Tuesday 20th December 2022
(1 year, 4 months ago)
Lords ChamberFinance Act 2023 View all Finance Act 2023 Debates Read Hansard Text Watch Debate Amendment Paper: Committee of the whole House Amendments as at 30 November 2022 - (30 Nov 2022)
Lord Harlech (Con)
My Lords, in the face of unprecedented global headwinds, my right honourable friend the Chancellor delivered an Autumn Budget Statement acknowledging the difficult decisions that this Government must take to tackle the cost of living crisis and restore faith in the UK’s economic credibility. To address head-on the issues that we face, we will follow two key principles: first, asking those with more to contribute more; and, secondly, avoiding the tax rises that most damage growth. These two principles work together to achieve these aims in a fair and sustainable way without damaging growth.
Today we are debating a small number of tax measures that are being taken forward as a matter of priority. I am sure that noble Lords recognise the need to progress these measures at pace to provide certainty to markets and help stabilise the public finances. This Finance Bill therefore focuses on tax rises that act on the Government’s commitment to fiscal sustainability, helping to stabilise the public finances and providing certainty to markets. I now turn to its substance, beginning with the measure on the energy profits levy.
Since energy prices started to surge last year, the Government have considered how to ensure that businesses that have made extraordinary profits during the rise in oil and gas prices contribute, in the fairest way, towards supporting households that are struggling with unprecedented cost of living pressures. The Bill takes steps to do exactly that by ensuring that oil and gas companies experiencing extraordinary profits pay their fair share of tax. We are therefore taxing these higher profits, which are not due to changes in risk-taking, innovation or efficiency but are the result of surging global commodity prices, driven in part by Russia’s invasion of Ukraine.
This measure increases the rate of the energy profits levy, which was introduced in May, by 10 percentage points to 35%. This will take effect from January next year, bringing the headline rate of tax for the sector to 75%—triple the rate of tax other companies will pay when the corporation tax rate increases to 25% from April next year. The Bill also extends the levy until 31 March 2028.
However, as the Government have made clear, such a tax must not deter investment at a time when ensuring the country’s energy security is vital. Putin’s barbaric and illegal invasion of Ukraine, and the utilisation of energy as a weapon of war, have shown that we must become more self-sufficient. That is why the Bill also ensures that the levy retains its investment allowance at the current value, allowing companies to continue claiming around £91 for every £100 of investment.
The Government will legislate separately to increase the tax relief available for investments which reduce carbon emissions when producing oil and gas, supporting the industry’s transition to lower-carbon oil and gas production. Together, these measures will raise close to £20 billion more from the levy over the next six years, bringing total levy revenues to over £40 billion over the same period. The Government are also taking forward measures to tax the extraordinary returns of electricity generators, but will do so in a future finance Bill to ensure that we engage with industry on the plans.
The autumn Finance Bill also introduces legislation to alter the rates of the R&D tax reliefs. Making these changes will help ensure that the taxpayer gets better value for money, while continuing to support valuable research and development—a crucial ingredient for long-term growth.
Over the last 50 years, innovation was responsible for around half of the UK’s productivity increases, but the rate of increase has slowed significantly since the financial crisis. This difference explains almost all our productivity gap with the United States. We have protected our entire research budget and we will increase public funding for R&D to £20 billion by 2024-25, as part of our mission to make the United Kingdom a science superpower.
The Government also remain committed to the increasing focus on innovation set out in the 2021 spending review and the £2.6 billion allocated to Innovate UK over the spending review period. This represents a 54% cash increase in IUK’s budgets from 2021-22 to 2024-25, and 70% of its grants to businesses go to SMEs. These measures are significant, but ultimately businesses will need to invest more in R&D, and the UK’s R&D tax reliefs have an important role to play in this.
For expenditure on or after 1 April 2023, the research and development expenditure credit rate will increase from 13% to 20%; the SME scheme additional deduction will decrease from 130% to 86%; and the SME scheme credit rate will decrease from 14.5% to 10%. This reform aims to ensure that taxpayers’ money is spent as effectively as possible and improve the competitiveness of the RDEC scheme. It is a step towards a simplified, single RDEC-like scheme for all.
The SME scheme costs almost twice as much as RDEC and is, as it stands, significantly more generous, yet HMRC estimates that the RDEC scheme incentivises £2.40 to £2.70 of additional R&D for every £1 of public money spent, whereas the SME scheme incentivises 60p to £1.28 of additional R&D. In addition, RDEC has lagged behind other countries in generosity. Following the corporation tax rise from April 2023, the SME scheme would have become even more generous in cash terms, and RDEC less.
The reform is estimated to save £1.3 billion per year by 2027-28 and leave the level of R&D-related business investment in the economy unchanged. It is also expected to reduce error and fraud in the SME scheme where the generosity has made it a target for fraud. Government support for the reliefs will still continue to rise in cost to the Exchequer, from £6.6 billion in 2020-21 to over £9 billion in 2027-28, but in a way that ensures value for money. The R&D reliefs will support £60 billion of business R&D in 2027-28, a 60% increase from £40 billion in 2020-21. The Government will consult on the design of a single scheme and will work with industry ahead of the Spring Budget to understand whether further support is necessary for R&D-intensive SMEs without significant change to the overall cost.
I will turn now to the measures on personal tax. We know that difficult decisions are needed to ensure that the tax system supports strong public finances. To begin with, we are asking those with the broadest shoulders to carry the most weight. Therefore, the Government are reducing the threshold at which the 45p rate becomes payable from £150,000 to £125,140. Those earning £150,000 or more will pay just over £1,200 more in tax next year. This will affect only the top 2% of taxpayers.
We have also announced a reduction of the dividend allowance from £2,000 to £1,000 from April 2023, and to £500 from April 2024, as well as a reduction of the capital gains tax annual exempt amount from £12,300 to £6,000 from April 2023, and to £3,000 from April 2024. We have also announced that we are abolishing the annual uprating of the AEA with CPI and fixing the CGT reporting proceed limit at £50,000.
The current high level of these allowances means that those with investment income and capital gains are able to receive considerably more of their income tax-free than those with, for example, employment income only. These changes make the system fairer by bringing the treatment of investment income and capital gains closer into line with that of earned income, while still ensuring that individuals are not taxed on low levels of income or capital gains. Although the allowance will be reduced, individuals who receive a high proportion of their income via dividends will still benefit from rates that are below the main rates of income tax: these are 8.75%, 33.75%, 39.35% for basic, higher and additional rate taxpayers respectively. These two measures will raise £1.2 billion a year from April 2025.
We are also maintaining at current levels the income tax personal allowance and the higher rate threshold for longer than had previously been planned. These will remain at £12,570 and £50,270 respectively for a further two years until April 2028. This will impact on many of us, but no one’s current pay packet will reduce as a result of this policy, and by April 2028 the personal allowance, at £12,570, will still be more than £2,000 higher than it would have been had it been uprated by inflation each year since 2010-11.
I also remind the House that we are a Government who raised the personal allowance by over 40% in real terms since 2010 and this year implemented the largest-ever increase to a personal tax starting threshold for NICs, meaning that they are some of the most generous personal tax allowances in the OECD. Changing the system to reduce the value of personal tax thresholds and allowances supports strong public finances. Even after these changes, we will still have one of the most generous sets of core tax-free personal allowances of any G7 country.
We also announced in the Autumn Statement that the inheritance tax thresholds will continue at current levels in 2026-27 and 2027-28—a further two years than previously announced. As a result, the nil rate band will continue at £325,000, the residence nil rate band will continue at £175,000, and the residence nil rate band taper will continue to start at £2 million. This means that qualifying estates will still be able to pass on up to £500,000 tax-free, and the estates of surviving spouses and civil partners will still be able to pass on up to £1 million tax-free because any unused nil rate bands are transferrable. Current forecasts indicate that only 6% of estates are expected to have a liability in 2022-23, and this is forecast to rise to only 6.6% in 2027-28. By making changes to personal tax thresholds and allowances, the Government are asking everyone to contribute more towards sustainable public finances—but, importantly, we are doing this in a fair way.
Finally, in line with the Treasury’s commitment to international action on net zero, we welcome the fact that the transition to electric vehicles is continuing at pace. The OBR forecasts that, by 2025, half of all new cars will be electric. Therefore, to ensure that all motorists start to pay a fairer tax contribution, the Government have decided that, from April 2025, electric cars, vans and motorcycles will no longer be exempt from vehicle excise duty. The motoring tax system will continue to provide generous incentives to support EV uptake, so the Government will maintain favourable first-year VED rates for EVs and legislate for generous company-car tax rates for EVs and low-emission vehicles until 2027-28.
These are difficult times, and difficult decisions need to be made to repair the UK’s economy. However, these decisions will be made in an honest and fair way. This is a vital part of the Government’s broader commitments made at the Autumn Statement. The Bill demonstrates a responsible approach to fiscal policy, helping to stabilise the public finances and providing certainty to markets. The measures in this autumn Finance Bill are a key part of these plans. For these reasons, I commend the Bill to the House.
Lord Davies of Brixton (Lab)
My Lords, I thank the Minister for his introduction. This is clearly a niche debate—even more niche than some. I will make a general point and then move on to a specific issue that, to no one’s surprise, will involve pensioners.
For the general point, I want to cast our minds back to the Rooker-Wise amendment, so called after my noble friend Lord Rooker, when he was a Member of Parliament in 1977, along with his colleague Audrey Wise. They were responsible for one of the few examples of Back-Benchers making a significant impact on a Finance Bill. The amendment linked the personal tax allowance to the rate of inflation to prevent the effective erosion of non-taxable income. When the personal allowance remains the same, in the normal course of events, because of inflation and increases in general earnings, people effectively end up having to pay more tax. I did a bit of research on this. The Institute of Economic Affairs, not normally an organisation that I would quote, refers to this as an increase in taxation by stealth, and that is indeed the reason why the Government are doing it.
The Minister said the proposals were honest and fair, but I do not think it is honest and fair to increase general personal taxation by freezing allowances. It is covert. The Institute for Fiscal Studies described it as covert tax increases. It comments, in terms of the Budget, that the freezes to income tax allowances and thresholds constitute a very big tax increase indeed. This is a big tax increase, with the Government hoping that people essentially will not notice that their income is being increasingly taxed because of increases in line with incomes. It would obviously be much more honest and fair to continue increasing the allowances and to adjust the standard rate to recoup the same amount of taxation. I am not making a point about the global sum of taxation; I am making the point that it would be fairer and more honest to increase the standard rate rather than fiddle with—well, freeze—personal allowances, which are covert increases.
Obviously, we know why the Government are doing this: they are committed not to increase the standard rate because it would look bad. But my specific question on this issue is, how many more people by 2028 will the decision to freeze the allowances drag into the tax net? I am talking about people on low incomes. How many people on low incomes will have to start paying income tax because of the decision to freeze allowances? That is the general point.
There is a specific problem—an administrative problem, in my view—with freezing the allowances for pensioners. I have been looking at the figures and, because of the triple lock, which apparently we all support, there will be, according to the figures from the OBR, a 10% real increase in the state pension, the new state pension and the basic state pension, over the period up to 2028, which I believe is very much to be welcomed. But, at the same time as the state pension is going up, the personal allowance is frozen. That means that currently the state pension, taking the new state pension as the relevant figure to illustrate the situation, is 77% of the personal allowance. By 2028, it will be 100% of the personal allowance.
Now, people who have higher incomes pay more tax—that is reasonable. The problem is that the state pension is not functionally part of the PAYE system. Nobody pays income tax on their state pension. The state apparently has no way of deducting income tax from the state pension, which means that as the state pension gets to the same level as the personal allowance—and many people have additional amounts of state pension because of the state earnings-related pension scheme of the past—there will be many people whose only income is from the state pension and it will be in excess of the personal allowance. We have got away with that situation in the past because of the gap between the state pension and the personal allowance, but I believe there will be a major administrative and political problem as soon as people start receiving state pension in excess of the personal allowance. I have not seen any commentary on this, but the Government need to be clear what they intend to do about this problem.
My specific question is: what are the Government going to do about the large numbers of people who are due to pay tax on their state pension because of this scissors effect? How can we resolve the problem and make sure that people who are not part of the current PAYE system do not end up being sent a significant bill for outstanding tax at the end of the year?
Baroness Bennett of Manor Castle (GP)
My Lords, it is a pleasure to unexpectedly follow the noble Lord, Lord Davies of Brixton, although I regret that we will not hear from the right reverend Prelate the Bishop of St Albans, who I think would have addressed some of the social justice issues on which I will focus.
I hope your Lordships’ House will forgive me for being rather hoarse. I spent quite a bit of today chanting with the striking nurses at St Thomas’, offering the Green Party’s strong support for their highly just cause. It is not just about their own pay, inadequate as that is, but about protecting our NHS and patient care and ensuring there are enough nurses on the wards to provide the care that they want to offer and that their patients need. One of their chants ran—noble Lords will be pleased to know that I will not offer a musical rendition, although in the nurses’ hands it was very tuneful and catchy—“Rishi, where did the money go go go?”
I suspect those nurses had in mind the VIP lane PPE disaster, but I think it can also be understood in the broader context of today’s debate on the Finance Bill. Think back to the early days of the NHS. In a nation impoverished and almost destroyed by war, the money was found to establish the new service that quickly became a national treasure and so celebrated, as I am sure we all remember from the 2012 Olympics.
We know that the BBC has just recently been challenged over its continued inaccurate reporting of the national budget as if it were a household one—the suggestion that you need to secure £1 of tax in for £1 of spending out. Just look at what happened when we needed to rescue the banks from the greed and fraud of the bankers in 2006-07—and indeed the emergency of the Covid pandemic. Money—a huge amount of money—was found.
One simple and accurate answer to the nurses’ question “Where has the money gone?” is that it is sitting in the pockets—or rather, mostly in the offshore bank accounts —of the rich. As figures from the Equality Trust showed this week, the number of UK billionaires has increased by a fifth since the start of the pandemic. Fuelled by a boom in property and stock values, the super-rich, just by sitting on their hands, have seen their wealth swell—from 147 billionaires to 177. Their median wealth is £2 billion. This money is largely unearned and all too often sitting in tax havens instead of circulating round and round in our society, among workers and small businesses, to the benefit of all.
So while food bank usage grows, and nearly 4 million children live in poverty and 6.7 million households struggle to heat their homes, the super-rich sit back and watch the value of their assets grow. This is happening in a society that looks increasingly Victorian in structure; the number of domestic servants, estimated at 2 million now, exceeds that of the Victorian age, the social structure of which our society is increasingly coming to resemble.
My question to the Minister is: where in this Bill is the wealth tax? Why is there no wealth tax to address this clearly unsustainable and utterly inequitable situation? A wealth tax could start to restore stability and security in our society; it could help to pay some of the extra wages those nurses desperately need. What are the Government doing to recover the unearned, unjustified wealth that decades of policies—under Governments who sadly were all too comfortable with people getting filthy rich—have employed to the point where our society is now, in a profound sense, economically as well as environmentally unsustainable?
The Minister noted in his introduction that the Bill includes a modest increase in taxation of the windfall gains of oil and gas companies. That level of tax was applied too late and is still at an inadequate level but, none the less, the Government have made a concession and acknowledged that income falling into people’s laps should not be left just to sit there.
I have to agree with the Minister’s comments about the need for investment in renewable energy schemes. I hope that he will have a discussion with his BEIS colleagues about the need for investment in local community energy schemes, with broad backing across both Houses of this Parliament, so that local communities can make that investment and see the returns coming back to them.
The unsustainability of our society comes not just from individual poverty—the insecurity of income that sees nurses forced to go to foodbanks—but from the poverty of our infrastructure. The social safety nets and supports have been ripped away, and the libraries and community centres, lunch clubs and youth workers have been smashed away, by a decade of austerity. What this Statement does to the overall package behind the Finance Bill is deliver austerity version 2.0.
Austerity was economically unnecessary in 2010. In the 2015 general election leader debates, I recounted what happens when a Sure Start centre is closed, its workers cast into unemployment—or probably low-paid, insecure employment that does not use their skills—without the money to spend in local shops and businesses, or to support the education of their own children, while their former clients go without the support services they urgently need to ensure children get a good start in life. That is a downward spiral to which we have been condemned for a decade, and the whole approach of this Bill, failing to generate the funds to invest in the foundations of a prosperous, healthy economy and society, condemns us to descend further into even deeper circles of hell.
As the Minister outlined, the Chancellor focused his tax changes on earning, saying that those who earn the most will make the largest contribution, but this is a distraction from owning. The easiest prize when seeking to increase tax yields is the accumulated wealth of the super-rich. That is why the Green Party is proposing a wealth tax to directly remove the financial assets of the richest 1% and share them with society as a whole. Although lowering the threshold for the payment of the highest rate of tax is welcome, this ignores the fact that earnings from assets are taxed at a lower rate than earnings from investments. If we really want a flourishing economy of enterprise and energy, we should stop rewarding people for doing nothing. The Green Party would introduce a single tax on all income, so that people who live from investments pay the same rate as those who live from work.
The reality—and where to some degree at least I depart from the noble Lord who spoke previously—is that most British people are prepared to pay more tax to fund decent public services; indeed, let us make them brilliant. An Ipsos study in 2020 found that 44% said they would personally pay more tax to fund public services but, when they were asked how they would most like to raise money overall, the answer was through a wealth tax. It is a political choice whether or not to have that.
It is no surprise that the Tories protect their wealthy funders, but why are we not hearing calls for a wealth tax from the Front Bench in front of me, or from the parts of the Labour Party from which it might be expected? I honourably exempt some Members of the Labour Benches—they know who they are—from that comment. It is interesting that the Labour Party’s recent big statement was Gordon Brown’s constitutional review. The coverage focused on its suggestions for reforming the House of Lords, but a big focus of that report was on growth. The word “growth” appears 108 times, while the word “fairness” appears eight times, mostly in the context of regional inequality, and financial redistribution is referred to just once.
We cannot have infinite growth on a finite planet. Collectively, as a society, we consume our share of three planets every year. We have to get away from the idea that some people always get crumbs but if the pie keeps growing then the people who get crumbs will get a few more crumbs. The pie cannot keep growing, and people cannot keep living on crumbs. We have to transform our tax system and our economic system, and share those resources out fairly.
The sad reality is that the Bill and the package around it take us further down the spiral into a deeper circle of hell, and the people in those deepest circles are not Dante’s sinners but the innocent—the young, the old, the disabled and the disadvantaged. That is not happening because of some inexorable law of physics. The market is a human creation. We shape what it looks like, and we can create a different society with a very different kind of taxation system and a different way of investing in our society.
Lord Rogan (UUP)
My Lords, I welcome the opportunity to contribute to this now short debate and to place on record some concerns and observations from a Northern Ireland perspective.
I had expected to be a little less gracious in my comments towards His Majesty’s Government than I am about to be. However, yesterday’s announcement that Northern Ireland households will now receive a £600 payment to help with their energy bills lightened my mood somewhat.
When I spoke in our debate on the Autumn Statement on 29 November, the noble Baroness, Lady Kramer, who I am delighted to see in her place today, expressed her shock at being informed that Northern Ireland consumers had received no support whatever with rocketing energy costs. That was in sharp contrast with consumers in Great Britain, who were already receiving their payments.
Several weeks have passed, with temperatures falling well below zero for days and nights on end, and still no money has been received by Northern Ireland. The Government’s failure to put a Minister up for interview yesterday to answer questions about how and when that money will be paid has caused widespread upset across the Province. It also added to a general sense of scepticism about the process and whether, to put it bluntly, the Government’s restated commitment to finally release these much-needed funds can be trusted.
I do not for a second question the integrity or word of the Minister, who I am pleased to see at the Dispatch Box today. So I ask him to make it absolutely clear to the people of Northern Ireland precisely when they will receive their £600 payment. According to the latest statement of information I am aware of, the Government’s line now is that the money will be released starting in January. That is simply not good enough, with temperatures tumbling long before that. I am not being sensationalist or scaremongering when I say that lives are at risk if these payments are not made promptly. I make a heartfelt plea to the Minister to please do all that he can to get this money out to the people of Northern Ireland without further delay, bringing them into line with energy consumers elsewhere in the UK.
In common with many of your Lordships, including a sizeable number on the Government Benches, I am concerned about the ever-rising tax burden affecting so many people, especially the lowest paid, in the midst of a cost of living crisis. This is a particular problem for Northern Ireland workers. According to the Annual Survey of Hours and Earnings, published at the end of October by the Northern Ireland Statistics and Research Agency, UK weekly earnings in the 12 months to April 2022 increased by 5% to £640. However, Northern Ireland had the joint lowest increase across the 12 UK regions, with weekly earnings falling to £48 below the UK average.
This is why the Chancellor’s decision to freeze the personal allowance thresholds until the 2027-28 tax year is so disappointing for those on low incomes who go out to work, sometimes doing more than one job, but see their hard-earned inadequate wages swallowed up by tax. I know that the Chancellor and Prime Minister are keen to grow the economy, and I hope they are more successful in their endeavours than their immediate predecessors. However, if they succeed—I trust they will—I hope that allowing people at the bottom of the income ladder to keep more of their money will be an absolute priority for them.
Air passenger duty has long been a major bugbear of mine, and I was pleased when Rishi Sunak announced in last year’s Budget that the rate of APD levied on domestic flights would be halved to £6.50 from April 2023. Had it been up to me, I would have abolished the tax altogether, as has been done in the Republic of Ireland, thus giving extra support to its airports in competing with Northern Ireland airports. Unfortunately, this is not the case, and the decision not to reduce the APD earlier seems to have had consequences. For example, Aer Lingus announced just last week that it may end its Belfast to London Heathrow flights, with the loss of 30 jobs. As other Peers from Northern Ireland will testify, it is already something of a challenge to travel to your Lordships’ House from Belfast by air, and this will not help. Business travellers and tourists wishing to visit the Province from other UK regional airports have seen schedules reduced in recent weeks. Therefore, I ask the Chancellor to please consider cutting or abolishing APD between Northern Ireland and Great Britain in his Budget Statement next March, if not before.
Finally, last night, Members in another place received a “Dear colleague” letter from Dehenna Davison, the Minister for Levelling Up, informing them that the announcement on successful bidders for round 2 of the levelling-up fund had been delayed. This was despite assurances from a succession of Ministers, including in a Written Answer to me, that the intention was to make the announcement before the end of the year. That is the bad news. But there is also good news: in his Autumn Statement, the Chancellor said that round 2 of the levelling-up fund would at least match the £1.7 billion allocated in round 1. However, in her correspondence, and as a result of the number of high-quality applications received, Ms Davison said that this figure would now be raised to £2.1 billion. That being the case, I seek an assurance from the Minister that the amount of funding set aside for successful bids from Northern Ireland—including a rather impressive application from Coleraine Football Club, which I visited last month—will be increased in line with the Barnett formula. I imagine that this will be the case, but it would be reassuring for Northern Ireland bidders to hear it confirmed at the Dispatch Box.
Baroness Kramer (LD)
My Lords, I begin by picking up a point made by the noble Lord, Lord Rogan. I was so shocked to learn earlier that energy payments had not been received by people in Northern Ireland. Following that debate, I called a number of friends to discuss the matter. Can the Minister take on that issue personally by going back to his colleagues, putting his shoulder to the wheel and doing everything to get those payments released? I have been talking to people who have been putting on the heating for one hour a day during the bitter cold, because they are simply terrified of not being able to meet the energy bills when they arrive—that is no good for anyone’s health, including their mental health. If the payments are genuinely coming, they need to come in a timely fashion. Anything that the Minister can do will be exceedingly important; it will probably take personal intervention and some championing of the issue, and I hope that he will feel able to do that.
On the more general issues, I have the sense that we have covered this territory on a quite a number of occasions before, which is why there are not many speakers here today. Indeed, for a moment, I was tempted to pray in aid my previous speeches—I did not quite have the courage—but I will try to be fairly brief.
For many years, some people have opined that the financial markets are irrelevant and have argued for huge surges in borrowing. That argument is now dead, at least for the time being, and the need for fiscal responsibility has been recognised. However, the chaotic performance of the Government has stripped away the flexibility we could have expected, and ordinary people are paying for that in interest rates which feed into mortgages, rents and business costs.
Today, we are debating the Finance Bill; it is a bill about taxation. In a sense, I will pick up the point made by the noble Lord, Lord Davies of Brixton. The Bill lays out starkly the freezing of thresholds, but not in a way that most people will understand well enough to recognise the impact it will have on their personal finances. The noble Lord suggested that it would be far better to increase the rate rather than play with the threshold—he has a good point—but, at the very least, the Government should restore some faith in politics by informing the 6 million people who will be significantly impacted as to what is about to happen to their tax bill. For a large number, their tax bill will be pushed up by approximately £2,000. If they are informed, at least they can plan ahead and will be aware of that increase. Indeed, because of the Autumn Statement, people are also facing a 5% increase in council tax, £500 more in energy bills and the soaring cost of living which we all know about. That all adds up to a situation of misery.
I was also stunned to hear the commentators, when we got the last inflation figure, explain that it was rising by only 10.7%. That is extraordinary. Of course, the basics are rising far faster and by a figure much closer to 15%. It is an extraordinarily difficult time for a huge range of people, but especially for those on the lowest incomes.
The windfall tax on oil and gas companies in the Bill still leaves those companies with an unforgiveable loophole. Shell and BP have almost entirely avoided paying the windfall tax this year, despite absolutely record profits running between $6 billion and $8 billion for most of the recent quarters, thanks to the offsets for investment in oil and gas exploration. We are talking about a doubly wrong policy: even the banks are now starting to recognise that the game is up for investments in new oil and gas exploration. HSBC, the largest global bank, has announced that it will no longer finance such projects and will redirect its lending to achieve net zero.
The UK public are losing out on tax that should be paid now; then, in a few years’ time, they will have to rescue the stranded assets of oil and gas companies because their value will have disappeared under the pressures to get to net zero. This is complete madness. Can the Government go away and completely rethink the strategy that they have embedded in the Bill?
The banks also do well from this Bill. The cuts to their levy and surcharge amount to a staggering £18 billion over the next five years. At the same time, I do not see the banks seriously sharing the revenue from the higher interest rates that come on the loans that they make with any of their savers. There might be a slight increase of a few basis points, but nothing significant, while these banks are now recording their best profits for years. I refer the Minister to quotes in the Financial Times from senior bankers talking about their third-quarter profits. “An embarrassment of riches” was one of the phrases—or, much more honestly, “a cha-ching moment”. That was another phrase quoted from one of those bankers. When we start looking for money to deal, for example, with the condition of the nurses, £18 billion would frankly go a fairly long way to getting a lot of that done.
I am not sure that anyone understands why the Government have cancelled the R&D additional tax relief for SMEs, although the Minister spoke at length. It is driving so many small firms away from innovation. I saw today a piece from Coadec, the Coalition for a Digital Economy. That is the group made up of those driving small start-up innovators which are absolutely critical to growth in the British economy. It says:
“Based on conversations we’ve had with startups so far, we are concerned that the R&D tax credit startups will receive after the changes kick in in April 2023 will drop by between 30-40%. This is a significant and damaging impact”.
If those firms are not achieving the innovation that they are designed to achieve and which the R&D tax credit was instrumental in driving forward, we will not achieve the kind of growth that the Government talk about very casually. Talk about an erroneous decision; I hope that the Government will look at it again rapidly.
Even with all the pain embedded in the Bill, the outlook is still very bleak. Despite the tax increases, we are still looking at savage cuts to unprotected public services beginning in 2025. Despite all the talk about money for infrastructure, public capital expenditure, including infrastructure investment, absolutely plummets from 2025. Even with all that plummeting, the borrowing situation improves only marginally in five years’ time.
The Government claim that they have a plan for growth but what they have is really just a list of bitty policies, most of which have already been announced. We have nothing on the scale necessary to deal with our productivity, which has flat-lined for a decade; we have no industrial strategy, never mind a meaningful green industrial strategy. We have nothing to revive our 15% collapse in trade or reverse our sharp drop in exports to the EU in manufacturing and services. We have no strategy to restore business investment, which has hit the lowest level in living memory, and we have absolutely no measures to deal with our workforce shortage. This Bill should have been part of a coherent and holistic plan for targeted growth. Instead, we have a gathering of fairly disparate policies, none of which pull together to achieve what this country must achieve.
I conclude by referring for a moment to the public service strikes, an issue raised by the noble Baroness, Lady Bennett of Manor Castle. It is, frankly, completely beyond me and, I think, beyond most ordinary people that this Government refuse to negotiate with all matters in dispute on the table, including nurses’ pay. There are always compromises available and they will, in the end, have to be made. I do not think the public should be made to suffer through this already cruel winter while the inevitable compromises are delayed. I say to this Government that they will not break the nurses, the ambulance paramedics or anyone else in the public sector, and on the whole the public are behind them. It is this Victorian attitude of hostility to their workforce that risks breaking a good share of the British people as they go through this experience of the most dire winter they have been through in years.
Lord Tunnicliffe (Lab)
My Lords, I begin by welcoming the noble Lord, Lord Harlech, to his place for what I think is his first piece of Treasury legislation. I get the impression that he will probably end up with an awfully large number of Treasury SIs: meet the cast that he will face, all three of us.
I will not make many comments on previous speeches but I will just pick up the comment of the noble Baroness, Lady Kramer, about the industrial situation. I have spent large parts of my career in industrial relations negotiations, and she is absolutely right that there has to be a compromise. I say that because anything else would be disastrous for the nation and for the Tory Party. The one result that would be utterly unacceptable is that the Government break the nurses. All my experience says to me that good deals always have compromise in them. I used to say, rather cynically, “A good negotiation is where both sides go away equally miserable.” It is very dangerous to win an industrial dispute; it is absolutely essential that people come out of a dispute respecting each other and seeing a common future, rather than a common conflict.
Anyway, turning to this very exciting Bill, I reassure the Minister that we will not oppose its passage. As I understand the rules, we cannot anyway, but I just assure him that I am going to obey the rules. However, that does not mean that we think this is a good Finance Bill—far from it. Under the Conservative Party’s stewardship, the UK economy is seemingly lurching from crisis to crisis. A decade of low growth has giving way to no growth, with the Office for Budget Responsibility predicting a long and brutal recession. Yes, the economy is estimated to have grown by 0.5% in October, but that does not offset the 0.8% contraction in September. The OBR has suggested that the coming recession could reduce living standards by an unprecedented 7% over the next two years. This will worsen an already crippling cost of living crisis, making many people’s day-to-day existence even tougher than it is now. It is difficult, I think, for us to really grasp just how awful it must be to be in the lower-income sections of society, particularly those sections that are unable to find employment even in these times.
Of course, the Treasury would have us believe that the current circumstances are solely a consequence of global events. We have always acknowledged that Putin’s invasion of Ukraine has impacts here, as well as abroad, and that the global economic picture has shifted in recent times. However, the Government’s attempts to shift blame elsewhere simply do not hold up to scrutiny. The UK is the only G7 economy which has yet to return to its pre-pandemic level. Over the last 12 years, the UK economy has grown by one-third less than the OECD average and one-third less than during the last Labour Government. For the next two years, we are forecast to have the second lowest growth in the G20. Only sanction-hit Russia is expected to perform worse than the UK.
While we are impacted by global events, we appear to be suffering primarily from poor Downing Street decision-making. The result is that we find ourselves in what former Chancellor Kwarteng called a “vicious cycle of stagnation”. His September mini-Budget was supposed to bring that to an end, facilitating a “virtuous cycle of growth”. We were told that the economy would start firing on all cylinders, creating better-paying jobs and funding world-leading public services. Instead, its incompetent presentation spooked the financial markets, crashed the economy and, in doing so, made mortgages and rents significantly more expensive. September’s experiment severely damaged both public confidence and our international reputation. It also blasted a hole in the public finances, requiring future cuts to already struggling services. As the former Chancellor has finally acknowledged, it was a dreadful intervention and came at the worst possible time.
We may now have another Prime Minister and Chancellor, but their first fiscal event—the Autumn Statement—was focused solely on repairing the damage done by their predecessors. That means it fell short of addressing the public’s concerns across a whole range of areas. It did not sufficiently address the growing crisis in social care; it did not do enough to provide skills and job opportunities to young people, and it did nothing to shift the view of a growing number of businesses that the Government have no plan for growth. The Minister does not need to take my word for that; he needs merely to consider the response of the Confederation of British Industry, whose director-general said that
“there was really nothing there that tells us the economy is going to avoid another decade of low productivity and low growth”.
With so many households concerned about growing food and energy bills, this Finance Bill will serve only to give them a larger tax bill too. The freezing of the income tax personal allowance will leave average earners paying over £500 a year more income tax by 2027-28. Many councils will avail themselves of the ability to raise council tax by a higher percentage, with families in the average band D house paying around £100 extra from next April. Taken collectively, all the tax measures announced during this Parliament will leave middle-income households paying £1,400 more each year.
All the while, the Government have once again refused to address the loophole in the energy windfall tax, which means that some oil and gas giants are not paying a single penny more, despite record profits. Ministers’ decision not to properly tax the windfalls of war leaves a potentially valuable source of income untapped, with the burden of funding public services placed on working people instead. This is not fair, and neither is the decision not to scrap the outdated and unfair non-dom status.
A Finance Bill introduced by a Labour Government would look very different. Our plan for growth is wide-ranging, from business rates reform to investment in the industries of the future and the skills that will underpin them. We would introduce a proper industrial strategy, working together with businesses to get the economy growing in a fairer and more sustainable way. While the current Conservative Government try to undo the damage caused by the last one, we will continue putting forward our plan for growth—a plan which led the chairman of Tesco to say that Labour is the
“only … team on the field”.
Our current economic struggles are not rooted in the US Federal Reserve or the Kremlin; they are the result of a lost decade in which successive Conservative Governments have prioritised short-term fixes rather than formulating a long-term vision for growth. Decisions are frequently based on how to get past the next Back-Bench rebellion or through the next leadership election, rather than serving the national interest.
If we carry on as we are, all signs point to another lost decade. What would that mean for working people? Energy giants and non-doms would continue to be let off the hook, while personal taxes go up. Disposable incomes would continue to fall, but energy bills will continue to climb ever higher. Public services would continue to struggle, while vested interests take in ever-larger profits. This Government’s policies no longer speak to the public’s priorities. Only Labour has the ambitious, bold but practical plan to build a fairer, greener Britain.
Lord Harlech (Con)
My Lords, it is a privilege to close this debate on the Finance Bill on behalf of the Government. I thank all noble Lords for their constructive and considered contributions and the welcome to the Dispatch Box. I will try to address many of the points raised in today’s debate, but will begin by reminding the House of what this Bill is designed to achieve.
We are taking these changes forward rapidly now because we are serious about fiscal sustainability and know how essential it is for economic stability and growth. As my right honourable friend the Chancellor set out at the Autumn Statement, we are facing hugely significant challenges, including on the cost of living, exacerbated by Putin’s invasion of Ukraine.
The UK is not alone in dealing with these issues, with one-third of the global economy forecast to be in recession this year or next. However, it is clear that we must prioritise restoring sustainability in our own public finances; only then will we be able to face down the economic storm, while protecting the most vulnerable. That stability will provide the foundation that is essential for economic growth.
The Autumn Statement set out a clear plan to deal across all these areas, with three priorities: stability, growth and public services. Even in these difficult economic times, we are still protecting public services by investing billions of pounds in the health service and education. We will continue to emphasise these facts as we move on with this work.
This small, focused Bill forms the essential next part of that plan. It implements tax measures which will provide certainty to markets and help stabilise the public finances, and does so in a fair way, with the heaviest burden falling on those with the broadest shoulders. In summary, the Bill makes changes to the energy profits levy to ensure that oil and gas companies experiencing extraordinary profits pay their fair share of tax. It also takes forward changes to R&D tax reliefs, to ensure the taxpayer gets better value for money and to continue to support valuable research and development needed for long-term growth. The Bill’s changes to personal tax ensure that while we are asking everyone to contribute a little more towards sustainable public finances, the better-off will shoulder a greater burden. The changes to the taxation of electric vehicles ensure that all motorists start to pay a fairer tax contribution, while continuing to provide generous incentives to support EV uptake.
Let me turn to points raised during the debate. The noble Lord, Lord Davies of Brixton, raised the issue of public sector pensions. It cannot be overstated how much the Government value the work of all public sector staff. Public sector pension schemes are mainly defined benefit schemes and are among the most generous schemes available. The tax relief offered on pension contributions is expensive, costing the Exchequer £67.3 billion in 2020-21, with around 58% relieved at higher and additional rates. The annual allowance affects only the highest-earning pension savers. The Government estimate—
Lord Davies of Brixton (Lab)
Whoever wrote the brief clearly assumed I was going to talk about public service pensions, but I conspicuously did not mention them, as they are not relevant to this Bill. I do not want to dump an official in it, but I did not raise that issue; I raised a completely separate issue.
Lord Harlech (Con)
I thank the noble Lord for the intervention. I will have to go back and check Hansard. I heard him raise pensions in general but also public sector pensions, but if I am wrong, I apologise, and I stand to be corrected.
All noble Lords raised the issue of the personal tax thresholds. Our mantra throughout this process has been to make sure that those with the broadest shoulders carry the most weight, which is the fairest approach to take. The changes to personal tax ensure that, although we are asking everyone to contribute a little more towards sustainable public finances, we do so in a fair way, with the better off shouldering a greater burden.
We have tried to balance the needs of the country as a whole with the need to protect the most vulnerable. However, as I mentioned, we must continue to improve the health of our public finances, which is why the personal allowance has been frozen. The changes for most will remain small, with the average taxpayer paying only an additional £38 in income tax and NICs by 2028, and the personal allowance will still be £2,150 higher in April 2028 than it would have been if it had been uprated by inflation since 2010.
The noble Baroness, Lady Bennett of Manor Castle, raised the issue of a wealth tax. The Government’s priority is restoring stability, but we will try to do this in a fair and compassionate way which protects the most vulnerable and ensures that those on higher incomes pay a fair share. The Autumn Statement reduces the additional rate threshold, which will raise revenue from the top 2% of taxpayers. The income tax and gains tax systems are also being reformed to reduce the generosity of certain allowances, which will bring the treatment of investment income and capital gains closer in line with employment income.
This year, the Government raised the threshold at which workers start paying national insurance contributions to £12,570 and have reversed the health and social care levy. This comes on top of the energy price guarantee to support households with their energy bills over the winter, and a further £37 billion of support for the cost of living.
The noble Baroness, Lady Kramer, raised council tax. The Government expect that local authorities will exercise restraint in setting council tax, balancing the extra income for local services against the tax burden on residents for the cost of living pressures. Local authorities have the flexibility to design their own working-age local council tax support schemes to protect their most vulnerable residents. The UK does not have a single wealth tax but has several taxes on assets and wealth. As set out by the Wealth Tax Commission report in December 2000, the UK’s taxes on wealth are on a par with those of other G7 countries.
Baroness Bennett of Manor Castle (GP)
I should perhaps declare my position as a vice-president of the Local Government Association. The Minister said that he expects councils to exercise restraint with regard to council tax rises. However, the Government’s own forecasts, based on the provisional local government finance settlement released this week, indicate that they are expecting all councils to raise their rates by the maximum allowed. Those two realities do not seem to add up.
Lord Harlech (Con)
I will have to disagree with the noble Baroness. I did not say that councils were not going to increase council tax rates but that we expect them to show restraint.
The issue of public sector pay was raised by the noble Baronesses, Lady Bennett and Lady Kramer, and the noble Lord, Lord Tunnicliffe. The Government have accepted the recommendations of the independent pay review bodies for the NHS, teachers, police and the Armed Forces for 2022-23. This delivered the highest uplifts in nearly 20 years, with most awards targeted towards the lower paid. Pay awards for 2023-24 will be determined by the normal pay-setting process, and the Government will be seeking recommendations from pay review bodies where applicable. It is important that public sector employers can recruit, retain and motivate qualified people, and this is a key consideration for pay review bodies when they make their recommendations to government. Pay awards this year must also strike a careful balance between recognising the vital importance of public sector workers while delivering value for the taxpayer and being careful not to drive prices even higher in future through contributing to a wage-price spiral.
On the energy profits levy, which was raised by the noble Lord, Lord Tunnicliffe, and the noble Baronesses, Lady Bennett of Manor Castle and Lady Kramer, the Bill is part of our plan to deal with the international pressures caused by the challenges of Putin’s invasion of Ukraine, inflation and the hangover from the pandemic. The changes to the energy profits levy will make sure that the oil and gas companies that have been gifted extraordinary profits pay their fair share of tax. Combined with the electricity generator levy, these taxes will raise £55 billion over the next six years from companies that could not have expected such enormous profits. The investment allowance remains at its current value to allow companies to claim around £91 of tax relief for every £100 of investment.
I recognise that the Opposition disagree with this step, but it is our firm belief that businesses must be able to invest. The weaponisation of energy by Putin has made it abundantly clear that we must ensure our energy security over the coming years. This is how we will do it. Again, I remind noble Lords that our changes mean that the headline rate of tax for companies in this sector will increase to 75%—triple what other companies will pay when the corporation tax rate increases to 25%.
Lord Tunnicliffe (Lab)
Does the Minister deny the almost obvious fact that none of these big oil companies is going to pay a penny more? He correctly explained how they will get to that not paying a penny more, but the tax is having no impact.
Lord Harlech (Con)
I do not have a crystal ball so I cannot say whether there will be an impact but we want to be careful not to disincentivise investment to move away from fossil fuels.
Lord Tunnicliffe (Lab)
My understanding is that the present investment programmes that they had before this tax came out just carried forward, with a limit but well behind, the relief on so-called investment— because it is not fresh investment—which will offset any extra tax that they are likely to pay. I do not know whether my Liberal Democrat friends agree with that analysis but I am sure that it is either true or very close to true.
Lord Harlech (Con)
I am sorry; I do not understand the question.
The noble Lord, Lord Tunnicliffe, raised the issue of non-dom status. It is important to recognise that non-doms play an important role in funding our public services through their tax contributions. In the year ending 2021, the most recent full year for which we have data, non-doms were liable to pay £7.9 billion in UK income tax, capital gains tax and national insurance. What is more, they have invested £6 billion in investment schemes since 2012, which is why we are taking a careful and considered approach.
As the Chancellor told the Commons Treasury Select Committee, we will continue to look at such schemes. Indeed, the Government keep all aspects of the tax system under review; this includes the non-dom regime. I reiterate that, if you look at this package as a whole, we have not tried to protect wealthier people—quite the opposite. We are protecting the most vulnerable and asking those who have more to contribute more. In 2017, permanent non-dom status was ended.
I turn to the question from the noble Lord, Lord Rogan, about the rollout of the energy bills support scheme in Northern Ireland. The Government have confirmed that all households in Northern Ireland will receive a single payment totalling £600 to help with their energy bills, with payments starting in January. This will be made up of £400 of support under the Government’s energy bills support scheme in Northern Ireland and £200 of support under the alternative fuel payment scheme, which will go to all households in Northern Ireland irrespective of how they heat their home.
Energy policy in Northern Ireland is the responsibility of the Northern Ireland Executive and Assembly. However, in their absence the UK Government have stepped in to ensure that households do receive support. The UK Government have worked closely with Northern Ireland electricity suppliers, the distribution network operator, and the utilities regulator, in designing the scheme.
In conclusion, as we are all aware, the UK is facing challenging headwinds. Despite having experienced the third-highest growth in the G7 over the past 12 years, behind only the US and Canada, economic times are tough. The Government have chosen to take difficult decisions needed to support public finances, providing stability and certainty to markets, and providing the foundation for future growth. The OBR has confirmed that the recession is shallower, inflation has reduced and roughly 70,000 jobs have been protected as a result of these decisions. This small autumn Finance Bill will help to deliver these outcomes and, importantly, will do so in a fair way. It forms an essential part of our plan for the economy, now and in the future. For these reasons, I commend this Bill to the House.