Finance Bill (First sitting)

Tulip Siddiq Excerpts

Committee stage
Tuesday 16th January 2024 Public Bill Committees

[Nigel Huddleston]

Clause 11 extends the sunset clause for the enterprise investment scheme and the venture capital trust scheme to April 2035. The schemes will continue to support thousands of early-stage, innovative companies each year and ensure that they have access to the investment they need to develop and grow.

The enterprise investment scheme and venture capital trust scheme provide a range of generous tax reliefs to investors to encourage investment into higher risk, early-stage companies, which face the biggest challenges in accessing finance. This will encourage entrepreneurship in the future. The schemes are world-leading in terms of their generosity, with more than £3.4 billion of funds raised across the two schemes in the tax year 2021-22 alone. This extension will ensure that the schemes continue to support the growth of early-stage companies.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

It is a pleasure to serve under you, Mr. Paisley. As the Minister has set out, clause 11 extends the availability of the enterprise investment and venture capital trust tax reliefs to shares issued by eligible companies and VCTs by 10 years to 2035. The Opposition welcome the Government’s long overdue decision to take action and extend the schemes, given that the original sunset clause of April 2025 was fast approaching.

Both the EIS and VCT schemes remain crucial funding lifelines for the UK’s start-up community and the uncertainty created by the previous sunset clause deadline has risked hampering investor confidence in backing our high-growth firms. We also know from the latest HMRC data that between 2021 and 2022, nearly 4,500 businesses accessed more than £2.3 billion of funds through the EIS scheme—the highest number since it was introduced. As the Minister will probably know, the ScaleUp Institute has described the relief as pivotal in driving the supply of early-stage risk capital to some of the UK’s most exciting companies.

It is worth noting that the 2025 sunset clause, at which point the schemes were due to be revived, was due to a request from the European Commission to ensure compliance with European Union state aid rules. Given the importance of ensuring that investors are able to plan years in advance when developing a forward pipeline of investments, the Government should have listened to business and tackled the investment uncertainty caused by this potential expiry date far sooner following our departure from the EU. Although people were concerned about the prospect of the schemes expiring, there are those in the VC community who saw the review triggered by the sunset clause as an opportunity to improve the operation of the EIS and VCT schemes, which remain extremely complex. It is crucial that, beyond simply pushing the sunset clause back 10 years, the Government take an active interest in improving these vital schemes, including by delivering the simplification measures that many are calling for to ensure that more companies and more investors can benefit from the tax reliefs available to them.

I can confirm that the Labour party supports clause 11, which is a necessary intervention to ensure that investors can continue to invest with confidence in UK start-ups, but does the Minister acknowledge that we have an urgent need for a Government who listen to business early on, and who create the stable investment climate that we need to deliver growth in our economy, and who do not leave that until the last minute?

[Nigel Huddleston]

I am afraid that I respectfully disagree with the hon. Lady. We see clearly from feedback from the industry that it very much welcomes the changes. Actually, it is quite transparent throughout the Bill that we are backing business right across the UK. Richard Stone, chief executive of the Association of Investment Companies, has said:

“It’s excellent news that the Chancellor has committed to extending VCTs’ sunset clause…The extension…will help provide certainty to investors and businesses and enable VCTs to continue supporting UK growth companies.”

The British Private Equity & Venture Capital Association has said:

“It is hugely positive that the Chancellor has EXTENDED THE EIS AND VCT SCHEMES until 2035.”

The changes were not subject to a formal consultation, but were part of engagement with industry that Treasury officials and Ministers conduct on an ongoing basis. We are listening to business all the time; we make appropriate changes all the time, and the measures in clause 11 prove exactly that point. The hon. Lady is trying to score political points, but in highlighting some of the scare tactics, she is proving exactly why business can be confident in this Government, and should be somewhat fearful of the Opposition.

The clause will ensure that the EIS and VCT schemes continue to support thousands of early-stage companies each year in raising the funding that they need to succeed. I therefore urge that the clause stand part of the Bill.

Question put and agreed to.

Clause 11 accordingly ordered to stand part of the Bill.

Clause 12

Relief for payments of compensation by government etc to companies

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

[Nigel Huddleston]

I should probably explain to anybody wondering about the musical chairs that we have two Ministers here, because the clauses are split across ministerial responsibilities. I explain that for Members and anybody watching—the millions who, I am sure, are watching on television across the world.

Clause 12 is on a very important and newsworthy point, but it also shows that the matter that it deals with has received considerable attention for some time: it makes changes to ensure that all claimants of compensation from a range of Post Office schemes related to the Horizon IT scandal are treated similarly. It will align the tax treatment to ensure that claimants who chose to set themselves up as companies obtain tax relief comparable to that available for claimants set up as individuals.

Following the Horizon IT scandal, a number of schemes were set up to provide compensation to the individuals affected, and although most sub-postmasters are individuals, some set themselves up as corporate entities. Individuals have been exempted from paying income tax, national insurance contributions and capital gains tax on compensation that they received under the schemes that have been announced, which are being legislated for separately, but the Government are determined that postmasters affected by the Horizon IT scandal will receive the compensation that they deserve, regardless of how they arrange their business structure. The clause therefore exempts from corporation tax compensation payments made under the Post Office historical shortfall scheme, the group litigation order schemes, the suspension remuneration review and the Post Office process review scheme. The legislation will align the taxation of onward payments of compensation with that of compensation to individual recipients.

The clause will impact the relatively small proportion of compensation recipients who are structured as corporate entities, but to those impacted it is extremely meaningful. The approach taken in the legislation is consistent with tax principles and precedents, as well as the tax treatment of separate Post Office compensation schemes set up in response to the Horizon IT scandal.

[Tulip Siddiq]

I would like to spend a long time debating the claim that business is fearful of the Opposition, but I do not feel that this is the right time.

[Nigel Huddleston]

We will have that debate another day.

[The Chair]

And I will not allow it!

[Tulip Siddiq]

Given the shocking details of the Post Office scandal, which has rightly been the subject of significant parliamentary debate in the last few days, it will come as no surprise that the Opposition strongly support the measures in clause 12, which is designed to bring parity to the taxation of compensation payments received by all sub-postmasters who were victims of that shameful episode. It is quite plainly unjust for sub-postmasters structured as a corporate entity to receive less in compensation than individual claimants, or for that compensation to disappear back to the Exchequer through tax on onward payments to the directors of those entities, who are the victims.

The clause also rightly addresses the inexplicable difference that there has been in tax treatment depending on the route that victims have taken to seek damages from the Post Office, be it through the group litigation order scheme, the Horizon shortfall scheme, the suspension remuneration scheme or the Post Office process review scheme. I thank the campaign groups, such as Tax Policy Associates, that have led the charge over the past year for their dogged efforts to highlight the outrageous proportion of sub-postmaster compensation that was set to disappear in tax. Given last week’s welcome announcement from the Prime Minister that all victims of the Post Office scandal will now be exonerated and compensated in full, it is even more critical that the tax exemptions in clause 12 are implemented at pace. More broadly, the Government must ensure that the complexities of taxing compensation are not allowed to stand in the way of delivering justice to victims of future scandals. We will not oppose the clause.

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

It is a pleasure to serve under your chairmanship, Mr Paisley. Justice, accountability and compensation for those affected and wronged are required at speed on all aspects of the Post Office-Fujitsu-Horizon scandal. That is why we will support clause 12: to ensure that the fullest possible reparations are made to those who suffered through false accusation, incarceration and worse. The scandal has gone on for far too long, and highlights the worst of Westminster’s indifference and delay, even when presented with overwhelming evidence of wrongdoing. That, along with all other aspects of the scandal, must be dealt with as quickly and thoroughly as possible.

--- Later in debate ---

Clause 13 will extend the time limit for a company to notify HMRC of a grant of EMI options from 92 days following the date of grant to 6 July following the end of the tax year in which the grant was made. The change will apply to options granted on or after 6 April 2024. Tens of thousands of individuals are granted EMI options annually, so this measure ensures that companies are given a longer time in which to submit an EMI notification of a grant of options. Individuals will not need to do anything differently. The change is likely to result in fewer late notifications and less possibility of options being disqualified. That will improve how the scheme works for individuals who receive EMI options.

[Tulip Siddiq]

As we have heard, clause 13 extends the time limit within which employer companies have to notify HMRC that they have been granted EMI options from 92 days after the grant was made to 6 July following the end of the tax year in which they were granted. This change is designed to simplify the process, and so increase small businesses’ ability to benefit from recruiting and retaining staff. It is one of a number of measures that were called for in submissions to a 2021 consultation on the EMI scheme, which cited the overly complex process for notifying HMRC and the need to extend the notification period. We will not oppose the clause.

[Nigel Huddleston]

I thank the hon. Lady again for her contribution and support. There are many relatively small and highly technical changes that we are making through the Bill, and this is one of them. On paper, it can look somewhat technical and confusing, but it is really meaningful, and I appreciate the fact that the hon. Lady and Opposition Members acknowledge that. The clause supports small and medium-sized businesses in recruiting and retaining key talent by simplifying the process to grant EMI options. For the reasons we have outlined, I urge that the clause stand part of the Bill.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Clause 14

Provision in connection with abolition of the lifetime allowance charge

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

--- Later in debate ---

[Nigel Huddleston]

Clause 19 widens access to the growth market exemption—a relief from stamp duty and stamp duty reserve tax—so that it better supports SMEs and growth businesses to raise capital. It does that by lowering transaction costs, which will support our economy by boosting growth in innovative sectors. The relief will now be available to smaller, innovative growth markets, instead of being restricted to markets operated by large stock exchanges.

The growth market exemption was introduced in 2014 with the aim of boosting investor participation in equity growth markets and improving the conditions for growing companies to raise equity financing. Initially, three UK markets and one Irish market were able to access the exemption. Since then, another 10 markets across the EU and European economic area have applied for and gained access to the exemption, meaning that UK SMEs have greater access to capital.

Previously, in order to be recognised by HMRC as a qualifying growth market, markets that are referred to as “multilateral trading facilities” had to be operated by a “recognised stock exchange” such as the London or Aquis stock exchanges. Once that condition was met, markets also had to meet one of two additional conditions: either the majority of companies on the market had to have a market capitalisation of less than £170 million, or the market’s rules of admission had to require companies to demonstrate at least 20% compounded annual revenue or employment growth over the three years preceding their admission.

However, the requirements have not been updated since the exemption’s introduction in 2014, despite considerable developments in how markets are regulated. Investment firms that are not of the same size and scale as the large stock exchanges can run multilateral trading facilities that are recognised as small and medium-sized enterprise growth markets by the Financial Conduct Authority but, as a result of the current stamp taxes on shares legislation, are barred from accessing the growth market exemption.

The changes made by clause 19 allow multilateral trading facilities that are regulated by the Financial Conduct Authority and run by these smaller investment firms to access the growth market exemption, provided that they meet one of the two additional requirements. That will ensure fairness in the current application of the exemption and increased competition in the market, leading to greater choice for SMEs that are seeking to access finance. That will, in turn, boost growth in UK SMEs.

Clause 19 also updates the market capitalisation condition by increasing the level up to which a majority of companies listed on the exchange can be capitalised from £170 million to £450 million. That change reflects the modern market and demonstrates the Government’s commitment to helping innovative SMEs to grow.

[Tulip Siddiq]

As the Minister said, clause 19 amends the qualifying criteria to increase access to the growth market exemption relief on any stamp duty or stamp duty reserve tax that is otherwise owed on trades made in UK incorporated companies. The Government have stated that these proposals will update the growth market exemption eligibility to reflect the modern market, ensuring that there is greater fairness in the application of the tax relief and giving greater choice for businesses considering where to list their shares for trading.

We in the Opposition are hugely supportive of efforts to boost our ailing capital markets and are committed to delivering a world-leading listings regime in the UK, building on recent regulatory reforms and ensuring that our scale-ups can access the equity finance they need. We are supportive of the objectives of the clause, but questions remain about what impact the changes will have in practice.

For example, it would be helpful to understand from the Minister how many additional growth markets will potentially be eligible for a stamp duty exemption due to the increase in the capitalisation threshold from £170 million to £450 million. By far and away the largest growth market the exemption applies to is the London stock exchange’s alternative investment market, which, according to the latest data, had an average market capitalisation of £126 million in the summer of 2022. Given that the largest and most established market to benefit from the exemption appears to be well under the original threshold, it remains unclear what difference the change will make. What are the Minister’s views on that?

We do not oppose clause 19, but it is a minor tweak that will not deliver the sea change in the availability of growth capital that British businesses urgently need. Does the Minister plan to do more to increase the availability of growth capital for our businesses?

[Nigel Huddleston]

I thank the hon. Lady for her comments and questions. Any market that meets the requirements will be able to apply to HMRC to take advantage of the exemptions. The UK’s financial service industry is dynamic and innovative, so it is important that future markets are not restricted by legislation that has not been updated in almost a decade. It is also a question of fairness: it is right that smaller, innovative markets are not barred from the exemptions, for the reasons that she and I outlined. At the moment, there is one market that is likely to benefit—Archax, a digital asset market—but the point of the changes is that other markets could benefit in future and, because of the dynamism in such markets, we need to plan ahead. We cannot anticipate what may come up, so we do not want to restrict options for future growth.

Clause 19 updates the scope of the growth market exemption, reflecting changes that have taken place since its introduction back in 2014. The clause allows the exemption to meet its initial aims more effectively by ensuring fairness in its application, increasing competition, boosting liquidity and facilitating growth. I therefore commend the clause to the Committee.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20

Capital-raising arrangements etc

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

--- Later in debate ---

Prior to its removal, the 1.5% charge on issues was regarded as an expensive obstacle for listed companies wishing to raise capital from overseas investors. It had a negative impact when such companies issued shares, including on the acquisition or takeover of other companies. By permanently removing the charge, the Government are supporting the competitiveness of UK capital markets and making it clear that we are open for business. The changes took effect on 1 January 2024, which ensured that the 0% charge continued seamlessly following the changes made by the REUL Act taking effect.

[Tulip Siddiq]

The Labour party supports the clause, which is a necessary intervention to ensure that UK companies previously able to rely on the direct effect of EU law are not left at a disadvantage to international counterparts when issuing UK shares and securities on overseas exchanges. The legal certainty and the removal of the potential 1.5% charge will be welcomed by UK firms considering listing on overseas exchanges. It is vital that our tax system remains internationally competitive.

However, our priority in government will be to overhaul our domestic capital markets to ensure that high-growth British companies critical to the future growth of the economy choose to list here in the UK instead of opting for exchanges in the US and Asia. The UK currently lags far behind competitor jurisdictions, and the Government must work in partnership with industry and regulators if we want to regain our status as a top global listings destination.

Although I do not have any issue with the exemption confirmed by clause 20 and schedule 11, I urge the Minister to ensure that, beyond recent changes to the listings rules, he prioritises listening to industry voices such as the Capital Markets Industry Taskforce about the solutions that are desperately needed to resuscitate our own domestic markets.

[Nigel Huddleston]

I will not stray into a broader debate; we will have that, I am sure, on Third Reading or at another point. I made my points on the broader economy earlier, but I gently request that the Opposition stop talking the UK economy and UK businesses down. By doing so, they are talking down the workers and companies in their own constituencies.

This measure is designed to ensure the competitiveness of the UK’s code in relation to financial services, by providing certainty that unwelcome frictions will not be reintroduced for UK companies that wish to operate globally. I commend the clause and the schedule to the Committee.

Question put and agreed to.

Clause 20 accordingly ordered to stand part of the Bill.

Schedule 11 agreed to.

Clause 22

Rates of tobacco products duty

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

--- Later in debate ---

[Gareth Davies]

Clause 26 enables regulations to be made exempting foreign vehicles, or foreign vehicles that meet certain conditions, from vehicle excise duty. In the first instance, the power will be exercised to provide for a three-year exemption in respect of Ukrainian plated and registered vehicles belonging to individuals granted visas under the various visa schemes introduced in relation to the conflict in Ukraine.

As of 27 November, around 193,900 Ukrainians had entered the United Kingdom since the beginning of Russia’s illegal, unprovoked invasion of Ukraine in February 2022. The Government understand that a significant number have brought vehicles with Ukrainian number plates with them. Gov.uk guidance states that usually such vehicles must be registered and taxed with the Driver and Vehicle Licensing Agency if the keeper becomes resident or stays longer than six months. However, in advance of making regulations, the Department for Transport has already announced the exemption from VED for individuals in the UK under the family, sponsor and extension Ukrainian visa schemes driving vehicles with Ukrainian number plates.

The clause will ensure that individuals fleeing war in Ukraine who have not yet registered their vehicles in the UK do not face costs and administrative burdens associated with vehicle taxation and registration while they are temporarily in the United Kingdom. I commend the clause to the Committee.

[Tulip Siddiq]

I welcome clause 26, which gives the Government the power to exempt certain foreign vehicles from paying vehicle excise duty. I note the Government’s long overdue plans to regulate for a three-year tax exemption for cars belonging to Ukrainian refugees arriving in the UK under a visa scheme due to the appalling conflict in their country. I am confident that I speak for all members of the Committee in supporting that change in position, but in reality the intervention has come far too late to prevent many refugees from paying eye-watering bills.

Many Ukrainians have been forced to pay thousands on expensive insurance policies or replacement car parts due to having non-compliant cars, despite the fact that other temporary UK residents, such as overseas students and workers, have had no such problems. Most disturbingly, we have heard examples of refugees who have decided to drive their vehicles back to Ukraine and abandon them in the middle of a war zone to avoid UK registration fees that they cannot afford. The Department for Transport and the Government acted shamefully slowly in addressing the problem, despite the efforts of colleagues from across the House and campaigners to bring it to their attention over the past year.

We welcome the fact that action has been taken and we support clause 26, but I think the Minister should apologise on behalf of the Government to Ukrainian refugees that such a ridiculous situation was allowed to go on for so long.

[Drew Hendry]

The SNP welcomes the clause, but I echo the final comment by the hon. Member for Hampstead and Kilburn: why has this taken so long?

I and many others have written to Ministers about the issue in order to make lives easier for people who have come here from Ukraine for safe haven. It is easy to forget the difficulties facing people who are fleeing a war zone and have come for the respite and hospitality that people have displayed—particularly in Scotland, where some 260,000 Ukrainian refugees are being sponsored at the moment. While welcoming this belated measure, I ask that the Government look very carefully at how they can make lives easier across the board for people who are flee war zones such as Ukraine and seek safe haven here.

It is very important that we keep Ukraine in our minds just now. It would be very easy for it to drift off the news agenda or out of our minds, but Ukrainians are still under attack every single day. We must keep them in our minds, in every part of our business.