Finance (No. 2) Bill (Third sitting)

James Wild Excerpts

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.

[Blake Stephenson (Mid Bedfordshire) (Con)]

My hon. Friend talks about fairness in relation to amendment 41 on uprating in line with CPI. Is it also worth considering the importance of certainty, particularly for people on fixed incomes who will benefit from this measure? Uprating by CPI would give them certainty into the future that they are not going to fall into fuel poverty.

[James Wild]

My hon. Friend makes a valuable point. We want more certainty within the system, as far as possible. On earlier clauses, we debated the uncertainty that can come from having administrative rules that HMRC can interpret. Our amendment would give people confidence that their income and the benefit they receive would continue in real terms.

Nobody disputes the need to focus support on those who need it most. Where the Chancellor got it wrong was in taking it away from people who are just over the £13,000 income threshold. If the Government insist on recovering payments, they need to get the fundamentals right, with clear definitions, robust data sharing and a simple route for challenging any mistakes that may have been made.

Let us be clear. We welcome the Chancellor’s latest U-turn, reversing the very first decision she took in office. She was wrong to remove the benefit from millions of pensioners. This clause helps her to correct her poor political choice.

[Oliver Ryan (Burnley) (Lab/Co-op)]

I have a great deal of respect for the hon. Gentleman, and I know he is trying his best, but I am surprised at the tone that he is taking and at his language around the winter fuel allowance. He can correct me if I am wrong, but the 2017 Conservative manifesto outlined stripping this benefit completely—and that was from the Government in which he served as a special adviser to the Deputy Prime Minister. Why does he not tell us what he really thinks?

[James Wild]

I may not have read that manifesto as closely as the hon. Gentleman. [Laughter.] For the record, I did not say that. I think the record will also prove that that measure was not put into effect. We continued the winter fuel payment. The issue is that the Chancellor came along. She was given advice by Treasury officials—no offence to the Treasury officials in the room—suggesting this was a simple way to save some money and fill a fictional black hole. Foolishly and regrettably, she went along with that advice; happily, she is now correcting her mistake in part.

I am looking to press amendment 41 to a vote, because it is important that we give pensioners certainty that the threshold will be protected.

[Mr Joshua Reynolds (Maidenhead) (LD)]

I rise to speak to clause 55 and new clause 27, but I can tell the hon. Member for North West Norfolk that if he does press amendment 41, he will have the support of the Liberal Democrats.

Countless pensioners were forced to choose between heating and eating last year while the Government buried their head in the sand for months on end, ignoring those who really were suffering. The Government’s changes to winter fuel payments only added to those people’s worries. The delay to the warm homes grant scheme has meant that no household has benefited from support that could have made their homes more sustainable and cheaper to heat over the last winter.

The Liberal Democrats opposed the announcement to cancel winter fuel payments, which caused many millions of the most vulnerable residents in our society to lose out on vital support. We welcome the fact that those over state pension age in England and Wales with an income of £35,000 or less will now receive their winter fuel payment. However, as new clause 27 lays out, we have some serious concerns. Quite simply, it aims to review the practical impact of the winter fuel payment changes, especially on those individuals who exceeded the income threshold by only a small amount.

The cliff edge of £35,000 means that someone on that income will keep the entire payment, but someone at £35,001 will have the entire amount clawed back. We would like to examine the behavioural effects and whether the charge and cliff edge will discourage additional work, savings or income reporting. Would it be fairer to have the amount tapered so that we can get to a fairer place?

We also want to consider the implications of making the charge a notifiable tax liability, including penalties for a failure to notify, and how that would interact with PAYE and self-assessment rules. Right now, most people, especially pensioners, do not have to actively tell HMRC about certain things, because tax is sorted through PAYE or the benefits system. If winter fuel payments become notifiable, individuals would be legally responsible for reporting to HMRC. Evaluating the effectiveness of these measures will help to ensure that we have a smooth and fair process for taxpayers overall.

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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.

--- Later in debate ---

[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.

--- Later in debate ---

[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?

Oral Answers to Questions

James Wild Excerpts

Tuesday 27th January 2026 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

[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.

Finance (No. 2) Bill (First sitting)

James Wild Excerpts

Committee stage
Tuesday 27th January 2026 Public Bill Committees

[Lucy Rigby]

Clause 13 significantly expands the enterprise management incentives scheme eligibility to allow greater access for scaling companies. Specifically, the changes made by the clause will expand the EMI company eligibility limits to maintain the world-leading nature of the scheme.

Government amendments 37 and 38 are consequential to the business asset disposal relief legislation, updating it to align with the EMI maximum holding period expansion provided by the clause. The change will significantly expand the EMI limits and expand access for scale-up companies.

New clause 24 would require reports to the House of Commons on the impact of the clause on recruitment and retention in qualifying companies, on high-growth and innovative businesses and on the Exchequer finances. The Government have published a tax information and impact note setting out the impact of the EMI expansion. That showed that the measure will cost £585 million in 2029-30. The expansion is expected to support an extra 1,800 of the highest growth scale-up companies over the next five years, allowing them to reward an estimated 70,000 more employees.

The Government keep all taxes under review, and monitor and evaluate tax policy changes on an ongoing basis. We have also launched a call for evidence to gather views from founders, entrepreneurs, scaling companies and investors on tax policy support for investment in high-growth UK companies.

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

It is a pleasure to serve under your chairship, Sir Roger, and on the Committee considering this 536-page doorstop of a Bill. We are grateful for the written contributions and evidence provided to the Committee, but I think the usual channels should consider having oral evidence sessions for future Finance Bills, so that people can make important representations on significant pieces of legislation.

I will turn to clause 13 and new clause 24 tabled in my name. We need to have an enterprise economy that incentivises investment. The tax regime clearly has an important role to play in helping to achieve that, and in doing so, backing much needed growth in the economy. Clause 13 amends the Income Tax (Earnings and Pensions) Act 2003 to expand the enterprise management incentives scheme. That scheme helps attract, keep and motivate staff by allowing employees to buy shares in the company with tax advantages. That includes no income tax or national insurance contributions at the time of grant and exercise, with gains eventually being taxed under the more favourable capital gains regime, rather than as income tax.

The changes in the clause should make it easier for start-ups and growing companies to use the enterprise management incentives scheme, helping them reward staff and link employees’ success to the company’s growth. That is something that we support and the British Private Equity and Venture Capital Association has also welcomed the change. The clause increases the company options limit from £3 million to £6 million, raises the gross asset limit from £30 million to £120 million, and doubles the employee limit from 250 to 500. It also extends the exercise period to 15 years. These are all welcome changes.

However, one important element that is not due to change under these provisions is that the scheme allows qualifying companies to grant employee share options up to a maximum value of £250,000 per individual. Has the Minister considered going further and raising the cap beyond £250,000 to attract the brightest and best to grow businesses?

In its report on competitiveness, published yesterday, TheCityUK states that,

“the UK’s tax schemes such as…Enterprise Management Incentives (EMI) offer lower relief thresholds and tighter eligibility than international equivalents such as the Qualified Small Business Stock regime in the US, weakening incentives to scale and retain activity domestically.”

I have tabled new clause 24, which would require the Government to assess and report to Parliament on the impact that the changes have on the recruitment and retention of skilled employees in qualifying companies, on high-growth and innovative companies and on the Exchequer.

The Minister referred to the tax information and impact note, but clearly that is a forecast of what the Government hope will happen, not a review of what has actually happened. I think that will be a debate that we have many times as we consider the Bill: a TIIN is not a review of what has actually happened. The numbers that the Minister gave may be higher or lower, but we need to have a post-implementation review.

According to the Budget 2025 policy costings, the objective is to increase eligibility to allow scale-ups, as well as start-ups, to access the scheme. That is, of course, something we support. Will the Minister commit to keeping the scheme under review to ensure it is delivering on its aims to support high-growth firms and to consider whether further action, such as on the individual threshold, is needed?

Given the substantial investment, can the Minister clarify what behavioural assumptions underpin these projections? How many companies just above the existing threshold are expected to utilise these expanded limits? The BVCA has said that the enterprise management incentives scheme is

“long overdue for reform: high growth companies are often unable to grant EMI options due to the constraints of the £30m gross assets and 250 employee limits.”

Does the Minister have figures showing how much these limits have actually restricted growth?

[Mr Joshua Reynolds (Maidenhead) (LD)]

It is a pleasure to serve under your chairmanship, Sir Roger, on what is not only my first Finance Bill Committee, but my first Bill Committee—a nice, simple one to start me off. The Liberal Democrats welcome the changes made by clause 13. We need to support our British start-ups and British start-up culture to grow and develop.

We would of course like the Government to go further than clause 13 in what they promise. We need to ensure that we have a British start-up culture where start-ups do not, after five or 10 years, head off to the United States, taking that capital and leaving the UK with a brain drain. I have only one question to the Minister: how can we go further to ensure that once we have implemented the Bill, we will be in a position to say that fantastic UK companies will not head overseas, taking that capital and culture with them?

--- Later in debate ---

I urge the Committee to reject amendment 29, to accept Government amendments 3 and 4 and clauses 14 and 15, and to reject new clause 1.

[James Wild]

Clauses 14 and 15 are a story of two halves. As the Chartered Institute of Taxation rather adeptly put it—we are grateful for its support in scrutinising the Bill—these changes give with one hand and take with the other. We support clause 14, but we have doubts about clause 15.

Both clauses deal with our risk capital schemes—the enterprise investment scheme and venture capital trusts. EIS was introduced in the UK in 1994 to stimulate economic growth and, along with VCTs, these Government-backed schemes encourage individuals to invest in smaller high-risk trading companies by offering tax reliefs on their investment. As a former adviser in the Department for Business, Innovation and Skills, I helped to develop these schemes, as well as the seed enterprise investment scheme. I recognise their importance.

As the venture capital industry has noted, these are essential tools in unlocking private capital for early-stage, high-growth UK businesses, which we all support, particularly in the knowledge-intensive sectors such as life sciences, clean energy and deep tech; however, companies now routinely require £20 million to £30 million in funding before they start to sell their products. The previous limits had prevented UK investors from following their initial investment with more capital, forcing businesses to turn to overseas capital too early. That is a problem I think we all want to fix.

The main difference between the schemes is that with EIS an investor buys shares directly in an eligible company, whereas with VCTs the investor buys shares in a listed fund-like vehicle, which then spreads their money across a portfolio of qualifying companies. These clauses increase the annual and lifetime investment limits for the EIS and VCTs in Great Britain and raise the gross asset thresholds for qualifying companies.

Clause 14 increases the annual and lifetime investment limits for the EIS and VCTs, and raises gross asset thresholds. These limits have not been uprated since 2018 for knowledge-intensive companies and 2015 for other companies. Now, all limits are being doubled, which is welcome. As we have heard, for both schemes, the limit will rise from £10 million to £20 million. The total amount that can be raised over time will increase to £40 million for those knowledge-intensive firms. The gross assets yield for qualifying companies will go up to £30 million before a share issue and £35 million thereafter. TheCityUK has said that schemes such as EIS remain vital for crowding in early-stage finance and these changes are welcomed by the industry.

Clause 15 heads somewhat in the opposite direction. This clause reduces the rate of income tax relief for investment in VCTs from 30% to 20%. This is where our doubts begin to grow. The 2025 Budget policy costings reveal a calculated trade-off. The increased limits in clause 14 will cost the Exchequer £60 million in 2027-28. Meanwhile, the reduction in VCT income tax relief will raise £125 million in the same year, delivering a net yield of approximately £65 million. The policy costings state that this rate reduction is intended to

“better balance the amount of upfront tax relief…and ensure funds are targeting the highest growth companies”,

but the costings’ own assumption that

“investors alter or reduce the way they invest into VCT”

is an acknowledgment that the relief cut will dampen investor appetite.

I am concerned by how much that tax increase will reduce investment in these high-growth companies that we all support. The British Private Equity & Venture Capital Association has been explicit about its concerns, warning that this reduction

“could lead to a decline in fundraising that would impact the high growth and high-risk investments that the Government is looking to encourage”.

VCTs are a key part of the UK’s capital mix, providing one of the few consistent sources of long-term equity for early-stage and scaling companies. Any reduction in their ability to raise funds would directly affect the pipeline of innovative businesses that the UK needs to grow.

The reduction in VCT relief to 20% creates a fundamental risk to venture capital funding, precisely when scale-ups face capital constraints. For early-stage companies dependent on VCT funding, the reduced relief translates directly into a higher cost of capital and reduced funding availability. The Budget relies heavily on revenue raising from less visible and more complex parts of the tax system. This VCT change exemplifies that approach, shifting costs to venture investors rather than implementing transparent broad-based taxation.

New clause 1 would require the Chancellor to report on the impact of the cuts to VCT allowance on early-stage investment volume, investor participation and international competitiveness. Given the Government’s own admission that this will alter investment behaviour, such reporting is essential, and I reiterate that a TIIN does not review what actually happens in practice. Amendment 29 would simply remove the provision in clause 15(2) that reduces the rate relief from 30% to 20%, keeping the relief at its current level to support investment in high-growth firms. I believe both amendments would be supported by industry and, subject to what the Minister says, I intend to press amendment 29 to a vote.

The Government are expanding VCT investment limits while simultaneously cutting the relief to 20%. How would the Minister address the concerns of the investment sector that the combined changes will dampen investor appetite for venture capital trusts at the very moment we need to encourage them?

[Lucy Rigby]

I welcome the shadow Minister’s welcoming of the majority of the changes that we are making. To address his criticism of what we are doing in relation to the venture capital trust income tax relief, I come back to the impetus behind this package of reforms as a whole on EMI, EIS and VCT, which is to make sure that the UK is the best to start, scale, list a company and to ensure that companies stay.

The specific change to VCT to reduce the income tax relief from 30% to 20% is to help rebalance the up-front tax reliefs offered across the schemes, where the VCT scheme offers tax relief on dividend income, which the EIS scheme investors do not get. VCTs tend to invest in larger, less risky, scaling companies compared with EIS scheme investors. The reduction in income tax relief therefore reflects the overall reduction in investment risk that comes with investing in later-stage companies.

It is important to bear in mind that the VCT scheme remains very generous with, as I said, 100% tax relief on dividend payments and 100% capital gains tax relief on the sale of shares, alongside that 20% income tax relief. I know that the shadow Minister does not like TIINs in general—he has made that point in the Chamber—but they do contain the full details of the assumptions and impacts, and indeed the policy rationale. I therefore commend clauses 14 and 15 and Government amendments 3 and 4 to the Committee, and ask that amendment 29 and new clause 1 be rejected.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 15

Venture capital trusts: rate of relief and amounts and asset requirements

Amendment proposed: 29, in clause 15, page 10, line 23, leave out subsection (2).—(James Wild.)

This amendment would maintain the rate of income tax relief for investments into venture capital trusts at 30 per cent.

Question put, That the amendment be made.

--- Later in debate ---

[Lucy Rigby]

Clause 16 will enable the existing enterprise management incentives scheme and company share option plan contracts agreed before 6 April 2028 to be amended to include a sale on the private intermittent securities and capital exchange system—known by its much more catchy acronym of PISCES—as an exercisable event, without losing the tax advantages. The legislation will have retrospective effect from 15 May 2025. In the interim, His Majesty’s Revenue and Customs will be able to use its collection and management powers to not collect tax on exercise.

That means that this change will benefit PISCES trading events that happen before the Finance Bill receives Royal Assent. The change will therefore support more employees of growing UK companies to access the tax advantages of EMIs, and ensures that the tax system keeps pace with innovation in the wider economy. It also, of course, supports the launch of PISCES, which will provide a key stepping stone for public markets, supporting our world-leading capital markets. I commend clause 16 to the Committee.

[James Wild]

As the Minister says, clause 16 addresses a specific but important matter by permitting employers to amend existing company share option plan and enterprise management incentives option agreements, to allow PISCES trading events to serve as exercisable events without sacrificing the valuable tax advantages. Employers frequently offer share options to employees in recognition of their service and commitment, and to grow their businesses, and when employees exercise such options, they naturally face income tax and national insurance consequences. To encourage this form of employee ownership, successive Governments have introduced tax-advantaged schemes, including CSOP and EMIs, that provide relief from those taxes when certain conditions are satisfied.

--- Later in debate ---

[Mr Reynolds]

New clause 25, which I hope to press to a Division, would require the Government to undertake a report to consider a number of issues pertinent to the loan charge settlement scheme outlined in the Bill. The Liberal Democrats are clear that the settlement opportunity should be fair to everybody affected, including those who have already paid or settled, so as to ensure that people outside the loan charge years are not treated differently without clear reason. Unequal treatment can create the perception of unfairness, even if the policy is technically and soundly legal. It seems to us that if perceived unfairness in the system could be reduced, we should strive to do so, in order to protect the public’s trust in HMRC and the wider tax system. Is it right that someone who has already settled should be ineligible for the loan charge settlement? Surely, that tells people that in future they should just hold off and not settle or come to agreement, because that will leave them in a better position.

[James Wild]

We will look sympathetically on the hon. Gentleman’s new clauses if he chooses to press them to a vote. I have constituents who were heavily pressured by HMRC and ended up settling, which left them at a considerable financial loss, so I share his concern that those people, who were effectively bullied by HMRC, will now not get the same support as people who held out.

[Mr Reynolds]

The hon. Gentleman is completely correct. The place we are in now is that someone who settled and came to an agreement with HMRC is excluded from the opportunity laid out in the Bill. That means that when something like this happens again—and we all know that it will—those individuals will not want to come to an agreement with HMRC. They will know that if they hold off, a better solution and a better agreement will come through.

The report required by new clause 25 would outline a range of things, including whether the loan charge settlement opportunity is available to individuals who have settled, which is really important and something that we need to ensure; whether the settlement opportunity applies to individuals with disguised remuneration outside the loan charge years; and the extent of the impact of differential treatment between those two groups and those who are eligible. The extent of the impact is the most important thing, because for those individuals it will be severe. The report would also include an assessment of whether extending more favourable settlement terms to excluded groups would improve fairness and consistency with HMRC overall.

[Lucy Rigby]

The purpose of the review, as I think is well known, was to bring the matter to a close for those who had not yet settled and paid their loan charge liability to HMRC. That by its very nature meant focusing on open cases and outstanding liabilities. The Liberal Democrat spokesman, the hon. Member for Maidenhead, referred to something like this happening again. I think we would all agree that we hope it does not. However, we would probably also agree that it is crucial that any resolution to this issue is fair to the wider tax-paying population that has never avoided tax.

The Government believe that this settlement opportunity is the most pragmatic solution to draw a line under the issue for as many individuals with outstanding liabilities as possible. The settlement opportunity being provided is substantially more generous than any opportunity HMRC has previously offered and will substantially reduce the outstanding liabilities of people who have yet to settle with HMRC, particularly those with the lowest liabilities. Most individuals, as I said, could see reductions of at least 50% in their outstanding loan charge liabilities. We estimate that 30% of individuals could have their liabilities written off entirely.

[James Wild]

In her opening remarks, the Minister referred to promoters of disguised remuneration schemes not being eligible for this settlement scheme, which I welcome. Perhaps she could update the Committee on whether HMRC is proactively pursuing such individuals, who caused such distress to my constituents and, of course, to people across the country who were sold schemes, advised that they were legitimate and had been agreed with HMRC, and then discovered they were not and have lost their homes and their life savings as a result.

[Lucy Rigby]

I managed to give way just before the end of my speech. The shadow Minister raises a good question and a fair point. Through the new measures and existing rules, HMRC will have powers that can result in criminal prosecution of promoters of tax avoidance, including the new universal stop regulation proposal, which will ban the promotion of the most fanciful schemes outright and allow the HMRC commissioners to ban by regulation the promotion of other arrangements that HMRC thinks will not work. We will consult on further measures to target promoters in early 2026—indeed, it is 2026 already, so the shadow Minister may assume that that will happen soon.

Amendment 9 agreed to.

Amendment made: 10, in clause 25, page 32, line 12, at end insert—

“‘shadow director’ has the meaning given by section 251 of the Companies Act 2006.”—(Lucy Rigby.)

This amendment inserts a definition for the purpose of Amendment 9.

Clause 25, as amended, ordered to stand part of the Bill.

Clause 26 ordered to stand part of the Bill.

Clause 27

Loan charge settlement scheme: supplementary

Amendment made: 11, in clause 27, page 33, line 15, at end insert—

“(da) adapting provision made under section 25(6), in cases where a settlement offer is made to a person who is not an individual, about the calculation of settlement amounts (including provision for the calculation to be different to what is required by section 25(6));”.—(Lucy Rigby.)

This amendment clarifies that the loan charge settlement scheme can provide for the calculation of the settlement amount to be adapted where a settlement offer is made to a person who is not an individual.

Clause 27, as amended, ordered to stand part of the Bill.

--- Later in debate ---

[Lucy Rigby]

Clause 28 will reduce the main rate writing-down allowance for corporation tax and income tax, and clause 29 introduces a new first-year allowance available for expenditure on plant and machinery. As I am sure all hon. Members are aware, capital allowances allow businesses to write off the costs of capital assets, such as plant or machinery, against their taxable income. The UK continues to offer one of the most generous capital allowances systems globally and ranks top among OECD countries for plant and machinery capital allowances.

Clause 28 will reduce the main rate writing-down allowance from 18% to 14%, starting on 1 April 2026 for corporation tax and 6 April 2026 for income tax. That allows the Government to fund a new first-year allowance while also fairly raising revenue to protect the public finances. Clause 29 will introduce the new 40% first-year allowance, which will support future investment. The new allowance is available for expenditure on plant and machinery, including assets bought for leasing and assets bought by unincorporated businesses, from 1 January 2026.

The changes made by clauses 28 and 29 will raise approximately £1.5 billion per year by the end of the scorecard. The changes are UK-wide and will impact businesses with pools of historic main rate expenditure, which predate the introduction of the super-deduction or full expensing regimes for companies, as well as historic expenditure or future main rate expenditure that does not qualify for first-year allowances, or where first-year allowances were not claimed. We have heard the calls to expand full expensing to more assets and businesses. Although the fiscal climate limits what we can do now, the new first-year allowance moves us closer to that goal in a responsible way.

New clause 2 seeks to mandate reporting the impacts of clause 28 to the House. The Government have published documents much loved by the shadow Minister, the hon. Member for North West Norfolk—tax information and impact notes—setting out the impact of the reduction to main rate writing-down allowances, alongside the introduction of the new 40% first-year allowance. I therefore reject new clause 2 and commend clauses 28 and 29 to the Committee.

[James Wild]

I want to get on the record that I do not have a problem with TIINs, but they serve a different purpose from reviewing legislation after the event. I would not want any Treasury officials to feel that the Opposition do not value TIINs.

I will speak to clauses 28 and 29 as well as new clause 2, which is tabled in my name. Capital allowances are one of the primary mechanisms through which our tax system supports business investment. They enable firms to deduct the cost of purchasing plant and machinery from taxable profits, thereby reducing their tax liability and helping them to invest and grow, which we all support. The annual investment allowance is perhaps the most straightforward example. It allows businesses to deduct the full cost of most plant and machinery up to £1 million annually, in the same the year that the expenditure occurs.

Beyond that, there are the first-year allowances with no annual cap. The most generous of those is full expensing, which the Minister referred to, which provides a 100% deduction for qualifying main rate assets and a 50% allowance for certain special rate assets. Those measures were introduced by the previous Conservative Government in order to stimulate faster investment and drive up what have been, I think it is fair to say, historically low levels of business investment throughout all parties’ periods in government. I think that we are all committed to try and address that.

Where businesses cannot or choose not to utilise those more generous allowances, they rely on writing-down allowances. They spread tax relief over several years by permitting a set percentage of the remaining pool balance to be written off annually, with assets allocated to either a main rate or special rate pool, depending on their classification.

Clause 28 reduces the main rate from 18% to 14% a year, while the special rate remains at 6%. The relevant date is 1 April 2026 for corporation tax purposes, and 6 April 2026 for income tax. For periods straddling that change, a hybrid rate will apply. New clause 2 would require the Chancellor to produce a report that examines the impact of those reductions on business investment levels, capital investment sector employment, the manufacturing sector, small and medium-sized enterprises and public finances.

The 2025 Budget policy costing document presents that as a part of capital allowance reform, but the reduction in the main writing-down rate will alter the cash flow position of capital-intensive businesses, slowing the rate at which they can recover investment costs through tax relief. Businesses with substantial brought-forward main pool balances will see their tax relief decelerate, with corresponding impacts on cash flow and the overall tax benefit. For companies planning significant investment, timing has now become more important. This is yet another structural tax increase on businesses with large asset bases, which will now recover their investments more slowly.

Make UK has described this Budget as

“a case of two steps forward one step back for manufacturers.”

The 4% in reduction in the writing-down allowance is undeniably bad news for business. It is little wonder that polling by the Institute of Directors reveals that four in five business leaders view this Budget negatively, and I think that those findings were replicated across the Federation of Small Businesses, the CBI and many other business organisations. The delayed recovery of capital costs will constrain reinvestment in modernisation and automation, precisely when UK manufacturers are already facing strong headwinds, not least from the very high energy costs that they face in this country. The reduction from 18% to 14% will diminish the speed at which businesses can recover these costs. Has the Treasury assessed the impact on business investment intentions, particularly for small and medium-sized enterprises in manufacturing and logistics? If not, I am sure that the Minister looks forward to supporting new clause 2.

Clause 29 is an attempt to balance the changes made in clause 28. It introduces a new 40% first-year allowance from 1 January 2026 for new, unused main rate plant and machinery. The new allowance expands relief to unincorporated businesses and firms that buy assets to lease out, which do not qualify for full expensing or the 50% special rate allowance once they go over the £1 million annual investment allowance. The explanatory notes highlight that this new allowance represents an expansion to include leasing, which we welcome—those activities that have traditionally been excluded from such reliefs. The allowance is not available for special rate expenditure, second-hand or used machinery, expenditure under disqualifying regimes or general exclusions.

We support the expansion set out in this clause. While these measures may have good aims, introducing an additional rate adds some complexity to the system. There is also the length of the Finance Bill that we are considering—536 pages of dense text—and that we expect businesses and individuals across the country to comply with, else HMRC will come after them. I urge the Government to monitor closely the impact on business investment and to look at options for a more streamlined or neutral capital allowances structure in future. What steps are being taken to tell businesses about these new allowances and freedoms they have to invest in leased assets—for example, by working with business organisations to get the word out? Opposition Members will certainly do that with businesses in our constituencies.

The new allowance will provide some up-front support for qualifying new investment, partly offsetting the impact of reducing the main writing-down rate to 14%. Once again, the Government are giving with one hand and taking with the other. The uplift will be of use for unincorporated and leasing businesses, but for most other businesses with historical or non-qualifying assets, there is no uplift at all. They simply face a slower rate of relief, going down to 14%, stretching allowances over a longer period and affecting their cash flow.

The Minister referred to Office for Budget Responsibility forecasts that suggest these combined measures will cost businesses more than £1 billion in 2026–27, rising to around £1.5 billion a year thereafter. That is a significant burden at a time when companies are grappling with weak investment and, to put it bluntly, the higher costs imposed in the first Budget. The £20 billion jobs tax has had a big impact, as we saw in the data earlier this week and as we see in the number of graduates who are struggling to find jobs.

As I say, the inclusion of leasing is welcome, but we do think there is benefit in reviewing those measures after the event and coming back to Parliament to explain what has happened.

[Lucy Rigby]

The shadow Minister referred to the new 40% first-year allowance, which is bringing forward relief for the leasing sector and unincorporated businesses, which have historically been carved out of the first-year allowance. In doing so, it allows for immediate relief on a significant amount of their investment from their corporation tax or income tax bill in the year in which they make that investment.

As the Chancellor has repeatedly made clear, the fiscal environment is challenging. We cannot make unfunded commitments on tax. The shadow Minister referred earlier to being an adviser to the previous Government, which is not, I suspect, to suggest that he had a role in creating the fiscal environment that we unfortunately inherited from the previous Government. We have heard the calls to expand full expensing to more assets and businesses. When the fiscal climate allows us to do so, we will look into that.

--- Later in debate ---

[Lucy Rigby]

Clause 30 will extend the 100% first-year allowance for qualifying expenditure on zero emission cars and plant or machinery for electric vehicle charge points by a further year to April 2027. More specifically, it will extend the availability of these capital allowances to 31 March 2027 for CT purposes and 5 April 2027 for income tax purposes, ensuring that investments in zero emission cars and charge point infrastructure continue to receive the most generous capital allowance treatment.

New clause 3 would require the Chancellor to review and report on the impact of the expiry in 2027 of the 100% first-year allowances made under clause 30, including the case for ongoing capital allowance support for zero emission cars and electric vehicle charging points. Alongside the 2025 Budget, in which the extension was announced, a policy costings document and a TIIN were published that set out the expected economic, business and other impacts of the changes, including impacts on incentivising businesses to purchase zero emission vehicles. Those documents are of course available online.

The Government annually review the rates and thresholds of taxes and reliefs to ensure that they are appropriate and reflect the current state of the economy. For that reason, new clause 3 is unnecessary. I commend clause 30 to the Committee, and ask that new clause 3 be rejected.

[James Wild]

As we have heard, clause 30 will extend the 100% first-year allowance for expenditure on zero emission cars, including EVs, and EV charging points. As the Minister said, the extension runs for a year to March 2027 for corporation tax and April 2027 for income tax purposes. Our new clause, consistent with other amendments that we have tabled, would simply ask the Chancellor to come back and report to Parliament, and to the public, on the impact of her measures. I do not really understand this reluctance to understand the actual impact of the measures. As part of the Government’s broader regulatory reform approach, they seem keen on post-implementation reviews, but the Treasury holds out alone against its homework being scored, it would seem. We want to consider whether long-term support should continue to be provided to maintain UK competitiveness in green technology. It is, in essence, a call for evidence that could make a difference to business confidence and investment.

The allowance was first introduced in 2002 for low emission cars, and the threshold was tightened over time, reaching zero emissions from April 2021. The extension continues that policy, but only for a year, and the Government’s own costings suggest that the extension will cost £145 million. Businesses planning multi-year fleet transitions and charging infrastructure investments face repeated cliff edges. Each year, a one-year window does not help a company planning to electrify its fleet in two years’ time; it simply rewards those who are able to accelerate the investment within the next 12 months.

Does the Minister recognise that it creates a stop-start approach that could discourage investment, undermine industry confidence and, ultimately, slow the UK’s transition to clean, green technology? That is odd when, in many ways, the Government are accelerating full throttle towards 2030 electrification across the grid. Members may have pylons and other pieces of grid infrastructure being dumped in their constituencies, with no public recourse, in the name of the Energy Secretary’s net zero goals. It is worth asking whether their policy is joined up if it includes these incremental extensions.

In that spirit, I have tabled new clause 3 so that hon. Members can judge whether the Government have a coherent approach. It would require the Chancellor to assess, transparently and on the record, whether a long-term support system is justified to keep Britain competitive in the global race for green manufacturing. A formal assessment would give Parliament and businesses the information they need to plan ahead.

In the debate on clause 11, the Minister referred to the long-term certainty provided by committing to a 25% corporation tax rate for this Parliament. Of course, that is not actually in the legislation, but we welcome that commitment and the greater certainty, and similar certainty could be given in this area. A formal assessment could also ensure that public money is being used wisely and that policy provides the certainty to unlock the investment we all want to see.

Given their 2030 obsession, why have the Government again chosen a one-year extension that provides limited certainty for fleet operators or for the charging infrastructure sector? I see that the hon. Member for Banbury is getting ready to dive into the debate. Will the Minister support new clause 3 and commit to a proper assessment of the lasting framework that is needed to secure Britain’s place in the green technology economy of the future?

[Sean Woodcock (Banbury) (Lab)]

The shadow Minister talks about a stop-start approach from this Government. I find that a bit brass neck, to be frank, considering the record of the previous Government, who shifted the dates and forced all sorts of investment with regard to EVs.

I welcome the measure. As part of the just transition, it is important to encourage the roll-out of EV infrastructure and charging points, particularly in rural constituencies such as mine where that is a significant challenge. Members will not be surprised to hear that I do not support the official Opposition’s new clause, but there is an important debate about how we ensure that investment is rolled out more equitably into constituencies such as mine. I ask the Minister to comment on how the Government see the roll-out of EV infrastructure in areas where there are issues with the electricity grid and network, so that the just transition can happen in those areas as well.

--- Later in debate ---

[James Wild]

The hon. Member and I agree about the importance of long-term certainty. People who are watching the proceedings may wonder why we did not just table an amendment to extend the scope to 2030, but due to the narrowness of the measures passed by the House, we are unable to do so. As I weigh up whether to push my new clause to a vote in a few weeks’ time, will the hon. Member consider supporting it?

[Mr Reynolds]

We can look into whether to support new clause 3 in a few weeks’ time. There seems to be very little in the new clause that we as Liberal Democrats would not support. Let us face it: we need to review the impact of the 2027 expiry date. We do not believe that the allowance should expire in 2027; it needs to be extended significantly further, so we would certainly consider supporting a review of whether 2027 is the right place.

That is my question for the Minister, really: why are we saying that the expiry date will be in 2027? Will we all be sitting here excitedly after the next Budget, looking at a 2028 expiry date, and so on for 2029 and 2030?

--- Later in debate ---

[James Wild]

As the Minister said, these clauses are mainly technical, tidying-up measures, but they are worthy of debate none the less.

Clause 31 clarifies the corporation tax treatment of payments made in return for the surrender of research and development expenditure credit, audiovisual expenditure credit or video games expenditure credit for payments made on or after November 2025. This technical clarification ensures that, when companies sell or surrender tax credits, the accounting treatment is consistent and correct.

R&D expenditure credit has been in place since 2013 to support companies carrying out R&D, and these creative industry expenditure credits will fully replace the old film, high-end TV, animation, children’s TV and video games tax reliefs from April 2027. At the moment, there is no agreed approach between tax authorities and companies on how to treat payments received when these credits are surrendered for corporation tax purposes, which has created uncertainty.

Clause 31 will hopefully put that beyond doubt by setting out a clear tax treatment in law, and HMRC will update its guidance manuals to reflect the new rules. Does the Minister have any figures—I do not have the TIINs to hand on this one—on whether that uncertainty has cost companies, or cost the Government, in lost revenue?

Clause 32 corrects transitional rules between the video games tax relief and the video games expenditure credit to ensure that the new expenditure credit works fairly for games that are moving over from the old relief. It corrects how the expenditure credit is calculated for transitional games—those that already have tax relief claims and then opt into the new scheme—so that companies do not get too much or too little relief, simply because the old regime used European expenditure while the new one uses UK expenditure.

In effect, clause 32 ensures that companies switching schemes do not get double relief or under-relief. Can the Minister provide an estimate of how many video games development companies will be affected by this transitional correction, and whether any have suffered financial detriment under the previous rules?

Clause 33 makes changes to the special credit for visual effects, which is part of the audiovisual expenditure credit, as the Committee will be aware. It prevents the calculation for additional credit from producing incorrect results, correcting anomalies in the visual effects credit calculation. The explanatory notes explain that, without this fix, certain combinations of expenditure could generate incorrect credit amounts or negative values, so clause 33 ensures that the scheme operates as intended and that the special credit scheme is neither more nor less generous than intended. Does the Minister have any figures on how many production companies have experienced calculation errors as a result of the previous rules?

[Matt Turmaine (Watford) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Roger. I will speak briefly on clause 32, as a member of the all-party parliamentary group for video games and esports, to say to the Minister that I welcome the closing of this loophole. Does she agree that the change will support the British video games industry, which is industry-leading across the world, and deliver the best for our economy?

[Lucy Rigby]

Clause 34 makes a minor legislative amendment to the R&D tax relief rules to put beyond doubt that the overseas restrictions apply to R&D expenditure credit claimants with a registered office in Northern Ireland. The Government are making this amendment to provide clarity to businesses and ensure that the legislation aligns with the original policy intent of the Finance Act 2025. I commend clause 34 to the Committee.

[James Wild]

Clause 34 will amend the Corporation Tax Act 2009 to clarify restrictions on relief for overseas R&D applied to companies across the entire United Kingdom, including Northern Ireland and Great Britain. It applies retrospectively on claims made on or after October 2024. It puts beyond doubt that the geographical restriction on R&D expenditure credit relief applies uniformly across all jurisdictions. Can the Minister confirm that, notwithstanding this clarification, exemptions under the enhanced R&D intensive support scheme still apply to firms based in Northern Ireland?

[Lucy Rigby]

I thank the shadow Minister for his question. The Government are committed to supporting R&D investment across the UK through R&D tax reliefs; they of course play a vital role in supporting the mission to boost economic growth, which he will know is this Government’s No. 1 priority.

The legislation clarifies that the rules are the same for all R&D expenditure credit companies across the UK. The overseas restriction was introduced in regulations in 2024 before being included in the Finance Act 2025. It was always intended to apply to R&D expenditure credit claimants across the UK, so the change is purely to clarify the Finance Act 2025 to put that position beyond all doubt.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Clause 35

Restriction of relief on disposals to employee-ownership trusts

Question proposed, That the clause stand part of the Bill.

Finance (No. 2) Bill (Second sitting)

James Wild Excerpts

Committee stage
Tuesday 27th January 2026 Public Bill Committees

[Lucy Rigby]

Clause 42 abolishes the notional tax credit available to non-UK residents on UK company dividends. That credit no longer serves a purpose, under the modern dividend taxation system, and the change brings non-UK residents in line with UK residents, who do not receive the notional tax credit. It will impact fewer than 1,000 non-UK resident individuals who have UK dividend income and other UK income, such as property or partnership income, a year. The clause removes the outdated notional tax credit for non-UK residents receiving UK dividends, aligning their position with that of UK residents. I commend the clause to the Committee.

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

As the Minister says, clause 42 abolishes the notional tax credit that non-residents have historically been able to claim on their UK dividend income. Under the current system, non-domiciled individuals can offset that notional credit against other UK income streams, such as rented income or partnership profits. However, from April, that arrangement will no longer apply. Non-residents will no longer be treated as having already paid UK tax on dividends received from UK companies, meaning that they will lose the ability to reduce their overall UK tax liability from using the credit.

It is worth noting that UK residents lost access to the notional dividend tax credit back in April 2016, so in one sense the clause simply removes what is perceived as a potential unfair advantage enjoyed by non-UK residents. The disregarded income regime will continue to operate, providing some limitation on the tax paid by non-residents in specific circumstances.

We need to look at the clause, and the ones coming up, in the broader context. It represents a shift in how UK tax dividends flow to foreign investors and, in practice, it will effectively increase the tax rate burden on dividend recipients who are non-UK residents. At a time when the UK needs to attract international capital, we need to look at the measures in the Budget as a whole and whether they strengthen or undermine our competitive position. Attracting capital to be invested was a topic that we discussed this morning. International investors might be forgiven for concluding that the Chancellor is creating a tax and regulatory environment that feels increasingly unpredictable compared with some of our international competitors. Stability and certainty matter enormously in investment decisions. [Interruption.]

The Chartered Institute of Taxation has also raised concerns about the figures underlying this policy. The Treasury estimates in the famous tax information and impact note, which was referred to by the Minister, that fewer than 1,000 resident individuals will be affected. The institute has questioned whether that can be accurate, given what its professional members are seeing on the ground. There is particular uncertainty about whether non-resident trust taxpayers have been properly included within those calculations. I welcome a response and assurance from the Minister either way on that. That said, even the institute agrees that those impacted will represent a small minority of the overall non-resident taxpayer population. We concur that this charge brings a welcome simplification to tax calculations.

[Lucy Rigby]

Again, I welcome the shadow Minister’s support for these measures. However, he is absolutely wrong to suggest that these measures and the broader package will discourage foreign investment in UK companies. He will have heard the titter of laughter when he talked about the importance of stability—that not being something that was provided by his party at all when it was in government. The removal of the notional tax credit will not discourage foreign investment in UK companies, as it will not impact the overwhelming majority of overseas investors who remain outside the scope of UK tax.

In order to be affected by the measure, overseas investors will also need to have other taxable UK income, typically rental income or partnership income. If they do not have that, their dividends will not be taxable in the UK while they remain overseas. The shadow Minister is right to refer to my earlier figure that fewer than 1,000 non-resident individuals have taxable UK income in addition to their UK dividends, and that remains the figure that we are working with.

Question put and agreed to.

Clause 42 accordingly ordered to stand part of the Bill.

Clause 43

Non-resident, and previously non-domiciled individuals

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

The Government will also reject amendment 33. The facility referred to here is designed to encourage individuals to bring their capital to the UK so that they spend and invest it here. Widening the scope of the facility to allow non-residents to benefit from the reduced charge without living or contributing in the UK would remove any incentive to become or remain a UK resident. We also reject amendments 34 and 35. I ask that the amendments are not pressed to a vote, and I commend clauses 43 and 44 and schedule 3 to the Committee.

[James Wild]

The Minister has skirted over quite a few detailed issues rather briefly. It will reassure the Committee to know that I intend to take a bit more time to go through what are detailed and important principles, and to reflect on questions raised in an earlier clause—how competitive we are, what we want to do, and whether we want to attract wealthy people to the country.

I will initially speak to clause 43, schedule 3 and amendments 30 to 35, which were tabled in my name. Clause 43 introduces schedule 3 of the Bill, and members of the Committee will see that the schedule runs to 14 pages of complex detail, so it is important that we properly scrutinise it. Those pages make various changes to the foreign income and gains regime brought into effect by the Finance Act 2025. On the surface, this may look like a simple tidying-up exercise, but on closer inspection it raises some important questions about the coherence of the Government’s overall approach to taxing globally mobile individuals.

While we support fair taxation, this Government have once again produced needlessly complex legislation that contains retrospective elements and leaves ordinary people potentially facing unexpected tax bills.

[Oliver Ryan (Burnley) (Lab/Co-op)]

Could the shadow Minister reflect on the fact that this clause has more amendments tabled to it than any we have dealt with so far? It deals with non-resident non-dom individuals who have previously tried to get away with paying certain levels of tax in this country. I know that he will take us through some of the details of that, but I would like to go back to the macro of his party position. If he talks about ordinary people, surely he should agree with the benefits of these changes. They would not only simplify the system but bring in much-needed tax revenue from those previously non-dom individuals who did a good deed for so long under the previous Conservative Government.

--- Later in debate ---

[James Wild]

Well, indeed. I will come on to the detail. On the broader point, we support the initiative behind these measures—to encourage people to bring more of their money to the UK, precisely so it can help fund our public services. Our concern is about the implementation, and I will come on to some of the comments that representatives of the Chartered Institute of Taxation, who are widely acknowledged as experts in this area, have raised about the complexity and the retrospective elements.

As I said, schedule 3 is in three parts. Part 1 relates to relief for new residents on foreign income and gains—FIG. Under the new FIG regime, when someone moves to the UK, they do not pay UK tax on their foreign income for the first four years here. That is very sensible, but the Government have made claiming that relief so complicated that honest taxpayers risk falling into traps simply through lack of awareness.

I hope the Government will take account of the following sensible steps suggested by the Chartered Institute of Taxation: first, to remove the requirement to report every possible element of FIG as part of the claim, and instead making relief from UK tax on FIG the default position; similarly, extending the relief to the personal representatives of a deceased individual who themselves qualified; and finally, simplifying the legislation by aligning the income tax position on trust distributions with the capital gains position. I would be grateful for the Minister’s response on those points when she winds up.

Part 2 relates to the temporary repatriation facility, clarifies how remittances to the UK under that temporary facility should be matched to their original source. For years, non-domiciled individuals could keep foreign money offshore, paying UK tax only if they brought it here. The TRF offers a window until 2028, precisely to encourage people to bring money to the UK at reduced rates of 12% in the next two years or 15% in ’27-28. That is, as I said to the hon. Member for Burnley, a good idea in principle, but the devil, as ever, is in the detail.

Our friends at the Chartered Institute of Taxation pointed out some serious concerns that there are several paragraphs within the schedule—which I see the hon. Member turning to—that do not appear to work as intended or that produce unintended consequences. First, they believe that, as drafted, the new offshore income gains paragraph introduced here leads to an anomaly in the way that trust distributions are matched where a trust has generated offshore income gains. That results in trusts with surplus pre-6 April 2025 capital gains tax being treated differently from those without. We do not believe that to be the Government’s intention; perhaps the Minister can clarify.

Secondly, investments clearly fall in value, but under this legislation, if someone invested foreign income overseas and it is now worth less, they will still pay the temporary repatriation facility charge on the original higher amount. That could mean paying 12% tax on £100,000 even though the investment is worth only £60,000. Do Committee members think that is fair? Do they think it will encourage or discourage the repatriation of funds that this facility is designed to encourage, to help support our economy and public services?

I would contend that the incentive, as a result, is to keep the money out of the UK, which is not what we on the Opposition side—or, I believe, on the Government side—of the Committee want to see. We therefore tabled amendment 30 to remedy this issue, and I encourage Members to support us on it when the moment comes.

Thirdly, the Bill contains retrospective taxation. Let us be clear: retrospective taxation should be reserved for the most egregious tax avoidance, but here, trustees who made payments to beneficiaries in good faith after April, relying on existing law, may now face double taxation because of rules that look backwards. That is not about closing a loophole; it is about changing the rules after people have already acted. Our amendments 31 and 32 would ensure that double taxation does not apply retrospectively.

Fourthly, in this clause and schedule the Government have created arbitrary restrictions so that the TRF is available only to UK residents. Why should someone temporarily living abroad not be able to use this facility? The temporary non-residence rule means that they will be paying UK tax when they return anyway, so why not let them use the TRF? The rules create a situation where someone who wants to pay tax voluntarily is not able to do so. Our amendment 33 would ensure that the TRF is available to both UK residents and non-residents.

Similar concerns have also been raised regarding offshore trusts. The temporary repatriation facility applies a 12% or 15% rate to the personal FIG of individuals who have previously used the remittance basis as well as certain capital payments from offshore trusts. This was to encourage the winding-up of foreign trust structures. Right now, though, the trusts part works only if the beneficiary getting the capital could have used the remittance basis in their own right. That creates an unfair outcome in families where one beneficiary has used the remittance basis but another has always paid full UK tax on worldwide income, because only the former can benefit from the lower temporary repatriation rate if the trust is wound up.

Perhaps I could give the Committee an example to illustrate this point further: a family has an offshore trust for two adult children and one child previously used special tax rules while the other has always paid full UK tax. Under this Bill, only the first child could benefit from the TRF when the trust is wound up. That does not encourage bringing money to the UK but, I would contend, actively discourages it. Amendment 34 would therefore enable offshore trust beneficiaries who have not themselves used the remittance basis to use the TRF. Amendment 35 would enable trustees to pay a temporary repatriation facility charge on the trust’s past FIG while retaining the funds within the trust, without having to make capital payments to the beneficiary.

Amendments 1 and 2, in the name of my hon. Friend the Member for Windsor (Jack Rankin), relate to this issue. The Government refer to the temporary repatriation facility as encouraging wealthy people to stay and invest here, and the Treasury is counting on these measures to raise a significant sum for public services, although I note that the OBR suggests there is considerable uncertainty about that. However, we know that the wealthiest people—the wealthiest investors, the people who are supporting our entrepreneurs and the high-growth businesses that we want to see—are leaving the UK as a result of steps that the Chancellor has taken. By some estimates, 10,000 people have already got on a plane and left—those are figures from Oxford Economics. We can debate whether the number is 10,000 or 5,000, but some figures suggest that the equivalent of 750,000 basic rate taxpayers have left the country. So this is not about ideology; it is about giving certainty and addressing the points that the Bill as drafted does not.

The TRF could become unusable for some because of the risks it exposes them to. There is the double taxation, which I have talked about, as well as the retrospective elements, but in addition, accusations of tax avoidance could arise from using a scheme that Parliament has itself created and lead to potentially lengthy investigations. People are leaving, and the Chartered Institute of Taxation has said that tax rules under the measure make the UK a less attractive destination for people. It should be easier to understand and apply measures aimed at getting people to bring money back to the UK. There is a risk that, as drafted, these measures drive against the Government’s intention.

Amendments 1 and 2 are tabled in a constructive spirit. Amendment 1 would stop the double counting, and amendment 2 is about the retrospective and unfair action. They would provide the certainty that, according to some experts in this field, is currently missing. Without the TRF being attractive, we will not be able to get the money coming into the country. I urge the Minister to respond more fully than she did in her opening remarks and to consider whether, on Report or at a later stage, amendments could be tabled to deliver the clarity that my amendments and those tabled by my hon. Friend the Member for Windsor offer.

Without clear guidance, ordinary commercial transactions could inadvertently be caught. The Government must publish comprehensive examples, or businesses and individuals will be left guessing. When Ministers replaced the long-standing non-dom regime last year, they promised a clean, modern and transparent framework, yet within a year we have a schedule of corrective provisions to make the legislation operate “as intended”. That rather suggests that the original drafting was not as watertight as claimed, and that further tweaks along the lines we have suggested might still be needed before the system settles.

--- Later in debate ---

[James Wild]

Clause 45 will extend the PAYE notification process to include treaty non-residents and introduce the 30% cap, to which the Minister referred, on overseas workday relief that can be claimed through PAYE. In simple terms, clause 45 and schedule 4 will change how employers operate PAYE for people who move to the UK but are treated as resident in another country under a tax treaty. The clause will let employers agree with HMRC that the part of the employee’s salary that is expected to be exempt overseas be left out of PAYE during the year, and it will formally limit how much foreign employment relief can be given to 30%.

The changes under the clause will require employers to send further notification to HMRC whenever there is a change in the employee’s circumstances that affects the proportion of earnings subject to PAYE. That sounds reasonable in practice, but I want an assurance from the Minister about the potential administrative burden that it will place on employers. It could mean that employers will now be expected to monitor the day-to-day working practices of globally mobile working employees. They will need to track whether individuals are working from home or from a hotel room in Boston, which is not necessarily a simple task. For multinational companies with hundreds of employees, this represents a potentially significant compliance burden at a time when we want to reduce the burdens on business. For smaller businesses venturing into international markets for the first time, it could be a disincentive—indeed, a barrier—to their trying to do so.

The Government must provide clear, comprehensive guidance on exactly what level of review and monitoring employers are expected to undertake not to fall foul of the rules. Without that clarity and guidance, we risk creating a compliance minefield in which well-meaning employers inadvertently break rules that they could not reasonably be expected to follow. Guidance can help employers to comply with the law, as we all want them to do.

The Government like to talk about making Britain the best place to do business and to champion our competitive advantage in attracting global talent—we have just discussed one area in which that may or may not be the reality—but we should seek to avoid introducing measures that potentially add to the compliance burden without giving guidance to employers. I hope that the Minister can assure the Committee that she will look at the case for publishing clear guidance to ensure that businesses are not adversely impacted.

[Lucy Rigby]

I can confirm that guidance will be forthcoming, and I am absolutely sure that it will be clear. I am also pleased to confirm that there will be no additional administrative burden on employers, because employers already have to enter a percentage figure on the PAYE notification form; as I say, this change will just require them to limit the in-year relief provided to no more than 30%. The guidance will be given to employers in April when the changes go live.

Question put and agreed to.

Clause 45 accordingly ordered to stand part of the Bill.

Schedule 4 agreed to.

Clause 46

Unassessed transfer pricing profits

Question proposed, That the clause stand part of the Bill.

[Lucy Rigby]

Clause 46 will introduce a new corporation tax assessing provision for unassessed transfer pricing profits. It will replace the diverted profits tax, a stand-alone tax that will be repealed in its entirety, providing a significant simplification.

The changes made by the clause will make the rules clearer and more straightforward for businesses to implement, and will support access to treaty benefits, including relief from double taxation under the mutual agreement procedure. The removal of the diverted profits tax as a stand-alone tax is a very significant simplification, and bringing the rules into the corporation tax framework will clarify the interaction with transfer pricing and access to treaty benefits. I therefore commend clause 46 and schedule 5 to the Committee.

[James Wild]

The clause introduces schedule 5, which will repeal the diverted profits tax and replace it with new rules to tax unassessed transfer pricing profits within the corporation tax regime, coming into effect for periods beginning on or after 1 January. The diverted profits tax will continue to apply for prior accounting periods. In effect, the clause creates a higher tax charge on profits that should have been taxed here, but were shifted out of the UK by using non-market prices between groups.

Like the DPT, the new transfer pricing profits rules are intended to target structured arrangements that are designed to erode the UK tax base by omitting profits that are subject to transfer pricing. These unassessed transfer pricing profits will be taxed at a rate that is six percentage points higher than corporation tax. In simple terms, if a global business structures its arrangements to shift profits from the UK in a pricing manipulation, HMRC will be able to bring those diverted profits into UK tax at a higher, penalty-style rate.

In principle, we support that approach. Moving away from the stand-alone tax and bringing diverted profits under corporation tax provides better treaty access and clarity, and clearly the six percentage point charge works as a deterrent, as countries that play games with their transfer policies will risk paying more tax than if they had priced their UK dealings properly in the first place. However, I would welcome the Minister’s response to the concerns that the Chartered Institute of Taxation has raised about the drafting of the clause.

First, the new tax design condition is very broad: it captures transactions designed to reduce, eliminate or delay UK tax liability. There is a question as to whether legitimate commercial decisions made for regulatory compliance or capital requirements could be caught by the condition simply because they are deliberate and happen to reduce tax liability, even when tax planning is not the primary motive. I know that is not the intention behind the drafting, but that point has been raised, so I hope that the Minister will respond in order to avoid any uncertainty as to whether businesses that think they are operating within the law, without seeking to reduce, eliminate or delay tax liability, may be captured.

Will the existing arrangements be grandfathered? Can HMRC revisit settled positions under these broader rules? As the Chartered Institute of Taxation rightly says, it is unsatisfactory to pass legislation with a wide definition and simply hope that HMRC guidance and rules will narrow it down later. That is not how we in Parliament should legislate. We discussed the loan charge during this morning’s sitting; HMRC applied rules in a way that most MPs did not consider reasonable, and we have now had to make changes through this Bill to address that historical issue. The law should be made clear in the Bill, not left to administrative interpretation.

I would be grateful if the Minister confirmed how many multinational companies HMRC estimates are using pricing manipulation to avoid tax. Can she guarantee that legitimate business structures that have previously been accepted by HMRC under the DPT will not suddenly fall foul of the scope of the new rules? Will she also comment on the main purpose test, to provide clarity and certainty for businesses?

[Lucy Rigby]

I hope that what I am about to say will provide a good deal of reassurance to the shadow Minister. The purpose of the reform was to simplify the legislation and bring the regime into the corporation tax framework. There is no intention at all to change the scope of the regime.

I appreciate that the question as to when the reforms will come into effect is of some importance. I can confirm that they will take effect for chargeable periods beginning on or after 1 January 2026. For prior periods, the diverted profits tax will continue to apply.

The shadow Minister asked how many companies would be affected. I am afraid that I do not have the statistics to hand, but I can investigate and confirm them to him in writing.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.

Schedule 5 agreed to.

Clause 47

Transfer pricing reform

Question proposed, That the clause stand part of the Bill.

[Lucy Rigby]

Clause 47 will simplify the UK’s transfer pricing rules, which protect our tax base by ensuring that transactions between UK companies and related parties are priced appropriately. The changes made by the clause include the general repeal of UK-to-UK transfer pricing where there is no risk of tax loss. This will provide a meaningful simplification for businesses. Alongside it, amendments have been made to the participation condition, intangibles, commissioners’ sanctions, interpretation in accordance with OECD principles, and financial transactions.

Government amendment 20 will ensure the consistent use of terminology with respect to financial transactions throughout the legislation.

The changes made by the clause will update UK law in line with international standards, will reduce compliance obligations and will address areas of potential legislative weakness. I commend clause 47, schedule 6 and Government amendment 20 to the Committee.

[James Wild]

Clause 47 and schedule 6 mark an evolution in the UK’s transfer pricing regime. The Opposition recognise the importance of getting this right: it goes to the heart of how multinational profits are attributed and taxed, and therefore how we ensure that companies pay the correct amount of tax in this country. The principle behind transfer pricing is simple, even if it is rarely simple in practice. I believe that these measures flow from a consultation process launched by the last Conservative Government, so they have a good origin. I hope that they will lead to greater certainty and reduce the burden that some companies may face.

[Lucy Rigby]

I confirm that the shadow Minister is right about the origin of the proposals and the date of the consultation. It is entirely right that we are bringing UK transfer pricing legislation up to date; it was last materially updated in 2004, so it is high time that these rules were updated.

Question put and agreed to.

Clause 47 accordingly ordered to stand part of the Bill.

Schedule 6

Transfer pricing

Amendment made: 20, in schedule 6, page 318, line 41, at end insert—

“(ba) in subsection (4)(b), for ‘issuing company’, in both places it occurs, substitute ‘borrower’,”.—(Lucy Rigby.)

The amendment deals with a missing consequential change to section 154 of the Taxation (International and Other Provisions) Act 2010 (transfer pricing).

Schedule 6, as amended, agreed to.

--- Later in debate ---

[James Wild]

New clause 4 stands in my name and that of my hon. Friend the Member for Wyre Forest. As the Minister says, clause 48 introduces a power for HMRC to implement a new reporting obligation: the ICTS, which will come into force in 2027.

This new power would require businesses engaged in significant cross-border transactions to disclose specified information about their dealings. Rightly, the intention is to give HMRC better tools to identify transfer pricing and international tax risks that could affect the tax take, and to allow it to conduct more efficient and better-targeted compliance activity. I recognise that objective and support it in principle. I agree that the ICTS could help HMRC to identify risk earlier and to avoid wasting the time of the Department and businesses. Chasing down questions and embarking on inquiries can often lead nowhere and can cost businesses time that could be spent on growing their business.

However, it is also important that the Government explain how the system will work in practice and how it will be seen to work. Our new clause 4 would therefore require a report on the impact of these changes on cross-border trade and the administrative burden on businesses.

During the consultation last year, the Treasury acknowledged that more needed to be said about how the data collected through the ICTS system would be used and how it would fit alongside existing obligations such as master and local files. That remains a crucial point of detail that the industry and advisers will be looking for as this measure is implemented. Can the Minister shed some light on those concerns today?

As the Minister rightly says, most major economies already have some equivalent form of reporting, but it should be pointed out that the differences between them are significant. Australia, for example, operates a single transaction-driven disclosure process through its international dealings schedule; the United States of America relies on a more fragmented, relationship-based approach spread across multiple forms. Each system clearly has its benefits and disadvantages. What matters is that each country has a clear, consistent model to which businesses can understand and readily adapt.

What the Government seem to be proposing is a hybrid. That might mean that we have the best of both worlds—let us all hope so—but it might also lead to an approach that is inconsistent with the systems that some multinationals already have.

The Treasury has said that it will consult on detailed regulations in the spring of this year. We welcome that commitment. Can the Minister give an assurance that she will make sure that businesses and representative bodies will be closely involved in shaping how the system is put into practice? With the planned 2027 start date, there is not a lot of time to get the rules in place or for companies to build or modify systems to provide the new data. Can that be done without causing undue cost and disruption to businesses?

Finally, I want to make a slighter broader point on the clause. We clearly understand the importance of robust compliance and the need to protect the UK tax base on behalf of our constituents so that we can deliver public services. However, each new requirement—whether it is the ICTS, pillar two returns or transfer pricing documentation—adds to the cumulative impact on businesses.

We need to see these obligations in the round, not as each one being reasonable on its own terms. What is the overall picture of what we are imposing on companies? If that load becomes too great, the UK will be seen as a less attractive place to invest, which is certainly not what we want. Although we support the principle of better risk assessment, we continue to press Ministers to ensure that we have proportionate and workable solutions that add value for HMRC, businesses and our constituents. New clause 4 would simply require a report setting out those impacts.

I would add that, according to the Budget costings, the reporting duty would raise around £25 million in 2026-27, growing to £350 million a year, helping HMRC to tackle artificial profit shifting. That is welcome, but we should also consider the one-off and ongoing costs for businesses that have to re-engineer their systems. I would be grateful for the Minister’s response to my points about implementation and whether the hybrid model will actually be the best of both worlds.

[Lucy Rigby]

The ICTS will help HMRC to focus compliance resources, as has been discussed, on the most meaningful transfer pricing risks. We think that it will also lead to greater efficiencies by encouraging up-front compliance and reducing the length of transfer pricing inquiries. Those outcomes will benefit the compliance of taxpayers and HMRC.

Clause 48 gives the commissioners of HMRC the power to issue regulations that will determine the detailed design of the ICTS, including the information to be provided, the format of the schedule and the commencement date of the filing obligation. A consultation was held in 2025, and we will carry out a technical consultation on the draft regulations in spring 2026. The obligation is expected to take effect for accounting periods beginning on or after 1 January 2027, which is designed to allow time for businesses to adapt to what they need to do.

The shadow Minister suggested that the proposal will lead to an administrative burden; actually, it is intended to mitigate additional administrative burdens by requiring the reporting of readily available objective information. We will continue to be guided by these principles as we move into the detailed design phase, working—as one would expect—with affected businesses.

Question put and agreed to.

Clause 48 accordingly ordered to stand part of the Bill.

Clause 49

Permanent establishments

Question proposed, That the clause stand part of the Bill.

[Lucy Rigby]

Clause 49 modernises and simplifies the UK’s law on permanent establishments, which governs how the UK taxes non-residents who are carrying out business here. Specifically, the changes made by clause 49 reduce uncertainty over how profit should be attributed to permanent establishments under UK law. The greater clarity provided by these changes, in the same way as the previous clause, will assist taxpayers and HMRC by offering greater clarity. I commend clause 49 and schedule 7 to the Committee.

[James Wild]

Clause 49 and schedule 7 make changes to the rules that decide, where a company has a permanent establishment in the UK, how its profits are then taxed and when they apply. The Minister talked about modernising and simplifying the rules to bring them into line with international best practice.

To clarify, in November 2025 the OECD published new guidance on the definition of a “permanent establishment”. Can the Minister confirm whether the UK’s current approach reflects that updated guidance, as I have been advised that it does not? Some expert bodies have pointed out that the OECD changes are generally helpful and would bring more consistency across countries, so does the Minister agree that it would make sense for the UK to broadly adopt them? Is that the Government’s approach, or have they deliberately decided to have a set of UK rules? If so, what is the purpose of that, considering that we might be dealing with multinational companies operating in multiple jurisdictions that would have to follow separate rules when the OECD has brought together a coherent package?

--- Later in debate ---

[Lucy Rigby]

Just to warn anyone who is not aware, clause 50 and schedule 8 are not the shortest. The changes they make are technical, but very important. Paragraphs 20 to 22 of schedule 8 prevent multinationals from trying to reduce their pillar two liability by entering into favourable tax arrangements to create pre-regime deferred tax assets or liabilities. Paragraphs 24, 25 and 34 ensure that the profits and losses relating to a UK real estate investment trust are excluded from the charge to domestic top-up tax to avoid double taxation. Paragraph 32 allows the UK to recognise the qualifying undertaxed profit rules of other jurisdictions before the OECD inclusive framework has completed a formal peer review.

Paragraphs 36 and 37 provide for a payment for group relief to be treated as a covered tax amount for domestic top-up tax purposes. Paragraph 39 reduces compliance burdens for smaller or non-material entities within a multinational group. Finally, paragraphs 2, 3, 6 to 12 and 16 to 19 update the rules on flow-through entities, permanent establishments, intragroup amounts and cross-border allocations of deferred tax so that the regime operates more smoothly in practice.

Taxpayers can elect for most amendments to apply retrospectively from the introduction of pillar two on 31 December 2023. However, taxpayers cannot select individual amendments to apply retrospectively; one election covers the whole package to prevent cherry-picking of favourable amendments. I should remind Members that, in line with the written ministerial statement of 7 January 2026, the clause does not include any amendments connected with the publication of the side-by-side agreement by the OECD/G20 inclusive framework earlier this month. The Government will introduce legislation to do that in the next Finance Bill following a technical consultation.

Government amendment 23 ensures that the legislation works as intended by making a small correction to legislative references used. Government amendments 21, 22 and 24 temporarily extend the deadline for making elections to give taxpayers more time to bed in the new IT systems needed to meet their filing obligations.

New clause 5 would require the Chancellor to review those technical amendments to the pillar two rules every six months and report on the international implementation of pillar two, among other things. We have already committed to the implementation of pillar two, which, as hon. Members will know, aims to ensure that large multinationals pay their fair share of tax. As a matter of course, the Government keep all areas of tax policy under review, so I reject the new clause.

Taken together, these changes implement internationally agreed changes, respond to taxpayer consultation, and ensure that the pillar two rules continue to be effective and administrable in the UK. I therefore commend clause 50 and schedule 8, together with Government amendments 21 to 24, to the Committee.

[James Wild]

I rise to speak to clause 50 and to new clause 5, which is in my name. Clause 50 will amend parts of the Finance (No. 2) Act 2023 and implement the multinational top-up tax and domestic top-up tax. As I set out in the last Finance Bill Committee, in October 2021 more than 135 countries signed up to the G20/OECD agreement on reforming international transactions and taxation, which the clause refers to—a major achievement that aims to ensure that multinational groups pay a fair share of tax where they generate profits. Pillar two delivers a minimum global effective tax rate of 15% for large multinational groups in every country they operate in, and the UK has been one of the first jurisdictions to legislate for the changes.

New clause 5 would require the Chancellor to review the changes on a six-monthly basis and lay before Parliament a report assessing three key issues: whether other major economies are implementing pillar two on comparable timelines and with comparable scope, whether any competitive disadvantage is arising for UK-based multinationals, and the impact of differentiated treatment for the United States. Crucially, if that review identified a material competitive disadvantage to the UK and UK businesses, the Treasury would be obliged to provide remedial measures within three months.

In rejecting new clause 5—another new clause that asks for a review—the Minister says that the Treasury is always conducting regular reviews of measures. If it is conducting this work anyway, why not share it with Parliament, and accept that it is a proportionate step to ensure ongoing parliamentary scrutiny in a very important area—a level playing field for British firms? The Minister referred to the length of the schedule. The sheer volume of amendments, coming less than two years after pillar two was first introduced, highlights the extreme technical complexity of the global minimum tax and the challenges for businesses that have to comply with it to keep up to date.

The Government’s aim is to ensure that UK rules remain consistent with the OECD model legislation, and schedule 8 is therefore aligned with the guidance and technical fixes. Those are sensible to maintain international consistency, but throughout last year there was growing international uncertainty about pillar two, the subject of the clause, as political divergence emerged over how it should operate, particularly regarding the treatment of US-parented companies.

The Minister referred to the side-by-side agreement made between G7 Governments last summer—and formalised, I think, this month—allowing certain UK and US multinationals to be exempt from parts of the rules while retaining access to the newly defined safe harbours. The agreement might bring some short-term stability, but it raises questions, and clearly we will be scrutinising it when, as the Minister said, it comes forward in future legislation. The US Treasury Secretary has described the side-by-side deal as

“a historic victory in preserving US sovereignty and protecting American workers and businesses from extraterritorial overreach.”

Will the Minister comment on what pillar two means in that context and on the UK’s position?

The impacts that might flow from that are precisely why new clause 5 is needed. The Government say that the UK is aligned with international developments, but the international landscape is shifting. Other major economies have delayed implementation or have adopted narrower regimes; meanwhile, the US has its own agreement and has not legislated for this framework at all. Without scrutiny, the risk is that UK-headquartered multinationals will find themselves complying with complex and burdensome rules, while their competitors operating elsewhere face a lighter regime. I simply note that the Chartered Institute of Taxation pointed out that it thinks the burdens of pillar two

“continue to appear disproportionate to the amount of tax that will be raised”.

If the Government truly believe that the regime provides a balanced and proportionate approach to a level playing field and that we can be assured that the competitive advantage does not go to other countries, let us have that report, see it set out to Parliament and have the matter resolved. To conclude, international co-operation on tax is essential, but we need to ensure not only that the UK is honouring its commitments, but that other countries are meeting theirs, so that UK companies are not losing out as a result.

[Lucy Rigby]

I am grateful to the shadow Minister for his comments. International co-operation on such matters, as he said, is extremely important. The side-by-side agreement, as I have made clear, will be the subject of future legislation, which will be the opportunity for scrutiny. However, as I also made clear, that agreement ensures that all large multinationals will pay their fair share of tax through the application of pillar two and pre-existing minimum tax rules, while offering welcome simplification and stability to UK businesses.

We have to be clear that US multinationals, like every other multinational company, are still subject to the UK’s 25% corporation tax on the profits that they make in the UK. They are also still subject to the UK’s domestic minimum tax rate of 15%. We recognise that a degree of complexity is inherent in pillar two, but we must not forget that it applies only to large multinational businesses and that it is needed to stop businesses shifting their profits to low-tax jurisdictions and not paying their fair share of tax in the UK. I think the shadow Minister acknowledges that that is exactly why we need it.

That being said, in relation to the complexity, the UK continues to be a strong proponent of work to develop simplification of the system, including the recently agreed permanent safe harbour. As stated in our “Corporate Tax Roadmap”, the Government will also consider

“opportunities for simplification or rationalisation of the UK’s rules for taxing cross-border activities”

following the introduction of pillar two.

Question put and agreed to.

Clause 50 accordingly ordered to stand part of the Bill.

Schedule 8

Pillar Two

Amendments made: 21, in schedule 8, page 358, line 9, leave out “50” and insert “50A”.

This amendment is consequential on Amendment 22.

Amendment 22, in schedule 8, page 379, line 26, at end insert—

“50A In Schedule 16 (multinational top-up tax: transitional provision), after paragraph 2 insert—

‘Transitional extension to deadline for elections

2A (1) Schedule 15 (multinational top-up tax: elections) has effect in its application to a pre-2026 election as if in paragraphs 1(2)(b) and 2(2)(b) of that Schedule for “no later than” there were substituted “before the end of the period of 12 months beginning with the day after”.

(2) In sub-paragraph (1), a “pre-2026 election” means an election which specifies an accounting period ending before 31 December 2025 as—

(a) in the case of an election to which paragraph 1 of Schedule 15 applies, the first accounting period for which the election is to have effect, or

(b) in the case of an election to which paragraph 2 of Schedule 15 applies, the accounting period for which the election is to have effect.’”

This amendment extends the deadline for making an election to which Schedule 15 of the Finance (No. 2) Act 2023 applies in cases where the election specifies an accounting period ending before 31 December 2025.

Amendment 23, in schedule 8, page 379, line 27, leave out paragraph 51 and insert—

“51 (1) In FA 1989, in section 178 (setting of rates of interest), subsection (2) is amended as follows.

(2) In paragraph (x)—

(a) for ‘51’ substitute ‘33A’;

(b) after ‘Finance’ insert ‘(No.2)’;

(3) In paragraph (y), for ‘51’ substitute ‘33A’.”

This amendment deals with a consequential amendment that was missed when paragraph 33A was inserted in Schedule 14 to the Finance (No.2) Act 2023 by the Finance Act 2024.

Amendment 24, in schedule 8, page 379, line 38, at end insert—

“(3A) The amendment made by paragraph 50A has effect in relation to accounting periods beginning on or after 31 December 2023.”—(Lucy Rigby.)

This amendment provides for the amendment inserted by Amendment 22 to have effect in relation to accounting periods beginning on or after 31 December 2023.

Schedule 8, as amended, agreed to.

Clause 51

Controlled foreign companies: interest on reversal of state aid recovery

Question proposed, That the clause stand part of the Bill.

[Lucy Rigby]

The clause makes changes to ensure sufficient repayment interest is paid to affected companies following a successful challenge of a European Commission decision. It provides that interest is also paid on the amounts of late-payment interest that were recovered and are now repayable. It will affect a small number of UK companies that had amounts collected and later repaid following the successful challenge of the Commission decision. The changes are expected to have a negligible impact on the Exchequer.

[James Wild]

As the Minister said, this is a fairly straightforward measure allowing HMRC to pay interest to companies that have had to hand over money under a now overturned EU state aid ruling relating to the controlled foreign company rules. The 2019 ruling was subsequently annulled. My only question for the Minister is: does the clause mark the final chapter in the UK’s compliance with the EU state aid rules relating to the controlled foreign companies regime, or could other outstanding matters give rise to further issues or payments?

[Lucy Rigby]

The shadow Minister will appreciate that it is a requirement of UK domestic legislation to put companies in the position that they would have been in had the recovery legislation not been introduced, and it is that principle on which the clause is based.

Question put and agreed to.

Clause 51 accordingly ordered to stand part of the Bill.

Clause 52

Legacies to charities to be within scope of tax

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Lucy Rigby]

Clause 52, in combination with the other clauses in the Bill, will support the Government’s aims of closing the tax gap by strengthening compliance powers to challenge abusive arrangements by which donors or trustees of charities can enrich themselves. The clauses also simplify the tax rules by equalising the tax treatment of investment types and tax reliefs used by charities. The changes made in clause 52 will bring legacies into the definition of “attributable income”.

New clause 6 would require the Government to report on the impact of clause 52 on charitable giving through estates and on the income of the charity sector. The changes are aimed at those charities and donors who seek to make a financial gain. They will not penalise charities when legitimate donations are received and investments are made. The Government have published a tax information and impact note that sets out the impact of the changes, and it showed that the measures will have a negligible impact on businesses and civil society organisations such as charities. Once the measures have been implemented, HMRC will assess the impact by monitoring tax reliefs claimed by UK charities, so a formal evaluation is not required. I therefore propose that clause 52 should stand part of the Bill, and that new clause 6 should be rejected.

[James Wild]

Charities are a very important topic. We need to ensure that we give it appropriate scrutiny, given the importance of charities in our society and communities. Clause 52 and new clause 6—which I will speak to—relate to extending the definition of attributable income to include legacies left to charities. In practice, that means that when a charity receives a gift left in a person’s will, it could face a tax charge if that money is not spent on its charitable activities.

How charities use their funds is a topical subject in the context of the Church of England, which is planning to spend £100 million on its fund for healing, repair and justice—effectively a reparation fund for slavery, which many consider not to be an appropriate use of the funds, or what people gave funds to the Church for.

I now turn to the clause. The change will apply to gifts made on or after 6 April this year. New clause 6, in my name—it bears repetition—would require the Chancellor, within six months of the Act becoming law, to publish a report on the impact of the measure on charitable giving through estates and on the wider impact on the charity sector.

Concerns have been raised that expanding rules to cover legacies could have unwelcome implications if charities do not apply inherited funds quickly enough to their charitable purposes, leading to them being taxed. The Institute of Chartered Accountants in England and Wales warns that that uncertainty, particularly around the timing, may discourage potential donors from including charities in their wills. Clearly, none of us would wish to see that.

HMRC has said that it will not set a deadline for how soon money must be used, although that ambiguity creates issues in itself. If the rules are unclear, HMRC could later decide that a gift has not been applied appropriately and withdraw the tax relief, undermining confidence that legacy gifts to charities will remain tax-free. Perhaps the Minister could give the Committee some clarity on that point, and on how HMRC will determine what counts as timely or appropriate application of funds.

There is also a concern about the administrative burden it may place, particularly on smaller charities, which will have to prove that each legacy received has been properly applied to charitable purposes, even when the money is placed in long-term endowments or reserves. The Charity Finance Group warns that the changes could mean more record keeping, compliance checks and bureaucracy, taking money away from frontline charitable activities and towards administration. I do not think that anyone would wish to see that. I do not know whether the Minister has anything more to add on that complexity.

Adding complexity could also make life harder for executors and delay the administration of estates, which could affect the timing of cash flows to charities at a time when finances in the sector are under considerable pressure, and income is critical for them to do their job. There is also a risk that wealthier donors might think twice about leaving legacies to smaller charities, if they think that the charity might struggle to comply with HMRC rules.

I am really asking for the Minister’s assurance that HMRC will take a sensible and proportionate approach, particularly with smaller charities that are seeking to do the right thing in applying these rules. We all want to avoid the potential risk that this measure could deter charitable giving, when that is clearly not the intention. It is important that the concerns raised by the sector are aired in the Committee, and it is our role to do so.

[Lucy Rigby]

I will start with the principle that, because legacies have received tax relief, it is important that they are spent on charitable purposes, otherwise they will be subject to a tax charge. More broadly, the Government are very much committed to supporting charities and their donors through tax relief, which was worth over £6.7 billion in 2024.

The changes in the clause are aimed at those charities and donors that seek to make financial gain. They will not penalise charities where legitimate donations are received and investments are made. The measures are intended to protect the integrity of the charitable sector by ensuring that donations, investments and charity expenditure are deployed for charitable purposes, not the avoidance of tax.

The shadow Minister fairly referred to any burden that may fall on smaller charities. The Government of course recognise that many small charities are run by unpaid volunteers, and for that reason we have sought to design the new rules in a fair and proportionate way. HMRC will help the sector to understand and prepare for the changes by providing clear communications and guidance.

I also want to be clear, in response to the shadow Minister, that the changes to the attributable income rules mean that legacies received by a charity will become chargeable to tax if they are not spent charitably. The changes reflect the fact that this income may have already received considerable tax relief. We have no plans to stop charities accumulating donations, so there will be no deadline for the spending of legacy funds.

Question put and agreed to.

Clause 52 accordingly ordered to stand part of the Bill.

Clause 53

Approved charitable investments: purpose test

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Lucy Rigby]

Clause 53 changes the definition of “approved charitable investments”. The Government recognise 12 types of investments for charitable tax relief, but presently only one type of investment is required to be for the benefit of the charity and not the avoidance of tax. The Government are extending this rule to all 12 types of investment, making the rules both simpler and tighter.

New clause 7 would once again require the Government to report on the impact of clause 53 on charity investment strategies. As with clause 52, these changes are aimed at those charities and donors that seek to make financial gain. They will not penalise charities where legitimate donations are received and investments are made. As the shadow Minister may expect, we have published a TIIN setting out the impact of these changes, which showed that these measures will have a negligible impact on businesses and civil society organisations such as charities. I commend clause 53 to the Committee, and I ask that new clause 7 be rejected.

[James Wild]

I rise to speak clause 53 and new clause 7, which was tabled in my name. My comments will reflect submissions from people involved in the charitable sector and my discussions with them. The clause extends the allowable purpose to all categories of recognisable charitable investment—at present, it applies to only one, but it will cover all 12. The Institute of Chartered Accountants in England and Wales has raised a suggestion that the test be reframed from

“for the sole purpose of”

to “wholly or mainly” to the benefit of the charity. The concern is that there could be increased obligations for compliance on trustees who have to demonstrate that their every investment in, for example, their portfolio was made for the benefit of the charity rather than an ancillary purpose therein. Was that more flexible approach something that the Government have considered, and if so why did they chose to reject it?

[Mr Reynolds]

As the Minister has outlined, clause 53 extends the purpose test from one category to all 12 categories. What guidance will HMRC provide for charity trustees to determine where the line is to be drawn between a legitimate investment strategy and those that are seen as having an ulterior purpose, because anti-avoidance should not penalise prudent charitable investment strategies?

Can the Minister also confirm exactly which charity sector bodies were consulted on these provisions and how they responded to that consultation, because many charity trustees are volunteers and this seems to place a significantly larger burden on those charity trustee volunteers to determine where to draw the line? It would be interesting to see what the consultation came back with as to where they would see that line and how they would attribute it.

--- Later in debate ---

[James Wild]

I rise to speak to clause 54 and to new clauses 8 and 9 tabled in my name. The clause makes significant changes to how tainted donations are treated. At present the donation is considered tainted only if it was made with an improper purpose. This clause replaces the motive-based test with an outcome test. If someone connected to the donor under the new regime receives financial assistance from a charity, such as a grant, guarantee or loan, the donation will be deemed tainted regardless of the donor’s intent. I have tabled new clause 8 to require the Government to publish a report on how the change affects legitimate charitable giving, or genuinely tackles tax abuse.

New clause 9 would require a review of the implementation of the new outcome test after two years and would assess whether it proves to be clearer than the existing purpose test. The Minister and the Government said that this measure is about tightening anti-avoidance rules and the challenge of proving intent. But I have been approached by the Charity Finance Group, which represents over 1,400 organisations and manages one third of the sector’s £20 billion annual income, and it has raised concerns around the change. It warned that the outcome test could unfairly penalise both donors and charities for results outwith their control.

For example, a donor could make a genuine good faith contribution only for a charity months later to make a routine investment or financial arrangement that inadvertently benefits a linked person. That donor could then find themselves caught by the anti-avoidance rules without ever having done anything wrong. That could cause uncertainty and raise concerns about people leaving legacy gifts that the charity sector relies on.

It is not just the charity and that one body. The Institute of Chartered Accountants in England and Wales has warned that donors may have limited influence over the outcome once the donation has been made. It, too, questions the fairness and practicality of shifting from a motive to an outcome test. Indeed, it proposes that the existing rules are not altered for that precise reason. We tabled the two new clauses to introduce proper scrutiny of the measures and ensure Parliament understands the effect on the charitable sector and whether donations continue to be given.

Does the Minister consider there is a risk that shifting to such an approach could have the effect that the charitable sector has set out? If so, will she commit to perhaps providing some practical guidance, with examples that charities and their compliance teams could look at so that they can see that charitable giving is not undermined? None of us on this Committee would want to do anything that would undermine the ability of charities to raise money and disincentivise anyone from giving money for fear that they might be caught inadvertently by rules when they have done nothing wrong.

[Lucy Rigby]

It is important to recognise that the tainted donations rules ensure that the usual tax reliefs are not available where someone gives money to a charity with the intention to benefit financially from it. Previously, HMRC was only permitted to consider the intention of a donation and whether a donor had received a financial advantage from a donation, but now, with these changes, it will also be able to consider the outcome of the donation and whether a donor had received financial assistance. In that respect, considering the outcome of a tainted donation is a positive step towards challenging abusive arrangements. As I have said in relation to previous clauses, HMRC will come forward with clear guidance on the application of the clauses, and, to the shadow Minister’s point, that guidance might well contain examples.

We are taking a range of steps to ensure that the charity sector and the wider public are aware of the changes, which I hope reassures the shadow Minister. A detailed summary of consultation responses has been published. As I said, HMRC will provide clear and practical guidance in advance of implementation.

Question put and agreed to.

Clause 54 accordingly ordered to stand part of the Bill.

Schedule 9 agreed to.

Ordered, That further consideration be now adjourned. —(Mark Ferguson.)

Covid-19: Financial Support

James Wild Excerpts

Thursday 15th January 2026 Commons Chamber

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

I, too, congratulate the hon. Member for Stratford-on-Avon (Manuela Perteghella) on securing this important debate. I thank all hon. Members who have spoken—I think more than 10 did—about what their constituents suffered and continue to suffer. They set out some very powerful examples.

It is almost six years since the first cases of covid were recorded in the UK, after two Chinese nationals travelled here from Wuhan. As has been said, these were some of the most challenging times for our nation. Some 230,000 people tragically died, and there is a very powerful memorial just across the river to remind us; we see it every day. Lockdowns and restrictions were imposed. Choices were made that no Government would want to make. As a newly elected MP, I was faced with the need to vote for and support measures restricting people’s freedom—something that I did not expect to have to do when I came into this place.

Clearly, not every decision taken was right. Mistakes were made, as they would be in a pandemic, but overall this unprecedented challenge was met with unprecedented action. On the economy, the subject of this debate, the actions taken by the then Conservative Government protected millions of jobs, and supported businesses and those most in need. When the pandemic struck, the Government acted swiftly. The coronavirus job retention scheme—the furlough scheme—which protected 11 million jobs at a cost of £70 billion, was announced on 20 March. Shortly afterwards, the first lockdown was announced. At its peak, nearly 9 million people were on furlough, preventing widespread unemployment. For the self-employed, a topic covered in most contributions, the self-employment income support scheme was set up and delivered nearly £30 billion, across five rounds of grants, to nearly 3 million individuals. Those schemes provided a lifeline to those whose livelihood was threatened through no fault of their own.

Beyond the employment support schemes, eight grant schemes saw £23 billion paid to small businesses. They were administered by local authorities. I pay tribute to the work they did to put in place systems and mechanisms for processing those payments rapidly and getting the support to people who needed it. Through three loan schemes, nearly £80 billion-worth of loans were approved. The bounce back loan scheme supported 1.5 million businesses with nearly £50 billion of funding.

It was not only loans that provided crucial support. Some £10 billion was made available in business rates relief to nearly 370,000 premises in the retail, hospitality and leisure sector, and we are now seeing the consequences of unwinding some of that support. VAT for the hospitality sector, which was particularly affected by the restrictions and rules that were put in place, was cut to 5%. I supported the campaign for that cut, as did many Members across the House. That unprecedented package supported jobs and livelihoods across the UK.

The Government also acted to help certain groups who faced particular challenges. A £20-a-week uplift was put in place for people on universal credit to help those on the lowest incomes, and rules about eligibility for benefits were relaxed. Additional support for jobseekers through the kickstart and restart schemes was also rolled out.

Of course, as the hon. Member for Stratford-on-Avon and other hon. Members have said, the support did not reach everyone. ExcludedUK was established in May 2020 to represent individuals and small business owners who fell outside the main financial support schemes. As has been set out, the group estimates that around 3.8 million people were unable to access full financial support, despite losing their income. Those individuals included the newly self-employed, company directors paid in dividends, and those whose self-employment income was less than half their overall earnings.

I know the genuine hardship faced by my constituents in that situation from my time in this House, and from raising constituents’ issues with Ministers. Hon. Members from across the House will remember the constant Teams and Zoom meetings with Ministers, in which we put forward the position of those people, as well as the debates held in the House and the reports by the Treasury Committee and others drawing attention to the situation.

The response that was consistently provided was about the challenges in identifying workable solutions for HMRC’s system, which, as the hon. Member for Didcot and Wantage (Olly Glover) said, was unable to differentiate dividends coming from an individual’s company from money from other sources. The cut-off points—the £50,000 threshold—for self-employed people also led to real difficulties and unfairness. The fraud risk, which has been referred to by a number of hon. Members, was one of the reasons given by the then permanent secretary to the Treasury as to why schemes put forward by the Federation of Small Businesses were cited as not being possible. There were changes through the five self-employment income support scheme grants. Frankly, though, the restrictions created the impact on the people to whom hon. Members have referred. The ongoing concerns raised by the campaign merit serious consideration—and the covid inquiry will give them that consideration during the module referred to by the hon. Member for Stratford-on-Avon.

Looking to the future, we should ensure that if and when the next pandemic strikes, we have better data, and better systems to put in place support, if needed; Making Tax Digital may help in that regard. We should ensure that rules do not exclude people unfairly. Equally, we must learn the lessons from the pandemic, particularly around the damaging impact of lockdowns, as my right hon. Friend the Member for Tatton (Esther McVey) said; if we do not put those restrictions in place, such huge financial firepower will not be needed.

In the pandemic, the pressure for action to help people and businesses was incredibly intense. There were trade-offs relating to time and the checks that could be implemented on support schemes. I recall vividly the clamour for support for small businesses, which I was part of. That led to the bounce back loan scheme, which had limited checks, leading to consequences involving fraud. That scheme, however, enabled lots of businesses to survive that would not otherwise be here today. The Government could have spent months designing the perfect scheme while businesses collapsed and families struggled; instead, they acted to protect lives and livelihoods. Some £410 billion was spent on covid measures—an extraordinary sum that added greatly to our debt. However, predictions by the Bank of England that unemployment would reach 9% were prevented. Unemployment peaked at 5.2%, before falling back to 3.7% two years after the first lockdown.

However, a lot of people clearly missed out on full financial support. While there will continue to be debate about the decisions taken and lessons to be learned, undoubtedly our country would be in a far worse place today were it not for the decisions taken at the time.

Finance (No. 2) Bill

James Wild Excerpts

Committee of the whole House
Tuesday 13th January 2026 Commons Chamber

[The Second Deputy Chairman]

I call the shadow Minister.

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

On behalf of His Majesty’s Opposition, I wish to speak to new clauses 22 to 24, tabled in my name and those of my hon. Friends. As the Minister set out, clauses 63 to 68 introduce measures to apply inheritance tax to unspent pension assets and other death benefits for deaths occurring after 6 April 2027.

This Labour Government have taken taxes to record levels, with £26 billion in additional taxes in this Budget and £66 billion since the election. These tax increases were not mentioned in Labour’s manifesto. Labour is increasing taxes on family businesses, farms, jobs, dividends, savings, motorists and now death. Removing the inheritance tax exemption for pensions could undermine efforts to encourage people to save at a time when people are not saving enough. And what do the Government do? They limit the salary sacrifice pension contributions scheme and introduce a new raid on people’s pensions pots.

The Minister did not refer to the impact assessment, but it is worth pointing out that it estimates that 10,500 estates will now become liable for inheritance tax, raising £1.5 billion by 2029, and 38,500 estates will pay more inheritance tax than was previously the case. That is why we oppose this extension of inheritance tax and the underlying principle, to which the Minister seemed to allude, that people’s money belongs not to them but to the state.

New clause 22 is straightforward. It would require the Chancellor to set out the impact of these measures on pension saving, household saving decisions and personal representatives. There is real concern—I am surprised the Minister did not address this—about the administrative burden being placed on personal representatives and the effect on the industry. Personal representatives will be required to identify every pension asset, calculate the inheritance tax due and ensure payment within six months, and they will be personally liable if they fail to settle all the liabilities due. In many cases, that deadline would be impossible to meet and must be extended. Furthermore, if a pension fund has to quickly sell illiquid assets, such as commercial property, it may not get the full market value, but the Bill does not introduce a relief where the underlying assets must be sold and the proceeds are less than the value of the assets at the time of death. Late payments will attract interest at 8%. By contrast, someone in self-assessment has 10 months to pay tax on the income they already understand.

Both the Association of Taxation Technicians and the Chartered Institute of Taxation have offered some practical solutions, the first of which is to extend the withholding periods. Personal representatives can ask pension administrators to withhold 50% of funds for up to 15 months, but that is simply not long enough for the complex cases I have referred to, particularly where business property valuations have to be agreed with HMRC. Will the Minister consider allowing HMRC to extend withholding in such complex cases?

Secondly, the Government should allow instalment payments for illiquid pension assets. Billions of pounds of pensions wealth are in illiquid assets. The Government allow inheritance tax to be paid over 10 years for illiquid estate assets. Why deny the same practical relief for pensions?

When this policy was announced, the Office for Budget Responsibility gave it a “very high” uncertainty rating and estimated that behavioural effects will cut the static yield by about 43%; the Government’s own forecasters accept that the changes may well significantly alter saving behaviour. The new clause would simply require the Chancellor to assess that impact and come to the House to make it clear.

New clause 23 would require the Chancellor to consult on the impact of clauses 63 to 67, and whether they deliver better outcomes for savers and pensioners. The truth is that the Government rushed the consultation out after the 2024 Budget and followed it with a very narrow technical consultation, which did not consider the principled question of whether this approach to pensions being brought within the inheritance tax framework was appropriate. As the Investing and Saving Alliance told the House of Lords Economic Affairs Committee in its inquiry to which the Exchequer Secretary also gave evidence:

“If we were consulted and listened to, we probably would not be having this discussion today, because I do not think pensions would be going into IHT.”

Both the chartered institute and the ATT have criticised the Government for consulting on pensions in isolation, rather than in the context of individuals’ wider inheritance tax position. Our new clause is explicit. Consultation must take place to assess whether these changes

“deliver better outcomes for savers and pensioners”

—wording that reflects the commitment the Labour party made in its manifesto.

New clause 24 is essential. It would require HMRC to publish comprehensive guidance on the new rules for pensions and to set up a dedicated helpline. Why does that matter? Because this measure will be incredibly complex in practice. The chartered institute has said that professional executors are already questioning whether they can continue to operate in the market at all. Some firms, we are told, are already leaving the market. If professionals step back, the burden falls on lay personal representatives: often grieving family members or friends, with more errors, delay and potentially a wider tax gap ensuing.

Professional indemnity insurers also need clarity, yet when is HMRC due to deliver detailed guidance? Not until spring 2027, just weeks before the changes take effect. That is completely outrageous and far too late. That is why the new clause requires guidance to be published within six months of the Bill being passed.

I want to touch on a broader concern that has been raised with me on the potential serious unintended consequences for unmarried couples. Today, couples can anticipate making financial provision for each other via pensions, but if this measure comes into force they will have to look at other options. If one member of an unmarried couple in their 50s or 60s dies with a pension at peak value, the survivor could lose up to 40% of that fund. Are Ministers talking to pension scheme administrators to mitigate the risks for such couples and to provide clear guidance?

These clauses increase taxes, add complexity, penalise saving and add stress for grieving families. Despite clause 67, we are also advised that there is still a risk of double taxation of inheritance tax and income tax, which could see beneficiaries paying an effective tax rate of 67%. Our amendments seek to mitigate their worst impacts. The Chancellor should assess the real impact on saving behaviour and personal representatives. She should consult properly on these provisions and she must provide clear guidance, backed by dedicated support. We should be incentivising saving and encouraging people to do the right thing. Extending inheritance tax does the opposite, and we will oppose the Government’s measures.

--- Later in debate ---

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

I call the shadow Minister.

[James Wild]

These changes were presented as some sort of simplification and modernisation, but clauses 83 and 84 nearly double remote gaming duty from 21% to 40% and increase general betting duty to 25%. We will have some of the highest rates of tax on gambling in the world. As we have heard from some Members, the industry has warned that that could have severe consequences for an internationally competitive sector that supports tens of thousands of jobs, underpins horseracing and other sports and already contributes significantly to the Treasury. It is questionable whether these measures will lead to stable, long-term revenue gains for the Exchequer, and there is a very real risk that they will result in job losses and greater use of unregulated operators in the black market. New clause 25 would require the Chancellor to come back to the House and explain what the consequences have been for revenue, sports and horseracing, high street betting shops, the black market, jobs and the public finances.

Of course, the origin of these changes owes much to Gordon Brown, who encouraged the Chancellor to hike taxes in order to increase welfare spending. Proponents of higher taxes often suggest that they will not have any consequences, but it is the role of us in this House to scrutinise potential changes and assess the impact after the event. Independent modelling from EY shared by the Betting and Gaming Council suggests that the impact of doubling remote gaming duty could be the loss of 15,000 jobs, and a further 1,700 jobs could be lost as a result of the increase in general betting duty. In total, 17,000 positions located in Stoke-on-Trent, Leeds, Sunderland, Manchester, Nottingham, Newcastle-under-Lyme, Norwich and other areas could be affected. Of course, those are simply projections—they could prove to be pessimistic, and we certainly hope that will be the case—but when unemployment has risen consistently under this Government due to the jobs tax and other costs, such warnings should not just be dismissed. That is why the Chancellor must account for the impact of her choices, as new clause 25 requires.

There has been some mention of horseracing. I was pleased to join colleagues across the House in support of the “Axe the Racing Tax” campaign. That is another tax that the Chancellor wanted to introduce, but she was forced into one of her all-too-regular U-turns.

[Alex Ballinger (Halesowen) (Lab)]

Does the hon. Gentleman accept that the proposal to harmonise gambling taxes, which the horseracing industry was most opposed to, was first proposed by his Government? It is something that they were proposing; we have just inherited it.

[James Wild]

We are debating the measures in this Bill, which was introduced by this Government. I was not involved in the changes that the hon. Gentleman refers to, and I certainly would not have supported hitting the horseracing sector in the way that was proposed. I do not remember that being in a previous Finance Bill introduced by a previous Government; it is this Government who sought to bring forward those measures, but they were roundly rejected, because horseracing supports around 85,000 jobs and contributes £300 million in tax revenue every year.

Despite the Government’s climbdown in exempting horseracing from the higher rates, the industry could still feel the consequences of this Government’s approach to gambling duties. When the online betting sector is squeezed, sponsorship is likely to be reduced, and because racing’s funding depends heavily on those partnerships and that sponsorship, we could see an impact on racing. In my area of Norfolk, we are very fortunate to have Fakenham races—I went there to support the British Horseracing Authority’s campaign against the Government’s plans. That venue is synonymous with the area and its identity, and is a source of local employment, not just at the track itself but for the farriers, the pubs, the hotels and the whole ecosystem that supports racing. That is why these clauses in the Bill continue to pose a risk to the sector and other sports, and that risk needs to be accounted for.

I now turn to the black market, an issue that was raised by the hon. Member for Stoke-on-Trent Central (Gareth Snell) and my right hon. Friend the Member for Stone, Great Wyrley and Penkridge (Sir Gavin Williamson). The Government have acknowledged the risks associated with taking this approach, which is why they quietly set aside £26 million for the Gambling Commission to combat expansion of the black market, but the same EY analysis suggests that over £6 billion in stakes could migrate to the black market, doubling its current size and undermining the progress that has been made through the existing regulatory framework. The Office for Budget Responsibility has identified potential leakage of around £500 million in lost revenue as activity shifts away from properly regulated markets. Those projections—which again could be wrong, but could also be right—raise legitimate questions about the overall effectiveness of the Government’s approach.

When taxes rise too far, behaviour can change and the yield can go down, which is what we will see with a number of the tax rises that the Government have included in their Finance Bill. Rather than reducing demand, activity will move to unregulated markets where consumer protections are weaker, fraud risks are higher, and tax revenue is not collected. I am not sure we have heard a convincing response from the Minister about how that will be addressed and whether those risks have been taken properly into account.

Let us look at what happened in the Netherlands, where the Dutch Government raised their remote slots tax rate to 34% last January. Within months, gross gaming revenue fell by a quarter and gambling tax receipts dropped to just 83% of the previous year’s figure, leaving a €200 million shortfall from the projections. Somewhat predictably, the Dutch regulator then reported a huge growth in the number of people accessing unlicensed domains, rising from 200,000 to a million. That should serve as an example of why we should be cautious about the Chancellor’s plans. Experience suggests that changes have unintended consequences, and those risks must be carefully assessed. In winding up, will the Minister provide a bit more clarity about how that will be monitored and what steps the Government will take if there are unintended consequences and those projections prove to be accurate?

There is some debate and confusion in the sector and some of the professional bodies about the treatment of free bets and free plays. The sector and those bodies have raised concerns about that. The Budget costings document calculates gambling duty using the gross gambling yield, which is the revenue retained by operators after paying out winnings to customers. However, current law uses a wider measure, which also counts the value of free bets and free plays. That means there is a potential mismatch. Will the Minister clarify that? I am sure she has had representations on it directly.

We need to strike a balance with the levels of taxation. The industry is warning that these increases will impact on sports and lead to job losses and more black market activity. New clause 25 seeks transparency and an answer to those concerns. It asks the Chancellor to assess the impact of these rises on horseracing, the black market, jobs and the public finances. That is the minimum that Parliament should expect, and I hope Members will support our new clause.

[Lizzi Collinge (Morecambe and Lunesdale) (Lab)]

I rise to speak to clauses 83 to 85 and schedule 13, which respectively outline: an increase in tax on online gaming, such as online slots or casino games; a new rate of general betting duty specifically for online betting, such as placing a bet on a football match; and, removing bingo duty.

Online gambling has evolved quickly, and legislation has simply not kept up. Before, someone might have popped down to their local high-street betting shop or organised a trip with their friends to the casino. It was confined to a specific place that people had to go to and then at some point leave. That does not mean that there were no problem gamblers—of course there were—but it did impose necessary social and physical limits on gambling. Online gambling has changed that beyond all recognition. Now, that casino fits into someone’s pocket. Online platforms know people’s habits, when they use their phone most and when they have not gambled in a while, and the platforms can tailor notifications to pull people back in. The technology is designed to prey on human instinct, using algorithms that make betting time-sensitive, compulsive and constantly available. In case the opportunity to gamble ever slips someone’s mind, gambling companies will be sure to remind them in a commercial break for sports matches, on the side of buses and emblazoned on the microphone at premier league post-match interviews.

People might see some of the seemingly generous offers they are given. For their first £5, the betting companies might give them £100 or even £200 credit to gamble with. That feels like a lot of money to most people, but it is pennies compared with what the companies are making from their current customers and what they might make from you, once you are hooked.

As someone who, to be frank, does not like gambling—I do not gamble, and I do not understand why people enjoy handing their money over to betting companies—I detest the tactics used by gambling companies to pull people in. As online gambling has evolved exponentially, the online platforms have been able to get away with dodging responsibility for problem gambling or for paying their fair share into the Treasury. As my dad always says, “You never meet a poor bookie.” That is why I support clause 84, which will introduce a new higher rate of tax on remote betting, so that online bets are more expensive compared with in-person betting. Those taxes will be paid by the platform, so that we can catch up, finally, with the reality of the gambling world, which has moved far beyond the traditional model of shops and casinos that the tax system was designed around.

Clause 83 raises the rate of remote gaming duty, the tax on online slots and casinos. That reduces the incentives for operators to push the most harmful forms of online gambling, making the system fairer and safer for everyone. I represent Morecambe, a seaside town with a host of gaming businesses on the front and a bingo hall. The evidence shows that it is not the penny slots or the weekly bingo games that drive the majority of problem gambling, and I am pleased that the new remote gaming and betting duties recognise that.

--- Later in debate ---

[The Chairman of Ways and Means (Ms Nusrat Ghani)]

I call the shadow Minister.

[James Wild]

It feels like we are getting warmed up for scrutinising the 536 pages of the Bill upstairs in the Public Bill Committee shortly. It is good to see that the popularity of the topics we are debating has increased as we move on to alcohol duty, which clause 86 increases in line with the retail prices index from 1 February.

I am proud to confirm that His Majesty’s Opposition are big supporters of beer, wine, spirits and hospitality businesses. As such, we oppose these tax rises. This £26 billion tax-raising Budget piles pressure on households and businesses that are already struggling because of the decisions of the Chancellor. Prices are high, growth is sluggish and now the Chancellor has chosen to impose another duty hike.

Our new clause 26 would therefore require the Chancellor to publish a statement on the impact of increasing alcohol duty on the hospitality sector, on pubs, on UK wine, spirit and beer producers, on jobs and on the public finances. These sectors are already being hammered by this Government’s economic choices. A Government who say that the cost of living is their priority are raising alcohol duty, putting more cost on to people and businesses that keep our rural communities and high streets alive.

[Dr Scott Arthur (Edinburgh South West) (Lab)]

May I start by wishing everybody taking part in dry January good luck? I admit that I am not one of them. It is fantastic that the shadow Minister is talking about the impact of these changes, but I am surprised that his list did not include alcohol harm. Many charities and campaign groups are pleased that the Government are trying to move people away from drinking at home to drinking in the hospitality sector. Does he accept that that is a good thing and its benefits should be evaluated?

[James Wild]

Indeed. When we brought in the new duty system, we focused on the strength of alcohol in terms of the tax. We want to encourage more people into the hospitality sector, but the Government seem to have a policy of driving people away from going into pubs—and not just Labour MPs.

In government, we recognised the importance of those sectors to jobs, to our communities and to growth, and the simplified duty system, including the two new reliefs—draught relief and small producer relief—were warmly welcomed. My hon. Friend the Member for Kingswinford and South Staffordshire (Mike Wood) made the point that the Government are choosing not to implement similar measures on draught relief. At the 2023 autumn statement we froze alcohol duty rates, and we extended that freeze in the spring Budget of 2024. I am proud to support that record: we had a Government working with the sector, not against it. It gives me no pleasure to say that this Government have chosen a very different path.

[Sir Edward Leigh (Gainsborough) (Con)]

My hon. Friend and I both represent large, rural constituencies. Could Members across the House think creatively about how we are going to save the great British rural pub? That could be by giving special credence to those who sell draught beer, rather than selling it in supermarkets, or through national insurance—all that sort of thing. Otherwise a great institution, which most people have to drive to, will be in danger of extinction. Are those pubs not part of our history?

[James Wild]

They absolutely are. I would be happy to come to my right hon. Friend’s constituency to discuss this over a pint in one of those small rural pubs, which are the hub of our villages and hamlets. Once they are gone, it is very difficult to replace them. The Government clearly have the hospitality sector in their crosshairs, and clause 86 is just the latest salvo.

This is no small corner of the economy. Some 3.5 million people are employed directly in the sector, which invests £7 billion a year, yet the industry is being punished by the Chancellor’s decisions and this clause. UKHospitality’s “#TaxedOut” campaign has highlighted the nearly 90,000 jobs lost in this sector. With unemployment now above 5%, young people in particular are paying the price. That is a consequence of the Chancellor’s damaging tax rises, which were supported by Labour Members.

Higher alcohol duties, the jobs tax, energy bills and soaring business rates are layering cost on cost. It is little wonder that UKHospitality has called the Government’s approach a “hammer blow”.

[Ian Roome (North Devon) (LD)]

Does the shadow Minister agree that as a result of this policy, lots of local pubs, including lots more in the hospitality industry, will go out of business?

[James Wild]

That is very clearly the risk.

The British Beer and Pub Association has said that the proposed increases will be damaging to the sector, and we may well see more closures as a result. New clause 26 would shine a light on the real impact that these decisions will have on rural pubs, jobs and businesses. I hope the Minister will consider the new clause and not simply dismiss it by referring to the tax and information impact note, as she did with an earlier group of amendments. That is a prediction of what will happen; it is not a review of what the actuality is.

[Dr Luke Evans (Hinckley and Bosworth) (Con)]

This new clause is even more important given the fact that the Government, the Chancellor and the Prime Minister understand the impact that the Bill will have on pubs. They have said that they will bring forward measures to help and support pubs, yet we have not seen those measures, because they are not in this Bill. We therefore need to have some form of accountability to be able to understand the impact of not only the measures before us, which we can vote on, but the proposed ones that will come in to support the measures that the Government are already looking to put in this Bill, which will have an impact. Does that make sense? Does my hon. Friend agree?

[James Wild]

I think that makes sense, and I certainly agree with my hon. Friend.

The Government are having to try to put in place solutions to deal with problems that they have created. If Labour MPs were welcome in pubs across the country, they would hear quite how difficult—

[Gareth Snell]

I am!

[James Wild]

I am sure that the hon. Member is welcome, but let us be clear that some are not.

If I go into a pub, I do not think I will find many publicans who think that this Government are pro-pub. We have a Chancellor who said that she did not understand the impact that her Budget, the revaluation and the removal of the discount on business rates would have. That is staggering. Frankly, it shows once again that she does not understand business and was not listening when the sector and many others warned that that was precisely the impact that her policy would have.

The Chancellor is reportedly about to do a U-turn on her business rates raid. She has not come to the House yet to inform us or the sector, but what is being briefed is likely to be wholly inadequate. On the radio this morning we heard Ministers saying that the impact will be limited to pubs, but the hospitality sector, leisure businesses and retail all face huge increases in business rates.

[Mr Joshua Reynolds]

Does the shadow Minister agree that if this Labour climbdown is happening, it is not enough for there to be a smaller increase than the one that was planned? There needs to be no increase in business rates.

--- Later in debate ---

[James Wild]

The hon. Gentleman tempts me on to my next paragraph.

Instead of tinkering, the Chancellor should adopt Conservative party policies and abolish business rates for pubs, hospitality businesses, retail and leisure businesses, as well as slashing the average pub’s energy bill by £1,000. That is real help—the Minister can have those ideas for free.

The duty increases will also have an impact on the UK’s world-class wine and spirits producers, which together generate £76 billion in economic activity. Across our wine sector, there are more than 1,000 vineyards, including some excellent ones in North West Norfolk, which I recommend. Despite that success, we see the Government putting yet more costs on to the sector; some 60% of the price of a bottle of wine already goes to tax. Instead of listening to calls from the sector to freeze duty, the Chancellor has decided to increase it, and she has failed to fix the small producer relief so that it works for wine makers and distillers.

The picture is no rosier in the spirits sector. The Scotch Whisky Association has said that the increase piles additional pressure on to a sector already suffering from job losses, stalled investment and business closures. It estimates that the lost revenue to the Treasury as a result of the previous rise in spirits duty amounted to about £150 million. The UK Spirits Alliance has called the Budget

“a sad day for the nation’s distillers, pubs and the wider hospitality sector.”

WineGB joins its ranks in pointing out that higher prices will likely lead to lower sales and reduce the Treasury revenue, so the sector could not be clearer. The only people still pretending this is good economics are those on the Government Benches.

When the Government should be backing businesses, they are instead choosing to add to their costs. Increased taxes have consequences—they depress demand and revenue. In October, YouGov found that one in four regular drinkers was likely to reduce their alcohol spend this year due to price increases, and the Wine and Spirit Trade Association has called for the OBR’s forecasting assumptions to be reviewed. The Government are putting themselves and the UK on the wrong side of the Laffer curve, which the hon. Member for Stoke-on-Trent Central (Gareth Snell) should read more about—he will be persuaded. Ministers should take fresh advice on the impact of these changes.

The UK’s brewers, producers and hospitality businesses are resilient. Frankly, in the face of this Government’s onslaught, they need to be. They are at the heart of our communities, creating jobs, driving local growth and giving many young people their first opportunity in work. Now is the time to support the sector, not tax it more, which is why we will be voting against these measures this evening.

[Laurence Turner (Birmingham Northfield) (Lab)]

I draw attention to my chairship of the GMB parliamentary group, a union that represents workers in the distillery and retail trades. I will limit my comments to the uprating of excise duty, but I welcome this Budget more generally. It represents the right choice—investment and renewal over austerity and decline.

Clause 86 of the Finance (No. 2) Bill represents a simple uprating of alcohol duty in accordance with the retail prices index. In that sense, the clause represents continuity with the policy of successive Governments over many years, going back to the early 1970s, and of course the principle of excise duty predates that by many more years. Having noted the shadow Minister’s comments, it is telling that none of the amendments we are considering today would actively reverse that increase. The effects of the escalator is also softened to an extent by the reduction for draught products, which, combined with pre-existing changes to the tax system, amount to a somewhat more favourable regime for the drinks most sold in pubs. This direction of policy is welcome, given everything we know about the attendant health and social harm that can be the result of solo drinking.

It is worth noting that the increase is in line with international best practice. It is timely that just today, the World Health Organisation published a new report titled “Global report on the use of alcohol taxes”. That report says that

“specific excise taxes need to be regularly adjusted for inflation or their real value risks erosion over time.”

It also establishes that the UK’s effective tax take is firmly in line with many other European countries, including Belgium and much of central and eastern Europe, and of course it is significantly lower than in Scandinavia. As such, uprating the duty strikes the right balance between the different objectives of encouraging social activity, supporting the hospitality and manufacturing industries, and not encouraging excessive consumption. It is true that there have been changes in alcohol consumption rates among the general public, changes that have been particularly marked since covid. As the 2024 living costs and food survey found, there has been a notable fall in real-terms alcohol consumption, both in and out of the home, which is why specific measures are needed to support the pub trade.

If I may, I will say a few words about the revaluation 2026 process. I have raised questions about this before, and the Minister has indicated that—as the phrase goes—discussions are ongoing, so in the interests of time I will not repeat my questions today. However, I would like to note two things. First, the Valuation Office Agency has been genuinely independent since the days of the increment value duty, and secondly, valuation 2026 has been coming for a long time. It was the last Government who changed the law to introduce three-year valuation exercises, and as successive annual reports of the VOA make clear, the risk of valuations in individual sectors that are not of sufficient quality was foreseen. A delivery plan was developed before the 2024 general election to mitigate that risk, as the VOA saw it. Presumably the Government of the day did not have concerns about the VOA’s approach, because if they did, they would have raised them on the record.

I will make two further brief points, the first of which is about the tax system’s treatment of different types of alcohol sales. Something needs to be done about the sale of high-strength drinks on our high streets in proximity to betting shops. If you were to go to Northfield high street, Ms Cummins, you would see a succession of small betting shops immediately next to off-licences where very low cost, but very high strength beers and ciders are sold. There is a revolving door between those premises, and it is a major contribution to some of the antisocial problems that we have on our high streets. I hope that future exercises will look at different treatments, whether that is powers for local authorities or changes to the tax system to try to remedy the problem.

Rural Fuel Duty Relief

James Wild Excerpts

Wednesday 7th January 2026 Westminster Hall

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

I congratulate the hon. Member for North Devon (Ian Roome) on securing this debate, and I thank all hon. Members for the contributions that we have heard. It was a Conservative Government that introduced the rural fuel duty relief scheme in 2019, and that was in recognition of the fact that remote communities face higher pump prices due to the high cost of transporting and distributing fuel.

The scheme was subsequently extended again in 2015 to include more areas across England and Scotland, providing a welcome 5p per litre reduction in prices to help families and businesses in those areas, particularly where they might have only one filling station to choose from. The scheme recognised that rural communities, especially isolated ones, face challenges that justify targeted support. As we have heard from hon. Members, it has proved effective and needed.

In the main Chamber, my right hon. Friend the Member for Louth and Horncastle (Victoria Atkins), the shadow Environment Secretary, has been setting out the support that the Conservatives have consistently provided for people in rural Britain; many of my colleagues are speaking in that debate. In government, we demonstrated our commitment to those who live and work in the countryside, including my North West Norfolk constituents.

Our fuel duty record underlined that. As well as the rural fuel duty relief, we froze fuel duty every year from 2011. In March 2022, we went further and introduced a 5p cut to fuel duty across the board. That was not merely about tax policy; it was about recognising that, for rural communities, a car or a van is a lifeline, not a luxury. It connects farmers to markets, helps children get to school, helps people get to work or health appointments and keeps rural enterprises in business. Every penny added to the cost of fuel has a multiplied effect in areas where public transport is limited and journeys are longer.

Our support for rural communities extended far beyond fuel duty to infrastructure and supporting agricultural businesses, recognising their vital contribution to our country and to the social fabric—what a contrast to what we have seen under this Government. The Government say that the cost of living is their priority, but they are adding to the costs for families and businesses. Inflation was at 2% when the Government came in, and they have nearly doubled it. The much-vaunted promise of £300 off energy bills is nowhere to be seen.

In her Budget, the Chancellor announced that Labour would end the 5p fuel duty cut that we introduced. That measure will take effect from September this year, and will see the average family pay £100 a year more. The Road Haulage Association estimates that it will add more than £2,000 a year to the operating costs of a heavy goods vehicle. From April next year, the Government will scrap the 16-year fuel duty freeze that we introduced, and inflation-linked rises will follow. That marks the end of the support offered to motorists through the freeze since 2010, which has saved them £120 billion. That puts in context the modest £5 million or so cost of the rural fuel duty relief.

In November, the Chancellor also announced her pay-per-mile tax on electric vehicles, which is set to cost drivers an extra £255 a year. It is little wonder that the RAC has said that simply keeping vehicles on the road has become a significant financial challenge. The Prime Minister has been boasting about the £3 bus cap—a cap that he increased by 50%. Whether it is fuel duty or public transport, the Government are making things harder and more expensive for rural communities.

Rural communities are not only being punished at the pump. In the debate, we have heard reference to the family farm tax, which breaks up the farms that form the backbone of our rural communities. The modest change that the Minister has announced is welcome as far as it goes, but given the damage that the tax will do, the Conservatives are committed to reversing it entirely.

As well as the increases to fuel duty, business rates will increase, hitting rural pubs and businesses. UKHospitality estimates that an average pub will pay an extra £12,900 over the next three years. The Minister was sent out to defend the farm tax, and he said there would not be changes, but then there were. At Treasury questions, I called on the Chancellor to look again at business rates increases, and the Minister ruled that out then, but we read today that there may be changes. Apparently the Business Secretary has even noticed the damage that the increases will do—presumably not after discussing them in a pub, given that many Labour MPs have been barred. Will the Minister therefore confirm whether the Government are considering making those changes, as the sector and many across the House have called for?

The rural fuel duty relief scheme reflects an approach to governing that recognises the distinct challenges and vital importance of our rural communities. We introduced the scheme and extended it, and throughout our time in government we demonstrated that we understand and support those who live and work in the countryside. Given that it is now more than a decade since the scheme was last expanded, and given its modest cost, I fully support a review of the relief. The Treasury often says that it keeps taxes under review, but this measure deserves a proactive review, and I hope that the Minister will commit to one.

By contrast, this Government’s tax rise after tax rise make life harder for rural businesses and rural people. Against a backdrop of weak growth and rising unemployment, Labour’s approach sadly threatens the fabric of our rural communities. Those rural communities deserve much better.

Conduct of the Chancellor of the Exchequer

James Wild Excerpts

Wednesday 10th December 2025 Commons Chamber

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

This is a rare and serious conduct motion that calls on the Chancellor of the Exchequer to apologise for misleading the country about the state of the public finances, breaking promises on tax and breaching the OBR confidentiality process—in short, for not being straight with the British people.

I was expecting to refer to more contributions this afternoon, but it has been a slightly curtailed debate. [Interruption.] We had the comprehensive introduction from my right hon. Friend the shadow Chancellor. The hon. Members for Harlow (Chris Vince) and for Loughborough (Dr Sandher) were surprised and disappointed that the Chancellor is being held to account not for her personality, but for her conduct. As my right hon. Friend the Member for Beverley and Holderness (Graham Stuart) just said, this debate is about honesty, trust and confidence and what happens as a result, and about the “shenanigans”, as my hon. Friend the Member for West Worcestershire (Dame Harriett Baldwin) put it.

On Times Radio this morning, the shadow Chancellor was asked why this debate matters. It matters because the deliberate briefing and misrepresentation of the Budget has damaged workers, savers, pensioners and investors. Let us start with the simple truth: this Government and the Chancellor spun false narratives about the public finances to justify their political choices to increase welfare spending.

[Peter Swallow (Bracknell) (Lab)]

During the Budget debate, I asked the shadow Chancellor whether he would address the fact that, on multiple occasions, he referred to the public finances in a fantastically negative tone that appeared far from the truth that was revealed at the Budget, suggesting at one point that there was a £40 billion black hole in the public finances. As the shadow Minister says that we were not being straight with the public about the state of the public finances, will he take this opportunity to apologise on behalf of his colleague for doing just that?

[James Wild]

If the hon. Gentleman had been here for the whole debate, he would have had the opportunity of the opening 45-minute speech to put that to my right hon. Friend.

What happened as a result of all the policy kites that were flown? Pensions were drawn down, fewer mortgages were approved and investment was paused. That is not my verdict; the Bank of England warned that the economy was heading for slowdown as a result of the uncertainty, the British Chambers of Commerce said that that uncertainty affected investment and recruitment, and hundreds of thousands of people drew down their pensions. Those are the real impacts of that activity—the shenanigans—and there is genuine anger across the country at the damage such uncertainty caused. The Chancellor must take responsibility because she is responsible for that uncertainty.

People are already cynical about politics, but what could do more to undermine trust than abusing the OBR process to cook up a story to make a case for higher taxes that were not needed? It is the Chancellor who is at the centre of misleading the country. On 4 November, she staged that unprecedented press conference to roll the pitch for tax rises.

[Luke Murphy]

Will the hon. Gentleman give way?

[James Wild]

I will not. In breach of the confidentiality rules, the Chancellor warned that the OBR productivity downgrade meant lower tax receipts. Indeed it did, but the OBR report makes it clear that that downgrade was more than addressed by higher tax receipts. In other words, there was no black hole. The Chancellor had the numbers and she knew the position. Now we know what she said was simply not true. Instead, she crafted a narrative to justify decisions to increase taxes to fund higher welfare spending.

On 13 November, the Financial Times reported that the Chancellor had decided against the much-briefed income tax increases. The next day, after the gilt market had responded badly, journalists were briefed that the tax rises would not happen thanks to an improved fiscal forecast. Yet that is not what the OBR pre-financial measures said. Little wonder the OBR took that extraordinary step of publishing the forecasts, exposing the truth that there was no giant deficit, as briefed to the press.

The OBR said it took that action to address misconceptions about the forecasts. Where might such misconceptions come from? We do not need to be Sherlock Holmes to identify the Treasury as the culprit.

[Luke Murphy]

The OBR told the Treasury Committee, on which I sit, that the narrative that the Chancellor set out on 4 November was consistent with the forecast at that time. When the OBR made that point, was it right or wrong? Are you questioning what the OBR said?

[James Wild]

I am sure that Madam Deputy Speaker is not questioning anyone. I am pointing out that the Chancellor said that there was a big £16 billion downgrade from the productivity—that was all offset—but she did not mention that—[Interruption.] If the Minister wants to intervene to say that she did mention that on 4 November, I will give way. She did not. She did not at all.

Yesterday, when the Chancellor was asked in the House if she had authorised or allowed confidential details of the Budget or forecasts to be briefed to the press, she gave a categorical no. If the Chancellor did not license briefings, can the Minister give a cast-iron commitment that no other Ministers, special advisers or officials in the Treasury or No. 10 briefed or authorised briefings about potential measures or the forecasts? Frankly, if you believe that all of those were unauthorised briefings, the Treasury is utterly out of control and I have a bridge to sell you. There is a leak inquiry, but the permanent secretary said today that it centres on 13 November, not on the tsunami of tall tales on potential Budget measures. Why might that be, I wonder. Nothing less than a full inquiry, with the findings made public, will do.

That brings us to the broken promises referred to in the motion. A year ago, the Chancellor delivered the biggest tax-raising Budget in modern history, hitting the British people with £40 billion of tax rises. Then in this Budget, taxes were increased yet again, by £26 billion, despite the Chancellor promising not to come back for more. Life comes at you fast. A year ago, the Chancellor also said that extending the freeze on income tax thresholds

“would hurt working people. It would take more money out of their payslips.”—[Official Report, 30 October 2024; Vol. 755, c. 821.]

Do Labour Members remember her saying that? I certainly do. She said that she would not freeze the thresholds. Then what did she do? Oh, she froze the thresholds. She imposed a three-year extension, with £23 billion coming out of the pockets of 1.7 million people who will pay higher taxes for her failures. As the motion says, the Chancellor should apologise for breaking her promise not to raise taxes again.

What Chancellors say matters. The public and the markets need to believe them, and to trust that they are not being misled. That is not the case around the events of this Budget. That is why this motion calls on the Chancellor to apologise for the misleading picture she presented of the public finances, for the Treasury briefings that did so much damage to businesses and to people, and for breaking her promise not to increase taxes. Frankly, in the face of such a charge sheet, an apology is the very least that the British public deserve. I commend this motion to the House.

--- Later in debate ---

[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

James Wild Excerpts

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.

The Customs Tariff (Establishment) (EU Exit) (Amendment) Regulations 2025

James Wild Excerpts

Monday 8th December 2025 General Committees

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

It is a pleasure to serve under your chairmanship, Ms Barker. As the Minister said, this statutory instrument clears up a couple of errors, one of which happened on our watch, as he pointed out—fair cop; we plead guilty to that one. The other part of the instrument corrects a previous error by reinstating the 14% import duty for fruit jellies, marmalades, fruit or nut purée and fruit or nut pastes.

There is no impact assessment for the instrument because, as the explanatory memorandum says, the impact on the private and public sector is expected to be minimal, but I did get the House of Commons Library to do a bit of research for me. According to HMRC’s trade tariff tool, the incorrectly applied 0% tariff on jams, fruit jellies, marmalades, fruit or nut purée and fruit or nut pastes appeared on July 2025, and the UK imported roughly £3.2 million of such products in 2024. I am keen to understand from the Minister how the error occurred. Was it simply human error? What measures are in place to prevent slightly more important tariff codes being incorrectly entered, with the impact that that could have?

Tariffs are taxes, of course, with higher prices passed on to consumers. We have just had a Budget that increased taxes on incomes, savings and employment, and that introduced a new tourist tax and a taxi tax. We now have another one: the marmalade tax. Marmalade makers in Peru will be giving the Minister a Paddington stare after this.

On basmati rice, as the Minister said, this was an error made by the previous Conservative Government. The Library was unable to find any data on the volume imported, so how much does he expect the new £25 a tonne rate—the rate that should have been in place—to raise in the years to come? If he does not have those figures at his fingertips, perhaps he will write to me.

To conclude, higher import tariffs mean higher prices for consumers. There can be good reasons for them, such as ensuring a level playing field for our domestic producers, but it does seem that this Government have yet to come across a tax they do not like—even on marmalade.