Taxation (Energy and Vehicles) Bill

Lord Livermore Excerpts

2nd reading & Committee negatived & 3rd reading
Tuesday 14th July 2026 Lords Chamber

Moved by

[Lord Livermore]

That the Bill be now read a second time.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, it is a pleasure to open the Second Reading debate on the Taxation (Energy and Vehicles) Bill. The measures contained in the Bill will support businesses across the UK as they deal with the immediate economic costs associated with the ongoing conflict in the Middle East. We did not start this conflict and we did not join it, but it is impacting our economy, including by putting pressure on energy markets and disrupting supply chains.

Despite these pressures, the latest economic data shows that the Government’s economic plan is working. Inflation last month held steady. Britain’s economy was the fastest growing in the G7 for the first quarter of this year. Borrowing is forecast to fall in every year of this Parliament and wages are continuing to rise.

However, as the Chancellor has said repeatedly, we must continue to be responsive to a changing world and responsible in the national interest. That is why we have taken action to support businesses and families, including by reducing VAT on summer activities from 20% to 5% and extending the 5p fuel duty cut until the end of the year, saving the average motorist £120 since last year. We have committed more than £50 million to help those struggling with the cost of heating oil. To support hauliers and farmers, we have cut red diesel by more than one-third until the end of this year. To help reduce costs for energy-intensive firms, we have expanded the British industry competitiveness scheme to more than 10,000 manufacturers. We are also providing targeted support to the chemicals and ceramics industries, protecting thousands of jobs and putting businesses on a secure footing for the long term.

The measures contained in this Bill go further to protect consumers and help firms deal with rising prices. It covers three areas: the energy generator levy, mileage rates and vehicle excise duty for heavy goods vehicles.

On the first measure, the electricity generator levy, the price of energy has risen since the war in Iran began, benefiting generators whose costs bear no relation to the price of gas. The Government’s objective is to ensure that those who benefit from these increased prices and volatility pay their fair share. That is why, in our first Budget, we extended and increased the energy profits levy. Last year, the Chancellor announced a new permanent windfall tax regime on oil and gas.

In April this year, we went further still by announcing an increase to the rate of the electricity generator levy and extending it beyond its original sunset date of 2028. The electricity generator levy recovers excess revenues made by generators that do not use gas when electricity prices are over a long-term average. To ensure that it does not disincentivise investment, any new investment since 22 November 2023 is exempt from the levy. The increase in the main rate of the levy from 45% to 55% is legislated for in this Bill. The extension will be legislated for separately. The Government will set out the fiscal impact of this increase at the Budget in the autumn, with the costing certified by the OBR in the usual way.

Raising the rate will help break the link between electricity and gas prices. Even though the UK is generating more electricity from sources such as nuclear and renewables, international gas prices still set the price of our electricity. This means that, when global gas prices spike, so do bills here in the UK.

By breaking the link between gas and electricity prices, we can help to insulate consumers from the volatility of future crises. The rise in the electricity generator levy will contribute to this by encouraging participation in the wholesale contracts for difference scheme. Currently, under a separate scheme known as contracts for difference, some electricity suppliers are guaranteed a stable, fixed price for the electricity that they produce. The new wholesale contracts for difference scheme will offer certain existing eligible generators that are not already signed up to contracts for difference the option to bid for a fixed price for the electricity that they generate.

Increasing the rate of the energy generator levy will therefore increase the appeal of a fixed rate under the new wholesale contracts for difference scheme, in turn helping to protect consumers from volatile gas-linked electricity prices. The Department for Energy Security and Net Zero will come forward later this year with a consultation on the wholesale contracts for difference scheme. The design of the post-2028 energy generator levy will be considered alongside this consultation.

The second measure contained in the Bill relates to mileage rates. As fuel prices have risen, so has the cost of filling up a car or van for those who drive for work. Despite this, mileage rates—the amount that workers are reimbursed for every mile they drive—have not changed since 2011. This has created a significant gap between the amount it costs to run and maintain a vehicle and the amount that workers are reimbursed for.

In recognition of these pressures, the Chancellor has announced the largest ever increase to mileage rates and the first uprating in 15 years. As a result, mileage rates have now increased from 45p to 55p for the first 10,000 miles. Beyond 10,000 miles, the rate will remain at 25p. This change will benefit employees using their own vehicle for work and those who are self-employed and use simplified expenses rates.

The increase came into effect on 6 April and the legislation before us gives statutory effect to this change. Overall, the increased rate will benefit around 2 million employees and 1 million self-employed individuals, saving over £120 a year for a worker doing 6,000 business miles.

Although employers are not required to reimburse at the new rates set out, if employees are reimbursed below the tax-free rate they can claim mileage allowance tax relief directly from HMRC. More widely, in March, the Chancellor announced a review of mileage rates as a whole. This review is ongoing and will inform the Budget this autumn.

The third measure in the Bill concerns vehicle excise duty on heavy goods vehicles. The road haulage sector plays a vital role transporting goods across the UK, but haulage firms are disproportionally exposed to higher fuel costs. That is why we are providing additional targeted support for the sector through the Bill, with a 12-month holiday from vehicle excise duty for the majority of heavy goods vehicles.

Eligible vehicles renewing their VED in this period will pay a reduced annual rate of £1. This will save a typical HGV £600, and those with higher liability will, in some cases, save more than £900, on top of savings from fuel duty. It will benefit around 46,000 UK-based road freight firms. Taken together with other freezes to fuel duty since the general election, the average HGV has saved over £2,000 compared with plans set out by the previous Government.

This Government have the right economic plan to deliver secure and resilient growth in a changing world, but as we have seen, including over recent days, the war in Iran continues to create uncertainty and volatility in the global economy, and therefore higher costs for businesses here in Britain. The Government have responded by providing immediate support to help with those additional costs, including through the measures contained in the Bill.

These measures will ensure that electricity generators that benefit from increased prices pay their fair share. They will support around 2 million employees and 1 million self-employed people who need to drive for work. They will deliver targeted help to the road haulage sector, ensuring that HGVs remain on the road to deliver food and other products to communities right across the country.

The Bill shows that, in the face of global pressures, the Government will continue to be responsive to a changing world and responsible in the national interest. I beg to move.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, it is a pleasure to close this Second Reading debate on the Taxation (Energy and Vehicles) Bill. I am very grateful to the select group of noble Lords for their contributions and questions.

The measures contained in the Bill will support businesses across the UK as they deal with the immediate economic costs associated with the ongoing conflict in the Middle East. We did not start this conflict and we did not join it, but it is impacting our economy, including by putting pressure on energy markets and disrupting supply chains. That is why, as the Chancellor has said repeatedly, we must continue to be responsive to a changing world and responsible in the national interest.

The noble Baroness, Lady Neville-Rolfe, once again unfortunately sought to talk down Britain’s economy, yet the latest economic data shows that inflation in the UK held steady while it rose in other comparable countries. The noble Baroness and the noble Lord, Lord Redwood, spoke about economic growth, but they did not mention that Britain’s economy was the fastest growing in the G7 for the first quarter of this year. The noble Baroness also spoke about debt borrowing being forecast to fall in every year of this Parliament.

The measures contained in the Bill cover three areas: the electricity generator levy, mileage rates and the vehicle excise duty for heavy goods vehicles. The noble Baroness seemed keen to talk about almost anything other than the measures contained in the Bill, but when she did focus on them, she said that they were just short-term measures, a point also made by the noble Earl, Lord Russell. I disagree; the measures contained in the Bill will provide important immediate support to families and businesses as they deal with the consequences of the war in the Middle East, including the largest ever uprating to mileage rates and a significant reduction in the vehicle excise duty for haulage firms. The increase to the electricity generator levy also forms part of a wider long-term strategy to delink gas from electricity prices, helping to shield consumers from the impact of volatile prices. However, as I set out in my opening speech, the measures form just one part of the wider support we are providing to households and businesses, and we stand ready to go further where necessary.

The noble Baroness also asked about North Sea oil and gas. She knows that I agree with her that North Sea oil and gas production is an important and valuable resource and its workforce is a vital asset to our country. That is why we are harnessing our domestic supply by managing existing fields for their entire lifetimes, including by allowing tie-backs for those fields to ensure that they remain viable.

The first measure in the Bill concerns the electricity generator levy. The price of energy has risen since the war in Iran began, benefiting generators whose costs bear no relation to the price of gas. The Government’s objective is to ensure that those who benefit from these increased prices and volatility pay their fair share. That is why we are delivering an increase to the rate of the electricity generator levy from 45% to 55% and extending it beyond its original sunset date of 2028. Raising the rate will ensure that a greater percentage of exceptional generator revenues is made available to support businesses and households, and it will help break the link between electricity and gas prices by encouraging participation in the new wholesale contracts for difference mechanism.

The noble Baroness asked about the end date. The Government plan to extend the electricity generator levy beyond 2028 to encourage participation in the new contracts for difference mechanism and therefore provide more certainty to firms by offering a fixed price for the electricity they produce. We will work closely with industry to design the post-2028 electricity generator levy regime. DESNZ is planning to publish a consultation on the new contracts for difference mechanism later this year. The design of the electricity generator levy will be considered alongside this consultation.

The noble Lord, Lord Redwood, criticised the Government’s energy policy overall. My noble friend Lord Whitehead set that out, in probably greater detail than I can, in answer to the noble Lord’s question in the previous debate today. As the noble Lord knows, in this country we are particularly exposed to volatile gas prices, not least because the previous Government failed to invest in renewables. We need to invest in an economy that is as low carbon and based as little on gas as possible. By delinking from gas, a key part of the measures contained in the Bill, we can help to separate the price of electricity from the volatile price of gas internationally.

The noble Lord, Lord Fuller, said that we would increase the cost of electricity, but I believe that helping to delink from gas will do the exact opposite. The noble Lord also said that these measures would disincentivise future investment. They clearly will not do that, because the electricity generator levy has strong protections for new investment after 2023, which is exempt from the levy. The electricity generator levy is levied only on legacy renewable generators who stand to make extraordinary profits when high gas prices set the wholesale price without any commensurate increase in costs.

The noble Baroness, Lady Neville-Rolfe, asked about the wholesale contracts for difference scheme. Businesses have welcomed the announcement of the scheme and the certainty that these contracts will provide them with for years to come. The chief executive of the CBI said:

“If implemented correctly, voluntary contracts for difference could reduce the impact of gas on retail electricity prices and ensure the benefits of clean power can be realised across the economy”.


It is right that we now work closely with businesses on the detail, which is why they will have the opportunity to respond to the consultation that DESNZ is planning to run later this year.

My noble friend Lord Sikka asked a series of questions, which I will look at in greater detail. I will write to him, if I am able to do so.

The second measure contained in the Bill relates to mileage rates. I am grateful to the noble Lords, Lord Redwood, Lord Fuller and Lord Altrincham, the noble Earl, Lord Russell, and the noble Baroness, Lady Neville-Rolfe, for their support for this measure. As fuel prices have risen so has the cost of filling up the car or van for those who drive to work. Despite that, mileage rates have not changed since 2011. In recognition of these pressures, the Chancellor has announced the largest ever increase to mileage rates and the first uprating in 15 years.

The noble Baroness asked how the Government determined these uprated rates. In determining them, the Government considered the need to respond to the effect of the war in the Middle East on fuel costs after a prolonged period with no change, while balancing support for individuals with overall fiscal responsibility. She asked about the 25p rate. Our objective has been to focus support where costs are highest. The vast majority of drivers travel fewer than 10,000 miles a year. The 25p rate above 10,000 miles reflects the fact that the marginal cost of driving falls as mileage increases, with fixed costs such as insurance, servicing and depreciation covered by the higher 55p rate. Petrol and diesel motorists, including those who use their own vehicle for work, will also benefit from the extension of the 5p fuel duty cut to the end of this year.

The noble Lord, Lord Fuller, mentioned indexation. The decision the Government have taken on mileage rates is a targeted response to current cost pressures. The review announced by the Chancellor in March will consider the rate beyond 2026-27. Annual indexation is not currently the Government’s policy. The Government have already committed to a review of these rates and will set that out at the Budget.

The noble Earl, Lord Russell, asked about communicating to care workers. As he may know, the trade union UNISON has warmly welcomed this measure. I believe that we will communicate actively to its members.

The third measure contained in the Bill is the vehicle excise duty on heavy goods vehicles. The road haulage sector plays a vital role in transporting goods across the UK, but haulage firms are disproportionately exposed to higher fuel costs. That is why we are providing additional targeted support for the sector through the Bill, with a 12-month holiday from vehicle exercise duty for the majority of heavy goods vehicles. The noble Earl, Lord Russell, also asked about the power to extend this measure further, beyond one year. That would be perfectly possible in future Finance Bills and would not require any additional primary legislation.

The noble Lord, Lord Redwood, asked about smaller vehicles, not just HGVs, being included in this. Van drivers, for example, will benefit from the decision we have taken to extend the 5p fuel duty cut to the end of this year. Those who use their own vehicle for work will also benefit from the mileage rates increase in the Bill; that includes the 163,000 van drivers who are currently estimated to be claiming simplified expenses. It is right, though, that the Government balance direct support for firms with overall fiscal responsibility. Extending these measures to vans would cost an estimated £1 billion to £1.5 billion a year, but we will continue to keep this issue under review.

The noble Baroness, Lady Neville-Rolfe, asked about the impact of other taxes. Typical HGVs will save £600, while HGVs with higher vehicle emissions will save £912. In total, the decision taken since the general election to freeze fuel duty will save the average HGV over £2,000, compared with the previous Government’s plans.

This Government have the right economic plan to deliver secure and resilient growth in a changing world. The war in Iran continues to create uncertainty and volatility in the global economy and, therefore, higher costs for businesses here in Britain. The Government have responded by providing immediate support to help with these additional costs, including through the measures contained in the Bill. The Bill shows that, in the face of global pressures, the Government will continue to be responsive to a changing world and responsible in the national interest.

Bill read a second time. Committee negatived. Standing Order 44 having been dispensed with, the Bill was read a third time and passed.