Finance Bill: MPs pass income tax and corporation tax clauses

They covered seven clauses chosen by opposition parties at the session on Wednesday 8 May: Clauses 1 to 4, 12 and 13, and 19, as well as opposition new clauses 1 to 7. The remaining clauses will be considered at Public Bill Committee on May 21-23.

Group One - Income tax

Clauses 1 to 3 - Impose the charge for income tax for 2024-25 and set tax rates across the UK (basic rate of 20%, higher rate of 40% and additional rate of 45%).

Clause 4 - Maintains the starting rate limit for savings at its current level of £5,000 for the 2024-25 tax year.

With this were considered four new clauses -

New clause 1 (Labour) proposed a review of how many people will be liable to pay income tax at 20% and 40%, and would have compared figures for the current tax year with those for the three preceding and three subsequent tax years.

New clause 4 (Labour) proposed a review of the impact of measures in the Bill on pensioners within three months of the Bill being passed.

New clause 5 (Plaid Cymru) would have required an analysis of the income tax and corporation tax measures in the Bill on Wales, Scotland and Northern Ireland.

New clause 6 (Lib Dem) was similar to new clause 1 but also sought projected figures for each year to 2030.

Financial Secretary to the Treasury (FST) Nigel Huddleston said the Government’s economic “progress” meant it has “been able to cut taxes as part of our plan to reward work and grow the economy”. He said income tax is the largest source of government revenue, expected to raise more than £302 billion in 2024/25, and helps to fund “essential services we all rely on”.

The FST said the economy “has turned a corner”, which had allowed the Government to implement recent cuts to National Insurance. He added that with the personal allowance at its current rate, almost a quarter of people will pay no income tax at all in 2024-25.

Asked why personal tax thresholds would remain frozen, the FST said that during the pandemic and cost-of-living crisis “Government intervention was far greater than any of us anticipated” and “that money has to be paid back”. He added that despite the overall level of taxes increasing to around 37%, this was lower than other Western countries including Germany, Italy and France, while the UK has “some of the most generous starting allowances for income tax and social security contributions in the OECD”.

The FST concluded: “The Government are managing the public finances in a balanced and responsible way. Our approach to delivering fiscal sustainability is underpinned by fairness, with those on the highest incomes paying a larger share.”

Shadow FST James Murray said despite the recent cuts, Brits “are facing higher taxes, squeezed living standards and weaker public services”, with the tax burden set to rise to its highest level in 70 years.

He quoted Paul Johnson, the director of the Institute for Fiscal Studies, who said: “This remains a parliament of record tax rises.”

Murray said that Labour’s new clause 1 will require the Government to “admit the impact” of threshold freezes. Murray added: “The idea that the economy is turning a corner is simply not reflected in reality,” with the OECD forecasting the UK to see economic growth of just 1% next year.

Proposing new clause 4, the Shadow FST said current tax measures are “hitting pensioners who pay tax especially hard”, adding: “Pensioners deserve to know the truth about how the Government’s decisions will affect them.”

The FST insisted that the tax system “treats pensioners fairly”, with those whose sole income is from the state pension not paying any income tax.

He said this and other amendments were “unnecessary” as the relevant information is already publicly available from HMRC, the Department for Work and Pensions and the Office for Budget Responsibility.

SNP spokesperson Drew Hendry said the Bill “falls dramatically short of meeting the urgent needs in our communities”, backing Labour’s new clauses. He added that clauses 1 to 4 “do little to mitigate” existing problems in the UK.

Clauses 1-4 were passed unopposed. New clauses 1 and 4 were pressed to a division but defeated. The other new clauses were not moved.

Group Two (part one) - Corporation tax

Clause 12 – Sets the charge for corporation tax and maintains the main rate at 25%.

Clause 13 - Keeps the standard small profits rate at 19%.

New clause 2 (Labour) – Conduct a review of how the rate of corporation tax affects business investment and certainty, including what the effect would be of capping it at its current level for the next Parliament.

New clause 7 (Lib Dem) - Reviews impact of the Bill on small and medium enterprises

The Exchequer Secretary, Gareth Davies, highlighted the government’s investment incentives and emphasised the need to maintain a ‘competitive’ tax system despite tough circumstances. He argued that setting the charge for corporation tax annually provides certainty to large and very large companies that pay tax in advance.

James Murray, for Labour, stressed the importance of stability for businesses and highlighted the Labour Party roadmap for business taxation, including capping the rate of corporation tax at 25% for the whole of the next Parliament.

Sir Christopher Chope (Con) opposed clause 12 arguing that the rate is “far too high”. He challenged the practicality of Labour’s new clause 2, and said that the provisions of clause 12 will not take effect until the 2025 financial year. “What would be the point of conducting, within three months of that date, a review into something that will not come about until next year,” he added.

Chope said he thought the corporation tax rate could be reduced to 19% and suggested that the government’s objective should be to grow the economy rather than “stifle it through high taxes and more regulation”.

Chope suggested the current tax simplification efforts seem to have been ‘abandoned’, with a move towards more “complex tax arrangements”. Instead of stable and predictable taxes “no one knows how those extra complications will be avoided or exploited by those affected”. He argued that if the basic rate remained down and the allowances reduced, it could lead to ‘simpler’ taxation and reduce the need for extra people in HMRC to deal with all that. 

Drew Hendry (SNP) argued that clauses 12 and 13 fail to support the sector in need such as the hospitality industry. He suggested that initiatives such as “VAT-free streets” could be of help to businesses.

Sarah Olney (Lib Dem) suggested that the Chancellor could have used the opportunity to give small businesses a boost by reforming business rates or helping them with their energy bills through a ‘proper’ windfall tax. She asked if the minister supports new clause 7, tabled by the Liberal Democrats, to help these businesses.

Responding to Chope’s concerns, the Exchequer Secretary said: “We all want tax to come down” and reiterated that the government has had to increase the rate due to the challenging environment. He suggested that the extension to 25% would raise £85 billion for the Treasury which could help to reduce the UK’s debt over the long term. Davies continued that the focus should be on the “effective rate of taxation for a business, not just the headline rate”.

Group Two (part two) - Energy profits levy

Clause 19 – Introduces a new Energy Security Investment Mechanism (ESIM) in relation to the energy profits levy or windfall tax.

New clause 3 (Labour) – Establish the impact on revenue and investment decisions of the energy security investment mechanism being introduced, and how this impact would be affected in a scenario where end date for the energy profits levy was amended to be before the end of the next Parliament.

The Exchequer Secretary highlighted that the proposed mechanism would give operators and lenders of the oil and gas industry confidence in the fiscal regime, while the Energy Profit Levy (EPL) remains over the next Parliament. He reiterated that the ESIM is expected to have no impact on EPL revenues.

The minister added that legislating the ESIM allows the oil and gas sector to continue investing in the economy, jobs and UK energy security while ensuring fairness to the taxpayer. However, he argued the government can’t assess the impacts of the ESIM on the decisions of commercial organisations.

For Labour, James Murray supported clause 19, however he argued there was a need for extending and strengthening the windfall tax to raise revenue for the transition to clean energy. He argued that their new proposed clause 3 sets out their commitment that the energy profits levy will end no later than the end of the next Parliament. The Shadow FST said: “We recognise that, by its very nature, the windfall tax is a one-off levy in response to extraordinary profits, so it is right to be clear about when it will come to an end”.

While Drew Hendry (SNP) supported Labour’s new clause 3, he believed that the introduction of ESIM would jeopardise up to 100,000 jobs and hinder the UK’s environmental goals.

Clauses 12, 13 and 19 were agreed without divisions. New clause 2 was defeated 266-195 and new clause 3 was defeated 269-198 in votes. New clause 7 was not moved.

Read the full debate.