Finance Bill

Public Bill Committee, 30 January 2025.

(Except clauses 7 to 12, schedules 1 and 2, clauses 15 to 18, schedule 3, clauses 47 to 53 and any new clauses or new schedules relating to the subject matter of those clauses and schedules.)

Valerie Vaz (Labour, Walsall and Bloxwich)

Good morning everyone. Will Members please ensure that all electronic devices are turned off or switched to silent? We continue line-by-line consideration of the Finance Bill. The selection list for today’s sitting is available in the room and on the parliamentary website. It shows how the clauses, schedules and selected amendments have been grouped together for debate. If any Member wishes to press an amendment in a group to a vote—this includes the new clauses that have already been debated—they need to let me know before we reach them on the amendment paper.

Clause 57 - Rate bands etc for tax years 2028-29 and 2029-30

James Murray (Labour/Co-operative, Ealing North)

It is a pleasure to serve on this Committee with you as Chair, Ms Vaz. Tuesday’s debate on this clause concluded before we came to the decision, but I think the Opposition indicated that they would not oppose it. I commend the clause to the Committee.

Clause 58 - EBTs: prohibition on applying property for benefit of participators etc

Valerie Vaz (Labour, Walsall and Bloxwich)

With this it will be convenient to discuss clauses 59 and 60 stand part.

James Murray (Labour/Co-operative, Ealing North)

Clauses 58 to 60 make changes to strengthen the conditions that must be met for transfers of shares into an employee benefit trust to be exempt from inheritance tax. An employee benefit trust is a trust that provides benefits and rewards to employees of a company, often in the form of shares in the company. Under certain conditions, such shares are exempt from inheritance tax. All or most employees need to be capable of benefiting from the trust for the inheritance tax exemption to apply, so it cannot be limited to shareholders of the company or family members, for example.

In 2023, the previous Government launched a consultation on employee ownership trusts and employee benefit trusts. The consultation set out concerns that such trusts were increasingly being used as a tax planning vehicle for shareholders and their families, rather than for a wider class of employees. At the autumn Budget, the current Government responded to that consultation and announced changes to strengthen the conditions that must be met for the transfer of shares into an employee benefit trust to be exempt from inheritance tax.

The changes made by clause 58 will mean that restrictions on shareholders and their family members benefiting from an employee benefit trust must apply for the entire lifetime of the trust. The clause will address cases in which the trust deed allows individuals who are closely connected with a shareholder to benefit after the participator’s death. The clause ensures that the Government’s position is explicitly clear in legislation. The change will come into effect on Royal Assent.

Previously, family members of the shareholder who were excluded from benefiting from the capital of the trust could still receive income payments from the trust. The changes made by clause 59 will ensure that no more than 25% of employees who can receive income payments from an employee benefit trust may be family members of the shareholder. This reinforces the original policy intent of employee benefit trusts to reward and motivate a wide group of employees.

Previously, an individual could set up a company, immediately make a transfer of shares to an employee benefit trust, and obtain an inheritance tax exemption. The changes made by clause 60 will mean that shares must have been held for at least two years before being transferred into the employee benefit trust. The provision will take into account shares held prior to any share reorganisation, and will strengthen protections against employee benefit trusts being used purely for inheritance tax planning purposes.

Clauses 59 and 60 are treated as having come into effect for transfers of value to new and existing trusts on or after 30 October 2024. The clauses will ensure that the tax treatment of employee benefit trusts is consistent with the original policy intent of rewarding and motivating employees, while minimising opportunities for abuse. I commend them to the Committee.

Gareth Davies (Conservative, Grantham and Bourne)

It is, as always, a great pleasure to see you in the Chair, Ms Vaz.

As the Minister set out, clauses 58 to 60 make amendments to requirements for inheritance tax exemptions involving employee benefit trusts. Clause 58 provides that restrictions on shareholders and connected persons benefiting from employee benefit trusts will now apply for the lifetime of the trust. Clause 59 provides that no more than 25% of employees who receive income payments from an EBT can be connected to the shareholders in the company. Clause 60 provides that shares will now need to have been held for at least two years prior to being transferred to the EBT.

As the Minister said, the measures follow on from the consultation launched in 2023, which we referred to when we discussed clause 31 and employee ownership trusts. Although we will not oppose the clauses, I would be grateful if the Minister could comment on one specific issue that was raised during the consultation on the changes. In response to the measure introduced by clause 59, concerns were raised at consultation on behalf of smaller companies using EBTs that may now be forced to exclude certain employees from participating in share scheme arrangements in order to comply with the new requirement. What was the Minister’s assessment of that particular impact? Is he content that the benefits of the changes outweigh that particular risk cited in during the consultation?

James Murray (Labour/Co-operative, Ealing North)

I welcome the Opposition’s support for the clauses, which build on the consultation that started when they were in office. The shadow Minister’s question related to what effect the changes might have on small businesses in particular. I will try to answer now, but he is free to contact me if he feels I have not covered his point fully.

The changes we are making to employee benefit trusts will not have an adverse effect on small businesses, because the original policy intent of exempting transfers of value to employee benefit trusts from inheritance tax was to encourage businesses to reward and motivate a wide range of employees. To qualify for the exemption, conditions need to be met that ensure that EBTs that benefit only shareholders and their families, or other people closely connected to shareholders, do not receive preferential inheritance tax treatment. Given that that is the aim in the principles behind the clauses, I am confident that they will not have the adverse effect that the shadow Minister fairly raised. I hope that provides him with some reassurance.

Clause 61 - Agricultural property relief: environmental management agreements

James Murray (Labour/Co-operative, Ealing North)

The clause extends the scope of agricultural property relief from 6 April this year to land managed under certain environmental agreements. Agricultural property relief is an inheritance tax relief that reduces the amount that farmers and landowners must pay on land and other property that is owned and occupied for the purposes of agriculture. That will usually be land or pasture that is used to grow crops or to rear animals. Currently, access to APR may be lost where such land is taken out of agricultural production. Some tax advisers and industry representatives believe that provides a potential barrier for some farmers, particularly tenant farmers, to enter certain environmental land management agreements. Following consultation, the previous Government announced that they would extend agricultural property relief to such agreements.

Harriet Cross (Conservative, Gordon and Buchan)

It is of course welcome that more land is to be brought under the scope of agricultural property relief, but given the introduction of the £1 million cap on agricultural property, is it not somewhat redundant? I know the Government use different numbers, but the industry believes that the majority of farms will be over that threshold anyway, so bringing more land within the scope of APR does not actually make much difference to the bill they will have to pay at the end.

James Murray (Labour/Co-operative, Ealing North)

As the hon. Lady knows, because we have debated this many times, the data that we have published, based on His Majesty’s Revenue and Customs data, shows that the large majority of small farms will not be affected. I am sure she knows well the statistics on the 530 farms affected by the reforms to APR and business property relief in ’26-27, because she will have seen them in the Chancellor’s letter to the Treasury Committee and we have discussed them many times in this place.

Clause 61 relates specifically to land managed under certain environmental agreements, and was a measure proposed by the last Government. If the hon. Lady allows me to continue explaining why the clause is important, she might feel able to support it, given the benefits it will bring. The clause was welcomed by the sector, and the Government agree with the approach. I can confirm that there have been no changes to the design outlined by the previous Government in March 2024, which is why I hope to get the Opposition’s support for the clause.

As a result of the changes made by clause 61, from 6 April 2025 APR will be available for land managed under an environmental agreement with or on behalf of the UK Government, devolved Governments, public bodies, local authorities or approved responsible bodies. This includes but is not limited to the environmental land management schemes in England and equivalent schemes elsewhere in the UK, as well as any agreement that was live on or after 6 March 2024.

The Government are fully committed to increasing the uptake of environmental land management schemes in England, and we are providing the largest ever budget of £1.8 billion for this in 2025-26. The changes made by clause 61 will ensure that the tax system is not a barrier to uptake, thereby supporting farmers and land managers to deliver, alongside food production, significant and important outcomes for the climate and environment. I commend the clause to the Committee.

Gareth Davies (Conservative, Grantham and Bourne)

As the Minister said, clause 61 brings land managed under an environmental agreement—be that with the UK Government, devolved Governments, public bodies, local authorities or approved responsible bodies—within the scope of agricultural property relief.

I am afraid we have here Labour taking with one hand and providing far less with the other. For the £5 million, which we welcome, that they will give back to farmers each year with this measure, they will take away some £500 million a year through the family farm tax, if the Office for Budget Responsibility’s highly uncertain costings are to be believed. Many farmers, and bodies such as the National Farmers Union, have raised concerns about this. The Chartered Institute of Taxation has queried why the relief remains limited to schemes entered into with public authorities, rather than allowing enterprising landowners to enter into other schemes. I would be interested to hear the Minister’s thoughts on that, but we will not oppose the measure.

James Murray (Labour/Co-operative, Ealing North)

I thank the hon. Gentleman for his support for the measure. He made wider points about reforms to agricultural property relief, which we have debated several times. The clause focuses in a targeted way on environmental land management schemes.

The hon. Gentleman asked why private environmental land management that is outside of agreements is not included. I confirm that relief will be available for land managed under an environmental agreement with or on behalf of the UK Government, devolved Governments, public bodies, local authorities or approved responsible bodies. This will ensure that the extension of the relief applies only where there are high, verifiable environmental standards.

Clause 62 - National Savings Bank: statements from HMRC no longer to be required

James Murray (Labour/Co-operative, Ealing North)

The clause makes changes to remove requirements in limited circumstances that the National Savings Bank, more commonly known as NS&I, obtains from HMRC a statement of inheritance tax paid before making a payment. The regulations concerned are consolidated regulations that confer powers and administrative obligations on NS&I which, before paying out a deceased person’s national savings and securities to personal representatives, must make due diligence checks, such as whether the payee has a grant of probate.

The changes made by the clause remove the requirement to contact HMRC directly to check inheritance tax paid in limited circumstances, including certain domicile conditions. This is no longer required in line with the modern compliance processes. This is a minor change that is connected to, but slightly out of scope of, the reforms for non-UK-domiciled individuals. It is consequential on the non-UK-domicile reforms. I commend the clause to the Committee.

Gareth Davies (Conservative, Grantham and Bourne)

The Minister may think that this is a minor issue—and he will be pleased to know that I agree with him. [Laughter.] I am just waking everybody up. The requirement is redundant and we will not oppose the clause.

James Murray (Labour/Co-operative, Ealing North)

I applaud the hon. Gentleman’s theatre in delivering his response, and welcome his support.

Clause 63 - Rates of alcohol duty

Angus MacDonald (Liberal Democrat, Inverness, Skye and West Ross-shire)

I beg to move amendment 66, in clause 63, page 68, line 10, leave out “£32.79” and insert “£31.64”.

Valerie Vaz (Labour, Walsall and Bloxwich)

With this it will be convenient to discuss the following:

Clause stand part.

Clause 64 stand part.

Angus MacDonald (Liberal Democrat, Inverness, Skye and West Ross-shire)

The amendment would mean the relevant rate of duty would be unchanged from last year. I am one of the few MPs from Scotland on the Committee, but I am sure I am not alone in understanding the vital importance of the Scotch whisky industry not just to Scotland but to the UK economy. However, it bears repeating just how significant the industry is, and I would like to highlight a few key statistics.

Scotland is home to the production of 70% of UK spirits—whisky, gin and vodka. In 2023, Scotch whisky accounted for 74% of Scotland’s food and drink exports, and the industry employed 41,000 people in Scotland and an additional 25,000 throughout the UK. The Prime Minister himself recognised the importance of the industry. He went to the InchDairnie distillery in November 2023, and afterwards tweeted:

“Labour will put growth at the heart of our government and back Scotch producers to the hilt.”

The hon. Member for West Dunbartonshire (Douglas McAllister) echoed this sentiment when he co-signed a letter to the Chancellor prior to the Budget, urging her to:

“Back one of our great industries, undo the damage of last year’s duty increase, and allow Scotch Whisky to deliver for the economy.”

Despite those commitments, the 2024 autumn Budget fails to deliver the support that the Scotch whisky industry so urgently needs.

A new survey reveals that 43% of 18 to 34-year-olds have given up drinking alcohol entirely. The share prices of the biggest two spirit companies halved over the past year. The Bill proposes 1p off a pint of beer, which I think we can all agree is a bit of a stunt, while increasing the tax on spirits by 32p, with a related VAT increase of 6p. That means that the duty is £9.18 on a standard bottle of vodka, gin or Scotch whisky.

Over the past 16 years, the duty on spirits has doubled. I am concerned, and so are many others, that we are plucking the golden goose one time too many. UK alcohol duty is the highest in the G7. A double measure of spirits is taxed four times more than the average-strength pint of cider in pubs, even when the cider contains more alcohol. Effectively, we are taxing whisky, gin and vodka four times as much.

What is worse, this punitive duty does not even deliver more revenue for the Treasury. This is an important point. Last year, the previous Government increased the duty on spirits by 10.1%, but according to HMRC the revenue from the duty fell by £237 million in the following 17 months. That clearly demonstrates that higher taxes on Scotch and spirits do not lead to higher revenue. The increase was forecast to bring in £800 million. Revenue from the duty has therefore fallen dramatically.

I understand that in recent years alcohol duty has risen in line with inflation under the new system. However, freezing it in this Budget would send a clear message that the Government stand behind one of our greatest industries. The troubled hospitality industry and the Scotch whisky industry do not need hollow words of support: they need meaningful action. I urge the Government to freeze alcohol duty on Scotch whisky and other spirits, and keep their promise. The Prime Minister said that we need to

“back Scotch producers to the hilt.”

Let us give this industry the angels’ share that it deserves.

Valerie Vaz (Labour, Walsall and Bloxwich)

Does the shadow Minister wish to speak?

Gareth Davies (Conservative, Grantham and Bourne)

My hon. Friend the Member for North West Norfolk will speak to this clause, Ms Vaz.

James Wild (Conservative, North West Norfolk)

I apologise for the confusion on our side, Ms Vaz. The Committee will be pleased to know that I have lots to say on this clause, so we can all settle in for a while.

Clause 63 increases the headline rate of alcohol duty in line with the retail price index, provides a reduction to the rates for draught alcoholic products and cuts to the rates paid by eligible small producers. The Government have also chosen not to extend the temporary easement for certain wine products. I say at the outset that His Majesty’s Opposition is a strong supporter of the broader alcohol sector, and we have some concerns about the impact that some of the provisions will have on important sectors. As well as speaking to clauses 63 and 64, I will speak to new clause 4, which stands in my name and that of my hon. Friend the Member for Grantham and Bourne.

In 2023, the previous Government introduced a progressive strength-based duty system following the alcohol duty review, which was the biggest review of alcohol duties for more than 140 years. The new and simplified alcohol duty rates system was based on the common-sense principle of taxing alcohol by strength, with the aim of modernising the existing duties, supporting businesses and meeting our public health objectives. That was the first time that public health objectives had been inserted into the alcohol duty system. The reforms also introduced two new reliefs: the draught relief to reduce the duty burden on draught products sold at on-trade venues, and small producer relief.

At the autumn statement 2023, the previous Government froze alcohol duty rates until August 2024, and that was extended until February 2025 at the following Budget. According to the OBR, alcohol duty receipts are expected to raise £12.4 billion this year, falling by 0.6% compared with last year as the rates remain frozen, but receipts are then forecast to increase by 5% a year on average, to reach £15.9 billion by the end of the Parliament.

Pubs make a huge contribution to our culture, economy and communities. When the Conservatives were in government, we recognised that and introduced a raft of supportive measures, including draught relief, small producer relief and the Brexit pubs guarantee, which I am sure all hon. Members remember and welcome. I therefore welcome the increased draught relief from February, from 9.2% to 13.9%, and the fact that the relative value of small producer relief will be maintained. Although we welcome the inclusion of both reliefs, the increase to draught relief will mean that beer duty on a 5% pint of beer is reduced from 54p to 53p—a 1p saving. I fear that drinkers will not be toasting the Exchequer Secretary over that.

Turning to whisky—although it is a little early in the day for me—as the hon. Member for Inverness, Skye and West Ross-shire set out, Scotch whisky is one of our most iconic and successful industries. Some 43 bottles of scotch whisky are exported per second and the industry supports more than 66,000 jobs across the UK, many of which are in rural areas. The decision to uprate duty rates by RPI has been met with deep concern by the industry—indeed, the Scotch Whisky Association said that it represents a broken commitment, after the Prime Minister claimed last year that his Government’s trade strategy would

“back Scotch producers to the hilt.”

That sounds rather like the promise that he gave to farmers, which Labour’s family farm tax has broken. The managing director of Diageo said:

“This betrayal will leave a bitter taste for drinkers and pubs, while jeopardising jobs and investment across Scotland.”

I would be interested to hear the Minister’s response to those comments. Have the Government calculated the risk to jobs in the sector more widely?

A similar picture is painted by the cider industry, which supports more than 11,500 jobs and attracts more than 1 million tourists each year. The National Association of Cider Makers has raised fears that raising the headline rate, alongside the national insurance increases and the family farm tax, could put elements of the UK cider industry at risk. Has the Minister calculated the cumulative impact that these tax rises will have on the sector?

At this point, we should consider the wider context in which we are discussing these increases. Time and again we hear about the Budget placing a range of cost pressures on the hospitality industry, which is a key contributor to the UK economy. According to UKHospitality:

“In the past six years, hospitality has increased its annual economic contribution by £20 billion to £93 billion.”

The tax rises in the Budget, including the £25 billion a year jobs tax, will make it much harder for the industry to succeed. Just look at the impact of recent measures. Colliers, a professional property services company, reported that cutting the hospitality business rate relief from 75% to 40% means that restaurants will face a bill of, on average, over £13,000 a year, up from £5,500.

Angus MacDonald (Liberal Democrat, Inverness, Skye and West Ross-shire)

Will the Minister comment on whether, when the Government fix all these additional taxes, they take into account what happens in Scotland, where many in the hospitality industry do not get business rate relief? We are getting it twice on exactly the same issue.

James Wild (Conservative, North West Norfolk)

The hon. Gentleman makes an important point that I am sure the Minister will want to cover when he responds.

The average bill for pubs will go from £4,000 to £9,642 a year. Any hon. Member who talks to hospitality businesses in their constituency will know the real-world challenges they are facing. As it happens, my favourite pub in my constituency closed its doors on Sunday, in part due to the increased costs and taxes the sector is facing. Have the Government considered the impact of the combination of these tax rises on pubs and the wider sector?

Turning to wine, as part of our reforms we introduced a wine easement for 18 months until February 2025. The Minister will be aware of the concerns of some in the sector that because that easement is coming to an end, duty will increase by 98p in just over 18 months. While we support the transition to the new regime and the end of the easement, I would be grateful if the Minister clarified what engagement he has had to understand how prepared the industry is for the new system.

We have many incredible wineries here in the UK. In 2023, sales rose 10% to reach nearly 9 million bottles. Supporting domestic wine producers should be a priority. In my constituency, I am fortunate to have Burn Valley winery, Cobble Hill winery and others. They are producing great products, proving very popular and helping to improve the rural economy and employment. However, growers have higher production and establishment costs, which will be made more challenging by the tax rises in these clauses and the wider Budget.

To support the industry, WineGB has proposed the introduction of a cellar door duty relief scheme modelled on the Australian scheme, to promote wine tourism, which a VisitBritain survey demonstrated could attract 16 million visitors. The Government have an ambitious target to increase annual visits to the UK to 50 million by 2030—up from 38 million last year. In the spirit of trying to help the Government lift their foot off the growth brake lever, perhaps the Minister will have a look at that idea and consider whether introducing it has any merit.

It is because of the challenges facing producers and the hospitality sector that we have tabled new clause 4, which would require the Chancellor, within six months of the Bill being passed, to make a statement to Parliament about the impact on various sectors of the increases in alcohol duties. As we have heard, increases to duty rates place significant additional costs on hospitality, pubs, whisky, spirits, wine, cider and other sectors, and we are concerned that this could inhibit growth and business investment. The previous Government recognised the significant contribution made by those sectors and saw an increase in business investment in the hospitality sector. Given the headwinds facing alcohol producers and hospitality businesses, which support so many jobs, it is only right that the Government report back to Parliament on the impact of their choices.

Clause 64 abolishes the duty stamps scheme for spirit drinks from 1 May 2025, fulfilling a commitment made by the Conservative Government in the spring Budget. We welcome this. The scheme was important when it was introduced, but it became an increasingly diminishing part of HMRC’s compliance response. Unnecessary regulation should of course be removed where possible, and I welcome this Government’s apparent commitment to deregulation, as set out in the Chancellor’s speech, though it would have more credibility if the Government were not also bringing forward the unemployment Bill that will add £4.5 billion to business costs.

As I set out, we support this change to reduce administrative burdens. I look forward to the Minister’s response to the concerns I have raised on behalf of the sector and producers in relation to these clauses.

Paul Kohler (Liberal Democrat, Wimbledon)

It is a pleasure to serve under your chairship, Ms Vaz. May I draw Members’ attention to my entry in the Register of Members’ Financial Interests? I own a bar called Cellar Door—though not the same cellar door as the ones the hon. Member for North West Norfolk just referred to.

I want to speak about wine and the hospitality and night-time economy in general. Under the current regime of the wine easement, 85% of all wine sold in the UK is subject to the same rate of duty. That is now to be replaced by 30 different rates. That fails to take account of fundamental differences between wine and other manufactured alcoholic drinks.

The alcohol by volume of wine cannot be predicted with precision before or during the wine-making process. The alcohol content is stable only at the point when the wine goes into the bottle. The ABV varies between different years and different vats. Until bottling, we do not know the ABV of a particular bottle of wine. It therefore creates huge uncertainty about price and profit margins for the industry if there are different rates of duty depending on the specific ABV, down to a gradation of 0.1% ABV. This is particularly important with low-cost wines. The point is that this regime is utterly impractical for wine producers and wine merchants.

Hal Wilson, co-founder of Cambridge Wine Merchants, told me:

“In my business this feels like death by a thousand cuts, or even two thousand cuts. We sell over 2,000 different wines each year and from February will need to know the precise ABV of each and every one before being able to calculate their full cost. For each 0.1% ABV difference there is a different amount of tax to be paid.”

I wrote to the Minister about this and got a long and detailed response, for which I am grateful. He made the point that HMRC will change its practices and accept the ABV on the label of the bottle to the nearest 0.5%, but that is current practice; it is not in the legislation as I understand it, and it is still far too complex and much of my criticism still holds. Secondly, the letter fundamentally misunderstands why people drink wine. Wine is consumed for the taste, not the strength. An ABV goes through the taste profile. Compare a light Beaujolais with a robust Rioja. It is all about taste, not about whether it is stronger so one can get more drunk. That is not how people consume wine.

The hospitality and the night-time economy industry is facing an existential crisis owing to rising energy prices, recent inflation, labour shortages following Brexit, changes to commuting patterns and the more than doubling of business rates. Now, alcohol duties are to be another burden. It is death by a thousand cuts. Every incremental cost makes survival more difficult. That is why we are asking for a review after six months to see the effect on the wine industry, hospitality industry, night-time economy and other industries.

James Murray (Labour/Co-operative, Ealing North)

I will attempt to address the points raised by the Opposition parties. Let me make it clear that clause 63 makes changes to the alcohol duty rates from 1 February 2025. Alcohol duty rates for products qualifying for draft relief will be cut by 1.7% to take a penny of duty off an average-strength pint, while rates of all other products will increase by the retail price index.

Angus MacDonald (Liberal Democrat, Inverness, Skye and West Ross-shire)

May I intervene?

Valerie Vaz (Labour, Walsall and Bloxwich)

You can respond to the debate at the end. Would you still like to make an intervention?

Angus MacDonald (Liberal Democrat, Inverness, Skye and West Ross-shire)

In that case, I will not, Ms Vaz.

James Murray (Labour/Co-operative, Ealing North)

As I was saying, the clause also increases the relative value of small producer relief for both draught and non-draught products, and clause 64 ends the alcohol duty stamps scheme. To reassure Members, in consideration of what position to take at the autumn Budget, I had meetings and officials had further meetings with representatives from the wine, beer, spirits and cider industries, as well as with public health people, to understand the full range of opinions and how we could carefully calibrate our policy response.

Harriet Cross (Conservative, Gordon and Buchan)

The Scotch Whisky Association is not on the list of people the Minister met. Can he confirm whether he did meet the association?

James Murray (Labour/Co-operative, Ealing North)

The association is included under “spirits”.

As we know, alcohol duty is frozen until 1 February. The OBR’s baseline, reflected in its forecast, is that alcohol duty will be uprated by RPI inflation each year. The Government have decided to maintain the value of alcohol duty for non-draught products by uprating it from 1 February. At the same time we are recognising the social and economic importance of pubs, as well as the fact that they promote more responsible drinking, by cutting duty for draught products, which account for the majority of alcohol sold in pubs.

A progressive strength-based duty system was introduced on 1 August 2023 by the previous Government following the alcohol duty review. The reforms introduced two new reliefs: a draught relief to reduce the duty burden on draught products sold in on-trade venues, and small producer relief that replaced the previous small brewers relief. The clause increases the generosity of both reliefs.

The alcohol duty stamps scheme is an anti-fraud measure applied to larger containers of high-strength alcoholic products, typically spirits. It requires the mandatory stamping of certain retail containers with a duty stamp. In 2022, HMRC was commissioned to review the effectiveness of the scheme. It found that it is outdated, susceptible to being undermined and now plays a diminished compliance role, and concluded that the cost and administrative burdens imposed on the spirits industry could no longer be justified. The previous Government announced the end of the scheme at spring Budget 2024. That is a decision that this Government will implement from 1 May 2025. That date was chosen after consultation with businesses, which requested sufficient time to prepare.

Clause 63 makes four changes. First, it increases the rates of alcohol duty for non-draught products to reflect RPI inflation. Secondly, it reduces the rates of alcohol duty on draught products by 1.7%. Thirdly, it amends the tables in schedule 9 to the Finance (No. 2) Act 2023 that are used by small producers to calculate their duty discount under small producer relief. This increases the value of small producer relief for both draught and non-draught products in relation to the main rates for these products.

In cash terms, the current cash discount given to small producers for draught products is maintained, while the discount provided to small producers for non-draught products is increased. Small producer relief provides the same relative discount, irrespective of whether a product also qualifies for draught relief. As a consequence of the RPI increase in non-draught rates, it increases the simplified rates in schedule 2 to the Travellers’ Allowances Order 1994, which is used for calculating duty on alcoholic products brought into Great Britain.

Some hon. Members raised questions about the impact of these measures on pubs and the hospitality industry. To support the hospitality industry, particularly recognising the role that pubs play in local communities, the Government have announced a reduction in the alcohol duty rates paid on draught products. This reduces businesses’ total duty bill by up to £100 million a year and increases the duty differential between draught and non-draught products from 9.2% to 13.9% for qualifying beer and cider.

As we have mentioned a couple of times in this debate, the reduction to draught relief rates will also result in the average alcoholic strength pint at 4.58% ABV paying 1% less in duty. Draught relief provides a reduced rate of duty on draught products below 8.5% ABV packaged in containers of at least 20 litres designed to connect to a qualifying system for dispensing drinks.

Clause 64 ends the alcohol duty stamps scheme from 1 May this year, removing the provisions in the Finance (No. 2) Act 2023 and the secondary legislation in the Duty Stamps Regulations 2006. It also makes consequential changes and removes references to the scheme where they appear elsewhere in legislation.

Amendment 66 would freeze alcohol duty for alcoholic products above 22% ABV. That is contrary to the Chancellor’s decision at the autumn Budget to increase those duty rates to reflect inflation, and would cost the Exchequer £150 million a year.

Specifically in relation to the Scotch whisky industry, I would like to set out that the overall alcohol package balances commercial pressures on the alcohol industry with the need to raise revenue for our vital public services and reduce alcohol-related harms. Consumers and brewers in Scotland will benefit in line with the rest of the UK, with consumption and production patterns roughly equal nationwide. Of course, 90% of Scotch whisky is exported, which means it pays no duty. The Scotch Whisky Association’s own figures show the health of the industry. The Budget offers support to the Scotch whisky industry by removing the alcohol duty stamps scheme, which we have just considered, and through investment in the spirit drinks verification scheme by reducing fees for geographical verification.

New clauses 2 and 4, which were also tabled by Opposition Members, would require the Chancellor to make additional statements about the impact of the alcohol duty measures. The Government do not believe further statements to be necessary. As usual, a tax information and impact note was published at the autumn Budget, outlining the anticipated impacts of the measures on alcohol producers and the hospitality sector. Alcohol duty, like other taxes, will be reviewed in future Budgets.

New clause 2 also requires a review of the impact on trade, but UK alcohol duty is, of course, not charged on exports. Some hon. Members raised the impact of the changes to business rates on the hospitality sector in Scotland, but business rates are, of course, devolved. The Scottish Government are accountable to the Scottish Parliament on devolved areas.

Hon. Members also raised questions around the wine easement and why it had not been extended or made permanent. I remind them that the wine easement was intended as a transitional arrangement to give the wine industry time to adapt to the strength-based duty calculation for wine. The revised alcohol duty system simplified and reduced differences between categories of alcohol. Making the wine easement permanent would introduce a new differential into the system and add to the complexity of that system. It would further lead to a duty regime in which stronger ABV wines pay less in proportion to their alcohol content than lower ABV wines. Making the wine easement permanent would, therefore, undermine the simplification and public health objectives of the revised alcohol duty system.

In conclusion, the changes to the alcohol duty balance public health objectives, fiscal pressures, cost of living pressures and the economic and social importance of pubs, while also supporting small producers by increasing the generosity of small producer relief. Furthermore, the end of the alcohol duty stamps scheme will simplify procedures for approximately 3,500 registered alcohol importers and producers, reducing overall costs on the spirits industry by an estimated £7 million a year. I therefore commend the clause to the Committee, and urge it to reject amendment 66 and new clauses 2 and 4.

Angus MacDonald (Liberal Democrat, Inverness, Skye and West Ross-shire)

I do not have a great deal to add. I did miss out, when we declared our interests earlier, the fact that I own a pub, which hon. Members are very welcome to visit when they are next in Fort William—do not all rush at once. It never rains there.

I want to come back, briefly, to the 1p a pint reduction that we were promised. The whole hospitality industry and beer industry have come together to agree that that is a stunt, and that that 1p will not be passed on to the customer. It is just not relative at all, because the reduction in business property relief and the national insurance and minimum wage increases effectively mean that the cost to the hospitality industry is going through the roof. The Minister knows that perfectly well, but he still continues to trot out his line.

On the whisky industry, I am not sure that account has been taken of the potential tariffs. We talk about exports being very strong, but they are not actually very strong at the moment.

Lastly, on tax overall, when I make a submission to Scottish Government Ministers about the tax on hospitality, the whisky industry and so on, they all blame Westminster, but when I speak to Westminster Ministers about it, they all blame Scotland. The net result is that industries such as hospitality in Scotland are suffering from both sides, and that is simply not fair.

Gregor Poynton (Labour, Livingston)

On business rates, they are clearly devolved to the Scottish Government, so it fully sits within their remit to help the hospitality industry. If we are talking about standing behind the whisky industry, one of the first things that the Secretary of State for Business and Trade did was go to Brazil to work out that protected status for the Scotch whisky industry, which will mean millions of pounds extra in exports to Brazil.

We are also discussing clause 64, which deals with the abolition of duty stamps for alcoholic products, and that will also help the whisky industry. The Government are doing a number of things to support the whisky industry and stand behind it, including the provisions on its tax status and the Secretary of State’s efforts to increase exports. The hon. Member should perhaps reflect that in his comments.

Angus MacDonald (Liberal Democrat, Inverness, Skye and West Ross-shire)

I have finished my remarks.

Valerie Vaz (Labour, Walsall and Bloxwich)

Would you like to press the amendment to a vote?

Angus MacDonald (Liberal Democrat, Inverness, Skye and West Ross-shire)

Yes.

Clause 65 - Rates of tobacco products duty

Valerie Vaz (Labour, Walsall and Bloxwich)

With this it will be convenient to discuss the following:

James Murray (Labour/Co-operative, Ealing North)

The clause implements changes announced at the autumn Budget 2024, concerning tobacco duty rates. The duty charged on all tobacco products will rise in line with the tobacco duty escalator, with an additional increase being made for hand-rolling tobacco to reduce the gap with cigarettes. Smoking rates in the UK are falling but they are still too high; around 12% of adults are now smokers. Smoking remains the biggest cause of preventable illness and premature death in the UK, killing around 80,000 people a year and up to two thirds of all long-term users.

We have plans to reduce smoking rates further to achieve our ambition of a smoke-free UK. To realise that ambition, we announced our intention to phase out the sale of tobacco products for future generations, as part of the Tobacco and Vapes Bill, along with powers to extend smoke-free legislation to some outdoor areas.

At the autumn Budget, the Chancellor announced that the Government will increase tobacco duty in line with the escalator. Clause 65 therefore specifies that the duty charged on all tobacco products will rise by 2% above RPI inflation. In addition, duty on hand-rolling tobacco increases by 12% above RPI inflation. These new tobacco duty rates will be treated as taking effect from 6 pm on the day that they were announced, 30 October last year.

Recognising the potential interactions between tobacco duty rates and the illicit market, HMRC and Border Force launched their refreshed illicit tobacco strategy in January 2024. The strategy is supported by £100 million of new funding, which will be used to scale up ongoing work and support new activities set out in the strategy, including enhanced detection and intelligence capabilities.

New clause 5 would require the Chancellor to review the impact of increased tobacco rates on the illicit tobacco market within six months of the Bill being passed. The Government respectfully will not accept this new clause, as the potential impact on illicit markets is already one of several factors the Government take into account when a decision on tobacco rates is made. I also note that the approach used in the costings at the Budget, certified by the Office for Budget Responsibility, accounts for behavioural responses to changing excise rates, including the impact of illicit markets. HMRC also publishes tobacco tax gaps annually, which allow for an analysis for the long-term trends in illicit trade.

Although the Government are rejecting new clause 5, I assure Committee members that the Government will continue to monitor illicit trade and to support the efforts of our enforcement agencies to counter it. HMRC and Border Force have had strategies in place to reduce the illicit trade in tobacco for over 20 years, which have helped to reduce the tobacco tax gap from 21.7% in 2005-06 to 14.5% in 2022-23. That happened during a prolonged period in which tobacco duties were consistently increased, as the attitude of all Administrations, including I believe the last one, has been that the threat of illicit tobacco needs to be addressed by reducing its availability, rather than allowing it to dictate our public health and tax policies.

On that matter, I hope that all Committee members, and I assure them that that will continue to be this Government’s approach. The clause will continue the tried and tested policy of using high duty rates on tobacco products to make tobacco less affordable. It will help to continue the reduction in smoking prevalence, supporting our ambition for a smoke-free UK, and will reduce the burden placed by smoking on our public services. I comment the clause to the Committee and urge it to reject new clause 5.

James Wild (Conservative, North West Norfolk)

As we have heard from the Minister, clause 65 increases excise duty on all tobacco products and the minimum excise tax on cigarettes by the duty escalator RPI plus 2%. In addition, the excise duty rate for hand-rolling tobacco increases by an additional 10%. This is a one-off increase in addition to the restated policy of increasing rates in line with RPI plus two percentage points. We are broadly supportive of these measures but I have some questions around purchaser behaviour and its impact on the illicit market and enforcement. In addition to speaking to clause 65, I will also speak to new clause 5, which stands in my name.

Tobacco receipts are expected to be £8.7 billion this year, down by 2.7% on last year. They are forecast to decline by 0.5% a year on average over the rest of the forecast period to £8.5 billion, as declining tobacco consumption offsets increasing duty rates. The tax information and impact note explains that over the four years from 2019 to 2023, the tobacco escalator coincided with a reduction in smoking prevalence from 14.1% to 11.9% of people aged over 18. That is clearly welcome. The Government are bringing forward the Tobacco and Vapes Bill, which the Minister referred to and which includes lots of measures to make vapes less attractive to children and harder to get hold of. There is a lot to be said about that Bill, but fortunately, that is the job of another Committee.

Increasing the price of tobacco clearly comes with the risk of boosting the illicit market. The tax information and impact note suggests that some consumers might engage in cross-border shopping and purchase from the illicit tobacco market. HMRC will monitor and respond to any potential shift. Indeed, the OBR has suggested that the duty rate is beyond the peak of the Laffer curve—the revenue-maximising rate of tax. Can the Minister confirm what measures will form HMRC’s response to any shift in illegal consumption?

There are also questions around the figures. Although HMRC estimates that 10% of cigarettes and 35% of hand-rolling tobacco consumption is from illegal and other non-UK duty paid sources, evidence submitted by the industry believes that is a significant understatement. Its data shows that the consumption of tobacco from non-UK duty paid sources currently accounts for 30% of cigarettes and 54% of hand-rolling tobacco consumption. Has the Minister discussed with HMRC the difference between those figures and the basis on which they have been put together?

The Tobacco Manufacturers’ Association said that the illegal market is not in decline but that, contrary to HMRC’s claims, it is expanding. As well as providing more accurate figures on the scale of the illegal market, it would be useful to know whether the Government have calculated the potential consequences for retailers and law enforcement of an expanding illegal market.

Alex Ballinger (Labour, Halesowen)

Does the hon. Member agree that the tobacco market’s estimates are not unbiased? It has form in exaggerating the scale of the illicit tobacco market in the UK.

James Wild (Conservative, North West Norfolk)

The hon. Member has probably seen the same evidence produced by the industry as I have; I do not think that we should dismiss it out of hand. Representatives from the industry do, for example, go around football terraces, pick up the empty packets, see where they came from, and do sampling or take other measures. Of course the industry’s evidence should be challenged and tested, but my point is about whether HMRC has worked with the sector to see if its figures are wrong. If they are, and HMRC’s are perfectly right, we can follow the HMRC figures. I am raising a legitimate concern about the accuracy of the data to make sure that we are all operating from the same page because, as the OBR has pointed out, we may already have reached the peak point where the tax will be doing harm.

The Minister referred to the success of enforcement over the last couple of decades. In March last year, the previous Government set out a new strategy to tackle illicit tobacco. With evidence of a substantial illegal market—and whichever set of figures we take, it is substantial—what steps are the Government taking? Are they taking the previous Government’s strategy forward or will they introduce their own strategy?

The industry has specifically proposed that the Government provide trading standards with full access to the powers granted to HMRC under the Tobacco Products (Traceability and Security Features) (Amendment) Regulations 2023. At present, the legislation allows trading standards to refer cases to HMRC, which will then consider imposing on-the-spot penalties of up to £10,000 on those selling tobacco.

The industry proposed that it would be far more effective for trading standards to apply the penalty at the point of enforcement rather than having to refer the case to HMRC. It also suggested allowing trading standards to keep the receipts from any such penalties to reinvest in its enforcement action—we are all familiar with the pressures that trading standards is facing. Will the Minister say whether the Government have considered those proposals and, if they have not, will he?

I have tabled new clause 5 to ensure there is better understanding of the risk around the illicit market. The Minister respectfully dismissed the need for it, but it would require the Chancellor to, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by clause 65 of the Bill on the illicit tobacco market. As we have heard, increasing tobacco duty could alter the behaviour of consumers, and we could see greater illicit market share.

Evidence from the industry—which may be contested—shows that non-UK duty paid sources are significant. There is clearly a risk that a further increase to tobacco duty could boost the illicit market, and HMRC needs to act to protect lawful revenues for the taxpayer. We would therefore welcome the Chancellor publishing an assessment of the impact of the changes. As I set out, we will not oppose clause 65, but I look forward to the Minister’s response to my points, particularly on the illicit market.

James Murray (Labour/Co-operative, Ealing North)

I welcome the Opposition’s support for these measures. I will write to the hon. Gentleman in response to some of the queries he raised about specific figures. I will address the points that he made about the illicit tobacco market, because that is obviously something we all want to consider in some depth in connection with anything that we do around the tobacco duty.

As I mentioned in my earlier remarks, HMRC and Border Force launched their refreshed illicit tobacco strategy in January 2024. That is being implemented under this Government. It is supported by £100 million of new funding, which will be used to scale up the ongoing work and support the new activities outlined in the strategy, including enhanced detection and intelligence capabilities.

The hon. Gentleman also asked about the impact of increasing tobacco duty on the demand for illicit products, and whether increasing duty rates might push some smokers towards illicit products. It will be helpful if I set out the context for this discussion. Under the assumptions that were used in the tobacco costings for the autumn Budget, which were of course certified by the OBR, the overall level of increase decided on by the Government raises revenue while continuing to reduce tobacco consumption.

The approach used in costings, certified by the OBR, takes into account a number of potential behavioural responses to changing excise duty rates, such as quitting or reducing smoking, substituting with vapes, and moving from UK duty paid consumption to the non-UK duty paid market, including the impact on illicit products. However, the threat from illicit tobacco needs to be addressed by reducing its availability, rather than allowing it to dictate our tax and public health policies.

Finally, the hon. Gentleman asked whether HMRC had worked with the sector to authenticate its figures. HMRC has analysed how external figures are calculated, but World Health Organisation rules prohibit extensive engagement with the industry on such issues.

Clause 66 - Rates of vehicle excise duty for light passenger or light goods vehicles etc

Valerie Vaz (Labour, Walsall and Bloxwich)

With this it will be convenient to discuss new clause 6—Review of effects of £40,000 expensive car supplement threshold—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the £40,000 expensive car supplement threshold included in section 66.

(2) The assessment in subsection (1) must consider the effects of the threshold on the proportion of new cars sold which are Electric Vehicles.”

This new clause requires the Chancellor to review the impact of the £40,000 expensive car supplement threshold.

James Murray (Labour/Co-operative, Ealing North)

Clause 66 makes changes to the uprating of standard vehicle excise duty rates for cars, vans and motorcycles, excluding first-year rates for cars, in line with the retail prices index, from 1 April. The clause will also change the VED first-year rates for new cars registered on or after 1 April, to strengthen incentives to purchase zero emission and electric cars.

As announced at the autumn Budget, the clause will freeze the zero emission rate at £10 until 2029-30, while increasing the rates for higher-emitting hybrid, petrol and diesel cars from 2025-26.

Vehicle excise duty—VED—is a tax on vehicle ownership, with rates depending on the vehicle type and the date of first registration. Vehicle excise duty first-year rates were introduced as part of the wider changes to the VED system implemented in 2017, and they vary according to emissions. Vehicle excise duty first-year rates are paid in the first year of a car’s life cycle, at the point of registration. From the second year, cars move to the standard rate of VED. From 1 April, new zero emission vehicles registered on or after that date will also be liable for the VED first-year rates.

Vehicle excise duty first-year rates have been routinely uprated by the RPI since their introduction in 2017, and as announced by the previous Government at the autumn statement in 2022, from April 2025, electric cars, vans and motorcycles will begin to pay VED in a similar way to petrol and diesel vehicles.

The clause will set the VED rates for 2025-26, increasing the standard rates for cars, vans and motorcycles in line with the RPI. As part of this uprating, the standard rate of VED for cars registered since 1 April 2017 will increase by only £5. The expensive car supplement will also be increased by £15, from £410 to £425. The rates for vans will increase by no more than £15, and motorcyclists will see an increase in rates of no more than £4.

From 1 April 2025, the VED first-year rate for zero emission cars will be frozen at £10 until 2029-30. For 2025-26, first-year rates for cars emitting 1 to 50 grams per km of carbon dioxide will go from £10 to £110, and cars emitting 51 to 75 grams per km of CO2 will go from £30 to £130. Rates for cars emitting 76 grams per km or more of CO2 will double.

New clause 6 would require the Chancellor to review the impact of the £40,000 expensive car supplement threshold and consider its effects on the proportion of new cars sold that are electric vehicles. As set out at the autumn Budget, the Government have already committed to considering increasing the £40,000 threshold for EVs at a future fiscal event. The Government recognise that new electric vehicles can still often be more expensive to purchase than their petrol or diesel counterparts, and we acknowledge the need to ensure that EVs are affordable as part of our transition to net zero. In the light of that commitment, a separate review is unnecessary so I urge the Committee to reject new clause 6.

The changes to the VED first-year rates outlined in clause 66 will increase the incentives to buy new zero emission cars at the point of purchase and support the uptake of new electric vehicles. Revenue from that change will also help to support public services and infrastructure in the UK. An increase in VED standard rates for cars, vans and motorcycles by the RPI in 2025-26 will ensure that VED receipts are maintained in real terms. I commend clause 66 to the Committee.

James Wild (Conservative, North West Norfolk)

As we heard from the Minister, clause 66 provides for increasing certain rates of VED for light passenger and light goods vehicles in line with the RPI. There will also be changes to the first-year rates for zero emission vehicles and low emission vehicles. We broadly support the measures, but as well as discussing clause 66, I will consider new clause 6, which is in my name and that of my hon. Friend the Member for Grantham and Bourne.

According to the OBR, VED receipts are expected to raise £8.2 billion in 2024-25, up by £0.5 billion compared with 2023-24. It expects an increase through the forecast period to £11.2 billion, driven by an increasing number of cars, more cars paying the expensive car supplement and the extension of VED to electric vehicles from 2025. It was the last Government who decided that EVs would no longer be exempt from VED and moved to make the system fairer. I will raise some points about the implications of that, and particularly the expensive car supplement for electric vehicles. New zero emission cars, registered after 1 April, will be liable for that charge, which currently applies to cars with a list price exceeding £40,000. That threshold has not changed since 2017, despite inflation and changing technologies. The Society of Motor Manufacturers and Traders has called on the Government to look at that.

The current ECS threshold will add more than £2,000 to the cost of a zero emission vehicle in the first six years of ownership, and more than £3,000 including the standard rate VED that must also be paid. That will deter potential buyers from purchasing zero emission vehicles and will have an impact on residual values. According to figures quoted by the SMMT, the ECS is likely to capture more than half of the zero emission vehicle market from 2025.

The Minister referred to the Government saying that they may look at the threshold in future, and I will come on to that when I discuss new clause 6. Can he confirm how much the ECS currently raises and how much it is forecast to raise as a result of the changes? Given that the Government are committed to a 2030 ban on new petrol and diesel vehicle sales, what impact will the ECS have on the Government’s progress towards that goal?

For those reasons, we have tabled new clause 6, which would require the Chancellor, within six months of the Bill being passed, to publish an assessment of the impact of the £40,000 expensive car supplement threshold in clause 66. The assessment must consider the effects of the threshold on the proportion of new car sales that are electric vehicles.

As we have heard, the threshold has remained unchanged since 2017 and the Government are pushing ahead with the 2030 date. My right hon. Friend the Member for Richmond and Northallerton (Rishi Sunak) introduced some welcome common sense to the debate by moving the date for the ban on new petrol and diesel car sales back to 2035. That is the date that the major car manufacturing countries in Europe and the rest of the world have adopted, and one that we should have stuck to.

The Government’s policy is odd because it makes people less likely to move to EVs—because it makes it more expensive to do so. Perhaps the Treasury is not quite as signed up to the Energy Secretary’s dogmatic approach as he is; perhaps it secretly agrees with Opposition Members who certainly think that he is the most expensive Cabinet member in many ways. Although I recognise that the Minister said that the Government have committed to look at the threshold, the new clause would make that binding and make sure that it happened within a specific timeframe. We therefore want the new clause to be taken forward. As I have set out, we will not oppose the clause, but I will press new clause 6 to a Division.

Hybrid vehicles will start paying road tax at the standard rate, as well as paying the ECS where applicable. Those changes will hasten the departure from hybrids, as my hon. Friend the Member for Grantham and Bourne said earlier. I would be grateful if the Minister provided an assessment of the decision to disincentivise hybrids and if he could say how many jobs in the UK are based on producing hybrid vehicles.

James Murray (Labour/Co-operative, Ealing North)

I thank the shadow Minister for indicating the Opposition’s support for the clause. I understand what the Opposition are doing by proposing new clause 6, and the points that they want to raise, and the Government have considered it. We consider our commitment, which was made at the autumn Budget in the public domain, to be a strong commitment from the Government: we will consider increasing the £40,000 threshold for EVs only at a future fiscal event.

We recognise that when electric vehicles are new, they can still often be more expensive to purchase than their petrol or diesel counterparts. There is a need to ensure that EVs are affordable as part of the transition. We also recognise that, as transport is currently the largest-emitting sector, decarbonising it is central to the wider delivery of the UK’s cross-economy climate targets.

As I said, it was announced at Budget ’24 that the Government will consider raising the threshold for zero emission cars only at a future fiscal event. The Government have no current plans to review the threshold for petrol, diesel and hybrid vehicles, but we keep all taxes under review as part of the Budget process.

Clause 67 - Rates of vehicle excise duty for rigid goods vehicles without trailers etc

Valerie Vaz (Labour, Walsall and Bloxwich)

With this it will be convenient to consider the following:

Clauses 68 and 69 stand part.

Clause 71 stand part.

James Murray (Labour/Co-operative, Ealing North)

Clauses 67, 68 and 69 make changes to upgrade VED rates for heavy goods vehicles in line with the retail prices index from 1 April. They also make changes to the VED rates for rigid goods vehicles without trailers, rigid goods vehicles with trailers and vehicles with exceptional loads. Clause 71 uprates the heavy goods vehicle levy in line with the RPI from 1 April.

The registered keeper of a vehicle is responsible for paying VED. The rates depend on the vehicle’s revenue weight, axle configuration and Euro emission status. Furthermore, the HGV levy, which was introduced in August 2023 and frozen at the autumn statement in 2023, is payable for both UK and foreign HGVs using UK roads. Similarly to VED, the levy rates depend on the vehicle’s weight and Euro emissions status. Clauses 67, 68 and 69 will set the VED rates for heavy goods vehicles for ’25-26, increasing them in line with the RPI. For example, the annual VED liability of the most popular HGV—tax class TC01, VED band E1—will increase by £18, from £560 to £578. Hauliers will not see a real-terms increase in VED costs, as rates have increased to keep pace with inflation only.

The changes made by clause 71 will increase the annual rates for domestic and foreign HGVs using UK roads and the associated daily, weekly, monthly and six-monthly rates in line with the RPI. For example, the annual rate for the most common type of UK HGV will increase by £21, from £576 to £597. As part of that uprating, the £9 and £10 caps on the daily rates paid by foreign HGVs, which are a consequence of retained EU law and are now obsolete, will be removed.

Government new clause 1 corrects an omission in the Bill of an uplift to the general haulage rate announced at the autumn Budget. We are inserting a new clause to ensure that the legislation operates as intended by updating the currently recorded rate for the general haulage tax class—tax class 55—from £350 to £365 in line with the RPI.

New clause 7 seeks to require the Chancellor to make a statement about the impact of increasing VED on HGVs. The new clause is not necessary, as the Government have already published the tax information and impact note that sets out all the expected impacts of the measure. It makes clear that hauliers will not see a real-terms increase in their VED or HGV levy liabilities, as rates are being increased in line with the RPI to keep pace with inflation only. The measure is not expected to have any significant macroeconomic impacts.

Increasing both VED rates for HGVs and the HGV levy by the RPI for ’25-26 will ensure that VED receipts are maintained in real terms and that hauliers continue to make a fair contribution to the public finances in the wider context of a Budget in which hauliers have benefited from a further freeze in fuel duty, worth nearly £1,100 a year to the average HGV. I therefore commend clauses 67, 68, 69 and 71 as well as Government new clause 1 to the Committee, and I urge the Committee to reject new clause 7.

James Wild (Conservative, North West Norfolk)

As the Minister says, clauses 67, 68 and 69 provide for changes to certain rates of VED, and clause 71 increases the rates for the HGV road user levy. We will not oppose the provisions, but we have some concerns and points to make about the timing of the changes and the lack of support for impacted industries, such as the logistics sector. As well as discussing those clauses, I will consider new clause 7, which is in my name and that of my hon. Friend the Member for Grantham and Bourne.

Heavy goods vehicle VED is a complex picture, with more than 80 different rates. The characteristics of HGVs determine their rates, and the increases to HGV VED represent the first rise since 2014. Heavy goods vehicles may also be liable for the additional HGV road user levy, which was introduced in 2014 and is a charge for using the road network, ranging from £150 to £749 a year. The levy was suspended in August 2020, demonstrating the previous Government’s support for the haulage sector during the pandemic. A reformed levy was introduced in 2023 and was frozen at the autumn statement in 2023. The new levy divides qualifying HGVs into six levy bands rather than the previous 22, which is a welcome simplification.

The Government’s decision to uprate HGV VED and the road user levy comes at a challenging time for businesses. I make no apology for referring once again to the increases in national insurance and the impact that that is having on the sector. Logistics UK estimates that that will cost its sector £1.2 billion alone, and has warned that it could lead to a reduction of 29,000 jobs. Does the Minister recognise figures from Logistics UK that the increases in VED and road user levy will cost the sector £172 million and £178 million respectively? When taken in the context of other tax rises in the Budget, what impact does the Minister think the increases will have on logistics businesses’ ability to invest in their growth and decarbonisation?

It is because of the issues raised with us by the logistics sector that we have tabled new clause 7, which would require the Chancellor, within six months of the Bill being passed, to make a statement about the impact of the changes. That statement must also consider the effect of the increases on the haulage sector, decarbonisation of the logistics sector and the UK economy. Industry has warned that these increases could impact its ability to invest, but will mainly lead to job losses. The Road Haulage Association has called for a delay, as now is not the time, in its words, to “clobber” UK hauliers with extra costs. We would welcome the Chancellor’s commissioning such a review. The Minister says that the tax information and impact note provides a forecast for what might happen. Indeed it does, but the point of this is that it is an after-the-event review, which should be an important part of any policymaking, particularly in the Treasury, to see what the real-world impact was and how accurate those forecasts were.

Logistics UK has also pointed to lack of progress in the Budget on transport and energy infrastructure investment. What assurances can the Minister give the sector to provide it with the confidence to invest? Although I know industry has welcomed the plug-in van grant being maintained, can the Minister provide an update on the plug-in truck grant? As I have set out, we will not oppose these measures, but we do think the new clause would add to the Bill.

James Murray (Labour/Co-operative, Ealing North)

I thank the hon. Gentleman for confirming that the Opposition will support these clauses. He asked about the wider challenges faced by the road haulage industry. Road haulage is key to the UK’s economy, and the Government acknowledge the pressures the industry has faced in recent years. As a result of the changes in these clauses, hauliers will not see a real-terms increase in their VED or HGV levy liabilities, as rates will be increased in line with the RPI to keep pace with inflation only.

Of course, revenue from HGV VED and the HGV levy helps to ensure that we can continue to fund the vital public services and infrastructure that people across the UK expect, so it is right that the taxes are regularly reviewed. In the wider context, hauliers will also benefit from the further freeze in fuel duty for 2025-26 that the Chancellor announced in the Budget, which is worth nearly £1,100 a year for the average heavy goods vehicle.

Clause 70 - Vehicle excise duty: zero-emission vehicles

James Murray (Labour/Co-operative, Ealing North)

The clause makes minor amendments to ensure the legislation for the application of vehicle excise duty to zero emission vehicles operates as intended. In the 2022 autumn statement, the former Government announced that from April 2025, zero emission cars, vans and motorcycles would begin to pay VED in line with their petrol and diesel counterparts. The clause will ensure that the legislation governing the application of VED to zero emission vehicles operates as intended by making minor technical amendments to the legislation. The changes will clarify the current VED exemption for electric vehicles, clarify the interpretation of data entries on the certificate of conformity and ensure that all zero emission vans registered between 1 January 2007 and 31 December 2008 pay VED, in line with their petrol or diesel counterparts, from 1 April 2025. The clause will ensure that the legislation for the application of VED to zero emission vehicles operates as intended.

James Wild (Conservative, North West Norfolk)

I will be very brief on this one. It is a perfectly sensible measure, and we will not be opposing it.

Clause 72 - Rates of air passenger duty until 1 April 2026

Valerie Vaz (Labour, Walsall and Bloxwich)

With this it will be convenient to discuss the following:

Clause 73 stand part.

James Murray (Labour/Co-operative, Ealing North)

Clause 72 sets the rates of air passenger duty for 2025-26, as announced in the 2024 spring Budget, and they will take effect on 1 April 2025. Clause 73 sets the rates of APD for 2026-27, as announced in the 2024 autumn Budget, and they will take effect a year later, on 1 April 2026.

APD rates have fallen in real terms, because they are set more than a year in advance using forecast RPI, and inflation has subsequently been much higher than originally forecast. The former Government announced that in 2025-26, rates would be uprated by forecast RPI and non-economy rates would be adjusted to account partially for previous high inflation. For 2026-27, the current Government are making a broad-based adjustment to all rates to compensate in part for previous high inflation and are raising the higher rate on larger private jets by an additional 50%. These changes aim to ensure that the aviation industry continues to make a fair contribution to the public finances. As is standard practice, the Government have given the industry more than 12 months’ notice.

Let me go into some detail. The changes made by clause 72 will raise all APD rates by forecast RPI, rounded to the nearest pound, for 2025-26. Non-economy rates will be further adjusted to correct partially for previous high inflation. For domestic and short-haul international economy passengers, these changes mean that rates will stay at their current level in 2025-26. Rates for other economy-class passengers will rise by £2. For non-economy international passengers, rates will rise by between £2, for short-haul commercial passengers, and £66, for those travelling ultra-long haul in larger private jets that incur the higher rate.

The changes made by clause 73 will raise all APD rates in 2026-27 to account partially for previous high inflation, and increase the higher rate on larger private jets by an extra 50% above the increases to other rates. For economy-class passengers, this means that those flying domestically will face an increase of £1. Rates for short-haul economy passengers will increase by £2, and those for long-haul economy passengers will increase by £12. The increases for non-economy passengers and those travelling in private jets will be greater. Whereas the short-haul international rate for economy passengers is increasing by £2, that for non-economy passengers is rising by £4 and that for private jet passengers by £58.

Taken together, the corrections to non-economy rates announced at the spring and autumn Budgets do not raise rates by more than RPI over the period since 2021-22, based on the latest figures. From 2027-28, rates will be rounded to the nearest penny, to ensure that they track forecast inflation more closely.

New clause 8 would require the Chancellor to publish an assessment of the impact of the APD changes on the public finances, carbon emissions and the finances of households at a range of income levels. At the autumn Budget, the Government published a TIIN that outlined the expected impacts of the APD changes, including the Exchequer, household and environmental impacts. New clause 8 is therefore unnecessary, and I urge the Committee to reject it.

These changes will help to maintain APD rates in real terms, following high inflation. I therefore commend clauses 72 and 73 to the Committee and urge it to reject new clause 8.

James Wild (Conservative, North West Norfolk)

As we heard from the Minister, clause 72 sets the rates of air passenger duty for the year 2025-26—those rates were announced in the 2024 spring Budget, precisely to give the sector time to plan—and clause 73 sets the rates for 2026-27. The higher rates that apply to larger private jets will increase by an additional 50%, as the Minister said. We will not oppose these measures, but we want to raise some points and seek more detail about their impact.

APD was first introduced on 1 November 1994. Initially, it was charged at a rate of £5 on flights within the UK and to other countries in the European Economic Area, and £10 on flights elsewhere. Since then, it has been reformed by successive Governments. Currently, it is chargeable per passenger flying from UK airports to domestic and international destinations, and rates vary by destination and class of travel. According to the OBR, APD receipts are expected to be £4.2 billion in 2024-25, and then they are forecast to increase by 9% a year, on average, to £6.5 billion in 2029-30, driven by increasing passenger numbers and the higher duty rates. The changes mean that a family of four flying economy to Florida, for example, will be taxed £408—a 16% increase on the current rates.

I turn first to the changes in clause 73 that relate to the higher rate, which will increase by an additional 50% on business and private jets. There is some concern from the industry about the impact of the measure on economic growth—the Government’s driving, No. 1 mission, in which we support their efforts. In reality, most private jets are corporate aircraft that are used as capital assets. One industry commentator said:

“They allow businesses to increase productivity and the amount of time they have in the day, which means they can make more money, employ more people and pay more in taxes. ”

That is something I think we all support. Has the Minister calculated what impact the 50% increase will have on economic growth and developing our trade relationships? The Prime Minister rightly travels a lot around the world to make connections and promote trade in our economy. Can the Minister confirm whether the Royal Squadron is subject to the higher rates, or is it exempt?

There has also been some concern about the impact on our constituents—people going on holiday or to see family and friends. The changes may limit flight options. Airlines UK has said that the rise will make it harder for British carriers to put on new routes. Does the Minister think the increase will impact the ability to consider new routes? It will certainly increase ticket prices; I woke up this morning to hear the boss of Ryanair on the radio saying that the increases in APD will mean that a third of an average £45 fare will now be tax.

It is because of the impacts that the rate rises might have on consumers, industry and economic growth that we tabled new clause 8, which would require the Chancellor to publish an assessment of the impact of the changes introduced by clause 73 within 18 months of the Bill being passed. The assessment would have to consider the impact of the changes on the public finances, carbon emissions and household incomes. The industry has been clear in its warnings in this regard, and we need to take them seriously. The Minister said that the new clause is unnecessary and that a review has been covered anyway, but reviews should be an important part of the Treasury’s toolkit in understanding impact.

We will not oppose these measures, but we will continue to raise industry’s concerns, particularly on behalf of our constituents and people who want to go on holiday.

James Murray (Labour/Co-operative, Ealing North)

It might be worth my saying at the outset that our support for the aviation industry more broadly is very clear. I am sure the hon. Gentleman was listening to the Chancellor’s growth speech yesterday, in which she announced that we will no longer shy away from decisions about airport expansion, which can be delivered to support economic growth while meeting our climate obligations. People in the aviation industry can have no doubt about this Government’s desire and willingness, and concrete actions, to work with them to drive economic growth in this country.

In relation specifically to APD, which is the subject of these clauses, I say to the hon. Gentleman that the adjustment to the APD rates for ’26-27 is proportionate, because the rates have fallen significantly behind inflation in recent years. These changes will help to compensate for that fact. The short-haul international rate on economy passengers will increase by £2 on 1 April 2026. That rate has not increased since 2012. Even after 1 April 2026, for a family of four—two adults, two children—flying economy class to Spain, the total APD increase will be only £4, since under-16s travelling in economy class are exempt from APD.

By contrast, the increases for non-economy passengers and those travelling in private jets will be higher, to ensure that they make a fair contribution to the public finances. One other bit of context is that, unlike other sectors, no VAT applies to plane tickets and there is no tax on jet fuel. It is only fair that aviation pays its fair share through APD.

(Except clauses 7 to 12, schedules 1 and 2, clauses 15 to 18, schedule 3, clauses 47 to 53 and any new clauses or new schedules relating to the subject matter of those clauses and schedules.)

Clause 74 - Rates of climate change levy

Emma Reynolds (Labour, Wycombe)

It is a great pleasure to serve under your chairmanship, Ms Vaz. The clause makes changes to the main rates of the climate change levy, or CCL, with effect from 1 April 2026. The Government are increasing the main rates of CCL on gas, electricity and solid fuels by the retail prices index to maintain the incentive for businesses and the public sector to be more energy efficient.

Since 2001, the CCL has encouraged businesses and the public sector to be energy efficient by adding a tax on the non-domestic supply of energy. The Government have announced a national mission to make Britain a clean energy superpower and accelerate our journey to net zero, and improvements in energy and resource efficiency will play a significant role in reducing industrial emissions in the 2020s. Delivering on this mission will help to make the UK energy independent, protect billpayers, create good jobs and tackle the climate crisis.

The previous Government followed a trajectory of rebalancing the gas and electricity rates over a five-year period to reflect that electricity emissions are progressively lowering due to the increasing contribution of renewable and lower-emission energy in electricity generation. The CCL rates for electricity and gas equalised in April 2024, and at the autumn statement 2023, under the last Government, rates were frozen for the year 2025-26.

Now that the rebalancing has been achieved, uprating the main rates on gas, electricity and solid fuels from April 2026 will continue to provide an incentive for energy efficiency. At autumn Budget 2024, this Government also announced that the main rate of CCL on liquefied petroleum gas will continue to be frozen. This is to ensure better consistency between LPG and other portable fuels—for example kerosene, which is zero rated under fuel duty—for commercial premises not connected to the gas grid.

The changes made by the clause will increase CCL rates on gas, electricity and solid fuels by RPI with effect from April next year. Non-domestic energy supply users will see an increase on their CCL bill of around 0.025p per kWh of gas or electricity supplied. The rate on solid fuels will increase by 0.2p per kg. However, participants of the climate change agreement scheme are eligible to pay reduced CCL rates in return for meeting negotiated energy-efficiency and carbon targets. The CCA scheme enables energy-intensive industries to receive discounts of up to 92% on their CCL bill. The new six-year scheme, announced on 16 October, will provide an estimated £1.9 billion of relief to 2,600 businesses in 53 industrial sectors over its lifetime. Overall, we expect a reduction in greenhouse gas emissions as a result of the clause compared with freezing the rates.

In conclusion, the changes made by the clause will help to incentivise businesses to improve their energy efficiency, thereby progressing the Government’s climate objectives, which are vital for the UK’s long-term economic prosperity and energy security. I commend the clause to the Committee.

Gareth Davies (Conservative, Grantham and Bourne)

As the Minister said, the clause amends the main rates of the climate change levy from April 2026, in line with RPI, for electricity, gas and other taxable commodities, while continuing to freeze the rate for LPG. We will not oppose the measures in the clause.

I was pleased to see the Government confirm their plans to extend the climate change agreement scheme at the Budget. The scheme allows energy-intensive industries to claim a discount on the climate change levy, subject to taking steps towards increasing their energy efficiency and reducing emissions. At autumn statement 2023, we announced a new six-year CAA scheme, and I am genuinely pleased that the Government have chosen to reaffirm our announcement and take that forward, following consultation.

However, as the Minister may expect, I want to raise an issue with her. It has been raised at oral questions, so will not be a surprise to her. There have been several reports in recent weeks about the UK chemicals industry that are directly relevant to climate change and the CCA scheme, as the Minister will know better than me. Sir Jim Ratcliffe has warned that the UK chemicals industry is at risk of “extinction”. His firm, INEOS, closed its synthetic ethanol plant at Grangemouth this month, which will result in the loss of many jobs. That was the last remaining synthetic ethanol plant in the country. Given the ongoing concerns, I would be grateful if the Minister could provide an update on what consideration has been given to the UK chemicals industry in calibrating these policies.

As the Minister knows, the UK chemicals industry is the third-largest manufacturing sector in this country. It contributes £30 billion to our economy and directly employs 138,000 people across the country in 4,100 businesses. I presume that the Chancellor has met representatives of the sector, but I would like to hear the Minister confirm that, given how topical this issue is, how concerned the industry is and how widely reported the issues have been.

Angus MacDonald (Liberal Democrat, Inverness, Skye and West Ross-shire)

As always, I speak on behalf of the highland industries. In rural areas, only electricity and kerosene are available; mains gas is not. Electricity users pay four times more for their energy than mains gas users, so a hotel on the island of Skye may pay £80,000, whereas one in a city may pay £20,000. That causes enormous issues for people in the windiest, coldest, darkest part of Great Britain. The reason for the big disparity is that the tariffs and taxes are largely on electricity, rather than gas, and of course electricity is largely renewable. In my constituency, people can see wind farms out of their window, yet we still pay four times more for our energy than people in cities. Will the Minister elaborate on what could be done to make us more competitive?

Emma Reynolds (Labour, Wycombe)

I welcome the Opposition’s support for the clause. For quite some time there has been cross-party support for the CCA scheme. I welcome what the shadow Minister said about the Opposition’s support for the extension of that scheme for energy-intensive industries.

The shadow Minister asked me about the UK chemicals industry. As he said, it is a very valuable sector of our economy. It is obviously included in the climate change agreement scheme, which exists to ensure that businesses for which energy makes up a larger proportion of their operating costs, and that are at higher risk of carbon leakage, are supported to make changes to their processes to reduce their energy intensity. The example he provided is concerning, but we have introduced measures to help such industries to cope with the fact that they are energy intensive. I hope that answers his question. I do not know whether the Chancellor has met representatives of the sector, but I am happy to write to him on that.

The hon. Member for Inverness, Skye and West Ross-shire spoke about the cost of energy for people in his constituency. As I said, the rates on kerosene are frozen, which is why we are not uprating the rates on LPG. That will go someway towards helping those in rural areas. I declare an interest: I am not on the gas either, so we also rely on this form of energy.

Angus MacDonald (Liberal Democrat, Inverness, Skye and West Ross-shire)

LPG is not the issue; electricity, along with kerosene, is largely the issue. Very few people use LPG to heat their properties or businesses. It is electricity where the taxes are. I would be delighted to share information; I am doing a big thing about it shortly, so I have done a lot of research.

Emma Reynolds (Labour, Wycombe)

Obviously kerosene is zero rated, but the effect of the clause is to increase the main rates of CCL on gas, electricity and solid fuels by RPI. That is in line with what we announced at the Budget, and takes forward those measures, so hopefully it will come as no surprise to hon. Members.

Clause 75 - Rates of landfill tax

James Murray (Labour/Co-operative, Ealing North)

The clause increases the lower and standard rates of landfill tax from 1 April this year. The rates will increase in line with RPI, adjusted to account for the high inflation in the period 2022 to 2024, and were first announced in the spring Budget 2024.

Landfill tax is charged on material disposed of at a landfill site or unauthorised waste site in England and Northern Ireland. The objective of landfill tax is to divert waste away from landfill and support investment in more circular waste management options, such as recycling, composting and recovery. Since 2000, landfill tax has contributed to a 90% decrease in local authority waste to landfill in England. Increasing the lower and standard rates of landfill tax by RPI in recent years has helped to maintain a strong price incentive to divert waste away from landfill.

The changes made by clause 70 would increase the lower rate of landfill tax from £3.30 a tonne to £4.05 a tonne from April 1 this year. They would also increase the standard rate of landfill tax from £103.70 a tonne to £126.15 from April 1. Landfill tax rates are rounded to the nearest 5p. The clause increases the rates of landfill tax in line with RPI adjusted for recent high inflation from April 1 2025, to maintain a strong price incentive to divert waste away from landfill.

Gareth Davies (Conservative, Grantham and Bourne)

Clause 75 amends the landfill tax rates to increase them in line with RPI, adjusted to account for high inflation between 2022 and 2024. As the Minister knows, when in government, we uprated landfill tax in line with RPI in the 2023 and 2024 Finance Acts. We also reduced the landfill tax gap from £275 million in 2017-18 to £100 million in 2022-23. How will the Government continue those strong efforts to further reduce the gap? I know it particularly exercised the Minister when he was in opposition—he certainly asked me a lot of questions on it. We will not oppose the clause, and I cannot wait to find out the Lib Dem position on it.

James Murray (Labour/Co-operative, Ealing North)

I thank the hon. Gentleman for supporting the clause. I fondly remember the questions I asked him about landfill tax when I was on the other side of this Committee Room, or a similar one on this corridor. I can reassure him that the current Government are considering the options for landfill tax reform, following the call for evidence that was undertaken in 2021. We will announce further steps in due course. The Government are considering options for landfill tax reform including opportunities to design out opportunities to commit waste crime, including landfill tax fraud. We will announce next steps in due course.

Clause 76 - Rate of aggregates levy

James Murray (Labour/Co-operative, Ealing North)

The clause increases the rate of aggregates levy from April 1 in line with the RPI as forecast by the Office for Budget Responsibility when the rate was announced at autumn statement 2023. Aggregates levy is charged on the commercial exploitation of virgin aggregate, which includes rock, sand and gravel. The object of aggregates levy is to encourage the use of recycled rather than virgin aggregate in construction. The changes made by clause 76 will increase the aggregates levy from £2.03 per tonne to £2.08 per tonne. The clause increases the rate of aggregates levy in line with RPI from April 1 to ensure that the real-terms value of the price incentive to manage aggregate more sustainably does not fall in future.

Gareth Davies (Conservative, Grantham and Bourne)

As the Minister said, the clause uprates the aggregates levy in line with inflation. These provisions in this Finance Bill are pretty much identical to those that we put forward in the Finance Act 2024. It is therefore right that we do not oppose them.

Clause 77 - Rate of plastic packaging tax

James Murray (Labour/Co-operative, Ealing North)

The clause makes changes to increase the rate of the plastic packaging tax from April 1 in line with the consumer price index. The plastic packaging tax was introduced on 1 April 2022 as part of the previous Government’s resources and waste strategy. The tax provides a clear economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging, thereby stimulating the collection and recycling of plastic waste and diverting it away from landfill or incineration. Increasing the rate of the tax in line with CPI maintains the real-terms value of the price incentive to use recycled plastic.

The changes made by clause 77 will increase the rate of plastic packaging tax, as set out in section 45 of the Finance Act 2021, from £217.85 to £223.69 per tonne, with effect from 1 April 2025. The new rate will affect UK manufacturers and importers of plastic packaging containing less than 30% recycled plastic.

In conclusion, this clause increases the rate of plastic packaging tax in line with CPI from 1 April to maintain the real-terms price incentive to include recycled plastic in plastic packaging. I commend the clause to the Committee.

Gareth Davies (Conservative, Grantham and Bourne)

As the Minister said, clause 77 uprates the plastic packaging tax in line with inflation. The provisions in this Finance Bill are pretty much identical to those that we put forward in the Finance Act 2024, and we will not be opposing them; but on this particular tax measure, I seem to remember the now Exchequer Secretary to the Treasury questioning me about the possibility of an impact report or assessment, and I just wonder how much progress he is making with that.

James Murray (Labour/Co-operative, Ealing North)

I reassure the hon. Gentleman that the Government are making progress across a whole range of issues every day, and we will update the appropriate authorities in the appropriate way at the relevant time.

Clause 78 - Rates of soft drinks industry levy

Valerie Vaz (Labour, Walsall and Bloxwich)

With this it will be convenient to discuss new clause 9—Statements on soft drinks industry levy—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to Parliament about the increase to the soft drinks industry levy introduced in section 78 of this Act.

(2) The statement under subsection (1) must include details of the impact on—

(a) encouraging reformulation of packaged soft drinks, and

(b) the UK soft drinks industry.”

This new clause requires the Chancellor to make a statement about the impact of increasing the soft drinks industry levy.

Emma Reynolds (Labour, Wycombe)

Clause 78 legislates for the new rates of the soft drinks industry levy, to apply from 1 April 2025. The levy came into effect in April 2018—it was introduced by the previous Government, with cross-party support—and is considered a successful mechanism for changing behaviour and encouraging reformulation of packaged soft drinks, resulting in reduced sugar content. That is seen through the levy’s significant success in reducing the sugar content in UK soft drinks by 46%.

The levy applies to packaged soft drinks containing added sugar. It has a lower rate, which applies to drinks with a total sugar content of 5 grams to 7.9 grams per 100 ml, and a higher rate for drinks with 8 grams or more per 100 ml. Producers, manufacturers and importers of liable soft drinks must register, report, and pay the levy on the volume of liable soft drinks packaged in and imported into the UK.

The levy rates have not been increased since their introduction many years ago, in 2018, and so have gradually reduced in value against inflation. In 2018, SDIL made up approximately 11% of the price of a 330 ml can of full-sugar Coca-Cola; in January 2025, it makes up only 6%. Uprating the levy in line with inflation will ensure that it remains effective and continues to encourage reformulation, by protecting its value in real terms.

Clause 78 amends section 36(1) of the Finance Act 2017 to reflect the new rates of the levy to apply from 1 April 2025. Those are £1.94 and £2.59, per 10 litres of prepared drink, for the lower and higher bands respectively. The new rates reflect forecasted changes in the consumer prices index in the year to 1 April 2025, as well as an additional increment to help to catch up for previous inflation. The catch-up reflects the 27% CPI change between 2018 and 2024 and will be spread evenly over the five rate increases from 2025 to 2029. That is to support soft drink manufacturers to adjust to the higher rates. The rates have also been adjusted to apply per 10 litres rather than per litre, so that rate changes can be made in smaller increments to reflect changes in CPI inflation more precisely. To illustrate using the current lower rate, 18p per litre becomes £1.80 per 10 litres—I think people could have probably worked that one out.

We do not accept new clause 9, which would require the Chancellor to make an additional statement about the impacts of the measure. The Government do not consider that necessary, as a tax information and impact note detailing the anticipated effects of the measure was published at autumn Budget. I would also highlight that the Government are taking a gradual approach to restoring the original real-terms value of the soft drinks industry levy. From 1 April, the levy will still be worth significantly less, compared with general prices, than it was in 2018.

Clause 78 will protect the real-terms value of the levy and build on its significant success, by increasing both the lower and higher rates in line with inflation.

James Wild (Conservative, North West Norfolk)

As we heard from the Minister, clause 78 amends the Finance Act 2017 to uprate the soft drinks industry levy, to reflect the change in the CPI from April 2018 to April 2024. The uprating represents an increase of 27%. We support the soft drinks industry levy, but we have strong concerns about the backdating of the tax rate.

As we all know, the consumption of too many high-sugar drinks can lead to weight gain and the risk of medical conditions. It also leads to tooth decay, which is a particular concern for younger people. As the Minister pointed out, this levy was introduced by a Conservative Government with cross-party support to tackle those issues, and it has been a successful, highly effective policy, delivering against the stated objective of encouraging reformulation. The British Soft Drinks Association has said that the levy

“has achieved its intended goal of promoting significant sugar reduction and 89% of soft drinks are now non-SDIL liable. Reformulation has clearly not lost pace with the volume of soft drinks with less than 5g sugar per 100ml increasing by 17.5%> between April 2023 and March 2024.”

Our main concern is about the unprecedented backdating of this tax increase. New clause 9 would require a review of its impact. The decision to backdate inflation over an extended period, creating a 27% retrospective increase, appears to have no parallel in recent tax policy. The backdating is a fundamental departure from the predictability that should be at the heart of tax policy.

Given that the levy has been so effective, why do the Government see a need for such a large increase? As the British Soft Drinks Association points out, it appears that their rationale is primarily focused on revenue raising, rather than public health outcomes. The introduction of such retrospective elements requires close examination of both precedent and consequences, as demonstrated by examples of duty freezes and restarts in recent years.

Comparative excise goods such as alcohol, fuel and tobacco are reviewed annually. Where rates have been frozen across several years, they have not subsequently been subject to those missing years’ inflation rates being applied in this way. Figures from the House of Commons Library calculate what impact a similar backdated increase would have on fuel duty. Following the approach used for the soft drinks levy, if inflation since 2011 was added to fuel duty, using the RPI measure, the duty on a litre of petrol or diesel would increase from 57.95p per litre to 95.18p per litre—a rise of 64%. I am not sure about the Minister’s constituents, but I am pretty sure that mine would be very alarmed at the potential for such a backdated increase to be applied.

Are the Government establishing such backdated increases as a new norm within their tax policies? Companies making long-term investment choices need certainty—the Exchequer Secretary has used that word many times in Committee—to be able to plan and invest in the country. Can the Minister give us an assurance that the Government will not pull off similar tax raids in other sectors, particularly with regard to fuel duty?

We have also heard concerns about the impact assessment, which had limited engagement. The measure is expected to generate £95 million in revenue by 2029-30, yet the assessment does not model how established price elasticity in soft drinks will affect those projections. The assessment acknowledges that both reformulation and reduction in demand will occur, but provides no quantification of the effects. I would be interested to hear the Minister’s comments on that point.

The assessment also does not examine how changes to tax policy without consultation could affect future investment decisions, nor does it explore the market distortions of applying different principles to soft drinks as opposed to other categories of drinks. Will the Minister confirm that these issues have been considered? If they have not, will they be?

We tabled new clause 9 because, given the unprecedented nature of the backdated increase and the lack of engagement, the Chancellor should make a statement to Parliament within six months of the Act being passed about the levy increase and its impact, including on reformulation and the sector as a whole. As I said, overall the increase is 27%. We have strong concerns about backdating as a policy and therefore we welcome the Chancellor commissioning a review.

This increase comes at a time when the hospitality and drink sector is facing particular financial pressures, including new packaging regulations, the deposit return scheme and the infamous jobs tax. Does the Minister really think that applying such a large retrospective increase is the right thing to do at this time?

Emma Reynolds (Labour, Wycombe)

I thank the shadow Minister for reiterating that there was indeed cross-party support in 2018 when the previous Government introduced the soft drinks industry levy. I say gently to him that if the previous Government had kept the levy in line with CPI, we would not be in this situation.

The shadow Minister asked what considerations have been made about the impact of the measure. As I said in my opening speech about the clause, the catch-up reflects the 27% CPI change between 2018 and 2024. Because we have considered the impact on soft drinks manufacturers, it will be spread evenly over the five rate increases from 2025 to 2029. The shadow Minister should consider the fact that we are gradually spreading the increase.

It is worth considering the views of those who have supported the Government’s change. For example, Barbara Crowther, the children’s food campaign manager at Sustain, has said:

“It’s absolutely right that after six years, the government should now increase the penalties for all the companies who have not done enough to reduce the sugar levels in drinks, and we urge them to ensure all money raised by the levy is reinvested in children’s health.”

The levy has been globally recognised as a transformative health tax intervention. Modelling studies have associated it with up to 5,000 fewer cases of obesity in girls aged 10 to 11 and a 28.6% reduction in hospital admissions for tooth extractions for children under the age of five. Our Government take children’s health very seriously, particularly given the worrying levels of obesity in our society and the issues with children’s dental health. That is why we are bringing forward the change.

James Wild (Conservative, North West Norfolk)

Will the Minister address directly the point about backdating and say whether it represents a change in approach to taxation policy by this Government? They have introduced a 27% increase from the date when the levy was frozen. As I said, if that approach had applied to fuel duty, it would result in a 64% increase. People will be concerned; will the Minister give reassurance about the Government’s approach to taxation?

Emma Reynolds (Labour, Wycombe)

It is a bit of an exaggeration to read into this change, which we have introduced because the previous Government failed to keep the levy in line with inflation, and somehow infer from that—

James Wild (Conservative, North West Norfolk)

What about fuel duty?

Emma Reynolds (Labour, Wycombe)

I am coming to that. It is an exaggeration to infer from that that it becomes a new norm. It does not. I am certainly not going to write next year’s Budget or the year after’s Budget—that would be way above my pay grade in any case—but we are introducing this clause precisely because the former Government failed to keep the levy in line with inflation.

Clause 79 - Limited liability partnerships

Valerie Vaz (Labour, Walsall and Bloxwich)

With this it will be convenient to consider clause 80 stand part.

Emma Reynolds (Labour, Wycombe)

Clause 79 closes a known route for tax avoidance by making changes to the taxation of chargeable gains when a limited liability partnership is in liquidation, and clause 80 closes a loophole through which some taxpayers have attempted to avoid the company tax charge known as section 455.

On clause 79, the Government have become aware of a scheme that is being exploited by tax-avoidance promoters involving the transfer of assets into an LLP that is then liquidated. At the time a member contributes an asset to the LLP, they are not charged tax on the gain accrued since the asset was acquired. This is because it is intended that they are taxed when the asset is disposed of, rather than the LLP itself. This is similar to the position for conventional hardships.

However, when an LLP is liquidated, it ceases to be tax transparent and becomes treated like a company, but the LLP is only charged tax on its gains since the contribution of the asset. As part of the liquidation, the liquidator could dispose of the LLP’s assets back to the contributing member or to a party connected to them, washing out the gains made prior to the asset being contributed to the LLP.

The changes made by clause 79 will create the new occasion when a deemed disposal arises for chargeable gains purposes, and will have effect where an LLP enters liquidation on or after 30 October 2024. This will ensure that, where a member contributes an asset to an LLP that subsequently enters liquidation, and the LLP disposes of the asset back to the member or to a person connected to them, they are taxed on the gains on the asset up to the time of its contribution to the LLP. The gain will be treated as accruing at the time that the LLP disposes of the asset.

On clause 80, a close company is a company owned and run by a small number of people. In a close company, there are fewer restrictions and less accountability around how the company and its owners interact. The tax charge known as section 455 is a charge on loans to shareholders left outstanding after the company’s year end. The charge is remitted if the loan is repaid. The Government are aware of the attempted use of co-ordinated or circular loan arrangements by shareholders in close companies to avoid the section 455 charge and thereby extract funds from their companies untaxed instead of receiving taxable earnings.

As a result of the changes made by clause 80, where shareholders use circular loan arrangements to extract value from their companies, a tax charge will be applied on the relevant amount withdrawn. This will ensure that such arrangements do not avoid a tax charge. The targeted anti-avoidance rule will also be updated to protect against future exploitation.

In summary, clause 79 makes changes to ensure that LLPs are not used to avoid tax chargeable gains. It forms part of a package of measures announced at the autumn Budget 2024 that are aimed at closing the tax gap, cracking down on avoidance and evasion and strengthening the powers of His Majesty’s Revenue and Customs to tackle promoters of avoidance schemes. The changes made by clause 80 will close a loophole that is exploited by a minority and ensure that anti-avoidance rules are more robust.

I should be clear the vast majority of close companies and their participators are compliant and pay any tax due. Clause 80 makes a sensible change that is proportionate, ensures fairness and will affect only those few who seek to avoid tax. Our commitment is to ensure a fair and just tax system, and this measure is a step towards upholding that promise.

Gareth Davies (Conservative, Grantham and Bourne)

The clauses tackle tax avoidance in limited liability partnerships and their participants, as the Minister pointed out. Tax avoidance is something that we took very seriously when in government, and made some great progress on, so we will not oppose this latest measure.

Emma Reynolds (Labour, Wycombe)

I thank the Opposition for their support.

Clause 81 - OECD crypto-asset reporting framework

Emma Reynolds (Labour, Wycombe)

The clause makes changes to ensure that the Treasury has the power to make regulations to implement the cryptoasset reporting framework, which is also known as the CARF. The CARF was developed at the OECD, and the previous Government supported its development and committed to the UK’s implementing it, so I hope the Conservatives will support the clause.

The CARF will require cryptoasset service providers to collect, check and report information that identifies their non-UK-resident customers and their non-UK-resident customers’ cryptoasset transactions undertaken from 2026. HMRC will then receive and share relevant data with participating jurisdictions for tax purposes from 2027. Other participating jurisdictions will share their data with HMRC where it relates to UK resident customers of non-UK cryptoasset service providers. The increased tax information that the CARF will bring to HMRC is expected to generate additional revenue of £315 million across 2026-2029. The Government intend to make the regulations in 2025 so that the CARF applies to UK crypto businesses in the UK from 1 January 2026.

The changes made by the clause will amend existing legislation so that the CARF is added to the list of international arrangements for exchanging information. This will give the Treasury the power to make the CARF regulations to implement the CARF regime so that it applies to UK cryptoasset service providers from 1 January 2026. The clause is essential so that the Government can implement the CARF.

Gareth Davies (Conservative, Grantham and Bourne)

The clause provides the Treasury with the powers to make regulations for the OECD cryptoasset reporting framework which, as the Minister pointed out, we signed up for when in government.

I have one question, which has come up quite a lot in the industry and perhaps even in the Minister’s previous role outside politics, and it relates to the name. It is called the cryptoasset reporting framework, but many in the outside world refer to cryptocurrency. What is the Government’s position on what a crypto is? Is it a cryptoasset or is it a cryptocurrency? What is the difference? A lot of people would appreciate that clarification on this complex subject. As I said, we do not oppose the clause; we signed up to the framework when in government.

Emma Reynolds (Labour, Wycombe)

In my view, a cryptocurrency is a type of cryptoasset, but I will check that.

Clause 82 - Duty on vaping products

James Wild (Conservative, North West Norfolk)

I beg to move amendment 67, in clause 82, page 95, line 14, at end insert—

“(2) In doing so His Majesty’s Revenue and Customs must have regard to the desirability of requiring a digital tax stamp to be applied to e-cigarette liquids.”

This amendment requires HMRC to have regard for requiring a digital tax stamp to be applied to e-cigarette liquids.

Valerie Vaz (Labour, Walsall and Bloxwich)

With this it will be convenient to discuss clause stand part.

James Wild (Conservative, North West Norfolk)

The clause is about enabling HMRC to prepare for the introduction of a new excise duty on vaping products before it is formally provided for in law. Amendment 67 would require that, in doing so, HMRC must have regard to the desirability of requiring a digital tax stamp to be applied to e-cigarette liquids.

A million people in England now vape despite never having been regular smokers—a sevenfold increase in just three years—and vaping rates are highest among 16 to 24-year-olds, hence the measures that are going through in the Tobacco and Vapes Bill. Like many of the measures we have discussed in Committee, this new duty was first announced by the previous Conservative Government, and my right hon. Friend the Member for Godalming and Ash (Jeremy Hunt) announced the introduction of an excise duty on vaping products from October 2026.

There is a strong case to take action on the affordability of vapes, while ensuring that there is a significant differential between the duty on vapes and the duty on other tobacco products. After the consultation that the previous Government launched, this Government have announced that they will apply a flat-rate duty on all vaping liquid from October 2026, set at £2.20 per 10 ml of vaping liquid.

Clause 82 simply provides for HMRC to

“prepare for the introduction of a new duty”;

the main provisions will come in future legislation. When new taxes and levies are introduced, it is important to get the implementation right. After consultation, a single flat-rate duty will apply, which should reduce non-compliance and tax avoidance opportunities and be more proportionate both for industry and for HMRC to administer.

Tristan Osborne (Labour, Chatham and Aylesford)

Is the hon. Gentleman aware that the Treasury is already consulting on digital access for vaping products as part of the vaping products duty? It is already going through the process, but we are subject to the progress of that duty in the Tobacco and Vapes Bill Committee just down the corridor.

James Wild (Conservative, North West Norfolk)

After that intervention, I hope the hon. Member will support my amendment when I press it to a vote. The Government are moving in this direction, so let us get this in the legislation and get HMRC working at full throttle to make sure that it happens. I hope that he will feel able to support that.

As with any new tax, there are risks associated with the duty. The illicit market could be boosted, increasing the enforcement burden on HMRC and other Departments. Juul, one of the largest operators, believes that the Government should give HMRC sufficient enforcement powers. At the very least, they should mirror those in relation to tobacco duty. What steps are the Government taking to boost compliance powers and protect against illicit activity in this market?

Amendment 67 would require HMRC to have regard to the desirability of introducing a digital tax stamp. I am pleased that the Government intend to implement a vaping duty stamp scheme to help enforcement bodies and the industry to identify products that are non-duty paid. I note that in the Government’s further consultation on compliance measures to complement HMRC’s traditional compliance activity, the Government stated their intention, to which the hon. Member for Chatham and Aylesford referred, to incorporate a degree of digital tracing and authentication into the final stamp design.

Digital stamps are harder to counterfeit. They are less prone to damage and less likely to fall off products, and they allow for more information to be held and tracked by both the industry and HMRC. Juul points out that its experience in Canada, where it is required to apply physical duty stamps, has led it to believe that digital versions are far better for business and tax authorities alike.

Industry needs certainty. Given the Government’s digital by default approach to taxation, I hope that the Minister will be able to give a commitment today that the Government intend to require a fully digital tax stamp. Under an earlier clause, we spoke about removing a physical stamp from alcohol and spirits, for example, so I do not see why the Government would not be able to support my amendment 67.

We will not oppose clause 82, but I look forward to the Minister’s response to my specific points, and I intend to press my amendment to a vote.

Emma Reynolds (Labour, Wycombe)

I thank the shadow Minister for his comments. If he will bear with me, I will speak generally about clause 82 before I address his amendment.

Clause 82 will make changes to ensure that HMRC can secure the resource it needs to implement the vaping products duty. The duty will be legislated for in this Bill and will come into force on 1 October 2026. It will be accompanied by a one-off increase in all tobacco duties to maintain the financial incentive to give up tobacco.

The chief medical officer is clear that those who do not smoke should not vape. Introducing a vaping products duty is part of the wider Government strategy to tackle vaping among young people—as the shadow Minister stated, there are worrying developments in the number of young people taking up vaping—and indeed among those who do not smoke, including via the Tobacco and Vapes Bill and the ban on disposable vapes. The vaping products duty is forecast to raise £525 million in revenue a year by the end of the scorecard, to fund vital public services such as the NHS, defence, education and stop smoking initiatives supporting a smoke-free UK.

In 2023, 12% of the UK’s adult population used e-cigarettes, the highest rate ever recorded. One million people in England now vape despite never having been regular smokers: a sevenfold increase in just three years, which is pretty shocking. As the shadow Minister said, vaping rates are highest among 16 to 24-year-olds, with 15.8% vaping daily or occasionally. Reducing affordability is part of the Government’s wider strategy to influence behaviour, especially given the addictive nature of these products.

Several countries have already introduced a tax on vaping. Approximately 50 countries have a national tax on vaping products, with most targeting liquid as the tax base. The majority target both nicotine-free liquids and liquids containing nicotine. The changes made by clause 82 will enable HMRC to prepare for the introduction of the new excise duty before it is formally provided for in primary legislation next year. It will allow for spending on IT systems and staff recruitment.

On the shadow Minister’s amendment 67, I thank him for his speech, and I agree that it is crucial to get the implementation of the Bill right. His amendment would require HMRC to

“have regard to the desirability of requiring a digital tax stamp to be applied to e-cigarette liquids.”

The Government deem the amendment unnecessary at this time, as HMRC is already giving due consideration to vaping duty stamps. The decision to introduce vaping duty stamps was supported by respondents to the vaping products duty consultation, who pointed to their use on vaping products in other jurisdictions.

The shadow Minister asked about the illicit vaping market. HMRC intends to exploit modern technology and digitalisation to ensure that the vaping duty stamps scheme targets the specific risks of the illicit vaping market. A technical public consultation on the design of the scheme ran from 30 October 2024 to 11 December 2024, and respondents submitted their views on digital duty stamps, physical duty stamps or a combined approach. We are currently analysing the responses to that consultation; no policy decision has yet been made. We will communicate in due course a policy decision to balance enforcement decisions and business operations. We will take on board the views of the shadow Minister; I thank him again for his amendment. The Government remain committed to working with industry to ensure that the scheme only creates burdens that are essential to tackle non-compliance, avoidance and evasion.

Let me try to answer the shadow Minister’s questions. He asked whether there is a risk that increasing tobacco duty and introducing a vaping duty will drive up illicit trade. The threat from illicit tobacco needs to be addressed by reducing its availability, rather than allowing it to dictate our public health and tax policies. We are consulting on additional robust compliance tools for tackling the illicit trade in vapes and will collaborate with Border Force to target the illicit trade when the duty goes live. HMRC and Border Force already have a strategy in place to tackle illicit tobacco. I hope that that reassures the shadow Minister.

The shadow Minister also asked about digital versus physical vaping duty stamps. Vaping duty stamps will support both enforcement and industry by identifying products that are non-duty paid and therefore illicit. They will also help HMRC to manage the revenue risk from the initial sell-through period and to limit the duty avoidance practice known as forestalling, which is clearing large quantities of excise goods from duty suspense immediately prior to a rate increase to avoid paying the new tax.

In regard to the shadow Minister’s amendment, the Government will not commit to fully digital stamps, as we are analysing consultation responses. A policy decision will be taken in due course, but I reassure him that we will take his views on board.

James Wild (Conservative, North West Norfolk)

I am grateful for the Minister’s response. However, the amendment would help set a clear direction. It is in line with the Government’s digital by default approach to taxation and reflects what was in the consultation document and what industry is calling for. It does not say that HMRC must introduce such a system; it simply says that HMRC

“must have regard to the desirability of requiring a digital tax stamp”.

I specifically worded the amendment to allow for precisely the point that the Minister has outlined. HMRC may decide that, contrary to the Government’s digital by default tax approach, a digital tax stamp is not necessary. In that case, all that has been required is for HMRC to have a proper look at introducing it. I will press amendment 67 to a vote.

Clause 83 - Carbon border adjustment mechanism

Emma Reynolds (Labour, Wycombe)

The clause will enable the commissioners for HMRC to prepare for the introduction of the UK carbon border adjustment mechanism and allow information to be disclosed for the purposes of developing the CBAM.

The Government are committed to reaching net zero by 2050. As we make progress to decarbonise, we must ensure that the effect of our efforts is not undermined by carbon leakage. I am sure that hon. Members know this, but for the benefit of the Committee, let me define carbon leakage: it is the movement of production and its associated emissions from one country to another to avoid higher decarbonisation efforts and costs. The best solution to carbon leakage risk would be international co-ordination on decarbonisation and carbon pricing. However, many countries do not yet have domestic carbon pricing mechanisms. Consequently, introducing the UK CBAM will reduce the risk of carbon leakage by placing a carbon price on carbon-intensive goods imported into the UK from 2027.

The new tax will enable a charge to be placed on the carbon emissions found in highly traded carbon-intensive goods imported into the UK from the aluminium, cement, fertiliser, hydrogen, iron and steel sectors. A comparable carbon price will be placed on those goods, based on what they would have incurred if they had been produced in the UK under our domestic emissions trading scheme.

Harriet Cross (Conservative, Gordon and Buchan)

I understand the principle of CBAM. However, in practice, if we import fertiliser to increase our food production here, for example, we will reduce our imports of food from elsewhere. It might not balance out exactly, but we would not be changing how much carbon we sent abroad, because we would just be taking it from another mechanism that is not included in the CBAM.

Emma Reynolds (Labour, Wycombe)

I thank the hon. Lady for her intervention, but I am not entirely sure that I follow the logic. The purpose of CBAM, as I have said, is to ensure that if a product is produced using carbon in another country, we do not have leakage across the border. The overall impact will vary depending on the sector’s exposure to CBAM imports relative to the overall input costs and the extent to which it can substitute them. CBAM imports make up only a small proportion—about 1%—of average UK industry input costs. CBAM liabilities are expected to be small initially, and reliance on inputs of goods within scope across the economy is limited overall. I am not sure that I follow the logic that imposing CBAM on imported fertilisers will somehow have the effect that the hon. Lady suggests.

The UK emissions trading scheme is the UK’s primary carbon pricing mechanism. The scheme was established to increase the climate ambition of the UK’s carbon pricing policy while protecting the competitiveness of UK businesses. The UK CBAM will be implemented only in sectors where it will effectively mitigate carbon leakage risk and where delivery is deemed feasible. Other sectors that give rise to carbon leakage will be considered for future inclusion.

The Government announced in the Budget that legislation would be introduced in the Finance Bill—this Bill—to enable HMRC and HM Treasury to prepare for a new tax. Clause 83 will specifically enable the commissioners for HMRC to prepare for the introduction of the UK CBAM. The clause will also allow a national authority or the UK Emissions Trading Scheme Authority to disclose information requested by HM Treasury or HMRC for purposes connected with the tax, in particular preparing for it, developing it, implementing it and putting it into operation.

The clause forms the first part of the legislation needed to introduce the UK CBAM in January 2027. I commend it to the Committee.

James Wild (Conservative, North West Norfolk)

As we heard from the Minister, the clause will enable commissioners for HMRC to prepare for the introduction of the CBAM, which will be charged on specific emissions-intensive imports into the UK from 1 January 2027. We will not oppose the measure, but I do want to raise a couple of points.

As the Minister said, the CBAM is a tax on emissions embodied in certain goods imported into the UK for which a carbon price has not been incurred overseas at a rate at least equivalent to the UK. While I appreciate that this is an enabling power, the Chartered Institute of Taxation, which I do not think has yet had a mention today, as opposed to Tuesday—I will get that on the record—has expressed some surprise at how basic the detail of the clause is, as it simply grants authority to introduce a CBAM and to request information from the UK Emissions Trading Scheme Authority or other national authorities. Will she give us a bit more of a flavour of when more detail about the CBAM’s operation will be forthcoming?

As well as queries about the CBAM’s implementation, I have heard concerns about the impact that it may have on businesses and consumers. The National Farmers Union has raised concerns about the impact that it may have on vital sectors. In particular, it may push up the cost of fertilisers, as my hon. Friend the Member for Gordon and Buchan said. That is a particular concern for the arable sector, where fertiliser makes up 12% of total farm costs. Higher costs could not come at a worse time when they also face the impact of the family farm tax.

The NFU has also raised concerns that such a tax could create an unlevel playing field for British farmers and growers. Consequently, a bit like for the changes to inheritance tax, the NFU will be developing its own impact assessment to fully understand the impact of this tax policy on the industry. I hope that the Minister will keep this measure under close scrutiny in the coming months. We will not oppose the clause, but I look forward to her response.

Emma Reynolds (Labour, Wycombe)

I thank the shadow Minister for his questions. I think from his comments that he knows this, but the clause is a paving measure for legislation that will be introduced. There will be further detail in draft legislation that will come in a future Finance Bill, so I cannot give him that detail today, but I take into account what he said. Draft legislation will be published so that affected industries can comment on it. I therefore reassure him that some of the issues he raised will be taken into account.

Clause 84 - Correction of wrong cross-reference etc

Emma Reynolds (Labour, Wycombe)

I hope the clause will not be controversial, although we are always surprised by Opposition Members. The clause will make changes to ensure that various errors and omissions in three pieces of legislation are corrected. I will go through them in turn.

First, subsection (1) will amend paragraph (d) of section 151I(1)—that is a confusing number—of the Taxation of Chargeable Gains Act 1992, which defines “financial inclusion” for the purposes of legislation on the provision of alternative finance in chapter 4. That definition includes persons who are authorised to provide credit. Authorisation of such persons was previously the responsibility of the Office of Fair Trading, but moved to the Financial Conduct Authority.

To reflect that change in responsibility, the definition of financial institution was amended in both the Income Tax Act 2007 and the Corporation Tax Act 2009. However, the mirror legislation found in the Taxation of Chargeable Gains Act 1992 was overlooked, and subsection (1) will make similar changes to the Act to ensure that the definition of financial institution is consistent across the relevant capital gains tax, income tax and corporation tax legislation.

Secondly, subsection (2) corrects the procedure for making regulations under part 14A of the Corporation Tax Act 2009. The current wording requires regulations to be made by statutory instrument, subject to annulment by either House of Parliament. That is incorrect, as financial regulations are a reserved matter for the House of Commons only. The clause corrects the error by requiring regulations to be laid before the Commons only—take back control.

Lastly, subsection (3) corrects a typographical error in section 4 of the Taxation (Post-transition Period) Act 2020, concerning excise duty on the removal of goods to Northern Ireland. The correction removes a reference to section 42 of the Finance (No. 2) Act 2023, and inserts the correct reference to section 47 of that Act.

In summary, the changes made by clause 84 will ensure that legislation accurately reflects the policy intent, and remove possible confusion for readers.

Gareth Davies (Conservative, Grantham and Bourne)

Let me just gather my speech. [Laughter.] Clause 84 makes some of the more technical and minor amendments to various pieces of legislation, so in the interests of good housekeeping if nothing else, His Majesty’s Official Opposition has no point to raise on the matter.

Clause 85 - Interpretation

James Murray (Labour/Co-operative, Ealing North)

This highly controversial clause sets out the legal interpretation, in the usual manner, of abbreviations in the legislation.

Gareth Davies (Conservative, Grantham and Bourne)

Thanks to clause 85, I do not think anything remains to be interpreted, so I will sit down.

Clause 86 - Short title

James Murray (Labour/Co-operative, Ealing North)

Clause 86—[Hon. Members: “Hear, hear!”] I thank hon. Members for their wholehearted support for this important clause, which, in the usual manner, sets out the short title of the legislation.

Gareth Davies (Conservative, Grantham and Bourne)

It will be no surprise that we have nothing to add, but as this is the last time I will speak, let me take this opportunity, before you get too emotional, Ms Vaz, to thank you and Mr Mundell, the Clerks, all the officials who have supported the Ministers and, in particular, on my behalf and that of my office, the Chartered Institute of Taxation and the Association of Taxation Technicians. I put on the record my thanks to Luke Pike in my office, who provided great support throughout the preparation stage, and to all Committee members—including the Lib and the Dem over there and my frenemies across the way.

In particular, I thank the hon. Member for Halesowen, who grabbed me on the way out of the first sitting and told me that this is the best Bill Committee he has ever served on. It is completely irrelevant that this is the first one he has ever served on—tell him it is all downhill from here. I will let my hon. Friend the Member for North West Norfolk take it from here.

New Clause 1 - Rate of vehicle excise duty for haulage vehicles other than showman’s vehicles

New Clause 2 - Review of sections 63 and 64

New Clause 5 - Review of effects of section 65 on illicit tobacco market

New Clause 6 - Review of effects of £40,000 expensive car supplement threshold

New Clause 10 - Review of business taxes

James Wild (Conservative, North West Norfolk)

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 (Labour, Earley and Woodley)

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 (Conservative, North West Norfolk)

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.

Angus MacDonald (Liberal Democrat, Inverness, Skye and West Ross-shire)

I support what the shadow Minister said, almost word for word. My career has been in business, and in my two days sitting in the Committee, I have been appalled by what seems to be tax increase upon tax increase. Small and medium-sized businesses across the UK are on their knees and we have done a catastrophic job since the Budget in ruining things for businesses.

James Murray (Labour/Co-operative, Ealing North)

New clause 10 would make changes to require the Government to conduct a review of business taxes, and make recommendations on how to increase business certainty and investment, before the next Finance Bill is published.

The Government do not support the new clause. The Government keep all taxes, including taxes paid by businesses, under ongoing review. At the autumn Budget, the Government published their corporate tax road map to provide certainty to businesses about the areas of the business tax system they intend to keep stable, and the areas they intend to review over the course of this Parliament.

The Government have also committed to a review of the business rates system. At the autumn Budget, the Government published a discussion paper that set out the Government’s priority areas for reform of the business rates tax system. The Government have therefore already set out areas of the business rates system where they will provide stability. Given our existing processes and recent commitments, I ask the hon. Member to withdraw the new clause.

James Wild (Conservative, North West Norfolk)

That was a disappointing response from the Minister, if not predictable.

James Murray (Labour/Co-operative, Ealing North)

Unpredictable, you mean.

James Wild (Conservative, North West Norfolk)

Sorry—it has been a long afternoon.

We need to provide certainty, and the new clause was intended to be constructive. It would frame the next fiscal event so as to address all the issues that businesses have been talking to us about. There are issues with business confidence, and yesterday we saw more companies laying people off. This is a serious time, and we need the Government to listen to what is happening, so I intend to press the new clause to a Division.

New Clause 11 - Review of impact of tax changes in this Act on households

James Wild (Conservative, North West Norfolk)

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

As we know, households currently face a number of challenges, and the measures in the Bill and the Budget will serve only to exacerbate them. At the time of the Budget, the OBR confirmed that real household disposal income will be

“1¼ per cent lower by the start of 2029. The bulk of this difference (around 85 per cent) is explained by policies announced in this Budget.”

It is because of the measures in the Bill and the Budget that growth is forecast to be lower over the forecast period than predicted in March last year. Higher borrowing means that interest rates are forecast to be higher for longer, which means that mortgage rates will be higher for longer. Borrowing costs have hit a 27-year high under this Chancellor—hardly the stability that is her watchword. The Government inherited inflation at target; since then inflation has increased, which means less money in people’s pockets. All those effects will be felt by the working families the Government said were their priority at the general election.

As we discussed in Committee of the whole House, the Bill’s education tax will hit people who have chosen to prioritise providing for their children’s education in the place that they consider best suits their child’s needs. The Conservatives are for 100% of children, and we back parents’ freedom to choose; the Labour party is adopting a self-defeating ideological approach to our education system, including academies, that seeks to divide. The education tax will hit 100,000 children with special needs who are in independent schools but without education, health and care plans. We have already seen children withdrawn from schools and schools closing as a result.

James Murray (Labour/Co-operative, Ealing North)

As the shadow Minister set out, the new clause would require the Government to report on the likely impact of the tax measures on households across the income distribution. The Government already published that information alongside the autumn Budget in the “Impact on households” report, which illustrated the distributional impact of Government measures that have a direct impact on household incomes. Those measures come from welfare benefits, tax paid or benefits in kind received through public services by UK residents.

The analysis shows that the Government decisions at the autumn Budget 2024 and spending review 2025 phase 1 are progressive. Increases to public service spending means that households are, on average, better off in 2025-26 as a result of those decisions. The impacts of Government decisions benefit households in the lowest-income deciles the most, on average, as a percentage of income in 2025-26. The increases in tax are concentrated on the highest-income households. Overall, on average, all but the richest 10% of households will benefit from policy decisions in 2025-26.

Since the assessment of the impact of the Budget on households across the income distribution has already been published, I ask the shadow Minister to withdraw the new clause.

James Wild (Conservative, North West Norfolk)

In the light of my failing voice I will not move the next new clause, so this will be the last time I will speak in the Committee. I thank you, Ms Vaz, and Mr Mundell, the Clerks and other officials, as well as Committee members. I also echo the thanks for the Chartered Institute of Taxation and others, and I thank Billy Falcon in my office, who has done sterling work in supporting me. I am grateful to the Minister for his comments. I am sure the rest of the Committee will be delighted that I beg to ask leave to withdraw the clause.

James Murray (Labour/Co-operative, Ealing North)

On a point of order, Ms Vaz. I thank you and Mr Mundell for chairing for the Committee. I thank all the Clerks and officials who have looked after us so well this week, and officials in the Treasury who have helped me to prepare for the Bill. I also thank all hon. Members present—both my hon. Friends and Opposition Members.

On a personal level, I have particularly enjoyed interacting with the lead Opposition spokesperson, the hon. Member for Grantham and Bourne, with our roles having been switched following events last July. Despite our political differences, he is someone with whom I enjoy debating important matters relating to Finance Bills. I thank all Members for their time, and I look forward to seeing them on Report.

Valerie Vaz (Labour, Walsall and Bloxwich)

I add my thanks to all the Clerks who have supported me in this role. I also say to Mr MacDonald that you have done exceptionally well as a new Member on a new Committee. Take this as a good learning exercise—we learn every day.

Written evidence reported to the House