MPs clash over rising tax burden at Finance Bill second reading

At the Second Reading of the Finance Bill in the House of Commons on Wednesday 17 April, MPs discussed the policies in the Bill, most of which were announced at last month’s Spring Budget, including changes to the High Income Child Benefit Charge, National Insurance cuts and increased support for theatres and orchestras.

Levels of taxation

The Financial Secretary to the Treasury (FST) Nigel Huddleston said the Bill looks to “reward work, boost the housing market, improve the tax system and strengthen the economy” and built upon previous cuts to National Insurance (NI). “We all recognise the simple truth that work should pay,” he added.

Leading for the Opposition, Shadow FST James Murray said that despite recent cuts to NI, the tax burden is set to rise to its highest level in 70 years, adding: “for every £5 they are giving back to families, they (the Government) will be taking £10 in higher taxes.”

The Shadow FST said despite income tax rates not changing, the tax burden is rising due to frozen thresholds. Citing Office for Budget Responsibility evidence, he added: “These freezes will create 3.7 million extra taxpayers by 2028-29 and mean that 2.7 million more people will be paying the higher rate.”

His colleague, Shadow Treasury Minister Tulip Siddiq, said despite basic and higher rates of income tax being left unchanged by the Bill, “taxes are continuing to rise”, with households, on average, £870 worse off due to the announcements.

Liberal Democrat spokesperson Sarah Olney said the measures in the Bill “will barely touch the sides” for those affected by the cost of living crisis, while tax cuts announced in the Budget “will be wiped out” by frozen thresholds and rising costs.

Sammy Wilson (DUP) said while some measures in the Bill were welcome, many people are being “dragged” into higher tax rates because of frozen thresholds. “That is having a huge disincentive effect on working families,” he said.

The FST acknowledged the high current level of taxes but said this is due to the “obvious and widely accepted necessity of paying for massive amounts of intervention” due to the pandemic and cost of living crisis. “It was absolutely vital that we intervened because not doing so would have been a disaster for the UK economy,” he added.

High Income Child Benefit Charge

One of the most significant changes in the Bill is an increase in High Income Child Benefit Charge (HICBC) thresholds so the charge kicks in at income of £60,000 (rather than £50,000) and tapers away up to income of £80,000 (rather than £60,000).

The FST said that increases to the thresholds “are a well-earned reward for working families up and down the country” and will see the economy gain additional work hours equivalent to around 10,000 full-time employees by 2028-29. He reminded the House that the Government would be consulting on administering the charge on a household rather than individual basis by April 2026, ending the “unfairness” of the current system.

Responding to the debate, Exchequer Secretary Gareth Davies added that the Bill “rewards work”, including by supporting “hard-working parents” with HICBC reforms.

But Nigel Mills (Con) had earlier posed some questions about the Government’s long-term plans for HICBC. He wondered what the Government were trying to achieve with a household calculation and said if the change was going to happen the HICBC household threshold should be £120,000, tapering up to £160,000, with an inflation-linked increase each year, “or we risk making the situation worse by having a very big disincentive for second earners”.

He continued: “There is a very real risk that what sounds like a generous idea could have a very negative impact... Before the Government publish the consultation, I urge them to think carefully about where they are pitching this. Surely there must come a point at which household incomes are pitched so high that almost no one will be paying the charge. What would be the point of all the complexity, uncertainty and cost of collecting it if it does not raise any money? We might be better off putting the 45p rate of income tax up by 0.5p, which would raise the same amount of money while losing all this complexity.”

Creative industries

The FST said that by making tax reliefs for theatres, orchestras, museums and galleries permanent, the Government would “ensure that our creative industries have the support they need” following the pandemic.

The Exchequer Secretary also praised measures to support the “world-leading creative industries” with permanent higher rates of theatre and orchestra relief.

Nickie Aiken (Con) welcomed permanent increases to rates for theatres and orchestras, which she said play a “crucial role in the economy of the West End” (much of which is in her constituency).

“I am in no doubt that this uplift in tax credits will have a positive impact on actors, musicians, costume designers, set creators, singers and those in a whole host of other jobs that rely on a strong and prosperous performing arts sector,” she said.

However, Aiken criticised the decision to no longer include “immersive theatre companies” in the relief.

SNP spokesperson Drew Hendry said support for the film sector, alongside the changes to HICBC, were “steps in the right direction”, but are “drops in the ocean compared with the vast needs of our communities”.

Windfall tax

The FST said that by introducing an energy profits levy price floor, the Government was “providing confidence and certainty” to the oil and gas sector, while the Exchequer Secretary added that the Bill will provide “more certainty” for investors in the oil and gas industry.

The Shadow FST said Labour would look to impose a “proper” windfall tax on the profits of North Sea oil and gas companies if it wins the next election. Sarah Olney agreed that the Bill does not introduce a “proper windfall tax on the super-profits of oil and gas producers”, which could be used on energy support for “the most vulnerable”.

Peter Aldous (Con), an MP who takes a close interest in energy policy, said measures that would see the energy profits levy cease if the six-month average prices for both oil and gas fall below certain thresholds could “undermine” other government objectives, “in particular, the objective of enhancing the UK’s energy security and the objective of delivering our net-zero targets”.

He said the transition of the North Sea from being a source of fossil fuels to renewables should happen quickly, but also in a “smooth and seamless” way. “It requires a stable and long-term fiscal policy, which I am afraid we do not have at present,” he added.

Measures not in the Bill

The Shadow FST said the Government’s decision to abolish non-dom tax status (not in this Bill but expected in the next Finance Bill) left “loopholes” including allowing non-doms to “stash money away in offshore trusts”. “Those loopholes must be closed, because if a person makes their home and does their business in Britain, they should pay their taxes here, too,” he added.

The Shadow FST also said changes to corporation tax lacked “certainty, predictability or consistency”, which was “damaging” to businesses trying to make investment decisions, adding that Labour would keep it at 25%.

The SNP’s Drew Hendry said the Bill “falls woefully short of the mark”, criticising the absence of a reduction or removal of VAT for international visitors, tax reliefs for the renewable energy sector and a “starter rate” of income tax like that introduced in Scotland.

However Nigel Mills said reinstating VAT-free shopping for tourists would just “reduce the price of a Rolex for very rich tourists”. “It saves a lot of money for very expensive tourist purchases,” he added, and would mean tax rises would be required elsewhere to plug spending gaps.

He suggested that different tax rates for different UK regions, which he described as an “advantage of Brexit”, could instead be used to boost tourism.

Richard Fuller (Con) proposed that future national insurance reductions should not “go directly into pay packets”, but instead be added to long-term savings “through compulsory savings schemes”. That would ensure that working people are the first generation to have a truly secure pension that is their money,” he added.

Responding, the Exchequer Secretary said the Government would "look closely and work with him on his specific suggestion relating to national insurance contributions to boost savings. We all want the savings culture in this country to grow and grow, and we are always open to suggestions.”

Fuller also said that the loan charge “has created significant concerns” and called for a deadline for HMRC to resolve it with those affected. His colleague Sir Desmond Swayne asked the minister to “right a historic injustice” by allowing those caught up in the loan charge access to a tribunal.

The FST replied that he did not believe an amendment of this kind would be in order on this Bill, but “I say to my right hon. Friend and others that I am always open to hearing concerns about the loan charge. I have done previously and will happily continue to hear information, evidence and concerns from colleagues.”

Fuller additionally noted that HMRC has “been in the headlines” for poor customer service. He welcomed the decision to U-turn on the planned helpline closure but also observed that self-assessment form SA100 cannot be directly downloaded by taxpayers - they have to call HMRC to download a copy. “That seems a little odd, if HMRC’s phonelines are under pressure.” He asked the minister to look into this. An SNP amendment to decline to give the Bill a second reading was defeated 296-42 before it was read a second time and agreed.

MPs then passed a timetabling motion for the Bill’s committee stage. This selects clauses 1-4 (income tax charge and rates), 12-13 (corporation tax charge and rates) and 19 (energy profits levy) for debate in Committee of Whole House, with the remaining clauses being debated in Public Bill Committee.

No dates have been set for committee stage yet, beyond that Public Bill Committee must conclude on 23 May at the latest. Government business announcements indicate that Committee of Whole House is unlikely to take place before 7 May at the earliest. Given the short length of this Bill it is thought likely that Public Bill Committee will not begin until 21 May.

Read the full Hansard.