Clause 60 - Air passenger duty - Rates of duty from 1 April 2020
This provides for changes to the rates of air passenger duty (APD). The rates of APD for flights to Band A destinations are unchanged. Rate changes to Band B destinations will be as follows: Reduced rates will rise by £2 (from £78 to £80); Standard rates will rise by £4 (from £172 to £176); Higher rates will rise by £13 (from £515 to £528). Come into effect beginning on or after 1 April 2020.
Amendment 104 (SNP) would require the Chancellor of the Exchequer to review the effects of a reduction in air passenger duty WITHDRAWN
Amendment 120 (Labour) would require the Chancellor of the Exchequer to review the revenue, environmental and certain other impacts of the changes made by Clause 60 DEFEATED
Amendment 121 (Labour) would require the Government to review the extent to which rates of air passenger duty for privately-chartered and privately-owned aircraft reflect environmental costs DEFEATED
Kirsty Blackman (SNP), moving the SNP amendment 104, spoke about ongoing concerns in relation to the devolution of APD (known as 'Air Departure Tax') to Scotland which is prevenitng the Scottish Government from taking forward its own plans for the reduction and eventual abolition of the tax.. She said that in lieu of devolution at present, her party would support its reduction across the UK, hence the SNP's call for a review of a reduction on a UK-wide basis. The review would cover the effects on airlines, airport operators and other impacted businesses.
For Labour, Clive Lewis said that the government was 'failing' in its climate change obligations and that this was reflected in its approach to Air Passenger Duty. The aviation sector, he argued, was treated generously in its environmental requirements and had been performing even worse than expected. Noting the Committee on Climate Change's challenge to government to develop new strategies and policies for tackling aviation emissions, Lewis called for the government to adopt Labour's proposals in order to determine its impact on the aviation sector and climate objectives. This was an issue that he said "cannot be ducked forever". Mr Lewis then went on to outline the tax-free fuel benefits enjoyed by the aviation sector, an 'anachronism' from the earliest days of air travel that failed to reflect the environmental impacts of the sector.
In spite of these criticisms, Mr Lewis also described the tax as "fiscally progressive", given that the burden of the tax was felt by those on the highest incomes. Kirsty Blackman intervened to say that the SNP would support Labour's amendments. Lewis suggested that a 'per-plane' tax or frequent flyer levy could help protect the progressive nature of the present tax. The assessment proposed would help to understand the potential impacts of these alternatives as well as understanding the impact of the present tax on climate change.
Responding for the government, Robert Jenrick noted the government's commitment to APD devolution, which had been postponed due to issues with the exemption for the Highlands and Islands region. Jenrick said that the government had respected the wishes of the Scottish Government and was working 'as hard as we can' to find a solution. At this stage, he said a UK wide review was unecessary given the pending devolution of the tax and the Scottish Government's own ability to carry out a review in these circumstances. Jenrick noted that the government had disagreed with a 2016 PwC report that suggested cutting and abolishing the tax would pay for itself. The tax, he noted, was a significant revenue raiser, generating around £3.4 billion per year. He also noted ongoing reviews around aviation and airport capacity.
He noted that APD was never designed to be an environmental tax and while it could be judged as such, it was intended to raise revenue rather than disincentivise air travel. The government's proposals in the FInnace Bill would continue to ensure that the aviation sector contributes to the funding of public services.
Mr Jenrick said that it would be challenging to focus any review on the areas proposed by the Labour amendment and urged the rejection of the amendment. Increasing the tax on private jets would, he hoped, ensure that this sector contributed more (at six times the rate of APD on a economy class ticket). He also note that taxes on fuel (or proxies of fuel) were forbidden by international convention (the Chicago convention). Anneliese Dodds said that she had previously asked for the 'concrete' steps the government was taking to review the convention. Mr Jenrick noted the limited interest of other nations such as the USA and Australia which were preventing progress.
Clause 63 - Climate change levy: exemption for mineralogical and metallurgical processes
This redefines the definition of the exemption from Climate Change Levy for energy used in mineralogical and metallurgical processes in paragraph 12A of Schedule 6 to the Finance Act (FA) 2000. It redefines mineralogical processes by reference to NACE codes and clarifies that the exemption for both processes applies to tenants receiving supplies via a landlord. The changes will take effect from Royal Assent to Finance (No. 3) Bill.
Amendment 124 (Labour) would require the Chancellor of the Exchequer to review the impact of Clause 63 on SMEs WITHDRAWN
Amendment 125 (Labour) would require the Chancellor to review the impact of Clause 63 in the event the UK leaves the EU under (a) no deal or (b) a withdrawal agreement WITHDRAWN
Amendment 126 (Labour) would require the Chancellor of the Exchequer to review the effect of Clause 63 on divergence between the UK’s regime for mineralogical and metallurgical processes and the EU’s, after the UK has left the EU WITHDRAWN
Amendment 127 (Labour) would require the Chancellor of the Exchequer to publish an annual statement listing the businesses to which the exemption for mineralogical and metallurgical processes applies WITHDRAWN
Amendment 128 (Labour) would require the Chancellor of the Exchequer to carry out an impact assessment of the changes made by Clause 63 and their impact on tenants, HMRC revenues, the UK’s national carbon budgets, and carbon and other greenhouse gas emission reduction targets DEFEATED
Moving Labour's amendments, Clive Lewis said that the government's measures failed to consider the potential impacts on the sector following the UK's departure from the EU. These would consider a variety of Brexit scenarios and the response of the continuing EU. Mr Lewis confirmed early in his contribution that Labour would not press amendments 124-127 to a vote, but nevertheless spoke to them. He questioned whether HMRC was able to estimate the potential impact of the changes to the sector and said that the 'negligible' exchequer impact, as outlined in the Bill, had little meaning when this was the case. The proposals from the government were 'small' but 'important', hence the need for the impact assessment. Clear incentives through the tax system, as opposed to exemptions, could help improve the environmental contribution of the sector.
Robert Jenrick said that Clause 63 represented 'minor technical changes maintaining the status quo' that would provide stability for businesses. He believed that this would be widely welcomed. He rejected the amendments but forward by the Labour Party. He said that the information proposed in the amendments was either already held in the public domain or unecessary. The clause retains existing requirements and clarifies their continuiation in the event of leaving the EU.
Clause 64 - Landfill tax rates
This increases both rates of Landfill tax in line with inflation (rounded to the nearest 5 pence). The increased rates apply to any disposal of relevant materials made (or treated as made) at a landfill site in England or Northern Ireland on or after 1 April 2019. The increased standard rate also applies from the same date to any disposal of relevant materials made (or treated as made) at an unauthorized waste site in England or Northern Ireland. The standard rate will increase to £91.35 per tonne and the lower rate to £2.90 per tonne.
Amendment 130 (Labour) would require the Chancellor of the Exchequer to review the revenue impact of Clause 64 WITHDRAWN
Amendment 131 (Labour) would require the Chancellor of the Exchequer to review the impact of Clause 64 on the UK’s ability to meet the target of recycling 50% of waste by 2020 DEFEATED
Amendment 132 (Labour) would require the Chancellor of the Exchequer to review the impact of Clause 64 of the amount of UK waste that is exported abroad WITHDRAWN
Amendment 133 (Labour) would require the Chancellor of the Exchequer to review the impact of this measure on the amount of waste being sent to landfill and to compare it with the amount that had been sent previously WITHDRAWN
Amendment 134 (Labour) would require the Chancellor of the Exchequer to review the anticipated environmental impact of increasing the difference between the standard and lower rates of landfill tax DEFEATED
Amendment 135 (Labour) would require the Chancellor of the Exchequer to effects on the the costs of collecting landfill tax of the changes made by Clause 64 WITHDRAWN
Amendment 136 (Labour) would require the Chancellor of the Exchequer to review the behavioural impacts on waste disposal operators of the changes made by Clause 64 DEFEATED
Clive Lewis again moved these amendments on behalf of Labour, who he said had concerns about the proposals put forward by the government. He said that the measures failed to consider the impact on the market and on recycling rates, waste export, landfill rates, enforcement and the impact on waste disposal businesses.
The lack of basic information left the policy open to question. He posed the question that tax increases can encouraging avoidance and evasion and with that in mind, questioned again the government's assessment that these tax changes would have a negligible impact on revenues.
He also said the government's approach was unambitious in comparison with other nations, particularly Nordic nations. He also asked whether the government had considered similar measures to these countries such as the reduction of VAT on repair and reuse and income tax rebates for the cost of repairing white goods (fridges, freezers, washing machines).
Lewis stated that DEFRA statistics on certain types of recycling had not been updated from as long ago as 2014. He said that this pointed towards poor monitoring practices and called on the government to update these. Kirsty Blackman said that while her party supported the measures being put forward by the Labour Party, they would not participate in the vote due to the fact that these powers are devolved to the Scottish Parliament.
Robert Jenrick, responding for the government, said that inflationary increases to landfill tax would help continue what has been an important policy in reducing waste, landfill and greenhouse gas emissions. This supports the move towards a more circular economy. He said the government was committed to meeting its recycling targets, with a future strategy due for publication shortly that would further support increases in recycling. Jenrick said that the goverment was also exploring the idea of an 'incinerator tax', although further work was needed before this could proceed.
Clause 65 - Inheritance tax - Residence nil-rate band
Amendments to the residence nil-rate band (RNRB) clarifying the downsizing provisions and the definition of ‘inheriting’ property for RNRB purposes. The changes will have effect from 29 October 2018.
Amendment 122 (Labour) would require the Chancellor of the Exchequer to review the revenue effects of the changes made by Clause 65 DEFEATED
Jonathan Reynolds moved this amendment on behalf of Labour. He said the review being proposed would help to understand how much revenue was being raised by Inheritance Tax. After providing an overview of the purpose and structure of the tax, Reynolds noted that the regime was complicated when it involved the downsizing of properties by the eldery to help fund personal care. The government's move was to be welcomed, although the Labour Party remained concerned with their application.
Mr Reynolds then spoke to his party's general dissatisfaction with the present IHT regime, which he said was failing to generate significant amounts of revenue and which was ripe for avoidance among the wealthiest. He cited contributions from organisations including the IPPR (Institute for Public Policy Research), Resolution Foundation and IFS (Institute for Fiscal Studies) and noted a range of methods used to reduce IHT liabilities.
Mel Stride, the Financial Secretary to the Treasury noted that there were questions around the fairness and popularity of the tax (in a nod to Mr Reynolds contribution) but that it impacted only 4 per cent of the population. 70 per cent of revenues came from estates with a value of over £1 million. He said that the Office for Tax Simplification was presently reviewing the IHT regime and will report next spring (it has already provided a report on the administration).
The measures being proposed by the government were intended to ease the transfer of property from parents to children. Clause 65 will clarify the downsizing provisions for those downsizing their homes (as it could have inadvertently applied to 'upsizing'. The clause would also ensure that the additional threshold should only apply to the direct decendent inheriting the property upon death. Mr Stride said that the amendment was uncessary.
Soft drinks industry levy
Clause 66 - Application of penalty provisions
Clause 66 allows penalties to be raised against businesses registered for the Soft Drinks Industry Levy (SDIL) that fail to submit a quarterly return by the due date. It also ensures that a penalty can still be raised for non-payment of any SDIL due in the event that certain provisions within the Finance (No.3) Act 2010 are enacted. This measure will have effect from Royal Assent.
Clause 67 - Isle of Man
Clause 67 allows the movement of levy-paid soft drinks between the UK and Isle of Man to be seen as neither an import nor an export for the purposes of the UK’s Soft Drinks Industry Levy (UK SDIL). It also adds UK SDIL and the equivalent levy proposed by the government of the Isle of Man (Manx SDIL) to the list of common duties in the Isle of Man Act 1979.
No amendments have been tabled to these two clauses, which have been grouped together for debate.
Robert Jenrick explained that the provisions in clause 66 would ensure enforcement of the SDIL.He also noted that there were no instances of avoidance or evasion following on from the introduction of the levy earlier this year. Kirsty Blackman asked whether milk-based drinks would be included in the levy moving forward (having been excluded from the levy at present). Mr Jenrick said that this is likely to come up again for consideration in 2020.
Clive Lewis, for Labour, expressed the opposition's support for the broad measures included in the Bill. He asked why these measures being brought forward now and not when the 'Sugar Tax' was first being introduced. He also asked whether the government was confident that the penalties being proposed would act as a disincentive to avoiding the levy and how much the government expected to generate in penalties. Lewis also asked a series of questions relating to the reporting of taxes due by the soft-drinks industry and the differences between the UK SDIL and the proposed levy being introduced on the Isle of Man. He also asked for confirmation that the money being raised by the SDIL and the revisions included in the clause would be ringfenced to support education, as was the original intention of the levy.
Robert Jenrick said that the Isle of Man levy would be similar to the UK levy and that he expected there to be no problems with enforcement. He said that the government's intention was this levy was never intended as a revenue raiser for government, but rather to act as an incentive for the drinks industry to reformulate their products. Fines for late returns would start at £100 for the first reportable offence, rising to £400. Mr Lewis questioned whether this was an appropriate amount. Mr Jenrick said that the lack of avoidance meant a light-touch approach, in the first instance, should suffice.
The clause having been passed unaminously, the meeting concluded at 4.03pm.
The committee will resume its consideration of the Bill on Tuesday morning.