Finance (No. 2) Bill

Debate between Nigel Huddleston and James Murray

Committee stage
Tuesday 21st May 2024 Public Bill Committees

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

It is a pleasure to serve under your chairmanship, Mrs Latham, and I thank all hon. Members for their participation in today’s debate. I also thank those who have submitted written evidence on a variety of the clauses we will discuss today, including the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Taxation, the Low Incomes Tax Reform Group and others, and all those who have contributed to consultations as part of this Finance Bill process.

Clause 5 makes changes to the high income child benefit charge, or HICBC, as it is commonly called. It increases the threshold at which child benefit begins to be withdrawn, from £50,000 to £60,000. The Government are also increasing the threshold at which child benefit is fully withdrawn, from £60,000 to £80,000. That means that 1% is withdrawn for every £200 of income that exceeds £60,000; previously, the rate was 1% for every £100 of income that exceeded £50,000, and child benefit was fully removed once individuals earned £60,000 or above.

The HICBC is a tax charge and was introduced in January 2013 for recipients of child benefit payments, or their partners, on higher incomes. It applies where the highest earner has an adjusted net income—that is, their total taxable income, less certain reliefs, such as pension contributions—above the threshold, which is rising to £60,000. For individuals with incomes above the top of the taper, which is rising to £80,000, the tax charge is equal to the full amount of the child benefit payment.

The changes will ensure that the HICBC continues to withdraw child benefit from high-income families, as it was designed to, without unfairly penalising those on middle incomes. By halving the rate at which HICBC withdraws the child benefit gain, the Government are improving people’s incentives to continue working or to take up more hours. The Office for Budget Responsibility estimates that, as a result of both changes, those already working will increase their hours by a total equivalent to those of around 10,000 full-time individuals by 2028-29.

The changes made by clause 5 will have a positive impact for around 485,000 families, who will gain an average of £1,260 in 2024-25, which they can put towards the cost of raising their children. That includes around 170,000 individuals who will no longer be liable for HICBC, and 135,000 individuals currently paying the HICBC who will have it reduced. The remaining 180,000 are the families currently not claiming child benefit or families opting out of getting child benefit payments who are now eligible to receive payments without incurring a tax charge.

The increase in the HICBC’s adjusted net income threshold reaffirms the Government’s commitment to rewarding working families, by allowing them to keep as much of their hard-earned money as possible in a sustainable way. I therefore commend the clause to the Committee.

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

It is a pleasure to serve on this Committee with you in the Chair, Mrs Latham. I am pleased to respond on behalf of the Opposition in the Public Bill Committee stage of the Finance (No. 2) Bill.

As we have heard from the Minister, clause 5 increases the adjusted net income threshold for the high income child benefit charge from £50,000 to £60,000, with effect from the 2024-25 tax year. The clause also amends the rate at which the high income child benefit charge applies to individuals with adjusted net incomes of between £60,000 to £80,000 in a tax year, and contains an administrative easement to prevent backdated child benefit payments from triggering a charge in 2023-24.

As we all know, due to high levels of inflation during the current Parliament, families across the country have felt the impact of threshold freezes, particularly in relation to income tax. Millions of people will be paying income tax for the first time or paying it at higher rates as a result of high inflation and the frozen thresholds. Similarly, the fixed nominal thresholds for the high income child benefit charge mean that more and more people will have been affected by the charge as a result of inflation. The adjustment to the thresholds in this clause will therefore be a welcome step for many families, and brings the number of individuals affected by the high income child benefit charge closer to what Parliament envisaged when the policy was introduced in the Finance Act 2012.

Although we support the measures in the clause and will not oppose them, we would appreciate some clarification from the Minister on one point. In particular, we understand that subsection (2) effectively halves the rate of clawback in the calculation of the charge, so the child benefit is fully withdrawn when the relevant adjusted net income reaches £20,000 above the initial threshold —that is, £80,000. I am grateful to the Chartered Institute of Taxation for pointing out that, because the clawback happens across a wider range of incomes, some individuals will be caught out by higher marginal rates of tax and will therefore likely need to file a self-assessment return. Is the Minister concerned that that will introduce more complexity into the tax system, and if so, what is he doing to communicate these changes so that taxpayers are not caught out?

Finally, we understand that the Government will be moving the assessment of the charge to a household basis from April 2026. I would be grateful if the Minister confirmed when the Government will announce further details about the consultation on that change. Will he also set out the details of what he is doing to consult industry and professional bodies about it?

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

It is a pleasure to serve under your chairmanship, Mrs Latham. We will not be opposing the clause, but I do want to make some comments about this paltry measure, which will help very few people in a cost of living crisis that the Conservative Government are trying to pretend is over and done with—in fact, they are saying that that is the case. That is not the reality for people in their homes across the nations of the UK.

The Minister said that the intention of this provision —I think I am quoting him correctly—was to allow people to “keep as much of their hard-earned money as possible.” That reflects incredibly badly on the way that this Government have conducted themselves by artificially boosting the cost of living through reckless actions such as Brexit and, of course, the mini-Budget. If they wanted to do something that was meaningful to help families, they could have copied the Scottish child payment in Scotland, which has lifted 100,000 children out of poverty. But no: they have decided to do this. They have also decided to keep the two-child limit on universal credit. That should be scrapped, and the Labour party should be joining in calls for that to be scrapped. The rape clause has no place in our society, and this measure will not go far enough to help families.

--- Later in debate ---

[Nigel Huddleston]

Clauses 14 and 15 make changes to better support the UK independent film industry. That is in recognition of the sector’s cultural importance and its role in growing and supporting UK talent. The Government have heard from several representatives of the British film industry, including the British Film Institute, about the specific challenges that the independent film industry faces. The Government also recognise the vital role that independent film plays in incubating UK talent.

The changes made by clauses 14 and 15 substantially increase the level of audio-visual expenditure credit available to smaller budget films from 34% to 53%. This increased rate for qualifying films is referred to as the UK independent film tax credit. The 53% tax credit will be applied on up to 80% of a film’s production costs, up to a cap of about £15 million. That translates into £31.80 back for every £100 spent, after accounting for corporation tax at 25%.

Films will also need to meet the criteria of a new British Film Institute test, with the expectation that films will have either a UK writer, a UK director or be certified as an official co-production. Clauses 14 to 15 set out the bulk of the measure, but further detail, including on the additional test, will be provided in a statutory instrument in due course.

Productions that start principal photography from 1 April 2024 will be eligible, and companies will be able to make claims from 1 April 2025 on expenditure incurred from 1 April 2024. The UK independent film tax credit is a transformational, generous, enhanced tax credit, which will boost the production of UK independent films and incubate UK film talent.

[James Murray]

As we have heard from the Minister, clause 14 introduces a higher rate of expenditure credit for independent films, defined as films below a maximum budget that have either a UK director or writer, or are an official international co-production. As the Government’s policy paper on this measure makes clear, the basic rate of credit under the audio-visual expenditure credit scheme is 34%. Independent films will now receive a rate of 53%, with the amount of credit capped to relevant global expenditure of £15 million. The Opposition strongly support the UK’s creative sector as one of the areas of the global economy in which Britain is world leading. As such, we will not oppose any measures that provide certainty and greater opportunities for growth in that critical sector.

Clause 15 provides the administrative framework for the previous clause and sets out that the higher rate will be available only on expenditure incurred from 1 April for films that commenced principal photography on or after that date. We understand that claims can in turn be made from 1 April 2025, so I would like to ask the Minister about the role of His Majesty’s Revenue and Customs, because we know that the new schemes will need to be properly explained through new guidance and may require new staff, as the Government’s policy paper makes clear. What is HMRC doing to ensure that the guidance remains timely and up to date for those wanting to make a claim? What will HMRC do to support those who want to apply for the credit so that they can understand how it operates? Similarly, what allocation of staff will be made to administer the measure?

[Nigel Huddleston]

I thank the Opposition for their support. I think there is agreement across the House on the vital role of the world-leading UK creative industries, and, in particular, our thriving film sector. In answer to the broad question put by the hon. Member for Ealing North, further information will provided by a statutory instrument that we will discuss in due course. His Majesty’s Revenue and Customs will have a role in that, and the precise resource allocation is an operational decision for it. As the Minister who oversees HMRC, I will pay close attention to the issue and I will ensure that it is properly resourced. This is a very important policy area and we want to ensure that it is successful. Again, I am afraid that I will ask the hon. Gentleman to be a little patient and wait for the details in the statutory instrument, but we are consulting key stakeholders on that.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 15 ordered to stand part of the Bill.

Clause 16

Increase in theatre tax credit

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

--- Later in debate ---

[Nigel Huddleston]

We have moved forward very quickly today. I thank everybody for their participation: you, Mrs Latham, all the officials in the House, the Clerks, and all those who have been working on the Bill at HMRC, HMT and other Government Departments. I repeat my thanks to the external stakeholders for their comments and to all those who have been involved in consultations. In particular, I thank the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales, and the Low Incomes Tax Reform Group for their contributions to this Committee, including in written form, and all those who have participated today.

I look forward to the Bill progressing smoothly through its final stages. I thank everybody involved.

[James Murray]

I add my thanks to my colleagues in the Opposition: my fellow shadow Minister, my hon. Friend the Member for Hampstead and Kilburn; the Opposition Whip, my hon. Friend the Member for Gower; and, of course, the Back Benchers who have joined us for this lengthy Committee session. [Laughter.] I place on the record my thanks to all the House authorities and to third parties, particularly the Chartered Institute of Taxation, whose expertise is always greatly valued.

Finance (No. 2) Bill (Except clauses 1 to 4, 12 and 13, and 19)

Debate between Nigel Huddleston and James Murray

Tuesday 21st May 2024 Public Bill Committees

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

It is a pleasure to serve under your chairmanship, Mrs Latham, and I thank all hon. Members for their participation in today’s debate. I also thank those who have submitted written evidence on a variety of the clauses we will discuss today, including the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Taxation, the Low Incomes Tax Reform Group and others, and all those who have contributed to consultations as part of this Finance Bill process.

Clause 5 makes changes to the high income child benefit charge, or HICBC, as it is commonly called. It increases the threshold at which child benefit begins to be withdrawn, from £50,000 to £60,000. The Government are also increasing the threshold at which child benefit is fully withdrawn, from £60,000 to £80,000. That means that 1% is withdrawn for every £200 of income that exceeds £60,000; previously, the rate was 1% for every £100 of income that exceeded £50,000, and child benefit was fully removed once individuals earned £60,000 or above.

The HICBC is a tax charge and was introduced in January 2013 for recipients of child benefit payments, or their partners, on higher incomes. It applies where the highest earner has an adjusted net income—that is, their total taxable income, less certain reliefs, such as pension contributions—above the threshold, which is rising to £60,000. For individuals with incomes above the top of the taper, which is rising to £80,000, the tax charge is equal to the full amount of the child benefit payment.

The changes will ensure that the HICBC continues to withdraw child benefit from high-income families, as it was designed to, without unfairly penalising those on middle incomes. By halving the rate at which HICBC withdraws the child benefit gain, the Government are improving people’s incentives to continue working or to take up more hours. The Office for Budget Responsibility estimates that, as a result of both changes, those already working will increase their hours by a total equivalent to those of around 10,000 full-time individuals by 2028-29.

The changes made by clause 5 will have a positive impact for around 485,000 families, who will gain an average of £1,260 in 2024-25, which they can put towards the cost of raising their children. That includes around 170,000 individuals who will no longer be liable for HICBC, and 135,000 individuals currently paying the HICBC who will have it reduced. The remaining 180,000 are the families currently not claiming child benefit or families opting out of getting child benefit payments who are now eligible to receive payments without incurring a tax charge.

The increase in the HICBC’s adjusted net income threshold reaffirms the Government’s commitment to rewarding working families, by allowing them to keep as much of their hard-earned money as possible in a sustainable way. I therefore commend the clause to the Committee.

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

It is a pleasure to serve on this Committee with you in the Chair, Mrs Latham. I am pleased to respond on behalf of the Opposition in the Public Bill Committee stage of the Finance (No. 2) Bill.

As we have heard from the Minister, clause 5 increases the adjusted net income threshold for the high income child benefit charge from £50,000 to £60,000, with effect from the 2024-25 tax year. The clause also amends the rate at which the high income child benefit charge applies to individuals with adjusted net incomes of between £60,000 to £80,000 in a tax year, and contains an administrative easement to prevent backdated child benefit payments from triggering a charge in 2023-24.

As we all know, due to high levels of inflation during the current Parliament, families across the country have felt the impact of threshold freezes, particularly in relation to income tax. Millions of people will be paying income tax for the first time or paying it at higher rates as a result of high inflation and the frozen thresholds. Similarly, the fixed nominal thresholds for the high income child benefit charge mean that more and more people will have been affected by the charge as a result of inflation. The adjustment to the thresholds in this clause will therefore be a welcome step for many families, and brings the number of individuals affected by the high income child benefit charge closer to what Parliament envisaged when the policy was introduced in the Finance Act 2012.

Although we support the measures in the clause and will not oppose them, we would appreciate some clarification from the Minister on one point. In particular, we understand that subsection (2) effectively halves the rate of clawback in the calculation of the charge, so the child benefit is fully withdrawn when the relevant adjusted net income reaches £20,000 above the initial threshold —that is, £80,000. I am grateful to the Chartered Institute of Taxation for pointing out that, because the clawback happens across a wider range of incomes, some individuals will be caught out by higher marginal rates of tax and will therefore likely need to file a self-assessment return. Is the Minister concerned that that will introduce more complexity into the tax system, and if so, what is he doing to communicate these changes so that taxpayers are not caught out?

Finally, we understand that the Government will be moving the assessment of the charge to a household basis from April 2026. I would be grateful if the Minister confirmed when the Government will announce further details about the consultation on that change. Will he also set out the details of what he is doing to consult industry and professional bodies about it?

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

It is a pleasure to serve under your chairmanship, Mrs Latham. We will not be opposing the clause, but I do want to make some comments about this paltry measure, which will help very few people in a cost of living crisis that the Conservative Government are trying to pretend is over and done with—in fact, they are saying that that is the case. That is not the reality for people in their homes across the nations of the UK.

The Minister said that the intention of this provision —I think I am quoting him correctly—was to allow people to “keep as much of their hard-earned money as possible.” That reflects incredibly badly on the way that this Government have conducted themselves by artificially boosting the cost of living through reckless actions such as Brexit and, of course, the mini-Budget. If they wanted to do something that was meaningful to help families, they could have copied the Scottish child payment in Scotland, which has lifted 100,000 children out of poverty. But no: they have decided to do this. They have also decided to keep the two-child limit on universal credit. That should be scrapped, and the Labour party should be joining in calls for that to be scrapped. The rape clause has no place in our society, and this measure will not go far enough to help families.

--- Later in debate ---

[Nigel Huddleston]

Clauses 14 and 15 make changes to better support the UK independent film industry. That is in recognition of the sector’s cultural importance and its role in growing and supporting UK talent. The Government have heard from several representatives of the British film industry, including the British Film Institute, about the specific challenges that the independent film industry faces. The Government also recognise the vital role that independent film plays in incubating UK talent.

The changes made by clauses 14 and 15 substantially increase the level of audio-visual expenditure credit available to smaller budget films from 34% to 53%. This increased rate for qualifying films is referred to as the UK independent film tax credit. The 53% tax credit will be applied on up to 80% of a film’s production costs, up to a cap of about £15 million. That translates into £31.80 back for every £100 spent, after accounting for corporation tax at 25%.

Films will also need to meet the criteria of a new British Film Institute test, with the expectation that films will have either a UK writer, a UK director or be certified as an official co-production. Clauses 14 to 15 set out the bulk of the measure, but further detail, including on the additional test, will be provided in a statutory instrument in due course.

Productions that start principal photography from 1 April 2024 will be eligible, and companies will be able to make claims from 1 April 2025 on expenditure incurred from 1 April 2024. The UK independent film tax credit is a transformational, generous, enhanced tax credit, which will boost the production of UK independent films and incubate UK film talent.

[James Murray]

As we have heard from the Minister, clause 14 introduces a higher rate of expenditure credit for independent films, defined as films below a maximum budget that have either a UK director or writer, or are an official international co-production. As the Government’s policy paper on this measure makes clear, the basic rate of credit under the audio-visual expenditure credit scheme is 34%. Independent films will now receive a rate of 53%, with the amount of credit capped to relevant global expenditure of £15 million. The Opposition strongly support the UK’s creative sector as one of the areas of the global economy in which Britain is world leading. As such, we will not oppose any measures that provide certainty and greater opportunities for growth in that critical sector.

Clause 15 provides the administrative framework for the previous clause and sets out that the higher rate will be available only on expenditure incurred from 1 April for films that commenced principal photography on or after that date. We understand that claims can in turn be made from 1 April 2025, so I would like to ask the Minister about the role of His Majesty’s Revenue and Customs, because we know that the new schemes will need to be properly explained through new guidance and may require new staff, as the Government’s policy paper makes clear. What is HMRC doing to ensure that the guidance remains timely and up to date for those wanting to make a claim? What will HMRC do to support those who want to apply for the credit so that they can understand how it operates? Similarly, what allocation of staff will be made to administer the measure?

[Nigel Huddleston]

I thank the Opposition for their support. I think there is agreement across the House on the vital role of the world-leading UK creative industries, and, in particular, our thriving film sector. In answer to the broad question put by the hon. Member for Ealing North, further information will provided by a statutory instrument that we will discuss in due course. His Majesty’s Revenue and Customs will have a role in that, and the precise resource allocation is an operational decision for it. As the Minister who oversees HMRC, I will pay close attention to the issue and I will ensure that it is properly resourced. This is a very important policy area and we want to ensure that it is successful. Again, I am afraid that I will ask the hon. Gentleman to be a little patient and wait for the details in the statutory instrument, but we are consulting key stakeholders on that.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 15 ordered to stand part of the Bill.

Clause 16

Increase in theatre tax credit

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

--- Later in debate ---

[Nigel Huddleston]

We have moved forward very quickly today. I thank everybody for their participation: you, Mrs Latham, all the officials in the House, the Clerks, and all those who have been working on the Bill at HMRC, HMT and other Government Departments. I repeat my thanks to the external stakeholders for their comments and to all those who have been involved in consultations. In particular, I thank the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales, and the Low Incomes Tax Reform Group for their contributions to this Committee, including in written form, and all those who have participated today.

I look forward to the Bill progressing smoothly through its final stages. I thank everybody involved.

[James Murray]

I add my thanks to my colleagues in the Opposition: my fellow shadow Minister, my hon. Friend the Member for Hampstead and Kilburn; the Opposition Whip, my hon. Friend the Member for Gower; and, of course, the Back Benchers who have joined us for this lengthy Committee session. [Laughter.] I place on the record my thanks to all the House authorities and to third parties, particularly the Chartered Institute of Taxation, whose expertise is always greatly valued.

Oral Answers to Questions

Debate between Nigel Huddleston and James Murray

Tuesday 7th May 2024 Commons Chamber

[Mr Speaker]

I call the Opposition spokesman.

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

The Conservatives’ decisions in this Parliament mean that the average family will face a tax bill that is £870 a year higher, and pensioner taxpayers will pay £960 a year more. The director of the Institute for Fiscal Studies said:

“This remains a Parliament of record tax rises.”

Higher taxes, squeezed living standards and weaker public services—that is the Conservatives’ legacy. Does the Minister understand why the country has lost confidence in them?

[Nigel Huddleston]

Many people in this country remember the abysmal economic performance of the last Labour Government. The tax-free allowance was £6,475; it is now £12,570. More than 1.5 million people have been taken out of paying income tax altogether. The Government have a focus: now that the economy is turning, we want to put more money into people’s pockets. That is exactly what we are doing with the national insurance cuts and other measures, and I am surprised that the hon. Gentleman does not welcome that.

Finance (No. 2) Bill

Debate between Nigel Huddleston and James Murray

2nd reading
Wednesday 17th April 2024 Commons Chamber

[James Murray]

I fear that the hon. Gentleman is slightly out of date. Going into the general election, we have set out very clearly our plan to invest in the transition that we need in our energy supply and our economy, and how we would pay for that—through a strengthened windfall tax, alongside prudent investment. He may scoff at what we say about the non-dom tax loopholes, but we are talking about £1 billion in the first year and £2.6 billion over the course of the next Parliament. That money should go to our public services, rather than intentional loopholes allowing some people to get away with paying hundreds of millions of pounds less in tax.

The Conservatives are not just out of ideas, but out of touch with reality. They made that very clear in last month’s Budget, from which this Finance Bill arose. At the end of his Budget speech, the Chancellor made an astonishing £46 billion unfunded commitment—leaving a gaping hole in the public finances—when he pledged to abolish national insurance altogether. Since then, Government Ministers have had countless opportunities to row back from or U-turn on that commitment, but they have been determined not to. Earlier today, the Prime Minister had three chances to rule out cuts to the NHS, cuts to the state pension or tax rises to pay for his £46 billion unfunded tax cut. Each time, he refused to do so.

[Nigel Huddleston]

Will the hon. Gentleman give way?

[James Murray]

I will in a second. It is quite astonishing that the Conservatives are content to go into the general election with a £46 billion black hole in their plans, and that they refuse to say whether that £46 billion commitment will be funded by tax rises elsewhere or cuts to spending. I give way to the hon. Gentleman, so that he can confirm exactly how the Government will pay for that £46 billion black hole.

[Nigel Huddleston]

I very rarely intervene from the Dispatch Box, but I cannot help myself this time. The hon. Gentleman and I have had multiple conversations about this. He cannot differentiate between an aspiration and a policy commitment. His £28 billion was a policy commitment; what we have laid out is an aspiration. They are two different things.

As for the hon. Gentleman’s scaremongering about the possible hit to pensions or the NHS, he knows full well that those suggestions are absolutely not true, because national insurance does not wholly pay for health, benefits, or indeed pensions. He is either scaremongering or exhibiting complete and utter financial illiteracy. Total spending on the NHS is over £160 billion, and welfare spending is over £260 billion, massively dwarfing the total amount raised by national insurance. He either does not understand that, or is irresponsibly scaremongering, because he has known for a long time that national insurance and other payments are topped up by general taxation. He should know better.

[James Murray]

I thank the hon. Gentleman for his mini-speech. I feel I may have touched a nerve. He talks about people being scared; yes, I think people are scared when they hear the Government making a £46 billion unfunded spending commitment and not saying how they will pay for it. When the previous Prime Minister made an unfunded tax cut commitment of a similar order of magnitude, we know what havoc that caused in the economy, and people are still paying the price in higher mortgage payments and rent payments. I will just say to the hon. Gentleman that I gave him a chance to rule out cuts to the NHS or the state pension, or tax rises elsewhere, to pay for this black hole. I am not quite sure if he did that—maybe he has not got the line from his boss in No. 10 Downing Street—but the truth is that until the Government rule those things out, people will rightly worry about the impact his unfunded commitment will have on the economy.

The pledge the hon. Gentleman was speaking about sounds like exactly the sort of pledge that the right hon. Member for South West Norfolk (Elizabeth Truss) would approve of, because it comes to almost exactly the same amount as her Government’s unfunded tax cuts. Of course, the previous Prime Minster has been touring the TV studios and talking to newspaper journalists in recent days, saying, among other things, that people who claim that she crashed the economy are

“either very stupid or very malevolent”.

I wonder if the Minister would like to intervene to say whether he shares that view. No? He is not leaping to his feet now. I would have thought he would; I would have thought that Treasury Ministers would want to put as much distance as possible between themselves and the previous Prime Minister. Instead, with their £46 billion unfunded commitment, they seem determined to be a tribute act. Frankly, whatever the previous Prime Minister says, people across Britain know what impact her time in office is having on all of us, as we face higher mortgages and higher rents as a direct consequence of her economic recklessness.

That is the context in which we are debating this Finance Bill. The context is one of a Government who are out of time, out of ideas and out of touch with reality, and of a country that is feeling the impact of 14 years of Conservative economic failure. Even a simple clause such as clause 2, which sets the main rates of income tax, highlights the impact on ordinary people of decisions taken by this Government. Although the basic and higher rates of income tax are unchanged by this Bill at 20% and 40%, the tax burden on working people is rising as a result of the income tax personal allowance and the higher rate threshold being frozen from 2021-22 to 2027-28. Those tax thresholds would ordinarily have risen this April, but instead they are in the middle of a six-year freeze. According to the Office for Budget Responsibility, which I assume the Minister has respect for, these freezes will create 3.7 million extra taxpayers by 2028-29 and mean that 2.7 million more people will be paying the higher rate.

The truth is that, even taking into account any reductions to national insurance rates, the freezes in thresholds and the rises in council tax mean that by the end of the forecast period, the average family will still be £870 worse off. As the Resolution Foundation noted at the time of Budget, despite the reductions in national insurance, there will still be a net rise of £20 billion a year by 2028-29 in personal taxes. It pointed out that those over the state pension age, who do not benefit from national insurance cuts, will be particularly badly hit, and will face an average tax rise of £960 a year. The reality has been summed up by Paul Johnson, the director of the Institute for Fiscal Studies, who said following the Budget:

“This remains a parliament of record tax rises.”

That is the record of the Conservatives in government.

HMRC Self-Assessment Helpline

Debate between Nigel Huddleston and James Murray

Wednesday 20th March 2024 Commons Chamber

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

Thank you, Mr Speaker.

I thank the hon. Member for Ealing North (James Murray), and others, for raising the important issue of HMRC’s customer services and its plans to provide better services for taxpayers.

As Members probably know, His Majesty’s Revenue and Customs has announced that it is halting planned changes to its helplines, but aims to encourage more taxpayers to self-serve online. It has listened to the feedback and recognises that more needs to be done to ensure that all taxpayer needs are met, while also encouraging those who can to make the transition to online services. Making the best use of online services allows HMRC to help more taxpayers, and to get the most out of every pound of taxpayers’ money by boosting productivity. HMRC helpline and webchat advisers will always be there for taxpayers who need support because they are vulnerable or digitally excluded, or have complex affairs. I recognise that such reassurances were not communicated clearly enough yesterday.

Of course, the pace of this change needs to match the public’s appetite for managing their tax affairs online. The changes in the self-assessment VAT and PAYE helplines announced by HMRC will therefore be halted while it engages with stakeholders, which means that the phone lines will remain open as usual. HMRC will now work with stakeholders—including me—while continuing to encourage customers to self-serve and gain access to the information that they need more quickly and easily by going online or to the HMRC app, which is available 24/7.

[James Murray]

I thank the Minister for his response, but the question that I am tempted to ask is, “Who on earth is running the Treasury?”

This morning, just after we had requested the urgent question, we found out that the Chancellor had told HMRC to “pause” this change. That is a U-turn of quite extraordinary speed and indignity, following HMRC’s announcement yesterday that it would be permanently closing its self-assessment helpline altogether for half the year, from April to September. This morning a Treasury source said

“ministers have halted this change immediately”,

implying that those Ministers had been taken by surprise by the announcement. Can the Minister tell us whether any Treasury Ministers had any involvement in the decision announced yesterday, or whether HMRC’s announcement was made without any ministerial involvement?

In announcing the closure of the helpline, HMRC’s second permanent secretary and deputy chief executive said that the changes would

“allow our helpline advisers to focus support where it is most needed—helping those with complex tax queries and those who are vulnerable and need extra support.”

Can the Minister confirm that HMRC’s plans to help those who are vulnerable and need extra support are now in tatters after the Chancellor’s chaotic U-turn? I note that reports of the Chancellor’s position refer to a “pause” of the change, rather than a scrapping of it altogether. Can the Minister confirm that the self-assessment helpline will now remain fully open this year? If this plan is merely paused, will HMRC still be looking at months-long periods of closure of the helpline in the future?

It is clear that yesterday’s announcement of the helpline’s closure came not as part of a comprehensive, orderly or effective plan to help customers to move online, but rather as a panicked response to the collapse of HMRC’s service levels to an all-time low; and it is clear from today’s chaotic U-turn that this Government are fundamentally unstable, and have given up on serious governing.

[Nigel Huddleston]

I am sure the hon. Member is aware that HMRC is a non-ministerial Department. Ministers set strategy and work closely with the Department on operations and communications. It is important to recognise that 67,000 people work for HMRC. They go to work every day and try to do the right thing, and it is important to recognise that many people there work very hard.

The overall strategy is absolutely right and I completely support it, and I will give the hon. Member an example of why we need to encourage and support the move to online services. In 2022-23, HMRC received more than 3 million calls on just three things that can easily be done digitally: resetting online passwords, getting one’s tax code and getting one’s national insurance number. That involves almost 500 people working full time to answer just those calls, and such resources could be redeployed. The hon. Member can be reassured that those who are not digitally savvy and those with difficulties will always be able to access services, including telephone services.

National Insurance Contributions (Reduction in Rates) (No. 2) Bill

Debate between Nigel Huddleston and James Murray

Committee of the whole House & 3rd reading
Wednesday 13th March 2024 Commons Chamber

[Nigel Huddleston]

I outlined the purpose of the Bill in my earlier speech. It is a short and clear Bill with a very clear purpose. It is our desire to move quickly in order for the changes to take effect from 6 April 2024. I sense Members’ desire to move quickly in cutting people’s taxes, and I will detain the Committee no longer.

[James Murray]

I fear that my speech may be marginally longer than the Minister’s, but I can assure you, Mr Chair, that it will not be too lengthy, because, as I made clear on Second Reading, we will support the national insurance reductions that the clauses in the Bill seek to deliver.

Clause 1 seeks to reduce national insurance contributions by reducing the main rates of employee class 1 and self-employed class 4 contributions, as well as the reduced rate that applies to a historic group of married women and widows. Clause 2 seeks to amend the calculation of annual maximum contributions and is effectively consequential on clause 1. Clause 3 sets out that the Bill will come into force on 6 April.

I would like the Minister to answer a couple of questions when he responds. Will he set out what conversations he has had with employers and payroll software developers about whether they will be ready to implement the provisions in this Bill from the start of the next financial year? I think I heard the Exchequer Secretary, the hon. Member for Grantham and Stamford (Gareth Davies), say on Second Reading that he was confident that a majority of employees would receive this tax cut at the beginning of the financial year, but is the Minister confident that every relevant employee will indeed receive the cut to national insurance in their first pay cheque of financial year 2024-25?

More widely, we support what this simple Bill seeks to achieve, so we will support all three clauses being approved by this Committee of the whole House.

--- Later in debate ---

[Nigel Huddleston]

I probably will not respond to everything we have heard today, as we thoroughly addressed many of the issues in the Budget debate.

In response to the new comments, I assure the hon. Member for Aberdeen North (Kirsty Blackman) that we always ensure that the democratic process is adequately funded. She is dismissive of the £2.45 billion increase in NHS spending that was outlined in the Budget, but it is a significant amount and, as she is aware, it is a real-terms increase. I agree with the hon. Lady on the importance of arts, culture and the other areas she mentioned, which is precisely why the Budget had measures to extend tax reliefs.

My opposite number, the hon. Member for Ealing North (James Murray), asked about the logistics of implementing and executing the tax change. We understand the impact of policy changes, and I put on record how grateful we are for all those who have implemented and executed the recent changes so speedily and effectively. Employees whose employer is unable to make changes in time, and who have left their employment, may request a refund from HMRC. The Government are confident that the majority of software developers will be able to make changes to their payroll software in time for 6 April.

On the new clauses, we have outlined the policy today. The impact of any changes to policy would, of course, be subject to the usual public scrutiny of costs, including from the OBR. It is therefore not necessary to produce a report at this stage. The OBR’s “Economic and fiscal outlook” publication for the spring 2024 Budget includes an analysis of the impacts of threshold freezes, including on the number of people brought into paying tax. It is therefore not necessary to produce an additional report at this stage, so we do not believe new clause 1 is necessary.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clauses 2 and 3 ordered to stand part of the Bill.

New Clause 1

Review of the effects of reducing employee and self-employed NIC contributions to zero

“(1) The Treasury must publish before the end of the parliamentary session in which this Act is passed an analysis of the effect of —

(a) replacing “8%” with “0%” in section 1(1) of this Act,

(b) replacing “1.85%” with “0%” in section 1(2) of this Act, and

(c) replacing “6%” with “0%” in section 1(3) of this Act.

(2) The analysis in subsection (1) must set out the expected impact of the changes in subsection (1)(a) to (c) on total receipts to the National Insurance Fund in each of the financial years from 2024/25 to 2028/29.

(3) The Treasury must request the Government Actuary to make an assessment of the consequences for the Consolidated Fund in each of the financial years from 2024/25 to 2028/29 of shortfalls in the National Insurance Fund that would result from a zero rate for employee and self-employed national insurance contributions.”—(James Murray.)

This new clause would require the Government, before the end of the current parliamentary session, to set out what the impact would be on total receipts from national insurance and overall public finances of reducing national insurance contributions for employees and self-employed people to zero.

Brought up, and read the First time.

[James Murray]

I beg to move, That the clause be read a Second time.

Oral Answers to Questions

Debate between Nigel Huddleston and James Murray

Tuesday 6th February 2024 Commons Chamber

[Nigel Huddleston]

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

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

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

[Nigel Huddleston]

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

Finance Bill (First sitting)

Debate between Nigel Huddleston and James Murray

Committee stage
Tuesday 16th January 2024 Public Bill Committees

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[Nigel Huddleston]

You just couldn’t resist, could you?

[James Murray]

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

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

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

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

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

and that

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

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

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

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

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

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

“underestimated the scale and complexity”

of delivering Making Tax Digital.

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

--- Later in debate ---

[Nigel Huddleston]

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

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

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

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

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

[James Murray]

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

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

[Nigel Huddleston]

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

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

Question put and agreed to.

Clause 8 accordingly ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 9

Managers of ships

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

--- Later in debate ---

[Nigel Huddleston]

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

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

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

[James Murray]

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

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

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

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

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

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

--- Later in debate ---

[The Chair]

I think we all declare an interest in this one.

[James Murray]

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

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

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

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

[Nigel Huddleston]

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

Question put and agreed to.

Clause 15 accordingly ordered to stand part of the Bill.

Clause 16

Provision relating to the cash basis

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

[Nigel Huddleston]

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

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

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

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

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

[James Murray]

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

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

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

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

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

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

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

[Nigel Huddleston]

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

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

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

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

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Schedule 10 agreed to.

Clause 17

PAYE regulations: special types of payer or payee

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

[Nigel Huddleston]

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

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

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

[James Murray]

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

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

--- Later in debate ---

[Nigel Huddleston]

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

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

[James Murray]

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

Finance Bill (Second sitting)

Debate between Nigel Huddleston and James Murray

Committee stage
Tuesday 16th January 2024 Public Bill Committees

[James Murray]

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

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

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

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

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

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

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

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

[Nigel Huddleston]

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

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

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

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

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

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

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

Question put and agreed to.

Clause 35 accordingly ordered to stand part of the Bill.

Clause 36 ordered to stand part of the Bill.

Clause 37

Abbreviations used in the Act

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

[Nigel Huddleston]

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

[James Murray]

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

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

Finance Bill

Debate between Nigel Huddleston and James Murray

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

[Nigel Huddleston]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

National Insurance Contributions (Reduction in Rates) Bill

Debate between Nigel Huddleston and James Murray

Committee of the whole House & 3rd reading
Thursday 30th November 2023 Commons Chamber

[Nigel Huddleston]

I thank hon. Members for their questions. I can assure them that HMRC is engaging with industry and providing relevant guidance to support it to deliver the changes on time. We expect the majority of companies to be able to do so, particularly in this era, when many of the changes can be made on various systems. The Government are confident that the majority of software developers will be able to make changes to their payroll software in time for the 6 January deadline.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clauses 2 to 5 ordered to stand part of the Bill.

New Clause 1

Review of effects of Act

“(1) The Treasury must lay before the House of Commons on the day on which this Act is passed a report which sets out forecasts of—

(a) the changes to the amount of national insurance contributions deducted from the annual income of a full-time worker earning the national living wage as a result of the measures in this Act over the period 2023/24 to 2027/28, and

(b) a comparison with the changes to the amount of national insurance contributions deducted from the annual income of a full-time worker earning the national living wage as a result of the thresholds for payment of national insurance remaining frozen over the period 2023/24 to 2027/28, rather than rising in line with CPI.

(2) The report in subsection (1) should also set out the costs to (i) businesses, and (ii) government , of implementing the changes in this Act, and compare them to the costs of—

(a) implementing a 1.25% point increase in national insurance contributions in April 2022, and

(b) implementing the reversal of the increase in paragraph(a) in November 2022.”—(James Murray.)

This new clause would require a review of the effects of the Bill if enacted over the period 2023/24 to 2027/28, on someone earning the national living wage, compared with the effect of national insurance thresholds being frozen, and a comparison of the expected implementation costs of this Bill with those of implementing and repealing the Health and Social Care Levy Act 2021.

Brought up, and read the First time.

[James Murray]

I beg to move, That the clause be read a Second time.

Thank you, Dame Rosie, for the chance to address our new clause 1. Before I do so, may I ask whether the Minister would commit to writing to me with detailed responses to the questions that I raised in our debate on the previous group? We did not get them in his response just now, so perhaps he will commit to writing to me with them as soon as possible.

Our new clause would require the Government to be honest about the impact of the changes made by the Bill when considered not just in isolation but in the wider context. Subsection (1) would require the Treasury to explain how the taxpayer or someone earning the national living wage would be impacted by the combined effects of the changes in the Bill and the freezing of national insurance thresholds at their 2022-23 level over the period 2023-24 to 2027-28.

We asked for confirmation of that, because our analysis shows that a full-time worker on the national living wage will pay an estimated £70 more in national insurance next year, even with the cut in the Bill, as a result of the thresholds being frozen. What is more, the full impact of the Government’s freezing of national insurance thresholds will be that by 2027-28—again, even with the cut in the Bill—a full-time worker on the national living wage will pay £160 more a year in tax. Can the Minister confirm whether he accepts our calculation? If he does not, I assume that he will accept our new clause and publish the data; otherwise, people will rightly be left wondering what it is the Government have to hide.

Should the Government choose to accept our new clause, subsection (2) would require them to come clean on some of the implementation costs to businesses and the Government of what the Chartered Institute of Taxation described last week as the “national insurance roller-coaster” in recent years.

If the Government are not prepared to accept our new clause, perhaps the Minister will again commit to writing to me with details of the implementation costs of the changes made by the Bill, of the 1.25 percentage point increase in national insurance contributions in April 2022, and of the reversal of that increase in November 2022. If he will not, I would be grateful if he could explain why not, again to prevent people from wondering what it is the Government have to hide.

[Nigel Huddleston]

I hope that I can give the hon. Member some assurances. A worker on the national living wage will save £165 next year from the national insurance cut, and thanks to above-inflation increases in the NIC starting threshold since 2010, a full-time worker on the national living wage will pay £400 less in national insurance contributions next year than they otherwise would have. That includes the historical increase to the national insurance contributions starting thresholds in July 2022 by this Government—the largest ever increase to a personal tax starting threshold. The national minimum and living wage rates are set on advice from the independent Low Pay Commission. Rates for 2025-26 and beyond will be set in future years.

The cost to HMRC of implementing and reversing the health and social care levy was £5 million. The cost to implement this rate reduction is not yet known as the project to deliver the change is in delivery, though HMRC does not expect it to be significant. In answer to the hon. Gentleman’s previous question, I will be delighted to write to him.

[James Murray]

I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Schedule agreed to.

The Deputy Speaker resumed the Chair.

Bill reported, without amendment.

Third Reading