Lord Livermore
That this House takes note of the Spring Forecast Statement.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, it is a privilege to open this debate on the spring forecast and the Second Reading of the finance Bill. I very much look forward to the valedictory speech from the noble Lord, Lord St John of Bletso.
On taking office, this Government inherited three major crises: a crisis in the public finances, a crisis in our public services and a crisis in the cost of living. That is why we have repeatedly taken the action necessary to bring stability to the economy. The choices we have made are the responsible ones. The spring forecast showed that the economic plan that we have been driving forward since the election is the right one.
In our first Budget, we took action to fix the foundations of the economy by repairing the £22 billion black hole in the public finances left by the previous Government. At the spending review last summer, we stuck to our non-negotiable fiscal rules, keeping a tight grip on day-to-day spending while investing an additional £120 billion in growth-driving infrastructure and getting debt on a downward path. In the Budget last November, we built greater resilience by doubling the headroom against the stability rule and cutting borrowing as a share of GDP in every year of the forecast.
Our economic plan is built on three pillars: stability in our public finances, investment in our infrastructure and reform to Britain’s economy. Stability is the cornerstone of this plan because it is the single most important precondition for economic growth. That is why we have committed to one fiscal event a year, limiting major policy changes to the Budget, helping to give businesses and households the certainty that they need to plan and to invest.
The forecast from the Office for Budget Responsibility, published last month, shows that our plan is working and that we enter this period of global uncertainty with the fundamentals of our economy strong. We have cut inflation, which stands now at 3%—a lower base than at the outset of Russia’s illegal invasion of Ukraine. We have prioritised growth to drive up living standards. The OBR forecast showed GDP per head set to grow more than was expected at the Budget, with growth of 5.6% over this Parliament. We have stabilised the public finances, having already reduced the deficit by £20 billion this year from 5.2% to 4.3% of GDP.
These forecasts pre-date the current conflict in the Middle East. The full economic impact of that conflict will depend on its severity and its duration. The movements on energy markets that we have seen are likely to put upward pressure on inflation in the coming months. Our economic approach will be responsive to a changing world and responsible in the national interest. As the Government have demonstrated time and again, we will take the necessary decisions to help families with the cost of living and to protect the public finances.
This Government are delivering the biggest uplift in defence spending since the end of the Cold War. The Chancellor has also approved access for the Ministry of Defence to the special reserve to deploy additional capabilities in the Middle East, meaning that no net additional costs of these operations will be funded by the Ministry of Defence, but instead will be funded by the Treasury.
Last week, following her call with other G7 Finance Ministers, the Chancellor set out her further priorities for international co-operation: for immediate de-escalation and a return to a diplomatic process; guaranteeing the security of vessels passing through the Strait of Hormuz; supporting a co-ordinated release of collective International Energy Agency oil reserves, the release of which has since helped to stabilise international oil markets; and setting out how the UK will play its part as the global hub of maritime insurance. On Friday, the Chancellor met petrol retailers and energy suppliers to make it clear that the Government would not tolerate any company exploiting the current situation to make excess profits at consumers’ expense.
While we do not yet know how long this conflict will last, it underlines the importance of building a stronger, more secure economy able to withstand whatever instability we may face. The strength of our economy and public finances is possible only because of the Budget last year and the measures contained in the finance Bill before us today.
That Budget had at its heart three pro-growth choices. First, by choosing to maintain economic stability, getting inflation and interest rates down, we helped give businesses the confidence to invest and our economy the room to grow. Secondly, by choosing to reject austerity, we protected £120 billion of additional investment in growth-driving infrastructure. Thirdly, by choosing to back the fast-growing companies of the future, we supported the investment, innovation and economic dynamism that will increase growth in the next decade and beyond. That includes measures in the Bill to make Britain the best place in the world for firms to start, scale and stay. We are doing that by widening eligibility for our enterprise incentives so that scale-ups can attract the talent and the capital that they need. We are expanding the enterprise management incentive so that more companies can offer tax relief share options, and we are re-engineering our enterprise investment and venture capital trust schemes so that they do not back just early-stage ideas but stay with companies as they grow. For all businesses, large and small, we are also maintaining the lowest corporation tax rate in the G7 and the joint most generous capital allowances in the OECD.
In her Mais Lecture today, the Chancellor went further on our growth agenda by setting out how we will deepen our economic relationship with our European partners, how we will back innovation and harness the power of AI, and how we will take the necessary action to build growth on a broad, stable basis right across the UK.
Of course, the pro-growth choices we made in the Budget need to be paid for, and that means asking everyone to make a contribution. The previous Government froze the main income tax thresholds from 2021 to 2028. This finance Bill maintains all income tax and equivalent national insurance thresholds at their current level for a further three years from 2028. I accept that maintaining these thresholds is a decision that will affect working people. The Chancellor and I both said this in 2024 and I will not pretend otherwise now.
However, while we are asking everyone to make a contribution, we are keeping that contribution as low as possible through reforms to our tax system to make it fairer and to ensure that the wealthiest contribute the most. That includes increasing taxes on property, dividend and savings income to narrow the gap between tax paid on work and tax paid on income from assets. Currently, a landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant with the same salary because no national insurance is charged on property, dividend or savings income. That is not fair. That is why this finance Bill increases the basic and higher rate of tax on property, savings and dividend income by 2 percentage points, and the additional rate of tax on property and savings income by 2 percentage points. Around two-thirds of the revenue from these increases are expected to come from the top 20% of households.
We are also reforming the tax system to ensure that it keeps pace with a fast-changing economy. This finance Bill increases taxes on online gaming and online betting, while protecting UK horseracing and abolishing bingo duty. It prevents private hire vehicle operators exploiting a tax administration scheme so that everyone pays fairly. We are going further to close the tax gap to ensure that everyone pays the tax that they owe. Reforms contained in this finance Bill will help to collect more unpaid taxes and modernise the tax system to make it easier for taxpayers to get their tax right first time.
We have listened carefully to feedback from the farming community and family businesses, and the Bill raises the threshold for the 100% rate of relief on agricultural property and business property from £1 million to £2.5 million. This means that a couple will now be able to pass on up to £5 million of agricultural or business assets tax free on top of the existing allowances such as the nil-rate band.
Since coming into office, this Government have implemented an economic plan to bring stability to the public finances and to strengthen Britain’s economy for the long term. The spring forecast shows that this plan is the right one, with lower inflation and borrowing, higher living standards and a growing economy. Britain today is in a stronger position to withstand whatever uncertainty comes our way, but that is possible only because of the action we took in the Budget last year and the measures contained in this finance Bill. They are the right choices to protect families and businesses in an uncertain world, and they demonstrate that this Government have the right economic plan for Britain’s future. I beg to move.
Baroness Neville-Rolfe (Con)
My Lords, my first point is that the world economic situation now is very different from that existing at the time of the Spring Statement, let alone that in place when the finance Bill was introduced—different and significantly worse. The Middle East war has overturned economic expectations, especially optimistic ones.
A major factor in this deterioration is, of course, increased oil and gas prices, which are an inevitable consequence of political instability in the Middle East. This exacerbates the unfortunate effects of the Government’s own policies, which all agree have led to the highest fuel prices in the developed world. The resulting inflation, already mentioned by the Minister, adds to of the elevated levels we have already experienced during the Chancellor’s time in office. That in turn risks pushing interest rates higher, meaning rising mortgage costs for homeowners and greater pressure on household finances.
Investors are now pricing in a 70% chance that the Bank of England will increase rates by a quarter point before the end of the year having previously expected two quarter-point cuts this year; unfortunately, gilt yields have jumped here more than in any other G7 country.
Public finances are already under severe strain. Borrowing is running higher than forecast when the Government took office, and the country is now spending well over £100 billion a year simply servicing debt.
Since this Government came into office, gilt yields are up, growth is down, inflation is up, unemployment is up, debt is up, and the UK goes into this potential energy crisis already facing some of the highest energy prices in the world. It is extraordinary that Mr Ed Miliband, at a time when we face some of the greatest fuel insecurity in modern history, is content for the country to rely on oil from the Middle East but is against investing in the oil and gas from our North Sea.
This is a very serious moment. When the global outlook darkens, our domestic economic resilience matters more than ever. Yet the Government’s stewardship of the economy has left the country more exposed to shocks like this, and, when that happens, it is ordinary taxpayers who end up paying the price.
A lot has been said about the Government’s level of preparedness on the military front, but what is also true is that they were poorly prepared on an economic front. The economy that has developed under this Government and this Chancellor is profoundly precarious—and we are finding ourselves at the mercy of events.
The Minister has again waxed lyrical about the legacy of the last Government. There were things we did wrong, notably on immigration, but I remind the House that we had to cope with the legacy of the financial crisis, Covid and the Ukraine war, but we still delivered low inflation and an economy that was growing, and we now have a new Conservative leader with a refreshing determination to change things.
I turn to the Spring Statement. This was largely a non-event. Once the rhetoric—feeble rhetoric at that—is stripped away, it is difficult to identify any clear substance in what the Chancellor had to say. There were a few fairy tales, such as the Chancellor’s willingness to blame everyone else, from Trump to Putin, for the state of our economy—when, the last time I checked, she is the Minister responsible.
Looking at the statistics, we see that unemployment is rising sharply, hitting a staggering 7.6% in the capital, including a nine-year high for young Londoners. Youth unemployment in London is above that for the eurozone because of massively tightened employment regulations and much-reduced economic incentives to employ them through changes to NICs and the minimum wage. Yesterday’s youth jobs grant is a drop in the ocean and a poor attempt by the Government to cover up the immense harm they have done to employment in this country since assuming office.
Meanwhile, the OBR has predicted that the Government will spend £333 billion on welfare this year, at 10.9% of GDP, and by 2030-31 it is forecast to be £407 billion, at 11.7% of GDP. Working people will be asked to pay ever more in tax to fund the Government’s failure to get people back to work. Above all, the OBR has downgraded its forecast for growth from 1.4% to just 1.1%, which in truth amounts to growth that is barely there at all. When elected, the Prime Minister and the Chancellor talked endlessly about growth as their prime objective, promising planning reform, speedy infrastructure investment, world-leading AI and a skills revolution—all good things which I supported—but the delivery has been abysmal. Now, they have almost stopped talking about growth, in favour of vain efforts to subsidise the cost of living. History tells us that subsidies do not constitute a viable long-term strategy. Indeed, the OBR warns that inflation is expected to rise again, bringing with it the real prospect of higher mortgage rates and higher borrowing costs for the Government.
The reality for working people is stark. Wages are being eroded by rising prices, while taxes continue to climb. Millions more people will be dragged into higher tax bands by the so-called stealth tax of frozen income tax thresholds, now locked in place until April 2031. Despite all this, the Chancellor has boasted that her economic plan is the right one for Britain. I really doubt whether anyone believes that. What Britain needs is growth, jobs and investment. What the Chancellor has delivered is rising unemployment, ever- expanding welfare and a flatlining economy. The failure to tackle welfare reform is particularly worrying when we need to fund extra defence spending to protect ourselves and our citizens in an increasingly dangerous world. As it is, we are not yet on the path to prosperity.
I now turn to the Bill. First, perhaps the Minister can kindly confirm that the fuel duty increase of 5p provided for in the Bill is being delayed. With oil prices sky-high, this makes good sense, as we have argued.
This Bill lays bare the Government’s priorities. It makes a clear and deliberate choice to raise taxes on those who work, save and invest and to use a substantial share of that money to expand the welfare bill. In doing so, the Government are targeting and taxing precisely those people who sustain the productive heart of our economy—namely, savers who put money aside, investors who back enterprise, and the businesses that create jobs and growth.
Take the continued freezing of the income tax thresholds. This is fiscal drag on an enormous scale. Around 800,000 people will be pulled into the basic rate of income tax and around 1 million more will be dragged into the higher rate. By 2030, it is expected that one in four taxpayers will be paying either the higher or the additional rate of income tax. It does not stop there. In addition to the unfair arrangements for salary sacrifice, which this House has voted against, the repayment threshold for student loans is frozen, in effect imposing another hidden tax on younger generations starting their careers. Even those citizens who rely solely on the state pension are now at risk of being pulled into the income tax net.
The Government are reaching into the pockets of those who invest in Britain. The 2% increase in the tax on dividends, a £1.2 billion tax grab, sends exactly the wrong signal. Instead of encouraging investment in British companies and rewarding those who take risks to build and grow businesses, it penalised them. It is no surprise that 16,500 of them last year signalled their intention to move abroad.
We then come to the deeply troubling changes to IHT, the family farm and family business taxes. Just before Christmas, under enormous pressure, the Government attempted a partial retreat, but let us be clear: this so-called concession does not solve the problem. Many farms and family businesses may own valuable land or machinery, but they operate on tight margins. A paper valuation is not the same as spare cash sitting in the bank. The consequences are predictable. When faced with this kind of uncertainty, businesses do not expand; they pull back, they postpone investment, they do not buy new equipment or improve their restaurants, and, as we have seen, they reduce employee numbers.
Before I close, I should refer to the troubling letter that I have received from the Chartered Institute of Taxation about the difficulties that the various IHT changes will cause for personal representatives of the deceased, the costs in administration due to the Bill’s complexity and the defects of the tax avoidance provisions. It will not be easier for taxpayers, as the Minister suggested.
When we step back and look at the Spring Statement and the finance Bill, a clear picture emerges of the direction in which this Government are taking the country. Instead of policies that reward work, encourage investment and drive growth, we see rising taxes, a growing welfare bill and a struggling economy. The people who carry the greatest burden under this Government are precisely those who sustain our economy: the families who work hard and pay their taxes, the entrepreneurs who take risks to start and grow businesses, the investors who back innovation, and the farmers and family farms who keep our communities and supply chains alive. A healthy economy is built on confidence—the confidence to invest, the confidence to hire and the confidence to plan for the future. The Spring Statement and the finance Bill will give no confidence to anybody. On the evidence before us today, it is clear that the Government are moving in precisely the wrong direction, at a time of international challenge. Against that rather difficult background, I very much look forward to the valedictory speech of the noble Lord, Lord St John of Bletso.
Lord Livermore (Lab)
My Lords, it is a pleasure to close this debate on the spring forecast and the Second Reading of the Finance (No. 2) Bill. I am grateful to all noble Lords for their contributions, which I have enjoyed listening to. I pay tribute to the noble Lord, Lord St John of Bletso, for his valedictory speech and his service to your Lordships’ House over many years. It was a wide-ranging speech spanning Nelson Mandela, energy policy and AI, among other issues. In this, it was a perfect representation of the experience he has brought to our debates. I wish him very well for the future.
On taking office, this Government inherited three major crises: in the public finances, in our public services and in the cost of living. That is why we have repeatedly taken the action necessary to bring stability to the economy, as welcomed by my noble friend Lord Barber of Chittlehampton. The choices we made were the responsible ones, and the spring forecast showed that the economic plan we have been driving forward since the election is the right one.
I agree with the noble Lord, Lord Sherbourne of Didsbury, that growth comes from businesses and investors. That is why our economic plan is built on the three pillars, as my noble friends Lord Chandos and Lady Gill reminded us, of stability in our public finances, investment in our infrastructure and reform of Britain’s economy.
My noble friends Lady Bi and Lord Brooke of Alverthorpe rightly spoke about the importance of having just one fiscal event a year and the stability that brings. The OBR forecast published last month showed that our plan is working and that we enter this period of global uncertainty with the fundamentals of our economy strong, as my noble friend Lord Barber said.
The noble Baroness, Lady Neville-Rolfe, spoke about inflation, neglecting to mention that it hit 11% under her Government. We have cut inflation, which now stands at 3%, a lower base than at the outset of Russia’s illegal war on Ukraine. She also mentioned interest rates, forgetting to mention not only that they have been cut six times under this Government but that they were set soaring by the Liz Truss mini-Budget.
We have prioritised growth to drive up living standards. The OBR forecast showed GDP per head set to grow more than was expected at the Budget, with growth of 5.6% over the Parliament. As my noble friend Lord Pitt-Watson said, we have stabilised the public finances, having already reduced the deficit by £20 billion this year from 5.2% to 4.3% of GDP.
The noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Moynihan of Chelsea, spoke about the growth forecast. Average growth over the next five years is broadly unchanged, with slightly lower growth this year and slightly higher growth next year and the year after that. The noble Lord, Lord Hintze, and the noble Baroness, Lady Kramer, spoke about the importance of GDP per head. GDP per capita is now set to grow faster than was forecast in the autumn; with growth of 5.6% over this Parliament, GDP per capita is £2,300 higher in the last year of the forecast compared with the first.
My noble friend Lord Davies of Brixton and the noble Baroness, Lady Kramer, spoke about the potential for falling migration to impact OBR forecasts going forward. As my noble friend Lady Gill said, Britain was the fastest-growing G7 economy in Europe last year. That is why we have the right economic plan to deliver higher long-term economic growth.
The noble Lord, Lord Skidelsky, spoke about the language used by the OBR to describe unemployment, which I am afraid I am not responsible for. Many noble Lords focused on unemployment, including the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord St John of Bletso, Lord Bilimoria, Lord Lamont of Lerwick, Lord Elliott of Mickle Fell, Lord Northbrook, Lord Altrincham and Lord Massey of Hampstead. Employment is historically high. There are only two peacetime years out of the past 150 when the average annual employment rate has been higher than it was in 2025.
Forecasts from the OBR show that unemployment will peak later this year and then fall progressively for the remainder of the Parliament, ending the Parliament lower than it was when we took office. There is, though, action needed to address in particular the number of young people out of work, something that has been focused on in the contributions of many noble Lords. That is why we are providing £2.5 billion across the youth guarantee to tackle youth unemployment and, through additional investment in the growth and skills levy, to reform apprenticeships and prioritise young people. This will support almost 1 million young people and help deliver up to 500,000 opportunities to earn or learn.
The noble Lords, Lord Lamont of Lerwick and Lord Hintze, spoke about living standards. The last Parliament was the worst on record for living standards. Living standards are now rising. GDP per capita is set to grow more than was forecast in the autumn. Real wages have grown more in the first year of this Government than in the first 10 years of the previous one.
The noble Baroness, Lady Neville-Rolfe, spoke about inflation. We have cut inflation, which now stands at 3%, a lower base than at the outset of Russia’s illegal war in Ukraine. The OBR forecasted last month that inflation would fall faster than predicted in November and will return to target this year rather than next year.
Clearly, these forecasts took place before the current conflict in the Middle East began. Movements on energy markets, as we have already seen, are likely to put upward pressure on inflation in the coming months. As the Government have demonstrated, we will take the necessary action to help families with the cost of living and protect the public finances.
My noble friend Lord Pitt-Watson talked about the need to build growth in partnership with business, something I agree very much with. The noble Lord, Lord Sherbourne, talked about business experience, and he referenced what he described as the Government’s lack of business experience compared with the previous Government. We inherited an economy from the previous Government where the UK was the only G7 country with private sector investment that was below 20% as a share of the economy.
Since the Government came to office, we have secured a record £360 billion of private investment. Retail sales are rising, and the S&P global PMI rose to a 17-month high in January. As several of my noble friends have said, business confidence comes from stability, and that stability underpins our economic plan.
I very much agree with my noble friend Lady Bi on her comments about the value of London and the international importance of the City of London in terms of financial and professional services. I also agree with my noble friend Lord Brooke of Alverthorpe about the importance of public/private partnerships.
The noble Lord, Lord St John of Bletso, spoke about procurement, the role of AI and the potential consequences of AI on the labour market. They are all timely points, following the Chancellor’s Mais Lecture this lunchtime, which focused on all the points that the noble Lord raised. I completely agree with him on the importance of using procurement wisely, and we have set out reforms today to do exactly that. On AI in the labour market, the Chancellor announced that we will establish an AI economics institute to develop policies exactly along the lines that the noble Lord mentioned in his speech.
I agree very much with what my noble friend Lady Gill said about the benefits of deepening our economic relationship with the European Union—something the Chancellor herself set out in her Mais Lecture today.
The noble Lord, Lord Patten, asked about the cost of producing the spring forecast. The Treasury does not calculate or record a stand-alone cost for producing the spring forecast; it is delivered using existing departmental resources across policy and analytical teams and forms part of routine fiscal and economic reporting obligations. As such, no additional or exceptional spending is incurred beyond normal staffing costs.
Several noble Lords, including the noble Lords, Lord Bilimoria, Lord Lamont and Lord Redwood, my noble friend Lord Davies of Brixton and the noble Baroness, Lady Kramer, spoke about the impact of the conflict in the Middle East on the OBR’s most recent forecasts. The forecasts from the OBR, of course, pre-date the current conflict in the Middle East. Clearly, the full economic impact of the conflict will depend on its severity and duration.
The movements of energy markets, as we have already seen, are likely to put upward pressure on inflation in the coming months. Our economic approach will be both responsive to a changing world and responsible in the national interest. As the Government have demonstrated time and again, we will take the necessary decisions to help families with the cost of living and protect the public finances.
Any forecast is, of course, inevitably subject to uncertainty, particularly when global events are moving quickly. Although we do not yet know how long the conflict will last, it underlines the importance of building a stronger and more secure economy that is able to withstand whatever instability we may face.
In the Budget last November, we took £150 off the costs of energy bills. Yesterday, the Government announced immediate support for vulnerable heating oil customers, providing £53 million for the households most exposed. The noble Lord, Lord Lamont, endorsed the view that any support should be targeted.
The noble Baroness, Lady Neville-Rolfe, asked about fuel duty. The UK benefits from a strong and diverse security of energy supplies. The decisions we have taken since the Budget in 2024 will save the average motorist over £90, or 8p to 11p per litre, compared with the plans we inherited from the previous Government.
As my noble friend Lord Chandos said, the Chancellor has written to the Competition and Markets Authority, asking it to remain vigilant across heating oil prices and recommending that it acts to tackle unjustified price increases. The Government are clear that we will not tolerate profiteering or unfair practices, and we urge customers to share any evidence of price manipulation with the CMA.
I agree with what many noble Lords—including the noble Baroness, Lady Neville-Rolfe, and the noble Lords, Lord St John of Bletso, Lord Bilimoria, Lord Lamont and Lord Redwood—said about the importance of the North Sea. Domestic oil and gas must continue to have an important role in the energy mix for decades to come. That is why the Chancellor met with North Sea industry to discuss the consequences of this uncertain period. I also endorse what my noble friend Lord Barber said about critical minerals.
The noble Baroness, Lady Neville-Rolfe, spoke about increasing defence spending. We are delivering the biggest uplift in defence spending since the end of the Cold War. That equates to over £270 billion invested over the spending review period. Defence spending will rise to 2.6% of GDP next year—a level not seen since 2010. We are committed to spending 3% in the next Parliament when economic and fiscal conditions allow.
Although we do not yet know how long this conflict will last, it underlines the importance of building a stronger and more secure economy that is able to withstand whatever instability we face. The strength of our economy and public finances are possible only because of the Budget last year and the measures contained in the finance Bill before us today.
I pay tribute to my noble friend Lord Liddle for chairing the Finance Bill Sub-Committee of the Economic Affairs Committee, as well as to other members of that committee: the noble Lords, Lord Altrincham and Lord Leigh of Hurley, and the noble Baroness, Lady Fairhead.
The noble Lord, Lord Lamont of Lerwick, and the noble Baroness, Lady Neville-Rolfe, asked about the impact on working people from further freezes to the national insurance thresholds. As I am sure noble Lords know, the Government are not increasing the headline rates of income tax, national insurance or VAT, in line with our manifesto, but we are clear that the decisions made in the Budget in November involve asking people to contribute more.
In reference to the points made by my noble friend Lord Sikka, this finance Bill raises revenue in a fair way, reforming the system to ensure that those with the broadest shoulders pay their fair share while limiting what we ask from ordinary workers.
My noble friend Lord Liddle focused in his comments on his concerns about the inheritance tax treatment of unused pension funds and death benefits, as did the noble Baroness, Lady Fairhead, and my noble friend Lord Davies of Brixton. This was a point also mentioned by the noble Baroness, Lady Kramer. This measure removes distortions resulting from changes that have been made to pensions tax policy over the last decade, which have led to pensions being openly used and marketed as a tax-planning vehicle to transfer wealth, rather than as a way to fund retirement. As a result of these changes, more than 90% of estates will still pay no inheritance tax each year, and most estates will not pay inheritance tax on the pension, wealth and income tax that is due only from beneficiaries on inherited pensions in certain circumstances.
My noble friends Lord Liddle and Lord Davies of Brixton, the noble Baroness, Lady Fairhead, and the noble Lord, Lord Leigh of Hurley, raised the issue of personal representatives. Personal representatives who are already responsible for administering the rest of the estate will be liable for reporting and paying inheritance tax on any unused pension funds and death benefits from 6 April 2027. This is the same as the current process for non-discretionary pension schemes and other assets which do not pass directly through the estate but are in scope of inheritance tax. Since the announcement that the liability for paying inheritance tax on pensions will sit with personal representatives, officials have been engaging directly with tax and legal industry professionals to fully understand their concerns.
Budget 2025 announced that, where personal representatives reasonably expect inheritance tax to be due, they can direct pension scheme administrators to withhold 50% of the taxable benefits for up to 15 months from the date of death. Personal representatives can then direct pension scheme administrators to pay the inheritance tax due to HMRC before releasing the rest of those benefits to pension beneficiaries. If the instruction is withdrawn or the period ends, the remaining funds can be paid out. This will not apply to exempt benefits, funds under £1,000 or continuing annuities. Personal representatives will be discharged from liability for pensions discovered after they have received clearance from HMRC.
We are reforming the tax system to ensure it keeps pace with a fast-changing economy. We are going further to close the tax gap to ensure that everyone pays the tax they owe. Having listened carefully to feedback from the farming community and family businesses, this Bill raises the 100% rate of relief on agricultural property relief and business property relief from £1 million to £2.5 million. My noble friend Lord Liddle and the noble Lord, Lord Leigh Hurley, spoke about these reforms to agricultural property relief and business property relief. The status quo is not sustainable and there is a clear need to reform agricultural property relief. A very small number of claimants benefit from a very significant amount of agricultural property and business property relief. The increase in the planned allowances from £1 million to £2.5 million further reduces the number of estates forecast to pay more inheritance tax and further reduces the liability for many of the remaining estates, meaning that a couple can leave £5 million completely free of tax on top of the usual reliefs and allowances.
My noble friend Lord Liddle spoke in favour of taxing wealth. The Government are committed to taxing wealth fairly. That is why, in the Autumn Budget Statement in 2024, we announced reforms to taxation of wealth and the wealthy that will raise over £8 billion, including reforms to non-domiciled tax, mentioned by several noble Lords this evening. We are now building on that action by reforming property taxes so that the highest value homes in England pay the most, and addressing reliefs in capital gains tax and inheritance tax that have grown in cost to the benefit of the wealthy. My noble friend Lord Liddle is absolutely right that we must reward and encourage enterprise, which we are doing, including in measures contained in this finance Bill.
Since coming to office, the Government have implemented an economic plan to bring stability to the public finances and to strengthen Britain’s economy for the long term. The spring forecast shows this plan is the right one, with lower inflation and borrowing, higher living standards and a growing economy. Britain today is in a stronger position to withstand whatever uncertainty comes our way, but that is possible only because of the action we took in the Budget last year and the measures contained in this finance Bill. They are the right choices to protect families and businesses in an uncertain world and they demonstrate that this Government have the right economic plan for Britain’s future.