LIVEBLOG: Finance (No.2) Bill Public Bill Committee (sittings 1 & 2)
A liveblog on the first two sittings of the Finance (No.2) Bill Public Bill Committee, which took place on the morning (9.25am) and afternoon (2.00pm) of Tuesday 16 May 2023. Further sittings are expected on Thursday 18 May.
You can watch proceedings here: Sitting one (9.25am), Sitting two (2.00pm).
The main contributors to the debate are expected to be:
- Victoria Atkins (Financial Secretary to the Treasury (FST))
- James Murray (Labour, Shadow Financial Secretary to the Treasury)
- Kirsty Blackman (SNP, lead Finance Bill spokesperson)
Highlights
The first two sittings of the committee are expected to cover the measures included in Part 1 of the Bill. This doesn’t include matters already considered by Committee of Whole House (see below).
MPs are expected to renew income tax rates and bands, update transfer pricing legislation and introduce a new elective accruals basis of taxation for carried interest. There are also changes to legislation for capital gains tax roll-over relief and private residence relief, and 21 separate changes to corporate interest restriction rules.
Changes to simplify how income tax applies to trusts, estates and their beneficiaries, including providing that trusts and estates with income up to £500 do not pay tax on that income as it arises, will be considered, as will changes to the rules that apply to transfers of assets between spouses and civil partners in the process of separating.
Procedure
MPs will consider the clauses contained in the Bill in numerical order, excluding those that were already debated (and agreed) in Committee of the Whole House (see below). New clauses may be debated with a clause to which they relate or, if they do not relate closely enough to an existing clause, at the end of committee stage. Regardless of when they are debated, new clauses will be voted on at the conclusion of committee stage.
CIOT, our Low Incomes Tax Reform Group (LITRG) and our sister body the Association of Taxation Technicians (ATT) have made a number of representations to the committee on some of the clauses covered in this briefing. These will not be published until they have been accepted by the committee.
Committee of Whole House
Public Bill Committee does not debate clauses and schedules already considered during two days of Committee of Whole House (click links below for our write-up of each session). These were:
Clause 5 (corporation tax charge and rates); Clauses 7 to 9 (capital allowances); Clauses 10 to 15 and Schedule 1 (other reliefs relating to businesses); Clauses 121 to 264 and Schedules 14 to 17 (multinational top-up tax) and; Clauses 265 to 277 and Schedule 18 (domestic top-up tax).
Clauses 18 to 25 (pensions); Clauses 278 to 312 (Part 5, electricity generator levy); 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) and; Clauses 54-60 and schedule 9 (alcohol duty: small producer relief main provisions).
Useful documents
Finance (No.2) Bill / Explanatory Notes / Amendments Paper / All documents
NB: This live blog is contemporaneous and not checked against Hansard. We cannot guarantee that no errors have crept in and we advise on checking any passage against Hansard before repeating it.
Finance Bill Public Bill Committee – Sitting One: Tuesday 16 May, 9.25am
Programme motion
The FST will move the programme motion, setting the times the committee will meet and the order the clauses will be debated (numerical order).
The programme order was agreed without division, however Kirsty Blackman (SNP) reiterated concerns from previous years about the committee not taking oral evidence from expert witnesses including CIOT and ATT. She said this would have helped MPs to 'better understand' the provisions in the bill. Angela Eagle (Lab) expressed sympathies with Blackman's position and suggested, in the absence of oral evidence, that the committee look to the work of the Treasury Select Committee and the evidence that it takes as part of its scrutiny.
The FST said that scrutiny of the bill was an important part of the legislative process. She welcomed the work of the Treasury Select Committee and noted that the Finance Bill was already subject to significant scrutiny, with line by line scrutiny in committee and the work of Committee of the Whole House and an 'extensive programme' of pre-legislative consultation with tax experts and members of the public before the Finance Bill is published.
The committee also agreed to publish the written evidence that has been received by the committee from external witnesses.
Part 1 – Income tax, corporation tax and capital gains tax
Income tax charge, rates etc
Clause 1 - Income tax charge for tax year 2023-24
Annual measure allowing government to collect income tax for the next 12 months. (Yes, income tax is still a theoretically temporary measure requiring annual renewal.)
Clause 2 - Main rates of income tax for tax year 2023-24
Sets income tax rates for non-savings, non-dividend income for 2023-24 for England and Northern Ireland at 20%, 40% and 45% (ie no change). Rates are reduced by 10% for Welsh taxpayers and Welsh Parliament adds Welsh rates on top. Scottish Parliament sets Scottish rates.
Clause 3 - Default and savings rates of income tax for tax year 2023-24
Sets ‘savings rates’ which will apply to savings income of all UK taxpayers and the ‘default rates’ which apply to non-savings, non-dividend income of taxpayers who are not subject to the main rates of income tax, Welsh rates of income tax or the Scottish rates of income tax. Both stay at 20%/40%/45%.
Clause 4 - Freezing starting rate limit for savings for tax year 2023-24
Starting rate limit for savings unchanged at £5,000. This is a zero rate on income from savings, but is only available to people on low incomes. If your earnings from non-savings income are over your personal allowance (usually £12,570) plus the starting rate limit (i.e. over £17,570 for most people) you can’t get this.
Remember, the first Finance Act of 2021 froze the income tax personal allowance (the amount that can be earned tax free) at £12,570 and the basic rate limit (the amount of earnings above the personal allowance on which income tax is payable at the basic rate) at £37,700 until 2026).
Clauses 1 to 4 were debated together. Victoria Atkins (FST) said that the government's income tax policies would raise £268 billion in 2023-24 and would help to achieve simplicity and fairness in the tax system.
James Murray (Shadow FST) spoke about the government's decision to freeze the personal allowance and the Office for Budget Responsibility's assertion that this would reduce its real value to 2013-14 levels.
Dame Angela Eagle also spoke about the impact of fiscal drag as a result of threshold freezes. She said that this would lead to 8 million taxpayers being dragged into higher rates of tax and that this was exacerbated by current levels of high inflation. She described it as the 'biggest stealth tax' since the doubling of VAT in 1979 and expressed her concerns about its impact at a time when many Britons were facing a cost of living crisis.
Eagle said that this would mean that, by 2027, 1 in 4 teachers and 1 in 8 nurses would be paying the higher rate of tax. She added that this was not a transparent approach to tax policy from the government, saying on the one hand that it was freezing tax rates while at the same time, freezing thresholds and increasing the number of taxpayers being exposed to higher rates of tax.
She called it 'a dubious double-whammy' and a 'stealthy and arbitrary' way of raising revenue. Eagle also spoke about the impact of cliff edges and high marginal rates of tax which created disincentives to work. She said that the Treasury Select Committee had begun an enquiry into the impact on taxpayers.
The FST rejected the suggestion that the government had hidden the impact of its income tax policies, saying that they had been extensively debated in the previous Finance Bill. he said the government had been upfront and transparent about the impact of its policy. She accepted the concerns about the impact of inflation and said that this was why the Prime Minister had made tackling high inflation one of his key policy priorities.
She said the government 'respected' the work of the OBR but cautioned that 'forecasts can change'. She said the government was determined to ensure that the lowest paid kept as much of their income as possible and that its income tax and National Insurance policies were helping to achieve this. She said the personal allowance was one of the most generous in the world (helping to keep 3 million people out of tax in 2023/24) and that the level of the higher rate threshold protected 80 per cent of taxpayers from higher rates of tax.
Clauses 1 to 4 were agreed without division.
Reliefs for employees
Clause 16 - Company share option plan (CSOP) schemes: share value limit and share class
Changes to the CSOP rules. Qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be removed, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies. The changes will take effect from 6 April 2023. More
Clause 17 - Enterprise management incentives: restricted shares and declarations
The government is simplifying the process to grant options under an EMI scheme. From April 2023, the requirement for a company to set out details of share restrictions within the option agreement and the requirement for a company to declare an employee has signed a working time declaration will be removed. From April 2024, the government will extend the deadline for a company to notify HMRC of the grant of an EMI option from 92 days following grant, to the 6 July following the end of the tax year. More
Clauses 16 and 17 were debated together. The FST said the proposed changes will help larger companies grow beyond the scope of the Enterprise Management Incentives (EMI) by offering more attractive share remuneration and help to attract and keep staff.
She added that the Government held a call for evidence at the 2020/21 Budget on whether the EMI should be expanded, which found in 2022 that it remained effective. A subsequent expanded review into CSOC sought to make it more accessible for companies. The FST said the changes in the two clauses would support 4,700 businesses and 45,000 employees.
Shadow Financial Secretary James Murray said these measures were first announced at the 2022 Budget, making them "one of the very few remaining measures from last autumn's growth plan". He asked what the impact of any HMRC staff redeployment on to the schemes would be on other areas of the department's work, but said Labour would not oppose the clauses.
SNP spokesperson Kirsty Blackman said the party would also not oppose the clauses and the Government "had listened" to businesses. However, she questioned the motivation behind the policy, asking whether the Government intended to make share ownership more attractive for employees or easier for employers.
The FST replied that the changes are to help "both employers and employees" and said the Government "believe in spreading prosperity and wealth across the workforce".
Both clauses were agreed without division.
Social security
Clause 26 - Payments under Jobs Growth Wales Plus
Exempt payments of the training allowance under the Welsh Government’s Jobs Growth Wales Plus scheme from income tax, with retrospective effect from 1 April 2022. More
James Murray said the clause would clarify the tax treatment of training payments and Labour would not oppose it.
Kirsty Blackman asked whether those affected would have paid income tax in the interim and would be due retrospective rebates, which could "lead to uncertainty for something that it supposed to be positive". She also queried whether this would create extra costs for HMRC.
The FST said those affected were exempted and the costs to HMRC were "negligible".
The clause was agreed without division.
Foster carers etc
Clause 28 - Qualifying care relief
Increases the amount of income tax relief available for foster carers and shared lives carers using Qualifying Care Relief. The changes will take effect for tax year 2023 to 2024: The annual fixed amount will increase from £10,000 to £18,140. The weekly amount for children under 11 will increase from £200 to £375. The weekly amount for children 11 or older and adults will increase from £250 to £450. Amounts will thereafter be increased by CPI annually. More
The FST explained the provisions of the clause and its impact on foster carers, who would benefit from an average tax cut of around £454 per year. Higher allowances would act as a greater financial incentive for those caring for foster children and encourage others to consider caring responsibilities. She noted that the measure had remained unchanged since its introduction in 2003, would benefit around 33,000 people and help to simplify the tax system.
James Murray (Shadow FST) said that the opposition would not oppose the clause. Kirsty Blackman (SNP) said it was important to ensure that the tax system continued to benefit those with foster caring responsibilities, particularly at a time of high interest rates. Dame Angela Eagle (Labour) also noted her support but asked why the allowance was being linked to CPI rather than RPI. The FST said that CPI was used ‘across the board’ and that indexing would ensure the relief retains its value.
The clause was agreed to without division.
Estates in administration and trust
Clause 29 - Estates in administration and trusts (and schedule 2) (plus government amendment 2)
Simplifies how income tax applies to trusts, estates and their beneficiaries, with effect from 6 April 2024:
- Provides that trusts and estates with income up to £500 do not pay tax on that income as it arises
- Removes the default basic rate and dividend ordinary rate of tax that applies to the first £1,000 slice of discretionary trust income
- Provides that beneficiaries of UK estates do not pay tax on income distributed to them that is within the £500 limit for the personal representatives
- Makes technical amendments to ensure for beneficiaries of estates that their tax credits and savings allowance continue to operate correctly More
Separately, HMRC intend to make changes to IHT regs during 2023-24 to remove some non-taxpaying trusts from reporting requirements.
There is one proposed amendment to schedule 2. Government amendment 4 would mean that a pensions settlement could not be a “qualifying settlement” for the purpose of section 24B of the Income Tax Act 2007 (being inserted by the Bill) or a “relevant settlement” in respect of which the conditions in subsection (9) of that section could be met.
The FST said the changes would help to make the tax system simpler for trusts and estates. She then gave a brief explanation of the purpose of the government's amendment (see description above). She said the measure would take around 8,000 trusts and estates out of income tax.
James Murray cited concerns raised by the CIOT in relation to the impact on trusts. He said the Institute welcomed the measure's impact on estates, but that there was less simplification in respect of trusts with low levels of income, potentially increasing reporting and compliance burdens.
The FST defended the measures as helping to simplify the tax system and that the CIOT and ATT had welcomed some of the measures during consultation: “The consultation last year outlined that where discretionary trusts make income distributions then the existing 45 per cent credit given to beneficiaries with that income would remain, as would the continued need for trustees to top-up their payments to HMRC to match this credit when distribution is made and indeed I’m told that the Chartered Institute of Taxation agreed with this proposition and the Association of Taxation Technicians saw this as largely a question of timing and they didn’t see a particular issue with this in principle."
James Murray intervened, saying: "Just for absolute clarity, because my understanding of the Chartered Institute’s point was that in the case where trustees have no liability to report or pay, the beneficiaries, the basic rate taxpayer may still have basic rate income tax due on their income from the trust. I may have misunderstood what she said but I think she was saying the beneficiaries would not be liable for income tax. Is that the case? Can she clarify that point?”
The FST reiterated that the measure does not affect the need for trust beneficiaries to consider their tax liability on trust income they receive.
Clause 29, government amendment 2 and Schedule 2 were all agreed to without division.
Provisions relating to insurance
Clause 30 - Transfer of basic life assurance and general annuity business
Legislation to address the risk of a tax mismatch in the life insurance rules where re-insurance precedes a transfer of Basic Life Assurance and General Annuity Business (BLAGAB). Has effect from 15 Dec 2022. More
Clause 31 - Certain re-insurance sums not to count as deemed I-E receipts
Addresses an industry concern that the scope of an existing rule may be unnecessarily wide and is blocking commercial transactions. More
Clause 32 - Insurers in difficulties: write-down orders for corporation tax purposes
Legislation to address the corporation tax consequences of write-downs of liabilities of insurers in financial distress, and any subsequent court-ordered variation or termination of those write down-orders. Takes effect at Royal Assent. More
Clause 33 - Insurers in difficulties: write-down orders in case of pension schemes
Legislation to address the pensions tax consequences of write-downs of liabilities of insurers in financial distress, and any subsequent court-ordered variation or termination of those write down-orders. Takes effect at Royal Assent. More
Victoria Atkins (FST) said the measures would protect the exchequer by helping to increase tax receipts. She said they helped to address a 'possible mismatch' in the life assurance tax rules and clarify the scope of existing legislation facilitating commercial transactions.
James Murray asked the FST if she could set out the Exchequer impact of the policy, this having not been disclosed at the time of its announcement in December 2022. Dame Angela Eagle (Lab) suggested that the debate highlighted the continued complexity of financial services legislation and asked whether the changes were the result of structural problems within the industry or a pre-emptive move by the Treasury.
The FST said the policy was expected to raise £15 million in 2022/23, increasing to £50 million in 2023/24 and to £55 million in each of the years from 2024/25 to 2026/27. She added that parts of the measures were the result of representations from the insurance sector.
Clauses 30 to 33 were agreed to without division.
Miscellaneous corporation tax matters
Clause 34 - Corporate interest restriction (CIR) (and schedule 3)
CIR rules restrict the ability of large businesses to reduce their taxable profits through excessive UK interest expense. This measure makes 21 separate revisions to the rules – some to protect the Exchequer, some to reduce unfair outcomes or high administrative burdens. More
These include:
- Ensuring that groups can carry forward interest allowance where a new holding company is inserted in the group part way through a period of account;
- Extending the time limit by 12 months for HMRC to appoint a reporting company;
- Revising worldwide debt cap rules so that where a revised statement of allocated disallowances is submitted this will only be treated as valid where a valid revised statement of allocated exemptions is also submitted.
There is one proposed amendment to schedule 3. Government amendment 5 would mean that companies count as insurance companies for the purpose of the corporate interest restriction rules if they effect or carry out contracts of insurance and have regulatory permission to do so under a foreign law which is similar to or corresponds to the relevant United Kingdom law.
Clause 35 - Investment vehicles (and schedule 4)
This clause and schedule update the rules governing the tax treatment of certain investment vehicles.
Part 1 of the schedule amends the Genuine Diversity of Ownership (GDO) condition in the Qualifying Asset Holding Companies (QAHC), Real Estate Investment Trusts (REIT) and Non-Resident Chargeable Gains (NRCG) rules. The GDO condition is intended to prevent funds that are only open to a small number of predetermined investors from benefitting from those regimes. The changes will improve the operation of the GDO condition for fund structures involving multiple pooling vehicles. More
Part 2 of the schedule relaxes the requirement for a REIT to own at least three properties where a REIT owns at least one commercial property worth £20 million or more; and amends the rule for disposals of property within three years of significant development work to ensure that this rule operates in line with its original intention and is not compromised by the effects of inflation. More
Part 3 of the schedule amends QAHC rules so that the conditions that must be met by a company to qualify as a QAHC better align with the intended scope of the regime and the rules better achieve their intended effect. More
The two clauses were considered together, with Victoria Atkins (FST) saying corporate interest restriction rules have increased corporation tax receipts by more than £1 billion per year since being introduced in 2017. However, due to their complexity the Government committed to keep them under review, leading to the current 21 changes proposed in Clause 34.
James Murray said amendments have previously been made to ensure the rules "operated as intended" and asked how the latest modifications would benefit the Exchequer, with the policy paper suggesting the changes will have "no impact, or the impact will be negligible".
The FST said the changes would "protect the Exchequer and prevent unfair outcomes", but admitted it was an "incredibly complex" area.
Both clauses and schedules were agreed to without division.
Finance Bill Public Bill Committee – Sitting Two: Tuesday 16 May, 2pm
International matters
Clause 36 - Share exchanges involving non-UK incorporated close companies
Anti-avoidance measure. Shares and securities in a non-UK company acquired in exchange for securities in a UK close company will be deemed to be located in the UK. More
Clause 37 - Records relating to transfer pricing (and schedule 5)
Legislation to require businesses operating in the UK, which are part of a large multinational enterprise (global revenues of €750 million or more), to prepare transfer pricing documentation, namely a master file and local file, in accordance with OECD transfer pricing guidelines. (In addition, HMRC will continue to consult on the introduction of a Summary Audit Trail, which would be a document detailing the steps undertaken by a UK business in preparing its transfer pricing documentation.) More
Clause 38 - Double taxation relief: foreign nominal rates
Limits certain extended time limit claims for double tax relief calculated by reference to the foreign nominal rate of tax. This measure took effect from the date of announcement on 20 July 2022. The measure is only relevant to foreign distributions received by UK companies before the introduction of distribution exemption in 2009. More
Resuming in the afternoon session, Victoria Atkins (FST) said the measures in Clause 36 would prevent tax avoidance by "a small number of individuals", and protect £830 million of revenue, while those in Clause 37 will provide "greater certainty" for UK business and better data for HMRC. She added that Clause 28 was a modification to prevent new claims for tax bills settled years ago.
James Murray highlighted concerns raised by the Chartered Institute of Taxation (CIOT) over "gaps that could be exploited" in the new policy set out in Clause 36, including an "avoidance opportunity" where shares are held by trustees. The CIOT suggested trustees should be included within the scope of the policy. The CIOT also called for clarification over the definition of beneficial rather than legal ownership to prevent a possible route to avoidance.
Murray added that Clause 36 was only necessary due to the continued existence of non-dom tax status and the Government's refusal to abolish it, and would raise just a 20th of £3.2 billion "lost through the non-dom tax loophole each year". He said just 1% of non-doms invest their income in the UK each year and the status actually discourages investment.
On Clause 37, Murray said the Government had "changed it's mind", having previously declined to introduce specific requirements around master file and local file documentation as it felt the UK already had "broad record-keeping requirements".
Sam Tarry (Lab) reiterated that the measures in Clause 36 would result in an increase in tax that was "tiny" compared to what was lost to the non-dom status, which he described as a "tax dodge". He added that research suggested that just 0.3% of those who enjoy non-dom status would leave the UK if it was abolished, contrary to warnings from its those opposed to scrapping it, with average annual earnings of £2 million. He said: "Is it fair that so many people are avoiding tax on this scale?"
The FST said the UK has many "mobile and successful" individuals and a "leading" film and TV industry, in part due to the reliefs afforded to those who work in it, but non-doms still pay tax on their UK income. She said: "I want very high-earning people to pay their taxes here in the United Kingdom, but we have to stay competitive."
Clauses 36-38 were agreed without division, along with schedule 5.
Chargeable gains
Clause 39 - Payments to farmers under the lump sum exit scheme etc
This measure applies to those leaving or retiring from farming and who have applied for a payment under the Lump Sum Exit Scheme.
It clarifies that the payment, and any interim payment received, will be treated as a capital receipt provided you meet the scheme’s eligibility criteria. If you do not meet the eligibility criteria the payment will be treated as income. More
Clause 40 - Contracts completed after ordinary notification period
Anti- avoidance. This measure ensures that HMRC does not have little or no time in which to assess tax due, or taxpayers to claim allowable losses, where there is a delay between an unconditional contract being entered into and an asset being conveyed or transferred. More
Clause 41 - Separated spouses and civil partners
Changes the rules that apply to transfers of assets between spouses and civil partners in the process of separating. It proposes that separating spouses or civil partners be given up to 3 years, after the year they cease to live together, to make no gain or no loss transfers of assets; and unlimited time when the assets are the subject of a formal divorce agreement. More
The Government has tabled two amendments to clause 41. Amendment 6 ensures that the inserted subsection (1C) applies to disposals made on the days mentioned in paragraphs (a) and (b) of that subsection as well as before those days. (This follows representations made by CIOT on this matter.) Amendment 7 clarifies that the inserted subsection (1D) applies in relation to disposals made after A and B have ceased to be married or civil partners.
Clause 42 - Carried interest: election to pay tax as scheme profits arise
Introduces a new elective accruals basis of taxation for carried interest. This will allow UK resident investment managers to accelerate their tax liabilities in order to align their timing with the position in other jurisdictions, where they may obtain double taxation relief. Applies from 6 April 2022. More
The Government has tabled an amendment to clause 42. Amendment 8 secures that the amount of carried interest that is presumed to arise in the hypothetical situation that determines the amount of the charge properly reflects prior distributions to investors.
Clause 43 - Relief on disposal of joint interests in land
Amends legislation for CGT roll-over relief and private residence relief to ensure that LLPs and Scottish partnerships which hold title to land can access the relief. This is for consistency and fairness, say the government. More
Clauses 39-43 were debated together, along with amendments 6-8.
The FST introduced the clauses. She said clause 39 would clarify the tax treatment of around 2,700 farmers and farming partnerships, providing certainty to them.
She told MPs that clause 41 makes CGT rules fairer for separating spouses and civil partners. Amendment 6 corrects an issue with time limits, she explained. The clause as worded originally ‘gave a day short’.
For Labour James Murray said Labour would not be opposing clause 39 but he asked for more context around the clause, including details of the operation of the lump sum exit scheme and what comes next.
Murray recognised that clause 40 removes potential avoidance opportunities. He would also not be opposing this.
On clause 41 he noted that the measure had been an OTS recommendation. There is something ironic about a government using one clause in the Finance Bill to implement a recommendation of the Office of Tax Simplification while using another clause in the same Bill to abolish that institution. "As the Chartered Institute pointed out, the changes being made by this clause are the result of an Office of Tax Simplification report. In fact they are the third recommendation from that report to be implemented." He asked the minister how the government reconcile the work they attribute to the OTS with their decision to scrap it.
Labour would also not be opposing clauses 42 or 43, said Murray, though clause 42 did not address what for him is the main point around carried interest - namely that it should be taxed as income rather than a gain.
Responding, the FST said the queries about the farmers' scheme should be aimed at DEFRA. Regarding the OTS she noted that that particular debate awaits the committee. The government are going further than the OTS recommendation on this matter, she said.
Regarding carried interest being taxed as income she said that in some circumstances it can be. In others it can be taxed at the higher CGT rate. "This is a balanced approach and one that is followed by other comparable jurisdictions," she said.
Clauses 39-43 were agreed without division, along with amendments 6-8.
Part 2 – Alcohol Duty
Clauses 44-46, 49 and schedule 6 - Alcoholic products, excise duty point and payment
Part 2 of the Bill contains legislation to make changes to the 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.
Exchequer Secretary Gareth Davies introduced these clauses. He explained that the clauses take forward a review of alcohol duty. In making the changes the government aims to improve public health, encourage innovation and make sure the duty system reflects modern drinking practices.
Shadow Exchequer Secretary Abena Oppong-Asare spoke for Labour, welcoming the minister to his new post. She said the Labour Party agreed with the principles of the alcohol duty review, wanting to see a system that is simpler and more consistent, recognising there is a balance to be struck between supporting businesses and consumers, protecting public health and protecting revenue.
The shadow minister accused the government of presiding over uncertainty for hospitality businesses: "The businesses desperately need certainty so I hope the minister can confirm today that there will be no further u-turns or changes".
Dame Angela Eagle said while no-one objects to the changes in principle, there are “quite a lot of anomalies”. She added she assumed the principle for taxing alcohol is that higher volume products are taxed more, and that producers may alter their recipes to avoid higher tax bands, though this is not possible for some products such as vodka or whisky. She also asked what work had been done to understand the impacts of changing alcohol duty on imports, as “deviating from a system that used to be EU-wide” could have an impact on the ability to export alcohol products, and that it also would not affect expected revenues from alcohol.
Eagle also asked for clarification over the purpose of Draught Relief, which she said she believed to be to offset the differences between shop-bough and pub beer, and why the UK was continuing with the duty exception to cider, a former EU policy, despite the UK no longer being part of the EU.
Kirsty Blackman agreed that it seemed nonsensical to have exemptions based on the name or type of alcohol product rather than its strength, and also asked for reassurances that guidance and regulations would be introduced in enough time for those affected to make the changes they need to.
Gareth Davies said the reforms were "extensively" consulted on and the "public health focus" that drove many of the reforms was widely welcomed. He added that it was a "massive simplification" of the tax system for alcohol which should make things easier for traders and producers, and he was "very confident" that businesses were ready for the changes.
He confirmed that Draught Relief was intended to not only support beer drinkers but also "community pubs", while conceding that there were a "range of impacts" to the cider industry as a result of the reforms. Davies said that while there were some targeted reliefs to support certain sectors, the overall aim was to simplify the tax system for alcohol and, in general, the higher the alcohol volume the more tax would be paid. He also reassured MPs that he did not have any concerns over additional workload for HMRC and the reforms would be properly scrutinised.
All clauses and schedule 6 were agreed without division.
Clauses 61-71 - Mergers and demergers and interpretation of Chapter 3
Chapter 3 introduces a new Small Producer Relief (replacing Small Brewers’ Relief) for those making less than 4,500 hectolitres of alcohol per year, which will apply only to alcoholic products under 8.5% ABV.
The Exchequer Secretary (XST), Gareth Davies, said clauses 61-71 provide transitional arrangements for small businesses that merge in relation to the new small producer relief. This measure will extend the benefit of small brewers’ relief to other producers.
The shadow minister, Abena Oppong-Asare, reminded the committee that the small brewers' relief was introduced by Labour. The party supports the new relief.
The XST responded, acknowledging the success of small brewers' relief.
Clauses 61-71 were passed without division.
Clauses 72-81 - Other reliefs and exemptions
The legislation also sets out other reliefs and exemptions such as for production for personal consumption, and transitional arrangements for certain wine products.
The XST told the committee that these clauses reproduce existing exemptions and reliefs from excise duty and alcohol products.
Abena Oppong-Asare, for Labour, said the party did not oppose these clauses, but she invited the minister to lay out how clauses 80-81 will work in practice.
Kirsty Blackman, for the SNP, asked whether alcohol for hand sanitiser is considered a medical exemption or comes under another exemption. She sought confirmation that it is indeed exempt.
The XST, responding, emphasised that the changes are simply administrative. He assured Oppong-Asare that there are penalties in place for using non-approved products. Hand sanitiser is exempt, he confirmed.
Clauses 72-81 were agreed without division.
Clauses 82-89 - Regulated activities and approvals
The XST explained that these clauses make changes to the approval and registration requirements for alcohol producers, making sure they are harmonised across all products.
Abena Oppong-Asare, for Labour, asked why the powers being given to ministers here were subject only to negative parliamentary procedure rather than affirmative.
Kirsty Blackman, for the SNP, asked about post-duty point dilution of alcohol products. The current rules are fairly new, she observed. How much information does the minister have about how well the recent changes have worked?
Dame Angela Eagle, for Labour, said taxing based on alcohol volume creates a "completely different incentive for adulteration" in the manufacturing process and can create "temptations" for some producers to "fiddle around" with their products. She said this means HMRC must be vigilant to protect tax revenues and asked for reassurances over how this would be policed.
The XST said the "overarching policy here is simplification" but the new policy will allow for modifications if needed. He said post-duty point dilution rules were previously introduced on wine but would now be rolled out across other alcoholic products.
Clauses 82-89 were agreed without division.
Clauses 90-97 - Denatured alcohol
The XST explained the changes were largely around wording and administration, but the policy itself will remain the same.
Abena Oppong-Asare asked for clarification over the definition of denatured alcohol and the situations in which it would be permitted to be manufactured, but said Labour would not oppose the clauses. Responding, the XST said the definition of denatured alcohol would not be altered.
Clauses 90-97 were agreed without division.
Clauses 98-107 and schedule 10 - Wholesaling of controlled alcoholic products
The XST said these clauses reproduce existing provisions for excise controls on wholesale transactions on duty-paid alcohol products, and were once again largely administrative to ensure all policy is contained in one place.
Clauses 98-107 and schedule 10 were agreed without division.
Clauses 108-120 and schedules 11-13 - Supplementary, repeals and further amendments, transitional and final provisions
The XST said these clauses updated several other aspects of existing policy, with a focus on simplifying the "complicated and outdated" rules around alcohol duty. They include lists of restrictions, terminology and powers to amend regulations at a later date if required.
The committee broke for a division during Abena Oppong-Asare's remarks. When it returned she asked the minister to outline examples of what supplementary provisions might include, and asked him to confirm that the new regime will come into force with no further u-turns or delays. Once again she offered Labour's support for the clauses.
Kirsty Blackman, for the SNP, also asked some questions, including around fluctuation of alcohol content in wine. The temporary provision on cider will be in place until the approval procedure begins. When will that be, she asked.
The XST replied. He said the18 month consultation period with the wine industry should give them sufficient time to put necessary procedures in place.
Clauses 108-120 and schedules 11-13 were agreed.
The committee adjourned at this point, to resume on Thursday morning at 11.30am with clause 313 at the beginning of Part 6 of the Bill (parts 3-5 having been wholly agreed in Committee of Whole House).