LIVEBLOG: Finance Bill (No.2) 2023 Committee of Whole House Day Two

Amendment papers and other publications relevant to the Bill can be downloaded here.

You can read our preview of the debate here and our report on day one of Committee of Whole House here. 

CIOT's Low Incomes Tax Reform Group has produced the following briefing for today:
Clause 25: Relief relating to net pay arrangements (LITRG briefing)

Committee of Whole House Day Two – Wednesday 19 April

Three separate debates of up to two hours each

The business debated in each group also includes any new clauses or schedules related to the subject matter of the existing clauses in that group.

Group One - Pensions

• Clauses 18 to 25 (pensions)

Commentary

This group covers eight clauses in Part One of the Bill related to the tax treatment of pension contributions. 

Clause 18 removes the Lifetime Allowance (LTA) charge from 6 April 2023, ahead of its full abolition in a future Finance Bill.  [More]

Clause 19 ensures that certain lump sum payments made by pension schemes which would have previously been subjected to the lifetime allowance tax charge are not made tax free, given the abolition of the lifetime allowance charge.

Clause 20 increases the Annual Allowance from £40,000 to £60,000 from 6 April 2023.

Clause 21 increases the Money Purchase Annual Allowance (MPAA) from £4,000 to £10,000 from 6 April 2023.

Clause 22 increases the minimum Tapered Annual Allowance from £4,000 to £10,000 from 6 April 2023. The adjusted income threshold for the Tapered Annual Allowance will be increased from £240,000 to £260,000 from 6 April 2023.

Clause 23 sets a Pension Commencement Lump Sum (PCLS) upper monetary cap of £268,275 (25% of current LTA). However, those who already have a protected right to take a higher PCLS will continue to be able to do so.

Labour are opposed to the removal of the lifetime allowance. The party tabled amendments 1-6 to remove clauses 18-23 from the Bill in their entirety, but these were not selected for debate. (MPs can still vote against the clauses in any case.) Labour’s new clause 4 would require the Chancellor to make a statement setting out the impact of the changes in relation to NHS doctors, and to set out details of how an alternative scheme targeted at NHS doctors could operate. Their new clause 5 would require the Chancellor to review the impact of the tax-free pension allowance changes and to recommend an alternative approach targeted at NHS doctors.

The SNP’s amendments 21-23 to clause 18 are an attempt to put into legislation the limiting of the removal of the lifetime allowance charge to NHS staff.

The Pension Schemes Act 2021 introduced legislation to allow collective money purchase (CMP) pension schemes to operate in the UK. Clause 24 will clarify the tax treatment on transfers, periodic income and the valuation of dependent pension benefits during the wind-up of a CMP scheme, with effect from Royal Assent of the Bill. [More]

Clause 25 is the long-awaited legislation for the government to make top-up payments, in respect of tax year 2024-25 and onwards, to individuals with a total income below the Personal Allowance saving into a pension scheme using a net pay arrangement. These top-ups will better align outcomes with equivalent savers saving into pension schemes using Relief at Source. The CIOT's Low Incomes Tax Reform Group and other members of the Net Pay Action Group have been campaigning for a measure of this kind for some years. [More]

Three Labour amendments to clause 25 reflect representations made by the Low Incomes Tax Reform Group. Amendment 27 would require HMRC to provide recipients of the relief with a calculation of the payment so that it can be checked. Amendment 28 would enable a recipient of the relief to challenge the amount determined by HMRC if they think it is incorrect, and would allow someone not identified as eligible for the relief by HMRC to initiate a claim for it. Amendment 29 would enable a recipient of the relief to challenge the amount determined by HMRC if they think it is incorrect, and would allow someone not identified as eligible for the relief by HMRC to initiate a claim for it. Labour also tabled LITRG's amendment 30, which would have required HMRC to tell the DWP of payments made under the new section 193A FA2004 where the recipient is a claimant of a means-tested benefit, but this was not selected for debate.

Liveblog

The second day of committee stage debate began at 2.30pm with SNP spokesperson Kirsty Blackman moving amendment 21. She said abolishing the lifetime allowance (LTA) was an extreme and disproportionate response to the problem identified (which she acknowledged was a real one). A 'huge sledgehammer to crack a tiny nut', in the IFS's words. Accepting reviews such as those suggested by Labour in new clauses 4 and 5 was, she said, the least that the government should do on this.

We need to recognise that those in the NHS are different, said Blackman, and deserve special treatment compared to, say, bankers. Amendment 21 says the abolition of the LTA only applies to those employed by the NHS. Blackman took interventions from Conservatives suggesting that senior police officers and senior teachers were also affected by the problem being addressed here.  She said it was open to other MPs to propose amendments to apply the LTA abolition to them too. Another intervention noted that most GPs don't work for the NHS. Blackman said her amendment 23 would allow the Secretary of State to make designations to include, for example, GPs within the proposal.

Blackman said that a constituent had been tipped into a 'massive' tax bill as a result of taking on additional hours to teach at a teaching hospital in her constituency. He had told her he did not want to take on any more teaching as a result of what had happened to him.

She said the SNP would vote against clause 18 (LTA abolition) if the opportunity arose.

Next to speak was Treasury minister Andrew Griffith, the Economic Secretary to the Treasury (EST), who began by introducing the clauses in this group (see above). He accused Labour and SNP of seeking to pit public sector workers against private sector workers for reasons of political point-scoring. He accused Kirsty Blackman of trying to 'unbake the wonderful cake of our mixed economy health system' and of the 'politics of envy'. He said the annual tapering allowance would remain unchanged.

Introducing clause 25, the EST said the introduction of top-up payments for the lowest earners was a 'highly progressive' measure. The government believes it is right to rectify the different levels of support taxpayers in different schemes get. Noting the amendments tabled in this area by the Shadow Financial Secretary (these had been drafted by LITRG) the minister said he had written to the shadow minister yesterday and hoped his letter would provide some of the comfort he was looking for: "We fundamentally don't disagree with what he is trying to achieve and it has got the support of those who have been agitating for those on low income."

Shadow Financial Secretary James Murray was next up. He said this debate was discussing something rare - a tax cut from this government. It would see £1 billion of public money spent to benefit the one per cent with the biggest pension pots, which he called an 'extraordinary' use of public money. A targeted doctors scheme would cost far less, he argued, and that is why Labour oppose abolition of the LTA.

On clause 25, he commended the efforts of LITRG along with pension providers, Age UK, the TUC and others to campaign for the change in the law which is culminating in clause 25. Labour's amendments, he said, set out a number of points of detail which he wished to raise with the minister. Amendments 27, 28 and 29 had been selected for debate. He said he wanted to put on record his thanks to LITRG for their help in drafting these amendments. 

"We think individuals should be able to challenge the amount paid if they think it is incorrect," he said. "With this in mind amendment 27 would require HMRC to provide recipients of the relief with a calculation of the payment so that it can be checked. I therefore welcome the confirmation from the Economic Secretary to the Treasury, in a letter sent to me this morning, that, and I quote, 'HMRC are already planning to provide customers with details of the payment and how it was calculated', and I would welcome any further detail on that commitment the minister is able to give in his closing remarks."

The shadow minister turned to amendment 28, which would allow a recipient of the relief to challenge HMRC's decision of they think it is incorrect. "In the letter from the Economic Secretary which I received this morning he said he felt this change was unnecessary because, and I quote, 'where an individual feels a top-up payment is incorrect, HMRC will help them understand what may have caused the issue. HMRC will either address this or direct them to their employer.' He also wrote that, 'Individuals who don't get a payment but think they should will be able to contact HMRC who will explain why a top-up payment has not been made and what is necessary to correct the situation.' While I do not object to what the minister has written I would be grateful if the minister could address direct today the question of why he feels it is not right to put people's ability to challenge HMRC's decision in the Bill itself. Our amendment makes clear that HMRC must be notified of such a challenge not later than four years from the end of the relevant tax year. Could the minister tell us, when he replies, what is the time limit that applies to the process which he referred to in his letter."

Finally, he noted that LITRG pointed out the impact of top-up payments on self-assessment tax returns. By way of a possible solution, LITRG had suggested amendment 29 which would allow HMRC to correct a tax return of a recipient of a payment. "Again, referring to the letter from the Economic Secretary, he suggests that HMRC already have the power proposed in the amendment, and I would be grateful if the minister could confirm, for the avoidance of any doubt, that that is the case."

Murray then turned back to the LTA, and Labour's new clauses 4 and 5. He said the Health Committee, when the current Chancellor chaired it, had appeared to back a doctor-specific solution to the issue. Instead the Conservatives had introduced 'an expensive, blanket change'. He asked the minister to offer some clarity on the impact the changes would have. What sectors would those affected be in? 

He concluded: "We will be voting to spend public money wisely. We will be voting against the government who choose to cut tax for the richest one per cent whilst pushing up stealth taxes and council tax on working people across the country."

Sir Robert Syms (Con) said the previous pensions system “penalised” higher earners, many of whom “want to work hard”. He said: “It’s totally wrong that we have a tax policy that discriminates against people that want to work and want to use their skills.” He said the changes would be a “massive advantage” to NHS patients and he had already spoken to doctors who were either delaying their retirement or returning to work since the changes were announced.

Syms said other sectors would also benefit from the removal of the allowance and it was wrong that different pension policies should be implemented for different sectors or occupations.

Aaron Bell (Con) said “one of the big problems we do have in society” is people retiring early and public sector pensions are already more generous than those in the private sector. He said pensions are “tax deferred” for those who have worked for many years and deserve to reap the benefits of that hard work.

Fellow Conservative Nigel Mills added there were difficulties in navigating and categorizing the different types of NHS “workers”, which include locum doctors, consultants not directly employed by the NHS and its trusts or those who have several different employers. Her said: “You think: am I helping doctors here or am I helping anyone who happens to be employed by the NHS? I’m basically helping accountants, finance directors, procurement officers. I probably don’t have the same sympathy for their public service as I do for frontline doctors.”

Mills reiterated that when he was elected in 2010, constituents told him public sector pensions were considered “unfair” by virtue of being better than the private sector and to “cherry pick” sectors for tax breaks would be wrong, adding: “We should have a tax system that applies the same across the board to everybody. The people we want to reward more we should do by pay rather than tax.” He also questioned allowances which discriminate against those who earn less early in their careers and more later, as the amount they are able to contribute is affected by that.

Next to speak was Anthony Browne (Con), who claimed there was a "Laffer Curve" to tax and employment, saying: "If you tax people too highly they just stop working". He said he felt it was "absolutely wrong" to have different tax rules for different occupations or even between the public and private sectors.

He added: "If you've got so many exemptions there's clearly something wrong with the tax system. You have an absolutely hideous mess of tax policies. You have to accept the whole thing is wrong." He called for the "incredibly complex and incredibly unfair" system to be simplified and for the Government to "push ahead with getting rid of the Lifetime Allowance".

Returning, Andrew Griffith said the Government does not want doctors or workers in any other sector to retire early in response to tax, but the changes to the allowances should be "about the patients", while Kirsty Blackman said while the House had discussed measures to keep doctors in the NHS "for years", the new policy seemed to benefit a range of other sectors and occupations too.

Votes

Moving on to three votes, the SNP's amendment 21 regarding the removal of the lifetime allowance was defeated 292-45, while Clause 18 to remove the Lifetime Allowance was approved 293-218. Labour's new clause 5 to review the impact of the tax-free pension allowance changes and to recommend an alternative approach targeted at NHS doctors was defeated 294-218.

Group Two – Electricity Generator Levy

• Clauses 278 to 312 (Part 5) (electricity generator levy)

Commentary

Part 5 of the Bill applies a new 45% charge from 1 Jan 2023 to exceptional electricity generation receipts arising from non-fossil fuel sources to corporate groups with more than 50,000 MWh of in-scope generation per annum. It applies to wholesale receipts for electricity in excess of a benchmark price of £75 per MWh. The benchmark will be adjusted in line with CPI from 1 April 2024. Exceptional receipts are calculated after deducting increases in generation fuel costs, and groups have an annual allowance of £10m. [More]

The Lib Dems tabled amendments 8-11 to allow generators of renewable energy to offset money re-invested in renewable projects against the levy.

New clause 11, tabled by Green Party MP Caroline Lucas, would require the government to conduct an assessment of the impact of the Electricity Generator Levy on investment in renewables and the delivery of the UK’s climate targets, including a comparative assessment of the impact of the Energy Profits Levy and the investment allowance, on investment in oil and gas production.

Liveblog

Exchequer Secretary James Cartlidge moved the clauses, explaining that the proposals were being brought forward by the government in response to exceptional international circumstances. He set out how the levy will operate, when it will apply and the types of technologies covered by the scheme. They will ensure that exceptional receipts generated during the current energy crisis will be taxed to ensure a 'fair and proportionate' contribution to public services.

Shadow Exchequer Secretary Abena Oppong-Asare welcomed the measures but noted her 'dismay' that the government's 'failed energy policy' and 'inaction' had resulted in high bills and energy insecurity. She sought clarification from the government that the levy would not hamper investment in renewable energies.

Caroline Lucas (Green) spoke in favour of her proposed new clause. She described as 'perverse' the government's policy towards renewables, warning that it deterred investment, increased uncertainty and threatened the UK's energy capacity. She said it was right to tax the excess profits of energy companies, but that this should not come at the cost of investment in renewable energy technologies.

Lucas described the levy as being 'more punitive than the tax and relief regime for oil and gas companies'. She said there were three main differences between the EGL and the Energy Profits Levy (EPL):

• The EGL was a tax on revenue (not profits)
• The EGL was not deductible for Corporation Tax
• Oil and gas companies are liable for 'obscene' subsidies through the investment allowance, renewable energies aren't

She argued that the government could be doing more to incentivise investment in renewable energies, paid for by taxes on oil and gas companies.

Lucas concluded that better incentives, an improved policy framework, improved energy grid and better planning laws would be needed to better incentivise renewable energy investment and generation.

James Cartlidge responded for the government, saying the government would keep the operation of the policy under review. He argued that the government had supported investment in renewable technologies and was continuing to invest in emerging technologies. And he defended the government's support for oil and gas investment, arguing that support for domestic energy production was essential at a time when foreign sources of energy were being 'weaponised'.

Votes

Clauses 278-312 were agreed without division.

Group Three – Alcohol duty and devolved social security benefits

• Clause 27 (power to clarify tax treatment of devolved social security benefits)
• Clauses 47-48 and schedule 7 (alcohol duty: charge and rates)
• Clauses 50-53 and schedule 8 (alcohol duty: draught relief)
• Clauses 54-60 and schedule 9 (alcohol duty: small producer relief main provisions)

Commentary

This group of clauses were selected for whole House debate by the SNP.

Clause 27 introduces a new power in relation to new welfare payments or top-up payments introduced by devolved administrations. This will permit the government to confirm by Statutory Instrument when new payments are taxable as social security income within the tax year, rather than requiring primary legislation. [More]

The SNP also tabled amendment 24 which would leave out this clause, but this was not selected for debate. (MPs will still be able to vote against the clause.)

There are 77 clauses and 8 schedules in Part 2 of the Bill, which introduces a new duty structure for alcoholic products, moving from individual product-specific duties and bands to a single duty on all alcoholic products and a standardised series of tax bands based on alcoholic strength. This will take effect on 1 August 2023.

The 13 clauses and 3 schedules selected for whole House debate can broadly be thought of as the ‘headlines’ of the new regime.

Clause 47 provides for duty to be charged on alcoholic products, and clause 48 that it will be at the rates set out in schedule 7, subject to two reliefs.

Clauses 50-53 and schedule 8 legislate for the first of these reliefs: draught relief. This applies to alcoholic products under 8.5% alcohol by volume (ABV) intended to be sold ‘on draught’.

Clauses 54-60 and schedule 9 contain the main provisions introducing a new Small Producer Relief (replacing Small Brewers’ Relief) for those making less than 4,500 hectolitres of alcohol per year, which will again apply only to alcoholic products under 8.5% ABV.

The remaining clauses and schedules of this part of the Bill, which will be debated in public bill committee, set out other reliefs and exemptions such as for production for personal consumption, and transitional arrangements for certain wine products.

Duty rates on all alcoholic products produced in, or imported into, the UK will increase in line with RPI in August. However, to support pubs, Draught Relief will rise from 5% to 9.2% for qualifying beer and cider products, and from 20% to 23% for qualifying wine, spirits based and other fermented products.  [More]

Amendment 25 and new clause 9, tabled by the SNP, would exempt Scotch Whisky from the increase in duty on spirits. Amendment 7, tabled by Lib Dem Alistair Carmichael, would reduce the rate of duty on spirits more generally.

Liveblog

Exchequer Secretary James Cartlidge said the tax treatment of devolved benefits would be confirmed by statutory instrument and without the need for primary legislation.

Cartlidge said the government's alcohol duties would usher in a series of duty reforms replacing 'complex and outdated' rules made possible as a result of the UK's departure from the European Union. He added that draught relief would help level the playing field between on-trade premises (such as pubs) and supermarkets and that relief for small brewers would support investment and innovation.

Alistair Carmichael (Lib Dem) moved amendment 7 to freeze the rate of duty on spirits. He said this was not just in relation to the production of scotch whisky but also gin and rum, and called for a “coherent” strategy for these “critically important” distilleries and producers.

He said he had previously successfully argued for a duty cut which actually brought in more money than before, and suggested a duty freeze “at the very least” would be a sensible move. He said: “A recent history of cuts and duty freezes have actually had a beneficial effect on revenue brought in but for some reason we now seem determined to introduce a duty increase which is going to have an inflationary impact.”

He added that scotch whisky and other spirits are taxed 256% higher than cider.

Fellow Lib Dem MP Jamie Stone said many big distilleries contribute significantly to their local communities, including funding festivals and the Highland Games, while new distilleries are still springing up across the country.

Kirsty Blackman (SNP) said the party is attempting to encourage Scots to continue living in rural communities and the scotch whiskey business makes up 4.9% of the Scottish economy. She worried that the proposed duty increase could discourage people from buying the whiskies that many people's livelihoods depend on. She said the SNP would support the amendment put forward by the Liberal Democrats.

Shadow Exchequer Secretary Abena Oppong-Asare said Labour supported the alcohol duty review and appreciates there is "a balance to be struck between supporting businesses and consumers, protecting public health and maintaining a source of revenue". However, she said some sectors, including wine and scotch whisky producers, "will be concerned" by the changes proposed and called for clarity on how these sectors would be supported going forward.

She added around 70,000 venues across the country have already had to scale back operations due to rising energy costs, and increases to alcohol duty will exacerbate their problems.

Returning, the Exchequer Secretary said the Liberal Democrats' proposed amendment 7 would cost up to £2 billion, while an overall RPI freeze would cost £5 billion, with Alistair Carmichael intervening to suggest that the data suggests this is not the case and lower duties create more revenue.

Votes

Amendment 7, to reduce the rate of duty on spirits, was defeated 290-54.

The clauses and schedules in this group passed without division.

The remaining clauses in the Bill will be debated in public bill committee in May (dates to be confirmed).