Finance (No. 2) Bill

Public Bill Committee, 3 February 2026.

(Except clauses 1 to 8, schedules 1 and 2, clauses 9, 10, 69 and 62, schedule 12, clauses 63 to 68 and 83 to 85, schedule 13, clause 86 and any new clauses or new schedules relating to the subject matter of these clauses and schedules.)

Roger Gale (Conservative, Herne Bay and Sandwich)

Good morning, ladies and gentlemen. Before we continue our line-by-line scrutiny, let me remind the Committee of the usual housekeeping arrangements. Please switch all electronic devices to silent mode. No food or drinks, except the water provided, are permitted during sittings of the Committee. Hansard will be grateful if Members can give their speaking notes to the Hansard colleague in the room or send them by email. Please do bob; the Chairs do not have second sight, so it helps to know who wants to speak.

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 for debate. I hope that by now you are beginning to get used to the process by which that is done, but, as always, if you have any questions please do not hesitate to ask them.

Clause 112 - Excise duty: charge

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss clauses 113 to 116 stand part.

Lucy Rigby (Labour, Northampton North)

It is good to be back, Sir Roger.

The vaping products duty is a new excise duty on vaping products manufactured or imported into the UK from 1 October 2026. The changes made by clause 112 will create a new charge to excise duty and set out the rate, which is £2.20 per 10 ml, rounded down to the nearest penny. The changes made by clauses 113 and 114 will define a vaping product and what constitutes production for the purposes of the vaping products duty. The changes made by clause 115 make clear the powers under which regulations on the vaping products duty will be made, in anticipation of its entry into force on 1 October 2026. Finally, the changes made by clause 116 will allow HM Revenue and Customs to manage and collect the vaping products duty and provide administrative powers around the storage of vaping products before duty has been paid, as well as penalties.

Together, clauses 112 to 116 will establish a coherent and enforceable framework for the vaping products duty and will ensure that vaping products are taxed appropriately. I commend them to the Committee.

James Wild (Conservative, North West Norfolk)

Good morning, Sir Roger and members of the Committee. As the Minister says, clauses 112 to 116 will introduce the UK’s excise duty on vaping products and set out the legal and administrative framework for its operation.

Clause 112 will establish the new vaping products duty, setting a flat rate of £2.20 per 10 ml, rounded down to the nearest penny. Clause 113 sets out what counts as a vaping product; the definition is drawn deliberately widely to encompass any liquid that contains nicotine and the solvents used with it, and even liquids without nicotine if they are intended for vaporisation. That means that the apparently popular zero-nicotine shortfills used by smokers who are trying to quit or taper down will be taxed, too. I am advised that shortfills will be the hardest hit by the new duty; Vape 360 reports a 203% price increase. That raises an interesting public health question about the rationale for taxing zero-nicotine liquids in the same way as addictive nicotine-containing liquids. I am interested to hear the Minister’s response to the concern that by adopting this taxation approach we might be discouraging people from switching to less harmful or nicotine-free alternatives.

Clause 114 defines when a product is regarded as produced for duty purposes, not just when liquids are mixed but when they are packaged, labelled or marketed as suitable for vapes. Clause 115 leaves it to future regulations to set out when duty becomes payable and who is liable. Clause 116, the final clause in this group, gives HMRC new powers to control vaping products before duty has been paid. The Opposition will not oppose the clauses, but we do want to probe the Government’s thinking.

Vaping has become increasingly common across the UK. According to the Government’s own tax information and impact note, approximately 5 million people in the UK vape. For the first time, according to the Office for National Statistics, more over-16s in Great Britain are using vapes or e-cigarettes than are smoking cigarettes: 5.4 million adults vape, compared with 4.9 million who still smoke.

The duty was first announced by the then Conservative Government in the spring Budget of March 2024. Alongside the announcement, a consultation was launched on how the duty should work in practice. The Government have since opted for a flat-rate duty rather than the three-tiered structure originally proposed, which would have varied the rate according to nicotine strength. Having read the responses to the consultation, I know that that decision clearly reflects the bulk of the evidence provided and will create a system that is simpler to administer. As the Exchequer Secretary might say, that is evidence of consultation working and the Government listening, which we are becoming very used to.

The tax will raise significant amounts: £400 million in 2027-28 and £465 million in 2028-29, with revenue then increasing further. When introducing a new tax, implementation matters. The Government’s own impact note shows that HMRC expects to spend £140 million just to deliver this measure, of which £20 million will be spent on IT systems, while the other £120 million will be for staffing and compliance costs. I will be grateful if the Minister can clarify whether the headline figure includes the £32 million contract that HMRC is currently advertising to deliver the vaping duty supply contract for five years.

As Border Force will also receive up to £10 million to prepare, delivering the new duty will cost about £150 million, all in. That is a pretty significant sum, so we need to be sure that it will provide proper value for money. Can the Minister give a little more clarity and break down the costs, particularly the £120 million on staffing and compliance? How many people will that involve bringing into HMRC? What exactly will they be doing? Why is the figure seemingly so high in comparison with the take?

Some consultation respondents have questioned whether the new duty will actually shift behaviour. If producers simply absorb the cost, as tobacco firms once did, prices may barely change, which will undermine the public health rationale behind the policy. What consideration has the Minister given to that point? Will the duty rate remain under review if outcomes fall short of the expected impact?

We can also look at the experiences of other countries such as Italy, where vape sales reportedly fell by 70% when a similar duty was introduced—not because consumers quit, but because purchases moved to the black market or unregulated online sellers. That takes us back to one of this Committee’s themes, which is about how raising taxes to a certain level drives people into the black market, and about where the sweet spot is for raising revenue without driving illegal behaviour. We will come on to the enforcement powers in some detail shortly, so I will not get into them now.

This measure will play a useful role in regulating a growing sector, but the Government need to strike a balance between discouraging youth vaping, supporting smokers to quit and maintaining a workable, enforceable tax regime that does not cost the taxpayer a lot of money. I hope that the Minister will respond to the points that I have raised, and particularly the point about zero-nicotine vapes being treated in the same way as nicotine vapes.

Lucy Rigby (Labour, Northampton North)

It is good to hear that the shadow Exchequer Secretary will not oppose the clauses. He is right about the policy impetus behind what we are doing. For the first time in the UK, more people vape than smoke. The chief medical officer has been clear that vaping is not risk-free, and those who do not smoke should not vape.

Martin Wrigley (Liberal Democrat, Newton Abbot)

Vaping is a difficult issue, particularly when it comes to recycling. I understand that vape shops are expected to take them back, but local authorities have real problems with the disposal of used vape canister things—I do not know what they are called—with batteries in them. Will the Minister consider helping local authorities with vape recycling, and providing funds to give them more facilities and a way to dispose of them?

Lucy Rigby (Labour, Northampton North)

I am grateful for the hon. Member’s intervention, which I will come to in a second.

On the shadow Exchequer Secretary’s central point about the definition of vaping and the inclusion of nicotine-free liquids, the definition is deliberately broad to reflect how the market operates and to support what we hope will be effective enforcement. Most liquids used in vapes contain nicotine and either glycerine or glycol. The clause therefore focuses on those ingredients and on whether the liquid is intended to be vaped. Bringing into scope liquids that need to be mixed before use closes a potential loophole in a manner that I am sure we all want, because products could otherwise be sold in separate components to avoid their duty. Nicotine-free liquids are included because it would be easy to misdescribe or mislabel liquids and, in doing so, evade the duty.

The approach that we are taking will give Border Force and HMRC clear rules to work with, enabling quick decisions at the border. That is in line with how other excise regimes define products to minimise avoidance.

As to the cost of implementation, the cost of the duty stamps contract was considered in the shadow Exchequer Secretary’s beloved TIINs, but the industry will pay for it through the stamps.

Finally, the hon. Member for Newton Abbot raised a fair point about recycling. We are considering the impact of recycling and existing Government contracts, so this will be considered in the round.

Clause 117 - Stamping of vaping products

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss clauses 118 to 120 stand part.

Lucy Rigby (Labour, Northampton North)

As I stated in our debate on the previous group, the vaping products duty is a new excise duty on vaping products manufactured or imported into the UK from 1 October 2026. Clause 117 is important in setting out what a duty stamp is for the purposes of the vaping products duty and the conditions under which a vaping product is considered sufficiently stamped and compliant with the vaping duty stamps scheme.

The changes made by clause 118 will allow HMRC commissioners to appoint an approved supplier to produce and distribute vaping duty stamps. In addition, the clause allows a fee to be charged for the duty stamp, separately from the liability of vaping products duty, and explains that that charge may not be offset against duty liability.

The changes introduced by clause 119 will establish a formal approval requirement for UK businesses to purchase duty stamps under the vaping duty stamps scheme, which will allow HMRC commissioners to maintain control over the scheme and ensure compliance.

Clause 120 will ensure that overseas vaping manufacturers have a representative in the UK who is legally and financially responsible for their compliance with the vaping duty stamps scheme, to ensure robust oversight. We are safeguarding compliance by requiring overseas manufacturers to operate within the framework of UK law, strengthening control and accountability across the supply chain. There will be impacts on all overseas importers and manufacturers of vaping products, who will be required to appoint a UK representative in the manner that I have described.

Together, the clauses will ensure that the vaping products duty is robustly enforced through a secure duty stamps regime and that all manufacturers, whether they are based in the UK or overseas, are subject to clear accountability. I commend clauses 117 to 120 to the Committee.

James Wild (Conservative, North West Norfolk)

Clauses 117 to 120 will introduce the new vaping duty stamp scheme. The Opposition welcome the Government’s decision to move forward with a duty stamps regime for vaping products: it is, after all, a measure that can help our enforcement agencies and responsible businesses alike to distinguish legitimate duty-paid products from those that are illegitimate and being traded illicitly and illegally. We know that there is a substantial illicit market for vapes across the country; without a credible system of verification and traceability, it will continue to undercut legitimate producers, harm public health and cost the Exchequer millions of pounds in lost revenue, so we need to address it.

Clause 117 will establish the legal framework for the duty stamps system. It defines when a vaping product is considered to be stamped, and it sets out that the duty stamp, whether affixed to the product or to its retail packaging, must comply with regulations made under the Bill. Importantly, the clause will enable each stamp to be digitally linked to the product that it marks, and will allow HMRC to collect specified information about those goods, marrying the physical and digital trails of compliance. That is a positive step, and I am pleased that the Government have adopted at least some of the approach for which the Opposition argued during the passage of last year’s Finance Bill when we considered the introduction of the duty stamp regime.

In essence, these measures will bring to the vaping market a track and trace model that is similar to what already exists in the alcohol and tobacco sectors. Clearly, when used properly, such tools can be an effective enforcement system. They allow officers, retailers and consumers alike to verify legitimacy at a glance, building confidence in compliant businesses and exposing those who seek to cheat the system and the taxpayer.

We should be clear, however, about the scale of the challenge that could be created for smaller manufacturers and importers. In implementing this approach, we should ensure that the practical burden of stamping, activating, tracking and reporting, alongside new IT infrastructure, is proportionate for the many businesses that may not previously have had to operate at such a level of compliance. We cannot allow a regime that is intended to fight the black market to end up driving responsible producers to consider joining it.

Clause 118 will give HMRC the authority to issue and manage the duty stamps and to charge administrative fees. It also allows a third-party issuer to be appointed, as I referred to in my comments on the previous group of clauses. I hope that the Minister can confirm how those fees will be set. Will HMRC consult on the level of those fees? What safeguards will exist to ensure that the fees are proportionate and transparent so that businesses do not find themselves paying unpredictable charges that bear little relation to the cost of the compliance regime?

Clause 119 will establish who can hold and use duty stamps: only approved stamp holders may do so, and they must operate from a fixed location within the United Kingdom. That makes sense in principle—it limits the opportunity for diversion or counterfeiting—but the practical implementation will matter greatly. Subsection (5) grants HMRC wide powers to restrict transfers, to define what counts as a fixed place and to cap the number of stamps issued to a business. If the system becomes too bureaucratic or opaque, small UK producers could find themselves struggling in the market while larger incumbents consolidate their position.

The Minister referred to the logic behind clause 120 and the concept of a UK representative for overseas businesses that lack a domestic base. Clearly, there needs to be someone within UK jurisdiction who can be held responsible for compliance and any penalties that may be applied.

Let me turn briefly to the digital dimension. The duty stamps will incorporate some digital element to allow information to be uploaded at key points in the supply chain. That is a welcome start, but it does raise the question: why stop there? Fully digital stamps would be harder to counterfeit, easier to track and better aligned with the Government’s stated commitment to a digital-by-default tax system.

Juul and other manufacturers report that their experience in countries such as Canada, where similar systems have been implemented, suggests that digital alternatives outperform physical ones on every front—cost, transparency, durability and data integrity. We acknowledge that further digitisation could carry some additional compliance costs at the beginning, but if the Government are committed to a digital-by-default system, it would make sense to set out a road map and a timetable for when and how the transition to fully digital stamps will take place.

On the impact, the Treasury’s own figures tell us that the measure will have a significant administrative effect. Around 200 manufacturers in the UK, a number of overseas makers and up to 750 importers and wholesalers will be brought within scope of the measure, along with a handful of UK-based duty stamp representatives. For all of them, the scheme will mean registering with HMRC from 1 April, learning a new compliance process, submitting operational plans, training staff and adjusting their internal systems to ensure that they are compliant.

The recurring costs—purchasing stamps, scanning and recording each item, and maintaining digital links —could grow quickly, and HMRC’s operational costs are significant, as I said. The ongoing costs of stamp production, issue and data collection will be borne by the commercial supplier and the businesses required to buy stamps. What assessment has the Treasury made of the likely unit cost of a stamp and the associated integration per product line, particularly for smaller vape manufacturers? Will there be scope for phasing in those requirements, or offering transitional support to help small and medium-sized enterprises comply with the new rules?

HMRC has promised to provide clear guidance and communication to support the industry in adapting to these new rules, and we welcome that. Businesses will need that well in advance of the implementation of the measure if they are to plan production and imports effectively. Could the Minister provide an update on when that guidance will be published, as without it there is the risk of confusion and disruption in implementing the new regime?

We support the principle of stamping vapes, but the Government must ensure that we have a workable, affordable and effective scheme that deals with illicit activity and fraud without making compliance too costly. We will continue to hold the Government to account on achieving that balance and, hopefully, moving towards a fully digital system.

Joshua Reynolds (Liberal Democrat, Maidenhead)

It is a pleasure to serve under your chairship, Sir Roger. I welcome the Economic Secretary to the Treasury back from her visit to China, which I am sure was slightly more exciting than the Thursday we had in Committee in her absence—although obviously we will never be short on excitement.

Duty stamps are proven anti-illicit trading measures. Digital tracking can enable supply chain monitoring, support enforcement and ensure that black market products are easier to identify, which makes it easier for trading standards officers and consumers to catch illegal products. However, as we have seen with duty stamps on spirits, there is significant counterfeiting within the market, so it would be interesting to hear what the Minister and the Government have learned from duty stamps on spirits that they have been able to apply to duty stamps on vaping products.

It is interesting to see, in clause 118, the potential cost that will be associated with these duty stamps. We have already debated the additional duty that would be applied to vapes and the closing of the gap between the price of vape liquid and the price of cigarettes in our discussion on previous clauses. How much further does the Minister think that gap will close?

Additionally, on duty stamps and being able to track sales from a specific product or potentially even from specific stores, many people in this House and among the wider public believe that quite a lot of vaping shops have links with money laundering scams. Does the Treasury have an understanding of how tracking could be used to compare the money going through on the duty stamps with the store data to see if any money laundering is going on? That may be able to help trading standards in future.

Lucy Rigby (Labour, Northampton North)

I am grateful to the shadow Exchequer Secretary, the hon. Member for North West Norfolk, and the Liberal Democrat spokesperson, the hon. Member for Maidenhead, for their comments. I think we are all aiming for the same thing: a robust and tight enforcement of all the measures. On the shadow Exchequer Secretary’s point about moving towards a purely digital system, the reality is that that would be harder for consumers and for trading standards officers to use on shop floors, and consultation responses highlighted that it could impose greater burdens on small retailers than a visible stamp.

The scheme is designed to have a physical label with embedded digital features, and that two-factor design is central to the compliance strategy. A visible, secure stamp gives retailers, consumers and enforcement officers an immediate way to spot non-compliant products at a glance, without the need for specialist equipment. As I said, however, the digital element is very important; it is similar to a secure QR code, allowing stamps and products to be scanned and verified in real time. That two-factor design is central to the compliance strategy.

On the question of fees, they have been set to cover the cost of operating the scheme. The Government conducted a competitive tender process for the broader scheme. The shadow Exchequer Secretary is absolutely right that HMRC has promised clear guidance in this area, and that will be published in due course.

The Liberal Democrat spokesperson fairly raised a comparison with alcohol duty stamps. HMRC consulted the alcohol industry and enforcement authorities and determined that alcohol duty stamps now play a minimal role in tackling alcohol duty evasion and that more effective controls now exist. HMRC is introducing duty stamps alongside the vaping products duty because of the distinct and significant non-compliance risk associated with the vaping market; it is about the utilisation of modern technology and digitalisation to support the delivery of the vaping products duty. I hope I have explained to him that we have examined the alcohol duty comparison and do not see a direct read across.

The Liberal Democrat spokesperson also raised an important point about money laundering and anti-money laundering, which the Government take extremely seriously—in fact, we are reforming the supervisory function and compliance on AML.

Clause 121 - Forfeiture

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss clauses 122 to 125 stand part.

Lucy Rigby (Labour, Northampton North)

Anyone selling illicit vapes puts the public at risk and undermines legitimate businesses. One million illegal vapes were seized by trading standards in the last full year for which statistics are available, so we know that this is a significant enforcement challenge.

Clause 121 introduces enforcement powers to protect the integrity of the vaping duty stamps scheme. The changes made by clause 122 support robust compliance efforts under the vaping products duty and the stamps scheme, ensuring that only legitimate vaping products are supplied in the UK and penalising those who do not comply with the law. The changes made by clause 123 penalise those who lose stamps or attempt to use invalid stamps on illegitimate products to circumvent the rules. Clause 124 ensures that those who do not comply with the relevant regulations for the duty and stamps scheme are liable to penalties. Finally, clause 125 provides for the forfeiture of legitimate vaping products to complement the penalties imposed under the previous clauses. I commend the clauses to the Committee.

James Wild (Conservative, North West Norfolk)

I rise to speak to clauses 121 to 125, which set out the framework on forfeiture and civil penalties for the new vaping duty regime. As the Minister said, this is a very important part of the new regime, given the impact that illicit vapes could have.

Clause 121 establishes a general liability to forfeiture for three categories of non-compliant goods, namely: an unstamped vaping product that should bear a duty stamp, any invalid duty stamp along with the product that it is attached to, or any unused duty stamp not affixed or returned within 12 months of issue. In plain terms, it gives HMRC the power to seize non-compliant vaping products. An invalid stamp is defined broadly, and includes any stamp that has been altered, forged or voided by HMRC. Other forfeiture triggers are linked to the wider civil and criminal offences contained elsewhere in this part of the Bill, which I am sure we will come on to. These powers are designed to allow both HMRC and local enforcement bodies to remove illicit or suspect products and counterfeit stamps from circulation. That is clearly an important deterrent against the black market in vaping products.

Can the Minister assess the risk of the 12-month rule on unused stamps, and the broad definition of invalid stamps, inadvertently capturing legitimate business activity? For example, operators may over-order stamps as a contingency or make administrative errors. How will the Government ensure that, in those circumstances, genuine stock is not caught up and lost alongside contraband products? Once forfeited, what will happen to those goods? Will they simply be destroyed? It would be helpful to get clarification on that point. Crucially, what safeguards will ensure that forfeiture powers are used proportionately, and that any minor administrative mistakes by otherwise compliant firms do not result in legitimate products being seized and destroyed at the first opportunity?

Clause 122 introduces a civil penalty regime for those who sell, offer for sale or deal in unstamped vaping products packaged for retail sale. The penalties set out are banded according to scale and repeat behaviour, rising to a maximum of £10,000 for 500 or more units, with escalating amounts for repeated contraventions within a rolling two-year period. It provides a strong financial penalty and a disincentive for retailers and wholesalers to stock unstamped products, and it complements the criminal provisions that follow later in this part of the Bill.

Clause 123 creates penalties for approved stamp holders who lose stamps or fail to use, return or destroy them within 12 months of issue, unless they can demonstrate that they took all reasonable steps to prevent loss. In those circumstances, the penalty is set at five times the monetary value of duty per lost stamp, equating to £11 per stamp when the scheme goes live. That comes alongside the existing Finance Act 1994 penalties for altering or misusing stamps. The intention is clear: to encourage tight control of duty stamps, treating them almost as cash equivalents, and to discourage casual or insecure handling that might enable diversion or counterfeiting, which is welcome.

Clause 124 introduces a broad, catch-all civil penalty for failure to comply with the vaping products duty regime using section 9 of the Finance Act 1994 as its legal framework. That is intended to ensure that HMRC can act where non-compliance occurs, but no specific penalty is written into the legislation, reinforcing the need for accurate record keeping and full compliance with operational rules. I can see why a general power may be convenient for HMRC, but for smaller businesses it could increase the risk of innocent mistakes attracting financial penalties. How will HMRC ensure that this general power is used proportionately? Will education and guidance be issued to firms?

Finally, clause 125 connects the penalty regime to the forfeiture provisions. Where a person incurs a penalty for dealing in unstamped products under clause 122, any vaping products in their possession that HMRC reasonably believes are used in the course of business may also be forfeited. Similarly, where a general penalty under clause 124 is imposed, those vaping products or stamps may be seized. That gives enforcement bodies an additional tool to remove suspect stock once serious non-compliance has been identified. The Minister referred earlier to guidance that would be published in due course. It might be helpful for people getting ready for these provisions if she could tell us the month. Presumably, HMRC is beavering away drafting it, so when it will be available should not be a state secret.

The provisions in clauses 121 to 125 give HMRC significant powers over forfeiture and civil penalties. The aim is obviously to deter illegal activity and maintain the integrity of the new vaping duty regime. As I said in the debate on an earlier group, the challenge is to ensure that that is done in a proportionate way, tackling the illicit market without penalising legitimate businesses seeking to comply. I welcome the Minister’s response to the various points I have made.

Joshua Reynolds (Liberal Democrat, Maidenhead)

I have few points to make about clause 122, which refers to a

“person who sells…unstamped vaping products”.

I would be grateful if the Minister could confirm whether that person is the shop owner, the shop manager or the shop worker who is physically behind the till on that day. Could an 18-year-old shop assistant be charged the £10,000 fine? The phrase “a person” needs a definition. If that person leaves the business in which they serve, will the fine stay with the individual, or will it be on the business? Could somebody get around this clause by closing down their limited company and opening a new one tomorrow, so the offence would then be their first?

Lucy Rigby (Labour, Northampton North)

The comments of the shadow Exchequer Secretary, the hon. Member for North West Norfolk, refer to the deliberately tough nature of the enforcement regime; there is a real emphasis on deterrence, and there are penalties that apply. It includes the forfeiture powers, which are targeted at serious non-compliance. Where retailers are found selling unstamped products outside duty suspense or breaching key obligations under the scheme, HMRC and Border Force will have the power to seize associated vaping products, including legitimate duty-paid stock. As I said, that is part of a deliberately tough enforcement regime and is a strong deterrent aimed at those who choose to mix illegal products with legitimate ones on the same premises. I am sure we all understand that without such powers, rogue traders can treat penalties as simply a cost of doing business while continuing to profit from illicit trade, and I am sure we all want to avoid that.

The shadow Exchequer Secretary made a number of points about ensuring that the use of powers is proportionate. Given the judicial or criminal processes associated with the use of these powers, it is entirely fair to say that all the usual processes around charging, in a criminal sense or otherwise, will apply. Inherent within those processes are balance and fairness, including taking into account the rights of the accused.

It is good to mention the draft guidance, which will be shared with HMRC-run industry groups well ahead of the go-live date on 1 April, which I hope is sufficiently specific for the shadow Exchequer Secretary. He will be pleased to know—he may already know—that the interim guidance is already on gov.uk, if he is stuck for things to do this evening. I think I am right in saying that the points raised by the Liberal Democrat spokesperson, the hon. Member for Maidenhead, as to liability under these offences will be made explicitly clear in the guidance, such that there is no doubt in those circumstances.

Clause 126 - Dealing in duty stamps

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss clauses 127 to 130 stand part.

Lucy Rigby (Labour, Northampton North)

Clause 126 introduces two new criminal offences, to which we have already alluded, for possessing or transferring duty stamps in contravention of the scheme rules. Clause 127 introduces the two new criminal offences that I have just described, and sets out a defence for the purposes of those offences. Clause 128 introduces the power for a court to ban the sales of vaping products, along with an associated criminal offence for non-compliance with the order. Clause 129 sets the level of the penalty associated with the offences, according to the respective legal systems of the devolved nations. Clause 130 introduces additional powers to allow HMRC to enforce the new rules around vaping products by taking illicit products off shelves.

In summary, the clauses represent a comprehensive suite of enforcement tools that support the Government to address the illegal trade and support the legitimate industry. I therefore urge that clauses 126 to 130 stand part of the Bill.

James Wild (Conservative, North West Norfolk)

Clause 126 creates new criminal offences relating to the possession and transfer of unstuck duty stamps. In plain terms, it becomes an offence for anyone who is not an approved stamp holder to possess a duty stamp that has not been affixed to a vaping product, or to transfer such a stamp to someone else. As the Minister says, the Bill allows a defence where the person did not know or have reason to suspect that they were handling an unstuck stamp, and carves out sensible exemptions, such as transfers between UK representatives and overseas principals, or during commercial delivery and returns.

I would be interested to know what assessment the Treasury has made of the level of abuse that it expects under this regime. HMRC and trading standards are being given a budget for enforcement. Underlying that, there is presumably some assumption about the level of abuse of this system, so it would be interesting to have a flavour of that, given that all of us will be familiar with vape shops and associated issues from our constituencies.

Clause 127 creates criminal offences for possessing, transporting, displaying, selling or otherwise dealing in unstamped vaping products. It also criminalises managers of premises who “cause or permit” the sale of unstamped goods. Under the definition in subsection (4), a manager of premises

“is a person who…is entitled to control their use…is entrusted with their management, or…is in charge of them.”

To pick up the example raised by the hon. Member for Maidenhead, if an 18-year-old is in charge of the premises such that they are unlocking on the day and will be locking up, are they the person, the individual, who could get the fine for dealing in the product, even though they may have had no role whatever in securing the stock and are simply there, getting their minimum wage payment to look after the shop? I would be grateful if the Minister could unpack what subsection (4) means in that sense.

It is right that deliberate participation in the illicit vape trade is met with serious, fierce sanctions. We must also make sure that any junior staff who are wholly innocent—who do not know anything about the matter and could not reasonably have been expected to—are not prosecuted for the actions of others. We need some clarity from the Minister on how responsibility in those cases would be apportioned, and we must again ensure that enforcement authorities are operating with clear guidance.

Clause 128 will enable courts, when convicting under clause 127, to make an order prohibiting the use of premises for the sale of vaping products for up to 12 months, and will create a further offence for managers who breach such an order. The power is of course intended to shut down problem premises that are repeatedly used for illicit trading. That is a tool that local authorities and trading standards officers—and, I suspect, Members of this place and our constituents—will very much welcome. There are many examples in constituencies across the country of illegal vapes being sold, and the communities near them suffer the impact of those criminal enterprises.

We support action to deter such enterprises, but we are also familiar with examples in which trading standards, HMRC or others go in and seize the illegal vapes—the police may be involved as well—and in a matter of hours, that same premises will reopen, selling more illegal vapes. It is great to have a power to shut down such premises, but how will it be enforced? Will the resources be in place to do that? Will there be clear criteria on when the powers will be used, and how a change of ownership of a premises could affect a ban? We may effectively see fake transfers of ownership to try to get around it, so it is important that HMRC and trading standards have robust systems in place.

Clause 129 sets out the penalty framework. On summary conviction, in England and Wales the maximum is the general magistrates limit—imprisonment, a fine or both; in Scotland, the maximum is 12 months and a statutory fine; and in Northern Ireland, it is six months and a statutory fine. So there is a little discrepancy there. On conviction on indictment, the maximum is two years’ imprisonment, an unlimited fine or both. That clearly allows for flexibility to distinguish between serious organised criminal offending and smaller scale non-compliance with the law.

Of course, in the Sentencing Act 2026, the Government are effectively legislating to abolish sentences of up to 12 months, with a presumption that those will become suspended sentences. That is still a penalty, but it will mean that people are in the community rather than in jail serving their punishment, as they should be. The reality is that most people breaking this law are unlikely to actually go to prison; they may simply get a fine. Will the sentencing guidance make clear distinctions between organised criminality and smaller-scale offenders?

The final clause in the group, clause 130, deals with the issue of forfeiture. It goes beyond the general rules in clause 121 by allowing all unstuck stamps or unstamped products linked to offences under clauses 126 to 128 to be seized. In some cases, all the stock on the premises—the Minister made this point—may be forfeited if HMRC believes that it is used in a business connected with the offence. That could be a welcome measure, but we need to have some clarity about how unnecessarily broad powers could potentially be used. Will there be a clear route for traders to challenge such forfeiture of legitimate products where they consider that they have inadvertently breached the rules?

Taken together, the clauses introduce serious new powers, which is why it has been worth spending a few moments considering them and how they will actually be used. I think particularly of the power to shut down a premises for 12 months; we must ensure that that is effective, and that people are prevented from seeking to get around it by pretending to sell the business or list a new owner of the business. I look forward to the Minister’s responses to the points that I have raised.

Martin Wrigley (Liberal Democrat, Newton Abbot)

I am afraid that my training was as an engineer, rather than as a lawyer, so I apologise if I get points of standard law wrong. However, it is fascinating to read the Bill in such detail. In clause 126(3), it says,

“It is a defence for a person charged with an offence under this section to prove that they did not know”

I am interested to hear how the Minister thinks that somebody might prove that they did not know something. It strikes me that it is something that a person cannot actually prove.

Secondly, in relation to clause 128, when a premises has been banned for 12 months, is there anything that prevents someone opening up the next-door premises and continuing exactly as before?

Lucy Rigby (Labour, Northampton North)

The shadow Exchequer Secretary raised a point about the strong penalties associated with the regime. I have already set out the Government’s aim: that the enforcement mechanisms in the Bill are deliberately tough and are aimed at being a strong deterrent. We believe that the strong penalties, including custodial sentences, are justified due to the size of the illicit vaping market in the UK. Indeed, that goes to the shadow Exchequer Secretary’s point about our assessment of the illicit market and the assessment of abuse. We understand that there is a large illicit market in this area. The powers are deliberately tough, with the aim of ensuring that there is no circumvention.

I will now address the fair points that were made previously by the hon. Member for Newton Abbot and raised again in the context of these clauses. All prosecutions, as hon. Members will know, must meet the public interest test. The test that the Crown Prosecution Service must meet has two limbs: the evidential and public interest elements. Both limbs must be met for prosecutions to be brought. The hon. Member for Newton Abbot referred, fairly, to clause 126(3) and 127(3), which outline the defence that is applicable to both offences. As he helpfully mentioned, it is a defence for a person charged with offences under sections 126 and 127 to

“prove that they did not know, suspect or have reason to suspect”

that they were possessing or transferring a duty stamp that had not been affixed to a vaping product. In that regard, on the question about proof of knowledge, I return to the CPS’s test and to the burden of proof that applies in proceedings in the UK.

Clause 131 - Publication of information

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss the following:

Clauses 132 to 136 stand part.

Schedule 14.

Clause 137 stand part.

Government amendments 13 and 14.

Clause 138 stand part.

Lucy Rigby (Labour, Northampton North)

Clauses 131 to 138 and Schedule 14 set out general provisions to ensure the effective implementation of the duty and the scheme.

Clause 131 allows for the publication of information to ensure effective enforcement of the duty and the scheme. Clause 132 details the instances in which information may be shared between the commissioners and any persons with functions relating to the duty. It will allow information to be transferred in both directions, ensuring successful implementation and the proper joining up of compliance efforts. For any unauthorised disclosure, the clause includes an offence under section 19 of the Commissioners for Revenue and Customs Act 2005.

The changes made by clause 133 provide a definition for local enforcement authorities and allow them to investigate whether businesses in their local areas are compliant with the duty. Clause 134 ensures that HMRC can make regulations and publish notices to make further provisions in relation to both the duty and the scheme. Clause 135 provides that regulations must be made by statutory instrument and sets out circumstances in which the made-affirmative procedure must be followed, including any provision that extends the cases in which vaping products are required to be stamped.

Clause 136 allows for schedule 14 to the Finance Act 2020 to make changes to the Finance Acts of 1994, 2007, 2008, 2017 and 2021. Clause 137 does not make changes to legislation but merely ensures that the Bill is interpreted correctly. Clause 138 provides that the duty and the scheme will commence on 1 October 2026, and that vaping products manufactured or imported before that date will be liable if a duty stamp is affixed to that

product.

Two technical amendments are proposed to clause 138. Amendment 13 clarifies the drafting to ensure elements of the regulations can come into force at the proper time. Amendment 14 puts beyond doubt that the criminal offences under these schemes can apply to vaping products, regardless of the date that they were produced or imported. The amendments ensure that the duty can be successfully administered, and neither one reflects any change in Government policy.

James Wild (Conservative, North West Norfolk)

We come to the final group of provisions on the important issue of the new vaping duty. I speak to clauses 131 to 138, which concern the general provisions underpinning the new vaping products duty regime. Clause 131 authorises HMRC to publish information about stamped vaping products, for the purposes of enabling retailers, consumers and other persons to assess whether a duty stamp has been activated in respect of a duty product. That is clearly a sane, sound aim, which gives retailers a way to distinguish between legal stamped products and illicit ones. However, that will only work if the data HMRC publishes is accurate and accessible. Mislabelling would harm legitimate firms, and if the system is cumbersome it will put people off using it.

Can the Minister tell us when HMRC will make available a practical, user-friendly checking mechanism—whether that is a public database, an app or some other technology—so that retailers and consumers can verify stamps quickly and easily? What safeguards will exist to correct errors swiftly where inaccurate data risks unfairly damaging a compliant business?

Clause 132 sets out a new information-sharing framework specific to the duty, letting HMRC exchange data with other bodies involved in enforcement. This is a legitimate and useful tool, but can the Minister give assurances about how the data will be logged, audited, and subject to clear internal controls?

Clause 133 delegates day-to-day enforcement to local authorities and trading standards teams, which makes sense. Last year trading standards seized over a million illegal vapes inland and detained 1.2 million at ports in England. Those powers need to be properly resourced if they are going to be effective in stamping out illegal trade, as we know that trading standards is already under considerable pressure to deliver on its various legislative requirements. It is fair to say that there is patchy implementation across the country.

What support will Government provide to local authorities to ensure consistent enforcement and genuine deterrence everywhere, not just in well-resourced areas? Counties, such as my county of Norfolk, have suffered as a result of the revised local government funding formula that the Government have put in place. I want to see them able to deal with the threat of illicit vapes in the same way as the metropolitan areas that benefit from the new formula that the Labour Government put in place.

Clause 134 gives the Treasury wide discretion to make supplementary transitional regulations under the regime. In practice, it is a broad power to fill in the blanks. Can the Minister give some confidence that it will not lead to a complex, rapidly changing rulebook? The Minister referred to the parliamentary procedure for such regulations under clause 135. To be clear, those regulations include the ability to amend an Act of Parliament, which is a considerable power. If such measures came forward, it would clearly be right to properly consult and debate them before they took effect. Will the Minister commit to formal consultation in such cases?

Clause 136 simply implements consequential amendments so that vaping products are recognised across the existing excise framework. Clause 137 deals with the definitions that determine which products fall within scope—clearly, they need to be kept up to date.

Finally, clause 138 sets the commencement and transitional arrangements. As we have discussed, businesses are expected to register from 1 April, with liability beginning from October. That is an ambitious timetable, but I am pleased to hear from the Minister that the interim guidance is available on gov.uk. I was not aware of that, so I will look it up later this evening, as she suggested.

We do not oppose any of these clauses, but I look forward to the Minister’s response on whether there will be formal consultation, particularly where Acts of Parliament will be changed by regulations. That is something every member of the Committee should expect.

Lucy Rigby (Labour, Northampton North)

The shadow Exchequer Secretary asked about HMRC making compliance-checking methods available. There will be an app for access based on scans of products. It will be available before 1 October, and no scanning will be required before that date. He, fairly, asked a question about the flow of information. That is covered by subsections (3) and (4) of clause 132, which ensure that information can be used only for the purposes for which it was disclosed. Indeed, any other purpose would require further permission from the commissioners. Subsection (4) sets out the penalties that would apply for contravening the preceding provisions.

The shadow Exchequer Secretary also asked about the resources available to trading standards and local authorities. He mentioned Norfolk, is that right?

James Wild (Conservative, North West Norfolk)

Yes—come visit.

Lucy Rigby (Labour, Northampton North)

Beautiful Norfolk—I know it very well. He compared Norfolk with more metropolitan areas. Local enforcement authorities, particularly trading standards, play a central role in tackling illicit vapes on the high street, and as has been mentioned, over 1 million illegal vapes have been seized in a single year under existing powers. Clause 133 gives local authorities the powers they need to conduct inspections and checks relating to both the duty and the scheme, to ensure that compliance work can be carried out effectively at retail level. That will complement the work of HMRC, which happens upstream.

We have already announced additional funding for trading standards in the context of wider tobacco and vaping measures, alongside £10 million for Border Force and the recruitment of over 300 HMRC compliance officers focused on this area. Giving these powers to local authorities, backed by additional resource, will help to ensure that the new regime is enforced on the ground and that compliant retailers are protected from what would otherwise be unfair competition.

Clause 138 - Commencement and transitional provision

Clause 139 - Introduction to CBAM

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss the following:

Clause 140 stand part.

Schedule 15.

Clauses 141 to 145 stand part.

Government amendment 15.

Clauses 146 and 147 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

The shadow Exchequer Secretary invited the Economic Secretary to his constituency. Last week, he invited me to come on Valentine’s day to enjoy the bumper cars. I know the Economic Secretary is glad for the invite, but I am particularly glad for the one I received.

Oliver Ryan (Labour/Co-operative, Burnley)

Will the Minister give way?

Roger Gale (Conservative, Herne Bay and Sandwich)

I think this is called a lifeline.

Oliver Ryan (Labour/Co-operative, Burnley)

If the Minister is not otherwise engaged on Valentine’s day, he is always welcome in Burnley for the bumper cars.

Dan Tomlinson (Labour, Chipping Barnet)

Thank you. Burnley is a fantastic place to visit, and I hope to come before too long.

These clauses create the charge to CBAM, define the goods and emissions in scope, identify who is liable, and set out how the tax rate is calculated and how the relief operates. Together they form the substantive charging provisions that will underpin the operation of CBAM from 1 January 2027.

Clause 139 introduces CBAM as a new tax and signposts the structure of part 5 of the Bill. Clause 140 establishes the charge to CBAM, which applies to the emissions embodied in specified CBAM goods when they are imported into the UK. Schedule 15 defines the goods in scope, initially covering the aluminium, cement, fertiliser, hydrogen, iron and steel sectors. Clauses 141 to 143 set out when goods are treated as imported for CBAM purposes, and who is liable for the charge. In line with established customs principles, liability rests with the importer, with detailed provisions to ensure that the correct person is identified across different importation scenarios, including goods entering via Northern Ireland or subject to special customs procedures.

Clause 144 provides relevant exemptions from the charge. Clause 145 defines “emissions embodied in a CBAM good” and provides powers for the Treasury to specify, in regulations, how those emissions are determined and evidenced. Clause 146 sets out how the CBAM rate is calculated, and clause 147 provides for carbon price relief, allowing the CBAM charge to be reduced where a relevant carbon price has been incurred overseas in relation to the same emissions. That avoids double taxation while maintaining the integrity of the mechanism. Amendment 15 will ensure that the CBAM rate functions as intended, and that CBAM goods face a carbon price comparable to what would apply if the goods were produced in the UK.

The clauses are central to mitigating carbon leakage, and supporting the UK’s path to net zero.

James Wild (Conservative, North West Norfolk)

I am not clear from the Minister’s comments whether he has accepted the Valentine’s invitation, but I am sure I am not alone in not expecting a member of the Committee to corpse on CBAM, which some might say is a rather dry topic.

While CBAM can play a role in ensuring a level playing field for UK manufacturers and producers, it also highlights the levies and taxes applied by the Government on energy, which means that our energy prices are much higher than our competitors. I think we all want to see that burden reduced.

At the 2024 Budget, the Government confirmed the UK will introduce this new CBAM from January 2027, covering broadly the same types of highly traded carbon-intensive basic materials, and putting a carbon price on emissions embodied in certain imported goods, so that they face a comparable cost to that paid by domestic producers. Different countries clearly regulate industrial emissions to very different standards.

UK manufacturers already have to follow obligations to measure, reduce and pay for their emissions, which are costs that we think need to be ameliorated. Extending that principle to imports should, in theory, help to prevent carbon leakage and ensure it results in real global emissions cuts, rather than simply offshoring production and pollution.

As the Minister said, the new charge will initially apply to five sectors: aluminium, cement, fertilisers, hydrogen, and iron and steel. Fertilisers, which are one of the sectors brought within the scope of CBAM, are clearly a critical input for British agricultural producers, particularly for arable farms, where fertilisers already account for around 40% of crop-specific spending and around 12% of total farm costs.

The National Farmers Union has warned about what it calls a fertiliser tax, and has said that using domestic production as the baseline for CBAM levies, despite the UK no longer producing ammonium nitrate at scale, risks a wholesale increase in fertiliser prices at a time when farm confidence, as we all know, is at rock bottom.

The direction of travel is clear. Over time, both the EU and UK will raise the cost of high-carbon fertilisers, making lower-carbon alternatives more competitive as carbon prices tighten. Applying higher taxes where the UK is not a significant producer increases input costs for our British farmers. There is a risk of downstream leakage where UK farmers pay more for fertiliser due to CBAM, while competing with imported food from non-CBAM regimes that are still benefiting from cheaper, higher-carbon inputs, again undermining British producers and our food security.

This all lands on top of the other provisions within the Bill, namely the family farm and family business tax, as well as the cuts and delays we have seen in the sustainable farming incentive and the land management payment schemes and, of course, the additional pressures that are coming through in the cost of employment.

Will the Minister set out what specific assessment the Treasury has made of the impact of CBAM on fertiliser prices, on different farm sectors and on UK food security? How does he intend to prevent downstream carbon leakage, which simply shifts emissions from factories to fields?

Dan Tomlinson (Labour, Chipping Barnet)

I thank the shadow Minister for his questions and engagement. This is one of the largest parts of the Bill, and sets out a significant change to taxation and the treatment of imports in order, as he says, to support domestic businesses that may face higher prices than companies seeking to export to the UK that have cheaper prices and higher emissions.

To go through some of the questions that were asked, the criteria that were looked at internally—over many years and starting under the previous Government; it has taken five years of work to determine which sectors will be in scope—were whether sectors were already in scope of the UK emissions trading scheme, because it is important that those are aligned; whether there was real risk of carbon leakage; and whether it was feasible to implement in 2027. That is why these five sectors were chosen, after significant engagement across Government and with stakeholders. The sectoral scope will be kept under review, and there are some sectors that the Government will continue to have conversations with in the coming weeks to understand their concerns and the benefits that there may be to widening the scope in future. We will keep it under review because, at the moment, the focus is on making sure that we can implement this significant change. It is a long piece of legislation and there are lots of good questions, but we want to get this in as drafted first.

The shadow Minister made several points regarding the sectors that are already in and the extent to which, in his words, they might be made “worse off”. It is important to note that they will be better off than without a CBAM in terms of competition and fairness in imports. At the moment, there is no CBAM, so the imports that come to the UK in these five sectors are, in a sense, undercutting domestic production if we have higher costs. With the introduction of CBAM, that undercutting will be significantly reduced. The prices faced by importers will be brought into line with those faced by those companies in the UK. There is a valid point to make about the detail and specificity with which the carbon prices that are used within CBAM are set, and that is something that I certainly want to keep under review, but it is good and it is right that we make progress with CBAM as set out in the legislation.

John Cooper (Conservative, Dumfries and Galloway)

The Minister talks about people being better off, but my farmers are very concerned about the fertiliser impact. Four or five years ago, fertiliser was around £180 a tonne; today it is about £400 a tonne, and the introduction of CBAM might put another £100 on top of that. Farmers’ margins are so narrow that they simply have to pass that on, which will have a direct effect on food prices in this country. The Minister says that there will be talks about that. Farmers should be front and centre of those talks, because this is really worrying.

Dan Tomlinson (Labour, Chipping Barnet)

We will engage, and have engaged, with the industries that are directly affected by this change, including the fertiliser industry, and those for whom there will be knock-on effects from higher import prices. With fertiliser in particular, it is worth noting that UK-based fertiliser manufacturers have received more free allowances in recent years than they needed to surrender to be able to cover their emissions. As such, they are not, in practice, paying a carbon price at the moment. The CBAM rate will therefore be set at a low level to reflect that. It is something that I have been looking at as Minster because of these issues, and we expect the initial impact of CBAM on the fertiliser sector to be very modest. None the less I take the point that the hon. Member raises, and the Government will continue to look at it.

On the point around groupings and EORI numbers, that is not a phrase that I have come across before, but I am glad that I have heard it. I will make sure to remind myself of the torturous Brexit process and will, I am sure, understand the context there in more detail. We engaged with businesses in advance of making the proposal and feedback indicated that group treatment would confer relatively minimal benefits, so we chose not to implement it at this time. We will, of course, keep that under review though.

CBAM is a significant change that has been welcomed by many of the industries in the UK and should go a long way to levelling the playing field for those firms that are producing in these five sectors.

Roger Gale (Conservative, Herne Bay and Sandwich)

The Minister courteously indicated to me that he has another assignation in Westminster Hall. Exceptionally, I will allow him to leave now, although that is unusual in the middle of a series of decisions. The Minister may make his way out quietly.

While I am on my feet, the cold is getting to my brain, but we all know that the heating system is lamentable at the moment. I shall be in the Chair for the first part of this afternoon as well, so if hon. Members feel the need to wear something warmer, I regard personal comfort as more important than sartorial elegance. [Hon. Members: “Hear, hear!”] That is not an invitation to be outrageous—but please ensure that your personal comfort is given attention.

Clause 146 - Rate

Clause 148 - Administration and enforcement

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss the following:

Schedule 16.

Clause 149 stand part.

Schedule 17.

Lucy Rigby (Labour, Northampton North)

I appreciate your accommodation of the cold in the room, Sir Roger. I hope this afternoon proves that we can be both sartorially elegant and warm. Committee members may take their own view, but I look forward to this afternoon.

Clauses 148 and 149 and schedules 16 and 17 provide the administrative and enforcement framework necessary to ensure the effective operation of CBAM. They ensure that CBAM can be administered properly by HMRC, complied with by businesses, and enforced where necessary.

The clause introduces schedule 16, which makes detailed provision for the administration and enforcement of CBAM, including requirements for registration, accounting periods, CBAM returns, record keeping, payment deadlines, assessments, penalties and appeals. The schedule aligns CBAM administration with established HMRC processes where possible, helping to minimise additional burdens on businesses while ensuring robust compliance.

Clause 149 introduces schedule 17, which provides for criminal offences relating to CBAM. Those offences apply in serious cases, such as deliberate evasion or fraudulent behaviour, and mirror existing approaches taken elsewhere in the tax system. The inclusion of criminal offences ensures that appropriate deterrents are in place, protecting the integrity of the regime and ensuring a level playing field for compliant businesses.

Together, clauses 148 and 149 provide the necessary administrative and enforcement backbone for CBAM. They ensure that the regime is credible, enforceable and fair, while giving HMRC the tools it needs to administer CBAM effectively. I commend the clauses and schedules 16 and 17 to the Committee.

James Wild (Conservative, North West Norfolk)

We are sorry to see the Exchequer Secretary disappear. I hope that he comes back this afternoon for our further deliberations.

The clause introduces schedule 16, providing for the administration and enforcement of CBAM. They hand responsibility for managing this new carbon import charge to HMRC, and set out detailed compliance rules, including registration, accounting periods, returns, assessments and appeals. The schedule runs to 27 pages of text. Under these measures, any business importing CBAM goods worth more than £50,000 in a 12-month period, or expecting to reach that threshold within 30 days, must register, report each quarter and keep detailed records potentially for up to six years. HMRC will have wide discretion to make “best judgment” assessments and to counteract any artificial separation of business activities.

As I said in our debate on the previous group, this is a complicated set of rules, and compliance will not come cost-free, particularly for small and medium-sized importers who are already dealing with customs paperwork and supply chain reporting. What does the Treasury estimate the annual average administrative cost will be for a mid-sized importer in meeting these new regulations, with data-gathering, quarterly reporting and record-keeping obligations? How will that compare with the expected tax yield from the same group of businesses?

Clause 149 and schedule 17 would create a series of criminal offences under CBAM, including fraudulent evasion and deliberate mis-statements. Knowingly seeking to avoid the CBAM charge, such as by submitting false declarations or claiming improper reliefs, could attract penalties of up to 14 years’ imprisonment. That sends a serious signal that cheating will be treated as seriously as mainstream customs or excise fraud.

Will the Government commit to Law Officers publishing prosecutorial guidance to make clear the distinction between deliberate evasion and genuine error? Clearly, enforcement capacity will be crucial for these criminal offences. The TIIN shows an estimated cost of around £24 million for developing the new IT system for registering businesses and accounting for CBAM. Resource costs are estimated at £31 million. How will the Department ensure that those resources are effectively targeted? We will not oppose these clauses, but businesses need certainty that this will be a fair and workable system that does not add complexity that undermines competitiveness. Some reassurance on the compliance costs estimated by the Treasury would be welcome.

Joshua Reynolds (Liberal Democrat, Maidenhead)

The £50,000 threshold imposed as part of schedule 16 is incredibly low. It catches small construction firms importing tonnes of cement or steel, materials that could be consumed in one single medium-sized building project. The businesses importing such volumes will lack the resource of dedicated compliance teams and environmental consultants for quarterly emission verification. Meanwhile, large industrial importers, responsible for the vast majority of imported carbon emissions, face identical per unit compliance obligations, giving them a competitive advantage through their economies of scale.

CBAM introduces entirely new foreign concepts to normal commercial activities, such as calculating the emissions across international supply chains, determining whether carbon prices were paid in origin countries and applying complex fee allocation formulas. A family-run metalworking shop that has successfully filed VAT for 20 years must suddenly become an expert in lifetime emission methodologies and international carbon-pricing verifications. I do not believe that the Government have published any analysis comparing the £50,000 threshold to alternatives such £100,000 or £250,000 thresholds. I am interested to hear from the Minister what verification and changes have been made, and what assessment has been made of the compliance costs for various businesses.

Schedule 16 also introduces a £500 fixed penalty plus a £40 daily charge for failure to notify a change of circumstances, and a £500 penalty for record-keeping failures. While paragraph 40 of schedule 16 includes a reasonable excuse defence, HMRC interprets that quite narrowly as applying to circumstances such as illness, postal strikes or computer failures. The idea that the system or methodology was confusing or, “My supplier could not provide the data,” typically do not fall within the reasonable excuse defence.

The problem here is timings: the comprehensive penalties for CBAM take effect on 1 January 2027, so businesses navigating entirely unprecedented requirements are going to have a challenge. I note that the EU’s CBAM began with a transitional reporting period before enforcement ramped up, whereas the UK’s has no such mechanism.

These are not familiar tax concepts for lots of businesses. They involve new software, new tracking and international verification. These things have not been done in British business before, and I believe that small importers will face penalties while genuinely trying to comply with the regulations. The Liberal Democrats are not against the concept of a CBAM, but we take issue with the way that it has been put together.

Has the Minister considered a 12-month transitional period during which full penalties for deliberate avoidance are maintained but an allowance is given for honest compliance?

James Wild (Conservative, North West Norfolk)

I share the hon. Member’s concerns about the £50,000 threshold. Has he considered what might be a more appropriate level, in order to reduce the impact on smaller producers?

Joshua Reynolds (Liberal Democrat, Maidenhead)

The EU, for its CBAM, has not set a specific number in that way; it has set a number of tonnes of product. I would be interested to hear from the Government what work has been done to analyse the different impacts of £50,000, £100,000 and £250,000. The Treasury must have done some work on this, but I could not see any. We need the answer to that in order to find out where we stand.

Let me finish by saying that a transitional period may be quite beneficial. It would make sure that we are not setting our small and medium-sized enterprises up to fail and penalising them when they try to do the right thing but unfortunately, because of the complications in the system, they are unable to.

Lucy Rigby (Labour, Northampton North)

The shadow Exchequer Secretary’s points about the criminal offences are similar to some of the points that were raised earlier in relation to other criminal offences set out in the Bill. I made the point in relation to those other offences, and I make it again here, about the standards that the CPS, or indeed any other prosecutorial authority, has to meet in satisfying both the evidential test and the public interest test. I am not sure that I need to take up the invitation to liaise with the Law Officers in that regard.

Questions were fairly raised about proportionality and the burden on businesses. The UK CBAM will operate like a conventional tax, in order to simplify the administrative and compliance burden for those who need to comply without, we think, undermining the environmental integrity of CBAM. However, the Government recognise that alignment with existing regimes—the Liberal Democrat spokesperson, the hon. Member for Maidenhead, referred to the EU CBAM and, indeed, to the ETS—can reduce administrative burdens, so where possible we will align with and build upon existing methodologies for calculating embodied emissions, as well as rules for monitoring reporting and verification under the ETS.

As hon. Members know, CBAM is not expected to have significant macroeconomic impacts or a significant impact on prices for individuals, households and families. CBAM imports make up only around 1% of average UK industry input costs. Therefore, as the Exchequer Secretary said, the Government do not expect CBAM to have a material impact on food prices, and the impact on farmers would be modest.

On the Liberal Democrat spokesperson’s point about thresholds, the threshold will retain over 99% of CBAM imports while removing 80% of otherwise registrable businesses, and over 70% of those removed from CBAM altogether by the threshold will be micro, small and medium-sized businesses.

Clause 150 - Supplementary amendments

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss the following:

Schedule 18.

Clauses 151 to 155 stand part.

Lucy Rigby (Labour, Northampton North)

Clauses 150 to 155 and schedule 18 make the general, supplementary and commencement provisions for CBAM. They are designed to ensure that CBAM integrates properly with the wider statute book, operates coherently over time and comes into force as intended from 1 January 2027.

More specifically, clause 150 introduces schedule 18, which makes supplementary amendments to other legislation to ensure that CBAM operates consistently alongside existing customs and tax law.

Clauses 151 and 152 provide key definitions and interpretation provisions, including the meaning of “emissions”, “carbon dioxide equivalent”, “importer” and “CBAM good”. These clauses are designed to ensure clarity and legal certainty across the regime.

Clause 153 provides a power to make provision in relation to linked emissions trading schemes. This allows imported goods originating in countries with linked emissions trading scheme arrangements to be excluded from CBAM, reflecting international co-operation and avoiding unnecessary duplication.

Clause 154 sets out how regulations and notices under CBAM are to be made, including the applicable parliamentary procedures, to ensure appropriate scrutiny, with affirmative or made affirmative procedures applying where regulations have a significant impact.

Clause 155 provides for commencement and transitional arrangements. CBAM will apply to goods imported on or after 1 January 2027, with powers to smooth the transition during the initial years of operation.

In summary, clauses 150 to 155 and schedule 18 provide the essential supporting framework that allows for the effective functioning of CBAM, and I commend them to the Committee.

James Wild (Conservative, North West Norfolk)

We come to the final group on the carbon border adjustment mechanism. Clause 150, along with schedule 18, makes the technical but critical changes needed to fit CBAM into the UK’s existing tax and enforcement framework. These measures ensure that the new tax uses the same information gathering powers, collection mechanisms and penalties already in place. It is sensible to integrate CBAM in this way without creating a new process.

Clause 151 defines what we mean by “emissions” for CBAM purposes and firmly anchors the tax in the existing climate policy framework by adopting the definition in the Climate Change Act 2008. Greenhouse gas emissions will be measured in tonnes of carbon dioxide equivalent, which is sensible.

Clause 152 sets out the interpretive rules for part 5 of the Bill, working alongside clause 151 and schedule 16 to ensure that terminology throughout CBAM is coherent.

Clause 153 gives the Treasury the power to adjust CBAM if the UK’s emissions trading scheme is linked to another country’s carbon pricing system. The Minister touched on this briefly, but as I mentioned in the debate on an earlier group, in May the Government and the EU formally agreed to work towards linking their emissions trading systems to align carbon markets. I do not think the Exchequer Secretary responded to me on that point before he left the Committee. I am conscious that this is not the Minister’s portfolio, but can she give an update on where the EU-UK negotiations on the linkage have got to? This is a broad delegated power that could have real implications for competitiveness, trade and treatment of foreign carbon prices. We have expressed concerns previously about the linkage with the EU ETS and the higher charges that might hit UK businesses as a result. I would be grateful for an update on where the negotiations have got to—if they have actually started—and how the Treasury will ensure that there is proper consultation and debate before using the powers.

Clause 154 sets out how regulations and notices will be made under CBAM, clarifying when HMRC and the Treasury must use statutory instruments and which are subject to affirmative or negative procedures. Given the technical complexity of CBAM, some of which we have touched on, it is inevitable that much of the detail will sit within secondary legislation and guidance. Clarity is obviously key here. The Chartered Institute of Taxation has expressed disappointment that so much has been left to secondary legislation and guidance to address operational matters. That leaves businesses and advisers with uncertainty, less than 12 months before the implementation date. Will the Government commit to publish draft regulations and notices for consultation well before implementation? Obviously, businesses need time to test their systems and to comment on how workable these proposals will be in practice.

Clause 155 covers the commencement and transitional provisions. It confirms that CBAM will take effect from 1 January 2027—less than a year to go, as I said. Businesses have to design systems, gather emissions data from suppliers, train staff and, of course, integrate this new CBAM process into their existing customs processes. A clear start date is welcome, but timing matters, in order that we can ensure smooth operations. I was pleased to hear the Minister refer to smoothing the implementation. We will hold the Government to account to make sure that that is the impact.

Perhaps the Minister will reflect on the lessons that have been learned from the roll-out of the EU scheme. Will Ministers commit to regularly updating the House with assessments of how the system is working? I have not tabled a new clause seeking such a review, but hopefully Ministers will just agree to provide such information without the need for a legislative mechanism. As we know, all taxes are kept under review, so that should be easy to commit to.

Regulations are only as good as their implementation, and businesses, in particular smaller ones—the hon. Member for Maidenhead referred to the £50,000 threshold and how that could affect fairly small businesses—will want the guidance and practical support well before 1 January. I will be grateful for the Minister’s responses to the several questions I have raised.

Lucy Rigby (Labour, Northampton North)

The shadow Exchequer Secretary referred to some of the points agreed at the EU-UK summit last May. As he knows, the EU and the UK agreed to work towards linking our respective ETSs. He will not expect me to comment on ongoing negotiations, so I will not do that, but I will say that we are committed to working closely with all interested stakeholders, including international partners, through the CBAM policy design process and, of course, we consulted extensively on the design and implementation of this measure.

We have conducted information sessions at the World Trade Organisation and had extensive bilateral engagement with over 30 jurisdictions since announcing our intention to introduce a CBAM in December 2023. The UK will also engage through the UK CBAM international group, which serves as a forum through which the UK Government can understand the views of international partners and share updates.

The shadow Exchequer Secretary will forgive me for reiterating what I know he already knows, which is that all tax policy is kept under review. He rightly refers to our desire to smooth the transition—that is absolutely key. We will ensure that there is sufficient time built in to facilitate that smooth transition, and time to test systems as well.

Clause 156 - Prohibition of promotion of certain tax avoidance arrangements

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss clauses 157 to 162 stand part.

Lucy Rigby (Labour, Northampton North)

Clauses 156 to 162 introduce a new statutory prohibition on the promotion of tax avoidance arrangements. If you will forgive me, Sir Roger, I will set out a little more background on these clauses than I have on others, which I think is important.

HMRC already can and regularly does stop people promoting marketed avoidance schemes, where it can identify the person or company doing the promotion. However, the controlling minds behind avoidance schemes often simply close down the company they use to promote the scheme before promoting a very similar scheme from a new company with different directors—everyone will be familiar with that concept of phoenixing. HMRC needs to identify and issue a new stop notice to each new entity and, during that time, promoters continue to sell the scheme and cause harm to taxpayers and the UK tax system. This measure will prohibit certain tax avoidance schemes from being promoted without HMRC first having to notify promoters, and will put a stop to promoters playing a game of cat and mouse with HMRC.

These clauses are about targeting those who continue to promote tax avoidance. They are not intended to be directed against legitimate tax advisers who are operating to a high professional standard but, while acting in good faith, make genuine mistakes. Furthermore, the Exchequer Secretary has asked HMRC officials to work with stakeholders in developing published guidance to address the fine detail of exactly how the prohibition will work in practice.

I turn to the individual clauses. Clause 156 will prohibit the promotion of avoidance arrangements that have no realistic prospect of success, as well as enabling HMRC commissioners to prohibit further arrangements in regulations. Any arrangements specified must have been, or be likely to be, marketed to seek a particular tax advantage, unlikely to result in that tax advantage, and likely to cause harm to taxpayers.

Clause 157 provides for the definition of “promotion” of arrangements. It includes important exemptions, such as where goods and services are provided on commercial terms without the knowledge that they are being used to promote tax avoidance, or where legally privileged advice or information is provided.

Clause 158 requires regulations implementing this policy change to be subject to the made affirmative procedure. That will ensure that the regulations take effect immediately, protecting the Revenue and taxpayers, while also ensuring proper oversight by this House.

For anyone breaching the prohibition or the regulations, civil penalties may apply under clause 159, or a criminal offence under clause 160. Under clause 161, where a responsible person has led an entity or partnership to commit a criminal offence through their consent, connivance or neglect, that criminal offence will also apply to them. Clause 162 contains relevant definitions and commencement provisions.

In summary, this measure will allow HMRC to stop the promotion of tax avoidance and tackle the persistent group of promoters. It will ensure that taxpayers and the UK tax system are protected from the harm caused by these promoters.

Prohibition of promotion of certain tax avoidance arrangements

Roger Gale (Conservative, Herne Bay and Sandwich)

I remind the Committee that with this we are considering clauses 157 to 162 stand part.

Mark Garnier (Conservative, Wyre Forest)

Clauses 156 to 162 will place a statutory ban on promoting tax avoidance arrangements that have no realistic prospect of success. The clauses also set out the civil and criminal penalties.

The Opposition absolutely support the Government’s efforts to tackle tax avoidance and tax evasion, both of which are variations on a theme. It is important to remember exactly what they are. Tax planning is to be encouraged; tax evasion should lead to being sent to prison; and as for tax avoidance, we should try to persuade people not to use the letter of the law to avoid the spirit of the law in their tax planning. However, some concerns, which I hope the Minister can answer, have been raised with us about the clauses.

Clauses 157 and 162 define what is meant by “promotion”, as well as other key definitions that are applicable to these clauses. Those definitions are welcome, but the Chartered Institute of Taxation has flagged concerns about the wording. For example, the clauses use the terms “marketed” and “likely to be” marketed but never define what they mean. The intention to prevent ineffective tax avoidance arrangements at source is noble, but “likely to be” marketed is too loose. What evidence would constitute an arrangement being classed as likely to be marketed? What evidence would an adviser need in order to show that advice was not likely to be marketed? Clarity is needed because the provision, if left unchanged, could accidentally catch normal tax advice. Will the Minister therefore commit to tightening up the wording of the clauses and providing specific details, either before Report or in any follow-up regulations?

Secondly, how can the Government prove that someone is promoting arrangements that have “no realistic prospect” of success? Will it be for individual officers of His Majesty’s Revenue and Customs to determine, or will clarity be provided in the statutory instrument that will eventually follow? I ask because, as the Chartered Institute of Taxation points out, the term was not in the draft Finance Bill. Originally, the Government wanted to introduce a new criminal offence of failing to notify a tax avoidance arrangement under the rules on disclosure of tax avoidance schemes.

We welcome the fact that the Government have consulted and, following the responses from industry, have decided to change tack. However, the new terminology of “no realistic prospect” of success was first raised only on 12 November last year. That was followed by a consultation that the industry has described as

“very short, limited and confidential”.

Will the Minister and HMRC therefore consider running a more open consultation?

James Wild (Conservative, North West Norfolk)

I am grateful to my hon. Friend for taking us through these detailed and complex clauses. On the point about lack of consultation, does he agree that there would be merit in holding public hearings ahead of a Finance Bill’s consideration in Committee, rather than just receiving written briefings? If we had done so, our Committee could have interrogated the concerns that my hon. Friend is so ably setting out.

Mark Garnier (Conservative, Wyre Forest)

I wholeheartedly agree. The more we discuss it in public, the more the general public will realise that avoiding tax is a very bad thing. Anything that highlights that point is to be welcomed, so I strongly urge the Government to do the right thing so that we can make this prohibition work and protect advisers who may simply have made an error.

Clause 159 lays out the civil penalties, including a financial penalty of up to £1 million if the prohibition is breached. Additionally, it sets out an individual fine of £5,000 that can be issued for each person who has participated in the arrangements. We agree with the Government’s aim of creating a deterrent, but given how steep the sanctions are, there is a concern that the 30-day window for making representations is not enough of a safeguard. At the moment, that is the only recourse: a person cannot make a formal appeal to the tax tribunal.

Subsequent clauses, which the Committee will discuss later, include a “reasonable excuse” defence. Not having such a defence leaves open the possibility that the bad behaviour of one rogue actor will lead to the prosecution of the wider organisation. Will the Minister and her officials agree to take those points away and consider tabling a new clause on Report?

Joshua Reynolds (Liberal Democrat, Maidenhead)

This group of clauses establishes new criminal prohibitions on promoting tax avoidance arrangements. Clause 161 creates personal criminal liability for company directors, limited liability partnership members and shadow members. We of course support the Government in preventing tax avoidance measures, but we are concerned that some boundaries may not have been drawn correctly.

We support the idea that aggressive tax avoidance measures need to be prosecuted, but there is a question about the breadth of criminal liability and the absence of safeguards. Clause 161 extends personal criminal liability to directors, members and shadow members—individuals exercising informal influence, but without formal responsibilities—where an offence is committed with their consent or due to their negligence, but it creates some problems. The shadow member concept creates uncertainty, including about who exactly will fall in scope. If the neglect standard is brought, it could catch directors for oversight failures, rather than for active wrongdoing.

There is also limited guidance from His Majesty’s Revenue and Customs on how it will apply these sanctions in practice. Will it draw a distinction with deliberate promotion of aggressive schemes, or will it have a counteract for technical advice where boundaries were genuinely unclear? Will individuals be pursued proportionately, or will criminal sanctions be viewed optimistically? I would be interested to see whether the Government are willing to provide annual parliamentary reports on prosecutions—numbers commenced, convictions secured, categories of responsible persons prosecuted, and examples of conduct that does or does not meet the threshold.

The Liberal Democrats back strong action against tax avoidance promoters. These schemes undermine fairness in the tax base. However, criminal liability based on neglect is broad, and prosecutions could happen for oversight failures, rather than deliberate wrongdoing. The definition of shadow members also lacks clarity. I would welcome the Minister’s clarification on those points.

Lucy Rigby (Labour, Northampton North)

I welcome the support from the official Opposition and the Liberal Democrats for these measures. As I said—I will repeat it because we have all had lunch since—these clauses are about targeting those who continue to promote tax avoidance; they are very much not intended to be directed against legitimate tax advisers who operate to a high professional standard but who may, acting in good faith, make a genuine mistake.

Mark Garnier (Conservative, Wyre Forest)

I think we all agree with the sincerity of the intention, but the problem is that there is always a grey area at the boundary. The question is how we define that area so that we make certain that a legitimate person does not get wrongly drawn in, while a bad actor gets away with it.

Lucy Rigby (Labour, Northampton North)

The shadow City Minister gives voice to a legitimate concern, and I was about to come on to some of the ways we are tackling it. As I said before lunch, the Exchequer Secretary has asked HMRC officials to work with stakeholders in developing the fine detail everyone wants to see in the guidance on how this prohibition will work in practice.

The power in clause 156 will allow HMRC to make regulations only where arrangements have been or are likely to be marketed, where they are unlikely to work and where they are likely to cause harm to taxpayers. That limits HMRC’s scope to proscribe arrangements. The power is not at all intended so that HMRC can ban advisers from recommending tax positions they think are right, based on all the facts of the law, but with which HMRC disagrees.

On the consultation with industry, we have consulted extensively on these measures. What was originally described as the universal stop notice was introduced as part of a 12-week consultation by HMRC in March 2025. A further eight-week consultation was held on the draft legislation after it was published on L day. The initial consultation received 37 written responses from a range of stakeholders—primarily those in the tax and legal sectors—while a further 19 responses were received in response to the L day consultations. Importantly, three key changes were made in response to those stakeholder concerns, including the rule of law concerns given voice to by the Law Society regarding universal stop notices and giving HMRC legislative power that ultimately carries a criminal offence. That has evolved into the prohibition and the regulations that now require the approval of Parliament.

In the light of stakeholder concerns around the threshold to issue regulations, HMRC introduced the taxpayer harms test to limit what arrangements are caught by the measure, ensuring that legitimate advisers are not in scope of the measure. The marketing test was originally drafted as “could be marketed”, but following consultation it was amended to “likely to be”, precisely to narrow the power.

Martin Wrigley (Liberal Democrat, Newton Abbot)

I fully appreciate taking action against those who promote such schemes, but there is an inherent approach here that may be new. By prosecuting the person who promotes the scheme, are we turning those people who have taken advantage of the scheme into tax avoiders, or victims, or somewhere in between? Some of them may have been innocent recipients of the unlawful activity that we have identified.

Lucy Rigby (Labour, Northampton North)

The hon. Gentleman’s concern goes to the point that I have addressed twice now, once before lunch and once after. The measures are not intended to be directed at legitimate tax advisers who operate to a high standard but make a genuine mistake. By virtue of the consultations, the changes to the proposed legislation and the fact that detailed draft guidance will be issued, I hope that hon. Members will be comfortable with the intention behind the legislation and the impact that it will have.

James Wild (Conservative, North West Norfolk)

One of the points that the Chartered Institute of Taxation also raised is the difficulty of dealing with promoters who are based outside the UK. It says that 20 to 30 of the active promoters who sell mass-marketed tax avoidance schemes have some offshore presence. How will the measures address the offshore issue? I am sure that the Minister will also address the 30-day point that my hon. Friend the Member for Wyre Forest raised.

Lucy Rigby (Labour, Northampton North)

I will do exactly that, although hon. Members will have to forgive me because I do not have the notes in front of me. It is right to say that promoter action notices are legal notices that require businesses to stop providing goods or services where those services are used in the promotion of avoidance. Of course, such a notice can be issued only in the case of a breach of a stop notice or if the prohibition on promoting tax avoidance—also included in the Bill—also applies.

Clause 163 - Certification of promoters

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss clauses 164 to 173 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

These clauses introduce a power for HMRC to issue promoter action notices. As my hon. Friend the Economic Secretary outlined, these are another part of our toolkit in pursuing the promoters. The notices require businesses to stop providing goods or services where those services are used in the promotion of avoidance.

Clause 163 allows HMRC to certify promoters of tax arrangements where they have breached a stop notice or a prohibition on promoting certain tax arrangements. Clause 164 outlines the conditions for issuing a promoter action notice. Clause 165 provides powers for preliminary notices to be issued by HMRC. Clause 166 allows HMRC to disclose information relating to the promoter identified in a promoter action notice. Clause 167 allows recipients to appeal a promoter action notice on the grounds that they are not providing goods or services to the promoter and that those goods and services are not being used to promote tax avoidance.

Any recipient who does not comply with a promoter action notice may be subject to civil penalties under clause 168. The penalty is £1,000 per day. Where a penalty applies, under clause 169, HMRC may also publish information about the recipient that is viewable for 12 months. Under clause 170, information may be disclosed by HMRC to a regulator, a representative body or a trade body of the recipient where they have failed to comply. Clause 171 allows for the extension of time periods for complying with a promoter action notice. Clause 172 outlines what are not reasonable excuses for failing to comply, including insufficiency of funds, reliance on other persons and where legal advice is not full and accurate. Clause 173 contains relevant definitions of “arrangements”, “promotion” and “certified promoter”.

The powers will enable HMRC to sever promoters’ access to UK services. In doing so, they will protect taxpayers and the tax system from the harm of tax avoidance. I commend the clauses to the Committee.

Mark Garnier (Conservative, Wyre Forest)

We would all agree that there is certainly a need to enhance HMRC’s ability to catch promoters of tax avoidance schemes. According to HMRC, there is currently a tax gap of about £500 million related to marketed avoidance schemes sold to individuals. HMRC has identified approximately 20 to 30 active promoters responsible for that. It seems that clauses 163 to 173 would theoretically affect only those engaging in highly risky schemes that HMRC has already disapproved of.

We support the work of HMRC to protect the public from those groups and the overarching principles that drive these clauses but, on closer inspection, the scope of the proposals is wide. We have concerns that the proposals could inflict collateral damage on legitimate actors in the wider markets. Clause 163 outlines the process that HMRC undertakes to officially deem a person as a certified promoter. The big issue, however, is the difficulty of completing the process to officially certify what a promoter actually is. These promoters can be notoriously difficult to catch because some of them are based offshore and hide behind complex corporate structures, so although we support the purpose of clause 163, we are not entirely certain that it will achieve its intended result of tackling promoters offshore.

Clause 164 has the same problem: it outlines how HMRC will require people who engage with promoters to disengage by issuing them with a promoter action notice. Will the Minister outline whether the Government are considering further steps to make the clauses enforceable? What steps are being taken with other countries to catch promoters not residing in but operating in the UK? That is an important point.

Clause 165 is about the notification of a personal business that HMRC reasonably suspects is enabling a promoter. It is sensible to have that soft approach—to be followed, if necessary, by harder enforcement action later in the process. Our concern, however, is about the chilling effect that a preliminary notice might have on a legitimate actor. Once a recipient receives a preliminary notice, they may choose to pre-emptively sever ties with somebody whom HMRC has flagged as a suspected promoter, despite the fact that a preliminary notice is based on suspicion and is not an official conclusion. That means that preliminary notices will require a lower threshold of evidence in comparison with a promoter action notice, with no judicial oversight. In its technical consultation last year, UK Finance raised the fact that that could affect financial institutions as well.

Clause 166 is similar. It specifies the information that an authorised HMRC officer and recipient of a preliminary notice or promoter action notice can disclose. Following the issuance of a notice, the investigation process keeps a suspected promoter completely unaware. That potential overreach could have chilling effects on people whom HMRC merely suspects. As clause 165 states, a person may sever ties with an entity being investigated even if that entity is only under suspicion. I encourage the Minister and officials to consider the safeguards that can protect legitimate actors from that prospect.

James Wild (Conservative, North West Norfolk)

Clause 165, which deals with the preliminary notice, allows a 30-day period in which to make representations to HMRC. Does my hon. Friend have sympathy with the view put forward by the Chartered Institute of Taxation, which says that that period is inadequate? A 90-day period is used for similar notices, such as follower notices or accelerated payment notices.

Mark Garnier (Conservative, Wyre Forest)

I agree. At the end of the day, we want to nail down people who have promoted those dodgy things, but at the same time we are a country with justice. If it takes more than 30 days on a regular basis to respond to such things, it is absolutely right that we would have longer time in order to help—but as with all such things, it is always a fine balance.

Clause 167 outlines the appeal process for people who receive a promoter action notice. Under the clause, the recipient can only appeal if they are not providing a critical service to the promoter specified, or the goods and services are not being used wholly or partly for the promoter’s avoidance arrangements. The Association of Taxation Technicians has outlined the unfairness of that, given that promoters are able to challenge HMRC’s core allegations at a tribunal. Recipients, on the other hand, will only be able to address the technicalities of the arrangements, with no opportunity to have the wider picture taken into consideration. The recipient may just be an unwitting enabler, unable fully to appeal the notice. Therefore, will the Minister again outline how the Government will ensure that individuals can appeal against the notices?

Clause 168 outlines the civil penalty regime. Under the Government proposals, the recipient of a promoter action notice will be required to pay £1,000 per day for non-compliance. A recipient of a promoter action notice may challenge that at a tribunal, which is good. However, there is no suspension period provision. Should a recipient challenge HMRC at a tribunal, the penalty of £1,000 per day will still apply as the tribunal considers the appeal. As the Association of Chartered Certified Accountants pointed out, the first-tier tribunal can take a significant amount of time. Therefore, is the Minister certain that HMRC has the resources to compensate for the increased workload? Will he consider implementing a suspension period provision? At the end of the day, if that drags on for too long, a provider could be put in financial jeopardy of business failure.

Finally, clause 170 sets out when HMRC can report a recipient of a promoter action notice to a regulator, representative or trade body. I agree that regulators, and representative and trade bodies should be involved in the informative process, as their integrity and reputation could be at stake, too. However, the clause echoes similar concerns of mine regarding clauses 167 to 169. It means that reporting a recipient to the regulator in combination with publishing recipient details, as well as applying civil penalties, would all run concurrently before the recipient has even had a chance to reach a tribunal. Again, will the Minister outline what discussions have been had to ensure that there is not excessive duplication?

Joshua Reynolds (Liberal Democrat, Maidenhead)

As we have heard, many of the promoters operate offshore. How will the Government take action against those offshore promoters? Could a UK-based promoter move offshore to continue to do business as a way to get around the Bill? If it could not, will the Minister point me to which part of the Bill stops the promoter from being able to do so? If we are talking about a small number of promotors with this group of clauses, does the Minister know how many of the promotors operate offshore and with complex ownership structures? How much of the money that we want to be able to claim back under the clauses would not be achievable because of the offshore companies?

Dan Tomlinson (Labour, Chipping Barnet)

The clause is a key one for going after promoters based offshore, to go to the points made in the debate so far. The Committee is right that it is tricky to go after those based overseas. That is why HMRC is taking this new approach with the promoter action notices, which sever the ability of promoters based overseas to have interactions and dealings with companies based in the UK. The Tax Policy Associates stated:

“This is important; promoters have, for some time, been using offshore entities to make it harder for HMRC to take action against them. However any business targeting UK clients is inevitably going to rely on banks, social media etc in the UK—so it makes sense to enable HMRC to target.”

That is part of what the clause is trying to do.

James Wild (Conservative, North West Norfolk)

Is the Minister indicating that such people will be blocked from using the banking system in the UK if they are served with one of the notices? Where is that? I cannot see that in the clauses. Could those people simply ignore the notice and ignore any fines?

Dan Tomlinson (Labour, Chipping Barnet)

One of the big challenges with these promoters is that, although HMRC often finds different routes to go after them, their non-compliance and the fact they are based overseas make effective enforcement difficult. I am aware of that, and I am sure that the hon. Gentleman and other Opposition Members were aware of it when they were in government. It is frustrating and difficult to go after promoters. This measure seeks to find a new way to restrict their ability to engage with products and services based in the UK, because it is only through those that they will be able to reach people in the UK in the promotion of the schemes.

The shadow City Minister, the hon. Member for Wyre Forest, asked about HMRC workload. This is a good point, and one that I will focus on with officials and happily discuss in advance of the Budget. One of the big decisions that this Government have made is to increase the number of enforcement and compliance officers in HMRC—by, I believe, 5,500. Broadly, we are making that possible by reducing the number of HMRC customer services staff, because we are asking customers more generally to go online. We are targeting 90% online or digital interaction, so that we can save money for the taxpayer by having better, more streamlined interactions online, and then use some of that resource to more effectively resource our compliance unit. The matter of workload is important for me to consider closely, as the Minister with responsibility for HMRC, and the hon. Member is right to raise it.

We will keep working with international partners to explore how best to co-operate with other authorities to ensure that these proposals, existing powers and any further powers that the Government may consider in the future can effectively tackle promoters based overseas.

Opposition Members also raised the issue of appeals. It is important to note that promoter action notices are issued only towards the end of the line. Promoters can be issued them only when HMRC has certified that they have breached a stop notice, which is a serious thing, or the prohibition of the promotion of certain tax avoidance arrangements. Breaching either of those amounts to a criminal offence, so it is a serious step to have reached. Promoters will have the right to provide representations to HMRC as part of that process.

The hon. Member for Wyre Forest spoke about initial notices under clause 165. That is part of the process of making sure that we are engaging and collaborating with businesses so that we can agree the actions they may be required to take under a promotion action notice. He also raised the issue of what happens if businesses go further than HMRC’s request and end up severing all ties with promoters. HMRC will specify the actions that need to be taken, but businesses may want to go further, at their own discretion and within the law. It will be up to them to do so. HMRC will not prescribe what more actions businesses may wish to take; what they must do will be tightly defined in the notices themselves.

Clause 174 - Connected persons

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss clauses 175 to 185 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

These clauses introduce new powers for HMRC to issue anti-avoidance information notices. The measures are designed to strengthen HMRC’s ability to tackle the persistent problem of tax avoidance by promoters who exploit loopholes and hide behind complex structures.

Clauses 174 and 175 define key terms such as “connected person” and list the anti-avoidance enactments that the powers set out in these clauses support. Clauses 176 to 180 empower HMRC to issue information notices to connected persons suspected of involvement, third parties holding relevant information and financial institutions to access banking data, subject to tribunal approval.

Clauses 181 and 182 require that notices must clearly state what information is required and allow a reasonable time to comply. Clauses 183 to 185 set out that certain information cannot be requested, such as legally privileged material. Tribunal approval is required for sensitive notices, ensuring proportionality and oversight. HMRC can withdraw notices when it is appropriate to do so.

These powers will expand HMRC’s ability to assess compliance with obligations under HMRC’s powers, and effectively investigate those who own and control promoter organisations. In doing so, I hope that they will protect taxpayers and the system from the harm of tax avoidance.

Mark Garnier (Conservative, Wyre Forest)

Clauses 174 to 185 relate to anti-avoidance information notices. They also provide that they can be issued to connected persons, third parties and financial institutions. The make mostly technical amendments, but there are two technical amendments that we believe are missing from this grouping. Rather than go through every clause, I will concentrate on two.

First, clause 182 restricts how recipients may disclose or publicise anti-avoidance notices. We follow the logic of this clause, as one would want to prevent people who receive a notice from tipping off the promoters or specified persons being investigated. However, what we would not want is for recipients of a notice, who often will not be the main targets of HMRC, to be prevented from accessing professional or legal advice. The wording of the clause, whether that be the title or the text, insinuates that this is not an option that is available. Therefore, we feel that clarity is required from the Government.

The Chartered Institute of Taxation recommends adding the words:

“making representations against the notice”

to clause 182(2). This is a sensible recommendation, and I hope that the Minister will see it as such and commit to looking at adding these words before the Bill returns on Report.

The other issue that has been raised with us is regarding clause 183. This clause sets out which categories of information cannot be required under anti-avoidance notices. More simply, this means that material that may be legally privileged between a lawyer and a client would be exempt from these notices. That is important, and we are not arguing that the Government should remove that exemption. However, the point has been made to us by industry bodies that legal professional privilege does not extend to advice provided by tax advisers or accountants. The Economic Secretary to the Treasury, who is the expert on the Government Benches, looks up and—I hope—understands that point.

That is despite the fact that a person would ask for advice on tax policy from an adviser or an accountant in the same manner that a person would ask for legal advice from a lawyer. Again, we understand that this clause is about tackling tax avoidance and the promoters of it. However, without additional exemptions it could result in people or entities being disincentivised from seeking advice from tax advisers or accountants based in the UK.

Therefore, I would be grateful if the Minister could set out the rationale to protect legally privileged material but to exclude other types of advice from the list of exemptions, and to say whether the Government would consider—again—introducing changes to this clause to level the playing field.

Dan Tomlinson (Labour, Chipping Barnet)

Clause 182(2) sets out:

“A requirement under subsection (1)(d) may not prohibit disclosure for, or in connection with, the purpose of—

(a) complying with the notice, or

(b) seeking legal advice.”

It is the Government’s view that that provides sufficient scope for the recipient to be able to disclose information for legal advice, in line with the points that the shadow City Minister makes. I am of course happy to consider his recommendations. However, I do not want to disappoint him. I do not expect that the Government will introduce an amendment to the clause, because we think that the clause is already sufficient. Nevertheless, I will take away the points that he has made and consider them in my heart.

Clause 186 - Offence of failing to comply with a notice

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss clauses 187 to 205 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

These clauses cover the same topic—anti-avoidance information notices—as the previous ones. Clauses 186 to 190 set out that failing to comply or concealing information is a criminal offence, with a maximum penalty of up to two years’ imprisonment or a fine. Responsible persons—for example, directors—can be prosecuted if offences occur with their consent or neglect.

Clauses 191 to 196 set out the civil penalties that apply for non-compliance. The penalty for failure to comply is up to £5,000 or £300 for financial institutions. For concealing information, the penalty is up to £20,000. For inaccurate information, it is up to £20,000 per inaccuracy, and for breaching disclosure restrictions it is up to £10,000. Daily penalties for ongoing non-compliance will also apply, plus penalties based on moneys received in connection with avoidance schemes.

Clauses 197 to 199 set out safeguards, which include reasonable excuse provisions, and double jeopardy protection, which means that no penalty will be incurred if a person is already convicted. Clauses 200 to 202 set out that appeals are allowed against notices and penalties, except where tribunal approval was given. Clauses 203 to 205 provide clarification on various interpretations of terminologies, application of the provisions of the Taxes Management Act 1970 and repeals of existing legislation. I commend clauses 186 to 205 to the Committee.

Mark Garnier (Conservative, Wyre Forest)

I thank the Minister for explaining what the clauses are all about. We are slightly worried about what they do not set out, which is the threshold for HMRC to pursue a criminal conviction that would result in a prison sentence. Prison sentences should be reserved for the most serious breaches. I would be grateful if the Minister could provide more clarity in any correspondence that may be published.

Clauses 191 to 196 set out the civil sanctions for non-compliance with an anti-avoidance information notice. As we heard, the sanctions will consistently apply a fine of up to £5,000 for a breach, as well as daily penalties for continued breaches. Additionally, clause 196 allows for the daily penalty to be increased if the person continues to offend for more than 30 days since the original notice.

Overall, these are important deterrents and strong sanctions to ensure that bad actors pay the price. At the same time, they seem to be fairly balanced with the safeguards in clauses 197 to 206. We are therefore generally content with the drive and execution of these clauses.

Dan Tomlinson (Labour, Chipping Barnet)

As is the case with other items in this part of the Bill, we consulted extensively on these notices, with a 12-week consultation earlier in the year and a further eight-week consultation on the draft legislation when it was published. We received lots of responses and we made sure to listen to and reflect on the feedback.

On prosecution, as well as the standards and safeguards set out in the Bill, for a prosecution to be brought against anyone it also has to meet the evidential tests and the public interest tests, which are set out more broadly in line with the code for Crown prosecutors. I hope that provides reassurance that although this does not stand part of the usual ways in which we ensure proper safeguards in our legal system, any prosecutions would of course be subject to the evidential and public interest tests.

Clause 206 - Declaration in relation to privileged material

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss clauses 207 to 212 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

Clauses 206 to 212 make changes to ensure that HMRC can publish the details of legal professionals involved in designing tax avoidance schemes. A very small number of legal professionals have become involved in the promotion of tax avoidance schemes. They are sometimes involved in designing schemes, including by providing questionable legal advice to promoters of the scheme on the scheme’s efficacy. That legal advice can sometimes be used to help market the scheme to taxpayers, as it is held up as showing that the scheme works and is above board. In reality, however, these schemes rarely work and the scheme users end up footing an unexpected tax bill.

Although existing legislation allows HMRC to publish the details of some legal professionals, HMRC cannot do so when the legal professional’s role is limited to activity subject to legal professional privilege. That prohibits HMRC from publishing the details of legal professionals who design schemes but do no more than that. These clauses amend the publishing legislation to allow HMRC to publish the details of legal professionals in those circumstances.

Mark Garnier (Conservative, Wyre Forest)

Clauses 206 to 212 introduce measures to address the involvement of some legal professionals in tax avoidance schemes, and I reassure the Minister that we support what the clauses look to achieve.

Clause 206 allows lawyers to make a formal declaration of material protected by legal professional privilege that may support HMRC’s investigations. That means that the vast majority of lawyers will be able to flag concerns and demonstrate compliance with HMRC without breaking that privilege.

At the same time, clause 207 introduces a penalty of £10,000 for a lawyer who makes a deliberately false declaration in an effort to cover their involvement in the promotion or marketing of tax avoidance, although I cannot imagine a situation where a lawyer would do anything that was not 100% honest.

The clauses work well together, and there is widespread agreement from those in industry about the positivity of the changes. We certainly agree with industry that these are good measures.

Clause 213 - Penalties for non-disclosure of tax avoidance schemes

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss clauses 214 to 216 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

Clauses 213 to 216 make changes to the disclosure of tax avoidance schemes—DOTAS—and the disclosure of tax avoidance schemes for VAT and other indirect taxes regimes. The clauses grant HMRC the authority to assess penalties directly, rather than requiring an application to the tax tribunal for determination.

At present, HMRC must apply to the tribunal to determine penalties where failures in either regime have occurred. That is slowing down the process of assessing and issuing penalties, which are therefore not providing as much of a deterrent to promoters as they could. The mechanism for determining penalties is out of date in comparison with other HMRC powers under other regimes. Additionally, DOTAS regimes currently allow HMRC to publish only certain information for 12 months. Again, that is out of step with HMRC’s other publishing powers, which permit information to be published for as long as appropriate.

Clause 217 - Construction industry scheme: amendments

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss clauses 218 and 219 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

Clauses 217 to 219 make changes to tackle fraud in the construction industry scheme and support the Government’s objective of closing the tax gap, tackling non-compliance and making the tax system fairer. The construction industry scheme is a revenue protection scheme introduced in 1971 to tackle non-compliance in the construction sector, which has a large proportion of mobile workers. The scheme collects approximately £9 billion of deductions each year. Recent reforms are helping HMRC to tackle fraud and non-compliance within the scheme. However, serious non-compliance, including sophisticated fraud by criminals, continues to develop and remains a significant risk.

A core feature of the scheme is that contractors must make deductions on payments to subcontractors and pay the amount withheld to HMRC, in a similar way to an employer. However, subcontractors that apply for and obtain gross payment status can receive payments from their contractor’s gross; that is, with no deduction on account of tax by the contractor. Gross payment status is seen as the gold standard in the construction industry, with many large clients and contractors engaging only with subcontractors that hold it.

HMRC’s impact on supply chain fraud has been limited by businesses within supply chains that hold gross payment status knowingly acting as buffers between compliant businesses and fraudulent businesses that steal workers’ deductions. The changes introduced today aim to have a lasting and positive impact on supply chain fraud. They allow HMRC to disrupt this model and will deter businesses from engaging with fraudulent businesses or turning a blind eye when there are clear signs of fraud. The changes will also tackle an emerging fraud model that uses construction industry scheme credits to reduce pay-as-you-earn liabilities and create repayments.

These clauses protect the Exchequer from serious non-compliance, prevent large sums of money from going to organised criminal gangs and create a level playing field for those operating in the construction industry. I therefore commend them to the Committee.

Mark Garnier (Conservative, Wyre Forest)

As with earlier clauses, we agree with these measures, which will help to streamline the process and allow HMRC to quickly cancel benefits such as gross payment status where there is deliberate non-compliance or fraud. That will allow the authorities to stay ahead of bad actors and ultimately protect taxpayers’ money. We broadly welcome the thrust of these measures.

I have one or two questions. There is a lack of clarity that needs addressing, and I would welcome the Minister’s comments on it. The clauses allow HMRC to remove gross payment status from parties that

“knew or should have known”

of inaccuracies with the CIS that were being carried out by another party. In the same vein as my earlier comments on the terminology “likely to be” marketed, the words “should have known” extend the liability beyond deliberate fraud.

We recognise that, in this instance, the terminology follows European Court of Justice and High Court judgments that established the Kittel principle, which means that a business that “should have known” is aiding the perpetrators of fraud and is effectively an accomplice. However, there is no concrete definition of this term, and by extension there is a lack of clarity for innocent parties that make genuine errors.

Getting this wrong could result in significant cash-flow issues, contract terminations and reputational damage for subcontractors, so we need to be sure the provision is airtight. Will the Minister commit to looking at this point again and providing the clarity that industry is asking for? If not, it would be useful to understand how HMRC proposes to ensure that mistakes are not made in decision making and whether it intends to publish any corresponding guidance for businesses and interested parties.

Dan Tomlinson (Labour, Chipping Barnet)

The shadow City Minister is right to raise that important point on this and other issues in this space. It is important that businesses that are acting legitimately and seeking to build the future of this country by engaging with construction contractors and subcontractors are not unduly burdened by changes we make to improve the effectiveness of this scheme and minimise fraud, which sadly persists in the construction sector.

The Government’s view is that compliant businesses should not be affected by these changes, as they will already be undertaking the due diligence necessary to prevent them from engaging with fraudulent businesses. These changes are focused on tackling supply chain fraud, which relies on businesses entering into transactions they know are connected to fraudulent behaviour or where there is no reasonable explanation for the transaction, other than it being connected to fraud.

Clause 220 - Prohibition against unregistered tax advisers interacting with HMRC

Roger Gale (Conservative, Herne Bay and Sandwich)

With this it will be convenient to discuss the following:

Schedule 19.

Clauses 221 to 224 stand part.

Government amendments 16 to 19, 39 and 40.

Clauses 225 to 229 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

The hon. Member for North West Norfolk will be glad to know that I plan to make a lengthy speech on this group, because it is particularly important that I set out the points the Government wish to make. I have been engaging in detail with stakeholders on the changes we are making, because it is important that legitimate and good tax advisers see that the Government have confidence in them and the work they are doing.

Martin Wrigley (Liberal Democrat, Newton Abbot)

I take the Minister’s point that HMRC is not a regulator that looks at the quality of tax advice; however, it has every other aspect of a regulator that one might find. I used to work for a regulator in telecoms, and some of the powers in these measures are exactly what we had in that regulator. It is a regulator; although it does not regulate the quality of the advice, it still penalises. However, it has none of the mitigation factors that come with a regulator—the ability to appeal and to ensure that decisions that are being made are reasonable.

Dan Tomlinson (Labour, Chipping Barnet)

I respectfully disagree. The Government are not seeking to regulate tax advisers. The hon. Gentleman makes the point that we will not review the quality of advice provided, but we also will not be stepping in to certify qualifications or professional conduct more broadly. The Government have been listening to and engaging with the sector on these measures in recent months—indeed, I believe, over a long period—to make sure minimum standards are set out in the standards for agents. We want to ensure that there is a floor within the system so that agents meet minimum standards. That is important so that those who assist taxpayers with their tax affairs are themselves compliant.

Clauses 224 to 226 establish registration conditions. At registration, tax advisers will be asked to confirm they understand and will meet HMRC’s standards for agents. Currently, if HMRC concludes that an adviser has significantly breached the standards for agents, it can refuse to interact with that adviser. In line with that, as a result of these clauses, a serious breach would result in the adviser’s registration being suspended—that is not the case for a minor breach. As part of the registration process, HMRC will also verify that tax advisers and relevant individuals do not have any outstanding tax liabilities before permitting registration.

Clause 227 sets out the process for approval of registration applications and how tax advisers will be notified. Clause 228 allows HMRC to request information from registered tax advisers to monitor their compliance with the requirements. Clause 229 sets out that HMRC may, by notice, suspend the registration of a registered tax adviser if it is not satisfied that the adviser meets the registration conditions.

To ensure powers and sanctions are targeted appropriately, the legislation includes robust safeguards that must be applied to any decision on whether to suspend registration, including the right to appeal to a tribunal. HMRC will suspend a tax adviser only after due process, including offering opportunities to comply and a chance for the adviser to explain whether there is a good reason why they are unable to do so. HMRC will not use these powers for minor breaches.

Government amendments 16 to 19, 39 and 40 are simple amendments to correct the drafting and ensure that the legislation works as intended. The legislation allows HMRC to suspend advisers for 12 months when they have been sanctioned for anti-avoidance infractions, and it allows the suspension of advisers who have been issued with penalties under two information-gathering regimes. Following discussions with stakeholders, the Government have concluded that it is not proportionate to treat non-compliance with these regimes differently from non-compliance with other information-gathering regimes.

I therefore commend clauses 220 to 229, schedule 19 and Government amendments 16 to 19, 39 and 40 to the Committee.

Mark Garnier (Conservative, Wyre Forest)

Welcome to your position, Mrs Harris. I hope you will indulge me a little if I go back into some of the history of this place.

I have been here for 15 years, which I think is greater than the collective experience of most members of this Committee, although that is not something to brag about. However, we sometimes forget the lessons from history. Back in 2011 and 2012, when I was a newly elected MP, we started looking at the retail distribution review. The Financial Conduct Authority felt strongly that people needed better advice from their wealth managers, and the retail distribution review was brought in to do a number of different things.

One of the things the review did was require wealth managers to have proper qualifications, which is not an unreasonable proposition. Slightly more controversially, it also resulted in wealth managers potentially having unlimited liability, to the end of their life, if they messed up, which was a bit of a problem.

A third measure was about the compensation of wealth managers. At the time, wealth managers were paid a commission by the providers of the products they sold. That was changed to a fee-based system, where somebody seeking the services of a wealth manager would not potentially be ripped off as a result of commissions being paid, and we would therefore have a level playing field.

To the Financial Conduct Authority that seemed like a very good idea at the time. Prior to 1 January 2013, when the recommendations of the retail distribution review came into force, about 50% or more of the population had access to wealth managers; today, just 9% do. That is a direct result, because it is more complicated and more difficult to operate in the wealth management arena. The net result has been a very significant drop-off in the number of people receiving advice, and a very significant drop-off in the number of people putting money into pensions, as we discussed in consideration of the Pension Schemes Bill. People are less prepared for their future, have less money put away for savings, and are generally more vulnerable: that is a direct result of a well-intentioned piece of legislation from an FCA review that started in 2006 and was delivered in 2013. The Opposition are worried that one or two unintended consequences may come from the measures in clauses 220 to 229.

Clause 220 introduces a new requirement for all tax advisers to register with HMRC if they want to interact with it. If the tax adviser remains unregistered, they will be prohibited from interacting with HMRC and could face a sanction if they do. Clause 221 clarifies what is meant by a “tax adviser” and a “client”. Most people agree with the policy that those who interact with HMRC, on behalf of a client, should be registered and meet certain standards; that is not an unreasonable proposition. Organisations such as the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales have shown support for the measure.

However, there is a concern that this legislation is focused solely on interacting with HMRC, so keeps a significant section of the tax advice market out of scope. As the trade bodies point out, it is those who fall outside the scope of the measures who are historically responsible for some of the most egregious harm. Therefore, the agreed-upon ambition to raise standards will not really be met. Instead, the costs, burdens, risks and practical difficulties will be placed on more reputable tax advisers, naturally distorting the market further in favour of the less reputable tax advisers, who will find it easier to operate. So, it is suggested that there needs to be a renewed focus that will actually catch the bad actors.

Will the Minister provide details of any planned and targeted action on that less reputable group? The industry is also calling for the Treasury to commit to review the impact of the introduction of a tax advisers register and of the prohibition on unregistered advisers interacting with HMRC. We think that such a review would be sensible, for a couple of reasons. It would ensure that HMRC is using those powers reasonably and proportionately. It would also set out the impact to the cost and availability of tax advice, and show whether we are continuing in the wrong direction. I recognise that the Minister may not be able to commit to such a review now, but will he commit to assessing that proposal and writing to the Committee before the Bill is considered on Report?

Clauses 222 to 227 are more focused on the application process for the tax adviser to register with HMRC, including the conditions that would disqualify them from registration and, in the case of an organisation, how many and which relevant individuals must be registered. The Opposition welcome the details in the clauses, but they feel a bit incomplete. Clause 224(2) requires a tax adviser and each relevant individual to pay their own tax and submit their own returns on time. That is perfectly reasonable. However, clause 224 does not contain sufficient safeguards, nor a reasonable excuse defence for late filing or minor underpayment from a person. Under the Bill as drafted, a tax adviser could be suspended under clause 229 for owing just £1 in tax. HMRC has told the industry that these powers will be used only in the most serious cases, and where it is in the public interest, so I believe that to be the intention, but without that being explicitly written into the Bill, ambiguity will remain around that point. The provisions also do not prevent HMRC from extending the powers to more minor cases in future. Will the Minister outline why such safeguards are not in this version of the Bill, and whether he will consider adding them, given that they exist in other parts of the Bill?

Clauses 228 and 229 concern the monitoring of registration conditions and suspension of registration. It is safe to say that clause 229 has caused significant concern to industry, for a couple of reasons. First, clients could be detrimentally impacted through no fault of their own. This is where it would be useful to extend the “reasonable excuse” defence to clients, should their return or tax be filed late due to their tax adviser being suspended close to the deadline. Could the Minister clarify how an innocent client will be protected when their tax adviser is suspended at late notice?

There are also questions about whether an authorised officer should have the power to suspend the tax adviser’s registration. We recognise that this is to help speed up the HMRC process, but a suspension is a significant step and should require a significant level of clearance. Again, could the Minister outline in more detail why the Government have made this decision, and whether they would consider only allowing the suspension power to the commissioners?

Finally, these clauses do not put the suspension on hold until the review or appeal has concluded. There are measures to allow for temporary relief of suspension. However, the Chartered Institute of Taxation has said that,

“the temporary relief provisions are at best difficult to navigate, and in some cases not available.”

That means that firms could be suspended and forced to stop advising clients, only for their suspension decision to be later overturned. We all acknowledge that we need to tackle rogue advisers in a prompt and effective manner, but this is a balancing act, and we should ensure that good, reputable advisers have clarity about processes. If we do not, we run the risk of driving down accessibility to financial advice on issues of tax while driving up costs.

I should be grateful if the Minister would commit to two actions: first, requiring HMRC to publish guidance for tax advisers and relevant individuals about navigating the suspension process; and secondly, writing to the Committee about removing the temporary relief from suspension and replacing it with an automatic pause for suspension while a review or appeal is ongoing.

Joshua Reynolds (Liberal Democrat, Maidenhead)

It is a pleasure to serve with you in the Chair this afternoon, Mrs Harris.

The Minister says that HMRC will not use its powers for minor breaches; but Opposition Members are concerned, because we cannot see that backed up in the Bill. The ICAEW has called these clauses “existential” for adviser firms, and I ask the Minister to comment as to why the ICAEW uses those words when it comes to these clauses.

We have heard about sanctions, and I think the words “reasonably” and “proportionately” are the words that should be used when we are talking about these clauses. Suspension of a reputable firm could force that firm to cease trading, only for the decision to be overturned a few days later because it was a genuine mistake. That would be putting good businesses and good advisers out of business—perhaps even, as we have heard, for £1. Clause 224(2) establishes that to first register, the adviser and all their relevant individuals must not have a “relevant amount overdue” to HMRC. The relevant amount is then defined very broadly to include any UK tax, national insurance contribution, devolved taxes or civil penalties—not even £1 of interest. That means that if a tax adviser makes an individual mistake with £1 of liability due, under this Bill they are due to be suspended.

I think the Minister would struggle to say that £1 of liability meaning suspension and the closing of your firm was reasonable or proportionate. I have not tabled an amendment because I believe that we should be able to adopt this and hope that this ends in an agreement. However, I would like to see the Minister consider a statutory proportionality test to HMRC for the suspension powers, because these business-ending sanctions need proportionality. The idea that a £1 mistake could cost someone their livelihood and their family their home is not proportionate in any way.

Dan Tomlinson (Labour, Chipping Barnet)

I was just enjoying leafing through the Bill. Opposition Members raise a reasonable point. I want to offer reassurance that HMRC will suspend an adviser only after due process has been followed, including offering opportunities to comply and a chance for the adviser to explain if there is a good reason why they are unable to do so. I think that is reasonable and proportionate. We also need to ensure, as I said earlier, that we have a floor in the system, so that those who do not meet the standards—and who breach them in a serious way—are unable to remain registered, and, as we shall discuss later, are not able to continue to interact with HMRC.

The Liberal Democrat spokesperson mentioned the ICAEW’s views on the topic. I have been engaging with the ICAEW, and my officials have also had meetings with it over the course of many months. We have come forward with a Bill that we think is proportionate and gets the balance right. I look forward to continuing to engage with the ICAEW in the months ahead.

Joshua Reynolds (Liberal Democrat, Maidenhead)

Clause 229(1) says:

“An authorised officer of Revenue and Customs may, by notice, suspend the registration of a registered tax adviser if the officer is not satisfied that the adviser meets the registration conditions.”

In clause 224, the registration criteria are clear that any moneys owed to HMRC would not meet the criteria. By definition, from clauses 229 and 224, any moneys owed to HMRC could result in a suspension. I cannot see anything in the rest of clause 229 that would counteract that. Can the Minister point out where that might be?

Dan Tomlinson (Labour, Chipping Barnet)

All I can say to the hon. Member is that HMRC will suspend a tax adviser only after due process, including after offering opportunities to comply and a chance for the adviser to explain if there was a good reason why they were unable to do so.

The shadow Minister, the hon. Member for Wyre Forest, raised the point around the impact on tax advisers, and whether it would make it more expensive or burdensome for them to have to register in this way. It is worth noting that HMRC will not be charging for registration, and many tax advisers will already have an agent services account. Those that do will be moved automatically on to the new system, and will not have to re-register. HMRC will use automatic checks to ensure that the process is as quick and easy as possible for applicants.

Mark Garnier (Conservative, Wyre Forest)

The Minister is being very indulgent. The Liberal Democrats and I are probably as one on this point. The reason it is incredibly important that we get this right, and the reason I brought up the retail distribution review, is that there can be unintended consequences. We should remind ourselves that the Bill is 539 pages long. The tax code is 21,000 pages long—10 million words. More importantly, the tax code costs us £15.3 billion a year to comply with—it is really complicated. We already have a very complicated system, and if we do anything that inadvertently makes it more complicated—if we get this wrong—it will be really bad news for the whole of our economy. We must not do something that inadvertently—I was going to say, screws it up—

Carolyn Harris (Labour, Neath and Swansea East)

That would be unparliamentary.

Dan Tomlinson (Labour, Chipping Barnet)

The shadow Minister is right to encourage the Government, HMRC and Ministers to ensure that we get our policy right, and that we do not overreach. That is why we have engaged really carefully on this matter. We published a consultation back in October 2024, where we heard from stakeholders that there was actually strong support for some form of mandatory registration, and a view that it could enhance the security of tax adviser services and deter bad actors.

We published a policy paper in July 2025, which we received 40 responses to, and we have had lots of feedback from other stakeholders as well. We will keep the policy under review. I will continue to engage with the ICAEW and other important voices and actors in the sector. We want to see a thriving and growing accountancy and tax advice market in the UK. Financial services and legal and professional services are a key part of our growth strategy and our ability to increase productivity and improve living standards for people across the country.

James Wild (Conservative, North West Norfolk)

On the mechanics, the Association of Taxation Technicians has raised the point that the scheme is due to be a requirement from May, yet there is a lack of clarity about how or when advisers need to register. Further to that, will the Minister get HMRC to set target times for responding to—approving or rejecting—applications?

Dan Tomlinson (Labour, Chipping Barnet)

One of my favourite things is checking and monitoring the targets that are set out for HMRC. I know that parliamentarians on both sides of the House like to write to the Minister with responsibility for HMRC to receive updates on our progress on meeting our targets. I am glad that our call wait times have decreased recently, and that we are doing more to have a higher share of digital interactions.

On the shadow Minister’s point about the change coming in relatively soon, that is why it is really important to get the guidance published very soon, and I will be working with officials on that. It will be published in the coming weeks, to give advisers time to prepare. More broadly, it is worth noting that HMRC, alongside what is detailed in the Bill, has a public law duty to be reasonable in the way that it engages with individuals, and it will of course adhere to that.

Clause 225 - Registration conditions: interpretation

Clause 230 - Compliance notice

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss clauses 231 to 237 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

Clauses 230 to 237 require tax advisers who interact with HMRC on behalf of a client to register with HMRC and meet minimum standards from May, as was just mentioned. The clauses set out further details of how prohibited interaction with HMRC will be treated and potential financial penalties, and include robust safeguards that must be applied to any decision. HMRC will always work with a tax adviser who is genuinely trying to comply, will never suspend a tax adviser when doing so would be unreasonable or disproportionate, and will always consider the nature of any potential breach and how a suspension would impact the tax adviser and their clients. I therefore commend the clauses to the Committee.

Mark Garnier (Conservative, Wyre Forest)

The clauses focus on compliance notices and ineligibility orders. Again, we support the thrust of the clauses, but the Institute of Chartered Accountants in England and Wales has asked for further clarity in some areas.

First, clause 230(3) makes provisions for an adviser to be notified of a compliance notice. However, it does not impose a time limit and could lead to delays. Given tax advisers and relevant individuals are being subject to strict timeframes, with some exceptions or extensions, should HMRC not have to abide by similar rules and timeframes?

Secondly, clauses 233 and 234 are specifically on ineligibility orders being issued to tax advisers and relevant individuals. Those are important as they will help to temporarily or permanently remove an entity from being officially registered. However, given the gravitas of the orders, clarity is needed to ensure they are issued in a reasonable manner. There should also be a mechanism for an ineligibility order to be cancelled if an appeal or a review finds in favour of the tax adviser.

Finally, we agree with the ICAEW. The suspension or ineligibility orders should only apply once an order is final. I am sure the Minister would agree that it would be unfair on a business to notify clients of an order to only then have it withdrawn. The orders are serious sanctions, so the initial reputational damage could genuinely put a tax adviser out of business even if they have not done anything wrong. I would be grateful for the Minister’s reassurance that that is something they will reasonably consider.

Dan Tomlinson (Labour, Chipping Barnet)

I thank the shadow Minister for his questions. We will reasonably consider a whole range of points that have been raised. It is right that senior professionals who interact with HMRC on behalf of taxpayers have their own tax affairs up to date. HMRC expects that of every taxpayer. That expectation is set out in industry standards and HMRC’s standards for agents.

On the point around our timelines and HMRC being prompt and efficient in its dealings—the shadow Minister raised the point around standards and responsiveness earlier—I am happy to take those points away and come back to him on if there is more detail that I can provide.

Clause 238 - Assessment of financial penalties

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss clauses 239 and 240 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

Clauses 238 to 240 set out that when a person becomes liable to a penalty, HMRC must assess the penalty and notify the person. The notice will set out the details of the penalty, why they have received it and how they may appeal, ensuring that tax advisers have a clear path to compliance. Before issuing a penalty, the authorised officer must allow the person a period of 30 days to make representations to HMRC. The clauses also place limits on how long HMRC may delay before applying a penalty, so that no tax adviser will receive a penalty after an unreasonable delay.

Clause 241 - Reviews and appeals

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss schedule 20.

Dan Tomlinson (Labour, Chipping Barnet)

Clause 241 sets out the details of reviews and appeals in relation to tax adviser registration. It introduces schedule 20, which contains details of reviews and appeals. The schedule details that a person will be offered an internal review and may appeal to the tribunal for certain decisions about their registration.

Martin Wrigley (Liberal Democrat, Newton Abbot)

From reading schedule 20, about the tribunal, it is unclear to me—it may be my ignorance, in which case I apologise—whether this is an existing tribunal or a new tribunal and whether it is an independent tribunal.

Dan Tomlinson (Labour, Chipping Barnet)

The tribunal will be independent to the extent that those officers who made decisions and any determinations about the matter will not be involved in the tribunal. I think that would be right. The tribunal will include decisions of an officer of HMRC in respect of approving or suspending the person’s registration and the issuing of sanctions for prohibited interaction with HMRC.

Schedule 20 also sets out how a tax adviser may seek temporary relief, which delays the application of a sanction while there is an appeal or it is subject to review. HMRC will always grant temporary relief when the suspension is just due to late tax returns or payments, and will always consider whether not granting relief would put a business at risk of failing before it had been able to appeal. I therefore commend clause 241 and schedule 20 to the Committee.

Mark Garnier (Conservative, Wyre Forest)

Clause 241 and schedule 20 provide more details about the review and appeals process that HMRC will operate. They also confirm that HMRC must offer a review where there is an opportunity for a person to appeal a decision. The clarity is welcome, but there are still some issues that the Government need to consider further.

First, paragraph 6 of the schedule provides that a statutory review automatically concludes in HMRC’s favour if it simply does not deal with the review request. As the Chartered Institute of Taxation puts it, that

“seems particularly inappropriate here, given an appeal is one of the few ways that a firm can challenge this regulatory decision (in which HMRC has a conflict of interest).”

We agree that it is unfair for HMRC to find in its own favour because it failed to carry out something in a timely manner. With that in mind, will the Minister commit to taking this away, and potentially removing paragraph 6(7)?

The other issue comes back to the temporary relief from suspension, as previously discussed. Under schedule 20, the decision to grant temporary relief rests with an individual authorised HMRC officer, who can be the same officer who issued the suspension. It goes further: the schedule stipulates that the officer must take into account the prospect of the review or appeal succeeding. Could that not create conflicts of interest and be fundamentally unfair to the applicant? Would it be better practice to mandate that either another authorised officer or the commissioners make the decision to grant temporary relief from the suspension? I would be grateful if the Minister could provide some clarity.

Martin Wrigley (Liberal Democrat, Newton Abbot)

I am particularly concerned about the tribunal. I served for nigh-on 10 years on a tribunal for the Phone-paid Services Authority, which has now been absorbed as part of Ofcom. We were endorsing or not endorsing the decisions of the executive, which was charging phone services companies up to £250 million per breach of the code that they had signed up to. That tribunal was headed by a senior barrister, with two lay members who did not work for the executive and were fully independent. We considered all the breaches that people were making in terms of the code, in terms of proportionality and in terms of the evidence that was put in front of us by the executive.

I do not see something similar in schedule 20, and this is a considerably more important piece of work. If the tax advisers are put out of business, firms will not be able to continue their work, because they will themselves be struggling with the however many millions of pages of tax law there are. Worse than that, if firms see this as an existential threat, we will get offshore lawyers coming in to do the tax adviser work.

Will the Minister look again at the composition of the tribunal to ensure that it is not equivalent officers, but truly independent persons, preferably from outside HMRC, who are making decisions on that tribunal? They could look at the evidence fairly and assess it to determine whether the tax advisers have done the heinous things that they are accused of—and in which case deserve their suspension—whether they are in fact making honest mistakes, or whether there is a difference of opinion between them and the officers. As a councillor, I have had many differences of opinion with officers. From their point of view, they have been right, but I know, from my point of view, that they have been absolutely wrong. There are different ways of looking at a case, so it needs to be an independent tribunal.

Dan Tomlinson (Labour, Chipping Barnet)

I have set this out, but I want to clarify that the tribunal is independent. The head of the tribunal would be an existing first-tier tax tribunal judge. As the hon. Member for Newton Abbot has particular experience and interest in this, I will write to him in more detail on the composition and independence of the tax tribunal on this important point. The shadow Minister, the hon. Member for Wyre Forest, asked whether the Government would consider removing paragraph 6(7), and I can confirm that the Government do not intend to make that change.

Clause 242 - Disclosure of information

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss clauses 243 to 246 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

Clauses 242 to 246 require tax advisers who interact with HMRC on behalf of a client to register with HMRC and meet minimum standards from May 2026. We have been debating a number of similar clauses, and this is the final group concerning tax adviser registration. Overall, the measures will help businesses and individuals access more reliable advice and reduce opportunities for non-compliance.

Mark Garnier (Conservative, Wyre Forest)

This is all pretty uncontroversial, but there is one concern with clause 246, which states that the commencement date will be May this year. Although they have pushed this back by a month, are the Government not concerned that this is an insufficient length of time for tax advisers to register? From representations we have had from the industry, they are very concerned that the timeframe is too short. Indeed, is HMRC fully equipped to take on this extra workload? I expect that the Minister will say that advisers can do it all online, but I am slightly worried that things like that do not always work. There is a real concern in the advice industry of the widespread unintended effect that may come out of these measures. It is important that we get this right and that people have time to prepare. Would the Minister take that on board and have a think about how we can make sure that the process is efficient and works well?

Dan Tomlinson (Labour, Chipping Barnet)

The shadow Minister is right that the tax adviser registration comes in from May this year—specifically, from 18 May 2026—but registration will be phased in over 2026-27 and tax advisers will have a minimum of three months to register. Most will have more time.

Mark Garnier (Conservative, Wyre Forest)

Could I ask for a little clarity on that? Does that mean that there will be a list, and that an adviser will get three months from the point at which they are published on the list? Can they elect when to go on to that list? I am not quite clear what the Minister meant.

Dan Tomlinson (Labour, Chipping Barnet)

The registration will be phased in during 2026-27. Tax advisers will not have to register immediately on 18 May 2026; it will be from then.

Clause 247 - Conduct of tax advisers

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss:

Government amendment 25.

Schedule 21.

Clauses 248 to 250 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

Clauses 247 to 250 and schedule 21 make changes that will ensure that HMRC can take effective action against tax advisers who intentionally seek to facilitate non-compliance in the tax affairs of their clients. The clauses also introduce a new power to allow HMRC to publish details of tax advisers who have been suspended or barred by HMRC from acting for clients where it is in the public interest to do so.

Clause 247 makes amendments to schedule 38 to the Finance Act 2012, which introduced powers for HMRC to gather information and sanction dishonest tax advisers. It is the Government’s view that those powers need to be strengthened. For example, the maximum penalty amount of £50,000 is a poor deterrent for rogue advisers who intentionally facilitate millions of pounds of tax loss. HMRC needs stronger and more effective powers to crack down on the small minority of bad tax advisers who cause such harm to the tax system.

The changes made by clause 247 and schedule 21 will give HMRC those stronger powers. They impose a more effective regime for HMRC to gather information from tax advisers suspected of wrongdoing and to issue penalties where appropriate. At the same time—and I know hon. Members take an interest in this—there are robust safeguards, including appeal rights, and they are being maintained to ensure the powers are applied fairly and proportionately.

Importantly, the powers will apply only to tax advisers who act with the intention of bringing about a loss of tax revenue, such as those who knowingly claim a tax repayment for a client who is not entitled to it or advise a client to deliberately enter incorrect figures on a tax return. This is, rightly, still a high threshold.

The powers will not affect advisers who act in good faith, or who take a credible view as to what the law requires of their clients, including where they use extra-statutory concessions or HMRC guidance to form that view. They also do not affect advisers who make mistakes while trying, as the vast majority do, to do the right thing. Where HMRC have reasonable grounds to suspect a tax adviser has intentionally sought to cause a tax loss, the clause gives HMRC the power to gather information about the tax adviser’s advice to their clients.

Amendment 25 is a simple amendment to correct an error in the drafting and to ensure the legislation works as intended. The changes made by clause 247 and schedule 21 include expanding the definition of “tax adviser” in schedule 38 to cover not only individuals but companies as well. This reflects the nature of the tax-advice market in 2026. The expanded definition is achieved by replacing references to an “individual” in schedule 38 with references to a “person”. However, there is only one reference to an “individual” in schedule 38, which the Bill, as drafted, does not change. This is the result of a drafting oversight, which this amendment will correct.

I will now turn to clauses 248 to 250, which introduce a new power to allow HMRC to publish details of tax advisers who have been suspended or barred by HMRC from acting for clients where it is in the public interest do so. The changes made by these clauses provide HMRC with a lawful basis for publishing the details of tax advisers who have been sanctioned for conduct-related reasons. They are in addition to the publication power in clause 247, which requires information about financial penalties to be published.

Additionally, the new publication power will enable taxpayers to make more informed choices when selecting a tax adviser to represent them. Taxpayers will be made aware of which advisers face restrictions when interacting with HMRC, which will help to increase transparency and trust. It will also act as a deterrent against poor behaviour by tax advisers. I thank all the stakeholders from the tax profession who have engaged with us closely on this matter in recent months—it is greatly appreciated.

Mark Garnier (Conservative, Wyre Forest)

These clauses are wide and important, but they have also drawn significant criticism. The Government have decided to amend “dishonest conduct” rules to “sanctionable conduct” rules in schedule 21. That may seem like a minor change, but it changes the current high threshold of dishonesty to one that is lower and potentially ambiguous. The Institute of Chartered Accountants in England and Wales has described the definition of “sanctionable conduct” as

“exceptionally broad;…based on inferred intention; and…not limited to unethical, unprofessional or deliberately incorrect behaviour.”

Couple that with significant increases in penalties for conduct in scope, and it is unsurprising that the change causes a fair amount of concern in the industry.

As the Chartered Institute of Taxation points out, the objective of the Government’s policy is to target deliberate behaviour. This change seems inadvertently to miss that objective entirely. Frankly, it seems to be the wrong move, and there is significant strength of feeling in the industry that the terminology should revert to its original wording. Can the Minister provide more detail on the decision to change the wording? What representations have the Government received from the industry about it? Will he also please commit to engaging further with industry stakeholders before Report stage, and to making the necessary changes to accomplish the well-intentioned aim of the policy?

I have had other representations from groups such as the Institute of Chartered Accountants in England and Wales about related issues. There are a number of other issues about the way this is working. I will not trouble the Committee with them now, but we may follow up with a letter to the to the Minister about where parts of the Bill seem to be spreading into slightly negative territory.

Joshua Reynolds (Liberal Democrat, Maidenhead)

My concerns about the clauses in this group are very similar to my concerns about clause 229. Moving from “dishonest conduct” to “sanctionable conduct” lowers the threshold, introduces more ambiguity and could catch technical differences and genuine errors rather than deliberate wrongdoing. I hope that the Minister does not believe that we are trying to be obtuse in making this point; I believe that it needs to be raised repeatedly about this group of clauses, because these are real concerns shared by the Chartered Institute of Taxation and others. Their minds were not set at ease having read the Bill, so we must push these points today. I urge the Minister to consider the statutory proportionality test again, to ensure that tax advisers have the ability to do that proportionality test, and that HMRC has a statutory duty to do so.

Dan Tomlinson (Labour, Chipping Barnet)

The difference between sanctionable conduct and dishonest conduct is an important question. The Bill updates the definition of the conduct that is in scope of these powers, and I think it does so in a way that provides more certainty and clarity, because instead of having to prove dishonesty, which is challenging, HMRC will now simply need to demonstrate—granted, it is not simple to do so—that an adviser has acted with the intention to cause a tax loss. The Government believe that the change will make the powers more straightforward to use, while still ensuring that they are targeted only at bad actors. Objective dishonesty is quite challenging to prove. It is worth repeating that any penalties issued by HMRC will always be appealable to the independent tax tribunal, which I look forward to writing to the hon. Member for Newton Abbot about in due course.

The shadow City Minister, the hon. Member for Wyre Forest, asked about the engagement that we had before the Budget. We have had engagement with the ICAEW and others, at official and ministerial levels, on these clauses and others that we have been debating over the last half an hour or so. I will continue to engage with those stakeholders, which are an important part of the tax and advice ecosystem and provide strong representation on behalf of their members. As I have already said, I thank them and their members for their work in supporting people to get their tax right and to comply with the tax code, which, as the hon. Member mentioned earlier, is on the long side. The Government will keep doing all they can to simplify and improve our tax code. All of the people working in the sector support growth and productivity and the good functioning of the UK economy, and I commend them for it.

Schedule 21 - Conduct of tax advisers

Clause 251 - Fiscal mandate assessments prepared by the Office for Budget Responsibility

Lucy Rigby (Labour, Northampton North)

The clause will improve the fiscal cycle in support of the Government’s commitment to having one major annual fiscal event. In line with recommendations made by the International Monetary Fund, the Office for Budget Responsibility will now assess the fiscal rules only once per year, at the Budget, when the Government will set out their fiscal strategy. That will help create a more predictable framework and strengthen economic and fiscal stability.

The clause will reduce the minimum number of occasions on which the OBR must prepare an assessment of performance against the fiscal rules from two to one in each financial year. That will apply from the current financial year onwards. The OBR will continue to produce two five-year forecasts for the economy and public finances each year, but it will now be required to assess performance against the fiscal rules only at the autumn Budget. The spring forecast will now provide an interim update on the economy and public finances, and the Government will not normally respond with fiscal policy, unless there is a significant change in economic conditions. Where there are small fluctuations between Budgets, it is right that the Government take fiscal decisions in the round only at the Budget. This will in no way impact the Government’s adherence to the fiscal rules, which remain iron-clad. They will continue to be assessed at every Budget and the Government will always meet them.

To conclude, these changes, recommended by the IMF, align the fiscal framework with the Government’s commitment to hold a single major annual fiscal event. Taken together with the larger buffer against the fiscal rules at the last Budget, this measure will support stability for households and businesses right across the country.

Mark Garnier (Conservative, Wyre Forest)

That was sterling support for a terrible idea. The Office for Budget Responsibility was brought in back in 2010 to try to keep an eye on what had been going on through the financial crisis, the big problems as a result of the financial crash and, interestingly, the austerity measures brought in by Chancellor Alistair Darling before the 2010 general election, which were necessary to carry on and to sort out the public finances.

It is really important that the Government are held to account, that Members of this House do so, and that they do so with as much information as they can possibly have. The Office for Budget Responsibility is there to mark the homework of the Government. To reduce that homework marking to just once a year—I appreciate that there are two events, but only measuring fiscal ability once a year—is not a good idea. The Chancellor of the Exchequer came along about a year ago and proudly said that she had managed to repair the public finances, only for us to discover a year later that in fact the public finances had not been sorted out and we had to see huge amounts more taxation come in. To remove the opportunity for the OBR to have a look at the public finances is a bad idea and we do not support it.

Lucy Rigby (Labour, Northampton North)

The OBR is, of course, critically important. The best demonstration of why is the hon. Gentleman’s party’s previous Government. He referred consistently to the Chancellor having to repair the public finances, but seemingly with a huge amount of brass neck. He ought to be asking himself why the Chancellor needed to repair the public finances. The answer is of course that after 14 years of his party being in government, the public finances were in dire need of repair.

Clause 252 - Data-gathering

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss schedule 22.

Lucy Rigby (Labour, Northampton North)

Clause 252 and schedule 22 introduce new provisions for HMRC to acquire improved data from specific data holders to be used for risk assessment, tax administration and compliance. The improved data will help taxpayers to get their tax right first time while closing the tax gap.

First, the clause and schedule will introduce standing reporting obligations, replacing the current manual notices issued to data holders. Secondly, they will increase the frequency and improve the timeliness with which data holders report data, bringing data reporting closer to real time so that HMRC can use it proactively to help customers get their tax right first time. Thirdly, they will standardise the format for how HMRC receives the data, reducing errors and improving efficiency when ingesting it into HMRC systems. Fourthly, they will place obligations on data holders to collect, verify and report specific tax identifiers, such as national insurance numbers, which will help HMRC to improve the amount of data that it can match to existing customer records. Fifthly, they will reform the penalty regime to ensure that data holders comply with their obligations. HMRC thinks that the measure will cost around £50 million to implement; however, the OBR has certified that it will raise £845 million in additional tax revenue from 2028 to 2031.

Mark Garnier (Conservative, Wyre Forest)

The broad thrust of the measure is perfectly reasonable. As we go into a more digital world, it is perfectly acceptable that people should be required to interact with HMRC online. The only problem is that not everybody is as computer literate, so what measures will be in place to support people if they are genuinely struggling? That aside, we are in favour of the measure.

Martin Wrigley (Liberal Democrat, Newton Abbot)

I am slightly perplexed, because what the Minister has just said does not relate in many ways at all to the words in my copy of the Bill. Maybe I have the wrong copy. It does not talk about IT systems, forms or any of those things. What it says, quite clearly, is:

“The Treasury may by regulations make provision requiring a relevant data-holder to provide to HMRC on an ongoing basis any data specified for that type of relevant data-holder.”

It does not say that it can do so because it suspects wrongdoing or to look at risk assessment. It simply says that HMRC can demand any data from any of its customers at any time, on an ongoing basis.

Unless I have completely misunderstood, which I entirely accept may be the case, that is not only draconian and arbitrary, but disproportionate. There is no provision for someone to appeal and say, “Why are you asking for all the data of all my clients?” No reason—HMRC just wants it. That does not comply with the General Data Protection Regulation. There is no legitimate interest there. There is no reason for holding that data. In fact, if HMRC is asking for all the data, it is actually going against GDPR.

I do not fully understand how what the Minister has just said, which sounds eminently reasonable, relates to what is written in the schedule. Clarification would be much appreciated, because as it stands this is a real problem. I hope I have misread or misinterpreted it, because otherwise it really is not very good at all.

This will cause people problems when interacting with their tax adviser. They will say, “I can only give you a minimum amount of information. I can’t give you the full information so that you can do a proper tax assessment, because anything I give you will be available to HMRC when it says, ‘Give us everything.’” That is truly draconian.

Lucy Rigby (Labour, Northampton North)

On the shadow City Minister’s point about people who are less au fait with digital means, I can reassure him that people will be able to provide information to HMRC in all the traditional ways. Indeed, the Exchequer Secretary referred earlier to some of the recent improvements that have been made to HMRC’s phone lines.

With regard to the points made by the hon. Member for Newton Abbot, HMRC already receives bulk data from third parties, such as financial institutions, relating to interest-bearing products, and card sales data from card-acquiring services. This measure will improve and modernise the way HMRC acquires that data from third parties, and will have all the benefits I have just described. The Bill is clear that the improved data that HMRC will collect as a result of the measure will be strictly limited to the purposes for which it is necessary for HMRC to discharge its tax functions. He will know that HMRC has a statutory duty of confidentiality to protect taxpayers’ information. It can share data only where there is an express legal provision to do so provided by Parliament.

As to the wider implication in the hon. Member’s question, I can assure him that the Government take data privacy extremely seriously. As such, this measure is compliant with all legal data obligations, and HMRC continues to work with the industry, and legal and data experts, to ensure that all relevant requirements are met.

Martin Wrigley (Liberal Democrat, Newton Abbot)

Will the Minister give way?

Carolyn Harris (Labour, Neath and Swansea East)

The Minister has already sat down.

Carolyn Harris (Labour, Neath and Swansea East)

I suggest a brief comfort break.

Clause 253 - Persons on whom digital reporting requirements may be imposed

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss clauses 254 to 258 stand part.

Lucy Rigby (Labour, Northampton North)

Clauses 253 to 256 amend existing legislation to digitalise and improve the accuracy of tax reporting through HMRC’s Making Tax Digital for income tax programme. Clauses 257 and 258 make changes to enable HMRC to modernise how it communicates with customers digitally.

Clauses 253 to 255 amend schedule A1 to the Taxes Management Act 1970 to support new digital record keeping and reporting obligations for sole traders and landlords who pay income tax. Clause 253 is a procedural one. It sets out some exemptions and defines key terms for later regulations. It clarifies that a “relevant person” is an individual with taxable income, a “relevant partnership” includes at least one individual partner, and “relevant activity” refers to business activities that may incur income tax.

Clause 254 adds new powers for HMRC to create regulations for exemptions from Making Tax Digital for income tax. It allows HMRC to cancel existing requirements if an exemption is granted after the tax year has started and to issue directions enabling further exemptions. Clause 255 adds new powers for HMRC to make a certain set of regulations. Clause 256 is consequential to changes introduced in clause 255.

Clause 257 will allow HMRC to move customers to digital by default more easily, and clause 258 enables HMRC to require digital contact details, such as email addresses or mobile phone numbers, from customers using HMRC digital services at secure digital touchpoints. These changes provide the legislative basis for the Making Tax Digital for income tax programme.

Mark Garnier (Conservative, Wyre Forest)

This is all fairly straightforward. We are delighted that, since coming to power 18 months ago, the Government have decided that they are going to follow on with the great initiatives of the last Government, and I thank the Minister for so enthusiastically celebrating our achievements.

However, there is one bit that we are slightly worried about. Clause 258 will require individual users of HMRC online services to provide and keep up to date their digital contact details. That is a perfectly reasonable request, but to enforce it, people can be subject to financial penalties of up to £1,000. As the Association of Taxation Technicians has said, the proposed £1,000 penalty is “unprecedented and disproportionate”. Much more importantly, there is no comparable HMRC penalty for failing to update a postal address or traditional form of contact.

Are the Government not going a bit too far? I remind them that this is about regular taxpayers, and this penalty could catch out people who are more vulnerable or less financially literate. Can the Minister commit to reviewing whether this £1,000 fine is too high and, indeed, whether we should be bringing it in? We are completely behind the thrust of the clauses, but this penalty seems disproportionate. There is no fine for not updating a postal address, so why would there be one for not updating an email address?

Joshua Reynolds (Liberal Democrat, Maidenhead)

In the last 10 years, 80 million British residents have phoned HMRC never to have their call answered. In 2024-25, 33.47 million calls to HMRC calls were registered, and only 80% of those were answered. At a recent hearing of the Business and Trade Committee, HMRC confirmed that it was only funded by the Treasury to pick up 85% of incoming calls. That means it is Treasury policy that 15% of calls to HMRC will go unanswered.

I would like to see HMRC establishing customer service standards. People will need to ring HMRC because, as the Bill explains, not everyone will be able to use the digital reporting requirements in Making Tax Digital. There will always be individuals who need to phone HMRC because they cannot do things on a computer. Ensuring that those individuals have their phone calls answered is incredibly important. It is even more important given the changes in the state pension, which will bring individuals incredibly close to the personal allowance, where they would have to start paying income tax. Even though the Chancellor seems to be of the opinion that they will not have to do that, we still do not know how that will happen. That will see a flood of pensioners and retirees phoning HMRC, wanting to get some advice on the right steps to take, only for 20% of those phone calls to go unanswered.

The Liberal Democrats would like to see a new retiree red phone set up in HMRC, so that retired pensioners know that if they phone HMRC, they will get their call picked up as a priority and somebody will be on the end of the line to answer it. That is how important it is. Everyone should have confidence that if they phone HMRC, their call will be picked up and they will get their query answered. In 2024-25, 20% of people who phoned never had their call picked up. That is a lot of wasted time for businesses and individuals. HMRC should change that and not have it as Treasury policy that 15% of calls go unanswered.

Lucy Rigby (Labour, Northampton North)

The hon. Member for Maidenhead raises a series of important points on financial and digital inclusion, which are matters close to my heart. He will have spotted the publication of the financial inclusion strategy a couple of months ago, which I hope contains many measures that he welcomes on the matters he was raising.

Older customers and those with certain disabilities are more likely to be digitally excluded or digitally assisted and may be disproportionately reliant on paper correspondence. Safeguards will be included to ensure that those groups can continue accessing paper communications if specifically needed, with a clear and simple opt-out process and ongoing support through non-digital channels.

This measure is designed to target customers who are already using HMRC’s digital services, and it is important to important to bear that in mind. More broadly, HMRC’s customer service is improving. It is improving its IT systems and investing in the digital aspects, which have higher approval rates. As the Exchequer Secretary said earlier, some of these matters are trending in the right direction, albeit I accept that there is further to go.

I welcome the support for these measures from the hon. Member for Wyre Forest. I am sorry if I was not effusive enough for him; I shall be effusive now. He will be shocked to hear me reiterate that we keep all tax policy under review, and that statement continues to apply to the matters he raised in relation to this clause.

Clause 259 - Penalty points and late submission penalties (power to cancel etc)

James Wild (Conservative, North West Norfolk)

I beg to move amendment 50, in clause 259, page 236, line 4, at end insert—

“(1A) After paragraph 5(8) insert—

‘(8A) A person is not liable to a penalty point as a result of the late filing of a return under this Schedule if they had no tax liability due in the relevant period.

(8B) For the purpose of this section, “no tax liability due” has the meaning that the total amount of tax owed, after credit for any tax deducted at source, tax credits, or other reliefs, is zero or results in a repayment to the taxpayer.’”

This amendment would mean that a person would not be subject to a penalty point because of the late filing of a return where there is no tax liability due.

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss the following:

Clause stand part.

Clauses 260 to 262 stand part.

James Wild (Conservative, North West Norfolk)

It is good to be back in the saddle as we come on to some more clauses and, later this afternoon, new clauses. The amendment was tabled in my name, and I will speak to clauses 259 to 262 on penalties for the late filing of tax returns.

Before examining the amendment and clause in detail, it is worth stepping back to consider what late filing penalties actually mean, especially for people on lower incomes. According to Tax Policy Associates—which is much in the news at the moment; the Minister referred to it and it is run by one of my constituents—over the past five years, HMRC has issued about 600,000 late filing penalties to people whose incomes were too low to owe any tax at all. That is more than the combined 400,000 penalties that were issued to everyone in the top three income deciles. Clearly, the system is not functioning as intended.

Under the existing system, someone can be automatically fined £100 the day after missing the deadline, with further penalties piling up as the days go on. What is the result? Among the real-world examples that Tax Policy Associates highlighted, a woman ended up owing more than £10,000 in penalties despite never owing a single penny in tax. That is not a system that promotes compliance; it is one that punishes the least. That is why the previous Government recognised the need for reform, and we welcome the move to the fairer, points-based regime set out in clauses 59 to 62, which would replace automatic fines with a system in which penalties arise only after repeated late filings.

The principle is right, but the devil is clearly in the detail, and people with qualifying income above £20,000 will not move to the new regime until April 2028, under Making Tax Digital. Meanwhile, those on lower incomes who are the hardest hit by the 600,000 penalties that have been issued will remain in the older system. I therefore ask the Minister: when will those lower-income taxpayers, who in most cases owe no tax at all, move into that position? If she is not able to explain when that will be and why people should wait, the amendment would ensure that a person is not to be subject to a penalty point because of the late filing of a return when no tax liability is due, establishing the principle, “If you don’t owe any tax, you can’t get a late fine”. We should be encouraging compliance, not compounding hardship.

The clause allows HMRC to cancel or reset a taxpayer’s penalty points under the new points-based system, which is welcome and creates a safety valve where fairness demands it, particularly in cases that involve insolvency or system failures. We need reassurance that the power will benefit everyone, however, so will the Minister also commit to publishing annual statistics on how often HMRC resets penalty points, broken down by taxpayer type and reason? It has proved quite difficult for Tax Policy Associates to get that information, and it has had to resort to numerous freedom of information requests to find out about the fines and the deciles.

Clause 260 repairs a defect in the late-payment regime by letting HMRC withdraw and reissue a flawed penalty assessment, which provides some legal clarity and preserves the right of appeal. However, safeguards matter and the power must not become a licence for endless reassessment, so how many times would HMRC be able to reassess under this provision? Clause 261 applies the late payment penalties to tax that becomes due once a taxpayer loses an appeal in the higher courts, to deter tactical delay, which is welcome.

Having spoken about individuals, clause 262 concerns corporation tax and doubles the flat-rate penalties for late corporation tax returns. The penalties have not been changed since 1998, so clearly some uprating is welcome; it is expected to raise about £70 million a year by 2030. We support compliance; companies should be encouraged to file returns on time and we should penalise non-compliance. That needs to form part of the work to continue to close the tax gap. I remind the Committee that the tax gap of 6.8% in 2009 had been reduced to just above 5% in 2023-24. That is billions of pounds of extra tax collected correctly. It is unwelcome, though, that the gap for corporation tax, which had fallen, then began to increase, so action is needed.

Collectively, the clauses show an attempt to tighten compliance, but should not also penalise people who owe no tax by giving them a penalty. The fairest solution is simple: if no tax is due, no penalty should be charged, and that is what amendment 50 would deliver. I look forward to the Minister’s response.

Joshua Reynolds (Liberal Democrat, Maidenhead)

The tabling of amendment 50 is very good timing, as HMRC has revealed today its estimate that 1 million people missed the deadline, which was up to midnight on Saturday, to file their self-assessment. We very much support Opposition amendment 50, and, if the shadow Minister chooses to press it to a Division, we will support him.

It is fair and proportionate that the penalty should focus on those avoiding tax obligations, and not penalising administrative delays when no tax is owed. That is particularly important for self-employed people or pensioners, who may file late despite owing zero tax. HMRC resources should be focused on collecting tax that is actually owed, rather than punishing delays on paperwork for paperwork’s sake, when there is no revenue at stake.

Lucy Rigby (Labour, Northampton North)

I will speak to clauses 259 to 262 in brief terms, and I will then speak to amendment 50. The clauses make changes to ensure that penalties are fairer and more proportionate across the tax system. They also make sure that HMRC is consistent when penalising late payment of amounts due, following the decision of a tribunal, and increase the penalties for taxpayers who are late in filing their corporation tax return.

I welcome the shadow Exchequer Secretary’s support for these changes. He points out the unfairness now, but I gently say to him that the Conservatives did nothing to change the system to make it fairer during the 14 years that they had the opportunity to do so. He is right to say that moving to a points-based system is better: it ensures that those who make the occasional mistake do not face financial penalties, while those who persistently fail to meet obligations will still face them. Late payment penalties are more proportionate to the amount of tax owed and the time taken to pay.

Amendment 50, as the shadow Exchequer Secretary outlined, seeks to stop customers being penalised for late filing, even if they do not have a tax liability. We reject that amendment. The late submission penalty regime is intended to underpin the legal obligation to submit returns on time, whether there is tax to be paid or not, and amendment 50 is entirely contrary to that intention.

The tax return helps HMRC to administer the tax system effectively, and to protect the Exchequer from error and fraud. The late submission penalty regime already offers leniency for those occasionally submitting late, as they would receive a penalty point, rather than an immediate financial penalty. Customers who believe that they should not be in self-assessment should contact HMRC as soon as possible, so that they can be taken out of the system and avoid any unnecessary penalties. A question was raised about when lower income taxpayers will move into the system: it will apply to all taxpayers in IT self-assessment from the 2027-28 tax year.

Clause 261 makes technical changes to ensure that HMRC is consistent when penalising late payment of amounts due, following the decision of a tribunal. It will enable a late payment penalty to be charged in the circumstances I have just described. That ensures that the consequences of not paying income tax or capital gains tax by the statutory due date are fair and consistent. Clause 262 will increase the penalties for taxpayers who are late in filing their corporation tax return for the first time since 1998, as part of the Government’s work to close the tax gap and make more money available to fund vital public services.

Specifically, clause 262 will increase the flat-rate penalty for a company that fails to file its company tax return on time from £100 to £200. If the return is more than three months late, the flat-rate penalty of £200 will increase to £400, replacing the initial penalty. If there are three successive failures, the flat-rate penalties of £500 and £1,000 will be increased to £1,000 and £2,000 respectively. The clause also gives the Government the power to amend the penalties by regulation in future. I commend clauses 259 to 262 to the Committee.

James Wild (Conservative, North West Norfolk)

I am grateful to the Minister for her response and to the hon. Member for Maidenhead for highlighting the large number of people who miss the deadline. As I say, the reality is that a number of people get late filing penalties when they do not owe any tax. The case I cited was that of someone called Andrea, who suffered with mental health difficulties for many years. During that time, she never earned more than a few thousand pounds and was well below the personal allowance, so she never had any tax liability, but she ended up with £10,000-worth of late filing penalties. That is clearly not appropriate.

The new system that the Government are bringing in could be strengthened with the principle that someone who does not owe any tax cannot get a fine. I therefore wish to press amendment 50.

Clause 263 - Clearances

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss clauses 264 to 271 stand part.

Lucy Rigby (Labour, Northampton North)

These clauses introduce the advance tax certainty service for major investment projects, which will be launched in July 2026. The service will provide a binding decision on how the UK’s tax rules will apply to a project before material investment has taken place.

Clause 263 will give HMRC the power to issue decisions, known as clearances, about how corporation tax, VAT, stamp duty, PAYE and the construction industry scheme will apply to investors undertaking large investment projects in the UK. The threshold for investors to be accepted into the service is expenditure of £1 billion in the UK over the lifetime of a project. The clause confirms that the person undertaking the project, or a person who controls the project, such as a consortium member, joint venture partner or partner in a partnership that shares control, qualifies as an applicant.

Clause 264 sets out the extent to which HMRC is bound to maintain the tax treatment agreed in the clearance for five years, unless material facts change. I should point out that the clearance will not be binding on the customer. The clause binds HMRC against changing its interpretation of the law, but not against a change in case law or the will of Parliament by changes in legislation.

Clause 265 simply provides for advance tax clearances issued by HMRC to be extended past the initial five-year period. Clause 266 will provide for modification or revocation of an advance tax clearance issued by HMRC. Clause 267 will ensure that HMRC can request information from customers; it sets out the potential consequences of a clearance being revoked. Clause 268 will allow HMRC to revoke an advance tax clearance and charge a penalty in circumstances in which false or misleading information has been provided.

Clause 269 will allow HMRC to publish notices governing the administration of the service. Clause 270 sets out that the Government may make adjustments by statutory instrument to ensure the effective functioning of the service. Finally, clause 271 sets out and defines certain terms used in the advance tax clearance provision. I commend the clauses to the Committee.

James Wild (Conservative, North West Norfolk)

Clauses 263 to 271, which introduce the new system of advance tax clearance, will give legislative effect to the commitment in the Government’s corporate tax road map to offer greater certainty for major investment. A public consultation was run last year; the summary of responses, which came out at the Budget, shows consistent support for this measure. We welcome it and look forward to it beginning in July 2026.

Under clause 263, HMRC will be able to issue binding advance tax clearances for investments worth more than £1 billion over their lifetime. Although corporation tax is the most important area in which respondents argued for certainty, it could also cover VAT, stamp duty, land tax, income tax and other measures. In simple terms, a company planning a project on that scale can get specified advice on how the tax rules will apply and can get a written determination that both sides need to follow, subject to the caveats to which the Minister referred, including the change of law. Will the Government be keeping the £1 billion pound threshold under review? Will they commit to publishing clear statistics on the number of applications and approvals?

Clause 264 sets out the binding nature of the clearances. Where HMRC issues a ruling and the facts remain consistent, it must apply that treatment so that the taxpayer can rely on it. That is what we need to see and what investors want to see: certainty.

HMRC will be bound to maintain the treatment for five years, as the Minister referred to, and clause 265 will allow the period to be extended for a further five years. I cannot see a limit on the number of extensions that could be granted. Given that the purpose is to incentivise people to get on with investments and have certainty in advance of a project, will the Minister explain how multiple extensions could be appropriate, when that could appear to frustrate the ambition to get shovels in the ground?

Clause 266 will allow HMRC to modify or revoke clearance if facts change or by agreement with the taxpayer. Flexibility is sensible, because clearly projects evolve. Will HMRC publish clear criteria setting out when, and on what grounds, it may modify a clearance? Will there be a right of appeal for developers who have previously been given certainty only for the advice to be changed? We do not want to undermine the certainty that is the whole purpose of this measure.

Clause 268 provides that where the taxpayer withholds or misrepresents material facts, any clearance can be treated as invalid. That is clearly right in principle, but will there be guidance so that legitimate applicants are not deterred for fear of being second-guessed after the fact?

Clause 270 will enable the Treasury to make regulations to amend part of the framework, including adding or removing tax matters on which HMRC can give clearances. It is important that there be consistency of approach, so will the Minister give a commitment that there will be proper consultation before any such changes are put into effect?

These clauses represent useful steps towards greater tax certainty for investors, but I seek a little reassurance, particularly on the five-year extensions.

Lucy Rigby (Labour, Northampton North)

The impetus behind the series of changes made by these clauses is to implement the corporate tax road map, as the shadow Exchequer Secretary recognises, with the aim of supporting inward investment and helping investors to invest in the UK with confidence. As for the £1 billion threshold, the Government will assess the performance of the service when it has been in operation for one year and will consider lowering the threshold as part of that review.

To answer the remainder of the shadow Exchequer Secretary’s questions directly, there is no limit on the number of extensions that can be sought or granted. Once again, he will be thrilled to know that—as is so often my answer to his questions—there is already draft guidance on gov.uk to add to the draft guidance that he has committed to reading this evening.

Clause 272 - Cryptoasset reporting: users and controlling persons resident in the UK

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss clause 273 stand part.

Lucy Rigby (Labour, Northampton North)

Clauses 272 and 273 will make changes to ensure that HMRC receives information under the cryptoasset reporting framework from UK cryptoasset businesses about their UK-resident customers. This will streamline reporting for businesses, which will be able to use the same HMRC reporting portal for both their UK and non-UK resident customers.

The changes made by clause 272 will require UK cryptoasset businesses to report data about their UK customers to HMRC in a consistent manner. That will streamline reporting and ensure that HMRC will have standardised data on all UK taxpayers in countries, including the UK, that have implemented the cryptoasset reporting framework. That data will consist of details of the taxpayer and aggregated data concerning their transactions involving cryptoassets.

Clause 273 is a maintenance provision for clause 272 that allows the Treasury to lay further secondary legislation, if required, to maintain the domestic reporting legislation under the reporting framework.

The clauses legislate to provide HMRC with reporting framework information on UK-resident customers reported by UK cryptoasset businesses, which will streamline reporting. I therefore commend the clauses to the Committee.

Mark Garnier (Conservative, Wyre Forest)

The clauses follow a recent Delegated Legislation Committee debate that the Minister and I had, as a result of which we are going to get together with some members of the industry to talk about the confusion on this issue. One thing that worries me about the clauses is that they fail to differentiate between a cryptoasset and a stablecoin or tokenised currency. It is important to recognise that those are two different things.

As I understand it, HMRC will take reporting on interest paid on deposit accounts, for example, so that it can understand what is going on in the economy and in individuals’ accounts. However, a bitcoin is not a currency; it is a tradeable asset. It can behave like a currency, or it can behave like a share, whereby it has its own intrinsic value and people can buy it with a view to selling it when it goes up in price. Similarly, people can use it, as we saw in the case of Tesla: Elon Musk was prepared to take bitcoin as payment for Tesla cars, although not for very long. However, it is not the same as a fiat currency and is not the same as a tokenised pound or stablecoin; those so-called cryptoassets act as part of a payment system.

This is where we find ourselves getting into a potentially complicated area. We may be making legislation without necessarily understanding the difference between bitcoin, dogecoin and ethereum, which are tradeable assets, and a mechanism that enhances the payment system. It would be helpful if the Minister explained a more detail what, specifically, the clauses mean by “cryptoasset”.

Standing back from the minute detail of what a cryptoasset is, as opposed to what a stablecoin is, the general thrust—participation in the wider reporting of what is going on with this stuff—is probably a good idea. We need to understand how it works, get things proportionate and not become over-regulated, because if we become over-regulated we become uncompetitive.

There are a number of issues that cause me concern, so I will be grateful if the Minister can offer some explanations now, and then we can have more discussions when we meet in a week or two. If we go down the wrong track, it could put us a long way behind our international competitors.

Lucy Rigby (Labour, Northampton North)

I welcome the shadow EST’s interest in these matters. The DL Committee debate to which he referred was indeed an interesting one. [Hon. Members: “Hear, hear!”] I am glad that other Members agree.

The matters that the hon. Member and I discussed in that debate included the Financial Conduct Authority’s supervisory powers vis-à-vis qualifying cryptoassets and indeed the definition of qualifying stablecoin. The matters addressed by the clauses are slightly different. I can speak to the definitions, but this is a slightly different context: it is about CARF, the cryptoasset reporting framework.

Stablecoins are cryptoassets for the purposes of the legislation. They can be a specified electronic money product: they would meet that definition if they meet the criteria set out in the legislation. If they do, they will be reported under the common standard; if they do not, they will be reportable under the reporting framework.

Clarification on these matters has been reflected in HMRC guidance and stems from the OECD FAQs on this area. I could talk about the extent to which tokenised financial products need to be reported under CARF, a position of which those involved with traditional financial products—TradFi, as I believe they are called by those in the game—have been aware for some time. We have engaged extensively with industry and with the OECD on the subject, and this has been reflected in HMRC guidance.

Clause 274 - Stamp duty: piloting of digital service etc

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss clauses 275 to 279 stand part.

Dan Tomlinson (Labour, Chipping Barnet)

Clause 274 gives the Government the power to make regulations to enable testing of a new digital service for the securities transfer charge. As part of the changes under the stamp taxes on shares modernisation project, stamp duty and stamp duty reserve tax will be replaced by the securities transfer charge. This will change stamp duty from being a manually reported and processed HMRC-assessed tax, to a self-assessed and digitally reported tax. HMRC is developing a new digital service for the securities transfer charge, which will reduce processing times from around three weeks, as is currently the case, to near real time. To ensure that the new digital service functions as intended it will need to be tested.

The changes made by clause 274 will allow regulations to be made that enable the testing of a new digital service for the securities transfer charge as part of the ongoing work to modernise the stamp taxes on shares framework. The regulations will allow returns involved in the testing to be self-assessed and digitally reported to HMRC. This change will affect only those involved in the buying and selling of securities who accept an invitation to be part of the testing process.

Clause 275 enables HMRC to enter into an agreement with the Police Ombudsman for Northern Ireland to provide independent oversight of enforcement activities of HMRC officers within Northern Ireland in relation to tax. Unlike other parts of the UK, there is currently no external, independent oversight of HMRC enforcement activities in Northern Ireland; the clause will accordingly change that.

Clause 276 repeals section 25 of the Finance Act 1925, which taxed the trading income of overseas dominion Governments and is now obsolete. Clause 277 provides for the repeal of further obsolete provisions and corrects wrong cross-references. Finally, clause 278 sets out the legal interpretation and clause 279 sets out the Bill’s legal short title in the usual manner. I commend clauses 274 to 279 to the Committee.

James Wild (Conservative, North West Norfolk)

I will not detain the Committee long on these clauses. We support clause 274 and the sensible modernisation work, which—the Minister must have overlooked this, but I am sure he will acknowledge it in his reasonable way—began under the previous Government—

Lucy Rigby (Labour, Northampton North)

In 1925?

James Wild (Conservative, North West Norfolk)

Not that one—the stamp duty one.

Extending the oversight in clause 275 is clearly sensible, and I do not have anything to add on the cleaning-up operation in clause 277, the enabling of abbreviations in clause 278 or the title of the Bill.

Dan Tomlinson (Labour, Chipping Barnet)

I thank the shadow Minister for his engagement during this process. I look forward to discussing further provisions.

New Clause 2 - Report on the impact of section 28

New Clause 10 - Review of uprating of Winter Fuel Payment charge cap

New Clause 22 - Review of landfill tax changes

New Clause 25 - Report on fairness and scope of the loan charge settlement opportunity

New Clause 27 - Report on winter fuel payment charge and related compliance and collection measures

New Clause 33 - Review of effects of the Act on businesses

James Wild (Conservative, North West Norfolk)

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

Carolyn Harris (Labour, Neath and Swansea East)

With this it will be convenient to discuss new clause 35—Review of effects of the Act on small businesses—

“(1) The Chancellor of the Exchequer must, within 12 months of this Act being passed, lay before the House of Commons an assessment of the expected impact of the measures in this Act on small businesses.

(2) The report under subsection (1) must assess the effect on small businesses in the context of other financial pressures currently facing small businesses.”

This new clause would require the Government to produce an impact assessment of the effects of the Act on small businesses.

James Wild (Conservative, North West Norfolk)

I will speak to new clauses 33 and 35 in my name and that of my right hon. Friend the Member for Central Devon (Sir Mel Stride) and my hon. Friend the Member for Wyre Forest.

New clause 33 would require a review of the effects of the Bill on businesses: within 12 months of the Bill being passed, the Chancellor of the Exchequer would be required to conduct a full assessment of how its measures affect businesses across the United Kingdom. The Chancellor would then be required to report back to the House with recommendations specifically on how business taxes could be used to encourage greater investment of profits and revenues, and on how to give firms more certainty about the tax system.

The Committee might well ask why the new clause is necessary. I will happily explain. We have heard a common theme in Committee that the Bill places yet more strain and burden on businesses already facing a difficult economic climate. It is stuffed full of tax increases: the family farm tax, the family business tax, the cutting of venture capital relief by a third, taxes on carried interest, taxes on taxis, and higher duties and environmental levies. I could go on at length, but I suspect I would not be hugely popular.

The Minister—indeed, Ministers—may think that the measures are going to encourage growth. We have not heard much about growth in this sitting, except from Conservative Members. The Exchequer Secretary spoke a lot about the need to have balance in public spending, yin and yang, but he did not talk about growth, which used to be the central driving mission of this Government. That seems to have disappeared, and little wonder: this Budget contained £26 billion of additional tax rises on top of the £40 billion in the first Budget, despite the Chancellor promising not to come back for more. Instead, the Government continue to drive the tax burden ever higher—to record levels.

The new clause would require the Chancellor to look at the impact on businesses, including on increasing their profits and revenue. Let us look at the record of the Government: growth has flatlined; GDP grew by 0.1% in the three months up to November, having shown no growth at all in the period before; and inflation has been above the Bank of England’s target for the entirety of the last year. As a result, business confidence has collapsed. The Confederation of British Industry growth indicator—it comes from businesses, so I would not dismiss it out of hand—shows that firms expect output and headcount to fall.

Businesses are closing as a direct consequence of the political choices that the Chancellor has made, many of which are set out in the Bill. The new clause would require that to be looked at, which is why it is so important; it would ensure that the Chancellor reviews and comes back to the House with proposals to use the tax system to support investment in growth.

New clause 35 would require the Chancellor to publish, within 12 months of the Bill being passed, a full assessment of the Bill’s impact, particularly on small businesses, setting out the cumulative impact of measures in the context of wider pressures. Small businesses are the backbone of our economy, with more than 5 million of them making up 99% of total business population. Together with small and medium-sized enterprises, they employ around 17 million people—shopkeepers, market traders, tradespeople and so on, as well as the entrepreneurs who are driving growth, creating jobs and trying to keep our high streets alive. Sadly, under this Government, they are facing increasingly high costs and burdens, and the Bill adds yet more.

It is little wonder that the Federation of Small Businesses has warned of the perils of a continuing economic doom loop. Its small business index shows that confidence is at minus 71—the lowest level since the pandemic. It is minus 100 for hospitality firms, which the Exchequer Secretary will not be surprised about. The CBI said that the Government’s,

“scattergun approach to tax risks leaving the economy stuck in neutral”.

When we hear these siren voices, it is important that Ministers stop, listen and take account of the wider effects and headwinds that people are facing. That is why new clauses 35 and 33 are so important—they would require the Chancellor to come and account for the impact of her measures.

Dan Tomlinson (Labour, Chipping Barnet)

I fully recognise the intention behind these proposals. Members on both sides of the Committee are rightly focused on how tax changes affect businesses of all sizes, across the economy and across the country. We need to make sure that we provide certainty and stability for businesses, which is what we are doing with our corporate tax road map.

As the shadow Exchequer Secretary foreshadowed, however, we also need to make sure that we can raise revenue in a sustainable way to fund our public services, get borrowing down—as we do every year in this forecast—and make sure that the Government can hit our fiscal rules. As a result of some of the measures in the Bill, we intend on doing that with a headroom that is more than double what it was at the 2024 Budget.

The Government recognise that it is vital to understand how tax measures impact businesses. We publish tax information and impact notes, which set out the impacts on the Exchequer, individuals, households, businesses and civil society organisations, looking particularly at the administrative and compliance burdens. We will continue to monitor this closely; we keep all of our tax policies under review.

Given the existing processes and publications, the Government’s view is that these new clauses would largely duplicate work that is already undertaken and add unnecessary reporting burdens and costs. New clauses 33 and 35 should therefore be rejected as they are not needed to ensure a proper assessment of the impacts on businesses.

James Wild (Conservative, North West Norfolk)

Sadly, the Minister’s response is predictable; I think we have won the argument on why these measures would be useful have in the legislation, but we may not win a vote. The Minister refers to the TIINs once again, but as we have debated ad nauseum, they are forward looking, and not an after-the-event review of what has actually happened. That is the difference, which is why we keep returning to this. I beg to ask leave to withdraw the motion.

New Clause 34 - 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.

The new clause would require the Chancellor to publish an assessment of how the measures in the Bill affect the finances of households across different income levels. It would shine a light on the real impact on ordinary families of the Government’s choices. As we all know, households are under immense financial pressure, and the measures in the Bill will, in many respects, not make that easier.

The Office for Budget Responsibility has confirmed that growth in real household disposable income per person is set to fall dramatically, from 3% in 2025 to just 0.25% a year over the forecast period. That is not just below the OBR’s March forecast, but well below the average growth of the last decade, as the Minister knows full well. The OBR has been up front about the reasons for that growth, if we can call it that: it says that slower real wage growth and rising taxes explain much of the decline. For a Budget that was supposed to focus on the cost of living, that is a pretty damning verdict. Even the Government’s own watchdog says that the Government’s measures will make things worse, not better.

With inflation continuing to stay well above target and well above the level that this Government inherited, families are continuing to feel the price of this economic mismanagement, and they will do for some time. Whether through higher alcohol duty, air passenger duty or vehicle excise duty, or by making the cost of taxis more expensive, the measures in the Bill will directly hit households, and the costs that go on to business will obviously feed through into their prices as well.

Behind all that, soaring borrowing means that billions of pounds are now being spent just to service the Chancellor’s debt. Hard-working families are paying the price for the failure to get a grip and to get growth into the economy. That is why we believe that the impact of these measures on households should be monitored carefully, and why the Chancellor should publish a full assessment, as new clause 34 would require.

Dan Tomlinson (Labour, Chipping Barnet)

One of the challenges here is that asking the Opposition to scrutinise the Government’s record on living standards is like asking the thief to scrutinise the workings of the CCTV—it does not make any sense. Their record was appalling: under the previous Government, we saw the deepest squeeze on living standards of any Parliament on record, with living standards actually falling on their watch.

We are seeing living standards rise in this Parliament. In the first year of this Government, wages increased faster than they did in the whole first 10 years under the Conservatives. We are seeing interest rates fall, because of the stability that this Bill and others have brought back to the economy, and we are making sure we get borrowing on a downward trajectory. The Government also publish distributional analysis—alongside their infamous TIINs. I therefore reject the new clause.

James Wild (Conservative, North West Norfolk)

I am not sure about the analogy—I do not know whether the Minister was pulling that off the cuff. I do not think I heard him deny the figure that I quoted, which was that the OBR predicts that real household disposable income will increase by only 0.25% over the forecast period. I do not think that he is disagreeing with that figure, or that the average over the previous decade was growth of 1%.

Dan Tomlinson (Labour, Chipping Barnet)

Let us be really clear: in this Parliament, we are going to see living standards rise, and we are going to do all we can to beat the forecast that the OBR set out. We beat the economic growth forecast last year by 50%. We know the record of the Conservative party: when it was in power, living standards fell over five years—the worst squeeze on living standards of any Parliament on record.

Mark Garnier (Conservative, Wyre Forest)

We did have a war and a pandemic.

James Wild (Conservative, North West Norfolk)

Well, as my hon. Friend the Member for Wyre Forest says from a sedentary position, pandemics, wars and energy price shocks did have something to do with the impact, but the figure is a 0.25% rise over the forecast period. The Minister can boast about that growth and say he is going to beat the forecast, but that is the OBR forecast, in black and white, following the decisions in the Budget. The Minister’s comments almost tempt me to push my new clause to a vote, but on balance, I beg to ask leave to withdraw the motion.

New Clause 36 - Review of the effects of this Act on the administrative burden on businesses

James Wild (Conservative, North West Norfolk)

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

New clause 36 would require the Chancellor of the Exchequer to review and report on the effects of the Bill on the administrative burden on businesses, including the impact on small and medium-sized businesses, and any mitigation measures that have been taken. Throughout the Bill’s passage, we have been reminded not only of its financial impacts on businesses and working people, but of the red tape and regulatory cost it piles on to them. Whether it is the new reporting requirements faced by charities, the complex international rules or the new levies, such as the vaping tax and carbon tax, businesses will once again face an increased burden.

The Ministers speak with zeal for deregulation—the Business Secretary is a particular repeat offender—and about the Government’s ambition to cut the administrative burden of regulation by 25% by the end of this Parliament. We know that red tape and regulatory compliance costs out at about 3% to 4% of GDP, which is about £70 billion. We all want to see that cut; it is an issue I have focused on since coming into this House, as I did in my previous roles in the Department for Business, Innovation and Skills. The case for action could not be clearer.

However, as is so often the case with this Government, there is a big gap between what they promise and what they deliver. They talk about cutting bureaucracy, but the reality tells a different story. A growing list of quangos are being created: Great British Energy, the Independent Football Regulator, Great British Railways. For every body that they scrap, they seem to create at least one more, and possibly two.

Last week, an important National Audit Office report warned that the Government’s regulatory reforms risk doing the opposite of what is intended. It concluded that the cost of new legislation may well outweigh any reduction in administrative burden—that 25% reduction that the Government have committed to, despite not allocating the required savings amounts to Departments. Businesses will be no better off. I am sure that the Public Accounts Committee, of which my hon. Friend the Member for Mid Bedfordshire is a member, will look carefully at that report in holding regulators, Ministers and civil servants to account.

More than 530 pages of the Bill are taken up with technical tax changes and a lot of detailed schedules. Those changes carry a real financial cost, as well as a time cost, as staff will have to focus on them rather than on growing their businesses. That will result in a loss of productivity, particularly in small and medium-sized firms that lack the resources necessary to keep up with the changes. That is precisely why we need a clear assessment of the Bill’s impact on the administrative burden facing businesses. What, if anything, do the Government intend to do to mitigate that?

After all the pre-Budget speculation—the column inches, leaks, briefings and counter-briefings—will the Minister, if he does not want me to press the new clause to a vote, provide a combined estimate of how much all the measures in the Bill will cost UK industry? Can he confirm whether the Bill moves us closer to the Government’s 25% reduction target, or further away from that goal?

Dan Tomlinson (Labour, Chipping Barnet)

I thank the shadow Exchequer Secretary, the hon. Member for North West Norfolk, for his engagement and diligence throughout the Committee’s six sittings in scrutinising the Government on this topic, and a whole range of others. I also thank the shadow Economic Secretary, the hon. Member for Wyre Forest, for doing the same.

We have referred on a number of occasions to the tax information and impact notes. I do not know whether hon. Members have read any of those yet, but I signed every single one off in advance of the Budget, in one of the highlights of my professional career. I can let the Committee know that if TIINs do one thing, it is to detail the additional administrative burden and the costs—not the direct costs, but the indirect ones—associated with tax changes. A sum for the combined impact of the changes across the TIINs is not at my disposal, but I may have a look and seek out the shadow Exchequer Secretary to pass on such a figure in the voting Lobby—or, as I do not expect that we will be in the same voting Lobby any time soon, adjacent to the voting Lobby.

To wrap up, as well as thanking Opposition spokespeople, let me thank all members of the Bill Committee as we come to an end. I thank them for their engagement and for saving me at various moments, when I seemed to lose the ability to speak, as all I could see was a vision of me and the shadow Minister on a bumper car on Valentine’s day.

This is a significant Bill. It is a Bill that helps the Government to make progress with their priorities in the funding of public services, which is something that the Government were elected to do after public services were left in a state of disrepair in many ways at early 2024. We are making progress with things like waiting lists falling, and we are continuing to invest in our schools and our police. Rather than being distracted by update clauses—such updates would be required under the new clause—when we already have the tax information and impact notes, this Government will get on with the job of turning our country around for the good of the British people.

James Wild (Conservative, North West Norfolk)

I am surprised the Minister was able to say that last bit with a straight face when he was corpsing about carbon taxes earlier in Committee. As this will be the final time I speak in Committee, I thank you, Mrs Harris, along with Mr Efford and Sir Roger, for your time in the Chair. I thank the Clerks and officials, all the Members, who contributed so well to the Committee’s deliberations, and our Doorkeepers.

I thank the Chartered Institute of Taxation, the Association of Taxation Technicians, the ICAEW and the many other organisations that provided valuable submissions on the provisions of the Bill. In particular, I thank the authors of the TIINs, which I have studied diligently. They do a very good job, but they do not do a review job.

I thank Billy Falcon in my office, who has done sterling work in pulling together all the evidence from industry and in scrutinising the Bill, helping me to put together my remarks. I know that my hon. Friend the Member for Wyre Forest, the shadow Minister, will want to thank William in his office, who has performed a similar job, at rather short notice as well. He has helped to ensure that we have scrutinised the Bill thoroughly.

I am grateful to the Exchequer Secretary and to the City Minister for their responses to our points and our new clauses. I am not sure which one of them I will see in February in King’s Lynn on the dodgems—

Lucy Rigby (Labour, Northampton North)

Perhaps both.

James Wild (Conservative, North West Norfolk)

Perhaps both—there we go. Any other Members would be welcome to join us as well. I look forward to that. Sadly, the Exchequer Secretary was unable to give me that global figure, so I intend to press the new clause to a vote.

Written evidence reported to the House