Railways Bill (Eighth sitting)
Will the Minister clarify his argument? I ask because a business plan by its nature looks forward, whereas a report looks backward and marks homework. How can the business plan mark homework?
5,731 spoken contributions under 12 words (interjections such as “Will the hon. Member give way?”) are hidden. Show them
- Hansard source
- Hansard source
Railways Bill (Eighth sitting)
I am aware that we need to make progress in this Committee, so I will not press every amendment to a Division. I am not persuaded by the Minister’s arguments in relation to amendments 32 and 33, but I will not press amendment 31 to a Division. I wish now to press amendment 33 to a vote. Question put, That the amendment be made.
- Hansard source
Railways Bill (Eighth sitting)
I beg to move amendment 36, in clause 18, page 10, line 41, at end insert— “(5) In this section, Great British Railways must make an assessment of the effect of procuring services from businesses in the private sector in meeting its duties under subsection (2)(f).” This amendment would require GBR to assess whether procuring services from the private sector would help it meet its value for money duty.
- Hansard source
Railways Bill (Eighth sitting)
Let us go straight into amendment 36, which would require GBR to benchmark the cost of its activities against similar provision through the use of the private sector. That is important, because if competition is removed, there is literally no benchmark against which to judge the effectiveness and efficiency of the organisation. Without comparison, where is the value in clause 18(2)(f), which says: “taking into account the costs that will need to be met from public funds and the need to make efficient use of those funds,”? What benchmark will the organisation have if it does not cross-reference against alternative providers? The amendment would require GBR to assess whether “procuring services from…the private sector” would help it to meet its value for money duty. I should make it clear for Labour Members who are considering supporting this amendment that it would not require GBR to choose a private sector provider, but it would require it to benchmark against the private sector. Procuring from the private sector could enable access to specialist expertise, innovation—dare I say that?—and competitive pricing, helping to deliver better value for money and more efficient outcomes for taxpayers. Will the Minister listen to the concerns of the industry and support this amendment, which seeks to make GBR an organisation that cares about passengers and taxpayers at the same time? Amendments 42 and 43 would amend clause 31, on the provision of railway passenger services, which we will get to in due course. The clause currently allows the Secretary of State to award a licence only to a public-sector company. It cannot be in the best interests of the taxpayer to exclude even the consideration of alternative providers based on their ability and value for money. This is one of the most blatant examples of political ideology trumping pragmatism. The amendments would grant maximum flexibility to a future Secretary of State and Scottish and Welsh Ministers to make an award to the organisation, public or private, that is best placed to undertake the operation. It seems obvious that we should allow that degree of flexibility to the organisation and the Secretary of State in future. Amendment 98, which is tabled in my name, would require the Office of Rail and Road to consider whether it would be a “more efficient use of public funds” for GBR to procure services from the private sector. It echoes the other amendments in this group but would amend clause 74, which, as everyone will remember, relates to the ORR’s monitoring duties towards GBR. Amendment 236 would also amend clause 74 to require the Office of Rail and Road to assess whether procuring services from the private sector would better enable GBR to meet its value for money duty. New clause 43 relates to a private sector growth target. It would require the Secretary of State to publish a target for increasing private sector involvement in railway services and infrastructure for each financial year, including its involvement in supply chains and open access. Just because we want GBR to be a success, let us not forget that, even once established, it will be a minority interest in relation to the rail sector as a whole. There is not just open access—there are all sorts of other users of and suppliers to the railways—so we can have both duties. They are not mutually incompatible. The new clause would require that the target must be kept under review and that GBR must have regard to it when exercising its statutory functions. The private sector is best at providing us with innovation and efficiencies and should therefore be used to ensure that GBR can be the best version of itself. In more common parlance, we need the private sector to keep GBR honest. The Bill designs the ORR and the Secretary of State out of comparing GBR against a thriving private sector. Surely it makes sense to give the Secretary of State all the tools in the box to allow her to drive efficiency in GBR and cross-check value for money for the taxpayer.
- Hansard source
Railways Bill (Eighth sitting)
The hon. Member is as capable of reading the amendments as I am of drafting them. I do not want to get hung up on that, but my working assumption and my assertion to him is that the ownership structure internationally may be a state-owned organisation, but the delivery body in the United Kingdom would be a for-profit, private organisation, so it would pass the test of being in the private sector. Jolly good news too—if the British taxpayer can benefit from the largesse of the foreign taxpayer providing a more competitive service for whatever the Secretary of State is seeking to contract for, that is a wonderful thing. That is a gift from abroad, and we should be encouraging it.
- Hansard source
Railways Bill (Eighth sitting)
If that is the clear objective of the Government, why are they allowing open access to continue?
- Hansard source
Railways Bill (Eighth sitting)
Thank you, Mrs Hobhouse; I am grateful for that guidance. Amendment 36 is a bench-marking amendment. It is absolutely crucial to keep GBR honest in the future when it comes to value for money, in particular for the taxpayer. I will certainly press it to a Division. Question put, That the amendment be made.
- Hansard source
Railways Bill (Eighth sitting)
I can beat that. The clause appears necessary, and it is not one that His Majesty’s Opposition will object to. Question put and agreed to. Clause 19 accordingly ordered to stand part of the Bill. Clause 20 Competition duty of ORR
- Hansard source
Railways Bill (Eighth sitting)
I beg to move amendment 237, in clause 20, page 11, line 21, leave out paragraph (c). This amendment removes the exemption for ORR’s functions under schedule 2 from its competition duty.
- Hansard source
Railways Bill (Eighth sitting)
I hope I am not going to miss out any of those amendments, Mrs Hobhouse, but it is going to be quite a challenge. Clause 20 concerns the “competition duty” of the Office of Rail and Road; it sounds pretty good when you read that title but the clause gets progressively less and less good once you delve into it. The clause requires the ORR to promote competition in the exercise of its functions, subject to certain exceptions. Exempt activities relate to safety, train driver licensing, the funding of GBR, GBR’s access process and decisions in relation to railway infrastructure, licence enforcement, functions under the Competition Act 1998, and monitoring GBR, where the Government believe that other considerations are equally or more important than the need to promote competition. The Government claim that they want the Office of Rail and Road to have a powerful role to monitor GBR and to promote laudable objectives such as “competition….for the benefit of users of railway services.” On the face of it, that is welcome. It is a sound principle, after all, that monopolies—whether they are public or private—are rarely in the interests of the consumer. It is for that exact reason that we created, over time, arms of the state such as the Competition and Markets Authority to break up anti-competitive monopolies in the private sector, although GBR is another monopoly that the Government are setting up, in the other direction. However, when we dig into the detail of what subsection (1) of the clause exempts from the competition duty, the picture becomes considerably less attractive. Excluding from the competition duty chapter 1 of part 3 of the Bill means that key parts of GBR’s operation, such as the access and use policy and capacity duty—two very important issues—are not covered by the duty of competition. That effectively makes GBR all-powerful over any other operator, be it devolved, open access or freight. That is not competition; that is a designed monopoly. The Minister has said that the Government have taken that decision because they want GBR to be a single controlling mind, but GBR will not be the only operator on the railways. The Minister, just a moment ago, said that there are circumstances in which he would wish open access to flourish and grow, yet the Bill as drafted does not give any confidence to that sector that an operator can put forward a business case and attract investment because such an operator does not know whether there will be fair competition around crucial elements of its business case—elements as basic as whether it will get access to the railways. In the Bill, such competition is specifically, expressly excluded. The exceptions in the clause are key to understanding the true intentions of the Government. Despite the appearance that the clause allows the Office of Rail and Road to promote competition, examination of subsection 1(d) shows that the Office of Rail and Road is required to promote competition unless it gets in the way of the access and use policy, which—as the Committee will discuss later—does not promote competition at all. Elsewhere, the Government appreciate the positive impact of competition. Look at international rail. Lord Hendy took the trouble to write to the Office of Rail and Road in July last year, and said: “The Government firmly believes that the arrival of competition will benefit users of international rail services by expanding the number of stations served (including new markets), encouraging greater differentiation in service provision and promoting competitive prices.” I could not have written it better myself. The Government are clearly sending out extraordinarily mixed messages: competition is good, except when it is against the Government. Those statements cannot both be right, can they?
- Hansard source
Railways Bill (Eighth sitting)
It may well do, in short answer. The Minister makes a valid point: having a single point of contact for this may well have a benefit. Of course, it could be the Office of Rail and Road as opposed to GBR, but the real problem, which we will come on to in a few hours—or days—is the drafting of clause 63, which concerns the capacity duty and the very onerous level that open access operators will have to get above in order for GBR to consider that there is sufficient excess capacity to allow for new services. As clause 63(2) states: “Great British Railways must exercise the functions so as to ensure that it retains sufficient capacity over GBR infrastructure to allow for…the operation of GBR passenger services and of railway passenger services that it expects will in future be GBR passenger services”. That is a bar, I suggest, that no open access application could ever get over. GBR gets a get-out-of-jail-free card. No one likes competition. When I ran businesses, I did my best to avoid competition as much as I could. The inclination of GBR will be no different. It will not want to be shown up by competition. It will not want its market to be pinched by competition. All it will have to do is look at clause 63 and say, “There you go. At some stage in the future we might think about having something there,” and Bob’s your uncle. Then what can the open access operators do? They could say, “That is a terrible decision. We’re going to appeal it. Even though the bar is so high in legislation that it is almost impossible to appeal, we’re going to the ORR because clause 67 says that any organisation that is disgruntled at such a decision has a right to appeal.” Look at what the appeal duty provides for: organisations can go to the ORR, and there is an appeal akin to judicial review in the High Court, meaning that there can be no appeal at all on the application’s merits, which cannot be reopened. No evidence regarding whether there is a good business case can be considered—just whether there has been an error of law, or whether an organisation properly constituted could have come to that decision without irrationality. That is what the judicial review principles mean. Furthermore, organisations have to put in their application for judicial review within three months of the commission of the event against which they are complaining. It is incredibly onerous, and perhaps the single biggest problem with the drafting of the Bill is a combination of those two issues. That was a very enjoyable aside, but I need to get on to the amendments—you are probably relieved to hear that, Mrs Hobhouse. Amendments 237, 37, 238, 239 and 240 essentially all serve to apply the ORR competition duty to GBR functions, to serve the passenger rather than the organisation of GBR. That is what we need to focus on time and again: this organisation is to serve the passenger, not itself as an organisation. The amendments would keep alive the role of open access operators as challenger brands to GBR, forcing GBR to up its game and stay honest, just as we have seen with the nationalised operator on the east coast main line. Just because there would be competition, that does not mean that GBR would wither and decline. As we have seen on the east coast main line, competition drives increased performance and results from all organisations when properly applied. Competition is always uncomfortable. I complained about it many times in my previous business career. Many businesses, including my own, would have loved to be able to regulate it away. All the more reason for the Government to stand up to GBR in the interests of passengers. The Minister was quite right to say that it is a positive step that GBR will have oversight of the whole network. However, we want to see the ORR’s competition powers in these areas restored as a way to ensure that GBR, while having a reasonable duty to look at and balance the needs of the network as a whole, does not unfairly discriminate against other operators because we have GBR as referee and player. That is clearly a designed, structural conflict of interest. We need to have the ORR focusing on competition and holding the ring. Amendment 237 deals with funding, amendment 37 deals with access, amendment 238 deals with railway closures, and amendments 239 and 240 deal with advice to the Secretary of State and amendment 240 also deals with advice to the Secretary of State. I know all Members will have read those amendments, so I will not take the Committee through them one by one in the interests of time. Amendment 38 would insert “and deliver value for money” after “competition” in clause 20, page 11, line 27. We do not need the Office of Rail and Road just to fight the cause of competition; it is also about value for money for the taxpayer. We have already heard that about 50% of all money spent on the railways at the moment is taxpayers’ money, not farebox money. It is therefore crucial that the ORR should have a duty to ensure that GBR delivers value for money. The general duty, as set out in clause 18, is to have regard to the “efficient use” of public funds. That is clearly insufficiently strong. In the absence of other private passenger operators, whether via open access or a devolved concession, which would be equally powerful as a comparator for GBR’s performance, against what will GBR’s efficiency and performance on value for money be measured? Amendment 38 would correct the language in clause 20. I have not made it up myself; it has been considered and approved of by the sector as a whole—people standing up for passengers. On amendments 37, 41, 42 and 43, Rail Forum said: “Again, this is desirable to ensure some competition.” I have spoken to all my amendments, but I would also like to speak about amendment 210, which is in the name of the hon. Member for Didcot and Wantage. The amendment also removes the exemption of the ORR’s duty to promote competition in regard to GBR’s access process. It is a variation on a theme. We are all pushing in the same direction because we are trying to stand up for passengers, and I hope the Government will too.
- Hansard source
Railways Bill (Eighth sitting)
You will not be wholly surprised, Mrs Hobhouse, to know that I am entirely unconvinced by the Minister’s arguments. This is one of the key differences of opinion between the Government and the sector, and I seek to give the sector a voice through my amendments and my submissions. I will look to you, Mrs Hobhouse, for guidance on the exact process; I intend to press some amendments to a Division, but not all of them, to save a bit of time for everyone.
- Hansard source
Railways Bill (Eighth sitting)
To give you an advance clue, I intend to press amendments 237 and 37 to a vote. Depending on the outcome of the vote on amendment 37, I may not seek to divide on the others, apart from amendment 38.
- Hansard source
Railways Bill (Eighth sitting)
The principle the Government continue to establish is important for the relationship between the state and the ORR when it comes to safety-related duties. I recognise the Government’s work to ensure that the clauses protect the ORR’s independence in many regards, rather than encroaching upon it. The protection of that independence is vital. When it comes to the relationship between Great British Railways, the ORR, the Department for Transport and Ministers, as well as the various devolved Governments and mayoralties —not forgetting the fact that passengers count—the Opposition have thought long and hard about how we can ensure that the ORR maintains its standards of excellence as a regulator. I want to take this opportunity to review the safety record of the railways overseen by ORR as the safety regulator since its inception in 2004. The ORR publishes masses and reams of data as part of its continuing mission to provide transparency and oversight. By most key metrics, safety has improved significantly, with the UK being praised as one of the safest railways, if not the safest railway, in Europe. We really should stop and consider that achievement, whether it relates to nationalised or privatised parts of the industry. Government Members criticise privatisation, but it has not impinged on safety, and that is quite an achievement. It is vital that the ORR can continue its strong work in delivering not only a safe railway but a transparent one. The ORR has consistently worked by acting as a critical friend to the franchise operators and Network Rail. In the new age of GBR, it is important that the Secretary of State, who will direct both the ORR and GBR, should be mindful not to create an environment in which the ORR feels it cannot be critical of GBR and its actions. Committee members will struggle to find many sectors where stakeholders praise their regulator, but it is right that Ministers should get out of the way of the work of the ORR, because its oversight work is the difference between life or death. I acknowledge that that is the Minister’s intention in clause 21. Clause 22 sets out the duty of the ORR to have regard to Scottish Ministers’ guidance, and clause 22 mirrors that, enabling Scottish Ministers to give guidance except on the safety-related issues I have mentioned. I have a query about clause 22—I am not leading up to some devastating amendment—in respect of the dispute resolution process, if one exists, between the Secretary of State and Scottish Ministers. Under clause 21, the Secretary of State must consult Welsh Ministers—that creates a clear direction for the conversation—but there does not appear to be an equivalent provision in clause 22. I would be grateful if the Minister could clarify that seeming contradiction and expand further on what happens in a situation where the guidance issued by the Scottish Minister contradicts that issued by the Secretary of State, or perhaps the other way round. Would that be covered by the memorandum of understanding, which of course we have not yet seen? Or is a tightening of statute on the horizon that we are not yet aware of? The Minister might not be able to whip an answer out of his back pocket, but perhaps he can clarify that issue once he has consulted his officials. Naturally, Scotland has had oversight of Network Rail for many years, so the working relationship between the ORR and GBR north of the border is not likely to change, but, similarly to my concerns about clause 21, protecting the ORR’s independence is important to the entire smooth functioning of the railways. I know the Minister would not wish to speak for Scottish Ministers, but I would very much appreciate it if he could outline the dispute resolution mechanism between the Secretary of State and devolved Ministers. The Minister will be delighted to hear that, beyond that query, we do not oppose clause 22.
- Hansard source
Railways Bill (Eighth sitting)
I beg to move amendment 39, in clause 23, page 13, line 9, at end insert— “(3) The memorandum of understanding must be published at the same time as the Rail Strategy. (4) The memorandum of understanding must be laid before both Houses of Parliament for a period of two months before it can come into force.” This amendment would require the memorandum of understanding to be published at the same time as the Rail Strategy, and laid before Parliament for two months before it can come into force.
- Hansard source
Railways Bill (Eighth sitting)
I do not know why I bothered going to the gym this morning, Mrs Hobhouse, because I have been doing squat thrusts every time I rise to speak to a new group of amendments. Clause 23 deals with the memorandum of understanding, about which we have heard so much but know so little, and the relationship between the Secretary of State and Scottish Ministers. It sets out the key arrangements between the UK Government and the Scottish Government, stating the intention for the memorandum of understanding to include steps to facilitate the integration of GBR infrastructure and Scottish railway services. The elephant in the room is that is none of that is set out in the Bill. The Opposition believe it is vital for Ministers to outline, at the very least, the broad framework for the basis of the memorandum if they will not commit to provide core elements in the Bill itself. It really is very frustrating: we are paid to come to this Committee to give the Bill line-by-line consideration, set up the function of GBR and improve the relationship among Ministers in Whitehall, Edinburgh and Cardiff, the ORR and the other organisations affected by GBR, yet time and again we get the blank answer, “Oh well, this is going to be sorted out somewhere else.” It is very hard to say with confidence that we have scrutinised the Bill and come to an improved outcome when the Government have not done the work on the detail. This is not the first time Members have heard me say that—
- Hansard source
Railways Bill (Eighth sitting)
I hope it will be the last, but I fear I will not be. I have some key questions for the Minister. I understand that the memorandum of understanding has not yet been finalised; has the work to scope it out even begun? The Minister should at least be able to answer that. At what stage in the deliberations between the two Ministries has it got to? What is the timeline for a memorandum of understanding under the clause being finalised and therefore made public? How often, if at all, must the memorandum of understanding be reviewed, updated or renegotiated? Or is it a one-stop shop? It currently seems that the memorandums will have no statutory force. Unless I have missed something in the Bill—I always enjoy being corrected when I have missed something—it is not in there at the moment. Is that by design? What legal standing will the memorandums have? They do not appear to have statutory force, and there is very little democratic accountability, as I have mentioned. As far as I can see, the memorandum is essentially a handshake agreement. Not a single member of this Committee is any the wiser about what will be part of the memorandums. Finally, what happens if no agreement is reached on a memorandum of understanding between the Secretary of State and Scottish Ministers? The Minister can give evidence about his willingness to reach agreement, but he cannot give evidence on the part of Scottish Ministers. They can be willing to negotiate, but he cannot say with confidence that they will achieve full agreement until such time as that agreement is reached. I stand to be informed by the Minister, but my current understanding is that that agreement has not yet been reached. The lack of oversight is clearly at the core of this issue. Parliament is expected to allow the Secretary of State and her Scottish counterpart to set the tone of the nature of rail operations without any say from this House, beyond this clause. The Government criticise the franchise system, but at least the parameters for its operation were clearly set out. Memorandums of understanding are nothing more than IOUs to the trust of parliamentarians, and we should not willingly give those out. There is a further issue at stake here: the Scottish parliamentary elections. This is a matter of practicalities, as opposed to principles. The pre-election period, or purdah, is rapidly approaching for the Scottish Parliament. My understanding is that it will be coming into force in late March, which is only weeks away. Given that the Minister will be eager to ensure that all the appropriate orders and memorandums are in place as quickly as is reasonably possible, what thought has he given to avoiding a rush job ahead of the election, or to the timetable for the memorandums of understanding being reached with any change of Government in Scotland? This is actually quite a significant question. Is the Minister going to rush it through to get it in before March? What happens if there is a change of Administration north of the border? It is with that uncertainty in mind that we believe the clause ought to have a clear timeframe for the publication of the MOU. The memorandums of understanding should be laid before Parliament for approval. Parliament is being asked to give broad Executive powers as if an international treaty were being negotiated, but this is not an international treaty. Parliament ought to have the right to approve the memorandums to ensure, in particular, that Members whose constituencies are affected by them have a say on behalf of their constituents. That is what amendment 39 would provide, by providing two additions: that a memorandum be published at the same time as the rail strategy, which would give a concrete timeframe for the delivery of that important document, and that it be laid before Parliament for a period of two months before it can come into force. I look forward to the Government’s response.
- Hansard source
Railways Bill (Eighth sitting)
I am interested to hear the Minister’s strong hints that the memorandum of understanding may be much more advanced than we had previously been led to believe. The intention of amendment 39 was to flush out the MOU—it sounds like it may well have already achieved its purpose. Taking the Minister’s words at face value, I beg to ask leave to withdraw the amendment. Amendment, by leave, withdrawn. Clause 23 ordered to stand part of the Bill. Clause 24 Memorandum of understanding: Secretary of State and Welsh Ministers
- Hansard source
Railways Bill (Eighth sitting)
The Government amendment makes further provision concerning the memorandum of understanding between the Secretary of State and Welsh Ministers. I have no objection to it. The Minister is absolutely right that clause 24 is similar in intention to clause 23, but there are huge questions about the role that Welsh Ministers are to have in the governance and management of GBR in their jurisdiction under the memorandum of understanding, and whether the Secretary of State will have any role in the governance and management of Transport for Wales. The Welsh settlement is very different from the Scottish one, in both geography and degree of devolution— I suppose that is how it can be most simply described. The relationship between the Welsh and UK Governments is far more nuanced and complex than the relationship in the case of ScotRail and the management of rail in Scotland. Transport for Wales covers a significant number of cross-border rail services. I stand to be corrected, but I think that as many as 80% of all its services have an element of cross-border movement. This harks back to the former private sector franchise of Arriva Trains Wales, which ran many England-only services and joint England-Wales services. That system of rail service provision persists under Transport for Wales; it is much more blended than is the case in Scotland. I have some examples. Shrewsbury station, which, for the geographically challenged, is in England, is managed by Transport for Wales. From there, it manages services that run exclusively in England, such as Shrewsbury to Manchester. It also runs all manner of cross-border services, such as the Heart of Wales line, of which about 5% is in England, and Aberystwyth to Birmingham, which is 50:50 England and Wales—on it goes. Any memorandum of understanding will have to outline in detail, one assumes, how the allocation of moneys for tickets will be divided. This works both ways. Former Great Western Railway and Avanti services from London to Holyhead and from London to Swansea via Cardiff have significant portions of their routes running through Wales as well as England. Taxpayers in both nations will rightly presume that the value of ticket sales will be distributed proportionately between both railways, as they will both be Government-run, rather than going to the operator whose livery happens to adorn the locomotive. The issue is relatively small in the discussions about Scotland, where I think only 3% of services are cross-border between England and Scotland. In Wales, the proportion is much greater, and I am concerned that there is no clear mechanism for how the allocation of ticket sales is set to be achieved or agreed. Will GBR and Transport for Wales—or, more accurately, the Secretary of State and the Welsh Ministers—come to a profit-sharing or fare-box sharing agreement as part of the memorandum of understanding? This is at the core of the issue of value for money, so it should be an important consideration, and I look to the Minister to provide reassurance that it is in the mix. I have a compounding concern, which I expressed in relation to clause 23, about the timeline of the publication of the memorandum of understanding. Again, a purdah period is approaching: the elections for the Welsh Senedd are in May. I think I am right in saying—my right hon. Friend the Member for Melton and Syston mentioned it—that it was suggested in the oral evidence that the heads of terms have already been agreed, but that is not the same as the memorandum of understanding being agreed, so we need a bit more detail from the Minister, if he is able to give it. There is a big caveat for Wales in particular, where—though I do not want to ruin anyone’s sleep tonight—it is very likely that Labour will be removed from office come May, and that there will be a new Government in Cardiff. It would be improper for a rush job to take place in order to shoehorn through a memorandum of understanding between two like-minded Administrations. I have tabled amendment 40 to clause 24 for the same reason that I tabled amendment 39 to clause 23. Amendment 40 seeks to introduce a degree of control over the timeline for the publication of the memorandum of understanding. In the Transport Committee evidence session on 17 December, Peter McDonald, who is the director for transport, spoke on behalf of the Welsh Government. He spoke in some detail about the future relationship between GBR and the Welsh Government, and how it relies on the memorandum of understanding. Will the Minister take this opportunity to reassure the Committee about the safeguards or timeline the Government have in place? Do they believe it would be helpful to have a clearer timeline, especially considering the electoral sensitivities and, if the opinion polls are to be believed, the likely change of Administration in Cardiff Bay? I have plenty more to say about this, but I am aware that it is getting dark outside and we have been going on for some time. Those concerns are the rationale for amendment 40, which would apply similar requirements to those that amendment 39 would have applied to clause 23. I tried to be understanding with the Minister in not pressing amendment 39 on Scotland to a vote, because of the direction he was able to hint at in his response. I look forward to being similarly reassured in respect of Wales.
- Hansard source
Railways Bill (Eighth sitting)
I understand the point the Minister is making about the lack of relationship between those two documents. In the debate on the previous group, he was able to give an indication of the likely timeframe for publishing the Scottish memorandum of understanding. Can he give a similar hint on the Welsh memorandum of understanding? [Interruption.] There seems to be a bit of nodding on the Government Benches, but it is entirely up to him, because he decides.
- Hansard source
Railways Bill (Eighth sitting)
Having heard the semi-reassurance of the Minister, I will not move amendment 40. Clause 24, as amended, ordered to stand part of the Bill. Ordered, That further consideration be now adjourned. —(Nesil Caliskan.)
- Hansard source
Finance (No. 2) Bill (Third sitting)
It is a pleasure to see the Exchequer Secretary in his place. Some Committee members may have felt that his ministerial colleague the Economic Secretary dealt with some clauses rather briefly in our earlier sittings, so we look forward to the loquaciousness that the Exchequer Secretary displayed on the Floor of the House the other day. I shall speak to clause 55 and to amendment 41 and new clause 10 in my name. The clause is about clawing back the winter fuel payment from anyone whose total taxable income is above £35,000. According to the Budget costings, this measure will cost about £1.8 billion in 2025-26, settling at £1.3 billion the year after, but overall the changes that the Government have made with the removal of winter fuel payments will save £450 million. However, the Chartered Institute of Taxation and the Low Incomes Tax Reform Group have raised concerns about the potential complexity of the clause; about how it could cause anxiety for people who have not had to navigate tax rules before; and about how the £35,000 per year cap will only diminish over time as inflation eats away at it. I have therefore tabled new clause 10, which would require the Government to review the case for uprating the £35,000 threshold by CPI each year, ensuring that it retains its value. I have also tabled amendment 41, which would go further and put that commitment squarely on the face of the Bill so that there can be no ambiguity about whether the level will increase. The Minister skated over a bit of the background to the clause. The measure flows from one of the Chancellor’s first political choices, which was to remove the winter fuel payment from all pensioners except those in receipt of pensioner credit. That meant that pensioners living on incomes of around £13,000 a year lost their winter fuel support. Vital support was pulled from millions of pensioners across the country. In my constituency, 22,000 pensioners lost their entitlement overnight; the figure may have been similar in your constituency, Mr Efford. It was a deeply damaging move, which is why organisations such as Age UK and my party campaigned against it, and the Chancellor was forced to come back to the Dispatch Box to perform one of her U-turns. In response to the pressure, the Government announced that everyone would get the payment but that it would be clawed back. I turn to the points that the Chartered Institute of Taxation and the Low Incomes Tax Reform Group have raised about the clause and the schedule. If a pensioner’s income is £1 over the threshold, they will lose the entire winter fuel payment; there is no taper. Unlike other income-related charge-backs, such as the high-income child benefit charge or the tapering of the personal allowance, the winter fuel payment is based on total income, not adjusted net income. It will affect pensioners who are seeking relief on their charitable contributions. Will the Minister explain why the Government have opted for a system that measures income in inconsistent ways, with different rules from similar income-dependent clawback schemes? The Bill sets out that the Government’s approach relies heavily on data sharing between the DWP, devolved social security bodies and HMRC. There are some exemptions, for example for those who have been on means-tested benefits during the qualifying week or who have opted out of receiving the payment, but if that information is not shared swiftly and accurately, instances may occur of administrative issues causing distress and financial loss. Pensioners could also see an unexpected tax code on their pay slip, clawing back money that they should never have been charged. That might lead them to have to fight through an appeals process just to claim what is rightfully theirs. The plan to collect the charge through PAYE, as is set out in the clause, brings its own issues. From 2027-28, HMRC will move to in-year coding, meaning that pensioners could start paying back a benefit that they have not even received yet, based on HMRC’s best guess at their income. As we all know, the winter fuel payment is a one-off payment that is usually paid in November, but PAYE collection is spread throughout the year, so pensioners could be having money clawed back that they have not yet received. If that estimate turns out to be wrong, they will have money taken off and refunded later. That is a recipe for potential confusion and hardship, and it could lead to more calls to HMRC that may go unanswered. In the year of transition, some pensioners could face being charged twice in a single tax year. That is not a minor administrative issue. It needs to be addressed. We all know that any fixed monetary threshold in legislation loses its real value over time, but if Ministers believe that £35,000 is the right level today, surely they accept that uprating in line with inflation is only fair. If the Minister will not support that principle outright, perhaps he will commit to supporting new clause 10, which simply asks for a review of the impact of doing so. Schedule 10 allows for the alteration of the limit, but there is no obligation on Ministers, as there is for other benefits, to review the level or uprate the limit.
- Hansard source
Finance (No. 2) Bill (Third sitting)
My hon. Friend makes a valuable point. We want more certainty within the system, as far as possible. On earlier clauses, we debated the uncertainty that can come from having administrative rules that HMRC can interpret. Our amendment would give people confidence that their income and the benefit they receive would continue in real terms. Nobody disputes the need to focus support on those who need it most. Where the Chancellor got it wrong was in taking it away from people who are just over the £13,000 income threshold. If the Government insist on recovering payments, they need to get the fundamentals right, with clear definitions, robust data sharing and a simple route for challenging any mistakes that may have been made. Let us be clear. We welcome the Chancellor’s latest U-turn, reversing the very first decision she took in office. She was wrong to remove the benefit from millions of pensioners. This clause helps her to correct her poor political choice.
- Hansard source
Finance (No. 2) Bill (Third sitting)
I may not have read that manifesto as closely as the hon. Gentleman. [Laughter.] For the record, I did not say that. I think the record will also prove that that measure was not put into effect. We continued the winter fuel payment. The issue is that the Chancellor came along. She was given advice by Treasury officials—no offence to the Treasury officials in the room—suggesting this was a simple way to save some money and fill a fictional black hole. Foolishly and regrettably, she went along with that advice; happily, she is now correcting her mistake in part. I am looking to press amendment 41 to a vote, because it is important that we give pensioners certainty that the threshold will be protected.
- Hansard source
Finance (No. 2) Bill (Third sitting)
I will speak to clause 56, the schedule and new clause 11, which is tabled in my name. The Minister talks of reform; indeed, clause 56 fundamentally changes how carried interest is taxed. New clause 11 proposes a thorough assessment, given the significance of those reforms. Until now, carried interest has been taxed as a capital gain up to 28%. Under clause 56, however, a full 72.5% of qualifying carried interest will be treated as trading income and taxed at income rates that could reach up to 45% plus class 4 national insurance contributions. The effective rate, therefore, would be around 34%. The Minister spoke about competitiveness, but that rate is far above other jurisdictions in Europe—for example, 26% in Italy and 25% in Spain. The precise rate will vary depending on the average holding of the underlying investment; longer holds will receive slightly fairer treatment. Does anyone think that sounds like a measure that is likely to attract talent and investment into the country? As we have discussed in previous sittings, those are things that everyone is signed up to, but many measures in the Bill do not deliver on them. Carried interest is not some mysterious perk; it is a share of profits that fund managers receive only when their investments do well. It is long term, risk based and uncertain. According to UK Private Capital, in most cases it takes seven years or more before a fund pays a penny of carried interest, and quite frequently it never does. This measure is a substantial tax rise designed to reclassify carried interest as remuneration, rather than a general return on capital. That may sound tidy in theory, but it misunderstands what carried interest is. As UK Private Capital puts it, carried interest is “fundamentally different” from a salary or a bonus because it is paid only when investments succeed, often many years later and quite often not at all—that is the nature of risk. The famous tax information and impact note expects the measure to raise £145 million in 2027-28 and £80 million in the following year, but there is a risk of driving talent and investment abroad. Can the Minister share his assessment on what happens if fund managers start relocating to other tax regimes such as Dublin, Luxembourg or New York? What would that mean for wider tax receipts, for the thousands of jobs that funds support and those who rely on them, and for the UK’s standing as a global financial hub? TheCityUK and PwC published a significant report at the beginning of this week about measures that need to be taken to ensure that London remains a pre-eminent finance hub. The measures in the clause run counter to that. That is why I have tabled new clause 11, which would require a review of the clause’s impact on UK competitiveness in attracting and retaining fund managers, the level and composition of investment into the UK, and the revenues collected compared with forecast revenues. For the Minister’s benefit—because he was not in the Committee’s earlier sittings—we have tabled new clauses that would require reviews because a TIIN is a prediction of what might happen, not a review. We are assured that the Treasury keeps all measures under review, so if those reviews are happening, what is the problem with publishing them and giving that information to Parliament? As well as on the principle, we need answers on the implementation. HMRC will now be expected to verify the average holding period of thousands of complex investment portfolios. What additional resources and guidance will be provided to HMRC to do that? How will it cope if receipts are lumpy and unpredictable? UK Private Capital has warned that the measure will be challenging to manage. I think that is an understatement; it could be a recipe for disputes and confusion. A further danger is double taxation. The sector has warned that under the rules, some managers could be taxed twice on the same carried interest in different jurisdictions. Can the Minister assure fund managers and the sector that the Treasury has appropriate double taxation agreements and treaties in place to ensure that their concern is ill-founded? If the Government get this wrong, we risk losing capital to countries that do offer such clarity. In debates on earlier clauses, we have spoken about wanting to encourage enterprise and investment, to compete internationally, and to support growth in high-value businesses, but clause 56 sends the opposite signal. It will leave us with one of the highest rates of tax on carried interest among competitive and competitor jurisdictions. We can see why some Labour MPs may be happy about having some of the highest levels of tax on fund managers, but these measures will fundamentally dampen the animal spirits in our economy at a time when we need to be unleashing them. That is why I contend that new clause 11 is essential to ensure that Ministers measure the real-world consequences of their choices before lasting damage is done to our economy.
- Hansard source
Finance (No. 2) Bill (Third sitting)
In the debate on the first clause that we considered in Committee, there was a commitment to keep corporation tax at 25% across this Parliament. Can the Minister at least commit to not further increase the rate of tax on carried interest in this Parliament?
- Hansard source
Finance (No. 2) Bill (Third sitting)
Clause 57 updates HMRC’s pension rules to align them with the Pension Regulator’s authorisation regime for collective money purchase schemes. Such schemes pool members’ contributions into a single fund, with the benefits linked to the performance of that shared pot rather than a guaranteed payout, as Members will be aware. Master trusts operate on a similar principle, but manage pension savings on behalf of multiple, unconnected employers, each with its own ringfenced section. The clause goes a little further than just a technical update; it gives HMRC new and wide-ranging powers to refuse or remove the tax registration of those schemes, and to change the underlying tax rules through secondary legislation. The aim is straightforward: to ensure the alignment of the tax and regulatory frameworks so that only properly supervised schemes benefit from the generous pension tax reliefs. That is a principle that we would all support. Well-regulated CDC—collective defined contribution—schemes could play an important role in the future of workplace pensions, particularly as the next generation of whole-of-life, multi-employer and retired CDC models develop. If done right, that could help savers manage their transition from work to retirement more smoothly, but it will work only if the rules are clear, consistent and fair with the existing annuity structures. As the Chartered Institute of Taxation has highlighted, the current framework does not allow for reductions in pension payments that vary between different groups of members. That potentially risks creating unfair outcomes for savers in otherwise identical positions. I would be grateful if the Minister could clarify how the Government intend to address that concern raised by the experts. We also know that, under the new guided retirement model expected from 2027, trustees will be making complex decisions on behalf of their members yet, as the Chartered Institute of Taxation notes, trustees will hesitate to act without sufficient flexibility such as limited opt-out periods or conversion options. Those safeguards are notably absent from the clause. Has the Minister, or potentially his colleague the Minister for Pensions, been engaging with the sector on those points? A further practical point, which I hope the Minister will be able to tidy up, concerns the co-ordination between HMRC and the Pensions Regulator. What safeguards will be in place to prevent a scheme being authorised by one regulator but not recognised by the other? What steps are in place to ensure that savers—our constituents—are not caught in the middle?
- Hansard source
Finance (No. 2) Bill (Third sitting)
Clause 58 makes changes to the corporate interest restriction rules, which limit how much interest large companies can deduct from taxable profits each year. It aims to fix an administrative problem that has frustrated many businesses. Under the CIRR, each group must appoint a reporting company—that is, a UK group member responsible for submitting a group’s interest restriction to HMRC—and the clause simplifies that process, which is obviously welcome. At the same time, the clause introduces a new £1,000 penalty where a group submits a return without any company having been validly appointed to act as the reporting company. That is a small fixed penalty designed to encourage groups to get the appointment right. Can the Minister assure us that this will be applied with some common sense? Does HMRC have discretion not to apply the penalty automatically, so that it can take into account any mitigating factors? Clause 59 makes a targeted but important change to the way in which companies calculate tax-EBITDA under the corporate interest restriction rules. The clause adjusts the calculation so that certain types of capital expenditure related to cemeteries and crematoriums and environmental and infrastructure spending—such as waste disposal, flood prevention and coastal erosion management—are excluded from the limits on how much interest a group can deduct for tax purposes. In practice, that means that when a company makes large one-off investments in public interest infrastructure, such as new flood defences, those up-front costs will no longer unfairly reduce the amount of interest they are permitted to deduct. The measure applies retrospectively to periods ending on or after 31 December 2021. On the face of it, this is a sensible change that ensures that the rules operate as intended, and we support the principle behind it. The Government describe this as a largely technical fix, which is broadly correct. It does correct the distortion in the corporate interest restriction rules that discourage capital investment in environmental and infrastructure projects. The Budget documents suggest the fiscal impact is limited, allowing qualifying businesses to claim interest deductions they were previously denied. But it does raise some other questions. If the calculation of tax-EBITDA has accidentally penalised spending on projects such as flood defence, waste treatment or crematoriums, are there are other sectors that the Treasury has looked at that might face similar unintended consequences? Are there sectors where the Government think there might be similar distortions, or were others considered and dismissed? How will HMRC manage amended tax returns and claims retrospectively back to 2021? Does it have the resources and processes in place to do that officially? Finally, will the Minister commit to a wider review of the corporate interest restriction rules to ensure that the system generally supports the long-term environmental and infrastructure investment that our economy and our constituencies need?
- Hansard source
Finance (No. 2) Bill (Third sitting)
As the Minister said, the clause introduces a new anti-avoidance provision aimed at arrangements involving non-derecognition liabilities. These are complex structures whereby a company transfers assets to another entity, but under accounting rules continues to recognise those assets and related liabilities on its own balance sheets. Such structures are of course common in securitisations, which are an important part of the UK’s financial landscape. In these arrangements an originating company passes on the economic risks and rewards with an asset, yet maintains the asset on its books. Used properly, these arrangements serve a legitimate commercial purpose. However, as the Minister said, there are examples of people bending or breaking the rules. Can he give the Committee a flavour of how prevalent he thinks that bending or breaking of the rules is? The provisions of this clause seek to correct any rule-breaking by denying tax deductions where their main purpose is to seek to gain a tax advantage by exploiting non-derecognition accounting. The Opposition strongly support efforts to tackle avoidance and close loopholes that undermine trust in the tax system, and efforts to bring the tax gap down—as the last Government successfully did, and this Government are, I am sure, continuing to seek to do—but, as always, the details matter.
- Hansard source
Finance (No. 2) Bill (Third sitting)
I will speak to clause 61 and new clause 12, tabled in my name. They concern reliefs and the energy profits levy, which the Chancellor increased to 78%—a very high level. When it was introduced, prices were much higher than they are now. Clause 61 clarifies that payments under decommissioning relief agreements—long-term agreements under which the Government guarantee a minimum level of tax relief for decommissioning costs—cannot be claimed by reference to the EPL; and it makes it clear that companies cannot seek refunds or payments when decommissioning costs arose on or after 26 November 2025. New clause 12 is about ensuring that the impact of these changes on decommissioning, employment and capital expenditure in the oil and gas sector, production and demand and the Scottish economy is considered by the Treasury and the Chancellor. That is important because of the context. The reality in the North sea is stark. Investment has sunk to record lows and, according to research from Robert Gordon University, jobs are being lost at a rate of 1,000 a month. Offshore Energies UK has warned that the Government’s decision in the Budget to reject replacing the energy profits levy in 2026 will cost tens of thousands of jobs, cripple investment and undermine Scotland and its energy security. The decommissioning reliefs to which this clause refers were designed to give long-term certainty on tax treatment in the basin, precisely so that companies could plan for responsible decommissioning. The Government themselves have acknowledged that we will need oil and gas for decades to come, with about 75% of the UK’s energy still coming from oil and gas and 10 billion to 15 billion barrels required by 2050. Offshore Energies UK has shown that we can produce more than that at home, through tax reform in tandem with a pragmatic approach to decommissioning and licensing, instead of importing more energy and exporting the jobs. That is why new clause 12 would require a proper assessment of the impact on the areas that I have set out. The Chancellor likes to describe the energy profits levy as temporary, but there is nothing temporary about the damage that is being done to jobs, investment and energy security in the North sea.
- Hansard source
Finance (No. 2) Bill (Third sitting)
Following the 2024 Budget, the Government decided to implement a long-term residency test for inheritance tax. That is a 10-year residency in a 20-year time period. Clause 70 imposes an inheritance tax charge where there has been a change in the settlor’s long-term residence status. While this is not the 20% exit tax—one of the kites that was flown by someone near the Treasury ahead of the Budget—there is a risk about the message that it sends about encouraging people to this country. The Chartered Institute of Taxation has pointed out that individuals faced with the prospect of UK inheritance tax on their overseas trusts may already have decided to leave the UK and/or wind up the trust, an issue that was debated on Tuesday afternoon in relation to the clauses that pertain to non-doms. The measures that the Government are taking will undermine what we all want to see, which is more money being brought back into the UK and invested in our country. What conversations has the Minister had with groups such as Foreign Investors for Britain about these changes? How would he respond to their concerns?
- Hansard source
Finance (No. 2) Bill (Third sitting)
I am grateful to the hon. Member for Maidenhead for bringing forward these amendments to what is a very important clause, one that honours a commitment; I remember sitting in the main Chamber when a number of colleagues from across the House were pressing Ministers to introduce such a change, and it is very welcome that the Government have brought it forward in the Bill. I believe a similar treatment applies to the Horizon IT scandal. It is a common-sense clause. Fundamentally, the victims of this appalling scandal deserve compensation and their families deserve to then benefit in due course. I put on record my tribute to the work of Sir Brian Langstaff, as well as to the work of my right hon. Friend the Member for Salisbury (John Glen) when he was in the Cabinet Office, working particularly with victims’ groups. The clause will help to provide the remedy that victims and their families have been seeking. I have said that a similar treatment applies in the Horizon case, but I should mention to the Minister that the Hughes report on the valproate and pelvic mesh scandal is still outstanding. It was published two years ago and recommended that interim compensation payments should be made. I have raised the matter with the Health Secretary on a number of occasions; I ask the Minister to take that issue back and to consider, as the compensation scheme is designed, whether that sort of provision can be built in from the start. We support the thrust of the amendments tabled by the Liberal Democrats, which seek to ensure that Government regulations around the issue reach the right objectives, as well as supporting victims and their families. Amendment 46 would establish a mechanism to support families to navigate the system. I think that is very important and, if the hon. Member for Maidenhead chooses to press the amendment, I assure him that Conservative Members will support it.
- Hansard source
Finance (No. 2) Bill (Third sitting)
I rise to speak to clauses 75 and 76, as well as new clause 13 in my name. The clauses fit within the inheritance tax part of the Bill. In Committee of the whole House, we had debates on the family farm tax and the family business tax, and the damage and distress they are causing in rural communities, so I will not prolong that debate. I will focus briefly on clause 75, however, which tightens the rule on inheritance tax exemptions for gifts to charities and registered clubs, including sports and social clubs. Clause 76 provides limited protection for existing arrangements, seeking to prevent new restrictions from applying retrospectively or unfairly. New clause 13 would require the Treasury to publish a report on the impact of clause 75, including on the volume and value of charitable donations, the financial health of affected charities and clubs, donor behaviour and impact on Exchequer revenues. We agree with the principle, which the Minister set out, of ensuring that charitable reliefs are used as intended, but it is also important that the Government understand the practical consequence of any tightening of the rules. On Tuesday afternoon, we discussed some of the concerns that charities have about earlier provisions in the Bill, and the potential complexity and bureaucracy that was being added to them. We all know that the charitable sector is under significant pressure, and we do not want to add undue burdens on to trustees of charities in particular.
- Hansard source
Finance (No. 2) Bill (Third sitting)
At present, when a disabled person uses their mobility benefits, such as the mobility component of the personal independence payment or disability living allowance, to lease a vehicle under the Motability scheme, that lease is zero-rated for VAT. Let us remember why Motability was created: it was established to help those with serious, long-term physical disabilities to access independence and mobility, not to provide subsidised cars for people with minor or temporary conditions. However, the numbers show that the scheme has expanded far beyond its original purpose. Last year, 815,000 people were using Motability vehicles, an increase of 170,000 in a single year. For many participants, their benefit covers the full cost of a three-year lease, so they pay nothing beyond their benefit entitlement. However, when someone chooses a more expensive model, such as a larger or higher-spec vehicle, they must make an up-front top-up payment. Until now, the entire lease, including that top-up, has been VAT-free, but clause 77 changes that. Under the new rules, only the proportion of the lease funded by the qualifying Motability payment will remain zero-rated, and any additional amount paid voluntarily will be subject to the standard rate of 20%. That is a fair and balanced reform that we wholeheartedly support. Clause 78 narrows the insurance premium tax relief for vehicle insurance linked to disability schemes. IPT is a 12% tax on most general insurance premiums. Many cars that are leased to disabled people currently benefit from that relief, even when the vehicles are standard, unadapted models. We welcome that the clause limits the relief to applying only to contracts for vehicles that are specifically adapted for wheelchair or stretcher users; for example, vehicles with ramps, lifts or structural changes supporting wheelchair access. If a vehicle has no such adaptation, premiums will rightly be subject to the 12% charge. Conservative Members have long argued for tighter focus and accountability in the Motability scheme, and I welcome the Government’s decision to act— we have been pushing them to do so. Sadly, we read in The Times this morning that the Prime Minister has apparently ruled out any wider reforms to welfare in the King’s Speech. Some of the growth we have seen in the Motability scheme, which the clauses will hopefully address, reflects genuine need, but much of it does not. That expansion raises questions about the eligibility standards and on whether taxpayers’ money is being used as intended. Motability should not be a back-door subsidy for people who do not meet the scheme’s original intent, which was to help those with serious disabilities. As the Minister said, over the scorecard this measure makes a significant saving that is a meaningful contribution to public finances, which we welcome and support. Taxpayer resources should be targeted more effectively to ensure fairness. However, the measures in the Budget overall raise people’s taxes to pay for more welfare spending. We consider that to be the wrong choice. We welcome the fact that the clause mitigates some of that additional welfare spending, but overall, this is a welfare spending Budget.
- Hansard source
Finance (No. 2) Bill (Fourth sitting)
I beg to move amendment 42, in clause 79, page 95, line 37, at end insert— “(3B) Section (3A) does not apply to journeys by private hire vehicle or taxi in rural areas.” This amendment would exempt journeys by taxi and private hire vehicle in rural areas from the provisions of subsection (3A) of section 79.
- Hansard source
Finance (No. 2) Bill (Fourth sitting)
It is a pleasure to see you back in the Chair presiding over our proceedings this afternoon, Mrs Harris. I will speak to amendment 42, which stands in my name and that of my hon. Friends, along with clause 79 and new clause 14. Clause 79, which many are already calling the taxi tax —that is certainly what people in the industry are calling it—changes the way VAT is applied to taxi and private hire vehicle journeys. Currently, under the tour operators’ margin scheme, VAT is charged only on the operator’s margin—that is, the difference between what the operator charges the customer and what it pays the underlying provider. The clause will remove taxi and private hire vehicle transport from the scope of the tour operators’ margin scheme. The clause is being brought forward following a defeat for His Majesty’s Revenue and Customs on precisely this point. The tribunal rejected HMRC’s claim that ride-hailing services do not qualify for TOMS, although I understand that there is still an appeal, which is due to be heard in March. Perhaps the Minister can explain how much money is being spent preparing for that, if this legislation is going to make the question moot. In practical terms, the clause means that drivers and businesses now have to charge VAT at 20% on the fare paid by the customer—taking, for example, a £20 fare to £24. The measure took effect from 2 January this year. The Labour party promised in its manifesto not to increase VAT. It is true that it has not increased the rate, but it has certainly expanded the scope of its application through this measure. According to the Government’s own Budget policy costings document, the change will raise about £190 million in 2025-26, rising to some £675 million a year by 2031. That strikes me as a significant new burden—a significant new tax—on private hire and taxis, hence the “taxi tax” sobriquet. It is passengers who will ultimately end up paying the bill. Industry bodies have warned that fares could increase by double-digit percentages in some areas. Every penny of extra VAT will be passed on to passengers who rely on these services because they have no viable public transport alternatives. That is particularly the case in rural areas and among disabled and elderly passengers, women wanting to get home safely at night and workers on early shifts. They are the people who will be affected by this taxi tax.
- Hansard source
Finance (No. 2) Bill (Fourth sitting)
My hon. Friend, like me, has a very rural constituency that spends tens of millions of pounds on this. I think Norfolk spends around £30 million or £40 million a year on taxis to transport pupils with special education needs to school. That is a huge proportion of the money that is spent on special educational needs, and potentially adds to the burden and costs of councils who are struggling, particularly in rural areas. They have been—I will be polite—disadvantaged by the latest local government settlement and the way that the Government have skewed the formula against rural areas, having already removed the rural services grant, which we had come to rely on. What is the Government’s estimate of the average fare increase for passengers as a result of this measure? How can the Treasury justify raising the transport costs at a time when families are already struggling and the Government claim that the cost of living is their priority? The charge in this clause will not only hit passengers. Operators will face new administrative burdens as they try to account for VAT under far more complex rules. That creates uncertainty—this Committee has discussed the need for certainty on many occasions—and increases the costs for local businesses that operate on relatively small margins. As one operator of a private hire vehicle firm said, rather starkly, “a 20% VAT hike would hit the elderly, disabled and rural passengers hardest. Businesses cannot plan, invest or grow while uncertainty remains.” The places most exposed are those with limited public transport networks and a consequently high reliance on the use of taxis and private hire vehicles. That is why we have tabled amendment 42, which proposes to exempt rural communities. It is a simple and fair way to protect those most affected. It would amend clause 79 so that the charge does not apply to journey by private hire vehicle or taxi in rural areas. If the Minister refuses that limited relief, will he at least commit to supporting new clause 14? It would require a proper impact assessment of the effect of the measure on the taxi and private hire industry, driver earnings, vulnerable passengers, rural communities and passenger fares. There is a practical problem with clause 79, as with so many clauses that we have debated. Some major operators, including Uber, have reclassified themselves or are exploring ways to reclassify themselves as technology platforms rather than transport providers. That seems to be happening in cities outside London already. If they succeed, the VAT liability would shift from the company to the individual drivers, many of whom are not VAT-registered owing to their earnings level. What is the Minister’s response to that shift, which is already taking effect in parts of the country? Concerns have also been raised by the Institute of Chartered Accountants in England and Wales that the list of qualifying services in proposed new subsection (3A) in section 53 of the Value Added Tax Act 1994 is too narrow. The institute contends that the list excludes other key designated travel services, most notably trips, excursions and the services of tour guides. That creates a genuine issue for tour operators who supply day-trip packages, whether to the coast of North West Norfolk or to other parts of the country. A lot of small, often family firms provide these services. For example, if the package consists of a private car transfer, picking up someone from King’s Lynn station and taking them up to sunny Hunstanton, and that is combined with a professional tour guide or excursion ticket, under the clause the private hire element will fall out of TOMS while the guide or excursion will remain in it. What will that do? It will add considerable complexity, forcing the unbundling of a single commercial package. It will require changes to systems and changes to invoicing. If the intent, as the Minister will no doubt tell us, is simply to go after taxis and private hire vehicles, this is a glaring example of where the drafting is wrong and goes too far. The ICAEW contends that the existing ancillary tests are robust enough to avoid any obvious attempt to dodge paying the tax that is due. This is a tax rise that will increase fares, hurt rural and vulnerable passengers and create fresh uncertainty in a vital sector. In my constituency, the funding that has been provided for buses is reducing in comparison with the funding provided by the last Government. I expect that that position is being replicated across the country. People in my constituency do not have the luxury of the regular services that I am sure the Minister has in his Chipping Barnet constituency, with maybe three an hour. In parts of my constituency, three a day would be frequent. I hope that the Minister recognises the points that are being made on behalf of rural areas; I am sure that other hon. Members who represent rural areas will not sit silently when the issue is being discussed, but will speak up for their constituents. As I say, this is a tax that will increase fares, hurt rural areas and vulnerable passengers and create uncertainty. It will also add to the cost of living. The Office for Budget Responsibility has forecast that real living standards will increase by 0.25% in each year of this Parliament, which is a staggeringly low figure when the average has been 1% in each of the past 10 years. That is not a great record—no wonder the Government are cancelling elections left, right and centre. If the Government are intent on pressing ahead, the very least the Minister can do is agree to review the measure, looking at fare levels, passenger numbers and any reduction in service availability. Otherwise, I look forward to pressing to a vote my amendment, which would protect rural areas.
- Hansard source
Finance (No. 2) Bill (Fourth sitting)
May I return to the point about the ancillary services? Proposed new subsection (3A) in section 53 of the 1994 Act requires only “the provision of accommodation, or…the transport of passengers by bus, coach, train, ship or aircraft.” Excursions or trips are not covered, which is why the ICAEW has suggested simply amending the wording to include the services of tour guides, trips and excursions to ensure that genuine day-trip packages, wholly within TOMS, continue to be protected. Under the clause as drafted, they will not be; a proportion of them will face an extra 20% charge. That is the case, is it not?
- Hansard source
Finance (No. 2) Bill (Fourth sitting)
I need to hammer the nail about day-trippers while we have the taxman on the Government Benches. Proposed new subsection (3A) in section 53 of the 1994 Act does not provide for day-trip excursions not to be in scope; it refers simply to accommodation and passenger transport not being captured. I hope that the Minister might look at that again, because certainly in tourist areas such as my own constituency, those day trips are part of the local economy and hospitality sector. He knows well from his portfolio that pressures are being placed on hospitality businesses more broadly, not just on pubs. I am not sure whether we got the full guarantee on SEND. Perhaps the Minister will write to the Committee to set out the position on that, so we all have clarity and can go back to our local authorities to assure them that the £700 million that the Government are looking to raise in additional taxes will not be coming from our council tax payers. I am not satisfied that the Minister has dealt with the rural issue or the impact on such areas. I appreciate that he does not come from a rural constituency, so he does not have that at his fingertips, but certainly in my area, people rely on private hire vehicles and taxis to get around. That is a big issue, so I will therefore be pressing the amendment to a vote. Question put, That the amendment be made.
- Hansard source
Finance (No. 2) Bill (Fourth sitting)
I beg to move amendment 43, in clause 80, page 96, line 28, at end insert— “(2A) The Treasury must, each year, amend by order the applicable limit set under section 5A(2)(a) by the change in the level of the consumer prices index in the previous tax year.” This amendment would provide for the £200 applicable limit to be uprated annually in line with the consumer prices index.