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

With this it will be convenient to discuss the following:

Schedule 11.

New clause 11—Impact assessment on carried interest reforms—

“The Chancellor of the Exchequer must, within 2 years of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 56 on—

(a) the UK’s competitiveness in attracting and retaining fund managers,

(b) the level and composition of investment into the UK, and

(c) revenues collected compared to forecast revenues.”

This new clause would require the Chancellor of the Exchequer to report on the impact of section 56 on the UK’s ability to attract and retain fund managers, on investment into the UK and on realised revenues compared with forecasts.

Clause 56 and schedule 11 reform the tax treatment of carried interest—a form of performance-related reward that is received by individuals who work as fund managers.

At the autumn Budget 2024, the Chancellor announced that the Government would reform the way that carried interest is taxed, so that its tax treatment is in line with the economic characteristics of the reward. Following an initial increase in the capital gains tax rates applying to carried interest to 32% from 6 April 2025, the clause introduces a revised tax regime for carried interest that sits wholly in the income tax framework. The revised regime takes effect from 6 April 2026. The package of reforms announced at the 2024 Budget will raise almost £300 million by 2030-31.

The changes made by clause 56 and schedule 11 will establish the revised tax regime, under which an individual who receives carried interest will be treated as carrying on a trade. The carried interest will be treated as the profits of that trade and will therefore be subject to income tax and class 4 national insurance contributions. That reflects the Government’s view that carried interest is, in substance, a reward for the provision of investment management services.

New clause 11 would require the Government to publish a report within two years of the legislation passing, covering various issues in connection with the impact of the reforms introduced by clause 56 and schedule 11. The Government recognise the vital importance of the asset management sector in supporting growth. As set out already, we are delivering a revised tax regime for carried interest that ensures fund managers pay their fair share of tax, while maintaining the UK’s position as a world-leading asset management hub.

We have engaged closely with the sector to understand the impact of the reforms at every step. We published a call for evidence in July ’24, a consultation at the autumn Budget ’24 and a technical consultation on draft legislation in July 2025. We therefore do not consider new clause 11 to be a necessary addition to the Bill. I commend clause 56 and schedule 11 to the Committee and ask that new clause 11 be rejected.

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.

The measure contained in Clause 56 was in our manifesto, and I think it is good that the Government are making progress to implement our manifesto reforms. We have been working closely with the sector through the rounds of consultation and engagement that I mentioned in my opening remarks. The sector has acknowledged that the Government have had to balance the need to raise revenue for essential public services with the requirement to keep our economy competitive, and has welcomed the changes that have been made as a result of the engagement that has taken place since 2024.

I may add that I am glad that someone does read the TIINs—they are always a joy to sign off ahead of any fiscal event. We will continue to monitor the impact of the measure and other reforms, although the Government do not believe that it is necessary to legislate for such monitoring. It is our position that it is best not to over-legislate.

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?

I am grateful to the Shadow Minister for giving me a chance to reiterate that the Government have set out—it is relatively unusual for a Government to do so—a corporate tax road map where we have made very specific commitments, which we have kept to, around maintaining the headline rate of corporation tax at the lowest rate in the G7. As with all other policies, however, we keep all taxes under review. It would not be right, particularly many months from the next Budget, for me—I was called a “low-ranking” Treasury Minister by the Daily Mail the other day—to comment or speculate on future tax measures.

Question put and agreed to.

Clause 56 accordingly ordered to stand part of the Bill.

Schedule 11 agreed to.