Finance Bill Second Reading: MPs back changes to energy levy, school fees and non-doms

The Shadow Chancellor, Mel Stride, moved a Conservative amendment which read: “this House declines to give the Finance Bill a Second Reading because it derives from the 2024 Autumn Budget which will lead to jobs being lost, curtailed investment and prices being raised; because the Finance Bill constitutes an assault on business by increasing taxes on investment; because it will reduce the competitiveness of the United Kingdom’s tax regime; because it levies the first ever tax on educational choice and will increase pressure on state schools; because it will drive up rents by increasing tax on homeownership; because it will substantially increase the size of the state without a sustainable plan to fund it; and because it will reduce living standards, increase borrowing and debt, drive up inflation and interest rates, with the result that the OBR growth forecast for the Autumn Budget is lower than that accompanying the Spring Budget of the last Government.”

Liberal Democrats, SNP and Reform UK MPs joined Conservatives in voting against the Bill, Green MPs joined Labour in voting for it.

Here is a summary of debate on some key issues:

Energy profits levy (EPL)

Dave Doogan (SNP) criticising the changes to the levy asking if the minister could identify another oil and gas-producing nation that taxes its industry higher than the UK does. He said: “The oil and gas that is being displaced from the Scottish sector by this Government’s ineptitude will be replaced by oil and gas from other jurisdictions, where the tax will be paid and where, doubtless, human rights are very much worse.”

Graham Stuart (Con) disapproved of Labour’s decision to increase the levy for the oil and gas sector, saying: “Attacking production when it is driven by demand is attacking the wrong end”. He believed as a result of the policy the UK would be required to import more energy from abroad and lose £13bn of tax revenue – a message echoed by the Shadow Chancellor.

Daisy Cooper, Liberal Democrat Treasury Spokesperson, intervened to challenge Stuart’s comment, wondering if he understood “the nature of a windfall tax”. She emphasised the levy has been placed on the oil and gas giants for the profits over and above what they were expecting to receive. In response, Stuart said that this is not a windfall tax but a “further tax” which could destroy investment in the North Sea.

Harriet Cross (Con) suggested that studies by Offshore Energies UK show that the changes to the levy would cost the Treasury £12bn in lost tax revenue. She continued that Labour’s Budget imposes a 78% tax rate on oil and gas companies, the highest among comparable offshore basins, risking investment in a sector vital for energy, national security, and essential services. Labelling the levy as a “blunt instrument, not a balanced strategy”, she concluded that “This Labour Government are turning what was a windfall tax into a permanent feature of our tax system, creating long-term uncertainty that will drive investment away”.

On the contrary, Luke Charters (Lab) supported the policy suggesting that the additional revenue raised by the EPL would help set up GB Energy.

Winding up the debate, the Economic Secretary to the Treasury, Tulip Siddiq said while oil and gas remain part of the energy mix during the transition, the government aims to shift investment toward cleaner energy. She added the sector continues to benefit from £84.25 in relief per £100 of private investment and will retain a decarbonisation investment allowance at a similar value to pre-November energy profits levy rates.

VAT on private schools

The Exchequer Secretary, James Murray, defending the policy, argued that the change does not mean that schools must increase their fees by 20%. “Schools can reclaim VAT paid on inputs and reduce the cost to minimise the extent to which they need to increase fees,” he argued. Asked if the government would provide support to children who had to move into state school mid-term, Murray responded that it is expected that only 3,000 pupils would move within the current school year.

Damian Hinds (Con) said: “Many places around the world recognise the value of that choice through the tax system. This country is not one of them”. He argued that everyone contributes towards state education through general taxation and the contribution does not reduce “if we take up a private school place”.

Hinds expressed concerns about the Treasury’s analysis and cost-increasing measures suggesting that while it accounts for families directly “priced out” of the independent sector, it overlooks the effects of indirect displacement, such as school closures. He believed that as a result of the policy education, health, and care plan (EHCP) applications could be increased, imposing higher costs on the state sector. Another Conservative MP, Dr Neil Shastri-Hurst, agreed, claiming that the policy will deliver “the worst for all children”.

Likewise, the Shadow Exchequer Secretary, James Wild, suggested that there would be ‘serious’ consequences for smaller schools, religious schools and parents and pupils involved with them. He claimed that the “education tax” targets parents on modest incomes and harms over 100,000 children with special needs in independent schools without EHCPs. He said: “This is an attack on aspiration, pure and simple, and we oppose it”.

Labour MPs including Chris Vince, Luke Charters, Connor Naismith and Nesil Caliskan supported the ending of VAT relief on private schools arguing that it would help recruit 6,500 more teachers. Caliskan considered the relief a ‘subsidy’, saying: “Politics is full of choices, and a Government’s first responsibility is to ensure that they balance the books”.

On faith schools, Siddiq highlighted that to ensure fairness, fee-charging faith schools will remain within the policy's scope. However, faith schools relying on voluntary community donations may be less affected, as such donations are exempt from VAT.

The tax gap

Minister James Murray blamed the Conservatives for widening the tax gap suggesting that Labour has to find an extra £6.5bn to close the tax gap in their first Budget. Meanwhile, Stride questioned Labour’s claim about the £22bn black hole, referring to the Office of Budget Responsibility’s (OBR) conclusion that “the fiscal pressure was less than half that figure”.

Phil Brickell (Lab) observed that the tax gap is almost £40bn and questioned why ordinary taxpayers are expected to pay the taxes they owe, however big multinationals and the super-rich can avoid contributing their fair share. He praised the Budget’s measures on tax avoidance and evasion and made the case for HMRC to have sufficient resources to tackle money laundering and tax evasion.

Capital taxes

James Wild accused the government of breaking their promises. He claimed that the Budget ‘undermines’ incentives for investors and entrepreneurs by raising capital gains tax and investor relief rates, risking the investment needed for growth.

The minister responding, Tulip Siddiq, reacted by saying that the government has adopted a ‘balanced’ approach to create a fairer system while supporting growth and wealth creation. She argued that capital gains tax rates, paid by fewer than 1% of adults annually, have increased but remain the lowest among European G7 economies.

Adrian Ramsay, co-leader of the Green Party, also welcomed the government’s step to close the ‘unfairness’ gap in the tax system. However, he believed the Finance Bill could go further and transform taxation of wealth by taxing 1% annually on assets above £10m, and 2% on assets above £1bn.

On agriculture property relief changes (not in this bill), Dave Doogan accused the government of ‘manipulating’ the figures to justify their proposal, saying “If the problem is non-farming enterprises investing in the purchase of agricultural land in tax-efficient ways, tax that”.

Daisy Cooper urged the government to rethink their plans about the family ‘farm tax’, considering the proposal as “badly thought through”. She added that the policy does not close the loophole that results in investors buying up land yet it would ‘damage’ family farms.

Ramsay called on the government to look at Dan Neidle’s analysis of the issue, arguing that the government’s intentions of clamping down on tax avoidance will not be met under the current plans, and it would impact small ordinary farms.

While acknowledging the concerns, Siddiq repeated that the reforms to agricultural property relief mean that farmers can access 100% relief for the first £1m and 50% relief thereafter, giving “an effective 20% tax rate”.

While welcoming the changes to stamp duty land tax, Phil Brickell advocated for council tax to be replaced by a proportional property tax. He suggested that the current system is ‘regressive’ and disproportionately affects lower-income families.

Other issues and general points

Chris Coghlan (Lib Dem), a member of the Treasury Committee, argued that the Budget and Finance Bill failed to address the growth and productivity crisis, saying: “The recessionary impact of the tax rises, combined with a focus on current spending that crowds out the private sector, largely offsets the fiscal stimulus of one of the largest fiscal events in recent decades, and of borrowing an extra £32 billion a year.”

Coghlan also suggested that targeted R&D is most effective, as shown by the Kennedy Administration’s focus on the moon landings in the ’60s. He welcomed that the Budget includes R&D for targeted problems, however he expressed disappointment that only £25m of the £70bn total is allocated to this, emphasising: “That is not really appropriate for the world’s sixth-largest economy”.

Jerome Mayhew (Con) raised concerns about the national insurance increase and reported that an employer recently told him that hiring 18-year-olds has become more challenging compared to hiring those aged 25 or 26. Previously, the lower wages and national insurance exemptions made it financially beneficial to employ 18-year-olds. However, with these advantages now removed, it has become more costly to hire young people. Mayhew questioned whether this was the outcome that Labour intended.

Alex Ballinger (Lab) welcomed the 1p reduction in tax on beer. Meanwhile, Doogan considered the government’s tax increase on high-sugar drinks a ‘joke’. He elaborated that the tax increase from 24p to 25.9p per litre adds 0.6p per 330ml can of sugary drink.

The Bill’s committee stage begins with Committee of the Whole House on 10 and 11 December –

Day One (10 Dec)

Clauses 7 to 12 and Schedules 1 and 2 (capital gains tax rates and reliefs);

Clauses 15 to 18 and Schedule 3 (oil and gas);

Day Two (11 Dec)

Clauses 47 to 49 (value added tax on private school fees);

Clauses 50 to 53 (stamp duty land tax)

Remaining clauses will be debated in Public Bill Committee, not expected until the new year.

Further reading: Our fuller report, full debate.