Peers praise full expensing – but concerns remain over corporation tax hike

Corporate taxes

Lord Eatwell (Lab) noted that the government had ended the super deduction and introduced full expensing. He highlighted the Institute for Fiscal Studies' comment that the announcement was "just the latest in a long line of changes and temporary tweaks. There’s no stability, no certainty, and no sense of a wider plan." He said that thanks to that change and the Government's decision to increase corporation tax, British businesses are now worse off by a total of £15 billion a year.

Baroness Lea of Lymm (Con) was more positive, welcoming full expensing, stating that it would help boost business investment. However, she expressed concern that the Chancellor's decision to increase the corporation tax rate could make the UK less attractive to investors. She pointed to AstraZeneca's decision to build a new factory in Dublin instead of the UK as an example.

Lord Bridges of Headley (Con) agreed with Lord Eatwell on the corporation tax rise, saying that "business investment is set to fall." However, he believed that generous capital allowances could help businesses in the short-term. He added that the Conservatives are "in danger of slipping into the groupthink that higher spending, higher taxes and a bigger state are the path to prosperity – they are not."

Lord O'Neill of Gatley (CB (that is, crossbencher)) expressed appreciation for the measures aimed at promoting investment spending by allowing for genuine investment allowances instead of focusing solely on corporation tax levels. However, he noted that the limited duration of this policy and the possibility of a change in Government within two years could limit its potential positive impact.

Lord Horam (Con) said that the Chancellor had rightly resisted all the pressures to reduce corporation tax. Incentives for investments are welcome, although they should remain "forever," he added.

Lord Bilimoria (CB) not was not happy with the rise in corporation tax, highlighting that in the past two years, the Government has "just put up taxes after taxes." He mentioned that the UK now has the highest tax burden in 70 years. By trying to get £18 billion more a year and increasing the corporation tax by almost one-third in one go, the Government is "killing the goose that lays the golden egg." He added that the corporation tax increase will also affect inward investment.

Lord Fox (Lib Dem) thought that the enhanced R&D tax credit is a good step towards promoting innovation. He said that this is an effective way to create cutting-edge products and services in the small business community. However, he felt that the support is more focused on large companies than small businesses.

Lord Tunnicliffe (Lab) endorsed the decision to increase corporation tax, as it is accompanied by improved allowances for firms that invest in the UK. He noted that the personal tax burden is at its highest level since the Second World War and that corporation tax rates in the country have been inconsistent, shifting the tax burden onto working people and creating uncertainty for businesses. He argued that business taxes should be fair and not unduly high, and that a new, fair, and long-term framework is needed to encourage investment and job creation.

Baroness Brinton (LD) expressed her concern regarding the Budget’s announcement on R&D credits, stating that the 40 per cent intensity threshold for innovation is unhelpful during a time when businesses are struggling to survive economic instability. She emphasised the importance of high-tech and innovation for businesses, questioning the Government's decision not to fund businesses just outside the innovation threshold during this critical time for investment.

Making her maiden speech, Baroness Moyo (Con) welcomed the Budget, despite raising concerns about the corporation tax rate rise. She said that more work needs to be done to unburden businesses from excessive regulations.

Lord Willetts (Con) observed that the generous capital allowance for corporation tax will bring forward some capital spending, but it would have been ideal if the Government had committed to this as a long-term permanent policy.

In agreement with his colleague, Lord Tugendhat (Con) emphasised the importance of consistent government policies to support long-term investment and the need to remember the time frame for projects to come to fruition. He agreed with the Chancellor's focus on incentivising investment rather than the headline rate of tax in the corporate sector to improve the British economy.

Lord Bellingham (Con) welcomed the £25 billion business relief package for investment and R&D support for SMEs but expressed concern about the increase in the corporation tax rate to 25 per cent. He noted that the ratio of corporation tax receipts to GDP will rise to the highest level since 1965.

Responding to concerns, Treasury minister Baroness Penn explained that small businesses are exempt from increased corporation tax rates, and only 10 per cent of businesses will pay the top rate of 25 per cent. She agreed with the importance of investment and the need to build incentives into taxes such as corporation tax. She reiterated that the Chancellor would like full expensing to be made permanent when fiscal circumstances allow.

Low-tax investment zones

Lord Howarth (Lab) expressed scepticism about the proposed vision of 12 investment zones as "potential Canary Wharfs," suggesting that this approach may have a negative impact on people living in those areas. Likewise, Lord Fox (LD) urged the Government to provide assurance regarding environmental regulations in these zones.

Lord O'Neill (CB) welcomed the introduction of low-tax investment zones, but argued that these zones have the potential to be much more. Lord Skidelsky (CB) also welcomed the creation of investment zones, although he wished that more attention had been given to two British institutions for investment: the UK Infrastructure Bank and the British Business Bank. Lord Bilimoria (CB) applauded the new zones, stating that the CBI had championed this for a long time.

The minister, Baroness Penn, was delighted that investment zones had been welcomed by many members, stating that the Government is committed to ensuring that investment zones uphold the UK's high environmental standards and meet international commitments.

Pension tax relief

Lord Eatwell (Lab) considered the Chancellor's pension announcements "wasteful spending." He said that abolishing the lifetime pension tax allowance was "handing up to £1 billion to the wealthiest." He asked the Treasury to provide a full estimate of the cost of this giveaway, including the cost of potential losses in inheritance tax revenues.

In response, Baroness Penn reassured Lord Eatwell that inheritance tax impacts were included in the costings produced for the lifetime allowance at the Spring Budget. She stated that pensions should not primarily be used for inheritance tax planning, and the tax system would be reviewed accordingly.

Baroness Brinton (LD) argued that while the elimination of the lifetime pension tax allowance may help a number of medical consultants and encourage them to work longer, it will not address the many issues facing the NHS, including supporting low-paid healthcare staff and nurses. The Conservative Government has failed to act on this matter for a long time, and as a result, many NHS senior staff have already left, she said.

Lord Bridges (Con) argued that this new policy could actually encourage people to retire earlier, highlighting the OBR predictions that the proposed measure could lead to an increase of just 15,000 in employment, which would cost £80,000 per worker. He also argued that the tax burden is set to reach an all-time post-war high.

Lord Lee of Trafford (LD) also noted that this new measure might encourage some to retire early.

Lord Willetts (Con) welcomed the pension tax relief announcements, stressing that members should look beyond the immediate benefit for more people going into work and instead consider who benefits from these changes, particularly those who receive healthcare.

Lord Davies of Brixton (Lab) hoped that a forthcoming Labour Government would reverse the Chancellor's decision. He suggested that a more targeted approach to pensions tax would be better, specifically targeting the problems of the NHS. He added that the most immediate problems around retaining doctors in the NHS arise from the annual allowance, not the lifetime allowance. He also noted that the Chancellor's argument for change in the lifetime allowance is based on the concerns of many senior NHS clinicians, but it is unclear how many of those being helped by this change are doctors. Lord Davies welcomed the decision on the aggregation of pension input amounts.

Baroness Penn stated that the aim of the pension tax changes in the Budget is to keep highly skilled and experienced individuals in the labour market. Some noble Lords were concerned about the cost of this measure, but it was noted that the cost per additional worker in the workforce is similar to that of childcare measures. The tax change will benefit key workers, such as head teachers, police chiefs, senior Armed Forces personnel, air traffic controllers, and prison governors, and not just doctors, she said. The change can be implemented by April for the start of the new tax year.

Personal taxation

Lord Howarth (Lab) argued that the Chancellor's personal tax policies would exacerbate inequality, as they will allow the rich to accumulate bigger pensions and pay less inheritance tax, while dragging more people on lower incomes into the income tax net and reducing their disposable income. He argued that there was no evidence that low personal taxes inspire people to work harder or improve efficiency.

Lord Fox (LD) stated that the Chancellor's decision to freeze tax thresholds would lead to a stealth tax rise of almost £30 billion by 2027-28, with 3.2 million people paying income tax and 2.1 million paying at a higher rate. He added that instead of implementing new taxes or cutting public spending, the Government should collect tens of billions of pounds in unpaid taxes. He cited a report by the Commons Public Accounts Committee that found £42 billion in tax debt owed to HMRC. He suggested there seemed to be a lack of staff and will to collect this money.

Lord Tunnicliffe (Lab) mentioned that the upcoming tax threshold freezes would result in an additional £500 on income tax for basic-rate taxpayers, adding to the burden of already high mortgage bills. The lack of quality public services due to the selling off or decline of many services under Conservative governments in the past 13 years exacerbates the situation, he added.

In response, Treasury minister Baroness Penn argued that the Government had frozen tax thresholds and increased corporation tax rates to restore public finances. She maintained that even after the freezes are implemented, someone on an average salary would still pay £1,000 less in income tax and national insurance next year than if thresholds had gone up in line with inflation since 2010.

Other issues

Lord Howarth (Lab) acknowledged the Chancellor's efforts to address tax avoidance schemes but suggested that his focus is solely on preventing revenue loss rather than addressing the underlying issue of the relationship between the wealthy and government. He noted that the public is increasingly concerned about the elaborate tax avoidance strategies employed by the rich, as well as the influence of big business and wealthy individuals on government and politics.

Lord Lee (LD) expressed disappointment that the Budget did not address tax-free shopping, saying that high-spending tourists were now heading to France, Italy, and Germany instead of the United Kingdom.

Criticising the Budget, Baroness Jones of Moulsecoomb (Green Party) said that the Government had continued the regressive freeze on fuel duty, without considering current climate change issues.

Lord Brooke of Alverthorpe (Lab) welcomed the draught duty announcement, describing it as a positive step towards setting different levels of taxation within alcohol and focusing on areas where cheap drink is sold, such as supermarkets. Lord Bilimoria (CB) – who founded Cobra Beer – was also delighted to see that the government had frozen fuel and draught duties.

Finally, Lord Moynihan (Con) argued that the fitness, sport, and leisure sector could help boost the UK's productivity and workforce mobility, but that this would require systemic reforms to taxation, regulation, and policy.

The Lords do not vote on the substance of the Budget but simply agreed a motion taking note of it.

You can read the full debate here.