Introduction and background
The Finance Bill was introduced in the House of Lords on 25 May 2021 and is due to have its second reading and all remaining stages on 8 June 2021. It completed its stages in the House of Commons on 24 May 2021.
The bill falls within the category known formally as “bills of aids and supplies”, in which “aids” refers to taxation and “supplies” refers to government expenditure. The House of Commons has a special role in such bills, known as ‘financial privilege’. This means, in practice, that only the Commons can initiate such bills and Lords consideration is limited. In particular, the House of Lords may not amend such bills. While the Lords will have a debate at second reading, later stages will go through formally, without debate. The House of Commons Library has published a briefing that explains in more detail the process of parliamentary scrutiny of the budget and the annual finance bill.
Although the budget deals with public spending as well as taxation, the procedure by which Parliament scrutinises and approves government expenditure is separate and is not discussed in this briefing.
2021 budget and parliamentary debates
The Chancellor of the Exchequer, Rishi Sunak, presented the spring 2021 budget to the House of Commons on 3 March 2021. The subsequent debates on the budget took place over four days in the House of Commons and one day in the House of Lords. This briefing does not summarise the contents of the budget itself. These are covered in an earlier Lords Library briefing on the budget.
Consideration of the bill in the House of Commons
Following the budget, the bill was introduced into the House of Commons on 9 March 2021. As a previous Finance Bill (now the Finance Act 2020) had already been passed in the 2019–21 session, it was introduced as the Finance (No. 2) Bill. It was the subject of a carry-over motion on 13 April 2021, which was agreed to without division.
Second reading and committee stage
Selected clauses from the bill were debated in a committee of the whole House on 19 and 20 April 2021. A public bill committee then considered the bill for a further four sittings on 22 and 27 April 2021. This approach of considering the more important or controversial provisions in a committee of the whole House, followed by scrutiny of the remaining clauses in a public bill committee, is a standard approach to committee stage for finance bills in the Commons.
In the committee of the whole House, two groups of amendments were moved by the Government and agreed without division. These related to relief from stamp duty land tax for freeports and to “technical issues” in relation to the corporation tax rules on ‘hybrid mismatches’. A further series of government amendments were agreed by the public bill committee, again without division. These related to:
- temporary extension of periods to which trade losses may be carried back;
- collective money purchase benefits in pension schemes; and
- VAT late payment interest and repayment interest in VAT.
No other amendments were made at committee stage. A House of Commons Library briefing contains a more detailed commentary on the committee stages of the bill:
- House of Commons Library, ‘Budget 2021 and Finance (No.2) Bill 2019–21’, 18 May 2021
Report stage and third reading
At report stage on 24 May 2021, the Government put forward amendments in nine further areas. These are summarised below. The links are to the Government’s explanatory memorandum in each case.
- To enable background plant and machinery in leased buildings to qualify for a corporation tax ‘super-deduction’.
- Further amendments to ensure the ‘hybrid mismatches’ rules in corporation tax work as intended.
- Increased rates of stamp duty land tax for overseas purchasers of residential property in England and Northern Ireland.
- Restrictions on the types of vehicle entitled to use red diesel and related biofuels from 1 April 2022.
- Correcting a “small technical error” in the rules relating to penalties for failure to make tax returns.
- Changes to the regime for VAT and distance selling in Northern Ireland, required by the Northern Ireland protocol (further information on this measure can be found in this HMRC paper on the implementation of e-commerce VAT changes in Northern Ireland).
- Introduction of a power to make further changes to the regime for VAT and distance selling in Northern Ireland.
- To ensure the principle preventing the abuse of the VAT system can continue to be relied upon.
- To apply a reduced rate of VAT to imported works of art valued at less than £135 (further information on this measure can be found in this HMRC paper on amendments to the VAT valuation rules for works of art subject to the overseas goods measure).
The Government also provided additional information and impact notes in the following areas:
- The ‘super deduction’ in corporation tax and another temporary capital asset investment incentive.
- Ensuring the principle of abuse of VAT legislation continues to apply following Brexit.
All the Government amendments were agreed without division. Opposition amendments defeated on division included proposals to require the Government to publish reviews of:
- the impact of a global minimum rate of corporation tax (the US has recently proposed a global minimum 15% rate);
- the introduction of freeports; and
- the increased rates of stamp duty land tax for overseas purchasers of residential property.
Third reading in the Commons also took place on 24 May 2021. The bill was approved by 365 votes to 261, a majority of 104.
Parliamentary committee scrutiny
House of Lords Economic Affairs Finance Bill Sub-Committee
The House of Lords Economic Affairs Finance Bill Sub-Committee investigated certain provisions in the bill when it was in draft form. These related to combating tax avoidance and promoting compliance. The committee said, “we welcome some of the measures in the draft bill, but we conclude that others need be revisited wholesale”.
Amongst its findings were:
- The legislation would provide HM Revenue and Customs (HMRC) with a new power to require financial institutions to provide information about a specific taxpayer, without the permission of the taxpayer or a tax tribunal (as is presently required). The committee argued that the case for the removal of these safeguards “has not been made” and was “wrong in principle”. It said the Government’s reasoning behind the proposals was “flawed and not supported by evidence”.
- The committee welcomed the postponement, until 2022, of a measure that would require large businesses to notify HMRC of any matter on which they believed HMRC may take a different view to them on the tax treatment. The committee said the plans were “poorly thought through” and the Government should “look again at the cost of compliance and to consider whether the measure should apply so widely”.
- The bill would require a person applying for certain licences (for example, to drive a private hire vehicle or carry on a scrap metal business) to undergo a tax check. The committee was concerned this “conditionality” might result in more traders becoming unlicensed. It stated that the case for conditionality was unproven and that it should be thoroughly assessed before being extended to other sectors.
- HMRC should “redouble its efforts” in tackling a known “hard core” of promoters of mass-marketed tax avoidance schemes.
The committee also commented on the Government’s approach to tax changes more generally. It said:
- The Government needs to abide by “basic policy principles” when making new HMRC powers; for example, the principles set out in the modernising powers, deterrents and safeguards review (the 2005 to 2012 powers review).
- HMRC should evaluate and make better use of its existing powers before considering new legislation.
- The Government should be more methodical and rigorous in consulting on potential new policies.
- Some new proposals “do not appear to have a strong or transparent evidence base”.
- There is “a pattern of new HMRC powers being disproportionate, poorly targeted and without sufficient safeguards”.
- There is “an increasing trend of HMRC outsourcing its compliance responsibilities”. In future, the Government should explain why HMRC cannot oversee its powers itself.
The Government’s response to the committee’s report noted a recent HMRC evaluation report on the implementation of powers, obligations and safeguards. This report was carried out by HMRC, in conjunction with stakeholders including taxpayer representatives and the Office for Tax Simplification. It concluded that “HMRC believes that the approach to implementing powers introduced since 2012 has been broadly consistent with the 2005 to 2012 powers review principles”. However, it noted that some individual cases could have been handled better. The Government said that in response to the evaluation report, HMRC made 21 commitments to “provide an improved experience for taxpayers and [that] will support the Government’s vision for a trusted, modern tax administration system”.
Addressing the specific findings of the Finance Bill Sub-Committee’s report, the Government accepted some of the recommendations and rejected others. It stated that the bill would be amended to make clearer the information which can be required of applicants for licences as part of the tax check.
The Lords Library has published a more detailed briefing on the committee’s report and the Government response ahead of the debate on the report in the House, which will take place alongside the Finance Bill’s second reading (and remaining stages) in the House of Lords on 8 June 2021.
House of Commons Treasury Committee
The House of Commons Treasury Committee has held four oral evidence sessions on the spring 2021 budget. Witnesses have included the Chancellor of the Exchequer, officials from the Office for Budget Responsibility and various commentators including the Institute for Fiscal Studies (IFS), the Resolution Foundation, the Confederation of British Industry (CBI) and the Women’s Budget Group.
- House of Commons Library, ‘Budget 2021 and Finance (No.2) Bill 2019–21’, 18 May 2021; and The Budget and the Annual Finance Bill, 4 March 2021
- House of Lords Library, ‘New powers for HMRC’, 28 May 2021
- Office for Budget Responsibility, Economic and Fiscal Outlook, 3 March 2021, CP 387
- Institute for Fiscal Studies, ‘Budget 2021’, accessed 21 May 2021
Cover image by Christopher Bill on Unsplash.