Finance Bill

Yuan Yang Excerpts

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

By the Chancellor’s own admission, these measures make Britain a worse place in which to start and grow a business. In fact, the measures tell entrepreneurs, “Don’t start up, sell up”. They introduce a tax rise, which, unbelievably, loses money. I hope hon. Members will agree that we need to shed more light on the true impact of the Budget.

[Yuan Yang (Earley and Woodley) (Lab)]

It is a pleasure to serve under your chairship, Madam Chair. I will talk mostly about new clause 5 on capital gains tax, but, given the remarks by the shadow Minister, I will make a few points on the broader matter and on incentives to start a new business.

My constituency of Earley and Woodley in the Thames Valley is one of the hottest destinations for business investment and for new start-ups in the tech and pharmaceutical sectors. I have met a number of those inspiring entrepreneurs to talk about their start of the business journey. As is widely known, when entrepreneurs start passionately with a project, they are thinking not about the disposal and taxation regime at the end of their journey, but about the infrastructure and the support that they will have around them that brings their idea to fruition. For the tech and pharmaceutical entrepreneurs in Earley and Woodley, that is about a transport infrastructure, a skills base, and schools, colleges and universities in the area that can produce the kinds of graduates who will then staff their company. It is about a regime that is welcoming to entrepreneurship and is welcoming for people to live in and to prosper in. For all those reasons, I very much support our Budget and the Budget that brings more investment to infrastructure across the UK.

First, I welcome the measures on capital gains tax introduced in new clause 5. Let me remind Conservative Members that it was Chancellor Nigel Lawson who, in a much more dramatic measure than that proposed today, equalised the rate of capital gains tax with income tax in 1988. That equalisation was proposed because of tax avoidance. To many people listening to the debate, capital gains tax will not be familiar because, like me, their main means of taxation will be income tax and they will not have come into contact with CGT.

For the purposes of understanding, let me illustrate what I mean by “tax avoidance”. The issue was raised with me by a retired consultant when I was canvassing in the summer in the north of my constituency. When I knocked on his door, he said, “What are you going to do about capital gains tax? I want you to ensure that this doesn’t happen any more.” He then proceeded to illustrate the means by which he had paid less income tax than he otherwise would have done through the capital gains tax system. It was a principled and honourable admission for him to make to his then parliamentary candidate on the doorstep.

Many of us pay income tax, and we are all familiar with the way that it is structured. Among those of us who do not receive income from payroll—that is, who do not work for a company—but have the ability to structure it as self-employed or consultancy income and funnel it into a business of our own creation, that is a channel by which many people avoid paying income tax on activities that are arguably income-like. That happens, as I said, for a minority of people in the UK. The vast majority do not have access to that route because they earn through working for other people through companies, and they are on the payroll and not able to structure their own companies. When those companies holding the—arguably—income revenues are disposed of, that is when capital gains tax comes into the picture. Of course, the rate of capital gains tax is much lower than the rate of income tax, and that is where the gap comes from that was illustrated by my retired constituent.

Madam Deputy Speaker, it is important that the tax system is efficient in raising revenues, which is what our Budget sets out. The tax system must also be principled in ensuring that the tax purposes to which we have allocated certain measures raise the right taxes and are targeted towards the kinds of activities that are meant to be taxed. All of us in the Committee would probably agree that we should pay tax through a progressive system that distinguishes between different forms of revenue-raising activities, but that allocates people fairly and proportionately to those right and relevant activities.

I am reminded of the announcements that came out during the last Government regarding the tax affairs of the former Prime Minister, the right hon. Member for Richmond and Northallerton (Rishi Sunak), who paid 23% in average tax on his £2.2 million in earnings. That was of course possible because of the relatively low rate of capital gains tax that he was paying on the vast majority of his earnings, which came through capital and not through earned income.

Again, to the vast majority of people listening to the debate, I am sure that that is a reality far outside their understanding. The vast majority of people in the UK earn income through going out to work and working hard every day. It is for those people—the working people of this country—that this Budget has been made, so that we can lift livelihoods across the country by properly funding our public services and by closing the significant in-year overspend that the previous Government made of £22 billion. Through those measures, and by ensuring the financial stability of our tax system and the economic stability of our country, we will start to raise living standards across the UK. For those reasons, I very much support the measures.

[The Chairman of Ways and Means]

As colleagues will notice, the Speaker’s Chair is vacant, so I remind Members that the Chair should be addressed as Madam Chair or Madam Chairman. I call the Liberal Democrat spokesperson.

--- Later in debate ---

[The Chairman of Ways and Means]

I call Yuan Yang.

[Yuan Yang]

Thank you, Ms Ghani. I apologise for my inconsistent bobbing. I am still learning when to stand up, but what has gone up and stayed up are the record profits of the oil and gas majors. I will start my speech on that topic, and will go on to speak about where those profits have come from and, finally, what the proceeds of our EPL will go to fund.

First, on those record profits, I think all Members of the Committee agree that the record profits in the oil and gas industry in 2022 were excessive. In 2023, however, the profits for Shell, the largest oil and gas major in Europe, barely decreased from the previous year. In fact, if we take its profits from the first half of this year, Shell looks likely to eclipse even those of last year. In the first half of this year, Shell has had profits of $14 billion. Half of that went to share buybacks, which do nothing to fund the decarbonisation that is so necessary to secure the future of energy production here in the UK and around the world. Those record profits, much of which have been handed back to shareholders, are going in the opposite direction of what ordinary families and working people need. Rather than reinvest in the transitions of the future, I would argue that the Conservative party is looking at the industries of the past and clinging on to a past that is quickly fading from reality.

Secondly, let us look at where those profits have come from. The House of Commons Library states that generally lower wholesale prices in the last year led suppliers to start offering fixed tariffs, as of summer 2023. However, they have been far more cautious in pricing those tariffs, with prices close to the level of the energy cap. Any return to competition in the market is expected to be slow. That reflects the state of affairs we face today. The wholesale prices of oil and gas—as an example, look at the price of Brent crude in the market today—are back below the levels they were pre the Russian invasion of Ukraine, yet the retail prices facing ordinary working families in the UK are still far above those levels. What happens in the middle? The profits are being taken by the oil and gas companies. Largely, they are not being reinvested in the productive sectors of the future, but being paid back to shareholders.

In any market where the return of competition is expected to be slow, there is a role for the Government to regulate the fair share of proceeds—who gets the surplus from that market. Here I pause and say that when we look across the Committee to who is arguing for the interests of working people and who is arguing for the interests of the oil and gas profit-making giants, the political divisions are clear. There are schools in my constituency that are fundraising to insulate themselves. The Maiden Erlegh school where I live is asking its parent association to provide better wooden frames for its windows, because they leak in winter. That is the public estate that our Government have been elected to fix and repair. We will set about doing so with the profits from the levies set out in the Bill we are discussing today.

[Harriet Cross]

I thank the hon. Member for giving way. She says it is clear who is on the side of working people versus the companies. My constituents are the people working in the oil and gas sector. They are the ones most at risk of losing their jobs if the changes brought in through the EPL go wrong. I am on the side of working people, and I am on the side of my constituents. No matter what MPs across the House say, I will always fight for my working people in Gordon and Buchan who just happen to be working people in the oil and gas sector.

[Yuan Yang]

I thank the hon. Lady for her intervention, and, at this point, refer to my entry in the Register of Members’ Financial Interests and my support from the unionised voices of those who work in the sector to which she referred. I commend the Government’s green prosperity plan to initiate a skills transition, and provide funding for it, so that those workers can profit from the industries of the future rather than the industries of the present and the past.

As the Minister said, the energy profits levy will raise £2.3 billion over the current Parliament, which will go towards the funding of, for instance, Great British Energy. GB Energy, whose headquarters are in Aberdeen, will bring innovation in green technologies not only to Scotland but to the whole of the UK. I will forgive, for a moment, the hon. Member for Angus and Perthshire Glens (Dave Doogan) for perhaps not recognising my hon. Friend the Member for Hamilton and Clyde Valley (Imogen Walker)—I know that an awful lot of new Scottish Members were elected in the last general election, and it must be difficult to learn all their faces. I ask the hon. Member to reflect on the possible reasons for the election of a record number of Scottish Labour Members while he sets about learning their names and faces.

The Government’s auction of 130 wind, solar and tidal energy projects in the latest round of the contracts for difference scheme points the way to the future. It points the way to the generation of 95% of the UK’s energy through green and decarbonised energy by 2030; to a transition that everyone in this Committee, and certainly everyone on the Government Benches, is looking forward to seeing in the next 10 years; and to the delivery of the local power plan, which will support local energy projects in communities such as mine. I welcome the funding of local projects such as Reading Hydro, which takes hydroelectric energy from the Thames, and the work of Reading Community Energy Society, which generates solar energy on the rooftops of the University of Reading and rooftops across my constituency. I look forward to all those projects and to the projects of the future, which is why I commend the measures that we are discussing today.

Finance Bill (First sitting)

Yuan Yang Excerpts

Committee stage
Tuesday 28th January 2025 Public Bill Committees

[Yuan Yang (Earley and Woodley) (Lab)]

Might it not be more appropriate to view the measure in the context of the housing crisis that our country is currently in, and the record proportion of under-35s living at home with their parents rather than being able to live in their own accommodation? Does the hon. Member agree that there should be no tax incentives for accommodation to be turned into short-term furnished lets as opposed to long-term living places?

[The Chair]

Order. Can we keep the discussion within the context of the clause and the schedule?

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[Gareth Davies]

It is clear that the Government have launched an attack on farmers across rural communities in our country. The family farm tax is a disgrace. Farmers have protested and tried to make their voices heard, but still cannot get a meeting with the Chancellor of the Exchequer. I urge the Minister, who is very open to meetings, to have a word with his Chancellor, who is consistently in hiding and running out of the country when things get difficult as a result of her decisions.

Perhaps it is true that the Environment Secretary wants farmers to pay even more tax. Why else would he say to farmers in Oxford, “Convert your barns into holiday lets,” while over the road the Treasury is taking away these reliefs and making it more tax inefficient for them to do so? This is yet another area where the Labour Government seem intent on cancelling out genuinely pro-growth deregulation, which we welcome, with anti-growth taxation.

[Yuan Yang]

Will the hon. Gentleman give way?

[Gareth Davies]

Does the Labour Member who is about to intervene on me support holiday lets?

[Yuan Yang]

I am glad that we have returned to this topic, because I was about to ask the hon. Gentleman whether he might clarify the relationship between his remarks and the commercial letting of furnished holiday accommodation—[Interruption.] But of course I support the equalisation of tax measures provided for by the clause.

[Gareth Davies]

I am sorry, but there was a very loud cough when the hon. Lady intervened. Would she repeat her intervention?

[Yuan Yang]

I was simply hoping to get us back on to the topic of the commercial letting of furnished holiday accommodation.

[Gareth Davies]

Oh, so it was more of a heckle than an intervention, but that is very welcome too; it makes it a bit more lively for the very large audience we have today.

I would be grateful if the Minister could set out the policy of this Labour Government. Do they support holiday lets? The Environment Secretary clearly supports them and wants farmers to diversify into them, while at the same time the Treasury—yes, we announced the policy in March—clearly wants to tighten up the rules on taxation. It would be great to hear the Minister clarify that, but it seems that the answer depends on which Minister one talks to on any given day. Let us see what the answer is in this Committee, from this Minister, today.

Clause 25 also touches on a long-standing issue of whether letting constitutes a trading activity or a property business. The FHL regime created a clear distinction by deeming a letting business to be considered a trade for certain purposes. Some organisations, such as the excellent Chartered Institute of Taxation, are concerned that removing the regime removes this distinction and could open up a whole can of worms, leading to costly disputes for both the taxpayer and HMRC. Can the Minister clarify what defines a letting as a trading activity in the absence of the FHL regime, or at least commit to the publication of updated, clearer guidance for the industry on that subject? The Chartered Institute of Taxation is also seeking confirmation on the following points—

Finance Bill (Second sitting)

Yuan Yang Excerpts

Committee stage
Tuesday 28th January 2025 Public Bill Committees

[Gareth Davies]

Currently, a person who is UK resident but not UK domiciled pays tax on any UK income and gains but can choose for their non-UK income and gains to be taxed on a remittance basis. Part 2 of the Bill provides for the abolition of non-domiciled status from April 2025, as the Minister points out, and for its replacement with a new regime for the taxation of foreign incomes and gains on the basis of UK residence. It therefore terminates the current tax regime for those who are resident but not domiciled in the UK, while creating a temporary repatriation facility for historical foreign income and gains to be brought into the UK over the next three years. Those changes will also be applied to trusts under the Bill and inheritance tax will also be brought into the new, residence-based system.

Although the shape of the overall package is much the same as the one the Conservatives announced in the spring Budget 2024, there are a few notable differences on the detail. Before I move through the chapters—we will spend a bit of time on that, starting with chapter 1—I will first provide some context by noting that, net of the reforms we announced in March, Labour’s adjustments to the new regime are forecast to raise £12.7 billion over the next five years. This means the measure we are considering is the second biggest revenue-raising new policy in this entire Budget. Labour’s adjustments to the temporary repatriation facility alone account for £10.6 billion.

These are significant sums, but also highly uncertain, according to the OBR. There is significant uncertainty in particular around the behavioural responses and the size of the tax base, according to the OBR’s assessment. The OBR also says it is unclear to what extent inflows to the temporary repatriation facility are additional over the long term rather than bringing forward disposals which would otherwise have attracted full rates of taxation.

When the second biggest revenue-raising new policy in a Budget is so uncertain, according to the OBR, bond market jitters come as no surprise. The emphasis Labour has placed on this policy, which makes up a massive chunk of the Bill, is compounding its conundrum ahead of the OBR’s March forecast. It exacerbates fiscal instability by adding to the risk that revenues will not be as high as anticipated. This brings us back to the same old questions we have been asking, including in the Chamber today: which taxes will Labour have to raise if there is a shortfall, or which services will they have to cut? The Minister will say that we need to wait for the OBR’s revised forecasts, but will those include an update on these highly uncertain figures?

Turning specifically to chapter 1, clauses 37 and 39 introduce the new four-year 100% relief on eligible foreign income and gains for those arriving in the UK who have not been UK tax residents in the 10 tax years immediately prior to their arrival. I acknowledge that that mostly mirrors the proposals we put forward in the March Budget 2024 but would be grateful if the Minister could none the less address the following points.

[Yuan Yang (Earley and Woodley) (Lab)]

The hon. Gentleman raises the question of estimates around the level of revenue that would be generated by this important measure. Is he familiar with the work of Andy Summers and Arun Advani at LSE and the University of Warwick? Three years ago, in 2022, they modelled the effect of the 2017 tax reforms on non-doms and used that as a basis for statistical estimates for the proposal before us. While economics is a science that does to the best it can with the data available, I think there are some quite substantial measures available on the table for this proposal.

[Gareth Davies]

I am afraid I have not taken the time to read the academic reports, but I greatly value and emphasise the work of the OBR, which the Conservatives established in government. The new Government have taken it forward and are already seeking to bolster its impact on the Treasury’s work. If the hon. Lady will forgive me, it is the OBR’s work that I look at, and that work says that this budgetary measure is highly uncertain. As I was pointing out, that leaves questions for markets and for the Labour parliamentary party when it comes to which taxation will have to go up and what spending will be cut if that figure is not met. I will leave that to the Minister to address.

Finance Bill (Fourth sitting)

Yuan Yang Excerpts

Committee stage
Thursday 30th January 2025 Public Bill Committees

[James Wild]

I beg to move, That the clause be read a Second time.

To support growth, innovation and investment, we require a competitive tax environment for business. New clause 10 would require the Chancellor, within six months of the Bill being passed, to conduct a review of business and lay before the House a report setting out recommendations arising from the review, including recommendations on how to use business tax to encourage and increase the investment of profits and revenue, and on how to ensure that businesses have certainty about the taxes to which they are subject.

A common theme throughout the Committee has been the impact of the measures in the first Labour Budget for 14 years. Sadly, we know that that Budget and this Finance Bill introduce tax increases of around £40 billion a year—it is the biggest tax-raising Budget in modern history. It is businesses that are bearing the brunt, including the £25 billion a year through the jobs tax that the Government repeatedly promised during the election not to introduce.

The Government said that their priority is growth. We heard more about their plans yesterday, but we did not hear much about how their plans would deliver more growth in this Parliament, rather than in the long term. While that is welcome, I think people are also interested in the here and now. Having inherited the fastest-growing economy in the G7, the OBR then downgraded the growth rate by 0.7% in its forecast, as a result of the measures in the Budget. We have seen borrowing costs rise to the highest level for 27 years, inflation is above target and business confidence is plummeting. That latter point is what lies behind the new clause.

[Yuan Yang (Earley and Woodley) (Lab)]

Although I am very much in support of reviews, and the OBR is the right body to conduct ongoing reviews of the impact of taxation on growth, does the hon. Gentleman want to set out any direction in which the Opposition might want to take business taxes? If there is a certain direction, where will the costs and savings come from?

[James Wild]

Would that we had the happy chance to be sitting in the Treasury making the policy decisions. It is the Chancellor who will bring forward another fiscal event, and who may have to take some action to deal with the impact of her Budget. This is about what the Government will do and the review that they conduct and bring forward.

Business confidence is essential for investment, but it has been damaged by this Government, when they first came in, talking down the economy. We now hear a much more positive tone talking about our strengths, and the strong fundamentals of our economy, which were all points that the Opposition made throughout our period in office. We encouraged the Government to do the same when they came in, but they wanted to talk about a fantasy black hole and the worst economic inheritance, which has done a lot of damage to our economy.

The latest Confederation of British Industry growth indicator shows that private sector firms expect a significant fall in activity over the next three months. The latest purchasing managers’ index flash shows that one in four businesses have cut jobs due to employment costs. The Office for National Statistics showed that retail sales in December fell by 43%. This is a worrying state of affairs and any Members who speak to businesses will have heard the deep concerns over the hiking costs of employing people, the cut in business rate support for retail, leisure and hospitality businesses, and other measures.

The Budget put up taxes on entrepreneurs and wealth creators, and it is driving people who create wealth away from our country. The energy profits levy puts at risk 35,000 jobs in Scotland and the North sea. The family business tax, which was launched without any warning, has had a highly damaging impact on family farms and other family firms. That is why a review of business taxation is so necessary, with the objective of not only encouraging an increase in investment but providing certainty for firms. The Minister has spoken repeatedly about certainty, so I hope he will feel able to support the new clause.