Taxation (Energy and Vehicles)

I beg to move,

That provision may be made increasing the rate of the electricity generator levy to 55%.

With this it will be convenient to discuss the following:

Motion on income tax (mileage amounts)—

That—

(1) In the table in each of—

(a) section 230(2) of the Income Tax (Earnings and Pensions) Act 2003 (approved amount for mileage allowance payments), and

(b) section 94F(2) of the Income Tax (Trading and Other Income) Act 2005 (appropriate mileage amount),

for “45p” substitute “55p”.

(2) In consequence of paragraph (1), in section 94F(3) of the Income Tax (Trading and Other Income) Act 2005, for “45p” substitute “55p”.

(3) The amendments made by this Resolution have effect for the tax year 2026-27 and subsequent tax years.

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.

Motion on vehicle excise duty (temporary rates for good vehicles)—

That—

(1) The Vehicle Excise and Registration Act 1994 has effect in relation to vehicle licences, other than trade licences, taken out in the period beginning with 1 July 2026 and ending with 30 June 2027 as follows.

(2) Paragraph 9 of Schedule 1 to that Act (rates for rigid goods vehicles exceeding 3,500 kgs revenue weight) has effect in relation to goods vehicles to which sub-paragraph (1), (2)(b) or

(3) of that paragraph applies and which are used in the course of a trade as if—

(a) in sub-paragraph (1), for “shall be determined in accordance with” to the end there were substituted “and not exceeding 44,000 kgs is £1.”;

The Chancellor has committed to doing what she can to support families and businesses to be responsive in a changing world and responsible in the national interest. The measures before the House assist the Government in that objective.

The way that the current energy system works means that households and businesses pay more for their electricity when the gas price is high. The electricity generator levy already recoups some of the excess returns made by renewable generators when high gas prices push electricity prices over the current threshold of £82.61 per megawatt-hour. The Government have decided to increase the rate of the levy from 45% to 55% from 1 July. That will do two things: first, it will ensure that a large proportion of any exceptional revenues from high gas prices are passed back to the Government, providing a revenue stream so that money is available to support businesses and families with the impacts of the conflict in the middle east; and secondly, in the longer term it will support the new voluntary contracts for difference scheme, which was announced in April, by encouraging participation in the scheme.

In March, the Government announced a review of mileage rates for employees using their own vehicle for work and the self-employed who use the simplified expenses rates. In recognition of the pressures facing drivers as a result of the effects of the Iran war, the Chancellor announced in May the first uprating of mileage rates in 15 years, backdated to April, to provide immediate support to both groups. Mileage rates will increase for 2026-27 from 45p to 55p for the first 10,000 miles, and then 25p thereafter, with effect from 6 April. That represents the largest ever increase to these mileage rates, benefiting around 2 million employees and 1 million self-employed individuals, and saving over £120 a year for a worker doing 6,000 business miles.

For covid!

The hon. Gentleman says it was for covid, but he forgot to mention Liz Truss.

This Government’s record shows that despite that instability, our plan is working. UK GDP growth in the past two years was the second fastest in the G7. Real household disposable income per person has grown by more than 2% so far in this Parliament, compared with a fall of more than 2% in the last Parliament. Real wages have increased in every single month since this Government took office, with wages rising faster than inflation. These measures will continue that track record and demonstrate that this Government are committed to supporting working people.

I call the shadow Minister.

I thank the Minister for his very clear laying out of the measures before us. May I say that sometimes there is no place for partisanship? Perhaps we have had a taste of that today.

I have a series of questions for the Minister. As I did not have a chance to brief him about them beforehand, as I wanted to, it is perfectly okay if he wants to get his ministerial team to reply in due course. I do not expect him to have all the answers straightaway.

The first of the three measures is on the electricity generator levy. I will probe three points in the written statement about it. It states that

“the 45% EGL rate will increase to 55% and will be extended past its scheduled conclusion in 2028. This will support the Government’s objective of reducing the impact of gas prices on businesses and households.”—[Official Report, 21 April 2026; Vol. 784, c. 10WS.]

What is the Treasury’s estimate of the amount it anticipates to raise from this measure? Is it a straight-line assessment—essentially going from 45% to 55%—which will mean roughly £600 million? Is it the intention of the Government that the revenues that come from the EGL will be treated in the future as an established line item in the Budget, or will they be seen as a levy that will potentially go away in a short period of time?

I do not intend to detain the House for long. I welcome the motion to increase the electricity generator levy, which—alongside the Government’s plans to encourage participation at a competitive price in long-term fixed contracts for low-carbon generators—will weaken the link between electricity and gas prices, with the overall effect of bringing down energy bills for my constituents and consumers across the UK, as well as for British businesses.

I also welcome the long-overdue increase in the approved mileage allowance for workers from 45p per mile to 55p. It is very noticeable that over the 14 years I was in Parliament under a Conservative Government, that rate stayed exactly the same, while the cost of petrol rose by around 33% and the cost of diesel by around 44%. Every single year, those workers were worse off than they had been the year before.

The motion to temporarily reduce vehicle excise duty is also welcome. Right now, HGVs pay about £1,700 on average per vehicle; the motion would change that to £1 this year. Last month, I visited Spectrum Freight in Chesterfield, where we discussed the challenges the industry is facing. It and other businesses in the industry will very much welcome the Government’s sensible approach to supporting the sector at this difficult time.

I call the Liberal Democrat spokesperson.

The electricity generator levy is a windfall tax on UK electricity generation from nuclear, renewable and biomass sources, and it raised £0.7 billion in the last financial year. The EGL is a revenue-based tax that currently applies at a rate of 45% on exceptional generation receipts above a benchmark price of £77.94 per megawatt-hour, with an allowance of £10 million per company. In contrast, the energy profits levy applies to oil and gas production in the UK and the UK continental shelf, and raised £2.9 billion in the last financial year. We support the goal of seeking to fund cost of living support through emergency revenue measures during the gas price shock, but we also note that power wholesale prices are now around £90 per megawatt-hour, compared with a spike of £135 per megawatt-hour and a pre-Iran conflict price of £80 per megawatt-hour. How much is this measure likely to raise, given the move in prices? It feels like the horse may have already bolted, so I would be interested to hear the Minister’s thoughts on that.

We recognise that this measure is a nudge to accelerate the shift of legacy renewable generators away from volatile wholesale prices and towards fixed contracts for difference, using a higher tax rate as leverage. If legacy renewable generators—those on the renewables obligation, not those already under CfDs—sign up to a wholesale contract for difference, they exchange their volatile wholesale revenues for a fixed strike price. That is obviously good news for consumers, who are insulated from future gas price spikes on that portion of generation because the generator is no longer passing through the wholesale prices, and the Government capture any upside via the Low Carbon Contracts Company when wholesale prices rise.

I call the Minister to wind up.

I thank all those who have spoken, and I thank my hon. Friend the Member for Chesterfield (Mr Perkins) for his warm remarks. I will respond to the points made by the shadow spokespeople. I assume that this change will appear as a line item, although I would not want to prejudge any future decisions by the OBR on how it scores all these things and presents them in Budgets, as it is a specific tax head.

The Conservative and Liberal Democrat spokespeople asked how much this change will raise. It is difficult to know. As the Liberal Democrat spokesperson, the hon. Member for Witney (Charlie Maynard), highlighted, prices are coming down. They are at the moment slightly above the threshold in the system, but prices, as the shadow Energy Secretary will know, are volatile. In the usual way, the independent OBR will set out its estimate at the Budget for how much this change will raise and how much will be raised overall by the electricity generator levy. He is right to note that the levy does not raise billions and billions. It is a relatively targeted policy. We have increased the rate from 45% to 55%, but we have not changed the threshold and the routine uprating that takes place within it.

The Opposition spokesperson, the hon. Member for North Bedfordshire (Richard Fuller), asked whether there will be a review and whether this new higher rate is now the rate out into the future. That is something the Government are considering. He is right to highlight that we have not made a definitive announcement on whether that rate will last a short period or will go on into the future, but we will update in due course—it is not something that we want to leave hanging. I would expect that update will be at the Budget, if not before. However, that issue will be reviewed by the Chancellor and the Energy Secretary in the coming weeks.

I am grateful to the Minister for clarification that there is active consideration of an end date for that higher rate of 55%, but he will know that the 45% rate had an end date too. Will the review also consider announcing the end date for the levy overall, or has that not yet been considered?

As the shadow Minister will know, all tax rates, thresholds and the design of tax policy are considered in the round in the run-up to Budgets. With the key policy intention of the increase in the rate, and by extension the decision to continue the policy in any form, one of the things that the Government have been considering is the fact that having the rate in the system should change the incentives and encourage electricity generators to partake in the wholesale contracts for difference, which are being developed and which the Energy Secretary will bring forward in the coming months.

The shadow Minister asked about investment. It is always difficult to make changes in taxation, particularly outside of the Budget cycle. The Chancellor have been cautious about making changes in response to the conflict in Iran. We wanted to take a measured approach to ensure that we manage the public finances well, but also to ensure that we support businesses and households that have been particularly affected by the impact of the conflict washing up on our shores. It is worth highlighting that new investment is excluded from the electricity generator levy, so a business owner thinking of investing in renewables or nuclear in the UK should note that their new investments will not be affected by the increase in the rate.

Turning to the second measure, the Liberal Democrat spokesperson and my hon. Friend the Member for Chesterfield were right to point out that the mileage rates have not been changed since 2011. It is very disappointing that, although we saw plenty of inflation spikes, the previous Government did not take the chance to uprate them.