I thank hon. Members for their thoughtful contributions to today’s Committee of the whole House. I will take a few moments to set out our views on the proposed amendments and the reasons why we will not support them.
I will deal first with amendments 3 and 4 and new clauses 1, 2 and 9, which relate to the energy profits levy clauses in the Bill. Starting with the amendments, my hon. Friend the Member for Poole (Sir Robert Syms)
asked how “extraordinary” profits are defined, and we have not had a chance to draw that out in the course of the debate so far. The definition for the energy profits levy applies only to the profits that companies make from producing oil and gas in the UK and on the UK continental shelf. That is why we see reports in the newspaper about certain companies not contributing to the levy this year. I am not allowed to speak about individual taxpayers, but we have had to specifically focus it on UK business because we are raising taxes for the UK Treasury. That is how we are defining it.
My hon. Friend expressed concern, it is fair to say, about what will happen with the levy if prices go down, as we sincerely hope they will. Through this difficult announcement in the autumn statement, we are expanding the time in which the levy will operate until March 2028. We have done that to provide companies with certainty, because the latest OBR autumn statement price expectations for oil and gas across the forecast horizon exceed average predictions when the levy was first introduced. Commodity prices, particularly for gas, are expected to remain above their long-term average for the foreseeable future, but we will continue to keep the levy under review, as we do with all forms of taxation, while it is in place.
Moving on to amendment 3, the Government reject the premise that the levy should have been in place earlier. In the early months of this year, three significant things changed: first, there was a new war driven by Putin in Ukraine, which introduced significant instability to global energy markets; secondly, inflation was considerably higher than was previously expected; and thirdly, the Government had concrete information on the autumn and winter energy price cap. We therefore introduced the levy in response to these fast-moving conditions.
I welcome to her place the hon. Member for North Shropshire (Helen Morgan), whom I have not had the pleasure of seeing across the Chamber, if she can look up from her phone. Just to give a little context to the statistics, before covid the British economy spent £40 billion a year on energy costs. Today, the annual figure is closer to £200 billion. That means the British economy has to pay an additional £160 billion a year on energy. That is like withstanding a pressure equivalent to an entire second NHS. That is why we have had to make many of these very difficult decisions in the autumn statement, but in particular we introduced the energy profits levy and are now increasing it because of this difficult financial situation.
Amendment 4 and new clause 1 would require the Government to report on how much additional revenue would have been generated without the investment allowance. We have always been clear that we want to see significant investment from the sector to help protect our energy security. The North sea will continue to be a foundation of our energy security, so it is right that we continue to encourage investment in oil and gas. The levy will raise substantial revenues following the changes introduced by this Bill—more than £40 billion over the next six years. That takes into account the tax relief available through the investment allowance. Figures on the amount of tax raised through the levy will be published periodically, in line with other taxes, and His Majesty’s Revenue and Customs also publishes data on the costs of reliefs, and that is likely to include the investment allowance once data is available.
Although it is important to note that many companies already publish tax data through voluntary transparency schemes, the Government respect the commercial confidentiality of taxpayers. Companies within scope of the levy will be reporting information on their taxable profits in their tax returns. New clause 1 also refers to the impact of the investment allowance on the UK’s climate commitments, as does new clause 9. Supporting our domestic oil and gas sector to boost energy independence is not incompatible with these commitments, as we will need these fuels for decades to come as we transition to clean energy.
Our domestically produced gas generates lower emissions than imported seaborne liquefied natural gas, so supporting home-grown hydrocarbons helps to reduce emissions overall. When the upstream industry has reduced its overall emissions by 11% since 2018, it would not make sense to remove support towards further progress. The industry has agreed with the Government’s stretching targets towards 2030, and the investment allowance will provide additional relief to support that.
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On new clause 2, tabled by the hon. Member for Ealing North (James Murray), I have already noted that the Government reject the premise that the levy should have been in place earlier. New clauses 3 and 4 concern research and development tax reliefs. With regard to new clause 3, studies published in 2019 and 2020 show that while the R&D expenditure credit incentivises £2.40 to £2.70 for every £1 of taxpayer money, the SME scheme incentivises just 60p to £1.28 for every £1. He asked about wider plans for R&D, and I am happy to tell him that we will continue the review into the R&D tax reliefs and publish a consultation on the new single scheme in due course. These reports are already public, so including new clause 3 would be of limited added value.
New clause 4 concerns error and fraud in the SME R&D tax reliefs. The most recent error and fraud statistics were set out and published in July in the HMRC annual report. We also have an ongoing inquiry into levels of error and fraud in the SME scheme. The analysis has not finished, but when that has finished, we will publish it. Since April, HMRC has written to more than 1,600 claimants who it is believed may have tried to claim money fraudulently. So far, 80% of those claimants have failed to respond within the 30-day response window, while a further 15% required further investigation after they had replied to the letter. That means that HMRC has protected at least £46 million of public money to date, with work ongoing that will see that updated.
In relation to the impact on life sciences in particular, my hon. Friends the Members for South Cambridgeshire (Anthony Browne) and for Poole both set out concerns for this vital industry within the UK economy. I hope that we will be able to resolve those concerns working with the bio industry, the Federation of Small Businesses and other R&D-intensive small businesses ahead of the Budget in the spring.
Moving to personal tax thresholds, in relation to amendment 1, the Government have been clear that clause 5 is a fair measure. The current personal allowance of £12,570 is still significant higher than it would have been if uprated by inflation from 2010. It means that
hard-working people keep more of their income each year. My hon. Friend the Member for South Cambridgeshire rather demolished the wording of amendment 2, but I can reassure the House that HMRC already takes forward such information in practice by informing employed people and pensioners of changes to their tax code. Self- employed people will receive assessments informing them of their tax liabilities and HMRC has an existing online service where people can check their income tax estimates and tax codes at any time.
In relation to new clause 5, we already publish assessments of income tax threshold changes. The tax information and impact note on the measure is available on gov.uk, and we have published distributional analysis on the impact on households for the measures announced in the autumn statement.
I move now to electric vehicles and amendment 5. The Government already publish data on air pollution, electric charging infrastructure and vehicle registrations by fuel type. It would therefore not be proportionate for the Treasury to reproduce data published elsewhere. Quite fairly, Opposition and Government Members asked about the uptake of electric vehicles in the future. The independent Office for Budget Responsibility expects uptake to continue to be strong, forecasting that around half of new car registrations will be electric by 2025. The other measures in the Bill are helping to support those 60% of registrations that occur through company car schemes.
New clause 6 deals with the broader impact of the Bill. It would require various reviews on the regional impacts across the UK on people with protected characteristics and different incomes levels. The impact of all legislation on different nations and regions of the UK is carefully considered by the Treasury. I note, again, that it publishes analysis of the impact of the Government’s measures on households at different levels of income in the “Impact on households” report, which has been published separately alongside each Budget. Our most recent analysis, published alongside the autumn statement, has shown that Government decisions made at the fiscal event are progressive. Low-income households will receive the largest benefit in cash terms and as a percentage of income. The Treasury and HMRC publish equality impacts in summary form for tax measures in tax information and impact notes.
We reject the need for new clause 7. The independent Office for Budget Responsibility provides economic and fiscal forecasts and is required to provide an assessment of the impact of Government policy. It has done so in relation to the autumn statement and it will continue to monitor the impact of the measures in future forecasts. Another report is therefore unnecessary.
New clause 10, tabled by the hon. Member for Richmond Park (Sarah Olney), seeks a review of the Bill’s impact on small businesses. Small businesses are shielded from many recent tax changes. For example, the small profits rate for corporation tax means that around 90% of companies will not pay the main rate. The employment allowance is now at its highest level of £5,000 since spring. It means that 40% of businesses will be unaffected by the national insurance changes. Businesses will also benefit from a generous business rates package announced in the statement, which introduced a supporting small business scheme to cap bill increases at £600 per year for
businesses losing eligibility for some or all small business rate relief at the 2023 revaluation. [Interruption.] The hon. Member for Richmond Park seems to be laughing at that support for small business. I hope her small businesses in Richmond benefit from the help that central Government are giving them.
To give businesses certainty, VAT registration thresholds will not change for a further period of two years from 2024. The UK’s VAT registration threshold is the second highest in the OECD, at £85,000, keeping the majority of businesses out of VAT altogether. We are setting the annual investment allowance at its highest ever level of £1 million from 1 April. That amounts to full expensing for an estimated 99% of UK businesses. We are also protecting businesses from soaring energy costs via the energy bill relief scheme, providing them with the certainty that they need to plan through this winter. The impact of all policy changes, including on small businesses, are considered and monitored as part of the usual decision-making process. We publish the tax information and impact notes, which include the impact of tax changes on business.
I hope that I have been able to provide some reassurances to hon. Members. I urge the House to reject the proposed amendments, and I commend clauses 1 to 12 to the House.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 to 4 ordered to stand part of the Bill.