Finance (No. 2) Bill

Baroness Winterton of Doncaster Excerpts

Committee of the whole House
Tuesday 18th April 2023 Commons Chamber

[Dame Rosie Winterton in the Chair]

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

I remind Members that in Committee, Members should not address the Chair as “Deputy Speaker”. Please use our names when addressing the Chair. “Madam Chair”, “Chair”, “Madam Chairman” and “Mr Chairman” are also acceptable.

Clause 5

Charge and main rate for financial year 2024

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

[The First Deputy Chairman]

With this it will be convenient to consider the following:

Clauses 6 to 10 stand part.

Amendment 26, in schedule 1, page 280, line 32, leave out

“a requirement relating to the making of the claim”

and insert

“the requirement to make a claim notification pursuant to either section 104AA, section 1045A or 1054A of CTA 2009 (as appropriate) or failed to provide the additional information as required by paragraph 83EA”.

This amendment would make clear that the power to remove a claim for R&D relief from a corporation tax return is only available to HMRC where a company has failed to make a claim notification (required pursuant to Part 1 of this Schedule) or to submit the additional information (required pursuant to paragraph 13 of this Schedule).

Government amendment 14.

That schedule 1 be the First schedule to the Bill.

Clauses 11 to 15 stand part.

Clauses 121 to 125 stand part.

That schedule 14 be the Fourteenth schedule to the Bill.

Clauses 126 and 127 stand part.

That schedule 15 be the Fifteenth schedule to the Bill.

Clauses 128 to 173 stand part.

Government amendment 12.

Clauses 174 to 222 stand part.

Government amendment 13.

Clauses 223 to 260 stand part.

Government amendments 15 to 20.

That schedule 16 be the Sixteenth schedule to the Bill.

Clause 261 stand part.

That schedule 17 be the Seventeenth schedule to the Bill.

Clauses 262 to 275 stand part.

That schedule 18 be the Eighteenth schedule to the Bill.

Clauses 276 and 277 stand part.

New clause 1—Statement on efforts to support implementation of the Pillar 2 model rules—

‘(1) The Chancellor of the Exchequer must, within three months of this Act being passed, make a statement to the House of Commons on how actions taken by the UK Government since October 2021 in relation to the implementation of the Pillar 2 model rules relate to the provisions of Part 3 of this Act.

(2) The Chancellor of the Exchequer must provide updates to the statement at intervals after that statement has been made of—

(a) three months;

(b) six months; and

(c) nine months.

(3) The statement, and the updates to it, must include—

(a) details of efforts by the UK Government to encourage more countries to implement the Pillar 2 rules; and

(b) details of any discussions the UK Government has had with other countries about making the rules more effective.’

This new clause would require the Chancellor to report every three months for a year on the UK Government’s progress in working with other countries to extend and strengthen the global minimum corporate tax framework for large multinationals.

New clause 3—Review of business taxes—

‘(1) The Chancellor of the Exchequer must, within six months of this Act being passed—

(a) conduct a review of the business taxes, and

(b) lay before the House of Commons a report setting out recommendations arising from the review.

(2) The review must make recommendations on how to—

(a) use business taxes to encourage and increase the investment of profits and revenue;

(b) ensure businesses have more certainty about the taxes to which they are subject; and

(c) ensure that the system of capital allowances operates effectively to incentivise investment, including for small businesses.

(3) In this section, “the business taxes” includes any tax in respect of which this Act makes provision that is paid by a business, including in particular provisions made under sections 5 to 15 of this Act.’

This new clause would require the Chancellor to conduct a review of business taxes, and to make recommendations on how to increase certainty and investment, before the next Finance Bill is published.

New clause 6—Review of energy (oil and gas) profits levy allowances—

‘(1) The Chancellor of the Exchequer must, within three months of the passing of this Act—

(a) conduct a review of section 2(3) of the Energy (Oil and Gas) Profits Levy Act 2022, as introduced by subsection 12(2) of this Act, and

(b) lay before the House of Commons a report arising from the review.

(2) The review must include consideration of the implications for the public finances of the provisions in section 2(3)—

(a) were all the provisions in section (2)(3) to apply, and

(b) were the provisions in section 2(3)(b) not to apply.’

This new clause requires the Chancellor to review the investment allowances introduced as part of the energy profits levy, and to set out what would happen if the allowance for all expenditure, apart from that spent on de-carbonisation, were removed.

New clause 7—Review of effects of Act on SME R&D tax credit—

‘(1) The Chancellor of the Exchequer must lay before Parliament within six months of the passing of this Act a review of the impact of the measures contained in this Act on the rate of inflation and on small businesses.

(2) The review must compare the regime for SME R&D tax credits and associated reliefs before and after 1 April 2023, with regard to the following—

(a) the viability and competitiveness of UK technology startup and scale-up businesses,

(b) the number of jobs created and lost in the UK technology sector, and

(c) long-term UK economic growth.

(3) In this section, “technology startup” means a business trading for no more than three years; with an average headcount of staff of less than 50 during that three-year period; and which spends at least 15% of its costs on research and development activities.

(4) In this section, “technology scale-up” means a business that has achieved growth of 20% or more in either employment or turnover year on year for at least two years and has a minimum employee count of 10 at the start of the observation period; and spends at least 15% of its costs on research and development activities.’

This new clause would require the Government to produce an impact assessment of the effect of changes to SME R&D tax credits in this act on tech start-ups and scale-ups.

New clause 8—Relief for R&D expenditure on data and cloud computing: assessment—

‘Within six months of this Act coming into force, the Chancellor of the Exchequer must publish an assessment of—

(a) the overall costs,

(b) the overall benefits, and

(c) the net cost or benefit

of extending relief of R&D expenditure to profit-making cloud computing services.’

New clause 10—Assessment of the impact of the de-carbonisation allowance—

‘(1) The Chancellor of the Exchequer must, within six months of this Act coming into force, publish an assessment of—

(a) the financial cost of the de-carbonisation allowance to the Treasury,

(b) the impact of the de-carbonisation allowance on overall investment in UK upstream petroleum production, and

(c) the revenue that the energy (oil and gas) profits levy would yield if neither the de-carbonisation allowance nor the investment allowance had effect in respect of investment expenditure.

(2) The assessment must cover the whole period that the allowance is in effect and also assess the revenue in each tax year.

(3) The assessment must include an evaluation of the impact of the de-carbonisation allowance and the investment allowance on the United Kingdom’s ability to meet its climate commitments, including—

(a) the target for 2050 set out in section 1 of the Climate Change Act 2008,

(b) the duty under section 4 of the Climate Change Act 2008 to ensure that the net UK carbon account for a budgetary period does not exceed the carbon budget, and

(c) the commitment given by the government of the United Kingdom in the Glasgow Climate Pact to pursue policies to limit global warming to 1.5 degrees Celsius and phase out inefficient fossil fuel subsidies.’

This new clause would require the Government to produce an impact assessment of the de-carbonisation and investment allowances under the Energy Profits Levy, including on tax revenues and the UK’s ability to meet its climate targets.

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[Victoria Atkins]

I hope I have understood my hon. Friend correctly. I am always loth to draw direct comparisons, particularly at the Dispatch Box, between the way in which the US conducts its tax affairs and the way we do so, as the systems are different. He has alighted upon the changes that the previous President made. The current President has also indicated that he wishes to make changes, albeit perhaps in a different direction. I hope my hon. Friend will appreciate my being cautious before giving an answer. I do not know whether he is referring to the corporate alternative minimum tax and the global intangible low-taxed income provisions. If I may, I will write to him on this, because it is incredibly technical and I want to ensure that I answer him accurately.

Having taken that final intervention, I am very conscious that although this is a large piece of legislation, colleagues are rightly scrutinising it. I shall sit down now so that they have a chance to have their say on it. I ask that clauses 5 to 15, and 121 to 277, and schedules 14 to 18 stand part of the Bill.

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

I call the shadow Minister.

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

Thank you, Dame Rosie, for the opportunity to respond on behalf of the Opposition. I would like to speak to the amendments and new clauses in my name and that of my hon. Friend the Member for Erith and Thamesmead (Abena Oppong-Asare).

When we debated this Bill’s Second Reading at end of last month, we made it clear that what we needed was a plan to get us out of what the previous Chancellor rightly called a “vicious cycle of stagnation”. We need a plan for growth—a plan to raise the living standards of everyone in every part of the country—but this Government have failed to offer us one. That much was clear from the data published alongside the Budget, which showed that ours is the only G7 economy forecast to shrink this year and that our long-term growth forecasts were downgraded in the Office for Budget Responsibility report.

Since we last debated this Bill, further data has been published confirming our fears. Earlier this month, a report from the International Monetary Fund put the UK’s growth prospects this year at the bottom of those of the G20 biggest economies—a group that includes sanctions-hit Russia. After 13 years of economic failure, people and businesses across the UK deserve so much better than that. They deserve a plan for the economy that offers more than managed decline. So today, we begin by looking at some of the measures the Government are seeking to introduce in this Bill and explaining why their approach is letting Britain down.

First, let me speak to clauses 5 to 15, which address the rate of corporation tax, capital allowances and other reliefs relating to businesses. On those, one thing prized above all else is the need for certainty and stability. Businesses across the country want stability, certainty and a long-term plan, yet under the Conservatives corporation tax has changed almost every year since 2010. Furthermore, as the Resolution Foundation has pointed out, the introduction of the latest temporary regime for corporation tax represents the fifth major change in just two years. It seems that the Conservatives are simply incapable of offering stability.

Let us start by looking at the main rate of corporation tax, which clause 5 sets at 25% for the financial year beginning in April 2024. The clause will mean that corporation tax will continue to be charged at the rate to which it rose at the start of this month. That rate, 25%, was first announced by the Prime Minister, when he was Chancellor, in his spring Budget 2021. One might think that sounds like a rare example of certainty, but, sadly, that is not the case. As we know, last September, the then Chancellor, the one who said our economy was trapped in a “vicious cycle of stagnation”, announced that the rise to 25% would be cancelled, leaving the rate at 19%. That was of course reversed just a month later, when the current Chancellor moved into No. 11, and confirmed that the rise to 25% was back on. So much for stability! But we are where we are, and if we are to assume that the current Chancellor’s plans will indeed go ahead—a bold assumption, I admit—the rise to 25% will now continue from April 2024.

With the rate of corporation tax being increased, it is particularly important to get capital allowances right. The Government should be focused on giving businesses certainty that will help them to plan and increase their investment in the UK economy. We need that certainty and greater investment—the UK currently has the lowest investment as a percentage of GDP in the G7—yet the approach in clause 7 is to introduce temporary full expensing for expenditure on plant and machinery for three years only. By making that change temporary, it only brings forward investment, rather than increasing its level overall. The Government’s own policy paper on this measure, published on the day of the Budget, makes that clear. It says:

“This measure will incentivise businesses to bring forward investment to benefit from the tax relief.”

As the Office for Budget Responsibility has made clear, the Government’s approach will mean that business investment between 2022 and 2028 is essentially unchanged as a result of these measures. If anything, there is a very slight fall. Britain deserves better than this. As Paul Johnson of the Institute for Fiscal Studies said in response to this temporary tweak to the tax regime for businesses:

“There’s no stability, no certainty, and no sense of a wider plan.”

That is why we have tabled new clause 3, which would require the Chancellor to follow Labour’s lead by developing a wider plan for business taxes, which we believe is needed. As my right hon. Friend the Member for Leeds West (Rachel Reeves), the shadow Chancellor has set out—

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I have one plea for the Minister. She understands that this Finance Bill has such a significant section dedicated to international taxation—the OECD rate of taxation—so I urge her to reflect on the comments that I and many others have made, which very much come from industry. I and many colleagues wrote to the Chancellor before the Budget back in March with a range of concerns. We have not yet even had a response to that letter. I think it is important that we see proper, considered responses to all the concerns that we have raised—that is absolutely appropriate. Before jumping headlong into implementation without proper timescales, without thinking through the consequences of what the provisions mean and with other jurisdictions acting independently and changing their own legislative parameters, will the Minister come back to this House with significant answers to my questions?

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

I call the SNP spokesperson.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to take part in a Finance Bill Committee of the whole House. I will raise a number of points, particularly in relation to the new clauses and to what the Minister said about them.

The right hon. Member for Witham (Priti Patel) mentioned tax simplification. During later consideration of the Bill, we will raise questions about the removal of the Office for Tax Simplification, what has happened to the Government’s assessment of the benefit of that office, whether we will have an issue with removing that office, and whether there will be a cost to the public purse or to businesses as a result of.

We will support Opposition new clauses 1, 3 and 6. We would also support new clause 10 if it were pressed to a vote. I will talk a little about new clauses 6 and 10 on requests for transparency. It is incredibly important that we have transparency about how allowances, tax and everything else put in place by the Treasury—and, in fact, by every Government Department—work. The Red Book that is produced at Budget time gives us a genuine idea and expectation of how much any measure—be it an investment allowance, a new tax measure, or something else—is expected to generate, but the UK Government are not terribly good at putting in place post-implementation reviews of such tax measures.

We do not have enough transparency on whether the tax measures put in place have actually achieved what the Government intended. In fact, I tabled a written question on this some time ago, and various Government Departments were unable to tell me even how many post-implementation reviews they had carried out and whether there were any that they had not carried out. It seems to me pretty fundamental that the Government should fulfil their role of calculating the cost or benefit and saying whether the projection has seemed accurate. It is all well and good for the Government to say, “This is going to raise £100 million,” but if they do not then assess whether it did, how can we be sure that a measure had the desired effect, particularly when it is something such as an investment allowance? We are not saying, “We don’t think there should be allowances”; we are saying, “We want the allowances that are put in place to actually work in the way that they are intended to work.” I have concerns about that.

New clauses 6 and 10 would require the UK Government and the Treasury to provide transparency on the allowances and their resulting outturn. It is particularly important to look at our climate change obligations. In fact, we have tabled an amendment specifically on looking at the entire Finance Bill through the lens of whether it will help us to meet our climate change and Paris agreement commitments. There is no point in this House agreeing to legislation that takes us further from the Government’s stated aims and legislative commitments on climate change. I am still of the opinion that the UK Government are fairly good at talking the talk on their climate change commitments but not at translating that into checking whether our climate change objectives will be hampered by the policies that are put in place.

During the Committee stage of the Advanced Research and Invention Agency Act 2022, for example, I requested that the new organisation be set up on a net zero basis from the beginning. Given that we have net zero targets, I do not think that it is unreasonable to ask for any new Government department to be set up on that basis and, at least, to not contribute in a negative way to our carbon outturns. As I said, we will support new clauses 6 and 10 if they are pushed to a vote.

New clause 8, which relates to clause 10, addresses the R&D spend on data and cloud computing. We have tabled a probing amendment on that, and although we do not intend to press it to a vote, I would appreciate it if the Minister were able—either today or at a future stage—to answer some questions. We have particular concerns about clause 10 as it relates to part 2 of schedule 1. The explanatory notes—a hefty document—state that:

“Expenditure on data licences and cloud computing services only qualifies for relief to the extent that the commercial use of that licence or service is restricted to the particular research and development activity to which the claim relates, and that the customer does not have a right to…ongoing use after the relevant research and development has ended.”

I appreciate the Government’s intention, but we have tabled new clause 8 because we are concerned that this will hamper anyone applying for the allowance in the first place, as they may want to continue to use that data licence and cloud computing after the research and development. Surely they are only doing the research and development because they think it will be profitable and positive for their company. I am concerned that they may choose not to make the investment or to apply for the allowance if they know that they will have to pay it back at a later stage if this does what the company surely wants to achieve, which is to make money.

This could have been done in a different way, by allowing companies the investment opportunity and the R&D allowance for the data licence and cloud computing, and then stopping the allowance at the point at which it begins to make money, rather than saying, “If this does begin to make money, you have to pay us back.” It would be great if the Minister could answer questions on that issue today, but if not, I am happy to receive information afterwards, so that we have clarity on the Government’s assessment of this.