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Lord Morrow
To ask His Majesty’s Government what consideration they have given to the different impacts in the nations and regions of the United Kingdom of the removal of the agricultural property relief for inheritance tax, the increases to employers’ National Insurance contributions, and the extension of VAT to private school fees.
Lord Morrow (DUP)
My Lords, the government-proposed changes that will come into effect from April of this year present a glaring threat to food security across the United Kingdom. For example, Northern Ireland’s agricultural industry provides food for over 10 million people throughout GB. Over 24,000 family farms in Northern Ireland will have no certainty about their futures, and therefore no certainty about the contribution they make to our food production and security. As farmers struggle to maintain the cost of uptake, little by little farms will be subsumed by the economic burdens, ending the line of succession necessary to continue feeding our country.
Figures from HM Treasury illustrate the impact that our Northern Irish farmers have among the nations and regions of this United Kingdom, contributing £1,333 million to the UK’s total agricultural GVA—gross value added—the highest proportion of all. They give so much to our economy, yet the Government are content to deprive them of succession and stability. The Prime Minister said last year,
“losing a farm is not like losing any other business—it can’t come back”.
How right he was. Their contribution is woven into the social and economic fabric of this country; the farming community gives so much and is rewarded so poorly.
The changes put forward by the Chancellor last autumn will be the death knell for many farming families. Recent years have been characterised by difficult circumstances for the agricultural community, be that unprecedented weather extremities or rising prices amid the cost of living. In Northern Ireland, our agricultural sector has been held in a chokehold by the Windsor Framework, as farmers are subject to onerous regulations and red tape. These inheritance tax reforms compound a serious negligence of the agricultural community, as family members who have worked on farms all their lives will be forced to sell land and assets to cover the bill of a parent’s death. Can the Government in all conscience accept that their reforms will end innumerable careers?
As we consider the impact of the changes to agricultural property relief on inheritance tax across the nations and regions of the United Kingdom, it is worth noting that Northern Ireland will be disproportionately hit by these policies. Although £14,000 per acre is reported as the average price—and I could cite some instances where £24,000 has been realised for the same size of land—an acre of ground is much more expensive in Northern Ireland than in any other region of the United Kingdom. I know that because I worked on that for some 30 years of my life. Many of these small to medium-sized family farms will be made subject to the new rules, with DAERA reporting that 36% of farms in Northern Ireland own more than 27 hectares of land.
I have in my hand an advertisement from one of the local farming papers in Northern Ireland, which is offering an agricultural holding extending to just over 37 acres, with a residential farmhouse. The asking price is just £1,035,000. Yet we are told that most farmers will not be caught in the £1 million trap. I think the advertisement dispels that claim; if anyone wants a copy of it, I am happy to give it to them.
The Institute for Fiscal Studies rebuked any suggestion by the Government that the national insurance increase will lead to anything close to the £25 billion revenue claimed, stating that this move
“will result in lower wages, reducing the amount raised from employer NI and reducing employee NI”.
In reality, the Chancellor has put before business a choice between product prices and staff. This is wrong and immoral. Sainsbury’s announced at the weekend that the Government’s plans will compel it to cut 3,000 jobs, slash 20% of senior management roles and close 61 hot food cafes around the country. Other leading grocers have made similar statements and have announced that job cuts will follow. In the case of Sainsbury’s, 3,000 people’s livelihoods, 3,000 sources of income and 3,000 jobs will now be culled thanks to Labour’s plans. Although the second-largest grocer in the United Kingdom is facing grotesque choices such as these, we ought to spare a thought for the small and medium-sized businesses which cannot afford any remedial measures.
The Government’s plans are detrimental in many ways—not least the reality that many businesses will simply be unable to absorb the increased cost of national insurance contributions or the inflation-busting wage increases—but the bill still has to be paid, and that will be shifted on to the consumer, who will have to contend with higher prices amid an extremely difficult time for many families across Northern Ireland. In Northern Ireland, the rise in the national insurance contribution rate from 13.8% to 15% will hit our agriculture sector hard. Labour has dealt yet another blow to our industrious farming communities, as this will directly impact the security of thousands of jobs and pay conditions. The Government, through their combined economic assault on agriculture, have opened the door to rising food prices, a threat to food security, inflated consumer prices and the dissolution of many farms across Northern Ireland.
At the beginning of this month, a 20% standard VAT rate charge to private, boarding and independent schools came into effect. The Government expect private school fees to increase by around 10%, and it is envisaged that some 37,000 pupils will leave the private sector. It is patently obvious that this is an ideological move by the Labour Government, ending parental choice as to where their child may be educated, out of a fear of inherited classism. This is nonsensical and designed to fit Labour’s plans to redesign the national curriculum; it is a fear of dissidence.
However, Labour has not given consideration to the disproportionately negative impact this policy will have on Northern Ireland compared with the rest of the UK’s nations and regions. Currently, about 2,500 pupils in Northern Ireland attend grammar school preps and Christian and other independent schools, according to the BBC. While some places in England, such as Eton, charge around £50,000, private schools in Northern Ireland charge a substantially reduced amount, often as low as £2,000. The parents of these children will inevitably face a stark increase in their school fees, as principals will have little to no choice but to up the fees they ask for, meaning that many children will have to be taken out of their schools, and that their education will be disrupted.
Of most concern is the Government’s lack of care for the independent Christian schools throughout Northern Ireland, of which I understand there are nine. These schools do not have the same volume of money that others have and, instead, offer a much smaller fee. The Reverend Brian McClung, administrator of Newtownabbey, an independent Christian school in County Antrim told the BBC that they already fundraise to cover the total cost of running the school in order to keep fees affordable, but in this scenario they have no option but to charge parents more.
Religion is a protected characteristic in Northern Ireland, no matter what side of the divide you might come from, and if parents wish to send their children to a school where they can be taught under the auspices of Christian values, then surely that is their right. No Government have any right to infringe upon the practices of Christian schools, by inflating their fees just to appease an ideological battle against class. We know that these schools are far from being classist echo chambers, as the Government might label them. The removal of the VAT exemption for private schools could see funding challenges, followed by a massive enrolment decline and potential school closures, which will reduce educational choice and place greater strain on the already oversubscribed waiting lists.
The voluntary sector does not escape either. I am sure many noble Lords have read the excellent briefing paper produced by Age UK. When asked, Age UK said it may well have to reduce the level of service that it provides because of these costs—it will have to reduce its service offer and seriously consider if it can continue to deliver contracted services without realistic uplifts.
I see that the Whip is looking sternly at me and I do not want to fall out with her, so I will listen intently to what everybody else has to say.
Lord Davies of Brixton (Lab)
We need to thank the noble Lord, Lord Morrow, for introducing this debate. I admire the passion and clarity of the arguments he presented; unfortunately, I just do not agree. I think the Labour Government’s adjustment—the Motion says removal, but of course it is not being removed; it is being cut back—of APR for inheritance tax, the increase in national insurance contributions and the extension of VAT to private school fees are all steps towards greater economic fairness in funding for public services.
We had a debate on the school fees issue, in which I spoke and I do not wish to repeat what I said there. We are having an apparently endless debate in the Committee on the national insurance contributions Bill, and I will save my remarks on that for that arena. But I will add that the point that the money will be spent on improved public services—providing jobs and buying in services from suppliers—is always ignored by the opponents of the increase in national insurance contributions. Perhaps my noble friend could say something about the positive impact that will have on the economy, as reflected in the figures from the OBR.
I am running out of time, but I will say something about inheritance tax. I do not give advice on inheritance tax, but I do read the financial pages. Clearly, until this whole debate took place, the general view was that inheritance tax was essentially voluntary; you paid it only if you did not arrange your affairs appropriately. Now is not the time to provide advice but, given succession planning and insurance, the problems can be overcome.
Baroness McIntosh of Pickering (Con)
My Lords, I congratulate the noble Lord, Lord Morrow, on securing this debate. I will focus my remark on the Budget proposals threatening to break up and cause the collapse of family farms, in turn taking land out of food production while also threatening prospects for tenant farmers.
This proposal is economically illiterate. The current policy was permitted in the first place precisely because farms are capital rich and cash poor. Farmers contribute significantly to the UK economy. The figures from the ONS demonstrate that, in 2022, agriculture contributed £12.7 billion to England’s GVA—of which Yorkshire and the Humber contributed almost £1.5 billion—and in Scotland agriculture contributed £2.5 billion. So why would any Government imperil that part of the economy, and how much would it raise?
In the Urgent Question repeat today, the Minister admitted that figures from the OBR show that these proposals for APR and inheritance tax, taken together, will raise only £0.5 billion and not before 2029-30. As the OBR Supplementary Forecast Information Release of 22 January shows:
“the yield from this measure is not likely to reach a steady state for at least 20 years”
and that
“This policy costing was assigned a ‘high’ uncertainty rating”,
owing to the uncertainty of how farmers would respond to the measures
“given the range of options potentially available. This in turn adds uncertainty to the modelling of the behavioural responses”.
You could not make it up. It is a highly uncertain as well as highly undeliverable policy, representing a complete onslaught on rural life from a metropolitan elite, on top of the cancellation of the rural services delivery grant and planning laws leading to the destruction of the countryside. This is a cruel, nonsensical policy and should be reversed.
Lord Morse (CB)
My Lords, I will focus on employers’ national insurance exclusively in my three minutes of stardom.
An employer’s national insurance has no direct relationship to that employer’s profitability and thus to that employer’s ability to pay more tax. If an employer happens to be in an industry that habitually has payroll costs at a relatively high proportion of its total expenditure, it will necessarily attract a higher cost from the increase in employers’ national insurance than if it had the same turnover but spent a lower percentage of its outgoing costs on payroll but, for example, a higher amount on technology, data and other non-labour costs.
If a business has a very substantial turnover but relatively low margins, such as a lot of the major construction contractors—and, in the past, Carillion—then its ability to pay more national insurance may be much less than it would be in another more profitable sector. Not all big businesses have equally broad shoulders—I know that is a popular government expression—and some big businesses may find the additional NIC charge very much more damaging than others. It may even be the final straw that breaks the camel’s back in some cases.
Different industries form larger or smaller proportions of economic activity in different areas of the UK, and they tend to be concentrated. If a high proportion of local business activity happens to be in a high-payroll model of business, this means that the local economy is likely to be disproportionately impacted. We are hearing examples of that in Northern Ireland, but it is not just there.
What I am saying is not rocket science, I must admit, but I am not sure that HM Government have considered these points of differential damage. If not, they should do so.
The Lord Bishop of Lincoln
My Lords, it is entirely legitimate for the Government to target rich business owners and billionaires who have bought farmland for the sole purpose of avoiding inheritance tax, However, Jeremy Moody of the Central Association of Agricultural Valuers said recently that the reform of APR
“hits the people it is supposed to protect, and protects those it is supposed to hit.
In doing this, we are jeopardising our food security, the resilience of our farming sector and the very livelihoods of many farmers and their families.
On Saturday last, I visited Henry Ward, who farms with David, his 85-year-old grandfather outside Lincoln. They own half the land they farm. David paid off the mortgage only last year. Five generations of the family have farmed there, and now David is made to feel a burden and told me it would be best if he were to die before next April. With an ageing population of farmers, this is a widespread feeling.
The likelihood of the break-up of farms makes tenancies uncertain and undermines the job security of agricultural workers. Inheritance tax would be about £1.5 million for Henry, on a farm that had a net income last year of £45,000. Land only recently finally secured would have to be sold.
The Country Land and Business Association, a rural membership organisation representing half the rural land in England and Wales, has called for a review of the changes to APR, and last week several major supermarkets echoed this plea. Will the Minister commit to further consultation and engagement with stakeholders across the sector, including family farmers, to mitigate what might otherwise be a truly disastrous negative spiral?
Lord Thurlow (CB)
My Lords, I will focus my comments on small farms, and refer to my entries in the register.
The impact of removing APR will engineer the collapse of many small family farms, as we have heard. They struggle to survive as it is. Who would have believed that our own Government would be the assassin? In our fragile countryside, the wider impact will include, among others, schools, shops, pubs, and rural engineering and other small businesses. We will witness the slow destruction of the social cohesion of these communities, which have survived for centuries. Small farms are not an anachronism; they are vital and important contributors. What do the Government think they are doing? This is a clear example of national self-harm from those elected to defend and protect.
It is also economically illiterate, as we have heard. It will raise little money spread over many years, yet the damage to families and communities will be irreversible. This astonishing naivety betrays ignorance of the sector within government. We should not forget that these families work longer hours than any politician or Defra bureaucrat. They are unpaid, often husband and wife teams simply trying to make a profit. They have no paid holidays and no index-linked pension. Government is responsible for assisting small farms with help and encouragement, not wilful destruction, and Labour promised it was business friendly.
What of food security and food miles? Have the Government forgotten climate change: the impact of aeroplanes criss-crossing the world every day, delivering food, much of which can be produced at home? As we heard, even the major supermarkets, which try to buy local, have written open letters asking the Government to think again. Paying IHT, even at reduced rates initially, will undeniably force the sale of small farms, destroying these small family businesses. Many Acts of Parliament are subject to monitoring and review. This is not a proposal which can be monitored or reviewed; it will be too late.
Lord Browne of Belmont (DUP)
My Lords, I support my noble friend Lord Morrow’s Question.
The tax changes made in the recent Budget will clearly affect many parts of society throughout all the regions of the United Kingdom. With reference to the increase in national insurance contributions, it is clear that additional tax burden will fall not only on employers but on other taxpayers, particularly employees, who may face wage cuts or indeed the loss of their jobs. The Office for Budget Responsibility forecast in 2024 that workers would bear around 60% of the national insurance increase, rising to 76% in the medium term. Surely, similar amounts of tax could have been raised without causing such harm to the labour market. How does such an imposition sit with Labour’s pledge not to increase taxes on working people?
I fully concur with the justified criticisms that other noble Lords have made of the abolition of inheritance tax agricultural property relief on farmland. It seems abundantly clear to me that this relief is a financial necessity for hard-working farming families, who have perhaps passed their land on through many generations. Surely the law should have been amended to ensure that those who are not working farmers and who have invested in agricultural land purely to avoid inheritance tax would not be entitled to the relief. Is it not time that the Government started to talk up the economy rather than deal in the negatives?
Lord Elliott of Ballinamallard (UUP)
My Lords, I welcome this debate and I declare an interest as a farmer and a landowner.
First, I want to touch briefly on the national insurance contributions increase. This will be increased on the employers, but who will really pay for it? The people who will pay for are the consumers, the people who use the services and buy the goods, because the employer is going to pass that on. So what is it? It is really a tax—another tax on the individuals and the people of our community. That is what the additional national insurance contributions are.
I move on to the inheritance tax and the APR: damaging, unfair, destructive—we have heard all these terms for the last couple of months around this policy, and that is exactly what it is. It is going to do exactly the opposite of what I believe the genuine intention of the Government is. So there is bound to be a way around it. Look at the active farmer issue: safeguard those active farmers and the small family farms and hit the bigger corporations, because those are the people who will ultimately gain out of it now.
We need to produce food here in an environmentally safe way, that is good for the consumer, and that has better welfare standards than importing it from those countries that do not have the same welfare standards as we do in the United Kingdom, which we pride ourselves on.
So, please, let us not throw the baby out with the bathwater here. I say to the Government: make sure that you protect those family-run farms in the United Kingdom that can produce that good food. I just believe that this is an unfair picking on the family farm that will ruin that sector, and all it will do is provide more land and more income for the big, commercialised people.
Lord Kempsell (Con)
My Lords, I too thank the noble Lord, Lord Morrow, for securing this important and timely debate. Given the time constraints, I intend to confine my comments to the impact of VAT on independent schools in the nations and regions.
I suppose I could not do any better than to associate myself with the noble Lord’s introduction to this Question for Short Debate, because he adumbrated so brilliantly the unintended consequences that Ministers have unleashed with this nonsensical and ill-formed policy. I think that the Government thought they were targeting a certain class demographic and a certain income demographic with their decision to impose VAT on independent school fees, but in fact they have unleashed a mess of unintended consequences across the country.
One that I have been focusing on is the impact of this decision on Armed Forces families, who have been particularly badly hit. Many of them have to send their children to boarding schools so that they are available to be active on operations. They are, of course, based across the whole of the United Kingdom and abroad. I thank Ministers for their concessions on that issue at the Budget, although there is more to be done.
Let me focus the attention of your Lordships’ House on just where this impact is being felt most. It is across the nations and regions, because there have been school closures in the south-east, the West Midlands, the east of England, Scotland—all over the country. The disproportionate degree of closures of independent schools that we see in rural and semi-rural areas is another example of the ill-thought-out consequences of this policy. When the Minister sums up, will he assess that and allow us to have an understanding of the Government’s thoughts on the disproportionate impact across the nations and regions of the decision to impose VAT on independent school fees?
Lord Weir of Ballyholme (DUP)[V]
Whatever the stated intentions of the Government are with this raft of measures, it is clear that the suspicion is that they are, at best, ideologically driven or, at worst, tribal in nature, with farmers, those sending their children to private education and even pensioners above the level of pension credit being seen as fair game. It is economically illiterate and, I believe, runs contrary to the Government’s aims.
No better example of this can be given than the proposed imposition of VAT on private schools. The negative impact of the diversion of pupils is not simply supposition or scaremongering but has been proven by experience. About 15 years ago, the then Sinn Féin Education Minister imposed a similar measure on prep schools in Northern Ireland, with the end result that fees rose by about 20%. The impact on families was that schools became unaffordable; some schools became unsustainable. The unintended consequence was that instead of parents paying 70% of the cost of their children’s education, the state was left to pay 100%. Some 15 years on, the number of prep schools in Northern Ireland has decreased by one-third as a result of these changes and the number of pupils attending those prep schools has declined by 40%. In pure financial terms, for every pound that was saved by the state, £2.30 has had to be spent in additional educational expenditure.
The real victims of this are not the very rich. They will survive all this raft of measures. The people who will really suffer are medium and small farmers, consumers, employees and many pensioners. I simply urge the Government to think again, look at the unintended consequences of this and, even at this eleventh hour, do a U-turn on this raft of deeply damaging proposals.
The Duke of Somerset (CB)
I declare my interest as a farmer and an employer in the West Country. All three of these changes will have a large detrimental effect on the economies of all the UK regions and thus hinder growth.
The Library briefing paper, while exposing some regional differences, indicates that wherever a farm is located the average capital value exceeds £1 million—to which, of course, must be added assets such as tools, livestock, non-agricultural buildings and tractors. A single tractor can be worth several hundred thousand pounds.
These Budget changes come at a time when family farms are fearful for their future, lacking confidence in government policies, with accelerated chopping of the BPS payments, pauses in SFI capital grants and now increased national insurance contributions for their employees. This fear is manifested in investment cutbacks. Farm machinery sales are 15% down on the year—so much for growth. Many of these family businesses, farms or not, have been passed down from generation to generation, each one making improvements and investments to grow the business; all are now to be taxed on these improvements.
It is not farmers’ faults that long-held land has hugely increased in value. Values are determined by factors outwith their control. Landowning farmers are thus asset rich but cash poor, meaning that many who inherit a farm will find it impossible to fund the 10 years of tax from their meagre capital returns, typically of around 0.5%; that is a government figure. There is less money for investment and less growth. It says a lot for the Government’s attitude that they are proposing an amendment to the Finance Bill to alleviate some of the pain for non-doms while ignoring similar representations from our hardworking, indigenous family businesses.
Lord McCrea of Magherafelt and Cookstown (DUP)
My Lords, I refer to my interests in the Members’ register. The decision by the Government to remove agricultural property relief for inheritance tax is going to adversely impact Northern Ireland’s farming community. Succession is extremely important when we consider the farming industry. However, Labour’s decision to abolish agricultural property relief will ensure that innumerable farms across Northern Ireland have their line of succession culled.
Families will struggle to foot the bill after a parent’s death, meaning that family members who have worked on farms for decades will instead be forced to split or sell off assets. Farmers feel misled and betrayed by this Government and although Treasury Ministers have parroted the line that this will affect only a few family farms, that is totally untrue and proves that this Government are out of touch with reality.
The irony of Labour pursuing this policy is its lack of consultation with those actively involved in the agricultural industry. Without farmers, there is no food: that is the bottom-line reality. Labour has declared war upon hard-working farmers and their families, threatening succession, food security, industry workers and consumer prices. Also, Labour’s planned increase in the rate of national insurance contributions will decimate the voluntary sector across Northern Ireland. These voluntary groups provide support for the vulnerable, elderly and disabled, offering mental health services, community programmes, employability support, physical welfare and educational opportunities. How can this Labour Government knowingly jeopardise these organisations and take a blowtorch to the vulnerable?
Finally, the extension of VAT to private school fees will ensure that many of these establishments will close and children will have their future prospects compromised. So much for a caring Government.
Baroness Kramer (LD)
My Lords, the Tory Government, especially in their last years, implemented a scorched-earth strategy on public finances, and I have great sympathy for the Government in facing such an inheritance. That is why, in our election manifesto, we on these Benches listed tax increases which would have avoided the three tax changes under discussion today, none of which we support. We regard family farms as vital and often economically precarious. We are trying hard in the NICs legislation to get exemptions for the health and care sectors and for other crucial groups. We will not support a new tax on education.
However, the question for debate today is the impact on the nations and regions. I thank the Library for its work, which underscores the problem. I have spoken before about Scotland. Scottish public sector organisations will be reimbursed for employers’ NICs not on a per-job basis but based on the Barnett formula, which comes up with a much lower number. That is not within the purview of the Library discussion. Looking at the Library numbers, the north-east looks most affected by the farm inheritance tax changes, and the east of England, London and the south-east are most affected by the NICs changes and the VAT on schools. However, we cannot assess the real impact just by looking at these cost numbers, which do not reflect the underlying economic vibrancy of an area, its resilience or its dependence on particular industries, and therefore the narrower impact.
Cost and impact are different. I can intuit that thriving places such as London and university towns will cope, but existing disadvantaged areas will be far less able to do so. The Tories resisted give us the much greater detail and complex analysis that would have enabled us to understand the impact of changes in taxation and national insurance, but I turn to this Government and ask: so that we can understand these complexities, can we please have that much better analysis? In turn, it might reshape policy.
Baroness Neville-Rolfe (Con)
My Lords, I hope that last autumn’s Budget has been a useful learning experience for the Government. Today’s debate has been about regional impact, especially in Northern Ireland, and I agree with almost everything that has been said about its devastating impact. The CBI has said today that pessimism is widespread across the private sector and that firms expect another significant fall in activity over the next three months.
The truth is that labour-intensive sectors such as retail and hospitality are suffering a triple whammy throughout the country, brought about first, by the changes in NICS; secondly, by the rise in the national minimum wage, especially for the young; and thirdly, by the costly and counterproductive new employment regulations pioneered by Angela Rayner and her union friends. As the noble Lord, Lord Morrow, said, Sainsbury’s announced last Thursday plans to cut 3,000 jobs— a bid to save money ahead of a £140 million leap in costs resulting from the Budget. Confidence has plummeted everywhere. Two of my favourite Wiltshire shops, in Salisbury and Tisbury, are among many shops and pubs that are now closing their doors. In light of these unfortunate events, can the Minister confirm whether the Government value these industries? If so, what will they do to help them across the UK?
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, I begin by congratulating the noble Lord, Lord Morrow, on securing this debate and on his opening speech. I am grateful to all noble Lords for their contributions this evening. Due to the popularity of this debate, I know that noble Lords have been restricted to very short contributions. Fortunately, we have had previous opportunities to debate the measures covered by the Question during the Budget debate and the recent Conservative Party debate on agricultural property relief. We will of course have further such opportunities to discuss these important issues during the passage of the National Insurance Contributions (Secondary Class 1 Contributions) Bill and the Finance Bill. As I address the three measures covered by the Question this evening, I assure noble Lords that I have listened carefully to all the points made and that I understand and respect the concerns of all noble Lords.
I begin by considering the context of the decisions that we took on tax at the Autumn Budget, the reasons they were taken and the economic challenge that confronted this Government upon taking office. The Government inherited three distinct crises: a crisis in the public finances, as the noble Baroness, Lady Kramer, said; a crisis in the public services; and a crisis in the cost of living. As the Chancellor has said, this was therefore a once-in-a-generation Budget, on a scale commensurate with the challenging inheritance that we faced.
The Government inherited a £22 billion black hole in the public finances, consisting of a series of commitments made by the previous Government which they did not fund and did not disclose. Public services were also at breaking point, with NHS waiting lists at record levels, children in portakabins as school roofs crumbled, and rivers filled with polluted waste. Working people had suffered from the worst cost of living crisis in a generation, with inflation having reached 11%, coupled with a decision by the previous Government to freeze income tax thresholds, which cost working people some £30 billion.
Faced with this reality, any responsible Government would need to act. That is why this Government took action to wipe the slate clean, repair the public services, protect working people and invest in Britain. We did so in the fairest way possible, by keeping our promises to working people not to increase their national insurance, VAT or income tax. That involved taking some very difficult other decisions on spending, welfare and tax.
One such difficult decision we took in the Budget was the reforms to agricultural property relief, the first measure mentioned in today’s Question and addressed by the noble Lords, Lord Morrow, Lord Thurlow and Lord McCrea, the noble Duke, the Duke of Somerset, my noble friend Lord Davies of Brixton, the noble Baroness, Lady McIntosh of Pickering, and the right reverend Prelate the Bishop of Lincoln. Under the previous system, the 100% relief on business and agricultural assets, introduced in 1992, was heavily skewed towards the wealthiest landowners and business owners. According to the latest data from HMRC, 40% of agricultural property relief is claimed by just 7% of estates making claims. That amounts to just 117 estates claiming £219 million of relief. It is neither fair nor sustainable to maintain such a large tax break for such a small number of claimants given the wider pressures on the public finances.
A secondary issue relates to the purchase of farmland. The reality today is that buying agricultural land is now one of the most well-known ways to shield wealth from inheritance tax. This has artificially inflated the price of farmland, locking younger farmers out of the market. That is why the Government have changed how we target agricultural property relief and business property relief from April 2026, in a way that maintains significant tax relief for estates while supporting the public finances in a fair way. Under the new system, individuals will still benefit from 100% relief for the first £1 million of combined business and agricultural assets. Above this amount, there will be 50% relief. That means inheritance tax will be paid at a reduced effective rate up to 20%, rather than the standard 40%. All estates making claims for these reliefs will continue to receive generous support, at a cost of £1.1 billion to the Exchequer in the first year.
The reliefs also sit on top of other spousal exemption and nil-rate bands which exist. Therefore, a couple with agricultural or business assets will typically be able to pass on up to £3 million of assets without any inheritance tax having to be paid. This change will apply in the same way across all nations and regions, and we expect that up to 520 estates across the UK will be affected in 2026-27. The Government are also investing £5 billion over this year and next to support farming and food security.
The second measure in today’s Question is the increase in employer national insurance contributions, raised by the noble Lords, Lord Morrow, Lord Morse, Lord Browne and Lord Elliott. To protect small businesses, the Government have also more than doubled the current employment allowance from £5,000 to £10,500 and expanded its eligibility. Of course, I understand that some of these measures mean asking businesses to contribute more, and we have consistently acknowledged that the impacts will be felt beyond business too. These are difficult decisions, and not ones we wanted to take. But, taken together, the measures mean that more than half of businesses with national insurance liabilities will either see no change or see their liabilities decrease; 865,000 employers will now not pay any national insurance at all, and over 1 million will pay the same or less than they did before.
These changes will apply in the same way across all nations of the UK. The Government are also setting aside support for the public sector across the UK of £5.1 billion by 2029-30. This support will be allocated to departments, and we have already confirmed that the devolved Governments will receive a share of the £4.7 billion the UK Government have set aside. As the noble Baroness, Lady Kramer, said, the devolved Governments will receive this funding through the Barnett formula in the usual way. Exact allocations will be confirmed in due course; however, this is the normal operation of the funding arrangements between the UK Government and the devolved Governments.
The Government do not publish data covering detailed regional or national impacts. The location of the headquarters of a business and the location of its economic activity are not necessarily the same and are often split across multiple locations. However, the Government have published a tax impact and information note, which sets out a comprehensive UK-wide analysis of this tax measure.
The final measure covered in the Question is the introduction of VAT on private school fees, raised by the noble Lords, Lord Morrow, Lord Kempsell, Lord Weir and Lord McCrea. Nine out of 10 children in this country attend state schools; however, too many children do not get the opportunities they deserve because too often these schools are held back by a lack of investment. That is why the Government introduced VAT on private school fees from 1 January this year: to secure the additional funding needed to improve educational outcomes across the UK, in all nations and regions. Together with our changes to business rates, this will raise around £1.8 billion a year by 2029-30 and just under £500 million in this year alone.
VAT is a reserved tax, and our objective is to maintain consistent VAT treatment of different types of schools across the UK. Therefore, all schools across the nations and regions that meet the definition of a private school, as set out in the Finance Bill, are within scope of this policy. Education is of course a devolved matter, and the circumstances of individual schools will vary across the UK.
Business rates are also fully devolved. Scotland has already enacted legislation removing charitable rate relief from private schools, and the Welsh Government have published a consultation. The Government do not expect that private schools will pass on the full amount of VAT in fees, and the increase in fees in recent years suggests that private school fees are highly demand inelastic.
I can also assure noble Lords that our changes will not impact pupils with the most acute special educational needs, where these can be met only in private schools. Currently, local authorities fund pupils’ places in private schools where their needs can be met only in a private school. In these cases, local authorities will be able to reclaim the VAT from the Government. As the noble Lord, Lord Kempsell, said, we have also chosen to support our diplomatic staff and serving military personnel, who are required to be mobile and are often posted overseas. That is why we have increased funding for the continuity of education allowance, which provides support for school fees to serving diplomatic and military personnel so that their children’s education is not disrupted.
To support children in the performing arts, the Government have also adjusted the music and dance scheme bursary contribution for families with income below £45,000, ensuring that the total parental fee contributions for these families remain unchanged.
This debate has addressed the difficult decisions this Government needed to take, but in doing so, we should not lose sight of the fact, as my noble friend Lord Davies of Brixton said, that public services right across the UK will benefit significantly from and only as a result of those decisions. Overall, the devolved Governments received the largest spending settlement in real terms of any settlement since devolution. Each has seen their budget increase in real terms in 2025-26; and each will receive at least 20% more per person than equivalent government spending in the rest of the UK, a figure which rises to over 24% for the Northern Ireland Executive when including the funding received as part of the 2024 restoration package.
Across Northern Ireland, Scotland and Wales, this translates to £16 billion extra to invest in schools, housing, health and social care, and other public services. People in businesses in the devolved nations will also benefit from our UK-wide tax decisions taken in the Budget. For example, the uplift to the national living wage to £12.21 per hour will benefit an estimated 270,000 workers across Scotland, Wales and Northern Ireland.
The Government will continue to work in partnership with devolved Governments and English regions to drive economic growth and support working people. That is why we have established the Council of the Nations and Regions and the council of mayors. We are also working with local areas in England on the upcoming English devolution White Paper as they develop local growth plans, and we have put “place” at the heart of our upcoming modern industrial strategy.
This Government had to take difficult decisions in the Budget, but they were the right decisions to restore stability, protect working people and invest in Britain across all our nations and regions. As we take forward our strategy of stability, investment and reform, the Government remain committed to delivering a shared economic future for the whole of the United Kingdom, underpinned by higher and more sustainable economic growth. I look forward to continuing to work with all noble Lords who have spoken in this debate on this vital agenda.
Baroness Neville-Rolfe (Con)
Will the Minister say a little bit more about retail and hospitality, which have been particularly impacted by the NICs changes? I am interested in understanding his attitude to that.
Lord Livermore (Lab)
We had to take difficult decisions in the Budget. In multiple debates on that issue, the noble Baroness has never said whether she wants higher borrowing, higher taxes or lower spending as a result of the decisions that she is putting forward.