“Tax giveaway” or “widely welcomed”? MPs debate scrapping of lifetime allowance in Budget debate

Technically the debate is on the first Budget resolution (that income tax is charged for the tax year 2023-24) with the other 74 resolutions grouped in with it. MPs voted on the resolutions at the end of the debate on Tuesday (they only divide on the more controversial ones).

The debates on Monday and Tuesday followed those which began immediately after the Budget statement on Wednesday last week, continued on Thursday. You can read the full Budget policy paper, Monday and Tuesday’s full debates and our report from last week’s debates in the House of Commons and House of Lords.

Pensions lifetime allowance

One of the most debated announcements in the Budget was the decision to abolish the pensions lifetime allowance, which Shadow Financial Secretary James Murray (Labour) called “a tax giveaway for tens of thousands of the very top earners.”

Shadow Secretary of State for Climate Change Ed Miliband cited data from the Resolution Foundation, which said five in six people with the largest pension pots, who will benefit from change, are not doctors or “in medicine at all”, while those with a £2 million pension pot will be given a tax cut of almost £250,000.

He said: “The reason we have a lifetime limit on tax-free pension saving is to provide some cap on the amount of pensions tax relief for the most wealthy in our society. The average pension pot in this country is £60,000. The change the Chancellor is making to abolish the lifetime limit of over £1 million is therefore about people with a pension pot 17 times the average.”

Lucy Powell (Labour) added it was a “huge tax break for the super-wealthy but an inheritance tax wheeze for the super-rich too”, with only 16% of those set to benefit working as doctors, while  Shabana Mahmood (Labour) said the changes will cost the Government £70,000 for every single person returning to the labour market.

David Linden (SNP) said while the Government’s “cover story” for abolishing the lifetime allowance is to tackle the shortages of clinicians and doctors in the NHS, in reality 86% of those who will benefit from the changes are in different professions. Fellow SNP MP Alan Brown called the measure “a sledgehammer to crack a nut”.

However, Financial Secretary Victoria Atkins praised the move, citing data from the Royal College of Surgeons of England which showed that 69% of respondents to its survey said that they were cutting their hours because of pensions rules.

Fellow Conservative Aaron Bell added it is “vital” that high earners such as doctors are retained in the workforce, “because that experience means more productivity and more growth for this country”.

He added: “The reality is that the cap is pushing all sorts of workers into early retirement—headteachers, police chiefs, senior armed forces personnel, senior armed forces clinicians, air traffic controllers and prison governors, and many in the private sector, too, who would be getting less generous pensions than some of those in the public sector.”

Levelling Up Secretary Michael Gove said the pension reforms had been “widely welcomed”, including by the British Medical Association, the Royal College of Surgeons, the leaders of police and crime commissioners everywhere and by Shadow Health Secretary Wes Streeting. He said: “This initiative will cut waiting lists, has been welcomed everywhere, is progressive and is in the country’s best interests.”

Corporate taxes

Conservatives praised the full expensing measure, despite a lukewarm reaction to increasing the corporation tax rate to 25%. The Financial Secretary said that, according to the World Bank, the UK is the best place to do business out of all of the big European countries, with CEOs from around the world adding it is the best place to invest outside of America and China. The Financial Secretary added: “That is precisely why we have announced the full expensing policy, which will support the corporation tax policy and the annual investment allowance for smaller businesses.”

Anthony Browne (Conservative) agreed full expensing is “far the most generous tax relief for business investment in any developed country”, while Simon Baynes (Conservative) said it will encourage investment in business, which will help to improve productivity.

However, David Davis (Conservative) said if there was another Budget in the autumn, he would call for the Chancellor to reintroduce the super-deduction and “do away” with IR35. He added: “The more confident the markets in the Government, the better our prospects for the future.”

Former Treasury minister Simon Clarke (Conservative) spoke of his ‘deep concern’ about the corporation tax increase, though he welcomed “the offsetting benefits of the full expensing that the Chancellor announced.” If that is to work, it is vital that it is a permanent decision rather than simply a temporary relief, otherwise it will have a distorting effect on business investment, he added. 

Another former minister, Kit Malthouse (Conservative), also wanted corporation tax to be lower, saying that we would necessarily raise that much more by raising corporation tax rates. “It raises a question in my mind about how we tax companies and why we continue to chase them for corporation tax when we know that the international and online nature of business makes it very difficult to tax such organisations,” he reflected. “If we went for a sales tax,” he continued, “their domicile would be irrelevant, because the tax would relate to where their transactions had taken place. The huge international businesses that operate online and that we are currently chasing around the world would come into our taxation envelope, and we would find it easier to collect tax from them.”

Winding up the debate for the Government, Chief Secretary John Glen repeated the Chancellor’s “determination that the full expensing measure will be a permanent intervention of this Government.”

Labour criticised the lack of action to address R&D relief abuse, with Emma Hardy saying R&D “claim farms” are exploiting the low level of scrutiny of the reliefs, with reports that some companies are claiming millions of pounds in reliefs despite high profits. She said: “R&D relief is the largest co-operative tax relief, predicted to cost more than £9 billion by 2026-27. Fraud and error in R&D totalled more than £1.1 billion in the last three years, and our HMRC is too under-resourced even to look at it properly. The Government were prepared to chase people who were accidentally overpaid in benefits and pensions more than companies that were exploiting the system.”

Daniel Zeichner (Labour) added that the Autumn Statement saw a “complete botch” of the R&D tax credit system, and the damage “has by no means been repaired”. He added that SMEs are still worse off than before those changes, while fraud in the system has not been addressed. He said: “The bottom line is that most start-ups will still find it much harder to claim R&D tax credits than they would have before the Government took over.”

SNP spokesperson Carol Monaghan agreed that the R&D tax credits system “has been grossly mismanaged and therefore abused in the past” and called for greater clarification on how it would be policed to avoid fraud and provide “value for money”.

Other issues

Tim Loughton (Conservative) praised the cut on duty for draught beer sold in pubs, which he said will save the sector around £70 million a year, but warned this would be offset by a 10% increase in the duty on non-draught beers, which make up 60% of all beer sales. He said: “Can we aim for a level playing field for our beer and pub industry, which has been particularly hit during the energy crisis and the pandemic? What is in the Budget is really good, but we could do a little bit more.”

SNP spokesperson Alan Brown added that extra duty on Scotch whisky meant 75% of the cost of a bottle of whisky is now tax. He said: “Let us not forget that distillers are excluded from the energy intensive industries support scheme, while other alcohol producers receive support. Instead of trying to grow the whisky industry, it is clear that the UK Government are treating it unfairly within the overall alcohol production sector.

Bambos Charalambous (Labour) was among those to call for a windfall tax on energy suppliers, who he said are “continuing to rake in record profits at our expense”. He added: “Last year, Shell reported the highest profits in its 115-year history and one of the largest profits in UK corporate history, while BP made profits of £23 billion in the same year, up from £10.6 billion. We needed a proper windfall tax on the oil and gas giants’ unearned profits of war—billions of pounds that could help families and businesses across the UK through the cost of living crisis.”

Stephen Morgan (Labour) added: “It is simply not right that oil and gas companies continue to enjoy astronomical profits at the expense of working people.”

In response to the commitment to provide 30 hours of free childcare to children over nine months, Miriam Cates (Conservative) criticised the UK’s “unique individual taxation system”, with families in this country paying up to 10 times as much tax as they would elsewhere. She said the system penalises single-earner households or households with a large difference in earnings between the two partners, and because of this said she does not “expect take-up to be high” for the childcare policy.

Sir Desmond Swayne (Conservative) added that the tax treatment of families which decide to have one parent remain at home for full-time childcare is “much, much less eligible” than for couples where both parents work. He said: “If we are to have true freedom of choice in childcare arrangements, there is an agenda on taxation that we need to address.”

James Murray (Labour) said the Budget had once again “decided to turn a blind eye” to non-dom tax status. He said: “Labour believes that those who make Britain their home should pay their taxes here. The non-dom rules are costing us more than £3 billion every year, and it is wrong to let an outdated, unfair loophole continue when ending it could fund the biggest expansion of the NHS workforce in a generation.”

Former Labour leader Jeremy Corbyn added: “Billionaire wealth in the UK has gone up by 1,000% in the past 30 years. We could save the NHS from its disastrous privatisation by taxing profits and wealth. Increasing tax on the top 1% of earners to 50% would raise £5 billion, as an example.”

Selaine Saxby (Conservative) called for tax measures to “level the playing field” between long-term and short-term rentals. She said: “Both are businesses, but one enables people to live and work in an area and the other is a tourism business. The current tax system encourages short-term lets over long-term lets and needs at least levelling up or possibly even reversing.”

She also asked ministers to revisit the VAT threshold. “Every year in Ilfracombe, in my constituency, swathes of businesses close down for the winter rather than go through the £85,000 tax threshold,” she explained. “Having put a small business through that tax threshold myself, I know how challenging it is, but I hope that we can fire the ambition of those small business owners by alleviating that small threshold.”

Resolutions

MPs passed 75 Budget resolutions, listed below. Only two were divided on: resolution 18, which was passed by 330 votes to 233, and resolution 36, which was passed by 321 votes to 64, with a majority of votes against coming from the SNP.

1. Income tax (charge)

2. Income tax (main rates)

3. Income tax (default and savings rate)

4. Income tax (starting rate limit for savings)

5. Corporation tax (charge and main rate for financial year 2024)

6. Corporation tax (standard small profits rate and fraction for financial year 2024)

7. Capital allowances (temporary full expensing etc)

8. Annual investment allowance

9. Capital allowances (electric vehicle charge points)

10. Corporation tax relief (research and development)

11. Corporation tax relief (profits from patents etc)

12. Energy (oil and gas) profits levy (de-carbonisation allowance)

13. Museums and galleries exhibition tax relief (extension of sunset date)

14. Creative reliefs (extension of period for temporary increase in credits)

15. Seed enterprise investment scheme (amount on which relief may be claimed etc)

16. Company share option plans

17. Enterprise management incentives

18. Pensions (lifetime allowance charge and annual allowance)

19. Pensions (collective money purchase benefits)

20. Pensions (relief relating to net pay arrangements)

21. Social security payments

22. Qualifying care relief

23. Estates in administration and trusts

24. Basic life assurance and general annuity business

25. Insurers in difficulties

26. Corporate interest restriction

27. Investment vehicles

28. Share exchanges

29. Records relating to transfer pricing

30. Double taxation relief (extended time limit claims)

31. Chargeable gains (payments to farmers)

32. Chargeable gains (assessment periods)

33. Chargeable gains (separated spouses and civil partners)

34. Chargeable gains (election to treat gains as accruing)

35. Chargeable gains (relief on disposal of joint interests in land)

36. Alcohol duty

37. OECD Pillar Two

38. Electricity generator levy

39. Stamp duty land tax (transaction funded with the assistance of a subsidy)

40. Value added tax (deposit schemes)

41. Import duty (dumping, subsidisation and safeguarding remedies)

42. Import duty (rulings as to methods of valuation of goods)

43. Import duty (discharging goods from free circulation procedure)

44. Fuel duties (excepted machines)

45. Fuel duties (definition of “HO%” and “BD%”)

46. Rates of tobacco products duty

47. Soft drinks industry levy (flavour concentrates)

48. Air passenger duty (bands and rates)

49. Rates of vehicle excise duty

50. HGV road user levy

51. Rates of landfill tax

52. Rates of climate change levy (future years)

53. Rate of plastic packaging tax

54. Aggregates levy (exemptions and exploitation)

55. Freeports and investment zones

56. Rights to repayment of income tax

57. Late payment interest (value added tax)

58. Penalties (value added tax)

59. VAT credits (repayment interest due where evidence not provided)

60. Insurance premium tax (notifications)

61. Plastic packaging tax (penalties for late payments)

62. Management of customs and excise (approval of aerodromes)

63. Management of customs and excise (temporary approvals)

64. Licensing authorities (requirements to give or obtain tax information)

65. Charities (value added tax etc)

66. Charities (stamp duty)

67. Charities (other taxes)

68. Community amateur sports clubs

69. Homes for Ukraine Sponsorship scheme

70. Office of Tax Simplification

71. Dormant assets scheme

72. International arrangements for exchanging information

73. Payment of unclaimed money in court into the Consolidated Fund

74. Financial sanctions regulations

75. Incidental or consequential provision