(Clauses 1 to 5; Clauses 6 to 14 and Schedule 1; Clauses 24 to 26; Clause 28; Clause 30 and Schedule 6; Clauses 31 to 33; Clause 36 and Schedule 7; Clause 40; Clause 41; Clause 86; Clauses 87 to 89 and Schedules 16 and 17; Clauses 90 and 91; Clauses 92 to 96 and Schedule 18; Clause 97 and Schedule 19; Clauses 109 to 111 and Schedules 21 and 22; Clause 115 and Schedule 27; Clauses 117 to 121 and Schedules 29 to 32; Clauses 128 to 130; any new Clauses or new Schedules relating to: the impact of any provision on the financial resources of families or to the subject matter of Clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86; the subject matter of Clauses 6 to 14 and Schedule 1; the impact of any provision on regional economic development; tax avoidance or evasion; the subject matter of Clauses 87 to 89 and Schedules 16 and 17 and Clauses 90 and 91; the subject matter of Clauses 92 to 96 and Schedule 18, Clause 97 and Schedule 19 and Clauses 128 to 130)
[1st Allocated Day]
Considered in Committee
[Dame Rosie Winterton in the Chair]
Clause 1
Income tax charge for tax year 2021-22
Question proposed, That the clause stand part of the Bill.
With this, it will be convenient to discuss the following:
Clauses 2 to 4 stand part.
Amendment 2, in clause 5, page 2, line 16, leave out “2022-23”.
This amendment would mean that the freezing of tax thresholds at 2021-22 levels did not apply until 2023-24.
Amendment 3, page 2, line 18, leave out “2022-23”.
See the explanatory statement for Amendment 2.
Amendment 4, page 2, line 25, leave out “2022-23”.
See the explanatory statement for Amendment 2.
Clause 5 stand part.
Clauses 24 and 25 stand part.
Amendment 93, in clause 26, page 19, line 3, at end insert—
“, or for the presence of antibodies to SARS-CoV-2”.
This amendment would extend the income tax exemption for payments to employees in respect of the cost of obtaining antigen coronavirus tests to cover antibody coronavirus tests too.
Clause 26 stand part.
Clause 28 stand part.
Amendment 92, in clause 31, page 20, line 13, at end insert—
“, where the person who received the payment is not a qualifying person by virtue of Paragraph 5 of the direction given by the Treasury under section 76 of the Coronavirus Act 2020”.
This amendment would ensure that the one-off £500 payment to certain working households in receipt of tax credits could only be recovered where it is found that the individual was not entitled to the payment because they were knowingly concerned in underlying fraud either in relation to their tax credit award or the one-off payment.
The Government have delivered an unparalleled package of support during the covid-19 pandemic, providing over £352 billion for public services, workers and businesses. This response has been fair and balanced, with the poorest households benefiting the most from the Government’s interventions. It is now necessary to take steps to ensure the sustainability of the public finances and continue to fund our excellent public services. Our approach to fixing the public finances will therefore also be fair and balanced. The fairest way to put the public finances on a more sustainable footing is to ask all taxpayers to play their part, as well as asking those people able to contribute more to do so. That is why, in these parts of the Bill, the Government are legislating for freezes to the personal allowance, higher rate thresholds, the inheritance tax thresholds, the pensions lifetime allowance and the annual exempt amount in capital gains tax. The Government are also making sensible changes to the tax treatment of coronavirus support payments and exemption-related adjustments to account for the impact of the pandemic.
Given the number of speakers and amendments, I will try to keep my remarks relatively brief. Before I turn to the changes announced at Budget, let me touch on clauses 1 to 4. These are legislated for every year and are essential for the Government to be able to collect the right amount of income tax for the tax year 2021-22.
I come now to the clauses that legislate to maintain thresholds. These clauses are an essential part of a fair and responsible fiscal approach to fixing the public finances. Clause 5 maintains the income tax personal allowance and the basic rate limit at their 2021-22 levels from April 2022 until April 2026. This is a universal, progressive and fair measure being taken to fund public services and rebuild the public finances, and it ensures that the highest-earning households will contribute more. Indeed, the top 20% of highest-income households will contribute 15 times that of the bottom 20% of lowest-income households.
Has the Minister had any discussion with the Low Incomes Tax Reform Group, which has indicated to me some of its concerns about how Her Majesty’s Revenue and Customs required claims from individuals? It is a delicate matter, but there is problem there. Has he had an opportunity to discuss it with the LITRG?
The hon. Gentleman will be pleased to know that I maintain a strong dialogue, through officials, and from time to time in person, with the LITRG and I have no doubt that the input it has given has been carefully considered in this regard. If he would care to write to me with his specific concern, I would be happy to pick that up as well.
It is right that HMRC has powers to tackle fraud and abuse of the self-employment income support scheme and that the Government provide legal clarity that SEISS grants are liable for income tax in the year of receipt. Clauses 31 and 32 will allow payments made in support of individuals and businesses by the Government to meet their objectives as far as is possible. Opposition amendments 15 and 92 are already comprehensively addressed by existing policy, and I ask that Members do not press them to a vote. Clause 33 makes changes to ensure that the repayments of business rates relief are deductible for corporation tax and income tax purposes. This ensures that any repayments of support are dealt with appropriately.
Taken together, these measures will help the Government to continue to support individuals and businesses through the coronavirus pandemic, and they will also begin to put the public finances on a sustainable footing as we continue to move out of the pandemic. I therefore ask that clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86 stand part of the Bill.
I rise to speak to the provisions standing in my name and those of the Leader of the Opposition and my right hon. and hon. Friends. On behalf of the Opposition, I will begin our detailed scrutiny of this Bill today by considering the impact it will have most immediately and most widely on people across the UK through its cuts to the money that families, in all their many forms, have in their pockets.
The opening clauses, 1 to 5, focus on income tax, with clause 5 freezing the personal allowance from 2022-23 through to 2025-26. That is no small change; the effect of the clause will be to make half of all people in the UK pay more tax from next year, and that is not the only measure the Government are taking that raids their pockets. We know that this Bill will make families pay more through the income tax changes next year, but it also does nothing to stop the sharp council tax rise that the Government are forcing councils to implement right now, it supports the Chancellor’s plan to cut £20 a week from social security this autumn for some of those who need help most, and of course it comes as the Government are choosing, in this year of all years, to take money from the pockets of NHS workers.
Does the shadow Minister accept that the total take in income tax from individuals across the United Kingdom as a result of that one measure in one year will be £10 billion, and the total take over the next five years will increase by 25%? On the basis of the tax paid now, 25% more income tax will be paid collectively by individuals as a result of simply freezing thresholds.
I thank the hon. Member for setting out some of the figures about the impacts of the Bill. I can add to that by saying that if we take the freezes to the personal allowances, along with the cuts to NHS workers’ pay, the council tax hike and the cut to universal credit, the real scale of the impact of the Government’s decisions becomes clear. A newly qualified nurse living with their partner and two children in rented accommodation will lose more than £1,100 a year. It is plain wrong to hit families across the country in that way, but that sense of injustice is made all the more acute by the fact that that increase of costs to families comes years before any rise in corporation tax. At the same time, through the Bill the Government are letting tech giants stop paying tax altogether.
Last week, we voted against the Bill on Second Reading. Our reasoned amendment made it clear that key to the decision was its effect on family finances, through what it does and what it does nothing to stop. Today, we have the chance to stop the measure in the Bill that will make every income tax payer in the country pay more next year. We will seek a vote on clause 5, and I urge Conservative Members to join us in knocking this attack on families out of the Bill. By doing so, we would allow the Government to come back in their next Finance Bill with a fairer approach—one that does not put a misguided tax break for big business ahead of the money that families have in their pockets.
The other clauses that are being debated concern a range of other matters. Clauses 24 to 26 relate to the impact of covid on those benefiting from enterprise management incentives, cycle-to-work schemes and employer-provided coronavirus tests. Meanwhile, clause 31 exempts those receiving tax credits from paying income tax on the one-off covid-19 support scheme payment. Clause 32 clarifies the tax treatment of payments made under the self-employed income support scheme. Clause 33 provides for a relief where businesses repay covid support payments that are no longer required. Finally, clause 28 freezes the standard lifetime allowances for pensions immediately until 2025-26, while clause 40 does the same for the capital gains tax annual exempt amount and clause 86 does the same for inheritance tax thresholds.
We hear from the hon. Gentleman that his party seeks to strike out the single largest intervention that will help the recovery, in the form of the super-deduction, which businesses have already told me is mobilising incremental investment. I would be fascinated to hear his view of new clause 7, which was put forward by many of his recent colleagues, including many of those who were on the Front Bench, to increase the rate of income tax to 55%. What does he think of that?
The hon. Gentleman spoke about the super-deduction, but as that will be picked up in the next debate, I will focus now on the changes that are the subject of this debate.
Although we know that the Government will be making changes that affect different communities differently, the crucial point is that we know already what impact the Government’s policies will have this month, this autumn and next year. This month, households will feel the hit as the Government force local authorities to raise council tax in the middle of a pandemic, having broken their promise to give councils whatever was needed to help support people through the covid crisis.
This autumn, some of those families who need help will see the Government cut £20 a week off their universal credit, hitting them just as other covid support schemes are due to be winding down. This hit will come just when the Office for Budget Responsibility has predicted that unemployment will peak at 6.5%—2.2 million people—and this cut takes out-of-work support to its lowest level since the 1990s.
Next year, more than 30 million people in this country, including those earning only just enough to pay tax at all, will be forced to pay more as the freeze to income tax and personal allowances kick in. It tells us all we need to know about this Chancellor’s priorities that families will feel the impact of the Government’s choices years before businesses face an increase in corporation tax and at the very same time that some of the biggest firms in this country are offered a tax break that the Chancellor himself has boasted represents the biggest tax cut in modern British history.
We on the Labour Benches believe that our country needs a fair progressive tax system. We want to see greater investment in jobs, growth and addressing the long-term challenges that we face. We want to see families protected, not forced by this Government to shoulder the burden while tech giants see their tax bills reduced to nil. It is not just the Opposition who oppose the Government’s approach. Major international economic bodies such as the International Monetary Fund and the OECD agree that these tax rises on families are wrong. The hit to household finance is not only unfair but economically illiterate. Taking money out of people’s pockets now means that they will not spend it in small businesses or in local high streets, damaging the prospect of a recovery.
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Amendment 15, page 20, line 13, at end insert—
“(4) The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons an equalities impact assessment of the provisions of this section, which must cover the impact of the provisions on—
(a) households at different levels of income,
(b) people with protected characteristics (within the meaning of the Equality Act 2010),
(c) the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010,
(d) equality in different parts of the United Kingdom and different regions of England, and
(e) child poverty.”
Clauses 31 to 33 stand part.
Clause 40 stand part.
Clause 86 stand part.
New clause 7—Assessment of revenue effects of supplementary income tax rate—
“(none) The Chancellor of the Exchequer must, no later than 31 October 2021, lay before the House of Commons an assessment of the effects on tax revenues of introducing a supplementary rate of income tax, charged at a rate of 55%, above a threshold of £200,000.”
This new clause would require the Government to publish an assessment of the effect on tax revenues of introducing a 55% income tax rate on income over £200,000.
New clause 8—Equalities impact assessment and distributional analysis of tax thresholds—
“The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons an equalities impact assessment of existing income tax thresholds and a distributional analysis of—
(a) the effect of reducing the income tax threshold for the additional rate to £80,000, and
(b) the effect of introducing a supplementary rate of income tax, charged at a rate of 50%, above a threshold of £125,000.”
New clause 10—Review of changes to coronavirus support payments etc—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to coronavirus support payments etc by sections 31, 32 and 33 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider the effects of the provisions on—
(a) business investment,
(b) employment,
(c) productivity,
(d) GDP growth, and
(e) poverty.
(3) A review under this section must consider the following scenarios—
(a) the coronavirus job retention scheme and the self-employment income support scheme are continued until 30th September 2021, and
(b) the coronavirus job retention scheme and self- employment income support scheme are continued until 31st December 2021.
(4) In this section—
“parts of the United Kingdom” means—
(a) England,
(b) Scotland,
(c) Wales, and
(d) Northern Ireland;
and “regions of England” has the same meaning as that used by the Office for National Statistics.”
This new clause would require a report comparing the effect of (a) the coronavirus job retention scheme and the self-employment income support scheme being continued until 30 September 2021, and (b) the coronavirus job retention scheme and self-employment income support scheme being continued until 31 December 2021 on various economic indicators
New clause 11—Review of changes relating to cycles and cyclist’s safety equipment—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by section 25 and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider the effects of the provisions on—
(a) business investment,
(b) employment,
(c) productivity,
(d) GDP growth,
(e) poverty, and
(f) carbon emissions.
(3) A review under this section must consider the following scenarios—
(a) the cost of a cycle is made an allowable expense on self-assessment tax return forms, and
(b) the cost of a cycle is not an allowable expense on self-assessment tax return forms.
(4) In this section—
“parts of the United Kingdom” means—
(a) England,
(b) Scotland,
(c) Wales, and
(d) Northern Ireland;
and “regions of England” has the same meaning as that used by the Office for National Statistics.”
This new clause would require a report comparing the impact of the impact of (a) making the cost of a cycle an allowable expense on self-assessment tax return forms and (b) not doing so on various economic indicators.
New clause 12—Review of impact of section 40 on equalities—
“(1) The Chancellor of the Exchequer must conduct an equality impact assessment of section 40 and lay this before the House of Commons within six months of Royal Assent.
(2) This assessment must consider the expected impact of section 40 on individuals and groups with protected characteristics under the Equality Act 2010.”
This new clause would require the Chancellor of the Exchequer to review the impact of Clause 40 on equalities.
New clause 22—Review of impact of section 40—
“(1) The Chancellor of the Exchequer must review the impact of section 40 and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider the effects of the provisions on—
(a) the regional distribution of capital gains in the UK, and
(b) projected receipts.
(3) A review under this section must consider the following scenarios—
(a) capital gains tax rates are changed so as to be equal to those of income tax, and
(b) capital gains tax rates remain at the level in this Act.”
This new clause seeks a report on the impact of equalising capital gains tax and income tax on (a)the regional distribution of capital gains in the UK, and (b) projected receipts.
New clause 23—Equality impact analysis—
“(1) The Chancellor of the Exchequer must review the equality impact of sections 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider—
(a) the impact of those sections on households at different levels of income,
(b) the impact of those sections on people with protected characteristics (within the meaning of the Equality Act 2010),
(c) the impact of those sections on the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010, and
(d) the impact of those sections on equality in different parts of the United Kingdom and different regions of England.
(3) A review under this section must give a separate analysis in relation to the following matters—
(a) income tax,
(b) employment income,
(c) coronavirus support payments,
(d) pension schemes,
(e) investments, and
(f) inheritance tax.
(4) In this section—
“parts of the United Kingdom” means—
(a) England,
(b) Scotland,
(c) Wales, and
(d) Northern Ireland;
and “regions of England” has the same meaning as that used by the Office for National Statistics.”
This new clause requires the Chancellor of the Exchequer to carry out and publish a review of the effects of clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86 of the Bill on equality in relation to households with different levels of income, people with protected characteristics, the Treasury’s public sector equality duty and on a regional basis.
I shall now respond to amendments 2 to 4 and new clause 7, which relates to clause 5. Amendments 2, 3 and 4 seek to delay the decision to maintain the income tax personal allowance and higher rate threshold until April 2023. The Office for Budget Responsibility forecast that UK GDP will reach its pre-virus peak by the second quarter of 2022. The Bank of England forecast that it will happen at the beginning of 2022. In the light of those estimates, it is reasonable and fair for the Government to uphold the start of this policy from April 2022. Nobody’s take-home pay will be less as a result of this decision. For most taxpayers, any real-terms loss will be very small in 2022-23. I therefore urge the right hon. Member for Hayes and Harlington (John McDonnell) not to press the amendments to a vote.
New clauses 12 and 23 would require the Government to publish equalities impact assessments for all the measures in this debate, and new clause 8 would require the Government to publish an equalities assessment of existing income tax thresholds. New clause 8 would also require the Government to publish distributional analysis on two changes that do not constitute Government policy—namely, reducing the additional rate threshold to £80,000 and introducing a supplementary 50% rate of income tax for income above £125,000.
The Treasury carefully considers the equality impacts of the individual measures announced at fiscal events on those who share protected characteristics, in line with both its legal obligations under the public sector equality duty and its strong commitment to issues of equality. The Treasury already publishes comprehensive assessments of income tax threshold changes. Alongside the Budget, the Government have published detailed distributional analysis of the decision to maintain income tax thresholds, both at a household and on an individual basis. The new clauses therefore do little to provide meaningful additional analysis further to the Government’s existing comprehensive publications, and I therefore urge Members not to press them to a vote.
Clause 28 makes changes to maintain the pensions lifetime allowance at £1,073,100 until April 2026. This will limit the pensions tax relief available to those with the largest pension pots and supports the Government’s objective of a system of pensions tax relief that is fair, affordable and sustainable. Clause 40 maintains the capital gains tax annual exempt amount at its 2020-21 level of £12,300 for individuals and personal representatives and £6,150 for most trustees of settlements for the tax years 2021-22 up to and including 2025-26. Maintaining the annual exempt amount at a 2020-21 level is a responsible decision, consistent with the decisions that the Government have taken to maintain the value of the other main allowances over the same period.
Clause 86 maintains inheritance tax thresholds at their 2020-21 levels until April 2026. This means that the nil rate band will remain at £325,000 and that the residence nil rate band will remain at £175,000. The tapering of the residence nil rate band will continue to start when the net value of an estate is more than £2 million. Maintaining these thresholds is forecast to contribute almost £1 billion over the next five years to help to rebuild the public finances, but this approach still ensures that more than 94% of estates will not be liable for inheritance tax in each of the next five years. Taken together, this Government’s approach to thresholds across the tax system is clear evidence of a fair and consistent fiscal strategy to repair the public finances while continuing to invest in public services.
Clauses 24 to 26 make minor adjustments to exemptions to account for the impact the coronavirus pandemic has had on businesses and workers. Let me also address one proposal relating to clauses 25 and 26. New clause 11 would commission a review of the changes relating to the employer-provided cycles exemption. I am happy to reassure the Committee that the terms of that exemption have not changed and only a minor time-limited easement is introduced by this Bill. It is not therefore necessary to review the changes. Clauses 31 to 33 relate to the Government’s package of support payments for individuals and businesses during the pandemic. Clause 31 makes changes to ensure that the one-off £500 payment to eligible working tax credit claimants announced at Budget 2021 is not subject to income tax. This will ensure that the recipients of the tax credit benefit in full and that the payment meets its objective of providing additional support to low-income working households.
Through our new clause 23, we ask that all the measures being considered today are considered for their effects on the finances of different households across the UK. We want to see a fair, progressive tax system in this country, so we want the Government to be transparent about the effect that their changes will have on people’s lives. The question of how changes affect the people of this country should always be the Government’s overriding concern when introducing changes to the tax system.
That is why our new clause would require that the Government analyse, review and be transparent about how their changes will affect households at different levels of income. It would further require Ministers to set out how the changes would affect people on the basis of age, disability, race, sex and other protected characteristics, and how they would affect people living in different nations and regions of the UK. There is significant evidence that women, those from black, Asian and ethnic minority communities, young people and disabled people have been disproportionately affected throughout the pandemic. The Budget report itself says:
“The economic impact of restrictions has not been felt equally. Staff in the hardest hit, largely consumer-facing sectors, such as hospitality, are more likely to be young, female, from an ethnic minority, and lower paid.”
It is therefore indefensible that not one of many supporting documents to last month’s Budget statement, nor the Bill, was an equality impact assessment.
Our new clause gives the Government a chance to right that wrong, but while that analysis is vital in setting out how different people will be affected by the Government’s choices, we know already that the biggest and most immediate impact of the changes in the Bill—and of the Government’s wider policy choices, on which the Bill is silent—will be to take money from the pockets of people across the country this month, this autumn and next year.
We will be voting for the Government to be clear and transparent about the effects of the measures in this Bill on all the different families and households across this country. While Conservative Members may not want to support all of our points, I would not be surprised if some did not feel deeply uncomfortable at the prospect of making families pay more through this Bill. We therefore hope to offer them a chance to join us in rejecting clause 5, halting this Bill’s plans to make all income tax payers pay more from next year and forcing the Government to think again about the fairer tax system our country needs.