Finance (No. 2) Bill

1st Allocated Day

(Clauses 1 to 10 and 62 and 69, schedules 1, 2 and 12, and any new clauses or new schedules relating to the subject matter of those clauses and schedules)

[Caroline Nokes in the Chair]

I remind the House that, in Committee, Members should not address the Chair as Deputy Speaker. Please use our names when addressing the Chair. Madam Chair and Chair are also acceptable.

Clause 1

Income tax charge for tax year 2026-27

Question proposed, That the clause stand part of the Bill.

With this it will be convenient to consider the following:

Clauses 2 to 6 stand part.

Schedule 1 stand part.

Clauses 7 and 8 stand part.

Schedule 2 stand part.

New clause 2—Review of the impact of section 7 on rent prices—

(1) The Chancellor of the Exchequer must, within three months of this Act being passed, lay before the House of Commons an assessment of the impact of implementation of section 7 of this Act on rent prices.

(2) The assessment made under subsection (1) must—

(a) estimate the proportion of the increase in income tax on property income that is passed on to renters through higher rents,

(b) analyse the impact on renters by—

(i) region, an

(ii) income decile, and

(c) set out the methodology used to reach those estimates.”

New clause 10—Statements on increase in dividend ordinary and upper rates—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to the House of Commons on the increase in dividend ordinary and upper rates introduced by section 4 of this Act.

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

(a) household saving decisions;

(b) the domestic equity market;

(c) institutional investors; and

(d) outcomes for all British savers and pensioners.”

It is a pleasure to open this first day of Committee debate on the Finance (No. 2) Bill. This was set to be the biggest economic moment of the day, but my moment in the limelight has sadly been blown off course by the riveting news that the former Member for Stratford-on-Avon has defected to Reform UK. This star signing is clearly a great loss to the Conservative party. Conservative Members may hope that it will allow them to start to expunge the history of the Truss mini-Budget from the nation’s collective memory, although I cannot help but feel that it is a case of shutting the heated stable door after the horse has bolted. He said he wanted to join Reform UK to fix a broken system, but as with the Conservative party, no one will believe that he can do it. In fact, he ran the system, broke the system and left us all sorting out with the taxman how to pay for the mess he left behind.

I return to the topic at hand. My right hon. Friend the Chancellor delivered her second Budget at the Dispatch Box a few weeks ago. It was a Budget to build strong foundations and a secure future for our country. Reflecting historical underperformance, the Office for Budget Responsibility has revised down its productivity forecast. In isolation, this reduces the amount of revenue that the OBR expects the Government to collect by around £16 billion in 2029-30. The Government are determined to outperform this forecast by continuing our plans to grow the economy, protecting public services and cutting borrowing, but it is right to plan on the independent forecaster’s judgments, meaning that despite Britain’s progress, the Government need to strengthen the public finances.

The choice at the Budget was austerity and decline or investment and renewal, and this Labour Government have rejected austerity and repeating the mistakes of the Conservative party. All those who are quick to promise that they will cut taxes must set out where they would credibly raise that money, what they would cut or by how much they would increase borrowing, as they enjoyed doing so much in recent years. The Budget made fair and necessary choices that deliver on the public’s priorities and bring about the change that this Government promised. We have chosen to cut the cost of living by delivering £150 off energy bills and freezing train fares and prescription charges. The Government have chosen to focus on cutting waiting lists by delivering 5.2 million more appointments and opening 250 new neighbourhood health centres. All this would be threatened by the Conservatives, who do not support the taxes—including those we will debate in these clauses—that are needed to fund decent public services.

I am very impressed by the Minister’s opening speech and his lightness of touch, but can he explain to the Committee how he reconciles the litany of good effects with the number of U-turns carried out since the Budget was put forward?

I thank the right hon. Member for giving me time to top up my glass of water—and for his intervention. The Government have been very clear in our approach since we took office. We needed to raise revenue to fund public services, and we have been consistent in our objectives in that regard. We also needed to get borrowing down, and borrowing is falling in every single year of this forecast because of the decisions we have taken. I believe it is the fastest reduction in borrowing in the G7, bringing back economic stability and allowing the Bank of England the space to cut interest rates, as it has already done six times since the general election.

The Finance (No. 2) Bill will deliver on the choices that the Government have made, and we will renew public services. We have taken the decision to lift hundreds of thousands of children out of poverty, to get more people into work and, crucially for our long-term growth prospects, to maintain the highest level of public investment for 40 years, all while keeping borrowing this year as a share of GDP to its lowest level in six years and doubling our headroom against our fiscal rules.

I thank the Minister for what he is putting forward. The OBR has said that some £55.5 billion will be raised, but the money is not coming from millionaires. It is coming from lower and middle-income families, which means that some 4.8 million more individuals will be paying the higher rate and some 600,000 more individuals will move into the additional rate band. How, in all honesty, can we help those in the lower and the middle brackets? The millionaires can afford it; the others cannot.

One way we are seeking to support everyday working people and families across the country is by making the decisions—many of them have been opposed by the Opposition, I must say—to raise taxes on those with the very largest estates and the very highest wealth. In fact, over this Parliament, as a result of the decisions made in the Budget in 2025 and the Budget in 2024, we will be raising an additional £10 billion of revenue from wealth and from those with the greatest wealth, which enables us to minimise our ask of everyday families when it comes to the topic we will be debating later in this sitting.

Turning in detail to the clauses we are debating, clauses 1 to 3 are on income tax, which is the largest source of Government revenue and helps to fund the UK’s schools, hospitals and the other essential services we rely on. In the coming year, it is expected to raise £359 billion. Each year, the Government have to legislate to charge and to set the rates of income tax. The rates of income tax are not being changed by this Bill; we are confirming that they will remain the same.

Clause 1 imposes an income tax charge for the coming financial year. Clause 2 sets the main rates of income tax at 20%, 40% and 45%. These will apply to non-savings, non-dividend income taxpayers in England and Northern Ireland. Income tax rates in Scotland and Wales are set by their respective Parliaments. Clause 3 sets the default rates at the same levels as the main rates—namely 20%, 40% and 45%. These rates apply to the non-savings, non-dividend income of taxpayers who are not subject to the main rates of income tax, the Welsh rates of income tax or the Scottish rate of income tax. Income tax is a vital revenue stream for our public services, and clauses 1 to 3 ensure that it will continue to be so in the year ahead—2026-27.

Just for the elucidation of the public, who the Minister knows will be glued to our proceedings this evening, I want to make a couple of points. First, he said that debt is falling. Will he confirm that it is levelling off as a share of GDP and may possibly fall slightly by the end of the forecast period, but is rising in absolute terms? Secondly, when he says that income tax rates are not changing in this Bill, he is technically correct, but fiscal drag means that, for hundreds of thousands of people, the tax rate on their marginal earnings will actually change very significantly in the years to come.

It is right to be precise, and I was being precise about the rates themselves, which are not changing. The right hon. Member raises the effective tax rate, which is a point I understand. On the specifics of what I said, I was talking about borrowing rather than debt, and borrowing is falling significantly over the course of the forecast. It is the fastest reduction in the G7, as far as I am aware, on the latest data. He is right that debt is broadly stable, but is falling, in the year that the fiscal rules are relevant, as a share of GDP, which is the traditional and I think more economically relevant way of assessing the stock of Government debt as a share of the economy. One of the ways our country was able to reduce the debt we took on after the second world war was through growing our economy and the debt becoming a smaller share of GDP, and that is something this Government will seek to do through continuing to beat the forecast when it comes to economic growth.

Clauses 4 to 8 will raise the tax rates for property, savings and dividend income to ensure that income from assets is taxed more fairly. Those with property, savings or dividend income currently pay lower rates of tax than those whose income comes from employment as they do not pay national insurance contributions. It is not fair that the tax system treats these types of income so differently. For example, it is not fair that a renter pays a higher rate of tax on their income than the landlord from whom they are renting their property.

Has the Treasury done any analysis of the amount of that tax increase that will be passed on to renters, and if it has, what has it come out with?

The main drivers of rental prices in the UK are supply and demand. The Government are seeking to do all we can to reform and improve our planning system to increase the number of homes being built. If Liberal Democrat Members are keen on making sure that we support households with the cost of living, I hope they will change their approach to their votes in this place on our planning reforms, which are vital for supporting families with the cost of living and for lowering the cost of renting and owning their own home.

As I was saying, this change will narrow the gap between the tax paid on work and the tax paid on income from assets.

Will the Minister give way?