The Financial Secretary to the Treasury (Lord Livermore) (Lab)

My Lords, it is a pleasure to open this Second Reading debate on the Finance Bill. I take this opportunity to warmly welcome my noble friend Lady Caine of Kentish Town to your Lordships’ House, and I very much look forward to her maiden speech. The Bill before your Lordships’ House legislates for tax changes announced in the Budget last October, many of which come into effect this financial year. That was a once-in-a-generation Budget, on a scale commensurate with the challenging inheritance that this Government faced, an inheritance consisting of three distinct crises: a crisis in the public finances, a crisis in our public services and a crisis in the cost of living. In the public finances, as noble Lords may have heard me say before, this Government inherited a £22 billion black hole—a series of commitments made by the previous Government that they did not fund and did not disclose. The OBR has established that the previous Government concealed £9.5 billion and “did not provide the OBR with all information available”. As we now know, during the five months they had left in office, the previous Government continued to amass unfunded commitments that they did not disclose. By the Spring Budget, Treasury records show that these had reached £16.3 billion; by July, they had reached £22 billion. The Treasury has published a line-by-line breakdown of these unfunded commitments: 260 separate pressures that the previous Government did not fund and did not disclose. The previous Government also failed to budget for costs they knew would materialise, including £11.8 billion to compensate victims of the infected blood scandal and £1.8 billion to compensate victims of the Post Office Horizon scandal. Of course, this Government inherited not just broken public finances but broken public services, with NHS waiting lists at record levels, children in portakabins as school roofs crumbled and rivers filled with polluted waste. Added to this was a cost of living crisis that had hit working people hard, with inflation peaking at over 11%. This was the reality we inherited. Faced with this reality, any responsible Government would need to act. That is why this Government took action in the Budget to wipe the slate clean, repair the public services, protect working people and invest in Britain. That included a historic investment of an additional £25.7 billion for the NHS, which is helping to bring down waiting lists more quickly and put an end to over a decade of under- investment and neglect. We took this action in the fairest way possible, by keeping the promise we made to working people in our manifesto not to increase their income tax, national insurance or VAT. The Government did, however, need to take some very difficult decisions elsewhere in relation to tax—difficult decisions, but the right decisions. We have always been clear that there are costs to responsibility and that the increase in employers’ national insurance contributions will have consequences for businesses and beyond, but the costs of irresponsibility would have been far greater. As a result of the decisions we have taken, we have created a foundation of stability on which we are now taking forward our agenda of growth and reform. The Bill before your Lordships’ House is wide ranging, and I will speak to the measures within it in three distinct categories: first, the measures the Government have taken to deliver on the specific commitments made in our manifesto; secondly, measures to put the tax system on a fairer and more sustainable footing; and thirdly, measures to improve health outcomes and support the clean energy transition in line with our growth strategy. On the first of these, our manifesto included a commitment, which is being delivered through this Bill, to remove the outdated concept of domicile status from the tax system and ensure that everyone who is a long-term resident in the UK pays their taxes here. In its place, the Bill introduces a new residence-based regime from April this year. This new regime will be internationally competitive and focused on attracting the best talent and investment into the UK. The new rules mean that anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains, as is the case for other UK residents. That is a much simpler and clearer test than exists under the current regime. The independent Office for Budget Responsibility has confirmed that these reforms will raise a total of £33.8 billion over the five-year forecast period. This includes £21.1 billion from the previous Government’s reform and £12.7 billion from the further reforms announced at the Budget. This will help to fund vital public services and provide stability in the public finances. Reflecting our continued engagement with stakeholders to ensure the reforms operate as intended, the Chancellor recently announced that we are making elements of these reforms simpler to use and more attractive, while retaining the structures announced at the Budget. Our manifesto also pledged to “end the VAT exemption … for private schools to invest in our state schools”. This Bill delivers on that commitment too. Some 94% of children in this country attend state schools. However, too many children do not get the opportunities they deserve because too often these schools are held back by a lack of investment. That is why we introduced VAT on private school fees from 1 January this year to secure the additional funding needed to improve educational outcomes across the UK. Together with our changes to business rates, this measure will raise around £1.8 billion a year by 2029-30 and just under £500 million in this year alone. The Government published a tax impact and information note setting out the impacts of this policy at the time of the Budget. The Government’s costings, set out in a detailed costings note, have been certified by the OBR. The evidence to date supports these assessments, and we remain very confident in them. Private schools have continued to open in England. Pupil movements remain in line with expectations. Many private schools are partially or fully absorbing costs, instead of passing on higher fees. More pupils are receiving their first choice of school than they did last year. A final key manifesto commitment relates to the energy profits levy on oil and gas companies. The Bill before your Lordships’ House fulfils our promise to increase the rate of the levy by three percentage points to 38%. It also extends the levy by one year and removes an investment allowance for the oil and gas industry that was not available to any other sector. While oil and gas will continue to play an important role in the energy mix during the transition, we must drive public and private investment towards cleaner energy. The money raised from these changes will help finance our clean energy transition, enhance energy security and create new jobs. To support these objectives, the Bill maintains 100% first-year allowances in the energy profits levy regime, along with a targeted decarbonisation allowance to help the sector reduce its emissions. The Bill also contains a range of measures to make the tax system fairer and more sustainable and to restore stability to the public finances. The Bill takes a balanced approach towards capital gains tax, which is paid by fewer than 1% of adults each year. The higher main rate will increase from 20% to 24%, ensuring that the system remains internationally competitive, with the UK retaining the lowest rate of any European G7 economy. The new headline top rate will also remain lower than it was from 2010 to 2016. We are maintaining business asset disposal relief, with its £1 million lifetime limit, and increasing the rates of capital gains tax applied to this relief and investors’ relief in a phased way to give businesses time to adjust. On inheritance tax, the Bill will ensure that wealthy estates contribute their fair share by extending the freeze in inheritance tax thresholds by a further two years to 5 April 2030. To support home ownership, the Bill also increases the higher rates of stamp duty land tax, so that those looking to move home or purchase their first property have a greater advantage over second home buyers, landlords and companies purchasing residential property. Putting the tax system on a fairer and more sustainable footing also requires addressing the tax gap—the difference between the amount of tax that is owed and the amount that is collected. The measures set out by the Chancellor in the Budget last October represent the most ambitious package ever to close the tax gap and ensure that everyone who should be paying their taxes is doing so. Overall, our package is expected to raise £6.5 billion per year by 2029-30. We will achieve that by investing £1.9 billion in HMRC staff and modernised IT systems, including recruiting an additional 5,000 compliance staff, and we will remove loopholes used to reduce tax liabilities. For example, the Bill introduces capital gains on liquidation of a limited liability partnership, changing the way capital gains are taxed and closing a route used for avoidance. The third and final set of measures in the Bill seek to reduce health-related harms, support the clean energy transition and fund our vital public services. As our growth strategy makes clear, improving health outcomes is essential for delivering resilient, long-term growth. The Bill renews the tobacco duty escalator at RPI plus 2% and increases duty by a further 10% on hand-rolling tobacco this year. The soft drinks industry levy is being reviewed and uprated to maintain incentives for manufacturers to reduce their sugar contents. Alcohol duty is uprated in line with RPI, except for draught products in pubs, recognising the unique role that pubs have in communities. To support our net-zero commitments, we are introducing new powers to allow for the introduction of the carbon border adjustment mechanism, which will place a carbon price on emissions-intensive goods imported into the UK. We are supporting the take-up of electric vehicles by increasing incentives for zero-emission vehicles in the vehicle excise duty first-year rates. This Bill delivers on the Government’s manifesto commitments, puts the tax system on a fairer and more sustainable footing, supports the transition to clean energy and improves health outcomes. It is also a Bill to fix the foundations of our economy by repairing the £22 billion black hole in the public finances that we inherited. The measures contained within the Bill reflect responsible choices. The Government have always been clear that there are costs to this responsibility, but the costs of irresponsibility would have been far greater. As a result of these choices, we have now created a foundation of stability in the public finances on which we will drive forward our agenda of growth and reform. We have set out a clear strategy for achieving our growth mission, but we are not satisfied. That is why we are going further and faster to put Britain on a better path and to deliver for the British people. I beg to move.