Finance (No. 2) Bill
Tuesday 16th December 2025
(1 month, 2 weeks ago)
Commons ChamberFinance (No. 2) Bill 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
19:02 - The House divided: - Ayes: 118 / Noes: 340 - Question accordingly negatived.
19:16 - The House divided: - Ayes: 341 / Noes: 195 - Question accordingly agreed to.
Madam Deputy Speaker (Caroline Nokes)
The reasoned amendment in the name of the Leader of the Opposition has been selected.
The Exchequer Secretary to the Treasury (Dan Tomlinson)
I beg to move, That the Bill be now read a Second time.
On 26 November, my right hon. Friend the Chancellor delivered her second Budget at this Dispatch Box. This was a Budget to build strong foundations and a secure future for our country, with no cuts to capital spending—which I am sure would have been implemented by the Conservatives, if they were in this financial situation—and no return to austerity, including for public services. This is a Budget about Labour choices.
Graham Stuart (Beverley and Holderness) (Con)
The Minister says that there will be no cut to capital budgets, but of course he is talking only about the public sector. Has he seen the CBI Economics research that suggests that there will be severe capital budget reductions in the private sector—the very sector that creates the wealth on which everything else depends?
Dan Tomlinson
I am sure that the right hon. Gentleman will have read the Office for Budget Responsibility’s report—we had a bit of extra time to read it this year. He will know that according to that report, investment—both overall, whole-economy investment and private sector investment—has outpaced the OBR’s forecast from March this year. I look forward to returning to those points later.
The Budget delivers choices that were fair and necessary—choices that deliver on the public’s priorities, and that bring about the change that this Government promised. This Government have chosen to cut the cost of living, delivering £150 off energy bills and freezing train fares and prescription charges. This Government have chosen to cut NHS waiting lists, delivering 5.2 million more appointments and announcing in the Budget 250 new neighbourhood health centres. This Government have chosen to lift 550,000 children out of relative poverty in this Parliament, by removing the two-child limit, and by expanding free breakfast clubs and free school meal eligibility.
Carla Lockhart (Upper Bann) (DUP)
The Government have chosen to absolutely decimate family farms across the whole United Kingdom. The Prime Minister was questioned yesterday by members of the Liaison Committee, and he was told that farmers have said that they might be better off dying before this tax change comes in. I feel that we need to let the reality of that sink in. His response was that Governments have to bring about sensible reform, but sensible reform is not someone lying in an early grave to avoid the break-up of their family farm. He also claimed that this policy was not targeted, and was merely a change to the tax regime, but when this Finance Bill decimates family farms, it certainly—
Madam Deputy Speaker (Caroline Nokes)
Order. The hon. Lady’s intervention is far too long.
Dan Tomlinson
Thank you, Madam Deputy Speaker. I look forward to contributions from Members on both sides of the House on the various measures in the Finance Bill. On the point that the hon. Member raises, this Government considered really carefully the reforms that were announced at the Budget last year, and have put forward changes to agricultural property relief and business property relief. There is an additional £1 million allowance—an allowance that was made transferable between spouses in this Budget—and also a 50% discount on the inheritance tax rate, so tax on that higher allowance will be at 20%, rather than 40%.
As well as making changes to lift children out of poverty, this Government have chosen to increase the national living wage from 1 April 2026 by 4.1% to £12.71 an hour, and to increase the national minimum wage for 18 to 20-year-olds to £10.85.
Dave Doogan
The Minister will know that for the vast majority of employees in Scotland, the increase in the national living wage is redundant, because it is less than the Scottish living wage. He talks about the things that the Government increased in the Budget; was it their intention to increase unemployment by 25% as a result of their jobs tax?
Dan Tomlinson
This Budget will lift thousands of children in Scotland out of poverty, because of decisions that we have made. This Government have made £10 billion more spending available to the Scottish Government, yet we still see public services failing up and down Scotland; the NHS is not working as well as it should north of the border.
Matt Rodda (Reading Central) (Lab)
The Minister is making an excellent series of points, and I commend him on behalf of 4,000 vulnerable children in Reading for the fantastic support he is offering them and their families. It is much deserved and appreciated by our community. I point out other significant benefits, such as the freezing of rail fares, continued bus fare subsidies, and economic measures that will drive growth across this country.
Dan Tomlinson
I thank my hon. Friend for his intervention—the first from a Labour Member. I look forward to many more from Labour hon. Friends, as well as Opposition Members. This Government have also chosen to cut Government borrowing every year, so that interest rates, already cut five times since the election, keep falling.
Sir Oliver Dowden
I thank my neighbour. The Minister did not answer this point made by the hon. Member for Angus and Perthshire Glens (Dave Doogan) about the effect of the jobs tax on unemployment. In my constituency, I have met countless businesses that have laid off staff, or have shifted staff to being self-employed. Does he accept, particularly given the unemployment figures today, that there is a direct link between the jobs tax and higher unemployment?
Dan Tomlinson
The OBR was aware of the tax changes announced in the previous Budget when it made its forecast just a few weeks ago. It expects that employment will rise in every year of this forecast; that every year, the figure will be higher than it was in March; and that there will be over 35 million people in work by the end of the decade.
As I was saying, this year, borrowing as a share of GDP will be at its lowest level in six years, and the Chancellor made the decision to more than double our headroom against the fiscal rules in this Budget to provide continued economic stability. This Finance Bill, alongside other Budget decisions, delivers choices that give people new opportunities and renew our public services. These choices will help lift thousands of children out of poverty, get more people into work and maintain the highest level of public sector investment in 40 years. I was struck by the response from the North East chamber of commerce, which welcomed the ending of the two-child limit, saying,
“The Chancellor is right to scrap the two-child benefit cap. Our members have long argued that this is one of the most powerful levers available to tackle the unacceptable rates of child poverty across our region and to support more parents into sustained and meaningful employment.”
Statements like that are further confirmation that lifting 500,000 children out of poverty is not just the right thing to do, in order to give our children the best start in life, but is an investment in the future and our economy. All of us will be better for it.
This Government have promised to deliver economic growth as our No. 1 priority.
Robbie Moore (Keighley and Ilkley) (Con)
I am not quite sure whether the Minister believes what he is reading, because UKHospitality has already done the sums on the impact that this Budget is having on many hard-working hospitality businesses across Keighley and Ilkley. Indeed, it has calculated that over the next three years, hospitality businesses in my constituency will have to pay on average an additional £13,690 per annum. Can the Minister say what the Budget will mean for the growth of hard-working hospitality businesses in my constituency?
Dan Tomlinson
The hon. Member said that he is not sure whether I believe what I am reading. I did write this myself, and I do very much believe it. We will have plenty of time to debate the business rates measures when we consider the relevant pieces of legislation and in Committee, I am sure. They are not specifically in the Finance (No. 2) Bill, but I am mentioning things that are not in the Bill, so of course, he is welcome to raise things that are in the Budget, too. At Treasury questions last week we discussed at length, with the shadow Front-Bench team and others, the relief and support that is now in the system to help businesses with the increases in valuations they have seen since the pandemic—there is over £4 billion of support over the next few years, with £2 billion coming this year alone. However, I thank the hon. Member for his intervention. Madam Deputy Speaker, I thought I might speak for 15 minutes, but we are 11 minutes in and I am only on page 2, so I will try to make some progress.
We are sticking to our commitments in the corporate tax road map, maintaining the headline rate of corporation tax—the lowest in the G7—and making reforms to capital allowances to support fiscal sustainability while retaining incentives to invest. We are going further to support companies to scale up and attract investment and talent by significantly expanding the enterprise management incentives company eligibility limits, to maintain the world-leading nature of this scheme. We are doubling the maximum amount that a company can raise through the enterprise investment scheme and venture capital trusts scheme, to make the schemes more generous and supportive for entrepreneurs, helping to support more investment in companies and improve access to finance for those we want to see make the transition from start-up to scale-up.
We are delivering a new service to support major investment projects with advance tax certainty, as committed to in the corporate tax road map. We are also introducing a 40% first-year allowance, allowing businesses to immediately write off a significant amount of their investment to reduce their corporation tax or income tax bill in the year that they make that investment. Overall, these growth measures and the many others we are delivering across the Government will result in the doubling of limits for our enterprise tax incentives and will support many scale-ups and businesses to attract capital as they grow.
This Finance Bill builds on many other measures announced at the Budget and delivered over this Parliament. We are expanding and continuing the work of the National Wealth Fund. We have committed £14 billion for Sizewell C, to help power more than 6 million homes. We are making rapid progress on enabling the delivery of a third runway at Heathrow, and we have provided £120 billion in additional capital investment for roads, rail and energy, including £15.6 billion for major city regions.
Oliver Ryan (Burnley) (Lab/Co-op)
I welcome the £50 million or £60 million that the Government have provided to Lancashire county council to provide good roads for my constituents. On the Minister’s point about business investment, I welcome the three-year holiday from the stamp duty reserve for new listings, which we are not talking about enough. That will be a huge benefit to newly listed companies in the UK and manages our competitiveness very well.
Dan Tomlinson
I, too, welcome that change in the Budget, and I commend my colleague the Economic Secretary to the Treasury for the work she has been doing on that—I am sure we will hear more about it in her closing remarks.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
Will the Exchequer Secretary give way?
Dan Tomlinson
I will give way, and then I will try to make some progress, so that other Members can get in.
Mr Carmichael
I am grateful to the Exchequer Secretary for giving way. On the point of growth, he should be aware that, since the Budget last year, 49% of farm businesses have paused or cancelled planned investment, 10% have already downsized operations, and 21% intend to do so before next April. What are the Government going to do to restore confidence in farming to invest? Without that, there is no growth in the rural community.
Dan Tomlinson
I thank the right hon. Member for his point. We do want to see farming businesses in rural communities and businesses up and down the country investing and growing for the future. On the changes to agricultural property relief and business property relief, it is worth noting that the statistics suggest that up to 375 estates a year will be affected—a small proportion of the overall number—and that number has come down from 520, as was forecast at the previous Budget.
Several hon. Members rose—
Dan Tomlinson
If I may, I will try to make some progress so that other hon. Members are able to contribute.
This Government are delivering growth and are focused on driving investment in our economy. As I said earlier, whole-economy investment has risen by 4.2% in real terms since the start of the year, outperforming the OBR’s March forecast of a decline of 0.1%. As the shadow Chancellor will know, Britain has outperformed its growth forecast this year, with growth in 2025 upgraded to 1.5% from 1% in March.
Beyond growth, this Bill delivers a set of responsible choices that safeguard our economy and prepare us for the future. We have been clear that in order to achieve that we have had to take the decision to ask everyone to contribute more at the end of the decade to protect our public services. After a freeze that was initiated by the previous Government, this Bill maintains income tax thresholds for employees and the self-employed at current levels for a further three years, from April 2028 to April 2031. That is a fair choice. In 2029-30, three-quarters of the revenue from maintaining income tax and employee, self-employed and national insurance contribution thresholds is expected to come from the top half of households.
The Bill also takes action to ensure that income from assets is taxed more fairly, raising £2.2 billion in 2029-30 by increasing taxes on property dividend and savings interest income. The Government are narrowing the gap between taxes paid on work and taxes paid on income from assets. At the moment, for example, a tenant will pay national insurance on their income, and a landlord will not. With the extra 2p, we will be closing the gap between tax rates on landlords and on tenants. In 2029-30 around two-thirds of revenue from increases to dividend property and savings interest tax rates is expected to come from the top 20% of households. Importantly, there are choices we have not taken—choices that previous Governments have taken to borrow more in a fiscally irresponsible way, or to return to austerity, which would undermine our economy and society. We have also chosen not to increase the rate of corporation tax, and we have stuck to our corporation tax road map.
It is important that those with the broadest shoulders contribute more to protect our vital public services, and the Bill delivers previously announced reforms to tax wealth fairly, including a revised tax regime for carried interest. That sits wholly within the income tax framework to ensure that reward is taxed in line with its economic characteristics, removing the opportunity for individuals to use pensions as a vehicle for inheritance tax by bringing unspent pots into the scope of inheritance tax, and by reforming agricultural property relief and business property relief, while ensuring that any of the £1 million allowance for the 100% rate that is unused will be transferable between spouses and civil partners. Those decisions build on our action in the previous Finance Bill, including abolishing the non-dom tax status, ending tax breaks for private school fees, and raising the rates of capital gains tax. That currently raises £14 billion a year, with revenue expected to more than double to around £30 billion by 2030-31.
Fair choices also mean delivering justice for those affected by the infected blood scandal. The Government will extend the existing inheritance tax relief for infected blood compensation payments, so that if an infected or affected person has already died when compensation is paid, inheritance tax relief will instead apply on the death of the first living recipient of the compensation payment.
Fair choices in a Finance Bill also mean tackling serious reforms that have been ducked for too long. That means reforming tax reliefs that, while intentioned, have exploded in cost in recent years. This Government are reforming capital gains tax relief, which has allowed wealthy business owners to sell their shares without paying any capital gains tax. We are reducing the relief available for business owners who are selling their businesses to employee ownership trusts from 100% to 50%—a relief that the previous Government expected to cost less than £100 million a year in 2018-19, although published figures now show that the cost of the capital gains tax relief reached £600 million in 2021. Without any action, forecasts suggest that that could rise to more than 20 times the original costing, to £2 billion by 2028-29.
Several hon. Members rose—
Dan Tomlinson
I give way to the hon. Member for Keighley and Ilkley (Robbie Moore), who was the first to catch my eye on that occasion.
Robbie Moore
Business property relief impacts many family businesses across the country. What does the Minister say to Fibreline in my constituency, which has worked out that its BPR liability is about £850,000? The company employs 250 people in Keighley whose jobs are potentially at risk as a result of the business not being able to mitigate an inheritance tax liability that this Government are imposing on it.
Dan Tomlinson
Our proposals on APR and BPR mean that those with business or agricultural assets will have both the additional £1 million allowance and a tax rate that is half the rate that others within the system pay. My understanding is that the system will be more generous than the one in place before 1992, throughout the whole time that Margaret Thatcher was Prime Minister.
We are reforming the Motability scheme to end the VAT relief on top-up payments, which was a one-off payment required to lease more expensive vehicles on the scheme. We are also ending the application of insurance premium tax on leases to ensure that the scheme delivers value for money for the taxpayer, while choosing to continue to support disabled people.
We are introducing reforms to ensure that private hire vehicle operators will no longer be able to illegitimately exploit an administrative scheme intended for tour operators to pay a much lower rate of VAT than others.
Graham Stuart
The Minister is always both gracious and generous. Further to the point made by my hon. Friend the Member for Keighley and Ilkley (Robbie Moore) about the impact of BPR, imagine a company that is worth £11 million. It will have a £2 million BPR tax payment to make. The person who inherits the shares will not have that £2 million, so they will have to extract that money from the business. Am I right in thinking that that would require £3.3 million to be deducted and taken out of the company in order to pay that £2 million in tax? Is that in the right order?
Dan Tomlinson
I am happy to discuss those numbers with the right hon. Member in more detail, either afterwards or I can come in and discuss those points with him, although I did not quite follow all of the maths—[Interruption.] I thank Members on the Conservative Front Bench for their intervention about that.
Increasing taxes on online gaming and betting is another change that we are making in the Budget, with the rate for remote gaming increasing from 21% to 40% from April 2026, and the rate of remote betting increasing from 15% to 25% from April 2027, while choosing to protect in-person betting and horseracing, which plays such an important role in our sporting culture and many local economies.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
The Minister will be aware that those rate changes will have a consequential impact on jobs, particularly in places such as Stoke-on-Trent, where thousands of people are employed by gambling companies. The rights and wrongs of gambling aside, there will be an impact on jobs. Is he willing to look at that issue with the industry going forward, so that we can mitigate the damage done to the sector and keep people in Stoke-on-Trent gainfully employed?
Dan Tomlinson
My hon. Friend is a strong advocate for his constituents and the businesses based in his part of the world. Those businesses contribute significant revenue to the Exchequer, and this Government are asking them to contribute a bit more in order for us to be able to continue to fund our public services in a sustainable way. I will continue to have conversations with him and others about the impact of the changes that the Government are announcing to this sector and others in the Budget and this Bill.
Alongside the choices I have mentioned, we are also taking action on the loan charge review. That will include accepting all but one of the recommendations of the independent review, and in some places going further than the review suggested. We are creating a new settlement opportunity to support those with outstanding liabilities to resolve their affairs with HMRC. This marks the start of a final opportunity to draw a line under this long-running issue. I sincerely and dearly hope for everyone involved that we will be able to move forward and that this issue can start to be part of people’s pasts, rather than a seemingly never-ending part of their future.
In tandem, we are delivering a package of measures to close in on promoters of marketed tax avoidance and help taxpayers to steer clear of the schemes that they promote. Those measures include a new prohibition on promoting avoidance arrangements that have no realistic prospect of success and new promoter action notices to require businesses to stop providing goods or services to promoters of tax avoidance where they are used in the promotion of avoidance.
Matt Rodda
The Minister is making an excellent point. May I commend him on his work on the loan charge? Many IT consultants in my constituency and across the Thames valley are grateful to the Treasury for looking into this matter. Many of them felt they were sold schemes that they did not always fully understand, and they are also grateful for the action to tackle inappropriate schemes being marketed at professional people. I thank him for his work on this matter.
Dan Tomlinson
That is very kind of my hon. Friend. I know that he and others on all sides of the House have made representations over many years on behalf of their constituents affected by the loan charge. I have met some of those affected and members of the all-party parliamentary group. In the months that I have been in this role, having been appointed only on 1 September, I have worked hard to ensure that we come forward with proposals that I hope will help to draw a line under this issue. I hope that those affected can see we have a reasonable and fair set of proposals that will help those who were subject to the loan charge to be able to come forward and to settle; I really encourage those individuals to come forward.
Alongside those changes, we are making steps to continue to close the tax gap by closing loopholes and removing barriers to ensure that people pay the tax that they owe, including raising an additional £2.4 billion in ’29-30 by introducing further reforms to pursue those who bend or break the rules to collect more unpaid taxes. We are also going to modernise the tax system to make it easier for taxpayers to get their tax right the first time. With the choices delivered in this Finance Bill, that will bring the total additional revenue raised by closing the tax gap in this Parliament to £10 billion by 2029-30.
My right hon. Friend the Chancellor has spoken about this Budget being
“a package, not a pick-and-mix”,
and that is so important for our public finances and our public services. Through this Bill, we are choosing to deliver long-overdue reforms to update our tax system so that it can work for a modern, dynamic and thriving economy, and funding vital policies such as the removal of the two-child limit, which will lift half a million children out of poverty.
This Bill is about delivering on choices: choices to protect working people; choices to cut energy bills, and to freeze train fares and prescription charges; choices to boost wages and reduce poverty; and choices to cut inflation to bring down mortgage costs. It delivers the Government’s commitment to this country to build a stronger and fairer economy in which living standards rise, to see child poverty fall, and to ensure that public services are improved up and down the country. With every measure in this Finance Bill being geared towards that goal, I commend this Bill to the House.
Sir Mel Stride (Central Devon) (Con)
I beg to move an amendment, to leave out from “That” to the end of the Question and add
“this House declines to give a Second Reading to the Finance (No. 2) Bill because the Bill includes provisions breaking the Chancellor of the Exchequer’s promise, given after the Autumn Budget 2024, not to raise taxes, and breaking the Chancellor’s promise at the last Budget that there would be no extension of the freeze in Income Tax and National Insurance thresholds and that, from 2028–29, personal tax thresholds would be uprated in line with inflation once again; because the Bill implements changes to Agricultural Property Relief and Business Property Relief for Inheritance Tax which will devastate family farms, businesses and food security; because the Bill is the result of a Budget that will lead to higher spending and borrowing, while damaging growth and living standards with £26 billion of tax rises; and because this House is opposed to raising taxes on working people to pay for increased welfare spending.”
In the middle of Leicester Square, in the heart of our great city, there is a statue of perhaps one of the greatest Englishmen who ever lived: William Shakespeare. In his hand there is a scroll, which reads, in his own words:
“there is no darkness but ignorance”.
This Government have brought plenty of darkness to our country—indeed, during the run-up to the Budget, we had so many kites flown as to what taxes were going to be put up or not that the sun was blotted out of the sky, and a huge, dark shadow was cast across consumers, who stopped spending, and businesses, which stopped investing and employing people. Don’t take my word for it, Madam Deputy Speaker: the Bank of England itself says precisely that it damaged the economy. Indeed, we have seen this in the latest figures on growth, which the Minister was most eager to tell us about in his speech. For the three months to the end of October, growth in the economy was negative—it was minus 0.1%—which is further evidence of the darkness that this Government have cast upon the animal spirits in our economy.
To return to Shakespeare, were he here today, he would be appalled by the ignorance that this Government have shown of the basic rules of economics. It is a basic fact that if you focus on redistribution, as socialists always do—of course, there is always an argument for redistribution—at the expense of getting the incentives right in the economy, you will damage growth. That is exactly what is at the heart of this Budget. The key choice that has been taken is to increase taxes on hard-working people and spend at least a substantial proportion of the money raised on increasing the benefits bill.
The second rule that this Government seem incapable of grasping is that if you tax something, you get less of it. That is a simple fact. That brings me to the topic of work. This Finance Bill further freezes the income tax threshold, meaning that 800,000 people or thereabouts will be dragged into the basic rate of income tax, and 1 million or thereabouts will be dragged through fiscal drag into the higher rate of income tax. By 2030, it is estimated that around one in four taxpayers will be in either the higher rate of income tax or the additional rate—an £8 billion tax grab in the target year, rising to £12.7 billion in 2030. That is on top of various other issues that are coming down the track, such as the freezing of the threshold for repayment of student loans, which is effectively a stealth tax on younger people. It is also on top of the freeze in the employer national insurance threshold, which will raise around £1 billion by 2030. Once again, that comes straight out of employers’ pockets—it is a further instalment of the extra jobs tax.
All of this will reduce the incentive to work, as we have seen. In an intervention a moment ago, my hon. Friend the Member for Keighley and Ilkley (Robbie Moore) raised this very point in the context of hospitality. We have seen 90,000 jobs destroyed on this Government’s watch—and whose jobs are they? They are predominantly young people’s jobs, because increasing national insurance and reducing the threshold at which that tax kicks in disproportionately impacts those on lower incomes, which includes younger people. Of course, we also have the Employment Rights Bill coming down the track, which will make employing people, particularly younger people, even more risky and expensive.
We see in this Finance Bill an outright attack on savers —those who are doing the right thing, putting money by for their retirement—and a 2% increase in taxes on savings income, which the OBR suggests will ironically lead to more people putting cash into individual savings accounts. That is quite the reverse of the effect that the Chancellor is attempting to achieve. According to the OBR, three quarters of the impact of that tax will be borne by working people by way of reduced pension contributions and lower wages. Indeed, the Association of British Insurers says that this measure is
“a short-sighted tax grab which will lower pension saving and undermine people’s retirement security.”
Then we get to inheritance tax. When we shuffle off this mortal coil—to get back to our friend Shakespeare—there will be a tax charge for those who have the temerity to have left something by way of a pension. It is a £1.5 billion tax grab by the Chancellor on those unused pensions.
John Grady (Glasgow East) (Lab)
There has been much mention of Shakespeare. I wonder whether the gravediggers in “Hamlet” might give us some clues as to what the last Conservative Government did to the British economy.
Sir Mel Stride
Sadly, I think the gravediggers are still alive and well under this Government. We are seeing that in the destruction of jobs, businesses, farms and livelihoods up and down this country.
Sir Desmond Swayne (New Forest West) (Con)
The Minister gave his estimate of the number of farms that would be affected by the new tax, which I am quite sure is an underestimate. Notwithstanding that, though, the chilling effect on agricultural investment has been felt across the entire sector as people seek to avoid their farm reaching the threshold for the new tax.
Sir Mel Stride
My right hon. Friend is absolutely right. What businesses, including farms, need to succeed is lower taxes and not to be spending most of their time worrying about how they will cover the impact of future taxation. They need to be planning for the future of their businesses and investing in them.
Caroline Voaden (South Devon) (LD)
The hon. Member will be very familiar with my constituency, as he is my constituency neighbour. Does he agree that the Minister might have got his figures wrong? I surveyed all the farms in South Devon—there are nearly 500 small farms—and 44% of respondents said that they would be hit with an inheritance tax bill of over £300,000 when these measures come in. Does he agree that the Government simply do not understand the value of a farm, particularly in a part of the country like ours?
Sir Mel Stride
I would not naturally defer to the results of a Lib Dem survey over the work of His Majesty’s Treasury. However, I get the gist of what the hon. Lady is saying—perhaps a bar chart with a slightly dodgy scale would be a good way of putting the point.
The Chancellor says that those who are in receipt solely of the state pension should not worry about being dragged slightly into taxation, because that will be dealt with, but we do not know what that actually means. We do not know what the plan is, nor the cost. Perhaps in the wind-ups the Minister can tell us exactly what is envisaged for the very large number of pensioners who, under the Bill, will be dragged into paying tax on their state pension for the first time. What a mess! The Government are working against the instincts of those who are doing the right thing to save for their future.
The same is the case in respect of investment. The 2% increase in tax on dividends—a £1.2 billion tax grab—will simply have the effect of disincentivising investments in equities. That will mean less capital being invested in businesses, which is what drives up productivity. Part of the story of low productivity in our country is the fact that private investment has been too low for too long. This tax increase will weigh in the opposite direction. The Minister spoke about the importance of increasing investment in plant and machinery; the reality is that the Bill cuts the writing-down allowances, unless they relate to new plant and machinery, which will weigh against that very objective.
This is an unfair Bill. My right hon. Friend the Member for New Forest West (Sir Desmond Swayne) raised the issue of the farm tax, and he was absolutely right to do so. Farms up and down this country are now worried about the future. Farms in my constituency, which have sometimes been in the family for decades or generations—in some cases even for centuries—are now having to stare down the barrel of a very uncertain future. What an irony and what a tragedy that, during the run-up to the general election, the then shadow Secretary of State for Environment, Food and Rural Affairs, the right hon. Member for Streatham and Croydon North (Steve Reed), looked the president of the National Farmers Union in the eye, and said that, when it came to inheritance tax, farmers had nothing to fear from a future Labour Government. How wrong they were. As Tom Bradshaw said, this whole tax increase is
“morally wrong and economically flawed”,
and he is right.
Rachel Gilmour (Tiverton and Minehead) (LD)
The hon. Gentleman is also a near neighbour of mine in Devon. Does he agree that the changes to agricultural property relief feels like a double taxation that burdens farming families in their old age? One can reasonably reach only one conclusion: this Government neither understand nor value this country’s farming communities —talk about biting the hand that literally feeds us. It is for this reason, amid a host of others adumbrated by colleagues across the Opposition Benches, that I will vote against the Bill this evening.
Sir Mel Stride
I welcome the hon. Lady’s intervention. She is absolutely right on the matter of APR, but the issue is not just APR.
Sorcha Eastwood (Lagan Valley) (Alliance)
We are in a world that is extremely uncertain, and our farmers are part of our national security, but we are farming them to death. What does that do for sustainability and our thriving farm agribusinesses?
Sir Mel Stride
The hon. Lady is absolutely right. The value of farming goes above and beyond successful businesses simply contributing to the economy in the traditional way. Farming also underpins our food security as a nation.
John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)
There are hundreds, if not thousands, of farmers in Parliament Square this afternoon, blasting their horns about the family farm tax. The shadow Chancellor and many other colleagues from the Opposition Benches have been out to meet the farmers to understand their concerns. Has he heard, like I have, their frustration at the Government’s failure to listen and understand the impact that the family farm tax will have on farm viability?
Sir Mel Stride
My hon. Friend is right. I was out there this morning speaking to farmers, including a group up from Newbury, who have taken the trouble to come here to make exactly that case powerfully to us on the day of this debate.
Sir Desmond Swayne
This attack on investment extends well beyond agriculture and family farms; it is an attack on every family undertaking and every family business in the land. It is bonkers.
Sir Mel Stride
I notice that my right hon. Friend is being restrained in his use of language, given the severity of the matters we are discussing. He is absolutely right. Business property relief is being changed in broadly the same way as agricultural property relief in this Bill. That will have a devastating and similar consequence for family businesses across the UK, and I have been up and down the country to meet many of them. One of the foremost in campaigning has been Steve Rigby of the Rigby Group. He is the head of Family Business UK, and he put it perfectly when he said that family businesses are spending too much time protecting their legacy and succession, not on promoting growth. That is the whole point. If this Government want growth, they will have to do things that get businesses to think about growth, rather than having to worry about being broken up because of onerous tax measures.
Graham Stuart
Does my right hon. Friend worry, like me, about the background of those on the Government Front Bench? I do not want to disrespect either of the individuals sitting there now, because they are both fine people, but neither has ever, so far as I am aware, been involved in running a private business. They do not understand how private business works, and they equate the inheritance of money—for example, from a father to a daughter—with a family business. A family business needs to continue, because of all the employment that arises from it. Equating the two and saying that it is half the normal inheritance tax is to show a complete failure of understanding of the economy of this country and the economy of a family business.
Sir Mel Stride
My right hon. Friend is absolutely right. It shows a complete lack of understanding of business, and it reflects the lack of true business experience on the Government Front Bench. It also goes right to the core of the difference in principles and beliefs between the two principal parties in this Chamber. We on the Opposition Benches believe that if someone works hard, saves hard and has something left at the end of their life, they should be allowed—because they love those who they wish to look after in their absence—to pass on that inheritance without the taxman taking a huge, disproportionate amount of what they have accumulated. All the Labour party believes in is mounding up ever more debt in a statist world in which that debt is to be passed on to future generations to be paid back.
We believe in supporting the little platoon, as Burke put it—the families that together form a mighty army. We believe in personal responsibility and for that to be rewarded.
Sir Mel Stride
I will give way to the hon. Gentleman and then I will come to the hon. Lady.
Dave Doogan
Does the shadow Chancellor bristle like I do and like my constituents in Angus and Perthshire Glens who are engaged in farm businesses and agribusiness more generally when they hear Ministers make a false equivalence in talking about the generous rates of agricultural property relief compared with the wider economy and how long people will get to pay? They are making a false equivalence between someone inheriting their mother’s house after her death and transferring the family farm from one generation to the next. They are completely different propositions, are they not?
Sir Mel Stride
As I have to say so often following his interventions, the hon. Gentleman is absolutely right. There is a huge difference between the position of a dynamic, growing organism of a company and the other situation that he has described. Loading up these taxes on the death of the principal owner or one of the significant owners of a business means loading it up with uncertainty, and quite conceivably the business must be broken up as a consequence.
Alison Taylor
As someone who used to be part of a small family business in Glasgow, I wonder whether the right hon. Gentleman agrees that stability in relation to inflation and corporation tax and reducing interest rates are equally important to a small family business.
Sir Mel Stride
It is interesting that the hon. Lady should raise the issue of inflation. Inflation is currently at about twice the target of 2%, and it was bang on target on the day of the general election, at 2%, because of the action that we took, alongside the Bank of England. The International Monetary Fund is forecasting that inflation in our country will be the highest in the G7 this year, and the highest in the G7 next year. If we ask why that has happened, the answer is relatively simple. If national insurance increases are imposed on employers, they pass on some of those additional costs by way of higher prices, and that is inflationary. If vast amounts of money are borrowed, and, notwithstanding what the Minister had to say earlier, vast amounts of money are spent, too—about half a trillion pounds more than was the case under the plans that Labour inherited—that also stokes inflation. Those on the Government Front Bench may trumpet the fact that interest rates have come down five times, but if they had not mismanaged the economy, rates would have come down an awful lot faster. Interest rates are higher, and for longer, because we have sticky inflation, which is due to the choices made by this Government.
Jack Rankin (Windsor) (Con)
My right hon. Friend makes a good case for Conservative economics. Does he agree that the Government have made some wrong-footed changes to non-dom status in their two years in office so far, and that they will damage investment and growth? Not only is that a development that Conservative Members do not want to see, but the Government’s forecasts rely on £34 billion of revenue from these people. Does my hon. Friend agree that they should think again about the wisdom of these changes?
Sir Mel Stride
My hon. Friend is right to suggest that we have become an economy that has closed the door on international investment. In fact, the door has been blown wide open by those fleeing to go to the United Arab Emirates, Milan and other places around the world to escape the high-tax jurisdiction that we have become, and it comes with great cost. Given the 16,000 high net worth individuals who have fled under this Government, about a third of a million to half a million people on average earnings would probably be needed to cover the tax that has just walked out of the door. I can also tell the hon. Member for Angus and Perthshire Glens (Dave Doogan) and others that we will reverse the APR and BPR changes if we form the next Government.
I will now make swift progress. Let me just say that the wrong choices have been made. Tax should not be going up and spending should not be going up in this way, and I do not even believe that the Chancellor’s heart is in the benefit changes that have occurred, including the two-child benefit cap change. If it were, why was the Whip removed from several Labour Members? The reality is that the Prime Minister and the Chancellor are lashed to the same mast. This is all about their survival. They lost control of their own Back Benchers. Let me go back to Shakespeare, and “The Tempest”. The storm has no respect for rank, so they pitch and roll solely at the command of those behind them. The great man also wrote:
“All the world’s a stage…And one man in his time plays many parts”.
However, this Chancellor has played but one part, that of recklessness. At heart, she has taxed that which is good, and in this Bill she has incentivised that which is not. By so doing, with this Bill she will diminish us all.
Several hon. Members rose—
Madam Deputy Speaker (Ms Nusrat Ghani)
Order. As it is the Second Reading of a finance Bill, I cannot impose a time limit, but I can suggest that colleagues keep their remarks to around six minutes.
Callum Anderson (Buckingham and Bletchley) (Lab)
I am pleased to contribute to this debate, and I congratulate my hon. Friend the Exchequer Secretary on bringing forward his first finance Bill. I hope it is the first of many.
Given the limited time that I have, I will focus my remarks on the Government’s central mission: economic growth. The Government have rightly placed investment and reform at the heart of their strategy, and they are removing the barriers to economic growth that for too long have held back this country and the towns, villages and city that make up the Buckingham and Bletchley constituency—be it through major planning reforms, cutting regulatory costs, investing in skills and apprenticeships, or undertaking fundamental pensions reform to free up more risk capital. This pro-investment and pro-reform approach lays the foundation not only for our long-term economic growth across the UK, but for our long-term global competitiveness.
This country is a great place to start a business, despite what Opposition Members have said, but scaling a business has been too difficult for too long for too many entrepreneurs, and too many firms are acquired early by private capital—often from abroad—and therefore fail to scale globally. There are a number of fantastic, innovative and high-growth companies in the Buckingham and Bletchley constituency—be it Pulsar, Envisics or Carnot Engines—and I want all of them to realise their full potential in my constituency, not overseas. I believe that this Bill goes some way towards enabling that, and it is not just those companies that it will help. I have read many commendations from the Startup Coalition and the ScaleUp Institute, which have backed many of the measures that I will cover in my remarks.
Clauses 13 to 16 and clause 82 back ambition, encourage investment and reward those who want to take risks. Expanding the enterprise management incentives—by raising the employee limit to 500, the gross assets limit to £120 million and the holding period to 15 years—ensures that more high-growth, innovative companies can attract and retain the world-class domestic and global talent that they need. For many, joining a fast-growing company is a leap of faith, and when that risk pays off, the people who create the success should share in the reward.
I also welcome clauses 14 and 15, which follow the logic that I just set out with regard to the enterprise investment scheme and venture capital trusts. I particularly welcome the raising of the company investment limits and the lifetime caps, which will ensure that more early-stage companies can scale here in the UK, not overseas. Similarly, raising the respective gross assets limits before and after share deals sensibly reflects modern growth realities. I believe that these reforms will support life sciences, green technology and advanced manufacturing, all of which are sectors identified in the Government’s industrial strategy, which they published earlier this year. The reforms will enable earlier capital raising and faster, more efficient scaling, and make it far more likely that more companies will become national champions and companies of global consequence that are anchored here in the UK.
The final clause that I particularly welcome is clause 82, on the new UK listing relief, which removes the 0.5% stamp duty reserve tax on transfers for newly listed companies. This measure has been called for by UK financial services, and also by a wide range of sectors that are included in the industrial strategy, for a significant period of time. I believe that the clause will boost liquidity, incentivise more investors of all types—be they institutional or retail—to buy British, and entice more domestic companies to follow in the footsteps of Magnum, Shawbrook and the Beauty Tech Group by listing in London. I am pleased that this Bill strengthens the UK’s ability to compete globally, to support its entrepreneurs and to make sure that the UK is the best possible place to scale a company.
I will close my remarks by mentioning what I hope will be given consideration in a finance Bill in future parliamentary Sessions: the Government may wish to dedicate themselves to pro-growth and pro-enterprise tax reform. The previous Government, and indeed many Governments of different political orientations, have increased the length of the tax code, increased the number of cliff edges, complicated the tax base and, frankly, fundamentally failed to close or tackle various loopholes. As we rededicate ourselves to growth in this parliamentary Session and in future parliamentary Sessions, we would do well to ensure that simplification and fairness anchor our growth agenda.
Madam Deputy Speaker (Ms Nusrat Ghani)
I call the Liberal Democrat spokesperson.
Daisy Cooper (St Albans) (LD)
If this Finance Bill represents anything, I am sorry to say that it represents the fact that the Government know the cost of everything and the value of nothing. We Liberal Democrats have tabled a reasoned amendment against this Bill, setting out all the reasons why we are against it.
Ultimately, this Bill is a series of short-term Treasury tax grabs, with no care for the consequences and no vision for the future. People are crying out for change—the change that they were promised—but the double whammy of stealth taxes on households and high streets makes the Labour Government look like nothing more than continuity Conservatives. Once again extending the unfair freeze on income tax thresholds will drag millions of low-paid workers into tax. The failure to reform the business rates system again makes the Government look like continuity Conservatives.
In a turbulent world, we need to boost our sovereign capabilities, and food security is critical to that, yet despite all the evidence, all the campaigning and all the honking of tractor horns on Whitehall, the Government have failed to get it right.
John Milne (Horsham) (LD)
In 2023, the Prime Minister told the National Farmers Union that
“losing a farm is not like losing any other business”.
He has also said,
“If somebody makes powerful representations, then my instinct is to consider what’s being said. Getting it right is more important than ploughing on with a package which doesn’t necessarily achieve the desired outcome.”
Is it not time that the Prime Minister followed his instincts and abandoned the family farm tax?
Daisy Cooper
I thank my hon. Friend for that intervention, and I wholeheartedly agree that the Prime Minister should change direction. It is deeply disappointing that, having been grilled at the Liaison Committee yesterday, he clearly has no intention of doing so. The changes to the agricultural property relief and the business property relief will punish family farmers who put food on our tables and guarantee the food security of our nation, and they will not tackle the loophole of private equity companies and celebrity farmers buying land to reduce their tax liability.
Edward Morello (West Dorset) (LD)
Labour Members have made much of the fact that, upon a family farm being inherited, the inheritance tax will be payable over 10 years. They completely ignore the fact that 30% of family farms made no profit at all last year. Invariably, those who inherit will have to sell land to pay the bill. That will feed exactly the kind of market that the investors that my hon. Friend mentions are looking for.
Daisy Cooper
I am grateful to my hon. Friend for making that point. This will have unintended consequences, and we can see what those will be. We have spent a year warning the Government; they can no longer say that they have not been warned. I hope so much that, at this late stage, they make changes to the Bill.
Mr Carmichael
My hon. Friend may be a little over-generous in saying that there are unintended consequences. The anti-forestalling clause, which is intended to deny those over 65, or anyone who dies within seven years of making a transfer, the ability to manage their tax affairs in a sensible way, puts a massive burden on those who are over 75.
Daisy Cooper
I could not agree more. My right hon. Friend chairs the Environment, Food and Rural Affairs Committee—a Labour-majority Select Committee—and he has navigated that issue so well over the last year. I say on the parliamentary record: all credit to him for his sterling efforts to draw attention to the issue.
If there had been any justification at all for the APR and BPR changes, it would have been that the Government were trying to crack down on loopholes, but as my hon. Friends have said, that has not happened as a result of these changes. The Prime Minister in effect admitted in front of the Liaison Committee yesterday that the Government were not even trying to do that. We all know that the measures will cause damage. Farming communities know it; Liberal Democrats know it; and Labour-majority Select Committees know it. This is just another short-term Treasury tax grab. Family businesses will be hit, too—the very businesses that support their employees through thick and thin; the very employers who provide employment in every corner of the country; the very family businesses that help the economy bounce back strongly after a crisis, giving our economy resilience. Why would a Government want to target our family businesses?
Rachel Gilmour
Does my hon. Friend agree that this is not a tax on passive wealth, but that it punitively, cynically targets productive enterprise? The Government expect to raise roughly £1.4 billion from the inheritance tax changes, but analysis by Family Business UK suggests that behavioural responses could produce a net fiscal loss of £1.9 billion by the end of the decade. Are these measures not anti-growth, and directly at odds with the supposed messaging of this Government?
Daisy Cooper
I wholeheartedly agree. It is so frustrating; in last year’s Budget and in this year’s Budget, the Government continue to say that they are pro-growth, and that growth remains their No. 1 mission, but measure after measure in those two Budgets is anti-growth.
Many of us have heard from family businesses in our constituencies and around the country. Many of them have told us that they have sat around the family dinner table and had deeply difficult and traumatic conversations, planning what to do with their business if they “die in the wrong order”, a phrase that some family businesses have used with me. Again, if they have to break up the business, they will probably end up selling it off to private equity companies. These are businesses that are household names and family favourites. It is another short-term Treasury tax grab, with no care for the consequences.
On the income tax hike for dividend, property and savings income, the Federation of Small Businesses sums it up:
“Hikes to dividend tax mean the Government continues to make investing in your own business one of the least tax-friendly things you can do with your money.”
At a time when we desperately need more business investment, that seems to be another short-sighted Treasury tax grab.
We desperately need growth. We Liberal Democrats have repeatedly banged the drum for growth with Europe. Brexit, we know, has been a disaster. Many of the Government’s own Ministers admit it, yet where is the strength of conviction needed to try to fix that? We now know that the previous Government’s failed Brexit deal costs the taxpayer around £90 billion a year in lost tax revenue. Just think about what the Government could deliver if they started to fix that. Just imagine what it would mean for people’s pockets and energy bills, and the money that they could have in their bank account at the end of the month. Imagine the change that the Government could deliver for households and high streets if they just started to plug that gap of £90 billion a year in lost tax revenue.
Our high streets are critical to our sense of community up and down the land, yet high-street hospitality businesses are getting hit once again. Last year it was the jobs tax; this year it is the higher business rates bills.
Dr Roz Savage (South Cotswolds) (LD)
Just yesterday, I was talking to a pub landlord who wants to expand his business and has acquired a new building. He has found that even though the new building is derelict, his business rates on it have increased by 89%. He is eager for his pubs to continue to be the heart of the community, but he is finding it difficult to recruit workers since Brexit, when all the casual workers went back to Europe. Does my hon. Friend agree that these policies profoundly undermine not just growth but the heart of our communities?
Daisy Cooper
I am incredibly grateful to my hon. Friend for making that point, because our pubs in particular, but hospitality more widely, are at the heart of our community. They provide so much more than just somewhere to have a pint and a pie. They provide community and social cohesion. They are the antidote to the epidemic of isolation. They have history and culture attached. They are somewhere we can go to argue well over a pint, yet our pubs and hospitality businesses are really struggling. That is why, as a point of protest, we Liberal Democrats voted against the increase in alcohol duty in the Budget resolutions last week, and we remain opposed to the measures in the Bill that relate to that increase.
On business rates, I am sorry to say that the Government are behaving as though they are somehow doing hospitality a favour, but I cannot tell you, Madam Deputy Speaker, how angry hospitality owners and leaders are. Furious, angry, betrayed, gaslit—these are just some of the politer words I have heard them use. The Labour manifesto was clear:
“The current business rates system disincentivises investment, creates uncertainty and places an undue burden on our high streets. In England, Labour will replace the business rates system, so we can raise the same revenue but in a fairer way. This new system will level the playing field between the high street and online giants, better incentivise investment, tackle empty properties and support entrepreneurship.”
However, Labour has not replaced business rates, and it has not levelled the playing field.
Manuela Perteghella (Stratford-on-Avon) (LD)
As a result of the Bill, in places like Stratford-on-Avon, pubs on high streets and in villages face bill increases many times higher than those faced by the larger distribution warehouses linked to online retail. Does my hon. Friend agree that this raises serious questions about whether the tax system is really supporting communities and local economies?
Daisy Cooper
My hon. Friend is spot on with that comment. We have all seen the statistics; while offices and warehouses face marginal percentage increases in tax, the increases faced by our pubs and hospitality businesses are massive. Analysis that I know has been shared with Ministers this morning suggests that the bill for Harrods, for example, will actually fall by £1.1 million, while the bills for many of our small independent pubs, hotels and hospitality businesses will be going up by tens of thousands.
The Government cannot hide behind semantics. For a year, they kept using the word “lower”, and that is what businesses heard; however, now the business rates bills have arrived, businesses can see that the rates are higher. The Government gave themselves the power to reduce the retail, hospitality and leisure multiplier by not just 5p, but 20p, but they now refuse to use that power. The system of transitional relief that the Government have put in place is simply an admission that they have got this badly wrong.
There is a stark warning coming from the hospitality industry that the looming increase in business rates, due to come in during 2029, will kill the pipeline of owners coming into the hospitality industry. This comes just as the Government are about to publish their visitor economy strategy. There is so much incongruence here. The Government say that they want to do one thing, and then do something else to undermine it.
The bottom line is that hospitality and high-street businesses have just two choices: they can shut up shop, or they can put up prices. There are few things that speak to the economic health of the nation and the high street more than the price of a pint. I issue a warning to the Government now: if they do not act, customers will see the £10 pint before the next general election, on Labour’s watch. I call on Ministers again to use the powers that the Government gave themselves to reduce the multiplier by the full 20p, and to make an emergency VAT cut for our hospitality businesses to boost growth, stimulate consumer confidence and help save our high streets. For all these reasons, we Liberal Democrats will vote against the Government’s Finance Bill.
Markus Campbell-Savours (Penrith and Solway) (Ind)
I struggle to be brief, so excuse me if I compensate with bluntness, Madam Deputy Speaker. I am a lifelong Labour supporter, a Labour activist of 20 years, a former councillor and chief whip on a Labour group, and although I currently have the Labour Whip suspended, people should be under no illusion about where my loyalties lie.
I knew before the election in July ’24 that this Government would not have an easy job. I believe that there is too much to do: many broken services and not enough money to fix them. I also know that the choice at the ballot box was between a party that subjected this country to politically motivated austerity or a Labour Government who would invest in the future. I believe that still means tough decisions on spending and tax—tough decisions that our Treasury team have not ducked. I do not find it credible that the Conservatives, who were last in government, failed to tackle backlogs in the NHS, cut back on early intervention and family support, and failed to fix the housing crisis, yet they complain about the benefits bill, like those things are not all linked.
Today I will support the Bill to progress to the next stage—the Government need to set a Budget, and there are many measures in the Bill that will benefit Cumbria—but let me be clear: Whip or no Whip, as the Bill progresses I will not be supporting the agricultural inheritance tax proposals. I want a full U-turn. I have previously set out why I cannot and will not be moved to a position where I break my word to farmers in my community.
My advice to Ministers is to take note of my more reasonable colleagues on the Government Benches. They have been increasingly vocal on this issue, and it does not look like they are going to stop soon. Ministers must look at the anti-foreclosure clause in the Bill, recognise the deep discomfort it is causing across rural Britain, and change course. It really is not too late.
Graham Stuart (Beverley and Holderness) (Con)
It is a pleasure to take part in this debate and follow the hon. Member for Penrith and Solway (Markus Campbell-Savours), who is rare, as a Member on the Labour Benches, in feeling such commitment to maintaining and fulfilling the promises he made, not least to his farmers.
I will begin by focusing on the farming issue. Too often we look at it in an overall, structural way and make comparisons with other types of inheritance, rather than looking at the specifics of the farming industry. A third of farmers do not make any profit at all, and those who do make profit make very little. Although we do not have exact data, it would appear that well over half of farmers make a 1% return on capital employed or less.
Even if Treasury Ministers do not have any business experience—sadly, Labour Treasury Ministers typically do not—they should at least practice numeracy. If they are numerate, they can work out that if someone makes just 1% return annually on the capital value of their business, it would take 20 years of earnings to pay a 20% tax—and a third of farmers do not make anything at all. How is someone who makes 1% profit going to pay a 20% tax? This is not some freak thing that has just happened; it is consistent.
The Government, to be fair to them, seem to have woken up in one sense. They said, “We must have a new initiative”—I forget what it is called—“to increase the profitability of farmers”. Well, yippidy-doo, well done for that. But should they not increase the profitability of farmers before imposing a tax that, mathematically, arithmetically—whatever other word you want to use—they cannot pay? The truth is that farmers cannot pay it.
More than half of farmers literally do not have the profits to allow them to pay that tax. That simple truth sits at the heart of this. These businesses are prepared to do it because of their lifestyle, personal commitment and love of farming. They do it in order to put food on our plates that is among the highest quality in the world and at costs that are among the lowest in Europe.
The Government could think about this from a public policy point of view too. There are businesses that are prepared to do that—unlike any other business sector I can think of or have ever experienced, or would certainly ever have entertained being part of myself. There are businesses that would take such low returns, work all the hours God gives and bring brilliant food to the tables of people up and down this country at low cost. Why on earth would the Government want to drive the people running those businesses out so that the people they say they want to attack—namely, huge billionaires and vast trust-based businesses—can gobble up those very farms, which are currently run by decent people in our communities who do all that good and ask for very little in return?
Jess Brown-Fuller (Chichester) (LD)
The right hon. Member is making an impassioned speech that certainly represents the feeling of farmers in my rural constituency. Does he agree that farmers are also up in arms at these billionaire companies that are ripping small farms out of the system and building their empires? Any time the small family farms do make a profit, they reinvest it straight back into the farm so that they can farm the following year.
Graham Stuart
Yes, indeed—and they did. We have seen it. All the evidence is there, and it is happening now, regardless of the argument from Ministers as to what percentage of farms will be affected. We can see it in all the stats. Those stats are available—particularly, I would have hoped, to Treasury Ministers to find out what the real-world impact of this policy is. The real-world impact is that we have seen a drop in investment in the farming industry. That is a disaster.
It may be that the hon. Member for Penrith and Solway is standing alone, but let us look at the enthusiasm on the Labour Benches for the Second Reading of this major Finance Bill that is supposed to be doing such good for the country. There are more than 400 Labour Members, but they are not exactly here to cheer it on. I think they—and, I hope, the Minister—are realising just how counterproductive this is. The one thought I will try to implant above all is those numbers, which mean that it is absurd.
Madam Deputy Speaker, imagine generally being a business owner today, and not necessarily in farming. You hike your way up the mountain to get to success, wading through an eternal shower of tax rises and hacking your way through a jungle of red tape. Then, on your death bed, you are met not first by the grim reaper but by the Chancellor, armed with one final sting: a double tax bill for your children. This is the reality facing family businesses: if the Government cut business property relief next year, that will lead to a double tax bill.
I asked the Exchequer Secretary to the Treasury, who opened the debate, to comment on how that double taxation works. He was unable to respond off the top of his head to my specific numbers, which is entirely understandable, but I hope that the Economic Secretary to the Treasury, armed and perhaps refreshed by the brilliant people in the Box behind her, will be able in summing up to address the specifics of the tax reality for a business faced by the double tax bill that thousands of sons and daughters will receive when their entrepreneurial mum or dad passes away.
From April, the 100% inheritance tax relief that family businesses rely on will be capped at just £1 million; anything above that will be taxed at 20%. Take a small company worth £11 million: the inheritance tax bill alone will be £2 million. But as far as I am aware, the sons and daughters of most entrepreneurs in Beverley and Holderness do not have £2 million tucked away down the back of the sofa. To pay that bill, which is a tax not on the business but on the people who inherit the business, as they are outside the business—I am not sure whether people have focused on this enough—they will be forced to extract that money from the business itself, usually in the form of dividends, and those dividends are taxed at rates approaching 40%. So a £2 million inheritance tax bill becomes a £3.3 million hit on the business, with £2 million to pay the Chancellor and another £1.3 million to pay—oh yes—the Chancellor, simply because the money was invested in jobs, equipment or the business overall rather than left idle.
Dave Doogan
Is the right hon. Gentleman as concerned as I am that this is a spreadsheet Budget concerned with little more than the number in the bottom right-hand corner? That is why everything is unravelling so catastrophically. On his BPR point, I have nothing against PLCs, but does he agree further that businesses that are owned by families and rooted in communities spend their investments locally, support local organisations and charities, employ locally and have their profits going back in locally, and that this is devastating jeopardy for those businesses?
Graham Stuart
As so often, the hon. Gentleman is absolutely right. Again, the talk is of hitting the fat cats and big businesses, but it is the huge corporates that will benefit. They will snap up the farmland and the small business. This is not fair taxation; it is irrational double taxation.
The consequences of this policy are real. If the hon. Member for Angus and Perthshire Glens (Dave Doogan)—I will call him my hon. Friend, if I may—is right about the Treasury being obsessed with the bottom right-hand corner, I hope that if no other argument weighs with the Minister, this might. A report by the CBI suggests that far from raising the welcome £1.4 billion forecast by the Treasury, the changes are likely to reduce tax revenues from family-owned businesses by £1.8 billion by 2030. That is yet another example of this innumerate Government having the exact opposite outcome from the one they wished, as investment falls, businesses restructure and growth is choked off. Instead of supporting the Government’s claim to be pro-business and pro-worker, this change could cost more than 200,000 jobs, on top of the 200,000 that the Chancellor has already cost the country. That is money sucked out of the economy and into Labour’s bottomless black hole. The impact will be felt directly in Beverley and Holderness, where it is expected to put 237 local jobs at risk, according to the CBI. Those are apprentices—
Graham Stuart
I had better not.
That means apprentices not taken on, machinery not upgraded and businesses downsizing. The changes will leave us all poorer, so I ask the Minister and the Chancellor a simple and constructive question: if the Chancellor will not reverse these changes to business property relief, will she at least consider a targeted mechanism so that when these dividends are necessarily extracted, solely to pay the inheritance tax bill, those dividends are not taxed again?
Madam Deputy Speaker (Ms Nusrat Ghani)
I cannot set a time limit, but I will ask colleagues to monitor their own timekeeping and I suggest that six minutes would be a good time.
Alison Taylor (Paisley and Renfrewshire North) (Lab)
It is a pleasure to contribute to this important debate. Members on both sides of the House have eloquently set out their views on the provisions of this Budget. From my own experience of running a small business, I empathise with entrepreneurs working hard to build something, to employ people and to be willing to take on the risk of building a business. In my constituency, as in many others, small businesses are an important part of the local community. Obviously, they provide a source of local employment. They make our high streets into destinations. Many of them lend their expertise to local charitable and social organisations in the community, including local sports teams and volunteer organisations.
Paisley and Renfrewshire North benefits from the generosity of local businesses in lending expertise, making donations or providing sponsorship. This Budget provides a sure foundation for the services that our entrepreneurs need to establish their business. We need a firm foundation of laws, police to enforce them and courts to oversee the process. We need transport infrastructure and public transport by which workers and customers can get to work places or shops and deliveries can be made.
Jim Shannon (Strangford) (DUP)
One of the concerns that probably all of us in this Chamber have, including the hon. Lady, is the squeeze of the middle class and the working class. Many of my constituents have told me—I wonder whether her constituents have also told her—of their concern that that squeeze is going to be felt even more. The people who are paying the most are the working class and the middle class, who cannot afford it.
Alison Taylor
I thank the hon. Gentleman for his point. We need a balance about fairness, and there are a lot of things in this Budget that will balance things out in the round, including all the investment in infrastructure. In Scotland, and in my constituency, that is really important for driving economic growth.
We need a workforce with the education to produce our goods and services and to drive our business ecosystem forward. This Budget sets a fair balance between taxes and services, a fair balance between benefits and responsibilities, and a fair balance between meeting immediate needs and investing in the future. I know that people are still suffering the hangover from the last Government, and I hope that they will start to really feel the benefits of recovery from this Budget.
Last week I was at the Paisley Christmas market. I expect it is quite like markets up and down the country: a mix of established local businesses and young and family entrepreneurs testing out a business idea, or making Christmas gifts or treats for a little extra income. In 2026 some of those stallholders will grow their businesses locally. Some will be taking steps in wider markets and new products, and my constituency of Paisley and Renfrewshire North is a suitable place to do that. Recently named Scotland’s town of the year, Paisley has a supportive infrastructure for new and growing businesses. New net zero commercial property developments across my constituency are making it one of the most welcoming places in the country to locate or grow a business. This Budget gives them a firm foundation on which to build.
The Budget’s demonstration of the Government’s commitment to fiscal responsibility is keeping borrowing costs down and bringing much-needed stability to the economy. In education, we are focusing on skills and increasing the availability of apprenticeships. We are negotiating exciting trade deals across the world, attracting important new orders for ships to be built on the Clyde and so much more.
I am in no doubt that much more still needs to be done, and I look forward to what my right hon. Friend the Chancellor of the Exchequer and colleagues across Government can achieve in 2026.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
I remind the House of my entry in the Register of Members’ Financial Interests.
I want to start with a comment that some may see as controversial—uncharacteristically so, I hope. I want this Government to succeed. I think it is in the national interest; everyone should want our Government to succeed. I worry that continued economic stagnation poses an increasing threat to social cohesion, and that is why I agree so strongly with their growth mission and why I think it is so important. If that growth is to be meaningful, though, it has to be available, felt and understood in every part of the United Kingdom. It should not just be growth in the cities and towns; it has to be felt and understood in rural communities, coastal communities and, of course, our island communities. It is for that reason that I feel so strongly about the dangers of what the Government are doing on the removal of agricultural property relief.
We have already seen the effect that the prospect of that has had on agricultural businesses, and of course agricultural businesses underpin so much of what happens in rural communities. Forty-nine per cent of farm businesses have already paused or cancelled planned investment, 10% have downsized the scale of their operations and a further 21% intend to do so before next April. The truth of the matter is that these changes to APR have absolutely killed the sense of growth in the rural community.
I welcome what the Minister said today about changes to the spousal transfer. I was inspired by the shadow Chancellor’s references to Shakespeare. I offer my own from A. A. Milne—maybe not quite so high-falutin’. As you well know, Madam Deputy Speaker, I am a bear of very little brain, but I am pretty sure that what we heard from the Dispatch Box is more or less what the Government were telling us last year was going to be the case any way. If that is a concession, it does not seem to be much of a concession to me.
It may have escaped the attention of the Treasury Front Bench that not every farmer is married and, indeed, a lot of farmers—like everybody else these days —get married and some then get divorced. Is the message from the Government to the farming community really, “If you want to hold on to the farm for the next generation, then get on to Tinder now, because that is your best chance of holding on”?
Richard Foord (Honiton and Sidmouth) (LD)
Will my right hon. Friend give way?
Mr Carmichael
In a second—this is my punchline: “You’d better understand that if you want to develop your relationship in the back of a double cab pick-up, then that is going to cost you as well.”
Richard Foord
I suppose some in the farming community will not be taking up my right hon. Friend’s dating tips, but is he aware that 46% of farms are owned by single farmers and that a single farmer with 200 acres of land would have to pay 136% of their yearly profits to cover this tax bill?
Mr Carmichael
I am indeed aware of the general point. The specific illustration is a new one on me, but I am pretty sure, knowing my hon. Friend, that it will be well founded.
The reason this is so dangerous is rooted in the exceptionally poor return on capital investment that we get from agriculture. I have sat down with many farmers in my constituency. The average family farm in Orkney will be something in the region of 250 to 300 acres, running perhaps 100 suckler beef cattle and some sheep. The value of that property will be something in the region of £3 million, including stock, buildings and machinery, but it will return a net profit most years of something in the region of £25,000 to £30,000. Do the maths here—that is an inheritance tax liability of £400,000, which, even over the 10 years that is allowed, farmers simply will not be able to pay. As a consequence, farms are going to be sold off in whole or in part, and they will not be bought by those who want to produce food. That comes to the nub of it. The Prime Minister tells us that food security is national security, but the changes to APR will in fact diminish our ability to look after our own food needs.
The Exchequer Secretary to the Treasury said that this would only affect 375 estates per year. That figure may or may not be correct—I have heard nobody outside Treasury say it is a credible figure—but it honestly misses the point. Whether it is one estate or 1,000 estates, an injustice is an injustice, and that is why I was so disappointed by the Minister’s attitude today. Let us consider who will be paying this tax and whose estates will be affected. The Treasury’s own figures tell us that 75% of those estates will belong to those who are 75 or over. That is why the anti-forestalling clause in this Bill is so pernicious and so obnoxious. The effect of the anti-forestalling clause is to trap especially those who have farmed into their 70s and 80s into the new rules unless they die before next April. I dislike the use of hyperbole, especially when we are talking about people and their lives, but the anti-forestalling clause in this Bill is downright cruel.
Those who have farmed into their 70s and 80s did it principally for two reasons. First, they were given good, sound professional advice that this was the best way to hold on to the farm and hand it on, and that was true until last October. We also have to understand—and again, this is rooted in the poor level of farm incomes—that many of them did it because they could not afford not to. In my own family, there are those who continued to farm into their 80s because if they did not, they would be left simply on the state pension and nothing else. That is why this Bill and these measures are wrong, they are dangerous, and they are a threat to our growth, our national security and our food security, and I, along with my colleagues, will be voting against them this evening.
John Grady (Glasgow East) (Lab)
I fully support the Chancellor’s decision to rebuild the headroom, tackle Government borrowing and stick to her fiscal rules. It is consistent with Labour values. There is nothing progressive about 10% of Government spending being on interest. There is nothing progressive about leaving unsustainable debt to future generations.
I worry that there is a lot of criticism of the Chancellor’s proposals but very little by way of fully worked-up alternative proposals. Tackling debt is very important because the nature of Government debt buyers is changing with the closure of defined-benefit schemes, and as the OBR has outlined in a report, where we borrow money from in the future will be very different from what we face now. Furthermore, there is rising debt across many Governments in the western world. Tackling this Government debt in the longer term is very important, and the Chancellor is quite right to focus on her fiscal rules and face the tough decisions that need to be taken. All of us must play our part in assisting with something that is incredibly important for our country.
Robbie Moore
This comes down to choices. The tax revenue that will be raised from the changes to APR and BPR is about £500 million. On the other hand, the Government are saying, “We are going to spend £1.8 billion on a roll-out of mandatory digital ID, and £47 billion on the Chagos deal.” This is about choices and how the Government not only raise revenue, but spend it.
John Grady
It is about choices—choices to invest in the health service so that people can return to work and contribute to the economy. There is nothing more heartbreaking than being a constituency MP and listening to people who have been waiting for over two years for a hip operation and cannot work. It is about choices to invest in infrastructure and in new nuclear power stations. These are the choices that the Government are making, and I am proud of them.
Mr Joshua Reynolds (Maidenhead) (LD)
The hon. Gentleman is right to say that this is about choices, but will he accept one of the choices that the Chancellor has made? Even though hospitality employs less than 7% of people in the UK, since she has come into office, the number of jobs lost in that sector is almost 100,000—50% of total job losses? The Chancellor has made a choice in the Budget, and that choice is to lose swathes of jobs throughout hospitality, including making many young people—whose first jobs are often in the hospitality industry—unemployable.
John Grady
I have worked in hospitality. I am not sure I was particularly successful at it, but there is a macro point here—an important point not to lose sight of. We hear from Opposition Members objection after objection to the Chancellor’s decisions, but no credible alternatives.
John Grady
I am going to make some progress if I may. Given the public finance situation that we face, I am afraid it is incumbent on Opposition Members to come up with some credible alternatives. But of course we know what their credible alternatives are; they are the sort of decisions made by the gravediggers Liz Truss and Kwasi Kwarteng—back to Shakespeare.
Control of public finances is one part of the equation. The other is growth, and the Government are promoting growth in the economy through things like the Planning and Infrastructure Bill, which was shamefully delayed in the other place.
I suppose we should talk about Reform’s proposals for growth. Private sector investment—like many Labour Members, I have worked in business—is supported by contract law, the rule of law, confidence in the independence of our courts, and the reliability of the Government. The European convention on human rights also has an important part to play, particularly article 1 of protocol 1: the right to peaceful enjoyment of possessions. Those Members who argue for the complete unilateral withdrawal from the ECHR may wish to consider the catastrophic effect on the economy of such a step. In the summer, Reform threatened investors with the cancellation of contracts for difference. That shows that a Reform Government would be happy to rip up contracts and to shred Britain’s reputation as a place of stability. I fail to see how that would promote economic growth. It would mean higher bills for consumers, and would make the country poorer.
I welcome the Chancellor’s reforms to gambling taxes. There is a clear distinction between going to the bingo and gambling on the horses—I will disclose that in the past I have enjoyed quite a few trips to the races—and online gambling and gaming, which, as we heard in the Treasury Committee, cause serious harm. It is essential that we start to tackle this issue. I realise that it is not a matter for the Treasury, but the marketing of online gambling and gaming needs to be reviewed, and I encourage the Treasury to act robustly against any evasion and black market activity.
I have heard some mention of choices today. This Budget and the Bill put in place steps to remove the two-child limit. My constituency of Glasgow East has some of the highest levels of child poverty in the United Kingdom. This is a disgrace and a scar on our society.
John Grady
I will make some progress—I am mindful of Madam Deputy Speaker’s time limit.
Child poverty blights the lives of children in Glasgow East, and the levels of child poverty are a moral outrage. The Conservatives’ approach is to refer to my constituents as being on “Benefits Street”, which reveals the contempt that they have for my constituents, and Reform UK Members have been speaking about children in my seat with real racist malice. I say that it is a privilege to be a Member of Parliament for those children and I am proud that this Bill will help to lift hundreds of thousands of children out of poverty. I am proud of our Labour Government’s actions on child poverty and I fully support the Bill, which raises the funds to reduce child poverty.
Dave Doogan
I can only guess that Reform UK is polling quite high in Glasgow East. On his substantive point about child poverty, is the hon. Member relieved that his constituents in Glasgow East are benefiting from the fact that under the SNP, Scotland is the only part of the United Kingdom where child poverty rates are falling?
John Grady
Perhaps Reform UK is polling high in Perthshire as well. Leaving that to one side, let me tell the hon. Member what my constituents in Glasgow East are not relieved about: record NHS waiting lists, an SNP Government who block nuclear developments that would bring in hundreds of thousands of pounds a year through the creation of good employment, excellent jobs and growth in the economy, and an SNP Government who are anti-business and anti-growth, and who have just spent 18 years running Scotland into the ground. That is what concerns my constituents and that is why next year Anas Sarwar will be the next First Minister and create optimism for Scotland.
Ben Lake (Ceredigion Preseli) (PC)
I am pleased to speak in this debate on the Finance (No. 2) Bill. I have now spoken in most of the Finance Bill debates since I was first elected to represent the people of Ceredigion in 2017, and subsequently, since last year, I now also represent the good people of Preseli, in north Pembrokeshire. In advance of all Finance Bill debates I make the effort to consult widely with my communities, in particular with the small businesses that form such an important part of the economy in my constituency. In all the years that I have served as a Member of Parliament, never has the sense of fear, the lack of confidence and the uncertainty been so palpable when I have met businesses in my constituency.
If I reflect briefly on the structure of the economy of the constituency, it is perhaps no surprise that they should be so worried about the measures in this Budget. As of March this year, there were some 5,500 businesses registered in Ceredigion Preseli—that number may well be slightly lower by next March—and 81% of them are classified as small businesses, with fewer than 50 employees, which makes Ceredigion Preseli the small business capital of Wales. It is a rural and coastal constituency, so the industries of agriculture and hospitality are key pillars of our economy. Indeed, 35% of all businesses are classified as being in the agricultural, forestry or fishing sector.
Much has already been said in the debate about the changes to the agricultural property relief and the business property relief, and the concerns that these changes have caused for small businesses and small family farms across the United Kingdom. We have heard other Members, particularly the right hon. Member for Orkney and Shetland (Mr Carmichael), eloquently speak on this matter. As he mentioned, we have already seen how these proposals have changed the way in which our small businesses, particularly farm businesses, operate. Some 55% of small businesses and 49% of farm businesses have already cancelled proposed investment projects in anticipation of the changes. Family Business UK estimates that in my constituency these changes alone will lead to the loss of some 250 jobs and deliver a £13 million hit to my constituency’s gross value added.
There is a real danger with these changes that the Government will deliver incredibly long-lasting harm to small businesses across the country, especially in rural areas. It is particularly disappointing that the Government have refused to pause, at least, these changes so that they can properly understand the impact that they will have on rural areas. Many figures and statistics have been bandied about in the many debates that we have had in the past months about the prevailing facts of these changes, but the Government have not undertaken a full impact assessment, as follows most policy decisions that they take.
Sir Edward Leigh (Gainsborough) (Con)
I am intervening on the hon. Gentleman because we both represent rural constituencies—he in Wales and me in Lincolnshire. Our constituencies are very different in their rural aspect, but both are affected equally badly by the family farm tax. Many of my farms may be larger than his, but their income is still quite marginal. So many of us representing rural areas cannot understand why the Government have not been prepared to compromise, listen to the NFU and, if necessary, take more resources from the big estates but preserve our family farms.
Ben Lake
I very much agree with the right hon. Member. That is a point of real bemusement and confusion for many of my constituents.
The Government have not looked for or sought compromise or engaged with the alternative proposals presented by the NFU and the Farmers Union of Wales. Some consensus is to be found, if only the Government would budge and were willing to compromise ever so slightly, so that they can achieve the objectives they so eloquently pointed out are the intention of the policy without sacrificing hundreds if not thousands of family farms and businesses across rural Britain, particularly in my constituency.
That probably underlines a growing sense that I have had. Although my constituency is only 170-odd miles from Westminster and Whitehall, where many of these decisions are dreamt up and subsequently implemented on us, we may as well live on the moon, such is the disconnect between the policies that are sometimes made here and the impact that they have on the ground. There is a lack of effort to try to understand why so many businesses and people in my communities are so fearful about the impact that these proposals will have on their lives.
Let me add that some 15% of all jobs in my constituency are in hospitality. There was a missed opportunity in this Budget for the Government to look again at the VAT for hospitality. That would have done a world of good and given much-needed confidence to an industry and sector that are suffering dreadfully at the moment with the cumulative impact of different price increases as well as new taxes. A VAT cut on hospitality would have been very much welcome.
Pippa Heylings (South Cambridgeshire) (LD)
It is not only the VAT; the proposed hike in alcohol duty is yet another blow to pubs and breweries in my constituency. They include the Three Hills in Bartlow, which is reeling from a business rate increase of 123% as a result of the business rate valuation changes. Does the hon. Gentleman agree that the Chancellor is failing to protect our pubs and breweries with these measures?
Ben Lake
I very much agree; that takes me neatly to my next point.
The Government have failed in their Budget to acknowledge the many increasing and cumulative pressures on hospitality and pub businesses in particular. The hon. Member for South Cambridgeshire (Pippa Heylings) referred to significant increases in the rateable value of a pub in her constituency, and I have also been contacted in recent days by hospitality businesses, such as a pub that has just been informed of a 131% increase in its rateable value.
The pub is now waiting to understand what exactly that means for its business rates bill, but the fear that it will find itself having to pay a great deal more in the coming years than it previously did is very much well-founded. That is on top of the higher employment costs generated by this Government’s decisions on employer’s national insurance and all the other inflationary costs in terms of energy and goods.
The Valuation Office Agency will come under HMRC from next April, if I have understood things correctly. I very much hope that the Government and HMRC will avail themselves of the opportunity to ensure greater consistency and clarity—and, dare I say, transparency—in the way that the VOA works and these valuations are calculated. It is a very technical, complicated and murky way of addressing and calculating business rates.
There is such a discrepancy in Wales that I must finish my remarks by bringing it to the attention of the House. The town council of Aberystwyth has done a lot of work in recent months on trying to find out why so many retail premises on the high street have been vacated and are empty. Time after time, businesses say that the business rates are just too high, so it did some research and found that on average, a business paying the zone A rates levied on retail properties in Aberystwyth town centre would expect to pay £525 per square metre.
The town council then looked at other towns and cities in Wales and found that a retail business on St Mary Street in Cardiff would be paying £460 per square metre for zone A rates, and a premises on the Kingsway in Swansea would be paying £180 per square metre. One does not need to be an expert on Wales to understand that as wonderful as Aberystwyth is, it is not quite the same sort of hotspot as St Mary Street in Cardiff, or Swansea for that matter. If the Government and HMRC will be taking ownership of, and responsibility for, the VOA from next April, I very much hope that one of the first things they will do is look at some of those inconsistencies. At the moment, as I say, some of these decisions are so disconnected from reality that we might as well be living on the moon.
Alison Hume (Scarborough and Whitby) (Lab)
As an eight-year-old girl sheltering in the little library at my primary school, I was able to escape my bullies by using my imagination. Later, I harnessed my love of reading to build a successful career as a screenwriter, so I am delighted that the Finance Bill extends the Libraries for Primaries scheme to secondary schools. The Government have already committed £10 million to create libraries in the 1,700 primaries across the country that do not have one, and now we are giving £1,400 to every secondary school to purchase new library books. This £5 million investment is targeted at getting more children reading for pleasure, and is part of the Government’s aim to make 2026 the national year of reading.
Feeding a child’s imagination is wonderful, but making sure they do not go hungry is essential. The Chancellor’s choice to lift the two-child benefit cap will lift around 1,850 children in Scarborough and Whitby out of poverty, and next year, up to 4,000 children in my constituency will benefit from the expansion of free school meals. I have visited some of my local primary schools with fully funded breakfast clubs and seen for myself how incredibly popular they are with both children and parents. All these measures are expected to lead to the largest reduction in child poverty over a Parliament since comparable records began. The choices that the Chancellor has made in this Finance Bill and previously will endure for generations. In my constituency, children will be helped to fulfil their potential. These are the barriers to opportunity that we promised in our manifesto to break down, and they are the barriers that this Finance Bill is breaking down—promise made, promise kept.
One of the projects I loved at my primary school was “My Breakfast Table”, where we looked at where our food and drink came from. Tea from Sri Lanka was incredibly exotic; bacon from a local pig farm was decidedly less exotic, as the aromas from said pig farm often wafted as far as the school playground. Growing up surrounded by farms, I learned to value their contribution, not just through the food they produced but through the difference they made to our community. I was reminded of their practical, altruistic attitude this summer during the wildfire that centred on Langdale forest and Fylingdales moor. At its terrifying height, that wildfire covered an area 10 miles square, ripping mercilessly through shallow peat, deep peat, forest, grassland and heather moor. The farming community reacted immediately by cutting fire breaks, back-burning, bringing water in tankers, and generally assisting the firefighters from North Yorkshire fire and rescue. The farming community did not think about anything other than putting the fires out—they were all heroes, and we must value them.
Alison Hume
I will just make some progress, thank you.
I started my speech with children at the start of their lives, and I end it with people coming towards the end of their lives. I owe it to the farming families who I represent to raise my concerns about the anti-forestalling clause in the Bill. That measure means that any elderly or terminally ill farmer who transfers their ownership of their farm to a descendant, but dies within seven years, will be liable to pay inheritance tax under the new system. If they do not live seven years after the gift, that could also trigger capital gains tax.
If a farmer does not make a transfer but dies before April 2026, the agricultural estate will pass inheritance tax free. I have met several families in Scarborough and Whitby who told me that they are having heartbreaking conversations with their parents, who talk about ending their own lives before April next year. I ask my hon. Friends in the Treasury to please look at removing the anti-forestalling clause from the Bill, or at the very least introducing a transition to protect the most elderly, and those with a terminal medical diagnosis. We have shown before that we can listen and amend our policies; please can we listen again? It is my hope that we can show the same compassion for our farmers in the winter of their lives as we have for our children in the spring of theirs.
Dave Doogan (Angus and Perthshire Glens) (SNP)
The SNP will not support a Second Reading. This Bill derives from a Budget that failed to deliver for Scotland and does nothing to move the dial for the households hammered by the cost of living crisis.
Scotland was relying on a step change from this Labour Government—on investment in public services, jobs and industry, and real action on energy bills—but none of that has come to pass. Instead, we have a dog’s dinner Budget that results in an increase in funding for Scotland that does not even cover half of the Scottish Government’s exposure to the national insurance increase across the public sector, and a resource block grant that increases only 0.5% per annum on average across the spending review period.
Thankfully, the clauses on income tax largely do not concern Scottish taxpayers, who benefit from the SNP’s judicious and progressive income tax rates in Scotland. Those in Scotland earning less than around £30,300 are expected to pay slightly less income tax than they would elsewhere in the UK, with the freezes to higher, advanced and top-rate thresholds estimated to affect only the highest 26% of earners. Someone earning more than £35,000 in Scotland will pay just 90p more in income tax per week than someone in the rest of the United Kingdom, while benefiting from Scotland’s unique social contract, whereby, under the SNP, we collectively fund prescription charges, bridge tolls, the Scottish child payment, tuition fees, under-22 bus travel, the baby box, personal care, publicly owned railways and publicly owned Scottish Water, which is the best-performing water company in the United Kingdom. Not bad value for 90p a week.
John Grady
The Scottish public finances have been aided by a record budget settlement from the UK Government, but there is a £5 billion black hole in them. Might it be the case that after 18 years of the SNP, some responsibility for such matters lies closer to home, perhaps in Edinburgh?
Dave Doogan
The hon. Gentleman was obviously not listening. The increase to the block grant is spread over the entire spending review period—five years—and it does not cover more than half of the cost faced by the Scottish Government as a result of the increase in employers national insurance imposed by the same Chancellor. I am glad that I got the opportunity to say that twice.
Energy bills have gone up by £340 under this Government, despite the fact that they were supposed to fall by £300. That is what people voted for—that is the prospectus that Labour gave them—and the Government are not taking it seriously. They are coming back with a £150 reduction to energy bills, which is coming out of general taxation. As sleight of hand goes, that is not very slick. The money comes out of people’s standing charge, but goes directly on their general taxation.
In the interests of time, I will not dwell on agricultural property relief; I have said a fair bit during interventions, and I know that my hon. Friend the Member for Aberdeenshire North and Moray East (Seamus Logan) will contribute on that issue.
Graham Stuart
I am grateful to the hon. Gentleman for giving way while he is on the subject of energy. Of course, what should have been in the Bill was an end to the additional tax levy, because there are no sky-high profits any more, there are no excess taxes that need to be paid, and 1,000 people a month are losing their job in the oil and gas industry.
Dave Doogan
The right hon. Gentleman anticipates my next paragraph. The energy profits levy should be coming to an end, but it has been extended by this Labour Government until 2030. That has caused 100 job losses from Harbour Energy, and it is causing 1,000 job losses every month, according to Offshore Energies UK. We are in this situation because the Prime Minister lacks the mettle to get rid of the Secretary of State for Energy Security and Net Zero. That is one job getting protected in Whitehall, but it is costing 1,000 jobs a month in Scotland. That is the Labour way, and it always will be.
On electric vehicles, this thruppence a mile probably does not sound that much to those who live in Chelsea or Kensington, but it will cost an awful lot more to those who live in Angus and Perthshire Glens. I get the politics of it: half of the entire Labour membership lives within Greater London, and the other half lives in other English cities, and in Glasgow and Cardiff. They probably think it is a tremendous wheeze to make people in my constituency subsidise the tax on the Labour membership’s electric vehicles, but people are smarter than that. People who live in the countryside can add up, and they know that this Government’s attack on their electric vehicle taxes does not add up. They are being swindled by a Labour Government.
Richard Foord
The hon. Gentleman’s characterisation is slightly unfair to those 80 or 90 Labour MPs who represent rural areas, and it is worth paying tribute to the speeches by the hon. Members for Scarborough and Whitby (Alison Hume), and for Penrith and Solway (Markus Campbell-Savours). They have spoken out against this mean, callous agricultural property relief measure, and they have done a brave thing by doing so. Does the hon. Gentleman not agree?
Dave Doogan
I absolutely do agree. I am in full accord with those Members’ bravery on the APR, but I am not sure how that links directly to 3p a mile for electric vehicles. The point is made, though.
The preamble to the Budget was hugely challenging and had a direct consequence on the markets. It caused people to freeze employment and investment in their businesses, and it caused pensioners to cash in their pensions. I am pleased that the SNP was the first to call on the Financial Conduct Authority to investigate the Chancellor’s behaviour, and I hope that the FCA’s position changes. Despite all that, Scotland’s economy remains one of the best performing parts of the United Kingdom. Since 2007, per-person growth under the SNP has been 10.2%. That compares to 6.8% in the UK. We lead the whole of the UK, with the exception of London, for foreign direct investment, and a NatWest report recently confirmed that Scotland had one of the highest start-up rates in the UK in the first two quarters of this year.
Employment across the UK is 75%, but as I mentioned in my intervention on the Minister, unemployment in the UK has risen from 4.1% to 5.1% since this Labour Government grasped power last year. Thankfully for the people of Scotland, unemployment is 25% lower in Scotland, at 3.8%. I am sure that fact will not be lost on the good people of Glasgow East. Next month, the Scottish Government will deliver their Budget and continue to build on our success, but the SNP will not be voting for this Bill’s Second Reading. We will not be party to the injudicious and unjust damage that will be inflicted on businesses and households by the grabbing hand of Labour through this Bill. The people will have their verdict on this risible Chancellor and her bilging outflow of fiscal calamity in May 2026, specifically in Scotland and Wales, and in English councils. I, for one, look forward to the Government getting their just desserts.
Adam Thompson (Erewash) (Lab)
I was elected to this House to be a voice for working people, and the thousands of families in Erewash who, in 2022, saw their mortgages skyrocket because the Conservatives sent markets spiralling with billions in unfunded tax cuts. The people who I represent did not vote for Liz Truss—most of them did not know who she was. It was hard-working families up and down the country and in Erewash who paid the price for her failures all the same. That should never happen again.
What my right hon. Friend the Chancellor did last month in the Budget—made actionable by this Bill—was take the necessary decisions to ensure that there will never be another Liz Truss moment. The Bill will, by the end of the decade, deliver the fiscal headroom that we require to withstand shocks and help pay down the national debt. It does so while we deliver record levels of public investment, and without a return to the brutal, crippling austerity that gave this country 14 wasted years under the previous Government.
Change is already under way. The economy is now forecast to grow faster this year than previously expected, and as record investments and trade deals made and secured by this Government pay off, and reforms to stifling planning rules finally come through and deepen, it can grow further. In the first year of this Government, average wages grew more than they did in the entire lost decade of the 2010s, and what happens when workers have more money? They do not sequester it in Dubai or the Cayman Islands; they spend it—on housing, on food, on our high streets, in the pub, and on their children, the greatest investment of all. Rewarded properly for their labour, they fuel our economy.
Graham Stuart
I wonder when the people of this country will catch up with the hon. Gentleman and start to express the appropriate gratitude for all that has been bestowed on them by this Government.
Adam Thompson
I thank the right hon. Gentleman for his amusing intervention. I am sure that time will tell.
We must all contribute to Britain’s renewal, and there are things that only Government can do to secure that renewal. If we want to get the NHS back on its feet, fix our crumbling schools, cut waiting lists and truly invest in Britain’s future, we must pay for it. We know that the alternatives proposed by the Opposition parties lead only to calamity. Liz Truss showed us that when Governments cut taxes for the wealthy, it is working people who end up paying. Nor should we want infinite borrowing, however; I do not want to spend £1 in every £10 serving debt interest. It should go to our schools, our hospitals, and our country.
So yes, in the Budget and in the Bill, the tax burden has increased, but it is those with the broadest shoulders who will bear the greatest weight—those with property to let, those with shares to sell, those paid not through wages but through dividends, those with such vast savings that they pay tax on the interest alone.
Adam Thompson
In the interests of time, I will not give way again.
These are income streams that are overwhelmingly enjoyed by the highest earners, and it is, by and large, the already well-off who will pay more under the Bill. Its provisions include changes to national insurance relief on pension contributions through salary sacrifice schemes—again, a mechanism primarily used by the highest earners. They include reforming council tax, so that someone living in a £10 million mansion in central London does not pay less council tax than a terraced house owner in Ilkeston and Long Eaton. They include a new surcharge on homes worth more than £2 million, which will be paid by fewer than 1% of homeowners. This Budget was for working families, for the everyman and the everywoman, for children and for young people. It was not a Budget for millionaires, billionaires, slum landlords, investment bankers, or the bosses of big corporations.
Adam Thompson
As I have said, in the interests of time, I will take no more interventions.
Instead, we are taking action to cut the cost of living and strengthen our public services. There will be £150 off average energy bills next year, rising to £300 for the poorest households—again, money back in working people’s pockets. As inflation continues to fall, it becomes easier for the Bank of England to cut interest rates, as it has repeatedly under this Government. Prescription charges, train fares and bus fares have all been frozen. There are 5.2 million more appointments in our NHS, with 250 new neighbourhood health centres, cutting waiting lists and bringing care back closer to where people actually live.
The Opposition parties will decry these measures, exposing our fundamental differences. Reform—whose Members are not here today, I note—would sell off our NHS to the highest bidder, and force people to pay for the care they need. Meanwhile, the Conservatives are calling for mass redundancies in the public sector, enough to sack every police officer in the country twice over. They are against the minimum wage, they are against protections for workers, and they have no plans for growth or renewal—just policies that would leave working families worse off, while their donors get richer and richer.
To renew Britain costs money. To restore confidence in the public finances takes time. To get the economy growing again is a serious challenge, but we are meeting it. The choice is between the measures in the Budget and the Bill, and a return to austerity, and I know which side I am on. I will never apologise for standing up for working people, and for saying that the highest earners should pay their fair share. Nor should the Chancellor, the Government or the British people.
Robbie Moore (Keighley and Ilkley) (Con)
I am not quite sure whether the hon. Member for Erewash (Adam Thompson) has read the Budget. He said that those with the broadest shoulders must bear the pain, but those on the basic rate of income tax will be paying an additional £220 a year in income tax as a result of this Budget. I am not quite sure that those with the broadest shoulders will be paying that level of tax.
Growth is down, inflation is up, taxes are up, unemployment is up, borrowing is up and interest debt is up. This Budget, coupled with the last one, is £66 billion of tax raising. As we speak, there are farmers outside this Chamber once again, and I know that they are in the Public Gallery as well. Why? Because of the changes that this Government continue to press ahead with through the family farm tax and the family business tax.
Stuart Anderson (South Shropshire) (Con)
Does my hon. Friend agree that farmers across South Shropshire have been devastated by the family farm tax? It is going to impact them far beyond what the Government are even considering, and it will impact national food security.
Robbie Moore
I absolutely agree. This Budget has an impact not only on our farming community, but on the wider agricultural supply chain and the many businesses that support our farming community. Why? Because bringing in a threshold of £1 million will impact nearly every family farming business.
Let us look at the figures. The average size of a farming business in England is about 200 acres. When valuing farmland, there may be a farmhouse, a cottage or two, livestock, agricultural machinery, growing crops and crops in store, which will put it well above the £1 million threshold, thereby exposing the farming business to an IHT liability that kicks in at 20% of the value over and above £1 million. The Government will say that they have permitted some allowances, but that does not take into account the value of those businesses. This is going to have a hugely detrimental impact not only on those family businesses, but on the wider agricultural supply chain.
Carla Lockhart
The hon. Member is passionate about this issue, and I commend him for the stand that he has taken. I know that he is an expert on valuation. Does he agree that Northern Ireland will be harder hit because of the land valuations and the price of land in Northern Ireland?
Robbie Moore
I absolutely agree, because the value of farmland in Northern Ireland is far greater than the average rate per acre in England or, dare I say, anywhere else in Great Britain. That is why Northern Ireland farmers are going to be absolutely decimated as a result of the changes that this Labour Government are bringing in.
John Lamont
My hon. Friend is making an excellent speech. Is he aware of some research done by the National Farmers’ Union of Scotland, which shows that, under the current inheritance tax rules, farmers in Scotland typically pay a £20,000 inheritance tax bill, whereas under Labour’s current proposals the figure goes up to a staggering £775,000, which will kill off most farming businesses?
Robbie Moore
My hon. Friend is absolutely right. Indeed, I was in Dumfries and Galloway just last week to speak to farming businesses that will be impacted by the changes that this Labour Government are bringing in. He hits on a very important point, because the NFU, the Country Land and Business Association, the Tenant Farmers Association and the Central Association of Agricultural Valuers have over the past year continually tried to put forward progressive options for this Government to listen to and engage with, but they have not listened. That just shows the naivety associated with this Government. Indeed, at the Liaison Committee yesterday, the Prime Minister himself acknowledged that he was aware of farmers who have worked all their lives within the farming community and who are considering taking their own lives. Despite that knowledge, he wanted to crack on with this policy regardless. It is callous and heartless, and it just shows what this Government are about.
Graham Stuart
I am reminded again of Shakespeare, who I believe said:
“Th’ abuse of greatness is when it disjoins remorse from power.”
Robbie Moore
Absolutely. All I advocate, as I am sure my right hon. Friend does, is that this Government simply engage with and listen to our farming community. It is not just our farming community that is hit by the IHT changes; it is family businesses more widely.
Ben Maguire
I want to point out the case of a North Cornwall farmer called Will Harris, who gave up an engineering job at £60,000 a year to provide food security and put food on our tables. His income is about £30,000 a year, but the tax his children may have to pay would be £500,000—or £50,000 a year, which is almost double the farm income. He is terrified and can hardly sleep at night for thinking, if something happens to him, what will happen to his teenage children and their farm.
Robbie Moore
The hon. Member makes an excellent point, and not only Cornish farmers, but those right across the country are being impacted by this Government’s decisions. He also makes the excellent point that many of our farming businesses are incredibly highly geared, given the level of debt associated with their businesses, and are not returning a level of income to even contribute towards paying an IHT liability at 20% over and above the £1 million threshold. They will therefore be subject to a death tax that they will simply be unable to pay.
Sir Edward Leigh
My hon. Friend was brought up in a notable local farming family in my constituency, and the reason why the House is listening to him is that he has been bred into farming and knows about farming. Would he like to say what, from his own family’s experience, this means for farmers in Lincolnshire? Some people say that Lincolnshire is full of large estates and all the rest of it. No, it is full of working farms, and he can speak with authority on this subject.
Robbie Moore
The point to make quite clearly is that every single farming business will, in one way or another, be impacted by the £1 million threshold kicking in. Why? Because for an arable farm in Lincolnshire, Cambridgeshire or wherever it is, the price of feed wheat is still at about the same price it was 20 years ago, but the costs of all the inputs have been rising. Not only are such businesses subject to cash-flow challenges as a result of this Government removing the delinked payments —dramatically dropping them to £600—as well as removing the sustainable farming incentive and bringing in the fertiliser tax or the double cab pick-up tax, but they will be impacted by the changes to inheritance tax. That impact will be felt by hill farmers in Keighley and Ilkley; arable farmers in Lincolnshire or, dare I say it, down in Cornwall; and farmers wherever there are, even those subject to high land values in Northern Ireland. This Government must listen to our farming community right now, because whether farmers come down today or tomorrow to make noise with their tractors outside, I hope they continue coming to make sure that this Government listen.
It is not just our farming community that is impacted by the IHT changes. This has an impact on our family businesses, our hospitality businesses, our breweries and our manufacturing and engineering businesses. That is why I simply cannot understand why we have not heard from Back-Bench Labour MPs representing urban constituencies, who may be representing a manufacturing or engineering business, a hospitality business or a hotelier. Why on earth have those with such family businesses in their constituencies not been loud and proud in making noises to the Chancellor about the negative impacts these IHT changes will have on our many family businesses?
Rupert Lowe (Great Yarmouth) (Ind)
I have recently joined the Public Accounts Committee, and in my short time on the Committee I have come across qualified accounts and local authorities not having audited accounts; only 4% of them have audited accounts. I have watched the Government wasting almost endless amounts of money, and then I witness this madness of them basically breaking the backbone of British farms and British small businesses, and in effect ensuring that there will be none of the long-term investment that drives our economy. Does the hon. Member agree with me that, before we start breaking up these enterprises, we should get the Government’s house in order and cut state waste?
Robbie Moore
I do agree with the hon. Member that the Government must get their own house in order before implementing strategies that are impacting many of our hard-working businesses.
The changes to BPR are detrimental. Why? I would use the example of a business in my constituency that has already worked out that its liability after the changes to BPR is about £800,000. The business is owned by the fourth generation, who are in their late 80s. They have been told that the only way to pay a BPR liability, should a death occur after April 2026, is to sell plant or machinery, or to sell shares in their business, either way losing control of their business or not being able to keep their business productive. That demonstrates how uninformed the Government are about the changes they will be making.
I think I have made my point. [Interruption.] The Minister sits on the Front Bench laughing away, but had she had the time to go outside and engage with our farming community, or at least get around the table with Back-Bench Labour MPs and Opposition Members who have been consistently raising this issue over the last year, she might not be sitting there smiling away; she might be able to come to the Dispatch Box in her winding-up speech to give some sort of positive conclusion and hope to those many businesses who will be impacted by this disastrous Labour Government.
Mrs Sureena Brackenridge (Wolverhampton North East) (Lab)
For my constituents, the Finance Bill is more than just a legislative process; it is a statement of who we are as a country and what we believe our future to be. I can say with confidence that this is a Finance Bill for places such as Wolverhampton and Willenhall.
I came into politics after years in the classroom. I know the harm that poverty does to our children. I have seen too many young people believe that a successful career is for someone else and not for them, and not addressing poverty ends up costing society far more in the long run. We inherited a country where we have a rise in food banks—more food banks than branches of McDonald’s. There is no single silver bullet to end poverty, and some of the Bill’s measures might not ever make the headlines, but they show the different choices that a Labour Government will make for our communities.
I support the Finance Bill to enable us to lift the two-child benefit cap. Independent analysis estimates that it will lift around 450,000 children out of poverty by the end of this Parliament. The inaccurate attacks from some quarters, painting families in poverty with a broad brush, are disappointing but not surprising. In Wolverhampton North East, I inherited more than a third of children in poverty after housing costs—higher than the UK average. Lifting the two-child cap will benefit more than 4,200 children in Wolverhampton North East. That is the equivalent of 20 primary schools packed full of children. How could I not support that measure? And for those who are still clinging to lazy stereotypes, did you know that 60% of families in poverty are working families? The rest may be families who have lost a parent or where a parent has lost a job, fallen ill or become disabled. So this, along with the expansion of free breakfast clubs for all families and free school meals for children from families on universal credit, ensures that no child is too hungry to learn. Labour values and choices are clear: children need to come first.
I welcome the Chancellor’s response to calls from MPs like me and others to reintroduce libraries in our secondary schools, with an additional £5 million in funding on top of the £10 million for primary schools. I want all children to benefit from social mobility-boosting libraries and reducing inequalities that saw libraries removed disproportionately from poorer areas. This is a Finance Bill that shows that our children matter.
The Bill goes further. It strengthens the dignity of work. The national living wage will rise to £12.71 per hour from April 2026, putting more money directly into people’s pockets. That money is more likely to be spent in our local shops, precincts and high streets. Targeted cost of living measures continue to make a difference: prescription charges frozen, energy bills likely to fall by around £150, train fares frozen for the first time in 30 years, and continued support to ease everyday financial pressures. Alongside no cuts in capital projects, sustained investment in public services, infrastructure and skills, the Bill is set for stronger long-term growth: a long-term plan with undeniable benefits for Wolverhampton and Willenhall and across the UK.
Several hon. Members rose—
Madam Deputy Speaker (Caroline Nokes)
Order. I encourage the remaining speakers to focus on the fact this is a Finance Bill, and therefore the debate is about taxation measures, not spending.
David Chadwick (Brecon, Radnor and Cwm Tawe) (LD)
Wales is the poorest of our four nations. It has the highest levels of unemployment and the lowest wages. The family farm tax is yet another example of how this Government are going to hurt the Welsh economy with full knowledge of the consequences. They have decided to hit Wales, in whose economy agriculture is a major sector, with an extra tax. It is, quite frankly, an unacceptable and horrific way for this Government to start off.
Family farms are the backbone of our rural economy, the heart of our food system and central to the survival of many communities in Wales. People in Wales are shocked that this Labour Government have decided to come for one of our major industries. People in Wales are accustomed to the Conservatives unpicking our major industries and taking them out—they expect that—but they expect better from the Labour party.
When family farms are hit, the damage spreads far beyond the farm gate; it hurts vets, suppliers, hauliers, markets, local shops and rural high streets. That is why it was so deeply disappointing that 23 of Wales’s 27 Labour MPs chose to vote this policy through despite clear warnings from rural Wales. The scale of what is being put at risk is enormous.
Tim Farron (Westmorland and Lonsdale) (LD)
My hon. Friend’s communities are not dissimilar to mine; they are very rural and very mountainous, and upland farming is critical to his communities, as it is to mine. Does he think the Labour Government have failed to understand that wealth is not concentrated in the hands of famers in the way that they think? It is entirely possible to be an upland farmer in my hon. Friend’s patch or in mine and to be earning the minimum wage or, indeed, less—the University of Cumbria shows that the average upland farmer earns less on average than the minimum wage—and yet to be in a position, after inheritance tax is due, to be paying £20,000 a year or more while earning only £16,000. That is not right, is it?
David Chadwick
My hon. Friend is quite right to point to the struggles of upland farmers, who deserve to earn a living from their work—they are working people too, but they are not being recognised as such.
Agriculture and the wider food and drink sector supports more than 228,000 jobs in Wales and generates more than £24 billion in turnover each year. This is not a marginal industry; it is a pillar of the Welsh economy. Industry bodies have warned that these tax changes will force family farms to sell land or assets simply to meet higher liabilities, accelerating consolidation and driving our young people out of rural Wales, which damages our food security and local supply chains, hollows out communities and obviously undermines our tax base, too.
This is not just an economic but a cultural issue. Some 43% of people working in agriculture in Wales speak Welsh, compared with 20% of the population overall. To undermine family farming is to undermine Welsh culture and the Welsh language itself.
What makes this policy even harder to defend is the Government’s selective approach. Ministers have refused to act on supermarket profiteering—with Tesco alone seeing its profits rise by more than 100%—yet are content to squeeze family farms that are already grappling with rising costs and post-Brexit uncertainty. The Welsh Affairs Committee has called for this policy to be paused so that a Wales-specific impact assessment could be carried out. It is a grave mistake that that request has been ignored. This is becoming a familiar pattern for those of us from Wales. There has been rail underfunding, a refusal to devolve powers, including over taxation, and now a tax that threatens one of Wales’s most important sectors.
Time and again, Labour has advanced policies in this Parliament that would hit Wales the hardest, and waved them through regardless. The Welsh Liberal Democrats oppose this tax because we believe that family farms should form the spine of a prosperous rural economy. Rural Wales—in fact, the rural economy across the whole UK—deserves a plan for growth, not punishment driven by ideology.
The Welsh Government deserve a Government who understand the value, strength and work that our agricultural sector provides to rural Wales. I think of the tens of young farmers’ clubs in my constituency; they are run by incredible young people who form community groups and build the confidence of the young people in their communities, as well as running their family businesses. We need those young people to stay in Wales, run their businesses well, and create the jobs and employment that will enable rural Wales to prosper. Instead, they are being told by this Government, “No, we’re going to hit you with an extra tax”. This will fall on the shoulders of Welsh young farmers. The Welsh economy deserves a Government who understand Wales, and that is not what we are getting so far.
Jim Allister (North Antrim) (TUV)
I want to begin by endorsing and agreeing with the very articulate and passionate contributions from Members right across the House. It is encouraging that there have been speeches from those on the Labour Benches attacking the cruel death tax on family farms—that is the only way to describe it. It is cruel, no matter what way you look at it.
The right hon. Member for Orkney and Shetland (Mr Carmichael) laid it out very clearly, as indeed he did yesterday in the Liaison Committee when he put the Prime Minister on the spot and the Prime Minister had no answer. A Prime Minister with no answer needs to change course. The Government have lost the argument on this issue. It is no answer to simply say, “We have the numbers to drive it through”. This needs to be done on the basis of equity and what is right. Having lost that argument—and so patently lost it—they need to face up to that. Just as the Prime Minister lost the argument yesterday in the Liaison Committee, so the Government need to face up to that point on this issue as well.
I want to make some comments about the Bill that are particularly pertinent to Northern Ireland. In any fiscal landscape, critical to being a part of a United Kingdom is the reasonable expectation that there will be the same fiscal ground rules across that United Kingdom—that if business is given advantage in one part, it will equally have that advantage in another. Yet when I come to this Finance Bill, particularly clauses 13 to 15, I discover to my dismay that businesses in Northern Ireland are not to have the same advantages when it comes to the capacity to scale up, as is provided for in clauses 13 to 15 regarding enterprise investment schemes, venture capital projects and enterprise management incentives. That is because the hideous tentacles of the Windsor framework have reached right into this Bill.
Because of the Windsor framework’s imposition on Northern Ireland business of EU state rules, we find in clauses 13 to 15 the exemption of Northern Ireland companies from the advantages to be given to others under those clauses. That removes the fiscal level playing field that should operate in any UK internal market. That undermines the UK internal market, because under those clauses companies in Great Britain will rightly be able to maximise state aid so that they can maximise their trading power, but an alike company in Northern Ireland has the benefit it can obtain from those scaling-up opportunities capped by EU state aid rules. That means they are not on a level playing field when it comes to competitiveness in respect of the capabilities in the Finance Bill.
That causes me to challenge the declaration that the Bill has no effect on GB-Northern Ireland trade. It most patently does if some companies in GB can scale up using these enhanced benefits from investment and venture capital unfettered by any state aid rules, while the same type of company in my constituency has the benefit it can draw fettered by the imposition of EU state aid rules. That is neither fair nor right, and it is but the latest manifestation of the Windsor framework and our continuing subjection to foreign laws.
These are not laws that we make here. EU state aid rules are not set here; they are set in a foreign Parliament that no one in this United Kingdom elects by a combination of Ministers from 27 other countries who have no accountability to anyone in my constituency or any constituency in this Parliament—and yet those rules are traducing and impeding business in Northern Ireland.
Carla Lockhart
The hon. and learned Member is making a passionate contribution, and he is absolutely right. In truth, clauses 13 to 15 all increase support for businesses across the UK, apart from those in Northern Ireland. It is not that we have been overlooked; the clauses expressly, explicitly and deliberately exclude us. That amounts to discrimination. It has to end.
Jim Allister
It has to end. It is discrimination at the behest of a foreign power. It is Brussels saying, “You must impose state aid rules on Northern Ireland.” The product of that in these clauses is a foreign Parliament dictating to this Parliament what we can and cannot give to our own businesses in this United Kingdom. That is so fundamentally offensive to our constitutional integrity that it goes to the very heart of what it means, or what it should mean, to be part of a United Kingdom.
Seamus Logan (Aberdeenshire North and Moray East) (SNP)
I rise to focus briefly on a small number of issues in the Bill and one associated with it—I will explain. I want to focus on how these issues will impact Scotland generally and my constituents in particular. Although the Exchequer Secretary to the Treasury is no longer in his place, I note his comment that persistence pays off, which I think he made in reference to the intervention of the right hon. Member for Beverley and Holderness (Graham Stuart). I therefore hope that the Minister is listening to me in relation to this matter.
It is just over 100 days until April, when farmers across Scotland will face changes to agricultural property relief described by NFU Scotland as
“one of the most significant threats to Scottish family farms in a generation”.
They did not know that the changes were coming—no one did—because they were not in Labour’s manifesto. What was in the manifesto, on page 59, was a pledge to recognise that
“food security is national security. That is why we will champion British farming whilst protecting the environment.”
The sudden application of the new rules on inheritance was deeply unfair. No farmer expected it.
In Scotland, 98% of the total land area across the country is classified as rural, covering about 17% of the Scottish population. Land use in my constituency is classed as 76% agricultural, 18% forest or semi-natural and 3% built-up areas. There are 51,200 farm holdings in Scotland, and I accept that not all of them will be impacted by this policy, but studies by experts such as the Centre for the Analysis of Taxation have offered an alternative approach—one that is less harsh and that would generate similar levels of revenue, but it has been ignored by the Government. As I say, although not all farms will be affected by the change to APR, all farms could be, and maybe have been, impacted by having to take new and costly legal advice in the light of these unexpected changes.
The spousal transfer allowance change is welcome, but its addition points to a recognition at the Treasury. It is a shallow attempt to placate farmers in the light of the ensuing backlash and an admission that the 2024 Budget provisions were too harsh. The anti-forestalling clause mentioned by the right hon. Member for Orkney and Shetland (Mr Carmichael)—clause 62 of the Bill—and the associated schedule 12 are deeply cynical, as they penalise anyone who transfers their farm but dies within seven years, creating a potentially massive bill. Good for the Treasury; potentially disastrous for national food security. As the hon. Member for Scarborough and Whitby (Alison Hume) pointed out, if no transfer is made and the farmer dies before April 2026, the estate passes tax-free. That is the problem with the anti-forestalling clause.
I appreciate that Labour MPs are probably preoccupied with a different aspect of succession planning at the moment, but perhaps they could focus their minds on this issue. As has been said, Labour is paradoxically biting the hand that feeds it, but every family across these isles is feeling this effect.
Dave Doogan
My hon. Friend is making a powerful speech. Does he agree with me—and, I think I am right in saying, with the hon. Member for Brecon, Radnor and Cwm Tawe (David Chadwick)—that agriculture in Wales and Scotland forms a very much larger part of our economies than it does in England, and it is therefore particularly objectionable that the Government did not consult the devolved Governments on this legislation? Does my hon. Friend further agree that farmers do not own wealth; they own value?
Seamus Logan
I agree with my hon. Friend completely. I implore the Treasury to reconsider and hear what the hon. Member for Penrith and Solway (Markus Campbell-Savours) said, but if it does not, my party will bring forward a suitable amendment on Report.
Labour MPs have talked a big talk about how much money is going to Scotland, but I would like to ask them how much they are taking away from Scotland, whether it is through the APR, the energy profits levy, the excise duty on Scotch whisky or the national insurance hike. Once again, it feels like Scotland’s wealth and success are being used against it by an uncaring Westminster Government.
I want to turn to one other issue: NHS drug costs. They are not in the Finance Bill, but my point is that they should have been. I appreciate that you are giving me a bit of leeway, Madam Deputy Speaker. The new UK-US trade deal in medicines raises huge questions about where the money is coming from to pay for these increases in drugs costs. If the additional costs are to come from within existing NHS budgets—that is, through efficiency savings—I must ask the Government whether they have read the University of York’s impact assessment concerning excess deaths and negative impacts on cancer patients, gastroenterology and respiratory care in particular. If the additional costs are to come from the Treasury, where is this mentioned in the Budget, in this Finance Bill or in the accompanying Red Book? It is certainly not in the Bill, but it should have been. The OBR will be listening and watching, and will get to this in due course.
What does all this mean for Scotland in Barnett consequentials? Why has there been so little opportunity for parliamentary scrutiny of this smoke-and-mirrors deal? Transparency is needed on costs. The Health Secretary says £1 billion to £1.5 billion. The OBR says £3 billion, and £6 billion has been suggested by other commentators. Which is it? The Government hail it as a great deal for the UK, but the truth is that no matter where this money comes from—the Treasury or existing NHS funds—patients will ultimately pay the price for filling this pharma black hole. It looks like the UK Government are over a barrel on this, with drug companies threatening to pull out of investment in the UK, bullying from an increasingly erratic White House and creeping privatisation of the NHS. The Government need to provide some answers. I simply say to all Labour Members who have bragged this evening about what a wonderful Bill this is and what a wonderful Budget this has been: why are the polls showing that this Government are the least popular in history?
Dr Scott Arthur (Edinburgh South West) (Lab)
I thank the hon. Gentleman for giving way at such an opportune point. I respect the fact that he is here and that his political ambition is Scottish independence. The Government negotiated that trade deal with the United States, and it is one of the best deals any country in the world has. I find myself wondering what kind of deal an independent Scottish Government—perhaps led by the hon. Member for Angus and Perthshire Glens (Dave Doogan) sitting next to him or by John Swinney—could negotiate with Donald Trump. Would it be a better deal or a worse deal?
Seamus Logan
I am glad to hear that the hon. Member respects our desire for Scottish independence. I simply say to him: when will this Government respect the democratic will of the Scottish people?
I could go on to talk about energy and the coastal growth fund—two measures that, again, have particularly hurt my constituents—but I will leave it there.
Madam Deputy Speaker (Ms Nusrat Ghani)
We come to the final Back-Bench contribution. I just note that the Front Benchers wish to be on their feet by around 6.40 pm.
Gideon Amos (Taunton and Wellington) (LD)
In contrast to the Budget and its effects, so much about business in Taunton and Wellington is on the up thanks to the enterprise, community spirit and business nous of people there. In Wellington, the new community hub in the Kings Arms—with a café set to open in the new year—where I held my surgery last Friday, is a huge success thanks to volunteers such as Cliff and many others. New units are going up in Westpark, and new retail and food outlets are popping up all over the town. In Taunton, footfall has jumped by 2.1%—four times the national average increase of 0.5%. Lots of independent shops, such as Dosha Wellness and The Little Cheese Shop, have recently opened. We have great pubs and restaurants, too. In just the past few months, we have seen The Winchester open in Castle Green, Tap One in the independent quarter and The Chapel Tap in the town centre. I thank all those business people who are committing to Taunton and Wellington and opening businesses in our area.
However, these hospitality and drinks businesses are not sharing the joy this Christmas from the Budget, and neither are our farmers. The Lib Dems would not have levied the family farm tax—I voted against resolution 50. Instead of abolishing the penal anti-forestalling clause as many have called for, the confirmation of the transfer by the Government of the £1 million allowance between spouses and partners, though welcome, does not go anywhere near what was needed.
Hospitality and drinks businesses are worried about increasing duty and business rates. Cider is worth £150 million to the south-west economy, but cider makers are struggling. One in my constituency has pointed out that orchards take 10 years to become mature, demanding contracts of 25 to 30 years. Cider plays a huge role in supporting our agriculture and maintaining the countryside, so it delivers a public good. However, the fact that it represents only 6% of the sector means that it is much more vulnerable to duty changes and price changes. What cider needed from this Budget was a 5% duty cut to put back the original differential with beer duty.
Hospitality believed that its rates would go down—it believed the famous “permanently lower business rates” promise—but they have actually gone up. Philippe, a partner of The Little Wine Shop, which is a fantastic brasserie in my constituency, tells me that the Budget means
“less hours for my staff, therefore less revenue for the treasury”
as he is closing one day per week. He says:
“we will stop employing young people (16 years old)”
and
“I have 3 members of staff leaving by mid-March, I will replace only one if I am still open by then! I AM FUMING!”
What does the Minister say to Philippe in my constituency?
We have discovered since the Budget that hospitality rateable values have increased, helping to cancel out the new multiplier. For another business owner, Mr Miles, although his valuation has actually gone down by 10%, his business rates bill has gone up by 12%. What does the Minister have to say to those at Mr Miles tea room as they work to keep the lights on in the high street? As the owner of the other great Winchester pub in my constituency, the Winchester Arms, has pointed out, pubs have to pay business rates according to their turnover. What other business is subjected to the disincentive that when they increase turnover, their property rates increase? The answer is none. What Taunton and Wellington residents and high streets needed from this Budget was a boost.
Sir Geoffrey Clifton-Brown (North Cotswolds) (Con)
Like me, the hon. Gentleman represents a constituency in the south-west where hospitality businesses of all sorts will be very heavily hit by this Budget. They have seen rate increases. They have seen increases in alcohol duty, increases in the minimum wage and national insurance increases. Some of them are literally going to be taxed out of existence. This Government say they support small businesses. That could not be further from the truth.
Gideon Amos
I agree with the hon. Gentleman. Small businesses are the backbone of the economy, and the promise to reform business rates made by the last Government needs to be delivered upon by this Government.
As I was saying, as a result of quantitative easing funds, the big four banks alone will make £50 billion of profit this year. The boost that people and the high street need is both the cut to electricity bills and the 5% VAT cut that the Lib Dems propose, funded by a windfall tax on those bank profits. It is time the Government backed small businesses like those in Taunton and Wellington—part of the biggest and most important sector of the British economy—after the economic chaos under the Conservatives. It would be a boost to going out in the evening, a boost to our pubs and restaurants, and a positive boost to the economy. That is the kind of Budget we needed, and that is the kind of Budget the Liberal Democrats would have delivered.
Gareth Davies (Grantham and Bourne) (Con)
It is a pleasure, as always, to respond on behalf of His Majesty’s official Opposition. I thank Members across the House for their contributions to the debate, in particular those on the Conservative Benches, and notably my hon. Friend the Member for Keighley and Ilkley (Robbie Moore), who has been a ferocious champion of farmers not just in Yorkshire but across the country. He also spoke well about the family business tax and his business, Fibreline, which has been adversely impacted. My right hon. Friend the Member for Beverley and Holderness (Graham Stuart) sought to give those on the Labour Front Bench a maths lesson, although I am afraid it is a little late for that and entirely futile.
I enjoyed very much the speech by the right hon. Member for Orkney and Shetland (Mr Carmichael). I enjoyed his A. A. Milne reference almost as much as I enjoyed the unexpected mention of Tinder. Of course, when it comes to politics, I encourage everybody to swipe right. [Laughter.] I thought I would give it a go.
Let me highlight how prominent the family farm tax has been in this debate and acknowledge the contributions from the hon. Members for Penrith and Solway (Markus Campbell-Savours) and for Scarborough and Whitby (Alison Hume), who spoke well, speaking out against their own party’s policy when it comes to farmers. That is not an easy thing to do, but it is the right thing to do, and we appreciate it.
For my part, I am struck by a sense of déjà vu. Here we are again, with another Finance Bill that targets working people’s pockets while failing on the Government’s No. 1 mission of economic growth. This Finance Bill is actually double the length of Labour’s first Finance Bill, and I fear it will bring double the pain to the British public. Last year we had the now infamous Halloween Budget, which scared the living daylights out of business, and this year we have the nightmare-before-Christmas Budget, which is essentially finishing off the rest of the country. This Bill feels less like a carefully wrapped present and more like something hastily stuffed into a stocking at five minutes to midnight, with the receipt missing and the instructions written in a different language. We were promised a gift to working people, but what we have instead are higher burdens and lower incentives.
Dame Harriett Baldwin (West Worcestershire) (Con)
My hon. Friend is making a fantastic speech, with some very colourful analogies, but if I may be prosaic, is it not the case that the Office for Budget Responsibility has not scored a single impact on growth in the overall Budget?
Gareth Davies
As always, my hon. Friend points out something that is important for the whole House to consider. I will come on later to the broader assessment of the OBR, which does not make for pleasant reading for Labour Members.
Tonight, Labour Members must decide whether they are content to vote for a Bill that makes their working constituents poorer, punishes family farmers and family businesses, and breaks promise after promise that they made to secure their seats. For all the bravado that we may hear later from the Minister, there is now a growing gap between what Ministers are saying, and what families and businesses are living. That gap has now become so visible that it has followed Labour Members out of the Chamber and into the real world. At this time of year, pubs should be putting up mistletoe; instead they are hanging up signs saying, “No Labour MPs welcome.” This is a Christmas tradition that this Government have invented all on their own. When a Government cannot get a warm welcome or a pint in the local pub that so badly needs the trade, it might be a good idea to reflect on why.
There is another growing gap between what Labour Members told the public before the election, what they repeated after it, and what is in the Bill. First, the Bill is anti-working people. Only last year, Ministers stood up and promised the House that this Government would not freeze income tax thresholds. They could have stopped there, but they did not. They went further and said that to do so would amount to a tax rise on working people’s payslips. Yet here we are today, with this Bill that freezes income tax thresholds to 2030-31. The message to working families could not be clearer: if someone gets up early, goes to work, does the right thing and provides for their family, Labour will not back them; it will tax them. What will the Labour Government do with all the money they are raising? They will not pay down the national debt—debt is going up. They will not employ more teachers; there are fewer of them now. They will not employ more police officers, either; there are fewer of those, too. In fact, they will fail to deliver on almost everything they promised while in opposition. Instead, they will turn hard-working taxpayers’ money into handouts to appease their left-wing Back Benchers.
This Bill is anti-aspirational and anti-business. If someone decides to start their own business, or wants to take over a business or a farm from their family, what does this Labour Government think of them? As we have heard extensively today, this Budget takes further what they introduced at the last Budget: the family farm tax, as spoken about by so many colleagues, and a family business tax that will destroy aspiration and entrepreneurialism. Time after time, the Chancellor has been warned of the impact of these changes to inheritance tax. She has repeatedly dodged questions in the House, as she is doing this very moment. She has ignored concerns from the business community, and run scared of meeting the National Farmers’ Union. That is not leadership; that is not owning one’s decisions.
Finally, we were promised economic stability and management, yet the OBR’s own assessment of the Bill tells a very different story. Growth will be slower over the forecast; inflation will be higher. Debt will rise every single year of the forecast, and taxes will rise to their highest level on record. Just this morning, we learned that unemployment continues to spiral to levels that we have not seen in years. This was not a Budget for the wellbeing of the country; this was a Budget to try to preserve the careers of the embattled Prime Minister and the embattled Chancellor.
As we approach Christmas, it is traditional to reflect on who has been naughty and who has been nice. We are told that Father Christmas checks his list twice, but the British public need only glance once at this Finance Bill to know that they have been seriously let down. They know exactly which list the Chancellor belongs on. It does not matter if they work hard, run a family business or farm, and have saved responsibly for their retirement; even in death, through the Bill, the taxman still comes a-calling. Under the Bill, there is simply no way that hard-working British families do not end up poorer. Nobody voted for that, and we will certainly not be voting for it tonight, either.
The Economic Secretary to the Treasury (Lucy Rigby)
The shadow Financial Secretary, the hon. Member for Grantham and Bourne (Gareth Davies), took the time to mention Father Christmas and Tinder. I thought he might also have taken a moment to welcome the fourth major trade deal secured by this Government and signed today with South Korea, which is set to boost our economy by £400 million, but that was obviously too much to ask.
It is an honour to close this Second Reading debate on the Finance (No. 2) Bill. I thank the Exchequer Secretary to the Treasury for opening the debate, and all right hon. and hon. Members who made contributions. I look forward to hearing further contributions during the rest of the Bill’s passage.
Before I turn to the points made during today’s debate, let me be clear about the purpose of the Bill. I will frame it in the context of choices, because so many hon. Members who have contributed to the debate have done the same. Put simply, the Bill delivers the fair, responsible and necessary choices required to strengthen our economy and cut borrowing, to return our public services to health, to back British entrepreneurs and to make people better off. Those are the choices that this Government are making.
Lucy Rigby
Not yet.
We have heard absolutely nothing from the Opposition that acknowledges that they made the wrong choices. Indeed, what we heard just now from the shadow Financial Secretary and earlier from the shadow Chancellor was a masterclass in selective amnesia. People would be forgiven for thinking that Members on the shadow Treasury Bench were not living in this country during their period of Government, let alone running it. They have conveniently forgotten that their choices gave us appallingly low productivity, threadbare public services, ballooning welfare spending and real wage stagnation. Those were their choices, and it is little wonder that they do not to want to remember them, let alone be judged on them.
Several hon. Members rose—
Lucy Rigby
I will make a bit of progress. Our choices are different: they seek to rebuild and repair our country and our economy. They are choices to renew our public services and reform our welfare system; we are rebuilding our NHS, helping to lift hundreds of thousands of children out of poverty, and investing in getting more people into work. They are choices to strengthen our economy; we are maintaining the highest level of public investment for 40 years, backing British aspiration and, importantly, cutting borrowing and doubling the headroom against our fiscal rules.
Graham Stuart
If we look at employment over time, we see that employment was growing every month until a certain thing happened in July last year: Labour came to power. As of this morning, unemployment has officially gone up 5.1%. As it stands today, there is a 25% increase in the number of people who are not in employment. How can that possibly correspond with a mission for growth?
Lucy Rigby
I am afraid to tell the right hon. Gentleman that employment is rising in every single year of the forecast.
My hon. Friend the Member for Glasgow East (John Grady) raised the importance of getting debt and borrowing down. I could not agree more. There is nothing progressive whatsoever about spending over £100 billion a year on servicing our debt. That is more than five times our annual policing budget. It is money that could be spent on schools, hospitals and the urgent public service renewal that this country so desperately needs. That is exactly why, under this autumn Budget, borrowing falls in every year of the forecast, and we are bringing the national debt under control. The Chancellor is putting in place the fastest rate of fiscal consolidation in the G7, and she is doubling the headroom to £21.7 billion.
Dave Doogan
I am grateful to the Minister for giving way. Will she concede that approximately three quarters of the last three hours of debate on this Bill has been devoted to the egregious family farm tax, including two noble and articulate contributions from Labour Beck Benchers, which took some bravery? Will she take that message back to the Chancellor, and get her to finally scrap the family farm tax?
Lucy Rigby
It is not a concession to acknowledge that that was the topic of much of the debate. We are more than aware of the strength of feeling on inheritance tax and the cost pressures that farmers are under, and I appreciate the compassion with which hon. Members have made their arguments. I remind them that that is why the Government came forward with the changes announced at the Budget just a few weeks ago. Following those changes to both APR and BPR, surviving spouses can pass on double the tax-free allowance, making the system more fair and simple for farmers.
A core part of strengthening our economy is about backing British businesses to reach their full potential. That means backing British innovation and aspiration and giving entrepreneurs what they need to start up, scale up, list and grow here in the UK. That is why this Bill significantly expands the enterprise management incentive scheme limits to maintain the world-leading nature of this relief.
John Grady
Does the Minister agree that it is due to the careful management of the public finances that we have record investment in defence and other areas of the Scottish economy, creating lots of well-paid jobs in Glasgow?
Lucy Rigby
The Scottish Government have been given a record settlement—a £820 million boost in this Budget—that takes the total additional funding for the Scottish Government from this Labour Government to more than £10 billion.
I was talking about the entrepreneurship package in the Budget. As my hon. Friend the Member for Buckingham and Bletchley (Callum Anderson) said, we are doubling the maximum amount that a company can raise through the generous enterprise investment and venture capital trust schemes. We are making them more generous, and are supporting more investment in companies that are making the transition from start-up to scale-up, and we are not stopping there.
When some of our most innovative, high-growth companies succeed, bringing jobs and growth to our economy, we want them to list here, too. That is why this Bill ensures that companies that list here in the UK will benefit from a stamp duty holiday on their shares for the first three years on the market—a point well made by my hon. Friend the Member for Burnley (Oliver Ryan). We are backing British entrepreneurs and ensuring that the UK remains one of the most attractive places in the world to found, scale and list a business.
Let me address the point referred to by the hon. and learned Member for North Antrim (Jim Allister) about the application of the measures that I have just spoken about to Northern Ireland. I can assure him that Northern Irish service companies will benefit from the expansion of the scheme, and goods and wholesale electricity companies in Northern Ireland will continue to benefit from the previous scheme limits.
Jim Allister
The key is in the point that the Minister finally made there; that is under the previous scheme. Northern Ireland is not to get the uplift that the rest of the United Kingdom does under clauses 13 to 15. Why? Because we are subject to EU state aid rules. We are being held back by the old rules, whereas everywhere else in the United Kingdom gets the new uplift.
Lucy Rigby
I assure the hon. and learned Member, who makes a valid point, that there are hardly any—very few, if any—of these types of goods and wholesale electricity companies in Northern Ireland that come close to the existing limits of the scheme, let alone the extended limits.
We are very clear about the role of business and economic growth in improving household incomes, but we are also clear that after the Opposition gave this country the worst Parliament on record for living standards, far too many people are still struggling with the cost of living. This Government are already making progress to tackle that. Wages have gone up more in the first year of this Government than in the entire first decade of the last Government. Real household disposable income was £800 higher in the first year of this Parliament than in the last year under the Tories, but we know that there is more to do.It is because of the fair and necessary choices in this Bill that we are able to help ease the cost of living for millions of families across this country. Those choices are how we are cutting energy bills for millions of households by an average of £150 per year and extending the warm homes plan. They are how we are lifting the two-child cap and, with it, lifting half a million children in this country out of poverty. They are how we are freezing prescription charges and rail fares, and increasing the national living wage while protecting the triple lock on pensions. This is a Government who are committed to helping people with the cost of living, to putting more money in people’s pockets, and the choices we are making in this Bill do just that.
My hon. Friends the Members for Scarborough and Whitby (Alison Hume) and for Wolverhampton North East (Mrs Brackenridge) are absolutely right that the choices this Government are making in this Finance Bill will help restore our public services. Those choices are why the Chancellor is able to put libraries in primary schools, as my hon. Friend the Member for Scarborough and Whitby referred to, and they are why she is able to protect NHS budgets as well. They are why she is able to invest an extra £300 million in NHS technology, roll out 250 new neighbourhood health centres right across this country, and continue to get waiting lists—which stood at a record high when this Government came to power—back under control. That means millions more people able to access the healthcare they need, free at the point of use; millions more people getting the operations, preventive care and scans they need. It is how we will be able to repair our NHS and ensure it will continue to exist for the next generation and for many generations to come.
This Finance Bill is about delivering on our commitments. It is about building a stronger economy in which prosperity and living standards rise, child poverty falls, businesses succeed and public services are renewed. Every measure in this Bill is geared towards that goal. We promised change and fairness, and we are delivering both. For those reasons, I commend this Bill to the House.
Question put, That the amendment be made.
First Day | |
|---|---|
Second Day | |
Clauses 1 to 6 and Schedule 1; Clauses 7 and 8 and Schedule 2; any new Clauses or new Schedules relating to the subject matter of those Clauses and those Schedules | Two hours after the commencement of proceedings on the Bill on the first day. |
Clauses 9, 10 and 69; any new Clauses or new Schedules relating to the subject matter of those Clauses | Four hours after the commencement of proceedings on the Bill on the first day. |
Clause 62 and Schedule 12; any new Clauses or new Schedules relating to the subject matter of that Clause and that Schedule | Six hours after the commencement of proceedings on the Bill on the first day. |
Clauses 63 to 68; any new Clauses or new Schedules relating to the subject matter of those Clauses | Two hours after the commencement of proceedings on the Bill on the second day. |
Clauses 83 to 85 and Schedule 13; any new Clauses or new Schedules relating to the subject matter of those Clauses and that Schedule | Four hours after the commencement of proceedings on the Bill on the second day. |
Clause 86; any new Clauses or new Schedules relating to the subject matter of that Clause | Six hours after the commencement of proceedings on the Bill on the second day. |
John Slinger (Rugby) (Lab)
On a point of order, Madam Deputy Speaker. I would be grateful if you could confirm whether any points of order raised by Members of this House since this parliamentary Session began have actually been deemed to be points of order. If this is not the case, could you provide guidance to hon. and right hon. Members about what does constitute a point of order, so that the time of Members is not wasted in this House?
Madam Deputy Speaker (Ms Nusrat Ghani)
I am grateful to the hon. Member for giving notice of his point of order on points of order. I can say that his point of order was most definitely not a point of order. For clarity, and for the benefit of the hon. Member, a point of order should in principle draw the Chair’s attention to a possible breach of the House’s rules of order, which his point of order failed to do. I would not like to speculate on how many points of order actually have served this purpose—I am sure many now will—but the hon. Member raises an interesting question. Hansard can point out how many points of orders have been raised that, like his, were obviously not points of order.
Finance (No. 2) Bill
Monday 12th January 2026
(2 weeks, 6 days ago)
Commons ChamberFinance (No. 2) Bill 2024-26 Read Hansard Text Amendment Paper: Committee of the whole House Amendments as at 12 January 2026 - large print - (12 Jan 2026)
The Second Deputy Chairman of Ways and Means (Caroline Nokes)
I remind the House that, in Committee, Members should not address the Chair as Deputy Speaker. Please use our names when addressing the Chair. Madam Chair and Chair are also acceptable.
Finance (No. 2) Bill
Tuesday 13th January 2026
(2 weeks, 5 days ago)
Commons ChamberFinance (No. 2) Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 13 January 2026 - (13 Jan 2026)
16:22 - The Committee divided: - Ayes: 348 / Noes: 167 - Question accordingly agreed to.
16:38 - The Committee divided: - Ayes: 184 / Noes: 331 - Question accordingly negatived.
17:54 - The Committee divided: - Ayes: 187 / Noes: 351 - Question accordingly negatived.
19:56 - The Committee divided: - Ayes: 344 / Noes: 173 - Question accordingly agreed to.
20:10 - The Committee divided: - Ayes: 181 / Noes: 335 - Question accordingly negatived.
20:22 - The Committee divided: - Ayes: 172 / Noes: 334 - Question accordingly negatived.
The Second Deputy Chairman of Ways and Means (Caroline Nokes)
I remind Members that in Committee, they should not address the Chair as Deputy Speaker. I ask them please to use our names when addressing the Chair. Madam Chair, Chair, and Madam Chairman are also acceptable.
Clause 63
Tax to be charged on certain pension interests
Question proposed, That the clause stand part of the Bill.
The Second Deputy Chairman
With this it will be convenient to consider the following:
Clauses 64 to 68 stand part.
New clause 18—Review of the effect of sections 63 to 68—
“(1) HM Treasury must carry out a review of the effect of sections 63 to 68 of this Act (Pension interests).
(2) The review under subsection (1) must include an assessment of—
(a) the impact of those sections on individuals’ pension savings and beneficiaries, including on estate values and inheritance tax liabilities,
(b) the administrative effects on personal representatives, pension scheme administrators, and HM Revenue and Customs, and
(c) any behavioural effects on how pensions are used during life and on death.
(3) HM Treasury must lay before the House of Commons a report setting out the findings of the review under subsection (1) no later than six months after the date on which sections 63 to 68 come into force.”
This new clause would require HM Treasury to review and report on the effects of Clauses 63 to 68 of the Bill, which introduce inheritance tax charges on unused pension funds and death benefits, including their impacts on individuals, administrators, and behaviour, and to publish the findings to Parliament.
New clause 19—Report on the impact of inheritance tax liability on personal representatives in relation to pension assets—
“(1) The Secretary of State must, within 12 months of the passing of this Act, lay before the House of Commons a report on the impact of the changes to inheritance tax treatment of pension assets on personal representatives of deceased persons made under this Act.
(2) The report must consider—
(a) the legal obligations of personal representatives to collect the assets of an estate, settle all liabilities (including inheritance tax), and distribute the estate to beneficiaries,
(b) the extent to which personal representatives may be personally liable for inheritance tax due on assets, including pension funds, which do not form part of the estate and do not come into their possession,
(c) any risk of increased litigation arising from the imposition of personal liability on personal representatives in respect of inheritance tax due on pension assets,
(d) the impact of any such liability on the willingness of personal representatives, particularly those who are not beneficiaries of the estate, to distribute estate assets promptly,
(e) any practical difficulties faced by personal representatives where pension assets, lifetime gifts, or other chargeable assets are discovered after initial inheritance tax calculations have been completed, including the requirement to recalculate inheritance tax liabilities and re-apportion the nil rate band,
(f) any administrative and timing challenges associated with identifying multiple pension arrangements, particularly where a deceased person held several pension funds arising from different employments, and
(g) whether the existing six-month timeframe for inheritance tax reporting and payment adequately reflects those practical difficulties.
(3) The report must assess whether the current framework operates fairly and proportionately for personal representatives and whether legislative or administrative changes are necessary to reduce uncertainty, delay, or unintended personal liability.”
This new clause requires the Government to report on the impact of inheritance tax rules on personal representatives, including personal liability for tax on pension assets outside the estate and the practical difficulties of identifying and valuing multiple pension arrangements within existing time limits.
New clause 20—Administration of inherited pension pots—
“(1) HM Revenue and Customs must review the tax administration arrangements relating to inherited pension pots.
(2) The purpose of the review under subsection (1) is to ensure that—
(a) inheritance tax and related tax checks do not cause unreasonable delays in the payment of pension death benefits to beneficiaries, and
(b) bereaved families are able to receive pension benefits within a reasonable period following a member’s death.
(3) In carrying out the review, HM Revenue and Customs must have regard to—
(a) the cumulative administrative burden placed on personal representatives, pension scheme administrators, and beneficiaries,
(b) the interaction between inheritance tax reporting, clearance processes, and pension scheme payment rules, and
(c) any evidence of prolonged delays in the payment of inherited pension benefits.
(4) HM Revenue and Customs must publish the outcome of the review, including any proposed changes to its processes or guidance, within 12 months of the passing of this Act.”
This new clause would require the Government to address delays in the payment of inherited pension pots by reviewing HMRC’s tax administration processes, with the aim of preventing prolonged waiting periods for bereaved families.
New clause 22—Statement on inheritance tax on pension interests—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to the House of Commons on the effects of the charging of inheritance tax on pension interests made under sections 63 to 68 of this Act.
(2) The statement made under subsection (1) must include analysis of the impact on—
(a) pension saving levels,
(b) household saving decisions, and
(d) personal representatives.”
This new clause would require the Chancellor to make a statement on the effects charging inheritance tax on pension interests on pension saving levels, household saving decisions and personal representatives.
New clause 23—Consultation on changes to inheritance tax on pensions interests—
“(1) The Chancellor of the Exchequer must, before 6 April 2027, undertake a consultation on the potential impacts of the changes made by sections 63 to 67.
(2) The consultation made under subsection (1) must consider the extent to which the changes to inheritance tax on pension interests deliver better outcomes for UK savers and pensioners.
(3) The Chancellor of the Exchequer must lay before the House of Commons a report summarising the responses to the consultation.”
This new clause would require the Chancellor to consult on the potential impacts of the changes made by sections 63 to 67. The consultation must consider the extent to which the changes to inheritance tax on pension interests deliver better outcomes for UK savers and pensioners. A report summarising the responses to the consultation must be laid before the House of Commons.
New clause 24—HMRC guidance on inheritance tax on pension interests—
“(1) HM Revenue and Customs must, within six months of this Act being passed, publish comprehensive guidance on the implementation of sections 63 to 68.
(2) HMRC must establish a dedicated helpline for enquiries relating to inheritance tax on pension interests.
(3) The guidance published under subsection (1) must be reviewed annually and published in accessible formats.”
This new clause would require HMRC to publish comprehensive guidance on the implementation of sections 63 to 68 and establish a dedicated helpline for enquiries relating to inheritance tax on pension interests. The guidance must be reviewed annually and published in accessible formats.
The Economic Secretary to the Treasury (Lucy Rigby)
It is a pleasure to open this second day of our Committee stage debate. Yesterday the Exchequer Secretary to the Treasury, my hon. Friend the Member for Chipping Barnet (Dan Tomlinson), explained how the Bill gives effect to a Budget that took fair and responsible decisions to stabilise and strengthen the public finances, address the cost of living and renew our public services. We are clear about the fact that we will not repeat the mistakes of the last Government. That means no return to austerity and no completely irresponsible unfunded spending commitments, both of which, unfortunately, were features of the Conservatives’ time in power. This Government wholeheartedly reject those failed approaches and choose a different path, one of fiscal responsibility and one that will strengthen our economy so that it delivers for people throughout the country. Today the Committee will consider a further set of important and targeted measures relating to pensions, gambling duties and alcohol duty, which reflect this Government’s commitment to a tax system that is fair, modern, and aligned with the realities of today’s economy.
Our approach to changes in gambling taxation is fair and proportionate, as the Committee will hear later this afternoon, and, as my right hon. Friend the Chancellor explained in her Budget statement, those reforms will contribute significantly to the Government’s efforts to lift an additional 450,000 children out of poverty. The pensions clauses will ensure that generous tax reliefs continue to support the core purpose of pensions, which is to help people to save for retirement. They address long-standing inconsistencies, and will ensure that pensions are not used primarily as a vehicle for passing on wealth free of inheritance tax, but instead continue to protect the vast majority of estates and maintain strong incentives to save.
I turn to clauses 63 to 68. Pensions enjoy significant tax benefits, with gross income tax and national insurance contributions relief costing £78.2 billion in 2023-24. It is therefore crucial to ensure that these reliefs are used for their intended purpose, which is to encourage saving for retirement and later life. Changes to pensions tax policy by the previous Government over the last decade led to pensions being used, and increasingly marketed, as tax planning vehicles to transfer wealth, rather than holding true to pensions’ primary purpose, which is of course to provide a way to fund retirement.
As hon. Members will know, there are also long-standing inconsistencies in the inheritance tax treatment of different types of pensions. Most UK-registered pension schemes are discretionary, meaning members can nominate whom they would like to receive death benefits, but the scheme trustees are not obliged to follow members’ wishes. Under existing rules, any unused pension funds and death benefits from discretionary schemes are not subject to inheritance tax. By contrast, some pension schemes are non-discretionary, and these are subject to inheritance tax under existing rules.
The changes made by clause 63 mean that most unused pension funds and death benefits payable from a pension will form part of a person’s estate for inheritance tax purposes from 6 April 2027. Clause 64 ensures that personal representatives are responsible for paying any inheritance tax due. Clause 65 means that personal representatives will be able to request that the pension scheme administrator withhold paying a proportion of benefits where certain conditions are met. It also allows both personal representatives and pension beneficiaries to make pension scheme administrators pay inheritance tax due on pensions directly to His Majesty’s Revenue and Customs—again, provided certain conditions are met.
Clause 66 makes some consequential amendments to the Inheritance Tax Act 1984 to ensure that the existing exemption for spouses and civil partners and the treatment of payments to charities continue to apply. Clause 67 changes the income tax rules for pensions to provide for the payment of inheritance tax, including in respect of direct payment by pension schemes. Clause 68 ensures that the changes take effect from 6 April 2027.
These clauses ensure that pensions are used, as I have said, for their core intended purpose, rather than as a vehicle for passing on wealth free of inheritance tax. They also remove long-standing inconsistencies and deliver on the Government’s promise to this country to build a stronger and fairer economy.
James Wild (North West Norfolk) (Con)
On behalf of His Majesty’s Opposition, I wish to speak to new clauses 22 to 24, tabled in my name and those of my hon. Friends. As the Minister set out, clauses 63 to 68 introduce measures to apply inheritance tax to unspent pension assets and other death benefits for deaths occurring after 6 April 2027.
This Labour Government have taken taxes to record levels, with £26 billion in additional taxes in this Budget and £66 billion since the election. These tax increases were not mentioned in Labour’s manifesto. Labour is increasing taxes on family businesses, farms, jobs, dividends, savings, motorists and now death. Removing the inheritance tax exemption for pensions could undermine efforts to encourage people to save at a time when people are not saving enough. And what do the Government do? They limit the salary sacrifice pension contributions scheme and introduce a new raid on people’s pensions pots.
The Minister did not refer to the impact assessment, but it is worth pointing out that it estimates that 10,500 estates will now become liable for inheritance tax, raising £1.5 billion by 2029, and 38,500 estates will pay more inheritance tax than was previously the case. That is why we oppose this extension of inheritance tax and the underlying principle, to which the Minister seemed to allude, that people’s money belongs not to them but to the state.
New clause 22 is straightforward. It would require the Chancellor to set out the impact of these measures on pension saving, household saving decisions and personal representatives. There is real concern—I am surprised the Minister did not address this—about the administrative burden being placed on personal representatives and the effect on the industry. Personal representatives will be required to identify every pension asset, calculate the inheritance tax due and ensure payment within six months, and they will be personally liable if they fail to settle all the liabilities due. In many cases, that deadline would be impossible to meet and must be extended. Furthermore, if a pension fund has to quickly sell illiquid assets, such as commercial property, it may not get the full market value, but the Bill does not introduce a relief where the underlying assets must be sold and the proceeds are less than the value of the assets at the time of death. Late payments will attract interest at 8%. By contrast, someone in self-assessment has 10 months to pay tax on the income they already understand.
Both the Association of Taxation Technicians and the Chartered Institute of Taxation have offered some practical solutions, the first of which is to extend the withholding periods. Personal representatives can ask pension administrators to withhold 50% of funds for up to 15 months, but that is simply not long enough for the complex cases I have referred to, particularly where business property valuations have to be agreed with HMRC. Will the Minister consider allowing HMRC to extend withholding in such complex cases?
Secondly, the Government should allow instalment payments for illiquid pension assets. Billions of pounds of pensions wealth are in illiquid assets. The Government allow inheritance tax to be paid over 10 years for illiquid estate assets. Why deny the same practical relief for pensions?
When this policy was announced, the Office for Budget Responsibility gave it a “very high” uncertainty rating and estimated that behavioural effects will cut the static yield by about 43%; the Government’s own forecasters accept that the changes may well significantly alter saving behaviour. The new clause would simply require the Chancellor to assess that impact and come to the House to make it clear.
New clause 23 would require the Chancellor to consult on the impact of clauses 63 to 67, and whether they deliver better outcomes for savers and pensioners. The truth is that the Government rushed the consultation out after the 2024 Budget and followed it with a very narrow technical consultation, which did not consider the principled question of whether this approach to pensions being brought within the inheritance tax framework was appropriate. As the Investing and Saving Alliance told the House of Lords Economic Affairs Committee in its inquiry to which the Exchequer Secretary also gave evidence:
“If we were consulted and listened to, we probably would not be having this discussion today, because I do not think pensions would be going into IHT.”
Both the chartered institute and the ATT have criticised the Government for consulting on pensions in isolation, rather than in the context of individuals’ wider inheritance tax position. Our new clause is explicit. Consultation must take place to assess whether these changes
“deliver better outcomes for savers and pensioners”
—wording that reflects the commitment the Labour party made in its manifesto.
New clause 24 is essential. It would require HMRC to publish comprehensive guidance on the new rules for pensions and to set up a dedicated helpline. Why does that matter? Because this measure will be incredibly complex in practice. The chartered institute has said that professional executors are already questioning whether they can continue to operate in the market at all. Some firms, we are told, are already leaving the market. If professionals step back, the burden falls on lay personal representatives: often grieving family members or friends, with more errors, delay and potentially a wider tax gap ensuing.
Professional indemnity insurers also need clarity, yet when is HMRC due to deliver detailed guidance? Not until spring 2027, just weeks before the changes take effect. That is completely outrageous and far too late. That is why the new clause requires guidance to be published within six months of the Bill being passed.
I want to touch on a broader concern that has been raised with me on the potential serious unintended consequences for unmarried couples. Today, couples can anticipate making financial provision for each other via pensions, but if this measure comes into force they will have to look at other options. If one member of an unmarried couple in their 50s or 60s dies with a pension at peak value, the survivor could lose up to 40% of that fund. Are Ministers talking to pension scheme administrators to mitigate the risks for such couples and to provide clear guidance?
These clauses increase taxes, add complexity, penalise saving and add stress for grieving families. Despite clause 67, we are also advised that there is still a risk of double taxation of inheritance tax and income tax, which could see beneficiaries paying an effective tax rate of 67%. Our amendments seek to mitigate their worst impacts. The Chancellor should assess the real impact on saving behaviour and personal representatives. She should consult properly on these provisions and she must provide clear guidance, backed by dedicated support. We should be incentivising saving and encouraging people to do the right thing. Extending inheritance tax does the opposite, and we will oppose the Government’s measures.
Daisy Cooper (St Albans) (LD)
This is a retrospective tax without transitional protection. It upends plans for those who have already made sacrifices to build up their pensions, undermines confidence in pensions planning, reduces long-term investment and causes people to rush to withdraw money from their pensions.
As has been mentioned, the chartered institute and the ATT have raised concerns about this group of clauses, which shoehorn pensions legislation into tax legislation. There are major worries about creating personal liability without control for personal representatives, whether executives or administrators. Personal representatives are legally obligated to gather all the assets, settle any liabilities, including inheritance tax, and distribute the remainder of the estate to the beneficiaries. They are personally liable if they do not set aside enough money to settle all financial liabilities, including IHT. Experts have warned that someone being personally liable for IHT on a pension fund that never comes into their hands leaves the door open to costly and protracted litigation and will understandably make personal representatives, such as professionals or friends of the deceased, much more cautious before they distribute all of the estate.
Even more concerning is the fact that if representatives discover a new pension fund after settling the initial IHT liability, this would have a knock-on effect on not only the estate but all other pension funds. It means that IHT will have to be recalculated for every part of the estate and every pension fund. It is far from uncommon for people to have had different jobs with separate pension plans, so the risk of miscalculation is obvious. If someone passes away before they have had the chance to consolidate their pension funds, tracking down the unused pots within six months of their death will be very difficult for executors and will mean that the initial IHT calculations could be wrong. The Government must recognise that and amend this measure. If they do not, and Ministers simply ask future executors to sign some sort of disclaimer form, they will soon find that nobody will want to take on that role.
Our new clauses 18 to 20 raise the clear need for significant reforms and are a means of pressing the Government to protect individuals from being liable for private pensions that they did not know about and could not reasonably know about either. Finally, there is widespread worry that family members might have to wait up to 15 months before they are able to access their inheritance, during what is bound to be a hugely straining period of loss and grief. The Liberal Democrats’ new clause 20 urges the Government to recognise that reality and take steps to address it.
Lucy Rigby
I thank hon. Members for their contributions to the debate on this group of clauses. Before I respond to the specific points that have been raised, I will reflect briefly on the core purpose of the Bill.
The Bill contains fair and necessary reforms to the tax system, which unfortunately have been ducked for far too long. They will help to strengthen our economy for the long term, ensuring that we can cut the cost of living and inflation, and restore our public services and the public finances to health. The Tories and Reform—who are increasingly indistinguishable, it might be said—have already set out their choice: a return to the chaos and instability of the past. That approach failed before, and we are not going back.
The clauses in this group restore pensions to their core and intended purpose, which is funding retirement. We are not allowing them to function as a tax-free vehicle for the transfer of wealth. Generous tax relief for retirement saving is preserved. The clauses ensure that pension wealth is treated fairly and consistently for inheritance tax purposes. They protect ordinary families, with more than 90% of estates still paying no inheritance tax at all each year after the changes.
Let me turn to the non-Government amendments in this group. New clause 18 would require the Treasury to review the effects of the changes to pension tax policy, including their impacts on individuals, administrators and behaviour. A report would need to be laid in Parliament no later than six months from when the Act comes into force. This new clause is not necessary. The Government have published a tax information and impact note on the changes in the normal way. It sets out the impact on individuals, and accounts for the impact on personal representatives.
As hon. Members know, the Government keep all tax policies under review through the monitoring of returns and communication with representative bodies and taxpayer groups. A review within six months of the policy taking effect on 6 April 2027 is not practical, not least because the data relating to inheritance tax in 2027-28 will not be fully available until the summer of 2030. That is the normal timescale, and it operates because tax liabilities data is available only with a long lag, partly because the filing of the relevant inheritance tax accounts is due 12 months after a death. For those reasons, new clause 18 should be rejected.
The Second Deputy Chairman of Ways and Means (Caroline Nokes)
With this it will be convenient to consider the following:
Clauses 84 and 85 stand part.
Schedule 13.
New clause 21—Review of the impact of sections 83 and 84: free bets and freeplays—
“The Chancellor of the Exchequer must, within six months of the passing of this Act, undertake an assessment of the impact of implementation of sections 83 and 84 of this Act in respect of the treatment of free bets and freeplays for calculating general betting duty on remote bets.”
New clause 25—Statements on increasing remote gambling duty and introducing a new rate of General Betting Duty—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to the House of Commons on the effects of the increase in gambling duties made under sections 83 to 84 of this Act.
(2) The statement made under subsection (1) must include details of the impact on—
(a) sports and horseracing,
(b) the number of high street betting shops,
(c) the gambling black market,
(d) the employment rate, and
(e) the public finances.”
This new clause would require the Chancellor to make a statement about the effects of the increase in gambling duties.
Lucy Rigby
Clauses 83 to 85 and schedule 13 make changes to the gambling duties regime, to better reflect the modern gambling market and to raise more than £1 billion a year to support the lifting of the two-child benefit cap. I will first speak briefly to the broader context of the package, and I will then turn to each clause.
Gambling is a significant part of the UK economy, generating an annual gross gambling yield of around £16.8 billion in 2025, according to figures from the Gambling Commission. The industry has changed markedly in recent years, while the duty system has not changed since 2019. Most notably, there has been a structural shift from in-person to online gambling. Between 2015 and 2025, remote gambling grew by 80%, while land-based gambling has declined by 10%. At the same time, evidence of gambling-related harms has become even clearer.
The estimated cost to the Government and society of gambling-related harms in England alone is between £1.05 billion and £1.77 billion a year. NHS figures show that over 40% of gamblers using online slots, bingo or casino games are considered to be at risk, compared with less than 15% of those betting in person on horseracing. Referrals for gambling addition have risen sharply—NHS England has doubled the number of clinics for problem gambling. I am grateful for representations from so many MPs and campaigners on this matter, alongside those with constituencies where horseracing plays an important role in the community and, indeed, the local economy.
In the Budget, the Chancellor made it clear that changes to gambling taxation are fair, proportionate and for a purpose, as they will directly contribute to lifting an additional 450,000 children out of poverty. This Government are very proud of that. Unfortunately, the Opposition showed little regard for child poverty when they were in government, and it is entirely in character, albeit no less shocking, that they oppose this Government’s changes and would increase child poverty as a result. Reform UK is even more brazen.
Jim Dickson (Dartford) (Lab)
I thank the Minister for giving way during an excellent speech introducing what I think is an extremely positive change. Like many Members, I have campaigned for some years to ensure that the most harmful and addictive forms of gambling attract tax that is commensurate with those harms, so I welcome this measure, as I am sure do others who have campaigned on this issue. As a member of the Treasury Committee, which recommended this change in a report just before the Budget, I am very glad to see it. Will the Minister confirm that some of the revenue raised will be used to help the Government reach their objective of lifting half a million children out of poverty, and say how that relationship works? The Treasury clearly does not want to see a hypothecation of that sum, so how does the connection between the money raised by the tax and the lifting of children out of poverty work?
Lucy Rigby
The tax changes in the Bill disincentivise the most harmful forms of gambling. We have also introduced a statutory levy to pay for the prevention of some of those harms arising in the first place, and of treatment, and my hon. Friend makes an excellent point.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
The Minister has said that the tax change will disincentive the most harmful form of gambling, but can she cite any evidence that will demonstrate that? I have no problem with taxing a profitable industry to pay for the wonderful policies that we announced for the sector, but the report from the Office for Budget Responsibility states that there will be a drive towards the black market as a result of these taxation changes. That is much more damaging, will raise much less revenue and, ultimately, will be much more damaging to our economy.
Lucy Rigby
My hon. Friend makes a good point. NHS figures show that over 40% of gamblers who use online slots, bingo and casino games are considered at risk, compared with less than 15% of those who bet in person on horseracing, so that is an important contrast, and the NHS figures bear that out.
Reform UK’s position on the two-child cap is even more brazen. The party went into the election promising to scrap the two-child limit but has now abandoned that position, and its Members will be traipsing through the Division Lobby with their ideological bedfellows, the Conservatives. Indeed, on any given day it is hard to keep track of who is supposed to be sitting on the Conservative Benches, and who has moved to the Reform Bench.
Sir Gavin Williamson (Stone, Great Wyrley and Penkridge) (Con)
The hon. Member for Stoke-on-Trent Central (Gareth Snell) raised the important point that the OBR says that these measures will drive money towards the black market, potentially not benefiting the taxpayer and the Treasury as much as the Minister says. Will she explain what she will do to avoid the black market benefiting from these tax changes?
Lucy Rigby
The right hon. Member raises a good point, as did my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell), about the illegal market. We are reassured by the fact that the illegal betting market in the UK is relatively small, representing between 2% and 9% of legal online market stakes. The Gambling Commission is already tackling this risk and seeking to protect consumers. The additional £26 million that we will provide to the Gambling Commission over the next three years will go to better and further enforcement against the illegal market in this space. I hope that reassures him.
At the autumn Budget 2024, the Government announced a consultation on modernising the tax treatment of remote gambling, including a proposal for a single duty covering all remote betting and gaming. The consultation ran from April to July 2025. Respondents strongly opposed a single duty, arguing that remote betting and gaming significantly differ in operating costs and harms. The Government have listened to those concerns and are not proceeding with a single remote betting and gaming duty. Instead, the Bill implements a targeted package of rate changes that will raise over £1 billion a year. It focuses on remote gambling, which has grown significantly, it protects UK horseracing and it supports lower risk community-based activities by abolishing bingo duty.
I will now turn to the individual clauses in the Bill. The changes made by clause 83 will increase the rate of remote gaming duty, which applies to online games such as slots and roulette, from 21% to 40% on 1 April 2026. Remote gaming has relatively low operating costs and has grown rapidly in recent years, with gross gambling yield rising significantly above inflation, from £2.5 billion in 2015-16 to £5.2 billion in 2024-25, based on Gambling Commission figures. It is associated with higher rates of gambling-related harm, relative to other products. As we have discussed, NHS data shows that online slots and casino games have much higher proportions of problem gamblers than betting on sports, for example. By increasing the rate on remote gaming more significantly, this measure intends to reduce the incentive for operators to push customers towards higher harm products.
Clause 84 will increase the rate for remote betting. General betting duty is currently charged at 15% for both remote and in-person betting, but the betting market has changed significantly in how it operates. Clause 84 will create a new, higher rate of general betting duty that will apply to bets placed remotely, such as online sports bets, from 1 April 2027. The new remote rate will be set at 25%, while the existing 15% rate will continue to apply to bets placed in person in licensed betting premises. The new 25% rate will not apply to remote bets on UK horseracing. Those bets will remain taxed at 15%, in recognition of the fact that operators already pay the 10% statutory horserace betting levy on horseracing bets, creating a de facto 25% burden when the 15% levy is taken into account. The new remote rate will also not apply to bets placed via self-service betting terminals in UK-licensed betting premises, pool bets and spread bets.
Finally, clause 85 will abolish bingo duty, which is currently charged on the gross gambling yield from bingo, including in dedicated bingo halls. Bingo is a much lower-risk and community-based form of gambling, often providing an important social outlet, and it supports local venues, including around 250 bingo halls right across this country. Clause 85 and the associated schedule 13 will abolish bingo duty with effect from 1 April 2026. The Bill also makes consequential changes to ensure that bingo played in UK licensed bingo halls does not become liable to other taxes or duties as a result of that abolition. This Government know the importance of bingo halls in our communities, and we are proud to back them with this tax change.
Dawn Butler (Brent East) (Lab)
I congratulate the Minister on the changes that the Government have made, on tackling online harms and on excluding bingo halls, as she says. Bingo halls are often a community, and they involve a lot of people. Does she agree that this issue is about not just online, but offline? Will she consider ensuring that we make our high streets safer when it comes to gambling? Will she look at erasing the aim to permit from the Gambling Act 2005 as a next step?
Lucy Rigby
I confess to my hon. Friend that I will need to write to her on that specific issue, because I do not have notes in front of me to that end. We are on the same page in terms of the principles she raises and the values that she seeks to put forward, and I welcome her welcoming of this Bill.
Taken together, clauses 83 to 85 modernise the gambling duties regime. As I said, they raise more than £1 billion a year to support public services and lift children out of poverty. They also focus tax increases on higher-harm, fast-growing online products while protecting UK horseracing and land-based betting and supporting bingo halls.
Adam Jogee (Newcastle-under-Lyme) (Lab)
For clarity, bet365 is based in the constituency of my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell), but—
Adam Jogee
It is one of the largest private sector employers in Newcastle-under-Lyme—that was not in my hon. Friend’s notes. [Laughter.] Can the Minister touch a little bit on the engagement with some of these companies to ensure that the workers, many of whom live in my constituency and the constituency of my hon. Friend the Member for Stoke-on-Trent Central, will not be adversely impacted?
Lucy Rigby
My hon. Friend raises an important point around jobs in the industry. He will be aware that employment in the gambling industry as a whole declined by around 20% between 2015 and 2023, so it is in gradual decline, and the trend predates this Bill. The jobs in his constituency are incredibly important, which is why the measures in this Bill deliberately focus on online gambling, rather than betting shops and casinos, which support more jobs and face higher operating costs, as I am sure the institutions in his constituency do.
Sir Gavin Williamson
In Staffordshire and Stoke-on-Trent Central specifically, 5,500 people are employed by bet365. It is not just a significant employer; it is the most significant employer. What actions or interventions is the Treasury looking at taking to try to offset some of the potential job losses that these policies will cause?
Lucy Rigby
As I said, employment is an important consideration that has been borne in mind for the purposes of this Bill, and there has been considerable engagement on all these issues. If the right hon. Member seeks further engagement, I am more than happy to have it.
I was just about to conclude.I commend clauses 83 to 85 and schedule 13 to the Committee.
The Second Deputy Chairman of Ways and Means (Caroline Nokes)
I call the shadow Minister.
James Wild
These changes were presented as some sort of simplification and modernisation, but clauses 83 and 84 nearly double remote gaming duty from 21% to 40% and increase general betting duty to 25%. We will have some of the highest rates of tax on gambling in the world. As we have heard from some Members, the industry has warned that that could have severe consequences for an internationally competitive sector that supports tens of thousands of jobs, underpins horseracing and other sports and already contributes significantly to the Treasury. It is questionable whether these measures will lead to stable, long-term revenue gains for the Exchequer, and there is a very real risk that they will result in job losses and greater use of unregulated operators in the black market. New clause 25 would require the Chancellor to come back to the House and explain what the consequences have been for revenue, sports and horseracing, high street betting shops, the black market, jobs and the public finances.
Of course, the origin of these changes owes much to Gordon Brown, who encouraged the Chancellor to hike taxes in order to increase welfare spending. Proponents of higher taxes often suggest that they will not have any consequences, but it is the role of us in this House to scrutinise potential changes and assess the impact after the event. Independent modelling from EY shared by the Betting and Gaming Council suggests that the impact of doubling remote gaming duty could be the loss of 15,000 jobs, and a further 1,700 jobs could be lost as a result of the increase in general betting duty. In total, 17,000 positions located in Stoke-on-Trent, Leeds, Sunderland, Manchester, Nottingham, Newcastle-under-Lyme, Norwich and other areas could be affected. Of course, those are simply projections—they could prove to be pessimistic, and we certainly hope that will be the case—but when unemployment has risen consistently under this Government due to the jobs tax and other costs, such warnings should not just be dismissed. That is why the Chancellor must account for the impact of her choices, as new clause 25 requires.
There has been some mention of horseracing. I was pleased to join colleagues across the House in support of the “Axe the Racing Tax” campaign. That is another tax that the Chancellor wanted to introduce, but she was forced into one of her all-too-regular U-turns.
Alex Ballinger (Halesowen) (Lab)
Does the hon. Gentleman accept that the proposal to harmonise gambling taxes, which the horseracing industry was most opposed to, was first proposed by his Government? It is something that they were proposing; we have just inherited it.
James Wild
We are debating the measures in this Bill, which was introduced by this Government. I was not involved in the changes that the hon. Gentleman refers to, and I certainly would not have supported hitting the horseracing sector in the way that was proposed. I do not remember that being in a previous Finance Bill introduced by a previous Government; it is this Government who sought to bring forward those measures, but they were roundly rejected, because horseracing supports around 85,000 jobs and contributes £300 million in tax revenue every year.
Despite the Government’s climbdown in exempting horseracing from the higher rates, the industry could still feel the consequences of this Government’s approach to gambling duties. When the online betting sector is squeezed, sponsorship is likely to be reduced, and because racing’s funding depends heavily on those partnerships and that sponsorship, we could see an impact on racing. In my area of Norfolk, we are very fortunate to have Fakenham races—I went there to support the British Horseracing Authority’s campaign against the Government’s plans. That venue is synonymous with the area and its identity, and is a source of local employment, not just at the track itself but for the farriers, the pubs, the hotels and the whole ecosystem that supports racing. That is why these clauses in the Bill continue to pose a risk to the sector and other sports, and that risk needs to be accounted for.
I now turn to the black market, an issue that was raised by the hon. Member for Stoke-on-Trent Central (Gareth Snell) and my right hon. Friend the Member for Stone, Great Wyrley and Penkridge (Sir Gavin Williamson). The Government have acknowledged the risks associated with taking this approach, which is why they quietly set aside £26 million for the Gambling Commission to combat expansion of the black market, but the same EY analysis suggests that over £6 billion in stakes could migrate to the black market, doubling its current size and undermining the progress that has been made through the existing regulatory framework. The Office for Budget Responsibility has identified potential leakage of around £500 million in lost revenue as activity shifts away from properly regulated markets. Those projections—which again could be wrong, but could also be right—raise legitimate questions about the overall effectiveness of the Government’s approach.
When taxes rise too far, behaviour can change and the yield can go down, which is what we will see with a number of the tax rises that the Government have included in their Finance Bill. Rather than reducing demand, activity will move to unregulated markets where consumer protections are weaker, fraud risks are higher, and tax revenue is not collected. I am not sure we have heard a convincing response from the Minister about how that will be addressed and whether those risks have been taken properly into account.
Let us look at what happened in the Netherlands, where the Dutch Government raised their remote slots tax rate to 34% last January. Within months, gross gaming revenue fell by a quarter and gambling tax receipts dropped to just 83% of the previous year’s figure, leaving a €200 million shortfall from the projections. Somewhat predictably, the Dutch regulator then reported a huge growth in the number of people accessing unlicensed domains, rising from 200,000 to a million. That should serve as an example of why we should be cautious about the Chancellor’s plans. Experience suggests that changes have unintended consequences, and those risks must be carefully assessed. In winding up, will the Minister provide a bit more clarity about how that will be monitored and what steps the Government will take if there are unintended consequences and those projections prove to be accurate?
There is some debate and confusion in the sector and some of the professional bodies about the treatment of free bets and free plays. The sector and those bodies have raised concerns about that. The Budget costings document calculates gambling duty using the gross gambling yield, which is the revenue retained by operators after paying out winnings to customers. However, current law uses a wider measure, which also counts the value of free bets and free plays. That means there is a potential mismatch. Will the Minister clarify that? I am sure she has had representations on it directly.
We need to strike a balance with the levels of taxation. The industry is warning that these increases will impact on sports and lead to job losses and more black market activity. New clause 25 seeks transparency and an answer to those concerns. It asks the Chancellor to assess the impact of these rises on horseracing, the black market, jobs and the public finances. That is the minimum that Parliament should expect, and I hope Members will support our new clause.
Lizzi Collinge (Morecambe and Lunesdale) (Lab)
I rise to speak to clauses 83 to 85 and schedule 13, which respectively outline: an increase in tax on online gaming, such as online slots or casino games; a new rate of general betting duty specifically for online betting, such as placing a bet on a football match; and, removing bingo duty.
Online gambling has evolved quickly, and legislation has simply not kept up. Before, someone might have popped down to their local high-street betting shop or organised a trip with their friends to the casino. It was confined to a specific place that people had to go to and then at some point leave. That does not mean that there were no problem gamblers—of course there were—but it did impose necessary social and physical limits on gambling. Online gambling has changed that beyond all recognition. Now, that casino fits into someone’s pocket. Online platforms know people’s habits, when they use their phone most and when they have not gambled in a while, and the platforms can tailor notifications to pull people back in. The technology is designed to prey on human instinct, using algorithms that make betting time-sensitive, compulsive and constantly available. In case the opportunity to gamble ever slips someone’s mind, gambling companies will be sure to remind them in a commercial break for sports matches, on the side of buses and emblazoned on the microphone at premier league post-match interviews.
People might see some of the seemingly generous offers they are given. For their first £5, the betting companies might give them £100 or even £200 credit to gamble with. That feels like a lot of money to most people, but it is pennies compared with what the companies are making from their current customers and what they might make from you, once you are hooked.
As someone who, to be frank, does not like gambling—I do not gamble, and I do not understand why people enjoy handing their money over to betting companies—I detest the tactics used by gambling companies to pull people in. As online gambling has evolved exponentially, the online platforms have been able to get away with dodging responsibility for problem gambling or for paying their fair share into the Treasury. As my dad always says, “You never meet a poor bookie.” That is why I support clause 84, which will introduce a new higher rate of tax on remote betting, so that online bets are more expensive compared with in-person betting. Those taxes will be paid by the platform, so that we can catch up, finally, with the reality of the gambling world, which has moved far beyond the traditional model of shops and casinos that the tax system was designed around.
Clause 83 raises the rate of remote gaming duty, the tax on online slots and casinos. That reduces the incentives for operators to push the most harmful forms of online gambling, making the system fairer and safer for everyone. I represent Morecambe, a seaside town with a host of gaming businesses on the front and a bingo hall. The evidence shows that it is not the penny slots or the weekly bingo games that drive the majority of problem gambling, and I am pleased that the new remote gaming and betting duties recognise that.
The Second Deputy Chairman of Ways and Means (Caroline Nokes)
I call the Liberal Democrat spokesperson.
Daisy Cooper
We Liberal Democrats have long campaigned for the doubling of remote gaming duty, and we are grateful to the Government, who have finally listened and taken that on board. This measure will raise vital revenue in a fair way, while addressing the eye-watering profits of the big online gambling companies and standing up for the thousands affected by problem gambling. According to the latest figures from the Gambling Commission, the online gambling giants saw revenues reach an eye-watering £7.8 billion in 2024-25. Meanwhile, Public Health England has estimated that gambling costs the UK economy about £1.4 billion a year through a combination of financial harms and the impact on physical and mental health, employment, education and crime. About 300,000 adults in Britain experience problem gambling, as well as roughly 40,000 children. Those figures are stark. This measure finally takes action that should have been taken a long time ago, and it will raise about £1.8 billion a year by 2029-30 to fund our public services fairly.
Buried in the fine print, however, is a detail that makes it seem as if the Government are giving the big online gambling firms a get-out, and I should be grateful to the Minister for some clarification. According to the “Budget 2025 Policy Costings” document,
“The tax base for this measure is the Gross Gambling Yield”,
which is the revenue retained by gambling operators after they have paid out winnings to customers. The tax base for remote gaming duty as defined in the Finance Act 2014 is a larger tax base. It is known as the gross gambling revenue, and includes the notional stake value of free bets and free plays. Can the Minister explain why today’s tax measure will apply to a narrower tax base than the one currently targeted by remote gaming duty? How much tax revenue has been forgone by this narrowing of the tax base? Was it unintended, or was it a result of influence from the sector? Did any of the big online gaming companies meet any Ministers and discuss these measures while they were being considered?
New clause 21, tabled in my name, seeks to clarify this situation by requiring the Chancellor, within six months of the passing of the Act, to undertake an assessment of the impact of the implementation of sections 83 and 84 in respect of the treatment of free bets and free plays for calculating general betting duty on remote bets, so we can clearly see the impact of this difference.
Alex Ballinger
I want to speak in support of clauses 83 and 84 on gambling taxation. I of course strongly welcome these steps on remote gaming duty, which cover online slots, online casino games and other high-risk remote gambling products.
Ahead of the Budget last year, I was one of more than 100 Labour MPs, alongside Gordon Brown, who wrote to the Chancellor calling for a different approach to gambling taxation and one that recognises the reality of the modern gaming industry. We highlighted how taxing the social ills caused by online gambling could pay for the abolition of the two-child benefit cap, and I strongly welcome the action the Chancellor has taken to lift hundreds of thousands of children out of poverty on the back of these changes. For us, fairness was not just about asking those with the broadest shoulders to contribute more, but about ensuring those whose business models generate the most harm make a proper contribution to the cost of that harm. That is why clause 83 is so important, as it targets the most addictive and dangerous forms of gambling: online slots and casinos.
As a country, we are experiencing record levels of harm caused by gambling. The Gambling Commission’s figures tell us that 2.5% of adults, which is more than 1 million people, are suffering from serious gambling harm. There are many types of gambling harm—debt, family break-up, crime and, at the most severe end, suicide—so it is extremely worrying that the Royal College of Psychiatrists has seen a threefold increase in the number of those referred for gambling treatment since gambling moved online during the pandemic.
In my own area, the Dudley-based Gordon Moody charity, which provides gambling treatment centres all over the west midlands, has seen a large increase in referrals, most worryingly among younger people involved in online gambling. This is not a coincidence, because online slots and casinos are designed to be high speed, continuous, psychologically manipulative and, for many, overwhelmingly addictive. So the Chancellor’s decision to increase remote gaming duty targeted at these most harmful forms of gambling is absolutely the right thing to do. It sends a clear message that the tax system must reflect the level of harm caused.
There is another reason why this change—as well as clause 84, which increases general betting duty—is the right thing to do: many online gambling operators, particularly large global operators, have spent years offshoring their profits, booking revenues overseas, minimising their UK tax liabilities and contributing very little in meaningful employment or investment in our communities. In one example, at the end of last year the online operator Sky Bet moved its headquarters to Malta specifically to avoid UK corporation tax, cutting its contribution to the Treasury by tens of millions of pounds. In another example, an unnamed online bookmaker was investigated by the Gambling Commission for illegally directing customers to offshore-based platforms —indeed, to the black market itself—to avoid paying UK tax and to avoid UK regulations. Increasing these online duties means that it will be harder for unscrupulous operators to avoid tax by moving operations offshore. Online gambling in the UK will be taxed fairly in the UK.
Raising remote gambling duty to 40% and general betting duty to 25% for remote bets also puts us on a footing much closer to that of other European jurisdictions and many states in the United States. Until the Budget, the UK was behind the curve in taxing these highly harmful online products. For us, the Chancellor’s move is a matter not just of revenue, but of fairness, responsibility and aligning our tax system with the reality of modern online gambling.
However, taxation is only one element of harm reduction. Raising duty alone will not of course prevent gambling addiction, stop children being exposed to online gambling advertising and ensure that families receive the support they need when a loved one falls into crisis. If we are to tackle these harms, we need a public health approach. That means proper funding for treatment, and I welcome the steps already taken under the statutory levy. However, it also means serious investment in prevention, community education and early intervention, and a modern regulatory framework that puts people, not profits, first and is fully independent of the gambling industry.
I want to highlight another pressing issue for the Minister, which is the continued prevalence of the B3 gaming machines on physical premises. These high-intensity machines, so often located in areas with higher deprivation, continue to cause significant harm, yet they remain under-regulated and undertaxed relative to the risks they pose. If we are to take harm seriously, B3 machines should be included in the next phase of gambling tax reform.
Finally, the most recent gambling Act was introduced more than 20 years ago, in a completely different era: before the smartphone, before the explosion of data-driven behavioural targeting, and before 24/7 online casinos in your pocket. A new Act is clearly needed. Our laws have not kept pace with technology, they have not kept pace with the scale or sophistication of online gambling operators, and they have not kept pace with the reality of the harm we now see every day in communities across the country. I welcome the measures in the Bill, but I urge the Government to move quickly to update advertising rules, strengthen affordability checks, protect children and vulnerable people, and ensure that tax policy, regulation and public health strategy on gambling are all aligned.
The measures on remote gaming duty and general betting duty are excellent steps in the right direction. They acknowledge the reality of harm, strengthen fairness in our tax system and take us closer to a modern framework that puts the wellbeing of the public first.
The Second Deputy Chairman
I call the Chair of the Culture, Media and Sport Committee.
Dame Caroline Dinenage (Gosport) (Con)
I would like to speak in support of new clause 25, which would require the Government to assess the effects of an increase in gambling duty, because just as I believe individuals have a right to spend their hard-earned money as they like, I believe it is important that they do so in a sensible, regulated and safe environment.
Whatever we may think about gambling companies, gambling is already a very heavily regulated sector. Since the gambling White Paper was published in 2023 by the previous Government, the industry has already absorbed over 62 policy changes. Those changes include a limit on slot stakes, financial risk checks on transactions, tightened market rules and the statutory levy. The sector is so well regulated that the Culture, Media and Sport Committee warned the previous Government that the finance risk checks should be as minimally intrusive as possible. The Committee concluded that the Government must strike a careful balance: preventing harm for all, while allowing those who gamble safely the freedom to continue to do so. I have concerns that this vast increase in taxation on online betting and gaming does not strike that balance.
The combination of an existing regime of strong regulation and a sudden jump in the levels of remote gaming duty from 21% to 40% is the kind of environment that I believe risks pushing people into the black market. As a floor, 40% is very high for remote gaming tax by international standards. It has been suggested that such high taxes could double the size of the online black market. Does the Minister recognise research from the Netherlands, highlighted by the shadow Minister, which found that after steep tax rises were introduced on remote slots, visits to black market domains increased fivefold over a three-year period? That is what we have to worry about if we are concerned about the oversight of those making bets and playing slots. That is why I am supportive of new clause 25, tabled by the Opposition. It requires the Chancellor to assess and report back on the effects of the increase in gambling duties on the number of high street betting shops, the black market, the employment rate, the public finances, and sports and horseracing.
On sports and horseracing, I was glad to see a carve-out from general betting duty for UK horseracing. I was among many Members calling for that in recognition of the unique place horseracing occupies in British cultural life, as well as the 85,000 jobs and £4 billion contribution to the economy that horseracing offers.
The Government have slightly dressed up their raid on gambling companies as being driven by concerns around gambling harms. In November 2024, I spoke to the Bacta convention about the then recently announced statutory levy and my concerns about how it would be distributed to organisations that conduct harms research. The Committee recommended the year before that the Government ensure that service providers, which were operating via the voluntary funding system, were adequately supported to make the transition to the statutory levy. However, we have now received very concerning reports that voluntary organisations in particular are facing a funding cliff edge, with delays and a lack of information about the transition to levy payments from the NHS.
I am not entirely sure the Minister is listening to what I am saying, but I am hoping she will be able to address that point. She has not looked at me once while I have been speaking, but hopefully she is furiously writing notes about what I am talking about and will be able to address those concerns. Hopefully, she will tell me that she will discuss them with colleagues and act to ensure that no charitable organisation currently operating within the gambling harm prevention sector will have to fold due to delays with levy funding.
The Chancellor is looking around for money and believes that she can raise it from gambling companies, but, as with many of her other measures, such as national insurance rises, she will be a victim of the law of unintended consequences if she is not careful. On this occasion, the consequence will be that more people are dragged into the black market, where they will quite simply find better offers than those offered by gambling companies.
Gareth Snell
As has already been pointed out by a number of colleagues, my constituency is home to bet365. My hon. Friend the Member for Halesowen (Alex Ballinger) said something about there being no meaningful employment in gambling, but I would say to him that there are thousands of people in my constituency and in that of my hon. Friend the Member for Newcastle-under-Lyme (Adam Jogee), who put food on the table for their children as a result of the job they do in the industry. There are 109,000 people who go to work in the sector, whether it be in a betting shop, a casino, a bingo hall, or a high-tech company like the one in my constituency. To say that the work is not meaningful makes this sound like an ideological change rather than a taxation change.
Alex Ballinger
The point that I was trying to make was not at all that people who work in the gambling industry are not involved in meaningful employment. The online sector represents less than 10% of jobs yet makes enormous profits, so in fact, if online companies are taxed more, gambling companies are incentivised to put more people in the land-based gambling sector, which could increase employment and would be good for people in my hon. Friend’s constituency.
Gareth Snell
That is nonsense, frankly. Some 7,500 people work for that company in my constituency. If they were all my constituents, that would mean one in 10 people in my constituency were getting paid a salary that is greater than the average for the region. Whether we like gambling or not, that company and the people it employs are driving the economic regeneration of north Staffordshire, because those jobs are the ones that give people money to spend on our services, shops and social activities.
I am sure we do not want to make this a debate about the moral rights and wrongs of gambling—that is not the nature of the debate we are having today—but I do think we need to consider the reality of the circumstances that the communities that host these companies will face as a result of the tax changes. I congratulate my hon. Friend the Member for Halesowen on being successful in his campaign to get to where we are today, but the consequence is going to be felt in my constituency with job losses. There are people who will not have a job this time next year, either because the company that they work for will have to reduce the number of people who work for them, or—worst of all—will move overseas.
There have been lots of comments about moving profits overseas and the prospect of bad actors, but the company in my constituency is probably an exemplar of how to keep the money in the UK. The owners of the company are paid incredibly well, but they still pay PAYE. They make a contribution to the state that is about equal to my entire local government budget. The idea that these are not meaningful organisations is slightly disrespectful to the people in them, and the economic damage that would occur in my city if such companies were to disappear overnight, which they could do, would be devastating. Frankly, it would cost the Government significantly more in the bail-out that would be needed than they would raise through the tax.
I think it was my hon. Friend the Member for Dartford (Jim Dickson) who made the point that we do not do hypothecated taxes in this country. When it comes to spending, I support every measure that the Government brought forward at the Budget. The lifting of the two-child benefit cap will benefit 4,500 people in Stoke-on-Trent Central. My city has one of the highest rates of child poverty of anywhere in the country, so the benefit to those families will be enormous and immediate. However, everything goes into one big pot and then goes out from the other pot, and we should be careful about making the moral argument that specifically taxing gambling is the only possible way to fund how we deal with child poverty. That is a slight misapprehension.
Having visited bet365 and seen the work that it does, I know that it is worried about the impact that the changes will have on the black market. It—as does the entire sector—spends a lot of its time and energy doing research and development to try to work out how to keep people playing and betting in the regulated sector, where there is support for people at risk from gambling, including lock-out mechanisms for problem gamblers, and where the tax receipts from the people who bet go back into the UK. To have £6 billion going into the unregulated sector could be a huge loss to the Treasury.
We are all only one or two clicks away from being in an unregulated gambling app. For Safer Gambling Week, the Betting and Gaming Council asked people to look at two comparable gaming sites, because without realising, people can easily find themselves on one site that is not regulated, whose revenue stream almost certainly goes into dark activity—probably funding some organised criminal activity—and not a regulated sector product, with all the support and safety measures that come with that. Because these things can now proliferate on phones, access to them for people of all ages is now much easier.
There is a genuine concern that we must think about: if that £6 billion is going into the unregulated sector and, as the result of the tax changes—as the OBR recognises—there will be an increase in unregulated activity and problem gaming, is the £26 million for the Gambling Commission enough? Will the £1.1 billion raised by the statutory levy be sufficient? As the hon. Member for Gosport (Dame Caroline Dinenage) said, there is genuine concern from some charitable organisations on the ground that they have not yet had their funding for this or confirmation about how they will be able to spend it. Does it just get sucked into the NHS pot to be spent on a medical solution? That might be the solution, but that means that some of the carefully crafted mechanisms to deal with problem gambling will simply lose out as a result of big structural changes to tax.
Alex Ballinger
I agree with my hon. Friend—I am also concerned about the black market in online gambling—and I welcome the extra money that the Chancellor has introduced for the Gambling Commission, which has powers including blocking ISPs and blocking payments, among other things, to crack down on unregulated gambling.
Does my hon. Friend share my concern about unregulated online gambling companies advertising in the UK, including in the premier league? Does he agree that the Government should be doing something about that so that we can better support the regulated sector?
Gareth Snell
Absolutely, we do need to do that. I am an old-fashioned state regulator; I like the idea that the state can regulate things. I like the idea of tax and spend as well, which is what we are doing in the Budget. It is a good thing—[Interruption.] I was so close—I raised the hopes of the hon. Member for North West Norfolk (James Wild) and then dashed them.
We should think about some of the changes that came in through the White Paper, including the whistle-to-whistle ban on promoting certain products, the premier league’s voluntary opt-out on gambling company sponsorship, and the soon-to-be banning of gambling companies on football shirts. Again, that uniquely affects Stoke-on-Trent, because bet365 sponsors Stoke City. Therefore, should we ever make it to the premiership—we came so very close at the beginning of the season, but we are not quite there now—we would have to have a complete change of kit.
There is more that we can do about the unregulated sector, but that should be a collective effort. We should also not kid ourselves that what we are doing today is about trying to get on top of the unregulated sector. We are talking about the taxation of the regulated sector. As a consequence, we may inadvertently push more people into the unregulated sector. The consequence of that will be bad for society and bad for people who are problem gamblers. It will also be a challenge for the Gambling Commission to them try to regulate, and we need to be up front about that.
I recognise that there are some very addictive games that people can get hooked on and spend an absolute fortune, because, as my hon. Friend the Member for Halesowen said, they are affected psychologically; they get drawn in, spending more money to make the experience worth while. But we may be in a perverse situation, because the machine gaming duty rate for a land-based product will be 20%, but the remote betting duty—for products where people can bet on a football match using one of the apps at home—will be 21%. Although we recognise that the gaming side is much more damaging than the betting side, we are going to have a lower rate for land-based gaming than for remote betting, when we recognise that betting as a product presents a safer, more cost-intensive situation. Was that by design, or is it a consequence that the Treasury has not considered? Will the Minister address that point?
The Minister has said that this is a fair levy, taking the gaming rate to 40%. That will make us an outlier compared with our European neighbours. The next on the list are Czechia at 35%, the Netherlands at 34% and Denmark at 28%. There is a point at which the taxation of a product becomes so de minimis in its return that it ceases to have an effect. I have never believed in the Laffer curve—I am sorry to disappoint the hon. Member for North West Norfolk again—but I can see that we will get to a point where we are trying to squeeze an increasingly large amount of money out of a shrinking tax base because more people are taking their spend elsewhere.
That would be damaging for everybody. It would be damaging for my constituents, because if the demand for the service and products made by the companies in my constituency dry up, the jobs also dry up. It would also be bad for the Treasury because the amount of money it can raise from the regulated sector will decrease, and that is not something that we want to see. Has the Minister looked at the evidence from the Netherlands? When the Netherlands increased its rate, which it did for good reason—a decision around tax and spend in order to raise money to pay for parts of its social programmes—it actually saw a huge spike in the use of unregulated products, with something like a fivefold increase over three years, and a huge decrease in the expected rate of return for its revenue.
There are similar examples in other European countries. I do wonder whether we have looked at those before making some of the decisions that we are making today. Do we have a contingency? It is not that we are hypothecating taxation in this country, but we have said that these changes are, quite rightly, to fund the reduction of child poverty through the removal of the two-child benefit cap. If the revenue rates from the changes decreases, where will the additional money come from?
Finally, will the Minister touch on the impact on Gibraltar? The decisions on gambling tax rates that we make today will have an effect on Gibraltar. Nigel Feetham, the Minister for Justice, Trade and Industry in Gibraltar, has repeatedly pointed out that 3,500 people in Gibraltar derive their job from the gambling sector. It makes up 30% of GDP there; one third of Gibraltar’s tax receipts comes from the gambling sector. He has said only this week that the change will remove tens of millions of pounds from the Government of Gibraltar’s budget. There is absolutely no way they can replace that from domestic sources in any reasonable time.
Given that Gibraltar is one of our important overseas territories, will the Minister set out and explain what conversations the Treasury has had with counterparts in Gibraltar? What are the contingencies if we find ourselves inadvertently creating a massive black hole in the budget of the Government of Gibraltar? Again, if we have to bail them out in some way, where will that money come from? If it is taken out of the revenue that is expected to be raised from this particular rate, that then undermines the figures in other parts of the Budget, which, in its entirety, I support.
Mrs Sureena Brackenridge (Wolverhampton North East) (Lab)
My constituents know all too well that there are some gambling companies that thrive on making vast profits from addiction, distress and despair, often delivered straight into people’s homes through online platforms and their mobile phones—quietly but devastatingly tearing families apart. That is why I speak today on clauses 83 to 85 and schedule 13.
Remote gaming, including online slots and casino games, is the most addictive and fastest growing part of the gambling industry. Those products are deliberately engineered to keep people playing, spending and losing long after the fun has gone and the harm has begun. In Wolverhampton North East, through my constituency casework, I see the real-world consequences of parents trapped in spiralling debt, children going without the basics and relationships breaking under unbearable strain. The Bill addresses that harm head-on.
Lucy Rigby
I am grateful to hon. Members for their contributions to today’s debate, and particularly to my hon. Friends the Members for Wolverhampton North East (Mrs Brackenridge), for Morecambe and Lunesdale (Lizzi Collinge) and for Halesowen (Alex Ballinger) for their heartfelt speeches in favour of these measures. I also note the comments of the hon. Member for Gosport (Dame Caroline Dinenage), which I can assure her I did listen to in full, and of my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell), both of whom, I accept, have tremendous expertise in this area.
As I have set out, we believe that the measures in clauses 83 to 85 deliver fair reforms to our system of gambling taxation because they reflect the reality of how gambling has changed in our country, the harms that now exist and the need for the tax system to keep pace as these changes continue. The Government’s objective is to strike a balance by raising revenue fairly while avoiding further pressures on land-based operators. New clauses 21 and 25 ask the Chancellor to review the impact of and make a statement on the effects of the increase in gambling duties.
Carla Lockhart (Upper Bann) (DUP)
The Minister will know that Northern Ireland has some of the highest rates of gambling, with 3% of adults classified as problem gamblers and 5% at moderate risk. I welcome her efforts in this regard, and the money that the proposals will raise. Will she give a commitment to the Committee that she will enter into conversations with the Communities Minister in Northern Ireland about Northern Ireland getting its fair share of this levy, to ensure that organisations that help those with gambling addictions are able to avail themselves of this funding to help people in that situation? I spoke recently to a constituent who had started gambling at the age of six, and it really struck a chord. Those people need help and I just ask her to do that.
Lucy Rigby
The hon. Member raises an important point. Before I commit to her that I will take that forward, I would like to check what discussions have already taken place. I hope she will accept that that is necessary from my point of view.
Both the proposed new clauses focus on the impacts of the changes to the gambling duty and ask for a commitment to update Parliament within six months of the Bill being passed. First, this Government did not announce, and are not proposing to make, any changes to the treatment of free plays or free bets through this Bill. Furthermore, the Bill does not make any changes to the duty charged on bets placed on horseracing in high street betting shops.
Secondly, on the illegal market, which has been raised a number of times, the Gambling Commission is already tackling that risk and is protecting consumers, but we recognise that modern technology makes it easier for illegal websites to target consumers. To strengthen enforcement and protect consumers from dangerous illegal sites, we are providing an additional £26 million to the Gambling Commission over the next three years. I hope I can assure my hon. Friend the Member for Stoke-on-Trent Central that the £100 million a year in the form of the statutory levy is ringfenced for prevention, treatment and research in this area.
The Government published a tax information and impact note for this measure at the Budget. As is set out in that note, consideration will be given to monitoring and evaluating the expected Exchequer impacts of the policy after at least two years of monitoring data has been collected and analysed. More broadly, the Government continually monitor the operation of all taxes and keep them under review to ensure that they deliver on their intended outcomes and, indeed, are fit for purpose. For those reasons, the proposed statement and the impact assessment are not necessary.
The measures in clauses 83 to 85 deliver fair reforms to our system of gambling taxation. They reflect how gambling has changed in our country, the harms that now exist and the need for the tax system to keep pace as those changes continue. The shadow Exchequer Secretary, the hon. Member for North West Norfolk (James Wild), raised levels of employment. He will know that right across the piece, the OBR expects that employment levels will rise in every year of the forecast. Costings were also raised, including by my hon. Friend the Member for Stoke-on-Trent Central. The OBR has taken account of behavioural impacts within its costing. Of course, those costings have been certified and scrutinised in the usual way.
The Liberal Democrat spokesperson, the hon. Member for St Albans (Daisy Cooper), asked about engagement with industry. I can confirm that the Government, as I hope she would expect, engaged with a number of stakeholders, including from the gambling industry, as part of the consultation process. My hon. Friend the Member for Stoke-on-Trent Central also raised Gibraltar. Of course we recognise that Gibraltar has a gambling industry that very much faces the UK. I can assure him that there has been engagement, not by me, but by some of my colleagues in the Treasury, with Gibraltar to that end.
Daisy Cooper
I am grateful to the Minister for confirming that she has consulted and that Ministers have had engagement with the industry. I was specifically wondering whether in the course of that consultation with the industry, there was discussion about using a different measure and choosing a different tax base for the calculation of this particular tax, because it seems as though the tax base could have been bigger if they had used the measure already in the Finance Act, rather than this new measure that seems to shrink the tax base. Did the Treasury have a particular reason for using a different measure for calculating this remote gaming duty?
Lucy Rigby
It was not me who had those engagements, but as I said, I confirm to the hon. Member that we are not proposing to make any changes to the treatment of free plays and free bets through the Bill, which I hope reassures her in that regard.
I urge the Committee to reject new clauses 21 and 25 and agree that clauses 83 to 85 and schedule 13 should stand part of the Bill.
Question put and agreed to.
Clause 83 accordingly ordered to stand part of the Bill.
Clauses 84 and 85 ordered to stand part of the Bill.
Schedule 13 agreed to.
New Clause 25
Statements on increasing remote gambling duty and introducing a new rate of General Betting Duty
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to the House of Commons on the effects of the increase in gambling duties made under sections 83 to 84 of this Act.
(2) The statement made under subsection (1) must include details of the impact on—
(a) sports and horseracing,
(b) the number of high street betting shops,
(c) the gambling black market,
(d) the employment rate, and
(e) the public finances.”—(James Wild.)
This new clause would require the Chancellor to make a statement about the effects of the increase in gambling duties.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The Chairman of Ways and Means (Ms Nusrat Ghani)
With this it will be convenient to consider the following:
New clause 8—Review of impact of section 86 on the hospitality sector—
“(1) The Chancellor of the Exchequer must, within six months of the passing of this Act, lay before the House of Commons a report assessing the impact of the measures contained in section 86 on the hospitality sector.
(2) A report under subsection (1) must include an assessment of the impact of section 86 on—
(a) levels of employment across the United Kingdom within the hospitality sector,
(b) the number of hospitality businesses ceasing to trade, and
(c) the number of new hospitality businesses established.
(3) In this section, ‘the hospitality sector’ means persons or businesses operating in the provision of food, drink, accommodation, or related services.”
This new clause would require the Chancellor of the Exchequer to review and report on the impact of the alcohol duty measures in Clause 86 on the hospitality sector, including effects on employment and business viability.
New clause 9—Review of cumulative impact on the hospitality sector—
“(1) The Chancellor of the Exchequer must, within six months of the passing of this Act, lay before the House of Commons a report assessing the cumulative impact on the hospitality sector of—
(a) the measures contained in section 86 of this Act, and
(b) changes to taxation and business costs affecting that sector introduced outside this Act since 2020.
(2) For the purposes of subsection (1)(b), changes to taxation and business costs include, but are not limited to—
(a) changes to employer National Insurance contribution rates or thresholds,
(b) changes to business rates, including reliefs and revaluations, and
(c) any other fiscal measures which materially affect operating costs for hospitality businesses.
(3) A report under subsection (1) must include an assessment of the impact of the matters listed in that subsection on—
(a) levels of employment across the United Kingdom within the hospitality sector,
(b) the number of hospitality businesses ceasing to trade,
(c) the number of new hospitality businesses established, and
(d) the financial sustainability of hospitality businesses.
(4) In this section, ‘the hospitality sector’ means persons or businesses operating in the provision of food, drink, accommodation, or related services.”
This new clause would require the Chancellor of the Exchequer to assess and report on the cumulative impact on the hospitality sector of alcohol duty measures in the Act alongside wider fiscal changes, including employer National Insurance contributions and business rates.
New clause 26—Statements on increasing alcohol duty—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to the House of Commons on the effects of the increase to alcohol duty made under section 86 of this Act.
(2) The statement made under subsection (1) must include details of the impact on—
(a) the hospitality sector,
(b) pubs,
(c) UK wine, spirit and beer producers,
(d) the employment rate, and
(e) the public finances.”
This new clause would require the Chancellor to make a statement about the effects of the increase in alcohol duty.
Lucy Rigby
I am pleased to open this session—the sixth and final session in Committee of the whole House on the Finance (No. 2) Bill—on clause 86, which concerns alcohol duty. This Government’s approach to alcohol duty is one of proportionality. Indeed, we are taking a fair and coherent approach to alcohol taxation as a whole. The measures in the Bill take account of the important contribution of alcohol producers, pubs and the wider hospitality sector, the Government’s commitments to back British businesses, and the need to maintain the health of the public finances.
Clause 86 makes changes to alcohol duty rates from 1 February 2026. Specifically, the clause changes the rates of alcohol duty for all alcoholic products in schedule 7 to the Finance (No. 2) Act 2023 to reflect the retail prices index.
Dave Doogan (Angus and Perthshire Glens) (SNP)
The Minister says that she has considered carefully the fairness of the changes in this clause. Has she considered at all the compound effect of this and all the other taxes that are currently killing hospitality businesses?
Lucy Rigby
We take all impacts on the hospitality sector and the pub sector extremely seriously, and this Government are proud to be backing British pubs across the piece.
The changes we are making will help to ensure that, as a country, we live within our means, that we balance the books and that we properly fund the public services we all rely on. On Second Reading, concerns were raised about the impact of alcohol duty on the hospitality sector and British pubs. We have made it clear, as I just have, that we are steadfast supporters of British pubs and the wider hospitality sector, including through the introduction of the new pro-growth licensing policy framework that was announced at the Budget.
Mr Joshua Reynolds (Maidenhead) (LD)
The Minister just said that the Government are pro-pubs, but any pub she speaks to in my constituency will tell her that this Government are not pro-pubs. The amount of profit left at the end of a pint for a pub is minuscule, and it is so far from reality to say that the Government are pro-pubs. How does she respond to all the pubs across the country that are crying out for change?
Lucy Rigby
I was talking about our new pro-growth licensing policy framework, which was announced in the Budget. If the hon. Member is referring specifically to business rates, as I think he might be, we have made it clear that we are continuing to talk to the sector about any support beyond the existing £4.3 billion support package that the Chancellor announced in the Budget.
Tonia Antoniazzi (Gower) (Lab)
I thank the Minister for speaking about an imminent decision on business rates, but this is not just about business rates. The Victoria Inn in Mumbles in my constituency has not banned me as a Labour MP—it has not banned any Labour MPs—but it would like to extend an invitation to those on the Front Bench to visit Mumbles, come to the pub and have that conversation, because it is a positive conversation about how the Government are listening and moving forward.
Lucy Rigby
I am grateful to my hon. Friend for that invitation. It is one that I will be taking up, as I would love to join her in that public house in her constituency.
Importantly, continuing to freeze alcohol duty would primarily support cheaper alcohol in the off-trade—for instance, alcohol sold in shops and supermarkets—and have only a small indirect impact on the hospitality sector. That is because, as hon. Members will know, alcohol duty is paid by producers, not by pubs, and 73% of alcohol consumed in the UK is purchased from shops, rather than in pubs, restaurants and bars. The Government’s decision to uprate alcohol duty in line with inflation is therefore not only prudent for the public finances; it also balances important considerations, and the contribution of alcohol producers, pubs and the wider hospitality sector, with the need to support public services such as the NHS.
Jim Shannon (Strangford) (DUP)
I appreciate the Minister giving way. I have noticed that more and more of my constituents are drinking non-alcoholic beer, and that there the number of people taking alcohol is reducing. That sometimes puts pubs under particular pressure, but people can still go out socialising and have a meal and a non-alcoholic drink. Would it be possible to promote that through this Bill, because I believe we should be looking at that growing market?
Lucy Rigby
I am grateful to the hon. Member, as always, for his intervention. I was about to talk about the strength-based duty system introduced by the previous Government on 1 August 2023, following the alcohol duty review. The new alcohol duty system taxes all alcoholic products according to their strength, so duty increases with alcohol content, which represents a progressive shift. The reforms introduced two new reliefs: the draught relief, which reduced the duty burden on draught products sold at on-trade venues; and small producer relief, which replaced the previous small brewers relief and aims to support small and medium-sized enterprises and new entrants.
Mike Wood (Kingswinford and South Staffordshire) (Con)
The Minister rightly refers to draught beer and cider relief, and she said earlier that her concern about freezing alcohol duties was that most of the benefit would be going to supermarkets and other places that sell beer cheaply. Surely she recognises that what the Chancellor should have done is reduce the draught rate, as happened last year, so that the full benefit would have gone to licensed premises, as they are the only venues that can sell the draught drinks covered by that rate.
Lucy Rigby
My point was that the benefit of the decision not to update alcohol duty will be felt mostly in the off-trade, which is a point that the hon. Gentleman appears to understand.
The small producer relief aims to support SMEs and new entrants by permitting smaller producers to pay reduced duty rates. Clause 86 maintains the generosity of the small producer relief, compared with main duty rates. The changes introduced by the clause maintain the real-terms value of alcohol duty, and balance the need to support alcohol producers, pubs and the wider hospitality sector with the need to support the public finances. Further to that, the changes also support smaller producers by maintaining the generosity of small producer relief. I therefore commend the clause to the Committee.
The Chairman of Ways and Means (Ms Nusrat Ghani)
I call the shadow Minister.
James Wild
It feels like we are getting warmed up for scrutinising the 536 pages of the Bill upstairs in the Public Bill Committee shortly. It is good to see that the popularity of the topics we are debating has increased as we move on to alcohol duty, which clause 86 increases in line with the retail prices index from 1 February.
I am proud to confirm that His Majesty’s Opposition are big supporters of beer, wine, spirits and hospitality businesses. As such, we oppose these tax rises. This £26 billion tax-raising Budget piles pressure on households and businesses that are already struggling because of the decisions of the Chancellor. Prices are high, growth is sluggish and now the Chancellor has chosen to impose another duty hike.
Our new clause 26 would therefore require the Chancellor to publish a statement on the impact of increasing alcohol duty on the hospitality sector, on pubs, on UK wine, spirit and beer producers, on jobs and on the public finances. These sectors are already being hammered by this Government’s economic choices. A Government who say that the cost of living is their priority are raising alcohol duty, putting more cost on to people and businesses that keep our rural communities and high streets alive.
Dr Scott Arthur (Edinburgh South West) (Lab)
May I start by wishing everybody taking part in dry January good luck? I admit that I am not one of them. It is fantastic that the shadow Minister is talking about the impact of these changes, but I am surprised that his list did not include alcohol harm. Many charities and campaign groups are pleased that the Government are trying to move people away from drinking at home to drinking in the hospitality sector. Does he accept that that is a good thing and its benefits should be evaluated?
James Wild
Indeed. When we brought in the new duty system, we focused on the strength of alcohol in terms of the tax. We want to encourage more people into the hospitality sector, but the Government seem to have a policy of driving people away from going into pubs—and not just Labour MPs.
In government, we recognised the importance of those sectors to jobs, to our communities and to growth, and the simplified duty system, including the two new reliefs—draught relief and small producer relief—were warmly welcomed. My hon. Friend the Member for Kingswinford and South Staffordshire (Mike Wood) made the point that the Government are choosing not to implement similar measures on draught relief. At the 2023 autumn statement we froze alcohol duty rates, and we extended that freeze in the spring Budget of 2024. I am proud to support that record: we had a Government working with the sector, not against it. It gives me no pleasure to say that this Government have chosen a very different path.
Sir Edward Leigh (Gainsborough) (Con)
My hon. Friend and I both represent large, rural constituencies. Could Members across the House think creatively about how we are going to save the great British rural pub? That could be by giving special credence to those who sell draught beer, rather than selling it in supermarkets, or through national insurance—all that sort of thing. Otherwise a great institution, which most people have to drive to, will be in danger of extinction. Are those pubs not part of our history?
James Wild
They absolutely are. I would be happy to come to my right hon. Friend’s constituency to discuss this over a pint in one of those small rural pubs, which are the hub of our villages and hamlets. Once they are gone, it is very difficult to replace them. The Government clearly have the hospitality sector in their crosshairs, and clause 86 is just the latest salvo.
This is no small corner of the economy. Some 3.5 million people are employed directly in the sector, which invests £7 billion a year, yet the industry is being punished by the Chancellor’s decisions and this clause. UKHospitality’s “#TaxedOut” campaign has highlighted the nearly 90,000 jobs lost in this sector. With unemployment now above 5%, young people in particular are paying the price. That is a consequence of the Chancellor’s damaging tax rises, which were supported by Labour Members.
Higher alcohol duties, the jobs tax, energy bills and soaring business rates are layering cost on cost. It is little wonder that UKHospitality has called the Government’s approach a “hammer blow”.
Ian Roome (North Devon) (LD)
Does the shadow Minister agree that as a result of this policy, lots of local pubs, including lots more in the hospitality industry, will go out of business?
James Wild
That is very clearly the risk.
The British Beer and Pub Association has said that the proposed increases will be damaging to the sector, and we may well see more closures as a result. New clause 26 would shine a light on the real impact that these decisions will have on rural pubs, jobs and businesses. I hope the Minister will consider the new clause and not simply dismiss it by referring to the tax and information impact note, as she did with an earlier group of amendments. That is a prediction of what will happen; it is not a review of what the actuality is.
Dr Luke Evans (Hinckley and Bosworth) (Con)
This new clause is even more important given the fact that the Government, the Chancellor and the Prime Minister understand the impact that the Bill will have on pubs. They have said that they will bring forward measures to help and support pubs, yet we have not seen those measures, because they are not in this Bill. We therefore need to have some form of accountability to be able to understand the impact of not only the measures before us, which we can vote on, but the proposed ones that will come in to support the measures that the Government are already looking to put in this Bill, which will have an impact. Does that make sense? Does my hon. Friend agree?
James Wild
I think that makes sense, and I certainly agree with my hon. Friend.
The Government are having to try to put in place solutions to deal with problems that they have created. If Labour MPs were welcome in pubs across the country, they would hear quite how difficult—
James Wild
I am sure that the hon. Member is welcome, but let us be clear that some are not.
If I go into a pub, I do not think I will find many publicans who think that this Government are pro-pub. We have a Chancellor who said that she did not understand the impact that her Budget, the revaluation and the removal of the discount on business rates would have. That is staggering. Frankly, it shows once again that she does not understand business and was not listening when the sector and many others warned that that was precisely the impact that her policy would have.
The Chancellor is reportedly about to do a U-turn on her business rates raid. She has not come to the House yet to inform us or the sector, but what is being briefed is likely to be wholly inadequate. On the radio this morning we heard Ministers saying that the impact will be limited to pubs, but the hospitality sector, leisure businesses and retail all face huge increases in business rates.
Mr Joshua Reynolds
Does the shadow Minister agree that if this Labour climbdown is happening, it is not enough for there to be a smaller increase than the one that was planned? There needs to be no increase in business rates.
James Wild
The hon. Gentleman tempts me on to my next paragraph.
Instead of tinkering, the Chancellor should adopt Conservative party policies and abolish business rates for pubs, hospitality businesses, retail and leisure businesses, as well as slashing the average pub’s energy bill by £1,000. That is real help—the Minister can have those ideas for free.
The duty increases will also have an impact on the UK’s world-class wine and spirits producers, which together generate £76 billion in economic activity. Across our wine sector, there are more than 1,000 vineyards, including some excellent ones in North West Norfolk, which I recommend. Despite that success, we see the Government putting yet more costs on to the sector; some 60% of the price of a bottle of wine already goes to tax. Instead of listening to calls from the sector to freeze duty, the Chancellor has decided to increase it, and she has failed to fix the small producer relief so that it works for wine makers and distillers.
The picture is no rosier in the spirits sector. The Scotch Whisky Association has said that the increase piles additional pressure on to a sector already suffering from job losses, stalled investment and business closures. It estimates that the lost revenue to the Treasury as a result of the previous rise in spirits duty amounted to about £150 million. The UK Spirits Alliance has called the Budget
“a sad day for the nation’s distillers, pubs and the wider hospitality sector.”
WineGB joins its ranks in pointing out that higher prices will likely lead to lower sales and reduce the Treasury revenue, so the sector could not be clearer. The only people still pretending this is good economics are those on the Government Benches.
When the Government should be backing businesses, they are instead choosing to add to their costs. Increased taxes have consequences—they depress demand and revenue. In October, YouGov found that one in four regular drinkers was likely to reduce their alcohol spend this year due to price increases, and the Wine and Spirit Trade Association has called for the OBR’s forecasting assumptions to be reviewed. The Government are putting themselves and the UK on the wrong side of the Laffer curve, which the hon. Member for Stoke-on-Trent Central (Gareth Snell) should read more about—he will be persuaded. Ministers should take fresh advice on the impact of these changes.
The UK’s brewers, producers and hospitality businesses are resilient. Frankly, in the face of this Government’s onslaught, they need to be. They are at the heart of our communities, creating jobs, driving local growth and giving many young people their first opportunity in work. Now is the time to support the sector, not tax it more, which is why we will be voting against these measures this evening.
Laurence Turner (Birmingham Northfield) (Lab)
I draw attention to my chairship of the GMB parliamentary group, a union that represents workers in the distillery and retail trades. I will limit my comments to the uprating of excise duty, but I welcome this Budget more generally. It represents the right choice—investment and renewal over austerity and decline.
Clause 86 of the Finance (No. 2) Bill represents a simple uprating of alcohol duty in accordance with the retail prices index. In that sense, the clause represents continuity with the policy of successive Governments over many years, going back to the early 1970s, and of course the principle of excise duty predates that by many more years. Having noted the shadow Minister’s comments, it is telling that none of the amendments we are considering today would actively reverse that increase. The effects of the escalator is also softened to an extent by the reduction for draught products, which, combined with pre-existing changes to the tax system, amount to a somewhat more favourable regime for the drinks most sold in pubs. This direction of policy is welcome, given everything we know about the attendant health and social harm that can be the result of solo drinking.
It is worth noting that the increase is in line with international best practice. It is timely that just today, the World Health Organisation published a new report titled “Global report on the use of alcohol taxes”. That report says that
“specific excise taxes need to be regularly adjusted for inflation or their real value risks erosion over time.”
It also establishes that the UK’s effective tax take is firmly in line with many other European countries, including Belgium and much of central and eastern Europe, and of course it is significantly lower than in Scandinavia. As such, uprating the duty strikes the right balance between the different objectives of encouraging social activity, supporting the hospitality and manufacturing industries, and not encouraging excessive consumption. It is true that there have been changes in alcohol consumption rates among the general public, changes that have been particularly marked since covid. As the 2024 living costs and food survey found, there has been a notable fall in real-terms alcohol consumption, both in and out of the home, which is why specific measures are needed to support the pub trade.
If I may, I will say a few words about the revaluation 2026 process. I have raised questions about this before, and the Minister has indicated that—as the phrase goes—discussions are ongoing, so in the interests of time I will not repeat my questions today. However, I would like to note two things. First, the Valuation Office Agency has been genuinely independent since the days of the increment value duty, and secondly, valuation 2026 has been coming for a long time. It was the last Government who changed the law to introduce three-year valuation exercises, and as successive annual reports of the VOA make clear, the risk of valuations in individual sectors that are not of sufficient quality was foreseen. A delivery plan was developed before the 2024 general election to mitigate that risk, as the VOA saw it. Presumably the Government of the day did not have concerns about the VOA’s approach, because if they did, they would have raised them on the record.
I will make two further brief points, the first of which is about the tax system’s treatment of different types of alcohol sales. Something needs to be done about the sale of high-strength drinks on our high streets in proximity to betting shops. If you were to go to Northfield high street, Ms Cummins, you would see a succession of small betting shops immediately next to off-licences where very low cost, but very high strength beers and ciders are sold. There is a revolving door between those premises, and it is a major contribution to some of the antisocial problems that we have on our high streets. I hope that future exercises will look at different treatments, whether that is powers for local authorities or changes to the tax system to try to remedy the problem.
Dave Doogan
I remember precisely the dynamic that the hon. Member sets out in his local high street. We used to have it in Scotland, too, until we introduced minimum unit pricing, which took the very large volume, high-strength alcohol products off the shelf in Scotland, or at least put them way up in price. He can check with the hon. Member for Edinburgh South West (Dr Arthur), who I am sure would endorse that SNP policy.
Laurence Turner
I sit on the same Select Committee as my hon. Friend the Member for Edinburgh South West (Dr Arthur), and I know better than to speak for him. I have a degree of personal sympathy with the case that the hon. Member for Angus and Perthshire Glens (Dave Doogan) sets out. I also think there is something to be said for giving more powers to our councils, because these decisions—particularly when they relate to areas at risk of complex interactions between homelessness, lack of mental health provision and the sales of these at times dangerous products—are best made locally, in addition to national policy setting.
My final point is that there have been calls outside this place for uprating to be moved to a different inflation index, principally the consumer prices index or the consumer prices index with housing. That important matter has not been raised in this debate, so I will touch on it briefly. Although CPI and CPIH are both of use as macroeconomic indicators, RPI remains the only measure that is in general circulation and is updated regularly that actively seeks to measure the cost of living as it is experienced by working people. Criticisms can be made of the retail prices index, but it is important to place on record that in the early 2010s, regular changes to the methodology for RPI were discontinued. That is behind the formula gap that has led to the widening between the headline rates of RPI and CPI. I am not convinced that moving to a different rate at this time is appropriate, given some of the limitations of CPI and its twin CPIH, which we can discuss on another occasion.
The Office for National Statistics has been developing the alternative household costs indices measure. That is particularly useful, because it captures the different rates of inflation experienced by households of different income levels. I hope that in future we can look at the HCIs as an alternative means of uprating the various charges, levies and escalators that the Government apply. We are not in that place yet, and it is important that the ONS makes progress in this area.
On the whole, I welcome the Minister’s statement. Compared with some of the other debates we have had in this Parliament—particularly on the Product Regulation and Metrology Bill, where it was suggested that there was some secretive and sinister plot to change sales of the pint to some metric measure—this has in contrast been a sober debate. I look forward to voting for the Finance Bill tonight.
The First Deputy Chairman of Ways and Means (Judith Cummins)
I call the Liberal Democrat spokesperson.
Daisy Cooper
Clause 86 increases the rate of alcohol duty in line with RPI inflation. On paper, that measure might look like a normal, simple uprating policy, but it must be seen for what it really is: in the broader context, it is yet another tax on struggling hospitality businesses and financially stretched customers.
Hospitality is being hammered over and over again with sky-high rents and soaring energy bills, the Government’s unfair jobs tax, and now this business rates bombshell buried in the fine print of the Budget. It matters, and hospitality really matters. It is the only element of pre-pandemic spending that has not recovered. The sector employs huge numbers of young people and part-time workers, often giving people their very first job and their way into longer-term employment.
This is one of the sectors that make life worth living. We all remember the place where we fell in love, or had our first date. I remember the music venue where I found my favourite band. I remember the pub where I sat with my girlfriends and one told me that she was not going to survive her stage 4 cancer—and I remember the spa day that we had when she did. Hospitality is part of who we are as human beings. It is unique in what it contributes to our economy, and we must do everything to support it.
Mr Lee Dillon (Newbury) (LD)
If this debate had taken place before Christmas, I would have had to declare an interest, but my father has now sold his majority share in our local pub in our home town, which I think goes to the core of today’s debate: publicans are leaving the sector. My hon. Friend has been talking about the importance of hospitality. My father’s pub used to host bingo nights on Thursdays and bingo on Sunday afternoons, and on those occasions we would see people there who would never go at other times of the week. Does my hon. Friend agree that the sense of community that pubs build is crucial, and is under threat from this Labour Government?
Daisy Cooper
My hon. Friend is absolutely right. Pubs are irreplaceable, and when a pub goes a community falls apart. Pubs are vital as part of the social fabric: they are the glue that holds our communities together, and we must protect them. We tabled new clause 9 because we want the Government to look at and
“report on the cumulative impact on the hospitality sector of alcohol duty measures”
alongside all the other “wider fiscal changes”, including the higher national insurance contributions and the business rates changes. This really matters.
Dr Al Pinkerton (Surrey Heath) (LD)
Back in November, the Chancellor promised to support the great British pub by introducing permanently lower tax rates in more than 750,000 retail and hospitality properties. In my constituency, the Half Moon will experience an 157% rise in business rates, the Inn at West End an 87% increase and the Frog in Deepcut an increase of 128%. Does my hon. Friend agree that this feels less like support and more like last orders?
Daisy Cooper
I agree 100% with my hon. Friend. One of the points that I have made repeatedly to other Ministers is that businesses heard the promise that there would be permanently lower business rates, and made decisions based on the fact that they had heard the word “lower”. The Government gave themselves powers to introduce a lower multiplier for retail, hospitality and leisure—20p less—and it was understood by the hospitality industry that if they used those powers, that would effectively cancel out the loss of the RHL relief. Businesses made investment decisions. They made hiring decisions. They made all sorts of decisions based on what they thought was going to happen. But the Government have not used those powers that they gave themselves, using a multiplier of minus 5p rather than the maximum of minus 20p.
John Milne (Horsham) (LD)
I recently met Richard, a publican in my constituency, and he told me the trade had never been so tough. He said:
“The truth of the matter is, for the first time I’m thinking I shouldn't have bothered taking the risk of going into business. I should have stayed with the big brewer, taken my salary and relied on my pension.”
He is right, isn’t he?
Daisy Cooper
I hope so very much that he is not, but I understand why he said that, and I hear the same from many hospitality owners and pub landlords on my own patch.
It is because we Liberal Democrats care so deeply for hospitality, and recognise the vital role that it plays in every community in the land, that we were campaigning ahead of the Budget for an emergency VAT cut for hospitality accommodation and attractions until April 2027 —a measure that would have brought growth into every corner of our country, saved jobs and our high streets, and given a real boost to consumer confidence. That is why, since the Budget, we have been fighting tirelessly against the Government’s devastating business rates hikes, and pressing Ministers to implement the full 20p discount for which they legislated last year.
Dr Luke Evans
The hon. Member rightly points to the cumulative effect, but I am interested to see that her new clause 9 does not mention the Employment Rights Bill or the impact of the national living wage increase. Is it by design that the Liberal Democrats have not put those in, because they do not agree that they will have an impact on hospitality, or was it an oversight, and they are other cumulative effects that need to be considered when holding the Government to account?
Daisy Cooper
I am grateful for that question, but if the hon. Member reads the explanatory statement closely, he will see that it says “alongside wider fiscal changes”. The Government could of course widen that to other legislative changes, if they chose to do so. However, on that basis, I hope the hon. Member and his colleague will be supporting the new clause when we push it to a vote later.
Daisy Cooper
Absolutely not. During the passage of the Employment Rights Bill, we Liberal Democrats said repeatedly on the record in both Houses that we supported a higher minimum wage. The problem we are hearing from businesses, particularly small businesses, is that they are getting lots of changes from the Government all at once. It is business rates changes, higher contributions, wages, the new regulation and now alcohol duty as well. It is the cumulative impact of all of the employment changes and the fiscal changes that means business owners and pub landlords just cannot cope.
This is about the cumulative impact. We have made very clear which measures we support and which ones we do not, but the cumulative impact is felt by small businesses. That is why, during the passage of the Employment Rights Bill, we tabled a number of amendments asking the Government to report on the impact on small businesses in particular. I hope that has clarified the matter for the hon. Member.
Dr Arthur
A wide range of concerns has been developed, and I get the point that these are costing the hospitality sector money—I absolutely get that—but all that the Lib Dems are promising is a review. What I do not hear is what they would do to resolve this and how much it would cost, apart from the broad assertion that they would cut VAT in some undefined way. What is this going to cost, and where is the money coming from?
Daisy Cooper
I have explained all those measures in this Chamber before, but I am happy to spell them out again, including the remarks I made a few minutes ago.
The very first thing we called for was for the Government to use the powers they gave themselves in the Budget last year. I would love to know the costings for that measure, and I have tabled written parliamentary questions to ask the Government to give me those numbers. If the Government will not answer written questions, how on earth are opposition parties supposed to come up with modern proposals? We have tabled written questions time and again, but we have not received any answers.
On the VAT point, we have costed it. We said it would cost £7 billion over 17 months, and we would fund it with a windfall tax on the big banks, which is a proposal backed by the Institute for Public Policy Research and independent economists. So we have answered all of these points and explained where the money would come from. The suggestions are fully costed and fully funded. We have made those points in this Chamber on several occasions, as I am sure the hon. Gentleman will see if he has a look at Hansard. My point is that, if we are going to put questions to the Government asking them for data so we can make informed policy suggestions, I very much hope that they start to answer them.
On that matter, it has been reported in various newspapers, on the BBC and in other places that the Chancellor and Ministers did not understand—those sources have quoted the Chancellor and Ministers as saying they did not understand—the impact that revaluation would have on business rates bills, especially for pubs. I find that impossible to believe, and I cannot understand how that can be the case. We know for a fact that, at the very least, the Valuation Office Agency gave the aggregate data to the Treasury. We know that because it says it in black and white—or in black and slightly red—on page 81 of the Red Book. It says that the VOA gave that data to the Treasury.
I tabled a number of written questions asking the Government whether they had received that information broken down by sector, and I did not receive any answers. I wrote a letter to the Leader of the House and I made a point of order, but again, that information was not forthcoming. Then we had a bombshell revelation today when the VOA, in giving evidence to the Treasury Committee, confirmed upon questioning that it had given data drops on the sectoral impact starting a year ago. It also confirmed to the Treasury Committee today that 5,100 pubs have seen their rateable values at least double. It therefore seems, if the VOA did provide that information to the Treasury, that the Treasury should have had that information. It is not clear to me why I did not receive data-rich answers to my written questions asking for that breakdown by sector. It is also not clear to me how the Chancellor and Ministers can say that they did not know or did not understand the impact that the revaluation would have on bills if they had had that data over the course of the past year.
I urge Ministers when they come to the House, as they are indicating they will, to provide some kind of a U-turn—we do not know what that looks like—to bring some clarity to all those questions. In the meantime, I hope the Government do support new clause 9, because we need to see the cumulative impact not just of alcohol duty changes, but their impact alongside national insurance and business rates.
Sir Edward Leigh
The hon. Lady is giving a very good speech. I hope, as the Liberal Democrat spokesman, she will say just a tiny bit more about rural pubs. I think a lot of urban Members do not understand the context. Where I live here in Westminster, it takes me one minute to walk to my local—one minute. Where I live in the Lincolnshire Wolds, it takes me one hour to walk to the pub—one hour. Everybody who accesses pubs in rural England has to go there by car. We do not ride horses any more, and it is too dangerous to walk on the road or take a bicycle. The Government have to understand that the rural pub is in real danger from the alcohol limits and other measures.
Daisy Cooper
I am incredibly grateful to the right hon. Member for making that point. I am the MP for St Albans, which is a small city, but I am a Suffolk girl born and bred. I know how valuable rural pubs are. They provide all sorts of services: they look after older people and single people; they are a fantastic community hub; and they provide employment for young people—one of my first jobs, aside from apple picking, was working in a pub—so I understand the vital importance of pubs in every single village, town, parish and hamlet up and down the United Kingdom. I am grateful to him for making that point.
In closing, I hope that when the Government respond this evening they provide answers to some of these questions. What did Ministers know and when? If the VOA sent that sector information on valuations, when was it sent? When did it send the information on pubs, specifically? If the VOA did tell Ministers that rateable values had at least doubled for more than 5,000 pubs, how is it possible that Ministers did not know? Why have we still not had a statement from the Government on what they are trying to do? Will their announcement extend to the rest of the hospitality industry, or just to pubs? Will the Government now use the full powers that they gave themselves? I cannot cost this, because I have not been given the numbers despite repeated attempts to get them. Will the Government consider a VAT cut?
Finally, the only rumour we have heard about what the Government may be considering are the changes to licensing laws, so let me close with this point: if your pub is empty, you do not want to keep it open for longer, paying more money to keep the lights on, the radiators heated and the staff behind the bar. That is not an answer to this problem.
Jacob Collier (Burton and Uttoxeter) (Lab)
As the MP representing the home of British brewing, Burton-upon-Trent, it will come as no surprise that I will speak to clause 86, and focus my contribution on pubs and hospitality. For me, this not just political; it is personal. As a Burtonian, I grew up with the smell of hops permeating the air and Burton’s famous water flowing from the taps. My very first job was in a pub. This industry is who we are.
Pubs are woven into the very fabric of our country. They are the heart of our high streets and villages, and are among our last shared spaces. When we talk about growth, and supporting wellbeing and employment, pubs and hospitality sit at the heart of that conversation. Yet this is an industry that has faced years of challenge. Navigating the pandemic, absorbing high energy costs and managing rising prices have left many venues operating on very low margins, if any at all.
That is why the decisions we make in this clause matter so much. We must look carefully at the overall effect of alcohol duty and how it interacts with consumer behaviour. There is a case for strengthening differential rates of duty between supermarkets and pubs, known as draught relief. Drinking in a pub is not the same as drinking at home. Pubs are supervised, regulated spaces. Landlords ensure responsible drinking, with pubs providing social connection and supporting mental health in our communities. Pubs give character to our high streets and town centres, yet the tax system makes it cheaper to buy alcohol in bulk from a supermarket than to go down the local pub. If we are serious about encouraging people back into our town centres, into these shared protected spaces, alcohol duty must work in favour of pubs.
I encourage Treasury Front Benchers to read the letter from those of us on the all-party parliamentary beer group, which calls for the multiplier to be increased from around 13% to 20%. Our proposal is supported by the Campaign for Real Ale, the Society of Independent Brewers and Associates and the British Institute of Innkeeping. This is not about encouraging more drinking; it is about encouraging better drinking in places that strengthen our local communities and our local economies.
I recognise that the Government have put in place the permanently lower multiplier on business rates for retail, hospitality and leisure businesses, but any wins in this space have been wiped out in many cases by the new rateable values published by the VOA. In my constituency, the rateable value of the Devonshire Arms—the Devvie, my favourite pub—is set to increase by over 60%. Down the road at the Roebuck, the rise is more than 70%. At this rate, I am not going to have much of a pub crawl.
We must stay true to the manifesto commitment we made to level the playing field between online retailers and the high street. An average 76% increase for pubs compared with just 14% for online retailers means that we must think again on this policy. It is no good having transitional relief in place when the bill at the end of the three years is simply unaffordable.
Industry voices are clear that further support is needed in the short term while longer-term changes and reforms are worked through. Operators such as Punch Pubs, which is headquartered in my constituency, have called for a higher business rates discount—up to the maximum permitted—to help offset the valuations and the cumulative tax burden that pubs face. UKHospitality has similarly warned that even after reduced multipliers and the transitional relief that the Government have put in place, the average pub faces a significant increase to its business rates bill, alongside other cumulative impacts that hon. Members talked about earlier.
The Government are right to listen to Labour Members who have been raising the voices of pubs, brewers, restaurants and small business owners. I want to thank those publicans, business owners and representative bodies that have engaged positively with me; it is only through working together constructively that we can bring about change.
Businesses that I speak to want to invest and grow, but they need the space and certainty to do so. I really welcome the recent hospitality investment that my constituency has seen—from Lowe’s on Carter Street to Nathan Dawe’s expansion of Isabel’s and Bespoke Inns’ redevelopment of the Hart and taking on of Tutbury Castle. Such businesses need to be supported by Government so that we can meet their ambitions. We must create more well-paid jobs and revive our high streets and town centres.
That means a fair approach to alcohol duty under clause 86, a recognition of the difference between pubs and supermarkets, and targeted support on business rates while deeper changes are delivered. If we get this right, the reward is clear: thriving pubs, stronger high streets, more resilient local economies, and communities that are not just better off but happier and more connected. That is why pubs and hospitality must continue to be listened to, supported and championed in this House and by this Labour Government. I shall continue to do that.
Mike Wood
It is a genuine pleasure to follow the hon. Member for Burton and Uttoxeter (Jacob Collier), who made some excellent points. Before I begin, I will disclose that although I do not have any relevant interests to the debate in the Register of Members’ Financial Interests, I have received hospitality below the threshold from UKHospitality, the British Beer and Pub Association, CAMRA and the British Institute of Innkeeping; there may be others.
People up and down the country may be justified in asking what the Government have against pubs. Many things are causing so many pubs to struggle and to question whether they can survive beyond the very short term—the enormous increases in business rates, the increases in employer national insurance that particularly hit those who employ part-time workers, and the ever-growing burden of regulation, not least in the Employment Rights Act 2025, that affects many pubs and hospitality venues—but I think that this clause in the Bill really sums it up,
The Government did have a choice. The Chancellor could have built on a success of the previous Conservative Government—in fairness to her, she actually did so last year—by reducing that draught duty rate so that duty on beer and cider sold on draught in pubs was paid at a lower rate, perhaps at the same time as extending the differential with supermarkets and off-sales that might be sold at or below cost price. But she chose not to do that; she chose to increase duty on top of all the extra burdens that are threatening the survival of our community pubs, bars and other hospitality venues. By increasing duty by RPI rather than the lower rate of CPI, the Chancellor is threatening to return us to the bad old days of the previous Labour Government’s hated beer duty escalator, under which the duty rate increased year after year.
I think the hon. Member for Birmingham Northfield (Laurence Turner) suggested that this measure is somehow in keeping with the policy of successive Governments, but nothing could be further from the truth. In just 19 months, the Government will have increased beer duty by more than it went up in the 12 years running up to the last general election. This is a massive increase in duty in a short period. Indeed, the duty paid on a pint in a pub was actually lower in July 2024 than it had been 12 years earlier because of policy decisions made by Conservative chancellors.
Paul Holmes (Hamble Valley) (Con)
I am sure that, like me, my hon. Friend has been to quite a few pubs in his constituency. Many of my publicans are saying that because of the decisions the Government are making, they have a choice, which is to try to get more customers or to lay off staff. This is affecting pubs who are busy—pubs at their capacity are now really worried about whether they will be able to survive another year. Has he heard that from his local publicans?
Mike Wood
My hon. Friend is right, although that is not really a choice that many pubs are able to make, because it is taken for them. We saw the same thing when the previous Labour Government’s beer duty escalator was in force. We know that increases in alcohol duties have a minimal impact on overall alcohol consumption, but they do have an impact on how people drink and what they drink.
Higher alcohol duties lead to a shift from people consuming alcohol in well regulated, licensed premises like a community pub—where they will typically drink medium-strength beer and cider—to people drinking more stronger alcohol at home without the protective framework of a licensed pub. That makes no sense on either a social and health or an economic and community basis. It is the wrong thing to do yet again. It is yet another burden that our overstretched pubs and hospitality venues simply cannot afford. It is the wrong thing to do and that is why, as well as supporting our own new clause and opposing the clause, I will certainly support the new clauses tabled by the Liberal Democrats. There is a better alternative.
Gareth Snell
It is a pleasure to follow my county colleagues, the hon. Member for Kingswinford and South Staffordshire (Mike Wood) and my hon. Friend the Member for Burton and Uttoxeter (Jacob Collier). Stoke-on-Trent and Staffordshire as a county are rich in the heritage of brewing. Burton is a prime example of that, but in Stoke-on-Trent we too have some wonderful small brewers, such as Titanic, which has sadly shared with me the business rate increases that it faces, with a 450% increase in some of its venues.
That is a challenge that those venues have to face, and I hope the Government will look seriously at finding a realistic workable solution. The value of pubs in our communities is not just about the pints that they sell, but about the people they look after, such as the old gent nursing a pint for a couple of hours and being looked after by the bar staff. We lose that at our peril.
I will restrict my comments to the differential between cider rates and beer rates. One of the things that the Treasury has done for many years, including under the Conservative Government, is to keep an unfair differential between the rate of duty applied to cider and that applied to beer. That came in during the coalition Government and I can only presume that it had something to do with the number of Lib Dem seats in the south-west. The point remains, however, that a small beer producer—a small brewery—in the UK will pay more in duty on the pints it produces than a global cider manufacturer, because of the differential points at which the relief comes in.
Mr Dillon
Under this Government, we also have the situation whereby champagne in France is taxed at 40% less than sparkling wine is taxed in this country. If we are levelling the playing field, does the hon. Gentleman believe that the Government should also level the playing field for English sparkling wine so that it can compete with champagne?
Gareth Snell
There is a danger here of getting into the inevitable jokes about champagne socialism, but I understand the hon. Gentleman’s point. He is right: there needs to be fair play. If we even out the taxation across the sector, that means that we can have targeted support in other areas where we know that there should be an unfair advantage for certain things. For instance, as the hon. Member for Kingswinford and South Staffordshire said, we should encourage and support making greater use of the draught relief for those selling alcohol in a pub.
Currently, 61% of cider producers produce less than five hectolitres of alcohol, which means they get a 100% reduction in the duty they pay. That is why we could increase or level out the rate of alcohol duty on cider and beer producers without impacting the small cider producers in this country. It would only impact the global manufacturers which, frankly, are taking a profit and making, I would argue, a substandard product, or trying to hide a mass-produced product behind a local label, which is often the case.
Under the Government’s proposal, the duty will be £10.39 per litre for cider and £22.58 for beer, and that differential grows every year. Because it is uprated by an inflation percentage, over the past few years the rate between the two in cash terms has just got bigger and bigger. It is a disadvantage to small brewers, who produce good quality beer, that they pay a rate of alcohol duty equivalent to the global cider manufacturers. SIBA estimates that the levelling of that figure could generate £360 million per year. That money could either go towards reducing the rate overall for all levels of duty, or it could further reduce the draught relief so that there is a clear and meaningful differential between those selling alcohol in pubs and those selling it in supermarkets.
There are some brilliant pubs in my constituency, the Greyhound in Hartshill being the one that I frequent the most. It is a community venue, and if it has to pay greater levels of duty on alcohol as a result of this Budget, I am sure it will find a way of doing so, but if there was a way of encouraging more people to go to that pub because the rate of duty on that pint was lower and it was subsidised by the big cider producers selling to the supermarkets, it seems to me that that would be a fair thing to do.
There is also a non-tax measure that the Government could introduce to support small brewers across the country, and it would cost the Government nothing. The market access review is currently sitting on a desk in the Department for Business and Trade, and it would guarantee that small brewers could have access to pubs in their locality to guarantee guest ales. I believe that Scotland already has this mechanism and that it is working well—unless someone can tell me otherwise. If we could replicate that in England and Wales, it would mean that those small independent brewers would have an opportunity to sell more beer in pubs, where a lower rate of duty would be applied to the product. That would help them with their business. It would give publicans an opportunity to increase the range of beers they sell, which would then help to attract more people into those pubs. It would mean that we would have more small independent brewers in this country selling more pints of beer, which supports them as employers and as good companies, such as Titanic in my own city.
John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)
It is a privilege to speak in this debate. I want to speak about the pub and hospitality sector in my constituency in the Scottish Borders, but also more broadly about the impact of these changes on an important industry that is the lifeblood of the Scottish economy. We are debating the hike in alcohol duty, which the Treasury has described merely as “uprating”, but for Scotland this technical change will have a real impact on our iconic industry. It will be a hammer blow to the Scottish whisky industry as well as to the pub and hospitality sector.
The Treasury is hiking these taxes to fill the black hole in its balance sheet, but the Scottish whisky industry is a global brand that not only supports the Scottish economy but is very important to the UK economy, and it is really important that the Treasury and the Government understand the impact that these changes will have on this global brand.
It is important to remember the numbers associated with the Scottish whisky industry. It contributes £7.1 billion to the UK economy. It also supports 41,000 jobs in Scotland, some of them in our most fragile and vulnerable communities in the highlands, in Moray, in the Borders and all over Scotland. The whisky industry has a footprint and an impact. Whether it is the distilleries or the farmers who are growing the crops that go to be distilled, the whisky industry is a key part of the Scottish economy as well as the key part of many local economies, in that it provides local jobs in remote communities and supports local events and, often, local services such as the local school, the village shop and many other key parts of the community.
The Minister and the Chancellor claim that the rise in alcohol duty will boost revenue, but history says something very different. Indeed, the Treasury’s own data says something very different, because when duty was hiked by 10.1% in 2023, spirits revenue did not go up; it actually plummeted. Before colleagues seek to intervene, I appreciate that it was a Conservative Chancellor who made that change, but Scottish Conservative MPs argued strongly for it not to happen. We accepted the representations that the Scottish whisky industry, the Scotch Whisky Association and many of our constituents were making against the tax rise.
The evidence has backed up what the industry was saying. When we put up taxes, the revenue generated actually falls. According to the Scotch Whisky Association, that tax hike actually cost the Treasury £150 million as consumers pull back and stop spending as much as they did. By doubling down, the Labour Government will compound the situation. The Chancellor and this Government are trapped in a doom loop where higher taxes lead to lower sales, which lead to lower tax receipts, which lead to—you guessed it—even higher taxes from elsewhere as they scramble around to try to fill the gap. It is not possible to tax a sector into prosperity.
I want to touch briefly on the impact on our high streets and pubs, because it is not just the distilleries that will suffer as a consequence of this tax hike. From the highlands to the Borders, our hospitality is screaming out for “breathing room” because all it is getting from this Government is a tightening of the noose. The Scottish Government are compounding matters in Scotland with their anti-job policies. Taken with the UK Government’s policies, that is making things even worse.
Dave Doogan
The hon. Member refers to his belief that the Scottish Government are engaged in anti-jobs policies. Can he therefore explain why unemployment in Scotland is substantially lower than it is in England?
John Lamont
I am grateful to the hon. Member for making that point, but by any measure the Scottish economy is not doing well. Scotland is, by any definition, the most highly taxed part of the United Kingdom. While paying all this extra tax, none of my constituents—I am sure his constituents would agree—feel that they are getting any extra benefit from it. Our NHS and our education system are not performing well; there are potholes on all our roads; and our local authorities are underfunded. Taxes are going up in Scotland, but public services are going down. But of course we have an opportunity in a few weeks in Scotland to replace a failing nationalist Government with a pro-UK Scottish Conservative Government.
The hospitality and pub sector in Scotland is having to deal not just with these higher rates of alcohol duty, but with national insurance hikes, the jobs tax and the national living wage hike, as well as all the other red tape being imposed on it. Pubs are finding it more and more difficult to do business, which is why numbers are falling as a direct consequence of decisions that this Government have taken. In fact, in 2025 we saw a record number of licensed premises handing back their keys because they could no longer make their balance sheets work.
As colleagues have mentioned, pubs are more than just where people go to have a drink and more than just the value of a drink; they provide social value to the local community. I represent 90 to 100 different communities in my constituency. Not all of them have a pub, but for those that still do, the pub is a focal point. It is where people go not just to have a drink, but to meet friends and chat to neighbours. It might be the only conversation and contact someone has that day, over a social pint or a can of cola.
I want to mention a couple of the excellent pubs in my constituency: the Black Bull in Duns, the Cobbles in Kelso, the Ship Inn in Melrose, the Plough Hotel in Yetholm and the Office Bar in Hawick. One pub I must mention that has bucked the trend—I said earlier that lots of pubs are closing—is the Blackadder in Greenlaw, which has just reopened and is going from strength to strength. But the pub highlights the huge challenges that the Government are imposing on it. Despite the fact that it has made this effort to open and get people back in the pub, the challenges being imposed on it—largely, I have to say, by the UK Government—are clear, and it is finding it so difficult to continue the service it is providing and keep the business running.
We are fast approaching the point when people in Scotland and across the UK will no longer be able to go down to their local to enjoy a drink, and when the only people who can afford Scotland’s national drink—a glass of whisky—will be those living outside Scotland, as opposed to those living in Scotland.
I just wish that the Chancellor, the Minister and the Government would reflect on all the voices highlighting these issues and crying out for help, and that they would recognise the service that these important local businesses are providing to their communities. They should listen to all the publicans who have decided to ban Labour MPs from their premises because they do not agree with the policies that they are proposing. They feel so strongly about this issue that they have decided to make a stand. I encourage the Government to think again. If they cannot think again tonight, they should at least recognise that a cumulative assessment of all these changes would allow them to come back to the Chamber better informed and justify the choices that they are making in this Budget.
Mr Paul Kohler (Wimbledon) (LD)
The line about alcohol duty in clause 86 may look technical, and even innocuous, but outside the Chamber, in places such as my constituency of Wimbledon, it lands with a thud. Before I go further, I should declare an interest: I am the chair of the all-party parliamentary group for the night time economy and the owner of a speakeasy, CellarDoor, in Covent Garden. I have owned CellarDoor for nearly two decades—through the financial crisis, Brexit and covid—yet nothing compares to the crisis that hospitality is now facing.
One constituent, a Campaign for Real Ale supporter, wrote to me asking why pubs have been hit yet again through changes to business rates. Another told me that the rateable value of his small unit off Haydons Road in Wimbledon has risen from just over £15,000 to more than £22,000. Another constituent, who runs venues in London and Birmingham, thought the Budget would bring relief. Instead, he is facing sharp increases in operating costs in the years ahead. Admittedly, the Chancellor has belatedly indicated that she will offer some form of business rate relief to pubs, but what about the rest of hospitality—the restaurants, cafés, bars and music venues?
Adam Dance (Yeovil) (LD)
Gareth, who runs the Cow & Apple in Yeovil, has told me that he feels that the assessments and consultations on how the proposals in the Finance (No. 2) Bill will impact the viability of the rural hospitality sector were not good enough. Does my hon. Friend agree that that is why we need to pass the Liberal Democrats’ new clause 9, which calls for a review of the impact on the hospitality sector of these alcohol measures and broader Budget policies within six months?
Mr Kohler
Indeed I do. It is death by a thousand cuts. Those who run hospitality businesses have been hit by cost after cost after cost. The Government must listen.
Alcohol duty brought in about £12.5 billion in 2024-25. Hospitality, by contrast, contributed over £60 billion to the economy in 2023 and supported over 2.5 million jobs—over 7% of the workforce. Yet UKHospitality estimates that 89,000 jobs—nearly 100,000—were lost in the nine months after the October 2024 Budget. Official figures show that 366 pubs closed in the year to December 2025. That is one pub every single day. The roots of this crisis lie in years of Conservative mismanagement, Brexit labour shortages, a broken business rates system, energy price shocks, commodity price increases and a cost of living crisis. Many in the sector hoped that the change of Government would bring a change of direction, yet things have only got worse with the rise in employer national insurance contributions.
The cumulative effect is undeniable: rising costs for shorter opening hours and fewer staff. Offering us easier or longer opening hours does not help if we do not have customers coming through the door. Investment is deferred, and too often doors close for good. When that happens, high streets lose more than businesses; they lose employment, footfall and the social infrastructure on which communities depend. That is why the Lib Dems are calling for an emergency cut in VAT for hospitality to 15% until April 2027, real reform of business rates and a proper review of the unworkable wine duty system. Such measures would protect jobs, support high streets and, in time, strengthen the public finances rather than weaken them.
The hon. Member for Edinburgh South West (Dr Arthur), who is no longer in the Chamber, asked where the money will come from. We keep telling Labour: get rid of the red lines and negotiate a customs union with the EU, which would raise £25 billion a year for the Exchequer. Businesses in Wimbledon and across the country are not asking for our pity; they are asking for a tax system that reflects the pressures they actually face. If Ministers are serious about protecting jobs, strengthening high streets and growing the economy, they should reverse this tax increase and introduce an emergency VAT reduction for hospitality.
Steve Darling (Torbay) (LD)
I will focus on Liberal Democrat new clause 9, which would require an assessment of the cumulative impact of the proposals on the hospitality industry.
One must bear in mind that, after a medley of challenges, our hospitality industry fears the future—it is in crisis mode—so it is not prepared to invest or take a chance by improving its offer, and it is hunkering down and hoping for the best. I reflect on the international pandemic, which had a massive impact; Torbay’s tourism and hospitality industry has still not recovered to pre-pandemic levels. The outrageous second invasion of Ukraine almost four years ago caused a shock in our energy costs. I am afraid that there have also been self-inflicted wounds, such as the national insurance hike and the ensuing employment challenges.
David from Rock Garden in Torquay told me that his utility bill has risen to £3,000 a month, which dwarfs his rental costs. Ofgem is asleep at the wheel; it must back local businesses and drive the changes that we need. Our hospitality industry is horrified by the proposals for business rates. The Government must apply the full 20% rate of relief to ensure that there are protections. I am afraid to say that many people in the hospitality industry scoff at proposals that simply deregulate around the edges, because if they do not have paying customers in their premises, they are set up to fail.
Caroline Voaden
As his constituency neighbours mine, my hon. Friend may be aware that three much-loved venues—Wild Artichokes, the Old Warehouse and the Old Bakery—closed in the town of Kingsbridge last week. The owner of one of those venues told us that part of the problem was the cumulation of challenges faced by the hospitality industry—not just the lack of people coming through the door and spending money because of the cost of living crisis, as my hon. Friend just said, but the rises in business rates and employer national insurance contributions, which have made it impossible for businesses to continue. Does he agree that it is a tragedy that such venues are closing every day, and that something must change before the hospitality industry is devastated?
Steve Darling
My hon. Friend is spot on. We need the Government to wake up, smell the coffee and recognise the challenges that our hospitality industry faces.
Some national chains, such as Wetherspoons, use their buying power to drive down the cost of a pint—many customers reflect on prices when they cross the threshold of a venue. The reality for lots of independents—because it is independents that are really important—is that £6 a pint is the minimum they can achieve with all the costs that are involved. When we compare that with the cost in a supermarket, it is really scary. The Minister rightly highlighted the difference we see today, with more than 70% of the alcohol consumed having been purchased at a supermarket. I feel we need to have a national debate about whether we have got the balance right and how we can ensure that we are driving greater footfall towards our hospitality industry.
Victoria Collins (Harpenden and Berkhamsted) (LD)
I want to reiterate how important that is. In my constituency, it is too little, too late for many—the Lussmanns has closed in Berkhamsted, as has the Elephant and Castle in Wheathampstead—and we need support from the Government to ensure that more do not close. Does my hon. Friend agree that actions such as the Lib Dems’ proposal to reduce VAT to 15%, at least until April 2027, would be a step towards protecting hospitality before it is too late for others?
Steve Darling
I do not know those venues, but I suspect some of them may well be on the high street. We, as Liberal Democrats, know that our constituents see our high streets as the beating heart of our communities. By backing our hospitality industry, we are backing our high streets.
Anthony from Otto in Torquay shared with me how independents are powered by families; they put people first. The reality is that an independent is not going to get a regional chippy in to do some work for him. He is going to take on the chippy who he plays football with on a Sunday morning. He has some skin in the game; he might know that chippy’s kids, because they go to the local sixth form with his kids. As independents, they have a level of skin in the game. That is why we need to ensure that we set up an economy that supports independents. What I found extremely scary when talking with a number of these people this weekend was that they were saying, “Why are we doing this? We could be managers of a local supermarket and sleep at night.” I hope the Minister will listen to these pleas and ensure that the Government do this cumulative impact assessment.
Robbie Moore (Keighley and Ilkley) (Con)
I rise to speak to clause 86 and new clause 26, tabled in the name of the official Opposition, which requires the Government to carry out a review of the impact of the increased level of alcohol duty on our pubs and hospitality sector. All these measures will have a cumulative impact on our hospitality and pub sector, because this comes on the back of the huge amount of tax revenue that will be raised from the last Budget—£26 billion-worth, or £64 billion-worth if we take into account the last two Budgets. Alcohol duty alone will bring in an additional £400 million a year—a raid on our pints, spirits and glasses of wine. Alcohol duty is set to rise by an inflation-busting 3.66% at the start of February, equating to a 2p increase on the price of a pint in a pub.
When I am out in my constituency speaking to the landlords of the Dog and Gun in the Worth valley, the Craven Heifer in Addingham, the Airedale Heifer in Keighley or the Black Hat in Ilkley, they all talk to me about the cumulative impact of not only the alcohol duty increase but rising employer’s national insurance, soaring energy costs, increasing minimum wages, the business rate relief reduction not being at the level that was initially indicated and, of course, the tourism tax that is coming down the line. The tourism tax will impact areas like Haworth in the Worth valley and Ilkley in my constituency, where a tax will be collected and go into a generalised pot to be redistributed by the Mayor of West Yorkshire, but I suspect it will not go back into places like Ilkley or Haworth, which are effectively being used as cash cows for the rest of West Yorkshire.
These are all detrimental impacts over and above the alcohol duty. At a local level, on-street parking charges in Ilkley are set to increase at the end of this month. All these things are making it much more difficult for places like the Flying Duck and the Black Hat in Ilkley, where people like to go and enjoy a drink. Disposable income is getting less in my constituency. Labour-run Bradford council has increased council tax by 14.99% in the last two years. People have less money in their pockets, and then we have a Labour Government hitting our pubs and hospitality sector, and boy do they feel it.
Dave Doogan
With clause 86, the Treasury in Westminster continues to treat Scotland’s vital Scotch whisky sector as a cash cow, with duty rising again in line with inflation in the Budget. As the Scotch Whisky Association warned, the previous 3.65% increase to spirit duty reduced revenue by 7%, costing the Treasury £150 million, so it seems an opportune moment to remind the Minister that her ambition, and that of her colleagues, should be to increase tax receipts, not erode them.
Dewar’s, Blair Athol, Edradour and Glencadam—just some of the distilleries in my constituency of Angus and Perthshire Glens—are four of the many distilleries striving to deliver global excellence, all while being gouged year after year by the Treasury in London. Through the hiking of duty, for the third time in two years, in the November Budget, a sector that is already mitigating job losses, stalled investment and business closures will face substantial additional headwinds. If the Labour Government genuinely value industry in Scotland beyond the grasping hand of the Treasury, they should work with us to amend or remove clause 86. That would have been a lot easier if SNP amendment 30 had been selected for debate. Nevertheless I can but appeal to the Minister’s better and last-minute judgment on this matter.
A Scottish coalition of drinks, tourism and farming representatives warned in October that duty increases had already contributed to around 1,000 job losses, and claimed that duty can make up around 70% of the cost of a bottle of Scotch. That same coalition emphasised spirits’ outsized role in hospitality margins, as they represent a smaller share of sales but a larger slice of profits, meaning that duty uprating can squeeze already extremely fragile margins in venues, especially in Scotland’s towns and rural areas where footfall is thinner.
I cannot emphasise enough to the Minister that this tax rise could be the final nail in the coffin for many hospitality businesses that are already on the margins of solvency, especially those in rural settings, such as my constituency and those of many other hon. Members. I do not hold with banning Labour MPs from pubs, because pubs are about being in the company of people from all walks of life. If people wish to select the company that they keep, they can do that in their own house. In a public house, we convene with the whole community and visitors alike—that is the magic of it.
Gideon Amos (Taunton and Wellington) (LD)
The hon. Gentleman is making a strong case for the whisky industry. Does he recognise that the cider industry in my part of the world in Somerset is deserving of good treatment because of its support for agriculture? It used to benefit from a duty of 40% that of the wider beer and drinks industry, but that has crept up. The average is now about 75%, and the duty on some classes of cider is now more than the duty on beer. Does he accept that that differential should be restored to support agriculture?
Dave Doogan
I have heard a range of cases from right hon. and hon. Members about that differential, and I would certainly like to see nothing happen that would jeopardise the drinks, hospitality or agricultural sectors in the west country, but I will leave that to be divined by others with a more material interest, if the hon. Gentleman does not mind.
Pubs are revered institutions, and they are under threat as never before across these islands, so let me put the situation in simple terms. Let us not forget that before the election hospitality was already struggling with the post-covid recovery, the highest taxes since the war, a punitive and unrelenting business rates regime, the disastrous misadventure of Brexit and labour shortages, and 16 years of the UK without any meaningful economic growth. On top of all that, we had the highest energy costs in the developed world.
Since the election, Labour has added to that. At the outset of the debate, I expressed my concern and the Minister was kind enough to take my intervention on the compound effect, which many other Members have mentioned. She should really take cognisance of that, because since the election, Labour has added to the hospitality sector’s pain with a massive rise in employer national insurance contributions, even higher energy bills, even greater economic despondency pervading across society, an entrenched cost of living crisis keeping people at home, an increase to the minimum wage with no increase in revenue to support the payment of that wage, and no respite or consideration for the VAT millstone around hospitality’s neck. Labour should really listen, because on top of all that, there is now a 25% increase in unemployment, with 352,000 people now unemployed who were not before Labour came to power.
John Lamont
As the hon. Member will know, the Scottish Government announced their Budget today. I am sure he is aware of the comments from UKHospitality Scotland’s executive director, who said that the Scottish Government Budget had
“not sufficiently addressed the challenges that hospitality businesses in Scotland face”,
and that the majority
“will still be paying higher business rates bills in April”.
How does he reflect on those comments in the light of what he was just saying?
Dave Doogan
I reflect on the fact that, following the Cabinet Secretary for Finance and Local Government’s Budget today in Scotland, 93% of hospitality, retail and leisure businesses in Scotland will be paying no rates or reduced rates. That is because the SNP is responsive and closer to people in Scotland.
Further to that, not wishing to shoot the hon. Gentleman’s fox again, he spoke about the taxation rates for people in work in Scotland. I am sure his constituents will be grateful to know that 55% of taxpayers in Scotland are paying less tax than they would if they were part of the fiscal regime in the rest of the United Kingdom.
The problem with the figure for unemployment, which is a scandal—352,000 people are unemployed who were not unemployed before Labour came into power—is that unemployed people cannot afford to go to the pub or go out for a meal. It is against that backdrop that the Minister seeks to defend this latest hike in alcohol duty. That is totally unforgiveable.
I do not think the Minister believes a word that I am saying, and she certainly will not refer to anything I say in her winding-up speech, which I take as a kind of contrarian compliment. I do not know whether she has a local that she goes to; if she does, she can take my list of 12 life-threatening headwinds for pubs, all caused by the UK Government—mostly by Labour—and see if the landlord and landlady in her pub disagree with my analysis. She should do that before she introduces the 13th headwind—unlucky for pubs—with clause 86.
The SNP will back new clause 9, because, as many Members have said, we really need to review the way in which alcohol is purchased and consumed in the United Kingdom and the fiscal burden that follows that. Off-sales are getting far too easy a run of it, and on-sales will disappear before our eyes. I also support new clause 26.
It is too late today, as we have not been able to stop Labour coming to assault our pubs, but I look forward to standing up for Scotland’s hospitality sector again on Report. I hope the Minister will then have had a change of heart, or at the very least be in possession of a revised cost-benefit analysis that stacks up for hospitality.
Dr Luke Evans
I have come here to talk about duty, but not duty in the conventional sense. I feel that I owe a duty to the cafés, restaurants and pubs in my constituency to tell the Government just how poor their impact is and to hold them accountable. That is why I support new clauses 9 and 26.
Let me start with new clause 9, on the review of the cumulative impact. I agree with the Liberal Democrat spokesperson that there is a cumulative impact, but I would go further, as I have done, and call it a toxic concoction. It is true that the Conservative Government raised taxes, and I can imagine that in the future another Conservative Government may need to do the same, but the toxic concoction that this Government have set out on, with the Employment Rights Bill, raising the minimum wage and the reduction in support on hospitality exemption all at the same time, is compounding the problem. I am here to use my voice and do my duty to ask the Government to be accountable and able to show their workings, and these two new clauses are an attempt to do that.
We saw the Government come forward in their first Budget and say that they did not need to raise any further taxes, yet the subsequent Budget in 2025, which we are debating now, brought taxes further forward by £26 billion. The Chancellor said that the slate was wiped clean, by her own admission, but it seems that she has hospitality in her sights, and it is not clear why. What does she have against cafés, hotels and restaurants? She seems to be softening, because she has heard from her Back Benchers about the impact that all this is having on pubs.
Graham Stuart (Beverley and Holderness) (Con)
To come to the rescue of the Chancellor, it turns out that she simply did not understand the impact, according to the Business Secretary. Perhaps the Minister, in her winding-up speech, will be able to confirm that the Chancellor literally did not know what the impact of her own policies would be on hospitality businesses. The Minister may be able to tell us whether the Business Secretary was right to identify that failing of understanding by the Chancellor.
Dr Evans
My right hon. Friend is very charitable, because the Chancellor has said that she does not know. However, we also know that the documentation released in the Budget says that the Treasury did know. What has gone wrong?
As we have heard today in Committee, the rateable value of 5,100 pubs will double, but the Lib Dem spokesman missed the other point: one in eight pubs will see an increase of more than 100% in their rateable value. The Government have a question to answer. Did they wilfully ignore that and choose to impact hospitality, or were they mistaken and not competent in seeing that there was a problem?
Steve Barclay (North East Cambridgeshire) (Con)
Does my hon. Friend agree that new clause 9 would actually be helpful to Government Back Benchers? Given how frequently No. 10 is U-turning, including yet another U-turn on digital ID just today, having an assessment of the cumulative impacts will help them when they come to their next potential U-turn in this area.
Dr Evans
My right hon. Friend has served in government, so he understands why it is important to have a fixed point that all of us in this House can reference, as well as—most importantly—his constituents who own a pub, a café or a hotel and are going to be impacted. That is why I want to see new clause 9 passed, because it will go a long way towards helping us understand the impacts those people are facing. If the Government are going to do something for pubs, as is rumoured, I simply pose the question, “Why pubs, and not cafés, restaurants or hotels?”
Turning to new clause 26, if my memory serves me right, the biggest cheer that the 2024 Budget got from Labour Members was when the 1p reduction in the pint was announced. What do we see this time around in the Budget? A 2p increase—that did not get cheered. Again, maybe Labour Members did not see it, or maybe it was hidden in the detail, which brings us to where we are today. This seems to be the problem: whether we are debating thresholds, as we did last night, or pubs, rateable values and duty today, either the Government do not know what they are doing, or they are wilfully pulling the wool over our constituents’ eyes. Fortunately, though, the Opposition are here to point out the wrong that is happening—to do our duty as an Opposition and hold the Government to account by tabling amendments such as new clause 26. That is why I will be supporting new clauses 9 and 26. Until we see some support for pubs, this is the only way that we in this House can hold the Government accountable and apply transparency to what is actually going on in the Treasury, in No. 10, and in the country.
Calum Miller (Bicester and Woodstock) (LD)
I would like to place clause 86 in the wider context of the Budget’s impact on the hospitality sector and, in particular, the village pub. I was very grateful to the Under-Secretary of State for Business and Trade, the hon. Member for Halifax (Kate Dearden), for agreeing to meet two landladies from my constituency in December. The Minister heard from Becky, who runs the Red Lion and the White Hart in Eynsham, and from Donna, who runs the Oxfordshire Yeoman in Freeland.
As other Members have highlighted, village pubs are at the heart of their communities, but Becky and Donna described how hard it is to make the books balance. Donna gave the example of the work she does in her community. She has a number of regulars, and when one of them does not come in on a given day, she will give them a call to check he is all right and suggest he comes in—not because he is a big drinker, but because it is somewhere to be warm and sociable, and she knows that he has mental health challenges. In other ways, these two publicans are contributing to the lives of their communities.
Becky put in front of the Minister some of the cost increases she has faced. A fillet of fish cost her £2.30 in June 2023; when she saw the Minister in December 2025, the latest cost was £4.90. As well as these food prices more than doubling, energy prices have rocketed, but the greatest anxiety for these two publicans came from tax and regulation. Labour costs have increased with employer NICs—Becky gave the example of her employer NICs, which in gross terms have increased by more than four times over three years. Both publicans have had to release staff, with Donna now working more than 80 hours a week, serving as both the pub’s chef and general manager. She places orders on Mondays and Tuesdays when covers are lower, and she is in the kitchen Wednesday through Sunday.
Meanwhile, business rates represent a bombshell. Becky faces an increase in business rates at the Red Lion of nearly 120%, but she is outdone in my constituency by the 223% increase at the Lion in Wendlebury. Finally, Becky highlighted the impact of VAT on the hot food sold in her pub. Before the Budget, Liberal Democrats called for a 5% cut in VAT to offer some relief to the hospitality sector. Take that fillet of fish that has gone up by over 100% over two and a half years. Over the same period, the Treasury’s VAT take on that food has gone up by the same amount, an incredible increase in revenue with no relief for publicans.
The Minister asserted earlier that the Government were backing British pubs, despite the many hits to their bottom line. She also said that the structure of duty increases and reliefs is intended to support pubs by raising the relative price of alcohol consumed at home, compared with that consumed in a pub. Other Members from all parties have made proposals to go further, but many pubs have sought to diversify and increase the share of income and profit from food. Those that have tried are now being hobbled by the impact of VAT, which is another multiplier of costs. Becky and Donna are but two examples of the many publicans across my constituency who are holding on by their fingertips.
Dr Luke Evans
Does the hon. Member share my concern that often the only way that publicans can get around this issue is to either reduce their hours, reduce their staffing or take on more themselves, when they are already working 24/7 to try to deal with the costs? With this kind of change, the impact will be irreconcilable.
Calum Miller
I wholeheartedly agree with the hon. Member. Both the publicans I am talking about are working in excess of 70 hours a week. They have laid off staff, meaning fewer jobs for those who might be able to engage in entry-level occupations. It is hitting employment as well as other aspects of the economy.
Too many local pubs in my constituency, as in so many others, have shut, and other publicans are considering leaving the sector. When they go, communities lose a key institution that brings people together at the heart of their villages. That is why I strongly support the Liberal Democrats’ new clause 9, which would ensure an assessment of the cumulative effect of this Government’s careless assault on the hospitality sector.
Lucy Rigby
I am grateful to all Members for their contributions to today’s debate. Almost all of them have spoken passionately about their local pubs. I specifically acknowledge the contribution of the hon. Member for Angus and Perthshire Glens (Dave Doogan), just to deny him the pleasure of my not doing so.
We are taking a prudent and responsible decision to uprate alcohol duty in line with RPI. That is fully assumed in the OBR’s baseline forecast, so failing to uprate would come at a real cost.
Lucy Rigby
I am going to make some progress. Based on HMRC’s ready reckoner, freezing alcohol duty would cost the Exchequer around £400 million a year. That money, despite the Opposition’s best efforts to pretend otherwise, would have to be found elsewhere. This is one of the measures that assists in ensuring that our economy is strengthened and our future prosperity more secure. Indeed, it does that without taking the axe to public services or to investment. Those policies from the Conservatives had catastrophic consequences for all our constituents.
Lucy Rigby
I am going to make a bit more progress.
New clauses 8, 9 and 26 would require the Government to publish reports on the impacts of alcohol duty. The shadow Exchequer Secretary, the hon. Member for North West Norfolk (James Wild), invited me to refer to our tax information and impact note, and I will take him up on that invitation. As is usual practice, our note was published at the Budget. It outlined the anticipated impacts of this measure for alcohol producers and the hospitality sector. Because this uprating maintains the current real-terms value of the duty, the Government do not expect it to have significant macroeconomic impacts, including to the employment rate or hospitality businesses’ costs, where a duty on drinks will have comparable relative bearing as now.
Lucy Rigby
I will make some progress.
On the impacts on the public finances, HMRC publishes data on alcohol duty receipts quarterly. That data is reviewed alongside other evidence by the OBR when it produces its forecasts of alcohol duty receipts, as it did most recently alongside the November Budget. The Government’s view, as is evident from OBR-certified policy costings in recent years, remains that freezing or cutting alcohol duty rates reduces duty receipts.
The hon. Member for Angus and Perthshire Glens raised the importance of producers of Scottish whisky, and I agree with him about that. This Government are supporting key Scottish industries, including whisky, such as through our free trade agreement with India, which will boost exports of whisky and add £190 million a year to the Scottish economy.
Lucy Rigby
No, I will make some progress.
The hon. Member for Keighley and Ilkley (Robbie Moore)—he represents a wonderful place in the world, which is where I was between Christmas and new year—referred to the difference between CPI and RPI. As he knows, we are uprating alcohol duty by RPI, as with many other taxes expressed in cash terms. He will know that RPI is widely used, and moving away from it is fraught with difficulty.
I want to address the important points about business rates and employer national insurance contributions. We have discussed this already and, as Members will know, the Bill does not contain measures on either of those subjects, so I will not accept an amendment relating to them. I reiterate, however, that pubs are at the heart of our communities and we want them to thrive. As I have said, today we have heard some heartfelt references to particular pubs and the role that they have played in each of our lives. I could tell my own stories in that regard, but none of us would get home in time.
As Members know, in the Budget the Chancellor introduced a £4.3 billion support package to give relief to those seeing increases in their business rates bills. As I said earlier, we have made it clear that we are continuing to work with and talk to the sector about that support, and about what further support we can provide and what action we can take.
Lucy Rigby
I want to make this point. The Liberal Democrat spokesperson, the hon. Member for St Albans (Daisy Cooper), asked several questions. We will come forward with a support package—any further support that we will make available—when we are able to do so. As for her point about VAT, I know that an answer has been given to the parliamentary question asked by one of her colleagues about exactly that point, but I gently say to her—as, indeed, I have said to other Members during the debate—that if we want to cut taxes, the money has to come from somewhere. That has not been acknowledged at all.
I therefore propose that new clauses 8, 9 and 26 should be rejected and that clause 86 should stand part of the Bill.
Question put, That the clause stand part of the Bill.
Finance (No. 2) Bill (First sitting)
Tuesday 27th January 2026
(5 days, 12 hours ago)
Public Bill CommitteesFinance (No. 2) Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 27 January 2026 - (27 Jan 2026)
The Committee divided: - Ayes: 2 / Noes: 10 - Question accordingly negatived.
The Chair
Good morning, everyone. We are now sitting in public and the proceedings are being broadcast. Before we begin, I remind Members to please switch electronic devices to silent. Tea and coffee are not allowed in the room. Members may remove their jackets if they wish to do so.
We will now consider the programme motion and the motion to enable reporting of written evidence for publication. In view of the time available, we will take these matters formally, without debate.
Ordered,
That—
1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 27 January) meet—
(a) at 2.00 pm on Tuesday 27 January;
(b) at 11:30 am and 2.00 pm on Thursday 29 January;
(c) at 9.25 am and 2.00 pm on Tuesday 3 February;
(d) at 11:30 am and 2.00 pm on Thursday 5 February;
(e) at 9.25 am and 2.00 pm on Tuesday 10 February;
(f) at 9.25 am and 2.00 pm on Tuesday 24 February;
(g) at 11:30 am and 2.00 pm on Thursday 26 February;
2. the proceedings shall be taken in the following order: Clauses 11 to 43; Schedule 3; Clauses 44 to 45; Schedule 4; Clause 46; Schedule 5; Clause 47; Schedule 6; Clauses 48 and 49; Schedule 7; Clause 50; Schedule 8; Clauses 51 to 54; Schedule 9; Clause 55; Schedule 10; Clause 56; Schedule 11; Clauses 57 to 61; Clauses 70 to 82; Clauses 87 to 100; Schedule 23; Clauses 101 to 136; Schedule 14; Clauses 137 to 140; Schedule 15; Clauses 141 to 148; Schedule 16; Clause 149; Schedule 17; Clause 150; Schedule 18; Clauses 151 to 220; Schedule 19; Clauses 221 to 241; Schedule 20; Clauses 242 to 247; Schedule 21; Clauses 248 to 252; Schedule 22; Clauses 253 to 279; any new Clauses or new Schedules relating to the subject matter of those Clauses or those Schedules; remaining proceedings on the Bill.
3. the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 26 February. —(Lucy Rigby.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Lucy Rigby.)
The Chair
Copies of written evidence that the Committee has received will be made available in the Committee Room.
We will now begin the line-by-line consideration of the Bill. The selection list for today’s sitting is available in the room and on the parliamentary website. It shows how the clauses and schedules have been selected, and amendments have been grouped together for debate. Let us be clear about this, because I suspect that there may be Members present who have not been on a Public Bill Committee before, or any Committee before. The lead amendment is the first amendment in the group. That is the only one that, at the start of that debate, will be moved. All the others will be debated but moved later, if necessary. In clause stand part debates, the Minister will be called first. Other Members are then free to indicate if they wish to speak in the debate by bobbing. It would help if Members bobbed when they want to speak; we are all quite good at this but we do not have second sight.
The decision on clause stand part is usually taken at the end of the debate on each clause. You can either have a stand part debate at the end or during the debate on the amendments, but you cannot have both. I am fairly relaxed about this; other Chairs may take a different view. Sometimes it is more convenient to have a fairly wide debate on the clause at the start of the debate about amendments to the clause. That is perfectly in order as far as I am concerned, but you cannot do it twice. The Chair—in this case, me—will judge whether or not the clause then warrants a stand part debate. That is my decision, not yours, and it is final. Basically, that ball is in your court.
At the end of the debate on amendments and new clauses, I shall call the Member who moved the lead amendment—the one at the start of the group—or new clause. Before they sit down, it would be helpful if they could indicate whether they wish to move the amendment or withdraw it. It would also be helpful to whoever is in the Chair for there to be an indication if anybody wishes to force a Division on other amendments in the group.
The amendments are grouped by the Clerks, who are very expert in this, but in some cases they may relate to matters that come much further on in the Bill. People may say, “Hang on a minute! Why haven’t we voted on that?”—the answer is, we will when we get to it, if you want to. If any Member—the Minister, shadow Minister or anybody else—is speaking to an amendment that they want to move, it would be very helpful for the Chair to have an indication early on, so that when we get to that point we have a marker down that you want to force a Division. Within reason, we shall allow that.
If there are any queries at any time during the process—which is fairly arcane—do not be shy. None of us has a monopoly of wisdom, so just ask. I probably won’t know the answer either, but the Clerks will.
Clause 11
Charge and main rate for financial year 2027
Question proposed, That the clause stand part of the Bill.
The Economic Secretary to the Treasury (Lucy Rigby)
I am very pleased to be opening the first debate in this Finance Bill Committee. Clause 11 sets the charge for corporation tax for the financial year commencing in April 2027 and sets the main rate at 25%. Clause 12 sets the small profits rate at 19% for the same period.
The Government are committed to a stable and predictable tax system for businesses, and we are supporting businesses by creating the economic stability and fiscal sustainability needed for future growth. That is why we are delivering on our commitment, set out in the 2024 corporate tax road map, to cap corporation tax at 25% for the duration of this Parliament. The changes made by clauses 11 and 12 will establish the right of the Government to charge corporation tax for the financial year beginning in April 2027.
Mark Garnier (Wyre Forest) (Con)
Thank you for your guidance, Sir Roger. I am very grateful that you are in the Chair, because although I have been doing this for 15 years, as you know, and this is about my fifth Finance Bill, I do not have a clue how any of it works.
Mark Garnier
It is of course standard practice—as with income tax—for the Government to legislate the charge for corporation tax every year. These rate levels have remained unchanged since Labour came into office. As my hon. Friend the Member for Grantham and Bourne (Gareth Davies) pointed out last year, Labour promised to cap the corporation tax rate at 25% for the whole of this Parliament. That has not been done in legislation, although we have had an indication from the Minister that that is still the Government’s intention.
I will make just one small political point. The Government did promise that they would not increase taxes on working people, but we have seen national insurance contributions increase—that was obviously in a different Bill. None the less, the more the Minister can say about capping corporation tax at 25%, the more confident businesses and our economy will be that something will not be slipped in during the next three and a half years before the general election. We have no other objection to this measure.
Lucy Rigby
I am grateful to the hon. Member for Wyre Forest for his comments and for highlighting the fact that we have kept our manifesto commitment on tax. This is part of that: we are capping corporation tax at 25% in line with our corporate tax road map.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12 ordered to stand part of the Bill.
Clause 13
Enterprise management incentives: thresholds and period for exercise
Lucy Rigby
I beg to move amendment 37, in clause 13, page 7, line 37, at end insert—
“( ) In section 169I(7D)(b) of TCGA 1992 (material disposal of business assets)—
(a) for ‘tenth ’ substitute ‘specified’;
(b) at the end insert ‘(with “specified anniversary” having the meaning given in section 529(2A) of that Act)’.”
This amendment to TCGA 1992 would reflect the changes made to section 529 of ITEPA 2003 by clause 13 of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 38.
Clause stand part.
New clause 24—Report on impact of section 13 (Enterprise management incentives: thresholds and period for exercise)—
“(1) The Chancellor of the Exchequer must, within two years of the coming into force of section 13, lay before the House of Commons a report on the impact of that section.
(2) The report under subsection (1) must, in particular, assess the impact on—
(a) the recruitment and retention of skilled employees in qualifying companies,
(b) high-growth and innovative companies, and
(c) the Exchequer finances.”
This new clause would require the Chancellor of the Exchequer to report to the House of Commons on the impact of section 13 on recruitment and retention in qualifying companies, on high-growth and innovative businesses, and on the Exchequer finances.
Lucy Rigby
Clause 13 significantly expands the enterprise management incentives scheme eligibility to allow greater access for scaling companies. Specifically, the changes made by the clause will expand the EMI company eligibility limits to maintain the world-leading nature of the scheme.
Government amendments 37 and 38 are consequential to the business asset disposal relief legislation, updating it to align with the EMI maximum holding period expansion provided by the clause. The change will significantly expand the EMI limits and expand access for scale-up companies.
New clause 24 would require reports to the House of Commons on the impact of the clause on recruitment and retention in qualifying companies, on high-growth and innovative businesses and on the Exchequer finances. The Government have published a tax information and impact note setting out the impact of the EMI expansion. That showed that the measure will cost £585 million in 2029-30. The expansion is expected to support an extra 1,800 of the highest growth scale-up companies over the next five years, allowing them to reward an estimated 70,000 more employees.
The Government keep all taxes under review, and monitor and evaluate tax policy changes on an ongoing basis. We have also launched a call for evidence to gather views from founders, entrepreneurs, scaling companies and investors on tax policy support for investment in high-growth UK companies.
James Wild (North West Norfolk) (Con)
It is a pleasure to serve under your chairship, Sir Roger, and on the Committee considering this 536-page doorstop of a Bill. We are grateful for the written contributions and evidence provided to the Committee, but I think the usual channels should consider having oral evidence sessions for future Finance Bills, so that people can make important representations on significant pieces of legislation.
I will turn to clause 13 and new clause 24 tabled in my name. We need to have an enterprise economy that incentivises investment. The tax regime clearly has an important role to play in helping to achieve that, and in doing so, backing much needed growth in the economy. Clause 13 amends the Income Tax (Earnings and Pensions) Act 2003 to expand the enterprise management incentives scheme. That scheme helps attract, keep and motivate staff by allowing employees to buy shares in the company with tax advantages. That includes no income tax or national insurance contributions at the time of grant and exercise, with gains eventually being taxed under the more favourable capital gains regime, rather than as income tax.
The changes in the clause should make it easier for start-ups and growing companies to use the enterprise management incentives scheme, helping them reward staff and link employees’ success to the company’s growth. That is something that we support and the British Private Equity and Venture Capital Association has also welcomed the change. The clause increases the company options limit from £3 million to £6 million, raises the gross asset limit from £30 million to £120 million, and doubles the employee limit from 250 to 500. It also extends the exercise period to 15 years. These are all welcome changes.
However, one important element that is not due to change under these provisions is that the scheme allows qualifying companies to grant employee share options up to a maximum value of £250,000 per individual. Has the Minister considered going further and raising the cap beyond £250,000 to attract the brightest and best to grow businesses?
In its report on competitiveness, published yesterday, TheCityUK states that,
“the UK’s tax schemes such as…Enterprise Management Incentives (EMI) offer lower relief thresholds and tighter eligibility than international equivalents such as the Qualified Small Business Stock regime in the US, weakening incentives to scale and retain activity domestically.”
I have tabled new clause 24, which would require the Government to assess and report to Parliament on the impact that the changes have on the recruitment and retention of skilled employees in qualifying companies, on high-growth and innovative companies and on the Exchequer.
The Minister referred to the tax information and impact note, but clearly that is a forecast of what the Government hope will happen, not a review of what has actually happened. I think that will be a debate that we have many times as we consider the Bill: a TIIN is not a review of what has actually happened. The numbers that the Minister gave may be higher or lower, but we need to have a post-implementation review.
According to the Budget 2025 policy costings, the objective is to increase eligibility to allow scale-ups, as well as start-ups, to access the scheme. That is, of course, something we support. Will the Minister commit to keeping the scheme under review to ensure it is delivering on its aims to support high-growth firms and to consider whether further action, such as on the individual threshold, is needed?
Given the substantial investment, can the Minister clarify what behavioural assumptions underpin these projections? How many companies just above the existing threshold are expected to utilise these expanded limits? The BVCA has said that the enterprise management incentives scheme is
“long overdue for reform: high growth companies are often unable to grant EMI options due to the constraints of the £30m gross assets and 250 employee limits.”
Does the Minister have figures showing how much these limits have actually restricted growth?
Mr Joshua Reynolds (Maidenhead) (LD)
It is a pleasure to serve under your chairmanship, Sir Roger, on what is not only my first Finance Bill Committee, but my first Bill Committee—a nice, simple one to start me off. The Liberal Democrats welcome the changes made by clause 13. We need to support our British start-ups and British start-up culture to grow and develop.
We would of course like the Government to go further than clause 13 in what they promise. We need to ensure that we have a British start-up culture where start-ups do not, after five or 10 years, head off to the United States, taking that capital and leaving the UK with a brain drain. I have only one question to the Minister: how can we go further to ensure that once we have implemented the Bill, we will be in a position to say that fantastic UK companies will not head overseas, taking that capital and culture with them?
Lucy Rigby
The hon. Member for North West Norfolk made a series of important points. I come back to the fact that the Government have opened a call for evidence on tax in this area. The Committee will come to the enterprise investment scheme and venture capital trusts scheme, which the call for evidence also covers. Importantly, the call for evidence covers the changes we have made to the enterprise management incentives scheme. All of those changes, as well as the clauses we are about to discuss, are important to the Government’s objective of making sure that the UK is the best place in the world to start and grow a business, and I encourage any views to be fed into that call for evidence.
The hon. Member referred to an important report from TheCityUK and PwC; I attended its launch yesterday. I am pleased to tell him that the Government’s objectives on the growth of financial services very much align with that report. Our objectives and the report have much in common, but most importantly, we share the sense of urgency and ambition that it outlines.
The hon. Member for Maidenhead referred to his desire to see more companies remain in the UK. That is imperative, and it is behind the Government’s reforms to a series of tax incentives in this area. We believe that the UK is already the best place in the world to start a company, and we have to make sure that it continues to be, but it must also be the best place to scale and to list a company. That is why the reforms are so important—so that companies stay.
Amendment 37 agreed to.
Amendment made: 38, in clause 13, page 7, line 38, for “(7)” substitute “(8)”.—(Lucy Rigby.)
This amendment is consequential on the addition of a new subsection by Amendment 37.
Clause 13, as amended, ordered to stand part of the Bill.
Clause 14
Enterprise investment scheme: increase in amounts and asset requirements
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 29, in clause 15, page 10, line 23, leave out subsection (2).
This amendment would maintain the rate of income tax relief for investments into venture capital trusts at 30 per cent.
Government amendments 3 and 4.
Clause 15 stand part.
New clause 1—Report on the impact of section 15—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 15 on—
(a) early-stage investment volume,
(b) investor participation, and
(c) international competitiveness.”
This new clause would require the Chancellor of the Exchequer to report to the House on the impact of section 15 on early-stage investment volumes, investor participation and the UK’s international competitiveness.
Lucy Rigby
Clauses 14 and 15 double the maximum amount that a company can raise through the enterprise investment scheme and venture capital trusts scheme, as well as the gross assets limit for companies using the scheme. The VCT income tax relief will also be reduced from 30% to 20%.
The changes made by clause 14 will mean that, from April 2026, the EIS annual company investment limits will increase to £10 million, or £20 million for knowledge-intensive companies. The lifetime company investment limits will increase to £24 million, or £40 million for knowledge-intensive companies. The gross assets test will increase to £30 million before share issue, and £35 million after. Likewise, clause 15 will mean that from April 2026, the VCT company investment limits and gross assets test will increase to the same levels. Alongside that, as I said, the VCT up front income tax relief will decrease from 30% to 20% from April 2026.
Government amendments 3 and 4 fix wording in clause 15 so that the annual and lifetime investment limits consistently apply to “the relevant company”, removing any ambiguity in how the VCT limits should be interpreted.
James Wild
Clauses 14 and 15 are a story of two halves. As the Chartered Institute of Taxation rather adeptly put it—we are grateful for its support in scrutinising the Bill—these changes give with one hand and take with the other. We support clause 14, but we have doubts about clause 15.
Both clauses deal with our risk capital schemes—the enterprise investment scheme and venture capital trusts. EIS was introduced in the UK in 1994 to stimulate economic growth and, along with VCTs, these Government-backed schemes encourage individuals to invest in smaller high-risk trading companies by offering tax reliefs on their investment. As a former adviser in the Department for Business, Innovation and Skills, I helped to develop these schemes, as well as the seed enterprise investment scheme. I recognise their importance.
As the venture capital industry has noted, these are essential tools in unlocking private capital for early-stage, high-growth UK businesses, which we all support, particularly in the knowledge-intensive sectors such as life sciences, clean energy and deep tech; however, companies now routinely require £20 million to £30 million in funding before they start to sell their products. The previous limits had prevented UK investors from following their initial investment with more capital, forcing businesses to turn to overseas capital too early. That is a problem I think we all want to fix.
The main difference between the schemes is that with EIS an investor buys shares directly in an eligible company, whereas with VCTs the investor buys shares in a listed fund-like vehicle, which then spreads their money across a portfolio of qualifying companies. These clauses increase the annual and lifetime investment limits for the EIS and VCTs in Great Britain and raise the gross asset thresholds for qualifying companies.
Clause 14 increases the annual and lifetime investment limits for the EIS and VCTs, and raises gross asset thresholds. These limits have not been uprated since 2018 for knowledge-intensive companies and 2015 for other companies. Now, all limits are being doubled, which is welcome. As we have heard, for both schemes, the limit will rise from £10 million to £20 million. The total amount that can be raised over time will increase to £40 million for those knowledge-intensive firms. The gross assets yield for qualifying companies will go up to £30 million before a share issue and £35 million thereafter. TheCityUK has said that schemes such as EIS remain vital for crowding in early-stage finance and these changes are welcomed by the industry.
Clause 15 heads somewhat in the opposite direction. This clause reduces the rate of income tax relief for investment in VCTs from 30% to 20%. This is where our doubts begin to grow. The 2025 Budget policy costings reveal a calculated trade-off. The increased limits in clause 14 will cost the Exchequer £60 million in 2027-28. Meanwhile, the reduction in VCT income tax relief will raise £125 million in the same year, delivering a net yield of approximately £65 million. The policy costings state that this rate reduction is intended to
“better balance the amount of upfront tax relief…and ensure funds are targeting the highest growth companies”,
but the costings’ own assumption that
“investors alter or reduce the way they invest into VCT”
is an acknowledgment that the relief cut will dampen investor appetite.
I am concerned by how much that tax increase will reduce investment in these high-growth companies that we all support. The British Private Equity & Venture Capital Association has been explicit about its concerns, warning that this reduction
“could lead to a decline in fundraising that would impact the high growth and high-risk investments that the Government is looking to encourage”.
VCTs are a key part of the UK’s capital mix, providing one of the few consistent sources of long-term equity for early-stage and scaling companies. Any reduction in their ability to raise funds would directly affect the pipeline of innovative businesses that the UK needs to grow.
The reduction in VCT relief to 20% creates a fundamental risk to venture capital funding, precisely when scale-ups face capital constraints. For early-stage companies dependent on VCT funding, the reduced relief translates directly into a higher cost of capital and reduced funding availability. The Budget relies heavily on revenue raising from less visible and more complex parts of the tax system. This VCT change exemplifies that approach, shifting costs to venture investors rather than implementing transparent broad-based taxation.
New clause 1 would require the Chancellor to report on the impact of the cuts to VCT allowance on early-stage investment volume, investor participation and international competitiveness. Given the Government’s own admission that this will alter investment behaviour, such reporting is essential, and I reiterate that a TIIN does not review what actually happens in practice. Amendment 29 would simply remove the provision in clause 15(2) that reduces the rate relief from 30% to 20%, keeping the relief at its current level to support investment in high-growth firms. I believe both amendments would be supported by industry and, subject to what the Minister says, I intend to press amendment 29 to a vote.
The Government are expanding VCT investment limits while simultaneously cutting the relief to 20%. How would the Minister address the concerns of the investment sector that the combined changes will dampen investor appetite for venture capital trusts at the very moment we need to encourage them?
Lucy Rigby
I welcome the shadow Minister’s welcoming of the majority of the changes that we are making. To address his criticism of what we are doing in relation to the venture capital trust income tax relief, I come back to the impetus behind this package of reforms as a whole on EMI, EIS and VCT, which is to make sure that the UK is the best to start, scale, list a company and to ensure that companies stay.
The specific change to VCT to reduce the income tax relief from 30% to 20% is to help rebalance the up-front tax reliefs offered across the schemes, where the VCT scheme offers tax relief on dividend income, which the EIS scheme investors do not get. VCTs tend to invest in larger, less risky, scaling companies compared with EIS scheme investors. The reduction in income tax relief therefore reflects the overall reduction in investment risk that comes with investing in later-stage companies.
It is important to bear in mind that the VCT scheme remains very generous with, as I said, 100% tax relief on dividend payments and 100% capital gains tax relief on the sale of shares, alongside that 20% income tax relief. I know that the shadow Minister does not like TIINs in general—he has made that point in the Chamber—but they do contain the full details of the assumptions and impacts, and indeed the policy rationale. I therefore commend clauses 14 and 15 and Government amendments 3 and 4 to the Committee, and ask that amendment 29 and new clause 1 be rejected.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Clause 15
Venture capital trusts: rate of relief and amounts and asset requirements
Amendment proposed: 29, in clause 15, page 10, line 23, leave out subsection (2).—(James Wild.)
This amendment would maintain the rate of income tax relief for investments into venture capital trusts at 30 per cent.
Question put, That the amendment be made.
Lucy Rigby
Clause 16 will enable the existing enterprise management incentives scheme and company share option plan contracts agreed before 6 April 2028 to be amended to include a sale on the private intermittent securities and capital exchange system—known by its much more catchy acronym of PISCES—as an exercisable event, without losing the tax advantages. The legislation will have retrospective effect from 15 May 2025. In the interim, His Majesty’s Revenue and Customs will be able to use its collection and management powers to not collect tax on exercise.
That means that this change will benefit PISCES trading events that happen before the Finance Bill receives Royal Assent. The change will therefore support more employees of growing UK companies to access the tax advantages of EMIs, and ensures that the tax system keeps pace with innovation in the wider economy. It also, of course, supports the launch of PISCES, which will provide a key stepping stone for public markets, supporting our world-leading capital markets. I commend clause 16 to the Committee.
James Wild
As the Minister says, clause 16 addresses a specific but important matter by permitting employers to amend existing company share option plan and enterprise management incentives option agreements, to allow PISCES trading events to serve as exercisable events without sacrificing the valuable tax advantages. Employers frequently offer share options to employees in recognition of their service and commitment, and to grow their businesses, and when employees exercise such options, they naturally face income tax and national insurance consequences. To encourage this form of employee ownership, successive Governments have introduced tax-advantaged schemes, including CSOP and EMIs, that provide relief from those taxes when certain conditions are satisfied.
Lucy Rigby
The Government delivered the regulatory framework for PISCES in May 2025, and the shadow Minister has, fairly, asked for an update. I am pleased to tell him that the Financial Conduct Authority has since approved, as he may know, two PISCES market operators: JP Jenkins and the London Stock Exchange. We are hopeful that the first trading events on PISCES will take place soon.
I understand the impetus behind the shadow Minister’s other points. PISCES can, of course, be written into new contracts when they are agreed, meaning that those contracts should not need to be amended to include PISCES, because it can be there ab initio. However, it is fair to say that companies might not yet be aware of PISCES, as it was only recently introduced. That is exactly why we have the April 2028 extension, to allow PISCES to become more embedded and therefore more standard in EMI and company share option plan contracts. As I said, I understand the impetus behind the suggested change; I just do not think it is necessary.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clause 17
Employee car and van ownership schemes
Question proposed, That the clause stand part of the Bill.
Lucy Rigby
Clauses 17 and 18 will bring employee car ownership schemes into the benefit-in-kind regime from 2030, with transitional arrangements until 2032. Clause 19 will ensure that the introduction of new emissions standards does not lead to a sharp increase in benefit-in-kind tax for plug-in hybrid electric vehicles.
On clauses 17 and 18, the costing, published alongside the Budget, accounts for a behavioural response whereby a significant number of taxpayers switch towards alternative vehicles or move away from using company cars altogether. That has been updated since the 2024 autumn Budget, taking into account further evidence on the impacts of the measure provided by the sector.
Private use of a company car is a valuable benefit, and it is right that the appropriate tax be paid on it. This measure will ensure fairness to other taxpayers, reduce distortions in the tax system and reinforce the emissions-based company car tax regime, which incentivises the take-up of zero emission vehicles. To support the automotive industry and provide employers with more time to adjust to the changes, the Government have delayed implementation of the measure to 6 April 2030 and have introduced transitional rules.
On clause 19, new emissions standards being introduced in the UK reflect the higher real-world emissions of PHEVs. It is important that a car’s official emissions figures reflect real-world emissions, but that can lead to tax increases where tax is linked to emissions levels. The Government recognise that although it is right that higher-emitting vehicles pay more tax, lower-emission company cars such as plug-in hybrid vehicles continue to play an important role in supporting our transition towards zero emission vehicles and the decarbonisation of transport. The changes made by the clause will introduce a temporary benefit-in-kind tax easement for employers providing, and employees being provided with, PHEVs as company cars. I commend clauses 17 to 19 to the Committee.
Mark Garnier
I thank the Minister for her comments, but we are concerned about the unintended consequences of the three clauses.
We are concerned about how clause 17 will affect automotive industry jobs and vehicle sales. Approximately 76,000 workers use ECOS, across 1,900 medium-sized and large businesses. Those workers have utilised ECOS for essential, affordable and reliable personal transport. We believe that the clause risks making ECOS vehicles unaffordable for the workers who currently use them. In fact, using the scheme arrangements and paying tax from 2030 to 2032 onwards means that such workers face, in effect, a pay cut. That is especially unfair because those people who most use the schemes rely on a vehicle for their job much more than those in most other industries. There is a risk of further knock-on effects on the automotive industry if workers abandon ECOS completely.
The chief executive of the Society of Motor Manufacturers and Traders, Mike Hawes, who is one of the leading voices in the automotive industry, has expressed strong disapproval of the Government proposal to change ECOS. That is because 100,000 cars are provided through the schemes each and every year, which alone amounts to 5% of the new-car market in the UK. The SMMT predicts that changing the schemes will endanger 5,000 manufacturing jobs in the UK; it claims that that will bring about a loss of half a billion pounds a year due to fewer sales, lost VAT and lost vehicle excise duty receipts. That more than outweighs the £275 million in revenue that the Treasury predicts it will take within the first year of the tax changes taking effect.
We do not feel that clause 18 adequately protects the automotive industry and its workers. Under current ECOS arrangements, employers can sell a vehicle to an employee below market value, at a discounted price. For many employers, that has acted as an additional benefit to form a competitive employee recruitment package and has helped to improve staff retention. These criteria effectively stipulate that vehicles must be sold on the same terms as in the open market. Although exempt employers will not pay benefit-in-kind tax, they will inevitably have to pay a higher price for the vehicle itself. The SMMT estimates that that could become unaffordable for its members’ staff and automotive workers. The knock-on effects outlined in the discussion of clause 17 will remain. Fewer employees will be attracted to purchasing a vehicle. That will lead to fewer employers purchasing vehicles from car manufacturers, and the risk to manufacturing jobs and lost revenue will therefore still apply.
Clause 19 aims temporarily to ease the benefit-in-kind tax treatment for plug-in hybrid electric vehicles. We understand the intention behind this legislative change. We want people to take up low-emission electric vehicles, and the taxation system is an effective tool to encourage that. We are also conscious that stricter emission tests will be implemented over time. That could push plug-in hybrid emission vehicles into higher emission bands, and more tax will therefore be paid on them in the future. The knock-on effects on electric car manufacturers and the environment could be stark.
Clause 19 is part of the same package that endangers jobs in the automotive manufacturing industry, which will lead to a loss of about £500 million in VAT and vehicle excise duty receipts. Automotive News has reported on the progress of electrified vehicle registrations: it says that in October 2025 PHEV registrations rose by 27.2%, and that electrified vehicles represented the majority of new car registrations, at 50.8%. The SMMT says that in 2025 the new car market reached 2 million units for the first time since 2019. It predicts that the removal of ECOS could undo the progress that electrified vehicles, including PHEVs, have achieved by denying workers affordable access to new and increasingly zero emission vehicles.
CBVC Vehicle Management has said that these measures continue to make PHEVs look attractive in the short term, but the chief executive, Mike Manners, has advised people considering a PHEV to look at the benefit-in-kind tax implications and avoid their lease running into the tax year 2028-29. The benefit-in-kind easement is temporary until 6 April 2028.
Anthony Cox of RSM UK says that manufacturers do not expect that the reforms will push people into using electric cars. He states that employees of manufacturers and retailers could instead seek out older or less clean cars to purchase, outside any employer or employee management arrangements.
The point is that there are unintended consequences to the clauses. Although we will not oppose them, we want the Minister to take into account the fact that the Government may not get what they want out of them.
Mr Reynolds
The Liberal Democrats share the concerns of the SMMT. Given that the sector is struggling with severe uncompetitiveness across the country, anything that undoes the progress that the Government are seeking to make would not be welcome. Nissan tells us that its plant in Sunderland is the most expensive for electricity of any of its plants worldwide. That is not good for British business or for British car manufacturers. The SMMT worries that these proposals will not be good for British car manufacturers either.
On clause 18, we would like some draft guidance on proposed new section 116A to be published this year and consulted on. A number of the definitions could be clarified to give the industry some certainty about what will and will not be included.
Lucy Rigby
On the points made by the shadow Minister, the hon. Member for Wyre Forest, we have listened very carefully indeed to the sector’s concerns and have responded. That is exactly why we are delaying the proposed changes to employee car ownership schemes until 2030. That is the reasoning behind the delay.
The Government are firmly committed to our modern industrial strategy, and specifically to the automotive sector. That is why in the past year we have committed £2.5 billion to automotive investment and research and development, increased flexibilities in the ZEV mandate, funded the roll-out of more charge points and announced plans to cut electricity costs for energy-intensive manufacturers. Various points have been made about the tax incentives, but underpinning all of them is our commitment to support the automotive industry in a challenging fiscal environment.
We will publish in due course the guidance that the hon. Member for Maidenhead requests.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clauses 18 and 19 ordered to stand part of the Bill.
Clause 20
Employment income: miscellaneous exemptions
Question proposed, That the clause stand part of the Bill.
Lucy Rigby
Clauses 20 to 23 relate to other employment income. Clause 20 will simplify the rules on common workplace health and equipment costs, reducing administrative burdens for employers and giving greater clarity to the tax treatment of these costs. It will exempt reimbursements for accommodations, supplies or services used in performing employment duties, such as homeworking equipment; it will extend the existing exemptions for eye tests and corrective appliances to cover reimbursements; and it will introduce a new exemption for both the direct provision and the reimbursement of flu vaccinations. Uptake will depend on employer practice, but these changes will make the rules simpler and fairer for those affected. The Exchequer impact is negligible, but this change will allow employers to support staff without having to handle the sourcing and provision of minor items themselves. This will reduce time and resource costs.
Clause 21 relates to homeworking expenses. It will remove the process by which employees can claim an income tax deduction from HMRC if they have incurred additional household costs when required to work from home. The changes introduced by the clause aim to address concerns around non-compliance and to ensure fairness across the tax system.
Clause 22 will introduce changes that confirm the income tax treatment of payments made by zero-hour or similar limited-hour workers for a cancelled, moved or curtailed shift. This measure will put the tax treatment of such a shift beyond doubt. These tax changes will have an impact only on a small subset of workers, as the vast majority of such payments are taxable under existing legislation. The measure confirms that payments received in the event that a shift is altered at short notice are taxable in all scenarios, including in relation to agency workers and workers employed under umbrella companies.
Clause 23 puts beyond doubt the answer to whether earnings for duties not performed should be treated as UK earnings or overseas earnings for non-UK residents. The clause will establish a general principle to determine the tax treatment of earnings that relate to duties that have not been performed. It will also make a consequential amendment to foreign employment relief, commonly known as overseas workday relief, to ensure that this clarification also applies to UK residents who claim it. I commend clauses 20 to 23 to the Committee.
Mark Garnier
Clause 20 will introduce specific exemptions for minor expenses incurred by an employee on behalf of their employer. The Opposition particularly welcome subsections (3) to (6). As the Institute of Chartered Accountants in England and Wales says, it is a positive step that focuses on prevention rather than cures. It is also about the trade-off between tax relief and reduced future healthcare spending.
As the Association of Taxation Technicians has asked, will the Minister consider whether the covid-19 vaccination could be included in this provision? The Government’s explanatory notes state that corresponding changes to NICs for influenza vaccines and homeworking equipment will be made through separate regulations. Will the Minister provide more detail on when we can expect those regulations to be introduced?
On clause 21, the Government’s policy paper suggests that there will be no direct impact on business. However, there may be an indirect impact, as employers feel pressured to change their policies on reimbursement. As the Chartered Institute of Taxation points out:
“This creates an uneven situation in which two employees with identical working arrangements and costs are treated differently for tax purposes solely on the basis of their employer’s reimbursement policy.”
It also seems to follow our party’s scepticism about solely remote working. During the passage of the Employment Rights Act 2025, the Government said repeatedly that the right to work from home boosts productivity. Clause 21 seems to go against that by making it more difficult to work from home. It also seems to be a further attack on private sector employees, despite the fact that in 2024 HMRC spent £82 million on remote working devices for its workers, while the Home Office spent £53 million. Is this another example of the Government hitting the private sector while protecting the public sector?
Clauses 22 and 23 confirm that payments received in Great Britain for cancelled, moved or curtailed shifts are subject to income tax. In the explanatory notes, the Government state that this would also allow for
“the introduction of regulations to ensure that payments are also subject to National Insurance contributions”.
We think it would help to provide fairness in the tax system to support the clarity that the clause provides, so can the Minister confirm when the Government will seek to introduce those specific changes?
More generally, I want to make a point that my hon. Friend the Member for Mid Buckinghamshire (Greg Smith) made on the Employment Rights Bill Committee. While the clause provides fairness in the system between employees, the Government are still providing little support for businesses if they have to cancel, move or curtail shifts in circumstances that are unexpected or out of their control. Will the Minister commit to working with her colleagues in the Department for Business and Trade to assess how they can better support businesses when such situations arise?
Oliver Ryan (Burnley) (Lab/Co-op)
As ever, Sir Roger, it is a pleasure to make a short contribution while you are in the Chair. On clause 20, I will not echo the point that has just been made, but the Minister will have seen the written evidence submitted by the Association of Taxation Technicians, which discussed potentially widening the new initiative of including flu vaccinations in expenditure deductible from employment income, so that it also includes covid vaccinations. Has the Minister given that any thought?
On clause 22, it is a pleasure to see the Employment Rights Act being enacted and to address shifts being missed by people on zero-hours contracts, such as those in my constituency. It probably takes us into a wider debate that the Opposition have raised about having oral evidence sessions. It is clear from the evidence pack that the Chartered Institute of Taxation, the Association of Taxation Technicians and other taxation professionals have quite a lot of comments to make. If submissions on the clause were opened to my constituents, I am sure that there would be mass evidence from the public saying how much of a good thing it is. Does the Minister have any comments on that?
Mr Reynolds
Clause 21 will increase unfairness. Those required to work from home are currently divided into two groups: one group who receive reimbursement for costs without incurring income tax but are not reimbursed by their employer, and another group who take that via a taxation route. This measure will exacerbate that split and create a greater divide between the two. Where two employees hold exactly the same position or role, but in different companies, one may receive the payment and the other may not. The figures suggest that about 300,000 people will be affected by this measure. Can the Minister comment on how we can be in a position whereby two employees in the same job, but with different employers, are treated differently for tax purposes?
Lucy Rigby
The shadow Minister, the hon. Member for Wyre Forest, and my hon. Friend the Member for Burnley referred to vaccinations and asked about the extent to which covid vaccinations might be part of the scheme. We are limiting relief to flu vaccinations because employers have consistently highlighted them as a common relief in relation to which reimbursement would be helpful. Flu vaccinations are low in cost, seasonal and widely offered by employers as part of routine health support to employees. By contrast, other vaccinations vary significantly in cost and frequency. Importantly, however, many of them can be accessed free through the NHS.
As you might expect, Sir Roger, I completely reject the shadow Minister’s assertion that any of these measures is an attack on private sector workers. Not at all—far from it.
It is important to be clear that clause 21 will not impact employers’ existing ability to reimburse employees for costs relating to home working, where eligible, without deducting income tax and national insurance contributions.
The question of national insurance was raised in relation to clause 22 on payments for cancelled shifts. These payments will be subject to national insurance. My hon. Friend the Member for Burnley was entirely right to refer to the Employment Rights Act and its significance. I think I am right in saying that a question was also raised about the taxable nature of payments for cancelled shifts. I can confirm that payments received for short-notice shift cancellations or changes are regarded as earnings. They are paid in lieu of the payment that workers would have received had they completed the shift, and as such they are taxable in all relevant scenarios, irrespective of the arrangement or the employment structure.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clauses 21 to 23 ordered to stand part of the Bill.
Clause 24
Umbrella companies
Lucy Rigby
I beg to move amendment 5, in clause 24, page 28, line 25, at end insert—
“61Z2 Disclosures to liable persons
(1) Subsection (2) applies where an officer of Revenue and Customs considers that a person is, or may be, jointly and severally liable to pay an amount as a result of this Chapter.
(2) The officer may at any time disclose to the person such information as the officer considers appropriate (whether or not such a disclosure would otherwise be permitted under section 18(2)(a) of CRCA 2005 or any other enactment) for the purposes of informing the person about that liability (‘the joint liability’) including—
(a) the identity of any person who is an umbrella company, a purported umbrella company or the worker in relation to the arrangements to which the joint liability relates, and
(b) information about the nature and extent of the liability of an umbrella company or a purported umbrella company that (by virtue of this Chapter) results, or may result, in the joint liability.
(3) Information disclosed in reliance on subsection (2) may not be further disclosed without the consent of the Commissioners for His Majesty’s Revenue and Customs (which may be general or specific).
(4) Where a person contravenes subsection (3) by disclosing information relating to a person whose identity—
(a) is specified in the disclosure, or
(b) can be deduced from it,
section 19 of CRCA 2005 (offence of wrongful disclosure) applies in relation to the disclosure as it applies in relation to a disclosure in contravention of section 20(9) of that Act.
(5) In this section ‘CRCA 2005’ means the Commissioners for Revenue and Customs Act 2005.”
This amendment permits disclosures (whether or not permitted as a result of provision elsewhere) to persons who may be jointly and severally liable as a result of new Chapter 11 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003.
The Chair
With this it will be convenient to discuss the following:
Government amendments 6 to 8.
Clause stand part.
Lucy Rigby
Clause 24 will make changes to ensure that recruitment agencies are responsible for accounting for pay-as-you-earn on payments made to workers that are supplied via umbrella companies. Many umbrella companies operate diligently and support their employees, but a significant number are used to facilitate non-compliance, including tax avoidance and fraud. Clause 24 is intended to encourage increased due diligence among businesses that choose to use umbrella companies to engage workers. It will do so by introducing joint and several liability for the PAYE taxes that umbrella companies are required to remit to HMRC.
Government amendments 5 to 8 will ensure that the legislation works as intended by making a small technical change. This will ensure that HMRC is able to recover underpayments of tax from businesses that are within scope of the new rules because they purport to be umbrella companies, in the same manner that underpayments will be recovered from the other businesses that are within scope of the new rules. Amendment 5 will ensure that HMRC is able to keep taxpayers informed about its investigations concerning sums to which they are jointly and severally liable. That will help taxpayers to take action to mitigate their exposure to unpaid liabilities.
I commend clause 24, together with Government amendments 5 to 8, to the Committee.
Mark Garnier
Back in 2023, the Conservative Government opened a consultation on how to tackle non-compliance in the umbrella company market, because there was evidence of widespread non-compliance that deprived workers of their employment rights, distorted competition in the labour market and led to a significant tax loss to the Exchequer. In the 2024 autumn Budget, the Chancellor announced that she would follow up the consultation, hence this clause.
The Government state in their explanatory notes that the clause seeks
“to drive behavioural change among businesses that use umbrella companies in the supply of workers by giving them a financial stake in the compliance of the umbrella companies that they use.”
I think there is broad agreement about the need for this measure in tackling tax non-compliance in the umbrella company market. However, the Chartered Institute of Taxation has raised two particular issues, and I would be grateful for the Minister’s comments on them.
First, there seems to be an absence of safeguards. Currently, HMRC can transfer liability to the agency regardless of its circumstances. When an agency has done all it can to ensure the integrity of the supply chain, but has been the victim of fraud by the umbrella company, we think there should be safeguards in place to prevent the transfer of debts.
Secondly, there is some concern that the definition of “purported umbrella company” is too wide. The clause defines such a company so as to include any entity supplying an individual with services where that individual has a material interest in the entity. That means that, for instance, personal service company arrangements could fall within the definition. Is it the Government’s intention to include personal service company arrangements within the definition of a purported umbrella company? I should declare an interest: I have a personal service company. Can the Minister expand on what discussions on the clause have taken place with industry organisations such as the Freelancer and Contractor Services Association, which provides accreditation for many umbrella companies?
Lucy Rigby
On the shadow Minister’s final question, I am afraid that I do not know what discussions have taken place with the organisation he referred to, but I can write to him and let him know. Ultimately, whether to use an umbrella company when supplying a worker to a client is a commercial decision for agencies. That commercial decision has been incentivised not just by the ability to outsource administration to umbrella companies, but by the shielding from exposure to tax risk that that model provides. It is good to hear the shadow Minister welcome the impetus behind the changes in that regard.
The current legal framework provides few incentives for agencies to ensure that the umbrella companies they use are compliant. We think it—and it sounds like the shadow Minister agrees—that that has contributed to the proliferation of non-compliance in the umbrella company market. It is important that agencies take steps to ensure that their labour supply chains are compliant, and some agencies already do. HMRC has published guidance on how to undertake checks.
The shadow Minister asked about which agencies may be treated as umbrella companies, given the breadth, or otherwise, of the definition. We are, of course, aware that some agencies engage workers as employees, and where that is the case, and they meet the other conditions of the legislation, they will be treated in the same way as umbrella companies and this measure will apply. Employment is a fundamental characteristic of how most umbrella company workers are engaged and is the key aspect in determining when this legislation will apply. I think that will be the key legal test.
Amendment 5 agreed to.
Amendments made: 6, in clause 24, page 29, line 31, leave out
“a ‘relevant party’ for the purposes”
and insert
“jointly and severally liable to pay an amount as a result”.
This amendment makes sure that HMRC can use their power to make determinations about PAYE income in relation to persons who are jointly and severally liable to amounts of PAYE income under new section 61Z1 of the Income Tax (Earnings and Pensions) Act 2003.
Amendment 7, in clause 24, page 29, line 32, leave out from “ITEPA” to end of line 33 and insert “(umbrella companies)—”.
This amendment is consequential on Amendment 6.
Amendment 8, in clause 24, page 29, line 34, leave out from first “to” to “as” in line 35 and insert “that amount”.—(Lucy Rigby.)
This amendment is consequential on Amendment 6.
Clause 24, as amended, ordered to stand part of the Bill.
Clause 25
Loan charge settlement scheme
Lucy Rigby
I beg to move amendment 9, in clause 25, page 30, line 21, at end insert “, or
(ii) a director or shadow director of such a person.”
This amendment expands the persons to whom the Commissioners are not required to make a loan charge settlement offer so as to include directors and shadow directors of a promoter or introducer.
The Chair
With this it will be convenient to discuss the following:
Government amendment 10.
Clause stand part.
Clause 26 stand part.
Government amendment 11.
Clause 27 stand part.
New clause 25—Report on fairness and scope of the loan charge settlement opportunity—
“(1) HM Revenue and Customs must, within 12 months of the passing of this Act, lay before the House of Commons a report on the operation and impact of any loan charge settlement opportunity established under section 25 of this Act.
(2) The report under subsection (1) must in particular consider—
(a) whether the terms of the settlement opportunity are available to individuals who have previously settled or fully paid liabilities arising from disguised remuneration loan arrangements,
(b) whether the terms of the settlement opportunity are available to individuals with disguised remuneration loan arrangements falling outside the loan charge years specified in Part 7A of the Income Tax (Earnings and Pensions) Act 2003,
(c) the extent to which any differences in treatment between these groups and those eligible for the settlement opportunity affect perceptions of fairness, and
(d) the potential impact of such perceptions on future tax compliance and trust in the tax system.
(3) The report must include—
(a) an assessment of whether extending more favourable settlement terms to the groups described in subsection (2)(a) and (b) would improve fairness and consistency, and
(b) any recommendations HMRC consider appropriate in light of that assessment.”
This new clause would require HMRC to report on the operation and fairness of the new loan charge settlement opportunity. It would consider whether more favourable terms are, or should be, available to those who have already settled or fully paid liabilities, and to those with arrangements outside the loan charge years.
New clause 26—Report on the treatment of disguised remuneration arrangements outside the loan charge years—
“(1) HM Revenue and Customs must lay before the House of Commons a report on the treatment, under any loan charge settlement opportunity established under section 25 of this Act, of disguised remuneration arrangements falling outside the 2010/11 to 2018/19 tax years.
(2) The report under subsection (1) must in particular consider—
(a) the extent to which disguised remuneration income from tax years outside the loan charge period is excluded from the settlement terms,
(b) the number of taxpayers with disguised remuneration arrangements which HMRC consider to fall outside the loan charge but within Part 7A of the Income Tax (Earnings and Pensions) Act 2003,
(c) the interaction between settlements pursued in respect of such arrangements and those relating to the loan charge, and
(d) whether excluding factually linked arrangements from the settlement opportunity may prevent taxpayers achieving a full and final resolution of their tax affairs.
(3) The report must include—
(a) an assessment of whether including disguised remuneration arrangements that are factually linked to the loan charge period (whether arising before, during or after that period) would improve the effectiveness, fairness and finality of the settlement process, and
(b) any recommendations HMRC considers appropriate.”
This new clause would require HMRC to report on the exclusion from the new loan charge settlement opportunity of disguised remuneration arrangements outside the loan charge years, including arrangements which HMRC considers to fall outside the loan charge but within the disguised remuneration rules.
Lucy Rigby
Clauses 25 to 27 provide for the Government to create a settlement opportunity in line with their response to the independent review of the loan charge, and to encourage those who have not yet settled with HMRC to come forward and do so.
Clause 25 sets out some of the main features of the scheme, including how the new settlement amount will be calculated. Clause 26 will ensure that inheritance tax is not charged as part of any settlement where it relates to disguised remuneration arrangements in scope of the loan charge. Clause 27 makes supplementary provision for the settlement scheme to ensure that it can operate as intended.
In some places, the Government have gone further than the review recommended. In addition to removing late payment interest and inheritance tax, and allowing for generous tax deductions to represent amounts assumed to have been paid to promoters, the Government will also write off the first £5,000 of each individual’s liability. Because of these changes, around 30% of people within scope of the review could see their liabilities removed entirely, while most other individuals will see their liabilities reduced by at least half.
Turning to Government amendments 9 to 11, HMRC is aware of a number of promoters who have made use of their own disguised remuneration schemes and would be within scope of the settlement opportunity. I am very clear that it would be wrong for those individuals to be able to access the generous settlement terms on offer rather than paying every penny that they owe. Clause 25 makes provision for the exclusion of tax avoidance promoters from the settlement opportunity. Amendments 9 and 10 tighten those provisions to ensure that HMRC is able to prevent the controlling minds behind promoter companies from inappropriately accessing the settlement opportunity, in line with the Government’s announcements at the Budget. Amendments 9 to 11 also clarify that where an employer still exists, it can enter into a settlement on behalf of its employees who used disguised remuneration schemes.
New clauses 25 and 26, which would require HMRC to publish a report on the operation and scope of the loan charge settlement opportunity and a report on the treatment of disguised remuneration arrangements falling outside the scope of the loan charge, are unnecessary. The Government published a comprehensive response to the review, setting out our position, at the Budget. That outlined the decisions the Government made to help draw this matter to a close for those impacted, and explained why the scope of the review had been set as it had. It explained that the settlement opportunity will apply to disguised remuneration use between December 2010 and April 2019, because that is the period to which the loan charge applies. While people who used tax avoidance schemes outside that period will not be able to access the scheme, HMRC will work sensitively and pragmatically to help people to resolve their cases, including by taking account of people’s means and offering generous payment terms where appropriate.
I am sure that everyone will be aware that the loan charge is already subject to significant parliamentary scrutiny. HMRC officials and Treasury Ministers routinely provide updates on their work to the Treasury Committee and the Public Accounts Committee, and the Treasury Committee asked the HMRC permanent secretary about this topic just last month. I therefore urge the hon. Member for Maidenhead not to move his new clauses, and commend clauses 25 to 27, and Government amendments 9 to 11, to the Committee.
Mark Garnier
The Conservatives welcome the independent review and the thrust of clause 25. If we were to have a criticism, it would be to do with fairness, on which we had concerns shared with us by the Low Incomes Tax Reform Group. A key objective of the McCann review, which the Minister referred to and which was set up by the Government, was to ensure fairness for all taxpayers. However, by not extending the more generous settlement opportunity to those who have already fully settled and/or paid the loan charge, the provision arguably does not achieve fairness for all taxpayers. It will effectively put those who chose not to comply with their tax obligations in a better position than those who did. That could create perverse incentives, harm future tax compliance and damage trust in the tax system. Could the Minister provide a little more detail as to why the Government have excluded those who have already settled their claims?
Mr Reynolds
New clause 25, which I hope to press to a Division, would require the Government to undertake a report to consider a number of issues pertinent to the loan charge settlement scheme outlined in the Bill. The Liberal Democrats are clear that the settlement opportunity should be fair to everybody affected, including those who have already paid or settled, so as to ensure that people outside the loan charge years are not treated differently without clear reason. Unequal treatment can create the perception of unfairness, even if the policy is technically and soundly legal. It seems to us that if perceived unfairness in the system could be reduced, we should strive to do so, in order to protect the public’s trust in HMRC and the wider tax system. Is it right that someone who has already settled should be ineligible for the loan charge settlement? Surely, that tells people that in future they should just hold off and not settle or come to agreement, because that will leave them in a better position.
James Wild
We will look sympathetically on the hon. Gentleman’s new clauses if he chooses to press them to a vote. I have constituents who were heavily pressured by HMRC and ended up settling, which left them at a considerable financial loss, so I share his concern that those people, who were effectively bullied by HMRC, will now not get the same support as people who held out.
Mr Reynolds
The hon. Gentleman is completely correct. The place we are in now is that someone who settled and came to an agreement with HMRC is excluded from the opportunity laid out in the Bill. That means that when something like this happens again—and we all know that it will—those individuals will not want to come to an agreement with HMRC. They will know that if they hold off, a better solution and a better agreement will come through.
The report required by new clause 25 would outline a range of things, including whether the loan charge settlement opportunity is available to individuals who have settled, which is really important and something that we need to ensure; whether the settlement opportunity applies to individuals with disguised remuneration outside the loan charge years; and the extent of the impact of differential treatment between those two groups and those who are eligible. The extent of the impact is the most important thing, because for those individuals it will be severe. The report would also include an assessment of whether extending more favourable settlement terms to excluded groups would improve fairness and consistency with HMRC overall.
Lucy Rigby
The purpose of the review, as I think is well known, was to bring the matter to a close for those who had not yet settled and paid their loan charge liability to HMRC. That by its very nature meant focusing on open cases and outstanding liabilities. The Liberal Democrat spokesman, the hon. Member for Maidenhead, referred to something like this happening again. I think we would all agree that we hope it does not. However, we would probably also agree that it is crucial that any resolution to this issue is fair to the wider tax-paying population that has never avoided tax.
The Government believe that this settlement opportunity is the most pragmatic solution to draw a line under the issue for as many individuals with outstanding liabilities as possible. The settlement opportunity being provided is substantially more generous than any opportunity HMRC has previously offered and will substantially reduce the outstanding liabilities of people who have yet to settle with HMRC, particularly those with the lowest liabilities. Most individuals, as I said, could see reductions of at least 50% in their outstanding loan charge liabilities. We estimate that 30% of individuals could have their liabilities written off entirely.
James Wild
In her opening remarks, the Minister referred to promoters of disguised remuneration schemes not being eligible for this settlement scheme, which I welcome. Perhaps she could update the Committee on whether HMRC is proactively pursuing such individuals, who caused such distress to my constituents and, of course, to people across the country who were sold schemes, advised that they were legitimate and had been agreed with HMRC, and then discovered they were not and have lost their homes and their life savings as a result.
Lucy Rigby
I managed to give way just before the end of my speech. The shadow Minister raises a good question and a fair point. Through the new measures and existing rules, HMRC will have powers that can result in criminal prosecution of promoters of tax avoidance, including the new universal stop regulation proposal, which will ban the promotion of the most fanciful schemes outright and allow the HMRC commissioners to ban by regulation the promotion of other arrangements that HMRC thinks will not work. We will consult on further measures to target promoters in early 2026—indeed, it is 2026 already, so the shadow Minister may assume that that will happen soon.
Amendment 9 agreed to.
Amendment made: 10, in clause 25, page 32, line 12, at end insert—
“‘shadow director’ has the meaning given by section 251 of the Companies Act 2006.”—(Lucy Rigby.)
This amendment inserts a definition for the purpose of Amendment 9.
Clause 25, as amended, ordered to stand part of the Bill.
Clause 26 ordered to stand part of the Bill.
Clause 27
Loan charge settlement scheme: supplementary
Amendment made: 11, in clause 27, page 33, line 15, at end insert—
“(da) adapting provision made under section 25(6), in cases where a settlement offer is made to a person who is not an individual, about the calculation of settlement amounts (including provision for the calculation to be different to what is required by section 25(6));”.—(Lucy Rigby.)
This amendment clarifies that the loan charge settlement scheme can provide for the calculation of the settlement amount to be adapted where a settlement offer is made to a person who is not an individual.
Clause 27, as amended, ordered to stand part of the Bill.
The Chair
Mr Reynolds, I heard you say you wanted to press your new clauses to a vote. New clauses, for general consumption, are always taken at the end of the Bill, so many weeks from now you will get your chance to have your vote.
Clause 28
Main rate of writing-down allowances for expenditure on plant or machinery
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 29 stand part.
New clause 2—Report on the impact of section 28—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 28 on—
(a) business investment levels,
(b) capital-intensive sector employment,
(c) the manufacturing sector,
(d) small and medium-sized enterprises, and
(e) the public finances.”
This new clause would require the Chancellor of the Exchequer to report to the House on the impact of section 28 on business investment, employment in capital-intensive sectors, the manufacturing sector, small and medium-sized enterprises and the public finances.
Lucy Rigby
Clause 28 will reduce the main rate writing-down allowance for corporation tax and income tax, and clause 29 introduces a new first-year allowance available for expenditure on plant and machinery. As I am sure all hon. Members are aware, capital allowances allow businesses to write off the costs of capital assets, such as plant or machinery, against their taxable income. The UK continues to offer one of the most generous capital allowances systems globally and ranks top among OECD countries for plant and machinery capital allowances.
Clause 28 will reduce the main rate writing-down allowance from 18% to 14%, starting on 1 April 2026 for corporation tax and 6 April 2026 for income tax. That allows the Government to fund a new first-year allowance while also fairly raising revenue to protect the public finances. Clause 29 will introduce the new 40% first-year allowance, which will support future investment. The new allowance is available for expenditure on plant and machinery, including assets bought for leasing and assets bought by unincorporated businesses, from 1 January 2026.
The changes made by clauses 28 and 29 will raise approximately £1.5 billion per year by the end of the scorecard. The changes are UK-wide and will impact businesses with pools of historic main rate expenditure, which predate the introduction of the super-deduction or full expensing regimes for companies, as well as historic expenditure or future main rate expenditure that does not qualify for first-year allowances, or where first-year allowances were not claimed. We have heard the calls to expand full expensing to more assets and businesses. Although the fiscal climate limits what we can do now, the new first-year allowance moves us closer to that goal in a responsible way.
New clause 2 seeks to mandate reporting the impacts of clause 28 to the House. The Government have published documents much loved by the shadow Minister, the hon. Member for North West Norfolk—tax information and impact notes—setting out the impact of the reduction to main rate writing-down allowances, alongside the introduction of the new 40% first-year allowance. I therefore reject new clause 2 and commend clauses 28 and 29 to the Committee.
James Wild
I want to get on the record that I do not have a problem with TIINs, but they serve a different purpose from reviewing legislation after the event. I would not want any Treasury officials to feel that the Opposition do not value TIINs.
I will speak to clauses 28 and 29 as well as new clause 2, which is tabled in my name. Capital allowances are one of the primary mechanisms through which our tax system supports business investment. They enable firms to deduct the cost of purchasing plant and machinery from taxable profits, thereby reducing their tax liability and helping them to invest and grow, which we all support. The annual investment allowance is perhaps the most straightforward example. It allows businesses to deduct the full cost of most plant and machinery up to £1 million annually, in the same the year that the expenditure occurs.
Beyond that, there are the first-year allowances with no annual cap. The most generous of those is full expensing, which the Minister referred to, which provides a 100% deduction for qualifying main rate assets and a 50% allowance for certain special rate assets. Those measures were introduced by the previous Conservative Government in order to stimulate faster investment and drive up what have been, I think it is fair to say, historically low levels of business investment throughout all parties’ periods in government. I think that we are all committed to try and address that.
Where businesses cannot or choose not to utilise those more generous allowances, they rely on writing-down allowances. They spread tax relief over several years by permitting a set percentage of the remaining pool balance to be written off annually, with assets allocated to either a main rate or special rate pool, depending on their classification.
Clause 28 reduces the main rate from 18% to 14% a year, while the special rate remains at 6%. The relevant date is 1 April 2026 for corporation tax purposes, and 6 April 2026 for income tax. For periods straddling that change, a hybrid rate will apply. New clause 2 would require the Chancellor to produce a report that examines the impact of those reductions on business investment levels, capital investment sector employment, the manufacturing sector, small and medium-sized enterprises and public finances.
The 2025 Budget policy costing document presents that as a part of capital allowance reform, but the reduction in the main writing-down rate will alter the cash flow position of capital-intensive businesses, slowing the rate at which they can recover investment costs through tax relief. Businesses with substantial brought-forward main pool balances will see their tax relief decelerate, with corresponding impacts on cash flow and the overall tax benefit. For companies planning significant investment, timing has now become more important. This is yet another structural tax increase on businesses with large asset bases, which will now recover their investments more slowly.
Make UK has described this Budget as
“a case of two steps forward one step back for manufacturers.”
The 4% in reduction in the writing-down allowance is undeniably bad news for business. It is little wonder that polling by the Institute of Directors reveals that four in five business leaders view this Budget negatively, and I think that those findings were replicated across the Federation of Small Businesses, the CBI and many other business organisations. The delayed recovery of capital costs will constrain reinvestment in modernisation and automation, precisely when UK manufacturers are already facing strong headwinds, not least from the very high energy costs that they face in this country. The reduction from 18% to 14% will diminish the speed at which businesses can recover these costs. Has the Treasury assessed the impact on business investment intentions, particularly for small and medium-sized enterprises in manufacturing and logistics? If not, I am sure that the Minister looks forward to supporting new clause 2.
Clause 29 is an attempt to balance the changes made in clause 28. It introduces a new 40% first-year allowance from 1 January 2026 for new, unused main rate plant and machinery. The new allowance expands relief to unincorporated businesses and firms that buy assets to lease out, which do not qualify for full expensing or the 50% special rate allowance once they go over the £1 million annual investment allowance. The explanatory notes highlight that this new allowance represents an expansion to include leasing, which we welcome—those activities that have traditionally been excluded from such reliefs. The allowance is not available for special rate expenditure, second-hand or used machinery, expenditure under disqualifying regimes or general exclusions.
We support the expansion set out in this clause. While these measures may have good aims, introducing an additional rate adds some complexity to the system. There is also the length of the Finance Bill that we are considering—536 pages of dense text—and that we expect businesses and individuals across the country to comply with, else HMRC will come after them. I urge the Government to monitor closely the impact on business investment and to look at options for a more streamlined or neutral capital allowances structure in future. What steps are being taken to tell businesses about these new allowances and freedoms they have to invest in leased assets—for example, by working with business organisations to get the word out? Opposition Members will certainly do that with businesses in our constituencies.
The new allowance will provide some up-front support for qualifying new investment, partly offsetting the impact of reducing the main writing-down rate to 14%. Once again, the Government are giving with one hand and taking with the other. The uplift will be of use for unincorporated and leasing businesses, but for most other businesses with historical or non-qualifying assets, there is no uplift at all. They simply face a slower rate of relief, going down to 14%, stretching allowances over a longer period and affecting their cash flow.
The Minister referred to Office for Budget Responsibility forecasts that suggest these combined measures will cost businesses more than £1 billion in 2026–27, rising to around £1.5 billion a year thereafter. That is a significant burden at a time when companies are grappling with weak investment and, to put it bluntly, the higher costs imposed in the first Budget. The £20 billion jobs tax has had a big impact, as we saw in the data earlier this week and as we see in the number of graduates who are struggling to find jobs.
As I say, the inclusion of leasing is welcome, but we do think there is benefit in reviewing those measures after the event and coming back to Parliament to explain what has happened.
Lucy Rigby
The shadow Minister referred to the new 40% first-year allowance, which is bringing forward relief for the leasing sector and unincorporated businesses, which have historically been carved out of the first-year allowance. In doing so, it allows for immediate relief on a significant amount of their investment from their corporation tax or income tax bill in the year in which they make that investment.
As the Chancellor has repeatedly made clear, the fiscal environment is challenging. We cannot make unfunded commitments on tax. The shadow Minister referred earlier to being an adviser to the previous Government, which is not, I suspect, to suggest that he had a role in creating the fiscal environment that we unfortunately inherited from the previous Government. We have heard the calls to expand full expensing to more assets and businesses. When the fiscal climate allows us to do so, we will look into that.
Oliver Ryan
The Minister makes a very good point about the expansion of exemptions and the fact that the Government are minded to look at this in future Budgets. I welcome clause 29, which talks about the leasing of plants and machinery and affects many businesses in my constituency. I think it will have a genuine impact and, much as the Opposition might say, “This is a very good thing,” and welcome it, I hope they will vote with us today. However, the question has to be asked why, after 14 years in government, they did not bring this in. For various businesses in my constituency that lease large equipment, this would have made a massive difference. Unfortunately, it is being brought in by us later in the day because it was not done by the Conservatives.
Lucy Rigby
My hon. Friend makes a very good point.
The shadow Minister asked about working with businesses to get the word out. We have been working closely with industry on the expansion to leasing and we are consulting businesses on guidance to ensure that understanding of the new rules is as full as possible. The TIINs beloved of the shadow Minister, we now hear, make it clear that the OBR’s “Economic and fiscal outlook” sets out that the measure is not expected to have significant macroeconomic impacts, and for future investment the present value and cost of capital for businesses that claim the new first-year allowance remains broadly the same following these changes. For all those reasons, I maintain the view that new clause 2 should be rejected.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill.
Clause 29 ordered to stand part of the Bill.
The Chair
As an old hand, Mr Wild will know that a decision on new clause 2 will come at the end, if he wishes to press it to a Division.
Clause 30
Expenditure on zero-emission cars and electric vehicle charging points
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 3—Review of the impact of section 30—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of the expiry in 2027 of the 100% allowance made under section 30.
(2) The report under subsection (1) must assess the case for long-term capital allowance support for zero-emission cars and electric vehicle charging points to maintain UK competitiveness in green technology.”
This new clause would require the Chancellor of the Exchequer to review and report on the impact of the expiry in 2027 of the 100% allowance made under section 30, including the case for ongoing capital allowance support for zero-emission cars and electric vehicle charging points.
Lucy Rigby
Clause 30 will extend the 100% first-year allowance for qualifying expenditure on zero emission cars and plant or machinery for electric vehicle charge points by a further year to April 2027. More specifically, it will extend the availability of these capital allowances to 31 March 2027 for CT purposes and 5 April 2027 for income tax purposes, ensuring that investments in zero emission cars and charge point infrastructure continue to receive the most generous capital allowance treatment.
New clause 3 would require the Chancellor to review and report on the impact of the expiry in 2027 of the 100% first-year allowances made under clause 30, including the case for ongoing capital allowance support for zero emission cars and electric vehicle charging points. Alongside the 2025 Budget, in which the extension was announced, a policy costings document and a TIIN were published that set out the expected economic, business and other impacts of the changes, including impacts on incentivising businesses to purchase zero emission vehicles. Those documents are of course available online.
The Government annually review the rates and thresholds of taxes and reliefs to ensure that they are appropriate and reflect the current state of the economy. For that reason, new clause 3 is unnecessary. I commend clause 30 to the Committee, and ask that new clause 3 be rejected.
James Wild
As we have heard, clause 30 will extend the 100% first-year allowance for expenditure on zero emission cars, including EVs, and EV charging points. As the Minister said, the extension runs for a year to March 2027 for corporation tax and April 2027 for income tax purposes. Our new clause, consistent with other amendments that we have tabled, would simply ask the Chancellor to come back and report to Parliament, and to the public, on the impact of her measures. I do not really understand this reluctance to understand the actual impact of the measures. As part of the Government’s broader regulatory reform approach, they seem keen on post-implementation reviews, but the Treasury holds out alone against its homework being scored, it would seem. We want to consider whether long-term support should continue to be provided to maintain UK competitiveness in green technology. It is, in essence, a call for evidence that could make a difference to business confidence and investment.
The allowance was first introduced in 2002 for low emission cars, and the threshold was tightened over time, reaching zero emissions from April 2021. The extension continues that policy, but only for a year, and the Government’s own costings suggest that the extension will cost £145 million. Businesses planning multi-year fleet transitions and charging infrastructure investments face repeated cliff edges. Each year, a one-year window does not help a company planning to electrify its fleet in two years’ time; it simply rewards those who are able to accelerate the investment within the next 12 months.
Does the Minister recognise that it creates a stop-start approach that could discourage investment, undermine industry confidence and, ultimately, slow the UK’s transition to clean, green technology? That is odd when, in many ways, the Government are accelerating full throttle towards 2030 electrification across the grid. Members may have pylons and other pieces of grid infrastructure being dumped in their constituencies, with no public recourse, in the name of the Energy Secretary’s net zero goals. It is worth asking whether their policy is joined up if it includes these incremental extensions.
In that spirit, I have tabled new clause 3 so that hon. Members can judge whether the Government have a coherent approach. It would require the Chancellor to assess, transparently and on the record, whether a long-term support system is justified to keep Britain competitive in the global race for green manufacturing. A formal assessment would give Parliament and businesses the information they need to plan ahead.
In the debate on clause 11, the Minister referred to the long-term certainty provided by committing to a 25% corporation tax rate for this Parliament. Of course, that is not actually in the legislation, but we welcome that commitment and the greater certainty, and similar certainty could be given in this area. A formal assessment could also ensure that public money is being used wisely and that policy provides the certainty to unlock the investment we all want to see.
Given their 2030 obsession, why have the Government again chosen a one-year extension that provides limited certainty for fleet operators or for the charging infrastructure sector? I see that the hon. Member for Banbury is getting ready to dive into the debate. Will the Minister support new clause 3 and commit to a proper assessment of the lasting framework that is needed to secure Britain’s place in the green technology economy of the future?
Sean Woodcock (Banbury) (Lab)
The shadow Minister talks about a stop-start approach from this Government. I find that a bit brass neck, to be frank, considering the record of the previous Government, who shifted the dates and forced all sorts of investment with regard to EVs.
I welcome the measure. As part of the just transition, it is important to encourage the roll-out of EV infrastructure and charging points, particularly in rural constituencies such as mine where that is a significant challenge. Members will not be surprised to hear that I do not support the official Opposition’s new clause, but there is an important debate about how we ensure that investment is rolled out more equitably into constituencies such as mine. I ask the Minister to comment on how the Government see the roll-out of EV infrastructure in areas where there are issues with the electricity grid and network, so that the just transition can happen in those areas as well.
Mr Reynolds
The Liberal Democrats wholeheartedly support electrifying our vehicle fleet. It is a shame that some other political parties and politicians have stopped at a red traffic light when it comes to electrification. [Hon. Members: “More!”] I will not make any more traffic jokes—apologies.
That is why it is quite concerning to see the 2027 expiry date for the capital allowance. When potential EV owners are surveyed, their biggest concern is charging their vehicles, and it is the same for big employers. We all know that businesses need long-term security and a long-term commitment. That is why businesses were not doing well under the last Government, and why they retreated when the 2024 Budget brought in so many changes for businesses.
Long-term security is clearly what businesses need to invest. One-year extensions on top of one-year extensions do not give the certainty that businesses need to invest in the electrification of fleets—they need to do it this year or not at all. Once we take away that capital bid, it is very difficult to get back, so I would like to see that changed.
James Wild
The hon. Member and I agree about the importance of long-term certainty. People who are watching the proceedings may wonder why we did not just table an amendment to extend the scope to 2030, but due to the narrowness of the measures passed by the House, we are unable to do so. As I weigh up whether to push my new clause to a vote in a few weeks’ time, will the hon. Member consider supporting it?
Mr Reynolds
We can look into whether to support new clause 3 in a few weeks’ time. There seems to be very little in the new clause that we as Liberal Democrats would not support. Let us face it: we need to review the impact of the 2027 expiry date. We do not believe that the allowance should expire in 2027; it needs to be extended significantly further, so we would certainly consider supporting a review of whether 2027 is the right place.
That is my question for the Minister, really: why are we saying that the expiry date will be in 2027? Will we all be sitting here excitedly after the next Budget, looking at a 2028 expiry date, and so on for 2029 and 2030?
Lucy Rigby
On new clause 3, I think I have been as full as I can. The Government annually review the rates and thresholds of taxes and reliefs to ensure that they are appropriate and reflect the current state of the economy. We therefore do not need the review that is suggested in new clause 3.
On the broader points made by the shadow Minister, the hon. Member for North West Norfolk, we are, as I say, fully committed to supporting our automotive sector. On the suggestion that we might look further ahead, the Chancellor makes decisions on tax policy at fiscal events in the context of the public finances. My hon. Friend the Member for Banbury is right that support for infrastructure in this area is critical; indeed, that is the wider policy of the Government. On the suggestion from the hon. Member for Maidenhead that we might go beyond one year, we need to balance support for the industry with the impact on the public finances.
In our debate on clause 30, we have had “stop-start”, “accelerate”, “full throttle” and “red light”. I now encourage the Committee to greenlight the clause.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
The Chair
As we are nearing the end of the sitting, let me make three brief housekeeping announcements.
First, for operational reasons, the central door has been locked during the sitting. It will be opened very shortly before we adjourn so that Members may leave through it if they so wish.
Secondly, it has been drawn to my attention that, since the start of the sitting, the temperature has dropped dramatically, presumably because of the weather. Whether we can do anything about it during the lunch hour I do not know, but we will try.
Thirdly, the doors will be locked between now and the afternoon sitting. Given the weight of papers that everybody has been given, those Members who wish to leave them in the room may do so.
Clause 31
Payments for surrender of expenditure credits
Question proposed, That the clause stand part of the Bill.
Lucy Rigby
Clause 31 will make changes to clarify the tax treatment of payments made by companies in return for receiving expenditure credits. The changes made by the clause will set out a treatment for companies to follow. Payments made in return for credit must be ignored for corporation tax purposes, both by the surrendering company and by the recipient company.
Clauses 32 and 33 will introduce technical amendments to the legislation on video games expenditure credit and audiovisual expenditure credit. The changes made by clause 32 will add a new transitional rule to modify the video games expenditure credit calculation so that it accounts for both European and UK expenditure. The changes made by clause 33 will prevent incorrect amounts from having an impact on the intended generosity of special credit. They will do so by preventing some incorrect amounts from occurring and by setting out how to resolve others when they arise. Noting that clause 32 will close a loophole, I commend clauses 31 to 33 to the Committee.
James Wild
As the Minister said, these clauses are mainly technical, tidying-up measures, but they are worthy of debate none the less.
Clause 31 clarifies the corporation tax treatment of payments made in return for the surrender of research and development expenditure credit, audiovisual expenditure credit or video games expenditure credit for payments made on or after November 2025. This technical clarification ensures that, when companies sell or surrender tax credits, the accounting treatment is consistent and correct.
R&D expenditure credit has been in place since 2013 to support companies carrying out R&D, and these creative industry expenditure credits will fully replace the old film, high-end TV, animation, children’s TV and video games tax reliefs from April 2027. At the moment, there is no agreed approach between tax authorities and companies on how to treat payments received when these credits are surrendered for corporation tax purposes, which has created uncertainty.
Clause 31 will hopefully put that beyond doubt by setting out a clear tax treatment in law, and HMRC will update its guidance manuals to reflect the new rules. Does the Minister have any figures—I do not have the TIINs to hand on this one—on whether that uncertainty has cost companies, or cost the Government, in lost revenue?
Clause 32 corrects transitional rules between the video games tax relief and the video games expenditure credit to ensure that the new expenditure credit works fairly for games that are moving over from the old relief. It corrects how the expenditure credit is calculated for transitional games—those that already have tax relief claims and then opt into the new scheme—so that companies do not get too much or too little relief, simply because the old regime used European expenditure while the new one uses UK expenditure.
In effect, clause 32 ensures that companies switching schemes do not get double relief or under-relief. Can the Minister provide an estimate of how many video games development companies will be affected by this transitional correction, and whether any have suffered financial detriment under the previous rules?
Clause 33 makes changes to the special credit for visual effects, which is part of the audiovisual expenditure credit, as the Committee will be aware. It prevents the calculation for additional credit from producing incorrect results, correcting anomalies in the visual effects credit calculation. The explanatory notes explain that, without this fix, certain combinations of expenditure could generate incorrect credit amounts or negative values, so clause 33 ensures that the scheme operates as intended and that the special credit scheme is neither more nor less generous than intended. Does the Minister have any figures on how many production companies have experienced calculation errors as a result of the previous rules?
Matt Turmaine (Watford) (Lab)
It is a pleasure to serve under your chairmanship, Sir Roger. I will speak briefly on clause 32, as a member of the all-party parliamentary group for video games and esports, to say to the Minister that I welcome the closing of this loophole. Does she agree that the change will support the British video games industry, which is industry-leading across the world, and deliver the best for our economy?
Lucy Rigby
I wholeheartedly agree with my hon. Friend the Member for Watford about the impact of these measures.
In relation to clause 31, if only the shadow Minister, the hon. Member for North West Norfolk, had the TIIN to hand; if he did, he might have been aware that we estimate that the payments for the surrender of expenditure credits will have an impact on roughly 12,000 claimants of R&D expenditure credit, audiovisual expenditure credit and video games expenditure credit.
The shadow Minister asked about the impact on video games companies: I think it is fair to say that if a company has a game that switches from the video games tax relief to the video games expenditure credit, it simply needs to make sure that it uses the modified version of step 2 when calculating how much credit it is entitled to. This will affect only games that are already in development and need to switch reliefs. There are no figures available to show the impact on companies; it is normally in the tax line, so it is not treated as taxable by most companies. I think that answers all of his questions.
Question put and agreed to.
Clause 31 accordingly ordered to stand part of the Bill.
Clauses 32 and 33 ordered to stand part of the Bill.
Clause 34
R&D undertaken abroad: Chapter 2 relief only
Question proposed, That the clause stand part of the Bill.
Lucy Rigby
Clause 34 makes a minor legislative amendment to the R&D tax relief rules to put beyond doubt that the overseas restrictions apply to R&D expenditure credit claimants with a registered office in Northern Ireland. The Government are making this amendment to provide clarity to businesses and ensure that the legislation aligns with the original policy intent of the Finance Act 2025. I commend clause 34 to the Committee.
James Wild
Clause 34 will amend the Corporation Tax Act 2009 to clarify restrictions on relief for overseas R&D applied to companies across the entire United Kingdom, including Northern Ireland and Great Britain. It applies retrospectively on claims made on or after October 2024. It puts beyond doubt that the geographical restriction on R&D expenditure credit relief applies uniformly across all jurisdictions. Can the Minister confirm that, notwithstanding this clarification, exemptions under the enhanced R&D intensive support scheme still apply to firms based in Northern Ireland?
Lucy Rigby
I thank the shadow Minister for his question. The Government are committed to supporting R&D investment across the UK through R&D tax reliefs; they of course play a vital role in supporting the mission to boost economic growth, which he will know is this Government’s No. 1 priority.
The legislation clarifies that the rules are the same for all R&D expenditure credit companies across the UK. The overseas restriction was introduced in regulations in 2024 before being included in the Finance Act 2025. It was always intended to apply to R&D expenditure credit claimants across the UK, so the change is purely to clarify the Finance Act 2025 to put that position beyond all doubt.
Question put and agreed to.
Clause 34 accordingly ordered to stand part of the Bill.
Clause 35
Restriction of relief on disposals to employee-ownership trusts
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 28—Implementation of section 35 (Restriction of relief on disposals to employee-ownership trusts—
“(1) HM Revenue and Customs must, as part of the implementation of the provisions of section 35, make an assessment of the potential benefits of establishing a digital application process for taxpayers seeking to pay capital gains tax by instalments under section 280 of TCGA 1992 in respect of disposals to employee ownership trusts.
(2) The assessment made under subsection (1) must consider potential guidance on eligibility criteria and processing timescales.”
This new clause would require HMRC to assess the potential benefits of establishing a digital application process for taxpayers to pay capital gains tax by instalments in respect of disposal to employee ownership trusts as part of the implementation of section 35.
New clause 29—Report on the impact of section 35—
“The Chancellor of the Exchequer must, within 12 months of this section coming into force, lay before the House of Commons a report assessing the impact of the changes made under section 35 on small and medium-sized enterprises, including—
(a) the number of EOT transactions completed compared to the previous three-year average,
(b) any administrative costs and burdens reported by businesses and tax advisers,
(c) the incidence and value of dry tax charges arising, and
(d) recommendations for any modifications to the instalment payment regime under Section 280 of TCGA 1992.”
This new clause would require the Chancellor of the Exchequer to lay a report before the House of Commons on the impact of section 35 on small and medium-sized enterprises.
Lucy Rigby
Clause 35 reduces the amount of capital gains tax relief available on disposal of company shares to the trustees of an employee ownership trust. The Government are committed to building on the success of the existing scheme so that the UK remains a leader in the field of employee ownership. However, the Government have to consider the public finances and the important issue of fairness in our tax system.
The current regime allows business owners to dispose of valuable shareholdings for significant capital gains without paying any tax at all. The cost of the CGT relief alone reached £600 million in 2021-2022, and forecasts suggest that it could rise to more than 20 times the original costing to £2 billion by 2028-29, if action is not taken. The changes made by clause 35 will restrict the amount of CGT relief available to company owners who dispose of shares to the trustees of an EOT. For disposals on or after 26 November 2025, half of the gain on disposal to the trustees of an EOT will be treated as the disposer’s chargeable gain for CGT purposes, and charged to tax according to the usual applicable rules. The remaining half of the gain will be not charged to tax at the time of disposal.
Overall, this means that disposals to an EOT will benefit from a rate of tax that is broadly equivalent to half of the usual rate, which will still constitute an effective incentive to encourage company owners towards employee ownership.
Finance (No. 2) Bill (Second sitting)
Tuesday 27th January 2026
(5 days, 12 hours ago)
Public Bill CommitteesFinance (No. 2) Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 27 January 2026 - (27 Jan 2026)
The Committee divided: - Ayes: 3 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 3 / Noes: 10 - Question accordingly negatived.
The Chair
With this it will be convenient to discuss the following:
New clause 28—Implementation of section 35 (Restriction of relief on disposals to employee-ownership trusts—
“(1) HM Revenue and Customs must, as part of the implementation of the provisions of section 35, make an assessment of the potential benefits of establishing a digital application process for taxpayers seeking to pay capital gains tax by instalments under section 280 of TCGA 1992 in respect of disposals to employee ownership trusts.
(2) The assessment made under subsection (1) must consider potential guidance on eligibility criteria and processing timescales.”
This new clause would require HMRC to assess the potential benefits of establishing a digital application process for taxpayers to pay capital gains tax by instalments in respect of disposal to employee ownership trusts as part of the implementation of section 35.
New clause 29—Report on the impact of section 35—
“The Chancellor of the Exchequer must, within 12 months of this section coming into force, lay before the House of Commons a report assessing the impact of the changes made under section 35 on small and medium-sized enterprises, including—
(a) the number of EOT transactions completed compared to the previous three-year average,
(b) any administrative costs and burdens reported by businesses and tax advisers,
(c) the incidence and value of dry tax charges arising, and
(d) recommendations for any modifications to the instalment payment regime under Section 280 of TCGA 1992.”
This new clause would require the Chancellor of the Exchequer to lay a report before the House of Commons on the impact of section 35 on small and medium-sized enterprises.
The Economic Secretary to the Treasury (Lucy Rigby)
Turning to the non-Government amendments, new clause 28 asks His Majesty’s Revenue and Customs to assess the potential benefits of establishing a digital application process for taxpayers seeking to pay capital gains tax by instalments following disposals to employee ownership trusts. The facility to pay CGT in instalments is a long-standing feature of the tax code and is well understood by both taxpayers and HMRC. The process for applying to pay by instalments is clearly set out within HMRC guidance and applications are dealt with swiftly once they have been received by HMRC. My officials have met representatives from the employee ownership sector to provide bespoke guidance on how these instalment payment provisions apply to disposals to EOTs. That engagement continues. I therefore ask the hon. Member for Maidenhead to withdraw new clause 28. In any event, it should be rejected.
New clause 29 asks the Chancellor to lay a report before the House within the next 12 months assessing the impact on small and medium-sized enterprises of the changes made under clause 35. The Government monitor the impact of all changes made to existing tax reliefs. However, publishing a report on the change introduced by clause 35 within the next 12 months would not be reasonable as the first full tax year of these changes is the tax year 2026-27, so HMRC will not have complete information to assess their impact. New clause 29 should therefore be rejected.
In addition to rejecting new clauses 28 and 29, I commend clause 35 to the Committee.
Mark Garnier (Wyre Forest) (Con)
Clause 35 introduces a 50% chargeable gain on shares sold by a company to an EOT. That will have a direct effect on trustees’ ability to benefit company employees. The 2014 Conservative Government introduced 100% capital gains tax relief to incentivise companies to transition to EOT models. EOTs have benefited employees by rewarding and motivating them—for example, by distributing annual tax-free bonuses of up to £3,600 a year to each employee. These tax changes would hurt employees most of all.
The Office for Budget Responsibility’s “Economic and fiscal outlook” from November 2025 forecasted that this will raise just £900 million a year on average from 2027 to 2028. However, the OBR also gave this measure a “very high” uncertainty ranking. The OBR highlighted the fact that these tax changes could have a behavioural effect: company owners would instead hold on to their shares for longer before realising gains. That means that company owners will slow the flow of shares they sell to trustees, so trustees will receive far fewer shares and, as a result, less value will be passed on to employees.
It is worth mentioning the commentary from other organisations. The Financial Times reported that tax advisers have warned against this measure and are concerned that entrepreneurs would have to cover the tax bill before they receive the proceeds of the sale. Chris Etherington of RSM UK is concerned that these changes will slow the pace of change to EOTs. The Centre for the Analysis of Taxation stated that this was a “good reform” and supports withdrawing relief entirely. This is not very popular, and there is a high uncertainty of it even raising any revenue.
Mr Joshua Reynolds (Maidenhead) (LD)
New clause 28 in my name would require HMRC to assess the potential benefits of establishing a digital application process for taxpayers to pay capital gains tax by instalments in respect of disposal to employee ownership trusts. The digital application process would make it far easier for taxpayers to apply to pay capital gains tax by instalments, reducing delays and administrative burden. The Government aim to make tax digital—this digital application process would be a small way to help to get there. It would help to ensure that the new relief works in practice, not just in theory, smoothing the implementation process and ensuring that taxpayers know where they stand. The digital process could help improve speed, accuracy and the consistent handling of instalment applications. Including this requirement in the Bill would promote modernisation and better taxpayer services and would signal that HMRC should consider practical delivery as well as policy. I hope the Minister will support it.
New clause 29, also tabled in my name, would require the Chancellor to lay a report before the House on the impact of clause 35 on small and medium-sized enterprises. It is fairly simple. It would explain whether clause 35 is achieving the policy goal by tracking the number of employee-ownership trust transactions compared to previous years. Not until we are in the process will we actually know what the impact will be. By tracking the numbers, we can see whether the policy the Government are undertaking has been a success. I hope the Minister will support it.
Lucy Rigby
To the comments from the shadow Minister, the hon. Member for Wyre Forest, it is important to bear in mind that on the changes we are making to EOTs, even post these changes, the relief that will be on offer remains more generous than for many other options and deeds, such as business asset disposal relief. Of course, the fiscal climate is relevant to the changes we are making. He referred to the point at which the last Government introduced this relief, but as I said, the cost of the relief as a whole is projected to rise to £2 billion by 2029-30 without the action that we are taking. As I said, the fiscal climate is extremely relevant when looking at £2 billion of relief.
Importantly, the Employee Ownership Association has stated that the changes we are making are not such as to alter the fundamental strength and purpose of the employee ownership trust model, while also recognising that the previous level of relief, or the level of relief as it stands, was hard to sustain when set against the rapidly escalating fiscal cost. On the comments made by the Liberal Democrat spokesman, the hon. Member for Maidenhead, I set out the reasons why we reject new clauses 28 and 29. I maintain the position of rejecting those and maintaining clause 35 as it stands.
Question put and agreed to.
Clause 35 accordingly ordered to stand part of the Bill.
Clause 36
Anti-avoidance: collective investment scheme reconstructions
Question proposed, That the clause stand part of the Bill.
Lucy Rigby
Clauses 36 to 38 make changes to the CGT anti-avoidance provisions that apply to company share exchanges and reconstructions, or the reconstruction rules, as they are known. Clause 36 revises the collective investment scheme reconstruction anti-avoidance rule to align with modern provisions with a similar purpose. Clause 37 revises the share exchanges and company reconstruction anti-avoidance rule to align with modern provisions with a similar purpose, too. Clause 38 does exactly the same. The changes made by these clauses, which take effect from Budget day, modernise the anti-avoidance rule so that it focuses directly on arrangements where the purpose, or one of the purposes, is the avoidance of tax.
The amendments introduced by the clauses will allow HMRC to address situations where arrangements have been added to otherwise commercial transactions that reduce or eliminate, rather than just defer, a tax charge, allowing them to be more effectively challenged. The rule has been updated so that it affects only the shareholders who benefit directly from the avoidance. Where HMRC agrees that there is no avoidance and the reorganisation is carried out within 60 days of the Budget announcement or if HMRC’s decision is later, the current legislation will apply. For those reasons I commend clauses 36 to 38 to the Committee.
Mark Garnier
On clause 36, we support tougher measures to tackle tax avoidance and close the tax gap. Under the previous Government, the tax gap of the total theoretical tax liabilities fell from 7.5% in 2005-06 to 5.3% in 2023-24. But it is crucial that legislation is not so broad to the extent that people entering into arrangements for legitimate commercial reasons face the brunt of HMRC’s enforcement powers. The scale of genuine tax avoidance as a proportion of the total tax gap is important to note.
According to HMRC, in 2023-24, avoidance behaviour as a share of the tax gap was just 1%. It was also 1% in the 2022-23 tax year and was 2% in 2021-22, 2020-21 and in 2019-20. Avoidance ranked lowest among the behaviours that contributed to the tax gap. Contrast that with 31% due to failure to take reasonable care, 15% due to error and 12% due to legal interpretation. What those behaviours have in common is they involve genuine mistakes being made, so pursuing the route set out in clauses 36 and 37 risks hurting those who enter arrangements for solely commercial purposes who may have simply made honest mistakes.
With regard to clause 37, we support tougher measures to tackle tax avoidance to close the tax gap. The methods of deferring tax for general company reconstructions and share exchanges are identical to each other’s and to that for collective investment schemes. The key difference between clauses 36 and 37 is the business practice to which the anti-avoidance measures apply when arrangements are made to avoid tax liability. Clause 36 applies to CISs, and clause 37 applies to share exchanges and company reconstructions, so the argument pertaining to the general principle and practicality of the Government’s new anti-avoidance measures also applies to those clauses.
With regard to clause 38, we support tougher measures to tackle tax avoidance to close the tax gap. The clause seeks to change the no gain/no loss rules if HMRC suspects that a transfer of business has taken place to secure a tax advantage. Those rules have been instrumental in the process of transferring a business. They are especially useful for arrangements between complex structures. No gain/no loss rules can ensure fluidity throughout the transfer process, and they stave off cash-flow issues during the process itself.
While we support tackling tax avoidance, we must also recognise the role that no gain/no loss rules play during delicate business practice. We understand that there are already safeguards in place from HMRC, such as the general anti-abuse rule. Nevertheless, we must also ensure that no business that utilises no gain/no loss for legitimate commercial purposes is penalised or hung out to dry through denied relief claims.
Lucy Rigby
I welcome the support that was expressed, on the whole, by the shadow Economic Secretary to the Treasury. I suspect that that support is born from a recognition that we really do need to make the changes. Recent court decisions have shown that the rules as they stand, which date back to the ’70s, do not work as intended, especially when the avoidance carried out is a smaller part of a larger commercial reconstruction.
The main effect of the rules will be to discourage the minority—and it is very much a minority—who would otherwise seek to avoid tax. It is about protecting our tax base from abuse for the benefit of the majority of taxpayers who apply the rules correctly. For those reasons, I truly believe that the clauses strengthen the protection against avoidance and will catch tax avoiders.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clauses 37 and 38 ordered to stand part of the Bill.
Clause 39
Incorporation relief: requirement to claim
Question proposed, That the clause stand part of the Bill.
Lucy Rigby
Clause 39 makes a change to incorporation relief for CGT, requiring taxpayers to make a claim for relief and, as a result, improving the data available to HMRC to undertake analysis and compliance activity. Specifically, the change will mean that taxpayers need to make a claim for incorporation relief on their self-assessment return. That will apply to transfers of a business on or after 6 April 2026, and it will allow HMRC to monitor the relief and tackle avoidance more effectively, protecting revenue and helping to close the tax gap, with an additional £225 million expected to be collected over the scorecard period.
Mark Garnier
Clause 39 requires taxpayers to claim incorporation relief or pay CGT up front. It is key that sole traders and other eligible people understand the changes the clause makes. What concerns us is whether enough awareness has been made to affected people, and that is crucial as claiming incorporation relief has always been a passive process because it happens automatically. Soon, people who have been accustomed to this passiveness must acutely manage their relief claims. We do not want anybody who has been conducting legitimate business to suddenly be hit with an unexpected tax bill. Landlords, for example, are a common entity who claim incorporation relief. They do so by transferring their rental property portfolio into a limited company. Should a landlord undertake that process and then find themselves receiving an unexpected tax bill, that could add significant pressure on their investments, which in this case involve houses occupied by tenants.
Mr Reynolds
This is a small administrative change but a significant one. I share concerns about awareness on this topic and how the public will know that this has changed. For individuals who have been doing this for a significant period of time, the change will be quite significant for them. I would like to know how the Government will communicate that change to the public—what advice will be put forward, and how people will be made aware of it—rather than them being expected to know that the Government have made changes. I am pretty sure the public have not read all the pages of the Bill and understood them precisely—even though I know we all have. We would all like to how the public will be made aware of this.
Lucy Rigby
While it is important to be clear about the fact that the additional data is being collected, the details required from taxpayers are brief, and that goes to the question of the additional burden or, indeed, lack thereof. They are brief details of the type of business, the tax calculations for the assets disposed of, and the value of the shares received for the business. The information HMRC requests will be used in analysis and compliance activity, which will tackle abuse of this relief for the benefit of the majority of taxpayers who apply the rules correctly.
The point on awareness was fairly raised. I can confirm that new guidance will be provided alongside the self-assessment return.
Question put and agreed to.
Clause 39 accordingly ordered to stand part of the Bill.
Clause 40
Non-residents: cell companies
Question proposed, That the clause stand part of the Bill.
Lucy Rigby
Clauses 40 and 41 make various changes to the capital gains rules that apply to disposals of UK land and property by non-UK resident persons.
Turning first to clause 40, the changes that are being made have been in effect since Budget day and ensure that, for the purposes of the non-resident capital gains legislation, each cell in a cell company is looked at individually for the purposes of the property richness rules. That will prevent the use and ongoing exploitation of such entities to avoid the non-resident capital gains rules and will protect the tax base.
Clause 41 makes changes to the rules for non-resident capital gains in respect of double taxation treaties and the requirement to claim double taxation relief, and it also clarifies some unclear terminology. The effect of the changes made by clause 41 is that investors are not required to make or deliver a return in order to claim relief in respect of a particular disposal. In fact, the clause reduces administrative burdens by clarifying when non-resident companies and individuals have to notify HMRC of a disposal. I therefore commend these clauses to the Committee.
Mark Garnier
Clause 40 tackles the use by UK non-residents of protected cell companies to avoid paying non-resident capital gains tax. We agree that corporate structures should not be exploited to shelter people from paying their fair share of tax. However, we must consider the practicalities of how an audit of one cell may affect other cells and the PCC itself.
PCCs have their benefits. For example, the ringfencing of assets and liabilities can ensure that any issue with one cell does not spread to others. In that sense, PCCs can be more robust and durable. Audits, of course, are absolutely necessary to ensure compliance and legality. However, they can also prove costly and stressful for a company owner who is simultaneously running a business. Cells do not have full autonomy; much of that resides in the core of the PCC.
Different cells may behave differently from each other or have differing risk appetites—therein lies the risk. A situation where one cell is investigated by HMRC, and the audit process proves frustrating because that cell’s conduct is aggressive or inappropriate, risks tarnishing the entire PCC in the assumption that the other cells behave similarly. Subsequent audits could then become more aggressive and difficult. As I said, we support measures that tackle any exploitation of the corporate structure to avoid paying tax. The Government must ensure that the implementation of clause 40 protects innocent parties that may be affected.
Clause 41 focuses on non-UK residents, individuals and companies in collective investment vehicles who sell UK land or property connected to CIVs under double taxation treaties. Under the clause, non-UK residents in CIVs will no longer be required to register for corporation tax or claim capital gains tax relief if the double taxation treaties fully cover the gains they have made. The Government’s rationale for that is to streamline paperwork and reduce redundant filing—hurrah! I cannot begin to explain my happiness about trying to reduce red tape. It is fantastic to get rid of it where we can. Our tax code is 22,000 pages long and has 10 million words. Anything that makes that easier is hugely welcome.
Lucy Rigby
I welcome the “hurrah” from the shadow Minister. On his latter point about double taxation treaties, as he will know, many of the agreements were negotiated before the introduction of the non-resident capital gains regime. As treaties come up for renegotiation, as they do, or as we negotiate new treaties, we will seek to include a provision in the capital gains article to allow the UK to exercise our domestic taxing provisions in full.
On the shadow Minister’s point about cell companies and the extent to which they are used to avoid tax, there is anecdotal evidence that such structures have been created to help individuals avoid paying tax on gains made through the disposal of UK land and property, and the changes to the rules seek to cure that.
Question put and agreed to.
Clause 40 accordingly ordered to stand part of the Bill.
Clause 41 ordered to stand part of the Bill.
Clause 42
Abolition of notional tax credit on distributions received by non-UK residents
Question proposed, That the clause stand part of the Bill.
Lucy Rigby
Clause 42 abolishes the notional tax credit available to non-UK residents on UK company dividends. That credit no longer serves a purpose, under the modern dividend taxation system, and the change brings non-UK residents in line with UK residents, who do not receive the notional tax credit. It will impact fewer than 1,000 non-UK resident individuals who have UK dividend income and other UK income, such as property or partnership income, a year. The clause removes the outdated notional tax credit for non-UK residents receiving UK dividends, aligning their position with that of UK residents. I commend the clause to the Committee.
James Wild (North West Norfolk) (Con)
As the Minister says, clause 42 abolishes the notional tax credit that non-residents have historically been able to claim on their UK dividend income. Under the current system, non-domiciled individuals can offset that notional credit against other UK income streams, such as rented income or partnership profits. However, from April, that arrangement will no longer apply. Non-residents will no longer be treated as having already paid UK tax on dividends received from UK companies, meaning that they will lose the ability to reduce their overall UK tax liability from using the credit.
It is worth noting that UK residents lost access to the notional dividend tax credit back in April 2016, so in one sense the clause simply removes what is perceived as a potential unfair advantage enjoyed by non-UK residents. The disregarded income regime will continue to operate, providing some limitation on the tax paid by non-residents in specific circumstances.
We need to look at the clause, and the ones coming up, in the broader context. It represents a shift in how UK tax dividends flow to foreign investors and, in practice, it will effectively increase the tax rate burden on dividend recipients who are non-UK residents. At a time when the UK needs to attract international capital, we need to look at the measures in the Budget as a whole and whether they strengthen or undermine our competitive position. Attracting capital to be invested was a topic that we discussed this morning. International investors might be forgiven for concluding that the Chancellor is creating a tax and regulatory environment that feels increasingly unpredictable compared with some of our international competitors. Stability and certainty matter enormously in investment decisions. [Interruption.]
The Chartered Institute of Taxation has also raised concerns about the figures underlying this policy. The Treasury estimates in the famous tax information and impact note, which was referred to by the Minister, that fewer than 1,000 resident individuals will be affected. The institute has questioned whether that can be accurate, given what its professional members are seeing on the ground. There is particular uncertainty about whether non-resident trust taxpayers have been properly included within those calculations. I welcome a response and assurance from the Minister either way on that. That said, even the institute agrees that those impacted will represent a small minority of the overall non-resident taxpayer population. We concur that this charge brings a welcome simplification to tax calculations.
Lucy Rigby
Again, I welcome the shadow Minister’s support for these measures. However, he is absolutely wrong to suggest that these measures and the broader package will discourage foreign investment in UK companies. He will have heard the titter of laughter when he talked about the importance of stability—that not being something that was provided by his party at all when it was in government. The removal of the notional tax credit will not discourage foreign investment in UK companies, as it will not impact the overwhelming majority of overseas investors who remain outside the scope of UK tax.
In order to be affected by the measure, overseas investors will also need to have other taxable UK income, typically rental income or partnership income. If they do not have that, their dividends will not be taxable in the UK while they remain overseas. The shadow Minister is right to refer to my earlier figure that fewer than 1,000 non-resident individuals have taxable UK income in addition to their UK dividends, and that remains the figure that we are working with.
Question put and agreed to.
Clause 42 accordingly ordered to stand part of the Bill.
Clause 43
Non-resident, and previously non-domiciled individuals
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 2, in schedule 3, page 268, line 14, at end insert—
“Part 1A
Amendment of transfer of assets abroad provisions
7A In section 737 of ITA 2007 (exemption: all relevant post-4 December 2005 transactions), after subsection (4) insert—
‘(4A) In relation to income falling within subsection (4B) which arises to a person abroad on or after 6 April 2025, in determining whether Condition A or Condition B is satisfied, no regard is to be had to any purpose of avoiding liability to taxation for which the relevant transactions or any of them were effected if and to the extent the relevant transfer and any associated operation were effected before 6 April 2025 in a qualifying tax year.
(4B) This subsection applies to income which would be relevant foreign income if it were the individual’s or in relation to earlier tax years was income with a non-UK source in respect of which a non-UK domiciled individual would have been taxable only on a remittance basis (assuming any required claim and other steps had been made) if it had been the individual’s.
(4C) For the purposes of subsection (4A) a qualifying tax year is one for which the individual was not resident in the UK or (for tax years earlier than 2013/14) not ordinarily resident in the UK or, if resident or, as the case may be, ordinarily resident in the UK for that year, the individual was entitled to be taxed on the remittance basis for that year.’”
This amendment modifies the "motive defence" in section 737 of ITA 2007. It ensures that when determining if a transaction had a tax avoidance purpose, no regard is given to avoidance motives for transactions effected before 6 April 2025 if the individual was non-resident or entitled to the remittance basis at that time.
Amendment 33, in schedule 3, page 268, line 19, at end insert—
“TRF available to non-residents
8A Omit sub-paragraph 1(7).”
This amendment provides that the Temporary Repatriation Facility is also available to non-residents.
Amendment 34, in schedule 3, page 268, line 19, at end insert—
“Removal of requirement that individual must have been subject to the remittance basis for a past year
8A Omit sub-paragraph 1(5).”
This amendment would enable offshore trust beneficiaries who have not themselves used the remittance basis to use the TRF.
Amendment 35, in schedule 3, page 268, line 19, at end insert—
“Trustee designation
8A After paragraph 1 insert—
‘Trust cleansing facility charge
1A (1) The Trustees of a settlement may in the tax year 2025/26 or 2026/27 make a claim in relation to any or all of the following (“trust income or gains”)—
(a) a section 1(3) amount of the settlement for any tax year before 2025/26,
(b) an OIG amount of the settlement for any tax year before 2025/26,
(c) a section 1(3) amount in a schedule 4C pool of the settlement for any tax year before 2025/26,
(d) protected foreign source income or transitional trust income of the settlement for the purposes of section 643A of ITTOIA 2005,
(e) any relevant foreign income of the settlement for any tax year before 2025/26 that would, if remitted, be treated under section 648(3) of ITTOIA 2005 as arising only if and when remitted, and
(f) foreign relevant income of the settlement for the purposes of chapter 2 of part 13 of ITA 2007 (transfer of assets abroad) for any tax year before 2025/26.
(2) On the making of such a claim the Trustees shall be subject to the TRF charge and paragraph 1(8) shall apply to the Trustees as it applies to an individual.
(3) The amount of trust income or gains of the settlement for the category or categories in respect of which a claim is made shall be reduced accordingly.’”
This amendment enables trustees to pay a TRF charge on the trust’s past FIG while retaining the funds within the trust.
Amendment 30, in schedule 3, page 271, line 26, leave out from “amount” to end and insert—
“is the lower of—
(a) the value of the amount when it first arose to the individual, or
(b) its value on 6 April 2025.”
This amendment provides that where an investment derived from foreign income has fallen in value, the temporary repatriation facility (TRF) charge is paid on the reduced value of the investment at the point the TRF opened.
Amendment 1, in schedule 3, page 275, line 20, at end insert—
“Disregard of payments or transfers connected with designated qualifying overseas capital
15A After paragraph 13B (as inserted by paragraph 15 of this Schedule) insert—
‘Disregard of payments or transfers made in connection with the remittance of designated qualifying overseas capital
13C (1) This paragraph applies where an amount is remitted to the United Kingdom in a qualifying year in respect of the deemed income of an individual and—
(a) the income is treated as income of the individual under section 721 or 728 of ITA 2007 by reference to income arising to a person abroad in the tax year 2024-25 or an earlier tax year,
(b) the deemed income falls within section 721(1)(a) or section 728(1)(a) and is qualifying overseas capital by virtue of paragraph 2, and
(c) the qualifying overseas capital is designated by the individual.
(2) Subject to sub-paragraph (3), no payment or transfer of assets made in a qualifying year for the purpose of, or in connection with, the remittance of that designated qualifying overseas capital to the individual (whether by the person abroad, or any company or settlement), to the extent that the amount or value of such payments or transfers in that qualifying year does not exceed the aggregate amount of remittances within sub-paragraph (1) for that year, is capable of—
(a) being or giving rise to income which is treated as income of the individual under section 721 or 728 of ITA 2007 or any provision of Chapter 5 of Part 5 of ITTOIA 2005;
(b) satisfying the capital sum conditions in section 729 of ITA 2007;
(c) being or giving rise to income which is taken into account for the purpose of increasing the total relevant income under section 733 of ITA 2007 in relation to that individual or any other individual; or
(d) being or giving rise to income arising under a settlement for the purposes of section 648(1) of ITTOIA 2005.
(3) When making a designation as qualifying overseas capital in relation to deemed income within sub-paragraph (1) for a qualifying year, the individual must specify the amount, the nature and the parties to the payments or transfers of assets within sub-paragraph (2) which have been or will be made during the qualifying year for the purpose of, or in connection with, the remittance of such deemed income.
(4) Where a sequence of two or more payments or transfers is made in a qualifying year for the purpose of, or in connection with, the remittance of the same amount of deemed income in that qualifying year, then for the purpose of determining whether the amount or value of such payments or transfers exceeds the amount of the remittance of such deemed income, that sequence is to be treated as a single payment or transfer with an amount or value equal to the payment or transfer within the sequence with the highest amount or value.
(5) In this paragraph “qualifying year” means any of the tax years 2025-26, 2026-27 or 2027-28.
Disregard of payments or transfers made in connection with the provision of certain benefits
13D (1) This paragraph applies where—
(a) an amount of deemed income is qualifying overseas capital in relation to an individual by virtue of paragraph 6(1)(c), and
(b) the individual designates that income as qualifying overseas capital.
(2) Subject to sub-paragraph (3), no payment or transfer of assets made in a qualifying year for the purpose of, or in connection with, the provision of any benefit to the individual which gave rise to the deemed income within paragraph 6(1)(c) (whether by the person abroad, or any company or settlement), to the extent that the amount or value of such payments or transfers in that qualifying year does not exceed the aggregate amount or value of the benefits provided in that qualifying year, is capable of—
(a) being or giving rise to income which is treated as income of the individual under section 721 or 728 of ITA 2007 or any provision of Chapter 5 of Part 5 of ITTOIA 2005;
(b) satisfying the capital sum conditions in section 729 of ITA 2007;
(c) being or giving rise to income which is taken into account for the purpose of increasing the total relevant income under section 733 of ITA 2007 in relation to that individual or any other individual; or
(d) being or giving rise to income arising under a settlement for the purposes of section 648(1) of ITTOIA 2005.
(3) When making a designation as qualifying overseas capital in relation to deemed income within sub-paragraph (1) for a qualifying year, the individual must specify the amount, the nature and the parties to the payments or transfers of assets within sub-paragraph (2) which have been or will be made during the qualifying year for the purpose of, or in connection with, the provision of the benefits within sub-paragraph (2).
(4) Where a sequence of two or more payments or transfers is made in a qualifying year for the purpose of, or in connection with, the provision of the same amount or value of benefits falling within sub-paragraph (2) in that qualifying year, then for the purpose of determining whether the amount or value of such payments or transfers exceeds the amount or value of such benefits, that sequence is to be treated as a single payment or transfer with an amount or value equal to the payment or transfer within the sequence with the highest amount or value.
(5) In this paragraph “qualifying year” means any of the tax years 2025-26, 2026-27 or 2027-28.’”
This amendment prevents “double counting” and knock-on tax charges when designated qualifying overseas capital is remitted (or where related benefits are provided) during the Temporary Repatriation Facility years, by disregarding connected payments/transfers up to the value of the remittances or benefits in that year.
Amendment 31, in schedule 3, page 275, line 38, leave out “paragraphs 9 to 16” and insert—
“paragraphs 9 to 12 and 14 to 16”.
Amendment 32, in schedule 3, page 276, line 3, at end insert—
“(3) The amendments made by paragraph 13 of this Schedule have effect where the matched capital payment referred to in sub-paragraph 8(2C)(b) Finance Act 2025 (as inserted by paragraph 13 of this Schedule) is made on or after 26 November 2025.”
These amendments provide that a double tax charge created by paragraph 13 of Schedule 3 shall not apply retrospectively.
Schedule 3.
Clause 44 stand part.
Lucy Rigby
Clause 43 makes amendments to the residence-based tax regime that was introduced in the Finance Act 2025. These changes reflect feedback from the Government’s continued engagement with stakeholders to make sure that the regime works as well as possible. Clause 43 and schedule 3 consist of three parts. Part 1 of the schedule makes minor corrections to the foreign income and gains regime and to legislation connected with the ending of the remittance basis. Part 2 of the schedule makes technical amendments to the legislation for the temporary repatriation facility. Part 3 of the schedule amends the temporary non-residence rules by removing the concept of post-departure trade profits from legislation.
Clause 44 makes minor amendments to the residence-based tax regime, as introduced in the Finance Act 2025, to ensure that tax-free or exempt income is taken into account correctly under the settlements and transfer of assets abroad matching rules. The clause ensures that the internationally competitive residence-based tax regime operates as intended in relation to foreign income and gains from non-resident trusts and similar structures.
James Wild
The Minister has skirted over quite a few detailed issues rather briefly. It will reassure the Committee to know that I intend to take a bit more time to go through what are detailed and important principles, and to reflect on questions raised in an earlier clause—how competitive we are, what we want to do, and whether we want to attract wealthy people to the country.
I will initially speak to clause 43, schedule 3 and amendments 30 to 35, which were tabled in my name. Clause 43 introduces schedule 3 of the Bill, and members of the Committee will see that the schedule runs to 14 pages of complex detail, so it is important that we properly scrutinise it. Those pages make various changes to the foreign income and gains regime brought into effect by the Finance Act 2025. On the surface, this may look like a simple tidying-up exercise, but on closer inspection it raises some important questions about the coherence of the Government’s overall approach to taxing globally mobile individuals.
While we support fair taxation, this Government have once again produced needlessly complex legislation that contains retrospective elements and leaves ordinary people potentially facing unexpected tax bills.
Oliver Ryan (Burnley) (Lab/Co-op)
Could the shadow Minister reflect on the fact that this clause has more amendments tabled to it than any we have dealt with so far? It deals with non-resident non-dom individuals who have previously tried to get away with paying certain levels of tax in this country. I know that he will take us through some of the details of that, but I would like to go back to the macro of his party position. If he talks about ordinary people, surely he should agree with the benefits of these changes. They would not only simplify the system but bring in much-needed tax revenue from those previously non-dom individuals who did a good deed for so long under the previous Conservative Government.
James Wild
Well, indeed. I will come on to the detail. On the broader point, we support the initiative behind these measures—to encourage people to bring more of their money to the UK, precisely so it can help fund our public services. Our concern is about the implementation, and I will come on to some of the comments that representatives of the Chartered Institute of Taxation, who are widely acknowledged as experts in this area, have raised about the complexity and the retrospective elements.
As I said, schedule 3 is in three parts. Part 1 relates to relief for new residents on foreign income and gains—FIG. Under the new FIG regime, when someone moves to the UK, they do not pay UK tax on their foreign income for the first four years here. That is very sensible, but the Government have made claiming that relief so complicated that honest taxpayers risk falling into traps simply through lack of awareness.
I hope the Government will take account of the following sensible steps suggested by the Chartered Institute of Taxation: first, to remove the requirement to report every possible element of FIG as part of the claim, and instead making relief from UK tax on FIG the default position; similarly, extending the relief to the personal representatives of a deceased individual who themselves qualified; and finally, simplifying the legislation by aligning the income tax position on trust distributions with the capital gains position. I would be grateful for the Minister’s response on those points when she winds up.
Part 2 relates to the temporary repatriation facility, clarifies how remittances to the UK under that temporary facility should be matched to their original source. For years, non-domiciled individuals could keep foreign money offshore, paying UK tax only if they brought it here. The TRF offers a window until 2028, precisely to encourage people to bring money to the UK at reduced rates of 12% in the next two years or 15% in ’27-28. That is, as I said to the hon. Member for Burnley, a good idea in principle, but the devil, as ever, is in the detail.
Our friends at the Chartered Institute of Taxation pointed out some serious concerns that there are several paragraphs within the schedule—which I see the hon. Member turning to—that do not appear to work as intended or that produce unintended consequences. First, they believe that, as drafted, the new offshore income gains paragraph introduced here leads to an anomaly in the way that trust distributions are matched where a trust has generated offshore income gains. That results in trusts with surplus pre-6 April 2025 capital gains tax being treated differently from those without. We do not believe that to be the Government’s intention; perhaps the Minister can clarify.
Secondly, investments clearly fall in value, but under this legislation, if someone invested foreign income overseas and it is now worth less, they will still pay the temporary repatriation facility charge on the original higher amount. That could mean paying 12% tax on £100,000 even though the investment is worth only £60,000. Do Committee members think that is fair? Do they think it will encourage or discourage the repatriation of funds that this facility is designed to encourage, to help support our economy and public services?
I would contend that the incentive, as a result, is to keep the money out of the UK, which is not what we on the Opposition side—or, I believe, on the Government side—of the Committee want to see. We therefore tabled amendment 30 to remedy this issue, and I encourage Members to support us on it when the moment comes.
Thirdly, the Bill contains retrospective taxation. Let us be clear: retrospective taxation should be reserved for the most egregious tax avoidance, but here, trustees who made payments to beneficiaries in good faith after April, relying on existing law, may now face double taxation because of rules that look backwards. That is not about closing a loophole; it is about changing the rules after people have already acted. Our amendments 31 and 32 would ensure that double taxation does not apply retrospectively.
Fourthly, in this clause and schedule the Government have created arbitrary restrictions so that the TRF is available only to UK residents. Why should someone temporarily living abroad not be able to use this facility? The temporary non-residence rule means that they will be paying UK tax when they return anyway, so why not let them use the TRF? The rules create a situation where someone who wants to pay tax voluntarily is not able to do so. Our amendment 33 would ensure that the TRF is available to both UK residents and non-residents.
Similar concerns have also been raised regarding offshore trusts. The temporary repatriation facility applies a 12% or 15% rate to the personal FIG of individuals who have previously used the remittance basis as well as certain capital payments from offshore trusts. This was to encourage the winding-up of foreign trust structures. Right now, though, the trusts part works only if the beneficiary getting the capital could have used the remittance basis in their own right. That creates an unfair outcome in families where one beneficiary has used the remittance basis but another has always paid full UK tax on worldwide income, because only the former can benefit from the lower temporary repatriation rate if the trust is wound up.
Perhaps I could give the Committee an example to illustrate this point further: a family has an offshore trust for two adult children and one child previously used special tax rules while the other has always paid full UK tax. Under this Bill, only the first child could benefit from the TRF when the trust is wound up. That does not encourage bringing money to the UK but, I would contend, actively discourages it. Amendment 34 would therefore enable offshore trust beneficiaries who have not themselves used the remittance basis to use the TRF. Amendment 35 would enable trustees to pay a temporary repatriation facility charge on the trust’s past FIG while retaining the funds within the trust, without having to make capital payments to the beneficiary.
Amendments 1 and 2, in the name of my hon. Friend the Member for Windsor (Jack Rankin), relate to this issue. The Government refer to the temporary repatriation facility as encouraging wealthy people to stay and invest here, and the Treasury is counting on these measures to raise a significant sum for public services, although I note that the OBR suggests there is considerable uncertainty about that. However, we know that the wealthiest people—the wealthiest investors, the people who are supporting our entrepreneurs and the high-growth businesses that we want to see—are leaving the UK as a result of steps that the Chancellor has taken. By some estimates, 10,000 people have already got on a plane and left—those are figures from Oxford Economics. We can debate whether the number is 10,000 or 5,000, but some figures suggest that the equivalent of 750,000 basic rate taxpayers have left the country. So this is not about ideology; it is about giving certainty and addressing the points that the Bill as drafted does not.
The TRF could become unusable for some because of the risks it exposes them to. There is the double taxation, which I have talked about, as well as the retrospective elements, but in addition, accusations of tax avoidance could arise from using a scheme that Parliament has itself created and lead to potentially lengthy investigations. People are leaving, and the Chartered Institute of Taxation has said that tax rules under the measure make the UK a less attractive destination for people. It should be easier to understand and apply measures aimed at getting people to bring money back to the UK. There is a risk that, as drafted, these measures drive against the Government’s intention.
Amendments 1 and 2 are tabled in a constructive spirit. Amendment 1 would stop the double counting, and amendment 2 is about the retrospective and unfair action. They would provide the certainty that, according to some experts in this field, is currently missing. Without the TRF being attractive, we will not be able to get the money coming into the country. I urge the Minister to respond more fully than she did in her opening remarks and to consider whether, on Report or at a later stage, amendments could be tabled to deliver the clarity that my amendments and those tabled by my hon. Friend the Member for Windsor offer.
Without clear guidance, ordinary commercial transactions could inadvertently be caught. The Government must publish comprehensive examples, or businesses and individuals will be left guessing. When Ministers replaced the long-standing non-dom regime last year, they promised a clean, modern and transparent framework, yet within a year we have a schedule of corrective provisions to make the legislation operate “as intended”. That rather suggests that the original drafting was not as watertight as claimed, and that further tweaks along the lines we have suggested might still be needed before the system settles.
Blake Stephenson (Mid Bedfordshire) (Con)
I will speak to amendments 1 and 2 in the name of my hon. Friend the Member for Windsor. The Government and those of us supporting the amendments are trying to achieve the same outcome. The aim of the amendments is simple: to enable the Government to achieve their goal of raising billions in tax revenues from former non-doms—money that is needed to pay for public services, as the hon. Member for Burnley said earlier.
The Government set out the policy intention to replace non-dom status with a UK residency tax to raise more tax from those with the greatest capacity to pay, while simplifying the system. They introduced the temporary repatriation facility—or, given that we like three-letter acronyms, the TRF—as the central part of that strategy. It is designed to encourage people to remain in the UK, to come to the UK and invest in the UK, and to bring historically offshore capital into the UK tax net. The TRF offers a reduced rate of taxation of 12% on all non-UK assets brought into the country as an incentive to do just that. We all want the same thing: we want the TRF to work, because if it does not, the money does not come here and the Exchequer and the public lose.
The Government are relying on the reforms to raise very substantial sums—about £34 billion overall. The concern I express is not ideological or about the tax rate; it is about legal certainty and deliverability. The problem is that a number of the wealthiest people have left the country, and many more are doing so as we debate these amendments. Why? Odd as it may seem, it is not because they are unwilling to pay more tax; it is because of the legal uncertainty in the Bill as drafted.
Using the TRF as set out in the Bill exposes people to serious legal uncertainty. First, they are subject to double taxation through double counting of the same economic value. Secondly, they are vulnerable to retrospective taxation. Thirdly, they face allegations of tax avoidance simply for using a scheme that Parliament itself has created. Fourthly, they expose themselves and their families to potentially decade-long investigations into arrangements that were entirely lawful at the time they were entered into. That is why they are watching this Bill proceed with their bags packed, waiting to see if it will fix the problems.
The advisers of such people are warning them to leave, but I know that the Government’s intention is not to drive them away. We need their taxes, fairly paid, to fund the renewal of our public services. That is why amendments 1 and 2 were tabled, in a constructive spirit of co-operation, as my hon. Friend the shadow Minister mentioned. Amendment 1 would stop double counting; and amendment 2 would ensure that retrospective and unfair action does not continue. Had amendment 49, which goes further, been selected for debate, I would have spoken to it as well, but I will resist doing so because it has not been selected.
Amendments 1 and 2 would provide the needed certainty and make the TRF usable in practice, not just in theory. I hope that the Minister can give me some assurance that the Government recognise some of the technical problems highlighted by the amendments and intend to resolve them. I noted earlier that the Minister rejected amendments 1 and 2, giving a brief reason why, but given the representations, certainly by the Opposition, a more detailed response as to why the amendments have been rejected by the Government would be worthwhile.
Much careful work has gone into the construction of amendments 1 and 2. Again in the spirit of co-operation, I am sure that Conservative Members would be happy to provide input to the Minister and officials as they consider how best to address the issues. With that, I commend the amendments to the Committee.
Lucy Rigby
A criticism of complexity has been made. The aim of these reforms is, of course, simplicity. I think it is recognised across the House that in matters of taxation, simplicity is better. We are ensuring that the legislation works as it is intended to do. The shadow Minister, the hon. Member for North West Norfolk, referred to the Chartered Institute of Taxation. It is important to note this quote from the institute:
“Moving from domicile to residence as the basis for taxing people who are internationally mobile makes sense.”
As well as being a major simplification, it is a fairer and more transparent basis for determining UK tax. Residence is determined by criteria far more objective and certain than the subjective concept of domicile. Replacing the outdated remittance basis is sensible, and the temporary repatriation facility offers a helpful transition.
Another criticism is retrospection. In this instance, the Government feel that a retrospective change is a proportionate response to protect revenue, which, as the hon. Member for Mid Bedfordshire said, is essential for public services. This change will prevent taxpayers from benefiting from unintended windfalls and promotes consistency in the application of rules, bringing the capital gains position into line with the income tax provision. In most cases, trusts will not yet have made capital distributions, meaning that beneficiaries and trustees will have advance notice and can plan their affairs.
A further topic that that came up is the reporting of every element of FIG. I have a note on that somewhere, so I will come back to it. I will deal first with the suggestion that restrictions on the TRF are arbitrary. The position of someone who is temporarily abroad arose. The TRF is designed to encourage people to be UK-resident and bring funds into the UK economy. Allowing non-residents to use the TRF would let individuals benefit from the reduced charge without living here or contributing to the UK economy, which would reduce the incentive to become or remain UK-resident.
As I said, I reject amendment 1 because there are already measures in place that prevent double counting. I have dealt with amendment 2. I want to deal with the reporting of every element of FIG, which I have a note on, as I said. [Interruption.] That is the wrong note. I will have to come back to that.
Sean Woodcock (Banbury) (Lab)
We have heard from Opposition Members that there are families watching this Finance Bill Committee with their bags packed in case their amendment does not pass. Does the Minister share my scepticism that people who hung around through a botched Brexit, Liz Truss and 11% inflation will leave the country on the basis of whether an amendment passes or not?
Lucy Rigby
I am grateful to my hon. Friend for his intervention. I think it is right to say that the reporting of every element of FIG will not be necessary. I am afraid I shall have to confirm in writing exactly why that is the case.
Question put and agreed to.
Clause 43 accordingly ordered to stand part of the Bill.
Schedule 3
Non-resident, and previously non-domiciled individuals
Amendment proposed: 30, in schedule 3, page 271, line 26, leave out from “amount” to end and insert
“is the lower of—
(a) the value of the amount when it first arose to the individual, or
(b) its value on 6 April 2025.”—(James Wild.)
This amendment provides that where an investment derived from foreign income has fallen in value, the temporary repatriation facility (TRF) charge is paid on the reduced value of the investment at the point the TRF opened.
Question put, That the amendment be made.
Lucy Rigby
Clause 45 and schedule 4 will make changes to the pay-as-you-earn notification process that enables employers to give provisional in-year tax relief to globally mobile employees, including those eligible to claim overseas workday relief.
The majority of changes made by the clause and schedule are minor, technical changes that will help the legislation relating to the PAYE notification process to operate as originally intended, but a few are more substantial. For example, treaty non-resident employees—that is to say, UK residents who are covered by a double taxation agreement between the UK and another country—have been permitted to benefit from provisional in-year tax relief by concession, so they are now being added to the legislation to formalise that treatment. We will also specify that if the employer’s best estimate of qualifying employment income for an employee eligible for overseas workday relief is more than 30%, it must be limited to 30%. That should ensure that in most cases the provisional overseas workday relief received in-year does not exceed the relief that the employee can claim when they file their tax return.
These changes will place the treatment of treaty non-residents on a statutory basis, prevent excessive in-year provisional overseas workday relief and ensure that the PAYE legislation operates as intended. I commend clause 45 and schedule 4 to the Committee.
James Wild
Clause 45 will extend the PAYE notification process to include treaty non-residents and introduce the 30% cap, to which the Minister referred, on overseas workday relief that can be claimed through PAYE. In simple terms, clause 45 and schedule 4 will change how employers operate PAYE for people who move to the UK but are treated as resident in another country under a tax treaty. The clause will let employers agree with HMRC that the part of the employee’s salary that is expected to be exempt overseas be left out of PAYE during the year, and it will formally limit how much foreign employment relief can be given to 30%.
The changes under the clause will require employers to send further notification to HMRC whenever there is a change in the employee’s circumstances that affects the proportion of earnings subject to PAYE. That sounds reasonable in practice, but I want an assurance from the Minister about the potential administrative burden that it will place on employers. It could mean that employers will now be expected to monitor the day-to-day working practices of globally mobile working employees. They will need to track whether individuals are working from home or from a hotel room in Boston, which is not necessarily a simple task. For multinational companies with hundreds of employees, this represents a potentially significant compliance burden at a time when we want to reduce the burdens on business. For smaller businesses venturing into international markets for the first time, it could be a disincentive—indeed, a barrier—to their trying to do so.
The Government must provide clear, comprehensive guidance on exactly what level of review and monitoring employers are expected to undertake not to fall foul of the rules. Without that clarity and guidance, we risk creating a compliance minefield in which well-meaning employers inadvertently break rules that they could not reasonably be expected to follow. Guidance can help employers to comply with the law, as we all want them to do.
The Government like to talk about making Britain the best place to do business and to champion our competitive advantage in attracting global talent—we have just discussed one area in which that may or may not be the reality—but we should seek to avoid introducing measures that potentially add to the compliance burden without giving guidance to employers. I hope that the Minister can assure the Committee that she will look at the case for publishing clear guidance to ensure that businesses are not adversely impacted.
Lucy Rigby
I can confirm that guidance will be forthcoming, and I am absolutely sure that it will be clear. I am also pleased to confirm that there will be no additional administrative burden on employers, because employers already have to enter a percentage figure on the PAYE notification form; as I say, this change will just require them to limit the in-year relief provided to no more than 30%. The guidance will be given to employers in April when the changes go live.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Schedule 4 agreed to.
Clause 46
Unassessed transfer pricing profits
Question proposed, That the clause stand part of the Bill.
Lucy Rigby
Clause 46 will introduce a new corporation tax assessing provision for unassessed transfer pricing profits. It will replace the diverted profits tax, a stand-alone tax that will be repealed in its entirety, providing a significant simplification.
The changes made by the clause will make the rules clearer and more straightforward for businesses to implement, and will support access to treaty benefits, including relief from double taxation under the mutual agreement procedure. The removal of the diverted profits tax as a stand-alone tax is a very significant simplification, and bringing the rules into the corporation tax framework will clarify the interaction with transfer pricing and access to treaty benefits. I therefore commend clause 46 and schedule 5 to the Committee.
James Wild
The clause introduces schedule 5, which will repeal the diverted profits tax and replace it with new rules to tax unassessed transfer pricing profits within the corporation tax regime, coming into effect for periods beginning on or after 1 January. The diverted profits tax will continue to apply for prior accounting periods. In effect, the clause creates a higher tax charge on profits that should have been taxed here, but were shifted out of the UK by using non-market prices between groups.
Like the DPT, the new transfer pricing profits rules are intended to target structured arrangements that are designed to erode the UK tax base by omitting profits that are subject to transfer pricing. These unassessed transfer pricing profits will be taxed at a rate that is six percentage points higher than corporation tax. In simple terms, if a global business structures its arrangements to shift profits from the UK in a pricing manipulation, HMRC will be able to bring those diverted profits into UK tax at a higher, penalty-style rate.
In principle, we support that approach. Moving away from the stand-alone tax and bringing diverted profits under corporation tax provides better treaty access and clarity, and clearly the six percentage point charge works as a deterrent, as countries that play games with their transfer policies will risk paying more tax than if they had priced their UK dealings properly in the first place. However, I would welcome the Minister’s response to the concerns that the Chartered Institute of Taxation has raised about the drafting of the clause.
First, the new tax design condition is very broad: it captures transactions designed to reduce, eliminate or delay UK tax liability. There is a question as to whether legitimate commercial decisions made for regulatory compliance or capital requirements could be caught by the condition simply because they are deliberate and happen to reduce tax liability, even when tax planning is not the primary motive. I know that is not the intention behind the drafting, but that point has been raised, so I hope that the Minister will respond in order to avoid any uncertainty as to whether businesses that think they are operating within the law, without seeking to reduce, eliminate or delay tax liability, may be captured.
Will the existing arrangements be grandfathered? Can HMRC revisit settled positions under these broader rules? As the Chartered Institute of Taxation rightly says, it is unsatisfactory to pass legislation with a wide definition and simply hope that HMRC guidance and rules will narrow it down later. That is not how we in Parliament should legislate. We discussed the loan charge during this morning’s sitting; HMRC applied rules in a way that most MPs did not consider reasonable, and we have now had to make changes through this Bill to address that historical issue. The law should be made clear in the Bill, not left to administrative interpretation.
I would be grateful if the Minister confirmed how many multinational companies HMRC estimates are using pricing manipulation to avoid tax. Can she guarantee that legitimate business structures that have previously been accepted by HMRC under the DPT will not suddenly fall foul of the scope of the new rules? Will she also comment on the main purpose test, to provide clarity and certainty for businesses?
Lucy Rigby
I hope that what I am about to say will provide a good deal of reassurance to the shadow Minister. The purpose of the reform was to simplify the legislation and bring the regime into the corporation tax framework. There is no intention at all to change the scope of the regime.
I appreciate that the question as to when the reforms will come into effect is of some importance. I can confirm that they will take effect for chargeable periods beginning on or after 1 January 2026. For prior periods, the diverted profits tax will continue to apply.
The shadow Minister asked how many companies would be affected. I am afraid that I do not have the statistics to hand, but I can investigate and confirm them to him in writing.
Question put and agreed to.
Clause 46 accordingly ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 47
Transfer pricing reform
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 20.
Schedule 6.
Lucy Rigby
Clause 47 will simplify the UK’s transfer pricing rules, which protect our tax base by ensuring that transactions between UK companies and related parties are priced appropriately. The changes made by the clause include the general repeal of UK-to-UK transfer pricing where there is no risk of tax loss. This will provide a meaningful simplification for businesses. Alongside it, amendments have been made to the participation condition, intangibles, commissioners’ sanctions, interpretation in accordance with OECD principles, and financial transactions.
Government amendment 20 will ensure the consistent use of terminology with respect to financial transactions throughout the legislation.
The changes made by the clause will update UK law in line with international standards, will reduce compliance obligations and will address areas of potential legislative weakness. I commend clause 47, schedule 6 and Government amendment 20 to the Committee.
James Wild
Clause 47 and schedule 6 mark an evolution in the UK’s transfer pricing regime. The Opposition recognise the importance of getting this right: it goes to the heart of how multinational profits are attributed and taxed, and therefore how we ensure that companies pay the correct amount of tax in this country. The principle behind transfer pricing is simple, even if it is rarely simple in practice. I believe that these measures flow from a consultation process launched by the last Conservative Government, so they have a good origin. I hope that they will lead to greater certainty and reduce the burden that some companies may face.
Lucy Rigby
I confirm that the shadow Minister is right about the origin of the proposals and the date of the consultation. It is entirely right that we are bringing UK transfer pricing legislation up to date; it was last materially updated in 2004, so it is high time that these rules were updated.
Question put and agreed to.
Clause 47 accordingly ordered to stand part of the Bill.
Schedule 6
Transfer pricing
Amendment made: 20, in schedule 6, page 318, line 41, at end insert—
“(ba) in subsection (4)(b), for ‘issuing company’, in both places it occurs, substitute ‘borrower’,”.—(Lucy Rigby.)
The amendment deals with a missing consequential change to section 154 of the Taxation (International and Other Provisions) Act 2010 (transfer pricing).
Schedule 6, as amended, agreed to.
The Chair
With this it will be convenient to discuss new clause 4—Report on the impact of section 48 (international controlled transactions)—
“(1) The Chancellor of the Exchequer must, within 6 months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 48 on—
(a) cross-border trade, and
(b) administrative burdens on businesses.
(2) The report under subsection (1) must in particular set out the steps the Government intends to take to consult affected businesses and stakeholders on the operation of section 48.”
This new clause would require the Chancellor of the Exchequer to report to the House on the impact of section 48 on cross-border trade and business administrative burdens, and to set out how affected businesses and stakeholders will be consulted.
Lucy Rigby
Clause 48 will create a power for the commissioners of HMRC to issue regulations requiring certain taxpayers to file an international controlled transactions schedule. This measure is expected to have an impact on approximately 75,000 businesses within the scope of the UK’s transfer pricing and related rules. Most of these businesses are part of large multinational groups.
New clause 4 would include a requirement for the Chancellor to lay a report before the House of Commons, within six months of the Act being passed, on the impact of the implementation of clause 48 on cross-border trade and administrative burdens on business. It asks that the report focus on Government steps to consult affected businesses.
Most major economies have similar requirements, and we do not expect the international controlled transactions schedule to have a significant impact on cross-border trade. Rather, this measure is expected to improve fairness, ensuring that multinational enterprises pay tax on profits generated from economic activity in the UK. It is also expected to increase efficiency, meaning that HMRC compliance activity can be more effectively targeted, benefiting compliant taxpayers. I urge the Committee to reject new clause 4.
James Wild
New clause 4 stands in my name and that of my hon. Friend the Member for Wyre Forest. As the Minister says, clause 48 introduces a power for HMRC to implement a new reporting obligation: the ICTS, which will come into force in 2027.
This new power would require businesses engaged in significant cross-border transactions to disclose specified information about their dealings. Rightly, the intention is to give HMRC better tools to identify transfer pricing and international tax risks that could affect the tax take, and to allow it to conduct more efficient and better-targeted compliance activity. I recognise that objective and support it in principle. I agree that the ICTS could help HMRC to identify risk earlier and to avoid wasting the time of the Department and businesses. Chasing down questions and embarking on inquiries can often lead nowhere and can cost businesses time that could be spent on growing their business.
However, it is also important that the Government explain how the system will work in practice and how it will be seen to work. Our new clause 4 would therefore require a report on the impact of these changes on cross-border trade and the administrative burden on businesses.
During the consultation last year, the Treasury acknowledged that more needed to be said about how the data collected through the ICTS system would be used and how it would fit alongside existing obligations such as master and local files. That remains a crucial point of detail that the industry and advisers will be looking for as this measure is implemented. Can the Minister shed some light on those concerns today?
As the Minister rightly says, most major economies already have some equivalent form of reporting, but it should be pointed out that the differences between them are significant. Australia, for example, operates a single transaction-driven disclosure process through its international dealings schedule; the United States of America relies on a more fragmented, relationship-based approach spread across multiple forms. Each system clearly has its benefits and disadvantages. What matters is that each country has a clear, consistent model to which businesses can understand and readily adapt.
What the Government seem to be proposing is a hybrid. That might mean that we have the best of both worlds—let us all hope so—but it might also lead to an approach that is inconsistent with the systems that some multinationals already have.
The Treasury has said that it will consult on detailed regulations in the spring of this year. We welcome that commitment. Can the Minister give an assurance that she will make sure that businesses and representative bodies will be closely involved in shaping how the system is put into practice? With the planned 2027 start date, there is not a lot of time to get the rules in place or for companies to build or modify systems to provide the new data. Can that be done without causing undue cost and disruption to businesses?
Finally, I want to make a slighter broader point on the clause. We clearly understand the importance of robust compliance and the need to protect the UK tax base on behalf of our constituents so that we can deliver public services. However, each new requirement—whether it is the ICTS, pillar two returns or transfer pricing documentation—adds to the cumulative impact on businesses.
We need to see these obligations in the round, not as each one being reasonable on its own terms. What is the overall picture of what we are imposing on companies? If that load becomes too great, the UK will be seen as a less attractive place to invest, which is certainly not what we want. Although we support the principle of better risk assessment, we continue to press Ministers to ensure that we have proportionate and workable solutions that add value for HMRC, businesses and our constituents. New clause 4 would simply require a report setting out those impacts.
I would add that, according to the Budget costings, the reporting duty would raise around £25 million in 2026-27, growing to £350 million a year, helping HMRC to tackle artificial profit shifting. That is welcome, but we should also consider the one-off and ongoing costs for businesses that have to re-engineer their systems. I would be grateful for the Minister’s response to my points about implementation and whether the hybrid model will actually be the best of both worlds.
Lucy Rigby
The ICTS will help HMRC to focus compliance resources, as has been discussed, on the most meaningful transfer pricing risks. We think that it will also lead to greater efficiencies by encouraging up-front compliance and reducing the length of transfer pricing inquiries. Those outcomes will benefit the compliance of taxpayers and HMRC.
Clause 48 gives the commissioners of HMRC the power to issue regulations that will determine the detailed design of the ICTS, including the information to be provided, the format of the schedule and the commencement date of the filing obligation. A consultation was held in 2025, and we will carry out a technical consultation on the draft regulations in spring 2026. The obligation is expected to take effect for accounting periods beginning on or after 1 January 2027, which is designed to allow time for businesses to adapt to what they need to do.
The shadow Minister suggested that the proposal will lead to an administrative burden; actually, it is intended to mitigate additional administrative burdens by requiring the reporting of readily available objective information. We will continue to be guided by these principles as we move into the detailed design phase, working—as one would expect—with affected businesses.
Question put and agreed to.
Clause 48 accordingly ordered to stand part of the Bill.
Clause 49
Permanent establishments
Question proposed, That the clause stand part of the Bill.
Lucy Rigby
Clause 49 modernises and simplifies the UK’s law on permanent establishments, which governs how the UK taxes non-residents who are carrying out business here. Specifically, the changes made by clause 49 reduce uncertainty over how profit should be attributed to permanent establishments under UK law. The greater clarity provided by these changes, in the same way as the previous clause, will assist taxpayers and HMRC by offering greater clarity. I commend clause 49 and schedule 7 to the Committee.
James Wild
Clause 49 and schedule 7 make changes to the rules that decide, where a company has a permanent establishment in the UK, how its profits are then taxed and when they apply. The Minister talked about modernising and simplifying the rules to bring them into line with international best practice.
To clarify, in November 2025 the OECD published new guidance on the definition of a “permanent establishment”. Can the Minister confirm whether the UK’s current approach reflects that updated guidance, as I have been advised that it does not? Some expert bodies have pointed out that the OECD changes are generally helpful and would bring more consistency across countries, so does the Minister agree that it would make sense for the UK to broadly adopt them? Is that the Government’s approach, or have they deliberately decided to have a set of UK rules? If so, what is the purpose of that, considering that we might be dealing with multinational companies operating in multiple jurisdictions that would have to follow separate rules when the OECD has brought together a coherent package?
Lucy Rigby
It important to recognise that, as I perhaps should have explained at the outset, the legislation in this area is 20 years old. The purpose of making the changes that we are making is to update it and to account for the fact that there have been considerable developments in the international tax landscape since it was first drafted, most notably in relation to the attribution of profits to permanent establishments.
The shadow Minister mentioned the OECD. This legislation is interpreted in accordance with the OECD model tax convention and commentary, so it will always be interpreted using the most recently available model and commentary. The OECD council approved a 2025 update in November 2025, which can be found online. The full update will be published in 2026, if it has not been already. I hope that gives the shadow Minister some assurance.
Question put and agreed to.
Clause 49 accordingly ordered to stand part of the Bill.
Schedule 7 agreed to.
Clause 50
Pillar two
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendments 21 to 24.
Schedule 8.
New clause 5—Pillar Two competitive safeguards and review—
“(1) The Chancellor of the Exchequer must, every six months beginning from the day on which this Act is passed, review the implementation of the provisions of section 50 and Schedule 8.
(2) Any review under subsection (1) must consider—
(a) whether other major economies are implementing Pillar Two on comparable timelines and with comparable scope,
(b) any competitive disadvantage to UK-based multinationals from implementation of section 50,
(c) any impact arising from differentiated treatment for the US, and
(d) proposals for remedial measures to address any competitive disadvantage to the UK that has been identified.
(3) The Chancellor of the Exchequer must lay before the House of Commons a copy of any review undertaken under subsection (1).”
This new clause would require regular reviews of the implementation of section 50 and Schedule 8, including consideration of international implementation of Pillar Two, any competitive disadvantage for UK-based multinationals and possible remedial measures.
Lucy Rigby
Just to warn anyone who is not aware, clause 50 and schedule 8 are not the shortest. The changes they make are technical, but very important. Paragraphs 20 to 22 of schedule 8 prevent multinationals from trying to reduce their pillar two liability by entering into favourable tax arrangements to create pre-regime deferred tax assets or liabilities. Paragraphs 24, 25 and 34 ensure that the profits and losses relating to a UK real estate investment trust are excluded from the charge to domestic top-up tax to avoid double taxation. Paragraph 32 allows the UK to recognise the qualifying undertaxed profit rules of other jurisdictions before the OECD inclusive framework has completed a formal peer review.
Paragraphs 36 and 37 provide for a payment for group relief to be treated as a covered tax amount for domestic top-up tax purposes. Paragraph 39 reduces compliance burdens for smaller or non-material entities within a multinational group. Finally, paragraphs 2, 3, 6 to 12 and 16 to 19 update the rules on flow-through entities, permanent establishments, intragroup amounts and cross-border allocations of deferred tax so that the regime operates more smoothly in practice.
Taxpayers can elect for most amendments to apply retrospectively from the introduction of pillar two on 31 December 2023. However, taxpayers cannot select individual amendments to apply retrospectively; one election covers the whole package to prevent cherry-picking of favourable amendments. I should remind Members that, in line with the written ministerial statement of 7 January 2026, the clause does not include any amendments connected with the publication of the side-by-side agreement by the OECD/G20 inclusive framework earlier this month. The Government will introduce legislation to do that in the next Finance Bill following a technical consultation.
Government amendment 23 ensures that the legislation works as intended by making a small correction to legislative references used. Government amendments 21, 22 and 24 temporarily extend the deadline for making elections to give taxpayers more time to bed in the new IT systems needed to meet their filing obligations.
New clause 5 would require the Chancellor to review those technical amendments to the pillar two rules every six months and report on the international implementation of pillar two, among other things. We have already committed to the implementation of pillar two, which, as hon. Members will know, aims to ensure that large multinationals pay their fair share of tax. As a matter of course, the Government keep all areas of tax policy under review, so I reject the new clause.
Taken together, these changes implement internationally agreed changes, respond to taxpayer consultation, and ensure that the pillar two rules continue to be effective and administrable in the UK. I therefore commend clause 50 and schedule 8, together with Government amendments 21 to 24, to the Committee.
James Wild
I rise to speak to clause 50 and to new clause 5, which is in my name. Clause 50 will amend parts of the Finance (No. 2) Act 2023 and implement the multinational top-up tax and domestic top-up tax. As I set out in the last Finance Bill Committee, in October 2021 more than 135 countries signed up to the G20/OECD agreement on reforming international transactions and taxation, which the clause refers to—a major achievement that aims to ensure that multinational groups pay a fair share of tax where they generate profits. Pillar two delivers a minimum global effective tax rate of 15% for large multinational groups in every country they operate in, and the UK has been one of the first jurisdictions to legislate for the changes.
New clause 5 would require the Chancellor to review the changes on a six-monthly basis and lay before Parliament a report assessing three key issues: whether other major economies are implementing pillar two on comparable timelines and with comparable scope, whether any competitive disadvantage is arising for UK-based multinationals, and the impact of differentiated treatment for the United States. Crucially, if that review identified a material competitive disadvantage to the UK and UK businesses, the Treasury would be obliged to provide remedial measures within three months.
In rejecting new clause 5—another new clause that asks for a review—the Minister says that the Treasury is always conducting regular reviews of measures. If it is conducting this work anyway, why not share it with Parliament, and accept that it is a proportionate step to ensure ongoing parliamentary scrutiny in a very important area—a level playing field for British firms? The Minister referred to the length of the schedule. The sheer volume of amendments, coming less than two years after pillar two was first introduced, highlights the extreme technical complexity of the global minimum tax and the challenges for businesses that have to comply with it to keep up to date.
The Government’s aim is to ensure that UK rules remain consistent with the OECD model legislation, and schedule 8 is therefore aligned with the guidance and technical fixes. Those are sensible to maintain international consistency, but throughout last year there was growing international uncertainty about pillar two, the subject of the clause, as political divergence emerged over how it should operate, particularly regarding the treatment of US-parented companies.
The Minister referred to the side-by-side agreement made between G7 Governments last summer—and formalised, I think, this month—allowing certain UK and US multinationals to be exempt from parts of the rules while retaining access to the newly defined safe harbours. The agreement might bring some short-term stability, but it raises questions, and clearly we will be scrutinising it when, as the Minister said, it comes forward in future legislation. The US Treasury Secretary has described the side-by-side deal as
“a historic victory in preserving US sovereignty and protecting American workers and businesses from extraterritorial overreach.”
Will the Minister comment on what pillar two means in that context and on the UK’s position?
The impacts that might flow from that are precisely why new clause 5 is needed. The Government say that the UK is aligned with international developments, but the international landscape is shifting. Other major economies have delayed implementation or have adopted narrower regimes; meanwhile, the US has its own agreement and has not legislated for this framework at all. Without scrutiny, the risk is that UK-headquartered multinationals will find themselves complying with complex and burdensome rules, while their competitors operating elsewhere face a lighter regime. I simply note that the Chartered Institute of Taxation pointed out that it thinks the burdens of pillar two
“continue to appear disproportionate to the amount of tax that will be raised”.
If the Government truly believe that the regime provides a balanced and proportionate approach to a level playing field and that we can be assured that the competitive advantage does not go to other countries, let us have that report, see it set out to Parliament and have the matter resolved. To conclude, international co-operation on tax is essential, but we need to ensure not only that the UK is honouring its commitments, but that other countries are meeting theirs, so that UK companies are not losing out as a result.
Lucy Rigby
I am grateful to the shadow Minister for his comments. International co-operation on such matters, as he said, is extremely important. The side-by-side agreement, as I have made clear, will be the subject of future legislation, which will be the opportunity for scrutiny. However, as I also made clear, that agreement ensures that all large multinationals will pay their fair share of tax through the application of pillar two and pre-existing minimum tax rules, while offering welcome simplification and stability to UK businesses.
We have to be clear that US multinationals, like every other multinational company, are still subject to the UK’s 25% corporation tax on the profits that they make in the UK. They are also still subject to the UK’s domestic minimum tax rate of 15%. We recognise that a degree of complexity is inherent in pillar two, but we must not forget that it applies only to large multinational businesses and that it is needed to stop businesses shifting their profits to low-tax jurisdictions and not paying their fair share of tax in the UK. I think the shadow Minister acknowledges that that is exactly why we need it.
That being said, in relation to the complexity, the UK continues to be a strong proponent of work to develop simplification of the system, including the recently agreed permanent safe harbour. As stated in our “Corporate Tax Roadmap”, the Government will also consider
“opportunities for simplification or rationalisation of the UK’s rules for taxing cross-border activities”
following the introduction of pillar two.
Question put and agreed to.
Clause 50 accordingly ordered to stand part of the Bill.
Schedule 8
Pillar Two
Amendments made: 21, in schedule 8, page 358, line 9, leave out “50” and insert “50A”.
This amendment is consequential on Amendment 22.
Amendment 22, in schedule 8, page 379, line 26, at end insert—
“50A In Schedule 16 (multinational top-up tax: transitional provision), after paragraph 2 insert—
‘Transitional extension to deadline for elections
2A (1) Schedule 15 (multinational top-up tax: elections) has effect in its application to a pre-2026 election as if in paragraphs 1(2)(b) and 2(2)(b) of that Schedule for “no later than” there were substituted “before the end of the period of 12 months beginning with the day after”.
(2) In sub-paragraph (1), a “pre-2026 election” means an election which specifies an accounting period ending before 31 December 2025 as—
(a) in the case of an election to which paragraph 1 of Schedule 15 applies, the first accounting period for which the election is to have effect, or
(b) in the case of an election to which paragraph 2 of Schedule 15 applies, the accounting period for which the election is to have effect.’”
This amendment extends the deadline for making an election to which Schedule 15 of the Finance (No. 2) Act 2023 applies in cases where the election specifies an accounting period ending before 31 December 2025.
Amendment 23, in schedule 8, page 379, line 27, leave out paragraph 51 and insert—
“51 (1) In FA 1989, in section 178 (setting of rates of interest), subsection (2) is amended as follows.
(2) In paragraph (x)—
(a) for ‘51’ substitute ‘33A’;
(b) after ‘Finance’ insert ‘(No.2)’;
(3) In paragraph (y), for ‘51’ substitute ‘33A’.”
This amendment deals with a consequential amendment that was missed when paragraph 33A was inserted in Schedule 14 to the Finance (No.2) Act 2023 by the Finance Act 2024.
Amendment 24, in schedule 8, page 379, line 38, at end insert—
“(3A) The amendment made by paragraph 50A has effect in relation to accounting periods beginning on or after 31 December 2023.”—(Lucy Rigby.)
This amendment provides for the amendment inserted by Amendment 22 to have effect in relation to accounting periods beginning on or after 31 December 2023.
Schedule 8, as amended, agreed to.
Clause 51
Controlled foreign companies: interest on reversal of state aid recovery
Question proposed, That the clause stand part of the Bill.
Lucy Rigby
The clause makes changes to ensure sufficient repayment interest is paid to affected companies following a successful challenge of a European Commission decision. It provides that interest is also paid on the amounts of late-payment interest that were recovered and are now repayable. It will affect a small number of UK companies that had amounts collected and later repaid following the successful challenge of the Commission decision. The changes are expected to have a negligible impact on the Exchequer.
James Wild
As the Minister said, this is a fairly straightforward measure allowing HMRC to pay interest to companies that have had to hand over money under a now overturned EU state aid ruling relating to the controlled foreign company rules. The 2019 ruling was subsequently annulled. My only question for the Minister is: does the clause mark the final chapter in the UK’s compliance with the EU state aid rules relating to the controlled foreign companies regime, or could other outstanding matters give rise to further issues or payments?
Lucy Rigby
The shadow Minister will appreciate that it is a requirement of UK domestic legislation to put companies in the position that they would have been in had the recovery legislation not been introduced, and it is that principle on which the clause is based.
Question put and agreed to.
Clause 51 accordingly ordered to stand part of the Bill.
Clause 52
Legacies to charities to be within scope of tax
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 6—Report on legacies to charities—
“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 52 on—
(a) charitable giving through estates, and
(b) charity sector income.”
Lucy Rigby
Clause 52, in combination with the other clauses in the Bill, will support the Government’s aims of closing the tax gap by strengthening compliance powers to challenge abusive arrangements by which donors or trustees of charities can enrich themselves. The clauses also simplify the tax rules by equalising the tax treatment of investment types and tax reliefs used by charities. The changes made in clause 52 will bring legacies into the definition of “attributable income”.
New clause 6 would require the Government to report on the impact of clause 52 on charitable giving through estates and on the income of the charity sector. The changes are aimed at those charities and donors who seek to make a financial gain. They will not penalise charities when legitimate donations are received and investments are made. The Government have published a tax information and impact note that sets out the impact of the changes, and it showed that the measures will have a negligible impact on businesses and civil society organisations such as charities. Once the measures have been implemented, HMRC will assess the impact by monitoring tax reliefs claimed by UK charities, so a formal evaluation is not required. I therefore propose that clause 52 should stand part of the Bill, and that new clause 6 should be rejected.
James Wild
Charities are a very important topic. We need to ensure that we give it appropriate scrutiny, given the importance of charities in our society and communities. Clause 52 and new clause 6—which I will speak to—relate to extending the definition of attributable income to include legacies left to charities. In practice, that means that when a charity receives a gift left in a person’s will, it could face a tax charge if that money is not spent on its charitable activities.
How charities use their funds is a topical subject in the context of the Church of England, which is planning to spend £100 million on its fund for healing, repair and justice—effectively a reparation fund for slavery, which many consider not to be an appropriate use of the funds, or what people gave funds to the Church for.
I now turn to the clause. The change will apply to gifts made on or after 6 April this year. New clause 6, in my name—it bears repetition—would require the Chancellor, within six months of the Act becoming law, to publish a report on the impact of the measure on charitable giving through estates and on the wider impact on the charity sector.
Concerns have been raised that expanding rules to cover legacies could have unwelcome implications if charities do not apply inherited funds quickly enough to their charitable purposes, leading to them being taxed. The Institute of Chartered Accountants in England and Wales warns that that uncertainty, particularly around the timing, may discourage potential donors from including charities in their wills. Clearly, none of us would wish to see that.
HMRC has said that it will not set a deadline for how soon money must be used, although that ambiguity creates issues in itself. If the rules are unclear, HMRC could later decide that a gift has not been applied appropriately and withdraw the tax relief, undermining confidence that legacy gifts to charities will remain tax-free. Perhaps the Minister could give the Committee some clarity on that point, and on how HMRC will determine what counts as timely or appropriate application of funds.
There is also a concern about the administrative burden it may place, particularly on smaller charities, which will have to prove that each legacy received has been properly applied to charitable purposes, even when the money is placed in long-term endowments or reserves. The Charity Finance Group warns that the changes could mean more record keeping, compliance checks and bureaucracy, taking money away from frontline charitable activities and towards administration. I do not think that anyone would wish to see that. I do not know whether the Minister has anything more to add on that complexity.
Adding complexity could also make life harder for executors and delay the administration of estates, which could affect the timing of cash flows to charities at a time when finances in the sector are under considerable pressure, and income is critical for them to do their job. There is also a risk that wealthier donors might think twice about leaving legacies to smaller charities, if they think that the charity might struggle to comply with HMRC rules.
I am really asking for the Minister’s assurance that HMRC will take a sensible and proportionate approach, particularly with smaller charities that are seeking to do the right thing in applying these rules. We all want to avoid the potential risk that this measure could deter charitable giving, when that is clearly not the intention. It is important that the concerns raised by the sector are aired in the Committee, and it is our role to do so.
Lucy Rigby
I will start with the principle that, because legacies have received tax relief, it is important that they are spent on charitable purposes, otherwise they will be subject to a tax charge. More broadly, the Government are very much committed to supporting charities and their donors through tax relief, which was worth over £6.7 billion in 2024.
The changes in the clause are aimed at those charities and donors that seek to make financial gain. They will not penalise charities where legitimate donations are received and investments are made. The measures are intended to protect the integrity of the charitable sector by ensuring that donations, investments and charity expenditure are deployed for charitable purposes, not the avoidance of tax.
The shadow Minister fairly referred to any burden that may fall on smaller charities. The Government of course recognise that many small charities are run by unpaid volunteers, and for that reason we have sought to design the new rules in a fair and proportionate way. HMRC will help the sector to understand and prepare for the changes by providing clear communications and guidance.
I also want to be clear, in response to the shadow Minister, that the changes to the attributable income rules mean that legacies received by a charity will become chargeable to tax if they are not spent charitably. The changes reflect the fact that this income may have already received considerable tax relief. We have no plans to stop charities accumulating donations, so there will be no deadline for the spending of legacy funds.
Question put and agreed to.
Clause 52 accordingly ordered to stand part of the Bill.
Clause 53
Approved charitable investments: purpose test
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 7—Report on charitable investments purpose test—
“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 53 on charity investment strategies.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 53 on charity investment strategies.
Lucy Rigby
Clause 53 changes the definition of “approved charitable investments”. The Government recognise 12 types of investments for charitable tax relief, but presently only one type of investment is required to be for the benefit of the charity and not the avoidance of tax. The Government are extending this rule to all 12 types of investment, making the rules both simpler and tighter.
New clause 7 would once again require the Government to report on the impact of clause 53 on charity investment strategies. As with clause 52, these changes are aimed at those charities and donors that seek to make financial gain. They will not penalise charities where legitimate donations are received and investments are made. As the shadow Minister may expect, we have published a TIIN setting out the impact of these changes, which showed that these measures will have a negligible impact on businesses and civil society organisations such as charities. I commend clause 53 to the Committee, and I ask that new clause 7 be rejected.
James Wild
I rise to speak clause 53 and new clause 7, which was tabled in my name. My comments will reflect submissions from people involved in the charitable sector and my discussions with them. The clause extends the allowable purpose to all categories of recognisable charitable investment—at present, it applies to only one, but it will cover all 12. The Institute of Chartered Accountants in England and Wales has raised a suggestion that the test be reframed from
“for the sole purpose of”
to “wholly or mainly” to the benefit of the charity. The concern is that there could be increased obligations for compliance on trustees who have to demonstrate that their every investment in, for example, their portfolio was made for the benefit of the charity rather than an ancillary purpose therein. Was that more flexible approach something that the Government have considered, and if so why did they chose to reject it?
Mr Reynolds
As the Minister has outlined, clause 53 extends the purpose test from one category to all 12 categories. What guidance will HMRC provide for charity trustees to determine where the line is to be drawn between a legitimate investment strategy and those that are seen as having an ulterior purpose, because anti-avoidance should not penalise prudent charitable investment strategies?
Can the Minister also confirm exactly which charity sector bodies were consulted on these provisions and how they responded to that consultation, because many charity trustees are volunteers and this seems to place a significantly larger burden on those charity trustee volunteers to determine where to draw the line? It would be interesting to see what the consultation came back with as to where they would see that line and how they would attribute it.
Lucy Rigby
In answer to the comments of the Liberal Democrat spokesperson, the hon. Member for Maidenhead, as in relation to the previous clauses, I can confirm that HMRC will be coming forward with guidance that will make clear the exact scope of the changes and what needs to happen on behalf of charities in order to ensure compliance. The compliance changes apply equally to all charities regardless of size.
I come back to the statement that I recognise I have made repeatedly: these changes, along with those in the previous clause, are designed to protect the integrity of charitable tax reliefs. Although some smaller charities may need to review processes, the measures are proportionate and targeted at preventing abuse—not burdening charities, which in the main do incredibly good work.
The shadow Minister, the hon. Member for North West Norfolk, questioned whether some specific wording had been considered as part of the Bill. I am afraid I cannot confirm that now, and will have to get back to him in writing.
Question put and agreed to.
Clause 53 accordingly ordered to stand part of the Bill.
Clause 54
Tainted charity donations: replacement of purpose test with outcome test
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Schedule 9.
New clause 8—Report on tainted charity donations—
“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 54 and Schedule 9 on—
(a) legitimate charitable giving, and
(b) prevention of tax avoidance.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 54 and Schedule 9 on legitimate charitable giving and the prevention of tax avoidance.
New clause 9—Review of outcome test—
“(1) The Chancellor of the Exchequer must within two years of the passing of this Act, review implementation of the outcome test under section 54.
(2) The review must assess whether the outcome test is clearer and more effective than the purpose test.”
This new clause would require the Chancellor of the Exchequer to review the implementation of the outcome test in section 54 and to assess whether it is clearer and more effective than the existing purpose test.
Lucy Rigby
Clause 54 and schedule 9 will support the Government’s aims of closing the tax gap by strengthening compliance powers to challenge abusive arrangements by which donors or trustees of charities can enrich themselves. The changes made in clause 54 tighten the rules on tainted donations.
New clauses 8 and 9 would require the Government to report on the impact of clause 54 and schedule 9 on legitimate charitable giving and the prevention of tax avoidance, to review the implementation of the outcome test in clause 54, and to assess whether it is clearer and more effective that the existing purpose test.
I come back to the same justification as for the previous clauses: these changes are aimed at those charities and donors who seek to make financial gain; they will not penalise charities when legitimate donations are received and investments are made. The TIIN, which was published alongside these changes, showed that these measures would have a negligible impact on businesses and civil society organisations. I therefore commend clause 54 and schedule 9 to the Committee, and urge it to reject new clauses 8 and 9.
James Wild
I rise to speak to clause 54 and to new clauses 8 and 9 tabled in my name. The clause makes significant changes to how tainted donations are treated. At present the donation is considered tainted only if it was made with an improper purpose. This clause replaces the motive-based test with an outcome test. If someone connected to the donor under the new regime receives financial assistance from a charity, such as a grant, guarantee or loan, the donation will be deemed tainted regardless of the donor’s intent. I have tabled new clause 8 to require the Government to publish a report on how the change affects legitimate charitable giving, or genuinely tackles tax abuse.
New clause 9 would require a review of the implementation of the new outcome test after two years and would assess whether it proves to be clearer than the existing purpose test. The Minister and the Government said that this measure is about tightening anti-avoidance rules and the challenge of proving intent. But I have been approached by the Charity Finance Group, which represents over 1,400 organisations and manages one third of the sector’s £20 billion annual income, and it has raised concerns around the change. It warned that the outcome test could unfairly penalise both donors and charities for results outwith their control.
For example, a donor could make a genuine good faith contribution only for a charity months later to make a routine investment or financial arrangement that inadvertently benefits a linked person. That donor could then find themselves caught by the anti-avoidance rules without ever having done anything wrong. That could cause uncertainty and raise concerns about people leaving legacy gifts that the charity sector relies on.
It is not just the charity and that one body. The Institute of Chartered Accountants in England and Wales has warned that donors may have limited influence over the outcome once the donation has been made. It, too, questions the fairness and practicality of shifting from a motive to an outcome test. Indeed, it proposes that the existing rules are not altered for that precise reason. We tabled the two new clauses to introduce proper scrutiny of the measures and ensure Parliament understands the effect on the charitable sector and whether donations continue to be given.
Does the Minister consider there is a risk that shifting to such an approach could have the effect that the charitable sector has set out? If so, will she commit to perhaps providing some practical guidance, with examples that charities and their compliance teams could look at so that they can see that charitable giving is not undermined? None of us on this Committee would want to do anything that would undermine the ability of charities to raise money and disincentivise anyone from giving money for fear that they might be caught inadvertently by rules when they have done nothing wrong.
Lucy Rigby
It is important to recognise that the tainted donations rules ensure that the usual tax reliefs are not available where someone gives money to a charity with the intention to benefit financially from it. Previously, HMRC was only permitted to consider the intention of a donation and whether a donor had received a financial advantage from a donation, but now, with these changes, it will also be able to consider the outcome of the donation and whether a donor had received financial assistance. In that respect, considering the outcome of a tainted donation is a positive step towards challenging abusive arrangements. As I have said in relation to previous clauses, HMRC will come forward with clear guidance on the application of the clauses, and, to the shadow Minister’s point, that guidance might well contain examples.
We are taking a range of steps to ensure that the charity sector and the wider public are aware of the changes, which I hope reassures the shadow Minister. A detailed summary of consultation responses has been published. As I said, HMRC will provide clear and practical guidance in advance of implementation.
Question put and agreed to.
Clause 54 accordingly ordered to stand part of the Bill.
Schedule 9 agreed to.
Ordered, That further consideration be now adjourned. —(Mark Ferguson.)
Finance (No. 2) Bill (Third sitting)
Thursday 29th January 2026
(3 days, 12 hours ago)
Public Bill CommitteesFinance (No. 2) Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 29 January 2026 - (29 Jan 2026)
The Committee divided: - Ayes: 4 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 4 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 4 / Noes: 9 - Question accordingly negatived.
The Chair
I have a few preliminary reminders for the Committee. Please switch electronic devices to silent. No food and drink are permitted during the sittings, other than the water provided. Hansard will be grateful if Members email their speaking notes or pass them to Hansard colleagues in the room.
Members are reminded to bob to catch my eye if they wish to participate in a debate. The selection list for today’s sittings is available in the room and on the parliamentary website; it shows how the clauses, schedules and selected amendments have been grouped for debate.
Clause 55
Winter fuel payment charge
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 41, in schedule 10, page 395, line 28, at end insert—
“(1A) The Treasury must, each tax year, amend the amount specified under section 681I(1)(b) by the change in the level of the consumer prices index in the previous tax year.”
This amendment would provide for the £35,000 income threshold for implementation of the winter fuel payment charge to be uprated annually in line with the consumer prices index.
Schedule 10.
New clause 10—Review of uprating of Winter Fuel Payment charge cap—
“(1) The Chancellor of the Exchequer must, within 12 months of this Act being passed, lay before the House of Commons a report on the impact of uprating, by reference to the consumer prices index, the level of the winter fuel payment charge specified under Schedule 10.
(2) The report under subsection (1) must in particular assess the impact of such uprating on—
(a) households liable to the winter fuel payment charge, and
(b) Exchequer receipts.”
This new clause would require the Chancellor of the Exchequer to report on the impact of uprating the winter fuel payment charge cap in line with the consumer prices index on liable households and on Exchequer receipts.
New clause 27—Report on winter fuel payment charge and related compliance and collection measures—
“(1) The Commissioners for HM Revenue and Customs must lay before the House of Commons a report on the operation and effects of the charge applied to winter fuel payments where an individual’s income exceeds the relevant threshold, including the compliance and collection arrangements introduced under section 55 and Schedule 10 in relation to that charge.
(2) The report under subsection (1) must in particular consider—
(a) the effect of the charge on people whose income exceeds the threshold by a small amount, and any resulting behavioural impacts,
(b) the administrative complexity and proportionality of introducing a tapered abatement for winter fuel payments,
(c) the potential effect of updating section 7 of the Taxes Management Act 1970 so that a winter fuel payment charge becomes a notifiable liability for tax assessment purposes, including the operation of penalties for failure to notify, and the interaction with existing exceptions for liabilities reflected in PAYE tax coding adjustments or where a taxpayer has already been issued a notice to file a self-assessment return, and
(d) the operation and effectiveness of any new PAYE regulation provisions that allow winter fuel payment charges to be collected via tax code adjustments in year, and which allow HMRC to repay any overpaid income tax related to the charge via the tax code within the same year.”
This new clause would require HMRC to report to Parliament on the operation of the winter fuel payment charge, including its effect on people whose income exceeds the threshold by a small amount. The report would also cover the implications of updating section 7 of the Taxes Management Act 1970 to make winter fuel payment charge liabilities notifiable for tax assessment purposes.
The Exchequer Secretary to the Treasury (Dan Tomlinson)
Clause 55 and schedule 10 will provide a mechanism to recover the winter fuel payment from those who are not eligible, to balance support for vulnerable pensioners with responsible use of taxpayer money. Historically, the winter fuel payment has been near universal for pensioners over state pension age. In June 2025, however, the Government announced that only those with incomes up to £35,000 or receiving certain means-tested benefits will benefit from a winter fuel payment in winter 2025. Parliament has already legislated to make the payments to all pensioners who have not opted out. To ensure that the support is targeted, HM Revenue and Customs will recover payments made to pensioners with a total income above £35,000 via the tax system.
I turn to the non-Government amendments. Amendment 41 aims to uprate annually, in line with the consumer prices index, the threshold above which an individual is liable to repay the full value of their winter fuel payment. New clause 10 aims to require the reporting of the impact on households and on the Exchequer of uprating the income threshold for the charge annually in line with CPI. The Government believe that those changes are unnecessary at this time. The £35,000 threshold has been set at a level such that more than three quarters of pensioners will still benefit from the payment at the end of this Parliament. The cost of benefits is already published regularly by the Department for Work and Pensions through the benefit expenditure and caseload tables.
New clause 27 aims to require HMRC to report on the operation of the winter fuel payment charge, including its effect on people whose income exceeds the threshold by a small amount. The £35,000 threshold, above which an individual is liable to repay the full value, has no impact on those whose income exceeds the threshold, as prior to its introduction they did not benefit from a winter fuel payment. The Government believe that the new clause is unnecessary. This measure will be monitored through HMRC’s compliance and reporting systems, including pay-as-you-earn and self-assessment data. I commend clause 55 and schedule 10 to the Committee; I urge the Committee to reject amendment 41 and new clauses 10 and 27.
James Wild (North West Norfolk) (Con)
It is a pleasure to see the Exchequer Secretary in his place. Some Committee members may have felt that his ministerial colleague the Economic Secretary dealt with some clauses rather briefly in our earlier sittings, so we look forward to the loquaciousness that the Exchequer Secretary displayed on the Floor of the House the other day.
I shall speak to clause 55 and to amendment 41 and new clause 10 in my name. The clause is about clawing back the winter fuel payment from anyone whose total taxable income is above £35,000. According to the Budget costings, this measure will cost about £1.8 billion in 2025-26, settling at £1.3 billion the year after, but overall the changes that the Government have made with the removal of winter fuel payments will save £450 million.
However, the Chartered Institute of Taxation and the Low Incomes Tax Reform Group have raised concerns about the potential complexity of the clause; about how it could cause anxiety for people who have not had to navigate tax rules before; and about how the £35,000 per year cap will only diminish over time as inflation eats away at it. I have therefore tabled new clause 10, which would require the Government to review the case for uprating the £35,000 threshold by CPI each year, ensuring that it retains its value. I have also tabled amendment 41, which would go further and put that commitment squarely on the face of the Bill so that there can be no ambiguity about whether the level will increase.
The Minister skated over a bit of the background to the clause. The measure flows from one of the Chancellor’s first political choices, which was to remove the winter fuel payment from all pensioners except those in receipt of pensioner credit. That meant that pensioners living on incomes of around £13,000 a year lost their winter fuel support. Vital support was pulled from millions of pensioners across the country. In my constituency, 22,000 pensioners lost their entitlement overnight; the figure may have been similar in your constituency, Mr Efford. It was a deeply damaging move, which is why organisations such as Age UK and my party campaigned against it, and the Chancellor was forced to come back to the Dispatch Box to perform one of her U-turns. In response to the pressure, the Government announced that everyone would get the payment but that it would be clawed back.
I turn to the points that the Chartered Institute of Taxation and the Low Incomes Tax Reform Group have raised about the clause and the schedule. If a pensioner’s income is £1 over the threshold, they will lose the entire winter fuel payment; there is no taper. Unlike other income-related charge-backs, such as the high-income child benefit charge or the tapering of the personal allowance, the winter fuel payment is based on total income, not adjusted net income. It will affect pensioners who are seeking relief on their charitable contributions. Will the Minister explain why the Government have opted for a system that measures income in inconsistent ways, with different rules from similar income-dependent clawback schemes?
The Bill sets out that the Government’s approach relies heavily on data sharing between the DWP, devolved social security bodies and HMRC. There are some exemptions, for example for those who have been on means-tested benefits during the qualifying week or who have opted out of receiving the payment, but if that information is not shared swiftly and accurately, instances may occur of administrative issues causing distress and financial loss. Pensioners could also see an unexpected tax code on their pay slip, clawing back money that they should never have been charged. That might lead them to have to fight through an appeals process just to claim what is rightfully theirs.
The plan to collect the charge through PAYE, as is set out in the clause, brings its own issues. From 2027-28, HMRC will move to in-year coding, meaning that pensioners could start paying back a benefit that they have not even received yet, based on HMRC’s best guess at their income. As we all know, the winter fuel payment is a one-off payment that is usually paid in November, but PAYE collection is spread throughout the year, so pensioners could be having money clawed back that they have not yet received. If that estimate turns out to be wrong, they will have money taken off and refunded later. That is a recipe for potential confusion and hardship, and it could lead to more calls to HMRC that may go unanswered. In the year of transition, some pensioners could face being charged twice in a single tax year. That is not a minor administrative issue. It needs to be addressed.
We all know that any fixed monetary threshold in legislation loses its real value over time, but if Ministers believe that £35,000 is the right level today, surely they accept that uprating in line with inflation is only fair. If the Minister will not support that principle outright, perhaps he will commit to supporting new clause 10, which simply asks for a review of the impact of doing so. Schedule 10 allows for the alteration of the limit, but there is no obligation on Ministers, as there is for other benefits, to review the level or uprate the limit.
Blake Stephenson (Mid Bedfordshire) (Con)
My hon. Friend talks about fairness in relation to amendment 41 on uprating in line with CPI. Is it also worth considering the importance of certainty, particularly for people on fixed incomes who will benefit from this measure? Uprating by CPI would give them certainty into the future that they are not going to fall into fuel poverty.
James Wild
My hon. Friend makes a valuable point. We want more certainty within the system, as far as possible. On earlier clauses, we debated the uncertainty that can come from having administrative rules that HMRC can interpret. Our amendment would give people confidence that their income and the benefit they receive would continue in real terms.
Nobody disputes the need to focus support on those who need it most. Where the Chancellor got it wrong was in taking it away from people who are just over the £13,000 income threshold. If the Government insist on recovering payments, they need to get the fundamentals right, with clear definitions, robust data sharing and a simple route for challenging any mistakes that may have been made.
Let us be clear. We welcome the Chancellor’s latest U-turn, reversing the very first decision she took in office. She was wrong to remove the benefit from millions of pensioners. This clause helps her to correct her poor political choice.
Oliver Ryan (Burnley) (Lab/Co-op)
I have a great deal of respect for the hon. Gentleman, and I know he is trying his best, but I am surprised at the tone that he is taking and at his language around the winter fuel allowance. He can correct me if I am wrong, but the 2017 Conservative manifesto outlined stripping this benefit completely—and that was from the Government in which he served as a special adviser to the Deputy Prime Minister. Why does he not tell us what he really thinks?
James Wild
I may not have read that manifesto as closely as the hon. Gentleman. [Laughter.] For the record, I did not say that. I think the record will also prove that that measure was not put into effect. We continued the winter fuel payment. The issue is that the Chancellor came along. She was given advice by Treasury officials—no offence to the Treasury officials in the room—suggesting this was a simple way to save some money and fill a fictional black hole. Foolishly and regrettably, she went along with that advice; happily, she is now correcting her mistake in part.
I am looking to press amendment 41 to a vote, because it is important that we give pensioners certainty that the threshold will be protected.
Mr Joshua Reynolds (Maidenhead) (LD)
I rise to speak to clause 55 and new clause 27, but I can tell the hon. Member for North West Norfolk that if he does press amendment 41, he will have the support of the Liberal Democrats.
Countless pensioners were forced to choose between heating and eating last year while the Government buried their head in the sand for months on end, ignoring those who really were suffering. The Government’s changes to winter fuel payments only added to those people’s worries. The delay to the warm homes grant scheme has meant that no household has benefited from support that could have made their homes more sustainable and cheaper to heat over the last winter.
The Liberal Democrats opposed the announcement to cancel winter fuel payments, which caused many millions of the most vulnerable residents in our society to lose out on vital support. We welcome the fact that those over state pension age in England and Wales with an income of £35,000 or less will now receive their winter fuel payment. However, as new clause 27 lays out, we have some serious concerns. Quite simply, it aims to review the practical impact of the winter fuel payment changes, especially on those individuals who exceeded the income threshold by only a small amount.
The cliff edge of £35,000 means that someone on that income will keep the entire payment, but someone at £35,001 will have the entire amount clawed back. We would like to examine the behavioural effects and whether the charge and cliff edge will discourage additional work, savings or income reporting. Would it be fairer to have the amount tapered so that we can get to a fairer place?
We also want to consider the implications of making the charge a notifiable tax liability, including penalties for a failure to notify, and how that would interact with PAYE and self-assessment rules. Right now, most people, especially pensioners, do not have to actively tell HMRC about certain things, because tax is sorted through PAYE or the benefits system. If winter fuel payments become notifiable, individuals would be legally responsible for reporting to HMRC. Evaluating the effectiveness of these measures will help to ensure that we have a smooth and fair process for taxpayers overall.
Dan Tomlinson
I thank the hon. Members for North West Norfolk and for Maidenhead for their remarks and my hon. Friend the Member for Burnley for his enjoyable intervention.
In response to the point made by the hon. Member for North West Norfolk, we believe that total income is a reasonable way of assessing income. There are other ways of making that assessment, but we think that in this instance total income is appropriate.
Blake Stephenson
The Minister says that the measures that the Government are using are appropriate, but can he explain, in response to the question from my hon. Friend the Member for North West Norfolk, why adjusted income was not used and why it is not appropriate?
Dan Tomlinson
There are different ways of measuring income. In this instance, the Government’s decision is that total income is an appropriate way of measuring it. We keep all taxes and all thresholds under review. We are legislating for the threshold to remain at £35,000 but, as hon. Members with experience in government in the run-up to Budgets will know, all things are always considered in the round. Other thresholds in the tax system were frozen by the previous Government and, as was debated in Committee of the whole House a few weeks back, income tax thresholds were frozen as well.
On the point that the hon. Member for Maidenhead made about tapering, the Government’s view is that that would add complexity to the system. We think that a simple threshold is a preferable approach.
Martin Wrigley (Newton Abbot) (LD)
The Minister mentions that our suggestion would add complexity to the system, but the system, in and of itself, is becoming overly complex. It started very simply: “Here is a winter fuel allowance for a harsh winter.” Every winter is harsh. Would it not be much simpler and more efficient to wind this into the main pension in future years? Will the Government consider that?
Dan Tomlinson
The Government’s view was that it was right to put a threshold in the system. Labour Members do not think that it is right for the super-rich to continue to receive the winter fuel payment. On the hon. Member’s broader point, the Government’s policy is to continue with the payment as it stands, as a stand-alone payment for those who have a total income below £35,000 a year.
Question put and agreed to.
Clause 55 accordingly ordered to stand part of the Bill.
Schedule 10
Winter fuel payment charge
Amendment proposed: 41, in schedule 10, page 395, line 28, at end insert—
“(1A) The Treasury must, each tax year, amend the amount specified under section 681I(1)(b) by the change in the level of the consumer prices index in the previous tax year.”—(James Wild.)
This amendment would provide for the £35,000 income threshold for implementation of the winter fuel payment charge to be uprated annually in line with the consumer prices index.
Question put, That the amendment be made.
The Chair
With this it will be convenient to discuss the following:
Schedule 11.
New clause 11—Impact assessment on carried interest reforms—
“The Chancellor of the Exchequer must, within 2 years of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 56 on—
(a) the UK’s competitiveness in attracting and retaining fund managers,
(b) the level and composition of investment into the UK, and
(c) revenues collected compared to forecast revenues.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 56 on the UK’s ability to attract and retain fund managers, on investment into the UK and on realised revenues compared with forecasts.
Dan Tomlinson
Clause 56 and schedule 11 reform the tax treatment of carried interest—a form of performance-related reward that is received by individuals who work as fund managers.
At the autumn Budget 2024, the Chancellor announced that the Government would reform the way that carried interest is taxed, so that its tax treatment is in line with the economic characteristics of the reward. Following an initial increase in the capital gains tax rates applying to carried interest to 32% from 6 April 2025, the clause introduces a revised tax regime for carried interest that sits wholly in the income tax framework. The revised regime takes effect from 6 April 2026. The package of reforms announced at the 2024 Budget will raise almost £300 million by 2030-31.
The changes made by clause 56 and schedule 11 will establish the revised tax regime, under which an individual who receives carried interest will be treated as carrying on a trade. The carried interest will be treated as the profits of that trade and will therefore be subject to income tax and class 4 national insurance contributions. That reflects the Government’s view that carried interest is, in substance, a reward for the provision of investment management services.
New clause 11 would require the Government to publish a report within two years of the legislation passing, covering various issues in connection with the impact of the reforms introduced by clause 56 and schedule 11. The Government recognise the vital importance of the asset management sector in supporting growth. As set out already, we are delivering a revised tax regime for carried interest that ensures fund managers pay their fair share of tax, while maintaining the UK’s position as a world-leading asset management hub.
We have engaged closely with the sector to understand the impact of the reforms at every step. We published a call for evidence in July ’24, a consultation at the autumn Budget ’24 and a technical consultation on draft legislation in July 2025. We therefore do not consider new clause 11 to be a necessary addition to the Bill. I commend clause 56 and schedule 11 to the Committee and ask that new clause 11 be rejected.
James Wild
I will speak to clause 56, the schedule and new clause 11, which is tabled in my name. The Minister talks of reform; indeed, clause 56 fundamentally changes how carried interest is taxed. New clause 11 proposes a thorough assessment, given the significance of those reforms.
Until now, carried interest has been taxed as a capital gain up to 28%. Under clause 56, however, a full 72.5% of qualifying carried interest will be treated as trading income and taxed at income rates that could reach up to 45% plus class 4 national insurance contributions. The effective rate, therefore, would be around 34%. The Minister spoke about competitiveness, but that rate is far above other jurisdictions in Europe—for example, 26% in Italy and 25% in Spain. The precise rate will vary depending on the average holding of the underlying investment; longer holds will receive slightly fairer treatment. Does anyone think that sounds like a measure that is likely to attract talent and investment into the country? As we have discussed in previous sittings, those are things that everyone is signed up to, but many measures in the Bill do not deliver on them.
Carried interest is not some mysterious perk; it is a share of profits that fund managers receive only when their investments do well. It is long term, risk based and uncertain. According to UK Private Capital, in most cases it takes seven years or more before a fund pays a penny of carried interest, and quite frequently it never does.
This measure is a substantial tax rise designed to reclassify carried interest as remuneration, rather than a general return on capital. That may sound tidy in theory, but it misunderstands what carried interest is. As UK Private Capital puts it, carried interest is “fundamentally different” from a salary or a bonus because it is paid only when investments succeed, often many years later and quite often not at all—that is the nature of risk.
The famous tax information and impact note expects the measure to raise £145 million in 2027-28 and £80 million in the following year, but there is a risk of driving talent and investment abroad. Can the Minister share his assessment on what happens if fund managers start relocating to other tax regimes such as Dublin, Luxembourg or New York? What would that mean for wider tax receipts, for the thousands of jobs that funds support and those who rely on them, and for the UK’s standing as a global financial hub? TheCityUK and PwC published a significant report at the beginning of this week about measures that need to be taken to ensure that London remains a pre-eminent finance hub. The measures in the clause run counter to that.
That is why I have tabled new clause 11, which would require a review of the clause’s impact on UK competitiveness in attracting and retaining fund managers, the level and composition of investment into the UK, and the revenues collected compared with forecast revenues. For the Minister’s benefit—because he was not in the Committee’s earlier sittings—we have tabled new clauses that would require reviews because a TIIN is a prediction of what might happen, not a review. We are assured that the Treasury keeps all measures under review, so if those reviews are happening, what is the problem with publishing them and giving that information to Parliament?
As well as on the principle, we need answers on the implementation. HMRC will now be expected to verify the average holding period of thousands of complex investment portfolios. What additional resources and guidance will be provided to HMRC to do that? How will it cope if receipts are lumpy and unpredictable? UK Private Capital has warned that the measure will be challenging to manage. I think that is an understatement; it could be a recipe for disputes and confusion.
A further danger is double taxation. The sector has warned that under the rules, some managers could be taxed twice on the same carried interest in different jurisdictions. Can the Minister assure fund managers and the sector that the Treasury has appropriate double taxation agreements and treaties in place to ensure that their concern is ill-founded? If the Government get this wrong, we risk losing capital to countries that do offer such clarity.
In debates on earlier clauses, we have spoken about wanting to encourage enterprise and investment, to compete internationally, and to support growth in high-value businesses, but clause 56 sends the opposite signal. It will leave us with one of the highest rates of tax on carried interest among competitive and competitor jurisdictions.
We can see why some Labour MPs may be happy about having some of the highest levels of tax on fund managers, but these measures will fundamentally dampen the animal spirits in our economy at a time when we need to be unleashing them. That is why I contend that new clause 11 is essential to ensure that Ministers measure the real-world consequences of their choices before lasting damage is done to our economy.
Dan Tomlinson
The measure contained in clause 56 was in our manifesto, and I think it is good that the Government are making progress to implement our manifesto reforms. We have been working closely with the sector through the rounds of consultation and engagement that I mentioned in my opening remarks. The sector has acknowledged that the Government have had to balance the need to raise revenue for essential public services with the requirement to keep our economy competitive, and has welcomed the changes that have been made as a result of the engagement that has taken place since 2024.
I may add that I am glad that someone does read the TIINs—they are always a joy to sign off ahead of any fiscal event. We will continue to monitor the impact of the measure and other reforms, although the Government do not believe that it is necessary to legislate for such monitoring. It is our position that it is best not to over-legislate.
James Wild
In the debate on the first clause that we considered in Committee, there was a commitment to keep corporation tax at 25% across this Parliament. Can the Minister at least commit to not further increase the rate of tax on carried interest in this Parliament?
Dan Tomlinson
I am grateful to the shadow Minister for giving me a chance to reiterate that the Government have set out—it is relatively unusual for a Government to do so—a corporate tax road map where we have made very specific commitments, which we have kept to, around maintaining the headline rate of corporation tax at the lowest rate in the G7. As with all other policies, however, we keep all taxes under review. It would not be right, particularly many months from the next Budget, for me—I was called a “low-ranking” Treasury Minister by the Daily Mail the other day—to comment or speculate on future tax measures.
Question put and agreed to.
Clause 56 accordingly ordered to stand part of the Bill.
Schedule 11 agreed to.
Clause 57
Collective money purchase schemes and Master Trust schemes
Dan Tomlinson
Clause 57 has three connected objectives. First, the change will enable certain collective money purchase schemes to apply to become a registered pension scheme. Secondly, it will allow HMRC to refuse to register, or to deregister, an unauthorised CMP scheme. Finally, it will allow regulations to be made to efficiently support the development of those CMP schemes.
CMP schemes are a new type of pension scheme that provide members with a target pension income for life. The rules for operating such schemes are set out in the Pension Schemes Act 2021, and include a requirement that they must be authorised by the Pensions Regulator. Currently, a CMP scheme can be set up only by an employer to provide benefits to its employees and those of a connected employer. The rules regarding who can set up such a scheme are changing so that from 31 July 2026, it will be possible to set up a CMP scheme for unconnected, multiple employers.
James Wild
Clause 57 updates HMRC’s pension rules to align them with the Pension Regulator’s authorisation regime for collective money purchase schemes. Such schemes pool members’ contributions into a single fund, with the benefits linked to the performance of that shared pot rather than a guaranteed payout, as Members will be aware. Master trusts operate on a similar principle, but manage pension savings on behalf of multiple, unconnected employers, each with its own ringfenced section.
The clause goes a little further than just a technical update; it gives HMRC new and wide-ranging powers to refuse or remove the tax registration of those schemes, and to change the underlying tax rules through secondary legislation. The aim is straightforward: to ensure the alignment of the tax and regulatory frameworks so that only properly supervised schemes benefit from the generous pension tax reliefs. That is a principle that we would all support.
Well-regulated CDC—collective defined contribution—schemes could play an important role in the future of workplace pensions, particularly as the next generation of whole-of-life, multi-employer and retired CDC models develop. If done right, that could help savers manage their transition from work to retirement more smoothly, but it will work only if the rules are clear, consistent and fair with the existing annuity structures. As the Chartered Institute of Taxation has highlighted, the current framework does not allow for reductions in pension payments that vary between different groups of members. That potentially risks creating unfair outcomes for savers in otherwise identical positions. I would be grateful if the Minister could clarify how the Government intend to address that concern raised by the experts.
We also know that, under the new guided retirement model expected from 2027, trustees will be making complex decisions on behalf of their members yet, as the Chartered Institute of Taxation notes, trustees will hesitate to act without sufficient flexibility such as limited opt-out periods or conversion options. Those safeguards are notably absent from the clause. Has the Minister, or potentially his colleague the Minister for Pensions, been engaging with the sector on those points?
A further practical point, which I hope the Minister will be able to tidy up, concerns the co-ordination between HMRC and the Pensions Regulator. What safeguards will be in place to prevent a scheme being authorised by one regulator but not recognised by the other? What steps are in place to ensure that savers—our constituents—are not caught in the middle?
Dan Tomlinson
I thank the Opposition spokesman for his remarks. He is right that the change will involve some co-ordination between the Pensions Regulator and HMRC. That is partly why we want to legislate here for changes that will allow HMRC to be confident that it can align the pension scheme tax registration process with the Pension Regulator’s authorisation and supervision regime. We think it is important for those things to be aligned and, as the Minister with responsibility for HMRC, I will continue to engage with officials, alongside, I am sure, the Minister for Pensions, to ensure that they continue to work closely with one another.
The Opposition spokesman asked what engagement has taken place. The Government invited a small group of representatives from the pensions industry to comment on the measures ahead of the publication of the Bill to assess their efficacy for our intended purposes. We will continue to work closely with the sector, colleagues from the Pensions Regulator and the DWP on this matter.
Question put and agreed to.
Clause 57 accordingly ordered to stand part of the Bill.
Clause 58
Corporate interest restriction: reporting companies
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
Clause 58 makes changes to corporate interest restriction legislation to simplify administration in relation to reporting companies under the regime. Clause 59 makes a minor technical amendment to corporate interest restriction.
The UK’s corporate interest restriction rules restrict groups from using excessive financing costs to reduce their UK tax liability. They apply where net financing costs of a group exceed £2 million per annum. Above that threshold, the rules typically restrict interest deductions to a proportion of tax-EBITDA—earnings before interest, taxes, depreciation and amortisation—which is a measure of UK taxable earnings.
The restriction is applied to the group’s UK companies as a whole, and the regime provides for groups to appoint a reporting company to act on their behalf to simplify the administration of the regime, and to allocate any overall disallowance among the individual UK companies. Difficulties can arise where groups do not appoint a reporting company on time. The lack of a reporting company can give rise to increased tax liabilities, which stakeholders have described as a disproportionate outcome, and to difficulties and additional work for HMRC.
The main change made by clause 58 is the removal of the time limit to appoint a reporting company, as well as the requirement for the appointment to be made by notice to HMRC. Most of the changes take effect for periods ending on or after 31 March 2026, but the ability for groups to make retrospective appointments will apply for periods that ended on or after 31 March 2024.
To conclude my brief remarks, clause 58 delivers changes that will reduce the administrative burden and risk for both groups and HMRC from administering the regime, while clause 59 ensures that the corporate interest restriction regime works as intended. I commend both clauses to the Committee.
James Wild
Clause 58 makes changes to the corporate interest restriction rules, which limit how much interest large companies can deduct from taxable profits each year. It aims to fix an administrative problem that has frustrated many businesses. Under the CIRR, each group must appoint a reporting company—that is, a UK group member responsible for submitting a group’s interest restriction to HMRC—and the clause simplifies that process, which is obviously welcome.
At the same time, the clause introduces a new £1,000 penalty where a group submits a return without any company having been validly appointed to act as the reporting company. That is a small fixed penalty designed to encourage groups to get the appointment right. Can the Minister assure us that this will be applied with some common sense? Does HMRC have discretion not to apply the penalty automatically, so that it can take into account any mitigating factors?
Clause 59 makes a targeted but important change to the way in which companies calculate tax-EBITDA under the corporate interest restriction rules. The clause adjusts the calculation so that certain types of capital expenditure related to cemeteries and crematoriums and environmental and infrastructure spending—such as waste disposal, flood prevention and coastal erosion management—are excluded from the limits on how much interest a group can deduct for tax purposes.
In practice, that means that when a company makes large one-off investments in public interest infrastructure, such as new flood defences, those up-front costs will no longer unfairly reduce the amount of interest they are permitted to deduct. The measure applies retrospectively to periods ending on or after 31 December 2021. On the face of it, this is a sensible change that ensures that the rules operate as intended, and we support the principle behind it.
The Government describe this as a largely technical fix, which is broadly correct. It does correct the distortion in the corporate interest restriction rules that discourage capital investment in environmental and infrastructure projects. The Budget documents suggest the fiscal impact is limited, allowing qualifying businesses to claim interest deductions they were previously denied. But it does raise some other questions. If the calculation of tax-EBITDA has accidentally penalised spending on projects such as flood defence, waste treatment or crematoriums, are there are other sectors that the Treasury has looked at that might face similar unintended consequences?
Are there sectors where the Government think there might be similar distortions, or were others considered and dismissed? How will HMRC manage amended tax returns and claims retrospectively back to 2021? Does it have the resources and processes in place to do that officially? Finally, will the Minister commit to a wider review of the corporate interest restriction rules to ensure that the system generally supports the long-term environmental and infrastructure investment that our economy and our constituencies need?
Dan Tomlinson
I am not aware of further sectors to which the changes outlined in clause 59 would apply, but I will work with officials to continue to receive representations and perspectives from those who may or may not want to see further changes. The hon. Member for North West Norfolk asked about a review—of course, taxes will be kept under review. On his specific question on clause 58 and whether HMRC will be able to have discretion in applying the £1,000 penalty—yes, it will. I hope and strongly expect that HMRC will always use its powers and penalties in a judicious fashion, making sure to treat companies and individuals reasonably. I am confident that it will continue to do so in this case.
Question put and agreed to.
Clause 58 accordingly ordered to stand part of the Bill.
Clause 59 ordered to stand part of the Bill.
Clause 60
Avoidance schemes involving certain non-derecognition liabilities
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
The Government are taking action to tackle those who attempt to bend or break the rules to avoid paying the tax that they owe. The clause introduces a new provision to address avoidance arrangements in certain very specific situations involving the creation of liabilities and related expenses for accounting purposes. The rule addresses certain arrangements that are designed to secure a tax advantage.
The accounting and tax analysis in relation to when financial assets are derecognised or may continue to be recognised can be complex. In some cases, assets that are transferred to a securitisation vehicle may continue to be recognised for accounting purposes in the transferor’s accounts. This can potentially happen for commercial reasons. In certain circumstances, a liability may also be recognised for accounting purposes in connection with the underlying assets or otherwise in connection with the transfer. This liability is a non-derecognition liability.
This new rule addresses scenarios where, as a result of tax-driven arrangements, a company seeks a tax deduction for expenses in connection with such a non-derecognition liability. HMRC considers that existing legislation already negates any UK tax advantage from these arrangements. However, introducing the new rule aims to deter such tax avoidance arrangements and secure receipts for the Exchequer that might otherwise be deferred through tax disputes. I therefore commend the clause to the Committee.
James Wild
As the Minister said, the clause introduces a new anti-avoidance provision aimed at arrangements involving non-derecognition liabilities. These are complex structures whereby a company transfers assets to another entity, but under accounting rules continues to recognise those assets and related liabilities on its own balance sheets. Such structures are of course common in securitisations, which are an important part of the UK’s financial landscape. In these arrangements an originating company passes on the economic risks and rewards with an asset, yet maintains the asset on its books. Used properly, these arrangements serve a legitimate commercial purpose. However, as the Minister said, there are examples of people bending or breaking the rules. Can he give the Committee a flavour of how prevalent he thinks that bending or breaking of the rules is?
The provisions of this clause seek to correct any rule-breaking by denying tax deductions where their main purpose is to seek to gain a tax advantage by exploiting non-derecognition accounting. The Opposition strongly support efforts to tackle avoidance and close loopholes that undermine trust in the tax system, and efforts to bring the tax gap down—as the last Government successfully did, and this Government are, I am sure, continuing to seek to do—but, as always, the details matter.
Dan Tomlinson
The Opposition spokesperson is right to ask about the extent to which HMRC will be able to distinguish between valid purposes and uses and those that seek to bend or break the rules. HMRC is aware of a small number of companies and businesses that we think are engaging in such practices. It would not be appropriate for me to disclose the precise number, but there are some of which HMRC is aware. We certainly do not want traditional and reasonable uses of the non-derecognition method to be affected.
The Opposition spokesperson asks about the potential impact of this measure. I am glad that he has also read the costings. According to those costings, which have been certified by the Office for Budget Responsibility, this measure is expected to raise quite a significant sum: £465 million in total over the scorecard period. That suggests that the experts and analysts in HMRC, as well as the independent officials at the OBR, believe that there is a volume of bending or breaking of the rules here that we should be able to go after more effectively under this measure.
Question put and agreed to.
Clause 60 accordingly ordered to stand part of the Bill.
Clause 61
Energy (oil and gas) profits levy: decommissioning relief agreements
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 12—Report on decommissioning relief agreements—
“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 61 on—
(a) North Sea decommissioning activity,
(b) employment levels in the UK oil and gas industry,
(c) capital expenditure in the UK oil and gas industry,
(d) UK oil and gas production,
(e) UK oil and gas demand, and
(f) the Scottish economy and economic growth in Scotland.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 61 on North Sea decommissioning, employment and capital expenditure in the UK oil and gas industry, UK production and demand, and the Scottish economy.
Dan Tomlinson
Clause 61 introduces legislation to expressly state that no payments can arise under decommissioning relief agreements in relation to the energy profits levy, confirming the Government’s long-standing view. Decommissioning relief agreements, which take the form of decommissioning relief deeds, are contracts entered into between the Treasury and oil and gas companies. They have been in place since 2013. They define and in effect guarantee a minimum level of tax relief that an oil and gas company will receive in relation to its decommissioning expenditure. Companies can claim a payment under a DRD if the amount of tax relief that they receive is less than the defined minimum level. DRDs enable decommissioning security agreements to be made on a net-of-tax basis, freeing up cash for investment.
The energy profits levy was introduced in 2022 by the previous Government, to tax the profits of oil and gas companies following record high oil and gas prices. The calculation of profits subject to the EPL does not allow a deduction for decommissioning expenditure. The Government have always been clear that that cannot be circumvented by making a claim under a DRD.
New clause 12 asks the Chancellor of the Exchequer to report on the impact of clause 61 on North sea decommissioning and on employment and capital expenditure in the UK oil and gas industry. The Government oppose the new clause on the basis that clause 61 does not impact on the statutory obligation for oil and gas companies to decommission wells and infrastructure at the end of a field’s life, or on employment, capital expenditure, production, demand or the Scottish economy. This measure simply confirms the Government’s long-standing position that payments cannot be made under a DRD in relation to the energy profits levy.
I therefore commend clause 61 to the Committee, and urge that new clause 12 be rejected.
James Wild
I will speak to clause 61 and new clause 12, tabled in my name. They concern reliefs and the energy profits levy, which the Chancellor increased to 78%—a very high level. When it was introduced, prices were much higher than they are now.
Clause 61 clarifies that payments under decommissioning relief agreements—long-term agreements under which the Government guarantee a minimum level of tax relief for decommissioning costs—cannot be claimed by reference to the EPL; and it makes it clear that companies cannot seek refunds or payments when decommissioning costs arose on or after 26 November 2025. New clause 12 is about ensuring that the impact of these changes on decommissioning, employment and capital expenditure in the oil and gas sector, production and demand and the Scottish economy is considered by the Treasury and the Chancellor.
That is important because of the context. The reality in the North sea is stark. Investment has sunk to record lows and, according to research from Robert Gordon University, jobs are being lost at a rate of 1,000 a month. Offshore Energies UK has warned that the Government’s decision in the Budget to reject replacing the energy profits levy in 2026 will cost tens of thousands of jobs, cripple investment and undermine Scotland and its energy security.
The decommissioning reliefs to which this clause refers were designed to give long-term certainty on tax treatment in the basin, precisely so that companies could plan for responsible decommissioning. The Government themselves have acknowledged that we will need oil and gas for decades to come, with about 75% of the UK’s energy still coming from oil and gas and 10 billion to 15 billion barrels required by 2050. Offshore Energies UK has shown that we can produce more than that at home, through tax reform in tandem with a pragmatic approach to decommissioning and licensing, instead of importing more energy and exporting the jobs. That is why new clause 12 would require a proper assessment of the impact on the areas that I have set out. The Chancellor likes to describe the energy profits levy as temporary, but there is nothing temporary about the damage that is being done to jobs, investment and energy security in the North sea.
Dan Tomlinson
As I said in my opening remarks, this clause just clarifies the treatment as was originally intended and has always been the case. It would not be appropriate or necessary to monitor and look at the impact of it, because as I believe was said—a second mention for the 2017 general election—“nothing has changed” in relation to the treatment of DRDs and the interaction with the EPL.
Question put and agreed to.
Clause 61 accordingly ordered to stand part of the Bill.
Clause 70
Relevant property: disapplication of exemptions from exit charges
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
Clauses 70 to 73 make changes to improve the residence-based regime for inheritance tax. The clauses bolster the new residence-based approach to inheritance tax, which came in last April. The Government are making targeted adjustments to the reforms to ensure that they work as intended, acknowledge the economic contribution of former non-doms to our country and strengthen the UK’s position as an attractive destination for global talent.
The changes made by clauses 70, 72 and 73 introduce some of the technical amendments needed to make sure that the reform works as intended. Clause 70 is an anti-avoidance provision, ensuring the settlor and its trust cannot manipulate excluded property rules to avoid an exit charge on ceasing to be a long-term UK resident. Clause 72 confirms that years of diplomatic service do not count towards the long-term UK residence test. Clause 73 makes minor corrections to the wording of sections in the Inheritance Tax Act 1984 that deal with spouse elections to be long-term UK residents and non-residents’ bank accounts.
Clause 71 introduces a new £5 million cap on inheritance tax charges every 10 years on trusts of former non-doms. The usual tax levied on those trusts is 6% per decade. The cap applies only to trusts settled before 30 October 2024, recognising long-term decisions made under the previous framework. The changes bolster the new residence-based approach and make it more effective.
James Wild
Following the 2024 Budget, the Government decided to implement a long-term residency test for inheritance tax. That is a 10-year residency in a 20-year time period. Clause 70 imposes an inheritance tax charge where there has been a change in the settlor’s long-term residence status. While this is not the 20% exit tax—one of the kites that was flown by someone near the Treasury ahead of the Budget—there is a risk about the message that it sends about encouraging people to this country.
The Chartered Institute of Taxation has pointed out that individuals faced with the prospect of UK inheritance tax on their overseas trusts may already have decided to leave the UK and/or wind up the trust, an issue that was debated on Tuesday afternoon in relation to the clauses that pertain to non-doms. The measures that the Government are taking will undermine what we all want to see, which is more money being brought back into the UK and invested in our country. What conversations has the Minister had with groups such as Foreign Investors for Britain about these changes? How would he respond to their concerns?
Dan Tomlinson
Government Ministers are in regular conversation with external stakeholders and individuals to discuss tax matters and their impact. In part, the changes that are being introduced in clauses 70 to 73 are in response to engagement. We are introducing the changes in order to refine the system, which was changed significantly under this Government, to make it fairer and fit for the long term. I commend the clauses to the Committee.
Question put and agreed to.
Clause 70 accordingly ordered to stand part of the Bill.
Clauses 71 to 73 ordered to stand part of the Bill.
Clause 74
Power to make provision about infected blood compensation payments
Mr Reynolds
I beg to move amendment 47, in clause 74, page 91, line 20, leave out from “(1)” to the end of line 25 and insert-
“may not be made unless a draft of the instrument has been laid before, and approved by resolution of, the House of Commons.”
This amendment would require that all regulations made under this section are subject to the affirmative procedure.
The Chair
With this it will be convenient to discuss the following:
Amendment 48, in clause 74, page 91, line 25, at end insert—
“(6) Before laying regulations under subsection (1), the Treasury must make a statement setting out the extent to which the regulations made under this section meet the following objectives—
(a) that no infected or affected person, or their family, will be subject to inheritance tax in respect of infected blood compensation payments under the regulations,
(b) that the regulations provide fair and consistent treatment for all victims regardless of when their compensation was paid or when deaths occurred,
(c) that the relief provides compensation for physical harm and psychological trauma experienced by affected family members, and
(d) that administrative processes established for the purposes of implementation of this section will not create additional distress or burden for bereaved families.”
This amendment would require that, prior to making regulations under the section, the Chancellor should make a statement on the extent to which the regulations meet certain objectives in respect of the treatment of victims and their families.
Amendment 46, in clause 74, page 91, line 25, at end insert—
“(7) The Treasury must make regulations under subsection (1) within 60 days of the passing of this Act.
(8) Before making regulations under subsection (1), the Treasury must consult—
(a) organisations representing infected and affected individuals,
(b) the Infected Blood Compensation Authority, and
(c) bereaved families of victims who have died awaiting compensation.
(9) The regulations made under subsection (1) must make provision for identifying and assisting the estates of deceased victims in claiming inheritance tax relief, including—
(a) outreach to known affected families,
(b) assistance with evidence gathering where medical records have been destroyed,
(c) clear and accessible guidance in plain language, and
(d) a dedicated helpline staffed by trained caseworkers familiar with the infected blood scandal.
(10) The Treasury must, within 6 months of regulations under this section coming into force, and every 6 months thereafter, lay before Parliament a report on—
(a) the number of victims who have died since the previous report while awaiting compensation,
(b) the number of estates that have received inheritance tax relief,
(c) the average time taken to process claims for relief,
(d) any identified barriers preventing families from accessing their entitlement, and
(e) steps taken to expedite outstanding infected blood compensation claims.”
This amendment requires the Chancellor of Exchequer to make regulations under this section within 60 days of Royal Assent. It requires mandatory consultation with those directly affected, and a support service to help bereaved families navigate the system. It also places a six-monthly reporting requirement on the Government.
Clause stand part.
Mr Reynolds
The infected blood scandal represents one of the greatest treatment disasters in NHS history: more than 3,000 people died, and thousands more live with HIV, hepatitis C or lifelong trauma. Yet even now victims’ families face the indignity of inheritance tax on compensation payments meant to acknowledge that profound suffering. The clause gives the Treasury the power to provide inheritance tax relief where victims or affected persons have died before compensation payment was received. That policy is intended to develop fair and consistent treatment for grieving loved ones, but it is entirely discretionary, with no timeline, no consultation requirements and minimal parliamentary oversight.
Amendments 47, 48 and 46, in my name and that of my hon. Friend the Member for Newton Abbot, look to fix that. First, amendment 47 would ensure that all the regulations face proper parliamentary scrutiny through the affirmative procedure, ensuring that they get the correct amount of parliamentary oversight and the scrutiny that is required.
Amendment 46 would require the Chancellor to make regulations within 60 days mandating consultations with victims’ organisations and the Infected Blood Compensation Authority—people who actually understand what the families are going through. Crucially, it would establish practical support, dedicated helplines and assistance in evidence-gathering through outreach to bereaved families. That matters not just because of the number of people who have died while waiting for compensation, but because their families have already endured decades of suffering, medical records lost and destroyed, and broken promises. They should not also have to face the labyrinth of the tax system without the support they need.
Amendment 48 would require the Treasury to demonstrate how it meets key objectives: that for any victim faced with inheritance tax on their payments, the treatment is fair, regardless of the timings; and that administrative processes do not create additional distress. These amendments are not intended to distract from the clause, which we support; however, without the safeguards that they propose—without timelines and the correct accountability—we will see delay and delay. The families have waited decades for support, and the amendments aim to help to get them that support and the fair treatment that they deserve.
The Government’s policy paper was unequivocal that compensation must be a matter of entitlement rather than charity, and our amendments 47, 48 and 46 would ensure that those promises were kept and not kicked into the long grass. I hope that the Committee will support them when we press amendments 47 and 46 to a vote later.
Dan Tomlinson
The clause, as has been discussed, introduces a power to extend the existing inheritance tax relief for infected blood compensation payments. I worked closely on this measure with the Chancellor ahead of the Budget. It is an important measure for the victims of this scandal and their families. I am glad to hear that the Liberal Democrat spokesperson, the hon. Member for Maidenhead, supports the clause—I am sure that all Members will do so—and I of course welcome the challenge and the scrutiny.
Amendment 47 would require all regulations made under the new powers to be subject to an affirmative procedure, but the clause already provides that, if the future regulations do not amend primary legislation, they can be made under the negative procedure. That is consistent with the existing regulation-making powers for compensation payments under schedule 15 to the Finance Act 2020. The clause already provides for using the affirmative procedure, should the future regulations amend primary legislation.
The Government’s objective here is to ensure that we can introduce regulations, which will come later this year, as soon as possible to help further to clarify the inheritance tax position for all those impacted. I am sure we all agree that we want to ensure as much clarity as possible, as soon as possible, for those who are affected and might be impacted by this change, which has been welcomed.
Amendment 48 would require the Treasury to make a statement setting out the extent to which the regulations meet certain objectives. I have already issued a written ministerial statement, on 18 December, setting out in detail how the changes to the existing relief from inheritance tax for compensation payments made from the infected blood compensation scheme and the infected blood interim compensation payment scheme will be made.
Amendment 46 would introduce proposed new subsections (7) to (10), which set out various new introductory, consultation and reporting requirements. I understand the desire for prompt clarity on the inheritance tax treatment of compensation payments, and the Government are committed to delivering the regulations as quickly as possible. I also recognise the importance of consulting with relevant stakeholders; officials have worked very closely with the Infected Blood Compensation Authority, and the Government will continue to engage with stakeholders ahead of laying regulations.
The clause introduces a power to make a sensible and compassionate change, ensuring that those infected and affected by the infected blood scandal can choose how to pass on the value of any compensation received without incurring inheritance tax. Although I welcome the engagement from the Liberal Democrats on this matter, I hope the Committee agrees to clause 74 standing part of the Bill and rejects amendments 46 to 48.
James Wild
I am grateful to the hon. Member for Maidenhead for bringing forward these amendments to what is a very important clause, one that honours a commitment; I remember sitting in the main Chamber when a number of colleagues from across the House were pressing Ministers to introduce such a change, and it is very welcome that the Government have brought it forward in the Bill. I believe a similar treatment applies to the Horizon IT scandal. It is a common-sense clause. Fundamentally, the victims of this appalling scandal deserve compensation and their families deserve to then benefit in due course.
I put on record my tribute to the work of Sir Brian Langstaff, as well as to the work of my right hon. Friend the Member for Salisbury (John Glen) when he was in the Cabinet Office, working particularly with victims’ groups. The clause will help to provide the remedy that victims and their families have been seeking.
I have said that a similar treatment applies in the Horizon case, but I should mention to the Minister that the Hughes report on the valproate and pelvic mesh scandal is still outstanding. It was published two years ago and recommended that interim compensation payments should be made. I have raised the matter with the Health Secretary on a number of occasions; I ask the Minister to take that issue back and to consider, as the compensation scheme is designed, whether that sort of provision can be built in from the start.
We support the thrust of the amendments tabled by the Liberal Democrats, which seek to ensure that Government regulations around the issue reach the right objectives, as well as supporting victims and their families. Amendment 46 would establish a mechanism to support families to navigate the system. I think that is very important and, if the hon. Member for Maidenhead chooses to press the amendment, I assure him that Conservative Members will support it.
Mr Reynolds
The Minister used the words “as soon as possible”. The amendments that we have tabled would hold him and the Government to account on that. They show the seriousness of this issue, and would allow parliamentary oversight, accountability measures and a clear deadline.
I am glad that the hon. Member for North West Norfolk mentioned the Hughes report. My hon. Friend the Member for Chelmsford (Marie Goldman) mentioned the Hughes report in an oral question to the House yesterday, and the response was not particularly forthcoming. I urge the Minister to consider how this clause could apply to the Hughes report and others in the future.
Without these amendments, the clause gives a number of empty promises and more regulation in due course. That mean more waiting and more families navigating complex tax systems alone, while grieving loved ones are left in limbo. Infected blood victims were actively misled by the responsible authorities, then they were ignored, then they were told help was coming. In many tragic cases, that help is too late. The amendments would ensure that grieving relatives do not face additional challenges in receiving compensation. I hope the Minister changes his mind and supports amendments 47 and 46.
Dan Tomlinson
I thank the Liberal Democrat spokesperson and the shadow Minister for their contributions.
I want to reassure the Liberal Democrat spokesperson in particular that these are not empty promises. The Government take this matter incredibly seriously. When it was raised, we worked hard to engage constructively and productively, and we brought forward this legislation in the Budget. I was glad that we were able to do so for those impacted by the scandal. I put on the record that these are deep and full promises, and the Government will make the progress that needs to be made for the victims.
Question put, That the amendment be made.
The Chair
With this it will be convenient to discuss the following:
Clause 76 stand part.
New clause 13—Report on gifts exemption—
“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 75 on—
(a) the volume and value of charitable donations,
(b) the financial position and funding mix of charities and registered clubs,
(c) donor behaviour, including any changes in the use of tax-relieved giving, and
(d) Exchequer revenues, including any distributional impacts across different types and sizes of charities.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 75 on charitable donations, the finances of charities and registered clubs, donor behaviour and Exchequer revenues.
Dan Tomlinson
Clauses 75 and 76 close an avoidance loophole to ensure that the inheritance tax exemption for gifts to charities works as intended. Changes were made in 2023 to the definition of “charity” for multiple taxes, including that the charity must be based in the UK. Some gifts to charitable trusts can still, however, get exemption from inheritance tax, even if they are not themselves charities. They may have no connection to the UK, bypassing the UK jurisdiction condition and other regulation requirements for charities. The tax-paying public may therefore be subsidising relief on money that we cannot be sure is used solely for charitable purposes. The Government are therefore closing this loophole and protecting the exemption for legitimate charities.
New clause 13 would require the Government to report on the impact of clause 75 on charitable donations. The Government have already published, as the shadow Minister will have read, a tax information and impact note to set out the impact of the changes. It showed that charities and community amateur sports clubs should be unaffected, as exempt gifts can be made to them in the usual way. New clause 13 should therefore be rejected, and I commend clauses 75 and 76 to the Committee.
James Wild
I rise to speak to clauses 75 and 76, as well as new clause 13 in my name. The clauses fit within the inheritance tax part of the Bill. In Committee of the whole House, we had debates on the family farm tax and the family business tax, and the damage and distress they are causing in rural communities, so I will not prolong that debate. I will focus briefly on clause 75, however, which tightens the rule on inheritance tax exemptions for gifts to charities and registered clubs, including sports and social clubs. Clause 76 provides limited protection for existing arrangements, seeking to prevent new restrictions from applying retrospectively or unfairly.
New clause 13 would require the Treasury to publish a report on the impact of clause 75, including on the volume and value of charitable donations, the financial health of affected charities and clubs, donor behaviour and impact on Exchequer revenues. We agree with the principle, which the Minister set out, of ensuring that charitable reliefs are used as intended, but it is also important that the Government understand the practical consequence of any tightening of the rules. On Tuesday afternoon, we discussed some of the concerns that charities have about earlier provisions in the Bill, and the potential complexity and bureaucracy that was being added to them. We all know that the charitable sector is under significant pressure, and we do not want to add undue burdens on to trustees of charities in particular.
Dan Tomlinson
I can give the assurance that this will not be an unreasonable burden, or even a small burden, on charities that are continuing to behave in a way that is reasonable and right. I note that thirdsector.co.uk reports that, according to experts, charities are unlikely to be affected by new inheritance tax avoidance measures. I agree with those experts.
Question put and agreed to.
Clause 75 accordingly ordered to stand part of the Bill.
Clause 76 ordered to stand part of the Bill.
Clause 77
Zero-rating of leases of vehicles to recipients of disability benefits
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
Clause 77 will make changes to ensure that the Motability scheme and other qualifying schemes provide value for money for the taxpayer while continuing to support disabled people. It will remove the VAT relief for top-up payments made to lease more expensive vehicles. Clause 78 ensures that insurance premium tax will apply at the standard rate of 12% to insurance contracts on the scheme.
The Motability scheme is an important vehicle leasing scheme available to people receiving the enhanced Motability component of disability benefits such as the personal independence payment. The weekly Motability award covers the lease cost and a generous service package. If a chosen vehicle is more expensive, the customer pays a one-off top-up payment in advance of the three-year lease.
The Motability scheme supports the independence of disabled people, but it benefits from generous tax breaks that are supporting provision beyond the scheme’s core objectives, such as the lease of luxury cars. To limit tax support for the most premium vehicles on the scheme, the Government have removed VAT reliefs on the one-off voluntary—I stress that they are voluntary—payments made to lease higher-cost vehicles. VAT reliefs on weekly lease costs covered by eligible disability benefits, and the VAT relief on vehicle resale, will remain in place. Additionally, ending the IPT exemption for most vehicles will bring the IPT treatment for qualifying vehicles’ leasing schemes in line with other commercial leasing firms.
The tax changes will preserve the delivery of the core objective of the scheme, and Motability Operations Group has confirmed that, after the tax changes take effect, it will continue to offer a broad range of vehicles available without a top-up payment, meaning that customers will be able to lease a vehicle that meets their needs for the value of their eligible benefit. The changes made by clauses 77 and 78 will generate savings of more than £1 billion across the scorecard. I commend them to the Committee.
James Wild
At present, when a disabled person uses their mobility benefits, such as the mobility component of the personal independence payment or disability living allowance, to lease a vehicle under the Motability scheme, that lease is zero-rated for VAT. Let us remember why Motability was created: it was established to help those with serious, long-term physical disabilities to access independence and mobility, not to provide subsidised cars for people with minor or temporary conditions. However, the numbers show that the scheme has expanded far beyond its original purpose. Last year, 815,000 people were using Motability vehicles, an increase of 170,000 in a single year.
For many participants, their benefit covers the full cost of a three-year lease, so they pay nothing beyond their benefit entitlement. However, when someone chooses a more expensive model, such as a larger or higher-spec vehicle, they must make an up-front top-up payment. Until now, the entire lease, including that top-up, has been VAT-free, but clause 77 changes that. Under the new rules, only the proportion of the lease funded by the qualifying Motability payment will remain zero-rated, and any additional amount paid voluntarily will be subject to the standard rate of 20%. That is a fair and balanced reform that we wholeheartedly support.
Clause 78 narrows the insurance premium tax relief for vehicle insurance linked to disability schemes. IPT is a 12% tax on most general insurance premiums. Many cars that are leased to disabled people currently benefit from that relief, even when the vehicles are standard, unadapted models. We welcome that the clause limits the relief to applying only to contracts for vehicles that are specifically adapted for wheelchair or stretcher users; for example, vehicles with ramps, lifts or structural changes supporting wheelchair access. If a vehicle has no such adaptation, premiums will rightly be subject to the 12% charge.
Conservative Members have long argued for tighter focus and accountability in the Motability scheme, and I welcome the Government’s decision to act— we have been pushing them to do so. Sadly, we read in The Times this morning that the Prime Minister has apparently ruled out any wider reforms to welfare in the King’s Speech. Some of the growth we have seen in the Motability scheme, which the clauses will hopefully address, reflects genuine need, but much of it does not. That expansion raises questions about the eligibility standards and on whether taxpayers’ money is being used as intended. Motability should not be a back-door subsidy for people who do not meet the scheme’s original intent, which was to help those with serious disabilities.
As the Minister said, over the scorecard this measure makes a significant saving that is a meaningful contribution to public finances, which we welcome and support. Taxpayer resources should be targeted more effectively to ensure fairness. However, the measures in the Budget overall raise people’s taxes to pay for more welfare spending. We consider that to be the wrong choice. We welcome the fact that the clause mitigates some of that additional welfare spending, but overall, this is a welfare spending Budget.
Mr Reynolds
I will speak briefly to clause 78, and then I will ask the Minister some questions, specifically on the definition of “substantially and permanently adapted”, which is slightly lacking in the Bill. Disability is not just about wheelchairs and stretchers; many individuals use and require adapted vehicles that may not be seen as substantially or permanently adapted.
The Liberal Democrats do not aim to change or amend the clauses, but some clarification would be helpful. Could the Minister clarify the definition of substantially adapted vehicles, and confirm what consultation has happened with disability groups about those definitions? Could he also confirm what impact assessment has been done on the additional costs for individuals who will no longer receive insurance premium tax relief?
Dan Tomlinson
I will somewhat disappoint the Liberal Democrat spokesperson, the hon. Member for Maidenhead: the words that Ministers say in Committee are sometimes powerful and I do not think it would be appropriate for me to be more expansive on the definition. I ask him and others to rely on the words in the existing legislation, which I think are relatively clear and strong.
Question put and agreed to.
Clause 77 accordingly ordered to stand part of the Bill.
Clause 78 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mark Ferguson.)
Finance (No. 2) Bill (Fourth sitting)
Thursday 29th January 2026
(3 days, 12 hours ago)
Public Bill CommitteesFinance (No. 2) Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 29 January 2026 - (29 Jan 2026)
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
James Wild (North West Norfolk) (Con)
I beg to move amendment 42, in clause 79, page 95, line 37, at end insert—
“(3B) Section (3A) does not apply to journeys by private hire vehicle or taxi in rural areas.”
This amendment would exempt journeys by taxi and private hire vehicle in rural areas from the provisions of subsection (3A) of section 79.
The Chair
With this it will be convenient to discuss the following:
Clause stand part.
New clause 14—Report on VAT for private hire and taxi vehicles—
“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 79 on—
(a) the taxi and private hire industry,
(b) driver earnings,
(c) vulnerable passengers,
(d) rural communities, and
(e) passenger fares.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 79 on the taxi and private hire industry, driver earnings, vulnerable passengers, rural communities and passenger fares.
James Wild
It is a pleasure to see you back in the Chair presiding over our proceedings this afternoon, Mrs Harris. I will speak to amendment 42, which stands in my name and that of my hon. Friends, along with clause 79 and new clause 14.
Clause 79, which many are already calling the taxi tax —that is certainly what people in the industry are calling it—changes the way VAT is applied to taxi and private hire vehicle journeys. Currently, under the tour operators’ margin scheme, VAT is charged only on the operator’s margin—that is, the difference between what the operator charges the customer and what it pays the underlying provider. The clause will remove taxi and private hire vehicle transport from the scope of the tour operators’ margin scheme.
The clause is being brought forward following a defeat for His Majesty’s Revenue and Customs on precisely this point. The tribunal rejected HMRC’s claim that ride-hailing services do not qualify for TOMS, although I understand that there is still an appeal, which is due to be heard in March. Perhaps the Minister can explain how much money is being spent preparing for that, if this legislation is going to make the question moot.
In practical terms, the clause means that drivers and businesses now have to charge VAT at 20% on the fare paid by the customer—taking, for example, a £20 fare to £24. The measure took effect from 2 January this year. The Labour party promised in its manifesto not to increase VAT. It is true that it has not increased the rate, but it has certainly expanded the scope of its application through this measure. According to the Government’s own Budget policy costings document, the change will raise about £190 million in 2025-26, rising to some £675 million a year by 2031. That strikes me as a significant new burden—a significant new tax—on private hire and taxis, hence the “taxi tax” sobriquet. It is passengers who will ultimately end up paying the bill.
Industry bodies have warned that fares could increase by double-digit percentages in some areas. Every penny of extra VAT will be passed on to passengers who rely on these services because they have no viable public transport alternatives. That is particularly the case in rural areas and among disabled and elderly passengers, women wanting to get home safely at night and workers on early shifts. They are the people who will be affected by this taxi tax.
Blake Stephenson (Mid Bedfordshire) (Con)
Like quite a few members of the Committee, I represent a rural constituency. We have a lot of villages that are not connected to our towns, and a lot of elderly people who need to get to appointments. There are also a lot of children with special education needs and disabilities who get to school via taxis. Does my hon. Friend agree that the increase in fares, which will be passed on to our vulnerable constituents, is unacceptable, and that a charge will be passed on to local authorities, which is not fair to our local taxpayers?
James Wild
My hon. Friend, like me, has a very rural constituency that spends tens of millions of pounds on this. I think Norfolk spends around £30 million or £40 million a year on taxis to transport pupils with special education needs to school. That is a huge proportion of the money that is spent on special educational needs, and potentially adds to the burden and costs of councils who are struggling, particularly in rural areas. They have been—I will be polite—disadvantaged by the latest local government settlement and the way that the Government have skewed the formula against rural areas, having already removed the rural services grant, which we had come to rely on.
What is the Government’s estimate of the average fare increase for passengers as a result of this measure? How can the Treasury justify raising the transport costs at a time when families are already struggling and the Government claim that the cost of living is their priority?
The charge in this clause will not only hit passengers. Operators will face new administrative burdens as they try to account for VAT under far more complex rules. That creates uncertainty—this Committee has discussed the need for certainty on many occasions—and increases the costs for local businesses that operate on relatively small margins. As one operator of a private hire vehicle firm said, rather starkly,
“a 20% VAT hike would hit the elderly, disabled and rural passengers hardest. Businesses cannot plan, invest or grow while uncertainty remains.”
The places most exposed are those with limited public transport networks and a consequently high reliance on the use of taxis and private hire vehicles. That is why we have tabled amendment 42, which proposes to exempt rural communities. It is a simple and fair way to protect those most affected. It would amend clause 79 so that the charge does not apply to journey by private hire vehicle or taxi in rural areas.
If the Minister refuses that limited relief, will he at least commit to supporting new clause 14? It would require a proper impact assessment of the effect of the measure on the taxi and private hire industry, driver earnings, vulnerable passengers, rural communities and passenger fares.
There is a practical problem with clause 79, as with so many clauses that we have debated. Some major operators, including Uber, have reclassified themselves or are exploring ways to reclassify themselves as technology platforms rather than transport providers. That seems to be happening in cities outside London already. If they succeed, the VAT liability would shift from the company to the individual drivers, many of whom are not VAT-registered owing to their earnings level. What is the Minister’s response to that shift, which is already taking effect in parts of the country?
Concerns have also been raised by the Institute of Chartered Accountants in England and Wales that the list of qualifying services in proposed new subsection (3A) in section 53 of the Value Added Tax Act 1994 is too narrow. The institute contends that the list excludes other key designated travel services, most notably trips, excursions and the services of tour guides. That creates a genuine issue for tour operators who supply day-trip packages, whether to the coast of North West Norfolk or to other parts of the country. A lot of small, often family firms provide these services.
For example, if the package consists of a private car transfer, picking up someone from King’s Lynn station and taking them up to sunny Hunstanton, and that is combined with a professional tour guide or excursion ticket, under the clause the private hire element will fall out of TOMS while the guide or excursion will remain in it. What will that do? It will add considerable complexity, forcing the unbundling of a single commercial package. It will require changes to systems and changes to invoicing.
If the intent, as the Minister will no doubt tell us, is simply to go after taxis and private hire vehicles, this is a glaring example of where the drafting is wrong and goes too far. The ICAEW contends that the existing ancillary tests are robust enough to avoid any obvious attempt to dodge paying the tax that is due.
This is a tax rise that will increase fares, hurt rural and vulnerable passengers and create fresh uncertainty in a vital sector. In my constituency, the funding that has been provided for buses is reducing in comparison with the funding provided by the last Government. I expect that that position is being replicated across the country. People in my constituency do not have the luxury of the regular services that I am sure the Minister has in his Chipping Barnet constituency, with maybe three an hour. In parts of my constituency, three a day would be frequent.
I hope that the Minister recognises the points that are being made on behalf of rural areas; I am sure that other hon. Members who represent rural areas will not sit silently when the issue is being discussed, but will speak up for their constituents.
As I say, this is a tax that will increase fares, hurt rural areas and vulnerable passengers and create uncertainty. It will also add to the cost of living. The Office for Budget Responsibility has forecast that real living standards will increase by 0.25% in each year of this Parliament, which is a staggeringly low figure when the average has been 1% in each of the past 10 years. That is not a great record—no wonder the Government are cancelling elections left, right and centre.
If the Government are intent on pressing ahead, the very least the Minister can do is agree to review the measure, looking at fare levels, passenger numbers and any reduction in service availability. Otherwise, I look forward to pressing to a vote my amendment, which would protect rural areas.
Mr Joshua Reynolds (Maidenhead) (LD)
In November, the Chancellor told the House that what we are now seeing in clause 79 would protect about £700 million of tax revenue, ensuring that VAT is paid on fares. Yet, according to The Guardian on 2 January, Uber
“has swerved paying millions of pounds”
by simply rewriting its contracts with drivers so that it acts
“as an agent, rather than as the supplier”
outside London. That means that the vast majority of Uber fares outside the capital will avoid the 20% VAT tax on Uber and, as the majority of drivers’ earnings are below the VAT threshold, that money will not come into the Treasury. Meanwhile, passengers in London, where Transport for London has prevented the agency model, will see higher fares.
Can the Minister explain how much of the projected £700 million in revenue is actually going to be protected, given Uber’s change? Why are we now in a position where we have an absurd two-tier system in which identical journeys are taxed differently depending on whether they take place inside or outside London? I note that no Government amendment to the clause has been tabled. Has the Treasury accepted that because of Uber’s decision, this policy has failed before it has even begun?
Martin Wrigley (Newton Abbot) (LD)
On reading the clause, I too was concerned about the costs for SEND. Devon, which is a very rural county, spends something like—from memory—£50 million a year on taxis to move children across the county who require special schools in different areas. A 20% tax on that would equate to £10 million. Will the Minister clarify whether taxis used for SEND transport by councils are included? If so, will the Minister please negotiate the extra money that will be required, so that we do not have our SEND budget in Devon cut by £10 million?
The Exchequer Secretary to the Treasury (Dan Tomlinson)
It is a pleasure to speak under your chairship, Mrs Harris. I am very glad to see you in the Chair. Rather than running through these changes in detail, let me respond to some of the points that have been raised, because they are important and, in some cases, valid.
As a tax Minister, I am not going to comment on the affairs of individual taxpayers, by which I mean individual businesses, but I will say that the exclusion from TOMS applied to several large private hire vehicle operators. Crucially, it ensured that they were subject to the same tax rules as everyone else. That is what this change is trying to do.
Regarding any subsequent potential changes to the operation of business models that may or may not have taken place—hon. Members have mentioned some reports, but at this stage they are only reports—HM Revenue and Customs will always make an operationally independent assessment of whether a private hire vehicle operator is operating as an agent or, as it is sometimes called, a principal, and it will charge tax accordingly. If there are any implications—we do not know yet whether there will be—any costing update will flow into the forecast as usual.
James Wild
May I return to the point about the ancillary services? Proposed new subsection (3A) in section 53 of the 1994 Act requires only
“the provision of accommodation, or…the transport of passengers by bus, coach, train, ship or aircraft.”
Excursions or trips are not covered, which is why the ICAEW has suggested simply amending the wording to include the services of tour guides, trips and excursions to ensure that genuine day-trip packages, wholly within TOMS, continue to be protected. Under the clause as drafted, they will not be; a proportion of them will face an extra 20% charge. That is the case, is it not?
Dan Tomlinson
We are confident that the exclusion drafted in the Bill is carefully targeted and will not have unintended implications by limiting the activities of legitimate tour operators. It is right to make this change, which will raise £700 million of tax revenue that the Government believe should already be being paid. It will be a vital contribution to the public finances.
Dan Tomlinson
The Government are, of course, aware of the pressures on local council finances as a result of the growing number of children with additional needs who require transportation or other support. It is important to note that the clause does not seek to apply additional VAT to those who are not already seeking to make use of the TOMS. The vast majority of taxi services across the country are not using the TOMS and will be unaffected by this change, but we think it right to ensure that this particular use of the TOMS cannot continue, in order that we can raise revenue.
Dan Tomlinson
I have given way multiple times, but I am happy to do so again, because we are in Committee and it is good to have thorough scrutiny.
Mr Reynolds
I thank the Minister for his generosity. Will he confirm that if any local authority sees an increase in its spending on SEND transport because of the 20% VAT, the Treasury will work with the Ministry of Housing, Communities and Local Government to ensure that those authorities are paid back in full for that extra cost? That reassurance would help to put our minds at ease, along with council leaders and council chief executives across the country who are worried that they might have a hole in their budget come the next financial year.
Dan Tomlinson
Local authorities have usual and long-standing mechanisms for handling their VAT liabilities, including reclaiming the VAT where permissible.
I hope that I have responded with sufficient thoroughness to the points that have been raised. I commend the clause to the Committee and urge that amendment 42 be withdrawn and new clause 14 be rejected.
James Wild
I need to hammer the nail about day-trippers while we have the taxman on the Government Benches. Proposed new subsection (3A) in section 53 of the 1994 Act does not provide for day-trip excursions not to be in scope; it refers simply to accommodation and passenger transport not being captured. I hope that the Minister might look at that again, because certainly in tourist areas such as my own constituency, those day trips are part of the local economy and hospitality sector. He knows well from his portfolio that pressures are being placed on hospitality businesses more broadly, not just on pubs.
I am not sure whether we got the full guarantee on SEND. Perhaps the Minister will write to the Committee to set out the position on that, so we all have clarity and can go back to our local authorities to assure them that the £700 million that the Government are looking to raise in additional taxes will not be coming from our council tax payers.
I am not satisfied that the Minister has dealt with the rural issue or the impact on such areas. I appreciate that he does not come from a rural constituency, so he does not have that at his fingertips, but certainly in my area, people rely on private hire vehicles and taxis to get around. That is a big issue, so I will therefore be pressing the amendment to a vote.
Question put, That the amendment be made.
James Wild
I beg to move amendment 43, in clause 80, page 96, line 28, at end insert—
“(2A) The Treasury must, each year, amend by order the applicable limit set under section 5A(2)(a) by the change in the level of the consumer prices index in the previous tax year.”
This amendment would provide for the £200 applicable limit to be uprated annually in line with the consumer prices index.
James Wild
Having debated so many clauses that tighten the rules and put up taxes on individuals and businesses, we finally reach something unusual for the Chancellor: a tax break. I will speak to the amendment—in my name and that of my hon. Friend the Member for Wyre Forest and the shadow Chancellor, my right hon. Friend the Member for Central Devon (Sir Mel Stride)—and to the clause. The clause addresses a long-standing phenomenon in the VAT rules governing the donations of goods to charity.
In the present situation, when a VAT-registered business donates stock, those goods can sometimes be treated as if they were sold, triggering a VAT bill on a notional supply that never took place. Sensibly, the clause corrects that anomaly. It provides that qualifying charitable donations of goods will no longer count as taxable supplies for VAT purposes. In practical terms, that means that no output VAT charge will be liable simply because a business chooses to donate stock to a charity, provided that it meets the conditions and value limits set out in the legislation.
I acknowledge that the change has been warmly welcomed across the charity sector, unlike some of the other provisions about which concerns have been raised. It represents a small but meaningful step towards encouraging more corporate donations. The Opposition, however, have tabled amendment 43, which would ensure that the £200 cap set out in the legislation would increase by the level of the consumer prices index in the previous tax year—as with amendment 41, that would mean that the measure would retain its value over time.
The Opposition support the principle behind the measure. It is right to remove a barrier that discourages generosity and adds unnecessary complexity to charitable giving, but the Association of Taxation Technicians has already cited concerns. In its view, the changes do not fully match the existing relief for goods donated for resale. Businesses will still face different VAT treatments, depending on how a charity uses the donated items.
Clause 80 adds yet another outcome, meaning that the system remains complex for what is, in simple terms, the same act of giving goods to charities—the charities across our constituencies. Practical guidance from His Majesty’s Revenue and Customs will therefore be vital, because businesses need to understand exactly when the new relief applies, how the value limits work and what evidence they must keep to stick on the right side of the rules. Without that clarity, many could decide that donating just is not worth the administrative hassle. Will the Minister commit to providing such guidance and working with the sector to produce it?
According to the Budget documents, the measure will cost around £10 million to the Exchequer, which is a small price to pay for allowing more goods to reach charities and the communities they serve. However, amendment 43 would ensure that the measure retains its value over time. The current £200 limit risks eroding year by year as inflation drives up the cost of goods. Our amendment would simply link that cap to CPI, so that it keeps pace with prices, rather than becoming less generous each year. I think the Minister would have to agree that this is a modest and practical suggestion that would ensure the relief continues to operate as intended, so I hope he might agree to accept the amendment.
To conclude, I will ask the Minister three things. What estimate has the Treasury made of the additional volume and value of goods expected to be donated following the change? Secondly, will HMRC commit to publishing clear and accessible guidance for small and medium-sized businesses so that they can use the relief with confidence? Finally, if the Government will not support our amendment, will they at least agree to review the £200 limit within a year or so, listening to evidence from charities and donors about how the policy is working in practice?
In the end, the change is about making generosity easier, not harder. If we can make the tax system work just a little better for those who give and those who do so much vital work on the ground in our constituencies and communities, that is something that all members of the Committee would want to support. I look forward to the Minister’s response to what is a very modest and helpful amendment.
Mr Reynolds
The Liberal Democrats fully support clause 80 and would support amendment 43 if it were pushed to a vote. When I worked in retail, including in grocery retail for a significant number of years, I saw time and again that goods were going in the bin that should have been going to a good home, such as a charity, but that was not happening because it was cheaper to dispose of those goods than to donate them to a worthwhile cause. That is an unacceptable position, and one that we should not be in, so I am really glad that the Government have brought forward clause 80 to help change that.
Clause 80 explicitly names the household goods to which the £200 limit applies—household appliances, furniture, flooring, computers, tablets and phones. As someone who is renovating a house at the moment, I am not sure whether many household appliances can be bought for £200 or less, and I do not know whether the Treasury has set that limit deliberately. When buying a tablet or phone, there are very few options under that £200 limit, and I wonder whether the limit has been drawn too narrowly to ensure that the majority of products donated will not fall under it. I would welcome the rationale from the Minister as to why £200 was chosen as the appropriate number, and what consideration the Treasury has given to widening that limit.
Dan Tomlinson
I thank the Opposition spokespeople for their questions. [Interruption.] Spokesmen—very good. Before the Budget, I attended a roundtable with businesses, charities and those who had been campaigning and advocating for the change we brought in at the Budget. In response to many of the questions asked by the Opposition spokesmen, I can reassure them that we worked through the limits and detail of the clause really closely with the charitable sector and with the businesses that would have a different VAT treatment or that may pass on their goods in this way.
On the specific question about guidance, it has already been shared with stakeholders and we continue to engage with them. I will see if my officials can send the Opposition spokesman, the hon. Member for North West Norfolk, the guidance if he would be interested to see it. The value of goods will be commensurate with a £10 million a year Exchequer cost.
On the threshold, the Government have decided not to uprate it in line with CPI, but we will continue to keep it under review. As I said, it was set after detailed and extensive conversations and engagement with the groups that will be involved with the different treatment through either receiving or donating the goods.
It is worth noting that, due to the wonders of modern capitalism, lots of the prices of consumer goods have actually been falling in real terms over time—for example, we might think about how expensive a traditional washing machine or a television is today compared with 20 or 30 years ago. It is not clear to me that it would be appropriate to continue to uprate the threshold as default in line with CPI. For that reason, I encourage that amendment 43 be rejected, and commend clause 80 to the Committee.
James Wild
The hon. Member for Maidenhead makes a reasonable point about the £200 limit. The Minister said that there had been a lot of discussion to arrive at that threshold, but I do not think he exposed the entire rationale underpinning it—he talked about washing machines and their prices, which was an interesting diversion. The point remains that if we have a £200 limit and we think that is the right limit now, why do we not just automatically uprate it? Then the Minister will not have to come back with regulations or put other clauses in future Finance Bills. It would save us all a lot of hassle and palaver, and would mean that people and charities know where they stand. Our amendment is a modest measure, which I am surprised that the Minister has not simply accepted, so I will test the will of the Committee.
Question put, That the amendment be made.
Dan Tomlinson
My remarks on clause 81 will be very brief. The changes that the clause makes will add combined county authorities to the list of bodies eligible for refunds under section 33 of the Value Added Tax Act 1994. This will remove the need for individual Treasury orders each time a new combined county authority is established. I commend the clause to the Committee.
James Wild
I thank the Minister for that very succinct description of the clause. He will be pleased to hear that I have only a few points to make—[Interruption.] The hon. Member for Burnley says, “That’s good.”
The clause allows newly created combined county authorities to reclaim VAT incurred on non-business activities, such as statutory public functions. At present, established local authorities can recover VAT on such activities under section 33 of the Value Added Tax Act, but the definition does not explicitly include combined county authorities. We understand that that change took effect last year.
The explanatory notes make it clear that the clause is intended to ensure fiscal neutrality for the new governance arrangements. Combined county authorities should be no worse off than traditional counties because of their form, but of course the beneficiaries are the combined authorities that are being formed under the Government’s local government reorganisation plans.
My own county of Norfolk is set to be joined with Suffolk in one of these combined county authorities, with a mayor sitting across the two counties. People in Norfolk and Suffolk were looking forward to that mayor being elected in May, until the Government cancelled our election as a late Christmas present in December. As a result, we will not have a combined county authority mayor in place and we will lose out on the £40 million that the mayor was meant to have through the investment fund.
The county council elections for the authority that will make way for the combined county authority, which will then benefit from this VAT exemption, were also cancelled. So there is more delay and uncertainty, and a loss of funding, as people look at the creation of these combined county authorities, which are the subject of the clause, and the refund that they will be able to get. The clause is sensible, but the Government’s wider plans that sit behind it are somewhat chaotic, and cancelling elections is undemocratic.
Mr Reynolds
Balancing VAT refund rights to ensure fairness for CCAs is, of course, welcome, and we support it. We support the idea that VAT refund rights should be balanced across groups and institutions that are similar and have a similar purpose. That is why I hope you will allow me to share some surprise, Mrs Harris, that the Government have not gone further in balancing refund rights. For example, a school with a sixth form attached can claim its VAT back, but a sixth form college cannot. My hon. Friend the Member for Mid Sussex (Alison Bennett) has been campaigning on that for a significant time. In answer to a written question, the Minister confirmed that the Government are not planning to extend the VAT refund right to sixth form colleges, but they have done so for combined county authorities. Will the Minister explain the rationale for that? We all support the idea of balancing VAT refund rights, so we should surely be extending that to other situations.
Dan Tomlinson
I am glad that the hon. Member for Maidenhead is aware of the answer to the written parliamentary question. I have also responded in writing to Members who have written to me about this issue, and the rationale has been set out in that correspondence.
Question put and agreed to.
Clause 81 accordingly ordered to stand part of the Bill.
Clause 82
UK listing relief
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 15—Review of extension of three-year period for UK listing relief—
“(1) The Chancellor of the Exchequer must, within 12 months of this Act being passed, publish and lay before Parliament a report on the potential benefits of extending beyond three years the period for which UK listing relief applies under section 82.
(2) The report under subsection (1) must assess the—
(a) impact that extending the period could have on the attractiveness of UK markets for new listings,
(b) potential effects on capital raising and investment in the UK, and
(c) implications for Exchequer revenues.”
This new clause would require the Chancellor of the Exchequer to report on the potential benefits of extending beyond three years the period for which UK listing relief applies under section 82, including effects on the attractiveness of UK markets, capital raising and Exchequer revenues.
Dan Tomlinson
The Government are committed to ensuring that world-leading capital markets support our firms to raise the capital they need to continue to grow and invest. Clause 82 introduces UK listing relief, which means that transfers of a company’s securities will be subject to relief from stamp duty reserve tax for the first three years after the company lists in the UK.
Stamp duty reserve tax and stamp duty are charges on transfers of UK securities. They are vital sources of revenue for the Exchequer, and combined they are forecast to raise up to £5.3 billion a year by the end of the forecast period. The Government are focused on ensuring that the UK is the best place for firms to start, scale, list and stay, and we have delivered an ambitious programme of reforms to build on those strong foundations.
The changes made by the clause will remove the 0.5% stamp duty reserve tax charge on the transfer of a company’s securities for three years from the point at which the company lists its shares on a UK-regulated market. That will enable newly listed companies to secure higher share prices, boost trading volumes and improve access to capital.
Mark Garnier (Wyre Forest) (Con)
It is great to hear the Minister talking about making the City of London a pre-eminent place in which to grow and list companies, and this is a very welcome measure. However, if he accepts that stamp duty is what has been holding back the listing of shares, why do the Government not go the whole hog and get rid of stamp duty altogether, thereby making the City of London comparable with pretty much every other major developed stock market in the world?
Dan Tomlinson
As the hon. Member knows, there are always trade-offs to be considered in taxation policy design. As I have just outlined, there is around £5 billion of revenue here. We must ensure we get the balance right between raising revenue and continuing to support growth and the ability of companies to grow and invest in the UK.
We did make changes at the Budget, for example to venture capital trusts, enterprise investment schemes and enterprise management incentives to encourage start-ups in particular to scale up in the UK, as one of our frontier sectors seeing growth. We have made changes to support that. I note the Opposition’s perspective, but on balance we think this is a good change to make on its own. We look forward to seeing the impact that it will have and we will continue to keep our tax measures under review.
New clause 15 would require the Chancellor to publish, within 12 months, a report on the potential benefits of extending the period in which the UK listing relief applies beyond three years. The Government have carefully considered the scope of this relief, including the length of the relief period. The first few years after listing are crucial for companies as they endeavour to establish long-term viability on public markets, with the most vital period being the initial one or two years. However, our judgment is that the benefits of significantly extending the relief beyond this period would not represent best value for money, as the Exchequer cost would increase while the benefits for firms would diminish with each additional year. I therefore commend clause 82 to the Committee and ask that new clause 15 be rejected.
James Wild
I rise to speak to clause 82 and new clause 15 tabled in my name and those of my right hon. and hon. Friends. As we have heard, clause 82 introduces a time-limited relief from stamp duty reserve tax for companies listed on a UK-regulated market. The Committee will know that stamp duty is charged at 0.5% on trades in chargeable securities such as shares. This form of transaction tax is among the most economically inefficient, in the same way stamp duty is on homes: it dampens the market, prevents people from moving and undermines labour market flexibility. As a result, we have committed to abolishing stamp duty on house sales—not stamp duty on shares—and that has been very warmly welcomed.
Under clause 82, trades in a newly listed company’s securities will be exempt from that 0.5% charge for the first three years after the company lists, provided specified conditions are met. The relief will apply to new listings from November last year, with the detail on the qualifying markets and securities set out in the clause, with which hon. Members will, I am sure, have familiarised themselves. We on this side of the Committee support the principle behind the clause.
Some Opposition Members have highlighted the potential benefits of scrapping this transaction tax entirely. We all want to see more companies listing and raising capital in the UK, and steps to lower frictional trading costs can contribute to that ambition. However, my new clause 15 seeks to go further by requiring the Government to publish a report on the potential benefits of extending the stamp duty relief beyond three years. Specifically, I am asking Ministers to assess how a longer relief period could affect the attractiveness of UK markets for new and returning listings, and the impact on capital raising, investment and Exchequer revenues. According to the “Budget 2025 Policy Costings” document, historical listing activity has raised between £14 billion and £17 billion of capital each year. The same document shows that the relief is expected to cost the Exchequer £25 million in the first year, rising to about £50 million a year once fully implemented.
Dan Tomlinson
As with other measures that have been debated this week, for example on business rates, it seems that the Conservatives were just getting around to reform on the issue. Now they are in opposition, they seem to have developed a significant zeal for reform and tax cutting that they did not show at all when they were in government—for example, leaving business rates unreformed, as well as leaving this measure totally unreformed.
James Wild
I am surprised that the Minister has brought up business rates. This is very important. We look with sympathy at having to reverse the Chancellor’s mess, although the Minister will be coming back in a few months, I am sure, with a further U-turn. Just to clarify on business rates, did the Government choose to scrap the 40% relief that was in place when they came into office?
Dan Tomlinson
I do not know whether you want the conversation to continue on a tax that is not in scope, Mrs Harris, but I am happy to answer the question.
Dan Tomlinson
Indeed, Mrs Harris. I respect your judgment and authority in such matters.
As I said, the Government carefully considered the scope of the relief, including the length of the relief period. The first few years after listing are vital in establishing longer-term liquidity, the most important period coming right at the start. The benefits of extending the relief significantly beyond that period, in our judgment, would not represent value for money for the taxpayer.
Mark Garnier
The Minister talks about value for money and the cost, but the alternative is that there will be no listings, so it does not cost anything because this is revenue that the Government would not otherwise have. If they levy this stamp duty, people will not list—they will go to other markets. If they remove it, people will list. There is not actually any change in the revenue to the Government. I do not understand why they cannot extend it. It is not lost revenue because it never would have been generated in the first place.
Dan Tomlinson
Of course there will be companies that will list under the current tax regime, and changing the tax would lead to lower revenues for the companies that would have listed anyway. We have to look at both sides of the coin. [Interruption.]
Dan Tomlinson
The Government are doing a lot to continue supporting the UK’s vibrant capital markets. We have some of the deepest capital markets globally. We have, for example, changed UK listing rules to bring the UK into line with international best practice. We are also changing and improving the prospectus regime, significantly cutting the amount of paperwork that a firm needs to produce while providing better and more relevant information to investors.
We are taking a range of actions to support our capital markets and to support firms to list here. We have seen some good progress in recent months, with more companies choosing to list in the UK, and I hope and expect that we will see more of that soon.
Question put and agreed to.
Clause 82 accordingly ordered to stand part of the Bill.
Clause 87
Rates of duty effective from 6pm on 26 November 2025
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 88 stand part.
New clause 31—Review of effects of sections 87 and 88 on illicit tobacco market—
“The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the provisions made under sections 87 and 88 on the illicit tobacco market.”
This new clause would require the Chancellor of the Exchequer to publish an assessment of the impact of sections 87 and 88 on the illicit tobacco market.
Dan Tomlinson
Clauses 87 and 88 implement changes announced at Budget 2025 concerning tobacco duty rates.
At the Budget, my right hon. Friend the Chancellor confirmed that the Government will increase tobacco duty in line with the escalator. Clause 87 therefore specifies that the duty charged on all tobacco products will rise by 2 percentage points above retail prices index inflation. The new tobacco duty rates will be treated as having taken effect from 6 pm on the day they were announced, which was 26 November 2025. In October 2026, tobacco duty will rise again in line with the escalator with the introduction of vaping duty. That is to preserve the price differential between vaping and tobacco products to ensure the duty on vaping does not make smoking more attractive, and will maintain the incentive to choose vaping over smoking.
New clause 31 would require the Government to publish an assessment of the impact of the changes to tobacco duty rates on the illicit tobacco market within six months of the Bill being passed. The Government will not accept the new clause, as the potential impact on the illicit market is already one of several factors that we consider when we take decisions on tobacco duty rates. We have already published a tax information and impact note alongside the Budget to set out the expected impact of this measure. I commend clauses 87 and 88 to the Committee and I reject new clause 31.
James Wild
I rise to speak to clauses 87 and 88, as well as new clause 31 tabled by the Conservatives. As the Minister said, clause 87 increases tobacco duty and the minimum excise tax with effect from Budget day, as is traditional. As he also outlined, tobacco duty is clearly charged on cigarettes and other tobacco products, while the minimum excise tax ensures that cheaper cigarettes do not escape the appropriate levels of taxation.
Clause 88 sets out a further increase from October this year, introducing an additional uplift in line with RPI, alongside a one-off increase of £2.20 per 100 cigarettes and a similar rise for hand-rolled tobacco. The one-off increase coincides with the introduction of the new vaping products duty, which we may get to talk about later in Committee.
As the Committee discussed last year, in the autumn Budget 2024, the Government announced that the measure was intended to preserve the price gap between tobacco and vaping products, with the same £2.20 rate applying across both categories. These measures will result in a sharp rise in the duty per pack and per pouch. While we broadly support these measures, there are concerns about the implications for illicit trade and enforcement. As we discussed in the Committee of the whole House on the Budget and the Finance Bill in relation to the Government’s almost doubling of gambling taxes, the risk, as always, is that such steep increases widen the price gap between legal and illegal products, making it more profitable for criminal networks, and more tempting for consumers to turn to the black market.
The tobacco duty has been around for a long time, and in recent years successive increases have sought to maintain the financial incentive for people to switch to vaping or to give up entirely. The OBR forecasts that tobacco duty will raise around £8 billion in the current financial year, a modest rise of 0.8% from the previous year, before receipts fall steadily to £7 billion by 2031. The tax information and impact note suggests that the Exchequer impact from this measure will peak at about £130 million before tailing off, consistent with those forecasts.
In economic terms, it would appear that tobacco duty is pushing beyond the point of maximum returns—beyond the Laffer curve peak. As Members of this House, our focus should be on ensuring that further increases in gambling taxes, or the tobacco taxes that we are debating here, do not simply fuel illegal trade. Raising prices on tobacco inevitably risks boosting demand for illicit products, with the associated criminality that blights our communities and fuels organised crime gangs. Even the TIIN acknowledges that some consumers may switch to cross-border or illicit purchases.
HMRC says that it will “monitor and respond” as part of its anti-fraud strategy, but frankly, more clarity and more action are needed. Will the Minister outline specific measures that HMRC will use to counter any shift towards the black market? What assessment has been made of the risk to consumers who buy illicit products, both in terms of the health impacts and the costs to public services such as our NHS?
Mrs Harris, you are probably wondering what the scale of this problem is. According to HMRC, 10% of cigarettes and 35% of hand-rolling tobacco consumed in the UK are from illegal or non-UK duty-paid sources. However, industry data suggests—I of course recognise that the companies have an interest, and I do not take their figures at face value—that the problem may be far worse, with up to 30% of cigarettes and over 50% of hand-rolling tobacco now being sourced illicitly. If accurate, those are levels that have not been seen the mid-2000s.
I cited similar data in Committee during the passage of the Finance Act 2025, when similar provisions were brought forward. Can the Minister update me and the Committee on what discussions have taken place with HMRC about the discrepancy in the estimates? We have one estimate of 10% and another of 30%; that is a huge difference, and we have to get to the actualité.
HMRC’s own director of indirect tax—I want to see that on a business card—has said that illicit tobacco costs the taxpayer around £1.8 billion a year in lost revenue. That is a lot of tax being avoided that could be collected, were this legislation properly implemented. Is that the Government’s estimate? If not, can the Minister provide more up-to-date figures on the gap between legal and illegal sales? It would also be helpful to know whether the Government have assessed the cumulative impact on retailers and enforcement bodies, if the illegal market continues to expand. That is precisely the purpose of new clause 31, which would require
“an assessment of the impact of the provisions made under sections 87 and 88 on the illicit tobacco market.”
HMRC launched its first strategy to tackle illicit tobacco back in 2000. I will not go through them all, but subsequent updates, working closely with Border Force, have delivered progress. They have reduced the duty gap on cigarettes by a third and on hand-rolling tobacco by half, which is a welcome success. The previous Conservative Government launched a strategy in March 2024, building on that record.
I am pleased to see that the trading standards powers we introduced in July 2023 are producing results. By early January this year, over £1.4 million in civil penalties had been issued for illicit tobacco sales. When in government, we recognised the importance of enforcement. The Public Accounts Committee, on which my hon. Friend the Member for Mid Bedfordshire serves and I had the pleasure of serving for two years, estimated that every £1 spent by HMRC on compliance recovers £18— a fine rate of return.
Dan Tomlinson
Let me respond to some of the Opposition spokesman’s points. HMRC’s estimate of illicit trade is published annually in “Measuring tax gaps”, which are official statistics produced to the highest quality standards. They adhere to the values, principles and protocols set out in the UK Statistics Authority’s code of best practice for statistics and are regulated by the Office for Statistics Regulation. HMRC is always looking for ways to strengthen them, but the Government consider them to be the most reliable estimates of illicit trade. As he set out, the figures produced by the tobacco industry or those working on its behalf cannot be regarded as a fully neutral assessment of the situation on the ground.
The Opposition spokesman asked about the latest figures. The latest figures from the 2023-24 tax year are that the tobacco duty gap was 13.8%, equivalent to £1.4 billion. He is right that every penny not collected there is a penny not going towards public services. We need to continue to focus our efforts on what we can do to reduce that figure. He mentioned the work of the previous Government, and this Government will build on that. We will continue to work with Border Force to seize cigarettes and hand-rolling tobacco. The Committee may be interested to know that in the 2023-24 tax year, HMRC and Border Force together seized 92,435 kg of hand-rolling tobacco. We are continuing to see what more we can do. HMRC and Border Force published a strategy in 2024 setting out the continued commitment to reduce the trade, with £100 million of funding in enforcement capability and £1.4 billion to recruit 5,000 compliance officers.
I had not heard the Opposition spokesman’s point on trading standards before; I did not have the pleasure of serving on the Public Bill Committee of last year’s Finance Bill when he raised it. The Government’s policy position is as it stands, but I am always interested to hear policy ideas. I will take his point back to the Department.
Question put and agreed to.
Clause 87 accordingly ordered to stand part of the Bill.
Clause 88 ordered to stand part of the Bill.
Clause 89
Vehicle excise duty for light passenger or light goods vehicles etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 17—Statement on increases to vehicle excise duty for cars and light goods vehicles—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to the House of Commons, on the increase to vehicle excise duty made under section 89.
(2) The statement under subsection (1) must include details of the impact on—
(a) the automotive sector,
(b) household incomes, and
(c) the UK economy.”
This new clause would require the Chancellor of the Exchequer to make a statement to the House on the impact of the increase to vehicle excise duty under section 89 on the automotive sector, household incomes and the UK economy.
Dan Tomlinson
I will keep my remarks brief, if only to give the hon. Member for North West Norfolk more time to inform us of his opinions on this matter. Clause 89 makes changes to uprate vehicle excise duty rates for cars, vans and motorcycles in line with the retail prices index measure of inflation from 1 April 2026. New clause 17 would require the Chancellor to make a statement to the House on the impact of that 2026-27 increase to VED rates, but the increase announced in the Budget is in line with the retail prices index, meaning that rates will remain unchanged for vehicle owners in real terms by that metric. It is therefore the Government’s judgment that the new clause is unnecessary. I therefore commend clause 89 to the Committee, and recommend that new clause 17 be rejected.
James Wild
I am very happy to share my views with the Committee on each and every clause as we go through; that is part of what we are here to do. I am also happy for the Minister to expand on the merits or otherwise of his legislation at will. If he prefers to keep it brief, we can read into that what we wish.
Clause 89 increases vehicle excise duty, the annual charge for keeping a car, van or motorcycle on the roads, in line with the retail prices index. Those changes take effect in relation to licences taken out on or after 1 April. Let us be clear: in practice, that means higher costs for almost every driver. New clause 17 seeks to make sure that those impacts are assessed. It specifically looks at the impact on the automotive sector, household incomes and the UK economy.
We will not vote against clause 89, but the Government should not take our position as an endorsement of their wider approach to motorists. Vehicle excise duty flows straight into the Treasury’s general fund, and the amount that a driver pays depends on the vehicle type, registration date and emissions, with rates adjusted. According to the OBR, vehicle excise duty is forecast to raise getting on for £12 billion by the end of the decade, due in no small part to the RPI increases. It is interesting that the Minister is keen to increase people’s taxes by RPI on a regular basis but will not give such a commitment on a fairly minor charitable threshold. We will leave that there, though, as we have debated that clause.
Ministers like to describe these increases as modest. On their own they may be, but we have to look at all these things in the round, and the impact of these clauses on individuals. If we look at all the costs—the hike in fuel duty and the new mileage-based charge planned for electric and plug-in hybrid electric vehicles, which will cost the average driver £255 a year—the cumulative impact begins to bite. That is why the new clause looks at the impact of this measure. That all comes on top of rising insurance premiums, servicing costs and of course the wider pressure on household budgets. Everyone’s bills are going up, and there seems to be no end in sight.
Let us not forget that it was this Government who decided to end the 5p fuel duty cut that the last Conservative Government introduced—a decision that will cost the average family around £100 a year from September. Then, from next April, the long-standing fuel duty freeze that was in place for 16 years will also be scrapped, replaced by inflation-linked rises. That freeze has saved motorists £120 billion since 2010, but once again, drivers are being asked, through this measure, to pay the price for the Government’s failure to get a grip on the economy.
Motorists and motoring organisations including the RAC have rightly warned that these charges come at a time when the cost of living remains high and public transport options are patchy—particularly outside our major cities, as we discussed in the context of private hire vehicles and taxis. For many in rural areas like my own, a car is not a luxury but a necessity to get around, get to work and see family. Many people do not have an alternative to their car. Drivers are paying more, yet the Prime Minister boasts about things like his £3 bus fare cap, which he quietly increased by 50%. That is why new clause 17 would require an assessment of the impact of the increase in vehicle excise duty.
Although we will not vote against the clause, we expect some answers from the Minister. Will he confirm whether the Treasury has modelled the combined impact of these motoring costs—VED, fuel duty, the upcoming road pricing charges—on household budgets, particularly in rural areas where public transport is limited? What assessment has been made of the impact on small businesses that depend on vans and light goods vehicles to operate in each of our constituencies every day? Those are the people we should think of when we consider clauses such as this. New clause 17 would help to deliver the clarity that Britain’s 50 million motorists deserve.
Dan Tomlinson
In response to the shadow Minister’s question, the Government do consider the impact of each individual tax measure on businesses and consumers in the round with the others, at Budgets and in between them too. As a result, we have concluded that this is the right and proportionate way forward, to protect revenue and make sure that we can increase revenue in line with inflation, rather than beyond it.
Question put and agreed to.
Clause 89 accordingly ordered to stand part of the Bill.
Clause 90
Vehicle excise duty for rigid goods vehicles without trailers and tractive units
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 91 to 93 stand part.
Clause 95 stand part.
New clause 18—Statements on HGV Vehicle Excise Duty and HGV Road User Levy—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to the House of Commons on the increase to HGV vehicle excise duty made under sections 90 to 93 and the increase to the HGV Road User Levy made under section 95.
(2) The statement under subsection (1) must include details of the impact on the—
(a) haulage sector,
(b) decarbonisation of the logistics industry, and
(c) UK economy.”
This new clause would require the Chancellor of the Exchequer to make a statement to the House on the increases to HGV vehicle excise duty under sections 90 to 93 and to the HGV Road User Levy under section 95, including their impact on the haulage sector, decarbonisation of logistics and the UK economy.
Dan Tomlinson
Clauses 90 to 93 will make changes to the vehicle excise duty rates for rigid goods vehicles without trailers and tractive units, the cab of an articulated lorry, rigid goods vehicles with trailers, vehicles with exceptional loads, and haulage vehicles other than showman’s vehicles. Clause 95 will make changes to uprate the heavy goods vehicle—HGV—levy.
The registered keeper of a vehicle is responsible for paying VED. The rates depend on the vehicle’s revenue weight, axle configuration and Euro emissions status. The HGV levy is payable for both UK and foreign HGVs using UK roads. A reformed HGV levy was introduced in August 2023, which varies according to the vehicle’s weight and Euro emissions status.
New clause 18 would require the Chancellor to make a statement to the House—in a similar way, I believe, to new clause 17 that we just discussed—on the increases to HGV vehicle excise duty under clauses 90 to 93, and the HGV road user levy under clause 95. Similarly, given that the uprating is in line with inflation and that rates will remain unchanged in real terms for vehicle owners, it is the Government’s view that the new clause is not therefore necessary, and I urge the Committee to reject it.
James Wild
The clauses deal with changes to vehicle excise duty for heavy goods vehicles, rigid good vehicles with and without trailers, vehicles with exceptional loads, and haulage vehicles other than showman’s vehicles. I welcome the exemption for showman’s vehicles as we look forward to the King’s Lynn Mart, which has been going for 800 years. On 14 February, I will be joining in the civic procession through the middle of King’s Lynn, before getting on the dodgems for the traditional dodgem ride, with other civic figures. Hon. Members should feel free to come along—it is on a Saturday. It is always cold for the Mart, but it is well worth coming along to.
Together, these provisions will uprate the VED and the road user levy by RPI. We have concerns about the timing of the increases, and the absence of meaningful backing for the most affected industries, especially the logistics sector, which keeps Britain moving. HGV vehicle excise duty is already complex, with more than 80 different rates, varying based on the characteristics of weight, emissions, class and configuration. Of course, as the Minister referred to, HGVs are also subject to the road user levy, which was introduced in 2014 as a charge for using the network. That levy was rightly suspended in August 2020 during the pandemic, and the reformed levy that the Minister referred to was reintroduced in August 2023, but it was frozen in the autumn statement that year.
Mark Garnier
My hon. Friend is making an incredibly good point about the inflationary effect of these taxes. He has mentioned houses, and we know that the Bank of England is charged with using monetary policy to keep inflation under control. The direct effect of this measure could be an increase in interest rates, and therefore an increase in the cost of mortgages. Does he think that the Government would be happy with that?
James Wild
My hon. Friend makes an important point about the effect of these clauses on putting up costs and potentially adding to inflation, which as we know has almost doubled from the rate that the Government inherited. Of course, that is partly due to the decisions that the Chancellor has taken and the huge amount she is borrowing and spending, which was not mentioned in her party’s manifesto.
To my hon. Friend’s point, the Minister must tell us what assessment has been made of the knock-on impact on consumer prices, particularly for essentials such as food that depend on road freight to get to our supermarkets and local stores. This is a time when we should be backing British logistics, not burdening it. I therefore hope that, on reflection, the Minister will accept new clause 18 as a sensible one that will help him provide that information to our constituents, to the public, and—importantly—to the logistics sector, transport operators and supermarkets.
Mr Reynolds
The haulage sector has seen significant challenges in recent years: increases in fuel prices, increases in wages and significant changes in the Employment Rights Act 2025, business rates and vehicle excise duty, as we see here. I would not be the investment and trade spokesman for the Liberal Democrats if I did not mention another challenge for the road haulage sector in recent years, which is the significant amount of red tape involved in Brexit, and the cost of that.
The Government’s EU reset has not touched the sides, as haulage associations have been telling us recently. The Business and Trade Committee recently heard about some goods moving from the UK to France that required 29 different stamps on their paperwork. If one stamp goes in the wrong place, the vehicle gets stuck in France or sent back. That is an additional cost for the road haulage sector, on top of all these extra costs and the vehicle excise duty increases.
For example, we were told on the Business and Trade Committee about a vehicle that was sat in France for almost one month because of paperwork that was not quite correct and small technical challenges. That vehicle being sat in France for one month meant consistent driver changes and meant the freezer compartment having to be kept on to ensure that the goods did not spoil. There was a £6,000 cost to the business because of two stamps being in the incorrect place. If we add that to the £2,000 cost per truck of the changes to vehicle excise duty, we see very clearly that the significant changes that the Government are making in quick succession are not helping the sector, which needs all the support it can get.
Dan Tomlinson
I thank the hon. Member for North West Norfolk for his romantic invitation to King’s Lynn; I may be otherwise engaged on that date, but I thank him for it all the same. I am interested to see whether any Members wish to intervene to say whether they will be taking up the invitation, but it is good to hear that he is an active constituency MP.
We do, of course, look at measures in the round, as the hon. Member for North West Norfolk implored me to. We did so ahead of the Budget, and I will continue to work with my right hon. Friend the Chancellor on tax policy in the run-up to the Budget at the end of the year. We are providing stability this year for the private sector and for individuals by moving away from the relatively chaotic approach under the previous Government of having multiple tax events with big swings and roundabouts twice a year, so future tax changes will not come until the end of the year, but that will give me more time to consider things in the round.
James Wild
Is the Minister therefore ruling out any further support for hospitality, leisure and retail businesses in the Chancellor’s spring statement?
Dan Tomlinson
The Government will consider all tax measures in the round in the usual way in the run-up to the Budget. It would not be right for me to speculate on what will or will not be in the Budget; it is a long way away, and there is much to consider in the meantime. Conservative Members decided to bring up inflation, which hit 11% under them in 2022, pushing up prices for everyone up and down the country, leaving businesses and consumers significantly worse off in the worst Parliament on record for living standards.
James Wild
The Minister is a fair man, so he will recognise the impact that the pandemic and the war in Ukraine had on inflation and energy prices. Could he confirm what the inflation rate was on the day the Government came into office and what it is today? That is an important context for his comments.
Dan Tomlinson
Over the months ahead, as a result of the action that this Government have taken to bring stability back to the economy, I look forward to seeing inflation return to 2% by the end of the year, as is forecast by the Bank of England.
I thank the hon. Member for Maidenhead for bringing up the botched Brexit deal that the previous Government left us. Under the leadership of the Prime Minister and Ministers in the Cabinet Office and elsewhere in Government, we continue to work to reduce barriers to trade and deepen our relationship with our nearest trading partner. As the Minister responsible for customs and excise, I am always looking at what more we can do to support those who move goods across borders and trade with our partners in the EU.
Question put and agreed to.
Clause 90 accordingly ordered to stand part of the Bill.
Clauses 91 to 93 ordered to stand part of the Bill.
Clause 94
Vehicle excise duty: expensive car supplement
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 19—Report on expensive car supplement—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 94 on—
(a) the automotive sector,
(b) the sale of hybrid cars, and
(c) vehicle excise duty revenues from high-value vehicles.
(2) The review must consider whether the threshold set under section 94 remains appropriate.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 94 on the automotive sector, sales of hybrid cars and vehicle excise duty revenues from high-value vehicles, and to consider whether the threshold remains appropriate.
Dan Tomlinson
Clause 94 will make changes such that the vehicle excise duty expensive car supplement threshold is increased to £50,000 for zero emission cars, from its current level of £40,000. This change will take effect from 1 April 2026 and will apply to zero emission vehicles first registered on or after 1 April 2025 for tax renewals from April 2026.
The expensive car supplement is a supplement to VED payable by vehicle keepers for five years, from years two to six following a car’s first registration. The rate is currently £425 a year; that will increase to £440 from 1 April 2026, in line with RPI, and is charged in addition to the standard rate of VED. The additional charge was, I believe, originally introduced in 2017 under a previous Government so that those who can afford the most expensive cars pay more than the standard rate paid by other drivers.
Clause 94 will increase the threshold for zero emission cars from £40,000 to £50,000. This measure is projected to benefit over half a million drivers of zero emission vehicles over the next five years. It will also incentivise electric vehicle take-up. Increasing numbers of motorists will benefit in future years as the zero emission vehicle population grows.
New clause 19
“would require the Chancellor…to report on the impact of section 94 on the automotive sector”
and on other issues. As is usual practice, a tax information and impact note was published at the Budget, outlining the anticipated impacts of this measure as well as the expected revenue impacts of the change.
The Government remain fully committed to the EV transition, which will drive economic growth, help the country meet its climate change obligations and improve air quality. By increasing the ECS threshold to £50,000 for zero emission vehicles, clause 94 supports those goals.
James Wild
I rise to speak to clause 94 and new clause 19, which stands in my name. Clause 94 makes changes to the expensive car supplement in vehicle excise duty, as the Minister referred to, specifically for zero emission vehicles. This is an extra £425 charge that applies to most cars with a list price above £40,000. Under the clause, the Government propose to increase the threshold to £50,000, but only for zero emission vehicles. That means that buyers of higher-value electric vehicles will avoid paying the charge, while the £40,000 limit still applies to petrol, diesel and hybrid cars. This change is due to take effect from April 2026.
Let us recall that, back in the Public Bill Committee on last year’s Finance Bill, one of the Opposition’s “review” new clauses called for an independent assessment of the £40,000 threshold and its impact on consumers, particularly for electric vehicle sales, because we said that it was not at the right level. The Minister’s predecessor rejected that idea, and now here we are: the Ministers have quietly decided to raise the very threshold that we urged them to raise a year ago. They are playing catch-up, but they get there in the end. Is the Minister willing to admit that they have been a bit slow to follow the points that we made? Maybe we will be here in Committee next year, talking about other clauses on which the Minister has rejected things and reversed his position.
That brings me to the hybrid point. The Government now seem to have decided that hybrids no longer warrant support, despite the fact that they are critical in bridging the transition to fully electric vehicles. I would be grateful if the Minister expanded at length on the reasoning behind that decision, and on how many jobs in the UK are dependent on the manufacture of hybrid models when a lot of our electric vehicles come from China, where the Prime Minister is now.
We are broadly supportive of the measure, having recommended it a year ago, but let us be realistic: it will not do anything for most of the households in our constituencies, who simply cannot afford a new electric vehicle, especially one that costs £50,000. That is completely out of reach for people in my constituency. I do not know whether that is also the case in constituencies nearer to London, but it is certainly the case in mine.
How does this increase fit with the wider EV policy and charging infrastructure and its roll-out? To support ordinary people up and down the country, we should be joining countries such as Canada—along with the EU, or so it looks—in scrapping the mandate forcing manufacturers to produce EV vehicles and ending the 2030 ban on the sale of new petrol and diesel cars.
New clause 19 would require a proper review of the policy, its effects on the automative sector and the impact on the sale of hybrid cars and on vehicle excise duties. It would ensure a consideration of whether the threshold remains appropriate as market prices shift.
I hope that the Government will accept this accountability and transparency in policymaking, which will benefit everyone. Will the Minister at least commit to reviewing the threshold in future, particularly if it turns out that it needs to be adjusted? Will he also look at the hybrid point?
Mr Reynolds
We welcome the uprating of the expensive car supplement for EVs to the value of £50,000, supporting EVs and EV take-up. However, we are surprised that during the Committee’s first sitting on Tuesday, when I asked about extending zero VAT for charging infrastructure beyond 2027, the Economic Secretary declined to do so. I am aware that the Minister who is present today was not there, but that is slightly confusing. Here, we see the Government supporting electric vehicles and increasing the threshold from £40,000 to £50,000, but not applying the same policy by supporting electric vehicles post 2027 in other clauses of the Bill.
The Economic Secretary, who was in the Minister’s place on Tuesday, is now in China; I do not know whether I should commiserate with the Minister for not being invited on that trip. We are concerned about floods of electric vehicles that are coming in from China, undercutting European and British competitors. We are worried that they will be impacted by that £50,000 change, but several British vehicles will not be. I am sure that we do not want a world in which the Government are unintentionally encouraging British residents to buy electric vehicles made in China rather than electric vehicles from Britain. I hope that the Minister will clarify that point for us.
Dan Tomlinson
I am sorry to report to the Committee that when the Chancellor and I made the decision to increase the threshold ahead of the Budget, I was not aware of the representations that the hon. Member for North West Norfolk had made in last year’s Finance Bill Committee. If I am still in my role in the run-up to the Budget later in the year, of course I will bear in mind everything he has said today. I have already taken some notes that I will take back with me.
The hon. Member is right to note the important role that hybrid vehicles play in the transition. Ultimately, however, to move towards our goal of net zero by 2050, we need to move to a fully clean vehicle fleet over the coming decades, so we want to particularly encourage fully electric vehicles.
We will keep this measure under review; it is important that we do so. This has been an ask of the car manufacturers here in the UK that we want to support. I take the points from the hon. Member for Maidenhead about making sure that consumers can buy vehicles that are produced here in Britain. I hope that a change such as this, which shows the Government’s intent to support the electric vehicle transition, will be a consideration for vehicle manufacturers as they choose where to produce new EV cars in the years to come. Along with other measures that we set out in the Budget, this shows our intention to work alongside the industry to support that transition.
The hon. Member for North West Norfolk raised a point about how high the supplement is. He said that many constituents in rural Norfolk, but also in north London, will find it very challenging to afford to buy a new car that costs between £40,000 and £50,000. That is true in lots of parts of the country, but as I am sure he is aware, it is important that we seek to encourage those who can afford such a car to do so, because they will then sell their cars on at a cheaper value that people may be able to afford. It supports the general health of the car market overall if we can increase the affordability of these—granted—relatively expensive vehicles. That is why the Government have brought forward this change: to support the transition and to reduce the cost of purchasing new vehicles within the £40,000 to £50,000 bracket.
Question put and agreed to.
Clause 94 accordingly ordered to stand part of the Bill.
Clause 95 ordered to stand part of the Bill.
The Chair
I think now is an appropriate time for a comfort break. Please will Members get back as quickly as possible?
The Chair
With this it will be convenient to discuss the following:
New clause 20—Review of bands and rates of air passenger duty—
“(1) The Chancellor of the Exchequer must, within 18 months of this Act being passed, publish an assessment of the impact of the changes to air passenger duty made under section 96 on—
(a) the aviation industry,
(b) passengers,
(c) household finances, and
(d) the public finances.
(2) The assessment under subsection (1)(c) must consider how households at a range of different income levels are affected by the changes under section 96.”
This new clause would require the Chancellor of the Exchequer to publish an assessment of the impact of changes to air passenger duty under section 96 on the aviation industry, passengers, household finances at different income levels, and the public finances.
New clause 32—Air passenger duty change on boarding passes—
“The Chancellor of the Exchequer must by regulations require travel operators who are liable to air passenger duty to ensure that in the case where a boarding pass is issued, the change in the level of air passenger duty made under section 96 and charged in respect of the passenger’s journey, is clearly stated on the boarding pass.”
I call the Minister.
Dan Tomlinson
I thank the Opposition for that warm welcome back after our break.
Clause 96 sets the rates of air passenger duty for the year 2027-28, as announced at the Budget. The rates will take effect on 1 April 2027. Following previous increases to APD, the Government will uprate rates in line with RPI from 1 April 2027. As was previously announced, they will be rounded to the nearest penny, which constitutes a real-terms freeze. This will continue to make sure that airlines continue to make a fair contribution to the public finances, particularly given that tickets are VAT-free and aviation fuel incurs no duty. The Government expect these measures to have an impact on approximately 600 airlines and aircraft operators.
New clause 20 would require the Chancellor to publish an assessment of the impact of changes to air passenger duty under clause 96 on the aviation industry, passengers, household finances at different income levels and the public finances. The air passenger duty national statistics on different APD rates administered by HMRC are published annually through the APD bulletin. The bulletin, which is updated annually, includes statistics and analysis on APD receipts up to the latest full month before its release, and airline passenger numbers one month behind that of duty receipts in the UK. New clause 20 is therefore unnecessary.
New clause 32 would require travel operators liable to air passenger duty to ensure that, where a boarding pass is issued, the change in the level of air passenger duty made under clause 96 and charged in respect of the passenger’s journey is clearly stated on the boarding pass. Air passenger duty is charged to airlines on a per-passenger basis on departure from UK airports. Although airlines can pass the cost of the tax on to passengers, that is a commercial decision for them. I therefore commend clause 96 to the Committee, and encourage the Committee to reject new clauses 20 and 32.
James Wild
Thank you, Mrs Harris. I am almost the only one who has said anything in this Committee, so hopefully people know my name. I rise to speak to clause 96 and to my new clauses 20 and 32.
As the Minister has set out, clause 96 sets air passenger duty rates for the 2027-28 tax year, uprating them in line with RPI. I believe that APD is one of the few taxes for which rates are set well in advance so that the sector knows of the increases. The clause will also expand the higher rate to all private jets over 5.7 tonnes. This applies to passengers departing from UK airports, with rates determined by distance and travel class.
My new clause 20 would require the Government to publish a full impact assessment of the APD changes on the aviation industry, on passengers, on households of all income levels and on the public finances. New clause 32 seeks to bring greater transparency to the travelling public; it would require that the change in the level of APD charge be clearly stated on boarding passes so that every passenger knows how much the rate has gone up as a result of tax imposed by the Government. The Minister says that it is a commercial decision whether airlines pass on the cost, but he will be familiar with how the world works. If a business is taxed more, it is likely to pass on the cost rather than absorbing it into what can be quite thin margins. It may not be able to absorb it, so if it does not pass it on, it will go bust.
This could start a wave of transparency. At the petrol pump, we could see how much of the price of a litre is going straight out in tax. In a pub, we could see on a pint glass how much of the pint goes on tax. Those ideas are not included in my new clause, but they have given me inspiration for when we return to the Floor of the House on Report. The new clause would bring greater transparency; I would hope that the Government and Ministers are willing to be more open.
According to the Office for Budget Responsibility, APD will raise £4.1 billion this year, which is forecast to rise to £6.5 billion by 2030-31, driven by rate increases and passenger growth. While the Government reap the higher revenues, they must also recognise the impact and pressure on families getting away for a holiday—I would say, “Come to Norfolk”—and on regional airports and the wider economy. There are concerns about the impact on people saving up for a family holiday; about the availability of routes that might be slightly marginal and which the increases might make uneconomic; and about affordability for families.
The British Airline Pilots Association said that the latest rise is:
“Bad news for passengers, especially families going on holiday”.
The Business Travel Association put it rather more bluntly:
“APD is not simply a passenger charge; it is a tax on global connectivity”.
It highlights an economy flight to India, a key trading partner of the UK. For 2027, the APD alone will be over £100 per passenger, and that is of course before any accommodation or other costs. It is a significant additional factor if a family of four is travelling, perhaps to see family or to go to some of the great sights in India. I enjoyed a visit there a few years ago, and I am happy to discuss where I went with colleagues after this sitting, as I fear it may be out of scope. What will this mean for children? What analysis has been done of how it might affect consumer behaviour? Will it put people off flying?
New clause 32 is about transparency. Everyone would be able to see on their boarding pass how much has been added as a result of this stealth tax. We are unable to put the full amount, due to resolutions passed by the House, which is why we would put the annual amount. Such taxes should be more visible to consumers.
From 2027, all aircraft over 5.7 tonnes will face a higher charge, and that change follows the 50% rise planned for April. When we talk about private jets, people may think of pop stars gadding around, but most private jets are corporate aircraft that are used as capital assets. They are not luxury toys; they are about people flying to trade and secure jobs in our economy. It is about people being internationally connected and going to places such as India—[Interruption.] The hon. Member for Burnley is pulling a face, as if that is not the reality, but it is what these jets are. We want people to get on a plane, go and do deals, come back and secure investment into our country. [Interruption.] The Minister is nodding. Perhaps that is why he is the Minister and not on the Back Benches.
The Prime Minister has just hired a private jet to go to China, because he could not take the Royal Squadron flight due to national security concerns. Perhaps the Minister can tell us how much chartering that plane has cost the taxpayer in air passenger duty.
We do not oppose clause 96, but we expect the Government to be up front about the impact of the tax rises they are ramming through in this Bill. We want transparency for families going on holiday, who will see prices going up and will have to pay more to get away. Our new clauses simply ask for some transparency and accountability, which are often missing from the Government’s approach to taxation.
Dan Tomlinson
One thing to note about Labour Back Benchers is that they are on the Government Benches, making changes for their constituents. They are supporting the work of this Government to improve living standards for people up and down the country, to ensure economic stability and to bring down interest rates. They are doing the right thing by their constituents.
Dan Tomlinson
Of course, Mrs Harris.
On the point that the hon. Member for North West Norfolk raised, it would be an unnecessary administrative burden to ask airlines to reformulate how they print and design their boarding passes as a result of an Opposition new clause, so I do not support it.
Question put and agreed to.
Clause 96 accordingly ordered to stand part of the Bill.
Clause 97
Rates of climate change levy
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 21—Report on Climate Change Levy rates—
“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 97 on—
(a) energy-intensive industries, and
(b) the UK’s international competitiveness.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 97 on energy-intensive industries and the UK’s international competitiveness.
Dan Tomlinson
Clause 97 makes changes to the main rates of the climate change levy, with effect from 1 April 2027. Since 2001, CCL has provided an incentive for businesses and the public sector to be energy efficient by adding a tax on the non-domestic supply of energy. Energy efficiency is one of the most cost-effective ways in which businesses can cut emissions, and permanently reducing energy use also helps to improve the UK’s energy resilience.
CCL sets four separate main rates for different energy products. The liquefied petroleum gas rate has been frozen since 2019, and it will continue to be so from April 2027. The changes made by clause 97 will increase CCL rates on gas, electricity and solid fuels in line with the retail prices index. This represents a small increase to business bills, but it will ensure that the behavioural incentives of the tax are maintained while also protecting the public finances. The Government announced a wider review of CCL at the spring statement in 2025, and we remain committed to this to ensure the tax remains up to date in the ever-changing energy landscape.
New clause 21 would require the Chancellor to report on the impact of clause 97 on energy-intensive industries and the UK’s international competitiveness within six months of the Bill being passed. I reassure the Committee that the Government already consider the impact of CCL on energy-intensive industries and competitiveness, and a number of reliefs are available to such businesses. For example, the exemption for certain processes in sectors such as steel, ceramics, cement, glass, metal forming and aluminium provides £270 million of relief per year. The Government do not believe that new clause 21 is necessary.
I therefore commend clause 97 to the Committee and ask that new clause 21 be rejected.
James Wild
Environmental taxes are obviously a very important topic for our constituents and businesses, so it is important that we scrutinise them appropriately. Clause 97 raises the climate change levy—the tax on non-domestic energy use for electricity, gas and solid fuels—while freezing the rate for LPG. As the Minister said, it was first introduced in 2001 to encourage energy efficiency.
This uprating will take effect from April 2027. According to the OBR, around £2 billion will come in as a result. We must look at the additional burden being placed on businesses. Again, we need to look at all of these things cumulatively, which is why I welcome the Government’s decision in the autumn to extend the climate change agreements for a further six years—by allowing qualifying businesses to benefit from reductions at a time when businesses are facing significant headwinds, this offers some much-needed respite.
Of course, British manufacturers are paying higher prices than the European average—I think it is more than 50% more for electricity—while the gap with the United States is wider, for understandable reasons. However, high energy costs are one of the issues holding back growth and productivity in the country. We should be looking to reduce the burden and cost of energy, rather than increase it, and this measure will obviously put up the rate.
New clause 21 would require a report on climate change levy rates, and it would require the Chancellor of the Exchequer to review the impact on energy-intensive industries and the UK’s international competitors. I am thinking about sectors such as ceramics, glass, data centres and gigafactories. These are the industries that drive innovation, exports and skilled jobs, and we should consider the impact of such measures on their ability to do business in the UK.
That is why we have set out a different approach that does not follow the fundamentalism of the Energy Secretary, who is picking arbitrary dates and loading up costs by rushing to meet them, rather than getting the benefits of technology development and innovation. Our plan would bring down the cost of energy, because taxing industrial energy is not a strategy for growth.
What assessment has the Minister made of the greater impact of these rates on British manufacturers’ productivity, competitiveness and ability to grow? If he cannot answer that question, perhaps he will support new clause 21 so that we can have a review after the event to see what the impact has been.
Dan Tomlinson
The hon. Member for North West Norfolk is right that high energy costs are one of the big challenges facing industry and consumers. The Government are doing all we can to accelerate the roll-out of clean power. That includes nuclear power, which as a country we have not invested in for way too long, and we desperately need more of that firm baseload power. We also need more intermittent clean power through wind and solar. We cannot turn things around overnight, but in time, I hope and expect that these interventions will lead to lower bills for both businesses and consumers. However, I would be the first to say there is much more to do on this, given the high energy costs and surging inflation we inherited from the previous Government, particularly after 2022.
Question put and agreed to.
Clause 97 accordingly ordered to stand part of the Bill.
Clause 98
Rates of landfill tax
The Chair
With this it will be convenient to discuss new clause 22—Review of landfill tax changes—
“(1) The Chancellor of the Exchequer must, within 12 months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 98.
(2) The report under subsection (1) must in particular assess any effects on—
(a) construction and infrastructure projects,
(b) investment in ports,
(c) levels of recycling and illegal dumping,
(d) progress towards the Government’s environmental objectives, and
(e) Exchequer revenues.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 98, including any effects on construction and infrastructure projects, port investment, recycling and illegal dumping, progress towards environmental objectives and Exchequer revenues.
Dan Tomlinson
Clause 98 increases the standard rate of landfill tax in line with the retail prices index. It increases the lower rate by the same cash amount, and it will take effect from 1 April 2026. This tax was introduced 20 years ago, and it is charged on materials disposed of at a landfill site or an unauthorised waste site in England and Northern Ireland. The objective of the tax is to divert waste away from landfill and to support investment in more circular waste management options, such as recycling and recovery.
The Government consulted earlier this year on proposals to reform the tax to drive more materials out of landfill, and to design out incentives for landfill tax fraud. The hon. Member for Grantham and Bourne (Gareth Davies) is not here, but I enjoyed his video on this, in which he appeared with a hard hat. He, and others, have engaged on this issue.
I particularly welcome the engagement from industry, which has welcomed the Government’s decision. The National Federation of Builders said we had
“really engaged with industry”,
and that the decision put forward after the Budget, following the consultation, would
“allow the industry to start preparing for the circular economy”.
Meanwhile, the chief executive of Biffa said that our decision
“not to converge the two rates…is a good outcome for the industry”.
I am glad that we have a very good tax policy. We are making progress, consulting in good time, engaging with industry, and coming forward with a proposal to make sure the gap does not get any wider on landfill tax—we are increasing the lower rate by the same cash amount as the increase in the higher rate—without adding significant burdens on those who seek to construct and build this country’s future, which we must do after 14 long years of under-investment and decline.
New clause 22 would require the Government to make an assessment of the impacts of clause 98. At the Budget, the Government published a tax information and impact note for this measure, and our approach has been informed by extensive engagement with business. The Government oppose new clause 22 on that basis, and I urge the Committee to reject it. I commend clause 98 to the Committee.
James Wild
Clause 98 increases the standard and lower rates of landfill tax from 1 April, uprating them in line with the retail prices index. In practical terms, that means the standard rate will increase to £130.75 per tonne, with the lower rate applying to less polluting materials increasing by the same cash amount.
Landfill tax, as the Minister said, is intended to discourage disposal in landfill and promote recycling and recovery, and of course we support that aim. However, it is also right that we scrutinise the real-world effect of these changes on business costs, recycling rates and wider environmental outcomes. That is why we have tabled new clause 22.
According to the Budget 2025 costings document, the measure is expected to raise £35 million in 2026-27, increasing to £130 million by the end of the decade. Members will remember the intense speculation ahead of the Budget that the Government might move to a single landfill tax, and the Minister referred to a consultation. The speculation did not come from nowhere; it came from a Government consultation that proposed to do precisely that.
As such, the Minister could have been a bit more up front that this is something the Government were consulting on, presumably because they thought it might be a good idea. Indeed, I recall raising this directly with the Chancellor at Treasury questions earlier last year, where she accused me of scaremongering when I spoke about her own consultation, so I am glad that she has dropped her proposal to move to a single rate. Had she gone ahead with it, material such as topsoil could have faced a thirty-onefold increase.
The Minister kindly referred to my hon. Friend the Member for Grantham and Bourne and his video; he led a determined campaign alongside the industry to stop the reckless proposals put forward by the Chancellor. They could have added £28,000 to the cost of a new home and increased road construction costs by up to 25%.
When we asked what discussions the Treasury had had with the Ministry of Housing, Communities and Local Government before coming forward with its proposal for a thirtyfold increase in the tax rate, it was clear that there had not been any. There was then a sudden panic that the 1.5 million new homes target would be sunk by the Treasury’s actions. I welcome the rethinking of this policy—I will be generous to the Minister on that—to spare the sector yet another unnecessary blow that could have worsened house building numbers and jeopardised the key infrastructure upgrades that we all want to see across the country.
So far, so good, but—and there is always a “but”—the Government’s retreat on that issue does not mean all is well with these proposals. The long-standing exemption for dredging material and its removal has caused deep concern, if the Committee will accept the pun, in the ports and water sector.
The British Ports Association, I believe, has written to the Minister as well as the Chancellor, warning that if these changes proceed unchecked, we may see
“the collapse of major industrial and development projects, particularly in ports, rivers and canals”.
I declare an interest, as King’s Lynn in my constituency has a fine historical port. Indeed, the wealth of King’s Lynn was built on our trading links with the Hanseatic League in medieval times. The knock-on effects of removing the exemption could be significant; delayed waterway clean-up projects, increased flooding in vulnerable areas, and reduced investment in our ports, which keep our country trading.
New clause 22 seeks a proper assessment of how these tax changes will affect construction and infrastructure projects, investment in ports, recycling levels and illegal dumping rates, and progress towards the Government’s environmental objectives. The Minister needs to set out how the Government are responding to address the serious concerns raised by the British Ports Association, which, if correct, could have a very damaging effect on major infrastructure. We welcome that the proposals put forward in the consultation have been ditched, but there are concerns that the Minister now needs to address.
Mr Reynolds
I am very glad that the Government have ditched the plan to converge the rates of landfill tax and to massively hike the charge for inert waste, adding tens of thousands of pounds to the cost of a new build home at a time when the Government want to build 1.5 million new homes. That was not joined-up government, and I am concerned at the lack of joined-up thinking when the Treasury put forward this proposal.
There are a number of gravel quarries in my Maidenhead constituency, and converging the rates would have meant that a significant number of those quarries would have gone unfilled, resulting in more quarry lakes in our town. We know that quarry lakes are dangerous: they are quite shallow until they suddenly become incredibly deep. That is dangerous when young people are out on the water or swimming, and in areas not too far from my own we have seen some unfortunate deaths as a result.
I am glad that the Government have decided to back down on this and are not going to burden the quarry sector or developments with that proposal. However, can the Minister confirm what the cost would have been to UK infrastructure projects such as High Speed 2, and what the additional cost to the taxpayer would have been?
Martin Wrigley
I endorse my hon. Friend’s comments. We have a number of quarries in Newton Abbot, and the same principles apply. I am, however, doubly pleased that the extensive increase was not included in the Budget. I was taken to a local factory in Newton Abbot that makes high-value, high-performance propellers that it exports all over the world. The factory was to be put out of business, because it pours the metal into moulds of sand, and the cost of disposal of that sand would have been more than it could have borne. That would have shut down a £20 million-a-year business. I am extremely grateful that the increase has not been implemented, but I draw the Minister’s attention to such side effects when considering future proposals.
Dan Tomlinson
I thank Opposition Members for their contributions and for welcoming the Government’s decision on this matter at the Budget. I find it a bit tiresome that the Conservatives, when we consult, accuse us of consulting, and when we do not, accuse us of not consulting. It is right and proper, where possible, for the Government to engage with industry on proposals and then come forward with good policy outcomes. I am glad that there has been acknowledgment across the Committee that we have listened, engaged and come forward with proposals that are proportionate.
James Wild
It was not the fact that the Government consulted that we objected to; it was that they were consulting on a crazy idea that would have increased costs for industry 31-fold. Consult away, but do not consult on bad ideas.
Dan Tomlinson
The refining fire of a consultation process is something that I am happy to stand behind.
On the shadow Minister’s important point about the decision to remove the dredging exemption, I have received correspondence from the sector on the issue and will continue to engage with it. The change is not scored in the Budget. To be very clear, it was not made with the express intention of raising revenue; the Government’s judgment, after consultation, was that it would get the balance right between supporting the circular economy and encouraging more environmentally friendly ways of carrying out the activity. I want to continue to engage sincerely with the sector, so I will be responding to the correspondence I have received. I am sure that we will continue to engage.
James Wild
The industry’s concerns are urgent, so if it persuades the Minister on certain points, will he table amendments on Report—the Bill will return to the House in the near future—to address them?
Dan Tomlinson
I am sorry to tell the shadow Minister that this matter is not being legislated for in this Finance Bill; it will be for next year’s Finance Bill.
Question put and agreed to.
Clause 98 accordingly ordered to stand part of the Bill.
Clause 99
Rate of aggregates levy
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 100 stand part.
Government amendments 27, 28 and 26.
Schedule 23.
Government motion to transfer schedule 23.
New clause 23—Report on aggregates levy rate—
“The Treasury must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 99 on—
(a) the construction industry, and
(b) infrastructure projects.”
This new clause would require the Treasury to report on the impact of section 99 on the construction industry and infrastructure projects.
Dan Tomlinson
Clause 99 makes changes to increase the rate of the aggregates levy in line with the retail prices index from 1 April 2026. Clause 100 and schedule 23 make changes to aggregates levy legislation in preparation for its replacement in Scotland with the Scottish aggregates tax.
The changes made by clause 99 increase the rate of aggregates levy from £2.08 per tonne to £2.16 per tonne from 1 April 2026. The changes made by clause 100 and schedule 23 make aggregate moved from a producer’s site in Scotland to England, Wales or Northern Ireland liable to aggregates levy. In addition, they provide an exemption where the aggregate has previously been supplied and will be subject to Scottish aggregates tax. Lastly, they provide for a tax credit from aggregates levy for aggregate moved from England, Wales or Northern Ireland to Scotland. The changes will take effect from 1 April 2026, when the Scottish aggregates tax is due to come into force.
Amendments 26 to 28 are needed to ensure that the legislation interacts correctly with Scottish Government legislation so that a credit from aggregates levy is available on aggregates moved to Scotland only in circumstances in which Scottish aggregates tax is payable on the movement.
James Wild
Clause 99 will increase the aggregates levy—the tax on commercially exploited rock, sand and gravel—from April. The levy, charged per tonne of primary aggregate, is intended to encourage efficient use of materials. As colleagues will know, aggregates are fundamental to almost every form of infrastructure: they are the foundations of our roads, our concrete structures and our coastal defences. They are the essential components in so many products, from ready-mixed concrete to asphalt, lime, mortar and countless others. As the Mineral Products Association puts it so aptly,
“Aggregates provide the backbone of our world”,
and in the UK we use around 250 million tonnes every year.
New clause 23 would require the Government to assess the impact of clause 99 on the construction industry and key national infrastructure products. Although roughly a quarter of aggregate comes from recycled sources, the overwhelming majority still comes from primary extraction. Around 90% is used by the construction industry itself. While we obviously support the principle of encouraging sustainability that is behind the levy, the construction of a single home requires, on average, around 200 tonnes of aggregate and associated materials, from the foundations to the roof tiles. At a time when the Government are looking to accelerate house building, has the Minister looked at the impact of this measure on housing delivery and cost? We will not oppose clause 99, but new clause 23 would require the Government to assess its impact on construction and infrastructure projects.
The Minister set out that clause 100 and schedule 23 will simplify things for the introduction of the new Scottish aggregates tax, reducing the number of businesses that would otherwise need to account for the levy. That is a perfectly good and common-sense measure, so I have no further comment on it.
Mr Reynolds
Clause 99 introduces a very small increase in the rate of aggregates levy, but a small increase when dealing with massive numbers is still quite a large increase. High Speed 2, for example, is predicted to use 20 million tonnes of aggregate during phase 1. That means that the measure will add about £3.2 million to the bill for HS2, which we know is already significantly over budget. Has the Minister worked out the cost associated with money being passed from the Government to HS2 and then from HS2 back to the Government through things like the proposed aggregates levy increase?
Dan Tomlinson
On the question asked by the Opposition spokesman, the hon. Member for North West Norfolk, and implied in the specific question about HS2 impacts from the Liberal Democrat spokesman, the hon. Member for Maidenhead, the key thing is that the aggregates levy provides a price incentive to use more recycled aggregate, which we would all support, rather than virgin aggregate. Increasing the aggregates levy rate in line with inflation will ensure that the value of that price incentive does not fall in real terms.
It is important for administrative reasons and for our ability to collect tax without undue complexity that, even where services are provided ultimately for the benefit of the public sector, the taxes apply in a uniform way. It would become more complicated than it would be worth to apply the tax differently to parts of different industries, or to different contracts, depending on whether they were being used for HS2 or something else.
Question put and agreed to.
Clause 99 accordingly ordered to stand part of the Bill.
Clause 100 ordered to stand part of the Bill.
Schedule 23
Aggregates levy: amendments relating to disapplication of levy to Scotland
Amendments made: 27, in schedule 23, page 535, line 22, after “from” insert “premises in”.
This amendment together with Amendments 28 and 26 revises the inserted sub-paragraph (za) of regulation 13(2) of SI 2002/761 to accommodate expected changes to provisions of the law relating to Scottish aggregates tax.
Amendment 28, in schedule 23, page 535, line 23, after “Ireland” insert
“operated or used by a person registered under section 24 of the Act for any purpose specified in subsection (6) of that section”.
See the explanatory statement for Amendment 27.
Amendment 26, in schedule 23, page 535, line 24, leave out from “waters” to end of line 25.—(Dan Tomlinson.)
See the explanatory statement for Amendment 27.
Schedule 23, as amended, agreed to.
Ordered,
That Schedule 23 be transferred to the end of line 5 on page 468.—(Dan Tomlinson.)
Clause 101
Rate of plastic packaging tax
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
Clauses 101 to 104 encourage greater demand for recycled plastic, help create demand for chemically recycled material, and allow for a more level playing field for plastic recyclers, rewarding the recycling of waste plastic. This is supportive of the Government’s broader environmental goals. The plastic packaging tax was introduced on 1 April 2022 as a part of the previous Government’s resources and waste strategy. It is the Government’s view that the clauses implement that tax in the right and proportionate way. I will not go through each in detail, but I will of course answer any questions that the Committee may have.
James Wild
Clauses 101 to 104 amend the plastic packaging tax introduced in 2022 to encourage the use of recycled and reduced plastic. At the end of August last year, around 5,000 businesses were registered for the tax, and 38% of plastic packaging manufactured or imported into the UK was declared as taxable under it. The tax applies to packaging with less than 30% recycled content and is charged per tonne of plastic packaging components. The Opposition believe that the Government must ensure that the policy is working effectively in practice, encouraging the industry to change and delivering genuine environmental benefit, and not simply adding cost.
Clause 101 increases the packaging tax rate, this time in line with CPI, not RPI. Could the Minister explain why? In principle, that is reasonable, to maintain its value and sustain the incentive to recycle, but it is a practical reality that many businesses simply cannot get enough high-quality recycled plastic at reasonable prices, so raising the rate without addressing that supply constraint risks making packaging more expensive but not greener.
Recycling firms are already facing higher energy bills and rising labour costs as a result of both global pressures and some of the measures that have been introduced. It is often still cheaper to import virgin or recycled plastic from Asia than to buy recycled content from within Europe, and loopholes in legislation may make it more profitable to export plastic waste than to process it here at home.
The Guardian, which I confess is not my usual paper of choice—[Interruption.] It is not the Minister’s either; it is good to get that on the record. It recently reported that 21 plastics recycling and processing plants across the UK have shut down in the last two years, which is a direct result of the imbalance between export incentives, cheap virgin plastic and low-cost imports from Asia.
How much additional revenue does the Treasury expect this rate increase to bring in, given that I think receipts actually fell in 2024-25? What increases in recycled content are the Government assuming will result from the measure? Has the Treasury assessed whether the costs will simply be passed on to consumers through higher prices for everyday goods? We want a tax that drives genuine behaviour change, not one that just adds to the cost of living.
Clause 102 allows chemically recycled plastic to count towards the 30% recycled threshold and introduces a mass balance approach. That is a welcome recognition of innovation and new technology. However, analysis from Pinsent Masons notes that it will introduce significant certification and evidential demands on manufacturers and importers, and many small and medium-sized businesses fear an extra compliance burden in the absence of clear guidance or support. Can the Minister set out to the Committee, and to those companies, what practical support the Government will provide to help businesses adapt to the new rules, and will Ministers commit to reviewing the effectiveness of the measure within a reasonable period to ensure that it is genuinely driving more recycling?
Clause 103 excludes pre-consumer plastics, such as factory offcuts, from the definition of recycled content from April next year. The Government say that that is to ensure that the tax incentivises genuine recycling of post-consumer waste, rather than reusing scrap material. That is reasonable as it goes, but Pinsent Masons has warned that some manufacturers will no longer be able to treat their own production offcuts as recycled content. While the overall burden of tax may not have changed, the burden of liability could shift from those gaining relief through mass balance accounting to those losing relief for pre-consumer materials. The Government should be up front about who will bear the costs of the changes.
Finally, clause 104 deals with commencement. Businesses need certainty ahead of the changes, and time to adapt their supply chains and get the relevant certification and other measures lined up. Can the Minister confirm that HMRC will be publishing detailed guidance in advance? He may tell me that it is already out there and that I have not seen it yet, but if it is not, can he assure me that it will be published in good time for those companies?
Dan Tomlinson
I thank the Opposition spokesman for his questions. May I put on record my thanks to the officials for the support that they have provided to me today, in my first appearance in a Bill Committee as a Minister?
The hon. Member asked why the tax is increasing in line with CPI rather than RPI. All new tax measures introduced since 2018 have been uprated by CPI instead of RPI, so that is perfectly in keeping with established practice. That is good to know.
The hon. Member also about the mass balance approach. That is an accepted model already used in a range of industries, including cocoa and timber. Respondents to the consultation on a mass balance approach agreed that combining it with third-party certification is the best approach to prevent fraud and abuse. HMRC will continue to work with stakeholders on the detailed policy development, including independent certification requirements, which will be designed to be fair and robust and to maintain the integrity of the tax.
Dan Tomlinson
Clause 105 legislates for the new rates of the soft drinks industry levy to apply from 1 April 2026. It amends section 36(1) of the Finance Act 2017 to reflect the new rates of the levy to apply from 1 April 2026. Those rates are £2.08 and £2.78 per 10 litres of prepared drink, for the lower and higher bands respectively. I commend the clause to the Committee.
James Wild
I am surprised that the Minister covered this important clause so briefly, as will become clear in my remarks. Clause 105 increases the soft drinks industry levy—the tax on soft drinks with added sugar, which is charged per litre, with higher rates applied to drinks containing more sugar. The Government propose to uprate the levy by combining one fifth of the CPI inflation from 2018 to 2024 and full CPI inflation between Q2 2025 and 2026. In practice, that all together means a total rise of 27%—I am surprised that the Minister did not want to get that figure on the record; it is a significant increase.
The soft drinks industry levy has worked in meeting its objectives, but we had a debate on it last year and, and as I warned then, we have serious concerns about the Government’s decision to backdate an inflation increase over a six-year period. That is an unprecedented move, which raises serious questions about fairness, consistency and confidence in the UK tax system.
The soft drinks industry levy was introduced in 2017 by the Conservative Government to help tackle obesity, diabetes and tooth decay, particularly among children. By any reasonable measure, it has been a success. There has been a 46% reduction in sugar in fizzy drinks since the original tax came into force, and 89% of soft drinks sold now in the UK are not subject to the charge due to reformulation. As the British Soft Drinks Association points out, since 2015, more than 1 billion kilograms of sugar have been removed from the UK diet. Soft drinks now account for just 6% of the UK’s total sugar intake.
The industry has responded to the incentives that Parliament put in place by investing heavily, innovating and reformulating on a huge scale. That is why the backdated tax rise in clause 105 is so troubling. Imposing, in one go, six years of inflation over a period when it was not imposed represents a 27% retrospective increase, something that I think—unless I am corrected by the Minister—is without precedent in recent UK fiscal policy. It is not simply a technical adjustment; it is a departure from the principles that underpin our tax system, such as clarity and predictability.
As we have recently discussed when considering other clauses, inflation uprating is normally applied annually, not retroactively over a six-year period. When alcohol duty or fuel duty is frozen, the Treasury does not go back and seek to make up for the years it was frozen by adding them to the rate—although maybe that is what the Government are going to do—but that is precisely what the Government are now doing with the soft drinks levy. As I pointed out to the Finance Bill Committee last year, if the same backdating principle were applied elsewhere, the results would be very troubling. According to research that the House of Commons Library kindly produced for me, if the Government were to take the same approach to fuel duty as they applied to the soft drinks levy—there has been a long freeze in fuel duty—fuel duty would rise by 64%, while the aggregates levy would rise by 67%. No one would defend that, so why is it acceptable in this scenario to have such an increase?
Businesses make long-term decisions on investment, employment and pricing based on the stability of the tax regime. To introduce retrospective changes on this scale undermines that certainty and, I fear, risks setting a dangerous precedent. Is this now Government policy? Can the Minister rule out—as the Minister at the time failed to rule out—the Government taking a similar approach with other taxes, such as fuel duty? I wonder if he will be able to give us a bit more confidence. Will the Government commit to not applying such levels of retrospective taxation-inflation increases to other sectors?
In the context of this debate about the soft drinks industry levy and the increase in it, also important is what might happen—given that the threshold and the rates have been set—if there are proposals to lower the rate to bring more soft drinks into the tax, such as milk-based drinks—the milkshake tax—coffee drinks and milk substitutes that exceed the same sugar threshold. If that happened, that would potentially be another hit to the cost of living. Industry has estimated that compliance costs could run into the tens or possibly hundreds of millions of pounds, if such an approach were taken, moving the goalposts when the policy has delivered on its aims. The hospitality and drinks sector already face a lot of pressures, so they do not need to see further increases.
I therefore think that applying a retrospective 27% tax increase is a move that the Government should not take lightly. We support the principle of the industry levy and the goals that it serves, but this is concerning, and I look for some confidence from the Minister that the retrospective approach to taxation will be a one-off.
Dan Tomlinson
Our approach to uprating taxes is plain to see for all the different approaches that we have taken. The Government set out their position on fuel duty, for example, and we have discussed many upratings today in Committee. The Government’s judgment in this specific circumstance was that uprating in line with inflation, as in previous years, was an appropriate step to take to protect the real-terms value of the SDIL and to maintain incentives for manufacturers over time. The Government are happy to stand by that position, although of course it is well within the rights of the Opposition to take a different approach.
Question put and agreed to.
Clause 105 accordingly ordered to stand part of the Bill.
Clause 106
Amendment of customs tariff power
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
The clause relates to trade defence. As set out in the trade strategy, the Government committed to strengthen the UK’s trade defence toolkit in response to an increasingly turbulent global trading environment. The clause supports those commitments and ensures that the Government can continue to respond to changes in the global trading system.
Unfair trade practices, including distortionary subsidies and dumping goods below cost in foreign markets, have a long pedigree. What has changed rapidly in recent years is their sheer volume and the range of markets and indeed British businesses that they threaten. Our trade defence system needs to be sharper and more flexible to respond to the increasingly turbulent global trading system.
The UK remains committed to upholding the rules-based international system that has benefited us well, but in an unstable and volatile world, we cannot afford to be left behind and we need to be more agile in the face of a range of potential future shocks. That is why clauses 106 to 108 strengthen the UK’s trade defence toolkit, making it more closely aligned to that of international peers. The clauses will help to ensure that we can best protect UK interests, including in critical sectors such as steel, which are vital to our national security and critical infrastructure.
The changes made by the clause will put beyond doubt that we are able to apply tariffs on a global basis or against a group of countries, where consistent with international agreements to which the UK is a party. This measure strengthens the UK’s trade defence toolkit, ensuring that the Government can continue to respond to changes in the global trading system, as well as to unfair trading practices where they occur. I commend the clause to the Committee.
Mark Garnier
Before I go into the details of the clause, and before the Committee discusses the subsequent two clauses, it is worth getting on record how much the Opposition object to trade wars and increasing tariffs. Such tariffs harm the country that introduces them. Take what has been going on in America as an example. On its “liberation day”—as I think its Government called it—it introduced very heavy tariffs, including on something as simple as the iPhone, which the American people would consider to be one of the greatest inventions and greatest products they have ever had. It seemed that the person who introduced those tariffs had completely failed to observe that 95% of an iPhone is made in Vietnam and China, as a result of which the tariffs increased the price of iPhones for the American people, which was completely against the intentions of that Government.
Tariffs are really bad, and we have been trying to get them down for an awfully long time. However, I completely understand the point that the Government are trying to make with the Trade Remedies Authority and the toolkit that the Government need in order to respond to certain issues. It is vital that we have the ability to move on things such as tariffs, and I suspect that the Minister is 100% aligned with me on this, but I stress that we have lessons from history, from when such actions have gone hideously wrong.
The Smoot-Hawley Tariff Act of 1930, introduced by President Hoover, was designed by Senator Smoot and Representative Hawley to try to help American businesses and American farmers by increasing tariffs. The net result was a global trade war that resulted in a 65% drop in global trade. That is what happens when people muck around with tariffs; that is where the damage can come. I completely appreciate that these measures are, I suspect, a very necessary response to what is happening on the other side of the Atlantic, where there is a very unpredictable trade policy, so it is the right thing to do. However, I urge the Minister to talk to all his colleagues about this matter, and to reassure the Committee that these measures are not about having our own version of that policy, and about increasing tariffs in order to have a trade war, but about having a set of relevant measures that mean that the Government can act in defence to what could be a hostile attack on trade.
Dan Tomlinson
I thank the hon. Member for his comments. It is good to converse with a new Opposition spokesman and I look forward to more conversations and discussions with him—though I do not have favourites. I want to be really clear—and I am glad to have the chance to be so—that the UK will continue to champion the free and fair trade that has benefited us so much in our history as a small, independent trading nation. We will always look to work with international partners to protect the rules-based international trading system. With this measure, we are not lapsing into protectionism and we will always make sure to balance the need to use these powers when and if they may be required in individual circumstances, with a continued focus on the need to be open because that is the route to sustained and long-term prosperity for a country with an economic and geopolitical position such as ours.
Question put and agreed to.
Clause 106 accordingly ordered to stand part of the Bill.
Clause 107
Dumping and subsidisation investigations
Mr Reynolds
I beg to move amendment 44, in clause 107, page 129, line 32, at end insert—
“(10) Before giving a direction under sub-paragraph (1), the Secretary of State must lay before Parliament an impact statement setting out—
(a) the evidence on which the Secretary of State has concluded that the conditions in sub-paragraph (1) have been met,
(b) an assessment of the potential impact on consumer prices and UK supply chains,
(c) the reasons why a direction is considered necessary in the circumstances, and
(d) whether coordination with other jurisdictions, including the European Union, has been considered.
(11) A direction under sub-paragraph (1) shall cease to have effect if, within the period of 21 sitting days beginning with the day on which the statement under sub-paragraph (10) is laid, either House of Parliament resolves that the direction should be annulled.”
This amendment would require the Secretary of State to provide Parliament with an impact statement before directing the TRA to initiate a dumping or subsidisation investigation, and would give Parliament the power to annul such directions within 21 sitting days.
The Chair
With this it will be convenient to discuss the following:
Amendment 45, in clause 107, page 129, line 43, at end insert—
“(6A) In paragraph 17, at end insert—
‘(11) Before making a recommendation under paragraph 17, the TRA must prepare and publish an assessment of—
(a) the likely impact of the proposed anti-dumping amount or countervailing amount on consumer prices,
(b) the effect on UK businesses that use the goods subject to investigation as inputs in their production processes,
(c) the overall impact on the UK economy, including benefits to UK producers and costs to UK consumers and supply chains, and
(d) whether a lower duty than the margin of dumping or amount of subsidy would be sufficient to remedy any injury to UK industry.
(12) The Secretary of State must have regard to the assessment made under sub-paragraph (11) when making a decision on whether to accept the TRA's recommendation and at what level to set any anti-dumping or countervailing duties.’”
This amendment would require the Trade Remedies Authority to assess and publish the consumer and wider economic impact of proposed anti-dumping or countervailing duties.
Clause stand part.
Clause 108 stand part.
Mr Reynolds
Amendments 44 and 45, tabled by my hon. Friend the Member for Newton Abbot and I, strengthen the democratic accountability in our trade remedies system. Trade remedies exist to protect British businesses and workers from unfair foreign competition from goods dumped below cost or artificially subsidised. Since Brexit, the Trade Remedies Authority has operated as our independent investigation body. That independence matters, because trade remedy decisions affect jobs, consumer prices, business costs and our international relations.
Mark Garnier
Clause 107 gives the Secretary of State the power to direct the Trade Remedies Authority to initiate a dumping or subsidisation investigation. We support measures that tackle any unfair trading practices, including dumping and subsidisation. We are also supportive of measures that bring power back into the hands of Secretaries of State and Ministers. That is especially important when it comes to practices that could harm our industries and our constituents.
One example of that is the steel industry. Back in 2016, it was reported that Tata Steel had suffered more than 1,000 job losses, including 750 from Port Talbot alone. Tata stated that the reason for this was the flooding of cheap imports, particularly from China. This will continue to be a problem. According to the OECD, Chinese steel imports surged to a record level of 118 million tonnes in 2024. Interestingly, there are different points of view on this. For those in the building industry, the idea of having an awful lot of cheap steel coming into the country is not that unattractive, but it would affect our domestic industries.
How the Government curb dumping and subsidisation must be accompanied by, at least in part, a deterrent effect. That is crucial for investigations that implicate large and powerful countries. Clause 107 removes the opportunity to implement any deterrent effect because it caps duties imposed on the dumping margin or subsidy amount, not at the injury margin. I acknowledge that this is in line with World Trade Organisation rules. However, injury margins can often exceed dumping and subsidy margins due to their accurate reflection of the true economic harm inflicted on UK industries. Each time, they have been overridden due to the lesser duty rules, and the removal of this rule could have given the Government the opportunity to apply a regime that reflects injury margins better in dumping and subsidy investigations. That would not only protect UK industries but send a clear message to those who engage in these abhorrent trade practices that this will not be tolerated and will be met with serious repercussions. I would be grateful if the Minister could expand on the Government’s rationale not to cut duties at the injury margin. It is quite a technical question, and if he feels the urge to write back, that might save him the trouble of getting into a lot of technical detail.
We are supportive of the thrust of amendments 44 and 45, tabled by the hon. Member for Maidenhead. It is important for decision makers to be accountable to Parliament for their decisions, whether that is the Secretary of State or the Trade Remedies Authority. I suspect that these amendments will be voted down, so could the Minister help the Committee understand what safeguards are in place to address the concerns outlined by the hon. Member for Maidenhead?
Clause 108 gives the Secretary of State the power to direct the Trade Remedies Authority to initiate a safeguarding investigation. It is important that the UK has the necessary defensive measures where there is injury to UK industries. However, clause 108 requires clarity on the conditions that enable the Secretary of State to direct the Trade Remedies Authority to initiate an investigation.
I have two points on this. First, on the requirement of evidence of increased quantities in a good, clause 108 does not introduce any parameters or a threshold that would distinguish a legitimate increase in quantity of goods from an increase that warrants investigation. Secondly, there is no definition or guidance on what constitutes “serious injury”; the clause does not make clear what serious injury means. Without the clarification, the clause grants the Secretary of State substantial discretion in determining whether those conditions have been met. Fundamentally, though, on both these clauses, we must ensure that these important decisions are made with technical rigour and on the evidence. It is incredibly important that they are not driven solely by political whim. I ask the Minister for an assurance on that point.
Dan Tomlinson
I will not expound on the detail of the clauses, but I will explain why the Government cannot accept the amendments.
On amendment 44, any public disclosure of evidence before an investigation is formally launched risks undermining it. The formal initiation of an investigation is a defined procedural step, and once an investigation has been formally initiated, the TRA may recommend the imposition of provisional duties. If there was a gap between publicly disclosing evidence and initiating an investigation, it might incentivise exporters to increase shipments of the goods concerned into the UK to avoid potential future duties. It would also risk contravening our international World Trade Organisation obligations. The rules are clear that authorities must avoid publicising the application for an investigation before a decision has been made to initiate it. To our knowledge, no such parliamentary veto exists in comparable trade remedy systems internationally, but I assure the House that the process will remain transparent and led by the evidence.
On amendment 45, the Trade Remedies Authority is already required by our domestic legislation to publish the consumer and wider economic impact of proposed anti-dumping or countervailing duties. As part of its dumping and subsidisation investigations, the Trade Remedies Authority must advise the Secretary of State on whether and how any recommended anti-dumping or countervailing duties would meet the economic interest test as set out in legislation. The Secretary of State must then have regard to that advice when considering whether to accept or reject the recommendation. This advice is included in the TRA’s published reports across the case life cycle, including a statement of essential facts, which is included on the public file ahead of a recommendation to the Secretary of State.
Since he has given me leave to do so, I will write to the shadow spokesperson, the hon. Member for Wyre Forest, on his specific question.
Mr Reynolds
It is important to remember that one can support both free trade and protection against unfair dumping—they are not mutually exclusive—and I think the amendments strike a balance between them transparently. Amendment 44 gives Parliament meaningful oversight of ministerial decisions to initiate investigations, and amendment 45 ensures that decisions account for impacts on consumers and businesses relying on imported inputs. Together, they strengthen democratic accountability while maintaining our ability to act against unfair trading practices. I ask the Minister to reconsider his thoughts on amendment 44 when we push it to a vote.
Dan Tomlinson
Clause 109 amends sections 20 and 20A of the Customs and Excise Management Act 1979 to update HMRC’s existing powers to require all ports to provide and fund customs infrastructure.
Customs infrastructure is essential to protecting the UK by ensuring that risk-based checks on goods entering and leaving the country can take place. Provision of that infrastructure by ports is a long-standing requirement. When we left the EU, the Government funded and operated customs infrastructure at inland border facilities for ports that do not have enough space for this infrastructure within the port itself. Only two inland border facilities remain: Sevington inland border facility in Kent and Holyhead inland border facility in Wales. As confirmed in the border target operating model in autumn 2023, Government provision of these inland border facilities was always intended to be temporary.
Clause 109 would, first, require the small number of ports assessed as having insufficient space on site for customs infrastructure to provide equivalent infrastructure at an offsite location, which must be approved by HMRC. Secondly, all ports will now be responsible for providing and funding the customs infrastructure required for border checks on goods. This levels the playing field between ports, bringing all ports into line with the long-standing model. I commend the clause to the Committee.
Mark Garnier
Clause 109 shifts the responsibility for the remaining two inland border facilities from the Government to the port authorities. The switching of inland border facilities services and operations to a commercial basis was something that the last Government were exploring.
However, we query whether clause 109 goes a little too far. It would require the ports to prepare to take on the additional responsibility of providing equivalent infrastructure. We appreciate why the ports received the additional Government assistance in the first place, especially considering the far-reaching effects that any disruption in Dover could have. However, while I agree that the ports must be able to stand on their own feet, clause 109 risks the ports’ introducing additional import and export charges being applied to every lorry and trailer that passes through. The magnitude of the price increases could be substantial for businesses, which may end up passing on the additional costs to consumers—not to mention that they would be in addition to the port inventory charges that the port of Dover implemented from 1 January this year.
I recommend that the Government assess the impact that the legislative changes in clause 109 would have on these ports, the businesses and hauliers that rely on them and consumers, who will have to pay a higher price. We get the principle of the clause, but we are concerned about whether there are any adverse knock-on effects on trade through the ports.
Dan Tomlinson
We do not expect that the changes will result in significant cost changes. How ports that currently benefit from the inland border facilities choose to recover any costs is a commercial matter. It is worth noting that the ports have benefited from significant public investment that has already been made in the development and operation of inland border facilities since we left the EU.
Question put and agreed to.
Clause 109 accordingly ordered to stand part of the Bill.
Clause 110
Increases to rates of levy
Dan Tomlinson
I beg to move amendment 12, in clause 110, page 134, line 20, at end insert—
“(2A) In consequence of the amendments made by the preceding subsections, in section 189 of the Economic Crime and Corporate Transparency Act 2023, in subsections (3)(b)(ii) and (11) (which operate by reference to provisions amended by this section), for ‘large or very large’ substitute ‘in any of bands B to D’.”
This amendment makes a consequential amendment as a result of the new bands.
Dan Tomlinson
Clause 110 will make changes to the rates charged to businesses under the economic crime (anti-money laundering) levy from April 2026. The changes will increase the revenue raised each year by the levy by £110 million from 2027-28 onwards.
The levy was introduced to provide a long-term, sustainable source of funding for initiatives aimed at tackling money laundering. In 2024-25, the levy funded 455 new roles fighting economic crime in organisations, including in the National Crime Agency and City of London police, and delivered a new digital service for suspicious activity reporting, which onboarded precisely 15,211 organisations. In a constrained funding landscape, we believe that the levy is right place to find the money for these initiatives. The Government have decided to change the rates charged to businesses under the levy to provide sufficient funding to deliver key projects in the economic crime space over the next three years.
The changes made by clause 110 will increase the charge paid by businesses with an annual revenue between £10.2 million and £36 million from £10,000 to £10,200 per annum. It will also introduce a new band for businesses with an annual revenue between £500 million and £1 billion. Lastly, it will increase the charge paid by businesses with an annual revenue exceeding £1 billion to £1 million from April 2026. As the levy is collected a year in arrears, the increased rates will first be collected in the financial year beginning April 2027. The changes have been designed with proportionality and fairness at their core, and no business will pay more than 0.1% of its UK annual revenue in levy charges.
Government amendment 12 seeks to update the language in the Economic Crime and Corporate Transparency Act 2023, which refers to the current band names “large” and “very large”. These will be changed to refer to the new band names A, B, C and D. The amendment contains no policy changes; it will just bring existing legislation in line with the new economic crime levy band names. I commend the clause and the amendment to the Committee.
Mark Garnier
The previous Conservative Government introduced the levy back in 2022 as a proactive measure to combat money laundering and strengthen our economy. As my hon. Friend the Member for Arundel and South Downs (Andrew Griffith), now the shadow Business Secretary, said when he brought it in,
“the levy will provide an important private sector contribution from those industries at highest risk of being abused for money laundering.”
We support robust action against money laundering, but we have one or two concerns about the scale. The introduction of a new band C, with a £500,000 levy for businesses with a revenue of between £500 million and £1 billion, is a substantial new burden on businesses that are already heavily regulated and are already investing significant sums in anti-money laundering compliance. To be clear, a business with £500 million to £1 billion revenue used to pay £36,000 and will now have to pay half a million—a 1,289% increase.
The Government’s own impact assessment suggests that between 100 and 110 businesses will be affected by the levy rise in this band C. It is a really big rise, so it would be helpful if the Minister could justify the nearly 1,300% rise for firms moving into the new band C. Perhaps he could also say whether he has had any representations from any businesses about the effect it could have on investment, staffing level, productivity and all the rest of it.
The simultaneous reduction in the threshold for the “very large” band, band D, means that more businesses fall into the higher levy. Will the Minister talk about the rationale for that? Has he considered the potential impact on the UK’s competitiveness, particularly mid-sized firms that may now face substantially higher costs?
Dan Tomlinson
On competitiveness, the Government of course do not place any additional burdens on businesses lightly, but reducing economic crime helps the good functioning of the UK economy and our competitiveness, so we think that this is a proportionate change.
The shadow Minister is right to identify that there are significant changes in band C. Previously, businesses with revenue of £500 million paid only 0.007% of their UK revenue, while those with revenues of, for example, £36 million paid 0.1%. That was a significant imbalance. This change seeks to address that disparity by aligning contributions more closely with revenue size so that contributions are proportionate to revenue—more proportionate, but still bands over the broad swathe of business size. This is to make contributions fairer and more consistent, and it will ensure that larger businesses contribute proportionately to the overall funding requirement.
Amendment 12 agreed to.
Clause 110, as amended, ordered to stand part of the Bill.
Clause 111
Removal of time limit to claim relief under section 106(3) of FA 2013
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
Clause 111 removes a restrictive time limit within which relief from the annual tax on enveloped dwellings can be claimed. This measure updates the legislation to remove the current restrictive time limit for claiming relief from the ATED. Companies are still required to deliver their ATED returns on time—typically 30 days from the start of the chargeable period. ATED returns not delivered by the filing deadline will remain subject to penalties for late filing. The time limits for amending a return already delivered to HMRC are unchanged. This clause will come into effect from the date of Royal Assent of the Bill and will have effect as if it had always been in force. HMRC is currently applying its discretion to accept late claims pending enactment of this legislative change. The change is necessary to ensure that the law reflects our policy aims for relief from the ATED. I therefore move that clause 111 stand part of the Bill.
Mark Garnier
The ATED was originally brought in back in 2013 under the coalition Government to discourage the use of corporate structures to hold high-value residential properties. Reliefs were built into the system to ensure that genuine commercial property businesses were not caught by the charge. However, those reliefs were subject to a clear 12-month time limit for making a claim. That was for two reasons: first, it helps ensure that relief claims are made while the facts are still reasonably clear. Secondly, it simply aligns with normal tax time limits.
Now the Government want to remove that time limit entirely. Without a deadline, if claims are made over the original 12-month period, HMRC could be required to revisit historical ATED returns long after they were filed. Given service levels in HMRC are already stretched, it is unclear why the Government have chosen to do that. It could increase, rather than reduce, administrative burdens on HMRC. Have the Government assessed the resource implications for HMRC of processing claims made more than a year after the relevant adjustment period?
Dan Tomlinson
Yes; in anticipation of the Budget and the announcements made at the Budget, work was carried out between HMRC and policy officials in the Treasury to assess the implications of tax changes on businesses and on the Government, and this is set out in the usual way.
Question put and agreed to.
Clause 111 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mark Ferguson.)