My Lords, it is a pleasure to open this Second Reading debate on the Finance Bill. I take this opportunity to warmly welcome my noble friend Lady Caine of Kentish Town to your Lordships’ House, and I very much look forward to her maiden speech.
The Bill before your Lordships’ House legislates for tax changes announced in the Budget last October, many of which come into effect this financial year. That was a once-in-a-generation Budget, on a scale commensurate with the challenging inheritance that this Government faced, an inheritance consisting of three distinct crises: a crisis in the public finances, a crisis in our public services and a crisis in the cost of living.
In the public finances, as noble Lords may have heard me say before, this Government inherited a £22 billion black hole—a series of commitments made by the previous Government that they did not fund and did not disclose. The OBR has established that the previous Government concealed £9.5 billion and
“did not provide the OBR with all information available”.
As we now know, during the five months they had left in office, the previous Government continued to amass unfunded commitments that they did not disclose. By the Spring Budget, Treasury records show that these had reached £16.3 billion; by July, they had reached £22 billion.
The Treasury has published a line-by-line breakdown of these unfunded commitments: 260 separate pressures that the previous Government did not fund and did not disclose. The previous Government also failed to budget for costs they knew would materialise, including £11.8 billion to compensate victims of the infected blood scandal and £1.8 billion to compensate victims of the Post Office Horizon scandal.
Of course, this Government inherited not just broken public finances but broken public services, with NHS waiting lists at record levels, children in portakabins as school roofs crumbled and rivers filled with polluted waste. Added to this was a cost of living crisis that had hit working people hard, with inflation peaking at over 11%. This was the reality we inherited. Faced with this reality, any responsible Government would need to act.
That is why this Government took action in the Budget to wipe the slate clean, repair the public services, protect working people and invest in Britain. That included a historic investment of an additional £25.7 billion for the NHS, which is helping to bring down waiting lists more quickly and put an end to over a decade of under- investment and neglect. We took this action in the fairest way possible, by keeping the promise we made to working people in our manifesto not to increase their income tax, national insurance or VAT.
The Government did, however, need to take some very difficult decisions elsewhere in relation to tax—difficult decisions, but the right decisions. We have always been clear that there are costs to responsibility and that the increase in employers’ national insurance contributions will have consequences for businesses and beyond, but the costs of irresponsibility would have been far greater. As a result of the decisions we have taken, we have created a foundation of stability on which we are now taking forward our agenda of growth and reform.
My Lords, I start with a note of regret that participants in this vital debate are given an advisory time of only five minutes. As the Official Opposition’s spokesman, I can speak for a little longer, but the time set aside seems inadequate to deal with all stages of such an important Bill—especially on top of consigning the national insurance contributions Bill to the Moses Room. We have distinguished economic and financial experts in this House, and we should make it easier to hear from them in prime time. I look forward to the maiden speech of the noble Baroness, Lady Caine of Kentish Town, and to welcoming her to their number.
It seems a long time since the Chancellor delivered her Budget and James Murray, the Exchequer Secretary, introduced the Bill in the other place. At that time, the Chancellor was destroying morale and animal spirits by talking the economy down, and then bashing business with the highest tax burden in the history of our country. Now, growth is flatlining—as we predicted—and the legacy of fragility lives on, with 10-year bond rates currently at 4.6%.
I have some sympathy for the Minister, as it was necessary to deal with the challenges facing the country—not least improving productivity, which is the long-term way to sustainable growth. That also means tackling the public sector, which the Health Secretary, Wes Streeting, has shown the determination to do, not least with the abolition of NHS England and the multiple tiers of staffing that he hopes to tackle.
The worst and biggest mistake in the Budget was the hike in national insurance—the jobs tax—especially the lowering of the threshold, not least because it will not deliver the hoped-for savings. The OBR has said that by 2029-30, the annual yield from these NIC increases will be slashed by nearly £10 billion through the job cuts and lower nominal wages these measures will inflict. Moreover, a further £5 billion a year will be needed to compensate public service employers. We will come back to these issues at ping-pong next week.
My Lords, it is a life-memorable moment to be making my maiden speech in the customary way. I owe my sincere thanks to my noble friends Lady Morris and Lord Stevenson, who supported and introduced me to this place, and to my noble friend Lady Smith, the Leader of the House, who has shown me much kindness and, with the Chief Whip, my noble friend Lord Kennedy, such warm and welcoming leadership. Warmth and kindness are a signature of the culture here, for which my thanks go also to all my new noble friends on these Benches, as well as noble Lords from the other parties and indeed on the Cross Benches, and to Black Rod, the excellent doorkeepers and all the parliamentary and party staff, who have all been so friendly and supportive as I wander around seeking directions and help. I thank them all so much.
To my background: my father was working-class and my mother middle-class. After the Second World War, they were both recruited into the Foreign Office. Their paths crossed in Bucharest at the start of the Cold War, where they fell in love. I was born in Tokyo. My first schools were in the Jordanian side of Jerusalem just before the Six Day War, then in South Africa at the height of apartheid, followed by other postings around the world. In our family home, the news was always on, newspapers were eagerly read and round the dining table from a very early age we discussed current and foreign affairs, but it was the Foreign Office way that at 10 I was sent to my other home, an English boarding school, and it provided a stark contrast.
I was 13 in 1973, and it was a defining year. It was the time of the three-day week and power cuts. The headmistress, who belonged to another era, had been invited to lunch at our boarding house to raise morale, and I was one of those chosen to sit at her table to learn the art of conversation. Hers covered the evils of the miners’ union and the importance of people knowing their place. Mine was that the miners seemed poorly paid and worked in hard conditions. It was a cue for a frozen silence. I was then told that young women should never pass opinion on politics at the dining table and that if I continued to do so, I would never find a good husband and enjoy a comfortable life. That day I chose which table I wanted to guide my life, and it was the one that taught me to think not just for self but for all, to understand that democracy and equality are hard fought for, precious and should never be taken for granted, and to recognise that politics profoundly matters and that not all politicians are the same.
My Lords, it is an honour and a pleasure to follow the excellent maiden speech of my noble friend Lady Caine. It must have been a special delight for her to highlight the importance of the creative industries on the day that the Government announced the creation of a national centre for music and dance as part of their plan for change. The changes will ensure that young people across the country will have greater access to high-quality arts education, and wider creative and sporting activities, as well as access to skills in technology and artificial intelligence. My noble friend has been one of the foremost advocates of the importance of creative education, not just for its own sake but for its impact on success in science, technology, engineering and mathematics. It is due in no small degree to her persistence that, today, Britain is enjoying such success in global markets from film and television to computer games and artificial intelligence. My noble friend brings a valuable new ingredient to the proceedings of this House and we look forward to hearing more from her.
The Finance Bill is an important Bill by means of which the Chancellor tackles two essential tasks. The first is clearing up the financial mess left by the irresponsible fiscal policies of the Conservative Government, and the second is laying the foundations for economic growth. The most powerful impact of the Bill on growth is not to be found in individual tax measures, as the noble Baroness, Lady Neville-Rolfe, erroneously argued. Instead, the most important impact on growth derives from the overall fiscal balance. That is because the level of business investment for domestic markets is predominantly affected by the level of total effective demand. It does not matter nearly so much if interest rates or taxation are high or low; if the product cannot be sold due to a lack of prospective demand, there will be no investment, no matter how low taxes might be.
Moreover, it is the Government’s commitment to maintain effective demand that fuels the upbeat sentiment that stimulates those all-important animal spirits—the positive sentiments that drive commitment to the future. Hence, although it is important that current spending is kept within the Chancellor’s fiscal rules, any cuts in current spending should at least be balanced by increases in investment spending on infrastructure, support for housebuilding, industrial investment policies and defence.
My Lords, I congratulate the noble Baroness, Lady Caine of Kentish Town, on her eloquent maiden speech. Both she and the noble Lord, Lord Eatwell, referred to the audiovisual industry, or the film and TV industry, and the noble Baroness was right to explain what a successful part of the United Kingdom this is. The noble Lord, Lord Smith, has been praised, understandably, but I extend some praise to George Osborne. He appeared in the credits of a “Star Wars” film, recognising that he took the opportunity to create tax credits that attracted the franchise back into Pinewood. Indeed, further changes have meant that Warner Bros set up a studio. I am sure that, when we are looking at a good film, we can recognise the contributions of all the parties that have been in Government in making sure that we have this thriving industry.
On thriving industry, it is important to think about how Finance Bills generally are there to attract investment and raise money, as well as to drive change in innovation and behaviour. I welcome that the 100% expensing has been maintained in this Finance Bill, which is a sensible approach.
Clause 56 builds on the Financial Services and Markets Act 2023. On a recent trip to the London Stock Exchange, organised by the Industry and Parliament Trust, I learned about PISCES. Stamp duty exemption is going to be important to attract investment in young companies, so that we make sure that we grow more businesses in this country, rather than just seeing them acquired abroad.
I welcome Clause 61, about agricultural property relief. Although I am not going to go into the farmers’ tax, because that is for another Bill, I welcome the environmental management agreements exemption that replaces the exemption for habitats in the Finance Act 1997. As Secretary of State for the Environment, I lobbied to try to make sure that landowners did not stop investing in nature because of this, and I am pleased that the Government have brought through the detailed regulations to make that happen.
My Lords, I also welcome the noble Baroness, Lady Caine of Kentish Town, to the House. I believe that her worldwide experience, her business expertise in the creative industry and her steely determination from such a young age will be a real asset to the House and I welcome her here today.
I come at this issue from a slightly different perspective. While there are many points in the Bill that I disagree with, I accept that it will pass. I want to concentrate on what I see as the chance for a few unintended consequences.
As noble Lords are aware, I am a business guy and invest in lots of businesses. I have come across a lot of high net worth non-doms during that time and, for better or worse, a lot of tax advisers. From that, I have learned three main things. First, high net worth non-doms are very mobile; secondly, tax advisers are very risk averse; and, thirdly, tax advisers generally have significant sway over their clients. This leads them to give UK non-doms two bits of advice that I know go against what the Government intend to do. The Minister himself has said they are hoping to attract the best talents from around the world, but I fear this will not be the case.
First, in terms of the changes to the transfer of assets from abroad, the Bill intends that non-doms will be taxed only on future overseas earnings. However, my understanding is that tax advisers are telling non-doms that they think this might be applied retrospectively. I know this is not the intention, but HMRC needs to urgently provide clarity on this, because non-doms are being advised that they should leave, and I know that is not what anyone wants.
Secondly, the temporary reparation facility is a measure designed to give people a reduced rate of 12% to 15% on any assets they transfer into the UK for a period of three years. Again, this clearly seeks to encourage non-doms to bring those assets into the UK, to the wealth and benefit of the country. Unfortunately, again, tax advisers are highlighting the risk that, in future, HMRC or the courts might reclassify this as a tax avoidance scheme. Again, I know that is not the intent here, but unfortunately that is what tax advisers are currently advising and there is a real danger from that that high net worth non-doms will be put off and, again, will decide to leave as a result.
My Lords, I too congratulate my new noble friend Lady Caine on her excellent speech, which suggests that her husband was lucky to catch her, not the other way round.
The Conservatives have been parroting the preposterous claim that last July they bequeathed our Labour Government a fast-growing, resilient economy, despite their 14 disastrous years in government, seeing abysmally low, slow economic growth; falling productivity; falling real living standards for the first time since the 1950s; UK investment as a share of GDP the lowest in the G7 between 2010 and 2022; key public services savaged by austerity; and a cavalier indifference to rising inequality and to communities collapsed by deindustrialisation.
The shockingly poor performance of the UK economy in the 14 years after the 2008 financial crisis, almost all under the Tories, stands in marked contrast to the success of the 14 years before the global financial crisis, almost all under Labour. Tory austerity was worse than in any of the advanced economies, and over 80% of cuts were to public service budgets, equivalent to £180 billion in today’s terms, which is more than we spend on health and social care in England. It is why NHS waiting lists are so long, why GP appointments are so difficult to get, why our prisons are full to overcrowding and so on.
The Tories’ addiction to public spending cuts was driven by a misplaced faith in neoliberalism, an obsession with cutting the size of the state, reducing the role of government in running the economy or in promoting the common good, relying instead on free market forces and rewarding winners, slashing top rates of income tax on the fortunate few while more than doubling the standard rate of VAT paid by the many.
However, the election of Donald Trump has transformed everything. As well as facing the biggest military threat to peace in Europe since the Cold War—and without, it seems, US backing—we are now in the opening stages of a trade war that could cause a global slide into slump. In the face of huge global security threats and geopolitical turmoil, Germany has dramatically changed its fiscal rules and committed to radically higher defence spending, paid for by increased borrowing along with a €500 billion 10-year fund to boost infrastructure investment. EU leaders have recently pledged €800 billion extra to radically increase military spending by allowing member states to take out loans and increase national debt without incurring the usual penalties under the bloc’s strict fiscal rules.
My Lords, I am really pleased to have a chance to make a short contribution to this debate on the Finance Bill and to congratulate the noble Baroness, Lady Caine of Kentish Town, on her most eloquent and enjoyable maiden speech.
I have been the chairman of the Finance Bill Sub-Committee of the Economic Affairs Committee of your Lordships’ House but we have not been invited to sit this year, which is a polite way of saying that we feel we have been discarded unceremoniously. I am really sorry that we have not been invited to prepare a report on the Finance Bill in the normal way. If we had, one of the areas I would have liked us to look at in depth is the OECD pillar 2 in the Finance Bill. As the Minister will recall, I have raised pillar 1 and pillar 2 a number of times in this House and in fact first raised them in 2013.
We are all pleased to see progress in this Finance Bill in Clause 19 and Schedule 4, building on the work of previous Conservative Administrations. It is disappointing to see that in respect of pillar 1, the digital services tax raised only £678 million in 2023-24. Does the Minister agree that this is too low? As the noble Baroness, Lady Neville-Rolfe, has mentioned, if the Government are keen to raise revenue, enhancing DST would be supported by many in both Houses, so it would be interesting to know what he might be thinking about that.
However, I accept that we are of course now worried by President Trump’s views on pillars 1 and 2. As the Treasury plans to raise some £2.8 billion from pillar 2, it would be interesting to know what plans the Government have to protect this figure given that Trump has said a list of protective measures will be drawn up by the United States.
I remind the House of my membership of the Chartered Institute of Taxation—one of the dreaded tax advisers that the noble Lord, Lord Markham, spoke about—and I am sure Ministers are aware of its observations on the transitional safe harbour routes. It called the top-up taxes of pillar 2 “complicated and burdensome”, so will there be further clarity on these rules? It would be good to hear that.
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The Bill before your Lordships’ House is wide ranging, and I will speak to the measures within it in three distinct categories: first, the measures the Government have taken to deliver on the specific commitments made in our manifesto; secondly, measures to put the tax system on a fairer and more sustainable footing; and thirdly, measures to improve health outcomes and support the clean energy transition in line with our growth strategy.
On the first of these, our manifesto included a commitment, which is being delivered through this Bill, to remove the outdated concept of domicile status from the tax system and ensure that everyone who is a long-term resident in the UK pays their taxes here. In its place, the Bill introduces a new residence-based regime from April this year. This new regime will be internationally competitive and focused on attracting the best talent and investment into the UK. The new rules mean that anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains, as is the case for other UK residents. That is a much simpler and clearer test than exists under the current regime.
The independent Office for Budget Responsibility has confirmed that these reforms will raise a total of £33.8 billion over the five-year forecast period. This includes £21.1 billion from the previous Government’s reform and £12.7 billion from the further reforms announced at the Budget. This will help to fund vital public services and provide stability in the public finances. Reflecting our continued engagement with stakeholders to ensure the reforms operate as intended, the Chancellor recently announced that we are making elements of these reforms simpler to use and more attractive, while retaining the structures announced at the Budget.
Our manifesto also pledged to
“end the VAT exemption … for private schools to invest in our state schools”.
This Bill delivers on that commitment too. Some 94% of children in this country attend state schools. However, too many children do not get the opportunities they deserve because too often these schools are held back by a lack of investment. That is why we introduced VAT on private school fees from 1 January this year to secure the additional funding needed to improve educational outcomes across the UK. Together with our changes to business rates, this measure will raise around £1.8 billion a year by 2029-30 and just under £500 million in this year alone.
The Government published a tax impact and information note setting out the impacts of this policy at the time of the Budget. The Government’s costings, set out in a detailed costings note, have been certified by the OBR. The evidence to date supports these assessments, and we remain very confident in them. Private schools have continued to open in England. Pupil movements remain in line with expectations. Many private schools are partially or fully absorbing costs, instead of passing on higher fees. More pupils are receiving their first choice of school than they did last year.
A final key manifesto commitment relates to the energy profits levy on oil and gas companies. The Bill before your Lordships’ House fulfils our promise to increase the rate of the levy by three percentage points to 38%. It also extends the levy by one year and removes an investment allowance for the oil and gas industry that was not available to any other sector. While oil and gas will continue to play an important role in the energy mix during the transition, we must drive public and private investment towards cleaner energy.
The money raised from these changes will help finance our clean energy transition, enhance energy security and create new jobs. To support these objectives, the Bill maintains 100% first-year allowances in the energy profits levy regime, along with a targeted decarbonisation allowance to help the sector reduce its emissions.
The Bill also contains a range of measures to make the tax system fairer and more sustainable and to restore stability to the public finances. The Bill takes a balanced approach towards capital gains tax, which is paid by fewer than 1% of adults each year. The higher main rate will increase from 20% to 24%, ensuring that the system remains internationally competitive, with the UK retaining the lowest rate of any European G7 economy. The new headline top rate will also remain lower than it was from 2010 to 2016. We are maintaining business asset disposal relief, with its £1 million lifetime limit, and increasing the rates of capital gains tax applied to this relief and investors’ relief in a phased way to give businesses time to adjust.
On inheritance tax, the Bill will ensure that wealthy estates contribute their fair share by extending the freeze in inheritance tax thresholds by a further two years to 5 April 2030. To support home ownership, the Bill also increases the higher rates of stamp duty land tax, so that those looking to move home or purchase their first property have a greater advantage over second home buyers, landlords and companies purchasing residential property.
Putting the tax system on a fairer and more sustainable footing also requires addressing the tax gap—the difference between the amount of tax that is owed and the amount that is collected. The measures set out by the Chancellor in the Budget last October represent the most ambitious package ever to close the tax gap and ensure that everyone who should be paying their taxes is doing so.
Overall, our package is expected to raise £6.5 billion per year by 2029-30. We will achieve that by investing £1.9 billion in HMRC staff and modernised IT systems, including recruiting an additional 5,000 compliance staff, and we will remove loopholes used to reduce tax liabilities. For example, the Bill introduces capital gains on liquidation of a limited liability partnership, changing the way capital gains are taxed and closing a route used for avoidance.
The third and final set of measures in the Bill seek to reduce health-related harms, support the clean energy transition and fund our vital public services. As our growth strategy makes clear, improving health outcomes is essential for delivering resilient, long-term growth. The Bill renews the tobacco duty escalator at RPI plus 2% and increases duty by a further 10% on hand-rolling tobacco this year. The soft drinks industry levy is being reviewed and uprated to maintain incentives for manufacturers to reduce their sugar contents. Alcohol duty is uprated in line with RPI, except for draught products in pubs, recognising the unique role that pubs have in communities.
To support our net-zero commitments, we are introducing new powers to allow for the introduction of the carbon border adjustment mechanism, which will place a carbon price on emissions-intensive goods imported into the UK. We are supporting the take-up of electric vehicles by increasing incentives for zero-emission vehicles in the vehicle excise duty first-year rates.
This Bill delivers on the Government’s manifesto commitments, puts the tax system on a fairer and more sustainable footing, supports the transition to clean energy and improves health outcomes. It is also a Bill to fix the foundations of our economy by repairing the £22 billion black hole in the public finances that we inherited.
The measures contained within the Bill reflect responsible choices. The Government have always been clear that there are costs to this responsibility, but the costs of irresponsibility would have been far greater. As a result of these choices, we have now created a foundation of stability in the public finances on which we will drive forward our agenda of growth and reform. We have set out a clear strategy for achieving our growth mission, but we are not satisfied. That is why we are going further and faster to put Britain on a better path and to deliver for the British people. I beg to move.
The second mistake, which will hit entrepreneurs, family businesses and the farming community, is the class-driven raid on IHT—the family farms tax. We look forward to hearing the results of the consultation and hope that the noble Lord, Lord Wood of Anfield, the new chair of the Economic Affairs Committee, will follow convention and arrange a sub-committee to look at the changes before the details are finalised.
The third mistake is the ideologically driven tax grab on private schools—the education tax. The Bill introduces the first-ever tax on education, and I will major on this because it is provided for in the Bill before us. The Minister has also done so, albeit from a different perspective. Since 1 January 2025, all education, boarding and vocational training provided by private schools in the UK has been subject to VAT at the standard rate of 20%. Alongside this, the Government are removing charitable business rates relief for independent schools in England, meaning they will, for the first time, face the additional burden of local business taxes from April 2025.
To be clear, this is a new, punitive tax on education. Its imposition part-way through the academic year will cause—and has already caused—significant disruption to the education of thousands of children. It harms parents on modest incomes who have worked hard to send their children to the school they believe is best suited to them, and will make independent schools unaffordable for military families, who make the greatest sacrifice by serving in our Armed Forces.
Most of all, the Government’s education taxes will have a disastrous impact on pupils with special educational needs and disabilities, especially on those in independent and state schools who lack education, health and care plans. Over 100,000 children with special needs—many of whom are in independent schools—will be hit. The Government have acknowledged that the policy will have a “disruptive impact” on pupils with SEND, potentially forcing them out of their schools as fees become unaffordable, which will overwhelm the state-funded system and burden local authorities with a surge in EHCP applications.
Ultimately, this tax on education could, according to the Adam Smith Institute, cost the taxpayer £1.6 billion a year if it forces a quarter of pupils into the state sector. This policy is a direct attack on aspiration. It punishes those who have worked hard to succeed and we will only begin to see the real damage at the start of the next academic year. Parents will deprive themselves of much to avoid taking a child out of school during the year, but, in the autumn, hard-pressed parents will in many cases have no choice but to remove their children from private education.
The Government have also broken their manifesto promises with the Budget and the Finance Bill. Their pledge was:
“We will ensure taxes on working people are kept as low as possible”.
Yet, they have increased the tax burden to a historic high of 38.2% by 2029-30.
Rather than creating an environment that promotes investment and growth, the Bill makes our tax system less competitive. It abolishes the remittance basis of taxation for non-domiciled individuals and raises the main rates of capital gains tax—from 10% to 20%, and from 18% to 24%, respectively. It reduces investor relief and increases stamp duty.
These measures do not lay the foundations for the growth we need; they erode the incentives for businesses to invest and create jobs in the UK. We are seeing the consequences. More than 10,000 millionaires left Britain last year, up from 4,200 in 2023. With his growth hat on, can the Minister confirm how the Government will ensure that the UK remains an attractive place to work and invest in? What has happened to the enterprise economy?
The Government made another promise. They said:
“The dream of homeownership is now out of reach for too many young people”,
and vowed to
“support first-time buyers who struggle to save for a large deposit”.
However, once again, the promises have been broken. Millions of young people have now learned that those were empty words.
The Government have confirmed that stamp duty relief for first-time buyers will be slashed this month. This means that first-time buyers purchasing homes worth over £300,000 will pay thousands more in tax under this Budget. Rents will also be pushed higher as a result of this stamp duty hike, as stated by Paul Johnson of the Institute for Fiscal Studies. This will further squeeze young people, who are already struggling to make ends meet. It is plainly clear: the Government are not prioritising the future of young people as they should.
The Bill also perpetuates the Government’s flawed energy policy, which fails to prioritise our energy security. It increases the energy profits levy to 38%, bringing the headline rate on oil and gas activities to 78%, and extends that rate for another year, removing investment allowances.
The real-world consequences of this ideological policy are dire. Offshore Energies UK has warned that the change will stifle investment and put 35,000 jobs at risk. If investment falls—the OBR concludes that capital expenditure will be down 26% over the forecast period—the country will become more dependent on imported energy. This will not only compromise the UK’s energy security but expose consumers to price fluctuations, leaving them vulnerable to global supply disruptions.
The Government are relying on the levy to help fund GB Energy and support the transition to clean power. However, if investment in UK oil and gas declines, the revenue generated by the levy will diminish, eroding the very schemes that they claim will create a “green energy superpower”. We should be maximising our homegrown energy, not undermining domestic production.
There are three other points that I hope the Minister may be able to clear up. First, what are the Government’s plans for the digital services tax, particularly in the light of adverse comments from Washington about the future of the tax in any trade deal? I was in favour of the introduction of the tax as a means of reducing the discrimination against physical retail that has been so damaging to our high streets. Any reassurance would be most welcome.
Secondly, the Government acknowledged that the transitional provisions for remittance by non-doms were faulty and helpfully tabled an amendment in the other place, now paragraph 6 of Schedule 9. However, I have been advised by the Chartered Institute of Taxation that this is also defective, so that, for example, individuals who brought money into the UK to buy a house several years ago would now face a big retrospective tax charge. To stop yet further departures from the UK to avoid such perverse effects, could the Minister make a statement that the Government recognise the issue and commit to a further amendment in the next Finance Bill?
Thirdly, and this is important, will the Minister repeat the Chancellor’s commitment that the Government will not extend the freeze of income tax and national insurance contribution thresholds beyond April 2028?
I conclude by reminding the House that the Government inherited the fastest-growing economy in the G7, with inflation under control, unemployment halved and the deficit reduced, yet the measures in the Bill do nothing to boost growth or to secure our stable future. The combination of the jobs tax, the family farms tax and the education tax has devastated business confidence, put the future of British farming in jeopardy and is disrupting the education of hundreds of thousands of children. This was a Budget that failed to rebuild the foundations of our nation, as promised. It does not deliver the economic growth that we need. It does quite the opposite. The Government pledged that their prime mission would be to boost economic growth. Instead, they have consistently talked down the British economy and growth has evaporated. Ministers must act in the Spring Statement next week to correct the mistakes they made and put the British economy back on track.
My sister and I were the first young women in our family to go to university. I chose to study politics at Nottingham—well, half the time. The other half I devoted to creative activities and student politics. I joined the Labour Party in 1982 and have worked all my life in the creative industries supporting skills and education. One role for many years was as a member of the Creative Industries Council chairing the skills and education priority of its industrial strategy.
That brings me to the Finance Bill before us, which enhances audio-visual expenditure credits for UK visual effects works. The UK is home to world-renowned companies, and this will further support them in an increasingly competitive global market. It builds on the benefits of the current tax reliefs, which together have turbocharged these sectors of the creative industries. That trail was first laid by my noble friend Lord Smith of Finsbury when he was Secretary of State for DCMS. A tax relief for film was the key outcome of his 1997 film policy group, which I served on, working with industry and DCMS to establish a voluntary skills levy. Producers recognised that the growth that the tax relief would incentivise required them to take on greater responsibilities for developing the UK’s largely freelance workforce. It is to their credit and that of previous Governments that there are now voluntary skills levies in place across all the enhanced credit areas with high levels of freelancing.
Greater impact could have been achieved through alignment between the statutory apprenticeship levy, those investments and other public investments, but that has yet to be fully realised. The DfE and the Treasury have historically tended to one-size-fits-all policies, modelled on larger companies in traditional sectors, rather than enabling necessary flexibilities better to support the service sectors and small companies that make up the majority of our economy.
The Government’s industrial strategy has prioritised the creative industries as one of eight growth-driving sectors. Education and skills is a key area for government and the industries to work on together. It is encouraging to see that with the establishment of Skills England and announcements around apprenticeships and the levy in the Finance Bill, flexibilities will be enabled to help drive success sectorally and regionally. The development of the sector plan for the creative industries provides opportunities for new actions and investments to help close current shortages and gaps that are hampering their further growth and productivity. They are a powerhouse of our economy, with the potential to contribute even more.
Finally, I am proud that mine is one of 382 female life peerages that have been created since 1958, the year before I was born, when women were allowed into this House on equal terms with men for the first time. It is the greatest honour of my life to serve in this place. I give my lovingest thanks to my very good husband of many years. Yes, indeed, dear listeners, I did manage to find one. I have much to learn here and will strive to honour my party and the memory of my parents by seeking to contribute to the same high levels that I see and hear others achieve. It is a pleasure and privilege to be alongside them all.
There has been a persistent view in policy circles that investment is somehow an inefficient means of stimulating demand, since investment takes time whereas stimulating consumption has immediate impact. This typically short-termist view could not be further from the truth. The Government’s commitment to public investment is at one and the same time a commitment to long-term demand and commercial profitability, and businesses know that—hence the Chancellor should be congratulated on the fact that, in the face of the dreadful economic inheritance from the Conservative Government, in the Budget she provides a stimulus to effective demand that the OBR estimated at £26 billion. That is the fuel to power the engine of growth.
There is one important area of investment in which tax rates really do matter: namely, where the international allocation of investment is concerned. A fine example of that is the television and film industry. As my noble friend Lady Caine noted in her excellent maiden speech, the Finance Bill enhances the audiovisual expenditure credit for the UK. This seemingly small measure builds on the work begun by Chris Smith—now my noble friend Lord Smith—and Gordon Brown, using fiscal incentives to stimulate investment in film and TV production. Today, as a result of those measures, the UK film and TV production industry is thriving as never before. It is worth around £7 billion a year and it produces a range of highly skilled, well-paid jobs.
The success of that industry is an example of what can be achieved by a carefully targeted industrial policy linked with the necessary investments in education and training. But this successful example of the use of fiscal incentives in the context of a global industry must be used with care and with an awareness of the dangers of increasing the complexity of the tax system. Complexity generates tax avoidance and undermines any sense of fairness in taxation. It diminishes the economic efficiency of the tax system. In the immortal words of 1066 and All That, tax complexity is “A Bad Thing”. Yet attempts to reduce complexity have repeatedly failed. Consider the history of the Office of Tax Simplification—remember that?—established by George Osborne in 2010 and eliminated in the disastrous mini-Budget of 2022. It is gone without trace.
So what are we to do, given the undoubted damage that tax complexity is doing to the growth objective? I propose that we establish a royal commission on taxation, charged with examining the efficiency of our tax system, applying Adam Smith’s principles of taxation and proposing reform. Establishing the commission now will produce the non-partisan proposals that will provide the framework for the radical tax reform that Britain desperately needs and avoid the dangerous trap of piecemeal changes. The major loser would be the thriving tax-avoidance industry.
This Finance Bill is but one step on the long road to rebuilding the British economy while facing severe international headwinds. It clears the fiscal decks for the fundamental reforms to come. It should be welcomed.
However, in a number of other clauses, I am trying to understand the psyche of the Government and what they are trying to do to change behaviour. Clause 78 relates to the plastic packaging tax, which is just going up by inflation. The resources and waste strategy, which I principally authored, was intended to make sure that packaging materials had at least 30% recycled plastic and to drive activity towards that.
It would be worth while now to do a review of whether that has had the desired impact. In some of my discussions with food companies during the time of Covid regarding the challenge of the cost of living and what measures could be done there, several of the companies said, “Well, it would make more financial sense for our financial director to just pay the tax rather than make the changes”. To their credit, they kept to it, trying to reduce the use of virgin plastic, but I am concerned, with some of the winds that are happening in the world’s economy, about whether we might see any companies going back. So it would be worth while doing a review in that regard.
On Clause 76, landfill tax reform is a great example, which is cited around the world in environmental conferences, of a change in behaviour that has basically driven a lot of landfill more to recycling. There may be more to do on incineration, but it has been hugely successful. I noted the significant increase—I think it is about 24%—but I believe that is connected to the fact that we have had high inflation for a couple of years.
However, I was concerned about comments made by the Economic Secretary in the other place relating to Clause 79, and this is to do with the soft drinks levy. There is going to be a 27% uplift. Now, this tax initiative did make lots of firms reformulate, which is good for public health and for the prevention of issues later. However, the rationale given by the Minister was simply that, “Oh well, previous Governments hadn’t raised this since 2018”. Part of the issue is that in effect the tax had more or less done its job. I worry about this backdating approach simply because we have not caught up. I am not suggesting that the Government are going to do this, but, if we took the same approach to fuel duty, we would be looking at a 64% increase. So I hope the Minister will rule out any backdating measure.
I am conscious that we have an advisory time limit but I have one final point that has been strongly missing, and it comes back to farmers. Despite the fiscal plan on Labour’s website saying there will be investment in reducing tax avoidance, the Prime Minister and the Secretary of State, Steve Reed, have encouraged people to properly manage their tax affairs and advocated tax planning to minimise their tax liability. There is one gap, and that is connected to the tax treatment of double cab pick-ups. The original legal case relates to Coca-Cola. I am conscious that a lot of firms—I am particularly thinking of forestry and many rural farmers—are being hit by this. It really is not fair on them, relating to something that they have invested in to do their business. I ask the Government to think again in their next Finance Bill.
I know that neither of those things is the intention of the Government, so I urge them to urgently put out guidance to spell out that this is not a risk, otherwise—although, as I say, I know this is not the intent—it is likely to happen. I offer these points, hopefully in the spirit of helpfulness, and I hope the Minister will provide the necessary assurances as quickly as possible to make sure that this does not happen.
Our UK Government are rightly also increasing defence spending, albeit financed by a humongous cut in overseas aid. But nobody seriously thinks we can leave it at that, nor that we can cut front-line services such as health, education or policing. We must therefore make sure that extra defence spending delivers faster domestic growth too, so that a bigger GDP funds our other pressing priorities.
The financial markets will have to grasp why today’s new security threats warrant increased defence spending financed by extra borrowing, as all our European partners are doing. Our Labour Government’s duty, together with our partners, is to do whatever it takes to make Britain and Europe safe again. If that means modifying our fiscal rules for these exceptional and exceptionally dangerous times, that is what we have to do. If we had not done something like this in the Second World War, Hitler would have won. Britain rearmed in 1938 by raising defence spending to £400 million, of which £272 million was financed from taxation and £128 million by extra borrowing under the Defence Loans Act 1937.
Extra borrowing for defence purposes only could be made possible by issuing special purpose financial vehicles such as defence bonds up to set limits, as some of our European allies already have in mind. The key will be a steady expansion of defence procurement, not a sudden splurge which could benefit US defence contractors but leave British suppliers out in the cold. I very much hope that the Chancellor will break free from Treasury orthodoxy and do this.
As the noble Lord, Lord Markham, mentioned, the changes to tax of people formerly called non-doms have, unfortunately, proven to be a bit of a disaster. The temporary repatriation facility will have no material effect and in 2024, on a net basis, more than 10,000 millionaires left the UK, more than double the 2023 figure. That equates to over 500,000 average taxpayers, as each of them would have paid at least £400,000 in income tax alone last year.
A survey by Oxford Economics estimates that two-thirds of those remaining are thinking of leaving simply due to the tax changes and even the OBR estimates that 15% to 25% of the remaining non-doms may well leave. I cannot believe that the Chancellor’s estimates of raising £13 billion over five years from such people is right; in fact, it has been calculated that it will cost £1 billion, not make £13 billion. Has the Minister had a chance to revise the £13 billion in view of the hard fact that people are leaving the UK in much greater numbers than anticipated? The Minister may now be aware of serious concerns about deficiencies in the legislation regarding so-called double remittances. This needs to be urgently addressed in future Finance Bills.
It seems appropriate to mention national insurance, particularly given PMQs earlier today, where I think the Prime Minister was embarrassed to have to admit that the amendment that we tabled in respect of hospices had not been accepted in this House and has gone to the other place.
I am grateful to the Minister for once again mentioning the £22 billion. He mentioned “line by line”. He mentioned the OBR’s £9 billion, although he did not mention the £13 billion that no one can find. I cannot find one economic commentator who agrees with the Government, and he makes no mention of the underprovisions that always exist every year, which have been ignored by this Government.
Much of the “black hole” has been created by the Government folding to their bosses in the unions and paying public sector wages with no productivity gains, which is a disaster if you want growth as the NHS is included in the growth statistics. Once again, we have to question those claims. Indeed, on statements of economic competence, the last Labour Administration left government with the financial crisis and, of course, left a note apologising that there was no money left in the kitty. Let us not forget that.
So, as a result, private businesses are going to suffer now as resources are sucked out of them unnecessarily. The first few months of the new Government have been a disaster fiscally, with the unfortunate announcement on the winter fuel payment, the virtual riots on the streets by our farmers—normally the backbone of our society—and charities, social care homes and even hospices openly hostile to the Government.
Let us try to create a better environment for fiscal changes. It is clear that the Treasury has persuaded Ministers to apply taxes which previous Chancellors have wisely resisted. I hope they learn from this and chose to consult more widely before the imposition of new taxes.