Finance Bill

Tulip Siddiq Excerpts

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

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

I rise to speak to the clauses relating to VAT and excise, beginning with clause 25, which restores the full tax rebate for machines and appliances that use non-gas heavy oils and bio-blends for commercial heating purposes. The Government have said that this is to correct an anomaly brought about by the April 2022 changes to the Hydrocarbon Oil Duties Act 1979, which mean that machines using kerosene have benefited from a full rebate while those using other types of heavy oil were made ineligible for lower duty rates when used for heating.

The Government have said that their April 2022 tax changes were intended to reduce the use of gas fuels and to make progress against the UK’s climate commitments. However, perversely, under the current system companies receive a tax penalty for using next-generation renewable fuels such as hydrotreated vegetable oil for heating, instead of kerosene, despite the fact that HVO produces nearly 90% less greenhouse gas emissions. I therefore support clause 25, which seeks to correct that unintended error and restore equivalent tax treatment for the use of non-gas heavy fuels for commercial heating. However, let us be clear: the correction will have a limited impact on businesses across the UK facing rocketing heating bills as the cold starts to bite this winter.

We also know that it is often the scandalous lack of grid connections that forces many businesses, particularly in rural areas of Scotland, to operate their machines off grid, using heavy oils and biofuels. Changing tax incentives, although significant, will not deliver the overhaul our energy system needs to become a clean energy superpower. After 13 years of mismanagement, our energy grid is on its knees, with new developments forced to wait up to 15 years for a new connection and more than £200 billion of privately funded energy projects stuck in limbo.

Labour will prioritise reforming the grid, overseeing the largest upgrade to our national transmission infrastructure in a generation and accelerating connections for those who are forced off grid. We cannot afford to keep dragging our feet any longer. The Government claim they are serious about delivering the transition and boosting the use of clean energy sources, but the neglect of our grid infrastructure has been shocking. We know that the significant increase in both clean power generation and clean industry that the UK will need to reach net zero will require four times as much grid infrastructure in the next seven years as has been built in the past 30. Although the Opposition do not oppose clause 25, which is a welcome correction, ensuring that tax incentives for non-gas heavy fuels remain consistent is the bare minimum we should be expecting from the Government on this vital issue.

I move on to clause 27, which seeks to clarify UK primacy on VAT and excise law following the passage of the Retained EU Law (Revocation and Reform) Bill. The Government’s draft legislation seeks to ensure that in relation to VAT and excise law it will no longer be possible for any UK Act of Parliament or domestic subordinate legislation to be quashed or disapplied on the basis that it was incompatible with retained EU law. The Government state that this measure will

“ensure the stability of the VAT and excise regime”,

providing legal certainty for businesses. Labour, unsurprisingly, supports the objective of this legislation; ensuring that firms have clarity over how the VAT and excise regimes should be interpreted following the UK’s departure from the EU is crucial to retaining business confidence. However, following the Government’s public consultation, which concluded in November, it remains entirely unclear whether the measure achieves its stated objective of reducing the complexity for businesses of interpreting the VAT regime.

In its consultation response, the Chartered Institute of Taxation highlighted a number of concerns about the proposals, pointing out that the significant complexity in interpreting this draft legislation risks undermining the certainty it seeks to deliver. Specifically, the CIOT points out that the distinction drawn in the legislation between disapplication and the quashing of UK law as a result of EU law, and interpretation,

“might in practice be insufficient to achieve the desired result”.

Consultation feedback also pointed out that the measures in clause 27 do not make it clear how far higher courts are intended to be bound by prior case law from the Court of Justice of the EU, thus creating uncertainty for businesses and advisers.

Although taking a “bespoke UK approach” to VAT and excise legislation is welcome in principle, the draft legislation also fails to address the fact that the removal of the reliance on EU provisions will create significant gaps in UK legislation where our domestic rule book did not fully transpose EU directives. It is not just tax experts that have sought to draw attention to this issue through the Government’s consultation; the industry body for the banking and finance sector, UK Finance, has warned over and over again that the draft legislation

“does not appear to adequately address”

the complexity of the VAT landscape

“thereby sustaining a high degree of uncertainty for industry and the prospect of settled interpretations of VAT law being disturbed.”

The trade body pointed out that although EU VAT law includes a clear VAT exemption for intermediary services in connection with bank accounts, the exemption has not been implemented in UK law. With business no longer able to rely on the direct effect of EU law, material changes to VAT exemptions in the financial services sector will come into effect. That is just one example from my own shadow brief, but it highlights the additional uncertainty that this “clarifying” draft legislation has already created for business. Despite the clear message from tax experts and industry in the consultation, it seems that the proposals are at best problematic. It is of particular concern that the Government seem to have ignored that feedback and ploughed on, with not a single amendment made to the draft legislation.

Detailed guidance is needed to address the significant issues that have already been raised regarding clause 27 and to ensure it meets its objectives. Labour will not oppose the measure as we remain supportive of it in principle, but urgent clarity is needed as it will come into effect from the beginning of this year. The shock that a Government measure designed to provide “legal certainty and stability” has raised more questions than answers has slightly worn off for those of us obliged to follow the circus on the Government Benches on a daily basis.

To conclude, we will not oppose the two clauses, but the detail of the proposals continues to raise questions about the competence of the Government. From being able to afford low-carbon fuel and avoid crippling heating bills to having certainty over the VAT regime, UK businesses deserve far better. After 13 years of leadership, we need a Government who can provide the confidence that businesses desperately need, using the clean energy sources of the future to drive growth and investment across the country.

[Sir Mike Penning (Hemel Hempstead) (Con)]

It is a pleasure to have sat through the Committee stage of the Bill and to hear the Government talk about the advantages we have from Brexit. I am pleased to hear that the Government have looked, and continue to look, extensively at the taxation system—in particular at the interpretation of VAT, as mentioned in this clause.

One interpretation of VAT in this country massively affects people who are visually impaired and those who cannot read, perhaps because of dyslexia: there is no VAT on books, but the Treasury apply VAT at 5% to audiobooks. If that interpretation of VAT is to be taken as far as it possibly can, I am disappointed that disabled people are not being protected within the structure of the Bill, in the way that they have been for many years.

Years ago, when I was disabilities Minister, I was told that VAT changes could not happen because we were in the EU. We are no longer in the EU and we can set our VAT rates as we would like. It would be fundamentally good if the Government came forward with an interpretation of VAT that said that people who rely on audiobooks, through no fault of their own, do not have to be penalised by VAT at 5%. I am not talking only about the visually impaired—I declare an interest: I am dyslexic and rely on audiobooks, although not completely. People who do not read Braille are being punished as well.

The Government continue to look at new taxation rules and new ways of making sure that people do not get around the taxation system, and it is clear that they are looking at the implementation of VAT. What better spring present for those who rely on audiobooks than for the Minister to say that he will meet me, talk about the issue further and perhaps look at the early-day motion in my name?