Finance (No. 2) Bill

Baroness Winterton of Doncaster Excerpts

Report stage
Tuesday 20th June 2023 Commons Chamber

[The Financial Secretary to the Treasury (Victoria Atkins)]

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

[Madam Deputy Speaker (Dame Rosie Winterton)]

With this it will be convenient to discuss the following:

Amendment (a) to new clause 4, at end insert—

“(2) The Treasury may by regulations amend subsection (1) by substituting a later date for the date for the time being specified there.”

Government new clause 5—Communications data.

New clause 1—Review of alternatives to the abolition of the lifetime allowance charge—

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

(a) conduct a review of the impact of the abolition of the lifetime allowance charge introduced by section 18 of this Act and other changes to tax-free pension allowances introduced by sections 19 to 23 of this Act, 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 the policies referred to in subsection (1)(a) could be replaced with an alternative approach that provided equivalent benefits only for NHS doctors.”

This new clause requires the Chancellor to review the impact of the tax free pension allowance changes and to recommend an alternative approach targeted at NHS doctors.

New clause 2—Reports to Treasury Committee on measures to simplify tax system—

“(1) The Treasury must report to the Treasury Committee of the House of Commons on steps taken by the Treasury and HMRC to simplify the tax system in the absence of the Office of Tax Simplification.

(2) Reports under this section must include information on steps to—

(a) simplify existing taxes, tax reliefs and allowances,

(b) simplify new taxes, tax reliefs and allowances,

(c) engage with stakeholders to understand needs for tax simplification,

(d) develop metrics to measure performance on tax simplification, and performance against those metrics.

(3) A report under this section must be sent to the Committee before the end of each calendar year after the year in which section 346 (abolition of the Office of Tax Simplification) comes into force.”

This new clause would require the Treasury to report annually to the Treasury Committee on tax simplification if the Office of Tax Simplification is abolished.

New clause 3—Review of public health and poverty effects of Act—

“(1) The Chancellor of the Exchequer must review the public health and poverty effects of the provisions of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) The review must consider—

(a) the effects of the provisions of this Act on the levels of relative and absolute poverty across the UK including devolved nations and regions,

(b) the effects of the provisions of this Act on socioeconomic inequalities and on population groups with protected characteristics as defined by the 2010 Equality Act across the UK, including by devolved nations and regions,

(c) the effects of the provisions of this Act on life expectancy and healthy life expectancy across the UK, including by devolved nations and regions, and

(d) the implications for the public finances of the public health effects of the provisions of this Act.”

New clause 6—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 7—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 8—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 9—Review of section 36—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact on the public finances of the measures provided for by section 36 of this Act (‘the section 36 measures’).

(2) The assessment must include details of any analysis by the Treasury or HMRC of—

(a) the amount of additional tax raised by the section 36 measures and,

(b) the number of individuals who are required to pay additional tax as a result of the section 36 measures.”

This new clause requires the Chancellor to review the impact of the measures in the Act that affect people with non-domiciled status, including by setting out how many people will be required to pay additional tax and how much this will raise in total.

New clause 10—Review of new bands and rates of air passenger duty—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes to air passenger duty introduced by this Act on—

(a) the public finances;

(b) carbon emissions; and

(c) household finances.

(2) The assessment under subsection (1) must consider how households at a range of different income levels are affected by these changes.”

This new clause requires the Chancellor to publish an assessment of this Act’s changes to air passenger duty on the public finances, carbon emissions, and on the finances of households at a range of different income levels.

New clause 11—Review of impact of tax changes in this Act on households—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes in this Act on household finances.

(2) The assessment in subsection (1) must consider how households at a range of different income levels are affected by these changes.”

This new clause requires the Chancellor to publish an assessment of the changes in this Act on the finances of households at a range of different income levels.

New clause 12—Review of Part 5—

“(1) The Treasury must conduct a review of the provisions of Part 5 of this Act (electricity generator levy).

(2) The review must consider the case for ending or amending the charge on exceptional generation receipts when energy market conditions change.

(3) The report of the review must be published and laid before the House of Commons within six months of this Act being passed.”

This new clause would require the Government to conduct a review into the energy generator levy with a view to sunsetting the levy when market conditions change.

New clause 13—Review of effects of Act on the affordability of food—

“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons an assessment of the impact of the measures of this Act, and in particular sections 1 to 4 (income tax), on the ability of households to afford the price of food.”

This new clause would require the Government to produce an impact assessment of the effect of the Act on the affordability of food.

New clause 14—Review of effects of Act on small businesses—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the likely impact of the measures of this Act on small businesses.

(2) The report must assess the effect on small businesses of any taxes charged under this Act, in the context of other financial pressures currently facing small businesses including—

(a) the rate of inflation, and

(b) b) the cost of energy.”

This new clause would require the Government to produce an impact assessment of the effect of the Act on small business with particular regard to inflation and the cost of energy.

New clause 15—Review of effects of Act on SME R&D tax relief—

“(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 in section 10 relating to research and development tax relief for small and medium-sized enterprises.

(2) The review must compare the impact of the relief before and after 1 April 2023, with regard to the following—

(a) the viability and competitiveness of UK technology start-up 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 start-up’ 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.

Government amendments 9 to 13.

Amendment 1, page 12, line 30, leave out clause 18.

Amendment 2, page 12, line 37, leave out clause 19.

Amendment 3, page 13, line 31, leave out clause 20.

Amendment 4, page 14, line 1, leave out clause 21.

Amendment 5, page 14, line 11, leave out clause 22.

Amendment 6, page 14, line 20, leave out clause 23.

Government amendments 14 to 16.

Amendment 22, in clause 115, page 74, line 10, at end insert—

“(1A) The Chancellor of the Exchequer must, within one month of this Act coming into force, lay before the House of Commons an assessment of the impact of extending the provision of subsection (1) to wine which—

(a) is obtained from the alcoholic fermentation of fresh grapes or the must of fresh grapes and fortified with spirits,

(b) is included in one or more of the United Kingdom Geographical Indication Scheme registers, and

(c) is of an alcoholic strength of at least 15.5% but not exceeding 20%.”

This amendment requires the Chancellor to lay before the House an assessment of the impact of providing comparable transitional relief to fortified wine made from fresh grapes, such as port and sherry, as has been made available to other forms of table wine.

Amendment 20, in clause 264, page 188, line 7, at end insert—

“(2) The Treasury may by regulations amend subsection (1) by substituting a later date for the date for the time being specified there.”

Amendment 23, in clause 278, page 198, line 9, after “costs” insert “and relevant investment expenditure”.

This amendment is linked to Amendment 24.

Amendment 24, in clause 278, page 198, line 12 at end insert—

“Where the generating undertaking is a generator of renewable energy, determine the amount of relevant investment expenditure and also subtract that amount.”

This amendment, together with Amendments 23, 25 and 26 would allow generators of renewable energy to offset money re-invested in renewable projects against the levy.

Amendment 25, in clause 279, page 199, line 21, at end insert—

“a ‘generator of renewable energy’ means—

(a) a company, other than a member of a group, that operates, or

(b) a group of companies that includes at least one member who operates a generating station generating electricity from a renewable source within the meaning of section 32M of the Energy Act 1989;

‘relevant investment expenditure’ means any profits of a generator of renewable energy that have been re-invested in renewable projects;”.

This amendment is linked to Amendment 24.

Amendment 26, in clause 279, page 199, line 26, at end insert—

“a ‘renewable project’ is any project involving the generation of electricity from a renewable source within the meaning of section 32M of the Energy Act 1989;”.

This amendment is linked to Amendment 24.

Government amendments 17 to 19.

Amendment 7, page 265, line 2, leave out clause 346.

This amendment would leave out Clause 346, which abolishes the Office of Tax Simplification.

Amendment 21, in schedule 16, page 399, line 27, at end insert—

“(2A) The Treasury may by regulations amend subsection 2(a) by substituting later dates for the dates for the time being specified there.”

The aim of this amendment is to enable the Treasury to extend the permitted period for multinational groups to make transitional safe harbour elections, reducing the compliance burden, in the event that other countries are slow to follow suit in implementing these rules.

[Victoria Atkins]

Let me first thank all right hon. and hon. Members who have taken part in debates on the Finance Bill so far. Today is Report stage, but there has been intense scrutiny of many measures in the Bill, not just line by line in Committee on the Committee Corridor but, importantly, in Committee of the whole House. I hope that I will hear from right hon. and hon. Members on some of those discussions.

We are focusing on a number of proposed amendments to the Bill, which I will address in turn. Many of the Government’s amendments focus on ensuring the proper functioning of the legislation in response to scrutiny from businesses, business representative groups, parliamentarians and feedback. Others take forward responses to substantive issues that have emerged during the Bill’s passage. This is an exercise of how scrutiny in this place works, and I hope it works well. I will address each Government amendment in turn in this part of the debate. To reassure colleagues, I want to listen to the debates that will follow on non-Government amendments and proposed new clauses, and I hope to deal with points raised by right hon. and hon. Members when I wind up.

Government amendments 9 and 10 seek to ensure that our policy of full expensing achieves its intended affect. The existing wording can result in balancing charges being incorrectly calculated by not applying the correct apportionment to the disposal receipts. This is a straightforward and necessary technical adjustment to a policy that will help businesses to invest with confidence and boost UK productivity.

Government amendments 11, 12 and 13 provide that both the decarbonisation allowance and the existing investment allowance in the energy profits levy work as intended. They correct unintended exclusions by revising definitions to ensure that the investment allowances apply throughout the UK, in UK waters and on the United Kingdom continental shelf.

Government amendment 14 is a minor technical amendment that concerns the lifetime allowance—specifically, in clause 23, which allows modifications of certain existing transitional protections to ensure that stand-alone lump sums can continue to be paid to those who are entitled. The amendment clarifies the tax treatment for any amount above the limited 5 April maximum. The amendment is required to avoid an unintended outcome that would otherwise arise as a result of the removal of the lifetime allowance charge, whereby those who are entitled to stand-alone lump sums may not have been able to access their full benefit. The amendment corrects that. We are grateful to members of His Majesty’s Revenue and Customs pensions industry stakeholder forum for raising the issue.

New clause 4 relates to the domestic minimum top-up tax, which is part of the global minimum tax agreement. That agreement protects against large multinational groups and companies using aggressive tax planning and shifting their UK profits overseas. The amendment simply puts beyond doubt that the commencement date for the domestic top-up tax aligns with the multinational top-up tax and the internationally agreed timings, and no earlier. The start date is for accounting periods beginning on or after 31 December 2023. We will discuss the global minimum tax agreement in more detail later, precisely because it is of particular interest to right hon. and hon. Members. I will respond to those further arguments and suggestions when I wind up.

--- Later in debate ---

Let me turn now to the administration of capital allowances, which we have discussed in previous debates. Those allowances will still pose burdens to businesses. Conservative Members must ensure that it is not a Conservative Government who are putting burdens on businesses, but that they do everything possible to bring down the tax base and the tax burden, and to simplify taxes for businesses.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I gently remind colleagues that if they want to intervene on a speaker, it is important that they are in the Chamber at the beginning of the speech, just in case the point that they wish to raise has already been made. It is also important to stay until the end. I call the SNP spokesperson.

[Stewart Hosie]

Before I turn to the new clauses and amendments before us, it is worth reminding ourselves briefly about the debate so far, not least that the Bill was derived from a Budget that had the stated intention of seeing the debt, borrowing and inflation all fall. As the Financial Secretary has said previously, debt servicing costs are down, and indeed they are—they are down from last November, but massively up from the previous year. She said that the fiscal targets are to be met. Again, indeed they are. The debt target in particular is forecast to be met in five years’ time measured against the fiscal charter, but it will be at 0.2% of GDP. That is £6 billion out of a GDP approaching £3 trillion. As I have said before, these are very fine margins.

Although it is true that having a weather eye on debt and deficit—the big macro-economic indicators—is important, so too is immediate help for families suffering from high inflation, high energy prices and spiralling mortgage costs. Those things, however, are all sadly absent from the Bill. That is important because the OBR has told us that living standards will fall by 6% over this fiscal year. That will be the largest two-year fall since Office for National Statistics records began in the 1950s. It is important because inflation is still at 8.7%, and it is far worse for certain essentials such as sugar, at nearly 50%. Remember that inflation was forecast to fall to 2.9% by the end of this year. Since then, it has been revised up to 5% by the end of this year. That means that the forecasts and the pain keep rising.

We know that real pay is not keeping pace with inflation. Troublingly, the Government are keeping their head in the sand regarding the inflationary impact of Brexit, ignoring even the former Bank of England Governor, Mark Carney, who could not have been clearer about the contribution Brexit has made to the soaring inflation we face.

I turn to the amendments and new clauses we are considering on Report. New clause 1 calls for a review of alternatives to the abolition of the lifetime allowance, and amendments 1 to 6 delete clauses associated with the abolition. On Second Reading, I suggested the need to probe this matter in Committee. The decision to remove the cap on lifetime pension allowances, which will cost around £3 billion, will benefit a tiny number of already pretty comfortably off or very well-off people. I also suggested that, if the measure was genuinely designed to lift certain categories of worker—doctors in particular—out of a pension and employment trap, the Government should, to be brutally honest, have come up with a much better and far narrower solution.

My hon. Friend the Member for Aberdeen North (Kirsty Blackman) also raised the matter in the Committee upstairs. She made the point that a significant number of questions have been raised in the House and elsewhere about the lifetime allowance and the problem it has caused, particularly for NHS doctors, but went on to quote Torsten Bell of the Resolution Foundation, who noted that 20% of those who will benefit from the change in the lifetime allowance work in the finance industry, meaning that nearly as many bankers as doctors will benefit. That surely cannot have been the intention. We are pleased to support new clause 1, because it seeks not simply a review, but a review that will make recommendations about how a more focused alternative could be delivered.

Amendment 7 seeks to remove entirely the abolition of the Office of Tax Simplification, and new clause 2 seeks reports based on metrics to measure the performance of tax simplification. We will support both if they are voted upon. My hon. Friend the Member for Dunfermline and West Fife (Douglas Chapman) provided some excellent context in Committee, arguing that

“the OTS achieved a significant amount during its 12 years of existence and, with greater ministerial support for its proposals, could have achieved much more.”—[Official Report, Finance (No. 2) Public Bill Committee, 18 May 2023; c. 136.]

He also quoted George Crozier of the Chartered Institute of Taxation, as many have done over many years, who said that there had been

“useful reforms to employee expenses and inheritance tax reporting,”

and that

“every Finance Act of the last decade has had measures in it which owe their genesis to the OTS, and which have made navigating the tax system easier for one group or another.”

My hon. Friend also made the rather important point that it was the independence of the Office of Tax Simplification that made it stand out from anything that can be provided in-house. We will back amendment 7 and new clause 2 if they are pressed to a Division.

If I may say a few words about Government new clause 4 and Government amendments 9 to 13, they appear to come under the category of tidying up and clarification. New clause 4 in particular ensures that both domestic and international top-up taxes commence at the same time, and the other amendments ensure that reliefs and charges operate as intended.

However, I am rather less sanguine about Government new clause 5. Ostensibly, it is required to deal with the situation where

“financial institutions are regarded as telecommunications or postal operators”.

For example, subsection (5) of Government new clause 5 suggests that paragraph 19(4) and (5) of schedule 36 to the Finance Act 2008 be removed, but paragraph (19)(4) says:

“An information notice does not require a telecommunications operator or postal operator to provide or produce communications data.”

That is a protection against the requirement to produce data in certain circumstances. Paragraph 19(5) defines “communications data”, “postal operator” and “telecommunications operator” as per the Investigatory Powers Act 2016—the very legislation that inserted those protections into schedule 36 to the Finance Act 2008 in the first place. Government new clause 5 not only affects the financial institutions regarded as telecoms or postal operators but, it would appear on my reading, removes protections in the Act for all telecommunications and postal operators not to be required to provide certain information in certain circumstances.

The Financial Secretary said she would answer questions at the end in her summing-up, and my questions are rather simple. What problem is Government new clause 5 designed to address? Why has a potentially significant amendment such as this come so late in the day? Is it even remotely appropriate that a criminal justice measure, the Investigatory Powers Act, should be amended in a potentially significant way through a late-delivered new clause on Report of a Finance Bill?

New clauses 3 and 8 to 14 call for reviews or reports of one form or another on the public health and poverty effects of the Bill, the oil and gas profits levy allowance, the impact of those with non-dom status, the bands and rates of air passenger duty, the impact of tax changes on households, and the effect of the Bill on the affordability of food and on small businesses. We are happy to look on those positively, although I am not certain that new clause 12 should really be opening the door to reducing the electricity generator levy. The Lib Dems have disappeared, but I would have said to the hon. Member for Tiverton and Honiton (Richard Foord), had he been in this place, that if one opens the door to a tax cut to the Tories, they by and large take it.

We will also support new clause 7, which requires a statement of progress on the pillar 2 reforms, seeking

“to extend and strengthen the global minimum corporate tax framework”.

It is important that we have a global minimum corporate tax framework, and I am not convinced by the arguments made by the right hon. Member for Witham (Priti Patel) about offering the opportunity for implementation to be delayed.

Again, the Lib Dems are not in their place, but I am also not yet convinced by new clause 15 because, while there are issues with the Government’s research and development framework, which I have raised before—namely, the stated intention to limit attributable expenditure for data and cloud computing licences—the new clause seeks to make the regime more restrictive and introduces the extraordinarily subjective viability clause in subsection (2)(a).

It is, however, true that none or few of the amendments and new clauses tabled substantially alter the Bill. It is also sadly true that none of the Government changes offer any hope of substantial help for the cost of living crisis any time soon. I fear that the Bill, and the Budget it derived from, will go down in the missed opportunity category.