Employee Share Ownership Schemes

Lucy Frazer Excerpts

Tuesday 6th September 2022 Westminster Hall

[The Financial Secretary to the Treasury (Lucy Frazer)]

It is a pleasure to serve under your chairmanship, Sir Edward. I congratulate the right hon. Member for Knowsley (Sir George Howarth) on securing today’s important debate. I have spoken to Members across the House, and there are many supporters who know the importance of this area. I know that the issue commands cross-party support, as we can see today. I, too, want employees to share in the success of the companies they work for. I want businesses to reward and retain talent, driving even more success.

I believe that through taxation policy, including reliefs, we can drive innovation. The partnership between business, employees and Government, which the right hon. Gentleman talked about, is important. A vital part of that is the support that the Government provide to employee share ownership through tax reliefs, which were recorded at £760 million of income tax and national insurance contribution relief in the financial year ending 2021.

There are four tax-advantaged share schemes, with millions of instances of awards or share options benefiting employees every year. The right hon. Member talked about SIP and save-as-you-earn, so I will mention those first. They are designed for companies to offer a tax-advantaged option or shares to all employees on the same basis. Save-as-you-earn, which has the largest aggregate value of all the schemes, is designed to help lower earners to save, by deducting salary directly at source, and adding it to a special savings account for the scheme. At the end of their savings contract, employees can use the funds to purchase shares in their employer.

Our other all-employee scheme is the share incentive plan, which was introduced in 2000, 20 years after the introduction of SAYE. It is targeted at companies that wish to help their employees to purchase shares directly in their company, or even receive them as awards. That particularly helps low to mid-range earners.

Although the right hon. Member talked about SIP and save-as-you-earn, which rightly deserve attention of their own, there are other schemes to help companies with their growth. In turn, such schemes help the growth of the wider UK economy, so it is right that we consider the wider share schemes landscape, too. Two distinct schemes give companies choices over which employees they offer tax-advantaged options to, with specific criteria and performance conditions that can be tailored to the company. The company share option plan introduced in 1984 remains popular among many companies of all sizes, which use it to motivate and reward junior and middle management. Lastly, we have the enterprise management initiative. Unlike the other three schemes, EMI is specifically targeted at small and medium-sized enterprises, with the objective of helping them to recruit and retain key employees by rewarding them with highly tax-advantaged share options with a value of up to £250,000 per employee, which can be offered at a discount.

The schemes give companies additional ways to incentivise and reward employees for their hard work by helping them to offer committed employees a direct stake in a company. As the right hon. Member said, that helps firms to achieve a more engaged and motivated workforce by aligning employer and employee interests in the growth of businesses and motivating hard work from employees, who can benefit from their input with a tax-advantaged output, helping to make a company a more attractive place to work by offering an appealing and unique remuneration package. Further, it encourages loyalty to a company among employees, fostering an environment in which the company can increase its productivity and achieve higher and faster growth compared with companies with a less engaged workforce. Lastly, the scheme can help with wider social effects, too, by encouraging savings and investing habits. In turn, it can support better financial planning on an individual level.

The right hon. Member raised an important point about the length of the investment term. To achieve the objective of incentivising employees to stay with a company as it grows, one of the SIP scheme’s rules is that the tax advantages are available on shares awarded only once a certain period of time has elapsed. That encourages employees to commit to their employer and to put hard work into the company to ensure that it succeeds, and the tax relief enhances the reward that they can gain from maximising the company’s success. Although partial tax advantages are possible for an employee after three years, full tax advantages for SIP are enabled at the five-year mark. Unlike the other schemes, SIP enables a direct purchase of shares in the company rather than other options, and the five-year holding for the full income tax and national insurance exemption is intended to encourage employees to remain invested in their employer.

[Sir George Howarth]

Will the Minister give way?

[Lucy Frazer]

If I could just continue the point.

[Sir George Howarth]

I wanted to intervene on a point that the Minister has already made.

[Lucy Frazer]

I appreciate the points that the right hon. Member has made. Stakeholders and employees may not otherwise intend to remain with their current employer for five years, which is why the tax relief is designed to encourage a long-term commitment, but I appreciate the suggestion of a one-year SAYE and less regular contributions.

[James Cartlidge]

On that point, what the right hon. Member for Knowsley (Sir George Howarth) said is very compelling, because the labour market has changed and there is more churn. I was persuaded that a shorter qualifying period, perhaps with other conditions, would be reasonable, given that the employee may have the best intentions of staying longer but the labour market has changed.

[Lucy Frazer]

I thank both my hon. Friend and the right hon. Member for Knowsley for their interventions. I was going to say that if evidence could be presented of the impact of that on people taking up the scheme, I know that the Treasury would be very interested in looking at that. As my hon. Friend said, it is important that the schemes are as simple as possible, and I would welcome any suggestions on that point.

With its current restrictions, SIP remains popular. We see people making use of the greatly beneficial tax treatment, with a total value of £780 million in shares purchased or awarded under a SIP scheme in the financial year 2020-2021. We continue to evaluate the schemes to make sure that they are incentivising the behaviours that I have outlined. We keep these important and advantageous schemes under review to make sure that they provide value for money for the taxpayer, support the wider aims of the economy and help employers to drive commercial success.

We launched a review at Budget 2020 to ensure that the EMI provides support for high-growth companies to recruit and retain the best talent so that they can scale up effectively, and to examine whether more companies should be able to access the scheme. At the spring statement, the Government concluded that the current EMI scheme remains effective and appropriately targeted. None the less, the scope of the review was expanded to consider whether the company share option plan should be reformed to support companies as they grow beyond the scope of the specifically targeted EMI. I know that these companies might want to make use of other discretionary schemes, such as the CSOP. While our inclination is to support those companies in doing so, Members will understand that we want to build the evidence base before committing resources, which is why we have expanded our review to include CSOP.

As part of the Government’s duties to evaluate tax reliefs and their value for money on an ongoing basis, we are currently reviewing the broader share scheme landscape. We will keep these important and advantageous schemes under review.

[Sir George Howarth]

I made the point that it would be better if the Treasury carried out its own consultation exercise, rather than asking organisations to bring it forward. The Minister can reflect on that subsequently—I do not want her to answer it now, but just to take it into account.

[Lucy Frazer]

As I mentioned, the Treasury keeps these schemes under review, but of course external evidence is always welcome. We want to ensure that these schemes support the wider aims of the economy and help employers to drive commercial success. We always welcome any evidence that can be brought forward.

In closing, I reiterate that these schemes have an important place in the toolbox of taxation policies. They will help us to drive productivity—the only way to sustainably raise living standards—while fuelling economic growth.

Question put and agreed to.

Draft Double Taxation Relief and International Tax Enforcement (Luxembourg) Order 2022

Lucy Frazer Excerpts

Monday 5th September 2022 General Committees

[The Financial Secretary to the Treasury (Lucy Frazer)]

I beg to move,

That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Luxembourg) Order 2022.

It is a pleasure to serve under your chairmanship, Ms McVey.

The draft order gives effect to a new replacement double taxation agreement with Luxembourg. The statutory instrument has five main objectives: in a nutshell, it updates an existing agreement so as to make it easier for businesses to understand; it supports cross-border trade and investment; it reduces the tax burden on UK businesses with subsidiaries in Luxembourg; it improves available dispute resolution mechanisms; and it bolsters provisions to tackle tax avoidance and evasion.

I will now turn to the detail of the draft order and the new agreement. As I am sure the Committee understands well, agreements such as this one remove barriers to international trade and investment; they also provide a clear and fair framework for taxing businesses that trade across international borders. Both those things benefit businesses and the economies of signatory countries—in this case, the UK and Luxembourg.

The reality is that our previous agreement with Luxembourg dates back to 1967. As such, it needs updating, for example to reflect changes to the OECD model tax convention and to the domestic tax laws and treaty preferences of both countries. The new agreement also introduces a number of improvements for businesses, individuals and Her Majesty’s Revenue and Customs itself. Updating arrangements to follow many of the latest provisions in the OECD model convention will make it easier for businesses to understand their responsibilities and obligations.

One significant issue for larger companies is continuity in the payment of dividends. Dividends between group companies operating across borders in the European Union were previously exempted from so-called source state taxation under the parent subsidiary directive. The new agreement replicates that exemption for the majority of dividends, ensuring that UK businesses with subsidiaries in Luxembourg will not pay tax in Luxembourg on dividends paid to UK companies. The new agreement exempts the majority of dividends from tax, but it preserves our right to tax distribution from UK real estate investment trusts at a rate of 15%, thereby ensuring that the UK will not lose taxing rights where the profits from those REITs are otherwise exempt.

Disputes are another important issue. The draft order gives effect to the minimum standard on improving dispute resolution set out in the final recommendations of the OECD and G20 base erosion and profit shifting—BEPS—project. It does so by changing how disputes involving the application of the agreements are resolved. The changes mean that where taxpayers consider that the agreement has not been applied correctly, they may present their case to either tax authority, rather than just the authority where they are resident. At the same time, any resolution of a dispute will need to be implemented even if the time limits in the domestic law of either territory would otherwise prevent that.

There are also implications for tackling tax avoidance and evasion. Importantly, the new agreement contains all the minimum standards introduced by the BEPS multilateral instrument to ensure that double taxation agreements are not used to avoid or evade tax. The provisions include the statement in the preamble that it is not a purpose of a double taxation agreement to create

“opportunities for…tax evasion or avoidance”,

as well as a principal purpose test that denies treaty benefits in the case of abuse.

Other anti-avoidance rules in the new treaty include a tie-breaker provision for determining corporate residence based on a competent authority agreement. There is also a provision in the capital gains article that preserves UK taxing rights on gains from shares that derive their value from property in the UK. Finally, the new agreement provides for mutual assistance in the collection of tax debts.

In conclusion, all these features together strengthen both countries’ defences against tax avoidance and evasion, so this agreement is one that the UK and Luxembourg can both be very happy with. The mutual benefits that I have outlined are many. The agreement makes it easier for businesses to understand their obligations and responsibilities, it reduces the tax burden for UK businesses with subsidiaries in Luxembourg, it improves available dispute resolution mechanisms, and it bolsters provisions to tackle tax avoidance and evasion. Above all, it protects UK revenue and provides a stable framework within which trade and investment between the UK and Luxembourg can continue to flourish. For those reasons, I commend the draft order to the Committee.

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

It is a pleasure to serve on this Committee with you as Chair, Ms McVey, and I thank the Minister for her opening remarks. I am pleased to respond briefly on behalf of the Opposition.

As we heard from the Minister, the statutory instrument gives relief from double taxation in relation to capital gains tax, corporation tax, income tax and taxes of a similar character imposed by the laws of Luxembourg, as well as relating to international tax enforcement. As we can see, the schedule introduced by the order is largely technical in nature. It follows an approach that is consistent with similar bilateral agreements with other states and territories, and we will not oppose the order. It is important that bilateral agreements concerning taxation are clear.

We also welcome the objective of this double taxation treaty, which the explanatory memorandum makes clear is to

“protect the Exchequer by including provisions to combat tax avoidance and evasion.”

These provisions include

“measures providing for the exchange of information between revenue authorities”,

in order to

“make it more difficult for residents of both territories to evade taxation by concealing assets offshore.”

As the Minister knows from her time in office, the Opposition have been pushing her and her colleagues at every turn to do more to tackle evasion and avoidance. We have pushed them to implement the global minimum corporation tax rate that the OECD and G20 recently agreed, which the Minister mentioned in her speech. Therefore, I will use this opportunity to ask the Minister briefly about the implementation of the OECD agreement.

On 20 July this year, the Treasury published draft legislation that would introduce the new so-called multinational top-up tax. Can the Minister simply confirm whether the new Prime Minister tomorrow will support this legislation? If she cannot confirm that, will she join me in urging the new Prime Minister to continue with this legislation?

[Lucy Frazer]

I am happy to respond to the hon. Gentleman and I am very pleased to see him after the break. Of course he will realise that as the Prime Minister has just been appointed as the leader of the Conservative party and is yet to go to see the Queen, it would be a little bit premature to set out her plans.

--- Later in debate ---

[Lucy Frazer]

I thank the hon. Member for Glenrothes for his detailed and interesting questions. I hope to be able to respond to at least some of them. The hon. Member asked how the principal purpose test applies in practice. The answer is that HMRC has a long history of dealing with avoidance provisions of this type, and the same principles will be applied here, supported by existing guidance and OECD commentary.

The hon. Member asked about anti-fragmentation and the complicated wording; I assure him that it is standard OECD wording, which has been adopted by all countries. He also asked about any potential new capital articles. I would reassure him that the provision would cover any new UK tax on capital. On how arbitration works, the costs will be paid by the states and details of the operation are set out by a competent authority agreement. On whether article 26 complies with GDPR, the answer is yes, it is fully compliant with GDPR provisions.

The hon. Member pointed out the issues of beneficial ownership. He will know that the UK was the first country to introduce a public register of ultimate beneficial owners of companies—the people with significant control register. Recently, we have also introduced a largely public register of beneficial owners of overseas entities that own UK property, and we expect that new register will be useful in tackling tax non-compliance as well as economic crimes.

[Peter Grant]

On the question of the register of beneficial ownership, how effective—if indeed they exist at all—are the penalties for knowingly providing false information, or for knowingly withholding information? I regularly look at companies’ records at Companies House where it is clear from looking at the shareholdings that someone has very substantial control, yet the official register says that no one has significant control. When will the requirement to report that actually be given teeth, so that it becomes mandatory, instead of effectively voluntary as it is now?

[Lucy Frazer]

It is of course important that we have penalties appropriate to the provisions in any legislation. The hon. Gentleman will know that we are looking very carefully at the issue of beneficial ownership. He also asked about a wealth tax; there is no current intention to bring in any wealth tax. For all those reasons, I commend the draft order to the Committee.

Question put and agreed to.

Finance Bill 2022-23: Draft Legislation and Tax Documents

Lucy Frazer Excerpts

Wednesday 20th July 2022 Written Statements

[The Financial Secretary to the Treasury (Lucy Frazer)]

In line with the tax policy making framework, the Government are publishing draft legislation ahead of potential inclusion in Finance Bill 2022-23. This allows for technical consultation and provides taxpayers with predictability over future tax policy changes. Alongside this, the Government are making announcements in a small number of technical areas of tax policy to support the operation of the tax system. Draft legislation is being published to seek stakeholder views at this stage. The final contents of Finance Bill 2022-23 will be a decision for the Chancellor at the next Budget. The Government are also publishing a number of tax-related consultations and summaries of responses to consultations which have already been conducted.

Publication of draft legislation

The Government are publishing draft legislation and associated documents, further to previous announcements, including at Budget or in “Tax Administration and Maintenance: Autumn 2021” [CP 577], published on 30 November 2021:

R&D tax relief reforms: The Government are publishing draft legislation which will amend the definition of qualifying expenditure to include data and cloud costs. These changes will ensure the reliefs support modern innovation. The draft legislation will also refocus the reliefs towards research & development (R&D) in the UK and implement measures to improve compliance. The Government will limit overseas spending on subcontracted R&D and externally provided workers, with some limited exceptions. These changes will ensure the reliefs provide better targeted support for innovation in the UK.

OECD pillar 2 reforms: The Government are publishing draft legislation and a summary of responses to the consultation on the implementation of pillar 2 in the UK. This builds on the historic agreement of 137 countries to the Organisation for Economic Co-operation and Development’s (OECD’s) two pillar solution to the tax challenges of a globalised and digital economy. Pillar 2 will ensure that multinational enterprises pay a minimum 15% rate of tax in each jurisdiction that they operate in.

Air passenger duty reform: The Government are publishing draft legislation which will implement reform to air passenger duty (APD), as announced at autumn Budget 2021. These reforms aim to bolster UK air connectivity through a 50% cut in domestic APD and further align the tax with UK environmental objectives by adding a new ultra-long-haul distance band.

Homes for Ukraine sponsorship scheme: The Government are publishing draft legislation which introduces new and temporary reliefs from the annual tax on enveloped dwellings (ATED) and 15% rate of stamp duty land tax (SDLT) where a corporate entity makes a dwelling available to Ukrainian refugees under the homes for Ukraine sponsorship scheme, as announced in a written ministerial statement on 31 March 2022.The payments individuals, community groups and businesses receive under this scheme will be exempt from either income tax or corporation tax. Therefore, it will ensure that those wishing to offer accommodation do not face any unfair obstacles or immediate tax burdens.

Pensions: Relief relating to net payment arrangements—The Government are publishing draft legislation which will provide the. basis for HMRC to make top-up payments directly to low-earning individuals saving in pension schemes using a net pay arrangement from 2024-25 onwards, as announced at autumn Budget 2021. These top-ups will help to better align outcomes with equivalent savers saving into pension schemes using relief at source.

Improving the administration of insurance premium tax (IPT): The Government are publishing draft legislation to improve the administration of IPT, as announced at tax administration and maintenance day 2021 (TAM Day 2021). This measure will provide HMRC with powers to make a statutory instrument to move insurance premium tax forms from secondary legislation into a public notice.

Collective money purchase pension scheme: As announced in a written ministerial statement on 21 February 2022, the Government always intended that certain payments made instead of a pension from a collective money purchase pension scheme in the process of winding up should not attract pensions tax charges. However, there are instances where the current legislation may not achieve the intended outcome. This draft legislation clarifies the tax legislation to ensure that a collective money purchase pension scheme that is in the process of winding up can make certain types of payments without attracting pension tax charges.

Relief on disposals of joint interests in land: The Government are publishing draft legislation to make changes to the legislation for capital gains tax roll-over relief and private residence relief to ensure that limited liability partnerships and Scottish partnerships which hold title to land are included, as announced at TAM Day 2021.

Transfer pricing documentation: Master File / Local File: As announced at TAM Day 2021, the Government are publishing draft legislation which will make it a requirement for large multinational businesses operating in the UK to keep and retain transfer pricing documentation in a prescribed and standardised format, set out in the OECD’s transfer pricing guidelines, giving businesses certainty on the appropriate format and documentation they need to keep.

Tax conditionality: licenses in Scotland and Northern Ireland: As announced at TAM Day 2021, this draft legislation will make licence renewal applications in Scotland and Northern Ireland for taxi and scrap metal licences conditional on completing a tax check with HMRC to ensure the applicant is appropriately registered for tax. This change applies for licence renewals from April 2023 and extends the approach already in place for licences issued in England and Wales.

Aggregates levy reform: As announced at TAM Day 2021, the Government are publishing draft legislation to make changes to aggregates levy exemptions, by replacing four exemptions for by-product aggregate arising from specific types of construction with one broader, more general exemption. It will also restrict an exemption so that aggregate extracted on a construction site specifically for construction use is taxed in the same way as other construction aggregate.

Government are also publishing draft legislation and associated documents in the following areas which have not been previously announced:

Soft drinks industry levy (SDIL): concentrates mixed with sugar when dispensed: The Government are publishing draft legislation which closes a minor loophole and will ensure that all soft drinks meeting the SDIL sugar content condition that are dispensed from fountain machines are within the scope of the levy.

Further tax provisions in connection with the dormant assets scheme: The dormant assets scheme is being expanded to include eligible assets from the pensions, insurance, investment and wealth management, and securities sectors. The Government have therefore published draft legislation to ensure that payments from an authorised reclaim fund are treated for the purposes of income tax as if they were from the pension asset that was initially transferred. It also ensures that where an asset has been transferred to an authorised reclaim fund and its owner was alive at the time of transfer but subsequently dies before the asset has been reclaimed, the owner will be treated for inheritance tax purposes as still owning the original asset.

Taxation of lump sum exit scheme payments: As announced in the lump sum exit scheme (LSES) consultation response, this draft legislation provides clarity that LSES payments will be treated as capital in nature and will be subject to capital gains tax, or corporation tax in the case of incorporated entities.

Chargeable gains: Separating spouses and civil partners: The Government are publishing draft legislation which provides that the transfer of assets between spouses and civil partners that are separating are made on a no gain/no loss for up to three full tax years after the parties cease to live together. This follows on from a recommendation by the Office of Tax Simplification.

Changes to the qualifying asset holding companies rules: The Government are publishing draft legislation which intends to make limited changes to its qualifying asset holding companies regime, which went live in April 2022. These changes will ensure that the regime is available to a broader range of investment structures, consistent with the original policy rationale and subject to safeguards. It is intended that the existing anti-fragmentation rule in paragraph 4 of schedule 2, Finance Act 2022 will be extended with effect from today so that it also applies where interests are held through one or more QAHCs as well as directly in the company concerned.

Approval regime for aerodromes not customs and excise designated: The Government are publishing draft legislation which makes an amendment to establish an approval regime for aerodromes that handle international flights, and which are not customs and excise designated airports. This will facilitate a fairer system which will strengthen both aerodrome operator accountability and border control provisions.

The Government are also announcing the following measure which will take immediate effect from today and publishing draft legislation:

Double taxation relief: time limit for claims: Legislation will be introduced to restrict certain claims for double taxation relief. No extended time limit claims will be allowed in relation to amounts calculated by reference to the foreign nominal rate of tax, unless the relevant accounting period is under enquiry, or there has been an actual adjustment of UK or foreign tax within the last six years. This change will only affect certain double taxation relief claims in relation to distributions received by UK companies in previous years and will protect tax revenue in respect of such distributions.

All draft legislation is accompanied by a tax information and impact note (TIIN), an explanatory note (EN) and, where applicable, a summary of consultation responses document.

Other publications

The Government are also publishing the following consultations:

Improving the data HMRC collects: Under the current system, HMRC collects data from taxpayers and employers via tax returns to administer the tax system and inform Government decision making. The Government are consulting on a number of options for additional data for HMRC to collect, use, and safely share across Government, and how this can be done in a way that minimises any extra burden for customers. This will help ensure the information the Government hold is more accurate, bring direct benefits to businesses and taxpayers, provide better insights for policymaking and support Government aim to build a trusted, modern tax administration system.

Digitalising Business Rates: Connecting business rates and tax data: The way that the business rates system currently operates makes it difficult for the Government to precisely target support when responding to the needs of businesses. Digitalising Business Rates (DBR) aims to join together business rates data held across different parts of Government—billing authorities, the VOA and HMRC—with tax data. By bringing together businesses’ property data and tax information in one place, the Government will be better able to design and apply reliefs to support businesses that are most in need, rather than having to rely on property information in isolation. This consultation lays out and seeks views on options for the policy and IT design for the DBR project.

The Government are also publishing summaries of responses to the following discussion documents and consultations:

“Preventing and collecting international tax debt”

“Helping Taxpayers Get Offshore Tax Right”

“IFRS 17 (new international accounting standard for insurance contracts)”

“ITSA registration for the self-employed and landlords”

“OECD Model Rules for Digital Platforms (MRDP)”

All publications can be found on the gov.uk website. The Government’s tax consultation tracker has also been updated.

Update on previously announced policy

At autumn Budget 2021, the Government plans for alcohol duty reform were announced and a consultation on the detail of those planned reforms was published. The consultation closed on 30 January 2022. The Government are considering the feedback received and will respond in the autumn.

[HCWS256]

Energy (Oil and Gas) Profits Levy Bill

Lucy Frazer Excerpts

2nd reading
Monday 11th July 2022 Commons Chamber

[The Financial Secretary to the Treasury (Lucy Frazer)]

It is a pleasure to close this important debate on behalf of the Government. We have talked today about the context of the Bill: the high oil and gas prices, and the extraordinary profits that are being received by the industry while working people struggle with the cost of living. We are introducing a temporary, targeted levy to fund cost of living support, at the same time as encouraging companies to invest.

Let me start by responding to some of the points made by the hon. Member for Ealing North (James Murray). He criticised our levy for not raising enough, but, as was pointed out by the hon. Member for Aberdeen South (Stephen Flynn), Labour’s proposal would have raised only £1.2 billion at the time when it was made, whereas our levy will raise £5 billion—more than the £4 billion called for by Greenpeace, more than the £3.7 billion called for by the Green party, and, as I have said, significantly more than the amount proposed by the Labour party.

The hon. Member for Ealing North criticised our scheme because it will encourage investment, while the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) said that we needed domestic energy security. We are ensuring that the important oil and gas sector will continue to invest so that we have that domestic energy security. The hon. Gentleman criticised us for not listening to industry, but I noted that neither of the Labour Front Benchers was able to say how or when they had engaged with industry. As Conservative Members know, last month the Chancellor held an industry roundtable which was attended by me and by the former Exchequer Secretary, my hon. Friend the Member for Faversham and Mid Kent (Helen Whately).

Let me quote some of what has been said by representatives of the industry about our investment proposal. Orcadian Energy has said:

“We believe the immediate investment allowance, included in the Energy Profits Levy, has transformed the attractiveness of domestic oil and gas projects for companies extracting oil and gas in the UK and it should spark further investment in the North Sea.”

Cornerstone Resources has said that there has been

“more interest in partnering with us”

in the last few weeks. I could go on, but what we are trying to do is raise money to help with the cost of living, at the same time as encouraging industry to invest in a vital sector.

Let me now answer some of the questions put to us by the hon. Member for Ealing North. First, I can confirm that the Chancellor supports the Bill. I also want to respond to the point about consultation. The hon. Gentleman was, of course, encouraging us to do this a long time ago, but now he says that we should have consulted for longer and, therefore, introduced the measure later. We have sought to engage, and put the industry on notice, as much as possible regarding the announcement of the levy. Ministers in my Department have been in regular contact with the industry and we also undertook a short period of technical consultation on the legislation for the levy. Hon. Members will know that draft legislation was published on 21 June, with stakeholders able to provide technical feedback on it until 28 June.

The hon. Member for Ealing North asked what we were doing about the electricity generation sector. As the former Chancellor said at the time, that is something we are urgently looking at. The hon. Gentleman said that we should follow Labour’s plan. Well, let us remember what Labour’s plan is. Labour has put forward £100 billion-worth of spending proposals, of which only £10 billion-worth are fully funded.

I would like to mention the passionate and important speech from my hon. Friend the Member for Waveney (Peter Aldous). He rightly identified the need to balance short-term measures with long-term investment, and I hope that that is what we are doing. He raised the importance of renewables. As I have had the opportunity to discuss with him before, there are other tax levers and non-tax levers to support non-oil and gas investment, including the super deduction and the UK’s research and development tax credit scheme. There is also the contracts for difference scheme, which provides developers of low carbon electricity generation with direct protection from volatile wholesale prices, and the £1 billion carbon capture infrastructure fund.

My hon. Friend also asked about the timeframe. That is an important point, because this is a temporary measure. There is a sunset clause in the legislation. It is rare to include a sunset clause, but we have done so to underline that this is a temporary measure with a timeframe of 2025. He raised the importance of dialogue with the industry, and I reassure him that we have engaged fully with the industry and will continue to do so.

[Alan Brown]

On carbon capture infrastructure, the Minister is well aware that the Scottish cluster has been made a reserve and been let down yet again. Can she define what “reserve” means, because nobody seems to know? Does she expect one of the two selected projects to fail, at which point the reserve would step up, or is it a question of dangling a carrot in front of it? What does “reserve” really mean, and why do the Government not just make the Scottish cluster a track 1 cluster?

[Lucy Frazer]

The hon. Member makes an important point, because we value the investment and work that is going on in Scotland in the oil and gas sector and in renewables. He knows that, because I and Ministers from the Department for Business, Energy and Industrial Strategy have stood at this Dispatch Box and engaged with him regularly on this. He is right to identify that that cluster is in reserve, and I am sure these matters are being discussed with the relevant Ministers in BEIS.

I recognise the points that the hon. Member for Aberdeen South made about the sacrifices made by those who work in this sector. I am grateful to him for making those points, which I am happy to associate myself with. He asked what the normal price was, and I would like to refer him to the comments that the former Chancellor made when he was questioned on this by the Treasury Committee. He said:

“The last time this was done, a price target was published, which was $74 or $75 for Brent…If you look at average Brent price over the last five or 10 years, that will give you something like $60 or $70 for oil…so that gives you a sense.”

This is something we will be considering in due course.

[Stephen Flynn]

I was of course aware of the former Chancellor’s fluff in relation to this topic. Is the Minister confirming to the House and to the industry, which will be watching, that if the price of oil falls to around $60 or $70 a barrel, the levy will be no more?

[Lucy Frazer]

As I have just said in responding to the hon. Gentleman’s earlier point, the former Chancellor said that that “gives you a sense”, and I too am happy to relay that sense of where the prices would be, but we also have the long-stop date, which should give the industry some certainty as to when this will finally come to an end.

I welcome the hon. Member for Wakefield (Simon Lightwood) to this place. I was born and made in Leeds so I am very pleased to welcome a neighbour, in one sense of the word, and to hear him extol the virtues of Wakefield. He made a passionate speech about standing up for victims of sexual abuse and I welcome him to his place in the House of Commons.

The hon. Member for Bath (Wera Hobhouse) asked for bold and swift action, and that is what this Bill is about. Tonight this House has the opportunity to support the introduction of an energy profits levy on the extraordinary profits of UK oil and gas producers. It has the opportunity to support investment in the North sea through the levy’s investment allowance, and to support the automatic expiry of the levy in law, giving companies additional reassurance that the levy is temporary. This is a balanced approach that allows the Government to deliver support to families while encouraging investment and growth. For those reasons, I urge Members of this House to support the Bill.

Question put and agreed to.

Bill accordingly read a Second time.

Energy (Oil and Gas) Profits Levy Bill

Lucy Frazer Excerpts

Committee stage
Monday 11th July 2022 Commons Chamber

[Lucy Frazer]

Thank you very much, Mr Chair. I open this debate by reminding the Committee of the purpose of the energy profits levy. The levy is a temporary 25% surcharge on extraordinary profits being made by the oil and gas sector as a result of the substantial rise in energy prices precipitated by the Russian invasion of Ukraine. It will help to fund the cost of living package for UK families that we announced in May. It will raise around £5 billion over the next year and will apply to companies within the ringfenced corporation tax regime. Specifically, these are companies involved in the exploration for and extraction of oil and gas in the UK and on the UK continental shelf.

The Government have been clear that they want the oil and gas sector to reinvest its profits to support the economy, jobs and UK energy security. That is why the Bill includes the 80% investment allowance. This new super deduction-style relief is being introduced to encourage firms to invest in oil and gas extraction in the UK. In future years, if oil and gas prices return to historically more normal levels, the Government will phase out the levy. However, the first clause in the Bill specifies that the levy will automatically cease to apply after 31 December 2025. I want to highlight this to the House, as it demonstrates the Government’s commitment to keep the levy temporary. Very few taxes have their expiry date set in law. Before I address the clauses and schedules in the Bill in turn, I would like to say that I have noted the amendments and new clauses tabled by Opposition Members and I will respond to them later in the debate.

Clause 1 gives the Government the ability to collect the energy profits levy. It sets the 25% rate and the levy’s main scope. The clause sets out that the levy applies to accounting periods for when the measure is in effect. It also sets the adjustments to ringfence profits for the purposes of calculating taxable profits for the levy. The levy is a tax on profits that companies are realising from oil and gas activities during what is an exceptional period. It is only fair that the measure of profit on which the EPL is charged should not be reduced by the amount of decommissioning expenditure or losses incurred from previous years. Therefore, those adjustments, which include finance costs, decommissioning costs and historic losses, are left out of account. However, the repayment of petroleum levy revenue tax arising from decommissioning is also left out of accounts. As I mentioned on Second Reading, the Government have responded to feedback from the industry in making this change. Although such repayments remain taxed under the ringfenced corporation tax and supplementary charge, they are not taxed under the levy. Another adjustment to profits is the new 80% investment allowance, which is deductible against profits.

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[Lucy Frazer]

I have read amendment 9 and will address it in due course. In response to the hon. Gentleman’s point, that will be included in guidance. I said it at the Dispatch Box last week, and my right hon. Friend the Chief Secretary to the Treasury has also said it at the Dispatch Box, so I think that point is quite clear.

Clause 5, on the meaning of “disqualifying purposes,” is an anti-avoidance provision to ensure that expenditure is not eligible for the investment allowance if it arises because of any tax avoidance arrangements. Clause 6 ensures that additional expenditure for the investment allowance is available only for new assets, including the acquisition of an interest in an oilfield. It prevents the allowance from being generated on assets that have already been taken into account for the purposes of the levy or that would have been had the levy been in force.

Clause 7 determines when investment expenditure is incurred. For capital expenditure, it is as per the rules set out in the existing capital allowances legislation; for operating and leasing expenditure, it is the date on which it is paid. The clause also makes it clear that expenditure incurred before 26 May 2022 or after 31 December 2025 is not to be treated as expenditure incurred in an accounting period to which the levy applies.

Clauses 8 and 9 define financing and decommissioning costs and are modelled on existing legislation. Clause 10 and schedule 1 set out the loss regime within the levy. This includes group relief and the losses that companies carry back or forward under the levy, such as carrying forward losses to a future qualifying period. Clause 11 applies general corporation tax principles to the levy, which is treated for administrative purposes as an amount of corporation tax. It also prescribes the framework within which the levy will operate.

Clause 12 introduces a requirement for companies making a levy repayment to provide information about that payment to HMRC, so that receipts from the levy can be monitored. Clause 13 provides for necessary adjustments to be made if alterations are made to a company’s ringfenced profits or losses. Clause 14 introduces schedule 2, which makes consequential amendments to enactments in the light of this Bill.

Clauses 15 to 17 set out the rules for apportioning profits for accounting periods that straddle the levy’s start or sunset dates. These rules identify which profits are chargeable to the levy by treating the periods before and after the start or end date as separate accounting periods. In particular, this requires companies to apportion their receipts, expenses, assets and liabilities on a just and reasonable basis. Clauses 18 and 19 simply set out the Bill’s legal interpretation and short title in the usual manner.

This Bill delivers the energy profits levy, a 25% surcharge on the oil and gas sector’s extraordinary profits. The levy will raise around £5 billion over the next year, and it will go towards supporting people via the cost of living measures we announced in May. The Bill also provides for the new 80% investment allowance, which means that businesses will overall get a 91p tax saving for every £1 they invest. Finally, the Bill provides certainty through a sunset provision. It will therefore give businesses further reassurance that the levy is indeed temporary.

[James Murray]

I will now address the detail of the Bill’s key clauses, as well as the amendments and new clauses tabled in my name and those of my hon. and right hon. Friends.

As I set out on Second Reading, this Bill is long overdue. The Government have finally agreed to introduce a windfall tax many months after they should have done. As I noted earlier, Ministers still cannot bring themselves to say “windfall tax” in relation to these measures, so we offer them amendment 8, which would rename the Bill, as one last chance to call this new tax what it is.

It has been six months since, on 9 January, the shadow Chancellor first set out Labour’s plans for a windfall tax on oil and gas producers’ profits to help to fund a cut to people’s home energy bills. Until their U-turn in late May, Ministers were falling over each other to attack our plans. In all the time they opposed our plans, people’s energy bills and oil producers’ profits both soared. Those months of opposing our plans left the public finances missing out on billions of pounds of tax revenue. Those extra funds could have given people further help with their energy bills. Today we are giving the Government the chance to right that wrong.

Clause 1 makes it clear that the windfall tax will apply from 26 May 2022. Our new clause 3 would require the Government to recognise how much extra tax revenue would be raised if the levy instead applied from 9 January. We urge all Conservative MPs to support our amendment and apply the windfall tax from 9 January, the day the shadow Chancellor first laid out Labour’s plans for a windfall tax, rather than leaving it to start only from 26 May, the day the former Chancellor finally changed his mind.

Those extra months would raise an extra £1.9 billion for the public finances, which we would then urge the Government to put toward removing VAT on domestic energy bills for the rest of this year. We have been urging the Government to scrap VAT on this year’s domestic energy bills since last autumn. We know that a VAT cut would provide immediate help to families now. Furthermore, taking VAT off energy bills would help to push inflation downwards from its current 40-year high. Funding for this should come from applying the windfall tax from January this year, when Labour first called for it, rather than only from May, when the Government finally came round.

Conservative leadership hopefuls have been talking a lot over the weekend about how keen they are on tax cuts, although they and their supporters have all failed to explain how any of those would be paid for. Today, we offer them a fully funded tax cut that will help people immediately with the cost of living. Today, we are asking them to follow our plan to cut VAT on home energy bills by applying the windfall tax on oil producers from the start of the year, as should always have been the case. The principle of backdating a windfall tax is not only well established—given that the very principle of windfall taxes is to tax unexpected profits that have occurred—but is included in this Bill, which backdates the levy in its first clause.

We know that oil producers such as BP and Shell reported bumper profits in the first quarter of 2022. As drafted, however, the Government’s Bill ignores those profits entirely, as their levy will not apply until well into the second quarter of this calendar year. I realise that the Financial Secretary has said that she will not support our new clause and that the current Chancellor, a former oil industry executive, is unlikely to change his mind after coming out so firmly against a windfall tax on oil and gas producers back in January, on the grounds that those producers were “already struggling.” But given the situation in the Conservative party, I wonder whether colleagues of the Minister may feel able to think more openly about how to vote. I wonder whether any of the other Conservative leadership candidates may like to support our plan for an immediate, fully funded tax cut to help people with the cost of living and tackle inflation. Later this evening, when we vote on new clause 3, we will find out what judgment they have made.

We would also like to know what judgment those people have made about the Government’s decision to undermine the levy by shamefully giving a third or more of any money raised straight back to the oil producers through the new tax break introduced by clauses 2 to 7. This new tax break offers oil and gas producers an unprecedented subsidy for their spending on oil-related activities. As we made clear on Second Reading, for every £100 an oil and gas producer invests in the North sea, they will receive £91.25 from the taxpayer. That is an astonishing 20 times the £4.50 that companies investing in renewable energy will receive from April next year.

Any argument by Ministers that this tax break is necessary to support investment in oil-related activities has been challenged by the bosses of the oil producers themselves. BP’s chief executive told shareholders just two months ago that the company’s £18 billion investment plans were

“not somehow contingent on whether or not there is a windfall tax”.

Yet despite even oil executives questioning its worth, the Government are pushing ahead with this tax break. Our analysis has shown that that means a third or more of any revenue from the new levy could be handed straight back to oil and gas producers. That money will subsidise projects that almost certainly would have happened anyway, as there is no requirement in the Bill for investment to be additional to what was already planned, and this move stands totally at odds with the paramount need to invest in renewable energy sources.

It is critically important and urgent for us to invest in renewable energy to strengthen our energy security while bringing down people’s bills and tackling the climate crisis. We have set out Labour’s plan to do just that. Alongside insulating 19 million homes over 10 years to cut people’s bills, we would strengthen our energy security and reduce our carbon emissions by doubling our onshore wind capacity, tripling solar power, backing tidal power and nuclear power, and further investing in hydrogen. Yet the Government are today introducing a tax break that seems to fly in the face of tackling the climate crisis.

That is why we have tabled new clause 2, which would force the Government to come clean about the impact of their unnecessary tax giveaway to oil producers on our country’s net zero obligations, energy security and renewable energy supplies. This new clause also asks the Government to spell out what impact their tax break will have on fracking, given the deeply concerning reports in the media that legal advice provided to the campaigning group Uplift suggests that fracking companies would also be eligible for this tax break, based on the way the Bill has been written. I urge the Government to accept new clause 2, to make it clear what impact the tax break in the Bill will have on fracking. If the Minister refuses to do that, will she at least come clean today and confirm or deny whether this tax break could lead to public money being channelled toward dangerous, unpopular and expensive fracking projects?

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[Caroline Lucas]

The hon. Gentleman puts it perfectly succinctly and I very much agree.

It has been estimated that existing decommissioning relief deeds could enable the extraction of the equivalent of 1.7 billion barrels of oil that otherwise would have remained unextracted, and that will only increase if we continue with the vicious cycle of handsomely subsidising fossil fuel companies to exploit oil and gas reserves. In response to the Glasgow Climate Pact’s call for parties to

“phase out inefficient fossil fuel subsidies”,

the Climate Change Committee said that the Treasury should initiate a review of the role of tax policy in delivering net zero, and was very clear that no fossil fuel subsidy should be considered efficient in the UK. Will the new Chancellor now commit to that review, listen to his own Climate Change Committee, and take its advice?

New clause 10 would require the Government to produce an assessment of the impact of the investment allowance on achieving net zero and on limiting the global temperature increase to 1.5°. It is frankly astounding that the Government need to be reminded yet again that the IEA has been clear that limiting global temperatures to 1.5° necessitates

“no new oil and gas fields approved for development”

as from last year. Yet according to the United Nations Environment Programme, the level of fossil fuel production planned and projected worldwide by Governments in 2030 is more than twice the levels consistent with that goal. The UK has given North sea oil and gas companies almost £14 billion in subsidies since signing the Paris agreement in 2015 alone. This Bill was an opportunity for the Government to change course, but instead they have chosen to double down and to play with fire by bringing forward a Bill that is plainly incompatible with a safe future.

It is patently obvious that the Government should amend the Bill to ensure that oil and gas profits are taxed properly, but I believe fundamentally that that should pave the way for a much wider overhaul of our tax system. We need a carbon tax, which, if implemented properly with a dividend to shield low-income households, could be pivotal in driving the change we need in order to decarbonise our economy fairly. That tax—it has long been Green party policy—would target the big polluters such as oil and gas companies. It is estimated that, starting at a rate of about £100 per tonne of CO₂, it could generate up to £80 billion to fund the transformation necessary to achieve our climate goals. That is the kind of innovative policy we need right now to save ourselves from the climate emergency that is only growing deeper.

[Lucy Frazer]

Many of the points that have been raised in Committee were considered on Second Reading, but I would like to touch on a few of them and then deal with amendments.

The hon. Member for Ealing North (James Murray) asked how the new investment allowance works. On 6 June, I said I was very happy to look further at this point, and I can reassure him that the investment allowance within the levy will be generated on investment expenditure —that is, capital expenditure and some operating and leasing expenditure—incurred on or after 26 May. The legislation includes an anti-avoidance provision to prevent any recycling of existing assets from getting the allowance, and that is all very clearly set out in clause 6.

I want to deal with some of the points made by my hon. Friend the Member for South Thanet (Craig Mackinlay), because I understand his objections, and no Conservative wants to bring in a tax rise where it is not necessary. I have had the opportunity to talk to him on a number of occasions about these measures, and he will know that they are targeted and temporary. He says he fears for investment coming through, but of course that will be assessed by the OBR in due course. I am not sure whether he was in the Chamber earlier when I quoted some companies that have said that they will be investing and that this encourages investment, but I will mention a further one. Kistos has said that it is

“assessing opportunities in the UK that would enable us to take full advantage of the investment allowances implicit in the recently introduced UK Energy Profits Levy”.

I turn to the amendments. Amendment 1 would require companies to report on how much additional tax relief they are claiming as a result of the levy’s investment allowance, in addition to the existing requirement to report how much levy is payable. The amendment would also require that data to be published on a quarterly basis. Companies will already be reporting the information to HMRC that allows it to ensure appropriate compliance with the law, and figures on the amount of tax raised through the levy will also be published on a periodic basis in line with other taxes. As a result, this amendment should not be made to the Bill.

Amendment 9 would add clarification to the allowable purposes of expenditure under the levy’s investment allowance. I have already dealt with that point on Second Reading, and I confirm to the Committee that HMRC will clarify this in written guidance.

New clause 1 calls for an assessment of the impact on revenue and on oil and gas companies’ profits of a 45% levy rate. Similarly, new clause 8 calls for assessments of the revenue impact of a permanent 30% levy rate, which would bring the permanent headline rate of tax for oil and gas companies in ringfence corporation tax to 70%. However, it is not standard—I will be saying this in relation to a number of new clauses—for the Government to publish assessments of the fiscal and economic impacts of measures that they are not introducing, and it is not clear that doing so would be a beneficial use of public resources. Therefore, I recommend that the Committee rejects these new clauses.

Again, new clauses 3, 5 and 9 would require reviews or assessments of policies that the Government are not introducing. New clause 3 would require a review of the revenue that would have been raised had the levy taken place from early January. I set out on Second Reading why we did not bring forward this measure earlier, and I did so last week as well. We are not supporting these measures because, as I have said, it is not usual to bring forward public assessments of measures that we are not introducing.

New clauses 2, 6 and 10 would require reviews or assessments of the impact of the investment allowance on the energy market, climate change commitments and exploration activity. The Government oppose these amendments on the basis that the Treasury already carefully considers the impact of all measures on the energy market and our climate change commitments as a matter of course.

New clause 4 would require a review of the amount of investment allowance that will be claimed and how it relates to expenditure that would have happened were the investment allowance not in place. The first point to reiterate here is that the Government expect the combination of the 25% levy and the 80% investment allowance to lead to an overall increase in investment, and the OBR will take account of this policy in the next forecast. HMRC already publishes data on the costs of non-structural reliefs, which will include the investment allowance in due course, once data is available.

Finally, new clause 7 would require the Government to publish regular reviews of the oil and gas market, including assessments of the need for the levy and whether it should be continued to promote further decarbonisation of upstream oil and gas activities. That is also unnecessary, since the Government already monitor the UK oil and gas sector, and data is published on gov.uk on a monthly and quarterly basis.

For all the reasons I have set out, I urge Members to reject all the amendments and new clauses. I commend the clauses and schedules to the Committee.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Additional expenditure treated as incurred for purposes of section 1

Amendment proposed: 9, page 2, line 42, at end insert

“, which may include electrification investment that decarbonises upstream oil and gas activities”.—(Stephen Flynn.)

This amendment would put on the face of the bill that electrification investment which decarbonises upstream oil and gas activities is eligible for relief.

Question put, That the amendment be made.

Alcohol Taxation

Lucy Frazer Excerpts

Thursday 7th July 2022 Commons Chamber

[The Financial Secretary to the Treasury (Lucy Frazer)]

It is a pleasure to respond to this debate and I congratulate my right hon. Friend the Member for Vale of Glamorgan (Alun Cairns) on securing it. It has been good to hear from hon. Members across the House and from the chairs and members of very important all-party groups on this subject.

It is very clear that my right hon. Friend is an ardent advocate for producers and traders in his constituency. Indeed, Wales has an historic association with alcohol production going back 4,000 years and today produces many ciders, beers and wine. My hon. Friend the Member for Meon Valley (Mrs Drummond) also talked about the producers in her constituency.

As many Members have mentioned today, we are making changes to outdated, arbitrary and inconsistent alcohol tax laws. These reforms will make the system fairer, simpler and more aligned to public health goals than the system that we inherited from the EU. As the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) said, these are significant reforms that we are making.

Before addressing the excellent points that have been raised today, I want to remind Members of the major changes that we are making to improve the duty system. Reform of our alcohol tax laws is long overdue. These laws have barely changed since the 1990s. That is largely because incoherent and prohibitive EU rules have, in the past, hindered much-needed change. In the current system, a high-strength white cider will pay less duty per unit than a low-strength beer. Sparkling wine—a product of which the UK has world- leading examples—pays much more duty than still wine, even when it is substantially less strong. Fortified wines are made with the addition of spirits, and yet they pay less duty than a liqueur made with spirits, even if they are the same strength. We have inherited 15 rates from the EU across five different products, and with three different methods of taxation.

The current system is complex and archaic. The Institute of Economic Affairs said that it “defies common sense”. Producers, importers and exporters in this country have called it “distorted”,

“perversely incentivised to produce stronger drinks”

and welcomed “the opportunity for reform”. We agree. Now that we have left the EU, we have an opportunity to create alcohol laws that are more rational and that support the many and varied producers and traders in this country that we have heard about today.

I wish to take this opportunity to remind everyone of the significant benefits that have been introduced with our reforms: a radically simplified system, slashing the number of bands from 15 to six and taxing all products in proportion to their alcohol content; taxing all products in the same rational way, a policy banned by EU law; and ending the premium rates on sparkling wine and equalising them with still wine, and substantially reducing duty on rosé. We have introduced new rates for low-strength drinks below 3.5%, encouraging innovation and reflecting consumer preferences for the low or no-alcohol market, and we are cutting duty on 3.4% beer by 25p a pint. We have modernised the taxation of cider, targeting unhealthy and problematic white ciders while cutting the duty for lower ABV craft and sparkling ciders. We have introduced small producers’ relief to support the many small, artisan alcohol producers who continue to create world-leading products in this country. Those are benefits that would not have been available to us before we left the EU.

[Daisy Cooper]

Can the Minister clarify which specific EU regulation was preventing us from enacting duty reform?

[Lucy Frazer]

There are many laws in the EU, as the hon. Lady will know, that have dictated our laws for many years. Those are the regulations and directives that we are changing, not only in this area, but in many others.

Coming back to the system we are producing, we ran a consultation from after the autumn Budget until January this year and Treasury officials have met many stakeholders from across industries and public health groups. The hon. Lady said that we need to consult more, but I can assure her that Treasury Ministers, largely the former Exchequer Secretary to the Treasury, my hon. Friend the Member for Faversham and Mid Kent (Helen Whately), who was responsible for this area, have met colleagues from across the parties. We have spoken to and visited businesses, from the smallest to the largest, welcomed representations from many of the most important trade bodies and sat down with the Australian high commissioner, all to ensure that at the Treasury we have heard all points of view on the reforms. I can assure the hon. Lady and others that we are listening.

I will come on to the points that hon. Members have made. We have heard from industries, businesses and colleagues about their concerns, and we will continue to listen to the feedback. The comments made in this debate will form part of that listening. We are actively thinking about how we can reduce burdens on businesses while still preserving the many benefits of the system, not least the clear and obvious public health benefits of taxing products by their alcohol strength.

Many hon. Members have talked about issues with keg size, including my right hon. Friend the Member for Vale of Glamorgan, my hon. Friends the Members for Meon Valley and for Dudley South (Mike Wood), and the hon. Member for St Albans (Daisy Cooper). I want to assure them that, while I cannot make any announcements today, we are listening to that point. My right hon. Friend the Member for Vale of Glamorgan, my hon. Friend the Member for Dudley South and others talked about how small producers’ relief is too complicated. I reassure them that we are determined to get rid of the cliff edge to support the growth of small brewers.

Other hon. Members talked about the duty charges on wine. I have spoken to the former Exchequer Secretary, who told me how she has been engaging with the sector on this very issue. The hon. Member for St Albans mentioned that she had visited the Wine Society and heard its views, and I know the Treasury is looking at ways to reduce the administrative burdens.

The hon. Lady also talked about fortified wines; she will know that we are reforming the duty on fortified wines to ensure that those products pay a consistent rate of duty per unit with still and sparkling wines and high-strength beers. We are increasing the duty on fortified wines to equal the duty on spirit-based liqueurs such as Baileys, because both drinks are made using spirits and we think it is right in those circumstances that they pay the same rates.

My hon. Friends the Members for Weston-super-Mare (John Penrose) and for Meon Valley talked about cider, as did others, and I hear what they are saying. They will know that ciders will benefit from new reduced rates for lower ABV ciders below 3.5% ABV, and as part of our new draught relief we will cut duty rates on draught fruit ciders by 20% to equalise them with beer, cutting 13p off a pint. Nobody has mentioned this today, but I would like to reiterate that we announced in the 2021 autumn Budget that we were freezing cider duty for the fourth consecutive year.

The hon. Member for Gordon (Richard Thomson) talked about Scotch and other spirits. I remind him that at the Budget the Government froze spirits duty, saving 52p off a bottle of Scotch compared with what it would have been if duty had risen with inflation. Because of the decisions that we have made, spirits duty rates are at their lowest level since at least 1918. It is a really important industry for us and we have an exceptionally competitive environment for Scotch to succeed. Domestic whisky volumes have expanded year on year, including throughout the pandemic, to reach their highest levels since 2013, growing by 11% over the past two years.

[Richard Thomson]

I am looking at a graphic that shows that when duty on a shot of whisky in the UK was 46p, duty on the same measure of whisky in Spain would have been the equivalent of only 12p. I wonder what Brexit benefit it might be that has resulted in that differential staying there even with whisky duties being frozen.

[Lucy Frazer]

The hon. Member will know that the benefit of Brexit is that we can now make these decisions ourselves, reflecting our own industries and what we want to do as a Government going forward.

We have heard many positive responses to the changes we have made, welcoming the substantial benefits that they will bring to businesses. Respondents to the consultation said that they

“wholeheartedly welcome the direction of the proposals.”

Many hon. Members have mentioned positive features of the proposals, which have been called a “genuinely significant achievement”. Crucially to a country that puts its people first, a public health group described the reforms as

“the largest and most positive shift from the perspective of public health in contemporary alcohol policy.”

I thank all colleagues who have contributed to this important and insightful debate. We will soon confirm details of the reforms and publish the draft legislation for consultation, alongside the Government’s response. We have before us a once-in-a-generation opportunity to reform and improve an outdated system, with new incentives for producers to diversify and innovate, while introducing a direct boost for pubs. The reforms are more rational, they are fair, and they are better aligned to public health goals and consumer preferences. They support the great British pub and small producers producing fantastic, world-leading products. Our reforms spell exciting times for alcohol businesses in this country and will protect our brilliant heritage in alcohol production and trade.

Finance Bill 2022-23: Draft Legislation

Lucy Frazer Excerpts

Tuesday 5th July 2022 Written Statements

[The Financial Secretary to the Treasury (Lucy Frazer)]

The Government will introduce the Finance Bill following the next Budget.

In line with the approach to tax policy making set out in the Government’s documents “Tax Policy Making: a new approach”, published in 2010, and “The new Budget timetable and the tax policy making process”, published in 2017, the Government are committed, where possible, to publishing most tax legislation in draft for technical consultation before the legislation is laid before Parliament.

The Government will publish draft clauses for the next Finance Bill, which will largely cover pre-announced policy changes, on 20 July along with accompanying explanatory notes, tax information and impact notes, responses to consultations and other supporting documents. All publications will be available on the gov.uk website.

[HCWS180]

Energy (Oil and Gas) Profits

Lucy Frazer Excerpts

Tuesday 5th July 2022 Commons Chamber

[The Financial Secretary to the Treasury (Lucy Frazer)]

I beg to move,

That provision may be made for, and in connection with, imposing a charge on ring fence profits of companies (within the meaning of Part 8 of the Corporation Tax Act 2010).

This Bill deals with the taxation of extraordinary profits in the oil and gas sector, but it is important to remember that its effect is to allow us to focus on supporting families up and down the country at this difficult economic time. The Bill will help us to raise revenues and support families while continuing to encourage investment in North sea oil and gas.

[Darren Jones (Bristol North West) (Lab)]

I wonder whether the Treasury has made any assessment yet of how much money will be raised by this windfall tax, given the debt that will need to be taken on as a result of the tax cut for those drilling for fossil fuels. Is there an estimate of how much the Minister intends to raise by these means?

[Lucy Frazer]

The estimate of the amount that the measure will raise is £5 billion over the course of the first year. I start by highlighting the context for our introducing the Bill. The oil and gas sector is making extraordinary profits. Those profits are not the result of recent changes to risk-taking, innovation or efficiencies; they are the result of surging global commodity prices, driven in part by Russia’s war. The profits are over and above what analysts and businesses in the sector could have expected to earn. Indeed, since early last year, oil prices have nearly doubled and gas prices have more than doubled. The Bill is being introduced at a time when many of our constituents are struggling with the cost of living, and at a time when we have said that the Government will support the most vulnerable and the least well off in getting the support that they need.

I would like to touch on how the Bill ensures that we tax extraordinary profits fairly while incentivising investment. To do that, we are introducing the energy profits levy, a new 25% surcharge on the extraordinary profits that the oil and gas sector is making. At the same time, the new 80% investment allowance will mean that businesses will, overall, get a 91p tax saving for every £1 they invest. This provides them with an additional immediate incentive to invest. That nearly doubles the tax relief available and means that the more investment a firm makes, the less they will pay. As set out in the energy security strategy, the north will still be a foundation of our energy security, so it is right that we continue to encourage investment in oil and gas. The Government expect the energy profits levy, with the investment allowance, to lead to an overall increase in investment.

I want to make clear what the investment allowance will apply to. First, the allowance will be calculated in the same way as the investment allowance for the existing supplementary charge. Therefore, if capital or operating expenditure qualifies for the supplementary charge allowance, it will qualify for the energy profits levy allowance, but unlike the supplementary charge, it will be available to companies at the point of investment. This makes it both more immediate and more generous. As the levy is targeted at the extraordinary profits from oil and gas upstream activities, it makes sense that any relief for investment must also be related to oil and gas upstream activities. Such spending can be used to decarbonise oil and gas production—for example, through electrification—so any capital expenditure on electrification, as long as it relates to specific oil activities within the ringfence, will qualify for the allowance. Examples of activity that may be carried out for specific oil activities include expenditure on plant and machinery such as generators, which includes wind turbines, transformers and wiring.

We have also been listening closely to feedback from industry. We published draft legislation for the Bill on 21 June to seek technical feedback. Two weeks ago, the former Chancellor met industry stakeholders in Aberdeen to discuss the levy—not just to communicate the aims of the levy and how it will fund vital support for families, but to ensure that the levy works as the Government intended. That is why I can confirm that the Government are making a change to the legislation. I confirm that tax repayments that oil and gas companies received for petroleum revenue tax related to losses generated by decommissioning expenditure will not be taxed under the levy. Since wider decommissioning expenditure is also left out of account for the levy, that change is consistent and fair. We are very grateful for the engagement that we have had with industry on the matter. When the Bill is published, this will be made clear. To reassure the House, with this change, the Government still expect the levy to raise about £5 billion over the next year.

Finally, let me turn to how long the levy will be in place. It will take effect from 26 May this year and it will be phased out when oil and gas prices return to historically more normal levels. A sunset clause will also be written into the legislation so that, by the end of 2025, the levy will automatically cease to be in place. The energy profits levy is temporary, with a set lifespan that raises about £5 billion revenue over the next year, so that we can help families with the cost of living in the shape of significant, targeted support to millions of the most vulnerable.

--- Later in debate ---

[Lucy Frazer]

It is a pleasure to respond to many of the interesting points that have been made, and I wish to touch on a few of them. The hon. Member for Ealing North (James Murray) suggested that this was his proposal for a windfall tax that we have adopted, but he will know that this is not Labour’s proposal, because it is significantly different. Not only does it bring in further revenues, but it introduces an investment incentive, to ensure that we get more from our oil and gas sectors.

The hon. Member also mentioned the cost of living. He will know that we are spending £37 billion on supporting people when they most need it, but the most important point is about fiscal responsibility. We on this side of the House believe in fiscal responsibility. That is why, unlike Labour, we have not made £100 billion-worth of unfunded spending proposals, which no amount of taxation would fund.

I understand the points that my hon. Friend the Member for Poole (Sir Robert Syms) makes. No Conservative Government is keen on additional taxes, but, as he will know, this is a temporary, short-term, focused additional tax that has a sunset clause and might well be brought to an end—there are provisions to allow that—when revenues return to normal.

I remind the House that the hon. Member for Glasgow Central (Alison Thewliss) called for more windfall taxes on other industries. That is obviously something that we would oppose, but the interesting point she made was about what she said was the mismanagement of resources. I remind the House of the mismanagement of the SNP Government in Scotland, whose health, education and justice budgets are growing more slowly in real terms than UK spending, and that the reason for that is the 50% increase in their welfare budget.

The hon. Member for Edinburgh West (Christine Jardine) suggested that her proposal would have delivered £3 billion more if this tax had been introduced earlier, but she forgets that the Lib Dem proposal was significantly less than what we have proposed in terms of revenues. The Lib Dems were proposing a 10% increase in the supplementary charge. She will know that our proposal is for a 25% increase.

Finally, I understand the perspective of the hon. Member for Brighton, Pavilion (Caroline Lucas), given where she comes from on these issues, but I am grateful that she has indicated that she welcomes the levy, although of course she would like it to be broader. With those comments, and with the leave of the House, I commend the Bill to the House.

Question put and agreed to.

Resolved,

That provision may be made for, and in connection with, imposing a charge on ring fence profits of companies (within the meaning of Part 8 of the Corporation Tax Act 2010).

Ordered, That a Bill be brought in on the foregoing Resolution;

That the Chairman of Ways and Means, the Prime Minister, Secretary Kwasi Kwarteng, Secretary Alister Jack, Chris Heaton-Harris, Greg Hands, Mr Simon Clarke, John Glen, Helen Whately and Lucy Frazer introduce the Bill.

Energy (Oil and Gas) Profits Bill

Lucy Frazer accordingly presented a Bill to make provision for, and in connection with, imposing a charge on ring fence profits of companies.

Bill read the First time; to be read a Second time tomorrow, and to be printed (Bill 135) with explanatory notes (Bill 135-EN).

Oral Answers to Questions

Lucy Frazer Excerpts

Tuesday 28th June 2022 Commons Chamber

[Neale Hanvey (Kirkcaldy and Cowdenbeath) (Alba)]

1. What recent discussions he has had with (a) Cabinet colleagues and (b) stakeholders on the potential merits of zero-rating VAT on domestic fuel.

[The Financial Secretary to the Treasury (Lucy Frazer)]

The hon. Member’s question is about the Government’s support for those who are struggling with the cost of living. The Government recently announced an additional £15 billion-worth of additional support, targeted particularly on those with the greatest need. Government support for the cost of living now totals £37 billion this year.

[Neale Hanvey]

VAT on domestic fuel continues to be levied on rising fuel bills while one in three Scots households live in fuel poverty. With 8% of the UK population, Scotland has 96% of the UK’s crude oil reserves, 63% of the UK’s natural gas reserves, 90% of the UK’s hydropower and 25% of Europe’s offshore wind and tidal resources. Scotland’s vast energy potential far exceeds the needs of our people yet we receive no revenue. Can the Minister tell me the true value of Scotland’s energy to the UK Treasury, and set out how the Government will service their massive debts when they can no longer fleece Scotland of its energy resources following a vote for independence in 2023?

[Lucy Frazer]

We of course recognise Scotland’s contribution to energy across the country and the fantastic industry that we have in Scotland, but the hon. Member will know that Scotland has a record sum this year in terms of money that comes through the Treasury, through the Budget and through the Barnett formula.

[Karl MᶜCartney (Lincoln) (Con)]

The original question was about heating fuel, and I wonder if the Minister could let us know the proportion of people in London who use heating oil compared with those out in rural areas such as Lincolnshire or even in Scotland?

[Lucy Frazer]

My hon. Friend is right: more people use heating oil in rural areas, and the Treasury and the Department for Business, Energy and Industrial Strategy are looking at energy across the board to ensure that all people are protected.

[Dame Nia Griffith (Llanelli) (Lab)]

2. Whether his Department is taking steps to reduce Her Majesty’s Revenue and Customs paperwork for alcohol exporters.

[The Financial Secretary to the Treasury (Lucy Frazer)]

The 2025 UK border strategy sets out the Government’s vision for the UK border to be the most effective in the world. We are investing £180 million to build a UK single trade window, which will streamline how traders share information with the Government, making it as straightforward as possible for business to comply with customs requirements.

[Dame Nia Griffith]

We all understand the need to protect revenue and to prevent fraud, but some alcohol exporting companies find that their exports are being hindered by HMRC’s refusal to accept standard invoicing as proof of tax paid. HMRC, in requiring additional letters of confirmation, is therefore causing companies considerable hindrance to their exports. Will the Minister agree to meet me to find a way forward that can both protect revenue and facilitate exports?

[Lucy Frazer]

I would be very happy to meet the hon. Member and look at the specific issues that she has raised, but I reassure her that HMRC is currently in a programme to ensure that traders have to fill in fewer forms and that forms are prepopulated, so that customs can be streamlined for the trader.

[Andrew Bridgen (North West Leicestershire) (Con)]

Does the Minister agree that a trade agreement with India would be a huge boost to our exporters, including our alcohol exporters?

[Lucy Frazer]

The Government are very much committed to trade agreements across the globe and would welcome a trade agreement with India.

[Stephen Farry (North Down) (Alliance)]

3. What fiscal steps he is taking to help reduce the impact of rises in the cost of living in Northern Ireland.

--- Later in debate ---

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

T4. Recently, it was revealed that Her Majesty’s Revenue and Customs is failing to use the third-party data information that we get through international agreements to investigate how much tax is being evaded through offshore assets. Given that £850 billion is held offshore, with two thirds of it stashed in known tax havens, either Ministers are content for the super-rich to evade paying their fair share in the knowledge that their offshore wealth is not being systematically checked, or they will direct HMRC to use this reporting data, as is done in the US and Denmark, to uncover tax evaders. Which is it?

[The Financial Secretary to the Treasury (Lucy Frazer)]

I am proud that HMRC is a leader in tax transparency, has a number of double tax treaties and co-operates with a large number of countries and international organisations to share tax information to ensure that people pay their fair share.

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

T3.   The global cost of living crisis is affecting many of our constituents, so it is welcome that those on means-tested benefits—one in three households—will receive £1,200 in support from the Government this year. When will that vital support be hitting bank accounts?

--- Later in debate ---

[Mr Gagan Mohindra (South West Hertfordshire) (Con)]

T8.   Yesterday morning, I had the pleasure of hosting a roundtable discussion with farmers from my constituency in collaboration with the National Farmers Union. My constituent Andy Cornthwaite informed me that he was struggling to employ extra staff to grow his business due to the current £85,000 VAT threshold. I am aware that my right hon. and learned Friend recently responded to a written question from my hon. Friend the Member for North West Durham (Mr Holden) on the subject, but will she consider an early review of the VAT threshold due to the increase in labour and/or materials costs for small and medium-sized enterprises?

[Lucy Frazer]

The Government recognise that accounting for VAT can be a burden on small businesses. That is why we maintain the highest VAT registration threshold in the OECD and as compared with EU member states. At spring Budget 2021, to give businesses certainty, it was announced that the VAT threshold would be maintained at its current level until March 2024. Although there are no plans to change the VAT threshold at this time, we keep all taxes under constant review.

[Mr Clive Betts (Sheffield South East) (Lab)]

Last year, at the spending review, the Government announced that after years of austerity there would be a small real-terms increase in local authorities’ spending power—but that was when inflation was around 2% to 3%. Has the Chancellor seen the recent assessment from the Local Government Association showing that, with inflation at a somewhat higher level now, it will cost local councils £2.4 billion extra this year? What steps will he and the Levelling Up Secretary take to have talks with the Local Government Association about extra help for local authorities so that we do not get another round of austerity imposed on our constituents?

[Felicity Buchan (Kensington) (Con)]

T9. My constituents want to see a low-tax, high-growth economy where work and productivity are prioritised and incentivised. Will my right hon. and learned Friend assure me that the next move in taxes will be downwards and that that will happen at the first available opportunity?

[Lucy Frazer]

The Chancellor set out at the spring statement that he would be cutting taxes. We have seen that already in the universal credit taper rate and in the increase in the national insurance contributions threshold to £12,570, which will come in just a few weeks. We have also seen the announcement that income taxes will be cut in 2024.

[Ben Lake (Ceredigion) (PC)]

Small businesses in Ceredigion have told me how increasing electricity and fuel costs are having a direct impact on their operating costs in addition to an indirect impact in reduced demand for their goods and services. They are concerned that those costs are being disproportionately felt in rural areas. Does the Treasury share that assessment? Will it consider bringing forward bespoke measures to support the rural economy?

--- Later in debate ---

[Peter Aldous (Waveney) (Con)]

Investment in clean, low-carbon energy infrastructure will be crucial to creating long-term, rewarding jobs in coastal constituencies such as Waveney. Has my right hon. Friend carefully considered the impact that changes to tax policy on electricity generators would have on investment in the UK?

[Lucy Frazer]

The Chancellor is looking very carefully at this industry, and he engages with industry stakeholders. My hon. Friend the Member for Waveney (Peter Aldous) will know that there are a number of ways in which the tax system supports low-carbon energy infrastructure, including through the super deduction, research and development tax relief, our consultation on broadening the emissions trading scheme, and the £1 billion investment in the carbon capture and storage fund.

[Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

The rural fuel rebate was introduced 10 years ago at 5p a litre and remains unchanged. With inflation and the cost of living crisis, what thought has the Treasury given to increasing the rural fuel rebate to at least 10p a litre?

--- Later in debate ---

[Mr David Davis (Haltemprice and Howden) (Con)]

The laws around IR35 are loosely defined, and it looks as though Her Majesty’s Revenue and Customs is using the tribunals and courts to pin down the case law on it. The effect is that I now know of a number of people whose legal bills are many times what their original tax bill might have been. This is impoverishing them, and in some cases bankrupting them, and obviously it is terrifying them. Will the Chancellor institute a review of this procedure? Although it is important that HMRC raises all the money necessary, it should not do so by destroying lives.

[Lucy Frazer]

As my right hon. Friend will know, IR35 was brought in to ensure that people doing the same job paid the same tax. I understand that he would like to discuss some issues with me, and I look forward to doing that this afternoon.

[Christine Jardine (Edinburgh West) (LD)]

TaxWatch UK has just published research showing that on a like-for-like basis, the tax gap—or the money lost every year through unpaid tax—has gone up for two years in a row. That is before we include in the figures the estimated amount lost to error and fraud through the HMRC-administered covid-19 support schemes. The tax gap resulting from fraud is now 45% and stands at £14.4 billion. When will the Government do something about that? They could perhaps create a fraud Minister with the remit of tackling this growing problem, which takes money from other parts of the economy.

[Lucy Frazer]

The Government are taking a number of steps to tackle fraud, including coronavirus fraud, which the hon. Member mentions. The taxpayer protection taskforce was set up to do specifically that. I will have a cross-governmental meeting this afternoon to understand how we can we work across Departments to tackle fraud.

Customs (Amendments and Miscellaneous Provisions) Regulations 2022

Lucy Frazer Excerpts

Monday 27th June 2022 General Committees

[The Financial Secretary to the Treasury (Lucy Frazer)]

I beg to move that,

That the Committee has considered the Customs (Amendments and Miscellaneous Provisions) Regulations 2022 (S.I. 2022, No. 615).

The regulations update the UK’s tariff schedule and correct minor errors in previous secondary legislation. Specifically, this statutory instrument amends existing tariff legislation that was laid before the House on 16 December 2020 and through which the UK’s first independent tariff schedule was implemented on 1 January 2021.

I want to highlight two aspects of the instrument. First, it updates a number of commodity codes—the classifications of goods within the tariff schedule—as laid out in a set of tariff reference documents. These are routine technical changes, which are needed to ensure that traders access the correct codes when trading in goods. Secondly, the instrument rectifies a small number of administrative errors in connection with three tariff lines for goods relating to chemical dyes used in pharmaceutical manufacturing, carpets and textile floor coverings. The errors relate to missing tariff duties on those goods in the legislation. For context, that is three out of about 16,000 tariff lines. Although traders were previously charged tariffs on the goods at the rates intended, and as traders expected, it was done inadvertently, without the three rates being set out formally in the tariff reference document.

After that was discovered during a review, systems were changed, so that traders were no longer charged tariffs on the goods, thereby ensuring that Her Majesty’s Revenue and Customs was acting lawfully in the interim while the error in the legislation was corrected. This instrument inserts the intended rates into the legislation, allowing HMRC to collect these rates properly and lawfully from now on.

As trade did take place on the lines before the legislation was corrected, HMRC must reimburse traders who were charged rates that were not reflected in the legislation. It is in the process of doing so. More broadly, I emphasise that the vast majority of customs duties are being collected as intended.

[Peter Grant (Glenrothes) (SNP)]

Can the Minister give us the gross figures for the total amounts overpaid and underpaid before the error was corrected?

[Lucy Frazer]

We are in the process of reimbursing a total of £1,382,000.90 to 601 traders incorrectly charged as a result of these errors.

In conclusion, this instrument updates the tariff schedule and makes limited corrections to address administrative errors. I hope that colleagues will join me in supporting the regulations, which I commend to the Committee.

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

Thank you, Ms Fovargue, for the opportunity to set out the Opposition’s position on this statutory instrument.

As we heard from the Minister, this instrument intends to correct subordinate legislation previously made under the Taxation (Cross-border Trade) Act 2018. It seeks to amend errors and update tariff reference documents that detail the classification and duty of rates on goods included in the UK’s tariff schedule.

We recognise that the areas covered by the statutory instrument are fairly specific, and as the Government are correcting errors, we will not oppose it. While we recognise that corrections and amendments need to be made where defects or errors have occurred, however, it is important that the Government support businesses and minimise further inconvenience, in particular at this difficult and uncertain time.

While we will not oppose the regulations, I want to clarify the impact on the businesses affected. In particular, as the Scottish National party spokesperson said, the explanatory memorandum makes it clear that until the errors were identified, importers may have been under the impression that the import duty was being lawfully applied and in line with stated policy. The notes confirm that HMRC is planning to refund affected traders who have consequently overpaid. Will the Minister expand on her response to the earlier intervention and explain the process by which affected traders will be refunded? Will the refund take place automatically, or will traders need to apply for it? I would also be grateful if the Minister set out in further detail exactly how many traders have been affected by overpayment and over what period, and how much overpaid revenue has been approved or needs to be funded.

Although the Labour party will not oppose the statutory instrument, it is important that we get clarity on exactly how those overpayments will be refunded and on how that refund will operate.

[Lucy Frazer]

I am happy to respond to those points. As I mentioned, those 601 traders were incorrectly charged a total of £1,382,000.90. We have contacted all traders who are owed, and we are in the process of reimbursing them. I am happy to write to the hon. Gentleman on the one question of his that I have not answered.

I am pleased that the hon. Gentleman will not oppose the statutory instrument. Of course, a small part of the SI deals with the three errors that have been identified in the 16,000 tariff lines—I emphasise that those are small errors. The instrument not only deals with those small errors, but updates the code as a whole, so it was necessary to bring it before the House. For all those reasons, I commend the regulations to the Committee.

--- Later in debate ---

[Lucy Frazer]

I now have the answer for the hon. Member for Ealing North, which will save us from writing letters. HMRC has written to all the traders, so there is no need for them to apply.

Let me respond to a couple of the points made by the SNP spokesperson, the hon. Member for Glenrothes. We should have put a figure into the schedule, but we did not. Traders would have been expecting to pay the amount that would have been due in the ordinary course, but because the legislation does not include that figure, we cannot legally claim it. Those are amounts that traders would, in the normal course, pay to the Government. It is not that they have overpaid something that was incorrect or that they have been charged an excess amount; it is just that we cannot legally collect the sum, and that is why we are paying it back. I hope that answers his question about underpayment and overpayment.

Yes, we are paying back £1.3 million in respect of those errors, but the total tariff income that the statutory instrument deals with is £4.5 billion, so the errors are minor in the context of the whole. I commend the regulations to the Committee.

Question put and agreed to.