PARLIAMENTARY DEBATE
Finance (No. 2) Bill - 20 June 2023 (Commons/Commons Chamber)

Consideration of Bill, as amended in the Committee and the Public Bill Committee
[Relevant document: Sixteenth Report of the Treasury Committee, Tax Simplification, HC 1425.]
Brought up, and read the First time.

Amendments 15 and 16 relate to the Bill’s provisions on alcohol duties and seek to ensure that alcoholic products produced overseas and imported into the UK are not excluded from the new draught relief or small producer relief. This is a technical amendment to ensure that the new reliefs apply equally to alcoholic products produced domestically and overseas and meet the originally intended policy aims. The amendments mean that the condition to be approved by HMRC applies to UK producers only.
Government amendment 17 on the electricity generator levy seeks to ensure that the provision works as intended and in accordance with the policy that the Government set out at the end of last year in its published technical notes in legislation. It will confirm that receipts of joint ventures attributed to their members are taxed whether or not the member is a generator, to ensure that those members are liable as intended. The amendment will ensure that the Government’s policy intention is clear in the specific provisions for joint venture members, and that the electricity generator levy collects the right amount of tax from the correct taxpayers.
Government amendments 18 and 19 intend to avoid any uncertainty for those planning new deposit return schemes, which introduces rules on accounting for VAT on deposits charged under statutory deposit return schemes. The amendment will put beyond doubt that VAT is due on unreturned drink deposits, removing any uncertainty for affected businesses.
New clause 5 makes technical changes to ensure HMRC’s civil information powers work as Parliament intended, to support its tax collection functions. The new clause will clarify the law to put beyond doubt that HMRC may continue to collect what is termed “communications data”, including essential information such as names, addresses and dates of birth from businesses and third parties. Following a recent change by the Home Office to its interpretation of communications data under the Investigatory Powers Act 2016, the clause will simply ensure that existing legislation continues to function exactly as Parliament originally intended, including the important safeguards already in place for the protection of citizens’ data.

As we discussed in Committee, clause 36 will affect non-doms who claim the remittance basis, as it will stop them using a non-UK holding company to avoid tax on chargeable gains made on a UK business. The Minister may remember that when we debated non-dom tax status on 31 January, she was keen to claim that the measure we are now considering would “close a loophole” in the non-dom legislation. However, she was not so keen to explain that, as the Government’s own policy paper admits, the measure will raise—on average, over the next five years—just one twentieth of the £3.2 billion lost through non-dom tax status every year.
Labour believes that if people make Britain their home, they should pay their taxes here. That patriotic point should be accepted in all parts of both sides of the political divide, but Ministers in this Government, under this Prime Minister, seem desperate to defend the non-dom loophole. We will keep pressing the Government to think again and to follow our plan to abolish non-dom status, replace it with a modern system, and use the money raised to strengthen the NHS, childcare and the economy.

I turn to the example of a young father of, say, three children who is doing well at work and who gets a promotion taking his income above £50,000 for the first time. We might think this would be unadulterated good news but, actually, the tax system will send him a message that this is perhaps not such a wise thing, because he will immediately go into the upper tax threshold and his marginal rate of tax will be 40%. He will get the extra 2 percentage point national insurance surcharge as well. If he has a student loan, 9% might be taken off the outstanding balance. And of course child benefit will start to taper. For a father of three children, that could mean a marginal withdrawal rate of a further 29%. Our potential go-getter would be left with only 20% of the pay rise he had been awarded, and this applies to the kind of people we want to encourage to take on pay rises and extra work because it is good for the economy.

The Government will come to the House at future fiscal events—the first one being in autumn this year—to present an assessment of the progress that countries are making around pillars 1 and 2 and around the policy itself. That ensures that the Government are providing very structured updates within the fiscal framework on the impact of this policy on our economy, as well as that of major economies not implementing the policy by 2024. There are substantive commitments from the Government. I commend the Chancellor, who has been incredibly constructive in discussions. I am grateful to him and to the Minister, because she and other colleagues have had to do much of the heavy lifting.
To be clear, I will not press the amendment to a vote. I have had this commitment from the Chancellor in writing. There has been an exchange of letters between us. It is very important to put it on the record that he has been very constructive on the specific requests that I have made.
To conclude, I would love there to be more flexibility on this policy. The Government have a big opportunity in the next six months of this calendar year, before the commencement date, to look at what other countries are doing, to look at what they have learned and to reflect on the macro-economic backdrop facing us right now—not just domestically for businesses, but internationally.
Let me turn now to the administration of capital allowances, which we have discussed in previous debates. Those allowances will still pose burdens to businesses. Conservative Members must ensure that it is not a Conservative Government who are putting burdens on businesses, but that they do everything possible to bring down the tax base and the tax burden, and to simplify taxes for businesses.

We are trying to encourage people to consume alcohol in pubs more often than at home—clearly, there is an overhang from the covid pandemic—and to recognise the challenges that publicans, pub companies and brewers have faced in recent years. In the year to April, 4,600 pubs closed. That demonstrates the challenge that publicans and pub companies face. The Bill shows the importance that we as parliamentarians place on having the pub in the community, where people can consume alcohol in a safe space, and anyone who drinks to excess is monitored and encouraged to do otherwise by the publican, friends and other hostelry customers.
The pub sector is hugely innovative. Pubs employ people flexibly and offer great opportunities to young people. I know that they are keen to work with the Department for Education, the Treasury and the Department for Work and Pensions. A meeting is coming up between the pub sector and the Department for Work and Pensions to ascertain how the apprenticeship levy can be used to reach people who are currently far away from the employment market. Pubs can offer flexibility, which can help bring those people back into the labour market.
My specific comments will relate to alcohol that is served on the premises, but is consumed off the premises. The common phrase that the industry uses is “decanting.” That gives rise to a new complexity, to which clause 52 refers. I recognise that one of the motives for changing the duty rates was to simplify the structures. The historical structures were hugely complex, expensive to administer and expensive for HMRC to interpret and collect. However, I cannot understand why, in simplifying the procedure, we are introducing a different tax rate for people who are served on the premises and consume at home.
Let me explain the market, because the first stage is to understand the marketplace. We are talking about a tiny proportion of the market—comprising possibly 0.1% of alcohol that is served on the premises. The market encompasses ale enthusiasts who take one or two pints home at the end of the day. Perhaps some people do not want to stay in the pub late and are happy to consume those one or two pints at home. Those ale enthusiasts usually take them in specially designed decanters to maintain the freshness of the beer. Another environment would be a tap room in specialist consuming environments such as a brewery, where people go to taste the different ales on offer.
The Bill proposes to apply the higher duty to those who are served alcohol on the premises and consume it at home. There are significant challenges in collecting that duty and in monitoring which pint has been served in a takeaway canister and which has been consumed on the premises. Some canisters hold two pints. A consumer may well drink one pint on the premises and take the second pint home to drink when watching the football on Sky. I am not sure which rate will apply in such a case and how we would prove whether the pint had been drunk on or off the premises.
I know that my remarks sound a bit facetious, but I do not mean them to be. I want to give full credit to the Exchequer Secretary, who has engaged and explained the reason for the difference in duty. It is to stop large outlets such as supermarkets choosing to serve alcohol on the premises and thereby benefiting from the lower duty. I recognise that that is a risk. Smaller shops such as corner shops could also try to apply for a licence to serve alcohol on the premises. That would change the nature of consuming alcohol. We like pubs because people can drink on the premises in the safe and healthy environment that I described.
Collecting the extra duty will be complicated. It will be onerous for the publican to monitor which pints have been served for takeaway. As I said, some may be drunk on the premises and some drunk off the premises. I repeat that that will apply to only 0.1% of the beer that is served on the premises. Although I recognise the serious risks that the Exchequer Secretary highlighted to me, I cannot accept that it is beyond the wit of the Treasury and the industry to devise a solution. I ask the Exchequer Secretary to re-engage with the industry to ascertain whether there is a much easier solution so that we can table specific provisions in future Bills to overcome the challenges.
The draught duty relief provision has already had a technical error. It was originally targeted at containers that hold 40 litres or more, but those are rarely used in the industry. I understand that officials simply googled the size rather than engaging with the industry to come up with an ideal solution. Thankfully, the legislation has changed that to 20 litres, which is a workable size. The good news has continued through our placing a lower draught duty on alcohol served on the premises.
The Government have made a good move. They have responded to calls from the industry, be they from small brewers, large brewers, pub companies, freehouses or individual publicans. That is recognised far and wide as a major step forward. The relief has increased from 5% to 9.1%. It will make a real difference to saving pubs, keeping them open and fulfilling the Government’s agenda to encourage people to drink safely and to drink less alcohol in general. It will help keep the pub at the heart of the community.
I ask the Exchequer Secretary to look at the tiny element I have described because there is a risk of undermining the good work that has been done for just 0.1% of beer that is consumed by people who choose to have one pint at home after they leave the pub. I hope that he can come up with a clause that will meet the needs of the industry and avoid the real risks that he previously highlighted.

The US approach has been through various iterations. I was at a lecture by Pascal Saint-Amans a couple of weeks ago, who was the OECD director who brought through the deal. He tells the story that the negotiations were going nowhere until the US representatives at the negotiations when President Trump was in office said, “Actually, what we want is a minimum corporate tax.” The whole room was astonished that the Americans had moved from not really wanting it to suddenly coming up with an idea.
What we have here, in many ways, is a Trump-era US solution. We can see that, because the Americans introduced their own base erosion and anti-abuse tax in 2017, or BEAT—another great acronym—which started out at 5% but is now at 10% and will go to 12.5%, so they are almost at 15% already. They also have their global intangible low-taxed income regime, which is an even better acronym: GILTI. I urge the Minister to think of great acronyms for new tax rules, because I think a global anti-avoidance rule called GILTI sends the right message. That is, again, a US domestic attempt to tackle US corporations moving intangible income offshore. The minimum corporate tax of 15% that we want to introduce is trying to tackle exactly the same problem.
We should not forget that most of the multinational corporate tax avoidance we have seen has been by US multinationals using US rules that were badly written because the US did not really care what happened overseas and allowed companies to play around with its sub-part F entity classification rules, basically to avoid US tax and avoid everybody else’s while they are at it, as they could get away with it. I would not take too many lessons from the US on this issue. In fact, its domestic policy is to introduce something quite similar to try to tackle a problem that it has created and exacerbated around the world.
We can set an example to the US and encourage its politicians to see that such a thing has been done in the past and should not be allowed to continue. We want responsible corporates around the world that are trading multinationally to pay the right tax in the right jurisdiction. I accept that that is not easy, and it is a complicated thing to get right, but that is what we want to see. I think we will see increasingly that consumers do not want to buy services and goods from corporations that are engaging in that sort of outrageous behaviour. If they carry on like that, it will be damaging to the US economy, so I would urge it to get on board with these rules. I certainly urge the Government not to give any sign that we are backsliding. It is the right thing to do. It is by no means perfect. I am sure we can improve the detail of it, but the principle is there, and we should go ahead and implement the deal.

Before I answer some of the questions that my right hon. Friend the Member for Witham has rightly raised, let me put on record my sincere thanks to her, and to other colleagues and friends who signed her amendment—and to whom I have spoken over many months in the run-up to today—to scrutinise what this means for the United Kingdom and for businesses. I absolutely understand why they are asking the questions. As I said, this is Parliament at its best, and I am genuinely grateful to her for raising these questions. What is more, the Chancellor is grateful. My right hon. Friend wrote to the Chancellor, and I am pleased to inform the House that he replied to her in the following way, to ensure that we all understand and appreciate the levels of scrutiny that have taken place.
The Chancellor maintains that the Government are sadly not in a position to support the amendment, but we recognise the importance of these matters to hon. Friends and Members of the House. On that basis, the Chancellor and I are happy to provide an update on pillar 2 implementation as part of the forthcoming fiscal event in the autumn, and if necessary in the spring. That update will include the latest revenue forecast from the OBR—that is an important point—and a status update on international implementation, which is a point that hon. Members are focused on. It goes without saying—I hope my right hon. Friend and others know this—that the Chancellor and I stand ready and are happy to continue to discuss such issues with her and others, as we move towards implementation towards the end of the year.
Quite rightly, my right hon. Friend and others have posed questions, and I will try to answer some of them. I was asked about implementation, which I completely understand. The member states of the EU are committed to implementation, and the EU directive in place is legally binding. The directive allows small member states—defined as those with 12 or fewer parent entities, and, therefore, those that are much smaller than our economy—more time to introduce the rules. Those countries are very few, and are not in the same economic position as the United Kingdom. They will not get an advantage from delaying implementation, as the directive requires other EU member states to collect the tax instead.
I have also looked to countries such as Thailand, Singapore and Hong Kong. The UK has a large and mixed economy, where it is appropriate for us to take action to combat aggressive tax planning and support measures that support competition. Australia, Japan and Canada, which are our peers by size and shape of economy, are also implementing that rule. Indeed, Japan’s 2023 tax reform Bill was enacted after passing Japanese procedures in March. It will be introducing the income inclusion rule from 1 April, four months after us next year.
On the States, I understand why the question is being posed, and my hon. Friend the Member for Amber Valley set out some of the history behind where America has got to. In 2017, the US introduced a minimum tax on the foreign income of its multinationals, and it has recently introduced a minimum tax on the domestic income of large groups, including foreign headed multinationals. The US already has in place rules that operate on a similar basis to pillar 2, and it has been one of the strongest advocates for developing a global standard. It has maintained its commitment to align its rules with the agreed pillar 2 template, but until that happens, the OECD inclusive framework members, including the US, have agreed how the US rules and pillar 2 rules should interact, to ensure that US multinationals are subject to the same standard as groups in other countries. That is an important context.
If it is not implemented in the UK, what does that mean? Again, the question posed is a fair one. Generally, the international top-up tax is applied at the top of the business, and at the level of the ultimate parent entity. If that jurisdiction has not implemented the rule, the taxing right passes down the ownership chain of the business, until there is an entity in a jurisdiction that has implemented the rule. This is why without UK rules, this tax—chargeable in the UK, if it did apply—would be payable to another jurisdiction unless and until we implement the rules.
I very much understand the concerns raised about sovereignty. We retain the sovereignty to set our corporation tax rate. It is still the lowest in the G7, and we can use important tax levers to boost investment, including the UK’s world-leading R&D credit and full expensing regimes announced in the Budget. We have also ensured that UK tax reliefs such as the refundable R&D credit will not be treated as depressing the effective tax rates of claimants. We have been able to achieve that because we have been at the forefront of discussions and negotiations on these rules.
On the point about how these rules are agreed, implemented and who holds who to account, the model rules were agreed by consensus requiring the agreement of each country and jurisdiction. It is then up to each country and jurisdiction to implement the rules. There is not a higher body than jurisdictions here to do so. I very much understand the concern about innovation and growth. We will remain free to use the corporation tax system to support innovation, business investment and regional growth through R&D tax credits, enhanced capital allowances and tax reliefs in investment zones. We must continue to work together with our partners to avoid a subsidy race that could distort trade or impact sectors.
In answering those questions, I hope I have addressed some of the issues that Members have raised in relation to pillar 2. I very much hope that my right hon. Friend the Member for Witham, having brought the scrutiny which would be expected from her, will feel able not to press her amendment to a vote.
On the lifetime allowance and the Opposition’s new clause 1 and amendments 1 and 6, the Opposition just do not seem to get it. This measure has been brought forward to help the NHS retain those doctors and consultants whom we are so desperate to have in our NHS looking after our constituents and helping to cut the backlogs, as the Prime Minister has set out as one of his five priorities. That is why we have introduced this policy. The hon. Member for Ealing North (James Murray) seems to think—and we have had this conversation many times before—we could have dreamt up a proposal dealing just with doctors in the same amount of time it took us to bring in this policy—two weeks. The fact is that this measure started having an impact on our doctors, our consultants, our chief constables and others this tax year, as hon. and right hon. Friends have set out. We want to make that change precisely because we believe that our NHS and public services deserve it, and that is why we are bringing that lifetime allowance forward.
Moving to the non-doms point, this is again a conversation we have had repeatedly with those on the Opposition Front Bench. The hon. Member for Ealing North asked about the £830 million and seemed to question it. I am sorry to break it to him, but that has been scorecarded by the Office for Budget Responsibility. It has certified it, costed it and said that it will bring in £830 million over the scorecard period.
My right hon. Friend the Member for Vale of Glamorgan (Alun Cairns) raised important questions regarding alcohol duty. He welcomes the changes in the round, but as the chair of the all-party parliamentary beer group, it is understandable that he is asking whether the draught relief is designed to apply to off-trade pints as well as on-trade pints. I am afraid that it is not, because we want to support consumption of beer in pubs. It is one of many ways not only to support our local pubs, but also to secure opportunities arising out of our exit from the European Union. Only pints in pubs will be subject to this measure, not pints poured into takeaway containers. The industry body the Campaign for Real Ale has lobbied to ask that that could happen. We have looked at the idea carefully, as has the Exchequer Secretary to the Treasury, my hon. Friend the Member for Grantham and Stamford (Gareth Davies), but we have serious concerns that it would overcomplicate the draught relief. I hope to reassure my right hon. Friend and CAMRA that takeaway services can continue so long as the beer comes from a full-duty barrel. I am reminded that takeaway off-trade beer accounts for 0.1% of beer sales, but, when the Bill passes its Third Reading today, I am sure that we will all be raising a pint in celebration.
We touched briefly on the electricity generator levy, which is payable only on the portion of revenues that exceeds the long-run average for electricity prices. We have done that carefully to try to ensure that we achieve the Government’s wanted net zero ends while looking after customers. New clause 12 perhaps misunderstands how the EGL operates, so we urge colleagues to reject it. In relation to the energy profits levy, it is important to note that the Government expect it to raise just under £26 billion between 2022 and 2028, helping to fund the vital cost of living support that we have discussed.
In relation to air passenger duty and new clause 10, we have made changes to take advantage again of our post-EU freedoms and to support the United Kingdom. We want friends and family to be able to fly to see each other across the United Kingdom. I am not quite clear whether Labour understands that or is now against helping friends and family across the UK to reunite. I am sure that all will become about as clear as its £28 billion U-turn.
I turn to new clause 5. The right hon. Member for Dundee East (Stewart Hosie) asked why are we making this change on Report. It became apparent that a welcome clarification by the Home Office on how information is obtained for criminal investigations means that some data that is genuinely needed by His Majesty’s Revenue and Customs to check a person’s tax position is deemed as communications data. The clarification aims to secure that into law. We are trying to do it as quickly as possible, which is why it is in the Finance Bill.
The hon. Member for Oldham East and Saddleworth (Debbie Abrahams) raised the duty to report on public health and the poverty effects of the Bill. We already publish data on people in both relative and absolute low-income households each year through the “Households below average income” publication. The Welfare Reform and Work Act 2016 also requires us to publish statistics on the percentage of children in relative and absolute low income, combined low income and material deprivation and persistent low income. I very much hope that she will welcome the £3,300 on average of help that we are securing for families across the United Kingdom in these difficult times.
To conclude—[Interruption.] I thought that the House might be interested in some of the details; apologies for that. The Bill contains a number of important measures that will support the UK economy, people and businesses. I therefore urge the House to reject the proposed non-Government amendments for the reasons that I detailed, and agree to the Government’s amendments and new clauses. In closing, I thank everybody involved for their contributions to our discussions not just today but in the months that have led up to this.
Question put and agreed to.
New clause 4 accordingly read a Second time, and added to the Bill.
Brought up, read the First and Second time, and added to the Bill.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Amendments made: 9, page 4, line 25, leave out from “that” to end of line 26 and insert
Amendment 10, page 5, line 8, leave out from “that” to end of line 9 and insert
Amendments made: 11, page 8, line 37, leave out “a subsea” and insert “an”
Amendment 12, page 8, line 41, leave out from “infrastructure”” to end of line 42 and insert
Amendment 13, page 9, line 1, leave out subsection (7) and insert—
Amendment proposed: 1, Page 12, line 30, leave out Clause 18.—(James Murray.)
Question put, That the amendment be made.
The House proceeded to a Division.

Amendment made: 14, page 15, line 2, leave out from “(S.I. 2006/572),” to end of line 12 and insert
Amendment made: 15, page 41, line 1, after “produced” insert “in the United Kingdom”—(Victoria Atkins.)
Amendment made: 16, page 45, line 5, after “produced” insert “in the United Kingdom”—(Victoria Atkins.)
Amendment made: 17, page 213, line 22, at end insert—
Amendments made: 18, page 236, line 10, leave out “VAT that would, apart from section 55C(3),” and insert
Amendment 19, page 236, line 14, at end insert—
Third Reading