Autumn Finance Bill gets backing of MPs, cutting SME R&D relief

These are the same measures listed in the Autumn Statement resolutions reported on here.

Second Reading debate on the Bill saw a number of MPs make proposals for tax reforms well outside the scope of the Bill, including a suggestion by Conservative MP Anthony Browne that the Government could create an R&D tax regime specifically for knowledge-intensive companies., and by another Conservative, Nigel Mills, that the Government should take a regional approach to some taxes to redistribute wealth within the country.

Committee stage debate saw a number of opposition amendments and new clauses debated, including a Lib Dem proposal that would have required HMRC to contact every individual who became liable to pay income tax or move from standard to higher rate as a result of the threshold freeze, telling them how much additional tax they will have to pay as a result. None of them was passed.

Second Reading debate

Ministers will probably be relieved that it was a relatively straightforward Second Reading debate, with no direct opposition to their tax increases from their backbenches. Labour opposed the freezing of the income tax personal allowance but their attempt to defeat the Bill failed.

Government opening speech

Exchequer Secretary to the Treasury James Cartlidge opened the Second Reading debate on the Bill by saying the Government is asking those with more to contribute more and avoiding the tax rises that most damage growth. Cartlidge said he was keen that the rise in the levy on oil and gas companies does not deter investment at a time when shoring up the country’s energy security is vital.

The R&D tax changes will help to reduce error and fraud in the system, claimed the MP. He added that the changes would improve the competitiveness of the RDEC scheme and are a step towards a simplified RDEC-like scheme for all.

On personal taxes and specifically the increase to 45p rate, independent MP Jonathan Edwards intervened to suggest a further band to be created for those earning very high wages because somebody earning £150,000 will pay about one per cent more in income tax, while somebody earning £1.5 million will pay only 0.1 per cent more because of the proposals. Cartlidge called this an ‘interesting suggestion’.

Richard Fuller, Conservative, intervened to complain that people in this country who earn more than £100,000 now face effective tax rates of 60 per cent or 50 per cent, to which Cartlidge said ‘we want to cut taxes if we can, but before we do so we have to get on top of inflation’.

Separately, the minister said it is fairer to bring the treatment of investment income and capital gains closer in line with that of earned income, while still ensuring that individuals are not taxed on low levels of income or capital gains.

He said that, by April 2028, the personal allowance, at £12,570, will still be more than £2,000 higher than if the Government had uprated it by inflation every financial year since 2010-11.

On the freezing of the inheritance tax threshold, the Exchequer Secretary said ‘we are asking everyone to contribute more towards sustainable public finances, but — importantly — we are doing this in a fair way’. The motoring tax system will continue to provide generous incentives to support electric vehicle uptake, he added.

Labour contributions

Shadow Financial Secretary James Murray (photographed above) spoke to Labour’s amendment that declines to let the Bill pass to the next stage because, among other things, it raises taxes on working people through its freeze of the personal allowance threshold and fails to take advantage of other sources of revenue, such as ending non-domiciled tax status and further reducing the tax allowances available to oil and gas companies.

On the energy profits levy, the Labour spokesperson said a tax break is being given to the oil and gas giants for doing the things they were going to do anyway, saying it will cost the taxpayer £80 billion over five years. 

Murray was worried that living standards are forecast to fall by seven per cent over the next two years — 'the biggest fall on record’. He noted that, over the last 12 years, the UK’s growth rate has been a third lower than the OECD average.

As a result of all the tax measures announced in this Parliament, middle-income households will see their tax bill rise by £1,400, Murray told the House, adding that this is what it looks like when working people are made to pay the price. The Government could have chosen to close the unfair private equity loophole that gives hedge fund managers a tax break on their bonuses, he said. They could have chosen to reverse their tax cut for banks and scrap non-dom tax status (‘an outdated and unfair tax break’). Murray said Labour will replace business rates with a fairer system that makes sure that high street businesses no longer have one hand tied behind their back.Clive Efford, Labour, intervened on the Exchequer Secretary to ask about the taxation of people who benefitted from Covid-19. Efford said the money paid to people in furlough and to small businesses was ‘passed on’ and ultimately ended up with those who were already wealthy, he said. We should follow the money. and make those people pay their fair share, he added.

Speaking later in the debate, Efford said that, under the Conservatives, there has been a consistent shift of wealth from average household incomes to the wealthiest in the country. “The policies they have pursued have been driving inequality, and… until we reform how the taxation system deals with wealth we will not address that growing divide between those at the bottom and those at the top. This Finance Bill completely fails to address that problem.”

The lack of business rate support is a glaring omission by this Government, said Matt Western. One of the things that should be concerning them the most is the lack of business investment and the OBR forecast that we will now see business investment growing by 6.7 per cent less over the coming years. 

Winding up the debate, Shadow Exchequer Secretary Abena Oppong-Asare said the Bill fails to make fairer choices on tax, and it follows an Autumn Statement that failed to set out a plan to grow the economy. Oppong-Asare claimed that, in real terms, wages are lower in 2022 than they were when the Conservatives came to power in 2010.

Conservative backbench contributions

Conservative MPs were generally supportive of the measures in the Bill, recognizing that taxes need to rise, though also keen to see them come back down again at the earliest opportunity. Treasury Committee member Anthony Browne was typical when he said that, “Like my fellow Conservatives, I do not like the fact that taxes are going up to the highest level for 70 years, but I accept that that is necessary and that we must accept sound money before tax cuts.”

Browne expressed concern, however, about the changes to the research and development tax relief system. He said that the trouble with this way of tackling fraud is that it punishes legitimate research (did he mean refund?) companies as much as ‘fraudsters and chancers, lumping them all in together’. The sudden cutting in half of R&D tax relief is a major challenge to the life science companies, he said. They are having to go to their investors now and say that they will no longer have the money they thought they would and that they will have to cut back research and jobs, he claimed. He suggested alternatives such as banning ‘contingent fee—no-win, no-fee—tax agents’, resourcing HMRC so that it can scrutinise the claims and limit claims for soft innovation. Additionally the Government could create an R&D tax regime for knowledge-intensive companies.

Former Treasury minister Richard Fuller took a different view, however, intervening on the Exchequer Secretary to support the changes to R&D credits. “The Government are absolutely right on this point,” he said. “The objective of giving taxpayers’ money to companies for use through R&D tax credits is to focus on improving productivity. There were real concerns, particularly in the smaller business segment, that the scheme was not working correctly.” He hoped that the time that it was taking for some credits to be paid out could be improved.

Nigel Mills, a chartered accountant, was worried that R&D claims are made in prosperous parts of the UK rather than in the regions. He wants the Treasury to look seriously at whether we could take a regional approach to some taxes so that we can get those differentiating incentives to move wealth outside London and the south-east.

On corporation tax, Mills said there is evidence to suggest that the lower rates introduced by George Osborne did not achieve the additional investment that we wanted them to and we are probably better off sticking at about 25 per cent than going lower. Welcoming the windfall tax, he said we should ‘limit that profit and accept that those are our resources and that we should take the right return from them rather than the exploiter doing so’.

On personal tax, Mills regretted the extended personal allowance freezes, saying they are “a kind of last resort and if we get any improvement in the economic outlook they can be reversed”. He wondered whether there was a need to legislate now for personal allowances five years hence. He also noted the shift from a policy of raising the headline rate of national insurance and compensating with an increased personal allowance for NI, to one of holding back the starting points of income tax and NI rather than increasing headline rates. He supports ending non-dom status, but argued we should have temporary residence relief.

Looking ahead, Mills spoke of the need for the Government to have a clear strategy for what the tax system should look like. “They should consider the things we are trying to tax and the things we are trying to incentivise. They should try to give people some long-term stability so that they can plan and understand and we can get the behavioural changes and incentives that we want, rather than having a clear direction one way, and then doing a U-turn and wondering why people do not do the things that we would really like them to do. Now we are through the real firefighting, I hope the Government can produce a strategy and plan for where they think the tax system should go… that is what we had under the Gauke doctrine in 2010.”

Paul Holmes said he was “100 per cent fine with the measures outlined by this Conservative Government, because they are asking people with the broadest shoulders to pay the most, on a temporary basis, while we look after the most vulnerable in our society and target support during a troublesome time on people who genuinely need our help.” He added that the Government are protecting R&D spending and providing £14 billion of relief for small businesses by cutting the rates of tax that they have to pay.
Peter Gibson said the rateable value reduction for business rates would ordinarily be phased in over three years, so the fact that they will receive the benefit immediately is welcome.

Tom Hunt said that, to have proper devolution, we must have an element of fiscal devolution. “Devolution can work, because ultimately it is about putting power closer to people, and in principle that is a good thing that no one can disagree with, but we need to do it in the right way.”

Shaun Bailey praised the retention of the triple lock for pensioners – ‘people who worked hard, contributed and have paid in for all their lives’. Bailey said it is vital that we have an industrial strategy focused on our manufacturing base to ensure that good, strong manufacturing and engineering jobs can be part of our growth and recovery.

James Sunderland wondered how the Finance Bill sits with the need to incentivise people to work harder, to save and to try to derive extra income from what they do. Sunderland wants to see tax reduced at the earliest opportunity, not least to encourage growth and to ensure that the UK remains firmly competitive internationally.

Peter Aldous said it is concerning that electricity generators are due to miss out on an investment allowance for new wind projects. If we are to be a global leader in offshore wind, including being a pioneer in floating offshore wind technology, there is a strong case for tax incentives to encourage new investment. That does not mean helping energy firms to avoid tax, but it does mean encouraging them to invest in the UK’s clean future for the benefit of the environment, of our future prosperity and of our energy security. Aldous wants the Government to keep the oil and gas profits levy in place only while there is a windfall, rather than until 31 March 2028 if present conditions do not continue until then. There is much work to be done to create the stable, long-term fiscal environment required to maximise inward investment, he added.

Other contributions

SNP Treasury spokesperson Alison Thewliss was disappointed that the Government did not look at a broader windfall tax, going beyond energy profits to include share buybacks, as the US has done. The reduction in the investment allowance is to be welcomed, but that it exists at all remains a barrier to decarbonisation, she suggested. The imposition of a 45 per cent tax on electricity generators prompted concern as this could undermine investment into renewables at the same time as allowing oil and gas companies to drill more.

Significant stealth taxes are coming in, as the Treasury stands to raise considerable revenue due to inflation, Thewliss warned. It is quite perplexing that the Chancellor has prioritised R&D in larger firms, which are more likely to invest their profits elsewhere or perhaps invest them in share buybacks further down the road, she continued. The Chancellor has said that the aim is to reduce fraud, but reducing the R&D expenditure credit for all SMEs in an attempt to prevent its being abused seems a bit like throwing the baby out with the bathwater.

Kirsty Blackman, SNP, wondered what happened to the ‘Brexit bonus’. Blackman was concerned that the benefit cap still needs to grow massively to keep pace with its 2013 levels. The childcare allowance included within universal credit is at the same level it was when it was first introduced, when universal credit first started. Right now, the Department for Work and Pensions should not be trying to increase the amount of money that it is clawing back from people in receipt of universal credit, she said.

Claudia Webbe, Independent, remarked: “Wealth is not meaningfully taxed and fortunes are simply left sitting around idle, enabling a class of people who never have to work for a living to live off interest, rents and dividends now and for the next 1,000 years, while the poorest go under.” Uprating pensions and benefits by 10.1 per cent in line with inflation for the first time since 2016, but not backdating that change, just scratches the surface and will not protect struggling families.

Government response

Closing the second reading debate, the Financial Secretary to the Treasury, Victoria Atkins (photographed above), said that difficult decisions need to be taken to support the public finances, providing stability and certainty to markets, and providing the foundation for future growth. In a perhaps deliberate echo of Labour’s rhetoric she said the Bill would deliver this “in a fair way, with the heaviest burden falling on those with the broadest shoulders.”

On R&D relief, she said the Government is aiming to get more ‘bang for our buck from this tax relief by focusing the money where it will bring about the most profit’. Responding to Richard Fuller’s concern over the speech with which R&D credits are being paid out, she said: “He knows we had to take extraordinary steps in response to a suspected criminal attack on the R&D tax credit scheme earlier this year. The necessary implementation of additional checks created a small backlog of claims, but this backlog has been cleared. We are now processing 80 per cent of claims within 40 days, and we want to improve that figure even more.”

The FST took Labour to task over the party’s plan to scrap ‘non-dom’ status which, she said, did not add up. “Labour says its plan will save £3 billion but, in the last year, non-doms paid nearly £8 billion in income tax, corporation tax, capital gains tax and national insurance. What is more, they have invested £6 billion in investment schemes since 2012, which is precisely why we are taking a careful and considered approach.” She observed that, in 2017, a Conservative Government ended permanent non-dom status, which Labour did not do in its 13 years in power.

The Labour amendment – essentially an attempt to defeat the Bill – was defeated (289:216) and the Bill passed its Second Reading (290:47) and went to committee stage (see below).

The full 28 November session is here.

Committee of Whole House

Two days later MPs discussed the Bill again at its committee stage, all of which took place on the floor of the House. While theoretically this offers the opportunity for clause by clause scrutiny of the Bill, on this occasion all the clauses and proposed amendments were grouped together, which left MPs to make long speeches about multiple topics (though we have attempted to separate them out to make things easier to follow). Three amendments were pushed to a vote but none of them was passed.

Energy profits levy

Clause 1 increases the rate of the levy and addresses consequential technical matters.

Clause 2 reduces the rate of the investment allowance from 80 per cent to 29 per cent, effective, again, from 1 January next year.

Clause 3 extends the levy so that it ends on 31 March 2028 rather than in 2025.

The Financial Secretary to the Treasury Victoria Atkins told MPs that the increase to the rate of the levy will ensure that oil and gas companies benefiting from extraordinary profits due to exceptionally high prices will continue to pay their ‘fair share of tax’. On extending the levy so that it ends on 31 March 2028 rather than in 2025, she explained that it reflects that global factors are now expected to keep commodity prices, particularly gas prices, elevated for longer than first anticipated.

Atkins said the investment allowance will support the transition to low-carbon electricity production. Caroline Lucas, Green Party, intervened to suggest it was unreasonable to give incentives – through taxpayers’ money – to companies that are already ‘raking in huge profits’ at a time of cost-of-living crisis. The minister replied that ‘we cannot stop using oil tomorrow’.

Shadow Financial Secretary James Murray complained that it took five months for the Government to finally support the principle of a windfall tax proposed by Labour – but even then it decided to couple it with a ‘massive tax break’ for oil and gas giants which has left some of them paying no windfall tax at all this year. Murray said the measures in this Finance Bill fall short of Labour’s better plans to increase the rate of the windfall tax to 38 per cent (to align the overall rate with the taxation of oil and gas profits in Norway) and to backdate it to January 2022.

Murray spoke to Labour’s new clause 2 that would require the Chancellor to publish an assessment of estimated revenue from the energy (oil and gas) profits levy in financial years 2021-22 to 2027-28, and set out how these figures would be affected if the levy were backdated to 3 January 2022, and if the rate of the levy was increased to 38 per cent, and the amount of additional investment expenditure reduced to zero per cent, by this Act.  He argued it would lead to a stronger and more effective windfall tax that no longer includes such a huge giveaway to the oil and gas giants.

Sir Robert Syms, Conservative, is pleased with the investment allowance because it will encourage companies to invest, and thereby produce more oil and gas to help the British economy. But looking at the 2028 cut-off date for the windfall tax, he commented that we need a way of assessing what the Government do and do not consider to be ‘extraordinary’. “It might be better if they employed an expert, independent of both the Government and the oil and gas industry, to look at what is being done to assess whether investment is being hurt and whether the rates are appropriate.”

SNP Shadow Financial Secretary Richard Thomson expressed concern about the disjointed manner in which windfall taxes seem to be being applied across the energy sector and about the Government’s seeming lack of consideration given to applying a similar tax on other industries, outside the energy sector, that are also experiencing significant increases in profits because of current market conditions.

Thomson supported Labour’s new clause 2 and the cross party new clause 1 that would require the Government to publish an assessment of the impact of the investment allowance on revenue raised by the energy profits levy, including investment by oil and gas companies in UK extraction and upstream decarbonisation. The assessment should also cover the impact of the investment allowance on the UK’s ability to meet its domestic and international climate targets.

Helen Morgan, Lib Dem, spoke to her party’s amendment that would have required the Government to produce an assessment of how much revenue would be generated by the Energy Profits Levy if it had been introduced on 6 October 2021. A linked Lib Dem amendment would have required the Government to produce an assessment of how much revenue would be generated by the levy if the relief for investment expenditure had not been in effect, and to produce a quarterly report assessing how much revenue has been forgone because of the investment expenditure relief. Morgan complained that, through their delay in acting, the Government allowed fossil fuel giants to get away with half a year’s-worth of untaxed super-profits: “If Shell paid nothing when the rate was 25 per cent, it will still pay nothing when the rate is 35 per cent.”

Green Party MP Caroline Lucas spoke to new clause 1 (see above), of which she was a co-sponsor. Lucas said it would address the continuation of a policy that locks us further into fossil fuels at the expense of the taxpayer and at the cost of exacerbating climate breakdown. As an aside, she was concerned that the distribution network operators are not being talked about as something to tax even though they are making massive profits currently. Lucas was dismayed that oil and gas companies will still be able to claim £91.40 in tax relief for every £100 invested in oil and gas infrastructure. And, from January 1 a company spending £100 on upstream decarbonisation will now be eligible for £109 relief.

The MP was worried that new research published this weekend shows that almost 200,000 additional young families will be pushed into fuel poverty come April when the energy price guarantee rises to £3,000. She spoke of the ‘ludicrous situation’ whereby companies will get a bigger tax break for building a wind turbine to power an oil rig than for building one that generates power for the energy grid. She said: “The so-called investment allowance—it is better termed ‘obscene subsidy’—is, frankly, a disgrace that fails to tax oil and gas companies properly and comes at huge cost to the public purse.”

Wrapping up the debate, Victoria Atkins said the definition for the energy profits levy applies only to the profits that companies make from producing oil and gas in the UK and on the UK continental shelf. The commodity prices, particularly for gas, are expected to remain above their long-term average for the foreseeable future (and the levy is kept under review). The Government reject the premise that the levy should have been in place earlier because the levy was in response to these fast-moving conditions. The North Sea will continue to be a foundation of our energy security, so it is right that we continue to encourage investment in oil and gas, she continued. Many companies already publish tax data through voluntary transparency schemes. We will need these fuels for decades to come as we transition to clean energy, she said.

R&D credits

Clause 4 increases the RDEC rate from 13 per cent to 20 per cent, and decreases the SME enhanced deduction from 130 per cent to 86 per cent, and the SME credit rate from 14.5 per cent to 10 per cent.

Financial Secretary Victoria Atkins said the changes to rates of research and development tax credits made by clause 4 will rebalance the generosity between RDEC and the SME scheme, leave the level of R&D investment in the economy unchanged and provide good enough value for taxpayers.

James Murray spoke to Labour’s new clause 4 which would have required the Government to make clear the extent of fraud and waste in relation to R&D tax reliefs for SMEs, alongside details of what action they have taken in response. Murray said there is an urgent need for a new scheme that tackles fraud and supports R&D and key growth sectors such as life sciences are anxious to know what the Government are planning. In light of this he spoke to Labour’s new clause 3 that would explicitly require the Government to publish details of the Chancellor’s plans for reform of R&D credits.

On this topic, Sir Robert Syms said the Treasury has a habit of introducing incentives and then worrying about losing too much tax, when research and development should be a priority for this Government. Syms said sudden changes to the R&D rate may undermine the funding model of new businesses.

Richard Thomson, SNP, remarked that the UK as a whole has lagged behind its major competitors, such as France and Germany, in the proportion of GDP invested in R&D. In achieving growth, an increase in well-targeted R&D is important, ‘but it is important to recognise that you do not fatten the pig the day before market’. The SNP backed Labour’s new clauses 3 and 4 (see above).

Anthony Browne, Conservative, said what the chief executives and leaders of life science companies want is reassurance from the Government that they are really committed to making sure that R&D in SMEs is not adversely affected by this measure. Browne cautioned the Government to base any policy on an evaluation of how the tax credit is spent on the businesses that they want to encourage, as opposed to the fraudsters and the chancers that they do not.

Speaking at the end of the debate, Victoria Atkins said that the Government will continue the review into R&D tax reliefs and publish a consultation on the new single scheme in due course. There is an ongoing inquiry into levels of error and fraud in the SME R&D scheme, she added.

Income tax

Clause 5 keeps the personal allowance at £12,570 and the basic rate limit at £37,700 for 2026-27 and 2027-28.

Clause 6 lowers the additional rate threshold from £150,000 to £125,140 from April next year, meaning that income above that level will be taxed at 45 per cent.

A defensive Victoria Atkins, for the Government, said the personal allowance is still the most generous tax-free personal allowance of any G7 country and approximately 30 per cent of people in the UK do not pay tax because of it. This Government also enacted the ‘largest ever increase to a personal tax starting threshold’ in July this year by raising the national insurance starting threshold to £12,570, she said.

On the top rate change, Sir Robert Syms intervened on the minister to call for some smoothing out of the impact on some higher rate taxpayers because, as they lose their personal allowance, the marginal rate between about £100,000 and £120,000 can be as high as 60 per cent. Syms suggested: “The artificial level needs to be dealt with, perhaps by ensuring that the withdrawal of the personal allowance happens over a wider income band.” Atkins accepted Syms’ point about the marginal tax relief rate, but later said the threshold is still comparable to those of other countries with a similar top marginal rate of tax.

James Murray, for Labour, called freezes to the income tax personal allowance the latest ‘stealth tax’ on working people from this Government. He said the freezes that this government has implemented will leave an average earner paying over £500 more in income tax a year by 2027-28. He contrasted this tax squeeze with the billions of pounds lost to covid fraud and error. Murray urged MPs to support Labour’s new clause 5 that will require the Chancellor to publish an assessment of the impact on average earners of the decision to freeze the basic rate limit and personal allowances for tax years 2026-27 and 2027-28.

Murray asked if the Government expect the additional rate threshold to rise if and when the personal allowance begins to rise again.

Richard Thomson, SNP, supported Labour’s new clause 8 which would require the Chancellor to publish an assessment of the impact of measures in this Act on the amount of tax paid by UK residents who are domiciled in the UK and the amount paid by UK residents who are not domiciled in the UK on their overseas income. Thomson argued that the non-dom annual charge of either £30,000 or £60,000 is ‘inconsequential’ given what would, in most cases, have had to have been paid if those earnings had been subject to UK rates of taxation. He added: “A joint study by the University of Warwick and the London School of Economics showed that on average a non-dom using the remittance basis tax break has about £420,000 in unreported income and capital gains, which is more than 10 times their UK investment income and gains, which don’t receive a tax break.”

Anthony Browne, Conservative, said that keeping non-doms resident in the UK ”is an overall net gain for the UK economy and for the UK taxpayer”.

Helen Morgan, Lib Dem, spoke to her amendment 2 that would require HMRC to contact every individual who becomes liable to pay standard tax or move from standard to higher rate, and how much additional tax they will have to pay as a result. She complained that, in 2019, the Conservatives promised voters a high-wage, high-skilled, low-tax economy. Now real-terms wages continue to fall, the tax burden has reached its highest level since the second world war and the UK has a chronic skills shortage, she lamented.

Christian Wakeford, Labour, asked: “Is it fair that the wealth of the top one per cent of earners has gone up 185 per cent? No. What are we doing to help low earners? We are freezing tax allowances.” Wakeford complained that we have seen no attack on non-dom tax status and no tax on private equity managers.

Responding to Helen Morgan on amendment 2, the Financial Secretary said that HMRC already informs employed people and pensioners of changes to their tax code, self- employed people will receive assessments informing them of their tax liabilities and HMRC has an existing online service where people can check their income tax estimates and tax codes at any time.

Dividend allowance

Clause 7 reduces the tax-free allowance for dividend income from £2,000 to £1,000 in April 2023, and to £500 from April 2024.

Financial Secretary Victoria Atkins said that this measure will raise more than £3 billion by April 2028 and will make the tax system fairer by bringing the treatment of investment income closer in line with that of earned income. Keeping the dividend allowance at £500 will still ensure that people are not taxed on low levels of dividend income, she added.

She was the only speaker to refer to this clause during the debate.

Capital gains tax

Clause 8 reduces the CGT annual exempt amount (AEA). For the tax year 2023-24, the rate will be £6,000 for individuals; it will then be reduced to £3,000 from 2024 onwards.

Financial Secretary Victoria Atkins explained that the clause also abolishes the annual uprating of the AEA in line with the consumer prices index measure of inflation, and fixes the CGT reporting proceeds limit at £50,000. Reforming the system to reduce the value of the CGT allowance supports strong public finances, and makes the system fairer by bringing the treatment of capital gains closer into line with that of income while still ensuring that individuals are not taxed on low levels of capital gains, she said.

Geraint Davies, Labour, asked the minister why CGT has not been brought completely into line with income tax. Atkins replied that the Government is ‘mindful’ of the need for a closer relationship between the two systems but wants to reward ‘risk taking’, for example where someone is starting a business.

Inheritance tax

Clause 9 maintains the current levels of inheritance tax thresholds for two years longer than previously planned, until 2028.

More than 93 per cent of estates will continue to have no inheritance tax liability in each of the next five years; only six per cent are expected to have a liability in 2022-23, and it will still only be 6.6 per cent in 2027-28, explained Financial Secretary Victoria Atkins, proposing this clause.

She was the only speaker to refer to this clause during the debate.

Electric Vehicles

Clause 10 equalises the vehicle excise duty treatment of electric, petrol and diesel vehicles from April 2025, applying to both new and existing electric vehicles.

Clause 11 amends the percentages used for calculating the taxable benefit of a company car, for the tax years 2025-26 to 2027-28. These changes will increase the appropriate percentage for cars which produce zero emissions and cars which produce less than 75 grams of CO2 per kilometre driven by ne per cent, up to a maximum of 21 per cent.

Financial Secretary Victoria Atkins insisted the Government is giving the industry certainty about the scale of its ambitions through the zero-emission vehicle mandate. She said the VED system will continue to support the transition to electric vehicles through favourable first-year VED rates for the lowest-emission vehicles, and owners of new zero-emission cars registered on or after 1 April 2025 will be liable to the lowest first-year VED rate. She challenged the assumption that the measure will lead to a decline in the take-up of electric vehicles, saying this is an example of the Government’s boosting interest in electric vehicles at quite a delicate stage in their development.

Geraint Davies, Labour, intervened to suggest higher taxes, in general, on SUVs [sport utility vehicles], saying they consume more petrol and diesel, take up more parking space and ‘kill more children and other pedestrians’. Atkins replied that there is the expensive car supplement and not everyone who buys a third-hand or fourth-hand SUV is among the wealthiest in society.

James Murray, for Labour, urged the Government to set out more clearly where this decision sits within a wider strategy to increase the take-up of electric vehicles.

Helen Morgan spoke to a Lib Dem amendment that would require the Chancellor to produce quarterly assessments of the impact of the removal of VED exemption for electrically propelled vehicles on the UK’s climate change duties, air pollution and EV infrastructure and public transport. At a time when petrol and diesel prices are sky high, the Government should not be making it more expensive to own an electric vehicle, said Morgan.

Winding up the debate, the Financial Secretary said that the Government already publish data on air pollution, electric charging infrastructure and vehicle registrations by fuel type.

Administrative

Clause 12 simply sets out the short title of the Bill in the usual manner for such legislation.

Divisions

Lib Dem amendment 2 that would have required HMRC to contact every individual who become liable to pay standard tax or move from standard to higher rate, and how much additional tax they will have to pay as a result, was defeated in a vote (285:55).

Labour’s new clause 2, which would have required the Chancellor to publish an assessment of estimated revenue from the energy (oil and gas) profit levy in financial years 2021-22 to 2027-28, and set out how these figures would be affected if levy were backdated to 3 January 2022, and if the rate of levy was increased to 38 per cent, and the amount of additional investment expenditure reduced to zero per cent, by this Act, was defeated (292:212).

Labour’s new clause 3, that would have required the Government to publish an assessment of their view on the effectiveness of R&D tax reliefs for small and medium-sized enterprises and their intentions for any further reform, was also defeated (290:212).

Third Reading debate

With the whole of committee stage taking place on the floor of the House there was no need for a report stage so proceedings moved straightaway to Third Reading debate, on which MPs spent all of five minutes.

Financial Secretary Victoria Atkins took two minutes to repeat the Government’s pitch on the Bill – stabilizing the public finances, providing certainty – and thank those involved in the scrutiny of what she called a ‘small but important Bill’.

Labour’s Shadow Financial Secretary James Murray took only slightly longer to repeat his party’s attack lines on the Government’s economic strategy, accusing them of having “no plan to grow our economy or halt the decline in living standards.”

The Bill passed its third reading (28:205) – and now goes to the House of Lords, where it is scheduled to go through all its stages on 20 December. Parliamentary rules prohibit the Lords from amending Finance Bills so it can be assumed that the Bill will gain Royal Assent (probably on 20 December) in its current form (which is unamended from its initial wording).

The full November 30 session is here.

By Hamant Verma, CIOT Senior External Relations Officer