Draft Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2024 Draft Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024 Draft Short Selling Regulations 2024

Tulip Siddiq Excerpts

Tuesday 7th January 2025 General Committees

[The Economic Secretary to the Treasury (Tulip Siddiq)]

I beg to move,

That the Committee has considered the draft Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2024.

[The Chair]

With this it will be convenient to take the draft Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024 and the draft Short Selling Regulations 2024.

[Tulip Siddiq]

It is a pleasure to serve under you, Mr Vickers, during this quiet week in politics. The regulations that we are introducing today will ensure effective, proportionate regulation for the financial services sector, first, by reforming the ringfencing regime to be more flexible while upholding financial stability safeguards; secondly, by creating a new framework for the regulation of short selling; and thirdly, by enabling better supervision and enforcement of designated activities under the Financial Services and Markets Act 2023.

I will turn first to the reforms to the ringfencing regime for banks. As the Committee will know, ringfencing was introduced following the global financial crisis on the recommendation of the Independent Commission on Banking, and it came into full force in 2019. It requires large, complex banks to separate the services that they provide to households and small and medium enterprises from investment banking activity.

In 2022, an independent statutory review of the regime recommended updates to ensure that it operates as intended and is proportionate. This statutory instrument improves the regime and implements changes from the review. The reforms that it contains will improve competition in the banking sector, reduce costs and support economic growth. They have been developed with the Prudential Regulation Authority, which is content that they also maintain appropriate financial stability protections.

I will outline the most material updates to the regime. The reforms will ensure that in future only the largest, most complex banks are subject to the regime, with two key changes. The first is an increase in the primary deposit threshold—the amount of core deposits a bank can hold before it is required to ringfence—from £25 billion to £35 billion. This accounts for growth in the deposit base and other relevant economic indicators since ringfencing was introduced and it supports competition. The second change is the introduction of a new secondary threshold, which exempts retail-focused banking groups from the regime, where investment banking activity accounts for less than 10% of common equity tier 1 capital.

This SI also makes changes to the way that banks within the regime can operate. It introduces measures to encourage more investment by ringfenced banks in UK small and medium enterprises and to reduce the compliance burden associated with the regime. It also creates significant new flexibilities to allow ringfenced banks to operate globally, subject to PRA rules, as well as to provide a wider range of goods and services to their customers.

I turn to the draft Short Selling Regulations. Short selling is the practice of selling a security that is borrowed or not owned by the seller with the intention of buying it back later at a lower price to make a profit. Short selling plays a healthy role in the proper functioning of financial markets. It provides essential liquidity to markets, which drives investment in British companies; it helps to drive economic growth; and it helps to ensure that investors pay the right price when investing in shares.

The draft regulations introduce a more streamlined UK short selling regime, which focuses on equities, rather than both equities and sovereign debt. The new regime also introduces a reformed public disclosure regime for short selling, ensuring that there is transparency over short selling activity, without the issues identified with the current regime through the 2022 call for evidence.

However, as I am sure the Opposition spokesperson will identify, there can be risks associated with short selling. As such, it is important for the Financial Conduct Authority to have the tools to effectively monitor short selling activity and intervene if necessary. This statutory instrument provides the FCA with broad rule-making powers in relation to short selling. This will allow the FCA to effectively oversee short selling in UK markets. It will also mean that the UK’s short selling rules can be adapted and updated by the FCA in a more agile way in future—for example, to better adapt to new global standards or to take account of market innovation and new business models. The instrument retains the FCA’s powers to intervene in relation to short selling activity in UK markets in exceptional circumstances, which is an important feature of the current regime.

Turning to the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024, to give the FCA the broad rule-making powers for short selling that I just mentioned, the new short selling regime operates under the designated activities regime—known as DAR. The DAR was introduced into the Financial Services and Markets Act 2000 by the Financial Services and Markets Act 2023, which the Opposition spokesperson will know very well, since we sat across from each other, debating it for days. It allows the Treasury to designate certain activities to be regulated by the FCA. However, persons carrying on those activities under the DAR do not need to become full authorised persons like banks or insurers. This enables proportionate regulation for activities where it would be disproportionate to have met all requirements for authorisation.

The Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024 enable the FCA to supervise and enforce the rules it makes under the DAR. They do this by enabling the FCA to exercise existing supervision and enforcement powers under FSMA 2000 on persons carrying out designated activities, whether or not they are authorised. In the first instance, these powers will be extended to the activities covered by the Consumer Composite Investments (Designated Activities) Regulations 2024 and the Short Selling Regulations 2024. Tha will enable effective supervision of these regimes.

I thank the Committee for putting up with these quite technical amendments. The statutory instruments ensure that our financial services industry is subject to a rulebook that is fit for purpose, more proportionate and tailored to UK markets. I hope the Committee will join me in supporting these regulations.

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[Tulip Siddiq]

I thank the Opposition spokesperson for his questions. I am grateful that he is supporting us. He agrees that the SIs represent an important step in ensuring that our approach for the regulation of financial services is effective and proportionate. We feel that these are sensible, technical reforms. The Treasury undertook detailed work with the PRA after the independent review, which the hon. Gentleman mentioned, released its final report in 2022, consulting on a draft package of measures in 2023 and refined those proposals in line with feedback.

It is recognised that the ringfencing regime was originally designed so that the threshold would need to be adjusted over time to reflect the evolution of banking practices and growth in the deposit base. The Treasury considered several metrics as well as financial stability and competition considerations in proposing the £10 billion increase. Increasing the deposit threshold will provide smaller banks with more headroom to grow before being subject to the requirements and costs of ringfencing. We feel that will support domestic competition in retail banking markets. A competitive and dynamic market will improve outcomes for depositors. The reform may encourage inward investment in the UK as new entrants to the UK banking market will have more room to develop economies of scale before being subject to the regime.

While the independent review, which the hon. Gentleman mentioned, did not suggest that uprating was necessary to maintain the policy aims of the current ringfence, the Government have recognised that the threshold acts as a barrier to the growth of smaller players in the market, dampening competition for retail customers. His points are valid, and we will be looking at them, but there are no plans at this point to change the threshold in the way he mentioned.

On the hon. Gentleman’s points about name-and-shame proposals, I am very pleased to hear that he has been reading my interviews in detail. I have raised those proposals several times with the FCA and welcome the fact that it has listened to industry feedback on them. It has taken some steps to address some of the concerns raised by industry, which he will know about. I have been clear with the FCA that effective, proportionate regulation is key to our aims, and that it needs to deliver the Government’s mission to drive inclusive growth.

As the hon. Gentleman knows, the FCA is operationally independent but accountable to Government and Parliament. I am engaging closely with the FCA on name-and-shame proposals and will make sure that any potential impacts on international competitiveness and growth are properly considered. That is not to dismiss the concerns about those proposals from industry, which I have heard first hand. The subject comes up repeatedly in my meetings with the FCA. I hope that reassures the hon. Gentleman a little bit.

I think I have covered most of the hon. Gentleman’s questions, but am happy to write to him on any others. Generally, we feel that this SI is important overall to our mission of growing the economy. I know that when the hon. Gentleman was in government, he had sight of a similar SI and was in agreement with it. I thank the Committee for agreeing to pass this legislation.

Question put and agreed to.

DRAFT FINANCIAL SERVICES AND MARKETS ACT 2000 (DESIGNATED ACTIVITIES) (SUPERVISION AND ENFORCEMENT) REGULATIONS 2024

Resolved,

That the Committee has considered the draft Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024.—(Tulip Siddiq.)

DRAFT SHORT SELLING REGULATIONS 2024

Resolved,

That the Committee has considered the draft Short Selling Regulations 2024.—(Tulip Siddiq.)

Finance Bill

Tulip Siddiq Excerpts

Committee of the whole House
Wednesday 11th December 2024 Commons Chamber

[The Chairman]

With this it will be convenient to consider:

Clauses 51 to 53 stand part.

New clause 6—Sections 50 and 51: impact on private rental sector—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by sections 50 and 51 of this Act on the private rental sector in England and Northern Ireland.

(2) The assessment in subsection (1) must consider—

(a) the effects of the provisions of sections 50 and 51 of this Act on the cost of private rent in each region within England and in Northern Ireland,

(b) the effects of the provisions of sections 50 and 51 of this Act on the supply of private rental properties in each region within England and Northern Ireland,

(c) any other implications of the changes introduced by sections 50 and 51 of this Act.”

This new clause requires the Chancellor to review the impact increased rates of stamp duty for additional dwellings are having on the private rental sector in England and Northern Ireland.

New clause 7—Review of effects of sections 50 and 51 on housing market—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by sections 50 and 51 of this Act, on the housing market in England and Northern Ireland.

(2) The assessment in subsection (1) must consider—

(a) the effects of the provisions of sections 50 and 51 of this Act on the demand for houses in each region within England and Northern Ireland, and

(b) the implications for the housing market of the provisions of sections 50 and 51 of this Act.”

This new clause requires the Chancellor to review the impact increased rates of stamp duty for additional dwellings are having on the housing market in England and Northern Ireland.

[The Economic Secretary to the Treasury (Tulip Siddiq)]

This is a Budget to fix the foundations of the economy and deliver change by protecting working people, fixing the NHS and rebuilding Britain. The Government are achieving this by taking difficult decisions on tax, spending and welfare to repair the public finances and increase investment in public services and the economy, to rebuild Britain and unlock long-term growth. This Finance Bill delivers on a number of the Government’s priorities for tax reform, prioritising stability for businesses making investment decisions and ensuring fairness and sustainability in the long term. We will discuss the full range of manifesto commitments delivered in this Bill throughout its passage, but today, I will talk about an area in which the Government have decided to go further than our manifesto commitment.

The clauses we are debating increase the higher rates of stamp duty land tax on purchases of additional dwellings by individuals and of dwellings by companies from three percentage points above the main residential rates of SDLT to five percentage points. These clauses also increase the single rate of SDLT payable by companies and other non-natural persons when purchasing dwellings worth more than £500,000 from 15% to 17%. They will support home ownership by ensuring that those looking to move house or purchase their first property have a greater advantage over second home buyers, landlords and companies purchasing dwellings. These changes will raise £310 million per year by 2029-30, which will be used to support the Government’s first steps and other priorities.

One of our manifesto commitments was to increase the non-resident SDLT surcharge by one percentage point. The Government have decided to go further than that commitment and increase the higher rates of SDLT, known as higher rates for additional dwellings. This will raise more money than the manifesto policy, helping to restore economic stability and address the £22 billion-worth of unfunded pressures, as well as supporting delivery of the Government’s first steps. Increasing the higher rates for additional dwellings will also go further to rebalance the housing market in favour of first-time buyers and those moving house.

[Dr Luke Evans]

The Minister mentions first-time buyers. However, the change to stamp duty is likely to affect them, because they are now being brought into paying stamp duty. How does that help first-time buyers to realise their aspiration of getting into the housing market?

[Tulip Siddiq]

I can tell the hon. Gentleman very confidently that the thing that will help first-time buyers in this country most is building more houses. His Government absolutely failed to do that, but we will be doing it.

Returning to the Bill, we estimate that approximately half of those paying the non-resident surcharge will also pay the higher rates for additional dwellings. This means that a non-resident purchasing an additional residential property worth £300,000 now pays £23,500 as a result of the change in rates, compared with £17,500 before the change, an increase of £6,000. This compares with a UK-resident purchaser buying their first home, who pays no SDLT, and a UK-resident home mover, who currently pays £2,500. This change therefore improves the comparative advantage of UK-resident home movers and first-time buyers—as the hon. Member for Hinckley and Bosworth (Dr Evans) might be pleased to know—while ensuring that no additional barriers are faced by those coming to the UK and buying their first or only home.

Those buying an additional property before they can sell their main residence will be liable for the higher rates for additional dwellings. However, this will be refunded if the previous main residence is sold within three years of the purchase of a new main residence, or longer if there are exceptional circumstances, such as delays in cladding remuneration. This ensures that only those who are genuinely liable for higher rates will be required to pay them.

Clause 50 increases the higher rates of SDLT on the purchase of additional dwellings by individuals and dwellings by companies from three percentage points above the main residential rates of SDLT to five percentage points. This applies to transactions with an effective date on or after 30 October this year and before 1 April next year.

[Noah Law (St Austell and Newquay) (Lab)]

Does the Minister agree that this Government’s decision to raise stamp duty in such a manner is vital for tackling the plague of second homes that we have seen in communities such as Cornwall?

[Tulip Siddiq]

This is something I have seen in my own constituency, so I know what my hon. Friend is referencing. It is our intention to tackle that, but we have had to make these decisions because of our economic inheritance when we got into government, which the Conservative party obviously hid during the election. We have had to make some difficult decisions, and this is how we plan to fix the foundations of our economy.

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[Kit Malthouse (North West Hampshire) (Con)]

I am grateful to the Minister for giving way, but I am surprised she has not declared her interest because I believe she is herself a landlord. She presumably owns another property, so to cast aspersions on people who do as some kind of plague is, I think, a little unfair.

I assume from this measure that the Minister would expect there to be some impact on the rental market. This is designed to deter people from becoming landlords. Given that 90-odd per cent of our rental properties in the UK are owned by people who have two or fewer properties, what is the scale of the impact she is expecting? How many people are likely to either exit being a landlord or, particularly in somewhere like London, not bother being a landlord at all? What will be the wider impact given that in the capital, such as where she represents, lots of people have no option but to rent, because they are unable to accumulate the deposit required to buy a property at an inflated value? Are we going to see fewer rental properties in the capital?

[Tulip Siddiq]

I thank the right hon. Gentleman for his intervention. I am a landlord, and that is absolutely declared in my entry in the Register of Members’ Financial Interests. If I was meant to declare it for the purposes of this debate, I do apologise, but it is referenced very clearly in my entry. I would say that, as a landlord, I am very happy to pay extra tax if it is necessary to fix the foundations of our economy.

I do not agree with the right hon. Gentleman’s assessment of London. I think we are more resilient than that, especially in Camden, and I think we will be fine.

Clauses 50 and 51 will provide an advantage for first-time buyers and those moving home, and it will help to support home ownership. The OBR-certified costing estimates that increasing the higher rates for additional dwellings by 2 percentage points is expected to result in 130,000 additional transactions over the next five years by first-time buyers and others buying a primary residence. I hope that addresses some of the concerns of Conservative Members.

Clause 52 introduces special transitional rules to ensure no additional tax is payable for land transactions substantially performed before 1 April 2025. In most cases, SDLT is charged at the point of completion in the property-buying process. In some cases, however, such as where the buyer has performed their purchase by paying for the property or taking possession of it, the tax is chargeable at that earlier point. The clause in question ensures that buyers who have performed their transactions will not pay more tax as a result of the changes in rates brought about by clauses 50 and 51 when they complete their purchase.

Clause 53 increases from 15% to 17% the single rate of SDLT payable by companies and other non-natural persons when purchasing dwellings worth more than £500,000. The single rate of SDLT was introduced alongside the annual tax on enveloped dwellings to deter the practice of buying and owning UK residential properties within a corporate wrapper by increasing the rate companies pay. The single rate applies where companies and other non-natural persons buy a dwelling for more than £500,000 that they do not intend to use for a relievable purpose such as renting the property or developing it. Increasing the single rate keeps it aligned with the highest rate of tax paid on purchases of the most expensive residential properties, so that the tax remains effective as a deterrent to enveloping.

In summary, increasing the higher rates of SDLT will ensure that those looking to move house or purchase their first property have a greater advantage over second home buyers, landlords, and companies purchasing dwellings. The measure will raise more money than the manifesto policy, and go further to rebalance the housing market. The changes will raise £310 million per year by 2029-30, which will be used to support the Government’s first steps and other priorities.

[Dr Luke Evans]

rose—

[Tulip Siddiq]

I have already given way once to the hon. Gentleman.

[James Wild]

We turn to the important issue of taxes on residential property, and another set of tax rises from this tax-raising Labour Government. I will speak to clauses 50 to 53, and new clauses 6 and 7. Over 14 years in government we delivered 2.5 million additional homes. Our manifesto pledge to build 1 million homes in the course of the last Parliament was met, and we delivered on our commitment to build the homes that people need for a more secure future. The Bill introduces measures that dampen the housing market, increase pressure on housing supply, and reduce labour mobility. The Government talk about helping renters, but experts warn that these measures could increase rents, and they do nothing for those who cannot afford to buy their own home.

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[The Second Deputy Chairman of Ways and Means (Caroline Nokes)]

I call the Minister.

[Tulip Siddiq]

I thank all hon. Members for contributing to the debate today, and especially my hon. Friend the Member for North Warwickshire and Bedworth (Rachel Taylor)—it is refreshing to hear someone with genuine knowledge of the housing market speak in the Chamber. I point out gently that the Office for National Statistics’ private rents index shows that renting in England is now 50% more expensive than 14 years ago, and that rents in London reached a record high this February, when we were not in government.

[Rachel Taylor]

I am slightly perplexed as to why the Opposition continue to disagree with this policy, which is almost a replica of one they introduced a few years ago, for exactly the same reason. Why do they continue to oppose it? They fail to understand that landlords did not stop buying properties to rent out and rich people did not stop buying holiday homes just because they had to pay a little more in a one-off tax.

[Tulip Siddiq]

I have to admit that I have found this debate a little baffling, given some of the arguments made from the Opposition Front Benches. However, I will respond to some of them now.

[Kit Malthouse]

Our concern is that there has been no assessment of the impact on the rental market. All that the Opposition new clauses are asking for is a review, because no evidence has been adduced in this debate. There are three people who have spoken in this debate who have second properties—who are landlords—and that is completely fine. What we are saying is that there will be an impact on future landlords and on future behaviour from this tax, as there was from the tax that was introduced by the previous Government.

The second thing to say—forgive me for the slightly extended intervention, Madam Chair—is that when the Government are setting levels of tax, there is an optimal point at which to levy tax in order to collect the maximum revenue, beyond which it starts to become penal and has a deterrent effect on activity. I suppose what we are saying is that we have got this far, and wish to go no further.

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[Tulip Siddiq]

I thank the right hon. Gentleman for his speech. I will be referencing everything; he should probably listen carefully, because I will be responding to all the points he has made about private rental markets and the impact this policy will have.

I will turn to some of the new clauses tabled by the Opposition—I do not think the right hon. Member for Central Devon (Mel Stride) is present. New clauses 6 and 7 would require the Government to report on the impact of the changes introduced by clauses 50 and 51 on the cost and supply of private rental properties and on the housing market, respectively, in England and Northern Ireland. Although it is important to understand the impact that the measures could have on rental costs, supply and the housing market—and, in turn, tenants, who have been mentioned—the Government consider the new clauses to be unnecessary because the information is publicly available. The Ministry of Housing, Communities and Local Government publishes regular updates, as the House will know, on the level of housing supply in England, as well as the English private landlord survey, which provides data on supply in the private rented sector. In addition, HM Land Registry publishes extensive data on house prices in England, including regional and local authority area breakdowns. HMRC also publishes statistics and data on property transactions and stamp duty land tax receipts.

On housing supply, the Budget set out a series of new investments to kick-start the biggest increase to social and affordable housebuilding in a generation. This is an important step to providing the conditions needed for the market to deliver 1.5 million homes—homes that are desperately needed by our constituents. The Government recognise that the rented sector is often a key part of someone’s home ownership journey. The Renters’ Rights Bill will improve the current system for both the 11 million private renters and 2.3 million landlords in England. It will give renters much greater security and stability, so they can stay in their own homes for longer, build lives in their communities and avoid the risk of homelessness.

The measures in the Bill to increase the highest rate for additional dwelling are intended to support home ownership among first-time buyers and those moving home, giving them an advantage in the housing market. The OBR certified costing assumes that increasing the higher rates of SDLT by two percentage points is expected to result in 130,000 additional transactions over the next five years by first-time buyers and other people buying a primary residence.

In summary, the Government have already considered the impact of clauses 51 and 52 on the private rented sector and housing market. We will continue to publish housing market statistics in the usual way, keep all tax policy under review and evaluate the impacts of all changes. Therefore, the proposed reports are unnecessary and I urge the House to reject the new clauses. I hope I have been able to reassure the hon. Members who tabled the new clauses that the additions and changes are just not necessary, for the reasons I have set out, and I urge the House to reject new clauses 6 and 7.

Question put and agreed to.

Clause 50 accordingly ordered to stand part of the Bill.

Clauses 51 to 53 ordered to stand part of the Bill.

New Clause 6

Sections 50 and 51: impact on private rental sector

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by sections 50 and 51 of this Act on the private rental sector in England and Northern Ireland.

(2) The assessment in subsection (1) must consider—

(a) the effects of the provisions of sections 50 and 51 of this Act on the cost of private rent in each region within England and in Northern Ireland,

(b) the effects of the provisions of sections 50 and 51 of this Act on the supply of private rental properties in each region within England and Northern Ireland,

(c) any other implications of the changes introduced by sections 50 and 51 of this Act.”—(James Wild.)

This new clause requires the Chancellor to review the impact increased rates of stamp duty for additional dwellings are having on the private rental sector in England and Northern Ireland.

Brought up, and read the First time.

Question put, That the clause be read a Second time.

Finance Bill

Tulip Siddiq Excerpts

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

[The Economic Secretary to the Treasury (Tulip Siddiq)]

Since 2010, the UK has experienced low productivity, rising debt levels and declining public services. Public sector net debt is at its highest since the early 1960s, at 98.5% of GDP. Per capita, GDP remains lower that before the covid-19 pandemic.

In July this year, the Government uncovered a challenging fiscal and spending inheritance, with a £22 billion in-year pressure in the public finances. The Office for Budget Responsibility’s review into March’s spending forecasts concluded that had the information that has since been shared by the Treasury been made available to it at the time of the March Budget, there would have been a materially higher departmental expenditure limits forecast for 2024 to 2025. This was the result of the previous Government not factoring in the impact of a series of new, challenging pressures on the public finances, not taking the difficult decisions needed to address these pressures, and instead making a series of commitments that they could not fund.

This Government are committed to fixing the foundations and delivering a decade of national renewal. To do so, we must turn the page and take a different approach. In the autumn Budget, the House will have heard the Chancellor set out the Government’s first steps to repair the public finances, by taking the tough decisions needed to address the £22 billion in-year pressures to avoid further damage to our public services, including securing £5.5 billion of savings.

We are also putting in place significant reforms to strengthen our fiscal and spending framework that will improve certainty, transparency and accountability, and ensure that the situation can never happen again. This Government are taking the tough decisions on tax, spending and welfare that are necessary to repair the public finances and restore economic and fiscal stability. Those choices are not easy, but they are transparent, they are responsible and, with such a difficult position, they will ensure that the Government can deliver on our commitments not to increase taxes on working people.

The changes to the main rates of capital gains tax in clauses 7 to 11 will help to address the gap in public finances while retaining the UK’s internationally competitive investment climate. The new rates are revenue-maximising in the current design of the tax system, generating an additional £8.9 billion over the forecast period. The UK’s headline CGT rates will remain lower than those of France, Germany and Italy, and the highest rate is still lower than it was between 2010 and 2016. The new rates will mostly affect people who earn income from selling financial assets. The Government are taking the difficult but responsible decision to ask that group to pay a little bit more tax in order to restore economic stability.

Clause 12 represents the first step in a package of reforms to the taxation of carried interest by increasing the applicable rates of capital gains tax to 32% for carried interest arising on or after 6 April 2025. The reforms will put the tax treatment of carried interest on a fairer and more stable footing for the long term, while preserving the UK’s competitive position as a global asset management hub.

I will begin with clauses 7 to 9, concerning the capital gains tax package. CGT is charged on individuals’ annual capital gains, net of losses and allowable costs. Less than 1% of adults pay CGT per year. There are lower rates available for reliefs, including business asset disposal relief and investors’ relief. CGT has an annual exempt amount of £3,000 for individuals, which keeps people with lower levels of capital gains out of the system.

To repair the public finances and help raise the revenue required to increase funding for public services, the Government are increasing the main rates of CGT. The clauses will increase the lower main rate of CGT from 10% to 18% and increase the higher rate from 20% to 24%. Those changes affect disposables made on or after 30 October 2024. The clauses also increase the CGT rate at which business asset disposal relief and investors’ relief are charged in a phased way from 10% to 14%, effective from 6 April 2025, and from 14% to 18%, effective from 6 April 2026. Phasing in the rate increases for those CGT reliefs demonstrates the Government’s commitment to a predictable tax system.

The Government accept that for some entrepreneurs, a lower CGT rate will be factored into their plans for exiting the business, which can be a once-in-a-lifetime event. Although it is right to increase CGT rates to raise revenue, it is also fair to give business owners some time to adjust. The changes will raise £2.5 billion per year by the end of the forecast period, while ensuring the UK’s headline CGT rates remain below those of France, Germany and Italy.

Turning to clause 10, investors’ relief offers access to the lower rates of CGT on the disposal of qualifying unlisted shares. Its objective is to provide the financial incentive for individuals to invest in unlisted trading companies over the long term and help companies in accessing other forms of investment. The lifetime limit for investors’ relief was previously £10 million, compared with business asset disposable relief’s lifetime limit of £1 million. We feel that that disparity in lifetime limits is unfair towards entrepreneurs and could encourage harmful tax planning strategies. The changes made by clause 10 will reduce the lifetime limit for investors’ relief to match that of business asset disposal relief at £1 million of qualifying gains per person. Investors’ relief has received little take-up since its introduction in 2016, and so the Government expect that the measure will affect a very small number of individuals.

Turning to clause 11 and schedule 2, which introduce transitional arrangements and anti-forestalling rules, the transitional arrangements are consistent with similar rules put in place when CGT rates were charged in-year in 2010. The anti-forestalling rules draw on the approach taken when changes were made to business asset disposal relief in 2020. Transitional arrangements are needed for a small group of taxpayers in some specific circumstances. Those taxpayers will have capital gains that are ascribed to the 2024-25 tax year in general and not to any particular point in the year, and because clause 7 makes in-year changes, the Government have a legal responsibility to clarify the capital gains tax liabilities of those taxpayers. To avoid taxing those individuals retrospectively, the legislation puts in place transitional arrangements. The relevant capital gains are treated as arising in the earlier part of the year and are therefore subject to the previous rate schedule. From April 2025, there will be no need for those arrangements to remain.

I now turn to anti-forestalling rules. Some taxpayers will have tried to lock in the old rate by entering into various artificial arrangements and specific anti-forestalling rules are needed to prevent abuse. The anti-forestalling rules target disposals entered into before 30 October 2024 but completed after that date for the main rate change and the investors’ relief lifetime limit reduction. They also target disposals entered into on or after 30 October 2024 for the phased rate changes applying to business asset disposal relief and investors’ relief. The provisions ensure that such people can still access the previous rates and the previous investors’ relief lifetime limit, but only where the disposal has not been artificially structured for the purpose of securing a tax advantage.

I now turn to clause 12, which concerns CGT on carried interest gains. Carried interest is a form of performance-related reward that is received by a small number of individuals who work as fund managers and, unlike other such rewards, carried interest can, where certain conditions are met, be subject to capital gains tax. Hon. Members will have heard the Chancellor announce at the Budget that the Government will reform the way carried interest is taxed, ensuring that that is fairer and in line with the economic characteristics of the reward. From 6 April 2026, a revised regime will tax all carried interest within the income tax framework with a 72.5% multiplier applied to the amount of qualifying carried interest that is brought into charge. The Government are also consulting on potential new conditions of access to the regime. Legislation to implement that revised regime will be included in a future finance Bill.

In advance of the implementation of the revised regime, the Government are acting now to increase the rates of capital gains tax that apply to carried interest. Clause 12 therefore increases the rates of capital gains tax for carried interest arising on or after 6 April 2025 from 18% and 28% to 32%, and from that date, the single CGT rate will apply to all relevant carried interest, subject to the same conditions as currently.

To conclude, the increases to the main rates of CGT to 18% and 24% represent a balanced and responsible approach to revenue raising, which will help the Government to improve the UK’s public finances and services while remaining competitive for investment. The clauses phase in the rate increase for business asset disposal relief over 18 months to mitigate impacts where the previous level of relief was factored into anyone’s plans to exit their business in the short term. That underlines the Government’s commitment to supporting entrepreneurs and recognising the vital role that small businesses play in our economy. In addition, the move to a single higher rate of CGT on carried interest at 32% demonstrates the Government’s commitment to decisive action now, while we rightly take the time to undertake technical consultation on the revised regime.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

Just before I call the shadow Minister, I remind Members that, in Committee, I am Madam Chair or Madam Chairman.

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[The Chairman]

I call the Minister.

[Tulip Siddiq]

I thank hon. Members for their contributions to today’s debate. I will take a few moments to respond to some of the points, and will then give the Government’s views on the proposed amendments. If there are questions that I do not answer, I will write to hon. Members.

I thank my hon. Friend the Member for Dartford (Jim Dickson) for his important speech and agree with his points about much-needed reform to our tax system. I also thank my hon. Friend the Member for Earley and Woodley (Yuan Yang) for her powerful speech and wholeheartedly agree with her constituent, who seems very principled and knowledgeable.

To respond to the points made by the Conservative spokesperson, the hon. Member for Grantham and Bourne (Gareth Davies), about the revenue impacts of the carried interest measure, the OBR-certified costings demonstrate that this measure raises revenue over the scorecard period. The Budget does deliver on the Government’s manifesto commitments on tax: estimated revenues for these policies have been adjusted for final policy decisions and to account for underlying changes in the OBR’s forecast, but overall, the hon. Gentleman may be interested to know that the tax measures raise over £1 billion more than was in the manifesto.

To answer the hon. Gentleman’s question about why the changes are being made in-year, the in-year rate changes were made to protect Exchequer revenues from the impacts of forestalling. It is common practice for tax changes to take effect from the date of the Budget. As for anti-forestalling, we would not expect the anti-forestalling provisions to apply to an ordinary commercial sale of an asset where the contract was entered into prior to 30 October. Those provisions target those who enter into artificial arrangements to lock in the pre-Budget tax treatments.

The Lib Dem spokesperson, the hon. Member for St Albans (Daisy Cooper), talked about inflation indexation of CGT. Indexation previously existed when CGT rates were charged at income tax levels with a top rate of 40%. A rate schedule of 18% and 24% is significantly below those levels, so for the important reason of simplicity, indexation is not a part of the system.

New clause 1 would require the Government to present to Parliament a review of the capital gains tax package’s impacts on long-term investment, disposable income across the distribution, and tax revenue. In deciding on these changes to capital gains tax, the Government have already considered all three factors. On long-term investment, the OBR assessed the CGT package to have no measure-specific macroeconomic impact. On impacts across incomes, distributional analysis for all Budget measures combined is set out in the “Impact on households” publication. The Government do not normally publish the impacts of individual measures. Finally, the Government’s projection of the revenue raised by these CGT changes has been certified by the OBR and published in the Budget document. Every year, the Government publish the amount of CGT paid in the most recent tax year with available data, where table 3 breaks down gains by income. For those reasons, the proposed report is unnecessary, and I implore Members to reject the new clause.

New clause 4 would require the Government to publish a review within three months of the passing of this legislation covering various issues in connection with our reforms to the tax treatment of carried interest. As set out earlier, the CGT rates applicable to carried interest will increase to 32% from April 2025. This is a first step in advance of moving to a revised regime fully within the income tax framework from April 2026. The Government believe that their reforms will deliver increased fairness and place the tax rules on a more sustainable footing, while preserving our country’s position as a global fund management hub. We will also be undertaking extensive technical consultation ahead of legislating for the revised regime in a future finance Bill, which the House will of course have the opportunity to scrutinise. We therefore do not consider that new clause 4 is a necessary addition to the Bill that is before us today.

[Gareth Davies]

I am very grateful to the Minister for explaining all the things she has just set out, but I did not quite get an answer to the specific question of why it costs HMRC £4.5 million to execute this tax rise, which will not raise any money in the next year or the year after. Could she explain why this specific measure that only affects 3,100 people costs HMRC £4.5 million, but other tax increases cost hundreds of thousands of pounds?

[Tulip Siddiq]

If the shadow Minister looks carefully at the documents we have published, he will find all his answers written out very clearly there.

New clause 5 would require the Government to publish an impact assessment of the changes to business asset disposal relief, and to compare the impact of those changes with the number of claims that would have been expected if the rate had not been changed. Every year, the Government publish capital gains tax statistics, which include the number of business asset disposal relief claims for the most recent tax year with available data. The number of claims in 2024-25 compared with upcoming tax years will therefore become public information in time. Meanwhile, the fiscal impact of the changes are is out in the tax information and impacts note for this measure, which has been published online.

Draft Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024

Tulip Siddiq Excerpts

Monday 9th December 2024 General Committees

[The Economic Secretary to the Treasury (Tulip Siddiq)]

I beg to move,

That the Committee has considered the draft Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024.

It is a pleasure to serve under your chairmanship, Ms Vaz.

The draft regulations will add four pieces of legislation to the list set out in section 17(3) of the Financial Services and Markets Act 2023 so that legislation can be temporarily modified as part of financial market infrastructure sandboxes. The Treasury was granted the power to make provision for FMI sandboxes by section 13 of FSMA 2023, and the list of legislation that the Treasury can temporarily modify in an FMI sandbox is set out in section 17(3).

An FMI sandbox is designed to provide a controlled regulatory environment in which existing legislation and regulation is temporarily removed or modified. FMI sandbox participants can test new and developing technologies and practices that would otherwise be inhibited by existing legislation outside of the sandbox. If activity in an FMI sandbox is successful, and only after laying a report before Parliament, the Treasury can make permanent changes to legislation by introducing a further affirmative statutory instrument.

The testing of new technology and practices is inherently uncertain and will evolve over time, meaning that it is likely that the list of legislation in scope will need to be added to. For that reason, the Treasury has the power to add further legislation to the list in section 17(3) of FSMA 2023, as set out in section 17(6). Through the testing of new technologies and practices in an FMI sandbox, we are likely to identify additional legislative modifications, and the ability to add further legislation to the list is a way of ensuring that the FMI sandbox regime can be kept up to date.

The draft regulations exercise the power set out in section 17(6) of FSMA 2023, so that the four items of legislation can be added to support two FMI sandboxes, namely the existing digital securities sandbox, which I will refer to as DSS, and the future private intermittent securities and capital exchange system sandbox, also known as the PISCES sandbox—we love acronyms in the Treasury. The DSS will enable firms to test new and innovative technology across financial market infrastructure activities, and the PISCES sandbox will allow private companies to have their shares traded on an intermittent basis on a new type of stock market.

The draft regulations will bring the following legislation into scope of the power to make temporary modifications in FMI sandboxes: the Stock Transfer (Gilt-edged Securities) (CGO Service) Regulations 1985, which I will refer to as “STRs”; the Government Stock Regulations 2004, which I will refer to as “GSRs”; the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which I will refer to as “MLRs”; and regulation (EU) 2017/1129 of the European Parliament and of the Council, also known as the prospectus regulation, which we inherited from the EU.

Temporarily modifying the STRs and GSRs will enable us to support the issuance of a digital gilt instrument through the DSS. I and the Financial Secretary to the Treasury set out further details of that pilot in written ministerial statements to both Houses on 18 November, which hon. Members may have seen. The MLRs will be modified to facilitate an exemption from the cryptoasset regime in the MLRs for DSS participants, on the basis that activity in the DSS will involve securities, such as bonds and equities, that are already regulated, so conventional anti-money laundering legislation will be applied in the normal way. The prospectus regulation will be modified as part of the PISCES sandbox so that prospectus requirements can be disapplied in favour of bespoke disclosure requirements in that sandbox.

I should note at this point that the draft regulations do not make any temporary changes to the four specific items of legislation. Under the procedure stipulated by FSMA 2023, that will be done as part of further negative SIs to be laid before Parliament, which will provide all the relevant explanatory information for the changes being made to each enactment. The Government published a draft of the instrument that will set up the PISCES sandbox in November for public comment ahead of its being laid before Parliament in May. The DSS was established by a statutory instrument laid last December, although changes to the MLRs will require a further statutory instrument, which is to be laid before Parliament in January.

I recognise that this is a very technical measure, but the draft regulations will make changes consistent with the powers established by FSMA 2023—the Conservative party led the introduction of that Act, and we supported it when we were in opposition—and support the continued development of the DSS and of future FMI sandboxes, such as the PISCES sandbox. The Government believe that this will help to support innovation through each of these FMI sandboxes. I hope that the Committee will feel able to support the draft regulations and their objectives, and I commend them to the Committee.

--- Later in debate ---

[Tulip Siddiq]

I thank the shadow Minister for his comments about our constructive relationship. I am sure there will be many fights in these rooms, but they are not happening yet. He will be delighted to know that we will be back here at 6 o’clock to consider a similarly simple statutory instrument.

We intend to lay the statutory instrument providing the legal framework for the PISCES sandbox before Parliament by May next year. As the shadow Minister will probably know, the testing of new technology and practices is uncertain, so there may be further FMI sandboxes with a different focus that require changes to legislation that have not been considered previously. Therefore, it is not really possible to set out a timeline, but the statutory instrument for PISCES will be laid by May 2025.

As I am sure the shadow Minister will recognise, the draft regulations are an important step forward in the development of the digital securities sandbox and future financial market infrastructure sandboxes such as PISCES, which is world leading and very impressive for our Government, and will be a good thing for the financial services sector. The draft regulations will ensure that FMI sandboxes are able to facilitate innovation while ensuring that all the risks are proportionately managed, as well as ensuring that firms are incentivised to participate.

The changes will be laid out in detail in a negative statutory instrument that we intend to lay before Parliament. We will be modifying the money laundering regulations to ensure that activity in the digital securities sandbox is not caught under the definition of cryptoassets in the MLRs. We will also provide the shadow Minister with a timeline on that, if that makes sense.

I thank Members for participating in the debate. I hope they found it informative, I hope they will learn all the acronyms, like I have, and I hope they will join me in supporting the draft regulations.

Question put and agreed to.

Draft Building Societies Act 1986 (Modifications) Order 2024

Tulip Siddiq Excerpts

Monday 9th December 2024 General Committees

[The Economic Secretary to the Treasury (Tulip Siddiq)]

I beg to move,

That the Committee has considered the draft Building Societies Act 1986 (Modifications) Order 2024.

It is a pleasure to serve under your chairmanship, Mr Dowd.

The Government have made clear their support for building societies—mutually-owned financial institutions that specialise in savings and mortgage products—as part of our commitment to modernise the Building Societies Act 1986. The draft order forms part of that commitment. It makes small but much-needed updates to the Building Societies Act 1986 to remove some unnecessary corporate governance burdens for the sector, aligning requirements with those provided to companies operating under the Companies Act 2006. Overall, the instrument supports the Government’s ambition to unlock the full potential of the mutuals sector to help drive innovation and inclusive growth across our country.

The order modernises the 1986 Act by making provisions in two places. First, it amends sections 60 and 61 of the 1986 Act to remove all references to the normal or compulsory retirement age of 70 for directors. This updates the 1986 Act, bringing it in line with the Companies Act 2006, providing building societies with greater flexibility in appointing directors and ending an outdated age-based restriction. After the amendment provided by this statutory instrument, section 60(11) and section 60(13) of the 1986 Act will specify that all directors must step down after three years, regardless of age, although they may be re-elected; members will therefore still be able to scrutinise the performance of all directors, even after the removal of the age requirement.

Secondly, the order amends section 80 of the 1986 Act, changing the current requirement for the balance sheet of a building society to be signed by two directors and the chief executive officer to allow one director to sign the balance sheet on behalf of the board. This further aligns the 1986 Act with the requirement for companies under the Companies Act 2006, removing an unnecessary burden for building societies. The amendment will not impact on the reliability and accountability of the process, as the full board of a building society is still required to approve the annual reports and accounts, and the signing director’s responsibility is not enhanced by the change.

Together, these amendments will modernise the Building Societies Act 1986 and ensure that building societies have the same modern flexibilities as retail banks operating under the Companies Act 2006. The changes have been supported by the building society sector. For instance, the proposal to amend the Act to allow one director to sign the balance sheet on behalf of the board was welcomed by the sector in a consultation published under the previous Government in December 2021. Although the removal of the retirement age for building society directors was not part of that consultation, it was proposed by the Building Societies Association and another large building society as part of their responses, as seen in the consultation responses published in December 2022. It is therefore evident that the amendments have the support of the sector.

As I mentioned earlier, the order forms part of the Government’s commitment to modernise the Building Societies Act 1986. Some of us may remember that the Building Societies Act 1986 (Amendment) Act 2024 achieved Royal Assent earlier this year. It allows for real-time virtual participation at building society general meetings and provides the Government with powers to introduce subsequent legislation to further modernise the 1986 Act. The Government will look to introduce the changes enabled by that Act in due course.

To conclude—I say to the shadow Minister, the hon. Member for Wyre Forest, once again, as we meet for the second time today—the order will make small but important updates to the Building Societies Act 1986, modernising the Act to align certain corporate governance requirements with the same flexibilities afforded to companies under the Companies Act 2006. It will help to deliver on the Government’s commitment to unlock the full potential of the mutuals sector through ensuring that the legislation supports building societies to grow. I hope that colleagues will help me in supporting the amendments; I commend the order to the Committee.

Treasury Sanctions Designation: Northern Ireland-related Terrorism

Tulip Siddiq Excerpts

Tuesday 3rd December 2024 Written Statements

[The Economic Secretary to the Treasury (Tulip Siddiq)]

On 3 December 2024, HM Treasury announced a sanctions designation under the Counter Terrorism (Sanctions) (EU Exit) Regulations 2019. This regime is used to target those involved in terrorist financing on UK soil. This action is the first use of HM Treasury’s sanctions power targeting an individual suspected of involvement in Northern Ireland-related terrorism.

The designation imposes an asset freeze on an individual suspected of being involved in terrorist activity by facilitating terrorism and associating with members of the New Irish Republican Army (‘New IRA’). He is further suspected of providing or assisting others in providing financial services or making available funds or economic resources for the New IRA.

This action demonstrates this Government’s commitment to protecting the peaceful consensus of the people of Northern Ireland and to upholding the principles of the Good Friday Agreement in support of the UK’s wider efforts to protect national security for all citizens and prevent terrorism.

The specific designation is:

Brian Sheridan—suspected New IRA financier who has control over Brisher Limited.

[HCWS280]

Oral Answers to Questions

Tulip Siddiq Excerpts

Tuesday 3rd December 2024 Commons Chamber

[The Economic Secretary to the Treasury (Tulip Siddiq)]

I read that report with great interest and have a lot of sympathy for those who suffered. However, a lot of the incidents described happened a very long time ago. The FCA has made substantial changes in response to those experiences. That does not mean the end of our engagement with the FCA, but we are continuing to hold it to account and it has made changes since the report came to light.

[Bob Blackman]

The FCA has been completely defensive in response to the report. Since the historical elements quoted by the FCA, 13 major scandals have erupted. I will not intrude on your time, Mr Speaker, because I am sure that you would not want me to list them all, but Woodford Equity, car finance and others have come to light since the details came out. Clearly, there is a need to fundamentally reform the FCA so that victims of scandals are properly compensated and the industry is properly regulated in the way that we would all like to see.

[Tulip Siddiq]

I understand that lots of people have suffered, as the report explains, which I said I have read. However, I do have confidence in the FCA; I have sent it remit letters outlining what we expect it to do to deliver on its objectives. The FCA is looking at certain things such as its rulebook, which we think is too extensive, to look at rules that no longer need to be applied but, overall, we are working with the FCA closely and we believe that it is trying its best. It is not possible to have a system where nothing ever goes wrong, but we are trying to minimise that and ensure that there is consumer protection. The FCA knows that we are working together to deliver on its objectives.

[Ms Stella Creasy (Walthamstow) (Lab/Co-op)]

5. What assessment she has made of the adequacy of funding for the Money and Pensions Service.

--- Later in debate ---

[Liz Saville Roberts (Dwyfor Meirionnydd) (PC)]

WealthTek was placed into administration by the Financial Conduct Authority after losing £80 million of its clients’ money. FCA-appointed administrators are now deducting fees from victims’ compensation. My constituents Dominic Knights and his wife have between them lost thousands of pounds. What is the Treasury doing to safeguard the £85,000 compensation limit?

[The Economic Secretary to the Treasury (Tulip Siddiq)]

The FCA is held to account by the Government and Parliament, but Treasury Ministers cannot comment on individual cases, and the Treasury has no stake in the operational issues of the FCA. I am very happy to meet with the right hon. Lady and the FCA to discuss that matter, but let me be clear: the FCA is an independent regulator.

[Steve Yemm (Mansfield) (Lab)]

T9.   What measures are the Government taking to support small independent retail businesses in town centres such as mine in Mansfield, and will the Chancellor join me in congratulating Mansfield business improvement district on its successful renewal ballot, which was announced last Friday?

--- Later in debate ---

[Tulip Siddiq]

My hon. Friend will know that there is a long-standing debate about the relationship between financial and real economy growth, on which there is no consensus. The Government are clear that we see the financial services sector as a key part of our future economic success. The growth of the UK economy and our wider missions will not be achieved if we do not champion one of our biggest assets—the growth of the UK’s financial services sector—and mobilise it towards achieving those goals.

[Munira Wilson (Twickenham) (LD)]

Achieving for Children is the arm’s length body of Richmond council that delivers its vital children’s services, yet because of the rise in employer’s national insurance, it now faces a staggering bill of £588,000 because the employees are not directly employed by Richmond council. When the Chancellor looks at her local government settlement, will she build in reimbursement for councils such as Richmond, or indeed exempt arm’s length bodies?

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Tulip Siddiq Excerpts

2nd reading
Tuesday 3rd December 2024 Commons Chamber

[Richard Fuller]

To be fair, my former colleague did not last quite as long as the lettuce, and the public made their judgment clear on that and many other issues at the general election. The hon. Gentleman’s point is fair, but it is not particularly relevant to the decisions he will be asked to vote on today. Hospices in his constituency will know how he votes. GPs in his constituency will know how he votes. Charities in his constituency will know how he votes. I will be interested to see whether he votes with his conscience or with the party line.

Less than one in four of the public now believe that the Government are handling the economy well. It is not just the public who have lost faith in the economic competence of His Majesty’s Treasury; it is the Prime Minister himself, who apparently on Thursday will ditch the ambition for the United Kingdom to be the fastest-growing economy in the G7, removing at a stroke one of the key planks of Labour’s economic plans. The Bill will add to that lack of faith in this Labour Government, because this measure to raise national insurance contributions directly contradicts Labour’s election promise not to increase taxes on working people.

In the election campaign, the Prime Minister, the Chancellor and the entire Labour Treasury team, including the Minister, repeated the phrase from their manifesto, which stated:

“Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.”

Yet today, with the election behind them, increasing taxes on working people is exactly what Labour is proposing to do.

The shadow Minister is shaking his head.

[The Economic Secretary to the Treasury (Tulip Siddiq)]

You’re the shadow Minister.

[Richard Fuller]

I am terribly sorry—the Minister. He shakes his head and says that it is not true. Let me turn to one of his favourite independent economic groups, the Resolution Foundation, whose analyst James Smith said, “Even if it”—the employers national insurance change—

“doesn’t show up in pay packets from day one, it will eventually feed through to lower wages…This is definitely is a tax on working people, let’s be very clear about that.”

--- Later in debate ---

[The Economic Secretary to the Treasury (Tulip Siddiq)]

It is an honour to close the debate on behalf of the Government. When the hon. Member for Grantham and Bourne (Gareth Davies) loses his seat, he can work as my speechwriter, because he is right that I am going to say all the things he said, but I will come on to that soon.

Let me start by thanking hon. Members for their contributions to the debate. There were some powerful speeches, including from my hon. Friends the Members for Chipping Barnet (Dan Tomlinson), for Bournemouth East (Tom Hayes), for Leeds South West and Morley (Mr Sewards), for Gateshead Central and Whickham (Mark Ferguson), for Dartford (Jim Dickson), for Welwyn Hatfield (Andrew Lewin), for East Thanet (Ms Billington), for Rochdale (Paul Waugh), for Loughborough (Dr Sandher), for Basingstoke (Luke Murphy) and for Reading West and Mid Berkshire (Olivia Bailey). .

Before I come to the specific points raised in this debate, I want to reiterate the purpose of the Bill. Our priority in the Bill is to restore stability to our economy, repair the public finances to fix our economy, and support long-term economic growth. The Chancellor recognised that to do that, the Government needed to make difficult decisions. That is why under the measures in the Bill, employers are being asked to contribute more. First, the Bill provides for a rise in the rate of employer secondary class 1 national insurance contributions from 13.8% to 15%. Secondly, it provides for a decrease in the secondary threshold for employers from £9,000 per employee to £5,000. Thirdly, it provides for changes to the employment allowance, to increase it from £5,000 to £10,500, and removes the £100,000 eligibility cap, so that the vast majority of employers benefit.

The hon. Member for North Bedfordshire (Richard Fuller) asked at the start of the debate where the extra money raised will go. Let me remind him that the Government uncovered a challenging fiscal and spending inheritance with £22 million of in-year pressure on public finances. We have taken difficult but necessary decisions to fix the foundations of our economy and to fix public services. The Budget provided additional day-to-day funding to stabilise and support public services. Day-to-day funding will now grow at an average of 3.3% in real terms over this year and next, compared to 0.2% under the last Government’s plans.

[Dave Doogan]

A £200 million black hole in the Scottish Government’s core finances, rising to £450 million when partner agencies are included—what kind of stability does the Minister think that will bring to public services in Scotland?

[Tulip Siddiq]

If the hon. Gentleman is patient and listens carefully to my speech, I will come on to the Scottish Government, so he does not need to worry.

The increase in employment NICs raises revenues for the NHS and increases funding for contributory benefits such as the state pension, easing wider pressures on public finances. It is part of the Government’s announcement of an additional £22.6 billion of day-to-day spending over two years for the Department of Health and Social Care, including the NHS.

[Bradley Thomas]

Can the Minister tell the House which decision was harder, giving an inflation-busting pay rise to union paymasters or cutting the winter fuel payment?

[Tulip Siddiq]

The best decision that we have ever made in government is putting money back into the pockets of working people.

Questions were raised by the hon. Member for Isle of Wight East (Joe Robertson), the hon. Member for Yeovil (Adam Dance) and the Liberal Democrat spokeswoman, the hon. Member for St Albans (Daisy Cooper). The hon. Lady asked a number of questions about the NHS. The Government will provide support for Departments and other public sector employers for additional ER NICs costs only. That will apply to central Government, public corporations and local government. Primary care providers—GPs, dentists, pharmacies and eyecare provider—are valued independent contractors who provide nearly £20 billion worth of NHS services. Every year we consult each sector both about what services they provide and about the money to which providers are entitled in return under their contracts. As in previous years, this issue will be dealt with as part of that process.

[Daisy Cooper]

I am grateful to the Minister for addressing my earlier questions. Rather than taking with one hand and giving back with the other, would the Minister support moves to exempt all health and care providers?

[Tulip Siddiq]

The Department of Health and Social Care will confirm funding for general practice for 2025-26 as part of the usual GP contract process later in the year, through consultation with the sector. I understand the concerns about the impact on the healthcare sector, but I can assure the hon. Lady that the Department of Health will continue to engage with GPs, dentists and pharmacists as part of the usual contract process, and that changes in NICs will be taken into account in those discussions.

Let me now turn to the rant, I would say, rather than speech, from the hon. Member for South Shropshire (Stuart Anderson). I was not quite sure what question he was getting to, but he did ask very clearly whether the Chancellor understood the impact of the economic policies that she was making, and whether she would remain in her place. Considering those questions, I wondered what he thought about economics as a whole, so I decided to look into him. Not long ago, he said:

“I have worked with Liz Truss on many occasions…I believe that her economic position…and her parliamentary experience make her the best option to lead our country.”

[Stuart Anderson]

Will the Minister give way?

[Tulip Siddiq]

With pleasure.

[Stuart Anderson]

I stand by the comments that I made. [Interruption.] I do. I fundamentally believe that Liz Truss would be a better Prime Minister than the one we have now.

[Tulip Siddiq]

If you will forgive me, Madam Deputy Speaker, I feel that a lettuce would have better judgment.

I turn to the devolved Governments. The Government will provide Departments and other public sector employers with support for additional ER NICs costs only. The funding will be allocated to Departments, with the Barnett formula applying in the usual way. The overall outcome of the Barnett formula is that all the devolved Governments will receive at least 20% more funding per person than the equivalent UK Government spending in the rest of the UK. The Scottish Government will receive £47.7 billion in 2025-26, including an additional £3.4 billion through the operation of the Barnett formula. The Welsh Government will receive £21 billion in 2025-26, including an additional £1.7 billion through the operation of the Barnett formula.

[Dave Doogan]

The Minister is being very generous in taking a second intervention from me. I realise that the bar for credibility in the Treasury is very low right now, but she hoots and toots about the level of the block grant for the Scottish Government. In what universe does the block grant go down year on year? Of course it is higher than in previous years. Has she got the faintest idea how it works?

[Tulip Siddiq]

I do have the faintest idea how it works, which is why I am on this side of the House and the hon. Gentleman is on that side. That is why I am a Treasury Minister and he is not, and probably never will be.

The hon. Member for Huntingdon (Ben Obese-Jecty) spoke about hospitality. Without any Government intervention, retail, hospitality and leisure relief would have ended entirely in April 2025, creating a cliff edge for business. [Interruption.] I know the truth hurts, which is why the hon. Member for Thirsk and Malton (Kevin Hollinrake) is chuntering from the Opposition Front Bench. Our Government have decided to offer a 40% discount to RHL properties by introducing a cash cap of £110,000 per business in 2025-26, and we have frozen the small business multiplier. This package is worth over £1.6 billion in 2025-26 and is aimed at supporting the most vulnerable businesses, ensuring that over 250,000 RHL properties receive the full 40% support.

[Graham Stuart]

Will the Minister give way?

[Tulip Siddiq]

I am reluctant to do so, but I will.

[Graham Stuart]

I thank the Minister for giving way. The OBR had to issue a correction to table 3.2 in chapter 3 of its report. Originally, there was RDEL compensation for public sector employees and for adult social care. The correction was made to reduce the sums by £800 million, typically per year, for RDEL compensation just for public sector organisations. Why did the correction need to be made, when was it made, and why was the OBR told so late that social care was not getting the support that it clearly needs?

[Tulip Siddiq]

As far as I am concerned, the current numbers are the correct ones.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

The Minister mentions business rates and the small business multiplier. Will she confirm the continuation of small business rates relief for the rest of this Parliament?

[Tulip Siddiq]

That is under review, and we will come back to the hon. Gentleman soon.

I turn to the questions from the hon. Member for Eastleigh (Liz Jarvis) about childcare providers. She may be aware that I served on the shadow Education team for a long time. I realise the value of early years providers, and I know that they drive economic growth and break down barriers to opportunity. We have committed to making childcare more affordable and more accessible, which is why we promised in our manifesto to deliver the expansion of Government-funded childcare for working parents, and to open 3,000 new or expanded nurseries by upgrading space in primary schools to support the expansion of the sector. However, I say to the hon. Member that the Government inherited the worst economic circumstances since the second world war, and our first step must be to fix the foundations of our economy. In spite of the challenges, the Chancellor announced in her Budget significant increases to the funding that early years providers are paid to deliver Government-funded childcare places, meaning that the total funding will rise to over £8 billion in 2025-26.

I am grateful to have had this opportunity to respond to the questions that have been raised today. I also want to thank my officials for their work on bringing the Bill to the House. Before I finish, however, I want to answer a question that the right hon. Member for East Hampshire (Damian Hinds) asked in his speech: what is the mission of this Government? Well, let me tell him. This Government’s mission is economic stability, restoring our public services, a thriving workplace, making sure that we have a strong education system and strong public services, putting more money in working people’s pockets, and fixing the foundations of our economy. The mission is to rebuild Britain. The Conservatives left a mess, and we will do a better job than them. I commend the Bill to the House.

Question put, That the amendment be made.

Draft Scottish Rates of Income Tax (Consequential Amendments) Order 2024

Tulip Siddiq Excerpts

Monday 2nd December 2024 General Committees

[The Economic Secretary to the Treasury (Tulip Siddiq)]

I beg to move,

That the Committee has considered the draft Scottish Rates of Income Tax (Consequential Amendments) Order 2024.

It is a pleasure to serve under you as Chair, Sir Roger. The draft order enables the calculation of deficiency relief to take account of the introduction of the Scottish advanced rate of income tax. Deficiency relief reduces the tax that some individuals are required to pay when certain life insurance policies come to an end. It applies in unusual circumstances in which the policyholder would otherwise be taxed on more than the actual economic gain they made on the policy. That might include when a tax charge arose on an earlier withdrawal.

On 22 February this year, the Scottish Parliament introduced the new Scottish advanced rate income tax band. That means that, from 6 April 2024, the former Scottish higher rate income tax band was split into the Scottish higher rate and the Scottish advanced rate income tax bands. The current deficiency relief rules do not take account of the new tax band. This reduces the amount of deficiency relief available to a small number of Scottish taxpayers from 6 April 2024.

The order applies from 6 April 2024, and ensures that the new Scottish advanced rate of income tax can be included in the calculation of deficiency relief. At the same time, the Government are taking the opportunity to simplify the wording of the legislation. The order ensures that the calculation of deficiency relief takes account of the new Scottish advanced rate of income tax.

--- Later in debate ---

[Tulip Siddiq]

I thank the hon. Gentleman for his co-operation and for commenting on the lateness of some of the people behind me—I am sure that the Whip will have taken notice of that, but not me, because that is not my job.

Only Scottish taxpayers who are entitled to deficiency relief and who pay tax at the Scottish advanced rate of income tax will be affected. The measure only affects Scottish taxpayers who claim deficiency relief and whose tax is taxable at the Scottish advanced rate of income tax. I cannot give the hon. Gentleman an absolute number, but the criteria apply to people whose income is taxable at the Scottish advanced rate of income tax, as he referenced.

The hon. Gentleman will be pleased to know that guidance is available. The “Insurance Policyholder Taxation Manual” from His Majesty’s Revenue and Customs contains guidance on deficiency relief. It will be updated to reflect these changes, so people can refer to that, and it is available on gov.uk.

I will answer a question about the order applying retrospectively, because I think the hon. Gentleman alluded to that. The Scottish advanced rate of income tax applies from 6 April 2024, but applying these provisions from the state ensures that no taxpayers are adversely affected. I hope that those answers are satisfactory—[Interruption.] I am being handed another piece of paper, which I will read. Oh, the number affected is fewer than 10, and the Exchequer impact is less than £5 million per annum. I hope that satisfies him.

This order ensures that the calculation of deficiency relief takes account of the new Scottish advanced rate of income tax. I am glad that the Opposition will not oppose it and are in agreement. I commend the changes to the Committee.

Question put and agreed to.

Finance Bill

Tulip Siddiq Excerpts

2nd reading
Wednesday 27th November 2024 Commons Chamber

[The Economic Secretary to the Treasury (Tulip Siddiq)]

Just as it was an honour to close the Budget debate on behalf of the Government, it is an honour to close the debate on Second Reading of the Finance Bill—the first Finance Bill by a Labour Government in 14 years. I thank hon. Members for their contributions, and look forward to hearing further contributions during the Committee of the whole House and the Bill’s remaining passages, alongside the Exchequer Secretary to the Treasury.

Before I address the numerous points raised in the debate, it is worth reflecting briefly on the points made by the Exchequer Secretary in his opening remarks on what the Bill will achieve. The Bill legislates for key measures in the Budget—a Budget in which we took tough decisions on tax, spending and welfare to restore Britain’s economic stability. The Bill delivers on our manifesto commitments and starts the work of moving to a fairer, more sustainable tax system while raising the revenue needed to adequately fund our public services. The Government have taken a balanced approach that will create a fairer system while still promoting growth and wealth creation.

We are adjusting the rate of capital gains tax, for example —a tax paid by fewer than 1% of adults every year—to raise some of that revenue. Although rates have increased, the Government will maintain the UK’s position as having the lowest CGT of any European G7 economy. There are no changes to CGT rates on property or the annual exempt allowance, and there is a phased increase to business asset disposal relief, to give entrepreneurs time to adjust. That is just one of the many measures in the Bill that will move us to a fairer system, where those who can pay do pay. [Interruption.] I will get on to farmers, hon. Members will be pleased to know.

I congratulate my hon. Friend the Member for South Derbyshire (Samantha Niblett) on an excellent maiden speech. She is absolutely an inspiration to her teenage daughter, but also to young women across the country, including my daughter. I thank her for that. We are very pleased to have her. We need more people with careers in tech in the House. She is very welcome.

We also heard powerful contributions from my hon. Friends the Members for Darlington (Lola McEvoy), for Crewe and Nantwich (Connor Naismith), for Macclesfield (Tim Roca), for Barking (Nesil Caliskan), for Vale of Glamorgan (Kanishka Narayan), for Makerfield (Josh Simons) and for Harlow (Chris Vince). I pay particular tribute to my hon. Friend the Member for York Outer (Mr Charters) for his play on words—as an English graduate, I always enjoy that, and I thought he was excellent.

Hon. Members have extensively discussed the agricultural property relief changes announced in the Budget, and will note that they are not included in the Bill. That is because the Government are committed to technical consultation on tax legislation. We feel it is important to get complex legislation right, and to give businesses and those affected by tax changes the certainty that they need ahead of the measures coming into force. The Government will publish draft legislation on this measure before legislating for it in a future Finance Bill.

[Dr Evans]

I am grateful to the Minister for making that point. Is there a timetable attached to that that she could set out to this House? Many businesses will have listened to that statement, and will want to know exactly when they need to make their business decisions.

[Tulip Siddiq]

We will set out plans in due course. The Bill does, however, extend the scope of agricultural property relief from 6 April 2025 to land managed under certain environmental agreements. That supports the UK Government’s wider environmental objective of supporting farmers and land managers so that they can deliver, alongside food production, significant and important outcomes for the climate and environment. The measure is intended to prevent the loss of APR being a barrier to the involvement of agricultural landowners and farmers in land use change under environmental agreements including, but not limited to, the environmental land management schemes in England and equivalent schemes elsewhere in the UK.

I want to address something the hon. Member for St Albans (Daisy Cooper) talked about: family farms. This is not in the Finance Bill, but I will still refer to it. Individuals can pass on a sum of up to £325,000 inheritance tax-free; £500,000 if that includes a residence being passed to a direct descendent; and £1 million when a tax-free allowance is passed to a surviving spouse or civil partner. There is also a full exemption from inheritance tax when passing assets to a spouse or civil partner.

[Daisy Cooper]

I am grateful to the Minister for giving way. Madam Deputy Speaker, I beg for your patience as I retread some of the remarks I made earlier. It is my view that the family farm tax gives us the worst of both worlds at the moment. It does not prevent equity companies from buying up land, but it does treat family farms as collateral damage. I urge her to think again on this measure and think about introducing a genuine family farm test. If she were to do that, she would certainly have the Liberal Democrats’ support.

[Tulip Siddiq]

It was a difficult decision, and I understand the point the hon. Lady is making, but the reforms to agricultural property relief mean that farmers can access 100% relief for the first £1 million and 50% relief thereafter, meaning an effective 20% tax rate. It was a difficult decision, but we had to do it to fund public services.

My hon. Friend the Member for Bolton West (Phil Brickell) talked about tax avoidance and fraud. To stop people taking unfair advantage of our system, the Government announced in the Budget the most ambitious ever package to close the tax gap, raising £6.5 billion in additional tax revenue per year by 2029-30.

[Graham Stuart]

Will the Minister give way?

[Tulip Siddiq]

The right hon. Gentleman has spoken enough times in the debate, so I will not be taking yet another intervention from him.

The hon. Member for Bognor Regis and Littlehampton (Alison Griffiths) raised questions about SMEs and high streets. The Government have been absolutely clear that we need to take difficult decisions to deliver long-term stability and growth, and that stabilising public finances is the only way to create long-term stability in which businesses can thrive. But we recognise the need to protect small employers, which is why we have more than doubled employment allowance—she may like to know that—meaning that half of businesses with mixed liabilities will either gain or see no change at all next year.

The right hon. Member for East Hampshire (Damian Hinds) raised questions about VAT on private schools hitting SEND pupils. To protect pupils with special educational needs and disabilities who can only have their needs met in a private school, the local authorities and devolved Governments that fund those places will be compensated for the VAT they are charged on those pupils’ fees. I hope that reassures him.

The right hon. Gentleman also raised a point about faith schools. Of course the Government value parental choice and recognise that some people want their children to be educated in a school with a particular faith ethos. My hon. Friend the Exchequer Secretary met the Partnerships for Jewish Schools and the Association of Muslim Schools during the consultation period on this policy. To ensure fairness and consistency between all schools that charge fees, faith schools will remain in the scope of the policy. It is worth noting for the right hon. Member that some faith schools are likely to be less impacted by the policy if some of their income is derived from voluntary donations from the community, because donations that are freely given and for which there is no obligation are outside the scope of VAT. As such, not all the income that small faith schools receive will necessarily be subject to VAT. I hope that reassures him a bit.

[Marie Goldman (Chelmsford) (LD)]

I thank the Minister for giving way. I want to ask her specifically about what she just said about special schools still getting funding. Is she aware that many parents of children with special educational needs choose to send their children to special schools even though they do not have education, health and care plans, so do not have funding through local authorities and so will still be affected by this measure? I wonder what she thinks about that.

[Tulip Siddiq]

My hon. Friend the Exchequer Secretary says that he will write to the hon. Lady about this, but we note the points that she has made, and we are looking into them.

The hon. Member for Gordon and Buchan (Harriet Cross) asked about oil and gas investment. We recognise that oil and gas will continue to have a role in the energy mix during the transition, but we need to drive public and private investment towards cleaner energy. The money raised by these changes will contribute to public investment while the sector continues to benefit from £84.25 in relief for every £100 of private investment. To reflect our commitment to facilitating cleaner home-grown energy, the Government have confirmed that the sector will continue to benefit from a decarbonisation investment allowance with a value similar to the relief that it received prior to the November energy profits levy rate increases.

I end by saying that the Bill delivers on key manifesto commitments from this Labour Government. It provides stability, it supports businesses, and it moves us to a fairer, more sustainable tax system. For those reasons, I commend it to the House.

Question put, That the amendment be made.