Government scrutinised over proposed VAT change for taxi and private‑hire journeys

MPs examined the potential effects of a planned VAT change for taxis and private‑hire vehicles during a committee session on the Finance (No. 2) Bill, focusing on whether the measure would increase costs for passengers and local authorities.

The discussion centred on Clause 79, which removes taxi and private‑hire services from the Tour Operators’ Margin Scheme. Under the change, VAT would be applied to the full fare rather than the operator’s margin. The Treasury estimates the measure will raise around £700 million annually.

Several MPs representing rural constituencies said the change could lead to higher fares in areas with limited public transport. They noted that many residents, including older people, disabled passengers and school pupils with special educational needs and disabilities, rely on taxis for essential travel. Concerns were also raised about the potential impact on council budgets, particularly where authorities already spend significant sums on SEND transport.

An amendment seeking to exempt rural journeys from the VAT change was proposed but not accepted. Ministers said the overall effect would be limited because most operators were not using the margin scheme.

MPs also questioned how the policy would apply to large operators. Uber’s decision to classify itself as an “agent” outside London means VAT liability falls on individual drivers, many of whom are below the VAT threshold. Some MPs argued this could lead to inconsistent VAT treatment across the country. The Minister declined to comment on specific companies.

Industry representatives have warned that the clause may also affect day‑trip operators who package taxi travel with other services. They suggested the change could require businesses to separate elements of their packages, increasing administrative work. The Government said the clause was designed to be targeted.

Opposition MPs called for a formal assessment of the impact on fares, driver earnings and the wider sector. Their proposal was not adopted.

The committee voted against the rural exemption amendment by nine votes to five and agreed that Clause 79 should stand part of the Bill.