Finance (No. 2) Bill (Third sitting)

Debate between Dan Tomlinson and James Wild

Committee stage
Thursday 29th January 2026 Public Bill Committees

[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.

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[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

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[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.

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[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

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[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.

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[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.

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[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?

Finance (No. 2) Bill (Fourth sitting)

Debate between Dan Tomlinson and James Wild

Committee stage
Thursday 29th January 2026 Public Bill Committees

[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.

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[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.

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[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.

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[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.

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[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.

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[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.

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[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.

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[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.

[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.

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[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.

[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.

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[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.

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[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

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[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.

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[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.

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[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.

--- Later in debate ---

[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.

Oral Answers to Questions

Debate between Dan Tomlinson and James Wild

Tuesday 27th January 2026 Commons Chamber

[James Wild (North West Norfolk) (Con)]

The Chancellor promised hospitality firms that she would lower their taxes, but her business rate raid is hammering every town, village, city and high street. This is not just an attack on pubs; hotels, cafés, music venues and many more are being hit. It is two months since the Budget caused huge worry for these businesses, and we await details of this latest U-turn, but the key question is: does the Chancellor get it? Does she get that it is not just pubs but hospitality, leisure and retail businesses that need support because of her terrible choices?

[Dan Tomlinson]

Conservative Members do not get it, because when they were in government, they set out plans to remove the temporary pandemic rates relief overnight in 2025. That would have seen an increase of 300% in business rate bills overnight for businesses on the high street. We have taken a different, fairer and more proportional approach, phasing out the pandemic relief over a slower time period and extending it into this year.

Conduct of the Chancellor of the Exchequer

Debate between Dan Tomlinson and James Wild

Wednesday 10th December 2025 Commons Chamber

[Dan Tomlinson]

I agree entirely with my hon. Friend. Too many Conservative Members defended the mini-Budget, which crashed the economy and added thousands of pounds to mortgages. In contrast, since this Government have come to power, the Bank of England has cut interest rates five times, taking £1,200 off a typical two-year fixed rate mortgage. At this Budget, we cut £150 from the average energy bill, froze rail fares and prescription charges, and extended bus fare caps and fuel duty cuts, but the Conservatives do not want to talk about that either. They could have chosen in their Opposition day debate to talk about fiscal stability and increased headroom, but again, they chose not to do that because of the £21.7 billion of headroom that the Chancellor secured at the Budget, which will help protect our country from global shocks and unforeseen challenges.

Of course, the Conservatives do not want to talk about child poverty either because they know that this Budget has lifted 550,000 children out of poverty, whereas the last Government were content to leave them, preferring instead to rebrand the hungry children who they let down while in power as benefit scroungers. They should be treated as our future, not as our opponent.

I have a couple more minutes, so let me address some of the points made during the debate. I thank the Liberal Democrat spokesperson, the hon. Member for St Albans (Daisy Cooper), for engaging on policy. We have had conversations on business rates already this week, and I am sure that we will have more. We have begun the work to rebalance the system with a £900 million switch from the highest value properties to those on the high streets.

I thank my hon. Friend the Member for Harlow (Chris Vince) for his Thatcher quote. It was a good quote that bears repeating. She said,

“I always cheer up immensely…if they attack one personally, it means they have not a single political argument left.”

I thank the hon. Member for West Worcestershire (Dame Harriett Baldwin) for going through every single tax change and saying that she opposes them all. That is the sort of opposition we have got used to. Rather than constructive opposition, which comes forward with proposals that would raise revenue in a fair way, such as the changes on electric vehicle excise duty, which will stop us losing £12 billion of fuel duty revenue in the coming years, we just hear, “No, no, no,” over and over again. I thank my hon. Friend the Member for Loughborough (Dr Sandher). His experience in economics is richly valued in this place, and I enjoyed his speech, as I always do.

Finally, it has been a short debate, has it not, Madam Deputy Speaker? I am glad that the right hon. Member for Beverley and Holderness (Graham Stuart) took the time during the debate to read the Labour manifesto—that was much appreciated—and that he was able to clarify for the House that my right hon. Friend the Chief Secretary was right to say that we have stuck to our manifesto commitment.

[James Wild]

To bring the Minister back to the debate, it is about honesty and the real-world consequences of the briefing that happened around the Budget. Does the Treasury accept that hundreds of thousands of people drew down their pensions, which is an irrevocable decision—yes or no?

[Dan Tomlinson]

What the Treasury does accept is that at this Budget, the Government had to make the decisions to ensure that we could increase our fiscal stability and get borrowing falling in every single year. The previous Government were not able to control our public finances, and yet in every year of this forecast, borrowing will be falling, and we have more than doubled our headroom to £21.7 billion.

Oral Answers to Questions

Debate between Dan Tomlinson and James Wild

Tuesday 9th December 2025 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

[James Wild (North West Norfolk) (Con)]

The Chancellor promised a new golden era of hospitality, but the reality of her business rates raid, as the British Beer and Pub Association has said, is

“sleepless nights, pay cuts and staff layoffs”

for publicans, who will be paying an extra £13,000 on average. Why did the Chancellor tell businesses last week that their taxes were going down when they are going up, and will she think again and change the multipliers?

[Dan Tomlinson]

The multipliers are a product of the change in the valuation, and they did come down. We brought them down even further for retail, hospitality and leisure businesses. Without intervention this year, the bills paid by pubs would have increased by 45% as a result of the increase in value since the pandemic; because of this Government’s significant intervention this year, bills are going up by 4%. That is the impact of the changes this Government have made.

Alcohol Duty: UK Wine Sector

Debate between Dan Tomlinson and James Wild

Tuesday 11th November 2025 Westminster Hall

[The Exchequer Secretary to the Treasury (Dan Tomlinson)]

I am glad to be serving under your chairmanship, Mr Turner. I am grateful to the hon. Member for Farnham and Bordon (Gregory Stafford) for securing this important debate, and for speaking so eloquently in support of the UK wine sector. It is fantastic to hear him speak about the sector’s growth, as well as its continuing progress on exports, which is a really good thing. The irony is not lost on me, though, that he said that Treasury Wine Estates has some reservations about the Treasury’s tax policy—I will look into that.

I heartily echo the hon. Gentleman’s praise for the UK wine industry’s significant contribution to our economy, culture and tourism. As he mentioned, the statistics speak for themselves: we are the world’s second largest wine importer, bringing in 1.7 billion bottles in 2024. Sales of both imported and home-grown wine support hundreds of thousands of jobs, particularly in hospitality and retail. In recent years, as many Members have mentioned, more and more people have taken up work in the UK’s domestic wine sector, which is much like a dessert wine—small, but strong.

Industry figures suggest that more than 1,000 vineyards and 200 wineries contribute to our rural economy, with land under vine growing fivefold since 2005. The hon. Member for Weald of Kent (Katie Lam) listed many of the wineries in her patch; one of the challenges of being a Parliamentary Private Secretary, like my hon. Friend the Member for Hastings and Rye (Helena Dollimore), is that they do not always get to speak in these debates. However, I have been reliably informed by note that the two Members have the same number of vineyards in their constituencies—there may have to be a little Kent-based competition.

It is great to see that the number of home-grown products is increasing, with production exceeding 10 million bottles last year, and with sales rising too. This Government are committed to fostering an environment in which the wine industry, like its vines, can thrive and grow.

The hon. Member for Farnham and Bordon, as well as other Opposition Members, made important points about the UK’s alcohol duty system. Before I turn to those points, I will first acknowledge the Government’s wider work to support the wine industry through agricultural grants and export promotion. The Government have committed at least £200 million to the farming innovation programme through to 2030, and we champion domestically produced wines on the international stage. For example, we showcased English sparkling wine at the Osaka expo earlier this year.

As I have mentioned English sparkling wine, it is important that I also mention the contribution of my hon. Friend the Member for Edinburgh South West (Dr Arthur), who talked about Scotland’s growing wine industry and the impact it is having on high streets. He also said that, in designing a sensible tax system, it is important that it takes account of the impact on the health of the population, which I think is reflected in the current system.

Members have spoken about the previous Government’s reform of the alcohol duty system. I am a Labour MP, so it is not lost on me that I am defending an alcohol duty system implemented by Conservative MPs, and that Conservative MPs are opposed to a system implemented by their own Government. We learned in opposition that it is not always wise to oppose the decisions made by our party when it was previously in government. Indeed, I think that one of the reasons we won the last election is because we were able to talk proudly and confidently of the achievements of previous Labour Governments. Anyway, it is up to Opposition Members to choose which aspects of previous Government policy they wish to support, or not.

As others have mentioned, the alcohol duty system is now based on the principle of taxing alcohol by strength, which means that alcohol duty increases with a product’s ABV. Although it is true that some higher-strength wines have faced increases in duty, that has been balanced by reductions in duty for lower-ABV wines, including some British wines. Prior to the reforms, wines with 11% ABV and wines with 14% ABV both paid the same duty per bottle. Now, there is a difference: wines with 11% ABV pay £2.43 in duty and wines with 14% ABV pay £3.10.

I am interested in the point made by the hon. Member for Weald of Kent about the extent to which British wine companies are producing wine with an ABV below 8.5%. I will consider that point. Indeed, I was thinking the same thing when I was reading up on this topic earlier today. However, I know the changes were introduced alongside conversations with industry representatives, and those conversations will continue as the changes bed in.

In recognition of the big changes that were implemented, it is right to assess their impacts after they have had time to take effect. We have said that will take place at least three years after their introduction in 2023. I will take that work forward next year with officials from HMRC, and I would welcome evidence from Members in this Chamber, including representations from the businesses and communities they represent, and of course I will engage with the wine industry.

The hon. Member for Farnham and Bordon said he had three points, but I think he had four in the end, including on the cumulative impact—I will try to address all four. On his third point, yes, we will consider in the round all aspects of the system’s current design. I do not want this review to be one that does not properly interrogate the design of the system, and I also do not want to pre-empt where it will get to, but in my role overseeing that review, I want us to look carefully at the design of the system as a whole. I think the system is sensible and fair, but I also know there are challenges that have been raised by Members today.

On the hon. Member’s big point about cuts or freezes to alcohol duty, it is worth realising that any such cuts or freezes would come at a cost to the Exchequer. The Office for Budget Responsibility produces the costings for any changes to taxation policy.

[James Wild]

They are always wrong.

[Dan Tomlinson]

The hon. Gentleman might think that some of the OBR’s assumptions are wrong. I encourage Members, if they have evidence, facts or figures that they want to put to the OBR on the elasticities—as I believe it is called when a tax rate is changed and has an impact on consumption—to send them in. The Government are confident in the OBR’s independence, but I will always want to ensure that we are putting forward accurate costings. In this instance, I believe that the OBR is in the right place when it comes to the elasticities, but Members should feel free to send in their own representations.

It is worth noting that freezing alcohol duty this year, if inflation was around 4%, would be equivalent to a 3.85% duty cut. Using HMRC’s published ready reckoner, this would cost the Exchequer roughly £440 million a year. It is right, therefore, that any decision on alcohol duty weighs the impact on overall revenues carefully. That is what I am confident that the Chancellor will do when she makes a decision in the Budget in just a few weeks.

I will try to run through some of the points made by Members in this debate. The hon. Members for Bridgwater, for Weald of Kent and for Farnham and Bordon, and the Opposition spokesperson, the hon. Member for North West Norfolk (James Wild), raised the issue of small producer relief for wine. That question was considered in detail as part of the previous Government’s review into alcohol duty, and as I have said, we will look to review it three years after the implementation that took place on 1 August 2023. We want to gather data and really look at the impact of the reforms. If Members want to come forward with proposals for change, then they should do so.

Oral Answers to Questions

Debate between Dan Tomlinson and James Wild

Tuesday 4th November 2025 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

[James Wild (North West Norfolk) (Con)]

This morning the Chancellor failed to take responsibility for her poor choices in a Budget that whacked up taxes, borrowing and spending, and made it clear that she would once again break her promises on tax. The farmers whom I have met have been in tears about the family farm tax, not because they are worried about losing their jobs but because the Chancellor is putting generations of farming at risk. Can the Minister tell the House whether the Chancellor has actually met any farmers, the NFU or other farming organisations to understand the impact of her policy and why she should scrap the family farm tax?

[Dan Tomlinson]

The Government have assessed the impact of this policy. According to the estimates that we issued at the time of last year’s Budget, about 500 farms would pay additional tax as a result of the changes; those numbers were contested by all Opposition Members, but the CenTax report—which the hon. Member has said that he and others are interested in reading—backs them up and confirms the Government’s estimates.