Taxation (Energy and Vehicles)

I beg to move, That provision may be made increasing the rate of the electricity generator levy to 55%.

With this it will be convenient to discuss the following: Motion on income tax (mileage amounts)— That— (1) In the table in each of— (a) section 230(2) of the Income Tax (Earnings and Pensions) Act 2003 (approved amount for mileage allowance payments), and (b) section 94F(2) of the Income Tax (Trading and Other Income) Act 2005 (appropriate mileage amount), for “45p” substitute “55p”.

(2) In consequence of paragraph (1), in section 94F(3) of the Income Tax (Trading and Other Income) Act 2005, for “45p” substitute “55p”.

(3) The amendments made by this Resolution have effect for the tax year 2026-27 and subsequent tax years.

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.

Motion on vehicle excise duty (temporary rates for good vehicles)— That— (1) The Vehicle Excise and Registration Act 1994 has effect in relation to vehicle licences, other than trade licences, taken out in the period beginning with 1 July 2026 and ending with 30 June 2027 as follows.

(2) Paragraph 9 of Schedule 1 to that Act (rates for rigid goods vehicles exceeding 3,500 kgs revenue weight) has effect in relation to goods vehicles to which sub paragraph (1), (2)(b) or (3) of that paragraph applies and which are used in the course of a trade as if— (a) in sub paragraph (1), for “shall be determined in accordance with” to the end there were substituted “and not exceeding 44,000 kgs is £1.”; (b) where sub paragraph (2) applies in relation to rigid goods vehicles mentioned in paragraph (b) of that sub paragraph, in that sub paragraph for “basic goods vehicle rate” there were substituted “£1”; (c) in sub paragraph (3), for “£1,703” there were substituted “£1”.

(3) Paragraph 10 of that Schedule (rates for certain rigid goods vehicles exceeding 11,999 kgs) has effect in relation to goods vehicles to which sub paragraph (1) of that paragraph applies and which are used in the course of a trade as if— (a) in sub paragraph (3), for “to be determined in accordance with” to the end there were substituted “£1.”; (b) in sub paragraph (7), for “£654” there were substituted “£1”.

(4) Paragraph 11 of that Schedule (rates for tractive units exceeding 3,500 kgs) has effect in relation to goods vehicles to which sub paragraph (1), (2)(b) or (3) of that paragraph applies and which are used in the course of a trade as if— (a) in sub paragraph (1), for “shall be determined in accordance with” to the end there were substituted “and not exceeding 44,000 kgs is £1.”; (b) where sub paragraph (2) applies in relation to tractive units mentioned in paragraph (b) of that sub paragraph, in that sub paragraph for “basic goods vehicle rate” there were substituted “£1”; (c) in sub paragraph (3), for “£1,703” there were substituted “£1”.

(5) Paragraph 11C of that Schedule (rate for certain tractive units exceeding 41,000 kgs but not exceeding 44,000 kgs) has effect in relation to goods vehicles to which that paragraph applies and which are used in the course of a trade as if for “£10” there were substituted “£1”.

(6) Where subsection (2) of section 3 of that Act (6 month licences) applies in relation to a vehicle for which any of paragraphs (2) to (4) has effect, that subsection has effect as if, in paragraph (a), for “£50” there were substituted “£0”.

(7) Article 3(1)(b) of the Vehicle Licences (Duration of First Licences and Rate of Duty) Order 1986 (S.I. 1986/1428) has effect in relation to vehicle licences, other than trade licences, taken out in the period beginning with 1 July 2026 and ending with 30 June 2027 for vehicles for which any of paragraphs (2) to (5) has effect as if for “£50” there were substituted “£0”

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.

The Chancellor has committed to doing what she can to support families and businesses to be responsive in a changing world and responsible in the national interest. The measures before the House assist the Government in that objective.

The way that the current energy system works means that households and businesses pay more for their electricity when the gas price is high. The electricity generator levy already recoups some of the excess returns made by renewable generators when high gas prices push electricity prices over the current threshold of £82.61 per megawatt hour. The Government have decided to increase the rate of the levy from 45% to 55% from 1 July. That will do two things: first, it will ensure that a large proportion of any exceptional revenues from high gas prices are passed back to the Government, providing a revenue stream so that money is available to support businesses and families with the impacts of the conflict in the middle east; and secondly, in the longer term it will support the new voluntary contracts for difference scheme, which was announced in April, by encouraging participation in the scheme.

In March, the Government announced a review of mileage rates for employees using their own vehicle for work and the self employed who use the simplified expenses rates. In recognition of the pressures facing drivers as a result of the effects of the Iran war, the Chancellor announced in May the first uprating of mileage rates in 15 years, backdated to April, to provide immediate support to both groups. Mileage rates will increase for 2026-27 from 45p to 55p for the first 10,000 miles, and then 25p thereafter, with effect from 6 April. That represents the largest ever increase to these mileage rates, benefiting around 2 million employees and 1 million self employed individuals, and saving over £120 a year for a worker doing 6,000 business miles.

It was a privilege recently to meet care workers and the Unison general secretary to hear directly about the difference that this uprating will make to those on the frontline. The general secretary said to me and the Chancellor that this measure is good news for people providing essential public services. It was an honour to meet those who work day in, day out looking after people across the country. I am glad that this measure will have a positive impact on those who do such vital work. Looking ahead, beyond 2026-27, the Government have already committed to a review of those rates and will set out further steps at the Budget.

The third measure recognises the key role that the road haulage sector plays in transporting goods across the UK and its disproportionate exposure to fuel costs. The Government are introducing a 12-month holiday from vehicle excise duty for the majority of heavy goods vehicles, which will save a typical HGV £600 on top of the savings from fuel duty. Fuel costs make up a substantial proportion of HGV operating costs, and this action will help to prevent cost pressures from the Iran conflict spreading across the economy.

The announcements on mileage rates and HGV VED were part of a wider package of measures announced in May, including on fuel duty. In total, the decisions taken since the 2024 general election to freeze fuel duty will save motorists 11p per litre, or £120 for the average car, £250 for the average van and over £2,000 for the average HGV, compared with the plans we inherited from the previous Government.

This Government are taking action to support the economy at a time of global economic uncertainty following the Iran conflict. Our approach of targeting support at those groups who are hardest hit by the conflict will ensure that the measures we take are effective, while protecting the economy from the effects of reckless borrowing that took place under the previous Government.

For covid!

The hon. Gentleman says it was for covid, but he forgot to mention Liz Truss.

This Government’s record shows that despite that instability, our plan is working. UK GDP growth in the past two years was the second fastest in the G7. Real household disposable income per person has grown by more than 2% so far in this Parliament, compared with a fall of more than 2% in the last Parliament. Real wages have increased in every single month since this Government took office, with wages rising faster than inflation. These measures will continue that track record and demonstrate that this Government are committed to supporting working people.

I call the shadow Minister.

I thank the Minister for his very clear laying out of the measures before us. May I say that sometimes there is no place for partisanship? Perhaps we have had a taste of that today.

I have a series of questions for the Minister. As I did not have a chance to brief him about them beforehand, as I wanted to, it is perfectly okay if he wants to get his ministerial team to reply in due course. I do not expect him to have all the answers straightaway.

The first of the three measures is on the electricity generator levy. I will probe three points in the written statement about it. It states that “the 45% EGL rate will increase to 55% and will be extended past its scheduled conclusion in 2028. This will support the Government’s objective of reducing the impact of gas prices on businesses and households.”—[Official Report, 21 April 2026; Vol. 784, c. 10WS.] What is the Treasury’s estimate of the amount it anticipates to raise from this measure? Is it a straight line assessment—essentially going from 45% to 55%—which will mean roughly £600 million? Is it the intention of the Government that the revenues that come from the EGL will be treated in the future as an established line item in the Budget, or will they be seen as a levy that will potentially go away in a short period of time?

Secondly, one of the concerns about the levy is the uncertainty and the effect that it may have on investments in electricity generation in general. What feedback has the Minister had? What feedback has the industry provided to the Government about this change? Does the Minister have a view about what the impact on industry investment will be? Surely, at this time, we are looking to extend the energy capacity of the UK at all levels that we can, so I am interested to know if the Government feel that there is a chilling effect on investment from these taxes.

Thirdly, why has the Minister not announced an end date for this increase? It was originally supposed to be a temporary levy. Indeed, not announcing an end date adds to the uncertainty in the sector. It would be helpful if the Minister could say something about that. This measure is temporary, but how long is temporary? I am interested to know whether the Government would consider a sunset clause, with a review or some other aspect that might provide additional certainty for the sector.

Let me move on to the mileage allowance increase from 45p to 55p per mile. We have no opposition to the change being made, but it would be worth while if the Minister could say a few words about the mileage allowance after 10,000 miles. The Government have decided not to change that at this time, so I am very interested to know what their thinking was. There are some people, particularly in rural areas and in certain types of jobs, who may well hit that 10,000 mile limit. What is the Government’s view on that?

As the Minister outlined, the allowance has not changed for a considerable period of time. Will he consider annual indexation? There are issues with that, because it is not just tied to the price of petrol or fuel; it includes issues to do with depreciation. Identifying some form of indexation therefore may not be straightforward, but I am interested to hear the Government’s view.

Finally, I think the Minister will recognise that the HGV vehicle excise duty holiday will probably have a limited impact, because it is just a one year change. What sort of behavioural impact analysis did the Government undertake prior to introducing this measure? The industry is a little bit sceptical about whether it will actually change behaviour in the near term. However, I am very grateful to the Minister for laying the issues out so clearly and, as I said, I am happy to receive written answers to my questions in due course if necessary.

I do not intend to detain the House for long. I welcome the motion to increase the electricity generator levy, which—alongside the Government’s plans to encourage participation at a competitive price in long term fixed contracts for low carbon generators—will weaken the link between electricity and gas prices, with the overall effect of bringing down energy bills for my constituents and consumers across the UK, as well as for British businesses.

I also welcome the long overdue increase in the approved mileage allowance for workers from 45p per mile to 55p. It is very noticeable that over the 14 years I was in Parliament under a Conservative Government, that rate stayed exactly the same, while the cost of petrol rose by around 33% and the cost of diesel by around 44%. Every single year, those workers were worse off than they had been the year before.

The motion to temporarily reduce vehicle excise duty is also welcome. Right now, HGVs pay about £1,700 on average per vehicle; the motion would change that to £1 this year. Last month, I visited Spectrum Freight in Chesterfield, where we discussed the challenges the industry is facing. It and other businesses in the industry will very much welcome the Government’s sensible approach to supporting the sector at this difficult time.

I call the Liberal Democrat spokesperson.

The electricity generator levy is a windfall tax on UK electricity generation from nuclear, renewable and biomass sources, and it raised £0.7 billion in the last financial year. The EGL is a revenue based tax that currently applies at a rate of 45% on exceptional generation receipts above a benchmark price of £77.94 per megawatt hour, with an allowance of £10 million per company. In contrast, the energy profits levy applies to oil and gas production in the UK and the UK continental shelf, and raised £2.9 billion in the last financial year. We support the goal of seeking to fund cost of living support through emergency revenue measures during the gas price shock, but we also note that power wholesale prices are now around £90 per megawatt hour, compared with a spike of £135 per megawatt hour and a pre Iran conflict price of £80 per megawatt hour. How much is this measure likely to raise, given the move in prices? It feels like the horse may have already bolted, so I would be interested to hear the Minister’s thoughts on that.

We recognise that this measure is a nudge to accelerate the shift of legacy renewable generators away from volatile wholesale prices and towards fixed contracts for difference, using a higher tax rate as leverage. If legacy renewable generators—those on the renewables obligation, not those already under CfDs—sign up to a wholesale contract for difference, they exchange their volatile wholesale revenues for a fixed strike price. That is obviously good news for consumers, who are insulated from future gas price spikes on that portion of generation because the generator is no longer passing through the wholesale prices, and the Government capture any upside via the Low Carbon Contracts Company when wholesale prices rise.

The second motion will increase the mileage allowance. Again, this seems a logical step, and one that we are happy to support. I note that the 45p rate has been frozen since 2011, so it has been 15 years without an adjustment. Over that period, the costs of fuel, insurance, tyres and servicing have all risen materially, so while 55p is a meaningful correction, it is questionable whether it fully catches up with accumulated inflation. This change will have a positive impact overall, not least for people in professions such as care work, who do a lot of driving between appointments. I refer again to the Lib Dem proposal to cut fuel duty by 10%—if the Chancellor took that proposal on board, it would combine with the increase in mileage allowance to make a significant difference in the pockets of people who often have to drive for work. I also note that the cost of this change has not been set out, only that it is “subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event.”

Personally, I do not think that is good enough. The Treasury team should set out the cost of any change in the tax take, whether positive or negative, when it is proposed.

Finally, the 12-month vehicle excise duty holiday for HGVs is a sensible and welcome measure, and we will not oppose it. Our hauliers, such as Chris Hayter in Witney, are critical. They are the backbone of our economy, and I understand that the Minister knows them well. We need to be honest about what this change is and what it is not. Our haulage sector was already in crisis before the conflict in Iran. Insolvency rates in road freight have been running at record levels. Margins were being squeezed by rising insurance costs, driver shortages and the lingering disruption of years of post Brexit paperwork. The Iran conflict has simply poured fuel—at £1.85 a litre—on to a fire that was already burning.

The VED holiday saves a typical operator about £600 a vehicle. We welcome every penny of that, but against a fuel cost shock that is adding £1 billion a year to the industry’s cost base, it is by the Government’s own figures a quarter of the problem. Many operators will burn through that saving in a matter of weeks at the pump. What the sector needs alongside this is a serious long term plan on fuel duty RPI indexation, which threatens to push costs higher again next April, on driver recruitment and retention, where the shortage remains acute, and on the transition to cleaner vehicles, where smaller operators have been left without a credible path to decarbonisation. We will support this measure through Parliament because the people driving these lorries deserve the relief now, not after another round of consultations.

I call the Minister to wind up.

I thank all those who have spoken, and I thank my hon. Friend the Member for Chesterfield (Mr Perkins) for his warm remarks. I will respond to the points made by the shadow spokespeople. I assume that this change will appear as a line item, although I would not want to prejudge any future decisions by the OBR on how it scores all these things and presents them in Budgets, as it is a specific tax head.

The Conservative and Liberal Democrat spokespeople asked how much this change will raise. It is difficult to know. As the Liberal Democrat spokesperson, the hon. Member for Witney (Charlie Maynard), highlighted, prices are coming down. They are at the moment slightly above the threshold in the system, but prices, as the shadow Energy Secretary will know, are volatile. In the usual way, the independent OBR will set out its estimate at the Budget for how much this change will raise and how much will be raised overall by the electricity generator levy. He is right to note that the levy does not raise billions and billions. It is a relatively targeted policy. We have increased the rate from 45% to 55%, but we have not changed the threshold and the routine uprating that takes place within it.

The Opposition spokesperson, the hon. Member for North Bedfordshire (Richard Fuller), asked whether there will be a review and whether this new higher rate is now the rate out into the future. That is something the Government are considering. He is right to highlight that we have not made a definitive announcement on whether that rate will last a short period or will go on into the future, but we will update in due course—it is not something that we want to leave hanging. I would expect that update will be at the Budget, if not before. However, that issue will be reviewed by the Chancellor and the Energy Secretary in the coming weeks.

I am grateful to the Minister for clarification that there is active consideration of an end date for that higher rate of 55%, but he will know that the 45% rate had an end date too. Will the review also consider announcing the end date for the levy overall, or has that not yet been considered?

As the shadow Minister will know, all tax rates, thresholds and the design of tax policy are considered in the round in the run up to Budgets. With the key policy intention of the increase in the rate, and by extension the decision to continue the policy in any form, one of the things that the Government have been considering is the fact that having the rate in the system should change the incentives and encourage electricity generators to partake in the wholesale contracts for difference, which are being developed and which the Energy Secretary will bring forward in the coming months.

The shadow Minister asked about investment. It is always difficult to make changes in taxation, particularly outside of the Budget cycle. The Chancellor have been cautious about making changes in response to the conflict in Iran. We wanted to take a measured approach to ensure that we manage the public finances well, but also to ensure that we support businesses and households that have been particularly affected by the impact of the conflict washing up on our shores. It is worth highlighting that new investment is excluded from the electricity generator levy, so a business owner thinking of investing in renewables or nuclear in the UK should note that their new investments will not be affected by the increase in the rate.

Turning to the second measure, the Liberal Democrat spokesperson and my hon. Friend the Member for Chesterfield were right to point out that the mileage rates have not been changed since 2011. It is very disappointing that, although we saw plenty of inflation spikes, the previous Government did not take the chance to uprate them.

Could the Minister just remind us to which party the Chief Secretary to the Treasury between 2010 and 2015 belonged?

I am not sure. I have been in the Chief Secretary’s office in the Treasury, and there are many pictures on the wall of the countless Chief Secretaries who served under the last Government—especially towards the end, what with all the chopping and changing. However, both the Liberal Democrats and the Conservatives had ample time to make more than the one change that was made in 2011.

The hon. Member for North Bedfordshire asked why no change was made in the “above 10,000 miles” rate. We did of course consider that when developing the policy. A very significant proportion of those who drive for work drive less than 10,000 miles. As the hon. Gentleman pointed out, some will drive more, especially if they have long distances to drive or live in rural communities, but we thought that this approach—providing a significant 10p increase in the rate up to 10,000 miles while leaving the 25p rate unchanged—got the balance right between supporting people who need help right now and being fiscally responsible. The hon. Gentleman will know, and drivers will know, that the marginal cost of each extra mile driven will decline over time, because the up front costs can be spread over more mileage. As for annual indexation, it is not the Government’s policy. I welcome the representation, but, again, that is not a policy that was pursued before. As he rightly observed, it would be a complicated process, given the volatility in petrol prices.

I should, of course, mention to the Liberal Democrat spokesperson that I am from Witney, and Chris Hayter Transport, the haulage company, is based just behind the housing estate on which I grew up. It is a very good local business, and I am glad to know that it will benefit from this measure. I take the points raised about the challenges facing the haulage sector, but I hope that our temporary and targeted change will benefit that business and businesses across the country.

Question put and agreed to. Income Tax (Mileage Amounts)

Resolved, That— (1) In the table in each of— (a) section 230(2) of the Income Tax (Earnings and Pensions) Act 2003 (approved amount for mileage allowance payments), and (b) section 94F(2) of the Income Tax (Trading and Other Income) Act 2005 (appropriate mileage amount), for “45p” substitute “55p”.

(2) In consequence of paragraph (1), in section 94F(3) of the Income Tax (Trading and Other Income) Act 2005, for “45p” substitute “55p”.

(3) The amendments made by this Resolution have effect for the tax year 2026-27 and subsequent tax years.

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—(Dan Tomlinson.) Vehicle Excise Duty (Temporary Rates for Goods Vehicles)

Resolved, That— (1) The Vehicle Excise and Registration Act 1994 has effect in relation to vehicle licences, other than trade licences, taken out in the period beginning with 1 July 2026 and ending with 30 June 2027 as follows.

(2) Paragraph 9 of Schedule 1 to that Act (rates for rigid goods vehicles exceeding 3,500 kgs revenue weight) has effect in relation to goods vehicles to which sub paragraph (1), (2)(b) or (3) of that paragraph applies and which are used in the course of a trade as if— (a) in sub paragraph (1), for “shall be determined in accordance with” to the end there were substituted “and not exceeding 44,000 kgs is £1.”; (b) where sub paragraph (2) applies in relation to rigid goods vehicles mentioned in paragraph (b) of that sub paragraph, in that sub paragraph for “basic goods vehicle rate” there were substituted “£1”; (c) in sub paragraph (3), for “£1,703” there were substituted “£1”.

(3) Paragraph 10 of that Schedule (rates for certain rigid goods vehicles exceeding 11,999 kgs) has effect in relation to goods vehicles to which sub paragraph (1) of that paragraph applies and which are used in the course of a trade as if— (a) in sub paragraph (3), for “to be determined in accordance with” to the end there were substituted “£1.”; (b) in sub paragraph (7), for “£654” there were substituted “£1”.

(4) Paragraph 11 of that Schedule (rates for tractive units exceeding 3,500 kgs) has effect in relation to goods vehicles to which sub paragraph (1), (2)(b) or (3) of that paragraph applies and which are used in the course of a trade as if— (a) in sub paragraph (1), for “shall be determined in accordance with” to the end there were substituted “and not exceeding 44,000 kgs is £1.”; (b) where sub paragraph (2) applies in relation to tractive units mentioned in paragraph (b) of that sub paragraph, in that sub paragraph for “basic goods vehicle rate” there were substituted “£1”; (c) in sub paragraph (3), for “£1,703” there were substituted “£1”.

(5) Paragraph 11C of that Schedule (rate for certain tractive units exceeding 41,000 kgs but not exceeding 44,000 kgs) has effect in relation to goods vehicles to which that paragraph applies and which are used in the course of a trade as if for “£10” there were substituted “£1”.

(6) Where subsection (2) of section 3 of that Act (6 month licences) applies in relation to a vehicle for which any of paragraphs (2) to (4) has effect, that subsection has effect as if, in paragraph (a), for “£50” there were substituted “£0”.

(7) Article 3(1)(b) of the Vehicle Licences (Duration of First Licences and Rate of Duty) Order 1986 (S.I. 1986/1428) has effect in relation to vehicle licences, other than trade licences, taken out in the period beginning with 1 July 2026 and ending with 30 June 2027 for vehicles for which any of paragraphs (2) to (5) has effect as if for “£50” there were substituted “£0”

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—(Dan Tomlinson.) Ordered, That a Bill be brought in upon the foregoing resolutions; That the Chairman of Ways and Means, the Prime Minister, the Chancellor of the Exchequer, Lucy Rigby, Rachel Blake, Dan Tomlinson and Torsten Bell do prepare and bring in the Bill.

Taxation (Energy and Vehicles) Bill Presentation and First Reading Dan Tomlinson accordingly presented a Bill to increase the rate of electricity generator levy and mileage amounts relating to income tax and to provide for temporary rates of vehicle excise duty for goods vehicles.

Bill read the First time; to be read a Second time tomorrow, and to be printed (Bill 103) with explanatory notes (Bill 103-EN).