Finance Bill: report stage and third reading

The debate in the House of Commons on Monday 5 February lasted just two hours before the Bill was passed and covered several new clauses and Government amendments.

The amendments and new clauses tabled for discussion can be read in our preview blog.

Business taxation

Moving new Clause 5, Financial Secretary to the Treasury (FST), Nigel Huddleston emphasised the importance of a business-friendly tax system, highlighting the Chancellor’s commitment to delivering a competitive in business tax regime.

He outlined the tax incentives contained in the Bill, including permanent “full expensing”, which he said “allows UK businesses to invest for less”, and a new regime for R&D which will simplify the tax system for businesses. Huddleston also noted that the R&D intensity threshold will be reduced from 40% to 30% from April 2024 and that the merger of the R&D SMEs scheme with the R&D expenditure credit would simplify and enhance the relief.

Addressing amendment 3, the Financial Secretary explained that the new rules for “contracted-out” R&D aim to ensure that the company undertaking the research receives tax relief. If two companies in a contract switch to the new system at different times, the amendment will let the company in the old system claim until both switch, he said.

He said: “This Government are backing British business, supporting employment, and creating a simpler and fairer tax system”.

Anthony Mangnall (Con) agreed that measures on full expensing would “help to drive growth and attract investment and innovation across the country” and “simplify the tax code”.

Shadow FST, James Murray said the Bill contained “a number of measures” Labour would maintain if they form the next government, including full expensing and R&D tax credits.

Murray emphasised the importance of certainty for business investment and the Treasury's approach to rulings and clearances for investment. Discussing Labour’s business pledges for the next general election, the Shadow FST also asked if the government would keep a corporation tax cap at 25%.

However, Sarah Olney (Lib Dem) shared concerns from the Economic Affairs Committee that continuous changes to the R&D system have resulted in “a perception of instability” in the regime.

She said: “What businesses need more than anything is certainty and stability. The Government’s chopping and changing on R&D is indicative of a wider failure to create a stable and settled environment in which business can flourish.”

Electricity Generator Levy and Air Passenger Duty

The FST said the government’s new clause 5 would exempt receipts from new electricity generating projects from the electricity generator levy. He argued this would mean that all generators subject to the levy benefit from the exemption when investing in new generation capacity.

John Redwood (Con) welcomed the move and highlighted the need for a similar approach to grid and cable. He said: “I trust that the Chancellor, when it comes to the Budget will consider that the new clause is just a stepping stone and that we need to review again the very large tax impositions on energy of all kinds in this country”.

SNP spokesperson Drew Hendry said the electricity generator levy “disproportionately impacts” Scotland’s renewable sector arguing, “we urgently need consistent policies to provide an environment which will enable businesses to invest at the scale needed right now.”

Sarah Olney (Lib Dem) added that the exemption to the energy generator levy may help strengthen investment in renewable energy and contribute towards net zero targets but was unlikely to affect the retail price of electricity for households. She said the Bill “does nothing to help families with soaring energy prices or to put a proper windfall tax on the oil and gas giants”.

James Murray raised concerns about a discrepancy in Air Passenger Duty (APD) rates for domestic UK flights, arguing that passengers flying on domestic economy and business class tickets will face higher taxes compared to those flying the same routes by private jet. The Shadow FST said a Labour government would  close a “loophole”  preventing private jet passengers from benefiting from a tax freeze .

Jim Shannon (DUP) said flights from Northern Ireland should be exempt from APD and that the measures in the Bill were “disappointing”.

The FST said that current rates of APD ensured that passengers in private jets pay significantly more tax than passengers on commercial flights.

Other issues

John Redwood (Con) said the government should review Britain’s declining productivity to help provide more fiscal space for tax cuts and improved public services. He said the budget in March would provide further opportunities for economic growth and lower tax burdens.

However, during the Bill’s third reading, Harriett Baldwin (Con), chair of the Treasury Committee warned that   the prospect of a further Budget and Finance Bill would mean “HMRC is being asked to do more and more” and “so soon after the ‘hard work that has gone into this Bill”.

The FST closed report stage by emphasising the benefits of the Bill and rejecting as “unnecessary” the New Clauses proposed by the opposition.

Government New Clause 5 (electricity generator levy) was agreed and added to the Bill along with the government amendments. Opposition New Clause 6 on the impact of full expensing was defeated by 285 votes to 185 and New Clause 7 (air passenger duty review) by 289 votes to 182.The Bill was then read a third time, with the FST outlining the aims of the Bill and the Shadow FST criticising the uncertainties created by the chopping and changing of government policy. Following a division, the Bill was agreed by 283 votes to 39.

Read the full debate.

The Finance Bill now heads to the House of Lords, where it received its First Reading on 6 February. Consideration of the Bill by the Lords is expected to conclude by 21 February 2024.