tax is paid.

The changes made by clause 8 and schedule 7 include updates to the conditions that ensure a REIT is always widely owned, and that the UK retains effective taxing rights over the rental income distributed by REITs to foreign investors. Those are in addition to a number of further technical and clarificatory changes. The Government are also taking the opportunity to make further changes to related tax rules, including a technical correction to the corporate interest restriction as it applies to REITs, and a consequential change in the related non-resident capital gains rules for collective investment vehicles.

[James Murray]

As the Minister explained, clause 8 makes a number of amendments to the real estate investment trust rules. The Government’s policy paper on the matter set out that, since 2006, the number of UK REITs has grown to approximately 130, with the real estate sector evolving to increase the number of large institutional investors in REITs. We understand that the objective of the Government’s changes is to modernise the regime and alleviate constraints and administrative burdens through various measures, which include allowing insurance companies to hold group REITs, changing the profit/finance cost ratio, amending rules relating to holding a single property, extending the exemption for gains on disposal of UK property-rich entities, and amending the definition of a holder of excessive rights.

The Opposition agree that it is important to keep pace with changes in the UK’s investor landscape. We welcome measures to make the regime more appealing for real estate investment, and we will not oppose the technical changes that seek to do so in this Finance Bill. We note, however, that the Government recognise the scope for more businesses to enter the UK REIT regime, which entails one-off costs to businesses and greater demands on HMRC’s capacity. At a time when HMRC is already under significant pressure, will the Minister explain what assessment he has made to ensure that businesses that want to enter the REIT regime will be supported by HMRC without other aspects of HMRC’s work suffering?

[Nigel Huddleston]

I thank the hon. Gentleman for his comments. He will be aware that, while HMRC is operationally independent, I have oversight as part of my ministerial role. We have regular conversations about resources and capabilities, and I am more than confident about its capabilities in this and indeed many other areas. We always keep resources under review.

These changes are reasonable, and I am grateful for the hon. Gentleman’s support; indeed, they have wide support from industries. They will improve the operation of the REITs rules, aligning them with current commercial practices and enhancing the regime’s competitiveness. I therefore commend clause 8 and schedule 7 to the Committee.

Question put and agreed to.

Clause 8 accordingly ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 9

Managers of ships

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

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

It is a great pleasure to see you in the Chair, Mr Paisley.

Clause 9 and schedule 8 enable qualifying companies that manage ships to elect into the tonnage tax regime. Clause 10 increases the capital allowance limit on the provision of vessels to operators in the tonnage tax regime for ship lessors. Tonnage tax is a regime aimed at boosting the United Kingdom’s competitiveness in the international shipping industry. At autumn Budget 2021, the Government announced the first substantive reforms of tonnage tax since 2005. These included removing the EU/EEA flagging requirement, for example.

Following those reforms, the Government announced at this year’s spring Budget that we would permit third-party ship management under the tonnage tax regime, with the aim of attracting more shipping companies to the United Kingdom, and that we would also raise the capital allowance limit for lessors of ships into tonnage tax, broadly in line with inflation and the cost of ships. These changes follow a review into whether to include ship management and the appropriateness of the existing capital allowance limit.

Until now, only companies that owned or chartered their ships could participate in the regime. The existing tonnage tax rules will in general apply to ship managers as they do to operators, but with certain exceptions. Most notably, operators must fulfil a training requirement for ships’ officers, which will not apply to third-party managers. They will be able to claim tonnage tax profits only on ships for which the operator has fulfilled the training obligation. Clause 10 will raise the overall limit on capital allowances that a lessor can claim from £80 million to £200 million—the first rise since the limits were introduced in 2000. The increase recognises general price movements and changes in vessel design and costs, ensuring that the UK tonnage tax continues to be internationally competitive. I therefore commend clauses 9 and 10 and schedule 8 to the Committee.

[James Murray]

As we have heard, clause 9 sets out to make changes to the tonnage tax, by extending the scope of the tax to allow entry by third-party ship managers. As the Government’s policy paper sets out, as things stand, entry to the regime is available to operators of qualifying ships, with operators defined as those who own or lease vessels.

We understand that introducing the ability for ship managers who are not operators of ships to make a tonnage tax election will extend the scope of this beneficial tax regime, and it seeks to thereby increase the international competitiveness of the UK shipping industry. Extending the measure to permit ship managers to make a tonnage tax election is a largely administrative move and aims to bring the UK’s shipping regime in line with the international market. We will not oppose this measure today.

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[Nigel Huddleston]

Clause 14 and schedule 9 make changes to complete the abolition of the pensions lifetime allowance. By completing the work to remove the lifetime allowance charge, the Government will deliver the policy objective of incentivising highly skilled individuals to remain in the labour market or return to the workforce to build up their retirement savings, helping to grow the economy and to protect the quality of our vital public services. The Government have listened to stakeholders from across the public and private sectors, including senior NHS clinicians, air traffic controllers and senior police officers, who have said that pensions tax limits can and, indeed, do influence the timing of retirement and act as a barrier to remaining in or returning to the workforce.

The lifetime allowance limits the total amount of tax-relieved pension savings that an individual can have. It is set at £1,073,100, but individuals can contribute to their pensions over this limit. However, when members previously accessed pension benefits above the limit, they were subject to a tax charge called the lifetime allowance charge. At spring Budget 2023, the Chancellor announced that he would remove the lifetime allowance charge from 6 April 2023. The Office for Budget Responsibility estimates that around 15,000 individuals will remain in the labour market as a result, and many of them will be highly skilled individuals, including senior doctors in the NHS and many other public sector workers. The British Medical Association says that scrapping the lifetime allowance will be potentially transformative for the NHS.

The Chancellor also announced at spring Budget that the lifetime allowance would be removed from tax legislation entirely in a future Finance Bill. Clause 14 will deliver the necessary technical changes to entirely abolish the lifetime allowance from tax legislation. It clarifies the tax treatment of lump sums—that is where some pensions benefits are taken as a cash lump sum—paid from registered UK pension schemes. The new tax treatment ensures that lump sums do not, regardless of their size, become entirely tax-free. It will also clarify the tax treatment of transfers to overseas pension schemes and benefits paid from them. Finally, the clause sets out the arrangements for transitioning to the new pensions tax regime and reporting requirements under the new regime.

[James Murray]

As we have heard from the Minister, clause 14 intends to complete the abolition of the lifetime allowance, as announced by the Chancellor at last year’s spring Budget. When the Government announced their intention to abolish the LTA and the related charge, we in the Opposition made clear our concerns. Though we recognised the issue that the LTA presented to some professions, including doctors, we were concerned that the Government’s chosen approach would give some of the wealthiest in society a tax cut. We argued that this was not the right approach during a cost of living crisis, and at a time when taxes on working people are rising.

Clause 14, however, focuses not on the principle of the LTA charge but rather on the technical detail of how the Government are implementing abolition of the LTA. The Bill aims to make sure that legal effect is given to the change in time for 6 April this year, which we note is a very tight deadline for such a complex measure.

Let me first turn to how the Government propose to abolish the LTA. The Chartered Institute of Taxation has expressed concerns that the legislation in the Finance Bill on the abolition of the LTA is different from that which was published for consultation last summer. Indeed, the relevant part of the Bill comes in at nearly 100 pages —that is one-third of the Bill and two and a half times the size of the original legislation published last summer. With such a great degree of apparent change between the draft and final versions, there are of course likely to be many questions about details of the version before us, and about the Government’s intent. For example, the Chartered Institute of Taxation notes that the pension commencement excess lump sum aspect of the legislation that replaces the current lifetime allowance excess lump sum charge should be revised to meet the policy intent.

The Institute of Chartered Accountants in England and Wales notes not only the legislation’s length, but that it introduces new terminology and computations, increasing the risk of misunderstanding by taxpayers, advisers and agents. What representations has the Minister heard from industry groups about any approaches, terminology, or computations that are introduced for the first time in the final version of the legislation before us? What action has he taken on any representations he has received?

Given that the new rules take effect from 6 April, to many of those who are following this matter closely, it seems clear that it would have been wise to give more notice to pension schemes and individuals. The CIT notes that, for example, defined contribution pension schemes need to provide information to members about options for retirement at least four months ahead of nominal pension age. That means that scheme communications for those retiring in April this year would need to be clear and updated by December last year. Does the Minister believe that, because of the timing of this legislation, pension schemes may have communicated information to pension-holders that will turn out to be incorrect by April this year?

This legislation will gain Royal Assent presumably just two months or so before the new rules take effect. Clearly, pension funds will need new processes, systems, and member communications to be in place. What meetings has the Minister held with the pension industry about the requirements of this Bill, since its publication? Did any of the funds or groups he spoke to ask the Treasury to consider a different approach, or a different timetable for abolishing the LTA? Finally, on Government guidance and support, could the Minister confirm what he is doing to make sure that any guidance is fully and clearly updated in as much time as possible before 6 April?

[Drew Hendry]

The cost of living crisis is gripping families across the nations of the United Kingdom. They are struggling with rent, with mortgages, with food costs and with energy bills. When we come to clause 14, though the abolition of the lifetime allowance is necessary for certain professionals, including doctors, it benefits about as many bankers as healthcare workers. There were better ways for the Government to tackle this problem. What other options were looked at to avoid the undue rewarding of those who it was perhaps less necessary to include than healthcare workers?

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[The Chair]

I think we all declare an interest in this one.

[James Murray]

You beat me to it, Mr Paisley. I do not think this change will affect me personally, given when I was elected, but with an abundance of caution I declare an interest, as I am sure all Members would.

As the Minister explained, clause 15 provides technical updates to pension tax legislation related to elected representatives. It will provide a new power to make tax regulations in secondary legislation to, according to the Government’s explanatory notes,

“redress payments for age related unfairness caused by past changes to the pensions of members of Parliament, members of the Senedd and members of the Northern Ireland Assembly.”

The changes are also designed to be capable of having a retrospective effect to ensure that individuals are, as far as possible, put in the tax position they would have been in had the discrimination not occurred. The Opposition will not be opposing this measure.

[Nigel Huddleston]

I thank the hon. Gentleman for his comments. Indeed, I believe most of those affected here in Parliament were elected prior to 2015. There has been consultation with the Independent Parliamentary Standards Authority and others on these changes. It is a matter of fairness to make sure this is aligned with the broader public sector.

Question put and agreed to.

Clause 15 accordingly ordered to stand part of the Bill.

Clause 16

Provision relating to the cash basis

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

[Nigel Huddleston]

Clause 16 and schedule 10 make changes to improve the experience of many small businesses when completing income tax returns by extending the eligibility for the cash basis, which is a simplified way for 4.2 million smaller, growing traders to calculate their profits and pay their income tax. The Government recognise the usefulness of full accruals accounts for many businesses, but for many smaller businesses the cash basis acts as a valuable simplification. By measuring money received and paid out and removing complex tax and accounting rules, the cash basis makes it much easier for many businesses to understand how their taxable profits have been calculated, reducing error and the likelihood of an unexpected tax bill. It also ensures that a taxpayer is not taxed on money that they have not actually received yet, helping cash flow and supporting businesses to manage their tax payments.

There are currently only 1.2 million users of the cash basis from the 4.4 million self-employed businesses, which is only a 29% take-up. Many more businesses could stand to benefit from the cash basis, but are prevented from doing so because of existing restrictions on who can use the simplified regime.

The changes made by clause 16 and schedule 10 completely remove limits on the size of businesses able to use the basis, interest reductions, deductions and loss relief available under the cash basis and set the simpler regime as the default option for small businesses. This increases the number of businesses that are able to use the cash basis and removes barriers preventing businesses from using the regime, encouraging more businesses to benefit from its simplicity.

New businesses that choose not to use the simpler cash basis in order to be able to claim relief for any losses available under the accruals basis will now be able to claim loss relief through the cash basis too. That particularly benefits new self-employed businesses, especially those set up by someone with an employment or other source of income.

These changes are expected, using a conservative estimate, to save small businesses a total of about £13 million per year in administrative burdens. Alongside these changes, and directly responding to consultation feedback, HMRC will be prioritising a review of its guidance on the cash basis, aiming to improve the understanding and awareness of this simpler regime.

[James Murray]

As the Minister outlined, clause 16 makes the cash basis the default basis for calculating profits of trade for the tax year 2024-25 and beyond. As members of the Committee will know, the cash basis is a method that businesses can use to calculate trading profits for income tax purposes. As things stand, businesses have to elect to use the cash basis, making it an opt-in regime, and the Government have noted that this measure seeks to make the cash basis the default, while removing the current turnover restriction rules entirely, as well as the interest deduction limit of £500 and the unavailability of some types of loss relief.

The Minister will know that the Opposition is supportive of a simplified tax regime that gives certainty to businesses and taxpayers. However, there are a number of areas of the clause that we would like clarified.

First, with the cash basis being made the default, does the Minister have any concerns about some businesses being unsuited to the new system? The Chartered Institute of Taxation has expressed concerns that conducting accounts on a cash basis fulfils the need to report to HMRC, whereas businesses that report on an accrual basis serve several purposes, including for loans and profitability. Could the Minister explain what assessment he has made of the suitability of the cash basis for the full spectrum of businesses, including small businesses?

Connected to that point, could the Minister explain what consultation he has carried out with businesses and sector groups since the autumn statement about the measure ahead of its implementation in 2024-25?

That brings me on to my next point, on guidance. A major reporting change of this kind will require a thorough information campaign, and appropriate and accessible guidance for businesses. That is particularly important for small businesses. What measures is the Minister taking to make sure that guidance is as simple as possible, is accurate and minimises the risk of inadvertent error?

Finally, and related, is the potential increased scope for fraud. As with new tax changes that relax restrictions on access, a small number of actors could spot an opportunity to reduce their tax liabilities. Could the Minister explain what assessment he has conducted of the possibility of fraud, and what steps he is taking to address that?

I note from the Government’s policy paper that no additional staff have been allocated to support the policy change. In the apparent absence of any additional staffing to support the introduction of this new regime, what plan is in place to ensure there are adequate resources for its implementation?

[Nigel Huddleston]

I thank the hon. Member for his comments. We should be very clear that the Government are not forcing businesses to use cash accounts. A business can still choose the method of accounting that best suits its circumstances, but the Government encourage businesses to use the simpler cash basis where appropriate. However, we of course recognise that many businesses will still benefit greatly from the advice and information provided by an accountant drawing up full accruals accounts, so the Government have set the cash basis as the default to make it easier for businesses to use the simpler regime. All a business will have to do to opt out of that is tick a box on their tax return, so it is fairly simple and straightforward in terms of choice.

On guidance, feedback during the consultation suggested improvements to HMRC and gov.uk guidance that would help many small businesses understand the cash basis. We have listened and will be prioritising a review. We will update the guidance for the cash basis as part of the HMRC small business guidance review, which we announced at spring Budget 2023. That review will be completed by April 2025. The Government recognise the need to update that guidance, particularly for businesses that do not have the support of an accountant or tax advisers, and HMRC is also looking at providing further support through specific communications about the tax bases.

As I said, we understand—and HMRC understands—that many businesses have been using the cash basis anyway, without electing to do so, and these changes will formalise much of that behaviour and make it easier for taxpayers to use the cash basis without the administrative burden of making an election to do so.

Because of that tax simplification, particularly for small businesses, we believe that these measures—clearly simplifying the tax system—will help boost productivity, increase business confidence and reduce the amount of time and money businesses spend on tax administration. The clauses and schedules support our commitment of simplification by making it easier for small businesses to use the cash basis and by expanding the number of businesses that are able to use it. I therefore commend these measures to the Committee.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Schedule 10 agreed to.

Clause 17

PAYE regulations: special types of payer or payee

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

[Nigel Huddleston]

Clause 17 makes changes to address a potential overcollection of tax and national insurance contributions by HMRC to resolve an unfairness in the tax system. This will allow HMRC to set off taxes already paid by the worker and their intermediary against the pay-as-you-earn liability of another organisation in the supply chain, preventing double taxation and ensuring that the cost of the liability is shared more fairly between the parties involved.

The off-payroll working rules, commonly known as IR35, were first introduced in 2000. They set out that, where an individual is working like an employee, they should pay tax like an employee, regardless of whether they are working through their own intermediary. Under the current rules, where an organisation is found by HMRC to have incorrectly determined an off-payroll worker as self-employed when they should have been employed, it becomes liable for taxes and national insurance contributions that should have been deducted, at source, from the fee paid to the worker. Current legislation does not allow HMRC to rectify that by setting off taxes already paid by the worker and their intermediary against the PAYE liability of the organisation.

The changes made by clause 17 will give HMRC the power to set off taxes already paid by a worker and their intermediary against the subsequent PAYE liability of the organisation. That aims to address the potential overcollection of tax and national insurance contributions in cases of non-compliance with the off-payroll working rules. It also ensures that the cost of the liability is shared more fairly between the deemed employer and the worker.

[James Murray]

As we have heard from the Minister, clause 17, on PAYE regulations, aims to give HMRC the power to make regulations that will enable it to set off amounts of tax already paid by a worker and their intermediary, on income from engagements under IR35 rules, against a subsequent PAYE liability of their deemed employer. As the Government’s policy paper on this matter sets out, the core aim of the measure is to address overcollection of tax and national insurance contributions where there are cases of non-compliance with off-payroll working rules.

We in the Opposition will not be opposing this clause. However, we note that the provision comes into effect from 6 April, and will also apply to deemed direct payments made as far back as “on or after” April 2017. The Chartered Institute of Taxation had argued for this set-off to be legislated for since the off-payroll working rules were first introduced seven years ago. Could the Minister explain why it has taken the Government so long to act after the problem was first identified by a respected industry body?

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[Nigel Huddleston]

Clause 18 makes changes to ensure that the statutory reference under which the Scottish Government’s carer’s allowance supplement payments are made is corrected in income tax legislation, with retrospective effect. That will provide certainty to taxpayers.

When Parliament enacted section 12 of the Finance Act 2019, it intended to refer to the carer’s allowance supplement as taxable social security income, payable under section 81 of the Social Security (Scotland) Act 2018. Instead, the listing in the Finance Act for the carer’s allowance supplement refers to sections 24 and 28 of the Act. That is a technical drafting error in the legislation, which the amendment seeks to correct. The changes made by clause 18 retrospectively correct a drafting error in the legislation and do not affect the substance of the legislation. There will not be any impact on payments that have already been made or payments going forward. Nobody, therefore, will be financially impacted positively or negatively by these very specific changes.

[James Murray]

As the Minister set out, clause 18 makes a technical legislative correction to the reference to carer’s allowance supplement payments in table A in section 660 of the Income Tax (Earnings and Pensions) Act 2003. As that was a technical drafting error, which the clause will correct, we will not oppose the clause.

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[Gareth Davies]

The clause implements changes announced in the 2023 autumn statement concerning tobacco duty rates. The duty charged on all tobacco products will rise in line with the tobacco duty escalator, with an additional increase for hand-rolling tobacco to reduce the gap with cigarettes.

Smoking rates in the UK are falling, but they are still too high: around 13% of adults are now smokers. Smoking remains the biggest cause of preventable illness and premature deaths in the United Kingdom, killing around 100,000 people a year and up to two thirds of all long-term users.

We are investing in a range of measures to support smokers to quit, including an additional £70 million per year to support local stop smoking services, £15 million per year to fund new national anti-smoking campaigns, and £10 million over two years to provide financial incentives to support all pregnant smokers to quit. In a world first, we are also providing £45 million over two years to roll out the new national “swap to stop” scheme, supporting 1 million smokers to swap cigarettes for vapes. Our policy of maintaining high duty rates for tobacco products will support the Government’s plans to reduce smoking to improve public health.

In the autumn statement, the Chancellor announced that the Government will increase tobacco duty in line with the escalator. The clause therefore specifies that the duty charged on all tobacco products will rise by 2% above retail prices index inflation. In addition, duty on hand-rolling tobacco will increase by 12% above RPI inflation. These new tobacco duty rates will be treated as having taken effect from 6 pm on the day they were announced, which was 22 November 2023.

Recognising the potential interactions between tobacco duty rates and the illicit market, the Government introduced tougher sanctions in July 2023, including penalties of up to £10,000 for any businesses or individuals who are caught selling illicit tobacco products. HMRC and Border Force will shortly be publishing an updated strategy to tackle illicit tobacco, with the aim of making further progress in reducing the size of the illicit market, tackling organised crime and reducing demand for illicit tobacco products.

The clause will continue our tried and tested policy of using high duty rates on tobacco products to make tobacco less affordable. It will help continue the reduction in smoking prevalence, supporting our Smokefree 2030 ambition, and reduce the burden placed by smoking on our public services.

[James Murray]

The clause provides for changes to the rates of excise duty on tobacco products, covering cigarettes, cigars, hand-rolling tobacco and other forms of tobacco, in addition to increasing the minimum excise duty on cigarettes. We understand that it also provides for changes to the simplified calculation in the Travellers’ Allowances Order 1994. These changes, as the Minister said, took effect from 6 pm on 22 November. We have no questions about the clause.

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[Gareth Davies]

Clause 23 makes changes to uprate vehicle excise duty for cars, vans and motorcycles in line with the retail prices index from 1 April 2024. Vehicle excise duty is paid on vehicle ownership, and rates chargeable are dependent on various factors, including vehicle type, date of first registration and carbon emissions data. The Government have uprated vehicle excise duty for cars, vans and motorcycles in line with RPI every year since 2010, which means that rates have remained unchanged in real terms during that time.

The standard rate of VED for cars registered since 1 April 2017 will increase by £10. The rates for vans will increase by no more than £20, and motorcyclists will see an increase of no more than £6. The changes outlined will maintain revenue sustainability by ensuring that motorists continue to make a fair contribution to our public finances.

[James Murray]

Clause 23 provides for changes to certain rates of vehicle excise duty by amending schedule 1 to the Vehicle Excise and Registration Act 1994. We understand that the changes to rates will take effect for vehicle licences taken out on or after 1 April this year. We understand that the rates of vehicle excise duty for light passenger and light goods vehicles and motorcycles will increase in line with inflation, as has been the case since 2010. We have no questions on the clause.

[Gareth Davies]

I am grateful to the Opposition for their position and understanding.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.

Clause 24

Rates of air passenger duty

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

[Gareth Davies]

The clause sets the rates for air passenger duty for 2024-25. The rates were announced at the spring Budget and will take effect from April this year. The Government are uprating air passenger duty in line with forecast RPI rounded to the nearest pound. That will help to ensure that air passenger duty receipts are maintained in real terms and that airlines continue to make a fair contribution to our public finances. As is standard practice, the Government gave the industry more than 12 months’ notice.

The short-haul international rates will remain frozen for 2024-25, benefiting over 70% of passengers. Following the 50% cut in air passenger duty for domestic flights in 2023-24, the rate for those flying in economy class will increase by just 50p to £7. The long-haul and ultra-long-haul economy rates will increase by £1. The long-haul and ultra-long-haul rates for premium economy, business class and private jet passengers will also increase. Overall, this means that air passenger duty rates will be frozen in real terms. I commend the clause to the Committee.

[James Murray]

As we heard from the Minister, the clause makes changes to air passenger duty. It increases the domestic reduced rate by 50p and the domestic standard rate by £1. In band B, the reduced, standard and higher rates will increase by £1, £3 and £7 respectively. In band C, the reduced, standard and higher rates will rise by £1, £2 and £6 respectively.

The new domestic band for flights within the UK was introduced by the Finance (No.2) Act 2023, and I would like to interrogate those figures more closely. The Minister may remember that we debated the new air passenger duty regime at the fourth sitting of the Finance (No. 2) Bill Committee on 18 May last year, when I asked him to explain the impact of the new domestic band on UK flights by helicopter and private jet. He helpfully clarified that there was no air passenger duty other than on fixed-wing aircraft, which meant that the duty did not apply to helicopter flights—news I am sure would have been met with relief in Downing Street. He also confirmed that private jets making domestic UK flights would be subject to a different, higher rate from other UK flights—perhaps he managed to slip that through without the Prime Minister noticing.

Let us consider the impact of clause 24 on domestic air travel. The truth seems to be that air passenger duty is going up on all UK domestic flights except for those taken by private jet, for which the tax is being frozen. At the same time, there is no change that we know of to the arrangements for helicopters, as they remain outside the air passenger duty regime. Can the Minister confirm that what this clause proposes in terms of domestic air travel is a tax rise on all flights within the UK except those made by helicopter or private jet, whose passengers will see a tax freeze?

[Gareth Davies]

I am grateful to the hon. Gentleman. I remember very well the exchange at the last fiscal event, and I note that since then, the leader of the Labour party has developed a new passion for flying in private jets courtesy of foreign Governments.

Let me try to address the hon. Gentleman’s concerns and explain what is going on here. The industry is notified of air passenger duty 12 months in advance. It is uprated by a forecast of RPI and those rates are then rounded to the nearest pound. He asked a very reasonable question about how that shakes out in terms of the actual rates. It largely depends on how they are rounded to the nearest pound; the actual rate is determined by whether the figure is rounded down or up. He pointed out particular types of aircraft and particular bands. In the instances that he described, the rates have been rounded down; others have been rounded up, which is why other rates have gone up. He is right that helicopters are not part of the APD regime, but they do incur fuel duty, and buying a helicopter incurs VAT.

Finance Bill

James Murray Excerpts

Committee of the whole House
Wednesday 10th January 2024 Commons Chamber

[Nigel Huddleston]

I agree that certainty for business is pivotal, but with both full expensing and R&D the Government, the Chancellor and others have been indicating the direction of travel for some time and therefore giving increased certainty. As I have said, it was mentioned a while ago that we intended to pursue the policy of full expensing when the economic circumstances allowed, and now they do. R&D, which I will come to in a minute, has been discussed for quite a long time and is the result of extensive co-operation with industry.

It is also the reality, though, that Government policy needs to change in response to the nature of a changing economy and to things such as digital, the cloud and so on. When it comes to other investments, we need to make sure that new and emerging policy areas are covered as well. We have seen today, as we saw in the autumn statement, a very clear direction of travel from the Conservative side of the Chamber, which is about incentivising businesses and cutting taxes. Permanent full expensing also simplifies the capital allowances regime overall, as companies can claim the full cost in year one, reducing the need to claim writing-down allowances year on year.

Turning to clause 2 and schedule 1, the Government have also announced the closure of the R&D tax relief review launched in 2021—the point I was just making to the hon. Member for Reading East (Matt Rodda)—alongside a set of changes to simplify and improve the system. Clause 2 makes changes to merge the current R&D expenditure credit and SME schemes for expenditure in accounting periods beginning on or after 1 April 2024, simplifying the system and providing greater support for UK companies to drive innovation.

The merged scheme will have an above-the-line mechanism similar to the R&D expenditure credit, with a rate of 20%. That will make the benefit more visible and easier for companies to factor into their investment decisions. Additionally, small and medium enterprise lossmakers will now be able to carry forward their losses rather than having to surrender them, which will give a total benefit of up to £45 per £100 of R&D expenditure.

There will also be a reduction in the rate at which the merged scheme credit is taxed for lossmakers, from 25% to 19%. That is worth around £120 million per annum to non-intensive lossmakers and will increase the up-front cash benefit for lossmakers. Subcontracting rules in the merged scheme will allow the company taking the decision to do R&D to claim relief on contracted-out R&D. That approach is based on the current SME scheme, which was identified as the best option in the consultation we delivered, and has been refined further following engagement with industry last summer.

Subsidy rules will also be removed, allowing SMEs to claim relief for work for which they receive a grant of a subsidy. This represents an increase in generosity for SMEs as well as being a major tax simplification.

The Government are also legislating for enhanced support for loss-making R&D-intensive SMEs. That was announced at spring Budget 2023 and will benefit 23,000 SMEs a year by providing further support to the most R&D-intensive SMEs while merging the current schemes. The Government are promoting the conditions for enterprise to succeed. Companies claiming the existing SME tax relief will be eligible for a higher payable credit rate of 14.5% if they meet the definition for R&D intensity.

At the summer statement, the Government announced several improvements being made to that enhanced support. The R&D intensity threshold is being lowered to 30% from 40% from April 2024, meaning that around 5,000 more companies will benefit from the support. A one-year grace period is being introduced, providing greater certainty by ensuring that companies that dip under the 30% threshold will continue receiving relief for one year. The same subcontracting rules as the merged scheme will apply to this enhanced support, further helping to simplify the system with one set of rules that both SMEs and larger companies will follow.

Overall, R&D reliefs will support an estimated £55 billion of business R&D expenditure in 2028-29—a 25% increase from £44 billion in 2021-22. Expenditure on R&D reliefs is forecast to increase in every year of the scorecard period. We will also restrict nominations and assignments for R&D relief payment. That measure ensures that genuine businesses get the payment for their R&D claim directly, rather than receiving it through an agent, and is designed to benefit genuine claimants and reduce non-compliance.

Subject to limited exceptions, no R&D tax credit payments will be made to nominee bank accounts, and any R&D tax credit payments must be paid directly to the company that claims for the R&D, so claimants will now receive their payments directly, giving them more control. That will ensure that the person claiming the relief has better oversight of the claim and receives the money into their account quicker. Claimants will also be clearer on exactly how much money is being charged by their agents, rather than just receiving a net amount after fees have been deducted. That builds on previously announced measures and policy changes to help to ensure greater company control over R&D claims.

The Government are committed to making the UK the best place in the world to do business. Full expensing and R&D tax relief support businesses to grow and invest, which will boost productivity and economic growth. That remains the key way to raise everybody’s living standards and to fund high-quality public services throughout the UK. I commend clauses 1 and 2 and schedule 1 to the Committee.

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

Let me start by briefly considering the context in which we are debating clauses 1 and 2. As we know, the Bill follows the Chancellor’s statement on 22 November last year, in which he claimed that he was delivering an “autumn statement for growth”. As the Committee may remember, the Office for Budget Responsibility confirmed on the same day that growth forecasts had been cut by more than half for the coming year, cut again for the year after that, and cut yet again for the year after that. Independent analysts confirmed that, even after all the changes the Government had announced, personal taxes would still rise. In fact, personal taxes are now set to rise by £1,200 per household by 2028-29, with the tax burden on track to be the highest since the second world war. Despite people across the country paying so much in tax, public services are collapsing, the NHS is on its knees, and more and more families are struggling to make ends meet.

That was the context in which we considered the Bill on Second Reading just before Christmas: 13 years of Conservative economic failure had left people across Britain worse off. The only thing to have changed since then is that we now face 14 years of Conservative economic failure. It may be a new year, but those in the governing party face the same cold truth: nothing they can say or do now can repair the damage that they have done to our economy.

People in businesses across Britain deserve so much better. As a foundation of better management of the economy, our country needs and deserves stability, certainty and a long-term plan. It is for that reason that, although we welcome the fact that clause 1 makes full expensing permanent, which we have long called for, it simply cannot make up for the years of uncertainty that businesses have faced. Businesses need stability and predictability to help them plan for growth, and their long-term planning has been held back because the Government have been chopping and changing business taxes and reliefs year after year, with no evidence of anything resembling a long-term strategy.

[Richard Fuller]

I was very pleased to hear the shadow Minister say that the Opposition welcome the full expensing. That helps, but maybe he can go further to clarify. In new clause 6, tabled in his name, the Opposition are calling for a review of all business taxes and reliefs, which would include full expensing. He will know, as will the hon. Member for Mid Bedfordshire (Alistair Strathern) who is sitting behind him, that there is a particular potential investment decision in our county. Will the shadow Minister make it explicit that the Labour party’s intention is to include in its manifesto for the next election a commitment to maintaining full expensing?

[James Murray]

As I have said, we have long been calling for full expensing, and we welcome the fact that it is being made permanent. I do not mean to sound jokey in my response—I am deadly serious when I say this—but if the hon. Gentleman wants to know what a Labour Government would do if we got into office, there is one way to see that eventuality come about: we could have a general election sooner rather than later, instead of dragging things on throughout the course of 2024.

Frankly, the country needs to move on from the current Government. Just look at their record on capital allowances since the last general election. The hon. Member for North East Bedfordshire (Richard Fuller) spoke about certainty and the need for stability, but let us look at the changes that have happened to capital allowances over the past four or five years. As I mentioned on Second Reading, back at the beginning of this Parliament, the annual investment had been raised to £1 million on a temporary basis. That temporary basis was extended by the Finance Act 2021, extended again by the Finance Act 2022, and then made permanent by the Finance (No. 2) Act 2023. Meanwhile, over the course of this Parliament, the super-deduction came and went entirely. Last year, full expensing for expenditure on plant or machinery was introduced but only on a temporary basis for three years.

Now, of course, Treasury Ministers are amending what their predecessors announced last year by making full expensing permanent. Although we welcome that policy, I wonder how long it will last. Frankly, I wonder how long any policy can be expected to last under this Government, when they are led—in the loosest possible sense of that word—by such a weak Prime Minister. If we accept clause 1 at face value, we welcome its principle of making full expensing permanent, as that is something that we have long called for. I will focus the rest of my questions on some of the specifics of the Government’s approach.

As ever, I am grateful to the excellent team at the Chartered Institute of Taxation for all their thoughts on the detail of what the Government have proposed in this clause and others. I know that one matter of interest to the chartered institute was the fact that, at the autumn statement, the Government said that they would publish a technical consultation on leased assets. I would be grateful if the Minister told us when that will be published.

Furthermore, both the Chartered Institute of Taxation and the Association of Taxation Technicians—to which I am also grateful for its thoughts on the detail of the Bill—have queried which companies and assets are eligible for full expensing. I would be grateful if the Minister clarified which assets are outside the scope of full expensing, and whether the Treasury will publish a detailed list of what does and does not count as plant and machinery. I would also be grateful if he told us how many firms will not be eligible for full expensing because they are partnerships. I know that many who take an interest in this matter would welcome clarity on that.

In clause 2, the Government propose changes to the system of tax credits for research and development. As with their approach to business taxation and capital allowances, the Government have failed to deliver any sense of stability when it comes to R&D tax credits, despite certainty and predictability being so crucial to businesses that are making investment decisions. That much is clear when looking at the list of changes that we have debated in Finance Bills over the course of the current Parliament alone: the Finance Act 2020 changed the rate of R&D expenditure credit; the Finance Act 2021 changed how much R&D tax relief small and medium-sized enterprises could claim; the Finance Act 2023 again changed the rates of R&D tax relief; the Finance (No. 2) Act 2023 changed further how the relief operates; and now, the Finance Bill before us changes the system of reliefs yet again. We accept, of course, that some change is necessary and important to enable legislation to function well, but that does not seem to be what we have seen. What we have seen is a Government incapable of providing stability, predictability, and the long-term plan that businesses need to invest and grow. It is clear that after 14 years in office, the Conservatives are incapable of providing that crucial foundation for our economic success.

[Matt Rodda]

My hon. Friend is making an excellent point, which comes to the nub of the argument: the Government are not capable of providing business with the certainty it needs. That is such a tragedy, because so many wonderful emerging industries in the UK which have incredible potential need that certainty, as indeed do other businesses.

[James Murray]

My hon. Friend is absolutely right. So many businesses in the UK that are keen to invest, grow, and make people across Britain better off are being held back by the lack of stability and certainty from this Government. I cannot help but notice that the Government recognise the symptoms of the problem—that a lack of stability and certainty is indeed a problem for economic growth—but they are simply unable to provide a response to that problem, and provide the long-term plan that Britain so desperately needs.

We know that so much chopping and changing without any clear long-term plan has had a cost for our economy, by undermining prospects for investment, innovation and growth. Indeed, the Institute of Chartered Accountants in England and Wales has shared with us the view of its members that there is a lack of confidence when claiming R&D tax relief within the UK, and their belief that

“this has arisen due to the various changes made to the rules in quick succession over the past few years.”

We also know, of course, that having so many changes one after the other has a direct impact on taxpayers as well as businesses, as the public finances bear the costs for all the impacts on His Majesty’s Revenue and Customs in terms of IT systems and staffing. Our analysis of HMRC policy papers suggests that the changes made and proposed within the current Parliament have had a cumulative impact on operational costs for HMRC of more than £60 million. That sum is likely to include a substantial waste of taxpayer money as a result of so many piecemeal changes rather than coherent and lasting reform.

In order to be clear and transparent on the costs of all the Government changes to R&D tax credits, we have tabled new clause 1. The new clause would require the Chancellor to publish a review setting out the total implementation costs of all changes to research and development reliefs in the current Parliament. I hope Ministers will accept that straightforward new clause, but if not, I look forward to Government Members who would be interested in such transparency joining us in supporting it. Furthermore, if Ministers are not prepared to vote for the new clause or accept it, I would be grateful if they could at least commit to writing to me with the figures that our new clause requests.

Turning to the substantive impacts of clause 2, we should be clear about what the clause does. In the autumn statement, the Chancellor said that the Government were

“creating a new, simplified R&D tax relief that combines the existing R&D expenditure credit and small and medium-sized enterprise schemes.”—[Official Report, 22 November 2023; Vol. 741, c. 325.]

We have heard similar words from the Minister in this debate. In reality, though, the Government’s plans still effectively maintain two separate schemes: although they seek to merge the two existing schemes, they continue to provide additional support for R&D-intensive SMEs through the existing SME scheme, rather than its forming part of the new merged scheme. Although we recognise that R&D-intensive SMEs may need extra support, the Chartered Institute of Taxation has pointed out that the Government’s plans are

“less a merger than the shifting of most SMEs into a revised scheme based on an ‘RDEC’ approach, with the SME scheme remaining for a smaller group of R&D intensive SMEs.”

The Association of Taxation Technicians has pointed out the impact this may have, saying that

“the introduction of new rules to define R&D intensive SMEs and the possibility of companies moving in and out of the two regimes as their expenditure profile changes will arguably result in an overall increase in the complexity of the R&D relief regime, rather than simplification.”

As I said, we recognise that R&D-intensive SMEs may need additional support, but I would be grateful if the Minister could explain why the Government have chosen to continue operating a separate scheme to provide that support, rather than delivering it as part of the new merged scheme.

Alongside understanding the Government’s intention regarding the design of the new regime, I would also like to question the Minister about the timescales for implementing the measures in clause 2. In the policy documents associated with the autumn statement, it was clear that the new regime would apply from April 2024 onward. In the Bill, however, schedule 1, which clause 2 introduces, makes clear that the changes will apply from an “appointed day”—a day to be appointed by the Treasury in regulations. I would be grateful if the Minister could confirm in his reply what that appointed day will be. Is it 1 April 2024, or will it be a later date?

As April is less than three months away, if the appointed day does indeed fall within that month, is the Minister confident that that leaves enough time for proper consultation, and for any new systems and processes to be put in place by businesses, agents, software providers and HMRC? If, instead, the appointed day is later than April 2024, those affected need to know what is happening. I hope the Minister will be able to provide clarity on that question today; otherwise, sadly, this seems to be yet another example of continued uncertainty for businesses from this Government.

Finally, we know that the Government are concerned about the level of non-compliance with the R&D tax credit schemes. In their policy paper published in November about the merging of the current schemes, they wrote:

“Further action may be needed to reduce the unacceptably high levels of non-compliance in the R&D reliefs, and HMRC will be publishing a compliance action plan in due course.”

Tackling non-compliance is of course very important, so I would be grateful if the Minister could confirm in his reply when HMRC will be publishing the promised compliance action plan.

I am also very aware from meetings I have had with smaller businesses that they often face a great deal of confusion over the guidelines associated with R&D tax credits. Whereas larger businesses will typically have the resources and institutional capacity to navigate those rules, I am concerned that smaller businesses often do not, and may find themselves having to pay for expensive consultants to help them understand them.

HMRC could have a role to play in supporting small firms with clarity about the guidelines on R&D tax credits, as well as, of course, in its role in tackling genuine fraud. Indeed, the Startup Coalition—an organisation that advocates for policies to support innovative firms in the UK—has highlighted the need for HMRC to improve, and has called for improved

“transparency around adjudicating whether activity is R&D to provide certainty for firms.”

The ICAEW has made similar points, stressing the need for guidance and education and making clear that

“the new rules will significantly affect all sizes of companies including those smaller entities with limited professional tax resource.”

I therefore urge the Minister to make sure that any plan for improving compliance with the rules also focuses on making the rules easier to comply with wherever possible, and on working with small, innovative firms to help give them the certainty they need to thrive.

To conclude, Labour will not be opposing either of the clauses, but I urge Treasury Ministers to accept our new clause 1 and, when they reply, to respond to the specific points that I have raised. More widely, it is clear from their approach to capital allowances and R&D tax reliefs that the Conservatives are incapable of providing stability and a long-term approach. Their failure is letting down businesses across our country who stand ready to play their part in growing the economy and making people across Britain better off.

[Maggie Throup (Erewash) (Con)]

I am delighted to be able to speak in Committee on the Finance Bill, which I believe emphasises the Conservative principles of encouraging entrepreneurs, free enterprise and innovation. Many in this Chamber will know that I do not have a traditional finance background, but I did run my own business for 19 years, which I think qualifies me to identify when fiscal measures are really going to help business. That is what I see in the Bill, especially clauses 1 and 2, which I will speak to today.

First, I will take the opportunity to speak in favour of clause 1, which will support UK business by making full expensing permanent. In the spring Budget 2023, the Chancellor introduced major reforms to the system of capital allowance by replacing the super-deduction system with three years of full expensing. The new measure, which was initially put in place until 1 April 2026, allows companies to claim the full cost of their expenditure on plant or machinery against tax when the business investment is made. That measure was well received by businesses across the UK, as my hon. Friend the Minister has already stated; he quoted a number of large plcs, but the measure has also allowed a number of Erewash-based businesses to benefit and prosper.

Dales Fabrications Ltd previously claimed a super-deduction, the predecessor of full expensing, on a very significant piece of machinery. It sounds quite complicated to me, but it is a 4-metre press break with lots of bespoke options. The benefits of the super-deduction were of such significance that the business purchased additional and highly beneficial tooling concurrently with the machine. The now chairman of the business said to me:

“In reality, we would have inevitably deferred that additional tooling purchase without the super deduction, thus meaning we wouldn’t have had 100 per cent of the benefits of our new machinery from day one and would have been effectively denied access to some types of work that went beyond typical industry-standard sizes.”

The owner of another business, Millitec, said:

“Super deductions are really good and a real incentive for us to invest.”

The successor of the super-deduction, which means being able to expense fully the cost of plant and machinery on a permanent basis, as proposed in clause 1, will undoubtedly continue to be a huge incentive for businesses across the UK to invest in their futures and in UK plc. I know from speaking to my local businesses that they really welcome this, and see it as one way to be able to expand and grow their business. However, I have a question for my hon. Friend the Minister. The terminology of plant and machinery is very broad, so when he responds could he provide some clarity for my Erewash businesses about what is defined as plant and machinery, to help them understand what is in scope? For example, does it extend to IT equipment? I think that having a better understanding of the terminology will really help businesses of all sizes to take full advantage of what is on offer.

The contents of clause 1 shows that the Government are on the side of business. Ahead of the autumn statement last year, 200 businesses—including AstraZeneca, which was so instrumental in the covid vaccine roll- out, and Toyota, a major employer of many of my constituents—wrote a joint letter to my right hon. Friend the Chancellor asking for the 1 April 2026 expiry date to be removed, so making full expensing permanent. Today, by supporting clause 1 and making full expensing permanent, we are backing businesses and helping them to succeed. It also shows that the Government are listening to businesses and making sure they are putting in place measures that will really help them grow their business.

Clause 1 will provide businesses with the biggest tax cut in modern history, worth over £10 billion a year, making the UK capital allowances regime one of the most generous in the world. Since the introduction of temporary full expensing in April 2023, the UK has become an appealing place to invest. The UK has had the second highest investment growth in the G7 and three times that of the US. Making full expensing permanent can only perpetuate that growth. Will my hon. Friend say when he winds up whether plans are in place to extend full expensing to plant and machinery that is either leased or hired? Those two options are often the only affordable ones for businesses with big ambition, but limited capital.

Let me turn to clause 2 and schedule 1. The Bill will simplify research and development rules by merging the small and medium-sized enterprises and the R&D expenditure credit schemes. Whether it is trialling and distributing the successful covid vaccines, which helped us defeat covid-19, or testing and developing new innovations that will enable us to meet our net zero targets, R&D businesses play a vital role in growing our economy. At the spring Budget 2023, my right hon. Friend the Chancellor announced enhanced support for R&D-intensive SMEs worth around £500 million per year, a consultation on the potential merged R&D tax relief scheme and support for those loss-making R&D businesses. As a result, the measures in this Bill show the Government’s unwavering support for R&D businesses.

Specifically, clause 2 and schedule 1 will help reduce bureaucracy and ensure that taxpayers’ money is spent as effectively as possible by simplifying the R&D tax system. That will stop many businesses having to navigate the complex transition between the two existing schemes. It is anticipated that the reduction of the intensity threshold in the R&D-intensive businesses scheme from 40% to 30% from April this year will allow around 5,000 extra SMEs to qualify for an enhanced rate of relief. A one-year grace period will also be introduced, providing certainty for companies dipping under the 30% threshold that they will continue to receive relief for one year. This is a vital measure for so many R&D-focused businesses, which inherently have peaks and troughs of activity. Taken together, these changes will provide £280 million-worth of additional relief per year by 2028-29 to help drive innovation in the UK.

--- Later in debate ---

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

I call the shadow Minister.

[James Murray]

I rise to speak to the new clauses in my name and that my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq).

Clause 21 and schedule 12 relate to the implementation of pillar 2 of the OECD/G20 inclusive framework on base erosion and profit shifting. Labour supports this clause and schedule as they are intended to modify the existing multinational and domestic top-up taxes introduced in the Finance (No. 2) Act 2023, to make sure these new taxes work as intended. We have long supported the global deal on the taxation of large multinationals, as we want to see it working as effectively as possible.

We know that the OECD guidance on implementing the deal is coming out in tranches, so it is important that UK legislation is updated to reflect that. We recognise that, as with any global deal of this scale, its details are complicated and its implementation will take time, yet we have been clear throughout its development that we support the principle of a global agreement as a crucial step in making the tax system fairer, thereby helping to make sure that British businesses that pay their fair share of taxes are not undermined.

Indeed, nearly three years ago, in April 2021, I first set out in the Commons our support for a global deal to make that tax system fairer, to make sure that a level playing field is there for British businesses and to stop the international race to the bottom on tax for large multinationals. The Treasury Ministers at the time appeared at first lukewarm in backing plans emerging from the United States for a global deal. Eventually, however, the then Chancellor, now the Prime Minister, began to support the deal in public. We were glad that the current Prime Minister seemed to have come round, but I am not sure all his Back Benchers have. For instance, I wonder whether the hon. Member for North East Bedfordshire (Richard Fuller) would agree with the Prime Minister when he said:

“We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business.”

We agree with the Prime Minister on that point, but I just wonder whether everyone on the Conservative Benches does. I am reading some of their faces and I think the answer is clear. Could it be that the Prime Minister lacks support from prominent Back Benchers within his own party on a policy he is now championing? Surely not. But Treasury Ministers should rest assured that if their Back Benchers pull any tricks on clause 21, they will have our support for it to pass.

Oral Answers to Questions

James Murray Excerpts

Tuesday 19th December 2023 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

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

Throughout the pandemic, people across the country made extraordinary and heart-wrenching sacrifices, yet as they did so, a small minority were instead making millions of pounds by ripping off the taxpayer. With conflicts of interest, defective goods and exorbitant profit margins, it has been greedy and grubby and this Conservative Government have enabled it all. As taxpayers, we want our money back, so Labour will create a covid corruption commissioner to chase down every pound we can. Does the Minister have any idea just how angry people are that our country has been taken for a ride?

[Laura Trott]

The hypocrisy is absolutely astonishing. During the pandemic the shadow Chancellor wrote that the strategy of turning to big-name UK manufacturers was not delivering the supply that was needed. Yes, we procured things very fast—we needed to do that to get things to the frontline—and we are trying to get back every single penny that was lost to fraud, but we make no apology for doing whatever we could to get PPE to the frontline as quickly as possible.

[James Murray]

The Minister’s response really does not reflect the seriousness of the situation. This is not just one bad apple; this is a rotten culture that goes to the very top, with £8.7 billion lost on wasted PPE and £7.2 billion lost to covid fraud. That is £15.9 billion of public money gone at a time when people and public services are struggling. Can the Minister remind the House who was Chancellor at the time that all of this was signed off?

Finance Bill

James Murray Excerpts

2nd reading
Wednesday 13th December 2023 Commons Chamber

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

After 13 long years of the Conservatives in power, it is clear that, no matter what they try to do or say, they cannot escape the reality of their record in office. That reality is one of people across Britain being worse off, public services collapsing, and a Conservative party that puts its own interests before the country’s.

We now have a governing party barely able to govern and a Prime Minister barely able to lead, but at least the Chancellor is still following the Prime Minister’s example by trying to emulate his reverse Midas touch. Frankly, whenever the Chancellor talks about getting the economy growing, the country is pushed in the opposite direction. In his speech three weeks ago, he used the phrase “autumn statement for growth” seven times, and what did we see? The growth forecast for next year cut by more than half, cut again the year after that, and cut yet again the year after that. It seems that the Financial Secretary is getting in on the act, too. Today, he talked about what he has been doing to support growth, and what do we see? Figures out today confirm that the UK economy contracted unexpectedly in October, with GDP falling by 0.3%.

It is not just in relation to growth that the reverse Midas touch applies. Last month, the Prime Minister said:

“I want to cut taxes, I believe in cutting taxes.”

But what have we seen? Even after all the changes the Government have announced, the tax burden is still on track to be the highest since the second world war. The truth is that after 13 years of failure on the economy, the Conservatives are incapable of getting our country back on track. After 13 years, they do not have the determination or the plan to get us out of this doom loop where growth is low, taxes are high, public services are collapsing and families are worse off. Only Labour’s plan will bring stability and responsibility back to our public finances, give families the security they need and reform our public services for the future. Only Labour is ready to work with businesses day in, day out to get our economy growing, to create good jobs for the future and to make people across Britain better off.

There are a number of individual measures in the Bill that we have been calling for for some time; we will not oppose its Second Reading, and we look forward to considering it in detail in Committee. However, it is clear that the Bill and the autumn statement it follows are simply the latest chapter in 13 long years of Conservatives failing to get the economy growing and make working people better off. It is sobering and frankly staggering that, as the Resolution Foundation set out following the autumn statement, real average weekly earnings are now set to remain below their 2008 level until 2028. That is two full decades of pay stagnation. That is what happens when the Government cannot find a plan for growth that works.

To be fair, it is not for want of trying. The “autumn statement for growth” is the 11th attempt at an economic growth plan we have seen from the Conservatives. The problem is that the Conservatives simply do not have the ideas we need for our times, nor the focus on the country that the British people deserve from their Government. As Conservative MPs meet behind closed doors to plot their next leadership election, families across Britain are fed up of struggling and being squeezed, businesses yearn for stability and certainty, and our country misses out on the chance to fulfil its potential.

Of course, people across Britain are feeling the hit not just from growth being weaker and inflation more persistent than in similar countries, but from the 25 tax rises the Conservatives have already pushed through in this Parliament alone. There is, however, one small group of people who will continue to be protected from this Government’s tax rises on much of their income. That group of people is non-doms: those who live in Britain but do not pay UK taxes on their income from overseas. As we have long said, Labour believes it is only fair that if a person makes Britain their home, they should pay their taxes here. Closing the non-dom loophole—replacing that archaic status with a residence scheme like other countries have—could raise crucial funding to bring the NHS waiting list down. Yet today we have another Finance Bill from this Government that leaves the loophole open. The Government are continuing to help a few at the top to avoid paying their fair share of tax when they keep their money overseas, while letting families across the UK face a tax burden that is climbing to a post-war high. Whatever the Government say, that is the reality facing working people in Britain.

As the Resolution Foundation points out, any cuts to personal taxation announced in the autumn statement pale in comparison with previously announced tax rises through the freezing of national insurance and income tax thresholds. The Resolution Foundation concludes that the combined effect is an average tax rise of £1,200 per household, with almost every single person in the country who pays income tax or national insurance paying higher taxes overall. Across all taxes that the Government levy, the Resolution Foundation points out that

“despite the tax cutting rhetoric, the reality is that the tax burden is rising, with tax receipts as a share of the economy set to reach 37.7 per cent in 2028/29, the highest level in 80 years.”

That is the reality from which the Conservatives cannot hide.

[Barbara Keeley]

My hon. Friend is making a great speech. He has been talking about the tax burden, and I raised the subject of cultural tax reliefs earlier. Another change in orchestra tax relief is that eligibility requires 10% of expenditure to be on goods or services that are used or consumed in the UK, rather than being incurred in the UK. The Association of British Orchestras has said that there is a lack of clarity about what orchestras will now be able to claim. This level of uncertainty is very unfair on UK orchestras, which have been through a turbulent time as a result of Brexit, covid and the cost of living crisis. Will my hon. Friend agree to raise that point with the Minister in Committee, to obtain some clarity and to enable Members to consider what these changes are doing? I appreciate that the subject is too complicated to be dealt with at this point.

[James Murray]

I thank my hon. Friend for raising that point; she is a great champion for orchestras. It is only right, when we consider the details of the Bill in Committee, for us to push the Government to provide the certainty that is so often lacking from many of the measures that they propose.

I was talking about the reality from which the Conservatives cannot hide. The Chief Secretary to the Treasury, who is present, has been desperately trying to claim that the tax burden is going down. Three weeks ago, she claimed that

“taxes for the average worker have gone down by £1,000.”—[Official Report, 22 November 2023; Vol. 741, c. 360.]

Two weeks ago, she claimed:

“Taxes for the average worker will have gone down by £1,000 since 2010.”—[Official Report, 30 November 2023; Vol. 741, c. 1084.]

However, analysis conducted by the House of Commons Library makes it very clear that national insurance and income tax for the median earner will rise by well over £1,000—up from £6,112 in 2010-11 to £7,364 in 2024-25.

In an attempt to understand the tension between the Chief Secretary’s comments and the Library analysis, I wrote to her and also tabled written parliamentary questions. The Financial Secretary responded to both the letter and the questions with rather more careful wording, saying that

“an average worker in 24-25 will pay over £1,000 less in personal taxes than they otherwise would have done.”

He was careful to make it clear that the Government’s

“calculations are on a same-year basis against a counterfactual”,

and that this was not, in fact, a comparison over time, as that

“would include the effects of earnings growth on cash totals of tax due”.

I wonder whether the Chief Secretary’s statement that taxes for the average worker have “gone down by £1,000” may have inadvertently misled the House, given that her colleague’s written response to me tacitly admitted that the Government’s statistics do not refer to the actual taxes that a worker pays. When the Exchequer Secretary to the Treasury responds to the debate, perhaps he will tell us if he knows whether the Chief Secretary would like to correct the record. Whatever the Conservatives say—however they twist and turn—the truth is that people across Britain are feeling the squeeze, and life is very different from the picture that Ministers are desperately trying to paint.

I have already made it clear that we support a number of the individual measures in the Bill. We welcome, for instance, the measure in clause 1 to make full expensing permanent; we have been calling for that for some time. Welcome as it is, however, it simply cannot make up for the years of uncertainty that businesses have faced. When I meet businesses across the country, they are clear that they want stability, certainty and a long-term plan, but even during the time for which I have been shadow Financial Secretary—a period that has seen five different incumbents of the office that I shadow—business taxation and reliefs have been chopped and changed every year.

Let us take the annual investment allowance. At the start of this Parliament, it had been raised to £1 million on a temporary basis. That temporary basis was extended first by the Finance Act 2021 and again by the Finance Act 2022, and was then made permanent by the Finance (No. 2) Act 2023. During that time, of course, the super-deduction, which Members may recall, came and went entirely, and last year full expensing for expenditure on plant or machinery was introduced—but, again, only on a temporary basis for three years, before being amended yet again this year to be made permanent. Frankly, while the latest Treasury Ministers may say that full expensing is now permanent, how long any policy under this Government may last seems to be decided by the Conservatives’ internal battles rather than what is right for the country.

[Andy Carter]

The hon. Member has said that Labour will support the Bill today, and I welcome that, but I have been doing some calculations. Does he agree that if Labour remain committed to their £28 billion borrowing plan, debt will soar and they will break their own fiscal rules?

[James Murray]

The hon. Gentleman was desperate to make an intervention about fiscal responsibility, when just a year ago his party crashed the economy and sent interest rates soaring, and working families throughout the country are still paying the price. We on this side of the House take fiscal responsibility seriously. We want to have a fiscal lock in place, we want to get debt falling, and we want to get the economy growing. That is the difference between us and the Conservatives.

Clause 2 contains measures on research and development. In Committee we will probe the impact of those changes in greater detail, but it is clear straightaway that stability and certainty have been lacking here as well. We need only look at the changes in the current Parliament’s Finance Acts. The Finance Act 2020 raised the rate of the R&D expenditure credit from 12% to 13%. The Finance Act 2021 made changes to the amount of R&D tax credit that small and medium-sized enterprises could claim. The Finance Act 2023 again changed the rates of R&D tax reliefs, and that same year the Finance (No. 2) Act 2023 made yet further changes to how the relief operates. Now, of course, the Finance Bill before us introduces a whole new regime. Businesses making investment decisions yearn for stability and certainty, but after 13 years in office, the Government are proving themselves incapable of providing those crucial foundations for success.

We acknowledge, of course, that the tax legislation in Finance Acts needs to be kept updated, and that some change is not only inevitable but important in enabling legislation to function well. However, with this Government it is hard to avoid the sense that changes are being made without a long-term plan in mind. It looks very much as if there has been no long-term plan for capital allowances or research and development reliefs, and the same is true of tackling tax avoidance and evasion.

Although we welcome any measures to tackle tax avoidance and evasion, again there has been a busy history of legislation in this Parliament alone. The Finance Act 2020 made changes to the general anti-abuse rule, introduced to deter taxpayers from using tax avoidance schemes. That was followed by more changes to the rule in the Finance Act 2021, alongside other changes to the legislation covering avoidance. In the Finance Act 2022, a further round of changes were made to the legislation relating to avoidance, including on HMRC’s publication of information about avoidance schemes. Now, in 2023, we see the latest set of changes to the rules and penalties in respect of avoidance and evasion. While we will consider the detail of those changes in Committee, it is already clear that a long-term plan is very hard to see.

Stability and certainty are crucial foundations when businesses are making decisions about where to invest and where to create jobs. We in the Opposition hear that from business leaders day in, day out, across all sectors and in all parts of our economy. We know how much damage is done to economic growth and people’s standards of living when that stability and certainty are not there. We saw that at its most extreme last autumn, when the Conservatives crashed the economy and trashed their reputation in a matter of days, through a reckless disregard for our economic institutions and for working people’s security. But it is not just about last autumn; it is about 13 years of Conservative government. It is about the inability of the Conservatives to provide the stability, the certainty and the plan for the future that businesses and our economy need.

[Sir Robert Syms (Poole) (Con)]

If we have crashed the economy and we do not have a long-term plan, why are you voting with us today? [Interruption.]

[James Murray]

Yes, Madam Deputy Speaker, I took that question to be addressed to me rather than to you. We have made it clear that when it comes to the measures in the Bill for which we have been calling for some time, we welcome and will support them. We would not oppose measures that we have been calling for. However, given the Government’s chopping and changing year on year from one Finance Act to the next, it is desperately clear that there is no evidence of a long-term plan over the past 13 years, and no evidence of the plan that we need for the future. I hope that in a general election, when businesses and working people across the country look at the Conservative party and at the Labour party and ask themselves who has a plan to grow the economy and make working people better off, they will conclude that it is us.

[Barbara Keeley]

May I make a further point about cultural tax reliefs? It seems to me that there is not quite enough understanding of the importance of this subject on the Government Benches. International touring is vital to the survival of many orchestras and makes up a fifth of earned income. That is a substantial proportion. My hon. Friend has talked of the changes that have been made, and all the flip-flopping. There is a strong economic and strategic case for incentivising touring in the European economic area for UK orchestras, because it boosts cultural exports and enhances the UK’s place on the world stage. That does not apply only to film and video, which the Minister has mentioned; our orchestras are world-class too. There is a move to limit the cultural tax reliefs, including orchestra tax relief. I am grateful to my hon. Friend for saying that that will be reviewed in Committee, but the key issue is the continuing importance of those cultural reliefs, and what the Minister has said today does not convince me that he understands that. I therefore fully support what my hon. Friend is saying.

[James Murray]

I thank my hon. Friend for her intervention on that point, and we will certainly raise questions on her behalf in Committee to try to get clarity from the Government. As she rightly points out, clarity and certainty have been distinctly lacking from this Government over a whole range of topics. We will certainly press them on that in Committee.

As I was saying in response to the hon. Member for Poole (Sir Robert Syms), we will not be opposing many of the individual measures in the Bill, including those on capital expensing, on research and development and on tax avoidance and evasion, but they all serve to remind us just how much of a merry-go-round this Government have become and just how much they lack a plan for the future. A plan for the future is what has been sorely missing from this Finance Bill and from the autumn statement, and it is clear that the Conservatives are now incapable of offering one. With no stability, no real certainty and no plan for growth that works, businesses are left without the partner in Government that they need, and without the growth that our economy needs, working people are left worse off, with the tax burden set to rise to a peacetime high.

If Labour wins the next general election, we will overhaul and accelerate the planning system, modernise our electricity grid, attract far greater private investment, scrap and replace business rates, set out a road map for business taxation and boost skills and training across the country. We will do all that to get the economy growing and to make working people better off. That is the change our country needs. Without change, we would have a fifth term of the Conservatives, and what on earth would that mean for Britain? What would the Conservatives speak of as their achievements in this Parliament? Twenty-five tax rises, the highest tax burden in eight decades, taxes up £1,200 per household and two decades of pay stagnation, as well as a fall in real household disposable incomes—the first time that has ever happened in a Parliament. That is the record of the Conservatives. That is what they cannot hide from and that is why it is time for change.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I call the Chair of the Treasury Committee.