Finance Bill

Debate between Nusrat Ghani and Yuan Yang

Committee of the whole House
Tuesday 10th December 2024 Commons Chamber

[Yuan Yang (Earley and Woodley) (Lab)]

It is a pleasure to serve under your chairship, Madam Chair. I will talk mostly about new clause 5 on capital gains tax, but, given the remarks by the shadow Minister, I will make a few points on the broader matter and on incentives to start a new business.

My constituency of Earley and Woodley in the Thames Valley is one of the hottest destinations for business investment and for new start-ups in the tech and pharmaceutical sectors. I have met a number of those inspiring entrepreneurs to talk about their start of the business journey. As is widely known, when entrepreneurs start passionately with a project, they are thinking not about the disposal and taxation regime at the end of their journey, but about the infrastructure and the support that they will have around them that brings their idea to fruition. For the tech and pharmaceutical entrepreneurs in Earley and Woodley, that is about a transport infrastructure, a skills base, and schools, colleges and universities in the area that can produce the kinds of graduates who will then staff their company. It is about a regime that is welcoming to entrepreneurship and is welcoming for people to live in and to prosper in. For all those reasons, I very much support our Budget and the Budget that brings more investment to infrastructure across the UK.

First, I welcome the measures on capital gains tax introduced in new clause 5. Let me remind Conservative Members that it was Chancellor Nigel Lawson who, in a much more dramatic measure than that proposed today, equalised the rate of capital gains tax with income tax in 1988. That equalisation was proposed because of tax avoidance. To many people listening to the debate, capital gains tax will not be familiar because, like me, their main means of taxation will be income tax and they will not have come into contact with CGT.

For the purposes of understanding, let me illustrate what I mean by “tax avoidance”. The issue was raised with me by a retired consultant when I was canvassing in the summer in the north of my constituency. When I knocked on his door, he said, “What are you going to do about capital gains tax? I want you to ensure that this doesn’t happen any more.” He then proceeded to illustrate the means by which he had paid less income tax than he otherwise would have done through the capital gains tax system. It was a principled and honourable admission for him to make to his then parliamentary candidate on the doorstep.

Many of us pay income tax, and we are all familiar with the way that it is structured. Among those of us who do not receive income from payroll—that is, who do not work for a company—but have the ability to structure it as self-employed or consultancy income and funnel it into a business of our own creation, that is a channel by which many people avoid paying income tax on activities that are arguably income-like. That happens, as I said, for a minority of people in the UK. The vast majority do not have access to that route because they earn through working for other people through companies, and they are on the payroll and not able to structure their own companies. When those companies holding the—arguably—income revenues are disposed of, that is when capital gains tax comes into the picture. Of course, the rate of capital gains tax is much lower than the rate of income tax, and that is where the gap comes from that was illustrated by my retired constituent.

Madam Deputy Speaker, it is important that the tax system is efficient in raising revenues, which is what our Budget sets out. The tax system must also be principled in ensuring that the tax purposes to which we have allocated certain measures raise the right taxes and are targeted towards the kinds of activities that are meant to be taxed. All of us in the Committee would probably agree that we should pay tax through a progressive system that distinguishes between different forms of revenue-raising activities, but that allocates people fairly and proportionately to those right and relevant activities.

I am reminded of the announcements that came out during the last Government regarding the tax affairs of the former Prime Minister, the right hon. Member for Richmond and Northallerton (Rishi Sunak), who paid 23% in average tax on his £2.2 million in earnings. That was of course possible because of the relatively low rate of capital gains tax that he was paying on the vast majority of his earnings, which came through capital and not through earned income.

Again, to the vast majority of people listening to the debate, I am sure that that is a reality far outside their understanding. The vast majority of people in the UK earn income through going out to work and working hard every day. It is for those people—the working people of this country—that this Budget has been made, so that we can lift livelihoods across the country by properly funding our public services and by closing the significant in-year overspend that the previous Government made of £22 billion. Through those measures, and by ensuring the financial stability of our tax system and the economic stability of our country, we will start to raise living standards across the UK. For those reasons, I very much support the measures.

[The Chairman of Ways and Means]

As colleagues will notice, the Speaker’s Chair is vacant, so I remind Members that the Chair should be addressed as Madam Chair or Madam Chairman. I call the Liberal Democrat spokesperson.

--- Later in debate ---

[The Chairman of Ways and Means]

I call Yuan Yang.

[Yuan Yang]

Thank you, Ms Ghani. I apologise for my inconsistent bobbing. I am still learning when to stand up, but what has gone up and stayed up are the record profits of the oil and gas majors. I will start my speech on that topic, and will go on to speak about where those profits have come from and, finally, what the proceeds of our EPL will go to fund.

First, on those record profits, I think all Members of the Committee agree that the record profits in the oil and gas industry in 2022 were excessive. In 2023, however, the profits for Shell, the largest oil and gas major in Europe, barely decreased from the previous year. In fact, if we take its profits from the first half of this year, Shell looks likely to eclipse even those of last year. In the first half of this year, Shell has had profits of $14 billion. Half of that went to share buybacks, which do nothing to fund the decarbonisation that is so necessary to secure the future of energy production here in the UK and around the world. Those record profits, much of which have been handed back to shareholders, are going in the opposite direction of what ordinary families and working people need. Rather than reinvest in the transitions of the future, I would argue that the Conservative party is looking at the industries of the past and clinging on to a past that is quickly fading from reality.

Secondly, let us look at where those profits have come from. The House of Commons Library states that generally lower wholesale prices in the last year led suppliers to start offering fixed tariffs, as of summer 2023. However, they have been far more cautious in pricing those tariffs, with prices close to the level of the energy cap. Any return to competition in the market is expected to be slow. That reflects the state of affairs we face today. The wholesale prices of oil and gas—as an example, look at the price of Brent crude in the market today—are back below the levels they were pre the Russian invasion of Ukraine, yet the retail prices facing ordinary working families in the UK are still far above those levels. What happens in the middle? The profits are being taken by the oil and gas companies. Largely, they are not being reinvested in the productive sectors of the future, but being paid back to shareholders.

In any market where the return of competition is expected to be slow, there is a role for the Government to regulate the fair share of proceeds—who gets the surplus from that market. Here I pause and say that when we look across the Committee to who is arguing for the interests of working people and who is arguing for the interests of the oil and gas profit-making giants, the political divisions are clear. There are schools in my constituency that are fundraising to insulate themselves. The Maiden Erlegh school where I live is asking its parent association to provide better wooden frames for its windows, because they leak in winter. That is the public estate that our Government have been elected to fix and repair. We will set about doing so with the profits from the levies set out in the Bill we are discussing today.