Finance Bill should target more tax from energy companies and the wealthy, not ordinary taxpayers, say Lords

The second and third readings of Finance Bill 2022-23 in the Lords took place on December 20. You can read the full transcript here.

The session was opened by government minister Lord Harlech, who said the Chancellor’s Autumn Statement had acknowledged “the difficult decisions that this Government must take to tackle the cost of living crisis and restore faith in the UK’s economic credibility”, which would be addressed by asking those with more to contribute more and avoiding tax rises that damage growth. The measures include extending the period for which the tax-free personal allowance will not be increased in line with inflation, and reducing the threshold for the additional 45p rate of income tax from £150,000 to £125,140, along with an increase to the rate of the energy profits levy and changes to the rates of R&D tax reliefs.

Much of the debate focused on the decision to freeze the level of the personal allowance, which several Lords felt would unfairly disadvantage ordinary taxpayers. Labour spokesperson Lord Tunnicliffe said this measure alone would increase the tax bill of the average earner by £500 a year, before taking into account the likelihood of local authorities increasing their council tax. He said: “Taken collectively, all the tax measures announced during this Parliament will leave middle-income households paying £1,400 more each year.”

Lib Dem spokesperson Baroness Kramer agreed that the higher tax bills incurred by the freezing of personal allowances would exacerbate cost of living concerns, with council tax bills and energy costs also expected to rise. She called on the Government to clarify to taxpayers what the impact would be on their bills in real terms. She said: “For a large number, their tax bill will be pushed up by approximately £2,000. If they are informed, at least they can plan ahead and will be aware of that increase.”

Lord Davies of Brixton (Lab) thought that, rather than freezing allowances, it would be “more honest and fair to continue increasing the allowances and to adjust the standard rate to recoup the same amount of taxation.”

Davies pointed out to the House that the freeze in the personal allowance, combined with a significant increase in the state pension, would mean the latter would outstrip the former soon after 2028. He said: “I believe there will be a major administrative and political problem as soon as people start receiving state pension in excess of the personal allowance. I have not seen any commentary on this, but the Government need to be clear what they intend to do about this problem.” He asked what the Government are going to do about the large numbers of people who are due to pay tax on their state pension because of this, how the problem can be resolved and how we can “make sure that people who are not part of the current PAYE system do not end up being sent a significant bill for outstanding tax at the end of the year?”

Lord Rogan (UUP), added that while he understood the Government’s desire to grow the economy, it should not come at the cost of those on lower incomes. He said: “If they succeed... I hope that allowing people at the bottom of the income ladder to keep more of their money will be an absolute priority for them.”

Rogan also raised air passenger duty (APD), expressing pleasure that the rate of APD levied on domestic flights would be halved to £6.50 from April 2023. However, he noted, the Republic of Ireland had abolished the levy completely, giving a boost to its airports which compete with those in Northern Ireland. He said that Aer Lingus had announced just the previous week that it may end its Belfast to London Heathrow flights. He asked the Chancellor to consider cutting or abolishing APD between Northern Ireland and Great Britain in next year’s Budget.

There was criticism elsewhere in the House over the absence of a wealth tax in the plans. Baroness Bennett of Manor Castle (Green), said while child poverty and energy costs grow, so does the wealth of some of the richest in society. She praised the increase of the windfall tax on energy companies, but stressed that measures could go much further, saying: “The easiest prize when seeking to increase tax yields is the accumulated wealth of the super-rich.” She added: “A wealth tax could start to restore stability and security in our society; it could help to pay some of the extra wages those nurses desperately need.”

Baroness Kramer and Lord Tunnicliffe both criticised the ‘loophole’ in the windfall tax on oil and gas companies which allows companies to reduce their bills by investing in oil and gas exploration. Kramer claimed Shell and BP have “almost entirely avoided paying” this year, despite record profits. Tunnicliffe said the failure to address the ‘loophole’ “leaves a potentially valuable source of income untapped, with the burden of funding public services placed on working people instead”.

Kramer, a former banker, questioned cutting the bank corporation tax surcharge, when banks are making increased profits due to higher interest rates on loans. She also said the removal of R&D additional tax relief for SMEs is “driving so many small firms away from innovation”, running the risk that “we will not achieve the kind of growth that the Government talk about very casually”.

Responding to the debate for the Government, Lord Harlech said the personal allowance was being frozen to improve the health of public finances, and the cost to the average taxpayer would be minimal. “Although we are asking everyone to contribute a little more towards sustainable public finances, we do so in a fair way, with the better off shouldering a greater burden.” He did not respond to Davies’ specific point about implications of the state pension increase.

Harlech stressed that part of the country’s current economic situation had been caused by external factors including the war in Ukraine. Amid gloomy global economy forecasts, he said the Government must prioritise restoring sustainability in its own public finances, adding: “only then will we be able to face down the economic storm, while protecting the most vulnerable.”

Responding to calls for a wealth tax, Harlech said that while the UK does not have a single, overall wealth tax, there are several other taxes on assets and wealth which serve a similar role. He said the reduction to the additional rate threshold will raise revenue from the top 2% of taxpayers and the income tax and capital gains tax systems are also being reformed to bring the treatment of investment income and capital gains closer in line with that of employment income.

He added that the energy profits levy, alongside the electricity generator levy, will raise £55 billion over the next six years and the headline rate of tax for companies in the energy sector will increase to 75%—triple what other companies will pay when the corporation tax rate increases to 25%. He stressed that the “weaponisation of energy” by Vladimir Putin means the Government needs to ensure its own energy security over the coming years.

The Bill was then read a third time and passed. It is expected to get Royal Assent on 10 January.