Clause 1

Monday 12th January 2026 Commons Chamber

Income tax charge for tax year 2026-27

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

[The Second Deputy Chairman]

With this it will be convenient to consider the following:

Clauses 2 to 6 stand part.

Schedule 1 stand part.

Clauses 7 and 8 stand part.

Schedule 2 stand part.

New clause 2—Review of the impact of section 7 on rent prices—

(1) The Chancellor of the Exchequer must, within three months of this Act being passed, lay before the House of Commons an assessment of the impact of implementation of section 7 of this Act on rent prices.

(2) The assessment made under subsection (1) must—

(a) estimate the proportion of the increase in income tax on property income that is passed on to renters through higher rents,

(b) analyse the impact on renters by—

(i) region, an

(ii) income decile, and

(c) set out the methodology used to reach those estimates.”

New clause 10—Statements on increase in dividend ordinary and upper rates—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to the House of Commons on the increase in dividend ordinary and upper rates introduced by section 4 of this Act.

(2) The statement made under subsection (1) must include details of the impact on—

(a) household saving decisions;

(b) the domestic equity market;

(c) institutional investors; and

(d) outcomes for all British savers and pensioners.”

This new clause requires the Secretary of State to make a statement on the impact of increase in dividend ordinary and upper rates.

New clause 11—Statements on saving rates of income tax for tax year 2027-28—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to the House of Commons on the saving rates of income tax for the tax year 2027-28 introduced by section 5 of this Act.

(2) The statement made under subsection (1) must include details of the impact on—

(a) household saving decisions; and

(b) outcomes for all British savers and pensioners.”

This new clause requires the Secretary of State to make a statement on the impact of the saving rates of income tax for tax year 2027-28.

New clause 12—Sections 6 to 8 and Schedules 1 and 2: impact on private rental sector—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by sections 6, 7, and 8 of this Act on the private rental sector in England, Wales, Scotland, and Northern Ireland.

(2) The assessment made under subsection (1) must consider -

(a) the effects of the provisions of sections 6, 7, and 8 on the cost of private rent in each region within England, Wales, Scotland, and Northern Ireland,

(b) the effects of the provisions of sections 6, 7, and 8 on the supply of private rental properties in each region within England, Wales, Scotland, and Northern Ireland,

(c) any other implications of the changes introduced by sections 6, 7, and 8 of this Act.”

This new clause requires the Secretary of State to publish an assessment of the impact of imposing new rates of income tax on property income.

17:46

[The Exchequer Secretary to the Treasury (Dan Tomlinson)]

It is a pleasure to open this first day of Committee debate on the Finance (No. 2) Bill. This was set to be the biggest economic moment of the day, but my moment in the limelight has sadly been blown off course by the riveting news that the former Member for Stratford-on-Avon has defected to Reform UK. This star signing is clearly a great loss to the Conservative party. Conservative Members may hope that it will allow them to start to expunge the history of the Truss mini-Budget from the nation’s collective memory, although I cannot help but feel that it is a case of shutting the heated stable door after the horse has bolted. He said he wanted to join Reform UK to fix a broken system, but as with the Conservative party, no one will believe that he can do it. In fact, he ran the system, broke the system and left us all sorting out with the taxman how to pay for the mess he left behind.

I return to the topic at hand. My right hon. Friend the Chancellor delivered her second Budget at the Dispatch Box a few weeks ago. It was a Budget to build strong foundations and a secure future for our country. Reflecting historical underperformance, the Office for Budget Responsibility has revised down its productivity forecast. In isolation, this reduces the amount of revenue that the OBR expects the Government to collect by around £16 billion in 2029-30. The Government are determined to outperform this forecast by continuing our plans to grow the economy, protecting public services and cutting borrowing, but it is right to plan on the independent forecaster’s judgments, meaning that despite Britain’s progress, the Government need to strengthen the public finances.

The choice at the Budget was austerity and decline or investment and renewal, and this Labour Government have rejected austerity and repeating the mistakes of the Conservative party. All those who are quick to promise that they will cut taxes must set out where they would credibly raise that money, what they would cut or by how much they would increase borrowing, as they enjoyed doing so much in recent years. The Budget made fair and necessary choices that deliver on the public’s priorities and bring about the change that this Government promised. We have chosen to cut the cost of living by delivering £150 off energy bills and freezing train fares and prescription charges. The Government have chosen to focus on cutting waiting lists by delivering 5.2 million more appointments and opening 250 new neighbourhood health centres. All this would be threatened by the Conservatives, who do not support the taxes—including those we will debate in these clauses—that are needed to fund decent public services.

[Sir Julian Lewis (New Forest East) (Con)]

I am very impressed by the Minister’s opening speech and his lightness of touch, but can he explain to the Committee how he reconciles the litany of good effects with the number of U-turns carried out since the Budget was put forward?

[Dan Tomlinson]

I thank the right hon. Member for giving me time to top up my glass of water—and for his intervention. The Government have been very clear in our approach since we took office. We needed to raise revenue to fund public services, and we have been consistent in our objectives in that regard. We also needed to get borrowing down, and borrowing is falling in every single year of this forecast because of the decisions we have taken. I believe it is the fastest reduction in borrowing in the G7, bringing back economic stability and allowing the Bank of England the space to cut interest rates, as it has already done six times since the general election.

The Finance (No. 2) Bill will deliver on the choices that the Government have made, and we will renew public services. We have taken the decision to lift hundreds of thousands of children out of poverty, to get more people into work and, crucially for our long-term growth prospects, to maintain the highest level of public investment for 40 years, all while keeping borrowing this year as a share of GDP to its lowest level in six years and doubling our headroom against our fiscal rules.

[Jim Shannon (Strangford) (DUP)]

I thank the Minister for what he is putting forward. The OBR has said that some £55.5 billion will be raised, but the money is not coming from millionaires. It is coming from lower and middle-income families, which means that some 4.8 million more individuals will be paying the higher rate and some 600,000 more individuals will move into the additional rate band. How, in all honesty, can we help those in the lower and the middle brackets? The millionaires can afford it; the others cannot.

[Dan Tomlinson]

One way we are seeking to support everyday working people and families across the country is by making the decisions—many of them have been opposed by the Opposition, I must say—to raise taxes on those with the very largest estates and the very highest wealth. In fact, over this Parliament, as a result of the decisions made in the Budget in 2025 and the Budget in 2024, we will be raising an additional £10 billion of revenue from wealth and from those with the greatest wealth, which enables us to minimise our ask of everyday families when it comes to the topic we will be debating later in this sitting.

Turning in detail to the clauses we are debating, clauses 1 to 3 are on income tax, which is the largest source of Government revenue and helps to fund the UK’s schools, hospitals and the other essential services we rely on. In the coming year, it is expected to raise £359 billion. Each year, the Government have to legislate to charge and to set the rates of income tax. The rates of income tax are not being changed by this Bill; we are confirming that they will remain the same.

Clause 1 imposes an income tax charge for the coming financial year. Clause 2 sets the main rates of income tax at 20%, 40% and 45%. These will apply to non-savings, non-dividend income taxpayers in England and Northern Ireland. Income tax rates in Scotland and Wales are set by their respective Parliaments. Clause 3 sets the default rates at the same levels as the main rates—namely 20%, 40% and 45%. These rates apply to the non-savings, non-dividend income of taxpayers who are not subject to the main rates of income tax, the Welsh rates of income tax or the Scottish rate of income tax. Income tax is a vital revenue stream for our public services, and clauses 1 to 3 ensure that it will continue to be so in the year ahead—2026-27.

[Kit Malthouse (North West Hampshire) (Con)]

Just for the elucidation of the public, who the Minister knows will be glued to our proceedings this evening, I want to make a couple of points. First, he said that debt is falling. Will he confirm that it is levelling off as a share of GDP and may possibly fall slightly by the end of the forecast period, but is rising in absolute terms? Secondly, when he says that income tax rates are not changing in this Bill, he is technically correct, but fiscal drag means that, for hundreds of thousands of people, the tax rate on their marginal earnings will actually change very significantly in the years to come.

[Dan Tomlinson]

It is right to be precise, and I was being precise about the rates themselves, which are not changing. The right hon. Member raises the effective tax rate, which is a point I understand. On the specifics of what I said, I was talking about borrowing rather than debt, and borrowing is falling significantly over the course of the forecast. It is the fastest reduction in the G7, as far as I am aware, on the latest data. He is right that debt is broadly stable, but is falling, in the year that the fiscal rules are relevant, as a share of GDP, which is the traditional and I think more economically relevant way of assessing the stock of Government debt as a share of the economy. One of the ways our country was able to reduce the debt we took on after the second world war was through growing our economy and the debt becoming a smaller share of GDP, and that is something this Government will seek to do through continuing to beat the forecast when it comes to economic growth.

Clauses 4 to 8 will raise the tax rates for property, savings and dividend income to ensure that income from assets is taxed more fairly. Those with property, savings or dividend income currently pay lower rates of tax than those whose income comes from employment as they do not pay national insurance contributions. It is not fair that the tax system treats these types of income so differently. For example, it is not fair that a renter pays a higher rate of tax on their income than the landlord from whom they are renting their property.

[Mr Joshua Reynolds (Maidenhead) (LD)]

Has the Treasury done any analysis of the amount of that tax increase that will be passed on to renters, and if it has, what has it come out with?

[Dan Tomlinson]

The main drivers of rental prices in the UK are supply and demand. The Government are seeking to do all we can to reform and improve our planning system to increase the number of homes being built. If Liberal Democrat Members are keen on making sure that we support households with the cost of living, I hope they will change their approach to their votes in this place on our planning reforms, which are vital for supporting families with the cost of living and for lowering the cost of renting and owning their own home.

As I was saying, this change will narrow the gap between the tax paid on work and the tax paid on income from assets.

[Kit Malthouse]

Will the Minister give way?

[Dan Tomlinson]

If I may, I will make a little more progress.

Those with small amounts of income from assets will continue to be protected by tax-free allowances, and income from savings and investments held in individual savings accounts will continue to be tax-free. The vast majority of UK taxpayers are unaffected by these changes as they do not have taxable property, dividend or savings income. Changes to savings and dividend income will apply UK-wide, and the Government have engaged closely with the devolved Governments of Scotland and Wales to provide them with the ability to set property income rates in line with the current income tax powers in their fiscal frameworks.

Clause 4 will increase the tax rates applicable to dividend income by 2 percentage points for the 2026-27 tax year. Clause 5 will increase the tax rates applicable to savings income by the same amount. Clauses 6 and 7 will create separate tax rates for property income, which will apply from the 2027-28 tax year. The property basic, higher and additional rates will be set at 22%, 42% and 47%, respectively, for the 2027-28 tax year. Clause 6 will also make changes to the income tax calculation so that general reliefs and allowances will be applied to property income, savings and dividend income only after they have been applied to other sources of income.

Clause 8 will make provision for the Scottish Parliament and the Senedd to set devolved property income tax rates. This power will be commenced by the Treasury if the Scottish and Welsh Governments agree—individually, of course—to take the power, which is the typical process to protect the powers and responsibilities of devolved Governments.

These changes will still ensure that those with the broadest shoulders contribute more. In 2029-30, around two thirds of the revenue from the increases to the dividend, property and savings tax rates is expected to come from the top 20% of households. Taken together, these measures are projected to yield £2.2 billion in additional tax revenue by 2029-30.

This Finance Bill is about delivering on choices—choices to protect ordinary workers; choices to cut their energy bills, freeze train fares and prescription charges; and choices to focus on reducing inflation to push down mortgage costs. It delivers the Government’s commitment to this country to build a stronger and fairer economy where living standards rise and child poverty falls, and to ensure that public services are improved, with every measure in the Bill geared towards those high-level goals. The choice at the Budget was austerity and decline or investment and renewal, and this Labour Government back investment and renewal.

[The Second Deputy Chairman of Ways and Means (Caroline Nokes)]

I call the shadow Minister.

[Gareth Davies (Grantham and Bourne) (Con)]

I wish to speak, on behalf of the official Opposition, to new clauses 10 to 12, which are in my name, but first, I want to set the scene on clauses 1 to 8.

17:59

Clauses 1 to 3 impose the charge of income tax and set the main default and savings rate for the next tax year, 2026-27. We should remind ourselves that income tax was meant to be a temporary tax, back in 1799. It was sold to the British public as a temporary wartime tax, but it has outlived that war, that century and every promise ever made about it. It should stand as a stark reminder that once taxes are levied, they are not always that easy to undo. There is nothing more permanent than a temporary tax.

Clauses 4 to 8 will, together, implement hikes in the rate of income tax on income from dividends, savings and property in the years to come.

[Jim Shannon]

A valid point that my constituents have brought to my attention is that if they pay the higher rate of tax, tax on the interest from savings rises to 40%. Those who scrimp and save and put their money away for a rainy day will be penalised. Does the shadow Minister agree that that is absolutely immoral and very wrong?

[Gareth Davies]

I agree. We are trying to create a savings culture. We are trying to get people to take responsibility, and to put their income away for a rainy day and for their retirement. As I will go on to say, the Opposition’s position is that the Bill does not achieve that; in fact, it does the very opposite.

As I was saying, clause 4 increases the ordinary and upper rates of income tax charged on dividend income by 2%, a fact the Minister seemed to miss out in his opening remarks. The income tax rate hike will apply from the tax year 2026-27. Clause 5 sets the savings rate of income tax for the tax year 2027-28 two percentage points higher than it is this year, and than the rate set in the Bill for 2026-27.

[Kit Malthouse]

I draw the attention of the Committee to my entry in the Register of Members’ Financial Interests. I wonder if the shadow Minister shares my concern about the change in the taxation rate on dividends? Even more important than building a savings culture is building an enterprise culture. Sadly, by continuing the modern trend, started under George Osborne, of taxing the return on risk, we destroy any idea of having an enterprise culture in the UK. If fewer people see that the investment of starting a business, or investment in plant and machinery, results in a return that is taxed more lightly than un-risky income, they are less likely to take that risk.

[Gareth Davies]

I have great sympathy with what my right hon. Friend says. He is right that there is a point at which you overtax risk and enterprise, and people stop taking risk and stop being enterprising. The trick in the Treasury is to ensure that the Government can raise enough revenue from a broad base of different taxes to pay for public services. [Interruption.] They need to try to achieve growth, not overtax growth and growth activity. They should incentivise it through other means. I completely agree with him on that point.

I was talking about the increase in tax on dividend income and savings. Together, clauses 4 and 5 will have significant consequences, not just for those who take risks, but for household savers and pensioners, as well as investors in the companies that my right hon. Friend describes. In fact, Hargreaves Lansdown described clause 5 as a “shocking tax rise” for savers. The measures will combine with the Chancellor’s cut to the allowances for individual savings accounts—in the Bill, there is a double whammy tax on savers. It treats saving less like a virtue to be encouraged, and more like a habit to be discouraged. We believe that will have a big impact on savings culture and the financial reality of people across the country. That is why new clause 11 calls for the Chancellor to come to the House to make a statement setting out the impact that the onslaught of this savers’ tax hike will have on all British savers and pensioners.

It is not just savers who are impacted by the Bill. Small and medium-sized businesses are, as we were just discussing, the engine of growth up and down the country, in every constituency. They provide 60% of employment. They will feel the pain from these changes. Indeed, the Federation of Small Businesses has been clear that through clause 4, the Government continue to make investing in your own business one of the least tax-friendly things you can do with your money.

Many entrepreneurs and business owners choose to pay themselves part of their income in the form of dividends. For many years, dividend tax rates have been set below the main rate, not by accident or ideology, but to reflect the fact that dividend income is paid out of profits that have already been taxed through corporation tax. I am afraid that even the largest businesses, never mind small and medium-sized enterprises, are not safe. Literally as soon as the Chancellor announced the changes in clause 4, investment managers were warning that the change completely contradicts the Government’s stated desire to encourage more investors to hold UK equities—many of which, by the way, are pretty good income-paying stocks. International investors come to the UK to buy dividend-yielding stocks, yet these measures will discourage that even further.

[Sir Ashley Fox (Bridgwater) (Con)]

Does the shadow Minister agree that the overall thrust of these clauses is to discourage saving and enterprise, and to hit the people who do the right thing, all to fund more welfare spending? That is not a recipe for growth, is it?

[Gareth Davies]

My hon. Friend touches on an important point. What is this for? People know that they have to pay tax. We may disagree on who pays tax and how much, but ultimately, where is the money going? It is going to the surrender of the Chagos islands. It is used to pay public sector workers eyewatering sums, only for them go on strike again. The hard bit for the general public is understanding where on earth all the money that is being raised by record tax hikes is actually going. That is what the Minister needs to be held to account for today. No explanation has been made. We are not in covid times; we are not in times of great crisis. This money is being raised because Labour is in trouble and in the pocket of the unions. I am very grateful to my hon. Friend for his intervention.

New clause 10 includes further assessments specifically on domestic equity markets and institutional investors. This will have a negative drag effect on the international climate as it relates to getting more investment in UK equities from institutional investors.

Finally, clauses 6 to 8 and schedules 1 and 2 introduce new rates of income tax altogether, this time on property income. Again, those rates are to be set for the tax year 2027-28 at two percentage points higher than the main rate of income tax. Government Members may take great satisfaction in what could be described as a war on landlords, but we should pause and remind ourselves who many landlords are. They are not barons or vast landowners; they are ordinary people doing what we have encouraged them to do for decades: taking responsibility for their future. They are the couple—one parent works long hours in a steady job, and the other juggles work and family life—who save carefully and invest in a small property because they know that the state pension alone might not be enough when they retire. They are the retired couple who inherit a modest flat from their parents—a flat that is not a windfall, but a source of security in later life—and who rent it out to supplement a fixed income. These are not people gaming the system, as many Labour Members have tried to suggest in the past, but people responding to it. They are good people. Forty-four of them are Labour MPs.

This new tax does not just hit landlords, though; it hits renters, too. The British Property Federation and the Office for Budgetary Responsibility have both warned that this measure could restrict the supply of private rental properties, adding pressure to an already strained market. The Royal Institution of Chartered Surveyors and the National Residential Landlords Association both say that rents will rise faster as a direct result of the Bill. New clause 12 in my name seeks to force the Government not to rely on their stereotypes about landlords, but to assess the impact of their new renters’ tax on both the supply and cost of private rental properties.

In summary, these clauses represent a new front in Labour’s war on the middle class and aspirational households in Grantham and Bourne, Chipping Barnet and across the country. These clauses impose not one, not two but three income tax rises on the British public, totalling more than £5.5 billion. This is not a plan for change; it is a savers’ tax onslaught, carefully phrased, politely worded and deeply felt—the same old Labour.

[Dr Jeevun Sandher (Loughborough) (Lab)]

Before I speak, I draw attention to my entry in the Register of Members’ Financial Interests. It is a pleasure to speak in this packed Chamber, and to the millions of people no doubt watching at home.

I will speak to clause 4, but first I wish to thank the hon. Member for Mid Bedfordshire (Blake Stephenson). I seem to recall making a slight mistake last year in a debate on the Finance Act 2025 by not speaking to a specific clause. He very graciously saved me, callow youth that I was, and I thank him very much. I certainly remember that today.

Britain faces an affordability crisis, with record numbers unable to afford a decent living standard. On top of that, we face a military crisis; we have to defend our nation as we have not had to for almost a century. As a nation, we are deeply divided between those who can afford decent lives and those who cannot; because of that, we are unable to stand united as one nation to meet this moment and those challenges. That is why today I speak in favour of clause 4. Yes, it is a tax that hits the wealthiest, but it also ensures that we can help grow the economy, and it is easily implementable. I will cover why that is.

People in this country are deeply frustrated and angry about where this nation is. Record numbers of people cannot afford a decent standard of living; just one third feel comfortable with how much they can afford. That is lower than in the financial crisis, and lower than during austerity—it is the lowest rate in our lifetime. That is why we see such anger on our streets and screens. We constituency MPs feel it viscerally.

Meanwhile, we have also seen the wealth in this nation grow dramatically. We have seen wealth as a proportion of GDP double since the 1980s, the amount of dividends paid out more than doubling since 2010, and owner-managers able to reduce their tax liability by not drawing their income from earnings. That is why it is right that we rebalance the tax burden between earnings and income earned from elsewhere, and especially income earned from dividends.

Our taxation system has not kept up with how our economy has changed; wealth has become far more important in this nation, but it has not been taxed commensurately. While income tax and national insurance have increased as a share of GDP, the same has not happened for taxes on profits. While the amount of wealth as a proportion of GDP has doubled, the income tax from that wealth has increased by only 30%. The income taxes in this nation are being levied on earners, not those who get their income from wealth. That is why it is entirely right that, through this Budget and this clause, we tax dividends at a greater rate. I will set out how this measure will improve growth and ensure that we hit the richest, and will show that it is easily implementable. We know that it improves growth because, as we have seen in France, dividend taxation stops payments going out of companies, instead ensuring that money stays in and is invested. We know that it hits the wealthiest, because one fifth of those who gain dividends are in the top 1%. We know that it is an easily implementable tax, because we are seeing it implemented in this Bill.

[Sir Ashley Fox]

Does the hon. Gentleman believe that increasing taxation on dividends will result in more entrepreneurs taking risks, employing people and growing the economy, or fewer?

18:15

[Dr Sandher]

I believe it will lead to more investment in this country. I will say this as well: the reason why people across the world invest in this nation and create great companies is because they want the return after tax. If an economy is growing and has more investment, that means more sales and more money in people’s pockets. I do not accept the hon. Gentleman’s proposition that raising this taxation rate somehow means less entrepreneurship and less investment in our economy.

[Sir Ashley Fox]

rose—

[Dr Sandher]

I believe the hon. Gentleman wants to get in again.

[Sir Ashley Fox]

I am grateful to the hon. Gentleman for giving way a second time. Is he seriously saying that increasing the rate of tax on dividends will result in more investment in this country?

[Dr Sandher]

To be clear, we have seen this happen in France, where that is exactly what happened. The incentive then was for payments to go back inside the company rather than being drawn out in dividends. In addition, owner-earners in this nation are currently able to reduce their tax liability by 13% by paying out in dividends. It is a form of income that is effectively earnings, but is not being reported as such. So yes, I would say that that is the case. Not only would I say that is the case, but I would say it is shown by international evidence. I take the theoretical point the hon. Gentleman raises, but in practice, we have seen that raising dividend taxes keeps the money in the company and leads to rising investment rates.

This is the most important Parliament in a century. Like those in this House a century before us, we face deep challenges: like those in this House almost a century ago, we are seeing the far right on our streets because people cannot afford a decent living; like those a century before us, we face a military dictator in Europe who wishes to redraw borders by force; like those a century before us, we in this continent must ensure that we defend ourselves. It was almost a century ago in this House that a Conservative Prime Minister increased taxes on the wealthiest to pay to defend our nation. It was almost a century ago that we taxed the wealthiest to ensure that every single person in this country had a good job. It was almost a century ago that we built a welfare state to ensure that every single person could have a decent living and a stake in this nation.

For our nation to meet this moment, we have to be united; to be united, every single person has to have a stake in this country; to have a stake in this country, people have to see and believe that democracy can deliver for them and that they can earn a decent living. That is why, by taxing the wealthiest on dividends—taxing those who gain their payments from wealth instead of earnings from pay-as-you-earn—clause 4 will help to ensure that we raise the revenue we need to get investment and growth going in a way that is easily implementable.

[Jerome Mayhew (Broadland and Fakenham) (Con)]

The hon. Gentleman said earlier that this was a tax on the rich because 20% of dividends are paid to the richest 1% of people in this country, but that means that 80% are not. Does he not accept that dividends are right at the heart of the savings culture in this country and that if we tax them, we will get less savings?

[Dr Sandher]

I am not sure I quite follow the hon. Gentleman’s point there, to be perfectly honest. It is true that most people’s main savings investment will be through the pension funds they own, which will be their biggest savings vehicle; that would not be subject to dividend taxation in the same way because people will buy out at the end and ensure that they have a payment for their products. I am not sure I quite follow, but, to be fair to the hon. Gentleman, it is possible that I misunderstood his point.

I can see there are lots of people trying to get in, Ms Nokes. [Laughter.] I will end my speech now to allow them to do so. It is a thrilling topic, as I am sure everyone across the Committee would agree.

This is the right thing to do to balance taxation between earnings and payments from wealth. It is a long-needed update to our taxation system. I am proud of a Government who do that, as I am sure we all are. With that, I will close.

[The Second Deputy Chairman of Ways and Means (Caroline Nokes)]

I call the Liberal Democrat spokesperson.

[Daisy Cooper (St Albans) (LD)]

I will speak to clauses 1 to 8 and schedules 1 and 2. Overall, the tax changes increase complexity, raise the tax burden on small businesses and savers, and raise the risk of serious unintended consequences on the property market. They all have the hallmarks of a Treasury tax grab without proper the consideration of the broader consequences.

When taken together, clauses 4 to 8 add more complexity, and concerns have been raised by the Chartered Institute of Taxation and the Association of Taxation Technicians, which highlighted that the new property rates add five new income tax rates. They are: the property basic rate of 22%; the property higher rate of 42%; the property additional rate of 47%; the property trust rate of 47%; and the savings trust rate of 47%. Rates will apply differently to investment returns and to savings. Basic and higher dividend rates have been changed, but additional dividend rates have not, and no explanation has been given as to the policy intent behind that. It would be helpful if the Minister could set that out on the record.

The long and short of it is that the Government say that they want to simplify tax, but their tax changes are making things more complicated. The Making Tax Digital forms will need to updated, and more individuals and small businesses will likely make more calls to His Majesty’s Revenue and Customs. Recent research by the House of Commons Library, commissioned by Liberal Democrats including my hon. Friend the Member for Maidenhead (Mr Reynolds), shows that HMRC failed to pick up one in five taxpayer calls over the last decade, with the tax service leaving the best part of a hundred million calls unanswered in the last 10 years. HMRC has failed to pick up 83 million calls from Brits in the last 10 years—6 million in just the last year. That is why we have been calling for a new HMRC hotline dedicated to supporting pensioners. It would help those who are among the likeliest to seek tax information over the phone while freeing up capacity for the tax service to deal with other queries—something that is imminent, given that the tax changes will result in more phone calls.

More broadly, the Federation of Small Businesses said:

“Hikes to dividend tax mean the Government continues to make investing in your own business one of the least tax-friendly things you can do with your money.”

Will the Minister listen to our small businesses, which are suffering under a mounting tax burden, not least from the Government’s business rates bombshell, and finally give them some respite?

With new clause 2, the Liberal Democrats call for a review of the impact of section 7 on rent prices. As many hon. Members have highlighted, the new clause would require the Chancellor of the Exchequer to lay before the House a proper assessment of the impact of the Bill’s tax changes on rent prices. Countless renters across the country will be worried that the higher property income tax will simply get passed on to them, making things even worse during the cost of living crisis. We cannot afford to ignore the unintended consequences of any tax policy.

The new clause would require the Government to update the House on some crucial details about the broader impacts of this measure. What proportion of the tax rise will get passed on to renters, according to the Treasury’s estimates? Which income groups are most likely to be affected by the tax rise? Which parts of the country will bear the brunt of it? I hope the Minister will agree that that information is essential.

[Dan Tomlinson]

I thank Members across the Committee, particularly those on the Labour Benches, for their contributions today. I believe that other things going on in the Palace today have drawn other Labour Members to Committee Rooms, but I am very glad that my hon. Friend the Member for Loughborough (Dr Sandher) chose to prioritise speaking in this important Finance (No. 2) Bill debate. I thank him for that.

I will respond to the points that have been raised in this all-too-brief debate on this group of important clauses. It is always a pleasure to stand at the Dispatch Box opposite the shadow Financial Secretary, the hon. Member for Grantham and Bourne (Gareth Davies). It was enjoyable to hear a history lesson rather than a selection of poetry or literary references, which I often get when I am opposite the shadow Chancellor, the right hon. Member for Central Devon (Sir Mel Stride). The shadow Financial Secretary noted correctly that income tax was originally introduced as a temporary measure. Running through my mind are the taxes introduced by the 2010-2024 Government that were initially announced as temporary but are still with us—but I will not comment on those, for reasons he may understand.

The shadow Financial Secretary mentioned my constituency, and I thank him for giving me a chance to talk about Chipping Barnet. He questioned what the tax rises are for. I can tell him that in the area that I know best NHS waiting lists are falling for the first time in a very long time, and the number of police officers is increasing after having been cut significantly. We are also opening breakfast clubs in primary schools. Those changes happening in my patch are happening across the country. That investment in our public services has been enabled by the tax changes that this Government have made. We are raising revenue in a sustainable and fair way in order to ensure that we can fund our public services and keep borrowing on a downward trajectory.

The shadow Financial Secretary raised the change landlord income tax—the two percentage point increase. I fully understand, as does he, that there are many reasons why people end up becoming landlords. We want to make sure that the taxation is fair and reasonable, which is why landlords do not pay national insurance in the way that their tenants do, and it is why we have taken steps to reduce—but not close in full—the gap in tax treatment, with the two percentage point increase. Landlords will still typically pay a lower rate of tax than their tenants, but the gap will be reduced following the measures set out today.

The shadow Financial Secretary, and other Members in interventions, mentioned the changes on dividend taxation. The main takeaway from the Office for Budget Responsibility is that it does not expect the changes to dividend taxation announced at the Budget a few short weeks ago to have a significant impact on business investment. Business investment is forecast to continue to grow over the course of the OBR’s five-year forecast horizon.

That is good news, because one thing that we know we need to do in this country is turn around the long-term weakness in investment—by both public and private sector—that has driven our long-term productivity and growth underperformance. That under-investment over the last 30 years is an issue that both major parties—and the Liberal Democrats for their time in the first five years of the coalition Government—should take responsibility for. I believe that in 24 of the last 30 years—that stat may now be one year out of date; I will have to update it for next time—the UK had the lowest rate of investment of any G7 economy. Until we can start to turn that around through higher public and private sector investment, our economy will not be able to fire on all cylinders, as this Government would like it to.

Let me turn to new clauses 2 and 12. New clause 2 would require the Government, within three months of the Act coming into force, to lay before the House of Commons an assessment of the impact of the implementation of section 7 of the Act on rent prices. New clause 12 seeks to require the Government, within six months of the Act coming into force, to publish an assessment of the impact of the changes introduced by sections 6, 7 and 8 on the private rental sector in England, Wales, Scotland and Northern Ireland.

As hon. Members will be aware, the Office for Budget Responsibility engages closely with the Treasury on the potential impacts of policy measures as part of standard Budget processes, and the OBR does not expect that the reform to property income will have a significant impact on rental prices in the forecast horizon. As I said, the economic literature points to rental prices being determined by the balance of supply and demand in the market, not just the cost facing landlords. The housing market proved to be more resilient than expected in 2025, and as interest rates fall further we hope that will reduce costs for landlords, too.

18:30

The Government are committed to building 1.5 million new homes in this Parliament. A year ago, we announced major changes to the national planning policy framework that are forecast by the OBR to deliver 170,000 additional homes and add £6.8 billion to the economy in 2029-30: the largest upgrade to the size of the economy through a non-fiscal measure that the OBR has ever scored. That will raise the supply of housing as the Government are doing through their ambitious programme of reform. That is the route to improving housing affordability for tenants up and down the country. I encourage Opposition Members expressing an interest in ensuring that rents stay low on a sustainable basis for tenants to support the Government in their efforts to reform the planning system rather than focusing narrowly on one relatively modest change to taxation.

On the request to report back in the coming months, a tax information and impact note has been published in the standard way for UK-wide changes to the tax system. The Treasury will continue to monitor the rental market. New clauses 2 and 12 should therefore be rejected.

I turn to new clause 10, which would ask the Government within six months of the Act coming into force to make a statement to the House on the impact of the dividend tax measures on: household saving decisions; the domestic equity market; institutional investors; and outcomes for savers and pensioners. To be clear, institutional investors are not affected by UK personal dividend taxation—I respect and understand that others are—but overall the OBR does not expect that the changes to dividend tax announced at the Budget will have a significant impact on business investment. The OBR says that real business investment will increase on average by 0.75% a year between 2026 and the end of the decade.

The Government want to encourage investment in productive assets as well as saving, which is why everyone can contribute up to £20,000 a year to stocks and shares ISAs, with all returns entirely tax-free. The vast majority of pensioners do not have taxable dividend income and will pay no more tax as a result of this change.

All UK residents benefit from a tax-free dividend allowance in addition to the £12,570 personal allowance, which means that they pay no tax on the first £500 of dividend income above the personal allowance, and all dividends received on assets held in ISAs continue to be entirely tax-free. Information on the expected impacts of this measure has already been published in the tax information and impact note. New clause 10 should therefore be rejected.

I turn to new clause 11, which would ask the Government within six months of the Act coming into force to make a statement on the impact of the savings measures on household savings decisions and outcomes for savers. As hon. Members know, most UK taxpayers are entitled to a personal savings allowance on top of their standard personal allowance. Basic rate taxpayers can receive £1,000 of savings interest without paying tax, and higher rate taxpayers can receive £500 without paying tax, on top of the personal allowance.

Those with low earned incomes also benefit from the starting rate for savings: for those whose non-savings and non-dividend income is less than £17,570, the Government provide a 0% tax rate that allows individuals to receive up to £5,000 of savings interest tax-free. Even after these changes, the vast majority of taxpayers will continue to pay no tax whatsoever on their savings income. A basic rate taxpayer could hold approaching £40,000 in savings without paying tax on the interest earned—£25,000 in a savings account paying 4% interest, which would exhaust their personal savings allowance, plus £12,000 in a cash ISA each year. That is a significant amount, and much more than many people are able to save—many families struggle to put away more than £10 a month.

We are doing all we can to raise living standards for those families by: increasing the national living wage from April, as well as having done so last year, and supporting pensioners with increases in the state pension, with the triple lock increasing the state pension significantly over the course of the Parliament. Those are the steps that we can take to help to support people to have more disposable income and be able to save more when they would like to.

On that point, a tax information and impact note has also been published in the standard way for UK-wide changes to the tax system The Government keep tax changes under review—[Interruption.] I am not sure whether the hon. Member for Hinckley and Bosworth (Dr Evans) would like to intervene; I would welcome that.

[Dr Luke Evans (Hinckley and Bosworth) (Con)]

indicated dissent.

[Dan Tomlinson]

Maybe later.

I turn to the contribution of my hon. Friend the Member for Loughborough. His speech—I had hoped it would be even longer; I am somewhat disappointed not to have heard more from him—provided a clear exposition of the benefits of the modest changes the Government are setting out in this group of clauses, which are being considered by the Committee of the whole House.

[Dr Sandher]

On that point, will the Minister give way?

[Dan Tomlinson]

I will happily give way.

[Dr Sandher]

Was my hon. Friend surprised that Opposition Members spoke about the complexity of implementing clause 4 when it is simply a measure changing the rates of dividend taxation and does not lead to any more burden when filing taxes?

[Dan Tomlinson]

I thank my hon. Friend for that intervention, which gives me a chance to repeat clearly that these changes are a 2 percentage point increase. The tax rates will increase from 20% to 22%, from 40% to 42% and from 45% to 47%. That does not add a significant—or any real—complication to the tax system. We are changing the rates in a way that is fair, closing the difference in taxation treatment between those who receive their income from employment and those who receive their income from assets.

My hon. Friend’s speech was really helpful in bringing comparative evidence to the debate. I hope he will send that my way for review. Opposition Members who asked about changes made in other countries may be interested in reading that evidence, too. He also provided a helpful exposition on the economic theory sitting behind some of these changes and the need to ensure that our taxation system incentivises people to make investments and good decisions for the long-term health of our economy. He touched on the crucial point—it is worth making this clearly—repeatedly pointed out by many tax experts and tax commentators that one challenge in the UK’s taxation system is that we treat income received from different sources very differently, which can lead to distortions. It is better to ensure that we do what we can to reduce the gaps between the tax treatment of different sorts of income. [Interruption.]

I am happy to refer to Opposition Members’ utterances —they have been shouting out the word “risk.” I make the point that there is still an incentive in the system as taxation levels have not closed completely. [Interruption.] Yes, it is smaller—hon. Members gesture as such, and they are correct that the gap has closed—but there are still significant incentives for people to set up their businesses and income streams in certain ways to increase their income.

Let me now turn to the contribution from the hon. Member for St Albans (Daisy Cooper), who helpfully mentioned the performance of HMRC, the Department for which I am the Minister with responsibility. She is right to say that we need to have a laser focus on customer service. The performance in terms of missed calls—that is, calls that are not picked up because someone hangs up before they are answered—is improving under this Government. I think that is progress—[Interruption.] The hon. Member for St Albans specifically raised the performance of HMRC in her remarks, and it is only right and proper for me to mention that. The hon. Member also raised the impact of these changes on rents; of course the Government will continue to monitor the impact of taxation changes on the rental market. One crucial thing we can do to support private renters is to increase the supply of housing to push down the price of rents in the long term.

To begin to conclude—[Hon. Members: “Hear, hear!”] To begin to conclude—[Interruption.] Did someone say they wanted to intervene? No? In that case, I hope I have been able to—

[Dr Sandher]

rose—

[Dan Tomlinson]

I will happily give way to my hon. Friend.

[Dr Sandher]

I have no doubt that Conservative Members would also like to intervene after I have made my intervention!

Does the Minister agree that we in this House prize the contribution of business people and that we are here to work productively to ensure that workers and businesses contribute to the prosperity of this nation? I am really proud of what business people do. I come from a family of business people who have invested, who have created a nation and who have created employment. On the other side, we must ensure that the benefits are paid both to them and to our wider economy.

[Dan Tomlinson]

I thank my hon. Friend for that intervention and for giving me the chance to reiterate this Government’s focus on economic growth and on providing economic stability. Last year, the OBR forecast that the economy would grow by 1% but it then revised that up to 1.5%. That is a 50% increase in our growth forecast. Of course, we need to continue to redouble our efforts as a Government, going further and faster when it comes to supporting economic growth, so that we can see rising living standards in every single part of the country. That is core to our plan. We do not want to see people continuing to suffer.

The last Parliament was the worst on record for living standards, and it is no surprise that the British people decided to boot out the Conservatives and replace them with a Government who are laser-focused on improving the cost of living and improving living standards, both through the changes we are making—including in the Finance Bill to support our public finances—and, as my hon. Friend mentions, through continuing to partner with business to unlock private sector investment and increase economic growth. The changes that we are making to planning do not just support more houses being built and more residential development, which of course we need for the reasons we have discussed; they should also make it easier for us to build large infrastructure projects to support economic growth—including new nuclear power stations, which the Conservatives continually did not invest in—and to get our long-term growth and productivity rates up.

By keeping the clauses in the Bill unchanged, we will raise additional revenue from those who are undertaxed relative to most employees. As I have said, the changes on dividend savings and property income will raise an additional £2.2 billion in the coming years, which will help us to repair and improve our public finances. The changes will also enable us to reduce the contribution that we are asking of working people through the threshold freezes. By making changes such as the introduction of the electric vehicle excise duty and the reduction in relief for those who are selling their businesses to employee ownership trusts, we are making it possible to reduce the ask of working people. That is in sharp contrast to the position set out by the shadow Chancellor, the right hon. Member for Central Devon, who said that if he was in Labour’s position, he would be increasing the rates of income tax. Rather than doing that, we will ensure that this Government stay true to their manifesto commitments on tax and the public finances, with borrowing falling in every year of the OBR’s forecast.

I therefore urge the Committee to reject new clause 2 and new clauses 10 to 12, and to support the inclusion in the Bill of clauses 1 to 6, schedule 1, clauses 7 and 8 and schedule 2.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clauses 2 to 6 ordered to stand part of the Bill.

Schedule 1 agreed to.

Clauses 7 and 8 ordered to stand part of the Bill.

Schedule 2 agreed to.

New Clause 12



“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by sections 6, 7, and 8 of this Act on the private rental sector in England, Wales, Scotland, and Northern Ireland.

(2) The assessment made under subsection (1) must consider -

(a) the effects of the provisions of sections 6, 7, and 8 on the cost of private rent in each region within England, Wales, Scotland, and Northern Ireland,

(b) the effects of the provisions of sections 6, 7, and 8 on the supply of private rental properties in each region within England, Wales, Scotland, and Northern Ireland,

(c) any other implications of the changes introduced by sections 6, 7, and 8 of this Act.”—(Gareth Davies.)

This new clause requires the Secretary of State to publish an assessment of the impact of imposing new rates of income tax on property income.

Brought up, and read the First time.

Question put, That the clause be read a Second time.

18:48

Division 398

Question accordingly negatived.

Ayes: 167

Noes: 350

Clause 9

Freezing starting rate limit for savings for tax years 2026-27 to 2030-31

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

[The First Deputy Chairman of Ways and Means (Judith Cummins)]

With this it will be convenient to discuss the following:

Clause 10 stand part.

Clause 69 stand part.

New clause 3—Notification of taxpayers affected by frozen thresholds—

“(1) HM Revenue and Customs must take reasonable steps to identify individuals who, as a result of—

(a) the freezing of the starting rate limit for savings under section 9 of this Act, or

(b) the freezing of the personal allowance or the basic rate limit under section 10 of this Act, will—

(i) become liable to income tax for the first time, or

(ii) become liable to income tax at a higher rate than in the previous tax year.

(2) HM Revenue and Customs must ensure that each individual identified under subsection (1) is provided with a written notification before the start of the relevant tax year.

(3) A notification under subsection (2) must—

(a) explain that the individual’s tax liability is affected by the freezing of income tax thresholds,

(b) state whether the individual will pay income tax for the first time or move into a higher tax band, and

(c) provide information on where the individual can obtain further guidance about their tax position.

(4) HM Revenue and Customs must publish, no later than six months after the end of each affected tax year, a report setting out—

(a) the number of individuals notified under this section,

(b) the number of individuals who became income taxpayers for the first time as a result of sections 9 and 10, and

(c) the number of individuals who moved into a higher tax band as a result of those sections.

(5) In this section ‘written notification’ includes electronic communication.”

This new clause would require HM Revenue and Customs to notify individuals who, as a result of the freezing of income tax thresholds in the Act, will pay income tax for the first time or move into a higher tax band.

New clause 4—Review of the impact of tax changes on household finances—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of changes introduced by sections 9,10 and 69 on household finances.

(2) The assessment must evaluate how households across different income levels are affected by these changes.”

This new clause requires the Chancellor of the Exchequer to assess and publish a report on how the freezing of tax thresholds to 2030-31 impacts households at various income levels.

New clause 5—Report on impact of sections 9, 10 and 69—

“Within three months of this Act being passed, the Chancellor of the Exchequer must lay before the House of Commons a report setting out—

(a) the number of taxpayers who will pay income tax at each rate during each tax year between 2026-27 and 2030-31 under sections 9, 10 and 69,

(b) the number of those taxpayers who are pensioners or are of State Pension Age,

(c) comparative figures for each tax year since 2020-21,

(d) comparative projected figures for each tax year to 2034-35, and

(e) comparative figures with a scenario under which normal uprating policy had been implemented for financial years 2020-21 through 2030-31.”

This new clause requires the Chancellor of the Exchequer to assess how many people will be in each income tax bracket from 2026-27 through to 2030-31, together with comparative figures before and after that period.

New clause 13—Assessment of the impact of changes to the basic rate limit and personal allowance for tax years 2028-29 to 2030-31—

“The Chancellor of the Exchequer must, within three months of this Act being passed, publish an assessment of the expected impact on an average earner of the provisions of section 10.”

This new clause requires the Secretary of State to publish an assessment of the impact on the average earner of extending the freeze on the basic rate limit and personal allowance for the tax years 2028-29, 2029-30, and 2030-31.

New clause 14—Assessment of the impact of the freezing of the personal allowance on those in receipt of the state pension for the tax years 2027-28 to 2030-31—

“(1) The Chancellor of the Exchequer must, before the start of the tax year 2027-28, publish an assessment of the impact of the freezing of the personal allowance on those in receipt of the state pension for the tax years 2027-28 to 2030-31.

(2) The assessment made under subsection (1) must include details on the estimated total income from tax receipts received in each tax year from individuals whose only income is the state pension.”

This new clause requires the Secretary of State to publish an assessment of the impact of the personal allowance on those pensioners whose only income is the state pension for the tax years 2027-28, 2028-29, 2029-30, and 2030-31.

New clause 15—Assessment of the impact of exempting from income tax pensioners whose sole income is the basic or new State Pension—

The Chancellor of the Exchequer must, within three months of this Act being passed, publish an assessment of the fiscal impacts of exempting pensioners whose sole income is the basic or new State Pension (without any increments) from paying small amounts of income tax.”

[Dan Tomlinson]

In opening debate on this second group of clauses, I want to reflect on why we are making changes to the tax system. I am looking forward to no interventions at all on this speech from Opposition Members—their interventions seemed to dry up in my last speech, so maybe they have now finished with them. Of course, we make these changes to modernise the tax system, to make it fair and fit for purpose and to adapt to a changing world, but we also make these changes so that we can raise the revenue to fund our public services. Yes, the Bill holds thresholds constant till the end of the decade, but in doing so contributes to our being able to renew our public services while maintaining the highest levels of public investment in four decades to stimulate economic growth and ensure that those with the broadest shoulders pay their fair share.

[Dr Evans]

Will the Minister give way?

[Dan Tomlinson]

I will; it is good to see that the interventions are back on.

[Dr Evans]

When the Chancellor looked at these measures for her first Budget, she said that they would breach her manifesto commitments. Does the Minister believe that they breach the manifesto commitments?

[Dan Tomlinson]

This Government have stuck to their manifesto commitments. We were very clear about not wanting to change the rates of income tax. I have been in discussions with Opposition Members about the wording of our manifesto; I am glad that Conservative Members have taken such interest in it. We are sticking to our commitments. The tax changes that we are discussing now, and others, will allow us to do things such as lift 550,000 children out of poverty this Parliament, by removing the two-child limit and expanding free breakfast clubs and free school meal eligibility. They allow us to cut waiting lists and cut the cost of living by delivering £150 off energy bills. All that would be threatened by Opposition Members, who do not support the taxes needed to fund decent public services.

[Steve Darling (Torbay) (LD)]

Can the Minister explain why there are £300 million-worth of cuts in Devon this year to our NHS—to hospital trusts, our partnership trust that looks after mental health and our integrated care board?

[Dan Tomlinson]

I am not able to comment on the specific figures that the hon. Gentleman raised, but overall the Government are spending significantly more on the NHS in this Parliament each year. That is enabled by the changes to taxation that we announced at this and previous Budgets. One of the challenges that the national health service has today is a result of under-investment in capital for too long, meaning that day-to-day spending is having to take more of the strain. So often in recent years capital budgets have been raided, including when, I should mention, the Conservatives and Liberal Democrats were in coalition. Cutting the capital budgets has left us in the difficult situation that we are in now, and this Government are seeking to turn that around.

[Sir Edward Leigh (Gainsborough) (Con)]

rose—

[Sammy Wilson (East Antrim) (DUP)]

rose—

[Dan Tomlinson]

I will give way to the right hon. Member for East Antrim (Sammy Wilson) and come back to the right hon. Member for Gainsborough (Sir Edward Leigh).

[Sammy Wilson]

The Minister is putting on a brave face because a manifesto commitment has been broken. People are going to pay more in income tax despite the promises that were made. Does he recognise that, for many people, this is not money to renew public services, but money squandered on giving compensation to foreign Governments for land that we owned—the Chagos islands—and are now paying for; money that will be spent on an ID system that is totally unnecessary and will not serve the purpose it is meant to; and money spent on net zero commitments that have destroyed our economy and added little in benefits to the public?

[Dan Tomlinson]

The right hon. Gentleman is welcome to express his views on a range of policies. On the final issue that he raises—net zero and our transition to a cleaner and greener economy—independent analysis, the Government’s Climate Change Committee and the long-term fiscal risk report of the Office for Budget Responsibility have set out clearly that not making that transition, both in the UK and internationally, comes with larger long-term costs for the public finances because of the growing costs of adapting to climate change. It is clear that we need to make that change, for the environment and for the long-term health of our public finances. The OBR’s fiscal risks report is always a good read; I hope that he is, like me, looking forward to the next edition in the summer.

[Sir Edward Leigh]

Will the Minister give way?

[Dan Tomlinson]

I will give way, but then I should make progress given that we have another group of clauses to address after this one.

[Sir Edward Leigh]

Even more important than the point made by the right hon. Member for East Antrim (Sammy Wilson) is the fact that, as I read recently, the average family is paying £12,000 in tax to cover the benefits bill. That is important, because we are taxing entrepreneurial people more, and they will perhaps decide to work a little less hard, so we will all get poorer. I just pray that the Government will have the guts to return to their original proposals—which the Chancellor dropped in the light of pressure—to encourage people back into work, which will mean cutting the benefits bill. I encourage the Government to be true to their original word.

[Dan Tomlinson]

I agree with the right hon. Gentleman on one point: the welfare system that we inherited was failing. Our Government need to correct the mistakes that meant welfare spending was running out of control, as it was when the shadow Chancellor, the right hon. Member for Central Devon (Sir Mel Stride), was Secretary of State for Work and Pensions. We must carefully consider the welfare system and make reforms that support people into work and ensure that the forecast budget increases are sustainable for the public finances. I agree with the right hon. Member for Gainsborough on that point.

I have not heard the £12,000 statistic before, but I would caution against such statistics, which often appear in the press. Many welfare claimants up and down the country are pensioners who receive the state pension. I do not know whether that figure includes the state pension—Members of all parties, with the exception of the shadow Chancellor, support the triple lock—or the many welfare payments for families with someone in work. We are trying to reduce the need to support working families with welfare payments, through increases to the national living wage and steps to boost productivity. I would say that that figure is a misrepresentation—not that I would accuse the right hon. Member for Gainsborough of misrepresenting the facts—because it uses the word “welfare” as a catch-all, when many people who receive support from the state need that support and benefit from it in a reasonable way, including those who lose their jobs, whom we support through jobseeker’s allowance, for example.

[Mr Joshua Reynolds]

rose—

[Dan Tomlinson]

Go on, but then I really should make progress.

[Mr Reynolds]

I will be brief—the Minister might even be able to give me a one-word answer. In 2024, the Chancellor said that she had come to the conclusion that extending the threshold freeze would hurt working people. Does the Minister agree, then, that he is proposing to hurt working people?

[Dan Tomlinson]

I encourage the hon. Member to listen back to what I said earlier in my speech. I and this Government are not shying away from the fact that at the end of the decade, we are freezing income tax thresholds for a further three years, after the seven years—if I recall correctly—that they were frozen under the previous Government. That decision enables us to raise more revenue—the amount set out by the OBR—at the end of the decade and in a way that means that we can stick to our clear manifesto commitment not to increase the rate of tax. We have looked across the tax system. I am sure that the Opposition Front Benchers will enjoy line-by-line scrutiny in the Bill Committee, when we will go through the other changes we have made to the tax system to reduce our ask of working people via the extension of the threshold freeze at the end of the decade.

Clause 9 maintains the starting rate for the savings limit at its current level of £5,000 from the 2026-27 tax year until 6 April 2031. The starting rate for savings must be legislated for each year to confirm the band of savings income to which it applies. In addition to the starting rate for savings—eligible individuals can earn up to £5,000 in savings income, free of tax—savers are supported by the personal savings allowance, which provides up to £1,000 of tax-free savings income for basic rate taxpayers. Savers will also continue to benefit from the annual ISA allowance of £20,000. As a result of those measures, in 2025-26, around 85% of savers pay no tax whatsoever on their savings income.

19:15

Clause 10 maintains the income tax thresholds for three years from April 2028 to April 2031. As we have already discussed, the Government are freezing the thresholds to maintain funding for our NHS and to enable us to reduce debt, and we are doing that, in part through this decision.

[Dr Luke Evans]

Will the Minister give way?

[Dan Tomlinson]

I will make a little progress, if I may. I have already taken two interventions on this exact point.

We know that there will be a broad-based effect, but as I have said, we are making other changes so that we ask as little as possible of those who will be affected by the change. We are making lots of changes to ensure that those with the broadest shoulders pay their fair share. I think that that is a fair and necessary decision to raise tax revenue in order to fund public services and restore economic stability.

[Neil Duncan-Jordan (Poole) (Lab)]

Will the Minister give way?

[Dan Tomlinson]

I will happily take a first intervention from the Government Benches.

[Neil Duncan-Jordan]

I have been contacted—as has the Minister, I am sure—by a number of pensioners who are worried that they will pay tax on their state pension for the very first time. Which pensioners will be affected by the freeze in allowances, and how will any exemptions apply?

[Dan Tomlinson]

The Chancellor was clear about that very soon after the Budget, in her interview with Martin Lewis, which I am sure my hon. Friend saw. Those whose only income is the basic state pension will not pay tax on it during this Parliament.

The changes to the personal allowance will apply to the whole of the UK. The changes to the basic rate limit and the higher rate threshold will apply to non-property, non-savings and non-dividend income in England, Wales and Northern Ireland. The Scottish Parliament sets income tax rates and limits for Scottish taxpayers. Alongside maintaining the national insurance contribution thresholds for the same period, that will raise £7.8 billion in 2029-30, helping to fund public services and restore economic stability.

Clause 69 provides that the inheritance tax nil rate bands will continue at current levels in 2030-31. There are two nil rate bands for inheritance tax. The nil rate band has been £325,000, as Opposition Members will know, since 2009-10. The residence nil rate band has been £175,000 since 2021. Subject to reliefs and exceptions, inheritance tax is payable if the net value of an estate exceeds those thresholds. The previous Government froze those thresholds until April 2028. We fixed them at those levels for a further two years at the autumn Budget in 2024. We have fixed the nil rate threshold for a further year, until 2031, consistent with the decisions to maintain other personal tax thresholds until April 2031.

The clauses are fair, necessary and fiscally responsible, and will raise the revenue needed to fix the public finances and fund public services such as our NHS, schools and police force. They will fund vital changes to bring half a million children out of poverty.

[Calum Miller (Bicester and Woodstock) (LD)]

I am extremely grateful to the Minister for giving way. He is trying to make the case that freezing thresholds is progressive, but what he has not mentioned, understandably, is the freezing of student loan thresholds. There is strong evidence that it will result in lower-earning graduates having to pay much more back over the duration of their loan period. Why is the Treasury taking the £6 billion benefit to the asset balance sheet in 2026-27 from this measure, and can the Minister convince me and my constituents that this is in any way fair and progressive?

[Dan Tomlinson]

The hon. Member mentions the change to student loan thresholds that was announced at the Budget. The Government have looked at our taxation system in the round, and at our benefits system—for example, there are the changes to Motability—to ensure that we are raising the revenue that we need in a proportionate and reasonable way, and the measures that we are debating tonight enable us to do that. I will not let Opposition Members, who repeatedly voted to freeze thresholds until 2028 when they were in government, try to rewrite history as we debate these clauses.

[The First Deputy Chairman of Ways and Means (Judith Cummins)]

I call the shadow Minister.

[Gareth Davies]

I wish to speak to new clauses 13 to 15, which are in my name, but first I will cover what the clauses in this group mean for British taxpayers. If you will forgive me, Madam Chair, I will do so slightly out of numerical order. Clause 9 sets the starting rate limit for savings for tax years 2026-27 to 2030-31, keeping it fixed at £5,000. That is an important allowance for so many with relatively low incomes, including those who work part-time or are retired. Clause 69 fixes the various inheritance tax thresholds at their current level for a further tax year, 2030-31. Clause 10 freezes the basic rate limit for income tax at £37,700, and sets the personal allowance at £12,570 for tax years 2028-29, 2029-30, and 2030-31.

According to the Office for Budget Responsibility, the Labour Government’s freeze to income tax thresholds will raise around £7.6 billion in 2029-30 alone, and more than £12 billion in 2030-31. This is a £23 billion tax rise; clause 10 alone is a £23 billion broken promise. The OBR is clear: 920,000 more people will be pushed into the higher rate, and 780,000 more people will be pushed into income tax altogether. We have already heard the Minister try to explain away Labour’s breach of the promises that it made to the British people. The best the Chancellor can manage is to say that it is not her fault, because she was very clear in the small print—a technicality dressed up as an excuse. But people are not stupid. It would not be quite so embarrassing if the Chancellor herself had not proclaimed so theatrically in her first disastrous Budget that extending the threshold freeze would hurt working people. Yet here we are, and it is no surprise that the Prime Minister is breaking records for unpopularity. New clause 13 would ensure that the Government undertook an assessment of the impact of clause 10 on the average earner, because we all know that working people will be hurt very badly by this clause.

[Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)]

Will the hon. Gentleman give way?

[Gareth Davies]

I will give way to the hon. Gentleman. I hope he will not ask me why we froze the threshold, because he will know that we did so under tremendous pressure, given the covid pandemic and the debt that we accrued in the economy. We are in a very different scenario now. I am sure that is not what he is going to ask.

[Gareth Snell]

No, that was not what I was going to ask, but I am glad that the hon. Gentleman got to the “It was all covid’s fault” argument so early in the debate. I was going to ask whether he has an in-principle objection to freezing the rate, or whether he objects to it because he thinks it is somehow a breach of the Labour party manifesto. Those two things are different. I would be genuinely interested to know whether he has no issue with the rate being frozen, and more people paying tax as they earn more money, and whether this is about the party politics of previous manifesto commitments.

[Gareth Davies]

I understand the points that the hon. Gentleman makes, but as the spokesperson for the official Opposition, I speak on behalf of millions of people who were told that this would not happen, and who voted for a party that told them that it would not be increasing taxes on working people. The Chancellor repeated that claim at the Dispatch Box just a year ago, but then went back on it, which is unacceptable. Whether I agree with it does not matter; we have to represent the millions of people who were frankly let down and misled by this Government. That is our job—to hold the Government to account for breaking that promise, and for where the money is going. I ask the Government: what is this about? Is it about giving up sovereignty—giving up the Chagos islands—or paying off public sector unions, only for them to go on strike once again? There are two issues here. First, the public were told that this would not happen. Secondly, now that it is happening, the Labour party—the Government—is spending that money recklessly. That is unacceptable, and it is the job of the official Opposition to hold the Government to account.

Finally, there is an elephant in the room. From April 2026, the state pension rises by 4.8%. The new state pension will sit below the personal allowance next year, but that changes in 2027-28, when, for the first time, people whose only income is the state pension will be dragged into paying income tax. The Chancellor, when challenged on this after the Budget, said that she will protect pensioners from paying small amounts of tax, and the Minister just repeated that. Fine, but where is it? It is not in the Bill. It is not in clause 10, or anywhere in the 535 pages of the Bill. As far as I can see, it has not even been costed. I have two straightforward questions for the Minister: what is the Treasury’s assessed cost of that promise, and how will it be delivered in practice?

[Dr Evans]

The other point is: what is a small tax? What is the definition? Are we talking about £100, or £1,000? The Government have not even set that out. The Chancellor has just come up with a term that we have no reference for, no use for, and no understanding of when setting tax policy for this country.

[Gareth Davies]

My hon. Friend is absolutely right. That is why I want to ask the Minister, as he does, how this will be delivered. What is the definition of what the Chancellor has described, albeit to the media? How will this work, and why is it not in the Bill? We know that when the Government have spoken before, they have not stuck to it.

[Sammy Wilson]

Does the hon. Gentleman accept that regardless of whether we are talking about a small tax or a large tax, the Chancellor promised that there would be no tax on people who went out to work every day, and no increase in tax on pensioners? It is not really a question of degree; it is about whether the promise is being broken. Clearly, from what the Minister said tonight, the promise will be broken.

[Gareth Davies]

Exactly. I have nothing to add to that; the right hon. Gentleman puts it perfectly. New clause 14 would require a proper assessment of clause 10’s impact on state pensioners, and new clause 15 would require an assessment of the cost of the Chancellor’s so-called exemption from small amounts of tax—let her define that in a piece of legislation; I do not think she will be able to. Clause 10 is simple: another Labour tax promise has been broken and pensioners will pay the price. I hope that Members from across the Committee can see that and that they will vote with the official Opposition tonight.

[The First Deputy Chairman of Ways and Means (Judith Cummins)]

I call the Liberal Democrat spokesperson.

19:29

[Daisy Cooper]

These stealth taxes were started by the Conservatives and are being continued by Labour. When the Liberal Democrats were in government, we made sure to raise the income tax thresholds, taking people out of paying tax, but it is clear that the two biggest parties continue to drag more people into paying tax. According to the OBR, by 2030, an extra 9.4 million people will be dragged into paying the basic and higher rates of income tax, 1.7 million of whom will be dragged into the system because of this Government’s decisions at the last Budget. By 2031, the stealth taxes introduced by the Conservatives and continued by Labour will cost British taxpayers an eyewatering £67 billion a year, some £13 billion of which is a result of last November’s Budget.

To put that into perspective, in a two-person household, where someone earns £26,000 and someone earns £60,000 a year, over the decade of Conservative and Labour stealth taxes, the lower of those earners will lose the equivalent of an entire year’s pay due to frozen tax thresholds. Wiping out an entire year’s pre-tax salary for a typical earner is devastating for household finances. It is staggering to realise that this decade of frozen thresholds will cost what is broadly a typical two-earner family a staggering £26,800. The OBR says that one in four adults will be a higher rate taxpayer by 2031, up from one in seven in 2022. That represents an additional 5.7 million people, including 920,000 dragged into the higher rate band as a result of the Chancellor’s latest three-year extension.

It is really important that people understand that this is happening. The Liberal Democrats have tabled new clause 3 so that people are notified about how they will be affected by these frozen thresholds. The new clause will require the Chancellor to properly communicate to the people the impact of frozen tax thresholds. One of the most damaging aspects of this tax rise is that it goes unnoticed by so many. Unlike other tax changes, the stealth tax does not show up on people’s payslips and too many people are simply unaware that they are paying more tax because of the Government’s decisions. New clause 3 would require the Chancellor to be transparent with taxpayers and directly write to them, explaining in black and white the impact frozen thresholds will have on their pay cheques.

As many other hon. Members have said, there is huge concern among pensioners about what the measures will mean for them. In a recent meeting with the Chartered Institute of Taxation, it was highlighted to me that is not clear who will qualify for which rate of tax. The way that the system is set up suggests that pensioners who receive the same amount of income but from different sources could end up paying different rates of tax. Many of us like Martin Lewis, but the fact that the Chancellor has done a podcast with him does not mean that the impact of the Government changes has been communicated clearly to every single pensioner. I urge the Minister to adopt our simple new clause 3. The Government have said that they want to make the tax system more transparent, so if Ministers truly want to be honest with people, they should accept this simple amendment and write to the people who are affected by these policies.

[Sir Ashley Fox]

A Budget is the most important set of choices that a Government can make, and introducing clause 10 is a choice by this Government. I oppose clause 10 because it extends the freeze on the personal income tax allowance and the basic rate limit for a further three years, from 2028 to 2031. That means that rates will have been frozen for 10 years.

The choice in this Budget, as in all others, was clear: will spending be controlled or will taxes be raised? For the second year running, this Labour Chancellor chose higher taxes. In 2024, the Chancellor said that to extend this freeze would be to break her manifesto commitment not to raise the level of income tax, but at this Budget, she did it anyway. At the last election, the Government promised growth. They promised not to raise taxes on working people and to fund public services through a stronger economy, but from the moment that they took office, they have done the opposite. Labour have expanded welfare without reform, handed out huge pay deals without productivity gains and piled costs and regulations on to employers. When the inevitable bill came, what did they do? They reached into the taxpayer’s wallet.

These tax rises are a political choice. The consequences of these choices are clear. Taxes on working people are at record highs, growth is sluggish and unemployment has risen consistently since the election. Record numbers are now trapped outside the labour market on benefits, with no requirement and no incentive to seek work at all. Those who do the right thing, who work hard to provide for their families, now face higher tax bills to fund an ever-larger welfare state.

[Paul Holmes (Hamble Valley) (Con)]

My hon. Friend is making an excellent speech. Does he agree that these tax rises are damaging to our middle earners? The number of people who are being dragged into taxation—essentially, a fiscal drag—will increase from 15% in 2010 to 24% by 2030. Does he agree that that is bad for the economy?

[Sir Ashley Fox]

My hon. Friend makes a valuable point, which anticipates my next point. Teachers in my constituency have written to me saying that they will be pushed into the higher rate tax bracket by 2030, paying 40% on any extra work that they do—marking exams during the summer, for example—and that doing such work is not worth it any more.

Many pensioners in my constituency, who have worked and saved all their lives, and who have done the right thing, are now set to be punished too. Clause 10 will drag more pensioners with modest private pensions into the tax system. Freezing allowances will mean more pensioners paying tax on their income from savings. Anyone with income from a private pension or income from savings will now face having to fill out a tax return, and that number will grow when clause 10 takes effect. Unlike those in work, pensioners cannot put in more hours or ask for a pay rise. They are victims of this Government’s failure to control public expenditure.

Where is all the extra money that clause 10 will raise going to go? Rises in welfare spending. With the uprating of universal credit, the rise in the amount of people claiming health-related benefits and now the scrapping of the two-child benefit cap, more and more families are finding it less beneficial to work. Clause 10 is perverse. It discourages work and entrenches dependency. Labour says it is all about fairness and compassion, but in truth it is the opposite. The best way to alleviate poverty is through work, and that is exactly what Labour’s Budget seeks to discourage.

There is another choice. Had the Chancellor chosen to control public expenditure, then clause 10 would not be necessary. She could have chosen to make work pay. She could have chosen to reduce our welfare bill, to increase productivity in the public sector, and used savings to reduce debt and protect taxpayers, but she chose not to because when faced with difficult decisions, this Government’s guiding principle is their own survival: surviving the next vote, the next headline and the next rebellion by Labour Back Benchers.

This Government have now U-turned on headline policies 12 times. By the Prime Minister’s own admission, that meets the definition of serial incompetence. The people paying for the price for this incompetence are working people, pensioners, and everyone who has ever worked hard and done the right thing to provide for themselves and their families. It is no wonder that my constituents are so livid with this Government, and that is why I shall oppose clause 10, which is the cornerstone of this Budget for “Benefits Street”.

[Dr Luke Evans]

It is a shame that the hon. Member for Poole (Neil Duncan-Jordan) is not still in the Chamber, because he hit the nail on the head. He asked the question that I am keen to get answered and that is the reason why I have come to this debate. It is about the freezing of the thresholds and what the impacts will be on pensioners. I too am worried about pensioners suddenly being brought in to pay tax and having to do a tax return.

I am glad that the Minister saw the interview with Martin Lewis, because the Chancellor was very clear, so he has to try to answer the questions. When Martin Lewis put this case to the Chancellor, she said:

“If you just have a state pension…we are not going to make you fill in a tax return”

at any time. That is great, but how does that work? What does it look like? Where is that written down? The Chancellor went on to say:

“In this parliament, they won’t have to pay the tax…we’re looking at a simple workaround at the moment.”

That was back in November, so my curiosity was pricked to think, “Maybe it will be in the Finance (No. 2) Bill in Committee.” Yet, as pointed out by the Opposition Front-Bench spokesman, my hon. Friend the Member for Grantham and Bourne (Gareth Davies), the Bill has 535 pages, and there is no answer. I am pleased to have the opportunity to ask the Minister on behalf of my constituents how he will answer that question.

What is the workaround in play? If it is there, we should like to see it. Is there an impact assessment that goes with it to help us to understand whether people will have to do a tax return? How many people will have to do a tax return? If they will not have to do a tax return, how will we know whether they need to pay the tax? Will it simply be part of PAYE? That is a solution; it could be moved, and adjustments are already made. Will we simply say that it is an easement and write it off?

We then get to the problem of the Chancellor talking about small tax. We have no definition of what small tax looks like. This Government’s definition of it is as close to a definition as their definition of “working people” is, and we all know what the definition of “working people” is under this Government—well, actually, we do not, and that is the problem.

I am here asking the question on behalf of my constituents: what does the workaround look like? How will it take place? How will it affect my constituents? That is why I support new clause 15, which would go at least part of the way to understanding the assessment of this decision taken by the Government, but I appreciate that that is outside of the Bill. If the Government turn around and say that they do not need to do primary legislation—the best protection for my pensioners—the Minister can find another way to do it, but I look forward to hearing what that will look like in statements to the House.

[Sir Edward Leigh]

I will not make myself very popular by asking this question, but I will do it anyway. The Minister took me to task earlier because I talked about the total increase in the Department for Work and Pensions budget, which includes pensions. I think all three main political parties are traipsing around the issue of the triple lock. Frankly, if we did not have the triple lock—if there was a serious debate and we could get consensus in this House—we would not have to freeze income tax thresholds, and we could divert more resources to those really, truly vulnerable pensioners. I know that that is not a very popular point, but it is a question that we all seriously have to debate in a rapidly ageing population.

[Dr Evans]

I know that my right hon. Friend has been a stalwart in making that point. That leads on to the wider point of thinking about social care and how we will fund it. These sticky points are really important, so we need to ensure that we have this debate. The fact is that we are dealing with the Finance (No. 2) Bill in Committee. When the Government are making these choices, I am really keen to try to understand the direct impact they will have on my constituents.

At the last general election, the last Government—now the Opposition—had a solution in our manifesto to deal with this issue, which was the “triple lock plus”. That would have negated the issue at source. There is a ready-made solution if the Government would like to go for it, but I understand the difficulties of the associated cost, as my right hon. Friend the Member for Gainsborough (Sir Edward Leigh) has pointed out.

That brings us full circle to where the hon. Member for Poole started. How exactly are we going to solve this issue for pensioners? Do the Government just need to be up front with them and say that they will have to do a tax return? Will they be pulled into this tax? If they will not, how?

[Vikki Slade (Mid Dorset and North Poole) (LD)]

I completely recognise that the extension of the frozen tax threshold will not be felt immediately. We are all here worrying about it, but most of our residents will not see the difference probably until the next general election. However, it is on us to resolve this issue once and for all.

In the Minister’s opening speech, he talked about asking those with the broadest shoulders to pay more. Let me speak briefly about three groups of people—apprentices, graduates and pensioners—who do not have the broadest shoulders and instead feel completely targeted.

19:45

From speaking to apprentices, I know that they earn just £7.55 an hour—£5 an hour less than the national minimum wage—yet because they are paid for their training hours as well as their working hours, they will be dragged into paying income tax. These very young earners, who are at the very beginning of their time and should be being supported, will be paying tax because of the increase—the stealth tax—that we see. They simply do not feel like people who have the broadest shoulders. If the Government are looking to consider exemptions for groups, may I ask them to consider some of our youngest apprentices? They are the people least able to manage these additional burdens.

Let me turn to the group that we collectively—and, at the moment, this Government—are failing: the young adults who have invested in their future by going into higher education. Time after time, we see this group of people being failed. They have eyewatering house prices and rents to pay. The interest rates on their student debts are way above the interest rates that the landlords of the buy-to-let properties they are forced to live in, which have mould growing up the walls, are paying on their investment properties. They are being dragged into higher tax payments without an increase to their student loan thresholds.

Time and again, young adults who have invested in their futures, done everything right and tried to make the world a better place are being targeted by successive Governments. I am the parent of two recent graduates and an undergraduate, so I see those daily struggles. I see many young people saying, “What is the point of going to university?”

[Dr Luke Evans]

Is the hon. Lady as concerned as I am about the fact that plan 2 student loans seem to be particularly impacted by the thresholds? I am concerned about the impact that that will have on the way in which people will have to make their repayments.

[Vikki Slade]

I will be honest and say that, not having been to university, I do not know the details of the different groups. My students are all very recent graduates, so they went in knowing that they would have enormous debt and recognising that they would be more than £50,000 in debt, with probably no prospect of ever paying it off. I do not think they went in realising that they would get such a bad deal when they were at university, with eight hours of contact time a week and PhD students doing their lectures, rather than actual lecturers, some of whom cannot even speak English and are here only for their visas. Students are having a really rough time, and this measure is just rubbing salt into the wound.

[Jim Shannon]

I have often said in this Chamber in the last three or four years that the Government should sponsor medical students—those working to be doctors or whatever the position may be in the medical service—and ensure that they do three or four years in the health service. Wales does that, and it works. I have a constituent from Newtownards—we will never get her back in Newtownards, because she has fallen in with a Welshman; she will stay there and marry him, and that is it—who had to stay for three years, but she got all her student fees paid. Is that not what Government should be doing to make it easier for young students and to retain them in the health service?

[Vikki Slade]

I always value the interventions of the hon. Member. As the aunt of a young GP, Bethan, who has more than £100,000-worth of debt, I think it is ridiculous that our young people are being saddled with this situation. I have constituents who have deliberately gone to study in Wales so that they are able to get that benefit. It is time for us to look collectively at analysing the cumulative impact of the issues faced by our young, aspirational adults, because we will see more of them deciding to go abroad, and we desperately need our home-grown talent to stay.

Thirdly, I turn, as most Members have done, to pensioners. The older age group will have been pleased to hear that they are due to be exempted from the tax threshold if their only income is the state pension, but two constituents—Colin from Wareham, who is a regular correspondent, and John from Lytchett—have written to suggest that the Chancellor may have inadvertently misled Martin Lewis. I will not use their other accusation, as I will get into a lot of trouble. One said that most pensioners are expected to survive on a weekly state pension that is four times lower than the average wage, and that mandating that they be taxed will plunge many older people into desperation and poverty. They have suggested that it is not quite accurate that the state pension alone will not be taxed—I am using my words very carefully—so can the Minister assure me and my constituents, like others, that from April, those with no income other than the state income and modest savings will pay no income tax, particularly because there appears to be nothing in the Bill about that?

Finally, given that millions of people with tiny private pensions and, in particular, many pensioners will be dragged into tax, will the Minister consider the Lib Dem proposal for a pensioners’ “red phone” to ensure that they do not spend hours hanging on the telephone?

[Sammy Wilson]

Tonight’s debate is not just an opportunity for the Opposition to have a go at the Government. Many people who are getting cynical about politics will say, “Well, of course you would expect them to have a go about taxation and the Government’s behaviour on that issue.” However, this debate goes far beyond that, because the implications of what we are discussing tonight are very serious.

First, there are the macroeconomic impacts of the decision not to make work pay, because of higher taxation. The Government have hung a lot of their predictions of economic success on obtaining economic growth, but one thing we will not do is tax our way to growth. This will be an anti-growth measure, which will have implications not just for this year but future years and future Budgets. Secondly, it will have personal consequences for many people facing the current cost of living crisis and finding it difficult to stretch their income to meet their needs.

Lastly, the decision will have an impact on people’s confidence in the democratic system. The Government will get this Bill through tonight. They will get it through because they have a massive majority, and they have a massive majority because they made massive promises. They promised that people would not face income tax increases, and I have no doubt that that influenced how many working people voted. However, the Minister has accepted tonight that by the end of this period, £28 billion will have been raised. One reason I support new clauses 3, 13 and 14 is that they at least give people an opportunity to realise what the Government are doing to them, and they show that politicians in this House want there to be honesty with the people. If there was not honesty when the manifesto was written and presented, let us ensure that there is honesty when the implications of the decisions that this Government are making become clear to the citizens of this country. These are confidence measures.

Let us just remind ourselves of what the Government promised—we have been around this a number of times tonight. They promised that they would not increase taxes on working people. They then went on to define “working people” as people who go to work every day, yet we know that by freezing the thresholds, people who go to work every day and are therefore subject to income tax being charged on the money they earn will pay more. Working people know that a promise to them has been broken.

[Dr Luke Evans]

I think the Chancellor knows that, given her statement at the first Budget that changing the thresholds would be a tax on working people.

[Sammy Wilson]

Of course she does. That is one reason why I believe that the new clauses are important—they recognise the need for people to be made aware of the consequences, and the impact on them, of decisions that are being made in this House by a majority Government who got there by making promises that are not being kept.

What is that impact? The Minister has already told us: £23 billion more tax will be paid. He justifies that by saying—I think he mentioned this twice—that the Government have sought to be fair, and to place the burden on those with the broadest shoulders. When 750,000 people who are currently earning £12,500 per year are dragged into the tax system, that does not strike me as fair. It strikes me as placing a burden on people who go out to work every day, do not earn a great deal of money or have a great reward for it, and now find themselves having to pay tax when they never thought they would have to.

As I said in an earlier intervention, people might be willing to pay taxes if they thought it would lead to things that would improve their lives. We had that promise at the first Budget—that the Government were putting up taxes by £40 billion, or whatever it was at that stage, to improve public services. Have public services improved? No, they have not. Has the money been spent on public services? No, it has not. Yes, wage increases have been given, but as the OBR has said, there have been no productivity increases as a result of the extra money that has been spent. If taxpayers thought they were going to get some benefit from these changes, they might have been willing to accept them, but of course, they are not getting that benefit.

What are we getting? We are getting wasteful expenditure. As has already been mentioned, £5 billion will be spent on taking money from those who go out to work and paying it to those who do not go out to work. That is not fair, and it does not make any economic sense, either. Then, of course, there is all the other wasteful expenditure that the Government have engaged in, such as the Chagos deal. We had the Chagos islands—we had our bases there and so on. We are now going to pay somewhere between £38 billion and £47 billion to the Government of Mauritius to give the islands back and then lease them back again. You can understand why people ask, “Is that what I want my taxes to be spent on?” Of course it is not.

The Government estimate that their ID cards system will cost £1.8 billion, while the London School of Economics says that the cost could be £10.7 billion. The Government say that it is to stop illegal immigration, when we know full well that it would not matter if we had six ID cards—those who come into this country illegally will seek to work illegally, and there are other means of checking up on them anyway. There are also the new bureaucracies that the Government have set up. One of their first actions was to set up a huge bureaucracy, Great British Energy, at a cost of £9 billion. Again, what benefit will we get from that? The Government have said that it will deliver their net zero policies, but is it necessary to have a bureaucracy of that nature? I know that many Members do not agree with me on this issue, but we are spending billions of pounds on restructuring our economy to meet net zero targets when many other countries are saying, “We are not prepared to damage our economy in that way.”

Given the proposals we are debating tonight, the new clauses I have spoken to are not all that demanding. All they say is, “Let’s have some transparency about what all this means to the people who are having to pay the money.” That is not too much to ask. I hope that people will consider that when they cast their vote tonight.

The one thing I say in conclusion is that we seem to have a Government who, as their first choice, will spend taxpayers’ money, rather than looking at how the money they already take from taxpayers can be used more effectively.

20:00

[Clive Jones (Wokingham) (LD)]

I rise to speak to clause 10. It is utterly unfair and shameful that this Government are raising taxes on struggling families by freezing or continuing the freeze of income tax thresholds, which was started by the Conservatives. The Conservative Government spent years hitting people with stealth taxes, and Labour, sadly, has decided to continue to do the same. Clause 10 freezes the basic rate limit for income tax at £37,700, and it freezes the amount of personal allowance at £12,570 until 2030-31. This extension of the Tories’ stealth tax will hit ordinary families, people on low incomes and pensioners whose only income is the state pension. The Government have again turned their back on some of the most vulnerable for the sake of another short-sighted tax grab. Does the Minister really think that is fair?

Let me once again offer some advice. The best way to balance the books is to grow our economy, and the quickest way to do that is to repair the damage of the Conservatives’ terrible Brexit deal by negotiating a bespoke EU-UK customs union. A better trade deal like that would raise more than £25 billion for the Exchequer, which would be a huge boost for the public finances. It is suggested nearly every week in this place by Liberal Democrats. When will the Minister and his colleagues start to listen?

[Dan Tomlinson]

I was listening to the speeches made by Members on the Opposition Benches so intently that I am not in the right place in my notes to start my speech.

I extend my thanks to the various Members who have spoken today. I will be very brief in winding up— [Interruption.] Yes, I know some Members in particular will enjoy that. The Conservatives’ new clause 15 asks the Government, within three months of this legislation coming into force, to publish an assessment of the impact of exempting pensioners whose sole income is the basic or new state pension from income tax. That issue was raised by the Opposition spokesperson, the hon. Member for Grantham and Bourne (Gareth Davies), as well as by the hon. Members for Hinckley and Bosworth (Dr Evans) and for Mid Dorset and North Poole (Vikki Slade), and others.

The new clause refers to the Chancellor’s announcement that those whose only income is the basic or new state pension without any increments will not have to pay income tax over this Parliament. I know that some Members are particularly impatient and energetic on this point, but more details will be set out later in the year. As the details of the policy have not yet been announced, it would be premature for us to set out the impacts at this stage.

[Several hon. Members rose—]

[Dan Tomlinson]

Many Members wish to intervene. I will happily give way to the hon. Member for Kingswinford and South Staffordshire (Mike Wood).

[Mike Wood (Kingswinford and South Staffordshire) (Con)]

The Minister says that pensioners who only receive the new state pension will not have to pay income tax. Can he say whether pensioners paid the old basic state pension, but who were contracted out and have alternative provision that brings them up to the same level as the new state pension, will have to pay income tax?

[Dan Tomlinson]

As the Chancellor has set out—more detail will follow later this year—those whose only income is the basic or new state pension, without any increments, will not have to pay income tax over this Parliament. I am aware that Members would like to see more detail, but it would be premature for us to set out the impacts of the policy at this stage, because the details will be forthcoming later this year. I therefore say that new clause 15 should be rejected.

[Several hon. Members rose—]

[Dan Tomlinson]

It is so wonderful to see so many Members on the Opposition Benches wishing to intervene. They were much less forthcoming in my previous closing remarks. I have given way to one Conservative, so I will give way to a Liberal Democrat.

[Daisy Cooper]

The Minister will have heard a number of colleagues asking for more detail about how the pension provisions will affect pensioners. The Minister has just said that further information is to come. Will he please give us an indication of the date when we can expect that guidance to be published, so that he can then come back and clarify some points?

[Dan Tomlinson]

That information will be forthcoming in due course.

In conclusion, I hope that Members will see how the amendments that have been tabled are not necessary. We have set out the impact of our tax changes in numerous tax impact and information notes, which Members can read online at their leisure. This Government and I will not let Opposition Members who repeatedly voted to freeze thresholds until 2028 when they were in government to rewrite history. This Labour Government reject the Conservatives’ austerity measures, which got our country and public services into this sorry state. We inherited a mess at the 2024 general election, and the measures we are considering now, and those elsewhere in the Finance Bill, enable us to rebuild our public finances, to fund our public services for the long term and to get borrowing over the course of this Parliament to continue to fall. I therefore, urge the Committee to reject new clauses 3 to 5 and 13 to 15 and to support the inclusion of clauses 9, 10 and 69.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Clause 10

Basic rate limit and personal allowance for tax years 2028-29 to 2030-31

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

20:07

Division 399

Question accordingly agreed to.

Ayes: 324

Noes: 180

Clause 10 ordered to stand part of the Bill.

Clause 69 ordered to stand part of the Bill.

Clause 62

Agricultural property relief and business property relief etc

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

[The First Deputy Chairman of Ways and Means (Judith Cummins)]

With this it will be convenient to consider the following:

Amendment 42, in schedule 12, page 443, line 13, leave out from “and” to end of line 16 and insert—

“(c) either—

(i) is attributable to property that has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family, or

(ii) if the value does not fall within (i), does not exceed the amount of the 100% relief allowance available in relation to that chargeable transfer (see section 124D),”

This amendment would maintain 100% business relief where the property has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family.

Amendment 45, page 443, line 13, leave out from “and” to end of line 16, and insert—

“(c) either—

(i) is attributable to property acquired before 31 March 2026, or

(ii) if the value does not fall within (i), does not exceed the amount of the 100% relief allowance available in relation to that chargeable transfer (see section 124D),”

This amendment would apply 100% business property trust relief where the property was acquired before 31 March 2026.

Amendment 43, page 443, line 22, leave out from “and” to end of line 25 and insert—

“(c) either—

(i) is attributable to property that has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family, or

(ii) if the value does not fall within (i), does not exceed the amount of the 100% trust relief allowance available in relation to that occasion (see sections 124G to 124K),”

This amendment would maintain 100% business relief where the property has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family.

Amendment 46, page 443, line 22, leave out from “and” to end of line 25 and insert—

“(c) either—

(i) is attributable to property acquired before 31 March 2026, or

(ii) if the value does not fall within (i), does not exceed the amount of the 100% trust relief allowance available in relation to that occasion (see sections 124G to 124K),”

This amendment would apply 100% business property trust relief where the property was acquired before 31 March 2026.

Amendment 44, page 443, line 37, leave out from “and” to end of line 3 on page 444 and insert—

“(b) either—

(i) is attributable to property that has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family, or

(ii) if the value does not fall within (i), does not exceed the amount of the 100% relief allowance available in relation to that chargeable transfer (see section 124D),”

This amendment would apply 100% agricultural property trust relief where the property has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family.

Amendment 47, page 443, line 37, leave out from “and” to end of line 3 on page 444 and insert—

“(b) either—

(i) is attributable to property acquired before 31 March 2026, or

(ii) if the value does not fall within (i), does not exceed the amount of the 100% relief allowance available in relation to that chargeable transfer (see section 124D),””

This amendment would apply 100% business property trust relief where the property was acquired before 31 March 2026.

Amendment 48, page 444, line 15, at end insert—

“(1D) Where the whole or part of the value transferred is treated as reduced by 50% under subsection (1), the resulting inheritance tax liability is chargeable only if, within 10 years of the relevant transfer, the agricultural land giving rise to the charge is either—

(a) sold (and the owner has not purchased agricultural land elsewhere), or

(b) ceased to be used for farming.”

Government amendments 24 to 26.

Amendment 3, in schedule 12, page 451, line 22, leave out “30 October 2024” and insert “1 March 2027”.

This amendment, along with amendments 4 to 23 would remove the transition period in respect of the changes to agricultural property and business property relief and delay the implementation date so that the changes would take effect for transfers made after 1 March 2027.

Amendment 31, page 451, line 22, leave out “30 October 2024” and insert “6 April 2026”.

This amendment, with Amendments 32 to 36, would remove the transition period in respect of the changes to agricultural property and business property relief so that the changes take effect for transfers made from 6 April 2026.

Amendment 4, page 452, line 3, leave out “30 October 2024” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 32, page 452, line 3, leave out “30 October 2024” and insert “6 April 2026”

See explanatory statement for Amendment 31.

Government amendments 27 to 29.

Amendment 5, in schedule 12, page 454, line 17, leave out “30 October 2024” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 33, page 454, line 17, leave out “30 October 2024” and insert “6 April 2026”

See explanatory statement for Amendment 31.

Amendment 40, page 455, line 31, leave out “2031” and insert “2027”

This amendment would begin indexation in 2027 rather than 2031.

Amendment 41, page 455, line 33, at end insert—

“(2A) If the Treasury estimates that the value of agricultural land has increased by more than the percentage increase in the consumer prices index during the same period, then it must instead make an order by statutory instrument amending each relief allowance amount relating to agricultural property by the percentage increase in the value of agricultural land.”

Amendment 6, page 461, line 2, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 7, page 461, line 3, leave out sub-paragraphs (2) and (3)

See explanatory statement for Amendment 3.

Amendment 34, page 461, line 3, leave out sub-paragraphs (2) to (4)

See explanatory statement for Amendment 31.

Amendment 8, page 461, line 17, leave out “sub-paragraph (3) will not apply” and insert

“the transfer will prove to be an exempt transfer”.

See explanatory statement for Amendment 3.

Amendment 9, page 461, line 21, leave out from “paragraph” to end of paragraph 17(5)(b) and insert

“comes into force on 1 March 2027”

See explanatory statement for Amendment 3.

Amendment 35, page 461, line 21, leave out from “paragraph” to end of paragraph 17(5)(b) and insert

“comes into force on 6 April 2026”

See explanatory statement for Amendment 31.

Amendment 10, page 461, line 28, leave out “30 October 2024” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 36, page 461, line 28, leave out “30 October 2024” and insert “6 April 2026”

See explanatory statement for Amendment 31.

Amendment 11, page 461, line 31, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 12, page 461, line 33, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 13, page 461, line 36, leave out “6 April 2026” and insert "1 March 2027”

See explanatory statement for Amendment 3.

Amendment 14, page 461, line 38, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 15, page 462, line 3, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 16, page 462, line 7, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 17, page 462, line 15, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 18, page 462, line 19, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 19, page 462, line 30, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 20, page 462, line 35, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 21, page 464, line 14, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 22, page 464, line 21, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Amendment 23, page 464, line 27, leave out “6 April 2026” and insert “1 March 2027”

See explanatory statement for Amendment 3.

Schedule 12.

New clause 1—Section 62: application in Northern Ireland—

“(1) The Chancellor of the Exchequer must, within six months of this Act coming into force, publish an assessment of the effects of the measures in section 62 as they apply in Northern Ireland.

(2) The assessment must consider—

(a) the number of estates in Northern Ireland expected to be subject to the reduction in agricultural property relief made under this Act,

(b) the potential benefits to farmers in Northern Ireland of exempting land used for agricultural purposes from the changes to agricultural property relief made under this Act,

(c) the potential costs to the Exchequer of exempting land used for agricultural purposes from the changes to agricultural property relief made under this Act,

(d) the impact of the measures on farm succession, land retention, and the viability of agricultural businesses in Northern Ireland, including any potential implications for the resilience and security of the UK’s food supply, and

(e) any other matters that the Chancellor of Exchequer deems appropriate.

(3) In subsection (2), “land used for agricultural purposes” does not include land that falls within the Financial Conduct Authority’s definition of a land-banking investment scheme.

(4) In carrying out the assessment, the Chancellor of the Exchequer must have regard to—

(a) the average farm size and land valuation profile in Northern Ireland,

(b) the prevalence of intergenerational family farming in Northern Ireland,

(c) the interaction between agricultural property relief and devolved agricultural support schemes, and

(d) any disproportionate impact on rural communities in Northern Ireland.

(5) The assessment must be carried out following meaningful consultation with—

(a) the Department of Agriculture, Environment and Rural Affairs in Northern Ireland,

(b) representatives of farmers and land-based businesses in Northern Ireland, and

(c) such other persons as the Chancellor of the Exchequer considers appropriate.

(6) The Chancellor of the Exchequer must, within three months of publishing the assessment, lay before Parliament a statement setting out the steps the Government intends to take in response to the assessment’s findings.

(7) The Chancellor of the Exchequer must keep the operation of the measures in section 62 under review in light of the assessment and publish a further assessment within 18 months of this Act coming into force.”

New clause 6—Impact assessment of section 62 prior to implementation—

“(1) The Chancellor of the Exchequer must, within three months of the passing of this Act, lay before the House of Commons an assessment of the impact of implementation of section 62 on family-owned farms and businesses.

(2) The assessment made under subsection (1) must consider potential impacts on—

(a) business continuity,

(b) land use, and

(c) rural employment.”

New clause 7—Uprating of allowance amounts for agricultural property—

“The Chancellor of the Exchequer must, within six months of the passing of this Act, undertake and publish an assessment of the potential merits of uprating annually the relief allowance amount for agricultural property by the change in the value of agricultural land.”

New clause 17—Review of anti-forestalling provisions relating to Agricultural Property Relief—

“(1) The Treasury must conduct a review of the effects of the anti-forestalling provisions relating to Agricultural Property Relief.

(2) The review must, in particular, consider the effects of those provisions on—

(a) succession planning and intergenerational transfer of agricultural land and businesses,

(b) the viability and continuity of family-run farms,

(c) food security and domestic agricultural production,

(d) land management, environmental stewardship, and the condition of the countryside, and

(e) the availability of agricultural land for active farming.

(3) In conducting the review, the Treasury must consult such persons as it considers appropriate, including representatives of the agricultural sector.

(4) The Treasury must lay before the House of Commons a copy of the report within 12 months of the coming into force of the anti-forestalling provisions under this Act.”

[Dan Tomlinson]

As we come to the final group in today’s Committee stage on the Bill, I am pleased to open this important debate on clause 62, schedule 12 and the many associated amendments. As reiterated throughout the day, the Bill delivers on the choices made at this Government’s two Budgets. It delivers fair and necessary reforms that strengthen the foundations of our economy and provide a secure future for our country. The choice at those two Budgets was austerity and decline or investment and renewal, and on both occasions the Labour Government rejected austerity and chose renewal.

Clause 62, schedule 12 and Government amendments 24 to 29 make changes to agricultural property relief and business property relief in order to target them more fairly, contribute to the sustainability of public finances and fund public services. Under the current system, the 100% relief on business and agricultural assets is heavily skewed towards the wealthiest estates. According to HMRC data for 2021-22, 40% of agricultural property relief across the UK was claimed by just 7% of the estates making claims. That is £219 million in tax relieved from just 117 of the largest estates in the country, and it is a similar picture for business property relief: more than 50% of BPR was claimed by just 4% of the estates making claims. That is a striking £558 million in tax relieved from just 158 estates.

That contributes to the very largest estates paying lower average effective inheritance tax rates than the smaller estates, and significantly lower average effective inheritance tax rates than most people who end up paying IHT will pay. That is the status quo that those seeking to reverse the Government’s reforms in full wish to perpetuate. It is not sustainable and, in the Government’s view, it is certainly not fair to maintain such a large tax break for such a small number of claimants, especially in the context of the wider pressures on the public finances and public services.

[Ms Julie Minns (Carlisle) (Lab)]

I very much welcome the fact that, from next year, an estimated 85% of farms will pay no more inheritance tax on their farming and business assets. I agree with the Minister that it is a proportionate measure that aims to prevent the wealthy from abusing APR, and I know that he is mindful of the profitability of our small and medium-sized farms. Will he undertake to work with colleagues in the Department for Environment, Food and Rural Affairs to make sure that we get the definition right for the new sustainable farming incentive, so that as many of those small and medium-sized farms as possible are eligible for it?

[Dan Tomlinson]

I thank my hon. Friend for her continued interest in this area; she is a strong representative for the rural communities that she represents in the north-west of our country. I am sure that colleagues in DEFRA, including the Secretary of State and others, will be working hard to make sure that the funds that this Government have allocated for farming and farming businesses are spent in full, rather than leaving hundreds of millions of pounds underspent, as the previous Government did. We will make sure that the money gets to the farms that will benefit from it, to support them with the initiatives that they and we know would be good for them to pursue, because they are good for the environment and for those businesses.

[Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)]

I thank the Minister for giving way; he is very courteous. As Members will understand, I represent a very remote constituency in the north of Scotland where crofting—very marginal farming and hill farming—is fundamental not just to the economy of the highlands, but to the social structure. The great curse in the past was de-population, and various safeguards were enacted in the 19th and 20th centuries to ensure that crofting continued. Crofters are asset-rich, but their income is very poor indeed. I welcome what the Government have done so far. Could I please ask the Minister, with my hand on my heart, to keep an eye on this particular sector? Anything that would discourage people could be fatal for the community I represent.

[Dan Tomlinson]

I thank the hon. Member for raising the crofting sector and the rural communities that he represents. The Government will continue to do all we can to support different types of farmers, and to make sure that we can support tenant farmers too. I thank him for raising that point and for the representation that he provides to his constituents.

The changes made by clause 62, schedule 12 and Government amendments 24 to 29 will reform how we target agricultural property relief and business property relief from 6 April this year.

[Harriet Cross (Gordon and Buchan) (Con)]

It has been many, many months since the agricultural property relief and business property relief changes were first announced by this Government. In that time, they have had so many representations from farmers, the farming industry, small business groups, family business groups, Members of this House, industry sectors, the National Farmers Union Scotland, the Country Land and Business Association, Scottish Land & Estates, Labour Back Benchers, Opposition Back Benchers and the public at large. Everyone was telling the Government that this was a bad policy. Why did it take them so long to change it?

[Dan Tomlinson]

Conservative Members keep repeating, “14 months”. I should use that as an opportunity to remind people of the 14 wasted years that their party put farmers and rural communities through; of the trade deals that they implemented, which made life worse for our farmers and farming communities; and of the hundreds of millions of pounds that went underspent in the farming budgets over 14 years, and which could have benefited rural communities and farmers. 

After continued engagement from Ministers across the Government, including in the Treasury and the Department for Environment, Food and Rural Affairs, as well as the Prime Minister’s engagement with important representatives in this space, the Government made a change—the change that the Government amendments will enable this Committee to legislate for, if it wishes, and I do hope it does. This change will strengthen the public purse by around £300 million.

[Robin Swann (South Antrim) (UUP)]

I want to take the Minister back to his earlier commitment on Scotland. Will the Government give the same commitment to farmers in Northern Ireland? We have a very different family farm structure from that in the rest of the United Kingdom, and the engagement of and representations by the Ulster Farmers’ Union and the Young Farmers’ Clubs of Ulster should bring this Government to a realisation that their last proposals did not sit well with farmers across this United Kingdom.

[Dan Tomlinson]

A few weeks back, I had the pleasure of attending a Westminster Hall debate focused on farming and farmers in Northern Ireland. It was a good, productive debate, and I took away many of the points raised. The hon. Member will know that the Government have made a change to increase the threshold.

[Carla Lockhart (Upper Bann) (DUP)]

Will the Minister give way?

[Dan Tomlinson]

Given that the hon. Member called that debate, I will.

20:29

[Carla Lockhart]

I thank the Minister for attending that debate. He noted during it that he might meet the Ulster Farmers’ Union, but, sadly, that has not happened. The Government have been tone deaf for the last 14 months on this issue, and when the Ulster Farmers’ Union and each of the unions across this United Kingdom told them of the wrong that they were doing, they did not listen. In the wake of all this, would he meet the Ulster Farmers’ Union to discuss its outworkings?

[Dan Tomlinson]

I am sure that Environment Ministers will continue to engage with farming unions and farming representatives. Both in the run-up to the Budget and subsequently, Treasury Ministers and those from other Departments have engaged with farmers, and we will continue to do so, to support farmers in a way that the previous Government never did.

Individuals will still benefit from 100% relief for the first £2.5 million of combined business and agricultural assets, and the figure will be fixed at that level until April 2031, alongside other inheritance tax thresholds, as we have been debating. Any unused allowance can be transferred to a surviving spouse or civil partner, including where the first death is before 6 April 2026. On top of that amount, there will be a 50% relief, which means that inheritance tax will be paid at a reduced effective rate of up to 20%. We are also reducing the maximum rate of business property relief available from 100% to 50% for shares designated as not listed on the markets of registered stock exchanges. The reliefs sit alongside other exemptions and nil rate bands. This means that a couple will now be able to pass on up to £5 million of agricultural or business assets tax-free between them. That is on top of existing allowances, such as the nil rate band.

Where inheritance tax is due, those liable for a charge can pay any liability on the relevant assets over 10 annual instalments, interest-free. This benefit is not seen elsewhere in the inheritance tax system, and it means that the relief continues to be more generous than it was for the vast majority of the 20th century. In fact, from April 2026, the reliefs will be more generous than they ever were under, for example, Margaret Thatcher’s Government.

Our reforms are expected to result in a total of up to 1,100 estates across the UK paying more inheritance tax in 2026-27. Only up to 185 estates across the UK claiming APR, including those also claiming BPR, are expected to pay more in the next tax year. This means that around 85% of such estates will not pay any more tax as a result of the changes in 2026-27. Excluding estates holding shares designated as not listed on the market of registered stock exchanges, only up to 220 estates across the UK only claiming business property relief are expected to pay more.

[Simon Hoare (North Dorset) (Con)]

Will the Minister give way?

[Dan Tomlinson]

Go on, then. I will give way, but I was trying to make progress so that other Members could speak.

[Simon Hoare]

I hate to interrupt the Minister, but the Chancellor in effect told the House and the country when this policy was first introduced that people need not really worry a huge amount, because not a vast number of farms would fall into this trap. The welcome but limited announcement made just before Christmas will of course reduce still further the number of people who will fall into this trap. He has just set out to the Committee a very complicated set of checklists, including this, that and the other. Would it not make more sense to scrap this whole damned stupid idea, and give a big tick of confidence to our food-security-bringing, environment-protecting, job-creating farming sector, which is so vital to UK plc?

[Dan Tomlinson]

The Government do support the farming sector and the farming industry. We will continue to do so through the funds that we will make available via DEFRA—funds that were not fully spent under the previous Government. We have listened to farming communities and business representatives, and raised the threshold from £1 million to £2.5 million as a result of that listening and engagement. The Government do not think it would be right to abolish the policy in full, because then we would forgo £300 million of revenue from the very largest estates. [Interruption.] The hon. Member for North Dorset (Simon Hoare) may say that £300 million is a rounding error, but it is important to raise revenue from a broad range of taxes, and from those with the largest-value estates in the country. As I said earlier, hundreds of millions of pounds in tax is relieved from the very largest estates in the country. If Opposition Members want that to continue to be the case, that is of course their right, but we Government Members think that our reforms are fair, and raise proportionate revenue from the very largest estates.

[Robbie Moore (Keighley and Ilkley) (Con)]

Can the Minister explain how we ended up in the bizarre scenario in which two estates—I use the term “estates”, because they need not necessarily be farming businesses; they could be any kind of family business estate—valued at £5 million could generate different amounts of tax for the Treasury, depending on the ownership structure? Secondly, can he explain, because I cannot see this in the amendments that have been tabled, why there is no indexation link to any increase? Obviously, land values will increase over time. Thirdly, when he was last at the Dispatch Box, he said that interest would not be charged, so can he clarify whether, when inheritance tax liability is triggered, interest is or is not triggered in that 10-year period?

[Dan Tomlinson]

There were some forensic questions in that not brief intervention, but of course I appreciate it, and I look forward to trying to go through—[Interruption.] I am trying to answer the questions, okay? [Interruption.] It is a bit difficult when Opposition Front Benchers continue to barrack me while I am trying to answer the questions that a Back-Bencher has asked. If the right hon. Member for Louth and Horncastle (Victoria Atkins) wishes to continue to hector me from a sedentary position, she may, but we will not have any time for me to answer questions.

On the points raised by the hon. Member for Keighley and Ilkley (Robbie Moore)—let me dial down the temperature; congratulations for getting to me—and on how the spousal transfer is used in the inheritance tax system, we are replicating that in the treatment of the spousal transfer for APR and BPR. That is the way the transfer is set out in the inheritance tax system. We are not doing anything different or novel here. We just debated the thresholds, which will be set at current levels and will not be uprated in line with the changes that we are making to other taxes. The hon. Gentleman also asked about interest. As I said, where inheritance tax is due, those liable for a charge can pay any liability on the relevant assets over 10 annual instalments, if they like, and that will be interest-free. I have been through the numbers. Only 185 additional estates claiming APR are expected to pay more in 2026.

To conclude, the reforms get the balance right between supporting farms and businesses, fixing the public finances, and funding our public services.

[Ben Maguire (North Cornwall) (LD)]

I would like to pick up on the point raised by the hon. Member for Keighley and Ilkley (Robbie Moore) about the ludicrous situation where a farm that is worth £5 million if it is owned under a certain ownership model will not be subject to tax, but a farm worth less than that could be subject to tax. Graham, a farmer from my constituency, visited my surgery on Friday. He is in that exact situation. He is a sole trader slightly over the £2.5 million mark. We ended up discussing for more than 10 minutes whether he should marry his long-term partner to get away from this tax. Does that not illustrate just how ludicrous the situation is, Minister?

[Dan Tomlinson]

This is the normal way that inheritance tax assets are taxed. There is not just APR and BPR, and the changes coming in in April; other assets are passed on through inheritance. We are applying the same treatment here; this is the standard way that inheritance tax is set for various assets.

As I was saying, these reforms get the balance right between supporting farms and businesses, fixing the public finances and funding public services. They reduce the inheritance tax advantages available to some owners of agricultural and business assets, but those assets will still be taxed at a much lower effective rate than most other assets—a £6 million estate owned by a couple, for example, could have an effective tax rate of just 1.2%, which can be paid, interest-free, over 10 years.

Those opposing these reforms in full will be voting for a status quo in which the very largest estates pay a lower average effective inheritance tax rate than the smallest estates—a status quo where the Exchequer sees £219 million in tax relieved from just 117 estates claiming APR, and £558 million in tax relieved from just 158 estates claiming BPR. That is not sustainable, and it is certainly not fair. I therefore commend clause 62, schedule 12 and Government amendments 24 to 29 to the Committee.

[The Chairman of Ways and Means (Ms Nusrat Ghani)]

I call the shadow Minister.

[Gareth Davies]

I wish to speak to amendments 3 to 23 in the name of my right hon. Friend the Member for Louth and Horncastle (Victoria Atkins). By now we all know what clause 62 and schedule 12 do: they would restrict agricultural property relief and business property relief to 100% of the first £1 million of qualifying assets and 50% thereafter—though I note that this legislation was written before the recent announcement, which I will obviously come on to. Members should be in no doubt that the Conservative party will fiercely oppose Labour’s family farm tax and family business tax in the Lobby today, just as we have since these policies were announced. We must first face the reality of the sheer number of Labour MPs intent on punishing those who dare to feed us, or who take a risk to build their own business.

Our amendments seek to mitigate at least some of the damage by removing the anti-forestalling measures that have purposely tied the hands of so many farmers and business owners across our country. The Chartered Institute of Taxation and many others have pointed out that these measures particularly trap more elderly farmers, who have been robbed of their ability to plan. The Government have said all along that they expect farmers and business owners to alter the ownership structure of their assets. I would be really interested to hear just how the Minister believes that elderly farmers, in particular those in the final few years of their life, should do that.

Before I turn to the other issues, I note that the amendment paper tells its own story: Government amendment after Government amendment, each one a U-turn and a rushed attempt to bury the incompetence, indifference and hostility that this Labour Government have shown to family farms, tenant farmers, rural communities and family businesses. I ask respectfully of the Minister, as my hon. Friend the Member for Gordon and Buchan (Harriet Cross) asked earlier, why it has taken the Treasury more than a year to admit that it got this wrong. Why have farmers been forced to leave their fields and bring their tractors to Whitehall, just to be heard?

I pay tribute to the shadow Secretary of State for Environment, Food and Rural Affairs, my right hon. Friend the Member for Louth and Horncastle, and to my hon. Friend the Member for Keighley and Ilkley (Robbie Moore), who gave this House five chances before today to vote against these changes. The Government had ample opportunity, but here we are. We know that their partial U-turn will not be enough. The Country Land and Business Association has been very clear that it will only limit the damage.

Many serious questions and concerns remain on the impact of clause 62, but I will highlight just three. First, from the very start the Government’s numbers have been, at best, questionable. The Treasury has disagreed with the CLA and others on how many farmers and businesses will actually be affected. Even after the partial U-turn, HMRC expects 1,100 estates to face larger inheritance tax bills in 2026-27, 185 of which will be claiming APR. Yet the experience of many Members, from speaking to farmers and businesses in our constituencies, and that of several industry bodies is that that figure is massively wide of the mark.

20:45

[Mike Martin (Tunbridge Wells) (LD)]

The Government’s figures were pretty shoddy when the policy was announced at the Budget. How confident is the shadow Minister that the Government’s figures are any better now?

[Gareth Davies]

My right hon. Friend the shadow Secretary of State has engaged extensively with farmers and those who represent farmers. The reason I am raising this point now is because the numbers are questionable—and not just on who is impacted by the measures but the net revenue to the Exchequer too. Some have suggested that the changes in clause 62 may even end up costing the Exchequer. While the OBR has forecast that £500 million will be raised through clause 62 in 2029-30, the Confederation of British Industry’s analysis suggests instead a net loss to the Government of some £1.9 billion over the forecast period because of the impact that clause 62 will have on the wider economy.

[Simon Hoare]

My hon. Friend is making a serious point. Given the huge discrepancy in the robustness of the figures from the Treasury and wider Government, the challenges they have faced from industry bodies and experts, and the sensitivity of the issue and importance of the agricultural sector, does my hon. Friend agree that while the Treasury may well wish to stick to its policy, it should pause and take some time to build consensus across the sector on the data and work out the trajectory of costs? This back-of-a-fag-packet, fly-by-night way of trying to approach serious policy is simply insulting.

[Gareth Davies]

I completely agree. We would not be doing this, and we should not be here, but clearly the policy has been executed without a plan—without serious thought, analysis or engagement. I would welcome anything that the Government can do to make this less painful for those affected and to get the numbers right.

The Minister explained that the Government expect to raise around £300 million even with the U-turn, but the initial costing was labelled in the OBR’s economic and fiscal outlook as “highly uncertain”. For those not familiar with this, there are different categories of uncertainty in the EFO, and “highly uncertain” is the most uncertain that one can be about a figure. Surely this new figure of £300 million is uncertain, just as the £500 million was. What assurance can the Minister provide that the Exchequer will not in fact lose out overall, despite the pain that the Government are determined to inflict? How confident is he in these numbers?

Secondly, since the Chancellor’s first Budget, family businesses and farmers have had to make many difficult decisions. Family Business UK and Make UK say that 55% of BPR-affected and 49% of APR-affected businesses have paused or cancelled investments. Family-run farms are putting off the purchase of new, more efficient machinery and family-run shops no longer see the point of expanding to an additional site or another high street, or of taking on more staff. It comes back to the questionable figures I talked about and the CBI’s analysis of the impact on the wider economy.

Finally, we should have no confidence in the practicality of the measures before us. The Chartered Institute of Taxation has warned that extending 10 annual interest-free instalments to APR and BPR property does not solve the problem; those instalments will still be a significant burden. In practice, it is unlikely that many families will be able to pay the tax without selling up.

[Robbie Moore]

On practicalities, I would be interested to understand whether the Minister or the Treasury has done any analysis of the impact on the district valuer. There is a real challenge in that when a farm is valued, that value will be disputed by either the Treasury or the agent acting on behalf of the landowner with that tax liability. Secondly, if we look at two farms in different parts of the country, we see that values vary dramatically. What consideration does my hon. Friend think the Treasury has given to how tax liability varies based on the value of 200 acres of land in one part of the country and 200 acres valued at a higher rate, such as in Northern Ireland? Practicalities matter.

[Gareth Davies]

That is exactly right. I will let the Minister address that point, but let me pay tribute again to my hon. Friend, who has been a forceful champion for farmers across the country and has consistently raised these issues. That goes back to my point about the warnings provided to the Government about the practical implications of the changes, with their impact on family farms in particular. They were ignored until this point. The Minister will have to explain why that was.

Indeed, the Chartered Institute of Taxation has warned that schedule 12’s failure to allow allowances to be allocated to specific property could undermine many wills as currently drafted. This creates a tremendous amount of uncertainty, disputes and real hardship.

Where the cap is exceeded, the first inheritance tax payment will fall just six months after death. If that deadline is missed, the estate will be hit with a punishing interest rate. Within six months, family farms must secure probate, value complex agricultural and business assets, calculate the liability and then raise the cash—often by selling parts of the estate to make the first payment. The NFU has been clear that expecting probate within six months is “unrealistic” given the complexity of valuing agricultural businesses, as my hon. Friend pointed out. In practice, families and personal representatives will miss the deadline—through no fault of their own—without a confirmed tax bill and without the funds to pay for it.

The Government’s expectation is simply unrealistic. The approach is flawed, and the window must be extended. If clause 62 is agreed to and the Government do not finally concede, family farmers and businesses in my community of Lincolnshire and those across the country will not rest until these changes are fully reversed. The only consolation I can offer farmers and businesses watching the votes closely tonight—they will be watching every single one—is that the next Conservative Government will scrap these immoral changes.

[Ruth Jones (Newport West and Islwyn) (Lab)]

I rise to speak on schedule 12. I greatly welcome the Government’s changes to the proposed agricultural property relief and business property relief thresholds. As Chair of the Welsh Affairs Committee, I am proud of the work that my Committee has undertaken on reviewing the Welsh farming industry and the report with clear recommendations that we produced before the Budget. I also thank the Treasury for its swift response to our report as well as the changes that it has made to the thresholds. These changes show that the Government are listening not just to farmers but to the Welsh Affairs Committee and Welsh Labour MPs.

The new higher thresholds are a win for Welsh farmers. Raising the allowance for 100% relief from £1 million to £2.5 million will ensure that the changes to inheritance tax are properly targeted at the wealthiest estates while ensuring that smaller-scale family farms remain protected. Couples will now be able to pass on £5 million-worth of agriculture or business assets between them, tax free. This additional relief will have a particularly significant impact in Wales, given its specific context, which is very different from England. This was a key finding of the Welsh Affairs Committee’s recent inquiry.

[Ben Lake (Ceredigion Preseli) (PC)]

I commend the hon. Member on her leadership of the Welsh Affairs Committee. She rightly said that the Committee did stellar work on reviewing the potential impact of the proposals on agriculture in Wales. Further to her point about the unique nature and structure of the agriculture industry in Wales, does she agree that, regardless of the changes that the Treasury has introduced, it would do well to undertake a specific Wales-wide impact assessment of these changes?

[Ruth Jones]

Absolutely; the hon. Member makes a point that I am going to come on to later.

Welsh farms are typically smaller than those in England, with 55% being less than 20 hectares, and 66% of Welsh farms are cattle and sheep farms situated on hilly or mountainous terrain, compared with just 12% in England, which also has a much higher concentration of arable farming. This leaves Welsh farms with the lowest average income of the four nations—£18,000 lower than in England. Welsh family farms are also a cultural bastion of the Welsh language, with almost half the people working on Welsh farms speaking Welsh as their first language—more than double the Welsh average.

While the Government’s changes to APR and BPR are likely to disproportionately benefit Welsh farmers, the diverse nature of farming across the four UK nations needs to be considered when making such significant changes. That is why the Welsh Affairs Committee continues to call for the Wales-specific impact assessment of the Government’s changes to inheritance tax that the hon. Member for Ceredigion Preseli (Ben Lake) just referenced. It is critical that those with the broadest shoulders pay their fair share of tax. That is why it is important that we close the inheritance tax loophole that allowed wealthy investors to purchase agricultural land as a way of avoiding tax.

Ensuring that the tax burden falls fairly relies on effective data, however. The Welsh Affairs Committee and I remain concerned about the availability and accuracy of the data used to justify the thresholds set for APR and BPR, particularly in regard to Wales. The Government have thus far been unable to provide any estimate of the number of Welsh farms that will be affected by these reforms to inheritance tax. Such data is critical when considering any potential impacts on the Welsh farming sector, given its greater financial precarity and reliance on low-income, family-run livestock farms. We cannot afford to be complacent. I hope that the Government will ensure that they take specific account of the unique cultural, environmental and economic circumstances of farming in Wales when making such significant policy decisions. I wholeheartedly support the changes to the APR and BPR as laid out in the Government’s amendment to schedule 12.

[The Chairman of Ways and Means (Ms Nusrat Ghani)]

I call the Liberal Democrat spokesperson.

[Charlie Maynard (Witney) (LD)]

Farmers up and down the country should be really proud of the campaign that has forced the Government to rethink the completely short-sighted and ill-thought-out policy that has threatened the future of family farms up and down the country. I congratulate them on the result that they have secured. I think everyone in this House would acknowledge that they have spent an enormous amount of time, energy, anxiety and stress getting to the position that we are now in, and that it would have been a lot better if they had never had to do that in the first place.

The Liberal Democrats were the first party to come out against these tax changes, and I pay tribute to my colleagues, my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) and my right hon. Friend the Member for Orkney and Shetland (Mr Carmichael), who, along with other Lib Dem MPs, have challenged the Government on this at every opportunity and stood in solidarity with the farming community each step of the way.

[Simon Hoare]

Correct me if I am wrong, but the Leader of the Opposition responded to the Budget and opposed it. The Liberal Democrat spokesman would have spoken later down the list, so I beg to differ from the hon. Gentleman. The Conservative party was the first party to oppose this proposal, not the Liberal Democrats.

[Charlie Maynard]

I guess we will have to check our social media accounts.

[Ben Maguire]

I would like to slightly correct the record there. We are having a technical debate about who opposed the tax first. I remind the Committee that it was the Conservative party that negotiated those disastrous New Zealand and Australian trade deals that decimated farming in my North Cornwall constituency.

[Charlie Maynard]

I thank my hon. Friend. [Interruption.] Would you like to intervene?

[The Chairman of Ways and Means (Ms Nusrat Ghani)]

Order. I have no desire to intervene on the hon. Member—“Would the hon. Member like to intervene?”

[Charlie Maynard]

My apologies, Ms Ghani.

21:00

The Government rushed out their original proposal with little understanding of its real-world impact on the sector. The 14 months of personal anxiety and business uncertainty will have lasting impacts on many and have hugely eroded trust in this Government. It should not have taken 14 months of anxiety, anger and protest to make the Government see sense. The farming community immediately warned what a detrimental impact the tax would have on rural communities, and the Government should have listened to them earlier.

This tax has represented an existential threat to the farming community, threatening to break the chain of family ownership that holds our countryside together through the generations. It comes on top of the wider challenges of the economic environment that farmers now operate in. On the surface, these farming assets are worth a lot, but the reality is that most family farms operate on incredibly thin margins or are loss making. Sharp rises in input costs—fuel, feed and fertiliser—labour shortages, national insurance contribution increases and unfairness in the supply chain mean that nationally the average profit on capital invested in farm businesses is less than 1%.

It is not just the family farm tax that the Government have beaten up our farmers with; it is also the sudden and unheralded removal of SFI payments last March. Almost a year later, there is still no news of a replacement scheme. Please will the Government move faster to provide a new plan? Farmers urgently need this information as it drives key decisions, and the seasons do not wait.

[Dr Roz Savage (South Cotswolds) (LD)]

The farmers of the South Cotswolds warmly welcome this increase in the threshold—better late than never—but does my hon. Friend agree that this Government need to move beyond not punishing our farmers and instead actively support them in being the stewards of our countryside and protecting our future food security?

[Charlie Maynard]

I very much agree with my hon. Friend.

The Lib Dems welcome the U-turn by the Government in December raising the allowance to £2.5 million and welcome the change announced in the Budget permitting the allowance to be transferable between spouses and civil partners. But as the Chair of the Environment, Food and Rural Affairs Committee, my right hon. Friend the Member for Orkney and Shetland, put it,

“These changes make the policy better, but that is not the same as saying that they make it good.” —[Official Report, 5 January 2026; Vol. 778, c. 30.]

We ask the Government to think again in the following areas. The Treasury estimates that the tax will now raise £300 million by 2029-30, down from £520 million. If the same pro rata reductions applied, less than £100 million will be raised in 2026-27—minuscule against the estimated total tax receipts this year of £1.23 trillion. Professional bodies, such as the Institute of Chartered Accountants in England and Wales, has expressed concern at how administratively burdensome it will be to value assets and calculate potential liabilities, even if there is no tax to pay. How does the revenue forecast to be raised compare with the cost of administering this new policy?

When the Government originally announced the planned changes to APR last year, the Chartered Institute of Taxation also suggested introducing transitional gifting rules to support older farmers who have done the logical thing of hanging on to their land, but who are now faced with penalties for doing so. Can Ministers please look at ways of alleviating some of that burden for older farmers who have not been able to plan ahead for this change? We will be voting against clause 62 because we as a party have consistently voted against the family farm tax and want it scrapped in its entirety.

[Lewis Atkinson (Sunderland Central) (Lab)]

The hon. Member mentioned £100 million or £300 million as minuscule amounts, but that is quite a lot of money to my hard-pressed constituents. Could the Liberal Democrats outline how they would pay for the policy that they advocate for—either increasing taxes on working people in my constituency or cutting the services they use?

[Charlie Maynard]

That is a very good question, but £100 million is 0.1% of £1.23 trillion. In materiality, it is important to think of it in that range. I do not think this is the way of going about it.

I ask the Government to consider voting in favour of amendment 3, which would remove the transition period in respect of the changes to APR and BPR and delay the implementation date so that changes would take effect for transfers made after 1 March 2027, and of our new clause 7, which would require the Secretary of State to undertake and publish an assessment of annually uprating the relief allowance for APR by the change in the value of agricultural land.

While awareness of the APR changes is very high among the farming community, I am concerned that awareness of the changes to BPR may not be as high among business owners in many sectors. Do the Government have any plans to raise awareness so that people know what is headed their way?

[David Smith (North Northumberland) (Lab)]

I welcome the Finance Bill. I will address clause 62 and schedule 12, which relate to APR and BPR. I have spoken on this subject several times, and did so back in November, because my constituency of North Northumberland has over 700 farm holdings, each of them growing the food that we eat and stewarding our land. As one farmer said to me recently:

“We have farmed this land since the mid-1800s—each generation investing in long-term decisions…which have benefited not just the farm, but the local area.”

I believe it is messages like that and the ability of farmers in North Northumberland to get this message across that were pivotal to bringing about these Government amendments.

The amendments will establish 100% relief up to £5 million for a couple, transferable between spouses, and a 50% relief thereafter. That will protect most family farms, with 85% of estates seeing no additional burden from April. I am indebted to the farmers of North Northumberland both for the way that they have engaged on the issue of inheritance tax and for the hard work they do day in, day out to put food on our dinner tables.

[Samantha Niblett (South Derbyshire) (Lab)]

I have enjoyed working with my hon. Friend on the Labour rural research group. We are so grateful to our farmers for engaging with us and educating us as we have gone along, so does he agree that we now have a fantastic opportunity to rebuild trust with our farmers? I have had many emails of thanks from them, and I thank the Prime Minister and the Treasury for this policy amendment. I wonder how many of my hon. Friend’s farmers have also said that, despite the fact that they have usually or often voted Conservative, they always do better under a Labour Government.

[David Smith]

As I will go on to say, I can confirm that I have had many messages of support for this change in policy. It has been a pleasure to work with the Labour rural research group and other colleagues on this matter, as my hon. Friend mentioned. As I thank farmers, I also want to thank the Government for listening, learning and acting. It is the hallmark of a mature Government and of a healthy parliamentary debate that we have got to this point.

A multitude of structural factors contribute to the sustainability of intergenerational farming. There are many similarities between Britain’s blue-collar workers in the factories and what we might call green-collar workers in the fields. Both are squeezed by commercial interests and a globalised race to the bottom in pricing, costs and wages, which is why the laissez-faire approach to farming economics, such as in the imbalanced trade deals of the Conservative party, work against the sustainability of farming.

We have to plough a new furrow that will make farming genuinely sustainable in an intergenerational way. Protecting farming will require Government to form a new covenant with farming and green-collar workers more generally. The implementation of the Batters review will be very important here, particularly the farming and food partnership board, so that the whole supply chain can be examined and improved. It is high time the supermarkets in particular gave a fair price for the produce of our famers. Despite what the Liberal Democrats spokesperson, the hon. Member for Witney (Charlie Maynard), said, the Secretary of State announced last week the plan for the SFI application process later this year. I particularly welcome the fact that there will be ringfenced support for smaller farms within that.

As I draw my remarks to a conclusion, I will just mention that some larger farms will be impacted even after the changes to APR and BPR. For those just above the threshold, I encourage the Government to consider addressing the potential time and capacity challenges for accurate estate valuation and speedy probate, which must dovetail with the expectation of inheritance tax payments, so that estates that need to pay have clarity and are not penalised for blockages in the wider system.

I know that the Government are totally committed to the success of farming. That is vital, because the country needs a flourishing farming sector.

[John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)]

As the hon. Gentleman’s constituency neighbour, representing a similarly rural constituency, I know how strongly farmers on my side of the border feel—like farmers on his side. The word “betrayal” comes up time and again among my local farmers. The Labour party said that it would not introduce this tax, and then it did. Does he now regret not following the lead of the hon. Member for Penrith and Solway (Markus Campbell-Savours), who did the right thing by rebelling against the policy?

[David Smith]

I thank my constituency neighbour for his intervention. Rather than go down the route of his question, let me respond with the words of one of my local farmers. She wrote to me on 23 December and said:

“As you know, we have been very vocal in opposing the earlier proposals, so it is equally important to state how strongly we welcome this change in policy. Increasing the threshold, together with the ability to retrospectively transfer unused APR and BPR allowances from my late mother to my father, will make a huge difference to our family and the viability of our farm business.

I will leave my remarks there.

[Robbie Moore]

I will speak to clause 62, schedule 12 and the amendments to them tabled by the Conservative Front Benchers.

Throughout debate on the Finance Bill, we have heard about the changes to inheritance tax, predominantly in relation to the agricultural and business property reliefs. My comments refer not only to the many family farming businesses affected by the Government’s changes, but to many other family businesses, be they hospitality or manufacturing businesses, including in my Keighley constituency. They are all affected by the direction that the Labour Government are taking.

The changes that the Government have brought to the Committee do not get rid of the cliff edge associated with the measure kicking in a few months from now in April. Changing the threshold from £1 million to £2.5 million does not remove that cliff edge for a family business that has an IHT liability kicking in. I would like the Minister to explain further why the Government are not addressing that stark cliff edge, even though Members from all Opposition parties have reiterated that problem to the Government over the past 14 months.

The second matter I will raise is the absolutely bizarre and bonkers scenario that we find ourselves in. Two estates valued at £5 million could be subject to different tax liabilities depending on the ownership structure. How bizarre is it that we now find ourselves in a scenario in which an estate valued at over and above £2.5 million and owned by a single person could be subject to an IHT liability of 20%, but a farm valued at £5 million and owned by a married couple is subject to no IHT liability at all? I would like further explanation from the Minister on that specific point.

Of course, values vary dramatically across the country. In Northern Ireland, where most farmland assets are given very high valuations, farms of 200 acres, say, could be valued significantly more or less in different parts of the country, so they would be subject to different tax liabilities if they surpassed the £2.5 million and £5 million thresholds, depending on their ownership structures. Let us not forget that, for arable farmers, feed wheat prices have not changed dramatically over the past 20 years—they still average about the same—but input prices are going up, no thanks to this Government’s raising of employer national insurance contributions and imposition of the fertiliser tax. In reality, the productivity and return rate for a farming business, if it breaks even at all, is about 1%. Those with asset base that is valued significantly higher will be subject to a higher tax liability, and they will have to sell off more assets to pay the same amount, despite their level of return being 1%, if that. That is different from a farm that has been valued at a much lower rate. Will the Minister explain what level of detail the Government have gone into to explore such challenges that are facing many farming businesses?

21:15

That brings me to me to my next point, on the matters to which the shadow Minister rightly and eloquently referred to as issues of practicality. Disputes will be made throughout the process regarding how a farm or asset base is valued—quite rightly; why wouldn’t there be?—but what capacity is there in the Valuation Office Agency, and with our district valuers, to deal with the uncertainty of valuations that will be coming through on death, so that a timely tax liability can be paid within the tight timeframe that the Government have set out? This has been going on for the last 14 months, and while many Labour MPs have turned up today, only one had the backbone to stand up on behalf of his constituents against the Chancellor: the hon. Member for Penrith and Solway (Markus Campbell-Savours). He has had the Whip removed and I give him absolute credit for standing up on behalf of his constituents. I find it absolutely galling that other Labour MPs are now turning up and saying that they gave this narrative to the Chancellor and Prime Minister throughout. Where on earth were those Labour MPs in the last 14 years?

That brings me to business property relief. Yes, attention has quite rightly been put on our farming community and the impact that this Labour Government are having on the wider supply chain associated with our rural economy, but in Keighley and Ilkley we also have many manufacturing businesses, many hoteliers, and a brewery—with which many hon. Members will be familiar because it serves an excellent pint. Those family businesses are impacted by the changes to BPR, and it is really frustrating; I do not think I have heard one Labour MP bring the narrative to Ministers or the Chancellor over the past 14 months, about the implications for many of those other family businesses beyond the farming world that are being impacted by the BPR liability.

To sum up, I would specifically like the Minister to explain why we have ended up in this bizarre scenario where there can be two £5 million valuations on death, and in one scenario there will be no IHT liability, but in another a potentially dramatic IHT liability. He did not answer the point on indexation when I intervened on him at the Dispatch Box. The Government have fixed the threshold at £2.5 million for a long period of time. Valuations will change in that period, thereby potentially exposing a business to having to dispose of more assets to cover an IHT liability.

How on earth is it fair that a family business in my constituency has already been told that its BPR liability will be more than £800,000? It employs 250 people in Keighley, and the professional advice it has been given to mitigate that tax liability is either to dispose of assets, or to dispose of shares in the business. Either way, that family are losing the productivity of their business and potentially exposing a number of jobs, and they may have to give away the ownership of a business that has been in the family for four generations. This is bad policy by the Government. They may have raised the threshold, but it is quite clear to me and the many stakeholders I have spoken to that they have not done their homework when looking at the practicalities of the implementation. That is why Conservative Members will continue to take the narrative that the family farm tax and the family business tax must be axed in their entirety.

[Maya Ellis (Ribble Valley) (Lab)]

It is a delight to speak in this debate following what was possibly the best Christmas present that I have ever received: no shade to my parents or husband, but when we got the call from the Treasury on 23 December and heard about the raising of the threshold for agricultural property relief and business property relief, it was more than I had ever hoped for. I am grateful to the Chancellor, the Prime Minister and colleagues for navigating the genuinely tricky balance between ensuring that the farming industry is not used to avoid tax, that our family farms are protected and encouraged to thrive, and that food security is protected in increasingly turbulent times internationally.

Let me put on record my huge thanks to my colleagues in the Labour Rural Research Group, of which I am delighted to have become treasurer today as we regroup for our next plans. In pushing for the change to the thresholds, they have shown me the collegiate and constructive politics that I had always hoped was possible for this country, under the solid leadership of my impressive hon. Friend the Member for Suffolk Coastal (Jenny Riddell-Carpenter).

When I stood as an MP in a rural area, I was most excited to learn more about the land and the farming industry that had been all around me growing up. It was challenging to have to start those conversations among such heated debate, but I got into politics because I like a robust discussion. And you know what? The situation allowed us to move past the niceties quickly and to talk frankly from the beginning about what really mattered to farmers, farming communities and family businesses—and it has been a joy to hear about the passion, the history, the deep pride in this country and its traditions, and about what our land and close-knit communities provide for us, from the voices of families who are motivated to keep it going in a way that money alone could never inspire.

We have heard a lot of discussion in recent years about what it means to be British. A poll last year by More in Common found that of all the things that British people are proud of, the countryside came second, with only the NHS ahead of it. There are a lot of decisions to be made about the role of agriculture in British society. I am grateful to Minette Batters for producing in her farming profitability review a brave and system-wide approach to the future of farming in this country, and I hope that the Government are bold enough to take on all her recommendations. We also have trade deals to negotiate, which must uphold the same standards that we rightly hold our farmers to, and indeed that they want to uphold without being undercut from abroad.

We have also had a lot of discussions about ideas like 15-minute cities and sustainable economies. Most rural towns and villages are 15-minute cities, with everything in one place and everyone helping each other out. I know that globalisation favours agglomeration and the urban, but let us not forget who did circular economies first: our rural towns and villages. Let us learn from them now, as much as we ask them to learn from the things that we do in this place.

When we talk about what it means to be British in the light of this Finance Bill, which sets the tone for what we want British growth to be in the next decade, let us make sure that we protect what makes us want to be British. I do not want this country to be prosperous at any cost—I want us to be prosperous in a truly British way. Both myself and the public are clear that that includes the countryside, and our rural economies and communities, being at the very heart of who we are.

I thank the Government for their continued work on adapting the Bill through amendment 24, and looking more widely at how we improve and sustain support for farming in the long term. I have 829 farms in my Ribble Valley constituency—mainly dairy and cattle, and with a wide range of innovation and diversification. One farm I visited has a value of around £3 million, and the people I met there told me that they had slowly seen farm after farm close in their part of the constituency over the past 20 years. Today’s changes mean that they now have confidence that the farm can be passed on to a fifth generation, and they are also confident to invest in new calf housing, supported by other Government funding.

I question how many famers Opposition Members have spoken to in recent weeks, because most of my farmers are happy with these changes and want me to now focus on other critical issues. The farm I mentioned has seen a drop of 9.5p per litre in what it has been paid for milk since last October, so although I now welcome the tax policy in the Bill, I remind the Government that that there is still a huge amount of work to do to ensure that farms are sustainable and our food security is robust.

I hope that the Government will work with us to put increasing pressure on supermarket shareholders to play their part—supermarkets are companies that thrive from British custom—by working much harder to protect the lifeblood of our economy, as farmers are, as well as their pockets.

[Michelle Scrogham (Barrow and Furness) (Lab)]

It has been an absolute pleasure to work with the Labour Rural Research Group and to see the difference it makes when we have serious conversations behind the scenes, talking to the Treasury and Ministers. In the last 12 months, I have met over 100 farmers from my constituency, who were all incredibly concerned about the changes that were proposed. We had serious conversations about what we needed to do and listened to them talk about their problems. While they were all incredibly pleased with the changes to those proposals, does my hon. Friend agree that our farmers and farming communities have struggled for decades? They might have farms worth lots of money, but it is more important that they are profitable. Does she agree that those are the changes that we need to make?

[Maya Ellis]

I completely agree. That is why it is disappointing that the Opposition are looking at certain details, when all the farmers that I speak to desperately want us to focus on the next stages of how we support those farms. We have done the thing that we needed to do to protect the smallest ones.

[Stuart Anderson (South Shropshire) (Con)]

The hon. Member spoke about the Labour Rural Research Group. Will it stand with the Opposition in rejecting Ukrainian eggs coming into the UK and undercutting British farmers?

[Maya Ellis]

The hon. Gentleman raises a really important point. We have spoken about that issue with Ministers; is an important conversation that we absolutely have to have.

Another of my farms belongs to a constituent who was one of the first to reach out to me and meet me in London. I have spoken about his farm in previous debates; it is a partnership between husband, wife and mother. Under the original plans, he would have faced a liability of £130,000 when the mother passed away in coming years, but thanks to Government amendment 24 the liability is completely removed, allowing them to focus on profitability.

I also have a significant number of family-owned businesses in my constituency, including Massey Feeds, which happens to supply the agricultural sector. Its people made a really strong point to me when I met them last year; if they had had to downscale to afford the original proposed changes to BPR, their main option would have been to sell one of their company’s three sites to a foreign-owned competitor. Although we welcome foreign investment in this country, it does nothing for our sovereignty, growth or innovation when the proceeds and hard work of British-built companies end up as profits in other countries. After the announcement in December, I was delighted to hear from the owner, Kynan Massey, who thanked this Government for listening and for adapting the BPR thresholds. He told me that the recent change means that the business has the confidence to continue to invest, including with a £2 million investment to grow the capacity of its site in my constituency.

Gazegill farm in my constituency has been in the same family for 500 years and has an estimated value of just over £4 million. It employs 39 full-time equivalents through its organic farm, its award-winning restaurant Eight at Gazegill—I recommend that everyone visiting Lancashire should try it out; it is the best farm-to-fork experience in the country—and its growing farm shop. Emma and Ian, who run Gazegill, are the perfect example of ambitious and innovative company owners, working hard to regenerate and bring new employment and tourism to parts of Lancashire that will really benefit from new investment. The new changes to APR will allow them to push ahead with that investment, including by building a new farm shop later this year.

If we are serious about supporting small businesses across our regions, about local sustainable economies and about improving the health of this country, farms like Gazegill are exactly the type of companies we should support to grow. I wholly support Government amendment 24 to ensure significant protection and support for business owners like Emma and Ian and all the incredible farms in Ribble Valley, which I am so proud to represent.

[Carla Lockhart]

I rise to speak about the changes to agricultural property relief and business property relief in clause 62 and schedule 12. I do so having stood shoulder to shoulder with farmers from my constituency of Upper Bann, from across Northern Ireland and from across this entire United Kingdom; they have lobbied, protested and spoken with one voice in defence of their livelihoods and their family farms since the tax grab was announced. It has been my greatest honour to come alongside and fight this battle with them. It is because of their persistence that we have seen any movement at all from this Government.

While I acknowledge that the increase in the inheritance tax threshold to £2.5 million represents a concession, it is a hard-won one. It was not offered freely; it was forced by the strength and unity of the farming community and by the courage of the minority on the Back Benches of the Labour party. Even so, it remains wholly insufficient and fails to address the fundamental unfairness that remains embedded in the Bill.

Ultimately, we on the DUP Benches—indeed, Members rights across the Ulster Benches—want to see this policy scrapped in totality. That is why I support amendment 3 and the linked amendments 4 to 23, which would delay the commencement of these changes to 1 March 2027. Farming families planned succession responsibly and in good faith under the rules as they stood; changing those rules mid-stream is unjust and destabilising, and it undermines confidence across the entire sector.

[Jim Shannon]

I commend my hon. Friend for all that she has done in this campaign; she was very much to the fore. I also commend the Ulster Farmers’ Union on the stance that it took—it never gave in and stood its ground the whole way through, as did the NFU across Scotland, England and Wales. She has farmers in her constituency, as I do in mine, and some 25% of farmers who own farms in Northern Ireland will not benefit from the changes. Some of those farmers are my neighbours, and they have been farming for generations. Does my hon. Friend agree that, when it comes to this legislation, the Minister is duty-bound to meet the Ulster Farmers’ Union to discuss these matters?

21:30

[Carla Lockhart]

I thank my hon. Friend for his intervention. Indeed, 25% will still be hit, including some world-class producers in Northern Ireland. The dairy sector will be hit hardest because of our land values, which I will speak about now.

New clause 7 seeks to address a glaring omission in the Government’s approach: the failure to index-link or uprate the APR allowance. Agricultural land values have risen sharply over many years. In recent months, land in my constituency of Upper Bann was sold for £32,000 per acre, demonstrating the value of land in Northern Ireland and the impact that this Bill will have on our farms. Those land values do not arise from the effort of the farmer, and farm incomes have not kept pace. A static threshold in a rising land market guarantees that more and more family farms will be dragged into the inheritance tax net year after year. Index-linking is not radical; it is common sense—something that this Government appear to be lacking.

In the same spirit, I also want to highlight amendment 43, which would retain 100% business property relief where a property has been owned for at least 10 years as part of a genuine, actively operated family business. It recognises long-term stewardship and intergenerational responsibility, and it draws a clear distinction between established family enterprises and short-term or speculative ownership. If the Government’s aim is—as they have stated—to target avoidance rather than to punish genuine businesses, then this amendment deserves serious consideration.

There is a profound unfairness at the heart of this policy, which the Government have yet to explain or justify. A single farmer receives a £2.5 million threshold, while a married couple can pass on £5 million free of inheritance tax. Two identical farms of identical value can face vastly different tax outcomes purely on the basis of their ownership structure.

[Robin Swann]

That is an important point, and one that the Minister needs to clarify. The Government’s online advice actually says that it is not simply a married couple or those in a civil partnership; it says:

“Two people (such as siblings) who jointly own a farm will be able to pass on a farm up to £5.65 million tax free.”

The Government have to provide clarity on that.

[Carla Lockhart]

Much clarity is needed, and I trust we will get that clarity in today’s debate. A farm worth £5 million owned by a single farmer could face a tax bill of around £500,000, while a farm of the same value owned jointly would face no tax bill at all. That is not fair; it is arbitrary and discriminatory.

Farmers are asset rich but cash poor. Many family farms exceed £2.5 million in value, and not because they are wealthy enterprises, but because land values have risen dramatically while margins remain tight and incomes volatile. As my hon. Friend the Member for Strangford (Jim Shannon) has outlined, an estimated 25% of farms in Northern Ireland fall above that threshold. Those farms are the backbone of our economy. The move from 100% relief to 50% relief above the cap is not a minor adjustment; it is a fundamental weakening of agricultural property relief. It risks forcing families to sell land, reduce the scale of their business or take on unsustainable debt—not because their farms have failed, but because their tax system has failed them.

I will quickly address new clause 1, which would require the Chancellor to publish a Northern Ireland-specific impact assessment. That should not need an amendment; it should be done as a matter of course. But this sudden interest in farming by the Alliance party is not lost on the folks at home. Not only are farmers at home battling the Labour Government’s anti-farming policies, but they have an Alliance Farming Minister who is tone deaf to the needs of farmers—a Minister who supports climate change extremism, who is further regulating the industry, and who is blaming farmers for the algae bloom on Lough Neagh while ignoring the 200 million tonnes of waste from Northern Ireland Water. Farmers in Northern Ireland are getting it from all quarters, and I, for one, make no apology for standing up tonight against this tax grab, but also against the policies in Northern Ireland that are damaging our farms.

A clear principle is at stake. People are taxed throughout their lives on their income, on their profits and on what they produce. To then tax those same assets again, simply because someone has died, is a double whammy. It is double taxation in all but name, and it penalises families at the very moment of loss. That is a principle I cannot support. It is immoral. A death tax is immoral. This policy will drive despair—not prosperity—into farming communities if it is allowed to stand. The Government still have the opportunity to do the right thing. Politics is about doing the right thing, and the Minister knows that the right and honourable thing to do is to consign this policy to the farmyard manure heap. If the Government choose not to, they must accept the lasting damage that this policy will inflict on family farms, rural communities and our national security. The outcomes are on this Government’s shoulders.

[Lizzi Collinge (Morecambe and Lunesdale) (Lab)]

As someone who represents a large semi-rural constituency, I am glad to have this opportunity to speak about the changes to agricultural and business property relief and why they matter for farming families and for fairness in our tax system. I welcome these changes, which recognise the reality of the asset-rich, but cash-poor nature of farming, where land might be worth a lot of money by most people’s standards, but that value cannot be realised in cash terms unless it is sold, particularly for non-farming use.

The aim of this inheritance tax policy is simple: fairness for hard-working family farms, but no open-ended tax breaks for the wealthiest. The Government are reforming outdated tax relief rules to ensure that the very largest estates make a fair contribution. Under these changes, small and medium-sized agricultural estates will remain unaffected by inheritance tax, with full relief still applying up to £2.5 million for an individual, rising to £5 million for a married couple, who will be able to transfer their allowances to each other, as is the case for personal inheritance tax. I am slightly surprised that those on the Conservative Benches are only now discovering that concept, given that it has been standard for many years.

What will change is the ability for the ultra-wealthy and the very largest estates to use agricultural land as a tax planning tool, driving up land prices and shutting out genuine farmers, while making little or no contribution in return. The farmers I have spent time with—over many meetings in village halls, at farmhouses and at the Westmorland county show, which I highly recommend—were clear that they understood the need to prevent the ultra-wealthy avoiding tax, but they were rightly concerned that the threshold of £1 million, as originally proposed, would inadvertently catch ordinary family farms. Local farmers and solicitors were extremely generous in sharing their financial information with me, which was sent directly to the Treasury. It showed the reality of the finances of farming.

I must make special mention of a local Labour party member, Karenna Caun, who organised for that information to be gathered and who helped me to reach out to farmers and related businesses, particularly in the Lune valley. The NFU and others have already recognised that these changes materially improved the position for farming families. These changes have taken on board concerns raised by rural Labour MPs, but with these reforms targeted at the biggest estates, the Government expect to raise £300 million a year by the end of the decade. That is money we can put into local GP services, rural bus services and village schools, giving our children the best start in life. Yes, some of the largest estates will pay more after these changes.

[Robbie Moore]

The hon. Lady has mentioned, I think two or three times, that it will be possible for the ultra-wealthy to be exposed to the inheritance tax liability. However, having a huge asset base that may be worth a great deal of money does not mean having a good income. A business could have a cash flow that is not generating any revenue to keep that business going. Is she classifying businesses and farming families in her constituency who might have an asset base of over £1 million as very wealthy people?

[Lizzi Collinge]

I suspect that the hon. Gentleman missed the third paragraph of my speech, in which I talked about the asset-rich but cash-poor nature of farming. Land may be worth a lot of money according to most people’s standards, but it may not be possible to realise the value in cash terms unless the land is sold, especially for non-farming uses. As he knows, I am talking about the threshold that has now been set at £2.5 million for individuals and £5 million for couples, not the £1 million threshold that I and many of my colleagues have succeeded in changing.

I make no apology for supporting a progressive policy that closes tax loopholes for the wealthy. I am thinking of people such as James Dyson, who talked proudly about buying up agricultural land in order to avoid tax. How can anyone defend multimillion-pound estates paying zero inheritance tax, when we are digging ourselves out of the fiscal and social hole made by 14 years of Conservative government?

[Mike Wood]

Will the hon. Lady give way?

[Lizzi Collinge]

I will not.

Our farmers have been battered by Brexit, with their incomes and standards of living falling drastically since 2016. Crop yields have been impacted by flooding, and trade deals agreed by the Conservatives sold them down the river. Those 14 years of Conservative government were just as bad for my farmers as they were for the rest of us. I am afraid that I am not particularly inclined to take criticism from the Opposition Benches. The Liberal Democrats and the Conservatives are against taxing the largest estates. They are saying that estates that are worth more than £2.5 million, or £5 million—[Interruption.] I have listened closely to the debate, and I am confident in my quoting of what has been said by Opposition Members. I thank the hon. Gentleman for his chuntering from a seated position.

I grew up in a tiny village in Cumbria. With the surrounding farms, it numbered about 300 people. We had no shop, and there was one bus to Carlisle a week. We did have two pubs—we knew how to have a good time. I will take no lectures from Opposition Members about what country life is really about, and I certainly will take no lectures from the wealthy Reform MPs—they are not in the Chamber now and have taken no part in the debate—who seem to enjoy cosplaying as country folk, in a display of what I think is patronising political opportunism. We need to ensure that there is fairness in our inheritance tax system, which is why I urge all Members to support clause 62 and schedule 12.

[Sarah Dyke (Glastonbury and Somerton) (LD)]

Clause 62 shows that this Labour Government simply do not understand farming communities. Persevering with an ill-thought-through family farm tax that treats business assets as personal wealth, even with the recent concession, will continue to harm investment in food security and rural growth. At the very least, it should be paused entirely until the publication of an independent impact assessment identifying the true extent of the changes to farming livelihoods. I therefore support amendments 42, 43, 44, 45, 46 and 47, the combination of which would ensure that the full inheritance tax relief remained in place for family farms.

It is time that the farming sector moved away from survival mode to become a thriving industry once more, but, against a background of huge cost pressures, farmers are being asked to do more with less. They face input costs that are 30% higher this year than they were in 2020, while the £2.4 billion farming budget has barely changed since 2007. That alone has presented difficult business conditions, but in addition, during 2025 farmers were forced into making plans towards a gloomy future surrounded by all the family farm tax uncertainties. As a result, many have delayed making any investment in their businesses. Farmers such as those in Glastonbury and Somerton are the catalysts of growth in rural areas, but they now need confidence to make the investments that they have put off after 14 months of angst and frustration.

[Dr Savage]

I thank my hon. Friend for her determined and dedicated advocacy on behalf of the farming community, especially around mental health. Although my farmers and I welcome this U-turn, I wonder how much damage has been done, not just to the farming sector directly but to the many businesses that surround the farming sector—the suppliers of equipment, grain and so on. I wonder how much damage has been done to the economy of our country, and how many irrevocable decisions have been made about the future by farmers and others in the farming industry. Does my hon. Friend agree that the Government must get it right this time around?

21:45

[Sarah Dyke]

Absolutely. There is no doubt that the agricultural supply chain has been affected by the torrid 14 months of uncertainty caused by the family farm tax. The Prime Minister and the Chancellor speak consistently of growth, but their damaging policies have crippled family farms. Some 49% of farm businesses have paused or cancelled investment, 10% have downsized their operations, and 21% intend to do so before April this year.

Our farmers pride themselves on being resilient and getting on with the job, but the long-awaited and delayed Batters farming profitability review summed up the impact of the family farm tax well: it stated that the sector was “bewildered and frightened”. Following the Government’s last-minute concession, I am pleased that some farmers—such as David, who farms in Compton Dundon in Glastonbury and Somerton—are now fully exempt, but this comes after more than a year of sleepless nights, and we know that David is not alone. If the reforms are expected to raise only around £500 million a year, why have the Government been so willing to impose this level of disruption and uncertainty on family farms for a relatively small return to the Exchequer?

The Government’s whole attitude toward family farming communities has been hugely disappointing, to say the least. At the end of last week, after months of silence, we finally heard the details of the 2026 sustainable farming incentive, but despite this announcement, England is still on course to be an outlier in Europe, because English farmers will not receive any direct support in fulfilling their primary mission and motivation, which is to produce food. After being taken for granted and ignored by the Conservatives for so long, it is no wonder that half of British farmers have little confidence in this Government’s vision for farming, and many do not believe that this Government take food security seriously at all.

I want to be clear that although the Liberal Democrats broadly welcome this concession, and although raising the thresholds will go some way towards mitigating the devastating impacts on the industry, this does not negate the year of stress and anxiety that farmers have endured, and many will still be hit by this tax. Many farmers in Glastonbury and Somerton, and across the constituency, run their businesses in multi-generational partnerships or extended family partnerships. It is totally outdated that this Government believe that farm businesses are managed by married couples. So many businesses will not benefit from the combined spousal allowance of up to £5 million, and it seems grossly unfair that if two farms are valued the same, one could be free of IHT, while the other could be landed with a huge tax burden.

Additionally, although the anti-forestalling rules remain in place, they deny those over 65, or anyone who dies within seven years of making a transfer, the ability to manage their tax affairs in a sensible way. The rules also put a massive burden on those who are over 75. The Liberal Democrats are clear that this is an unfair measure, which is why we have proposed new clause 7. It would ensure that a review of the provisions takes place.

Although the Environment Secretary has declared that there will be no more changes to the family farm tax, I hope that the Government have recognised the scale of the damage that they have done to British agriculture. British farmers produce a public good; they are the linchpins of our country’s food security and therefore our national security. In an ever more volatile world, this is more important than ever. This Government must not let British farmers down again.

[Markus Campbell-Savours (Penrith and Solway) (Ind)]

I rise to speak in favour of Government amendment 24 and the associated amendments that will increase the 100% allowance cap for agricultural property relief from £1 million to £2.5 million. In December, I believe I closed my last speech on this issue with a plea for the Government to listen to my more reasonable rural colleagues and to change course. I said that it was not too late. It was a plea, but for many of my constituents it was a prayer, and much to the relief of many farmers, it was a prayer answered on 23 December.

It would be churlish of me not to thank the Government for seeing sense, as it would be not to thank the Members from across the House who have raised this issue consistently over the last year. While this amendment falls short of the full U-turn I would have preferred, today I will vote with the many rural Labour MPs who lobbied Ministers for many months to see this change. They may not have joined me in the No Lobby to vote against Budget resolution 50, but I have no doubt that we would not have seen a change of course without what I believe the Government have called their “constructive engagement”. I know what many of them did, and I hope in time that their constituents and their farmers know what they did, too.

I regret being placed in a position where I voted against the Government, but not to do so would have broken a promise. However, I believe the Government had more than ample time to reconsider this policy. To see colleagues whipped to vote for the measure days before the Government proposed amendments that some colleagues had called for over a year ago caused unnecessary pain. On that, I hope lessons are learned. Now, Whip or no Whip, I look forward to supporting this Government in their important task of helping all working people thrive.

[Seamus Logan (Aberdeenshire North and Moray East) (SNP)]

I rise to address clause 62 and schedule 12. I, for one, cannot believe the self-congratulatory tone of so many contributions from across this Chamber. The shadow Minister, the hon. Member for Grantham and Bourne (Gareth Davies), pointed out that Labour Members had five opportunities to change these rules, and only one Member—the hon. Member for Penrith and Solway (Markus Campbell-Savours)—voted to do so.

However, the initial change to APR in 2024 was described by NFU Scotland as

“devastating to the vast majority of farms and crofts”.

The concerns raised by farmers across Scotland, including a significant number in my constituency, were ignored by a Labour Government who appeared to be completely blind to the fundamentals of rural life and rural communities. When defending the decision in response to the Environment, Food and Rural Committee’s first report on the Government’s vision for farming, published in May last year, the UK Government said:

“Ministers from multiple Government departments have had several meetings with agricultural organisations on this matter since Autumn Budget 2024, including the National Farmers’ Union, the Tenant Farmers’ Association, the Country Land and Business Association, the Central Association of Agricultural Valuers, the Ulster Farmers’ Union, NFU Cymru, NFU Scotland, and the Farmers’ Union of Wales”.

Here is the killer:

“After listening, the Government believes the approach and timescale set out for these reforms is an appropriate one.”

In the 2025 Budget, just a few months ago, the spousal transfer allowances were changed, and this was welcomed, but there was nothing further for worried farmers. As in so many areas in which this Government have been forced to U-turn, why did they not listen from the start? Is everything we say on these Benches to be dismissed as political rhetoric? Was it arrogance? Look where this has led—to a Prime Minister and a Government regarded by the public as the worst ever. We do not need a Government who listen later, if they feel like it. We need a Government who listen from the start. We need an end to the sound of screeching tyres from the Government machine as it performs another U-turn that could have been avoided. If

“food security is national security”,

as Labour said in its manifesto, why did Labour feel it was acceptable to make farmers face insecurity about their livelihoods, and the country face food insecurity in the face of a growing international crisis? After the recently announced threshold changes, it was very disappointing to see the failure of the Exchequer Secretary to the Treasury to offer an apology to the people who produce our food.

The anti-forestalling clause in the Bill continues to pose a perverse incentive. It penalises anyone who transfers their farm but dies within seven years, creating a substantial IHT bill and potentially triggering capital gains tax. If no transfer is made and the farmer dies before April 2026, the estate passes tax-free. That creates an appalling situation where terminally ill or elderly farmers, especially those unlikely to live for a further seven years, face perverse choices: keep the farm and hope to die before April this year; sell the farm, with a potential loss of food production to the nation; or transfer the farm in the usual way and saddle their children with a huge tax bill. No set of tax measures should—nor should this Bill —create such a situation. Of course these IHT rules apply elsewhere, but this is where we see Labour failing to understand what it is dealing with. A working farm is like no other business. What it produces concerns everyone, not some segment or niche area of the economy.

In conclusion, the NFU Scotland president, Andrew Connon, stated:

“The anti-forestalling clause, in particular, is morally indefensible. No tax policy should ever place a terminally ill farmer in the position of being financially better off dead than alive.”

The House will have an opportunity later on to protect farm production from that perverse incentive; that is what my amendment would achieve. The amendment before us tonight gives us an opportunity to change this. If we fail to do that tonight, I will seek to bring my amendment back on Report.

[Helen Morgan (North Shropshire) (LD)]

I am speaking in favour of the amendments and new clauses tabled by my hon. Friend the Member for St Albans (Daisy Cooper), and against the changes to APR in general, and its less conspicuous but equally ugly twin sister, the changes to BPR, because they are downright destructive to the economy in rural places like North Shropshire.

The Conservatives showed that they took farming communities for granted, presiding over botched trade deals and an unfair transition from the old basic payment system to the environment management scheme, and leaving the farming budget with an underspend of hundreds of millions of pounds, but the new Labour Government have shown that they do not understand rural communities whatsoever. It is utterly inexcusable that family farms have been put through over a year of uncertainty and anguish since the Government first announced changes to APR. I have had the pleasure of visiting many farms and attending roundtables with farmers in my constituency. The uncertainty, anxiety and fear caused to them and their families because of the changes has been appalling for Shropshire, not only because those farmers are part of the economic backbone of the economy, but because they are part of the community.

As we have disputed with the official Opposition, the Liberal Democrats were the first to call out and oppose the unfair family farm tax in last year’s Budget. We have been proud to stand alongside our farming communities in campaigning against it ever since. December’s U-turn, which increased the farm inheritance tax threshold from £1 million to £2.5 million, has been hard won, and we are grateful to all the farmers who have fought tirelessly to achieve it. It is a step in the right direction, and it would be churlish not to acknowledge that, but having spoken to farmers in my constituency, I can say that the change just does not go far enough.

I will focus on the dairy industry, because North Shropshire has a lot of dairy farmers. Dairy farming in the modern era is capital-intensive. You need expensive assets, like automated milking systems, cooling units, feed systems, housing and slurry storage. They are all essential for operating the modern dairy farm, but incomes are low and volatile. The reality is that the industry is becoming increasingly unprofitable, and many smaller dairy farms have already sold up in North Shropshire. To make matters worse, milk prices have recently fallen below the cost of production, while the price of feed and energy and labour costs remain historically high.

Last week, two North Shropshire dairy farmers outlined the crisis that their sector has been put in. As partners in their farm, they told me that even with December’s increase in the threshold, the family farm tax incentivises them to keep their business small—they describe the tax as putting the dairy industry in a straitjacket. Because they have borrowed to finance their assets and capital expenditure, these farms are in a position where they are worrying about servicing their debts, maintaining production and remaining viable, yet the value of their land and machinery is in excess of the cap. There is already no money left for future capital expenditure, and now they have to plan to be able to pay off IHT in the future as well, which will not be achievable for them without selling parts of the farm to big players whose methods will be far less sustainable and worse for the environment than their current low-input model. Ending capital investment not only affects family farms and their growth, but puts our nation’s agricultural equipment producers and suppliers out of business, damaging growth and reducing our food security.

22:02

The Government wanted to end the practice of agricultural land being bought up and prices driven up by super-rich and super-wealthy non-farmers using the land just to avoid inheritance tax, which is a sensible idea. However, their current cap on relief policy fails to do that, leaving us with the worst of all worlds.

Turning to business property relief, family-owned businesses are feeling just the same squeeze. In places like North Shropshire, there is a high percentage of family-owned businesses. Last week I spoke to the managing director of Ridgway Rentals, a medium-sized family-run plant hire company, whose head office is based in the market town of Oswestry in my constituency. As a plant hire company operating nationwide, its assets include excavators, diggers, bulldozers and other large bits of machinery, which means that they have a very high asset worth. The managing director told me that the changes to BPR mean there is “no point in growing as a business” and believes there must be countless other businesses that have either closed or been sold because of the Government’s recent multifaceted attack on business in this country. While he did say that the recent increase in the threshold is an improvement, the managing director said that it only “slightly loosens the noose that sits around businesses’ necks”.

This Government have repeatedly stated growth as one of their key missions, but their misguided policies are achieving the opposite in rural places like North Shropshire. We have demanded that the Government scrap these unfair taxes in full. If they refuse to do so, I will be joining others in the Liberal Democrats in voting against those changes this evening.

[Jim Allister (North Antrim) (TUV)]

I rise to speak to clause 62 and schedule 12.

I certainly welcome the fact that, though belatedly, the Government did get to the point of climbing down on the £1 million threshold. They should have gone much further: this tax should not exist at all. If there is to be such a tax, it should be at a viable threshold. The climbdown was not delivered with great grace; indeed, it followed a debate in this House in which the Minister doggedly defended the £1 million threshold, telling us it was fair and necessary—the very words that he uses now to defend the £2.5 million threshold. However, even though that was the manner of the delivery, the climbdown, so far as it goes, is welcome.

We need to be aware of the limitations on how far this concession does go, as it will very swiftly be diminished with time because of the lack of indexation. This is a diminishing win—a win secured by our farming communities through their determined campaigning, but a win that will melt away as each year goes by. Take my part of the United Kingdom: Northern Ireland. In the past five years, land values have increased by 40%. If that trajectory continues for the next five years, in today’s terms the threshold will be worth only £1.5 million. It will lose 40% off its value.

Unless the Government are willing to face up to the need to index-link the threshold, the bona fides of their conversion on this issue is very suspect indeed. If they have genuinely realised that £1 million was wholly inadequate and £2.5 million as a minimum was necessary, they need to sustain that value going forward. That is the real test of the bona fides of this Government on this issue. They cannot simply sit back and wait for the Treasury to increase its tax take because land values rise and the value of the £2.5 million diminishes every time that happens. If it is only a tactical move to buy time, then time is on their side, because in due course this will fritter away to the point where it is of very little value indeed.

My plea tonight is for the Government to demonstrate that they have genuinely realised the need to protect farming families by committing to index-linking this concession. Without that, it will diminish very severely with time, and surely those who feed us and keep bread on our tables are the people this Government should be thinking about. They are not thinking about them if they insist on a de minimis threshold that will dimmish almost out of sight as time goes forward. That is the test of this Government.

[Sarah Olney (Richmond Park) (LD)]

I want to speak to amendments 42 to 47. The Bill fails to recognise the specific way in which family businesses are different from businesses whose shares can be traded. The tax changes announced at the 2024 Budget treat family businesses as though they are a liquid asset or as if their underlying value is expressed in tradeable shares, but family businesses are neither. Shares in a family business have only a nominal value, and it is this nominal value that is transferred upon death. No cash arises from the transaction—unlike with the sale of shares on an open market. That means that money to pay any tax charges arising on the transfer must be made out of the business’s current assets or by disposing of its fixed assets. The value of a family business is often in its fixed assets—typically land, buildings, plant and machinery, as well as patents, copyright and goodwill.

The purpose of business property relief was to enable those assets to pass intact from one generation to the next in order for the business to be transferred as a going concern and to maintain steady revenues that guarantee employment and supply chains. Removing BPR from the inheritance tax regime will mean that assets will need to be sold to pay the inheritance tax. That will not only reduce the overall value of the company but limit its ability to generate future revenue. Asset sales will already be subject to capital gains tax before the net value can be released to the shareholder by way of a dividend to pay the individual IHT liability, and that dividend itself will be subject to tax, so the asset sale has to realise sufficient cash to pay three separate taxes.

Members might argue that assets being disposed of by one company does not take them out of the economy, and indeed our tax system should ensure that assets are allocated to wherever they can be most efficiently exploited, but this change to BPR does not ensure the efficient reallocation of assets from one business to another. It forces the sale of productive assets that were being efficiently used, and there are no guarantees that the asset can be put to its most productive use under its new owner.

Recent experience has shown that UK assets are increasingly being picked up by foreign investors, increasing the risk of job losses, restructuring and head office operations being moved abroad. Forced sales that need to be completed within IHT timescales are unlikely to make their full market value. In a specialised market in which there are few annual sales, one depressed sale value can influence the valuation of other assets in the same class, having a knock-on effect on all company balance sheets.

Death comes to us all in the end, being the only certainty in life apart from taxes. The IHT regime recognises and allows for assets to be passed down the generations without being taxed as long as seven years has passed between the date of the gift and the death of the bequeather. For many family businesses, the change in BPR rules will just mean that they have to actively plan for an orderly transition of shares to enable them to take advantage of this provision. But for some families, it is already too late to plan effectively.

The largest employer in the London borough of Richmond upon Thames is a family-owned business with the majority of shares owned by the founder, who is in his 90s. Even were the shares to be transferred now, there is little chance that seven years will elapse before his death, and therefore there is every risk that the firm will need to be broken up in order to pay the IHT liability, putting hundreds of jobs at risk.

Of course, tragically there is always the risk of unexpected death. While not being its principal purpose, one of the advantages of BPR is that it relieves the families of the deceased from involving themselves with complicated business transactions while mourning their unexpected loss. I welcome, of course, the announcement of the raising of the BPR threshold from £1 million to 2.5 million, but that merely reduces the number of companies that will be liable for the tax rather than addressing the issue.

There is currently no certainty on either the number of businesses that will be affected or on the amount of additional tax revenue that will be raised by the measure. The OBR has not delivered a costing based on the change to the policy announced in December. Given that the policy will trigger behaviour change, it is unclear to me that the benefits of this measure will outweigh the potential harm to employment in otherwise thriving businesses up and down the country.

I am sympathetic to the Chancellor’s instincts in this matter—I too, think we should be prioritising the needs of entrepreneurs over the protection of inherited wealth—but the likely meagre returns to the Treasury as a result of this policy do not justify the likely impact on employment that will occur if otherwise thriving businesses are forced to be broken up.

[Sorcha Eastwood (Lagan Valley) (Alliance)]

I rise to speak on clause 62 and schedule 12, and my new clause 1. As we have already heard from the Northern Ireland Benches, this is about listening and recognising Northern Ireland’s unique circumstances. I acknowledge from the outset the deep anxiety and distress caused to many farmers across Northern Ireland, including in Lagan Valley, by recent inheritance tax proposals. Farming in Northern Ireland is not just an economic activity; it is a community, a way of life and something that is deeply special and has been rooted in the land across Northern Ireland for generations.

As many have said, it is also central to our food security. I cannot for the life of me understand why, at a time of ongoing and increasing geopolitical insecurity, we would take this step. Farmers in Northern Ireland responded with a united, constructive and responsible voice. I pay tribute to the Ulster Farmers Union, the Young Farmers’ Clubs of Ulster and any farmer who took a stand on this important issue. That unity mattered, and it forced movement from the Government.

I will not gainsay that or try to nit-pick: I welcome the U-turn. We should never have been in this position, but I do welcome the change. The original £1 million threshold was never fit for purpose for Northern Ireland. Analysis by the Department of Agriculture, Environment and Rural Affairs showed that it could have pulled about 50% of Northern Ireland farms into inheritance tax compared with about 5% of estates generally across the UK. That level of impact was clearly disproportionate. I therefore welcome the increase in the threshold from £1 million to £2.5 million and the decision to make the allowance transferable between spouses. Credit is due to the farming community alone for the united front that secured this long-overdue change.

But while many families will feel relief, as other members of the Committee have outlined, real uncertainty remains in particular for older farmers and those who cannot simply plan around sudden policy changes. I place on record my thanks to my colleague Andrew Muir MLA, the Agriculture Minister in Northern Ireland, and his officials. He has been steadfast, evidence-led and relentless in standing up for Northern Ireland’s farmers. That included repeated engagement with the Treasury and a joint letter in November with the First Minister, Deputy First Minister and Finance Minister, which called clearly for a higher threshold and spousal transferability. This is devolution working at its best, no matter what others may say, but it also shows why Westminster must listen when Northern Ireland speaks with one voice.

Northern Ireland is different, and one-size-fits-all policy does not work for Northern Ireland. Farms in Northern Ireland are smaller on average, intergenerational and family-run, and often land-rich but cash-poor. Land values, as others have elucidated, continue to rise faster in Northern Ireland. Even with a £5 million transferable threshold, DAERA estimates that the number of impacted farms would fall to about 5%, but those farms account for around 27% of the total area that is farmed. I am clear-eyed about this. Not every farm will be able to avail itself of the £5 million threshold, and poorly calibrated tax policy can force land sales, break succession and undermine the long-term viability of family farms.

22:16

As I said at the outset, there is a huge argument here around food security. Northern Ireland’s food and drink sector is the cornerstone of the UK’s food supply. It is worth £8.4 billion, it employs around 113,000 people and I am proud to say that it feeds 10 million people every year. Northern Ireland represents just 3% of the UK population, yet we produce 25% of the UK’s food. By comparison, Britain produces enough food for about 40 million of its 70 million population. Undermining farming in Northern Ireland is not simply a regional issue; it is a whole UK food security risk.

My new clause 1 is a necessary, evidence-based and common-sense amendment. I am calling on the Government to properly assess the real impact on Northern Ireland, publish a Northern Ireland-specific assessment within six months of APR coming into force, and examine how many Northern Ireland estates are affected. I call on them to publish the case for exempting agricultural land, the cost to the Exchequer, the impact on farm succession, land retention and viability, and the implications for UK food security. The new clause also explicitly excludes land banking schemes. This is about real farmers, not tax avoidance.

There is also the importance of consultation. The new clause mandates meaningful consultation with the Department of Agriculture, Environment and Rural Affairs, farmers and land-based businesses. This is about policy being made with people, rather than their having it done to them. Farmers must never again be an afterthought in Treasury decision making. The new clause requires the Chancellor to respond formally to the assessment, to set out what action will follow and to keep the policy under review with a further assessment within 18 months. That will create transparency, accountability and ongoing scrutiny, and it is particularly important and timely, given rising land values and ongoing uncertainty.

In conclusion, this new clause is about fairness, realism and respect. It recognises Northern Ireland’s disproportionate contribution to the UK, which I am very proud of. It gives the Government the evidence they need to get this right. Supporting it means supporting farmers, protecting rural communities and safeguarding the UK’s food supply. I also want to raise something that is of psychological value. We are having this debate tonight, but not one of us has said anything about the psychological impact and the body blow that this has caused to farming communities across the UK. They felt genuinely unneeded. They felt undervalued. In fact, they felt a burden. They felt that this tax raid was being done to them, and I am not sure what they ever did to deserve it. That is why I will continue to oppose the family farm tax in its entirety.

[Caroline Voaden (South Devon) (LD)]

Following the initial decision to introduce new APR and BPR rates, farmers across the country rallied their tractors outside this place to get their voices heard. Other family-owned businesses have gone through the same agony over the last 14 months, but without the tractors and with perhaps less of a voice, fearing for the future of businesses that have been built up over generations—businesses that form the bedrock of local communities and economies, employing local people and supporting local suppliers. As one constituent business owner told me, even with the recent lifting of the threshold, the reforms to BPR could still lead to family businesses such as his having to break up their underlying assets just to survive. The resulting loss to the Treasury in economic activity will far outweigh the amount of tax raised.

This attack on family-run businesses is particularly damaging in a constituency such as South Devon, where the family-run hotels and holiday parks are the foundation stones of the local economy. Passed down from generation to generation, they are more than just businesses. They are woven into the fabric of our communities. The director of one popular holiday park has been left questioning the long-term viability of their business due to the inheritance tax that will be due. This family-run business was founded over 65 years ago and employs over 180 staff in the summer season, which is a large number in a constituency such as mine that has few large employers. It uses an abundance of local suppliers and makes a significant contribution to the local economy. But I am told that when the 81-year-old majority shareholder passes away, it is likely that the family will have to sell up completely, after at least five generations of ownership, to pay an inheritance tax liability of approximately £2.5 million. The business cannot just chop off a section of the holiday camp, sell it to pay the tax and be left with a viable business—it just does not work like that. That illustrates perfectly how this tax is not merely a financial burden; it threatens the very survival of these businesses, and the ripples will spread out across the pond with scores of people losing their jobs, which will have knock-on effects on the local economy, the community and the mental health of all those people left high and dry.

Examples such as that are why my Liberal Democrat colleagues and I support amendment 42, which would maintain 100% business relief where the property has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family. That is the least that this Government could do given the plethora of financial challenges these family-run businesses already face. Whatever loophole the Government were looking to close with this business property relief, they have gone way beyond that, and the implications will be an economic and personal tragedy for so many.

I could not speak today without again mentioning our family farms. I am pleased that the Government have finally listened and made the adjustment to the threshold, which will end the agony for many farmers. However, I am concerned that in areas where land prices are particularly high, such as the South Hams, the £2.5 million threshold will still be too low. There are also a significant number of farms owned by a single person rather than a couple, meaning they will not benefit from the spousal allowance. When APR was originally introduced, I surveyed all the farmers in the South Devon constituency, of which there are many hundreds: 85% of them said that they would be affected. Of those who responded, 44% said that they would have a bill of at least £300,000. The average bill was going to be £637,000 across my constituency, and the highest inheritance tax expected by one of my farms is £3 million.

I therefore support amendment 48, which would make the resulting inheritance tax liability chargeable only if agricultural land is sold or ceases to be used for farming within 10 years of the relevant transfer. I urge the Government to support new clause 7 to ensure the relief allowance is uprated annually according to the change in the value of agricultural land. I also urge the Government, as many of my colleagues have, to consider extending the spousal allowance to siblings who co-own a farm so that they too can benefit from this relief. Why should one family be penalised because a brother and sister own a farm compared with another family where it is a husband and wife? It is incredibly old fashioned to design a policy that benefits people who are married but not people who co-own within the same family.

I hope the Government will now provide meaningful support for farmers, who have been through so much over the last 14 months, starting with a £1 billion increase in the farming budget as promised by the Liberal Democrats if we were sitting on the Government Benches. If we undermine British farming, we undermine our ability to feed the nation and, in turn, compete in an increasingly uncertain world. Our farmers have been through an agonising 14 months. They should never have been subjected to this fear and stress. It is a disgrace that the Government took more seriously a prospective revolt from their own Back Benchers than the committed, desperate and passionate campaigning of farmers, countryside organisations and rural communities right across the country for the last 14 months. This policy still retains huge unfairness, as colleagues have explained so clearly, and I urge the Government to pause and think again while a proper impact assessment of even the new APR is carried out.

[Olly Glover (Didcot and Wantage) (LD)]

I stand to speak in favour of various Lib Dem amendments and in particular new clause 7. Farmers in this country continue to be hammered, as they were under the previous Government, by the current one. From poor funding of rural public services to botched trade deals that undercut British farmers, rural communities have been left behind, despite the industry being vital to delivering our food supply and a key pillar in our fight against climate change. Food is not some luxury or niche commodity but an essential, and an important part of our heritage and culture. In an increasingly volatile world, it is important that we recognise the value of domestic production.

Many speakers this evening have discussed problems with the Labour Government’s changes to agricultural and business property tax relief, and it is welcome that the Government have to some extent listened to that. However, in my constituency, the key thing I hear when speaking with farmers is that the proposed changes, in their original form, were the final straw for them on top of so many other challenges and headwinds. That is why the reaction has been so strong. They face the uncertainty and impact of Brexit; trade deals based on proving the so-called benefits of Brexit, no matter the impact on our farmers; constantly changing Government incentive and payment regimes; the impact of recent worldwide inflation on fertiliser prices and equipment costs; labour shortages, also partly as a result of Brexit; and the dominance of large supermarkets seeking ever lower prices.

Our farmers also face rural crime, which, as the hon. Member for Lagan Valley (Sorcha Eastwood) rightly stated, has a significant impact on their mental health and wellbeing. Even with Thames Valley police’s best efforts, farms’ remoteness makes them easy targets for theft or hare coursing. Flooding has also affected many farms across my constituency, such as George Gale’s Manor farm in Appleford or Paul Cauldwell’s Dropshort farm in Drayton. Increased rainfall and a lack of river maintenance are both contributing factors to wider flooding incidents, plus run-off from new developments.

The National Farmers’ Union hustings were by far the toughest of the general election campaign, but I have also been warmly welcomed by farmers who have been very patient and generous in explaining their trade to someone who could not have less of an agricultural background. They include Matt Lane of Grange farm, David Christensen of Lockinge estate and Alan and Richard Binnings, who put so much work into Truckfest, which, as well as being an amazing concert experience on their land, raises tens of thousands of pounds for local charities each year.

I want to talk in particular about Ben Smith from Manor Road farm near Wantage. When I met him last winter to hear his challenges, he explained that he is a third-generation arable farmer. At that time, his mother was 90 years of age. She owns the farm. Ben’s big concern was that when she dies, he and his family will be significantly hit by the inheritance tax, with revenues from their arable farming barely able to cover the liabilities. At that time, his mother was saying that she would rather die than leave Ben and his sister to deal with the situation later. Ben wants his son and daughter to have the farm, but he will be in a financial mess. He might need to lose six or seven staff, some of whom have worked for him for between 10 and 45 years. Inheritance tax is a big worry to him, but he has also been hit by other increases in tax and national insurance.

All the farmers I have met have been welcoming, tolerant of my agricultural ignorance, forgiving of my vegetarianism, patient in educating me about their work and profoundly passionate about what they do. I have been surprised to find parallels between my experience of working in railways before coming to this place and farming. Both are subject to the stop-and-start whims of Government policy and the decisions of people who have little knowledge or experience of the sectors concerned and often do not take the time to listen and learn.

In contrast, the Liberal Democrats are proud of our advocacy for farmers and are calling for the farming budget to be raised by £1 billion, for a renegotiation of trade agreements to protect British farmers in line with our objectives for health, environmental and animal welfare standards, and for strengthening of the Groceries Code Adjudicator to ensure that farmers can keep farming in fair circumstances.

It is welcome that the Government have started to listen, but we must always remember that we need food, we need countryside and our farmers do so much to look after both. They deserve our support.

[Dan Tomlinson]

I extend my thanks to hon. Members for their thoughtful contributions during this session in particular, which I appreciate has been a topic of discussion in public and in this place over a number of months. As I have said, the Government have been listening carefully to feedback from the farming community, family businesses and their representatives. The Government are proud to represent the national interest, with strong representation for rural, semi-rural and urban constituencies. It is a fantastic vote of confidence in our Prime Minister and in this Government that there are pretty much as many Labour MPs who represent rural constituencies as there are Conservative MPs in total.

The Government are going further to protect more farms and businesses while maintaining the core principle that more valuable agricultural and business assets should not receive unlimited relief. That is why we have tabled an amendment that will increase the allowance for the 100% rate of relief from £1 million to £2.5 million.

22:29

I am aware of the hour but if I may, I will briefly respond to some questions asked by Members on both sides of the House. I thank Labour Members, including the Chair of the Welsh Affairs Committee, my hon. Friend the Member for Newport West and Islwyn (Ruth Jones), and my hon. Friends the Members for North Northumberland (David Smith), for Ribble Valley (Maya Ellis), for Morecambe and Lunesdale (Lizzi Collinge) and for Penrith and Solway (Markus Campbell-Savours). It was helpful to hear from them about the positivity with which the changes announced late last year have been received, as a result of this Government’s listening and engagement, and about the renewed focus that can now be placed on the broader issues affecting the farming community—be they profitability, prices or the fiscal support that the Government will provide. We will spend our budgets in full rather than underspending by hundreds of millions, as the previous Government did. I thank Members who engaged with me on that topic in the weeks after I was appointed to this role on 1 September, particularly my hon. Friend the Member for North Northumberland, whose engagement I really appreciated.

The shadow Minister, the hon. Member for Grantham and Bourne (Gareth Davies), and other Opposition Members asked about the figures used for the number of estates affected by the changes. Those figures are HMRC tax data. Many have also repeatedly raised the CenTax report with Ministers in recent weeks. That report, which was carried out by analysts independent from Government, came to conclusions very similar to the figures published by the Government after the Budget on the number of affected estates. That robust analysis has been published, and I and the Government stand firmly behind it.

Conservative Members mentioned investment in relation to agricultural property and business property. It is worth noting that an inheritance system that was less generous than the one that will be implemented in April was in place throughout the whole of the 1980s, and I do not believe that Conservative Members had a problem with growth and investment for businesses and farmers in the 1980s. Maybe they do think that we had significant problems with wealth creation in the 1980s, and a tax system that inhibited it, but I do not think that is the argument they are making.

On the broader impact, the OBR confirmed at the Budget that the changes are not forecast to have a significant macroeconomic impact.

[Robbie Moore]

I hope that the Minister will answer my question, which I have asked twice in this debate, about indexation and the scenario in which two estates valued at £5 million are subject to different IHT liabilities depending on their ownership structures. Given that this issue is so important, not only to our farming community but to family businesses more broadly, why on earth did the Chancellor not announce this change at the Budget? It seems very peculiar to make a big fiscal change outside of a Budget announcement.

[Dan Tomlinson]

I will come shortly to the questions that the hon. Gentleman asked.

The Liberal Democrat spokesperson, the hon. Member for Witney (Charlie Maynard), mentioned the costs of administrating the tax changes. Those costs were published in a tax impact and information note, alongside the changes: £9.2 million is the figure that the Government published. On the sustainable farming incentive, which he and others mentioned, he may have missed the update that Secretary of State for Environment, Food and Rural Affairs provided last week, which the NFU said showed

“real ambition for a thriving agriculture industry”.

The hon. Members for Keighley and Ilkley (Robbie Moore), for Upper Bann (Carla Lockhart), and others, mentioned that the allowance is only transferrable between spouses. That is in line with the long-standing approach to inheritance tax. The inheritance tax nil rate band and the residence nil rate band are also only transferrable between spouses and civil partners.

[Charlie Maynard]

rose—

[Dan Tomlinson]

I am just going to respond to this point. For siblings, and for co-owners who are not spouses but who jointly own a farm—the example raised and that set out on the Government website—it is still the case that each individual has a £2.5 million allowance that they can use. That means that a farm that is jointly owned, even if not by spouses, cannot be transferred between spouses but can still be passed on, on an individual basis, up to £2.5 million.

A range of Opposition Members raised the question of whether the Government should set different thresholds for different parts of the country. I say gently, particularly to Conservative Members, that there are very different property prices across the country, yet in the 14 years they were in power, they did not set different inheritance thresholds for different parts of the country.

I look forward to further contributions on this topic during the passage of the Bill. Overall, the Bill, including the clauses debated today, is an essential part of the Government’s broader economic plan to manage our public finances well, to bring down borrowing in every year, to fund our public services, and to provide the underpinnings for higher growth and living standards across the country. We have the right plan for the country, and this Bill helps us to deliver it. I therefore urge the Committee to reject amendments 3 to 23, 31 to 36, 40 to 48, and new clauses 1, 6, 7 and 17, and I urge it to support clause 62, schedule 12 and Government amendments 24 to 29.

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

22:36

Division 400

Question accordingly agreed to.

Ayes: 344

Noes: 181

Clause 62 ordered to stand part of the Bill.

Schedule 12

Reform of Reliefs for Business Property and Agricultural Property

Amendments made: 24, page 445, line 14, leave out “£1 million” and insert “£2.5 million”.

This amendment increases the 100% relief allowance for agricultural property relief and business property relief to £2.5 million.

Amendment 25, page 450, line 32, leave out “£1 million” and insert “£2.5 million”.

This amendment increases the standard maximum allowance for trusts settled by the same person to £2.5 million.

Amendment 26, page 451, line 20, leave out “£1 million” and insert “£2.5 million”.—(Dan Tomlinson.)

This amendment increases the maximum allowance for trusts settled before the announcement of the changes to agricultural property relief and business property relief to £2.5 million.

Amendment proposed: 3, page 451, line 22, leave out “30 October 2024” and insert “1 March 2027”.—(Victoria Atkins.)

This amendment, along with amendments 4 to 23 would remove the transition period in respect of the changes to agricultural property and business property relief and delay the implementation date so that the changes would take effect for transfers made after 1 March 2027.

Question put, That the amendment be made.

22:52

Division 401

Question accordingly negatived.

Ayes: 185

Noes: 344

Amendments made: 27, page 452, line 18, leave out “£1 million” and insert “£2.5 million”.—(Dan Tomlinson.)

Amendment 28, page 454, line 10, leave out “£1 million” and insert “£2.5 million”.—(Dan Tomlinson.)

This amendment, together with amendment 29, increases the maximum allowance for 18-to-25 trusts to £2.5 million.

Amendment 29, page 454, line 11, leave out “£1 million” and insert “£2.5 million”.—(Dan Tomlinson.)

This amendment, together with amendment 28, increases the maximum allowance for 18-to-25 trusts to £2.5 million.

Schedule 12, as amended, agreed to.

New Clause 7

Uprating of allowance amounts for agricultural property

“The Chancellor of the Exchequer must, within six months of the passing of this Act, undertake and publish an assessment of the potential merits of uprating annually the relief allowance amount for agricultural property by the change in the value of agricultural land.”—(Charlie Maynard.)

Brought up, and read the First time.

Question proposed, That the clause be read a Second time.

23:05

Division 402

Question accordingly negatived.

Ayes: 188

Noes: 341

The occupant of the Chair left the Chair (Programme Order, 16 December 2025).

The Deputy Speaker resumed the Chair.

Progress reported; Committee to sit again tomorrow.