Taxation (Energy and Vehicles) Bill

My Lords, it is a pleasure to open the Second Reading debate on the Taxation (Energy and Vehicles) Bill. The measures contained in the Bill will support businesses across the UK as they deal with the immediate economic costs associated with the ongoing conflict in the Middle East. We did not start this conflict and we did not join it, but it is impacting our economy, including by putting pressure on energy markets and disrupting supply chains. Despite these pressures, the latest economic data shows that the Government’s economic plan is working. Inflation last month held steady. Britain’s economy was the fastest growing in the G7 for the first quarter of this year. Borrowing is forecast to fall in every year of this Parliament and wages are continuing to rise. However, as the Chancellor has said repeatedly, we must continue to be responsive to a changing world and responsible in the national interest. That is why we have taken action to support businesses and families, including by reducing VAT on summer activities from 20% to 5% and extending the 5p fuel duty cut until the end of the year, saving the average motorist £120 since last year. We have committed more than £50 million to help those struggling with the cost of heating oil. To support hauliers and farmers, we have cut red diesel by more than one-third until the end of this year. To help reduce costs for energy-intensive firms, we have expanded the British industry competitiveness scheme to more than 10,000 manufacturers. We are also providing targeted support to the chemicals and ceramics industries, protecting thousands of jobs and putting businesses on a secure footing for the long term. The measures contained in this Bill go further to protect consumers and help firms deal with rising prices. It covers three areas: the energy generator levy, mileage rates and vehicle excise duty for heavy goods vehicles. On the first measure, the electricity generator levy, the price of energy has risen since the war in Iran began, benefiting generators whose costs bear no relation to the price of gas. The Government’s objective is to ensure that those who benefit from these increased prices and volatility pay their fair share. That is why, in our first Budget, we extended and increased the energy profits levy. Last year, the Chancellor announced a new permanent windfall tax regime on oil and gas. In April this year, we went further still by announcing an increase to the rate of the electricity generator levy and extending it beyond its original sunset date of 2028. The electricity generator levy recovers excess revenues made by generators that do not use gas when electricity prices are over a long-term average. To ensure that it does not disincentivise investment, any new investment since 22 November 2023 is exempt from the levy. The increase in the main rate of the levy from 45% to 55% is legislated for in this Bill. The extension will be legislated for separately. The Government will set out the fiscal impact of this increase at the Budget in the autumn, with the costing certified by the OBR in the usual way. Raising the rate will help break the link between electricity and gas prices. Even though the UK is generating more electricity from sources such as nuclear and renewables, international gas prices still set the price of our electricity. This means that, when global gas prices spike, so do bills here in the UK. By breaking the link between gas and electricity prices, we can help to insulate consumers from the volatility of future crises. The rise in the electricity generator levy will contribute to this by encouraging participation in the wholesale contracts for difference scheme. Currently, under a separate scheme known as contracts for difference, some electricity suppliers are guaranteed a stable, fixed price for the electricity that they produce. The new wholesale contracts for difference scheme will offer certain existing eligible generators that are not already signed up to contracts for difference the option to bid for a fixed price for the electricity that they generate. Increasing the rate of the energy generator levy will therefore increase the appeal of a fixed rate under the new wholesale contracts for difference scheme, in turn helping to protect consumers from volatile gas-linked electricity prices. The Department for Energy Security and Net Zero will come forward later this year with a consultation on the wholesale contracts for difference scheme. The design of the post-2028 energy generator levy will be considered alongside this consultation. The second measure contained in the Bill relates to mileage rates. As fuel prices have risen, so has the cost of filling up a car or van for those who drive for work. Despite this, mileage rates—the amount that workers are reimbursed for every mile they drive—have not changed since 2011. This has created a significant gap between the amount it costs to run and maintain a vehicle and the amount that workers are reimbursed for. In recognition of these pressures, the Chancellor has announced the largest ever increase to mileage rates and the first uprating in 15 years. As a result, mileage rates have now increased from 45p to 55p for the first 10,000 miles. Beyond 10,000 miles, the rate will remain at 25p. This change will benefit employees using their own vehicle for work and those who are self-employed and use simplified expenses rates. The increase came into effect on 6 April and the legislation before us gives statutory effect to this change. Overall, the increased rate will benefit around 2 million employees and 1 million self-employed individuals, saving over £120 a year for a worker doing 6,000 business miles. Although employers are not required to reimburse at the new rates set out, if employees are reimbursed below the tax-free rate they can claim mileage allowance tax relief directly from HMRC. More widely, in March, the Chancellor announced a review of mileage rates as a whole. This review is ongoing and will inform the Budget this autumn. The third measure in the Bill concerns vehicle excise duty on heavy goods vehicles. The road haulage sector plays a vital role transporting goods across the UK, but haulage firms are disproportionally exposed to higher fuel costs. That is why we are providing additional targeted support for the sector through the Bill, with a 12-month holiday from vehicle excise duty for the majority of heavy goods vehicles. Eligible vehicles renewing their VED in this period will pay a reduced annual rate of £1. This will save a typical HGV £600, and those with higher liability will, in some cases, save more than £900, on top of savings from fuel duty. It will benefit around 46,000 UK-based road freight firms. Taken together with other freezes to fuel duty since the general election, the average HGV has saved over £2,000 compared with plans set out by the previous Government. This Government have the right economic plan to deliver secure and resilient growth in a changing world, but as we have seen, including over recent days, the war in Iran continues to create uncertainty and volatility in the global economy, and therefore higher costs for businesses here in Britain. The Government have responded by providing immediate support to help with those additional costs, including through the measures contained in the Bill. These measures will ensure that electricity generators that benefit from increased prices pay their fair share. They will support around 2 million employees and 1 million self-employed people who need to drive for work. They will deliver targeted help to the road haulage sector, ensuring that HGVs remain on the road to deliver food and other products to communities right across the country. The Bill shows that, in the face of global pressures, the Government will continue to be responsive to a changing world and responsible in the national interest. I beg to move.

My Lords, this Bill is presented by the Government as a series of targeted measures designed to address a specific issue: the war in the Middle East. I thank the Minister for his full explanation. However, the truth is that what we are discussing is a series of sticking-plaster measures designed to curb some of the worst excesses of what can be described only as an economy seriously in trouble. The current Government—and, indeed, the one that is to come under the leadership of Andy Burnham—face a deeply serious situation. Last week, the Office for Budget Responsibility warned in its Fiscal Risks and Sustainability report that, without action, public debt is set to move on to an unsustainable upward path in the near future. A key finding is that early action to head off difficult fiscal outcomes is much less costly than late action. This is partly due to the sheer scale of our national debt. Last year the Government borrowed £129 billion, 80% of which was spent on debt interest in an increasingly jumpy bond market. The OBR estimates that an additional £28 billion a year will be needed to meet the Government’s critical pledge to spend 3.5% of GDP on defence. At the same time, spending on the state pension and on health is projected to rise sharply in the next few years—one of the reasons why I called for a cap on expenditure on pensions as a percentage of GDP in my independent review of the state pension age as long ago as 2022 and why I deplore the failure to hold a full House of Lords debate on the 10-year plan for the NHS. The Lords Economic Affairs Committee said much the same about the unsustainability of debt years ago in its report National Debt: It’s Time for Tough Decisions. The then chair, my noble and far-sighted friend Lord Bridges of Headley, was quoted at the time as saying that “our national debt risks developing on an unsustainable path”. Moreover, we are now spending more on welfare, £334 billion, than we collect in income tax, £331 billion. The new Prime Minister and Chancellor of the Exchequer face the choice of either significant tax rises or deep spending restraint if we are to stop debt spiralling further out of control. Yet the OBR has also made clear that tax rises cannot simply be treated as a limitless answer. Continually increasing taxes risks creating ever greater economic distortions, with the Laffer curve biting into receipts—for example, if the top rate of income tax goes up. Wealth taxes raise less than expected, as we know from overseas experience, and they certainly damage competitiveness. Further stealth taxes on earnings risk weakening work incentives and drag more people out of the labour market. The key to squaring the circle, as I have discussed with the Minister on many occasions, is growth, particularly per capita growth or higher productivity. EU growth has been sluggish. Yet the Government want to get closer to the EU and agree to a package of changes that will certainly cost hundreds of millions a year, given the difficulties of negotiating with the EU, with no certainty that it will improve our economy to the extent hoped. I am also concerned about the impact on our legally binding obligations under CPTPP and our agreements with the US, particularly on vehicles, which I will come to later, and on pharma—agreements that are vital to UK growth. What is the nature of the legal advice that the Government are relying on in saying that they will continue to deliver such international obligations once a revised TCA is agreed? The Government’s assault on business—rises in national insurance, business rates, and dividend and capital taxes, and the Employment Rights Act—is already having exactly the effect on business that we forecast, with employment squeezed and a crash in economic optimism and enterprise. A report this week from accountants BDO showed that business activity dropped sharply last month after a brief rebound earlier this year ran out of steam. The truth is that there is a deeply serious situation facing Mr Burnham, and we cannot divorce our discussions today from this backdrop. That brings me on to today’s Bill. Increasing mileage payments to 55p for the first 10,000 business miles is a measure we support. It is right that workers who use their own vehicles for work, including carers, should not be left to absorb rising motoring costs. I know that the announcement was the early fruit of an ongoing review, as the Minister explained, but can he tell us about the logic behind the difference in treatment for hard-working carers and others who drive more than 10,000 miles a year? I turn to the HGV excise duty holiday. HGV duty had been frozen since 2014 until Labour came into office. While reducing it to £1 for a year will provide some welcome relief to the sector, it does not solve the problem, and Ministers should not overstate the impact. More than 95% of road haulage firms are small businesses operating on tight margins. The Government say the measure will save around £600 for a typical lorry and £900 for the largest vehicles, yet, to put it into context, filling a single HGV at peak prices can cost more than £1,000. This does not offset the wider pressures that the Government have imposed through higher business rates, transport taxes and fuel duty, with duty and VAT receipts of course rising whenever petrol prices spike. If the Government are serious about supporting businesses in this country, and particularly small businesses, they must consider this policy as one of a series of changes they must make to create a tax and economic environment that backs business, especially small business, rather than penalising it. I turn now to the electricity generator levy. This was introduced under the last Government as a temporary windfall tax and a short-term response to exceptional circumstances. It was due to end in 2028. However, we now see the Government proposing to increase the rate from 45% to 55% and to extend it beyond 2028 with no end date. The case put forward by the Government is that the increased rates will support the decoupling of gas prices by incentivising generators into voluntary wholesale contracts for difference. However, while the new higher levy applies from today, those new contracts are yet to be seen. I believe the proposed strike price is not known. The likelihood of generators accepting them is therefore unknown and in question, and the value for money for taxpayers is yet to be proven. Moreover, the HMRC impact note for this Bill contains no figures for the Exchequer impact. We should have had that, ideally now or at least during the consultations that the Minister referred to. Rather than acting to lower energy costs by taking sensible steps to increase the supply of energy, such as utilising our resources in the North Sea and moving forward with Jackdaw and Rosebank, the Government seem to be using tax as a long-term lever to alter the incentives faced by generators. We introduced a short-term, emergency measure with a clear sunset date. Sunsetting is a responsible approach to temporary taxation and short-term regulation, and I think it can be very useful. It helps to avoid the accumulation of too much regulation, and I know the Minister worries about unjustified accumulation because it can have an adverse effect on productivity. Sunsetting has the merit of allowing periodic parliamentary scrutiny and of encouraging officials to think creatively about other routes to a desired end. Instead, the Government appear to be moving to a long-term, final answer when the relevant contracts for difference parameters are unknown and untested. Before the Minister asks, as he sometimes does, what we would do, the Official Opposition have been clear that we would cut bills for businesses and consumers through our cheaper energy plan. We would take VAT off energy bills, axe the carbon tax and legacy subsidies, and again use our resources in the North Sea as the Norwegians are doing. Tax cannot and should not be the long-term solution to the problem of affordable energy. At this juncture I might remind the Minister of the OBR’s warning. It also agrees that tax cannot be the solution to all this. As we can see on page 81 of its report, there is a significant fiscal cost to the commitment to reduce carbon emissions to net zero by 2050 due to the loss of revenues linked to such emissions. This is particularly true of fuel duty, with three-quarters of the decline in revenue due to the transition to electric vehicles. This is a good example of the difficulties the Government face in relying so heavily on taxation to finance spending. This Bill contains measures that in isolation are not without merit, but they must be seen for what they are: limited interventions against a backdrop of rising costs, weakening confidence and increasingly strained public finances. Temporary relief has its place but is no substitute for a serious growth strategy, a competitive tax system, disciplined public spending and an energy policy that brings costs down by increasing supply rather than by reaching for higher taxes. That is the test by which this Bill should be judged.