Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss Clause 27 stand part.

I will take Clause 27 first. The changes that it makes clarify how VAT and excise legislation should be interpreted in the light of changes made by the Retained EU (Revocation and Reform) Act 2023, which came into effect on 1 January. The Act ends the supremacy and special status afforded to retained EU law in the UK. As we made clear when it was introduced, the Government are taking a bespoke approach to UK VAT and excise law. In line with the 2023 Act, clause 27 confirms that, for VAT and excise, it will no longer be possible for any part of any UK Act of Parliament or domestic subordinate legislation to be quashed or disapplied on the basis that it is incompatible with EU law. In other words, it will no longer be possible for businesses to rely on EU law where it is in conflict with domestic law. The measure also provides that UK VAT and excise law continues to be interpreted as Parliament intended, drawing on rights and principles that currently apply in interpreting UK law.

This legislation, which was subject to a Provisional Collection of Taxes Act 1968 resolution from 1 January, ensures the stability of the VAT and excise regimes and provides legal certainty for businesses following the changes in the Retained EU Law (Revocation and Reform) Act 2023 taking effect. It mitigates the risk of relitigating the settled interpretation of UK law, protecting billions of pounds of Exchequer revenue.

VAT and excise duty from alcohol, tobacco and hydrocarbon oil raise over £200 billion of revenue a year. VAT is a litigious area, with the existing framework and precedents protecting large amounts of revenue. For example, £5 billion of tax revenue was protected in just five VAT cases with the support of such precedents. VAT operates in real time, with VAT invoices and the associated money being passed between businesses and other businesses or consumers on the basis of the law in place at that time, which means legal certainty is key. Businesses rely on this to ensure that their tax affairs are correct, and HMRC relies on it to collect tax.

EU principles and rights will therefore continue to apply solely as aids to interpreting UK legislation. Any potential change in interpretation would create uncertainty for business. It could open up loopholes to be exploited by those looking to avoid paying their fair share, risking billions of pounds of Exchequer funds.

I move on to clause 25. At Budget 2020, to help meet our climate change and air quality targets, the Government announced that we would remove the entitlement to use rebated fuels from most sectors. Rebated fuels, such as red diesel and certain heavy oils, incur a lower rate of fuel duty, in contrast to the petrol and diesel used by cars and other road vehicles, which incur the full rate of fuel duty. As part of these reforms, the Government decided to continue to allow rebated heavy oils, other than red diesel and bio-blends made with red diesel, to be used for all heating uses, due to the concern that removing the entitlement to use these fuels for this purpose would significantly increase the heating Bills of the households and businesses that use them, especially in areas off the gas grid.

However, as enacted, the Hydrocarbon Oil Duties Act 1979 prevents machines and appliances from using certain rebated heavy oils for commercial heating. That includes fuel oil used in some commercial heating applications, including in furnaces. As the Government’s intention was to continue to allow the use of rebated fuel for heating, HMRC has exercised its discretion on collection and management powers to allow the use on this basis. The assumption was that the existing legislation would be changed at the earliest opportunity, which is what we are doing now. Clause 25 amends the 1979 Act, giving clarity to the dozen or so businesses affected by this anomaly, in line with the Government’s announced policy position. I make it clear that no consumers have been disadvantaged by this error.

These changes are necessary to provide legal certainty for business and to ensure that the relevant regimes operate as intended. I therefore commend clauses 25 and 27 to the Committee.

I call the Shadow Minister.

I rise to speak to the clauses relating to VAT and excise, beginning with Clause 25, which restores the full tax rebate for machines and appliances that use non-gas heavy oils and bio-blends for commercial heating purposes. The Government have said that this is to correct an anomaly brought about by the April 2022 changes to the Hydrocarbon Oil Duties Act 1979, which mean that machines using kerosene have benefited from a full rebate while those using other types of heavy oil were made ineligible for lower duty rates when used for heating.

The Government have said that their April 2022 tax changes were intended to reduce the use of gas fuels and to make progress against the UK’s climate commitments. However, perversely, under the current system companies receive a tax penalty for using next-generation renewable fuels such as hydrotreated vegetable oil for heating, instead of kerosene, despite the fact that HVO produces nearly 90% less greenhouse gas emissions. I therefore support clause 25, which seeks to correct that unintended error and restore equivalent tax treatment for the use of non-gas heavy fuels for commercial heating. However, let us be clear: the correction will have a limited impact on businesses across the UK facing rocketing heating Bills as the cold starts to bite this winter.

We also know that it is often the scandalous lack of grid connections that forces many businesses, particularly in rural areas of Scotland, to operate their machines off grid, using heavy oils and biofuels. Changing tax incentives, although significant, will not deliver the overhaul our energy system needs to become a clean energy superpower. After 13 years of mismanagement, our energy grid is on its knees, with new developments forced to wait up to 15 years for a new connection and more than £200 billion of privately funded energy projects stuck in limbo.

Labour will prioritise reforming the grid, overseeing the largest upgrade to our national transmission infrastructure in a generation and accelerating connections for those who are forced off grid. We cannot afford to keep dragging our feet any longer. The Government claim they are serious about delivering the transition and boosting the use of clean energy sources, but the neglect of our grid infrastructure has been shocking. We know that the significant increase in both clean power generation and clean industry that the UK will need to reach net zero will require four times as much grid infrastructure in the next seven years as has been built in the past 30. Although the Opposition do not oppose clause 25, which is a welcome correction, ensuring that tax incentives for non-gas heavy fuels remain consistent is the bare minimum we should be expecting from the Government on this vital issue.

I move on to clause 27, which seeks to clarify UK primacy on VAT and excise law following the passage of the Retained EU Law (Revocation and Reform) Bill. The Government’s draft legislation seeks to ensure that in relation to VAT and excise law it will no longer be possible for any UK Act of Parliament or domestic subordinate legislation to be quashed or disapplied on the basis that it was incompatible with retained EU law. The Government state that this measure will

“ensure the stability of the VAT and excise regime”,

providing legal certainty for businesses. Labour, unsurprisingly, supports the objective of this legislation; ensuring that firms have clarity over how the VAT and excise regimes should be interpreted following the UK’s departure from the EU is crucial to retaining business confidence. However, following the Government’s public consultation, which concluded in November, it remains entirely unclear whether the measure achieves its stated objective of reducing the complexity for businesses of interpreting the VAT regime.

In its consultation response, the Chartered Institute of Taxation highlighted a number of concerns about the proposals, pointing out that the significant complexity in interpreting this draft legislation risks undermining the certainty it seeks to deliver. Specifically, the CIOT points out that the distinction drawn in the legislation between disapplication and the quashing of UK law as a result of EU law, and interpretation,

“might in practice be insufficient to achieve the desired result”.

Consultation feedback also pointed out that the measures in clause 27 do not make it clear how far higher courts are intended to be bound by prior case law from the Court of Justice of the EU, thus creating uncertainty for businesses and advisers.

Although taking a “bespoke UK approach” to VAT and excise legislation is welcome in principle, the draft legislation also fails to address the fact that the removal of the reliance on EU provisions will create significant gaps in UK legislation where our domestic rule book did not fully transpose EU directives. It is not just tax experts that have sought to draw attention to this issue through the Government’s consultation; the industry body for the banking and finance sector, UK Finance, has warned over and over again that the draft legislation

“does not appear to adequately address” the complexity of the VAT landscape

“thereby sustaining a high degree of uncertainty for industry and the prospect of settled interpretations of VAT law being disturbed.”

The trade body pointed out that although EU VAT law includes a clear VAT exemption for intermediary services in connection with bank accounts, the exemption has not been implemented in UK law. With business no longer able to rely on the direct effect of EU law, material changes to VAT exemptions in the financial services sector will come into effect. That is just one example from my own Shadow brief, but it highlights the additional uncertainty that this “clarifying” draft legislation has already created for business. Despite the clear message from tax experts and industry in the consultation, it seems that the proposals are at best problematic. It is of particular concern that the Government seem to have ignored that feedback and ploughed on, with not a single Amendment made to the draft legislation.

Detailed guidance is needed to address the significant issues that have already been raised regarding clause 27 and to ensure it meets its objectives. Labour will not oppose the measure as we remain supportive of it in principle, but urgent clarity is needed as it will come into effect from the beginning of this year. The shock that a Government measure designed to provide “legal certainty and stability” has raised more questions than answers has slightly worn off for those of us obliged to follow the circus on the Government Benches on a daily basis.

To conclude, we will not oppose the two clauses, but the detail of the proposals continues to raise questions about the competence of the Government. From being able to afford low-carbon fuel and avoid crippling heating bills to having certainty over the VAT regime, UK businesses deserve far better. After 13 years of leadership, we need a Government who can provide the confidence that businesses desperately need, using the clean energy sources of the future to drive growth and investment across the country.

It is a pleasure to have sat through the Committee stage of the Bill and to hear the Government talk about the advantages we have from Brexit. I am pleased to hear that the Government have looked, and continue to look, extensively at the taxation system—in particular at the interpretation of VAT, as mentioned in this Clause.

One interpretation of VAT in this country massively affects people who are visually impaired and those who cannot read, perhaps because of dyslexia: there is no VAT on books, but the Treasury apply VAT to audiobooks. If that interpretation of VAT is to be taken as far as it possibly can, I am disappointed that disabled people are not being protected within the structure of the Bill, in the way that they have been for many years.

Years ago, when I was disabilities Minister, I was told that VAT changes could not happen because we were in the EU. We are no longer in the EU and we can set our VAT rates as we would like. It would be fundamentally good if the Government came forward with an interpretation of VAT that said that people who rely on audiobooks, through no fault of their own, do not have to be penalised by VAT. I am not talking only about the visually impaired—I declare an interest: I am dyslexic and rely on audiobooks, although not completely. People who do not read Braille are being punished as well.

The Government continue to look at new taxation rules and new ways of making sure that people do not get around the taxation system, and it is clear that they are looking at the implementation of VAT. What better spring present for those who rely on audiobooks than for the Minister to say that he will meet me, talk about the issue further and perhaps look at the early-day motion in my name?

The technical changes in clauses 25 and 27 open up a lot of questions. I agree with the Labour front bench spokespeople that there are many questions on operation that still have to be answered, but there are wider questions about both these clauses, inspired by their context. Before I get to them, I want to point out that this Finance Bill is a stark reminder that the Westminster Government never reflect the values of the people of Scotland. We need independence so that we can build a fair and dynamic economy that works for everyone. People are suffering through the bitterest cost of living crisis. The provisions set out in the Finance Bill are nowhere near enough to help households in Scotland, which have been left paying the price for disastrous decisions by Westminster Governments—not least the harm of Brexit. There is no help for families struggling with rocketing food prices, and no help for mortgage payers, many of whom are now seeing huge increases in their fixed-rate deals.

The cold is biting right now. A week ago, this Westminster Government oversaw not the hoped-for help of the £400 energy bill rebate that we in the SNP called for, but another 5% hike, courtesy of the price cap increase.

Although Clause 25 is righting a small wrong, people living off the gas grid deserve a lot more help than is being offered with this measure. They should have had the comfort of being included in regulation under Ofgem, as imperfect as that organisation is. Indeed, I introduced a ten-minute rule Bill in this House to ask for that, yet people living off grid are still suffering from a wild west approach to pricing in how they heat their homes. That affects many people across my Constituency and other large rural areas. They simply do not have a choice when prices surge. This is a tiny measure being taken today, and more should have been done.

I mentioned the £400 support that we called for, but a social tariff should also have been considered. There should have been reductions, not increases, in the price cap to help people at this juncture. Energy policy, as we know, is fully reserved to Westminster, and it is the Chancellor who decides whether people can afford to put the heat on. Well, a lot of folk cannot afford to do so.

In my constituency, and across the highlands and islands, we produce six times more clean, cheap, renewable energy than is needed by the people living there. The massive bulk of that production is exported to other parts of the nations of the UK, yet, in return, we get to pay higher standing charges and higher unit prices in a climate that demands that we use more to make life bearable. We suffer the highest Fuel Poverty. Electricity charges in the highlands are around 30% higher than they are here in London, according to Ofgem. How is that fair?

The Chancellor offered £1,000 a year off energy Bills for those living near planned new power lines and generating equipment. The question we now ask is: what about those already living next to and among generating equipment? Why should they not be included and compensated in the same way? After the long years of this energy injustice, it must now be time to right that wrong. The Chancellor must establish a highland energy rebate, and, again, speed is of the essence. All of this and more should be done, but the fact is that this place does not act on Scotland’s needs. We have the energy, but we do not have the power. We should have that through independence.

On clause 27, as highlighted in the explanatory notes to the Bill and in the Minister's comments, we know that the Chancellor will raise more than £200 billion pounds a year in VAT and excise duty alone, a significant amount of that on the back of Scotland’s food, whisky and oil production. The Conservatives’—and now Labour’s and the Liberal Democrats’—Brexit was supposed to release the means to support business. Instead, all Brexit has brought is red tape and heartache. We see the results of that today in this debate. So let us see the Government step forward. I am not expecting them to fulfil the wild promises of Brexit—there is no possibility of that—but let us see whether they can live up to a tiny amount in the form of a VAT cut for the tourism and hospitality sector and some support for disabled people. I agree with Sir Mike Penning that there should be more attention paid to that.

The UK Government’s attempt to sell the tax measures set out in the statement as a giveaway for working people is beyond belief. The Office for Budget Responsibility has been clear that the Chancellor’s decision to freeze income tax will create 3.2 million extra taxpayers by 2028, with 2.6 million people more in higher tax bands. This is a Tory-made cost of living crisis. The reality is that households in Scotland are paying the price for the UK Government’s mismanagement of the economy, with an especially devastating impact on vulnerable people.

The stark difference between the UK Government’s autumn statement, and consequently the Bill, and the Scottish Government’s Budget, which prioritises ensuring that everyone in Scotland can have a decent standard of living, is a timely reminder of why we need to get our own governance. In December, a report by UNICEF found that the UK’s child poverty rates were among the highest in the world’s richest countries. The report compared well-off countries’ efforts to reduce child poverty, and the UK ranked as one of the worst-performing, coming 37th out of the 39 nations of the EU and the OECD.

We also know that the cost of living crisis is disproportionately impacting disabled people. Again, the call for a VAT cut is valid, but there was nothing in the Chancellor’s autumn statement or the Bill that will do anything to make it easier for those with disabilities to get through this cost of living crisis. Indeed, the Government seem committed to making the lives of those with disabilities more difficult through a renewed focus on ramping up the use of cruel benefit sanctions. In October last year, research by Scope found that nearly one in three disabled people face debt. James Taylor, executive director of strategy at Scope, noted:

“When disabled people are being pushed into debt and can’t afford to eat, stay warm or shower, it’s clear the system is broken. These figures lay bare the fact disabled people are being hit hardest in this crisis.”

It is utterly shameful that the UK Government have failed to introduce measures in the autumn statement or the Bill that would improve the lives of millions of people who are facing poverty, and in some cases actual destitution. The fundamental problems with the autumn statement and the Bill are what was omitted from it.

My hon. Friend is right: the on-costs of not doing so lead to further problems, and to higher costs not only to the public purse but to the mental and physical wellbeing of those who are impacted by the cost of living crisis.

These major fiscal events serve as a tangible example of the total mismatch between the values of the UK Government and the people of Scotland. The things that the UK Government choose to spend money on and the tax measures that they have chosen to leave out of the Bill, such as abolishing non-dom status, are a clear reminder of that. It is abhorrent that at the same time as announcing cruel measures to force ill and disabled people into work, the UK Government did not include any provisions on making the tax system fairer. There are countless examples of the UK Government wasting money and then attempting to claw back the funds by targeting groups who are the least well off. The return to draconian measures forced on ill and disabled people is just the latest example. The stark difference between the Bill and the Scottish Government’s Budget, which prioritises ensuring that everyone in Scotland can have a decent standard of living, is a timely reminder of why we need independence.

The SNP believes that building a strong economy starts with giving people a decent standard of living, and our most recent Budget reflected that, as my hon. Friend Patrick Grady mentioned. The Scottish Government’s Budget reflects the people of Scotland’s shared values and speaks to the kind of Scotland that we want to be. It is important to remember that the Scottish Government have achieved that against the backdrop of their very limited ability to raise additional revenue through taxes, and having to work largely with a fixed budget. Despite those very difficult circumstances, the Scottish Government have once again shown their commitment to protecting the NHS from strikes, as well as investing in it and shielding the most vulnerable people, as far as possible, from the impact of regressive Westminster policies.

While the Tories have just delivered a 3% real-terms cut to England’s NHS in their autumn statement, the Scottish Government announced an increase to the frontline NHS budget in real terms. They also remain committed to helping those most impacted by the cost of living crisis. In their Budget last month, the Scottish Government increased the game-changing Scottish child payment in line with inflation to £26.70 a week, giving more support to the more than 323,000 under-16s who receive it. They maintained their commitment to invest £1 billion over the course of this Parliament to tackle the poverty-related attainment gap, with £200 million to be distributed in 2024-25. They are committed to funding the £12-per-hour real living wage for adult and child social care, and early learning and childcare workers in the private, voluntary and independent sectors that deliver funded provision. They have helped households through the cost of living crisis by making available an additional £144 million of funding to councils that agree to fully fund a council tax freeze in 2024-25—the funding equivalent of supporting a 5% increase. Those are just the latest measures the Scottish Government have taken to promote equality.

The Scottish Government have of course introduced landmark policies to ensure that everyone in Scotland has access to a decent standard of living. If Westminster was in charge, Scotland would lose things like free university tuition, free school meals, free period products, free bus travel for under-22s and free childcare for three and four-year-olds, as well as eligible two-year-olds. All that is possible because the Scottish Government take a different approach to a Budget than this place, and we need to ensure that we can do that in a much more effective way through the powers of independence.

I think some hon. Members may have tried to expand the debate strictly beyond the scope of the measures we are debating; for understandable reasons, I will stick strictly to the clauses.

My right hon. Friend Sir Mike Penning made some important points about ensuring that we take full advantage of the benefits of leaving the European Union. Of course, we have already made progress in that area by removing, replacing and improving retained EU law, including revoking all direct EU regulations in relation to customs duty, introducing a UK tariff and domestic customs regime, introducing VAT relief for women’s period products and for the installation of energy-saving materials, and so on. On the points he made regarding potential future changes to VAT, we of course always keep tax under review. He will forgive me for not making tax policy at the Dispatch Box this evening, tempted as I am; that is the purpose of key fiscal events. I will absolutely commit to meeting my right hon. Friend, as I am always willing to listen and hear comments.

Comments were made about encouraging the use of greener fuels. The Government encourage the use of renewable fuels through the renewable transport fuel obligation, which incentivises the use of low-carbon fuels and reduces emissions from fuels supplied for use in transport and non-road mobile machinery. On the point about the Court of Justice, the European Union (Withdrawal) Act 2018 provides that Court of Justice of the European Union judgments issued since the end of the implementation period are not binding on UK courts. On the point about codifying everything, trying to codify all interpretative effects into black and white UK law would of course be a huge endeavour and would require a complete review of all that legislation, taking many years and still leaving significant tax revenue at risk.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Clause 27 ordered to stand part of the Bill.

The Deputy Speaker resumed the Chair.

Bill (Clauses 1 and 2, schedule 1, clause 21, schedule 12, clauses 25, 27 and 31 to 34, and schedule 13) reported, without Amendment, and ordered to lie on the Table.