MPs support Finance Bill at second reading

Updated 18/12/23 to include a note on committee stage timetable (scroll down)

Debating in the House of Commons on Wednesday 13 December, Financial Secretary to the Treasury (FST) Nigel Huddleston said the announcements in the Bill and last week’s Autumn Statement would strengthen the economy by “putting money back in people’s pockets and cutting taxes”, including support for businesses and simplifications to the tax system.

However, Shadow FST James Murray said that, despite the announcements, the tax burden is still on track to be the highest since the Second World War, with “25 tax rises the Conservatives have already pushed through in this Parliament alone”. He said cuts to personal tax “pale in comparison” with previous tax rises through the freezing of national insurance and income tax thresholds.

Business taxes

The FST said lowering business taxes will incentivise investment and boost private sector growth, praising measures including making ‘full expensing’ permanent, which he said is “effectively a tax cut to companies of over £10 billion a year”. He also said the merging of the two research and development tax reliefs will “simplify the system and provide greater support for UK firms to drive innovation”.

Nigel Mills (Conservative) also backed full expensing and observed that it would be a “fundamental” change to the tax system. He said: “We should take a step back and ask: ‘Is it necessary to keep this whole complicated regime if, for the vast majority of spend, we are giving 100% tax relief in year 1 when that spend happens?’ Perhaps we should just accept the accounts depreciation for all the other assets that are not plant and machinery? I suspect that the loss to the Exchequer for accelerating tax relief on those things would be tiny, but it would take away a huge burden of having to follow a different set of rules.”

However, Shadow Economic Secretary Tulip Siddiq said the measures in the Bill “do not scratch the surface when it comes to undoing the years of uncertainty for business and investors”, and industry is “crying out for stability and a long-term plan”.

The Shadow FST said that full expensing was one of a number of measures in the Bill that Labour “have been calling for for some time”, Measures to tackle tax avoidance and evasion also fell into this category. He tempered these remarks by saying many of the measures seemed to lack a “plan for the future”.

On R&D the Shadow FST said Labour would “probe the impact of those changes in greater detail” in committee, but he criticised the lack of stability in this area. "Businesses making investment decisions yearn for stability and certainty, but after 13 years in office, the Government are proving themselves incapable of providing those crucial foundations for success,” he lamented.

Discussing a global minimum tax rate, Pillar Two of the OECD/G20 Inclusive Framework, Mills said that at times he thinks he is the “only backbencher who supports” the scheme, the rules are “fiendishly complicated”. He added: “That cannot be what we intend, so can we try to find a way to filter out most of this work, so that we can catch the guilty but not make life miserable for the innocent?”

Priti Patel (Conservative) explained that she has “long-standing concerns” over Pillar Two, which, in her view, “undermines our fiscal sovereignty and risks deterring investment into our country”. She called for a delay in its implementation due to GDP forecasts and a lack of assessment of how it will affect businesses in the UK.

Responding, Exchequer Secretary Gareth Davies said he understands concerns about sovereignty but he believes the measures in Pillar Two “do not impact on sovereignty or indeed on competitiveness”.

Turning to energy taxes, Davies said the Government has “resolute support” for domestic oil and gas producers, but already has “one of the highest rates of windfall tax in the world”. “The energy price levy strikes the right balance between providing support for families and businesses through an energy crisis while also encouraging investment to bolster our energy security,” he added.

He also said the tax on banks has increased recently from 27% to 28%, with increased proceeds since 2011 being spent on the NHS, education, defence and other public services.

Personal taxes

David Simmonds (Conservative) said a cut to national insurance represents a “significant contribution to a child’s school uniform, a summer holiday or maintaining the car”. He added: “They send a message to our lower-income but entrepreneurial people that we are a Government who are on their side and keen to get off their backs.”

However, Sarah Olney (Liberal Democrat) said her party “do not support” the Bill, which she described as “a deception from the Government after years of unfair tax hikes on hard-working families”. She said the Bill offers no tax cuts for the general population, but instead “unfair stealth taxes through the freezing of tax thresholds”, and a failure to reverse tax cuts for banks.

SNP spokesperson Drew Hendry agreed that the 2p cut to national insurance (which is being introduced by a separate piece of legislation) is “almost entirely eaten up” by frozen tax thresholds.

Simplification

The FST said the Government wants to “build a tax system that is fair and works for everyone”. Harriet Baldwin, chair of the Treasury Committee, said that her committee believes the UK tax system is “far too complicated” and previously raised concerns over the abolition of the Office of Tax Simplification. “We want to see the Treasury team look at more ways in which it can simplify the tax system,” she added.

The Exchequer Secretary said: “The Government are clear that we want the tax system to be simpler and fairer, and to support growth. This autumn statement, and the Finance Bill in particular, has a number of measures, not least the capital allowances and the R&D expenditure credit consolidation. This a step in the right direction, but we are not complacent and we will continue to go further.”

Non-doms

The Shadow FST said the failure to reform the non-dom tax regime means there is “one small group of people who will continue to be protected from this Government’s tax rises on much of their income”. He added: “Labour believes it is only fair that if a person makes Britain their home, they should pay their taxes here. Closing the non-dom loophole could raise crucial funding to bring the NHS waiting list down.”

Hendry also lamented that the Bill fails to address “unfair tax loopholes” such as the non-dom tax status, citing research from the University of Warwick and London School of Economics which said doing so could raise £3.6 billion per year. He added that a windfall tax on the profits of the big four banks could have raised £20 billion in the first six months of this year.

But Baldwin said taxing non-doms would result in a “net subtraction in tax revenue to the UK economy”, with Sir Robert Syms (Conservative) adding that previous Labour governments did not abolish the non-dom status because “it brings in more money”. He warned against reforms to the system, adding: “Such people are internationally mobile, they will move. The best things to tax are things that do not move, such as property.”

Other issues

Baldwin said VAT on private schools, a reported Labour policy, would see the UK become “the only country in the world that taxes education”. Simmonds added: “It remains the policy of this Government that we support the excellence in our incredibly diverse independent sector, which includes both SEND and state-funded education.”

Elsewhere on VAT, Patel said she was “disappointed” that the Autumn Statement and Finance Bill do not include reforms to the so-called “tourism tax” – the removal of VAT-free shopping for overseas tourists. She said cities like London are a “magnet for tourism” and they are “losing out” to European cities as a result of the abolition.

Simmonds called for more actions to tackle cliff edges in the tax system, including for tax-free childcare. “I have heard from a number of constituents who work in public sector bodies, particularly the NHS, that they have had to scale back their hours or decline to take on additional waiting list initiative work funded by the Government because the impact of that cliff edge is so financially significant for them,” he added.

Baldwin agreed, saying it “it is now time to look again” at the child benefit taper as it has become “far too complex, and it is deterring many women from taking on more work”.

The Bill introduces measures that will make promoting tax avoidance a crime in some circumstances and HMRC will have powers to act more quickly to tackle promoters of tax avoidance. Simmonds said the actions to address agents are “enormously welcome” to stop taxpayers being “trapped in financial situations not of their own making”.

Mills added: “It is absolutely right to extend the punishments we give individuals who recklessly promote tax avoidance schemes that they ought to know do not work and in many cases do know do not work but carry on trying to sell.”

Barbara Keeley (Labour) called for action on cultural tax reliefs, including support for orchestras. She said: “International touring is vital to the survival of many orchestras and makes up a fifth of earned income. There is a strong economic and strategic case for incentivising touring in the European economic area for UK orchestras, because it boosts cultural exports and enhances the UK’s place on the world stage.”

Olney agreed that the Finance Bill has implications for theatre tax relief and urged the Treasury to work with the industry to provide clear guidance.

Patel said she is a “long-standing campaigner” for the reform of air passenger duty to encourage and support economic growth, while also making travel “more competitive and affordable for families”.

A vote on an SNP amendment to reduce VAT for the hospitality and tourism sectors was defeated 296-46 before the second reading was approved.

Read the full transcript.

Committee stage debate

 Following second reading debate MPs passed a programme motion for the Bill’s committee stage.

 The following clauses have been committed to a Committee of the whole House—

 (a) Clause 1 (capital allowances: permanent full expensing etc for expenditure on plant or machinery);

 (b) Clause 2 and Schedule 1 (new regime for research and development carried out by companies);

 (c) Clause 21 and Schedule 12 (Pillar Two);

 (d) Clause 25 (rebate on heavy oil and certain bioblends used for heating);

 (e) Clause 27 (interpretation of VAT and excise law);

 (f) Clauses 31 to 34 and Schedule 13 (tax evasion and avoidance);

 (g) any new Clauses or new Schedules relating to the subject matter of the Clauses and Schedules mentioned in paragraphs (a) to (f).

 Proceedings in Committee of the whole House will take place on Wednesday 10 January.

 Public Bill Committee for the remaining clauses will begin the following day - Thursday 11 January – and will last for a maximum of six sessions, concluding no later than Thursday 18 January.