Finance (No. 2) Bill

James Wild Excerpts

Report stage
Wednesday 11th March 2026 Commons Chamber

[James Wild (North West Norfolk) (Con)]

We are grateful to the Minister for running through the plethora of Government amendments that are being added to this already stonkingly large Finance Bill. The sheer number of amendments is an admission that Ministers did not get this right the first time—or even the second time, in Committee, which we enjoyed.

Let me turn to amendments 1, 2 and 8 and 67 to 94, as well as new clause 10 in my name and the names of my hon. Friends. This Bill embodies Labour’s approach of ever-higher taxes, spending and borrowing, for which hard-working families and businesses are paying the price. The measures in the Budget and in this Bill add a further £26 billion-worth of tax rises, bringing the cumulative total from the Chancellor’s first two Budgets to £66 billion. As my hon. Friend the Member for Bridgwater (Sir Ashley Fox) pointed out, that did not feature anywhere in the Government’s manifesto. Those further tax rises are despite the Chancellor promising not to come back for more.

Debt interest is forecast to hit £140 billion by 2030. Unemployment is set to increase to 1.9 million, and youth unemployment has risen to 16.1%. Meanwhile, welfare spending is set to hit £406 billion, and living standards are expected to slow towards the end of this Parliament. Last week, the Office for Budget Responsibility downgraded its growth forecast once again and warned that the Chancellor’s plan, far from working, could “constrain economic activity”. Instead of backing the risk takers and the wealth creators, this Bill delivers slower growth, higher borrowing and higher taxes.

Let me turn to the freeze in income tax thresholds set out in clause 10. The Chancellor said at the Dispatch Box that there would be no extension of the freeze on income tax thresholds, because it would “hurt working people” and

“take more money out of their payslips.”—[Official Report, 30 October 2024; Vol. 755, c. 821.]

That promise has been broken by the measures in the Bill that do exactly the opposite, putting in place a £23 billion-a-year tax rise and bringing nearly 1 million more people into paying higher-rate tax.

It is not just working people who will pay the price. During this period, the state pension is forecast to be higher than the personal allowance. In the spring forecast, the OBR warned that an additional 1 million pensioners will find themselves liable for income tax by 2030-31 because of the Chancellor’s freeze. In anyone’s book, that is a retirement tax.

The Government have promised to protect people who rely solely on the state pension, but where is the detail? There is nothing in this legislation to do that. The public out there will rightly be sceptical, given that the Chancellor has already broken the promise not to freeze this threshold. Amendment 5 offers the House a very simple choice to stand by working people and pensioners and end the freeze.

Let me turn to the Government’s damaging family farm and family business tax. I know that Labour Members are going around their constituencies saying that they got a great win from the Chancellor just before Christmas, but let us be honest: that win was purely a fig leaf. The Government could have actually corrected their mistake, but the partial reversal that the Chancellor was forced into falls short of what is needed. The Country Land and Business Association has said that it only limits the damage—yet another broken promise from a Prime Minister who pledged not to impose an inheritance tax on farms. That measure epitomises Labour’s apparent hostility towards family farms, tenant farmers and our rural communities. I have spoken to farmers, as I am sure other hon. Members have, who are desperate about this situation. That is why we continue to strongly oppose the family farm and family business tax, and amendment 6 would scrap them.

Our further amendments seek to mitigate the worst effects of those taxes. Amendments 67 to 87 would remove the transition period for changes to the reliefs, and would delay implementation until after March 2027, lifting the unfair anti-forestalling rules that have tied the hands of farmers and business owners. The Chartered Institute of Taxation—which provided a lot of support in Committee and at earlier stages of the Bill, for which I am grateful—has warned that the measures particularly affect older farmers, robbing them of the ability to plan properly.

Amendment 88 would defer the deadline for inheritance tax instalments by a further 12 months. This reflects the conclusion of the House of Lords Economic Affairs Committee that the six-month deadline proposed for the first payment

“does not appear to be realistic”.

As we know, farming estates and family business are often asset-rich but cash-poor, which makes it difficult to raise the funds quickly. The National Farmers Union has warned that expecting probate to be granted within six months is

“completely unrealistic, especially given the complexity of valuing an agricultural business”.

Does the Minister recognise the strain that such unrealistic deadlines place on family farms and family businesses, and will he therefore accept our amendment and extend the payment deadline by 12 months? If he will not, will he explain to family farms and family businesses why not?

Amendments 89 to 94 would exclude from inheritance tax the value of any jointly held tenancy on the death of a joint tenant. This issue is causing concern across the sector, and has been raised by the Tenant Farmers Association and by my hon. Friend the Member for Keighley and Ilkley (Robbie Moore). Exempting genuine arm’s length tenancies between unconnected parties from inheritance tax is simply the fair thing to do. I would be grateful if the Minister could explain what engagement he has had with the Tenant Farmers Association on that point, what his response is, and how he intends to rectify this injustice. Of course, this is not just about farms; family businesses, which make up 90% of our firms and employ well over half the workforce, are firmly in the Chancellor’s crosshairs as well. These are firms that focus on the long term, yet according to Family Business UK, over half of affected businesses have already paused or cancelled investment as a result of the threatened tax.

It would be remiss of me to not mention that the Government’s claims do not seem to add up. Will this tax actually end up raising money? While the OBR forecasts a £500 million gain, analysis by the Confederation of British Industry suggests a net loss of nearly £2 billion, once the wider damage to the economy is considered. The family farm and family business tax does nothing to promote growth or fairness. It targets those who anchor our rural economy and communities—the family businesses committed to long-term growth. It is already having a chilling effect on investment, and now there is a prospect that companies that would otherwise thrive under family stewardship will break up. Again, I urge hon. Members to support amendment 6, which would remove this damaging measure from the Bill.

Savers and investors are not safe from the Chancellor, either. Amendments 1 to 4 deal with the introduction of increases in income tax on dividends, savings, and property income in the years ahead. Increases to the dividend tax will hit 4 million people by 2029-30, while the savings tax rate increase will hit a further 3.8 million individuals, and 2.4 million landlords will now face higher bills, making it less attractive to provide the rental properties that our constituents want. These measures are targeted at entrepreneurs, investors, pensioners and hard-working families. Rather than supporting growth, the Government seem determined to stifle it.

The Government are also scrapping the long-standing inheritance tax exemption for pensions. Some 10,500 estates will be targeted under this measure, costing savers £1.5 billion by 2029. We oppose this extension of inheritance tax, which seems predicated on the Government’s belief that people’s money belongs to the Government, rather than being their own. We should be rewarding saving and people who do the right thing, but extending inheritance tax in this way does exactly the opposite. As we discussed previously, there is also a concern about the burden being placed on personal representatives, and I have mentioned the unintended consequences for unmarried couples. In some cases, a surviving partner could lose up to 40% of a pension fund built up over a lifetime. Again, this is manifestly unfair, and amendment 7 would remove this damaging new tax from the Bill.

[Sir Ashley Fox]

Has my hon. Friend noticed a common thread through the Budget, which is that everyone who works hard, saves hard, invests and creates jobs is being penalised, and all that money is being used to benefit Benefits Street? It is no wonder that the growth rate is going down. [Interruption.]

[James Wild]

My hon. Friend is absolutely right, despite the chuntering that we hear from the Minister. The welfare bill is predicted to rise to £406 billion over the forecast period. The Chancellor keeps saying that she is fixing welfare. Where? What is she doing? She had to back away from very modest savings. We have identified £23 billion-worth of welfare savings, and the Minister could make those if he wished, but he does not, and that is why growth has once again been downgraded. The Chancellor boasts about beating the forecast last year. Well, the forecast at the beginning of the year was 2%, and the Government failed to get anywhere near 2%. They beat the downgraded forecast, so let us not hear any more about that. We want to hear what the Government will do to drive growth, and taxing the people generating it is precisely the wrong thing to do.

New clause 10 requires the Chancellor to review the UK carbon border adjustment mechanism. We debated CBAM extensively in Committee, and it is dealt with in a great swathe of the Bill—in the schedules—but there is plenty more to come. Given the complexity of the policy, many industries believe that the absence from the Bill of a formal oversight and review process is a serious mis-step that needs to be addressed.

There are many potential pitfalls in this new mechanism. First, the measure fails to consider several sectors that are at significant risk of carbon leakage, such as chemicals and refining. Secondly, the Government have decided to link the UK and EU emissions trading schemes. Following the announcement of that alignment, the price of carbon in the UK more than doubled, which cost our economy about £5 billion. We should be reducing the burden of carbon taxes on business, not increasing them. The EU has yet to publish its benchmark beyond 2030, which means that the UK would be signing up to a system that would effectively give Brussels a blank cheque. Moreover, CBAM does not address issues with carbon leakage in export markets. There are proposals to exempt our manufacturing exports from UK ETS costs and CBAM to make the industry more competitive, putting it on a level playing field internationally. Has the Minister considered maintaining long-term free allowances for products destined for the export markets? Given those complexities—I could go on about them more, but the Minister gets the gist—[Hon. Members: “More!”] It seems that other Members may want to come in on this issue.

I think that the Minister should recognise the value of regular reviews. I know he will say that the Government keep all taxes under review, but let us have an actual review that is published, so that we can see what is happening. I encourage Members to support new clause 10.

This is a Finance Bill full of tax increases that break trust with the British people. The Labour Government have introduced the family farm and business tax, frozen personal thresholds, hiked taxes on savers and investors, cut relief on employee ownership trusts, taxed inheritance pensions, taxed taxis—we discussed that in Committee—and increased gambling, alcohol and other duties and environmental levies. The list goes on and on. There is 534 pages-worth, which I could read out if there were any appetite for it. Our amendments and new clause would back the taxpayers, and the investors and businesses trying to drive growth in our economy, and I urge Members to support them.

[Ms Stella Creasy (Walthamstow) (Lab/Co-op)]

I rise to support the legislation. In particular, I want to talk about new clause 4.

I have to admit that I am a terrible person to go shopping with. [Laughter.] Wait for it. I grew up in a household where my dad used to stockpile copies of “Which?”. In the family, it was drilled into me that you had to seek advice; you could never just buy things. Pity my poor partner on the occasion when we went to try and buy a sofa; it was a very long, drawn-out day. I was taught the value of information and advice in making good choices in life—although I do not claim always to have followed that teaching—because it is easy to rip people off and mislead them, and there are people who will exploit misinformation to cause harm to others for their own financial gain. It is difficult for individual consumers to fight that, but collectively, with good regulation, we can make an economy work well.

New clause 4 is about good advice empowering consumers to make good choices. I welcome clauses 156 and 157, and the work that the Government are doing to crack down on organisations that promote harmful tax avoidance schemes. We have all seen the companies that promote schemes to avoid paying tax, often to the elites—one can only think of Jimmy Carr, and what he must be thinking at this point in time.

Banning the promotion of tax avoidance schemes that have no realistic prospect of working is the right thing to do because it is causing harm, but I am not here to play a violin for the elites; I am here to bang the drum for the millions of people who are being harmed, but who have not yet had the same level of attention. Elite companies might be promoting tax avoidance schemes for an elite group of people, but online there are hundreds, if not thousands, that are now doing it for the masses, causing financial detriment and harm to our constituents as a result. I would argue that this is a much greater harm, because these are people with too much month at the end of their money. When they realise the mistake that they have made and how much money they have lost, they do not have the savings to be able to pay the bill.

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[James Wild]

I join the Minister in thanking hon. Members on both sides of the House who participated in the debate—there are rather more of them here than there have been throughout our proceedings. I also thank the parliamentary staff, and the hon. Members who chaired the Committee.

In this 534-page Bill, the Government have chosen to impose a raft of tax-raising measures that hit work, enterprise and investment, and which add significantly to the regulatory costs on UK businesses. They have extended the freeze on income tax thresholds, dragging hundreds of thousands more working people into higher tax bands; they have introduced a family farm and family business tax, targeting rural communities and family firms; and they have increased taxes on savings, property income and long-term investment. Taken together, these measures amount to billions of pounds-worth of extra taxation, pushing the overall tax burden to record levels. Ultimately, the Chancellor has chosen to make the UK a less attractive place for businesses and for the investors who we need to grow the economy.

Just last week, the Office for Budget Responsibility cut growth projects again. At a time of global uncertainty, the Government are taking the wrong course, and it shows. Unemployment is up, taxes are up, welfare spending is going up, and living standards will fall over the course of this Parliament. This Government have led the country into a high-tax, low-growth doom loop.

There is a long list of voices sounding the alarm over the economy, but the Chancellor is still not listening. Rather than change course, she is sticking to her failing plan of higher taxes, higher spending and borrowing. This Bill breaks the promises to the British people, and we will oppose it this evening.

[Madam Deputy Speaker]

I call the Liberal Democrat spokesperson.

Oral Answers to Questions

James Wild Excerpts

Tuesday 10th March 2026 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

[James Wild (North West Norfolk) (Con)]

The Chancellor promised in her first Budget that she would not extend the freeze on income tax thresholds, because it

“would hurt working people. It would take more money out of their payslips.”—[Official Report, 30 October 2024; Vol. 755, c. 821.]

In her second Budget, the Chancellor broke her promise with a £23 billion tax rise, bringing a million more people into paying higher rate tax. When people are set to struggle with the cost of living over this Parliament, why are the Government choosing to make their lives harder?

[Rachel Reeves]

Some people have short memories, haven’t they, Mr Speaker? I remember the Conservatives freezing those thresholds on a number of occasions. We said in our manifesto that we would not increase the headline rates of national insurance, VAT and income tax that working people pay, but I did say clearly at the Budget last year that we would have to ask everyone to make a greater contribution, because of the downgrade in productivity, which is a result of the mismanagement of the economy by the last Government over 14 failed years.

Draft Climate Change Levy (Fuel Use and Recycling Processes) (Amendment) Regulations 2026

James Wild Excerpts

Wednesday 4th March 2026 General Committees

[James Wild (North West Norfolk) (Con)]

I am grateful to the Minister for setting out the scope and the impact of the draft regulations. We support the approach to update the legislation to put it beyond doubt that electricity used in electrolysis processes to produce hydrogen will count as a non-fuel use, and therefore benefit from the exemption from the levy.

I also acknowledge that the inclusion of the production of sodium bicarbonate came as a result of the consultation, so there we have it: a Government who listen. Sadly, there are a host of issues on which the Government have not yet listened that I could talk about, were they in scope, from the farm tax to the jobs tax. We live in hope.

I do not propose to detain the Committee unduly, but I would like to raise a couple of points. First, as Members will know, the consultation proposed three options to deal with the issue. The Government justified selecting option A on the basis that it was the quickest to implement. It is a sensible procedure to adopt, but option B included support for a broader category of methods of producing hydrogen. Will the Minister confirm the proposed timetable for the consideration of broader treatment as part of the wider review of the climate change levy to which the Government have committed? I note that the Finance (No. 2) Bill, which the Minister and I discussed in Committee, increases the overall levy, adding £2 billion to the cost on British industry.

My second point concerns the costings in the tax information and impact note and the explanatory notes, which refer to this change as having a negligible impact. Given the ambitions for hydrogen across the economy, and the ramping up of its production, can the Minister share any projections of the potential benefits for the sector?

Road Safety

James Wild Excerpts

Thursday 5th February 2026 Commons Chamber

[James Wild (North West Norfolk) (Con)]

It is a pleasure to follow the hon. Member for Shipley (Anna Dixon), who made a powerful speech, particularly in relation to the impact of dangerous driving on her family.

As the hon. Member said, more than 1,600 people tragically lost their lives on our roads in 2024, and 60% of those fatalities happened on rural roads such as those in North West Norfolk. Indeed, there has been a worrying rise in road casualties in Norfolk: in 2024, a 17% increase took the number of people killed or seriously injured to 555. I welcome the publication of the Government’s road safety strategy, and the ambition to reduce the number of people killed or seriously injured by 65% by 2035. However, a few things are worth highlighting.

Awareness of the highway code remains far too low, and people do not refresh themselves on what is in the code—that must be improved.

[Linsey Farnsworth (Amber Valley) (Lab)]

Driving instructors and cyclists in my constituency have contacted me because they are concerned that experienced drivers are not aware of the 2022 changes to the highway code. Does the hon. Member agree that a campaign for greater awareness among experienced drivers would be welcome?

[James Wild]

I agree. In the context of the debate, and following contact from constituents, I have been refreshing myself on the highway code, which I admit I had not done before even though I should have done. Awareness is important.

Speeding continues to be a major cause of accidents. However, many residents, Speedwatch groups and parish councils tell me that the process for reviewing or reducing speed limits on dangerous roads is too slow and too expensive, so I look forward to the Government’s new guidance on setting local speed limits, which I hope leads to genuine improvement.

Change needs to be driven by evidence, and in that context I refer to the proposal to reduce the drink-driving limit. Offences are typically caused by people who have greatly exceeded the limit, not by people who have had just a pint, so we must consider that proposal very carefully.

Young people are already waiting too long for driving tests, so I am concerned about the proposal to put in place a minimum six-month learning period. People who take intensive courses can be good drivers. The proposal could make the situation worse.

[Dr Scott Arthur (Edinburgh South West) (Lab)]

Will the hon. Member give way?

[James Wild]

I will not, given the time available.

A number of constituents who ride horses have contacted me with concerns about a lack of driver awareness and the prevalence of speeding and dangerous driving. They face heightened risk, particularly given the limited number of bridleways. The roads connecting bridleways have become more dangerous, too, with over 3,000 incidents in 2024, 80% of which were attributed to drivers passing unsafely. That is unacceptable, and it is why I support the proposals introduced by the hon. Member for Newbury (Mr Dillon), which include setting a required speed and distance for passing horses, and teaching equestrian safety in driving education. I hope that the Government will look favourably on those proposals.

I turn now to a topic that I have raised repeatedly in the House: sentences for driving offences, which must be tougher. In 2022, Parliament legislated for a maximum sentence of life in prison for death by dangerous driving, but sentences remain far too short, as was demonstrated in a case in which three members of a constituent’s family were killed. Dangerous driving should also result in longer disqualification. Less than 1% of those convicted of dangerous driving were banned from driving for life. Will the Government commit to a review of the sentencing guidelines for all dangerous driving offences, and consider how the Sentencing Council is applying those guidelines to reflect what we in this House consider necessary?

I am grateful to have had this opportunity briefly to speak about this important topic, and I hope that the Minister will respond to some of my points.

Finance (No. 2) Bill (Fifth sitting)

James Wild Excerpts

Committee stage
Tuesday 3rd February 2026 Public Bill Committees

[The Economic Secretary to the Treasury (Lucy Rigby)]

It is good to be back, Sir Roger.

The vaping products duty is a new excise duty on vaping products manufactured or imported into the UK from 1 October 2026. The changes made by clause 112 will create a new charge to excise duty and set out the rate, which is £2.20 per 10 ml, rounded down to the nearest penny. The changes made by clauses 113 and 114 will define a vaping product and what constitutes production for the purposes of the vaping products duty. The changes made by clause 115 make clear the powers under which regulations on the vaping products duty will be made, in anticipation of its entry into force on 1 October 2026. Finally, the changes made by clause 116 will allow HM Revenue and Customs to manage and collect the vaping products duty and provide administrative powers around the storage of vaping products before duty has been paid, as well as penalties.

Together, clauses 112 to 116 will establish a coherent and enforceable framework for the vaping products duty and will ensure that vaping products are taxed appropriately. I commend them to the Committee.

[James Wild (North West Norfolk) (Con)]

Good morning, Sir Roger and members of the Committee. As the Minister says, clauses 112 to 116 will introduce the UK’s excise duty on vaping products and set out the legal and administrative framework for its operation.

Clause 112 will establish the new vaping products duty, setting a flat rate of £2.20 per 10 ml, rounded down to the nearest penny. Clause 113 sets out what counts as a vaping product; the definition is drawn deliberately widely to encompass any liquid that contains nicotine and the solvents used with it, and even liquids without nicotine if they are intended for vaporisation. That means that the apparently popular zero-nicotine shortfills used by smokers who are trying to quit or taper down will be taxed, too. I am advised that shortfills will be the hardest hit by the new duty; Vape 360 reports a 203% price increase. That raises an interesting public health question about the rationale for taxing zero-nicotine liquids in the same way as addictive nicotine-containing liquids. I am interested to hear the Minister’s response to the concern that by adopting this taxation approach we might be discouraging people from switching to less harmful or nicotine-free alternatives.

Clause 114 defines when a product is regarded as produced for duty purposes, not just when liquids are mixed but when they are packaged, labelled or marketed as suitable for vapes. Clause 115 leaves it to future regulations to set out when duty becomes payable and who is liable. Clause 116, the final clause in this group, gives HMRC new powers to control vaping products before duty has been paid. The Opposition will not oppose the clauses, but we do want to probe the Government’s thinking.

Vaping has become increasingly common across the UK. According to the Government’s own tax information and impact note, approximately 5 million people in the UK vape. For the first time, according to the Office for National Statistics, more over-16s in Great Britain are using vapes or e-cigarettes than are smoking cigarettes: 5.4 million adults vape, compared with 4.9 million who still smoke.

The duty was first announced by the then Conservative Government in the spring Budget of March 2024. Alongside the announcement, a consultation was launched on how the duty should work in practice. The Government have since opted for a flat-rate duty rather than the three-tiered structure originally proposed, which would have varied the rate according to nicotine strength. Having read the responses to the consultation, I know that that decision clearly reflects the bulk of the evidence provided and will create a system that is simpler to administer. As the Exchequer Secretary might say, that is evidence of consultation working and the Government listening, which we are becoming very used to.

The tax will raise significant amounts: £400 million in 2027-28 and £465 million in 2028-29, with revenue then increasing further. When introducing a new tax, implementation matters. The Government’s own impact note shows that HMRC expects to spend £140 million just to deliver this measure, of which £20 million will be spent on IT systems, while the other £120 million will be for staffing and compliance costs. I will be grateful if the Minister can clarify whether the headline figure includes the £32 million contract that HMRC is currently advertising to deliver the vaping duty supply contract for five years.

As Border Force will also receive up to £10 million to prepare, delivering the new duty will cost about £150 million, all in. That is a pretty significant sum, so we need to be sure that it will provide proper value for money. Can the Minister give a little more clarity and break down the costs, particularly the £120 million on staffing and compliance? How many people will that involve bringing into HMRC? What exactly will they be doing? Why is the figure seemingly so high in comparison with the take?

Some consultation respondents have questioned whether the new duty will actually shift behaviour. If producers simply absorb the cost, as tobacco firms once did, prices may barely change, which will undermine the public health rationale behind the policy. What consideration has the Minister given to that point? Will the duty rate remain under review if outcomes fall short of the expected impact?

We can also look at the experiences of other countries such as Italy, where vape sales reportedly fell by 70% when a similar duty was introduced—not because consumers quit, but because purchases moved to the black market or unregulated online sellers. That takes us back to one of this Committee’s themes, which is about how raising taxes to a certain level drives people into the black market, and about where the sweet spot is for raising revenue without driving illegal behaviour. We will come on to the enforcement powers in some detail shortly, so I will not get into them now.

This measure will play a useful role in regulating a growing sector, but the Government need to strike a balance between discouraging youth vaping, supporting smokers to quit and maintaining a workable, enforceable tax regime that does not cost the taxpayer a lot of money. I hope that the Minister will respond to the points that I have raised, and particularly the point about zero-nicotine vapes being treated in the same way as nicotine vapes.

[Lucy Rigby]

It is good to hear that the shadow Exchequer Secretary will not oppose the clauses. He is right about the policy impetus behind what we are doing. For the first time in the UK, more people vape than smoke. The chief medical officer has been clear that vaping is not risk-free, and those who do not smoke should not vape.

--- Later in debate ---

[Lucy Rigby]

As I stated in our debate on the previous group, the vaping products duty is a new excise duty on vaping products manufactured or imported into the UK from 1 October 2026. Clause 117 is important in setting out what a duty stamp is for the purposes of the vaping products duty and the conditions under which a vaping product is considered sufficiently stamped and compliant with the vaping duty stamps scheme.

The changes made by clause 118 will allow HMRC commissioners to appoint an approved supplier to produce and distribute vaping duty stamps. In addition, the clause allows a fee to be charged for the duty stamp, separately from the liability of vaping products duty, and explains that that charge may not be offset against duty liability.

The changes introduced by clause 119 will establish a formal approval requirement for UK businesses to purchase duty stamps under the vaping duty stamps scheme, which will allow HMRC commissioners to maintain control over the scheme and ensure compliance.

Clause 120 will ensure that overseas vaping manufacturers have a representative in the UK who is legally and financially responsible for their compliance with the vaping duty stamps scheme, to ensure robust oversight. We are safeguarding compliance by requiring overseas manufacturers to operate within the framework of UK law, strengthening control and accountability across the supply chain. There will be impacts on all overseas importers and manufacturers of vaping products, who will be required to appoint a UK representative in the manner that I have described.

Together, the clauses will ensure that the vaping products duty is robustly enforced through a secure duty stamps regime and that all manufacturers, whether they are based in the UK or overseas, are subject to clear accountability. I commend clauses 117 to 120 to the Committee.

[James Wild]

Clauses 117 to 120 will introduce the new vaping duty stamp scheme. The Opposition welcome the Government’s decision to move forward with a duty stamps regime for vaping products: it is, after all, a measure that can help our enforcement agencies and responsible businesses alike to distinguish legitimate duty-paid products from those that are illegitimate and being traded illicitly and illegally. We know that there is a substantial illicit market for vapes across the country; without a credible system of verification and traceability, it will continue to undercut legitimate producers, harm public health and cost the Exchequer millions of pounds in lost revenue, so we need to address it.

Clause 117 will establish the legal framework for the duty stamps system. It defines when a vaping product is considered to be stamped, and it sets out that the duty stamp, whether affixed to the product or to its retail packaging, must comply with regulations made under the Bill. Importantly, the clause will enable each stamp to be digitally linked to the product that it marks, and will allow HMRC to collect specified information about those goods, marrying the physical and digital trails of compliance. That is a positive step, and I am pleased that the Government have adopted at least some of the approach for which the Opposition argued during the passage of last year’s Finance Bill when we considered the introduction of the duty stamp regime.

In essence, these measures will bring to the vaping market a track and trace model that is similar to what already exists in the alcohol and tobacco sectors. Clearly, when used properly, such tools can be an effective enforcement system. They allow officers, retailers and consumers alike to verify legitimacy at a glance, building confidence in compliant businesses and exposing those who seek to cheat the system and the taxpayer.

We should be clear, however, about the scale of the challenge that could be created for smaller manufacturers and importers. In implementing this approach, we should ensure that the practical burden of stamping, activating, tracking and reporting, alongside new IT infrastructure, is proportionate for the many businesses that may not previously have had to operate at such a level of compliance. We cannot allow a regime that is intended to fight the black market to end up driving responsible producers to consider joining it.

Clause 118 will give HMRC the authority to issue and manage the duty stamps and to charge administrative fees. It also allows a third-party issuer to be appointed, as I referred to in my comments on the previous group of clauses. I hope that the Minister can confirm how those fees will be set. Will HMRC consult on the level of those fees? What safeguards will exist to ensure that the fees are proportionate and transparent so that businesses do not find themselves paying unpredictable charges that bear little relation to the cost of the compliance regime?

Clause 119 will establish who can hold and use duty stamps: only approved stamp holders may do so, and they must operate from a fixed location within the United Kingdom. That makes sense in principle—it limits the opportunity for diversion or counterfeiting—but the practical implementation will matter greatly. Subsection (5) grants HMRC wide powers to restrict transfers, to define what counts as a fixed place and to cap the number of stamps issued to a business. If the system becomes too bureaucratic or opaque, small UK producers could find themselves struggling in the market while larger incumbents consolidate their position.

The Minister referred to the logic behind clause 120 and the concept of a UK representative for overseas businesses that lack a domestic base. Clearly, there needs to be someone within UK jurisdiction who can be held responsible for compliance and any penalties that may be applied.

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[Lucy Rigby]

Anyone selling illicit vapes puts the public at risk and undermines legitimate businesses. One million illegal vapes were seized by trading standards in the last full year for which statistics are available, so we know that this is a significant enforcement challenge.

Clause 121 introduces enforcement powers to protect the integrity of the vaping duty stamps scheme. The changes made by clause 122 support robust compliance efforts under the vaping products duty and the stamps scheme, ensuring that only legitimate vaping products are supplied in the UK and penalising those who do not comply with the law. The changes made by clause 123 penalise those who lose stamps or attempt to use invalid stamps on illegitimate products to circumvent the rules. Clause 124 ensures that those who do not comply with the relevant regulations for the duty and stamps scheme are liable to penalties. Finally, clause 125 provides for the forfeiture of legitimate vaping products to complement the penalties imposed under the previous clauses. I commend the clauses to the Committee.

[James Wild]

I rise to speak to clauses 121 to 125, which set out the framework on forfeiture and civil penalties for the new vaping duty regime. As the Minister said, this is a very important part of the new regime, given the impact that illicit vapes could have.

Clause 121 establishes a general liability to forfeiture for three categories of non-compliant goods, namely: an unstamped vaping product that should bear a duty stamp, any invalid duty stamp along with the product that it is attached to, or any unused duty stamp not affixed or returned within 12 months of issue. In plain terms, it gives HMRC the power to seize non-compliant vaping products. An invalid stamp is defined broadly, and includes any stamp that has been altered, forged or voided by HMRC. Other forfeiture triggers are linked to the wider civil and criminal offences contained elsewhere in this part of the Bill, which I am sure we will come on to. These powers are designed to allow both HMRC and local enforcement bodies to remove illicit or suspect products and counterfeit stamps from circulation. That is clearly an important deterrent against the black market in vaping products.

Can the Minister assess the risk of the 12-month rule on unused stamps, and the broad definition of invalid stamps, inadvertently capturing legitimate business activity? For example, operators may over-order stamps as a contingency or make administrative errors. How will the Government ensure that, in those circumstances, genuine stock is not caught up and lost alongside contraband products? Once forfeited, what will happen to those goods? Will they simply be destroyed? It would be helpful to get clarification on that point. Crucially, what safeguards will ensure that forfeiture powers are used proportionately, and that any minor administrative mistakes by otherwise compliant firms do not result in legitimate products being seized and destroyed at the first opportunity?

Clause 122 introduces a civil penalty regime for those who sell, offer for sale or deal in unstamped vaping products packaged for retail sale. The penalties set out are banded according to scale and repeat behaviour, rising to a maximum of £10,000 for 500 or more units, with escalating amounts for repeated contraventions within a rolling two-year period. It provides a strong financial penalty and a disincentive for retailers and wholesalers to stock unstamped products, and it complements the criminal provisions that follow later in this part of the Bill.

Clause 123 creates penalties for approved stamp holders who lose stamps or fail to use, return or destroy them within 12 months of issue, unless they can demonstrate that they took all reasonable steps to prevent loss. In those circumstances, the penalty is set at five times the monetary value of duty per lost stamp, equating to £11 per stamp when the scheme goes live. That comes alongside the existing Finance Act 1994 penalties for altering or misusing stamps. The intention is clear: to encourage tight control of duty stamps, treating them almost as cash equivalents, and to discourage casual or insecure handling that might enable diversion or counterfeiting, which is welcome.

Clause 124 introduces a broad, catch-all civil penalty for failure to comply with the vaping products duty regime using section 9 of the Finance Act 1994 as its legal framework. That is intended to ensure that HMRC can act where non-compliance occurs, but no specific penalty is written into the legislation, reinforcing the need for accurate record keeping and full compliance with operational rules. I can see why a general power may be convenient for HMRC, but for smaller businesses it could increase the risk of innocent mistakes attracting financial penalties. How will HMRC ensure that this general power is used proportionately? Will education and guidance be issued to firms?

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[James Wild]

Clause 126 creates new criminal offences relating to the possession and transfer of unstuck duty stamps. In plain terms, it becomes an offence for anyone who is not an approved stamp holder to possess a duty stamp that has not been affixed to a vaping product, or to transfer such a stamp to someone else. As the Minister says, the Bill allows a defence where the person did not know or have reason to suspect that they were handling an unstuck stamp, and carves out sensible exemptions, such as transfers between UK representatives and overseas principals, or during commercial delivery and returns.

I would be interested to know what assessment the Treasury has made of the level of abuse that it expects under this regime. HMRC and trading standards are being given a budget for enforcement. Underlying that, there is presumably some assumption about the level of abuse of this system, so it would be interesting to have a flavour of that, given that all of us will be familiar with vape shops and associated issues from our constituencies.

Clause 127 creates criminal offences for possessing, transporting, displaying, selling or otherwise dealing in unstamped vaping products. It also criminalises managers of premises who “cause or permit” the sale of unstamped goods. Under the definition in subsection (4), a manager of premises

“is a person who…is entitled to control their use…is entrusted with their management, or…is in charge of them.”

To pick up the example raised by the hon. Member for Maidenhead, if an 18-year-old is in charge of the premises such that they are unlocking on the day and will be locking up, are they the person, the individual, who could get the fine for dealing in the product, even though they may have had no role whatever in securing the stock and are simply there, getting their minimum wage payment to look after the shop? I would be grateful if the Minister could unpack what subsection (4) means in that sense.

It is right that deliberate participation in the illicit vape trade is met with serious, fierce sanctions. We must also make sure that any junior staff who are wholly innocent—who do not know anything about the matter and could not reasonably have been expected to—are not prosecuted for the actions of others. We need some clarity from the Minister on how responsibility in those cases would be apportioned, and we must again ensure that enforcement authorities are operating with clear guidance.

Clause 128 will enable courts, when convicting under clause 127, to make an order prohibiting the use of premises for the sale of vaping products for up to 12 months, and will create a further offence for managers who breach such an order. The power is of course intended to shut down problem premises that are repeatedly used for illicit trading. That is a tool that local authorities and trading standards officers—and, I suspect, Members of this place and our constituents—will very much welcome. There are many examples in constituencies across the country of illegal vapes being sold, and the communities near them suffer the impact of those criminal enterprises.

We support action to deter such enterprises, but we are also familiar with examples in which trading standards, HMRC or others go in and seize the illegal vapes—the police may be involved as well—and in a matter of hours, that same premises will reopen, selling more illegal vapes. It is great to have a power to shut down such premises, but how will it be enforced? Will the resources be in place to do that? Will there be clear criteria on when the powers will be used, and how a change of ownership of a premises could affect a ban? We may effectively see fake transfers of ownership to try to get around it, so it is important that HMRC and trading standards have robust systems in place.

Clause 129 sets out the penalty framework. On summary conviction, in England and Wales the maximum is the general magistrates limit—imprisonment, a fine or both; in Scotland, the maximum is 12 months and a statutory fine; and in Northern Ireland, it is six months and a statutory fine. So there is a little discrepancy there. On conviction on indictment, the maximum is two years’ imprisonment, an unlimited fine or both. That clearly allows for flexibility to distinguish between serious organised criminal offending and smaller scale non-compliance with the law.

Of course, in the Sentencing Act 2026, the Government are effectively legislating to abolish sentences of up to 12 months, with a presumption that those will become suspended sentences. That is still a penalty, but it will mean that people are in the community rather than in jail serving their punishment, as they should be. The reality is that most people breaking this law are unlikely to actually go to prison; they may simply get a fine. Will the sentencing guidance make clear distinctions between organised criminality and smaller-scale offenders?

The final clause in the group, clause 130, deals with the issue of forfeiture. It goes beyond the general rules in clause 121 by allowing all unstuck stamps or unstamped products linked to offences under clauses 126 to 128 to be seized. In some cases, all the stock on the premises—the Minister made this point—may be forfeited if HMRC believes that it is used in a business connected with the offence. That could be a welcome measure, but we need to have some clarity about how unnecessarily broad powers could potentially be used. Will there be a clear route for traders to challenge such forfeiture of legitimate products where they consider that they have inadvertently breached the rules?

Taken together, the clauses introduce serious new powers, which is why it has been worth spending a few moments considering them and how they will actually be used. I think particularly of the power to shut down a premises for 12 months; we must ensure that that is effective, and that people are prevented from seeking to get around it by pretending to sell the business or list a new owner of the business. I look forward to the Minister’s responses to the points that I have raised.

[Martin Wrigley]

I am afraid that my training was as an engineer, rather than as a lawyer, so I apologise if I get points of standard law wrong. However, it is fascinating to read the Bill in such detail. In clause 126(3), it says,

“It is a defence for a person charged with an offence under this section to prove that they did not know”

I am interested to hear how the Minister thinks that somebody might prove that they did not know something. It strikes me that it is something that a person cannot actually prove.

Secondly, in relation to clause 128, when a premises has been banned for 12 months, is there anything that prevents someone opening up the next-door premises and continuing exactly as before?

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[Lucy Rigby]

Clauses 131 to 138 and Schedule 14 set out general provisions to ensure the effective implementation of the duty and the scheme.

Clause 131 allows for the publication of information to ensure effective enforcement of the duty and the scheme. Clause 132 details the instances in which information may be shared between the commissioners and any persons with functions relating to the duty. It will allow information to be transferred in both directions, ensuring successful implementation and the proper joining up of compliance efforts. For any unauthorised disclosure, the clause includes an offence under section 19 of the Commissioners for Revenue and Customs Act 2005.

The changes made by clause 133 provide a definition for local enforcement authorities and allow them to investigate whether businesses in their local areas are compliant with the duty. Clause 134 ensures that HMRC can make regulations and publish notices to make further provisions in relation to both the duty and the scheme. Clause 135 provides that regulations must be made by statutory instrument and sets out circumstances in which the made-affirmative procedure must be followed, including any provision that extends the cases in which vaping products are required to be stamped.

Clause 136 allows for schedule 14 to the Finance Act 2020 to make changes to the Finance Acts of 1994, 2007, 2008, 2017 and 2021. Clause 137 does not make changes to legislation but merely ensures that the Bill is interpreted correctly. Clause 138 provides that the duty and the scheme will commence on 1 October 2026, and that vaping products manufactured or imported before that date will be liable if a duty stamp is affixed to that

product.

Two technical amendments are proposed to clause 138. Amendment 13 clarifies the drafting to ensure elements of the regulations can come into force at the proper time. Amendment 14 puts beyond doubt that the criminal offences under these schemes can apply to vaping products, regardless of the date that they were produced or imported. The amendments ensure that the duty can be successfully administered, and neither one reflects any change in Government policy.

[James Wild]

We come to the final group of provisions on the important issue of the new vaping duty. I speak to clauses 131 to 138, which concern the general provisions underpinning the new vaping products duty regime. Clause 131 authorises HMRC to publish information about stamped vaping products, for the purposes of enabling retailers, consumers and other persons to assess whether a duty stamp has been activated in respect of a duty product. That is clearly a sane, sound aim, which gives retailers a way to distinguish between legal stamped products and illicit ones. However, that will only work if the data HMRC publishes is accurate and accessible. Mislabelling would harm legitimate firms, and if the system is cumbersome it will put people off using it.

Can the Minister tell us when HMRC will make available a practical, user-friendly checking mechanism—whether that is a public database, an app or some other technology—so that retailers and consumers can verify stamps quickly and easily? What safeguards will exist to correct errors swiftly where inaccurate data risks unfairly damaging a compliant business?

Clause 132 sets out a new information-sharing framework specific to the duty, letting HMRC exchange data with other bodies involved in enforcement. This is a legitimate and useful tool, but can the Minister give assurances about how the data will be logged, audited, and subject to clear internal controls?

Clause 133 delegates day-to-day enforcement to local authorities and trading standards teams, which makes sense. Last year trading standards seized over a million illegal vapes inland and detained 1.2 million at ports in England. Those powers need to be properly resourced if they are going to be effective in stamping out illegal trade, as we know that trading standards is already under considerable pressure to deliver on its various legislative requirements. It is fair to say that there is patchy implementation across the country.

What support will Government provide to local authorities to ensure consistent enforcement and genuine deterrence everywhere, not just in well-resourced areas? Counties, such as my county of Norfolk, have suffered as a result of the revised local government funding formula that the Government have put in place. I want to see them able to deal with the threat of illicit vapes in the same way as the metropolitan areas that benefit from the new formula that the Labour Government put in place.

Clause 134 gives the Treasury wide discretion to make supplementary transitional regulations under the regime. In practice, it is a broad power to fill in the blanks. Can the Minister give some confidence that it will not lead to a complex, rapidly changing rulebook? The Minister referred to the parliamentary procedure for such regulations under clause 135. To be clear, those regulations include the ability to amend an Act of Parliament, which is a considerable power. If such measures came forward, it would clearly be right to properly consult and debate them before they took effect. Will the Minister commit to formal consultation in such cases?

Clause 136 simply implements consequential amendments so that vaping products are recognised across the existing excise framework. Clause 137 deals with the definitions that determine which products fall within scope—clearly, they need to be kept up to date.

Finally, clause 138 sets the commencement and transitional arrangements. As we have discussed, businesses are expected to register from 1 April, with liability beginning from October. That is an ambitious timetable, but I am pleased to hear from the Minister that the interim guidance is available on gov.uk. I was not aware of that, so I will look it up later this evening, as she suggested.

We do not oppose any of these clauses, but I look forward to the Minister’s response on whether there will be formal consultation, particularly where Acts of Parliament will be changed by regulations. That is something every member of the Committee should expect.

[Lucy Rigby]

The shadow Exchequer Secretary asked about HMRC making compliance-checking methods available. There will be an app for access based on scans of products. It will be available before 1 October, and no scanning will be required before that date. He, fairly, asked a question about the flow of information. That is covered by subsections (3) and (4) of clause 132, which ensure that information can be used only for the purposes for which it was disclosed. Indeed, any other purpose would require further permission from the commissioners. Subsection (4) sets out the penalties that would apply for contravening the preceding provisions.

The shadow Exchequer Secretary also asked about the resources available to trading standards and local authorities. He mentioned Norfolk, is that right?

[James Wild]

Yes—come visit.

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[Dan Tomlinson]

Thank you. Burnley is a fantastic place to visit, and I hope to come before too long.

These clauses create the charge to CBAM, define the goods and emissions in scope, identify who is liable, and set out how the tax rate is calculated and how the relief operates. Together they form the substantive charging provisions that will underpin the operation of CBAM from 1 January 2027.

Clause 139 introduces CBAM as a new tax and signposts the structure of part 5 of the Bill. Clause 140 establishes the charge to CBAM, which applies to the emissions embodied in specified CBAM goods when they are imported into the UK. Schedule 15 defines the goods in scope, initially covering the aluminium, cement, fertiliser, hydrogen, iron and steel sectors. Clauses 141 to 143 set out when goods are treated as imported for CBAM purposes, and who is liable for the charge. In line with established customs principles, liability rests with the importer, with detailed provisions to ensure that the correct person is identified across different importation scenarios, including goods entering via Northern Ireland or subject to special customs procedures.

Clause 144 provides relevant exemptions from the charge. Clause 145 defines “emissions embodied in a CBAM good” and provides powers for the Treasury to specify, in regulations, how those emissions are determined and evidenced. Clause 146 sets out how the CBAM rate is calculated, and clause 147 provides for carbon price relief, allowing the CBAM charge to be reduced where a relevant carbon price has been incurred overseas in relation to the same emissions. That avoids double taxation while maintaining the integrity of the mechanism. Amendment 15 will ensure that the CBAM rate functions as intended, and that CBAM goods face a carbon price comparable to what would apply if the goods were produced in the UK.

The clauses are central to mitigating carbon leakage, and supporting the UK’s path to net zero.

[James Wild]

I am not clear from the Minister’s comments whether he has accepted the Valentine’s invitation, but I am sure I am not alone in not expecting a member of the Committee to corpse on CBAM, which some might say is a rather dry topic.

While CBAM can play a role in ensuring a level playing field for UK manufacturers and producers, it also highlights the levies and taxes applied by the Government on energy, which means that our energy prices are much higher than our competitors. I think we all want to see that burden reduced.

At the 2024 Budget, the Government confirmed the UK will introduce this new CBAM from January 2027, covering broadly the same types of highly traded carbon-intensive basic materials, and putting a carbon price on emissions embodied in certain imported goods, so that they face a comparable cost to that paid by domestic producers. Different countries clearly regulate industrial emissions to very different standards.

UK manufacturers already have to follow obligations to measure, reduce and pay for their emissions, which are costs that we think need to be ameliorated. Extending that principle to imports should, in theory, help to prevent carbon leakage and ensure it results in real global emissions cuts, rather than simply offshoring production and pollution.

As the Minister said, the new charge will initially apply to five sectors: aluminium, cement, fertilisers, hydrogen, and iron and steel. Fertilisers, which are one of the sectors brought within the scope of CBAM, are clearly a critical input for British agricultural producers, particularly for arable farms, where fertilisers already account for around 40% of crop-specific spending and around 12% of total farm costs.

The National Farmers Union has warned about what it calls a fertiliser tax, and has said that using domestic production as the baseline for CBAM levies, despite the UK no longer producing ammonium nitrate at scale, risks a wholesale increase in fertiliser prices at a time when farm confidence, as we all know, is at rock bottom.

The direction of travel is clear. Over time, both the EU and UK will raise the cost of high-carbon fertilisers, making lower-carbon alternatives more competitive as carbon prices tighten. Applying higher taxes where the UK is not a significant producer increases input costs for our British farmers. There is a risk of downstream leakage where UK farmers pay more for fertiliser due to CBAM, while competing with imported food from non-CBAM regimes that are still benefiting from cheaper, higher-carbon inputs, again undermining British producers and our food security.

This all lands on top of the other provisions within the Bill, namely the family farm and family business tax, as well as the cuts and delays we have seen in the sustainable farming incentive and the land management payment schemes and, of course, the additional pressures that are coming through in the cost of employment.

Will the Minister set out what specific assessment the Treasury has made of the impact of CBAM on fertiliser prices, on different farm sectors and on UK food security? How does he intend to prevent downstream carbon leakage, which simply shifts emissions from factories to fields?

Some industry groups, as recently reported in the Financial Times, warn that they think the Government’s current design has flaws and could accelerate de-industrialisation rather than prevent it. A major concern is that the Government plan to apply a single sector-wide rate, based on average emissions, instead of differentiating by product type and country of origin, as I understand the EU scheme does. UK Steel, the Mineral Products Association and the Chemical Industries Association have warned that, without changes, the mechanism will leave domestic producers worse off than their overseas competitors and undermine planned investment and decarbonisation. Has the Minister modelled the impact of using a single sector-wide rate rather than a more granular approach, as well as the impact on investment, jobs and emissions in each of the covered industries?

The Chartered Institute of Taxation, which has provided considerable help and input on all the provisions of the Bill, has flagged that further uncertainty will be caused by questions about the UK and EU emissions trading schemes being linked before the implementation date. The Government and the EU announced last May that they intend to link their ETSs, with mutual exemption from CBAM as part of the package, but I understand that formal negotiations have yet to begin. Perhaps the Minister can give us an update. There are also ongoing political discussions with the EU on the interaction of the two schemes, and the EU’s CBAM is undergoing some delays. That impacts on certainty for some transactions involving Northern Ireland, so I would be grateful if the Minister provided some clarity on where those discussions have got to.

Clause 139 establishes CBAM as the new UK tax on emissions, where a broadly equivalent price has not already been paid overseas. That is the foundation of the new charge. Clause 140 defines CBAM as

“charged on the emissions embodied in a CBAM good”

when it

“is imported into the United Kingdom.”

Those goods are defined by reference to the detailed tariff codes set out in schedule 15.

Schedule 15 focuses on the initial regime for aluminium, cement, fertiliser, iron and steel products, and hydrogen, and it gives HMRC powers to keep the schedule updated in line with tariff changes. Could the Minister elaborate on why those five sectors were chosen for inclusion from 2027, and on when the Government will set out a clear timetable and test for extending CBAM to other sectors, such as glass or ceramics?

Will there be a competitive disadvantage for high-carbon sectors left outside the first tranche, as they will still be exposed to cheaper, higher-emissions imports without any corresponding border adjustment? That point has been made to me privately by some of the Minister’s colleagues who would like to see a wider scope. Has the Treasury modelled how many businesses fall just above the £50,000 annual import threshold, and is it confident that it is capturing those that have substantial business and not imposing a burden on others?

Clause 141 sets out when a good is treated as imported into the UK for CBAM. It covers standard imports and goods under special customs procedures, such as warehousing and movements between Great Britain, Northern Ireland and the Isle of Man. The clause intends to dovetail CBAM with existing customs laws. In Committee, I have repeatedly highlighted the importance of practical guidance: the hands-on support that HMRC will give to smaller and medium-sized importers —I suggest that the £50,000 limit is fairly low.

Clause 142 ensures that where

“a CBAM good has been declared for a special customs procedure,”

processed into a non-CBAM good and then imported, CBAM is still charged on those emissions. This anti-avoidance provision aims to prevent companies from avoiding CBAM by doing limited processing to move a good out of the product list before releasing it into free circulation. The provision is welcome, as it would prevent people from dodging the rules.

Clause 143 places the liability for CBAM on the importer, broadly mirroring customs law by tying liability to the person in whose name the customs declaration is made, or on whose behalf it is made. That is intended to provide certainty, which is important, by aligning CBAM with established customs concepts and practices. Will HMRC give simple template wording or clear guidance so that businesses know how to declare who is responsible for CBAM and for sharing information throughout the supply chain?

The Chartered Institute of Taxation has also raised an important question. As the Minister will know, some businesses operate within VAT groups. If they import goods, they hold an EORI—economic operators registration and identification—number, which anyone who lived through the Brexit negotiations and debates will be familiar with. Under HMRC guidance, one VAT group member with an EORI number can make a customs declaration on behalf of another member. However, this group of clauses does not appear to allow for the formation of a CBAM group similar to a VAT or plastic packaging tax group.

It is unclear how the measures affect those liable under the clause where one VAT group member uses another’s EORI number. If the current easement does not apply to CBAM goods, each member may need its own EORI number, which would add some complexity and administrative burden. Will the Minister clarify the position and understanding on that? If an issue needs to be addressed, will the Government introduce legislation to allow for CBAM grouping to maintain the existing simplifications, as I am sure is their intention?

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[Lucy Rigby]

I appreciate your accommodation of the cold in the room, Sir Roger. I hope this afternoon proves that we can be both sartorially elegant and warm. Committee members may take their own view, but I look forward to this afternoon.

Clauses 148 and 149 and schedules 16 and 17 provide the administrative and enforcement framework necessary to ensure the effective operation of CBAM. They ensure that CBAM can be administered properly by HMRC, complied with by businesses, and enforced where necessary.

The clause introduces schedule 16, which makes detailed provision for the administration and enforcement of CBAM, including requirements for registration, accounting periods, CBAM returns, record keeping, payment deadlines, assessments, penalties and appeals. The schedule aligns CBAM administration with established HMRC processes where possible, helping to minimise additional burdens on businesses while ensuring robust compliance.

Clause 149 introduces schedule 17, which provides for criminal offences relating to CBAM. Those offences apply in serious cases, such as deliberate evasion or fraudulent behaviour, and mirror existing approaches taken elsewhere in the tax system. The inclusion of criminal offences ensures that appropriate deterrents are in place, protecting the integrity of the regime and ensuring a level playing field for compliant businesses.

Together, clauses 148 and 149 provide the necessary administrative and enforcement backbone for CBAM. They ensure that the regime is credible, enforceable and fair, while giving HMRC the tools it needs to administer CBAM effectively. I commend the clauses and schedules 16 and 17 to the Committee.

[James Wild]

We are sorry to see the Exchequer Secretary disappear. I hope that he comes back this afternoon for our further deliberations.

The clause introduces schedule 16, providing for the administration and enforcement of CBAM. They hand responsibility for managing this new carbon import charge to HMRC, and set out detailed compliance rules, including registration, accounting periods, returns, assessments and appeals. The schedule runs to 27 pages of text. Under these measures, any business importing CBAM goods worth more than £50,000 in a 12-month period, or expecting to reach that threshold within 30 days, must register, report each quarter and keep detailed records potentially for up to six years. HMRC will have wide discretion to make “best judgment” assessments and to counteract any artificial separation of business activities.

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[Mr Reynolds]

The £50,000 threshold imposed as part of schedule 16 is incredibly low. It catches small construction firms importing tonnes of cement or steel, materials that could be consumed in one single medium-sized building project. The businesses importing such volumes will lack the resource of dedicated compliance teams and environmental consultants for quarterly emission verification. Meanwhile, large industrial importers, responsible for the vast majority of imported carbon emissions, face identical per unit compliance obligations, giving them a competitive advantage through their economies of scale.

CBAM introduces entirely new foreign concepts to normal commercial activities, such as calculating the emissions across international supply chains, determining whether carbon prices were paid in origin countries and applying complex fee allocation formulas. A family-run metalworking shop that has successfully filed VAT for 20 years must suddenly become an expert in lifetime emission methodologies and international carbon-pricing verifications. I do not believe that the Government have published any analysis comparing the £50,000 threshold to alternatives such £100,000 or £250,000 thresholds. I am interested to hear from the Minister what verification and changes have been made, and what assessment has been made of the compliance costs for various businesses.

Schedule 16 also introduces a £500 fixed penalty plus a £40 daily charge for failure to notify a change of circumstances, and a £500 penalty for record-keeping failures. While paragraph 40 of schedule 16 includes a reasonable excuse defence, HMRC interprets that quite narrowly as applying to circumstances such as illness, postal strikes or computer failures. The idea that the system or methodology was confusing or, “My supplier could not provide the data,” typically do not fall within the reasonable excuse defence.

The problem here is timings: the comprehensive penalties for CBAM take effect on 1 January 2027, so businesses navigating entirely unprecedented requirements are going to have a challenge. I note that the EU’s CBAM began with a transitional reporting period before enforcement ramped up, whereas the UK’s has no such mechanism.

These are not familiar tax concepts for lots of businesses. They involve new software, new tracking and international verification. These things have not been done in British business before, and I believe that small importers will face penalties while genuinely trying to comply with the regulations. The Liberal Democrats are not against the concept of a CBAM, but we take issue with the way that it has been put together.

Has the Minister considered a 12-month transitional period during which full penalties for deliberate avoidance are maintained but an allowance is given for honest compliance?

[James Wild]

I share the hon. Member’s concerns about the £50,000 threshold. Has he considered what might be a more appropriate level, in order to reduce the impact on smaller producers?

[Mr Reynolds]

The EU, for its CBAM, has not set a specific number in that way; it has set a number of tonnes of product. I would be interested to hear from the Government what work has been done to analyse the different impacts of £50,000, £100,000 and £250,000. The Treasury must have done some work on this, but I could not see any. We need the answer to that in order to find out where we stand.

Let me finish by saying that a transitional period may be quite beneficial. It would make sure that we are not setting our small and medium-sized enterprises up to fail and penalising them when they try to do the right thing but unfortunately, because of the complications in the system, they are unable to.

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[Lucy Rigby]

Clauses 150 to 155 and schedule 18 make the general, supplementary and commencement provisions for CBAM. They are designed to ensure that CBAM integrates properly with the wider statute book, operates coherently over time and comes into force as intended from 1 January 2027.

More specifically, clause 150 introduces schedule 18, which makes supplementary amendments to other legislation to ensure that CBAM operates consistently alongside existing customs and tax law.

Clauses 151 and 152 provide key definitions and interpretation provisions, including the meaning of “emissions”, “carbon dioxide equivalent”, “importer” and “CBAM good”. These clauses are designed to ensure clarity and legal certainty across the regime.

Clause 153 provides a power to make provision in relation to linked emissions trading schemes. This allows imported goods originating in countries with linked emissions trading scheme arrangements to be excluded from CBAM, reflecting international co-operation and avoiding unnecessary duplication.

Clause 154 sets out how regulations and notices under CBAM are to be made, including the applicable parliamentary procedures, to ensure appropriate scrutiny, with affirmative or made affirmative procedures applying where regulations have a significant impact.

Clause 155 provides for commencement and transitional arrangements. CBAM will apply to goods imported on or after 1 January 2027, with powers to smooth the transition during the initial years of operation.

In summary, clauses 150 to 155 and schedule 18 provide the essential supporting framework that allows for the effective functioning of CBAM, and I commend them to the Committee.

[James Wild]

We come to the final group on the carbon border adjustment mechanism. Clause 150, along with schedule 18, makes the technical but critical changes needed to fit CBAM into the UK’s existing tax and enforcement framework. These measures ensure that the new tax uses the same information gathering powers, collection mechanisms and penalties already in place. It is sensible to integrate CBAM in this way without creating a new process.

Clause 151 defines what we mean by “emissions” for CBAM purposes and firmly anchors the tax in the existing climate policy framework by adopting the definition in the Climate Change Act 2008. Greenhouse gas emissions will be measured in tonnes of carbon dioxide equivalent, which is sensible.

Clause 152 sets out the interpretive rules for part 5 of the Bill, working alongside clause 151 and schedule 16 to ensure that terminology throughout CBAM is coherent.

Clause 153 gives the Treasury the power to adjust CBAM if the UK’s emissions trading scheme is linked to another country’s carbon pricing system. The Minister touched on this briefly, but as I mentioned in the debate on an earlier group, in May the Government and the EU formally agreed to work towards linking their emissions trading systems to align carbon markets. I do not think the Exchequer Secretary responded to me on that point before he left the Committee. I am conscious that this is not the Minister’s portfolio, but can she give an update on where the EU-UK negotiations on the linkage have got to? This is a broad delegated power that could have real implications for competitiveness, trade and treatment of foreign carbon prices. We have expressed concerns previously about the linkage with the EU ETS and the higher charges that might hit UK businesses as a result. I would be grateful for an update on where the negotiations have got to—if they have actually started—and how the Treasury will ensure that there is proper consultation and debate before using the powers.

Draft Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2026 Draft Local Government Finance Act 1988 (Calculation of Non-Domestic Rating High-Value Multiplier) (England) Regulations 2026

James Wild Excerpts

Monday 2nd February 2026 General Committees

[James Wild (North West Norfolk) (Con)]

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

The two sets of regulations together set out the new tiered business rates system for the 2026 financial year. In plain English, the first set of regulations defines who gets which business rates multiplier under the new system, and the second sets out how much large premises will pay.

Of course, ahead of the election the now Prime Minister said that there would be a new regime of “permanently lower business rates”. Indeed, the Chancellor said at the Budget, referring to these measures, that these business rates were at their lowest level since 1991. The reality is proving somewhat different. Businesses are facing major increases, and claims to the contrary are false. Their bills are going up. That is why I, along with the shadow Housing Secretary and shadow Business Secretary, have written to the Office for Statistics Regulation, as it is statistically misleading to make the claim of record low taxes on the basis of the multipliers, as those are not the tax rates. I was pleased to have confirmation on Friday that the Office for Statistics Regulation is looking into this matter as we speak.

I will now turn to the regulations. In their first Budget, the Labour Government chose to cut back retail, hospitality and leisure rate relief introduced by the last Conservative Government from 75% to 40%. That was a tax raise of £1.1 billion a year. Through these measures, they have axed that relief in its entirety, which means higher bills. The Government have also locked in automatic inflation-linked rises every single year. What will the result of that be? The Office for Budget Responsibility expects business rate receipts to increase by £3.5 billion next year, a 10% increase in a single year. For small and medium-sized businesses, that is incredibly challenging. The bill of the average independent pub will rocket from £4,000 in 2024-25 to nearly £10,000 by 2028-29, a rise of 144%. The position of shops, hotels and restaurants is even worse than that.

At this point, it is usual for Ministers—indeed, for this Minister—to claim that the last Conservative Government would simply have abolished the relief overnight. Of course, that is utter nonsense, and I welcome the opportunity to get that on the record. It is simply a desperate attempt to deflect from what we can see are the bad political choices that the Chancellor and her Ministers have made. As the Conservative Party manifesto said, we would:

“Continue to ease the burden of business rates for high street, leisure and hospitality businesses”,

and our record is one of supporting the sector and the people creating jobs across the country.

Under the new system set out in these regulations, combined with the revaluation, businesses across retail, leisure and hospitality face much higher bills, and fewer will benefit compared with the 40% relief, because under that scheme, as is set out in the explanatory notes, local authorities had more discretion over which premises benefited from the relief. Will the Minister tell us what the Government’s estimate—the Valuation Office Agency will undoubtedly have provided one to the Treasury— of the number of businesses that will not get the relief under the discretionary powers that were there in the first place?

The rates of the small and standard multipliers are set in separate regulations, so I will not dwell on those, but two months on from the Budget, we have already seen a partial reversal of the plans the Chancellor set out, despite the promises of lower multipliers and lower bills. Ministers may point to their pubs and live music relief as if it solves the problem, but it does not: it is a sticking plaster when there is a major wound that the Chancellor has caused. It covers just 38,000 out of 750,000 hospitality and leisure businesses—barely one in 20—and it excludes restaurants, cafes, shops, hotels, theatres and all the venues that will have been in touch with members of the Committee. One in four pubs will still pay more overall, even after that relief, and guess what? That relief is only temporary—indeed, a sticking plaster. The Minister previously said there would be no further support for the wider sector. We all hope that he has to come back to the House with that package soon enough, or perhaps the Chancellor will actually do it herself when she delivers her spring update.

The draft Local Government Finance Act 1988 (Calculation of Non-Domestic Rating High-Value Multiplier) (England) Regulations 2026 set the rate for the new high value multiplier. The standard multiplier will be 48p, and the high value multiplier will be 50.8p—an extra 2.8p in the pound.

Big online warehouses, with a rateable value of at least £500,000, are supposedly the target, but twice as many retail sites, often acting as anchors for our high streets, will now face this higher rate. That is not what Labour promised before the election. It said it would replace the business rates system, raising the same revenue in a fairer way and levelling the playing field between high streets and online giants. Will the Minister explain why the Government are targeting anchor retail stores that are so important to our wider high streets? Of course, these higher rates come on top of higher employment costs, increased alcohol duties and the new tourist tax on hotels and bed and breakfasts, which UKHospitality warns could cost consumers £518 million, if the mayors take up the powers given to them by the Government.

We would take a very different approach. We would deliver permanent 100% business rates relief for retail, hospitality and leisure businesses of up to £110,000, helping around 250,000 small businesses, and we would pay for it by controlling the welfare budget. We believe in backing those taking a risk, employing people and investing.

Finance (No. 2) Bill (Fourth sitting)

James Wild Excerpts

Committee stage
Thursday 29th January 2026 Public Bill Committees

[James Wild (North West Norfolk) (Con)]

I beg to move amendment 42, in clause 79, page 95, line 37, at end insert—

“(3B) Section (3A) does not apply to journeys by private hire vehicle or taxi in rural areas.”

This amendment would exempt journeys by taxi and private hire vehicle in rural areas from the provisions of subsection (3A) of section 79.

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

New clause 14—Report on VAT for private hire and taxi vehicles—

“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 79 on—

(a) the taxi and private hire industry,

(b) driver earnings,

(c) vulnerable passengers,

(d) rural communities, and

(e) passenger fares.”

This new clause would require the Chancellor of the Exchequer to report on the impact of section 79 on the taxi and private hire industry, driver earnings, vulnerable passengers, rural communities and passenger fares.

[James Wild]

It is a pleasure to see you back in the Chair presiding over our proceedings this afternoon, Mrs Harris. I will speak to amendment 42, which stands in my name and that of my hon. Friends, along with clause 79 and new clause 14.

Clause 79, which many are already calling the taxi tax —that is certainly what people in the industry are calling it—changes the way VAT is applied to taxi and private hire vehicle journeys. Currently, under the tour operators’ margin scheme, VAT is charged only on the operator’s margin—that is, the difference between what the operator charges the customer and what it pays the underlying provider. The clause will remove taxi and private hire vehicle transport from the scope of the tour operators’ margin scheme.

The clause is being brought forward following a defeat for His Majesty’s Revenue and Customs on precisely this point. The tribunal rejected HMRC’s claim that ride-hailing services do not qualify for TOMS, although I understand that there is still an appeal, which is due to be heard in March. Perhaps the Minister can explain how much money is being spent preparing for that, if this legislation is going to make the question moot.

In practical terms, the clause means that drivers and businesses now have to charge VAT at 20% on the fare paid by the customer—taking, for example, a £20 fare to £24. The measure took effect from 2 January this year. The Labour party promised in its manifesto not to increase VAT. It is true that it has not increased the rate, but it has certainly expanded the scope of its application through this measure. According to the Government’s own Budget policy costings document, the change will raise about £190 million in 2025-26, rising to some £675 million a year by 2031. That strikes me as a significant new burden—a significant new tax—on private hire and taxis, hence the “taxi tax” sobriquet. It is passengers who will ultimately end up paying the bill.

Industry bodies have warned that fares could increase by double-digit percentages in some areas. Every penny of extra VAT will be passed on to passengers who rely on these services because they have no viable public transport alternatives. That is particularly the case in rural areas and among disabled and elderly passengers, women wanting to get home safely at night and workers on early shifts. They are the people who will be affected by this taxi tax.

[Blake Stephenson (Mid Bedfordshire) (Con)]

Like quite a few members of the Committee, I represent a rural constituency. We have a lot of villages that are not connected to our towns, and a lot of elderly people who need to get to appointments. There are also a lot of children with special education needs and disabilities who get to school via taxis. Does my hon. Friend agree that the increase in fares, which will be passed on to our vulnerable constituents, is unacceptable, and that a charge will be passed on to local authorities, which is not fair to our local taxpayers?

[James Wild]

My hon. Friend, like me, has a very rural constituency that spends tens of millions of pounds on this. I think Norfolk spends around £30 million or £40 million a year on taxis to transport pupils with special education needs to school. That is a huge proportion of the money that is spent on special educational needs, and potentially adds to the burden and costs of councils who are struggling, particularly in rural areas. They have been—I will be polite—disadvantaged by the latest local government settlement and the way that the Government have skewed the formula against rural areas, having already removed the rural services grant, which we had come to rely on.

What is the Government’s estimate of the average fare increase for passengers as a result of this measure? How can the Treasury justify raising the transport costs at a time when families are already struggling and the Government claim that the cost of living is their priority?

The charge in this clause will not only hit passengers. Operators will face new administrative burdens as they try to account for VAT under far more complex rules. That creates uncertainty—this Committee has discussed the need for certainty on many occasions—and increases the costs for local businesses that operate on relatively small margins. As one operator of a private hire vehicle firm said, rather starkly,

“a 20% VAT hike would hit the elderly, disabled and rural passengers hardest. Businesses cannot plan, invest or grow while uncertainty remains.”

The places most exposed are those with limited public transport networks and a consequently high reliance on the use of taxis and private hire vehicles. That is why we have tabled amendment 42, which proposes to exempt rural communities. It is a simple and fair way to protect those most affected. It would amend clause 79 so that the charge does not apply to journey by private hire vehicle or taxi in rural areas.

If the Minister refuses that limited relief, will he at least commit to supporting new clause 14? It would require a proper impact assessment of the effect of the measure on the taxi and private hire industry, driver earnings, vulnerable passengers, rural communities and passenger fares.

There is a practical problem with clause 79, as with so many clauses that we have debated. Some major operators, including Uber, have reclassified themselves or are exploring ways to reclassify themselves as technology platforms rather than transport providers. That seems to be happening in cities outside London already. If they succeed, the VAT liability would shift from the company to the individual drivers, many of whom are not VAT-registered owing to their earnings level. What is the Minister’s response to that shift, which is already taking effect in parts of the country?

Concerns have also been raised by the Institute of Chartered Accountants in England and Wales that the list of qualifying services in proposed new subsection (3A) in section 53 of the Value Added Tax Act 1994 is too narrow. The institute contends that the list excludes other key designated travel services, most notably trips, excursions and the services of tour guides. That creates a genuine issue for tour operators who supply day-trip packages, whether to the coast of North West Norfolk or to other parts of the country. A lot of small, often family firms provide these services.

For example, if the package consists of a private car transfer, picking up someone from King’s Lynn station and taking them up to sunny Hunstanton, and that is combined with a professional tour guide or excursion ticket, under the clause the private hire element will fall out of TOMS while the guide or excursion will remain in it. What will that do? It will add considerable complexity, forcing the unbundling of a single commercial package. It will require changes to systems and changes to invoicing.

If the intent, as the Minister will no doubt tell us, is simply to go after taxis and private hire vehicles, this is a glaring example of where the drafting is wrong and goes too far. The ICAEW contends that the existing ancillary tests are robust enough to avoid any obvious attempt to dodge paying the tax that is due.

This is a tax rise that will increase fares, hurt rural and vulnerable passengers and create fresh uncertainty in a vital sector. In my constituency, the funding that has been provided for buses is reducing in comparison with the funding provided by the last Government. I expect that that position is being replicated across the country. People in my constituency do not have the luxury of the regular services that I am sure the Minister has in his Chipping Barnet constituency, with maybe three an hour. In parts of my constituency, three a day would be frequent.

I hope that the Minister recognises the points that are being made on behalf of rural areas; I am sure that other hon. Members who represent rural areas will not sit silently when the issue is being discussed, but will speak up for their constituents.

As I say, this is a tax that will increase fares, hurt rural areas and vulnerable passengers and create uncertainty. It will also add to the cost of living. The Office for Budget Responsibility has forecast that real living standards will increase by 0.25% in each year of this Parliament, which is a staggeringly low figure when the average has been 1% in each of the past 10 years. That is not a great record—no wonder the Government are cancelling elections left, right and centre.

If the Government are intent on pressing ahead, the very least the Minister can do is agree to review the measure, looking at fare levels, passenger numbers and any reduction in service availability. Otherwise, I look forward to pressing to a vote my amendment, which would protect rural areas.

[Mr Joshua Reynolds (Maidenhead) (LD)]

In November, the Chancellor told the House that what we are now seeing in clause 79 would protect about £700 million of tax revenue, ensuring that VAT is paid on fares. Yet, according to The Guardian on 2 January, Uber

“has swerved paying millions of pounds”

by simply rewriting its contracts with drivers so that it acts

“as an agent, rather than as the supplier”

outside London. That means that the vast majority of Uber fares outside the capital will avoid the 20% VAT tax on Uber and, as the majority of drivers’ earnings are below the VAT threshold, that money will not come into the Treasury. Meanwhile, passengers in London, where Transport for London has prevented the agency model, will see higher fares.

Can the Minister explain how much of the projected £700 million in revenue is actually going to be protected, given Uber’s change? Why are we now in a position where we have an absurd two-tier system in which identical journeys are taxed differently depending on whether they take place inside or outside London? I note that no Government amendment to the clause has been tabled. Has the Treasury accepted that because of Uber’s decision, this policy has failed before it has even begun?

--- Later in debate ---

The changes that we are making will put to an end the exploitation, by a small number of private hire vehicle operators, of an administrative scheme that is intended for tour operators only, which lowers their effective VAT rate to around 4%. The Government think it right and fair to make sure that that option is no longer on the table. The OBR certified our costings for the Budget, and this measure is expected to raise £700 million in tax revenue in each year. That is vital to the public finances.

[James Wild]

May I return to the point about the ancillary services? Proposed new subsection (3A) in section 53 of the 1994 Act requires only

“the provision of accommodation, or…the transport of passengers by bus, coach, train, ship or aircraft.”

Excursions or trips are not covered, which is why the ICAEW has suggested simply amending the wording to include the services of tour guides, trips and excursions to ensure that genuine day-trip packages, wholly within TOMS, continue to be protected. Under the clause as drafted, they will not be; a proportion of them will face an extra 20% charge. That is the case, is it not?

[Dan Tomlinson]

We are confident that the exclusion drafted in the Bill is carefully targeted and will not have unintended implications by limiting the activities of legitimate tour operators. It is right to make this change, which will raise £700 million of tax revenue that the Government believe should already be being paid. It will be a vital contribution to the public finances.

--- Later in debate ---

[Dan Tomlinson]

Local authorities have usual and long-standing mechanisms for handling their VAT liabilities, including reclaiming the VAT where permissible.

I hope that I have responded with sufficient thoroughness to the points that have been raised. I commend the clause to the Committee and urge that amendment 42 be withdrawn and new clause 14 be rejected.

[James Wild]

I need to hammer the nail about day-trippers while we have the taxman on the Government Benches. Proposed new subsection (3A) in section 53 of the 1994 Act does not provide for day-trip excursions not to be in scope; it refers simply to accommodation and passenger transport not being captured. I hope that the Minister might look at that again, because certainly in tourist areas such as my own constituency, those day trips are part of the local economy and hospitality sector. He knows well from his portfolio that pressures are being placed on hospitality businesses more broadly, not just on pubs.

I am not sure whether we got the full guarantee on SEND. Perhaps the Minister will write to the Committee to set out the position on that, so we all have clarity and can go back to our local authorities to assure them that the £700 million that the Government are looking to raise in additional taxes will not be coming from our council tax payers.

I am not satisfied that the Minister has dealt with the rural issue or the impact on such areas. I appreciate that he does not come from a rural constituency, so he does not have that at his fingertips, but certainly in my area, people rely on private hire vehicles and taxis to get around. That is a big issue, so I will therefore be pressing the amendment to a vote.

Question put, That the amendment be made.

--- Later in debate ---

Certain charitable donations not to be treated as supplies of goods

[James Wild]

I beg to move amendment 43, in clause 80, page 96, line 28, at end insert—

“(2A) The Treasury must, each year, amend by order the applicable limit set under section 5A(2)(a) by the change in the level of the consumer prices index in the previous tax year.”

This amendment would provide for the £200 applicable limit to be uprated annually in line with the consumer prices index.

[The Chair]

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

[James Wild]

Having debated so many clauses that tighten the rules and put up taxes on individuals and businesses, we finally reach something unusual for the Chancellor: a tax break. I will speak to the amendment—in my name and that of my hon. Friend the Member for Wyre Forest and the shadow Chancellor, my right hon. Friend the Member for Central Devon (Sir Mel Stride)—and to the clause. The clause addresses a long-standing phenomenon in the VAT rules governing the donations of goods to charity.

In the present situation, when a VAT-registered business donates stock, those goods can sometimes be treated as if they were sold, triggering a VAT bill on a notional supply that never took place. Sensibly, the clause corrects that anomaly. It provides that qualifying charitable donations of goods will no longer count as taxable supplies for VAT purposes. In practical terms, that means that no output VAT charge will be liable simply because a business chooses to donate stock to a charity, provided that it meets the conditions and value limits set out in the legislation.

I acknowledge that the change has been warmly welcomed across the charity sector, unlike some of the other provisions about which concerns have been raised. It represents a small but meaningful step towards encouraging more corporate donations. The Opposition, however, have tabled amendment 43, which would ensure that the £200 cap set out in the legislation would increase by the level of the consumer prices index in the previous tax year—as with amendment 41, that would mean that the measure would retain its value over time.

The Opposition support the principle behind the measure. It is right to remove a barrier that discourages generosity and adds unnecessary complexity to charitable giving, but the Association of Taxation Technicians has already cited concerns. In its view, the changes do not fully match the existing relief for goods donated for resale. Businesses will still face different VAT treatments, depending on how a charity uses the donated items.

Clause 80 adds yet another outcome, meaning that the system remains complex for what is, in simple terms, the same act of giving goods to charities—the charities across our constituencies. Practical guidance from His Majesty’s Revenue and Customs will therefore be vital, because businesses need to understand exactly when the new relief applies, how the value limits work and what evidence they must keep to stick on the right side of the rules. Without that clarity, many could decide that donating just is not worth the administrative hassle. Will the Minister commit to providing such guidance and working with the sector to produce it?

According to the Budget documents, the measure will cost around £10 million to the Exchequer, which is a small price to pay for allowing more goods to reach charities and the communities they serve. However, amendment 43 would ensure that the measure retains its value over time. The current £200 limit risks eroding year by year as inflation drives up the cost of goods. Our amendment would simply link that cap to CPI, so that it keeps pace with prices, rather than becoming less generous each year. I think the Minister would have to agree that this is a modest and practical suggestion that would ensure the relief continues to operate as intended, so I hope he might agree to accept the amendment.

To conclude, I will ask the Minister three things. What estimate has the Treasury made of the additional volume and value of goods expected to be donated following the change? Secondly, will HMRC commit to publishing clear and accessible guidance for small and medium-sized businesses so that they can use the relief with confidence? Finally, if the Government will not support our amendment, will they at least agree to review the £200 limit within a year or so, listening to evidence from charities and donors about how the policy is working in practice?

In the end, the change is about making generosity easier, not harder. If we can make the tax system work just a little better for those who give and those who do so much vital work on the ground in our constituencies and communities, that is something that all members of the Committee would want to support. I look forward to the Minister’s response to what is a very modest and helpful amendment.

[Mr Reynolds]

The Liberal Democrats fully support clause 80 and would support amendment 43 if it were pushed to a vote. When I worked in retail, including in grocery retail for a significant number of years, I saw time and again that goods were going in the bin that should have been going to a good home, such as a charity, but that was not happening because it was cheaper to dispose of those goods than to donate them to a worthwhile cause. That is an unacceptable position, and one that we should not be in, so I am really glad that the Government have brought forward clause 80 to help change that.

Clause 80 explicitly names the household goods to which the £200 limit applies—household appliances, furniture, flooring, computers, tablets and phones. As someone who is renovating a house at the moment, I am not sure whether many household appliances can be bought for £200 or less, and I do not know whether the Treasury has set that limit deliberately. When buying a tablet or phone, there are very few options under that £200 limit, and I wonder whether the limit has been drawn too narrowly to ensure that the majority of products donated will not fall under it. I would welcome the rationale from the Minister as to why £200 was chosen as the appropriate number, and what consideration the Treasury has given to widening that limit.

[Dan Tomlinson]

I thank the Opposition spokespeople for their questions. [Interruption.] Spokesmen—very good. Before the Budget, I attended a roundtable with businesses, charities and those who had been campaigning and advocating for the change we brought in at the Budget. In response to many of the questions asked by the Opposition spokesmen, I can reassure them that we worked through the limits and detail of the clause really closely with the charitable sector and with the businesses that would have a different VAT treatment or that may pass on their goods in this way.

On the specific question about guidance, it has already been shared with stakeholders and we continue to engage with them. I will see if my officials can send the Opposition spokesman, the hon. Member for North West Norfolk, the guidance if he would be interested to see it. The value of goods will be commensurate with a £10 million a year Exchequer cost.

On the threshold, the Government have decided not to uprate it in line with CPI, but we will continue to keep it under review. As I said, it was set after detailed and extensive conversations and engagement with the groups that will be involved with the different treatment through either receiving or donating the goods.

It is worth noting that, due to the wonders of modern capitalism, lots of the prices of consumer goods have actually been falling in real terms over time—for example, we might think about how expensive a traditional washing machine or a television is today compared with 20 or 30 years ago. It is not clear to me that it would be appropriate to continue to uprate the threshold as default in line with CPI. For that reason, I encourage that amendment 43 be rejected, and commend clause 80 to the Committee.

[James Wild]

The hon. Member for Maidenhead makes a reasonable point about the £200 limit. The Minister said that there had been a lot of discussion to arrive at that threshold, but I do not think he exposed the entire rationale underpinning it—he talked about washing machines and their prices, which was an interesting diversion. The point remains that if we have a £200 limit and we think that is the right limit now, why do we not just automatically uprate it? Then the Minister will not have to come back with regulations or put other clauses in future Finance Bills. It would save us all a lot of hassle and palaver, and would mean that people and charities know where they stand. Our amendment is a modest measure, which I am surprised that the Minister has not simply accepted, so I will test the will of the Committee.

Question put, That the amendment be made.

--- Later in debate ---

[Dan Tomlinson]

My remarks on clause 81 will be very brief. The changes that the clause makes will add combined county authorities to the list of bodies eligible for refunds under section 33 of the Value Added Tax Act 1994. This will remove the need for individual Treasury orders each time a new combined county authority is established. I commend the clause to the Committee.

[James Wild]

I thank the Minister for that very succinct description of the clause. He will be pleased to hear that I have only a few points to make—[Interruption.] The hon. Member for Burnley says, “That’s good.”

The clause allows newly created combined county authorities to reclaim VAT incurred on non-business activities, such as statutory public functions. At present, established local authorities can recover VAT on such activities under section 33 of the Value Added Tax Act, but the definition does not explicitly include combined county authorities. We understand that that change took effect last year.

The explanatory notes make it clear that the clause is intended to ensure fiscal neutrality for the new governance arrangements. Combined county authorities should be no worse off than traditional counties because of their form, but of course the beneficiaries are the combined authorities that are being formed under the Government’s local government reorganisation plans.

My own county of Norfolk is set to be joined with Suffolk in one of these combined county authorities, with a mayor sitting across the two counties. People in Norfolk and Suffolk were looking forward to that mayor being elected in May, until the Government cancelled our election as a late Christmas present in December. As a result, we will not have a combined county authority mayor in place and we will lose out on the £40 million that the mayor was meant to have through the investment fund.

The county council elections for the authority that will make way for the combined county authority, which will then benefit from this VAT exemption, were also cancelled. So there is more delay and uncertainty, and a loss of funding, as people look at the creation of these combined county authorities, which are the subject of the clause, and the refund that they will be able to get. The clause is sensible, but the Government’s wider plans that sit behind it are somewhat chaotic, and cancelling elections is undemocratic.

[Mr Reynolds]

Balancing VAT refund rights to ensure fairness for CCAs is, of course, welcome, and we support it. We support the idea that VAT refund rights should be balanced across groups and institutions that are similar and have a similar purpose. That is why I hope you will allow me to share some surprise, Mrs Harris, that the Government have not gone further in balancing refund rights. For example, a school with a sixth form attached can claim its VAT back, but a sixth form college cannot. My hon. Friend the Member for Mid Sussex (Alison Bennett) has been campaigning on that for a significant time. In answer to a written question, the Minister confirmed that the Government are not planning to extend the VAT refund right to sixth form colleges, but they have done so for combined county authorities. Will the Minister explain the rationale for that? We all support the idea of balancing VAT refund rights, so we should surely be extending that to other situations.

--- Later in debate ---

[Dan Tomlinson]

As the hon. Member knows, there are always trade-offs to be considered in taxation policy design. As I have just outlined, there is around £5 billion of revenue here. We must ensure we get the balance right between raising revenue and continuing to support growth and the ability of companies to grow and invest in the UK.

We did make changes at the Budget, for example to venture capital trusts, enterprise investment schemes and enterprise management incentives to encourage start-ups in particular to scale up in the UK, as one of our frontier sectors seeing growth. We have made changes to support that. I note the Opposition’s perspective, but on balance we think this is a good change to make on its own. We look forward to seeing the impact that it will have and we will continue to keep our tax measures under review.

New clause 15 would require the Chancellor to publish, within 12 months, a report on the potential benefits of extending the period in which the UK listing relief applies beyond three years. The Government have carefully considered the scope of this relief, including the length of the relief period. The first few years after listing are crucial for companies as they endeavour to establish long-term viability on public markets, with the most vital period being the initial one or two years. However, our judgment is that the benefits of significantly extending the relief beyond this period would not represent best value for money, as the Exchequer cost would increase while the benefits for firms would diminish with each additional year. I therefore commend clause 82 to the Committee and ask that new clause 15 be rejected.

[James Wild]

I rise to speak to clause 82 and new clause 15 tabled in my name and those of my right hon. and hon. Friends. As we have heard, clause 82 introduces a time-limited relief from stamp duty reserve tax for companies listed on a UK-regulated market. The Committee will know that stamp duty is charged at 0.5% on trades in chargeable securities such as shares. This form of transaction tax is among the most economically inefficient, in the same way stamp duty is on homes: it dampens the market, prevents people from moving and undermines labour market flexibility. As a result, we have committed to abolishing stamp duty on house sales—not stamp duty on shares—and that has been very warmly welcomed.

Under clause 82, trades in a newly listed company’s securities will be exempt from that 0.5% charge for the first three years after the company lists, provided specified conditions are met. The relief will apply to new listings from November last year, with the detail on the qualifying markets and securities set out in the clause, with which hon. Members will, I am sure, have familiarised themselves. We on this side of the Committee support the principle behind the clause.

Some Opposition Members have highlighted the potential benefits of scrapping this transaction tax entirely. We all want to see more companies listing and raising capital in the UK, and steps to lower frictional trading costs can contribute to that ambition. However, my new clause 15 seeks to go further by requiring the Government to publish a report on the potential benefits of extending the stamp duty relief beyond three years. Specifically, I am asking Ministers to assess how a longer relief period could affect the attractiveness of UK markets for new and returning listings, and the impact on capital raising, investment and Exchequer revenues. According to the “Budget 2025 Policy Costings” document, historical listing activity has raised between £14 billion and £17 billion of capital each year. The same document shows that the relief is expected to cost the Exchequer £25 million in the first year, rising to about £50 million a year once fully implemented.

--- Later in debate ---

[Dan Tomlinson]

As with other measures that have been debated this week, for example on business rates, it seems that the Conservatives were just getting around to reform on the issue. Now they are in opposition, they seem to have developed a significant zeal for reform and tax cutting that they did not show at all when they were in government—for example, leaving business rates unreformed, as well as leaving this measure totally unreformed.

[James Wild]

I am surprised that the Minister has brought up business rates. This is very important. We look with sympathy at having to reverse the Chancellor’s mess, although the Minister will be coming back in a few months, I am sure, with a further U-turn. Just to clarify on business rates, did the Government choose to scrap the 40% relief that was in place when they came into office?

[Dan Tomlinson]

I do not know whether you want the conversation to continue on a tax that is not in scope, Mrs Harris, but I am happy to answer the question.

--- Later in debate ---

[Dan Tomlinson]

Clauses 87 and 88 implement changes announced at Budget 2025 concerning tobacco duty rates.

At the Budget, my right hon. Friend the Chancellor confirmed that the Government will increase tobacco duty in line with the escalator. Clause 87 therefore specifies that the duty charged on all tobacco products will rise by 2 percentage points above retail prices index inflation. The new tobacco duty rates will be treated as having taken effect from 6 pm on the day they were announced, which was 26 November 2025. In October 2026, tobacco duty will rise again in line with the escalator with the introduction of vaping duty. That is to preserve the price differential between vaping and tobacco products to ensure the duty on vaping does not make smoking more attractive, and will maintain the incentive to choose vaping over smoking.

New clause 31 would require the Government to publish an assessment of the impact of the changes to tobacco duty rates on the illicit tobacco market within six months of the Bill being passed. The Government will not accept the new clause, as the potential impact on the illicit market is already one of several factors that we consider when we take decisions on tobacco duty rates. We have already published a tax information and impact note alongside the Budget to set out the expected impact of this measure. I commend clauses 87 and 88 to the Committee and I reject new clause 31.

[James Wild]

I rise to speak to clauses 87 and 88, as well as new clause 31 tabled by the Conservatives. As the Minister said, clause 87 increases tobacco duty and the minimum excise tax with effect from Budget day, as is traditional. As he also outlined, tobacco duty is clearly charged on cigarettes and other tobacco products, while the minimum excise tax ensures that cheaper cigarettes do not escape the appropriate levels of taxation.

Clause 88 sets out a further increase from October this year, introducing an additional uplift in line with RPI, alongside a one-off increase of £2.20 per 100 cigarettes and a similar rise for hand-rolled tobacco. The one-off increase coincides with the introduction of the new vaping products duty, which we may get to talk about later in Committee.

As the Committee discussed last year, in the autumn Budget 2024, the Government announced that the measure was intended to preserve the price gap between tobacco and vaping products, with the same £2.20 rate applying across both categories. These measures will result in a sharp rise in the duty per pack and per pouch. While we broadly support these measures, there are concerns about the implications for illicit trade and enforcement. As we discussed in the Committee of the whole House on the Budget and the Finance Bill in relation to the Government’s almost doubling of gambling taxes, the risk, as always, is that such steep increases widen the price gap between legal and illegal products, making it more profitable for criminal networks, and more tempting for consumers to turn to the black market.

The tobacco duty has been around for a long time, and in recent years successive increases have sought to maintain the financial incentive for people to switch to vaping or to give up entirely. The OBR forecasts that tobacco duty will raise around £8 billion in the current financial year, a modest rise of 0.8% from the previous year, before receipts fall steadily to £7 billion by 2031. The tax information and impact note suggests that the Exchequer impact from this measure will peak at about £130 million before tailing off, consistent with those forecasts.

In economic terms, it would appear that tobacco duty is pushing beyond the point of maximum returns—beyond the Laffer curve peak. As Members of this House, our focus should be on ensuring that further increases in gambling taxes, or the tobacco taxes that we are debating here, do not simply fuel illegal trade. Raising prices on tobacco inevitably risks boosting demand for illicit products, with the associated criminality that blights our communities and fuels organised crime gangs. Even the TIIN acknowledges that some consumers may switch to cross-border or illicit purchases.

HMRC says that it will “monitor and respond” as part of its anti-fraud strategy, but frankly, more clarity and more action are needed. Will the Minister outline specific measures that HMRC will use to counter any shift towards the black market? What assessment has been made of the risk to consumers who buy illicit products, both in terms of the health impacts and the costs to public services such as our NHS?

Mrs Harris, you are probably wondering what the scale of this problem is. According to HMRC, 10% of cigarettes and 35% of hand-rolling tobacco consumed in the UK are from illegal or non-UK duty-paid sources. However, industry data suggests—I of course recognise that the companies have an interest, and I do not take their figures at face value—that the problem may be far worse, with up to 30% of cigarettes and over 50% of hand-rolling tobacco now being sourced illicitly. If accurate, those are levels that have not been seen the mid-2000s.

I cited similar data in Committee during the passage of the Finance Act 2025, when similar provisions were brought forward. Can the Minister update me and the Committee on what discussions have taken place with HMRC about the discrepancy in the estimates? We have one estimate of 10% and another of 30%; that is a huge difference, and we have to get to the actualité.

HMRC’s own director of indirect tax—I want to see that on a business card—has said that illicit tobacco costs the taxpayer around £1.8 billion a year in lost revenue. That is a lot of tax being avoided that could be collected, were this legislation properly implemented. Is that the Government’s estimate? If not, can the Minister provide more up-to-date figures on the gap between legal and illegal sales? It would also be helpful to know whether the Government have assessed the cumulative impact on retailers and enforcement bodies, if the illegal market continues to expand. That is precisely the purpose of new clause 31, which would require

“an assessment of the impact of the provisions made under sections 87 and 88 on the illicit tobacco market.”

HMRC launched its first strategy to tackle illicit tobacco back in 2000. I will not go through them all, but subsequent updates, working closely with Border Force, have delivered progress. They have reduced the duty gap on cigarettes by a third and on hand-rolling tobacco by half, which is a welcome success. The previous Conservative Government launched a strategy in March 2024, building on that record.

I am pleased to see that the trading standards powers we introduced in July 2023 are producing results. By early January this year, over £1.4 million in civil penalties had been issued for illicit tobacco sales. When in government, we recognised the importance of enforcement. The Public Accounts Committee, on which my hon. Friend the Member for Mid Bedfordshire serves and I had the pleasure of serving for two years, estimated that every £1 spent by HMRC on compliance recovers £18— a fine rate of return.

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[Dan Tomlinson]

I will keep my remarks brief, if only to give the hon. Member for North West Norfolk more time to inform us of his opinions on this matter. Clause 89 makes changes to uprate vehicle excise duty rates for cars, vans and motorcycles in line with the retail prices index measure of inflation from 1 April 2026. New clause 17 would require the Chancellor to make a statement to the House on the impact of that 2026-27 increase to VED rates, but the increase announced in the Budget is in line with the retail prices index, meaning that rates will remain unchanged for vehicle owners in real terms by that metric. It is therefore the Government’s judgment that the new clause is unnecessary. I therefore commend clause 89 to the Committee, and recommend that new clause 17 be rejected.

[James Wild]

I am very happy to share my views with the Committee on each and every clause as we go through; that is part of what we are here to do. I am also happy for the Minister to expand on the merits or otherwise of his legislation at will. If he prefers to keep it brief, we can read into that what we wish.

Clause 89 increases vehicle excise duty, the annual charge for keeping a car, van or motorcycle on the roads, in line with the retail prices index. Those changes take effect in relation to licences taken out on or after 1 April. Let us be clear: in practice, that means higher costs for almost every driver. New clause 17 seeks to make sure that those impacts are assessed. It specifically looks at the impact on the automotive sector, household incomes and the UK economy.

We will not vote against clause 89, but the Government should not take our position as an endorsement of their wider approach to motorists. Vehicle excise duty flows straight into the Treasury’s general fund, and the amount that a driver pays depends on the vehicle type, registration date and emissions, with rates adjusted. According to the OBR, vehicle excise duty is forecast to raise getting on for £12 billion by the end of the decade, due in no small part to the RPI increases. It is interesting that the Minister is keen to increase people’s taxes by RPI on a regular basis but will not give such a commitment on a fairly minor charitable threshold. We will leave that there, though, as we have debated that clause.

Ministers like to describe these increases as modest. On their own they may be, but we have to look at all these things in the round, and the impact of these clauses on individuals. If we look at all the costs—the hike in fuel duty and the new mileage-based charge planned for electric and plug-in hybrid electric vehicles, which will cost the average driver £255 a year—the cumulative impact begins to bite. That is why the new clause looks at the impact of this measure. That all comes on top of rising insurance premiums, servicing costs and of course the wider pressure on household budgets. Everyone’s bills are going up, and there seems to be no end in sight.

Let us not forget that it was this Government who decided to end the 5p fuel duty cut that the last Conservative Government introduced—a decision that will cost the average family around £100 a year from September. Then, from next April, the long-standing fuel duty freeze that was in place for 16 years will also be scrapped, replaced by inflation-linked rises. That freeze has saved motorists £120 billion since 2010, but once again, drivers are being asked, through this measure, to pay the price for the Government’s failure to get a grip on the economy.

Motorists and motoring organisations including the RAC have rightly warned that these charges come at a time when the cost of living remains high and public transport options are patchy—particularly outside our major cities, as we discussed in the context of private hire vehicles and taxis. For many in rural areas like my own, a car is not a luxury but a necessity to get around, get to work and see family. Many people do not have an alternative to their car. Drivers are paying more, yet the Prime Minister boasts about things like his £3 bus fare cap, which he quietly increased by 50%. That is why new clause 17 would require an assessment of the impact of the increase in vehicle excise duty.

Although we will not vote against the clause, we expect some answers from the Minister. Will he confirm whether the Treasury has modelled the combined impact of these motoring costs—VED, fuel duty, the upcoming road pricing charges—on household budgets, particularly in rural areas where public transport is limited? What assessment has been made of the impact on small businesses that depend on vans and light goods vehicles to operate in each of our constituencies every day? Those are the people we should think of when we consider clauses such as this. New clause 17 would help to deliver the clarity that Britain’s 50 million motorists deserve.

[Dan Tomlinson]

In response to the shadow Minister’s question, the Government do consider the impact of each individual tax measure on businesses and consumers in the round with the others, at Budgets and in between them too. As a result, we have concluded that this is the right and proportionate way forward, to protect revenue and make sure that we can increase revenue in line with inflation, rather than beyond it.

Question put and agreed to.

Clause 89 accordingly ordered to stand part of the Bill.

Clause 90

Vehicle excise duty for rigid goods vehicles without trailers and tractive units

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

[Dan Tomlinson]

Clauses 90 to 93 will make changes to the vehicle excise duty rates for rigid goods vehicles without trailers and tractive units, the cab of an articulated lorry, rigid goods vehicles with trailers, vehicles with exceptional loads, and haulage vehicles other than showman’s vehicles. Clause 95 will make changes to uprate the heavy goods vehicle—HGV—levy.

The registered keeper of a vehicle is responsible for paying VED. The rates depend on the vehicle’s revenue weight, axle configuration and Euro emissions status. The HGV levy is payable for both UK and foreign HGVs using UK roads. A reformed HGV levy was introduced in August 2023, which varies according to the vehicle’s weight and Euro emissions status.

New clause 18 would require the Chancellor to make a statement to the House—in a similar way, I believe, to new clause 17 that we just discussed—on the increases to HGV vehicle excise duty under clauses 90 to 93, and the HGV road user levy under clause 95. Similarly, given that the uprating is in line with inflation and that rates will remain unchanged in real terms for vehicle owners, it is the Government’s view that the new clause is not therefore necessary, and I urge the Committee to reject it.

[James Wild]

The clauses deal with changes to vehicle excise duty for heavy goods vehicles, rigid good vehicles with and without trailers, vehicles with exceptional loads, and haulage vehicles other than showman’s vehicles. I welcome the exemption for showman’s vehicles as we look forward to the King’s Lynn Mart, which has been going for 800 years. On 14 February, I will be joining in the civic procession through the middle of King’s Lynn, before getting on the dodgems for the traditional dodgem ride, with other civic figures. Hon. Members should feel free to come along—it is on a Saturday. It is always cold for the Mart, but it is well worth coming along to.

Together, these provisions will uprate the VED and the road user levy by RPI. We have concerns about the timing of the increases, and the absence of meaningful backing for the most affected industries, especially the logistics sector, which keeps Britain moving. HGV vehicle excise duty is already complex, with more than 80 different rates, varying based on the characteristics of weight, emissions, class and configuration. Of course, as the Minister referred to, HGVs are also subject to the road user levy, which was introduced in 2014 as a charge for using the network. That levy was rightly suspended in August 2020 during the pandemic, and the reformed levy that the Minister referred to was reintroduced in August 2023, but it was frozen in the autumn statement that year.

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[Mark Garnier]

My hon. Friend is making an incredibly good point about the inflationary effect of these taxes. He has mentioned houses, and we know that the Bank of England is charged with using monetary policy to keep inflation under control. The direct effect of this measure could be an increase in interest rates, and therefore an increase in the cost of mortgages. Does he think that the Government would be happy with that?

[James Wild]

My hon. Friend makes an important point about the effect of these clauses on putting up costs and potentially adding to inflation, which as we know has almost doubled from the rate that the Government inherited. Of course, that is partly due to the decisions that the Chancellor has taken and the huge amount she is borrowing and spending, which was not mentioned in her party’s manifesto.

To my hon. Friend’s point, the Minister must tell us what assessment has been made of the knock-on impact on consumer prices, particularly for essentials such as food that depend on road freight to get to our supermarkets and local stores. This is a time when we should be backing British logistics, not burdening it. I therefore hope that, on reflection, the Minister will accept new clause 18 as a sensible one that will help him provide that information to our constituents, to the public, and—importantly—to the logistics sector, transport operators and supermarkets.

[Mr Reynolds]

The haulage sector has seen significant challenges in recent years: increases in fuel prices, increases in wages and significant changes in the Employment Rights Act 2025, business rates and vehicle excise duty, as we see here. I would not be the investment and trade spokesman for the Liberal Democrats if I did not mention another challenge for the road haulage sector in recent years, which is the significant amount of red tape involved in Brexit, and the cost of that.

The Government’s EU reset has not touched the sides, as haulage associations have been telling us recently. The Business and Trade Committee recently heard about some goods moving from the UK to France that required 29 different stamps on their paperwork. If one stamp goes in the wrong place, the vehicle gets stuck in France or sent back. That is an additional cost for the road haulage sector, on top of all these extra costs and the vehicle excise duty increases.

For example, we were told on the Business and Trade Committee about a vehicle that was sat in France for almost one month because of paperwork that was not quite correct and small technical challenges. That vehicle being sat in France for one month meant consistent driver changes and meant the freezer compartment having to be kept on to ensure that the goods did not spoil. There was a £6,000 cost to the business because of two stamps being in the incorrect place. If we add that to the £2,000 cost per truck of the changes to vehicle excise duty, we see very clearly that the significant changes that the Government are making in quick succession are not helping the sector, which needs all the support it can get.

[Dan Tomlinson]

I thank the hon. Member for North West Norfolk for his romantic invitation to King’s Lynn; I may be otherwise engaged on that date, but I thank him for it all the same. I am interested to see whether any Members wish to intervene to say whether they will be taking up the invitation, but it is good to hear that he is an active constituency MP.

We do, of course, look at measures in the round, as the hon. Member for North West Norfolk implored me to. We did so ahead of the Budget, and I will continue to work with my right hon. Friend the Chancellor on tax policy in the run-up to the Budget at the end of the year. We are providing stability this year for the private sector and for individuals by moving away from the relatively chaotic approach under the previous Government of having multiple tax events with big swings and roundabouts twice a year, so future tax changes will not come until the end of the year, but that will give me more time to consider things in the round.

[James Wild]

Is the Minister therefore ruling out any further support for hospitality, leisure and retail businesses in the Chancellor’s spring statement?

[Dan Tomlinson]

The Government will consider all tax measures in the round in the usual way in the run-up to the Budget. It would not be right for me to speculate on what will or will not be in the Budget; it is a long way away, and there is much to consider in the meantime. Conservative Members decided to bring up inflation, which hit 11% under them in 2022, pushing up prices for everyone up and down the country, leaving businesses and consumers significantly worse off in the worst Parliament on record for living standards.

[James Wild]

The Minister is a fair man, so he will recognise the impact that the pandemic and the war in Ukraine had on inflation and energy prices. Could he confirm what the inflation rate was on the day the Government came into office and what it is today? That is an important context for his comments.

[Dan Tomlinson]

Over the months ahead, as a result of the action that this Government have taken to bring stability back to the economy, I look forward to seeing inflation return to 2% by the end of the year, as is forecast by the Bank of England.

I thank the hon. Member for Maidenhead for bringing up the botched Brexit deal that the previous Government left us. Under the leadership of the Prime Minister and Ministers in the Cabinet Office and elsewhere in Government, we continue to work to reduce barriers to trade and deepen our relationship with our nearest trading partner. As the Minister responsible for customs and excise, I am always looking at what more we can do to support those who move goods across borders and trade with our partners in the EU.

Question put and agreed to.

Clause 90 accordingly ordered to stand part of the Bill.

Clauses 91 to 93 ordered to stand part of the Bill.

Clause 94

Vehicle excise duty: expensive car supplement

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

[Dan Tomlinson]

Clause 94 will make changes such that the vehicle excise duty expensive car supplement threshold is increased to £50,000 for zero emission cars, from its current level of £40,000. This change will take effect from 1 April 2026 and will apply to zero emission vehicles first registered on or after 1 April 2025 for tax renewals from April 2026.

The expensive car supplement is a supplement to VED payable by vehicle keepers for five years, from years two to six following a car’s first registration. The rate is currently £425 a year; that will increase to £440 from 1 April 2026, in line with RPI, and is charged in addition to the standard rate of VED. The additional charge was, I believe, originally introduced in 2017 under a previous Government so that those who can afford the most expensive cars pay more than the standard rate paid by other drivers.

Clause 94 will increase the threshold for zero emission cars from £40,000 to £50,000. This measure is projected to benefit over half a million drivers of zero emission vehicles over the next five years. It will also incentivise electric vehicle take-up. Increasing numbers of motorists will benefit in future years as the zero emission vehicle population grows.

New clause 19

“would require the Chancellor…to report on the impact of section 94 on the automotive sector”

and on other issues. As is usual practice, a tax information and impact note was published at the Budget, outlining the anticipated impacts of this measure as well as the expected revenue impacts of the change.

The Government remain fully committed to the EV transition, which will drive economic growth, help the country meet its climate change obligations and improve air quality. By increasing the ECS threshold to £50,000 for zero emission vehicles, clause 94 supports those goals.

[James Wild]

I rise to speak to clause 94 and new clause 19, which stands in my name. Clause 94 makes changes to the expensive car supplement in vehicle excise duty, as the Minister referred to, specifically for zero emission vehicles. This is an extra £425 charge that applies to most cars with a list price above £40,000. Under the clause, the Government propose to increase the threshold to £50,000, but only for zero emission vehicles. That means that buyers of higher-value electric vehicles will avoid paying the charge, while the £40,000 limit still applies to petrol, diesel and hybrid cars. This change is due to take effect from April 2026.

Let us recall that, back in the Public Bill Committee on last year’s Finance Bill, one of the Opposition’s “review” new clauses called for an independent assessment of the £40,000 threshold and its impact on consumers, particularly for electric vehicle sales, because we said that it was not at the right level. The Minister’s predecessor rejected that idea, and now here we are: the Ministers have quietly decided to raise the very threshold that we urged them to raise a year ago. They are playing catch-up, but they get there in the end. Is the Minister willing to admit that they have been a bit slow to follow the points that we made? Maybe we will be here in Committee next year, talking about other clauses on which the Minister has rejected things and reversed his position.

That brings me to the hybrid point. The Government now seem to have decided that hybrids no longer warrant support, despite the fact that they are critical in bridging the transition to fully electric vehicles. I would be grateful if the Minister expanded at length on the reasoning behind that decision, and on how many jobs in the UK are dependent on the manufacture of hybrid models when a lot of our electric vehicles come from China, where the Prime Minister is now.

We are broadly supportive of the measure, having recommended it a year ago, but let us be realistic: it will not do anything for most of the households in our constituencies, who simply cannot afford a new electric vehicle, especially one that costs £50,000. That is completely out of reach for people in my constituency. I do not know whether that is also the case in constituencies nearer to London, but it is certainly the case in mine.

How does this increase fit with the wider EV policy and charging infrastructure and its roll-out? To support ordinary people up and down the country, we should be joining countries such as Canada—along with the EU, or so it looks—in scrapping the mandate forcing manufacturers to produce EV vehicles and ending the 2030 ban on the sale of new petrol and diesel cars.

New clause 19 would require a proper review of the policy, its effects on the automative sector and the impact on the sale of hybrid cars and on vehicle excise duties. It would ensure a consideration of whether the threshold remains appropriate as market prices shift.

I hope that the Government will accept this accountability and transparency in policymaking, which will benefit everyone. Will the Minister at least commit to reviewing the threshold in future, particularly if it turns out that it needs to be adjusted? Will he also look at the hybrid point?

[Mr Reynolds]

We welcome the uprating of the expensive car supplement for EVs to the value of £50,000, supporting EVs and EV take-up. However, we are surprised that during the Committee’s first sitting on Tuesday, when I asked about extending zero VAT for charging infrastructure beyond 2027, the Economic Secretary declined to do so. I am aware that the Minister who is present today was not there, but that is slightly confusing. Here, we see the Government supporting electric vehicles and increasing the threshold from £40,000 to £50,000, but not applying the same policy by supporting electric vehicles post 2027 in other clauses of the Bill.

The Economic Secretary, who was in the Minister’s place on Tuesday, is now in China; I do not know whether I should commiserate with the Minister for not being invited on that trip. We are concerned about floods of electric vehicles that are coming in from China, undercutting European and British competitors. We are worried that they will be impacted by that £50,000 change, but several British vehicles will not be. I am sure that we do not want a world in which the Government are unintentionally encouraging British residents to buy electric vehicles made in China rather than electric vehicles from Britain. I hope that the Minister will clarify that point for us.

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[Hon. Members]

Wild!

[James Wild]

I think we are on first-name terms now, Mrs Harris.

[The Chair]

I call James Wild.

[James Wild]

Thank you, Mrs Harris. I am almost the only one who has said anything in this Committee, so hopefully people know my name. I rise to speak to clause 96 and to my new clauses 20 and 32.

As the Minister has set out, clause 96 sets air passenger duty rates for the 2027-28 tax year, uprating them in line with RPI. I believe that APD is one of the few taxes for which rates are set well in advance so that the sector knows of the increases. The clause will also expand the higher rate to all private jets over 5.7 tonnes. This applies to passengers departing from UK airports, with rates determined by distance and travel class.

My new clause 20 would require the Government to publish a full impact assessment of the APD changes on the aviation industry, on passengers, on households of all income levels and on the public finances. New clause 32 seeks to bring greater transparency to the travelling public; it would require that the change in the level of APD charge be clearly stated on boarding passes so that every passenger knows how much the rate has gone up as a result of tax imposed by the Government. The Minister says that it is a commercial decision whether airlines pass on the cost, but he will be familiar with how the world works. If a business is taxed more, it is likely to pass on the cost rather than absorbing it into what can be quite thin margins. It may not be able to absorb it, so if it does not pass it on, it will go bust.

This could start a wave of transparency. At the petrol pump, we could see how much of the price of a litre is going straight out in tax. In a pub, we could see on a pint glass how much of the pint goes on tax. Those ideas are not included in my new clause, but they have given me inspiration for when we return to the Floor of the House on Report. The new clause would bring greater transparency; I would hope that the Government and Ministers are willing to be more open.

According to the Office for Budget Responsibility, APD will raise £4.1 billion this year, which is forecast to rise to £6.5 billion by 2030-31, driven by rate increases and passenger growth. While the Government reap the higher revenues, they must also recognise the impact and pressure on families getting away for a holiday—I would say, “Come to Norfolk”—and on regional airports and the wider economy. There are concerns about the impact on people saving up for a family holiday; about the availability of routes that might be slightly marginal and which the increases might make uneconomic; and about affordability for families.

The British Airline Pilots Association said that the latest rise is:

“Bad news for passengers, especially families going on holiday”.

The Business Travel Association put it rather more bluntly:

“APD is not simply a passenger charge; it is a tax on global connectivity”.

It highlights an economy flight to India, a key trading partner of the UK. For 2027, the APD alone will be over £100 per passenger, and that is of course before any accommodation or other costs. It is a significant additional factor if a family of four is travelling, perhaps to see family or to go to some of the great sights in India. I enjoyed a visit there a few years ago, and I am happy to discuss where I went with colleagues after this sitting, as I fear it may be out of scope. What will this mean for children? What analysis has been done of how it might affect consumer behaviour? Will it put people off flying?

New clause 32 is about transparency. Everyone would be able to see on their boarding pass how much has been added as a result of this stealth tax. We are unable to put the full amount, due to resolutions passed by the House, which is why we would put the annual amount. Such taxes should be more visible to consumers.

From 2027, all aircraft over 5.7 tonnes will face a higher charge, and that change follows the 50% rise planned for April. When we talk about private jets, people may think of pop stars gadding around, but most private jets are corporate aircraft that are used as capital assets. They are not luxury toys; they are about people flying to trade and secure jobs in our economy. It is about people being internationally connected and going to places such as India—[Interruption.] The hon. Member for Burnley is pulling a face, as if that is not the reality, but it is what these jets are. We want people to get on a plane, go and do deals, come back and secure investment into our country. [Interruption.] The Minister is nodding. Perhaps that is why he is the Minister and not on the Back Benches.

The Prime Minister has just hired a private jet to go to China, because he could not take the Royal Squadron flight due to national security concerns. Perhaps the Minister can tell us how much chartering that plane has cost the taxpayer in air passenger duty.

We do not oppose clause 96, but we expect the Government to be up front about the impact of the tax rises they are ramming through in this Bill. We want transparency for families going on holiday, who will see prices going up and will have to pay more to get away. Our new clauses simply ask for some transparency and accountability, which are often missing from the Government’s approach to taxation.

[Dan Tomlinson]

One thing to note about Labour Back Benchers is that they are on the Government Benches, making changes for their constituents. They are supporting the work of this Government to improve living standards for people up and down the country, to ensure economic stability and to bring down interest rates. They are doing the right thing by their constituents.

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[Dan Tomlinson]

Clause 97 makes changes to the main rates of the climate change levy, with effect from 1 April 2027. Since 2001, CCL has provided an incentive for businesses and the public sector to be energy efficient by adding a tax on the non-domestic supply of energy. Energy efficiency is one of the most cost-effective ways in which businesses can cut emissions, and permanently reducing energy use also helps to improve the UK’s energy resilience.

CCL sets four separate main rates for different energy products. The liquefied petroleum gas rate has been frozen since 2019, and it will continue to be so from April 2027. The changes made by clause 97 will increase CCL rates on gas, electricity and solid fuels in line with the retail prices index. This represents a small increase to business bills, but it will ensure that the behavioural incentives of the tax are maintained while also protecting the public finances. The Government announced a wider review of CCL at the spring statement in 2025, and we remain committed to this to ensure the tax remains up to date in the ever-changing energy landscape.

New clause 21 would require the Chancellor to report on the impact of clause 97 on energy-intensive industries and the UK’s international competitiveness within six months of the Bill being passed. I reassure the Committee that the Government already consider the impact of CCL on energy-intensive industries and competitiveness, and a number of reliefs are available to such businesses. For example, the exemption for certain processes in sectors such as steel, ceramics, cement, glass, metal forming and aluminium provides £270 million of relief per year. The Government do not believe that new clause 21 is necessary.

I therefore commend clause 97 to the Committee and ask that new clause 21 be rejected.

[James Wild]

Environmental taxes are obviously a very important topic for our constituents and businesses, so it is important that we scrutinise them appropriately. Clause 97 raises the climate change levy—the tax on non-domestic energy use for electricity, gas and solid fuels—while freezing the rate for LPG. As the Minister said, it was first introduced in 2001 to encourage energy efficiency.

This uprating will take effect from April 2027. According to the OBR, around £2 billion will come in as a result. We must look at the additional burden being placed on businesses. Again, we need to look at all of these things cumulatively, which is why I welcome the Government’s decision in the autumn to extend the climate change agreements for a further six years—by allowing qualifying businesses to benefit from reductions at a time when businesses are facing significant headwinds, this offers some much-needed respite.

Of course, British manufacturers are paying higher prices than the European average—I think it is more than 50% more for electricity—while the gap with the United States is wider, for understandable reasons. However, high energy costs are one of the issues holding back growth and productivity in the country. We should be looking to reduce the burden and cost of energy, rather than increase it, and this measure will obviously put up the rate.

New clause 21 would require a report on climate change levy rates, and it would require the Chancellor of the Exchequer to review the impact on energy-intensive industries and the UK’s international competitors. I am thinking about sectors such as ceramics, glass, data centres and gigafactories. These are the industries that drive innovation, exports and skilled jobs, and we should consider the impact of such measures on their ability to do business in the UK.

That is why we have set out a different approach that does not follow the fundamentalism of the Energy Secretary, who is picking arbitrary dates and loading up costs by rushing to meet them, rather than getting the benefits of technology development and innovation. Our plan would bring down the cost of energy, because taxing industrial energy is not a strategy for growth.

What assessment has the Minister made of the greater impact of these rates on British manufacturers’ productivity, competitiveness and ability to grow? If he cannot answer that question, perhaps he will support new clause 21 so that we can have a review after the event to see what the impact has been.

[Dan Tomlinson]

The hon. Member for North West Norfolk is right that high energy costs are one of the big challenges facing industry and consumers. The Government are doing all we can to accelerate the roll-out of clean power. That includes nuclear power, which as a country we have not invested in for way too long, and we desperately need more of that firm baseload power. We also need more intermittent clean power through wind and solar. We cannot turn things around overnight, but in time, I hope and expect that these interventions will lead to lower bills for both businesses and consumers. However, I would be the first to say there is much more to do on this, given the high energy costs and surging inflation we inherited from the previous Government, particularly after 2022.

Question put and agreed to.

Clause 97 accordingly ordered to stand part of the Bill.

Clause 98

Rates of landfill tax

--- Later in debate ---

[Dan Tomlinson]

Clause 98 increases the standard rate of landfill tax in line with the retail prices index. It increases the lower rate by the same cash amount, and it will take effect from 1 April 2026. This tax was introduced 20 years ago, and it is charged on materials disposed of at a landfill site or an unauthorised waste site in England and Northern Ireland. The objective of the tax is to divert waste away from landfill and to support investment in more circular waste management options, such as recycling and recovery.

The Government consulted earlier this year on proposals to reform the tax to drive more materials out of landfill, and to design out incentives for landfill tax fraud. The hon. Member for Grantham and Bourne (Gareth Davies) is not here, but I enjoyed his video on this, in which he appeared with a hard hat. He, and others, have engaged on this issue.

I particularly welcome the engagement from industry, which has welcomed the Government’s decision. The National Federation of Builders said we had

“really engaged with industry”,

and that the decision put forward after the Budget, following the consultation, would

“allow the industry to start preparing for the circular economy”.

Meanwhile, the chief executive of Biffa said that our decision

“not to converge the two rates…is a good outcome for the industry”.

I am glad that we have a very good tax policy. We are making progress, consulting in good time, engaging with industry, and coming forward with a proposal to make sure the gap does not get any wider on landfill tax—we are increasing the lower rate by the same cash amount as the increase in the higher rate—without adding significant burdens on those who seek to construct and build this country’s future, which we must do after 14 long years of under-investment and decline.

New clause 22 would require the Government to make an assessment of the impacts of clause 98. At the Budget, the Government published a tax information and impact note for this measure, and our approach has been informed by extensive engagement with business. The Government oppose new clause 22 on that basis, and I urge the Committee to reject it. I commend clause 98 to the Committee.

[James Wild]

Clause 98 increases the standard and lower rates of landfill tax from 1 April, uprating them in line with the retail prices index. In practical terms, that means the standard rate will increase to £130.75 per tonne, with the lower rate applying to less polluting materials increasing by the same cash amount.

Landfill tax, as the Minister said, is intended to discourage disposal in landfill and promote recycling and recovery, and of course we support that aim. However, it is also right that we scrutinise the real-world effect of these changes on business costs, recycling rates and wider environmental outcomes. That is why we have tabled new clause 22.

According to the Budget 2025 costings document, the measure is expected to raise £35 million in 2026-27, increasing to £130 million by the end of the decade. Members will remember the intense speculation ahead of the Budget that the Government might move to a single landfill tax, and the Minister referred to a consultation. The speculation did not come from nowhere; it came from a Government consultation that proposed to do precisely that.

As such, the Minister could have been a bit more up front that this is something the Government were consulting on, presumably because they thought it might be a good idea. Indeed, I recall raising this directly with the Chancellor at Treasury questions earlier last year, where she accused me of scaremongering when I spoke about her own consultation, so I am glad that she has dropped her proposal to move to a single rate. Had she gone ahead with it, material such as topsoil could have faced a thirty-onefold increase.

The Minister kindly referred to my hon. Friend the Member for Grantham and Bourne and his video; he led a determined campaign alongside the industry to stop the reckless proposals put forward by the Chancellor. They could have added £28,000 to the cost of a new home and increased road construction costs by up to 25%.

When we asked what discussions the Treasury had had with the Ministry of Housing, Communities and Local Government before coming forward with its proposal for a thirtyfold increase in the tax rate, it was clear that there had not been any. There was then a sudden panic that the 1.5 million new homes target would be sunk by the Treasury’s actions. I welcome the rethinking of this policy—I will be generous to the Minister on that—to spare the sector yet another unnecessary blow that could have worsened house building numbers and jeopardised the key infrastructure upgrades that we all want to see across the country.

So far, so good, but—and there is always a “but”—the Government’s retreat on that issue does not mean all is well with these proposals. The long-standing exemption for dredging material and its removal has caused deep concern, if the Committee will accept the pun, in the ports and water sector.

The British Ports Association, I believe, has written to the Minister as well as the Chancellor, warning that if these changes proceed unchecked, we may see

“the collapse of major industrial and development projects, particularly in ports, rivers and canals”.

I declare an interest, as King’s Lynn in my constituency has a fine historical port. Indeed, the wealth of King’s Lynn was built on our trading links with the Hanseatic League in medieval times. The knock-on effects of removing the exemption could be significant; delayed waterway clean-up projects, increased flooding in vulnerable areas, and reduced investment in our ports, which keep our country trading.

New clause 22 seeks a proper assessment of how these tax changes will affect construction and infrastructure projects, investment in ports, recycling levels and illegal dumping rates, and progress towards the Government’s environmental objectives. The Minister needs to set out how the Government are responding to address the serious concerns raised by the British Ports Association, which, if correct, could have a very damaging effect on major infrastructure. We welcome that the proposals put forward in the consultation have been ditched, but there are concerns that the Minister now needs to address.

[Mr Reynolds]

I am very glad that the Government have ditched the plan to converge the rates of landfill tax and to massively hike the charge for inert waste, adding tens of thousands of pounds to the cost of a new build home at a time when the Government want to build 1.5 million new homes. That was not joined-up government, and I am concerned at the lack of joined-up thinking when the Treasury put forward this proposal.

There are a number of gravel quarries in my Maidenhead constituency, and converging the rates would have meant that a significant number of those quarries would have gone unfilled, resulting in more quarry lakes in our town. We know that quarry lakes are dangerous: they are quite shallow until they suddenly become incredibly deep. That is dangerous when young people are out on the water or swimming, and in areas not too far from my own we have seen some unfortunate deaths as a result.

I am glad that the Government have decided to back down on this and are not going to burden the quarry sector or developments with that proposal. However, can the Minister confirm what the cost would have been to UK infrastructure projects such as High Speed 2, and what the additional cost to the taxpayer would have been?

[Dan Tomlinson]

I thank Opposition Members for their contributions and for welcoming the Government’s decision on this matter at the Budget. I find it a bit tiresome that the Conservatives, when we consult, accuse us of consulting, and when we do not, accuse us of not consulting. It is right and proper, where possible, for the Government to engage with industry on proposals and then come forward with good policy outcomes. I am glad that there has been acknowledgment across the Committee that we have listened, engaged and come forward with proposals that are proportionate.

[James Wild]

It was not the fact that the Government consulted that we objected to; it was that they were consulting on a crazy idea that would have increased costs for industry 31-fold. Consult away, but do not consult on bad ideas.

[Dan Tomlinson]

The refining fire of a consultation process is something that I am happy to stand behind.

On the shadow Minister’s important point about the decision to remove the dredging exemption, I have received correspondence from the sector on the issue and will continue to engage with it. The change is not scored in the Budget. To be very clear, it was not made with the express intention of raising revenue; the Government’s judgment, after consultation, was that it would get the balance right between supporting the circular economy and encouraging more environmentally friendly ways of carrying out the activity. I want to continue to engage sincerely with the sector, so I will be responding to the correspondence I have received. I am sure that we will continue to engage.

[James Wild]

The industry’s concerns are urgent, so if it persuades the Minister on certain points, will he table amendments on Report—the Bill will return to the House in the near future—to address them?

[Dan Tomlinson]

I am sorry to tell the shadow Minister that this matter is not being legislated for in this Finance Bill; it will be for next year’s Finance Bill.

Question put and agreed to.

Clause 98 accordingly ordered to stand part of the Bill.

Clause 99

Rate of aggregates levy

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

--- Later in debate ---

Clause 99 will maintain the real-terms value of the price incentive to use recycled rather than virgin aggregate in construction. As I have said, clause 100 and schedule 23 are necessary to ensure the smooth devolution of aggregates levy to Scotland. I therefore commend clauses 99 and 100, schedule 23, Government amendments 26 to 28 and the motion to transfer to the Committee, and recommend that new clause 23 be rejected.

[James Wild]

Clause 99 will increase the aggregates levy—the tax on commercially exploited rock, sand and gravel—from April. The levy, charged per tonne of primary aggregate, is intended to encourage efficient use of materials. As colleagues will know, aggregates are fundamental to almost every form of infrastructure: they are the foundations of our roads, our concrete structures and our coastal defences. They are the essential components in so many products, from ready-mixed concrete to asphalt, lime, mortar and countless others. As the Mineral Products Association puts it so aptly,

“Aggregates provide the backbone of our world”,

and in the UK we use around 250 million tonnes every year.

New clause 23 would require the Government to assess the impact of clause 99 on the construction industry and key national infrastructure products. Although roughly a quarter of aggregate comes from recycled sources, the overwhelming majority still comes from primary extraction. Around 90% is used by the construction industry itself. While we obviously support the principle of encouraging sustainability that is behind the levy, the construction of a single home requires, on average, around 200 tonnes of aggregate and associated materials, from the foundations to the roof tiles. At a time when the Government are looking to accelerate house building, has the Minister looked at the impact of this measure on housing delivery and cost? We will not oppose clause 99, but new clause 23 would require the Government to assess its impact on construction and infrastructure projects.

The Minister set out that clause 100 and schedule 23 will simplify things for the introduction of the new Scottish aggregates tax, reducing the number of businesses that would otherwise need to account for the levy. That is a perfectly good and common-sense measure, so I have no further comment on it.

[Mr Reynolds]

Clause 99 introduces a very small increase in the rate of aggregates levy, but a small increase when dealing with massive numbers is still quite a large increase. High Speed 2, for example, is predicted to use 20 million tonnes of aggregate during phase 1. That means that the measure will add about £3.2 million to the bill for HS2, which we know is already significantly over budget. Has the Minister worked out the cost associated with money being passed from the Government to HS2 and then from HS2 back to the Government through things like the proposed aggregates levy increase?

--- Later in debate ---

[Dan Tomlinson]

Clauses 101 to 104 encourage greater demand for recycled plastic, help create demand for chemically recycled material, and allow for a more level playing field for plastic recyclers, rewarding the recycling of waste plastic. This is supportive of the Government’s broader environmental goals. The plastic packaging tax was introduced on 1 April 2022 as a part of the previous Government’s resources and waste strategy. It is the Government’s view that the clauses implement that tax in the right and proportionate way. I will not go through each in detail, but I will of course answer any questions that the Committee may have.

[James Wild]

Clauses 101 to 104 amend the plastic packaging tax introduced in 2022 to encourage the use of recycled and reduced plastic. At the end of August last year, around 5,000 businesses were registered for the tax, and 38% of plastic packaging manufactured or imported into the UK was declared as taxable under it. The tax applies to packaging with less than 30% recycled content and is charged per tonne of plastic packaging components. The Opposition believe that the Government must ensure that the policy is working effectively in practice, encouraging the industry to change and delivering genuine environmental benefit, and not simply adding cost.

Clause 101 increases the packaging tax rate, this time in line with CPI, not RPI. Could the Minister explain why? In principle, that is reasonable, to maintain its value and sustain the incentive to recycle, but it is a practical reality that many businesses simply cannot get enough high-quality recycled plastic at reasonable prices, so raising the rate without addressing that supply constraint risks making packaging more expensive but not greener.

Recycling firms are already facing higher energy bills and rising labour costs as a result of both global pressures and some of the measures that have been introduced. It is often still cheaper to import virgin or recycled plastic from Asia than to buy recycled content from within Europe, and loopholes in legislation may make it more profitable to export plastic waste than to process it here at home.

The Guardian, which I confess is not my usual paper of choice—[Interruption.] It is not the Minister’s either; it is good to get that on the record. It recently reported that 21 plastics recycling and processing plants across the UK have shut down in the last two years, which is a direct result of the imbalance between export incentives, cheap virgin plastic and low-cost imports from Asia.

How much additional revenue does the Treasury expect this rate increase to bring in, given that I think receipts actually fell in 2024-25? What increases in recycled content are the Government assuming will result from the measure? Has the Treasury assessed whether the costs will simply be passed on to consumers through higher prices for everyday goods? We want a tax that drives genuine behaviour change, not one that just adds to the cost of living.

Clause 102 allows chemically recycled plastic to count towards the 30% recycled threshold and introduces a mass balance approach. That is a welcome recognition of innovation and new technology. However, analysis from Pinsent Masons notes that it will introduce significant certification and evidential demands on manufacturers and importers, and many small and medium-sized businesses fear an extra compliance burden in the absence of clear guidance or support. Can the Minister set out to the Committee, and to those companies, what practical support the Government will provide to help businesses adapt to the new rules, and will Ministers commit to reviewing the effectiveness of the measure within a reasonable period to ensure that it is genuinely driving more recycling?

Clause 103 excludes pre-consumer plastics, such as factory offcuts, from the definition of recycled content from April next year. The Government say that that is to ensure that the tax incentivises genuine recycling of post-consumer waste, rather than reusing scrap material. That is reasonable as it goes, but Pinsent Masons has warned that some manufacturers will no longer be able to treat their own production offcuts as recycled content. While the overall burden of tax may not have changed, the burden of liability could shift from those gaining relief through mass balance accounting to those losing relief for pre-consumer materials. The Government should be up front about who will bear the costs of the changes.

Finally, clause 104 deals with commencement. Businesses need certainty ahead of the changes, and time to adapt their supply chains and get the relevant certification and other measures lined up. Can the Minister confirm that HMRC will be publishing detailed guidance in advance? He may tell me that it is already out there and that I have not seen it yet, but if it is not, can he assure me that it will be published in good time for those companies?

[Dan Tomlinson]

I thank the Opposition spokesman for his questions. May I put on record my thanks to the officials for the support that they have provided to me today, in my first appearance in a Bill Committee as a Minister?

The hon. Member asked why the tax is increasing in line with CPI rather than RPI. All new tax measures introduced since 2018 have been uprated by CPI instead of RPI, so that is perfectly in keeping with established practice. That is good to know.

The hon. Member also about the mass balance approach. That is an accepted model already used in a range of industries, including cocoa and timber. Respondents to the consultation on a mass balance approach agreed that combining it with third-party certification is the best approach to prevent fraud and abuse. HMRC will continue to work with stakeholders on the detailed policy development, including independent certification requirements, which will be designed to be fair and robust and to maintain the integrity of the tax.

--- Later in debate ---

[Dan Tomlinson]

Clause 105 legislates for the new rates of the soft drinks industry levy to apply from 1 April 2026. It amends section 36(1) of the Finance Act 2017 to reflect the new rates of the levy to apply from 1 April 2026. Those rates are £2.08 and £2.78 per 10 litres of prepared drink, for the lower and higher bands respectively. I commend the clause to the Committee.

[James Wild]

I am surprised that the Minister covered this important clause so briefly, as will become clear in my remarks. Clause 105 increases the soft drinks industry levy—the tax on soft drinks with added sugar, which is charged per litre, with higher rates applied to drinks containing more sugar. The Government propose to uprate the levy by combining one fifth of the CPI inflation from 2018 to 2024 and full CPI inflation between Q2 2025 and 2026. In practice, that all together means a total rise of 27%—I am surprised that the Minister did not want to get that figure on the record; it is a significant increase.

The soft drinks industry levy has worked in meeting its objectives, but we had a debate on it last year and, and as I warned then, we have serious concerns about the Government’s decision to backdate an inflation increase over a six-year period. That is an unprecedented move, which raises serious questions about fairness, consistency and confidence in the UK tax system.

The soft drinks industry levy was introduced in 2017 by the Conservative Government to help tackle obesity, diabetes and tooth decay, particularly among children. By any reasonable measure, it has been a success. There has been a 46% reduction in sugar in fizzy drinks since the original tax came into force, and 89% of soft drinks sold now in the UK are not subject to the charge due to reformulation. As the British Soft Drinks Association points out, since 2015, more than 1 billion kilograms of sugar have been removed from the UK diet. Soft drinks now account for just 6% of the UK’s total sugar intake.

The industry has responded to the incentives that Parliament put in place by investing heavily, innovating and reformulating on a huge scale. That is why the backdated tax rise in clause 105 is so troubling. Imposing, in one go, six years of inflation over a period when it was not imposed represents a 27% retrospective increase, something that I think—unless I am corrected by the Minister—is without precedent in recent UK fiscal policy. It is not simply a technical adjustment; it is a departure from the principles that underpin our tax system, such as clarity and predictability.

As we have recently discussed when considering other clauses, inflation uprating is normally applied annually, not retroactively over a six-year period. When alcohol duty or fuel duty is frozen, the Treasury does not go back and seek to make up for the years it was frozen by adding them to the rate—although maybe that is what the Government are going to do—but that is precisely what the Government are now doing with the soft drinks levy. As I pointed out to the Finance Bill Committee last year, if the same backdating principle were applied elsewhere, the results would be very troubling. According to research that the House of Commons Library kindly produced for me, if the Government were to take the same approach to fuel duty as they applied to the soft drinks levy—there has been a long freeze in fuel duty—fuel duty would rise by 64%, while the aggregates levy would rise by 67%. No one would defend that, so why is it acceptable in this scenario to have such an increase?

Businesses make long-term decisions on investment, employment and pricing based on the stability of the tax regime. To introduce retrospective changes on this scale undermines that certainty and, I fear, risks setting a dangerous precedent. Is this now Government policy? Can the Minister rule out—as the Minister at the time failed to rule out—the Government taking a similar approach with other taxes, such as fuel duty? I wonder if he will be able to give us a bit more confidence. Will the Government commit to not applying such levels of retrospective taxation-inflation increases to other sectors?

In the context of this debate about the soft drinks industry levy and the increase in it, also important is what might happen—given that the threshold and the rates have been set—if there are proposals to lower the rate to bring more soft drinks into the tax, such as milk-based drinks—the milkshake tax—coffee drinks and milk substitutes that exceed the same sugar threshold. If that happened, that would potentially be another hit to the cost of living. Industry has estimated that compliance costs could run into the tens or possibly hundreds of millions of pounds, if such an approach were taken, moving the goalposts when the policy has delivered on its aims. The hospitality and drinks sector already face a lot of pressures, so they do not need to see further increases.

I therefore think that applying a retrospective 27% tax increase is a move that the Government should not take lightly. We support the principle of the industry levy and the goals that it serves, but this is concerning, and I look for some confidence from the Minister that the retrospective approach to taxation will be a one-off.

[Dan Tomlinson]

Our approach to uprating taxes is plain to see for all the different approaches that we have taken. The Government set out their position on fuel duty, for example, and we have discussed many upratings today in Committee. The Government’s judgment in this specific circumstance was that uprating in line with inflation, as in previous years, was an appropriate step to take to protect the real-terms value of the SDIL and to maintain incentives for manufacturers over time. The Government are happy to stand by that position, although of course it is well within the rights of the Opposition to take a different approach.

Question put and agreed to.

Clause 105 accordingly ordered to stand part of the Bill.

Clause 106

Amendment of customs tariff power

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

Finance (No. 2) Bill (Third sitting)

James Wild Excerpts

Committee stage
Thursday 29th January 2026 Public Bill Committees

[The Exchequer Secretary to the Treasury (Dan Tomlinson)]

Clause 55 and schedule 10 will provide a mechanism to recover the winter fuel payment from those who are not eligible, to balance support for vulnerable pensioners with responsible use of taxpayer money. Historically, the winter fuel payment has been near universal for pensioners over state pension age. In June 2025, however, the Government announced that only those with incomes up to £35,000 or receiving certain means-tested benefits will benefit from a winter fuel payment in winter 2025. Parliament has already legislated to make the payments to all pensioners who have not opted out. To ensure that the support is targeted, HM Revenue and Customs will recover payments made to pensioners with a total income above £35,000 via the tax system.

I turn to the non-Government amendments. Amendment 41 aims to uprate annually, in line with the consumer prices index, the threshold above which an individual is liable to repay the full value of their winter fuel payment. New clause 10 aims to require the reporting of the impact on households and on the Exchequer of uprating the income threshold for the charge annually in line with CPI. The Government believe that those changes are unnecessary at this time. The £35,000 threshold has been set at a level such that more than three quarters of pensioners will still benefit from the payment at the end of this Parliament. The cost of benefits is already published regularly by the Department for Work and Pensions through the benefit expenditure and caseload tables.

New clause 27 aims to require HMRC to report on the operation of the winter fuel payment charge, including its effect on people whose income exceeds the threshold by a small amount. The £35,000 threshold, above which an individual is liable to repay the full value, has no impact on those whose income exceeds the threshold, as prior to its introduction they did not benefit from a winter fuel payment. The Government believe that the new clause is unnecessary. This measure will be monitored through HMRC’s compliance and reporting systems, including pay-as-you-earn and self-assessment data. I commend clause 55 and schedule 10 to the Committee; I urge the Committee to reject amendment 41 and new clauses 10 and 27.

[James Wild (North West Norfolk) (Con)]

It is a pleasure to see the Exchequer Secretary in his place. Some Committee members may have felt that his ministerial colleague the Economic Secretary dealt with some clauses rather briefly in our earlier sittings, so we look forward to the loquaciousness that the Exchequer Secretary displayed on the Floor of the House the other day.

I shall speak to clause 55 and to amendment 41 and new clause 10 in my name. The clause is about clawing back the winter fuel payment from anyone whose total taxable income is above £35,000. According to the Budget costings, this measure will cost about £1.8 billion in 2025-26, settling at £1.3 billion the year after, but overall the changes that the Government have made with the removal of winter fuel payments will save £450 million.

However, the Chartered Institute of Taxation and the Low Incomes Tax Reform Group have raised concerns about the potential complexity of the clause; about how it could cause anxiety for people who have not had to navigate tax rules before; and about how the £35,000 per year cap will only diminish over time as inflation eats away at it. I have therefore tabled new clause 10, which would require the Government to review the case for uprating the £35,000 threshold by CPI each year, ensuring that it retains its value. I have also tabled amendment 41, which would go further and put that commitment squarely on the face of the Bill so that there can be no ambiguity about whether the level will increase.

The Minister skated over a bit of the background to the clause. The measure flows from one of the Chancellor’s first political choices, which was to remove the winter fuel payment from all pensioners except those in receipt of pensioner credit. That meant that pensioners living on incomes of around £13,000 a year lost their winter fuel support. Vital support was pulled from millions of pensioners across the country. In my constituency, 22,000 pensioners lost their entitlement overnight; the figure may have been similar in your constituency, Mr Efford. It was a deeply damaging move, which is why organisations such as Age UK and my party campaigned against it, and the Chancellor was forced to come back to the Dispatch Box to perform one of her U-turns. In response to the pressure, the Government announced that everyone would get the payment but that it would be clawed back.

I turn to the points that the Chartered Institute of Taxation and the Low Incomes Tax Reform Group have raised about the clause and the schedule. If a pensioner’s income is £1 over the threshold, they will lose the entire winter fuel payment; there is no taper. Unlike other income-related charge-backs, such as the high-income child benefit charge or the tapering of the personal allowance, the winter fuel payment is based on total income, not adjusted net income. It will affect pensioners who are seeking relief on their charitable contributions. Will the Minister explain why the Government have opted for a system that measures income in inconsistent ways, with different rules from similar income-dependent clawback schemes?

The Bill sets out that the Government’s approach relies heavily on data sharing between the DWP, devolved social security bodies and HMRC. There are some exemptions, for example for those who have been on means-tested benefits during the qualifying week or who have opted out of receiving the payment, but if that information is not shared swiftly and accurately, instances may occur of administrative issues causing distress and financial loss. Pensioners could also see an unexpected tax code on their pay slip, clawing back money that they should never have been charged. That might lead them to have to fight through an appeals process just to claim what is rightfully theirs.

The plan to collect the charge through PAYE, as is set out in the clause, brings its own issues. From 2027-28, HMRC will move to in-year coding, meaning that pensioners could start paying back a benefit that they have not even received yet, based on HMRC’s best guess at their income. As we all know, the winter fuel payment is a one-off payment that is usually paid in November, but PAYE collection is spread throughout the year, so pensioners could be having money clawed back that they have not yet received. If that estimate turns out to be wrong, they will have money taken off and refunded later. That is a recipe for potential confusion and hardship, and it could lead to more calls to HMRC that may go unanswered. In the year of transition, some pensioners could face being charged twice in a single tax year. That is not a minor administrative issue. It needs to be addressed.

We all know that any fixed monetary threshold in legislation loses its real value over time, but if Ministers believe that £35,000 is the right level today, surely they accept that uprating in line with inflation is only fair. If the Minister will not support that principle outright, perhaps he will commit to supporting new clause 10, which simply asks for a review of the impact of doing so. Schedule 10 allows for the alteration of the limit, but there is no obligation on Ministers, as there is for other benefits, to review the level or uprate the limit.

[Blake Stephenson (Mid Bedfordshire) (Con)]

My hon. Friend talks about fairness in relation to amendment 41 on uprating in line with CPI. Is it also worth considering the importance of certainty, particularly for people on fixed incomes who will benefit from this measure? Uprating by CPI would give them certainty into the future that they are not going to fall into fuel poverty.

[James Wild]

My hon. Friend makes a valuable point. We want more certainty within the system, as far as possible. On earlier clauses, we debated the uncertainty that can come from having administrative rules that HMRC can interpret. Our amendment would give people confidence that their income and the benefit they receive would continue in real terms.

Nobody disputes the need to focus support on those who need it most. Where the Chancellor got it wrong was in taking it away from people who are just over the £13,000 income threshold. If the Government insist on recovering payments, they need to get the fundamentals right, with clear definitions, robust data sharing and a simple route for challenging any mistakes that may have been made.

Let us be clear. We welcome the Chancellor’s latest U-turn, reversing the very first decision she took in office. She was wrong to remove the benefit from millions of pensioners. This clause helps her to correct her poor political choice.

[Oliver Ryan (Burnley) (Lab/Co-op)]

I have a great deal of respect for the hon. Gentleman, and I know he is trying his best, but I am surprised at the tone that he is taking and at his language around the winter fuel allowance. He can correct me if I am wrong, but the 2017 Conservative manifesto outlined stripping this benefit completely—and that was from the Government in which he served as a special adviser to the Deputy Prime Minister. Why does he not tell us what he really thinks?

[James Wild]

I may not have read that manifesto as closely as the hon. Gentleman. [Laughter.] For the record, I did not say that. I think the record will also prove that that measure was not put into effect. We continued the winter fuel payment. The issue is that the Chancellor came along. She was given advice by Treasury officials—no offence to the Treasury officials in the room—suggesting this was a simple way to save some money and fill a fictional black hole. Foolishly and regrettably, she went along with that advice; happily, she is now correcting her mistake in part.

I am looking to press amendment 41 to a vote, because it is important that we give pensioners certainty that the threshold will be protected.

[Mr Joshua Reynolds (Maidenhead) (LD)]

I rise to speak to clause 55 and new clause 27, but I can tell the hon. Member for North West Norfolk that if he does press amendment 41, he will have the support of the Liberal Democrats.

Countless pensioners were forced to choose between heating and eating last year while the Government buried their head in the sand for months on end, ignoring those who really were suffering. The Government’s changes to winter fuel payments only added to those people’s worries. The delay to the warm homes grant scheme has meant that no household has benefited from support that could have made their homes more sustainable and cheaper to heat over the last winter.

The Liberal Democrats opposed the announcement to cancel winter fuel payments, which caused many millions of the most vulnerable residents in our society to lose out on vital support. We welcome the fact that those over state pension age in England and Wales with an income of £35,000 or less will now receive their winter fuel payment. However, as new clause 27 lays out, we have some serious concerns. Quite simply, it aims to review the practical impact of the winter fuel payment changes, especially on those individuals who exceeded the income threshold by only a small amount.

The cliff edge of £35,000 means that someone on that income will keep the entire payment, but someone at £35,001 will have the entire amount clawed back. We would like to examine the behavioural effects and whether the charge and cliff edge will discourage additional work, savings or income reporting. Would it be fairer to have the amount tapered so that we can get to a fairer place?

We also want to consider the implications of making the charge a notifiable tax liability, including penalties for a failure to notify, and how that would interact with PAYE and self-assessment rules. Right now, most people, especially pensioners, do not have to actively tell HMRC about certain things, because tax is sorted through PAYE or the benefits system. If winter fuel payments become notifiable, individuals would be legally responsible for reporting to HMRC. Evaluating the effectiveness of these measures will help to ensure that we have a smooth and fair process for taxpayers overall.

--- Later in debate ---

[Dan Tomlinson]

Clause 56 and schedule 11 reform the tax treatment of carried interest—a form of performance-related reward that is received by individuals who work as fund managers.

At the autumn Budget 2024, the Chancellor announced that the Government would reform the way that carried interest is taxed, so that its tax treatment is in line with the economic characteristics of the reward. Following an initial increase in the capital gains tax rates applying to carried interest to 32% from 6 April 2025, the clause introduces a revised tax regime for carried interest that sits wholly in the income tax framework. The revised regime takes effect from 6 April 2026. The package of reforms announced at the 2024 Budget will raise almost £300 million by 2030-31.

The changes made by clause 56 and schedule 11 will establish the revised tax regime, under which an individual who receives carried interest will be treated as carrying on a trade. The carried interest will be treated as the profits of that trade and will therefore be subject to income tax and class 4 national insurance contributions. That reflects the Government’s view that carried interest is, in substance, a reward for the provision of investment management services.

New clause 11 would require the Government to publish a report within two years of the legislation passing, covering various issues in connection with the impact of the reforms introduced by clause 56 and schedule 11. The Government recognise the vital importance of the asset management sector in supporting growth. As set out already, we are delivering a revised tax regime for carried interest that ensures fund managers pay their fair share of tax, while maintaining the UK’s position as a world-leading asset management hub.

We have engaged closely with the sector to understand the impact of the reforms at every step. We published a call for evidence in July ’24, a consultation at the autumn Budget ’24 and a technical consultation on draft legislation in July 2025. We therefore do not consider new clause 11 to be a necessary addition to the Bill. I commend clause 56 and schedule 11 to the Committee and ask that new clause 11 be rejected.

[James Wild]

I will speak to clause 56, the schedule and new clause 11, which is tabled in my name. The Minister talks of reform; indeed, clause 56 fundamentally changes how carried interest is taxed. New clause 11 proposes a thorough assessment, given the significance of those reforms.

Until now, carried interest has been taxed as a capital gain up to 28%. Under clause 56, however, a full 72.5% of qualifying carried interest will be treated as trading income and taxed at income rates that could reach up to 45% plus class 4 national insurance contributions. The effective rate, therefore, would be around 34%. The Minister spoke about competitiveness, but that rate is far above other jurisdictions in Europe—for example, 26% in Italy and 25% in Spain. The precise rate will vary depending on the average holding of the underlying investment; longer holds will receive slightly fairer treatment. Does anyone think that sounds like a measure that is likely to attract talent and investment into the country? As we have discussed in previous sittings, those are things that everyone is signed up to, but many measures in the Bill do not deliver on them.

Carried interest is not some mysterious perk; it is a share of profits that fund managers receive only when their investments do well. It is long term, risk based and uncertain. According to UK Private Capital, in most cases it takes seven years or more before a fund pays a penny of carried interest, and quite frequently it never does.

This measure is a substantial tax rise designed to reclassify carried interest as remuneration, rather than a general return on capital. That may sound tidy in theory, but it misunderstands what carried interest is. As UK Private Capital puts it, carried interest is “fundamentally different” from a salary or a bonus because it is paid only when investments succeed, often many years later and quite often not at all—that is the nature of risk.

The famous tax information and impact note expects the measure to raise £145 million in 2027-28 and £80 million in the following year, but there is a risk of driving talent and investment abroad. Can the Minister share his assessment on what happens if fund managers start relocating to other tax regimes such as Dublin, Luxembourg or New York? What would that mean for wider tax receipts, for the thousands of jobs that funds support and those who rely on them, and for the UK’s standing as a global financial hub? TheCityUK and PwC published a significant report at the beginning of this week about measures that need to be taken to ensure that London remains a pre-eminent finance hub. The measures in the clause run counter to that.

That is why I have tabled new clause 11, which would require a review of the clause’s impact on UK competitiveness in attracting and retaining fund managers, the level and composition of investment into the UK, and the revenues collected compared with forecast revenues. For the Minister’s benefit—because he was not in the Committee’s earlier sittings—we have tabled new clauses that would require reviews because a TIIN is a prediction of what might happen, not a review. We are assured that the Treasury keeps all measures under review, so if those reviews are happening, what is the problem with publishing them and giving that information to Parliament?

As well as on the principle, we need answers on the implementation. HMRC will now be expected to verify the average holding period of thousands of complex investment portfolios. What additional resources and guidance will be provided to HMRC to do that? How will it cope if receipts are lumpy and unpredictable? UK Private Capital has warned that the measure will be challenging to manage. I think that is an understatement; it could be a recipe for disputes and confusion.

A further danger is double taxation. The sector has warned that under the rules, some managers could be taxed twice on the same carried interest in different jurisdictions. Can the Minister assure fund managers and the sector that the Treasury has appropriate double taxation agreements and treaties in place to ensure that their concern is ill-founded? If the Government get this wrong, we risk losing capital to countries that do offer such clarity.

In debates on earlier clauses, we have spoken about wanting to encourage enterprise and investment, to compete internationally, and to support growth in high-value businesses, but clause 56 sends the opposite signal. It will leave us with one of the highest rates of tax on carried interest among competitive and competitor jurisdictions.

We can see why some Labour MPs may be happy about having some of the highest levels of tax on fund managers, but these measures will fundamentally dampen the animal spirits in our economy at a time when we need to be unleashing them. That is why I contend that new clause 11 is essential to ensure that Ministers measure the real-world consequences of their choices before lasting damage is done to our economy.

[Dan Tomlinson]

The measure contained in clause 56 was in our manifesto, and I think it is good that the Government are making progress to implement our manifesto reforms. We have been working closely with the sector through the rounds of consultation and engagement that I mentioned in my opening remarks. The sector has acknowledged that the Government have had to balance the need to raise revenue for essential public services with the requirement to keep our economy competitive, and has welcomed the changes that have been made as a result of the engagement that has taken place since 2024.

I may add that I am glad that someone does read the TIINs—they are always a joy to sign off ahead of any fiscal event. We will continue to monitor the impact of the measure and other reforms, although the Government do not believe that it is necessary to legislate for such monitoring. It is our position that it is best not to over-legislate.

[James Wild]

In the debate on the first clause that we considered in Committee, there was a commitment to keep corporation tax at 25% across this Parliament. Can the Minister at least commit to not further increase the rate of tax on carried interest in this Parliament?

[Dan Tomlinson]

I am grateful to the shadow Minister for giving me a chance to reiterate that the Government have set out—it is relatively unusual for a Government to do so—a corporate tax road map where we have made very specific commitments, which we have kept to, around maintaining the headline rate of corporation tax at the lowest rate in the G7. As with all other policies, however, we keep all taxes under review. It would not be right, particularly many months from the next Budget, for me—I was called a “low-ranking” Treasury Minister by the Daily Mail the other day—to comment or speculate on future tax measures.

Question put and agreed to.

Clause 56 accordingly ordered to stand part of the Bill.

Schedule 11 agreed to.

Clause 57

Collective money purchase schemes and Master Trust schemes

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[Dan Tomlinson]

Clause 57 has three connected objectives. First, the change will enable certain collective money purchase schemes to apply to become a registered pension scheme. Secondly, it will allow HMRC to refuse to register, or to deregister, an unauthorised CMP scheme. Finally, it will allow regulations to be made to efficiently support the development of those CMP schemes.

CMP schemes are a new type of pension scheme that provide members with a target pension income for life. The rules for operating such schemes are set out in the Pension Schemes Act 2021, and include a requirement that they must be authorised by the Pensions Regulator. Currently, a CMP scheme can be set up only by an employer to provide benefits to its employees and those of a connected employer. The rules regarding who can set up such a scheme are changing so that from 31 July 2026, it will be possible to set up a CMP scheme for unconnected, multiple employers.

[James Wild]

Clause 57 updates HMRC’s pension rules to align them with the Pension Regulator’s authorisation regime for collective money purchase schemes. Such schemes pool members’ contributions into a single fund, with the benefits linked to the performance of that shared pot rather than a guaranteed payout, as Members will be aware. Master trusts operate on a similar principle, but manage pension savings on behalf of multiple, unconnected employers, each with its own ringfenced section.

The clause goes a little further than just a technical update; it gives HMRC new and wide-ranging powers to refuse or remove the tax registration of those schemes, and to change the underlying tax rules through secondary legislation. The aim is straightforward: to ensure the alignment of the tax and regulatory frameworks so that only properly supervised schemes benefit from the generous pension tax reliefs. That is a principle that we would all support.

Well-regulated CDC—collective defined contribution—schemes could play an important role in the future of workplace pensions, particularly as the next generation of whole-of-life, multi-employer and retired CDC models develop. If done right, that could help savers manage their transition from work to retirement more smoothly, but it will work only if the rules are clear, consistent and fair with the existing annuity structures. As the Chartered Institute of Taxation has highlighted, the current framework does not allow for reductions in pension payments that vary between different groups of members. That potentially risks creating unfair outcomes for savers in otherwise identical positions. I would be grateful if the Minister could clarify how the Government intend to address that concern raised by the experts.

We also know that, under the new guided retirement model expected from 2027, trustees will be making complex decisions on behalf of their members yet, as the Chartered Institute of Taxation notes, trustees will hesitate to act without sufficient flexibility such as limited opt-out periods or conversion options. Those safeguards are notably absent from the clause. Has the Minister, or potentially his colleague the Minister for Pensions, been engaging with the sector on those points?

A further practical point, which I hope the Minister will be able to tidy up, concerns the co-ordination between HMRC and the Pensions Regulator. What safeguards will be in place to prevent a scheme being authorised by one regulator but not recognised by the other? What steps are in place to ensure that savers—our constituents—are not caught in the middle?

[Dan Tomlinson]

I thank the Opposition spokesman for his remarks. He is right that the change will involve some co-ordination between the Pensions Regulator and HMRC. That is partly why we want to legislate here for changes that will allow HMRC to be confident that it can align the pension scheme tax registration process with the Pension Regulator’s authorisation and supervision regime. We think it is important for those things to be aligned and, as the Minister with responsibility for HMRC, I will continue to engage with officials, alongside, I am sure, the Minister for Pensions, to ensure that they continue to work closely with one another.

The Opposition spokesman asked what engagement has taken place. The Government invited a small group of representatives from the pensions industry to comment on the measures ahead of the publication of the Bill to assess their efficacy for our intended purposes. We will continue to work closely with the sector, colleagues from the Pensions Regulator and the DWP on this matter.

Question put and agreed to.

Clause 57 accordingly ordered to stand part of the Bill.

Clause 58

Corporate interest restriction: reporting companies

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

[Dan Tomlinson]

Clause 58 makes changes to corporate interest restriction legislation to simplify administration in relation to reporting companies under the regime. Clause 59 makes a minor technical amendment to corporate interest restriction.

The UK’s corporate interest restriction rules restrict groups from using excessive financing costs to reduce their UK tax liability. They apply where net financing costs of a group exceed £2 million per annum. Above that threshold, the rules typically restrict interest deductions to a proportion of tax-EBITDA—earnings before interest, taxes, depreciation and amortisation—which is a measure of UK taxable earnings.

The restriction is applied to the group’s UK companies as a whole, and the regime provides for groups to appoint a reporting company to act on their behalf to simplify the administration of the regime, and to allocate any overall disallowance among the individual UK companies. Difficulties can arise where groups do not appoint a reporting company on time. The lack of a reporting company can give rise to increased tax liabilities, which stakeholders have described as a disproportionate outcome, and to difficulties and additional work for HMRC.

The main change made by clause 58 is the removal of the time limit to appoint a reporting company, as well as the requirement for the appointment to be made by notice to HMRC. Most of the changes take effect for periods ending on or after 31 March 2026, but the ability for groups to make retrospective appointments will apply for periods that ended on or after 31 March 2024.

To conclude my brief remarks, clause 58 delivers changes that will reduce the administrative burden and risk for both groups and HMRC from administering the regime, while clause 59 ensures that the corporate interest restriction regime works as intended. I commend both clauses to the Committee.

[James Wild]

Clause 58 makes changes to the corporate interest restriction rules, which limit how much interest large companies can deduct from taxable profits each year. It aims to fix an administrative problem that has frustrated many businesses. Under the CIRR, each group must appoint a reporting company—that is, a UK group member responsible for submitting a group’s interest restriction to HMRC—and the clause simplifies that process, which is obviously welcome.

At the same time, the clause introduces a new £1,000 penalty where a group submits a return without any company having been validly appointed to act as the reporting company. That is a small fixed penalty designed to encourage groups to get the appointment right. Can the Minister assure us that this will be applied with some common sense? Does HMRC have discretion not to apply the penalty automatically, so that it can take into account any mitigating factors?

Clause 59 makes a targeted but important change to the way in which companies calculate tax-EBITDA under the corporate interest restriction rules. The clause adjusts the calculation so that certain types of capital expenditure related to cemeteries and crematoriums and environmental and infrastructure spending—such as waste disposal, flood prevention and coastal erosion management—are excluded from the limits on how much interest a group can deduct for tax purposes.

In practice, that means that when a company makes large one-off investments in public interest infrastructure, such as new flood defences, those up-front costs will no longer unfairly reduce the amount of interest they are permitted to deduct. The measure applies retrospectively to periods ending on or after 31 December 2021. On the face of it, this is a sensible change that ensures that the rules operate as intended, and we support the principle behind it.

The Government describe this as a largely technical fix, which is broadly correct. It does correct the distortion in the corporate interest restriction rules that discourage capital investment in environmental and infrastructure projects. The Budget documents suggest the fiscal impact is limited, allowing qualifying businesses to claim interest deductions they were previously denied. But it does raise some other questions. If the calculation of tax-EBITDA has accidentally penalised spending on projects such as flood defence, waste treatment or crematoriums, are there are other sectors that the Treasury has looked at that might face similar unintended consequences?

Are there sectors where the Government think there might be similar distortions, or were others considered and dismissed? How will HMRC manage amended tax returns and claims retrospectively back to 2021? Does it have the resources and processes in place to do that officially? Finally, will the Minister commit to a wider review of the corporate interest restriction rules to ensure that the system generally supports the long-term environmental and infrastructure investment that our economy and our constituencies need?

[Dan Tomlinson]

I am not aware of further sectors to which the changes outlined in clause 59 would apply, but I will work with officials to continue to receive representations and perspectives from those who may or may not want to see further changes. The hon. Member for North West Norfolk asked about a review—of course, taxes will be kept under review. On his specific question on clause 58 and whether HMRC will be able to have discretion in applying the £1,000 penalty—yes, it will. I hope and strongly expect that HMRC will always use its powers and penalties in a judicious fashion, making sure to treat companies and individuals reasonably. I am confident that it will continue to do so in this case.

Question put and agreed to.

Clause 58 accordingly ordered to stand part of the Bill.

Clause 59 ordered to stand part of the Bill.

Clause 60

Avoidance schemes involving certain non-derecognition liabilities

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

[Dan Tomlinson]

The Government are taking action to tackle those who attempt to bend or break the rules to avoid paying the tax that they owe. The clause introduces a new provision to address avoidance arrangements in certain very specific situations involving the creation of liabilities and related expenses for accounting purposes. The rule addresses certain arrangements that are designed to secure a tax advantage.

The accounting and tax analysis in relation to when financial assets are derecognised or may continue to be recognised can be complex. In some cases, assets that are transferred to a securitisation vehicle may continue to be recognised for accounting purposes in the transferor’s accounts. This can potentially happen for commercial reasons. In certain circumstances, a liability may also be recognised for accounting purposes in connection with the underlying assets or otherwise in connection with the transfer. This liability is a non-derecognition liability.

This new rule addresses scenarios where, as a result of tax-driven arrangements, a company seeks a tax deduction for expenses in connection with such a non-derecognition liability. HMRC considers that existing legislation already negates any UK tax advantage from these arrangements. However, introducing the new rule aims to deter such tax avoidance arrangements and secure receipts for the Exchequer that might otherwise be deferred through tax disputes. I therefore commend the clause to the Committee.

[James Wild]

As the Minister said, the clause introduces a new anti-avoidance provision aimed at arrangements involving non-derecognition liabilities. These are complex structures whereby a company transfers assets to another entity, but under accounting rules continues to recognise those assets and related liabilities on its own balance sheets. Such structures are of course common in securitisations, which are an important part of the UK’s financial landscape. In these arrangements an originating company passes on the economic risks and rewards with an asset, yet maintains the asset on its books. Used properly, these arrangements serve a legitimate commercial purpose. However, as the Minister said, there are examples of people bending or breaking the rules. Can he give the Committee a flavour of how prevalent he thinks that bending or breaking of the rules is?

The provisions of this clause seek to correct any rule-breaking by denying tax deductions where their main purpose is to seek to gain a tax advantage by exploiting non-derecognition accounting. The Opposition strongly support efforts to tackle avoidance and close loopholes that undermine trust in the tax system, and efforts to bring the tax gap down—as the last Government successfully did, and this Government are, I am sure, continuing to seek to do—but, as always, the details matter.

--- Later in debate ---

[Dan Tomlinson]

Clause 61 introduces legislation to expressly state that no payments can arise under decommissioning relief agreements in relation to the energy profits levy, confirming the Government’s long-standing view. Decommissioning relief agreements, which take the form of decommissioning relief deeds, are contracts entered into between the Treasury and oil and gas companies. They have been in place since 2013. They define and in effect guarantee a minimum level of tax relief that an oil and gas company will receive in relation to its decommissioning expenditure. Companies can claim a payment under a DRD if the amount of tax relief that they receive is less than the defined minimum level. DRDs enable decommissioning security agreements to be made on a net-of-tax basis, freeing up cash for investment.

The energy profits levy was introduced in 2022 by the previous Government, to tax the profits of oil and gas companies following record high oil and gas prices. The calculation of profits subject to the EPL does not allow a deduction for decommissioning expenditure. The Government have always been clear that that cannot be circumvented by making a claim under a DRD.

New clause 12 asks the Chancellor of the Exchequer to report on the impact of clause 61 on North sea decommissioning and on employment and capital expenditure in the UK oil and gas industry. The Government oppose the new clause on the basis that clause 61 does not impact on the statutory obligation for oil and gas companies to decommission wells and infrastructure at the end of a field’s life, or on employment, capital expenditure, production, demand or the Scottish economy. This measure simply confirms the Government’s long-standing position that payments cannot be made under a DRD in relation to the energy profits levy.

I therefore commend clause 61 to the Committee, and urge that new clause 12 be rejected.

[James Wild]

I will speak to clause 61 and new clause 12, tabled in my name. They concern reliefs and the energy profits levy, which the Chancellor increased to 78%—a very high level. When it was introduced, prices were much higher than they are now.

Clause 61 clarifies that payments under decommissioning relief agreements—long-term agreements under which the Government guarantee a minimum level of tax relief for decommissioning costs—cannot be claimed by reference to the EPL; and it makes it clear that companies cannot seek refunds or payments when decommissioning costs arose on or after 26 November 2025. New clause 12 is about ensuring that the impact of these changes on decommissioning, employment and capital expenditure in the oil and gas sector, production and demand and the Scottish economy is considered by the Treasury and the Chancellor.

That is important because of the context. The reality in the North sea is stark. Investment has sunk to record lows and, according to research from Robert Gordon University, jobs are being lost at a rate of 1,000 a month. Offshore Energies UK has warned that the Government’s decision in the Budget to reject replacing the energy profits levy in 2026 will cost tens of thousands of jobs, cripple investment and undermine Scotland and its energy security.

The decommissioning reliefs to which this clause refers were designed to give long-term certainty on tax treatment in the basin, precisely so that companies could plan for responsible decommissioning. The Government themselves have acknowledged that we will need oil and gas for decades to come, with about 75% of the UK’s energy still coming from oil and gas and 10 billion to 15 billion barrels required by 2050. Offshore Energies UK has shown that we can produce more than that at home, through tax reform in tandem with a pragmatic approach to decommissioning and licensing, instead of importing more energy and exporting the jobs. That is why new clause 12 would require a proper assessment of the impact on the areas that I have set out. The Chancellor likes to describe the energy profits levy as temporary, but there is nothing temporary about the damage that is being done to jobs, investment and energy security in the North sea.

[Dan Tomlinson]

As I said in my opening remarks, this clause just clarifies the treatment as was originally intended and has always been the case. It would not be appropriate or necessary to monitor and look at the impact of it, because as I believe was said—a second mention for the 2017 general election—“nothing has changed” in relation to the treatment of DRDs and the interaction with the EPL.

Question put and agreed to.

Clause 61 accordingly ordered to stand part of the Bill.

Clause 70

Relevant property: disapplication of exemptions from exit charges

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

[Dan Tomlinson]

Clauses 70 to 73 make changes to improve the residence-based regime for inheritance tax. The clauses bolster the new residence-based approach to inheritance tax, which came in last April. The Government are making targeted adjustments to the reforms to ensure that they work as intended, acknowledge the economic contribution of former non-doms to our country and strengthen the UK’s position as an attractive destination for global talent.

The changes made by clauses 70, 72 and 73 introduce some of the technical amendments needed to make sure that the reform works as intended. Clause 70 is an anti-avoidance provision, ensuring the settlor and its trust cannot manipulate excluded property rules to avoid an exit charge on ceasing to be a long-term UK resident. Clause 72 confirms that years of diplomatic service do not count towards the long-term UK residence test. Clause 73 makes minor corrections to the wording of sections in the Inheritance Tax Act 1984 that deal with spouse elections to be long-term UK residents and non-residents’ bank accounts.

Clause 71 introduces a new £5 million cap on inheritance tax charges every 10 years on trusts of former non-doms. The usual tax levied on those trusts is 6% per decade. The cap applies only to trusts settled before 30 October 2024, recognising long-term decisions made under the previous framework. The changes bolster the new residence-based approach and make it more effective.

[James Wild]

Following the 2024 Budget, the Government decided to implement a long-term residency test for inheritance tax. That is a 10-year residency in a 20-year time period. Clause 70 imposes an inheritance tax charge where there has been a change in the settlor’s long-term residence status. While this is not the 20% exit tax—one of the kites that was flown by someone near the Treasury ahead of the Budget—there is a risk about the message that it sends about encouraging people to this country.

The Chartered Institute of Taxation has pointed out that individuals faced with the prospect of UK inheritance tax on their overseas trusts may already have decided to leave the UK and/or wind up the trust, an issue that was debated on Tuesday afternoon in relation to the clauses that pertain to non-doms. The measures that the Government are taking will undermine what we all want to see, which is more money being brought back into the UK and invested in our country. What conversations has the Minister had with groups such as Foreign Investors for Britain about these changes? How would he respond to their concerns?

[Dan Tomlinson]

Government Ministers are in regular conversation with external stakeholders and individuals to discuss tax matters and their impact. In part, the changes that are being introduced in clauses 70 to 73 are in response to engagement. We are introducing the changes in order to refine the system, which was changed significantly under this Government, to make it fairer and fit for the long term. I commend the clauses to the Committee.

Question put and agreed to.

Clause 70 accordingly ordered to stand part of the Bill.

Clauses 71 to 73 ordered to stand part of the Bill.

Clause 74

Power to make provision about infected blood compensation payments

--- Later in debate ---

[Dan Tomlinson]

The clause, as has been discussed, introduces a power to extend the existing inheritance tax relief for infected blood compensation payments. I worked closely on this measure with the Chancellor ahead of the Budget. It is an important measure for the victims of this scandal and their families. I am glad to hear that the Liberal Democrat spokesperson, the hon. Member for Maidenhead, supports the clause—I am sure that all Members will do so—and I of course welcome the challenge and the scrutiny.

Amendment 47 would require all regulations made under the new powers to be subject to an affirmative procedure, but the clause already provides that, if the future regulations do not amend primary legislation, they can be made under the negative procedure. That is consistent with the existing regulation-making powers for compensation payments under schedule 15 to the Finance Act 2020. The clause already provides for using the affirmative procedure, should the future regulations amend primary legislation.

The Government’s objective here is to ensure that we can introduce regulations, which will come later this year, as soon as possible to help further to clarify the inheritance tax position for all those impacted. I am sure we all agree that we want to ensure as much clarity as possible, as soon as possible, for those who are affected and might be impacted by this change, which has been welcomed.

Amendment 48 would require the Treasury to make a statement setting out the extent to which the regulations meet certain objectives. I have already issued a written ministerial statement, on 18 December, setting out in detail how the changes to the existing relief from inheritance tax for compensation payments made from the infected blood compensation scheme and the infected blood interim compensation payment scheme will be made.

Amendment 46 would introduce proposed new subsections (7) to (10), which set out various new introductory, consultation and reporting requirements. I understand the desire for prompt clarity on the inheritance tax treatment of compensation payments, and the Government are committed to delivering the regulations as quickly as possible. I also recognise the importance of consulting with relevant stakeholders; officials have worked very closely with the Infected Blood Compensation Authority, and the Government will continue to engage with stakeholders ahead of laying regulations.

The clause introduces a power to make a sensible and compassionate change, ensuring that those infected and affected by the infected blood scandal can choose how to pass on the value of any compensation received without incurring inheritance tax. Although I welcome the engagement from the Liberal Democrats on this matter, I hope the Committee agrees to clause 74 standing part of the Bill and rejects amendments 46 to 48.

[James Wild]

I am grateful to the hon. Member for Maidenhead for bringing forward these amendments to what is a very important clause, one that honours a commitment; I remember sitting in the main Chamber when a number of colleagues from across the House were pressing Ministers to introduce such a change, and it is very welcome that the Government have brought it forward in the Bill. I believe a similar treatment applies to the Horizon IT scandal. It is a common-sense clause. Fundamentally, the victims of this appalling scandal deserve compensation and their families deserve to then benefit in due course.

I put on record my tribute to the work of Sir Brian Langstaff, as well as to the work of my right hon. Friend the Member for Salisbury (John Glen) when he was in the Cabinet Office, working particularly with victims’ groups. The clause will help to provide the remedy that victims and their families have been seeking.

I have said that a similar treatment applies in the Horizon case, but I should mention to the Minister that the Hughes report on the valproate and pelvic mesh scandal is still outstanding. It was published two years ago and recommended that interim compensation payments should be made. I have raised the matter with the Health Secretary on a number of occasions; I ask the Minister to take that issue back and to consider, as the compensation scheme is designed, whether that sort of provision can be built in from the start.

We support the thrust of the amendments tabled by the Liberal Democrats, which seek to ensure that Government regulations around the issue reach the right objectives, as well as supporting victims and their families. Amendment 46 would establish a mechanism to support families to navigate the system. I think that is very important and, if the hon. Member for Maidenhead chooses to press the amendment, I assure him that Conservative Members will support it.

[Mr Reynolds]

The Minister used the words “as soon as possible”. The amendments that we have tabled would hold him and the Government to account on that. They show the seriousness of this issue, and would allow parliamentary oversight, accountability measures and a clear deadline.

I am glad that the hon. Member for North West Norfolk mentioned the Hughes report. My hon. Friend the Member for Chelmsford (Marie Goldman) mentioned the Hughes report in an oral question to the House yesterday, and the response was not particularly forthcoming. I urge the Minister to consider how this clause could apply to the Hughes report and others in the future.

Without these amendments, the clause gives a number of empty promises and more regulation in due course. That mean more waiting and more families navigating complex tax systems alone, while grieving loved ones are left in limbo. Infected blood victims were actively misled by the responsible authorities, then they were ignored, then they were told help was coming. In many tragic cases, that help is too late. The amendments would ensure that grieving relatives do not face additional challenges in receiving compensation. I hope the Minister changes his mind and supports amendments 47 and 46.

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[Dan Tomlinson]

Clauses 75 and 76 close an avoidance loophole to ensure that the inheritance tax exemption for gifts to charities works as intended. Changes were made in 2023 to the definition of “charity” for multiple taxes, including that the charity must be based in the UK. Some gifts to charitable trusts can still, however, get exemption from inheritance tax, even if they are not themselves charities. They may have no connection to the UK, bypassing the UK jurisdiction condition and other regulation requirements for charities. The tax-paying public may therefore be subsidising relief on money that we cannot be sure is used solely for charitable purposes. The Government are therefore closing this loophole and protecting the exemption for legitimate charities.

New clause 13 would require the Government to report on the impact of clause 75 on charitable donations. The Government have already published, as the shadow Minister will have read, a tax information and impact note to set out the impact of the changes. It showed that charities and community amateur sports clubs should be unaffected, as exempt gifts can be made to them in the usual way. New clause 13 should therefore be rejected, and I commend clauses 75 and 76 to the Committee.

[James Wild]

I rise to speak to clauses 75 and 76, as well as new clause 13 in my name. The clauses fit within the inheritance tax part of the Bill. In Committee of the whole House, we had debates on the family farm tax and the family business tax, and the damage and distress they are causing in rural communities, so I will not prolong that debate. I will focus briefly on clause 75, however, which tightens the rule on inheritance tax exemptions for gifts to charities and registered clubs, including sports and social clubs. Clause 76 provides limited protection for existing arrangements, seeking to prevent new restrictions from applying retrospectively or unfairly.

New clause 13 would require the Treasury to publish a report on the impact of clause 75, including on the volume and value of charitable donations, the financial health of affected charities and clubs, donor behaviour and impact on Exchequer revenues. We agree with the principle, which the Minister set out, of ensuring that charitable reliefs are used as intended, but it is also important that the Government understand the practical consequence of any tightening of the rules. On Tuesday afternoon, we discussed some of the concerns that charities have about earlier provisions in the Bill, and the potential complexity and bureaucracy that was being added to them. We all know that the charitable sector is under significant pressure, and we do not want to add undue burdens on to trustees of charities in particular.

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[Dan Tomlinson]

Clause 77 will make changes to ensure that the Motability scheme and other qualifying schemes provide value for money for the taxpayer while continuing to support disabled people. It will remove the VAT relief for top-up payments made to lease more expensive vehicles. Clause 78 ensures that insurance premium tax will apply at the standard rate of 12% to insurance contracts on the scheme.

The Motability scheme is an important vehicle leasing scheme available to people receiving the enhanced Motability component of disability benefits such as the personal independence payment. The weekly Motability award covers the lease cost and a generous service package. If a chosen vehicle is more expensive, the customer pays a one-off top-up payment in advance of the three-year lease.

The Motability scheme supports the independence of disabled people, but it benefits from generous tax breaks that are supporting provision beyond the scheme’s core objectives, such as the lease of luxury cars. To limit tax support for the most premium vehicles on the scheme, the Government have removed VAT reliefs on the one-off voluntary—I stress that they are voluntary—payments made to lease higher-cost vehicles. VAT reliefs on weekly lease costs covered by eligible disability benefits, and the VAT relief on vehicle resale, will remain in place. Additionally, ending the IPT exemption for most vehicles will bring the IPT treatment for qualifying vehicles’ leasing schemes in line with other commercial leasing firms.

The tax changes will preserve the delivery of the core objective of the scheme, and Motability Operations Group has confirmed that, after the tax changes take effect, it will continue to offer a broad range of vehicles available without a top-up payment, meaning that customers will be able to lease a vehicle that meets their needs for the value of their eligible benefit. The changes made by clauses 77 and 78 will generate savings of more than £1 billion across the scorecard. I commend them to the Committee.

[James Wild]

At present, when a disabled person uses their mobility benefits, such as the mobility component of the personal independence payment or disability living allowance, to lease a vehicle under the Motability scheme, that lease is zero-rated for VAT. Let us remember why Motability was created: it was established to help those with serious, long-term physical disabilities to access independence and mobility, not to provide subsidised cars for people with minor or temporary conditions. However, the numbers show that the scheme has expanded far beyond its original purpose. Last year, 815,000 people were using Motability vehicles, an increase of 170,000 in a single year.

For many participants, their benefit covers the full cost of a three-year lease, so they pay nothing beyond their benefit entitlement. However, when someone chooses a more expensive model, such as a larger or higher-spec vehicle, they must make an up-front top-up payment. Until now, the entire lease, including that top-up, has been VAT-free, but clause 77 changes that. Under the new rules, only the proportion of the lease funded by the qualifying Motability payment will remain zero-rated, and any additional amount paid voluntarily will be subject to the standard rate of 20%. That is a fair and balanced reform that we wholeheartedly support.

Clause 78 narrows the insurance premium tax relief for vehicle insurance linked to disability schemes. IPT is a 12% tax on most general insurance premiums. Many cars that are leased to disabled people currently benefit from that relief, even when the vehicles are standard, unadapted models. We welcome that the clause limits the relief to applying only to contracts for vehicles that are specifically adapted for wheelchair or stretcher users; for example, vehicles with ramps, lifts or structural changes supporting wheelchair access. If a vehicle has no such adaptation, premiums will rightly be subject to the 12% charge.

Conservative Members have long argued for tighter focus and accountability in the Motability scheme, and I welcome the Government’s decision to act— we have been pushing them to do so. Sadly, we read in The Times this morning that the Prime Minister has apparently ruled out any wider reforms to welfare in the King’s Speech. Some of the growth we have seen in the Motability scheme, which the clauses will hopefully address, reflects genuine need, but much of it does not. That expansion raises questions about the eligibility standards and on whether taxpayers’ money is being used as intended. Motability should not be a back-door subsidy for people who do not meet the scheme’s original intent, which was to help those with serious disabilities.

As the Minister said, over the scorecard this measure makes a significant saving that is a meaningful contribution to public finances, which we welcome and support. Taxpayer resources should be targeted more effectively to ensure fairness. However, the measures in the Budget overall raise people’s taxes to pay for more welfare spending. We consider that to be the wrong choice. We welcome the fact that the clause mitigates some of that additional welfare spending, but overall, this is a welfare spending Budget.

[Mr Reynolds]

I will speak briefly to clause 78, and then I will ask the Minister some questions, specifically on the definition of “substantially and permanently adapted”, which is slightly lacking in the Bill. Disability is not just about wheelchairs and stretchers; many individuals use and require adapted vehicles that may not be seen as substantially or permanently adapted.

The Liberal Democrats do not aim to change or amend the clauses, but some clarification would be helpful. Could the Minister clarify the definition of substantially adapted vehicles, and confirm what consultation has happened with disability groups about those definitions? Could he also confirm what impact assessment has been done on the additional costs for individuals who will no longer receive insurance premium tax relief?

Finance (No. 2) Bill (First sitting)

James Wild Excerpts

Committee stage
Tuesday 27th January 2026 Public Bill Committees

[Lucy Rigby]

Clause 13 significantly expands the enterprise management incentives scheme eligibility to allow greater access for scaling companies. Specifically, the changes made by the clause will expand the EMI company eligibility limits to maintain the world-leading nature of the scheme.

Government amendments 37 and 38 are consequential to the business asset disposal relief legislation, updating it to align with the EMI maximum holding period expansion provided by the clause. The change will significantly expand the EMI limits and expand access for scale-up companies.

New clause 24 would require reports to the House of Commons on the impact of the clause on recruitment and retention in qualifying companies, on high-growth and innovative businesses and on the Exchequer finances. The Government have published a tax information and impact note setting out the impact of the EMI expansion. That showed that the measure will cost £585 million in 2029-30. The expansion is expected to support an extra 1,800 of the highest growth scale-up companies over the next five years, allowing them to reward an estimated 70,000 more employees.

The Government keep all taxes under review, and monitor and evaluate tax policy changes on an ongoing basis. We have also launched a call for evidence to gather views from founders, entrepreneurs, scaling companies and investors on tax policy support for investment in high-growth UK companies.

[James Wild (North West Norfolk) (Con)]

It is a pleasure to serve under your chairship, Sir Roger, and on the Committee considering this 536-page doorstop of a Bill. We are grateful for the written contributions and evidence provided to the Committee, but I think the usual channels should consider having oral evidence sessions for future Finance Bills, so that people can make important representations on significant pieces of legislation.

I will turn to clause 13 and new clause 24 tabled in my name. We need to have an enterprise economy that incentivises investment. The tax regime clearly has an important role to play in helping to achieve that, and in doing so, backing much needed growth in the economy. Clause 13 amends the Income Tax (Earnings and Pensions) Act 2003 to expand the enterprise management incentives scheme. That scheme helps attract, keep and motivate staff by allowing employees to buy shares in the company with tax advantages. That includes no income tax or national insurance contributions at the time of grant and exercise, with gains eventually being taxed under the more favourable capital gains regime, rather than as income tax.

The changes in the clause should make it easier for start-ups and growing companies to use the enterprise management incentives scheme, helping them reward staff and link employees’ success to the company’s growth. That is something that we support and the British Private Equity and Venture Capital Association has also welcomed the change. The clause increases the company options limit from £3 million to £6 million, raises the gross asset limit from £30 million to £120 million, and doubles the employee limit from 250 to 500. It also extends the exercise period to 15 years. These are all welcome changes.

However, one important element that is not due to change under these provisions is that the scheme allows qualifying companies to grant employee share options up to a maximum value of £250,000 per individual. Has the Minister considered going further and raising the cap beyond £250,000 to attract the brightest and best to grow businesses?

In its report on competitiveness, published yesterday, TheCityUK states that,

“the UK’s tax schemes such as…Enterprise Management Incentives (EMI) offer lower relief thresholds and tighter eligibility than international equivalents such as the Qualified Small Business Stock regime in the US, weakening incentives to scale and retain activity domestically.”

I have tabled new clause 24, which would require the Government to assess and report to Parliament on the impact that the changes have on the recruitment and retention of skilled employees in qualifying companies, on high-growth and innovative companies and on the Exchequer.

The Minister referred to the tax information and impact note, but clearly that is a forecast of what the Government hope will happen, not a review of what has actually happened. I think that will be a debate that we have many times as we consider the Bill: a TIIN is not a review of what has actually happened. The numbers that the Minister gave may be higher or lower, but we need to have a post-implementation review.

According to the Budget 2025 policy costings, the objective is to increase eligibility to allow scale-ups, as well as start-ups, to access the scheme. That is, of course, something we support. Will the Minister commit to keeping the scheme under review to ensure it is delivering on its aims to support high-growth firms and to consider whether further action, such as on the individual threshold, is needed?

Given the substantial investment, can the Minister clarify what behavioural assumptions underpin these projections? How many companies just above the existing threshold are expected to utilise these expanded limits? The BVCA has said that the enterprise management incentives scheme is

“long overdue for reform: high growth companies are often unable to grant EMI options due to the constraints of the £30m gross assets and 250 employee limits.”

Does the Minister have figures showing how much these limits have actually restricted growth?

[Mr Joshua Reynolds (Maidenhead) (LD)]

It is a pleasure to serve under your chairmanship, Sir Roger, on what is not only my first Finance Bill Committee, but my first Bill Committee—a nice, simple one to start me off. The Liberal Democrats welcome the changes made by clause 13. We need to support our British start-ups and British start-up culture to grow and develop.

We would of course like the Government to go further than clause 13 in what they promise. We need to ensure that we have a British start-up culture where start-ups do not, after five or 10 years, head off to the United States, taking that capital and leaving the UK with a brain drain. I have only one question to the Minister: how can we go further to ensure that once we have implemented the Bill, we will be in a position to say that fantastic UK companies will not head overseas, taking that capital and culture with them?

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I urge the Committee to reject amendment 29, to accept Government amendments 3 and 4 and clauses 14 and 15, and to reject new clause 1.

[James Wild]

Clauses 14 and 15 are a story of two halves. As the Chartered Institute of Taxation rather adeptly put it—we are grateful for its support in scrutinising the Bill—these changes give with one hand and take with the other. We support clause 14, but we have doubts about clause 15.

Both clauses deal with our risk capital schemes—the enterprise investment scheme and venture capital trusts. EIS was introduced in the UK in 1994 to stimulate economic growth and, along with VCTs, these Government-backed schemes encourage individuals to invest in smaller high-risk trading companies by offering tax reliefs on their investment. As a former adviser in the Department for Business, Innovation and Skills, I helped to develop these schemes, as well as the seed enterprise investment scheme. I recognise their importance.

As the venture capital industry has noted, these are essential tools in unlocking private capital for early-stage, high-growth UK businesses, which we all support, particularly in the knowledge-intensive sectors such as life sciences, clean energy and deep tech; however, companies now routinely require £20 million to £30 million in funding before they start to sell their products. The previous limits had prevented UK investors from following their initial investment with more capital, forcing businesses to turn to overseas capital too early. That is a problem I think we all want to fix.

The main difference between the schemes is that with EIS an investor buys shares directly in an eligible company, whereas with VCTs the investor buys shares in a listed fund-like vehicle, which then spreads their money across a portfolio of qualifying companies. These clauses increase the annual and lifetime investment limits for the EIS and VCTs in Great Britain and raise the gross asset thresholds for qualifying companies.

Clause 14 increases the annual and lifetime investment limits for the EIS and VCTs, and raises gross asset thresholds. These limits have not been uprated since 2018 for knowledge-intensive companies and 2015 for other companies. Now, all limits are being doubled, which is welcome. As we have heard, for both schemes, the limit will rise from £10 million to £20 million. The total amount that can be raised over time will increase to £40 million for those knowledge-intensive firms. The gross assets yield for qualifying companies will go up to £30 million before a share issue and £35 million thereafter. TheCityUK has said that schemes such as EIS remain vital for crowding in early-stage finance and these changes are welcomed by the industry.

Clause 15 heads somewhat in the opposite direction. This clause reduces the rate of income tax relief for investment in VCTs from 30% to 20%. This is where our doubts begin to grow. The 2025 Budget policy costings reveal a calculated trade-off. The increased limits in clause 14 will cost the Exchequer £60 million in 2027-28. Meanwhile, the reduction in VCT income tax relief will raise £125 million in the same year, delivering a net yield of approximately £65 million. The policy costings state that this rate reduction is intended to

“better balance the amount of upfront tax relief…and ensure funds are targeting the highest growth companies”,

but the costings’ own assumption that

“investors alter or reduce the way they invest into VCT”

is an acknowledgment that the relief cut will dampen investor appetite.

I am concerned by how much that tax increase will reduce investment in these high-growth companies that we all support. The British Private Equity & Venture Capital Association has been explicit about its concerns, warning that this reduction

“could lead to a decline in fundraising that would impact the high growth and high-risk investments that the Government is looking to encourage”.

VCTs are a key part of the UK’s capital mix, providing one of the few consistent sources of long-term equity for early-stage and scaling companies. Any reduction in their ability to raise funds would directly affect the pipeline of innovative businesses that the UK needs to grow.

The reduction in VCT relief to 20% creates a fundamental risk to venture capital funding, precisely when scale-ups face capital constraints. For early-stage companies dependent on VCT funding, the reduced relief translates directly into a higher cost of capital and reduced funding availability. The Budget relies heavily on revenue raising from less visible and more complex parts of the tax system. This VCT change exemplifies that approach, shifting costs to venture investors rather than implementing transparent broad-based taxation.

New clause 1 would require the Chancellor to report on the impact of the cuts to VCT allowance on early-stage investment volume, investor participation and international competitiveness. Given the Government’s own admission that this will alter investment behaviour, such reporting is essential, and I reiterate that a TIIN does not review what actually happens in practice. Amendment 29 would simply remove the provision in clause 15(2) that reduces the rate relief from 30% to 20%, keeping the relief at its current level to support investment in high-growth firms. I believe both amendments would be supported by industry and, subject to what the Minister says, I intend to press amendment 29 to a vote.

The Government are expanding VCT investment limits while simultaneously cutting the relief to 20%. How would the Minister address the concerns of the investment sector that the combined changes will dampen investor appetite for venture capital trusts at the very moment we need to encourage them?

[Lucy Rigby]

I welcome the shadow Minister’s welcoming of the majority of the changes that we are making. To address his criticism of what we are doing in relation to the venture capital trust income tax relief, I come back to the impetus behind this package of reforms as a whole on EMI, EIS and VCT, which is to make sure that the UK is the best to start, scale, list a company and to ensure that companies stay.

The specific change to VCT to reduce the income tax relief from 30% to 20% is to help rebalance the up-front tax reliefs offered across the schemes, where the VCT scheme offers tax relief on dividend income, which the EIS scheme investors do not get. VCTs tend to invest in larger, less risky, scaling companies compared with EIS scheme investors. The reduction in income tax relief therefore reflects the overall reduction in investment risk that comes with investing in later-stage companies.

It is important to bear in mind that the VCT scheme remains very generous with, as I said, 100% tax relief on dividend payments and 100% capital gains tax relief on the sale of shares, alongside that 20% income tax relief. I know that the shadow Minister does not like TIINs in general—he has made that point in the Chamber—but they do contain the full details of the assumptions and impacts, and indeed the policy rationale. I therefore commend clauses 14 and 15 and Government amendments 3 and 4 to the Committee, and ask that amendment 29 and new clause 1 be rejected.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 15

Venture capital trusts: rate of relief and amounts and asset requirements

Amendment proposed: 29, in clause 15, page 10, line 23, leave out subsection (2).—(James Wild.)

This amendment would maintain the rate of income tax relief for investments into venture capital trusts at 30 per cent.

Question put, That the amendment be made.

--- Later in debate ---

[Lucy Rigby]

Clause 16 will enable the existing enterprise management incentives scheme and company share option plan contracts agreed before 6 April 2028 to be amended to include a sale on the private intermittent securities and capital exchange system—known by its much more catchy acronym of PISCES—as an exercisable event, without losing the tax advantages. The legislation will have retrospective effect from 15 May 2025. In the interim, His Majesty’s Revenue and Customs will be able to use its collection and management powers to not collect tax on exercise.

That means that this change will benefit PISCES trading events that happen before the Finance Bill receives Royal Assent. The change will therefore support more employees of growing UK companies to access the tax advantages of EMIs, and ensures that the tax system keeps pace with innovation in the wider economy. It also, of course, supports the launch of PISCES, which will provide a key stepping stone for public markets, supporting our world-leading capital markets. I commend clause 16 to the Committee.

[James Wild]

As the Minister says, clause 16 addresses a specific but important matter by permitting employers to amend existing company share option plan and enterprise management incentives option agreements, to allow PISCES trading events to serve as exercisable events without sacrificing the valuable tax advantages. Employers frequently offer share options to employees in recognition of their service and commitment, and to grow their businesses, and when employees exercise such options, they naturally face income tax and national insurance consequences. To encourage this form of employee ownership, successive Governments have introduced tax-advantaged schemes, including CSOP and EMIs, that provide relief from those taxes when certain conditions are satisfied.

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[Mr Reynolds]

New clause 25, which I hope to press to a Division, would require the Government to undertake a report to consider a number of issues pertinent to the loan charge settlement scheme outlined in the Bill. The Liberal Democrats are clear that the settlement opportunity should be fair to everybody affected, including those who have already paid or settled, so as to ensure that people outside the loan charge years are not treated differently without clear reason. Unequal treatment can create the perception of unfairness, even if the policy is technically and soundly legal. It seems to us that if perceived unfairness in the system could be reduced, we should strive to do so, in order to protect the public’s trust in HMRC and the wider tax system. Is it right that someone who has already settled should be ineligible for the loan charge settlement? Surely, that tells people that in future they should just hold off and not settle or come to agreement, because that will leave them in a better position.

[James Wild]

We will look sympathetically on the hon. Gentleman’s new clauses if he chooses to press them to a vote. I have constituents who were heavily pressured by HMRC and ended up settling, which left them at a considerable financial loss, so I share his concern that those people, who were effectively bullied by HMRC, will now not get the same support as people who held out.

[Mr Reynolds]

The hon. Gentleman is completely correct. The place we are in now is that someone who settled and came to an agreement with HMRC is excluded from the opportunity laid out in the Bill. That means that when something like this happens again—and we all know that it will—those individuals will not want to come to an agreement with HMRC. They will know that if they hold off, a better solution and a better agreement will come through.

The report required by new clause 25 would outline a range of things, including whether the loan charge settlement opportunity is available to individuals who have settled, which is really important and something that we need to ensure; whether the settlement opportunity applies to individuals with disguised remuneration outside the loan charge years; and the extent of the impact of differential treatment between those two groups and those who are eligible. The extent of the impact is the most important thing, because for those individuals it will be severe. The report would also include an assessment of whether extending more favourable settlement terms to excluded groups would improve fairness and consistency with HMRC overall.

[Lucy Rigby]

The purpose of the review, as I think is well known, was to bring the matter to a close for those who had not yet settled and paid their loan charge liability to HMRC. That by its very nature meant focusing on open cases and outstanding liabilities. The Liberal Democrat spokesman, the hon. Member for Maidenhead, referred to something like this happening again. I think we would all agree that we hope it does not. However, we would probably also agree that it is crucial that any resolution to this issue is fair to the wider tax-paying population that has never avoided tax.

The Government believe that this settlement opportunity is the most pragmatic solution to draw a line under the issue for as many individuals with outstanding liabilities as possible. The settlement opportunity being provided is substantially more generous than any opportunity HMRC has previously offered and will substantially reduce the outstanding liabilities of people who have yet to settle with HMRC, particularly those with the lowest liabilities. Most individuals, as I said, could see reductions of at least 50% in their outstanding loan charge liabilities. We estimate that 30% of individuals could have their liabilities written off entirely.

[James Wild]

In her opening remarks, the Minister referred to promoters of disguised remuneration schemes not being eligible for this settlement scheme, which I welcome. Perhaps she could update the Committee on whether HMRC is proactively pursuing such individuals, who caused such distress to my constituents and, of course, to people across the country who were sold schemes, advised that they were legitimate and had been agreed with HMRC, and then discovered they were not and have lost their homes and their life savings as a result.

[Lucy Rigby]

I managed to give way just before the end of my speech. The shadow Minister raises a good question and a fair point. Through the new measures and existing rules, HMRC will have powers that can result in criminal prosecution of promoters of tax avoidance, including the new universal stop regulation proposal, which will ban the promotion of the most fanciful schemes outright and allow the HMRC commissioners to ban by regulation the promotion of other arrangements that HMRC thinks will not work. We will consult on further measures to target promoters in early 2026—indeed, it is 2026 already, so the shadow Minister may assume that that will happen soon.

Amendment 9 agreed to.

Amendment made: 10, in clause 25, page 32, line 12, at end insert—

“‘shadow director’ has the meaning given by section 251 of the Companies Act 2006.”—(Lucy Rigby.)

This amendment inserts a definition for the purpose of Amendment 9.

Clause 25, as amended, ordered to stand part of the Bill.

Clause 26 ordered to stand part of the Bill.

Clause 27

Loan charge settlement scheme: supplementary

Amendment made: 11, in clause 27, page 33, line 15, at end insert—

“(da) adapting provision made under section 25(6), in cases where a settlement offer is made to a person who is not an individual, about the calculation of settlement amounts (including provision for the calculation to be different to what is required by section 25(6));”.—(Lucy Rigby.)

This amendment clarifies that the loan charge settlement scheme can provide for the calculation of the settlement amount to be adapted where a settlement offer is made to a person who is not an individual.

Clause 27, as amended, ordered to stand part of the Bill.

--- Later in debate ---

[Lucy Rigby]

Clause 28 will reduce the main rate writing-down allowance for corporation tax and income tax, and clause 29 introduces a new first-year allowance available for expenditure on plant and machinery. As I am sure all hon. Members are aware, capital allowances allow businesses to write off the costs of capital assets, such as plant or machinery, against their taxable income. The UK continues to offer one of the most generous capital allowances systems globally and ranks top among OECD countries for plant and machinery capital allowances.

Clause 28 will reduce the main rate writing-down allowance from 18% to 14%, starting on 1 April 2026 for corporation tax and 6 April 2026 for income tax. That allows the Government to fund a new first-year allowance while also fairly raising revenue to protect the public finances. Clause 29 will introduce the new 40% first-year allowance, which will support future investment. The new allowance is available for expenditure on plant and machinery, including assets bought for leasing and assets bought by unincorporated businesses, from 1 January 2026.

The changes made by clauses 28 and 29 will raise approximately £1.5 billion per year by the end of the scorecard. The changes are UK-wide and will impact businesses with pools of historic main rate expenditure, which predate the introduction of the super-deduction or full expensing regimes for companies, as well as historic expenditure or future main rate expenditure that does not qualify for first-year allowances, or where first-year allowances were not claimed. We have heard the calls to expand full expensing to more assets and businesses. Although the fiscal climate limits what we can do now, the new first-year allowance moves us closer to that goal in a responsible way.

New clause 2 seeks to mandate reporting the impacts of clause 28 to the House. The Government have published documents much loved by the shadow Minister, the hon. Member for North West Norfolk—tax information and impact notes—setting out the impact of the reduction to main rate writing-down allowances, alongside the introduction of the new 40% first-year allowance. I therefore reject new clause 2 and commend clauses 28 and 29 to the Committee.

[James Wild]

I want to get on the record that I do not have a problem with TIINs, but they serve a different purpose from reviewing legislation after the event. I would not want any Treasury officials to feel that the Opposition do not value TIINs.

I will speak to clauses 28 and 29 as well as new clause 2, which is tabled in my name. Capital allowances are one of the primary mechanisms through which our tax system supports business investment. They enable firms to deduct the cost of purchasing plant and machinery from taxable profits, thereby reducing their tax liability and helping them to invest and grow, which we all support. The annual investment allowance is perhaps the most straightforward example. It allows businesses to deduct the full cost of most plant and machinery up to £1 million annually, in the same the year that the expenditure occurs.

Beyond that, there are the first-year allowances with no annual cap. The most generous of those is full expensing, which the Minister referred to, which provides a 100% deduction for qualifying main rate assets and a 50% allowance for certain special rate assets. Those measures were introduced by the previous Conservative Government in order to stimulate faster investment and drive up what have been, I think it is fair to say, historically low levels of business investment throughout all parties’ periods in government. I think that we are all committed to try and address that.

Where businesses cannot or choose not to utilise those more generous allowances, they rely on writing-down allowances. They spread tax relief over several years by permitting a set percentage of the remaining pool balance to be written off annually, with assets allocated to either a main rate or special rate pool, depending on their classification.

Clause 28 reduces the main rate from 18% to 14% a year, while the special rate remains at 6%. The relevant date is 1 April 2026 for corporation tax purposes, and 6 April 2026 for income tax. For periods straddling that change, a hybrid rate will apply. New clause 2 would require the Chancellor to produce a report that examines the impact of those reductions on business investment levels, capital investment sector employment, the manufacturing sector, small and medium-sized enterprises and public finances.

The 2025 Budget policy costing document presents that as a part of capital allowance reform, but the reduction in the main writing-down rate will alter the cash flow position of capital-intensive businesses, slowing the rate at which they can recover investment costs through tax relief. Businesses with substantial brought-forward main pool balances will see their tax relief decelerate, with corresponding impacts on cash flow and the overall tax benefit. For companies planning significant investment, timing has now become more important. This is yet another structural tax increase on businesses with large asset bases, which will now recover their investments more slowly.

Make UK has described this Budget as

“a case of two steps forward one step back for manufacturers.”

The 4% in reduction in the writing-down allowance is undeniably bad news for business. It is little wonder that polling by the Institute of Directors reveals that four in five business leaders view this Budget negatively, and I think that those findings were replicated across the Federation of Small Businesses, the CBI and many other business organisations. The delayed recovery of capital costs will constrain reinvestment in modernisation and automation, precisely when UK manufacturers are already facing strong headwinds, not least from the very high energy costs that they face in this country. The reduction from 18% to 14% will diminish the speed at which businesses can recover these costs. Has the Treasury assessed the impact on business investment intentions, particularly for small and medium-sized enterprises in manufacturing and logistics? If not, I am sure that the Minister looks forward to supporting new clause 2.

Clause 29 is an attempt to balance the changes made in clause 28. It introduces a new 40% first-year allowance from 1 January 2026 for new, unused main rate plant and machinery. The new allowance expands relief to unincorporated businesses and firms that buy assets to lease out, which do not qualify for full expensing or the 50% special rate allowance once they go over the £1 million annual investment allowance. The explanatory notes highlight that this new allowance represents an expansion to include leasing, which we welcome—those activities that have traditionally been excluded from such reliefs. The allowance is not available for special rate expenditure, second-hand or used machinery, expenditure under disqualifying regimes or general exclusions.

We support the expansion set out in this clause. While these measures may have good aims, introducing an additional rate adds some complexity to the system. There is also the length of the Finance Bill that we are considering—536 pages of dense text—and that we expect businesses and individuals across the country to comply with, else HMRC will come after them. I urge the Government to monitor closely the impact on business investment and to look at options for a more streamlined or neutral capital allowances structure in future. What steps are being taken to tell businesses about these new allowances and freedoms they have to invest in leased assets—for example, by working with business organisations to get the word out? Opposition Members will certainly do that with businesses in our constituencies.

The new allowance will provide some up-front support for qualifying new investment, partly offsetting the impact of reducing the main writing-down rate to 14%. Once again, the Government are giving with one hand and taking with the other. The uplift will be of use for unincorporated and leasing businesses, but for most other businesses with historical or non-qualifying assets, there is no uplift at all. They simply face a slower rate of relief, going down to 14%, stretching allowances over a longer period and affecting their cash flow.

The Minister referred to Office for Budget Responsibility forecasts that suggest these combined measures will cost businesses more than £1 billion in 2026–27, rising to around £1.5 billion a year thereafter. That is a significant burden at a time when companies are grappling with weak investment and, to put it bluntly, the higher costs imposed in the first Budget. The £20 billion jobs tax has had a big impact, as we saw in the data earlier this week and as we see in the number of graduates who are struggling to find jobs.

As I say, the inclusion of leasing is welcome, but we do think there is benefit in reviewing those measures after the event and coming back to Parliament to explain what has happened.

[Lucy Rigby]

The shadow Minister referred to the new 40% first-year allowance, which is bringing forward relief for the leasing sector and unincorporated businesses, which have historically been carved out of the first-year allowance. In doing so, it allows for immediate relief on a significant amount of their investment from their corporation tax or income tax bill in the year in which they make that investment.

As the Chancellor has repeatedly made clear, the fiscal environment is challenging. We cannot make unfunded commitments on tax. The shadow Minister referred earlier to being an adviser to the previous Government, which is not, I suspect, to suggest that he had a role in creating the fiscal environment that we unfortunately inherited from the previous Government. We have heard the calls to expand full expensing to more assets and businesses. When the fiscal climate allows us to do so, we will look into that.

--- Later in debate ---

[Lucy Rigby]

Clause 30 will extend the 100% first-year allowance for qualifying expenditure on zero emission cars and plant or machinery for electric vehicle charge points by a further year to April 2027. More specifically, it will extend the availability of these capital allowances to 31 March 2027 for CT purposes and 5 April 2027 for income tax purposes, ensuring that investments in zero emission cars and charge point infrastructure continue to receive the most generous capital allowance treatment.

New clause 3 would require the Chancellor to review and report on the impact of the expiry in 2027 of the 100% first-year allowances made under clause 30, including the case for ongoing capital allowance support for zero emission cars and electric vehicle charging points. Alongside the 2025 Budget, in which the extension was announced, a policy costings document and a TIIN were published that set out the expected economic, business and other impacts of the changes, including impacts on incentivising businesses to purchase zero emission vehicles. Those documents are of course available online.

The Government annually review the rates and thresholds of taxes and reliefs to ensure that they are appropriate and reflect the current state of the economy. For that reason, new clause 3 is unnecessary. I commend clause 30 to the Committee, and ask that new clause 3 be rejected.

[James Wild]

As we have heard, clause 30 will extend the 100% first-year allowance for expenditure on zero emission cars, including EVs, and EV charging points. As the Minister said, the extension runs for a year to March 2027 for corporation tax and April 2027 for income tax purposes. Our new clause, consistent with other amendments that we have tabled, would simply ask the Chancellor to come back and report to Parliament, and to the public, on the impact of her measures. I do not really understand this reluctance to understand the actual impact of the measures. As part of the Government’s broader regulatory reform approach, they seem keen on post-implementation reviews, but the Treasury holds out alone against its homework being scored, it would seem. We want to consider whether long-term support should continue to be provided to maintain UK competitiveness in green technology. It is, in essence, a call for evidence that could make a difference to business confidence and investment.

The allowance was first introduced in 2002 for low emission cars, and the threshold was tightened over time, reaching zero emissions from April 2021. The extension continues that policy, but only for a year, and the Government’s own costings suggest that the extension will cost £145 million. Businesses planning multi-year fleet transitions and charging infrastructure investments face repeated cliff edges. Each year, a one-year window does not help a company planning to electrify its fleet in two years’ time; it simply rewards those who are able to accelerate the investment within the next 12 months.

Does the Minister recognise that it creates a stop-start approach that could discourage investment, undermine industry confidence and, ultimately, slow the UK’s transition to clean, green technology? That is odd when, in many ways, the Government are accelerating full throttle towards 2030 electrification across the grid. Members may have pylons and other pieces of grid infrastructure being dumped in their constituencies, with no public recourse, in the name of the Energy Secretary’s net zero goals. It is worth asking whether their policy is joined up if it includes these incremental extensions.

In that spirit, I have tabled new clause 3 so that hon. Members can judge whether the Government have a coherent approach. It would require the Chancellor to assess, transparently and on the record, whether a long-term support system is justified to keep Britain competitive in the global race for green manufacturing. A formal assessment would give Parliament and businesses the information they need to plan ahead.

In the debate on clause 11, the Minister referred to the long-term certainty provided by committing to a 25% corporation tax rate for this Parliament. Of course, that is not actually in the legislation, but we welcome that commitment and the greater certainty, and similar certainty could be given in this area. A formal assessment could also ensure that public money is being used wisely and that policy provides the certainty to unlock the investment we all want to see.

Given their 2030 obsession, why have the Government again chosen a one-year extension that provides limited certainty for fleet operators or for the charging infrastructure sector? I see that the hon. Member for Banbury is getting ready to dive into the debate. Will the Minister support new clause 3 and commit to a proper assessment of the lasting framework that is needed to secure Britain’s place in the green technology economy of the future?

[Sean Woodcock (Banbury) (Lab)]

The shadow Minister talks about a stop-start approach from this Government. I find that a bit brass neck, to be frank, considering the record of the previous Government, who shifted the dates and forced all sorts of investment with regard to EVs.

I welcome the measure. As part of the just transition, it is important to encourage the roll-out of EV infrastructure and charging points, particularly in rural constituencies such as mine where that is a significant challenge. Members will not be surprised to hear that I do not support the official Opposition’s new clause, but there is an important debate about how we ensure that investment is rolled out more equitably into constituencies such as mine. I ask the Minister to comment on how the Government see the roll-out of EV infrastructure in areas where there are issues with the electricity grid and network, so that the just transition can happen in those areas as well.

--- Later in debate ---

[James Wild]

The hon. Member and I agree about the importance of long-term certainty. People who are watching the proceedings may wonder why we did not just table an amendment to extend the scope to 2030, but due to the narrowness of the measures passed by the House, we are unable to do so. As I weigh up whether to push my new clause to a vote in a few weeks’ time, will the hon. Member consider supporting it?

[Mr Reynolds]

We can look into whether to support new clause 3 in a few weeks’ time. There seems to be very little in the new clause that we as Liberal Democrats would not support. Let us face it: we need to review the impact of the 2027 expiry date. We do not believe that the allowance should expire in 2027; it needs to be extended significantly further, so we would certainly consider supporting a review of whether 2027 is the right place.

That is my question for the Minister, really: why are we saying that the expiry date will be in 2027? Will we all be sitting here excitedly after the next Budget, looking at a 2028 expiry date, and so on for 2029 and 2030?

--- Later in debate ---

[James Wild]

As the Minister said, these clauses are mainly technical, tidying-up measures, but they are worthy of debate none the less.

Clause 31 clarifies the corporation tax treatment of payments made in return for the surrender of research and development expenditure credit, audiovisual expenditure credit or video games expenditure credit for payments made on or after November 2025. This technical clarification ensures that, when companies sell or surrender tax credits, the accounting treatment is consistent and correct.

R&D expenditure credit has been in place since 2013 to support companies carrying out R&D, and these creative industry expenditure credits will fully replace the old film, high-end TV, animation, children’s TV and video games tax reliefs from April 2027. At the moment, there is no agreed approach between tax authorities and companies on how to treat payments received when these credits are surrendered for corporation tax purposes, which has created uncertainty.

Clause 31 will hopefully put that beyond doubt by setting out a clear tax treatment in law, and HMRC will update its guidance manuals to reflect the new rules. Does the Minister have any figures—I do not have the TIINs to hand on this one—on whether that uncertainty has cost companies, or cost the Government, in lost revenue?

Clause 32 corrects transitional rules between the video games tax relief and the video games expenditure credit to ensure that the new expenditure credit works fairly for games that are moving over from the old relief. It corrects how the expenditure credit is calculated for transitional games—those that already have tax relief claims and then opt into the new scheme—so that companies do not get too much or too little relief, simply because the old regime used European expenditure while the new one uses UK expenditure.

In effect, clause 32 ensures that companies switching schemes do not get double relief or under-relief. Can the Minister provide an estimate of how many video games development companies will be affected by this transitional correction, and whether any have suffered financial detriment under the previous rules?

Clause 33 makes changes to the special credit for visual effects, which is part of the audiovisual expenditure credit, as the Committee will be aware. It prevents the calculation for additional credit from producing incorrect results, correcting anomalies in the visual effects credit calculation. The explanatory notes explain that, without this fix, certain combinations of expenditure could generate incorrect credit amounts or negative values, so clause 33 ensures that the scheme operates as intended and that the special credit scheme is neither more nor less generous than intended. Does the Minister have any figures on how many production companies have experienced calculation errors as a result of the previous rules?

[Matt Turmaine (Watford) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Roger. I will speak briefly on clause 32, as a member of the all-party parliamentary group for video games and esports, to say to the Minister that I welcome the closing of this loophole. Does she agree that the change will support the British video games industry, which is industry-leading across the world, and deliver the best for our economy?

[Lucy Rigby]

Clause 34 makes a minor legislative amendment to the R&D tax relief rules to put beyond doubt that the overseas restrictions apply to R&D expenditure credit claimants with a registered office in Northern Ireland. The Government are making this amendment to provide clarity to businesses and ensure that the legislation aligns with the original policy intent of the Finance Act 2025. I commend clause 34 to the Committee.

[James Wild]

Clause 34 will amend the Corporation Tax Act 2009 to clarify restrictions on relief for overseas R&D applied to companies across the entire United Kingdom, including Northern Ireland and Great Britain. It applies retrospectively on claims made on or after October 2024. It puts beyond doubt that the geographical restriction on R&D expenditure credit relief applies uniformly across all jurisdictions. Can the Minister confirm that, notwithstanding this clarification, exemptions under the enhanced R&D intensive support scheme still apply to firms based in Northern Ireland?

[Lucy Rigby]

I thank the shadow Minister for his question. The Government are committed to supporting R&D investment across the UK through R&D tax reliefs; they of course play a vital role in supporting the mission to boost economic growth, which he will know is this Government’s No. 1 priority.

The legislation clarifies that the rules are the same for all R&D expenditure credit companies across the UK. The overseas restriction was introduced in regulations in 2024 before being included in the Finance Act 2025. It was always intended to apply to R&D expenditure credit claimants across the UK, so the change is purely to clarify the Finance Act 2025 to put that position beyond all doubt.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Clause 35

Restriction of relief on disposals to employee-ownership trusts

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

Oral Answers to Questions

James Wild Excerpts

Tuesday 27th January 2026 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

[James Wild (North West Norfolk) (Con)]

The Chancellor promised hospitality firms that she would lower their taxes, but her business rate raid is hammering every town, village, city and high street. This is not just an attack on pubs; hotels, cafés, music venues and many more are being hit. It is two months since the Budget caused huge worry for these businesses, and we await details of this latest U-turn, but the key question is: does the Chancellor get it? Does she get that it is not just pubs but hospitality, leisure and retail businesses that need support because of her terrible choices?

[Dan Tomlinson]

Conservative Members do not get it, because when they were in government, they set out plans to remove the temporary pandemic rates relief overnight in 2025. That would have seen an increase of 300% in business rate bills overnight for businesses on the high street. We have taken a different, fairer and more proportional approach, phasing out the pandemic relief over a slower time period and extending it into this year.