Agricultural and Business Property Reliefs: OBR Costing

Alistair Carmichael Excerpts

Thursday 23rd January 2025 Commons Chamber

[Mr Speaker]

Mr Dickson, I think you were very late. I would not want to embarrass you by allowing you to ask a question.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

One of the witnesses before the Environment, Food and Rural Affairs Committee told us that the Government’s changes hit the people the Government say they are protecting, and protect the people the Government say they are hitting. It is difficult to improve on that analysis of what is proposed. It really does not have to be like that. There is a sensible debate to be had about reforming inheritance tax to stop the super-rich from sheltering their wealth while still protecting family farms. His Majesty’s Revenue and Customs has its technical consultation coming up. Why does the Minister not agree to broaden its terms, engage with the farming communities, and look for a way to protect family farms and get at those who are sheltering their wealth in land?

[James Murray]

The policy that we are implementing includes generous provisions to protect family farms—the £1 million entire relief from inheritance tax for agriculture and business property assets. That is in addition to the nil-rate bands that people can access as part of the general inheritance tax scheme. We think that strikes the right balance between making sure we raise money for the public finances and protecting family farms.

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[James Murray]

I thank the hon. Gentleman for his question, but I think it was based primary on the OBR publication yesterday. I reiterate the point I have made several times now: that OBR publication reiterated the costings and figures set out at the Budget, it reiterated the level of uncertainty associated with the measure, as published at the Budget, it provides more detail behind that, but the conclusion is the same as it was on 30 October.

[Mr Carmichael]

On a point of order, Mr Speaker. Before questioning the Minister, I should have reminded the House of my entry in the Register of Members’ Financial Interests. My failure to do so, for which I apologise, was inadvertent—I just got carried away with the excitement of the moment.

[Mr Speaker]

Thank you for that wonderful clarification.

Crown Estate Bill [Lords]

Alistair Carmichael Excerpts

2nd reading
Tuesday 7th January 2025 Commons Chamber

[Darren Jones]

The right hon. Gentleman is doing a brilliant job of anticipating sections in my speech. Once again, I will point at him when I come to the relevant section; in fact, it is the next section, so he is in luck.

There will be a memorandum of understanding in place between the Treasury and the Crown Estate that will govern how the borrowing powers will be exercised. Above all, the Crown Estate will be borrowing for investment, maximising the profits returned to the public purse. Any such borrowing will require Treasury consent and will be within our fiscal rules.

Given that the new powers will enable the Crown Estate to first draw on its cash holdings, it is not envisaged that these borrowing powers will be used until the end of the decade. As with any public sector borrowing, the Treasury will ensure that this is consistent with “Managing Public Money” principles to ensure value for money for the taxpayer. The fiscal impact of any Crown Estate borrowing will be fully considered, starting with this year’s spending review, to ensure it is consistent with our fiscal rules.

The Bill contains a set of necessary reforms, ensuring that the two key objectives can be met and that the Crown Estate can continue to operate effectively, both now and in the years ahead. It is composed of five key elements. First, it widens investment powers by removing existing restrictions on investing in the current Crown Estate Act 1961, and clarifies the Crown Estate’s ability to invest in complementary activities, such as research, digital technology and energy supply chains. Secondly, it grants the Crown Estate the power to borrow with Treasury consent. As well as generating returns for the public purse, the new ability to borrow will free it up to make better use of its existing assets, leveraging these to give it more room to invest.

Thirdly, the Bill makes amendments relating to the governance of the Crown Estate to provide legislative simplification and to bring it in line with best practice for modern corporate governance. By expanding the number of commissioners, the board will be able to better reflect the growing breadth of the Crown Estate business and ensure a greater range of expertise and diversity at board level. The Bill also requires the appointment of commissioners to advise on Wales, England and Northern Ireland, which will ensure that the board continues to act in the best interests of the areas in which it operates.

Fourthly, the Bill requires the commissioners to keep under review the impact of their activities on the achievement of sustainable development goals in the UK. It is important that progress towards national goals on the environment and climate, as well as wider considerations on society and the economy, continue to be at the core of the Crown Estate’s strategy.

Fifthly, the Bill requires the annual report to include a section on the activities of the commissioners under their recently announced partnership with Great British Energy. That will ensure that details of the partnership and the benefits it creates are publicly available, clear to all and subject to debate in this House when those reports are published.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I understand that the Minister is proposing that, in relation to the seabed, the Crown Estate will be a licensing authority for renewable energy projects and will now be able to invest in them too. The commissioners have a primary duty to maximise the return to the Crown Estate of any activity they undertake. To comply with the law, will the Crown Estate be compelled to side with renewable energy development at the expense of the fishing industry if, for example, there is a conflict between the siting of an offshore wind farm and the use of that sea by the fishing industry, and is that fair?

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[Darren Jones]

I am continually grateful for the team effort, and I am grateful to my hon. Friends for having paid such close attention to the Bill.

[Mr Carmichael]

I am aware of the duty to keep this under review, but that will surely be overridden, because the primary duty remains to maximise the return for the Crown Estate. I am quite happy for the Crown Estate to be both a licensor and an investor, although there is something of a conflict of interest, but surely there needs to be more concern about the Bill’s impact on other seagoing industries. In a way, I fear that the Minister’s response to my initial question suggests this has not been given sufficient attention thus far.

[Darren Jones]

The right hon. Gentleman should not take my not knowing the answer as meaning that other people are not paying sufficient attention to the issue. He has asked a very technical question, and I commit to making sure an answer is made available to him and the House before the Bill goes to Committee.

The Bill currently places an obligation on the commissioners in relation to salmon farming, due to an amendment made in the other place. The Government do not believe this obligation would be effective or, indeed, appropriate, given that it relates to a devolved policy area. We therefore intend to seek to remove this measure in Committee.

The Bill has seven clauses. Clause 1 inserts two new measures into the Crown Estate Act 1961 to clarify and broaden the commissioners’ powers. It also removes section 3(4) of the 1961 Act, thereby removing limitations on the commissioners’ investment powers.

The two new measures grant a power to borrow, subject to Treasury consent, and clarify that the commissioners have the powers to do that which is connected, conducive or incidental to meeting their general functions, including enhancing and maintaining the Crown Estate and the returns obtained from it. This allows the Crown Estate to borrow from the National Loans Fund, the Treasury or otherwise, subject to Treasury consent, and authorises the Treasury to provide financial assistance to the commissioners or to provide loans from the National Loans Fund.

Clause 2 makes two amendments to modernise the Crown Estate’s governance, by increasing the maximum number of board members from eight to 12 and removing the requirement for the salaries and expenses of its commissioners to be paid out of voted funds.

Clause 3 requires the commissioners to keep under review the impact of their activities on the achievement of sustainable development in the United Kingdom. Clause 4 requires the commissioners’ annual report to include a specific report relating to the Crown Estate’s partnership with Great British Energy.

Clause 5 requires the commissioners to make assessments relating to salmon farms on Crown Estate land, and to refuse or revoke a licence for a salmon farm if the assessment determines that it may cause, or is causing, environmental damage, or if it raises significant animal welfare concerns.

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[James Wild]

My right hon. Friend is absolutely right to highlight the potential risk. There is no one-way bet in life, and there is no guarantee that the Crown Estate will successfully invest in projects that go well. I will come on to the point about the energy side of things later in my speech.

It is perfectly reasonable, as we proposed in the other place, to have that 25% cap in legislation, which could be amended. I am sure we will consider the issue further in Committee.

The Bill alters the governance of the Crown Estate and provides for the number of commissioners to be increased to 12. Given the extension of the powers and the decrease in parliamentary oversight, pre-appointment scrutiny is of great importance. Again, I thank Baroness Vere for seeking and securing assurances from the Government that the chairman of the Crown Estate commissioners could be added to the Cabinet Office pre-appointment scrutiny list. Just before Christmas, Ric Lewis was announced as the preferred candidate for the role and I am pleased that the appointment will now be considered by the Treasury Committee. Will the Minister confirm in his winding-up speech whether other commissioners will be subject to any pre-appointment scrutiny?

Turning to salaries, which I do not believe the Chief Secretary referred to, under clause 2, Parliament will no longer be responsible for approving them through the estimates. Instead, they will be paid out of the income of the Crown Estate. Currently, the framework document sets out that remuneration of the chief executive should be in line with or below that of an appropriate benchmark group approved by the Treasury and that a clear majority of the chief executive’s total reward should be conditional upon performance. We support rewarding success, but with the loss of parliamentary oversight, will the Minister confirm whether any changes are proposed to the remuneration framework and, specifically, for the chief executive? Will he undertake to report to the House on any such change in future?

Turning to Great British Energy, on the day the Bill was introduced, the Government announced a partnership between the Crown Estate and GB Energy, which they claimed will

“unleash billions of investment in clean power.”

Indeed, the press release went on to say it

“will lead to up to 20-30GW of new offshore wind developments reaching seabed lease stage by 2030”.

However, there is a lack of transparency over how the partnership will work, the difference it will make, and its impact on the Estate’s primary duties. Given the supposed significance, I would have expected to have seen a partnership agreement by now, as without one, we do not know what has been agreed. Will the Minister confirm if there is a partnership agreement yet? Will he commit to publishing it before the Committee stage? Has the Crown Estate agreed to invest a certain amount with GB Energy? What process is there to ensure the Crown Estate continues to deliver on its duty to maintain and enhance the value of the estate? How will the Crown Estate decide between projects GB Energy backs and other projects that may have a higher rate of return?

The GB Energy founding statement adds to the confusion, adding that the Crown Estate

“will establish a new division ‘Great British Energy: The Crown Estate’.”

That raises several questions. Will new staff be required, or will it simply be a restructuring of the existing group? The statement also says it will sit

“under both Great British Energy and The Crown Estate, with strategy and investment agreed by Great British Energy.”

Will decisions be made jointly on investments, or will the Crown Estate retain its independence? Given the Government voted down our amendments to the Great British Energy Bill to introduce more accountability, it simply fuels some suspicion that the partnership has been created for political rather than economic reasons. The reporting requirements that were secured and added to the Bill in clause 4, which the Chief Secretary referred to, will at least help to bring some transparency to this, but there is a need for a lot more.

Under the previous Government, the UK became the first to more than halve emissions while growing the economy and became a leader in offshore wind. However, we must acknowledge that renewables are not cheap in all scenarios. There is clearly a risk that the Government will push up the cost of wind by rushing ahead to meet their political target and increase prices for consumers as a result. That is a far cry from the £300 cut in energy bills that Labour promised during the general election. As we scrutinise the Bill, Parliament has an important role to play to ensure the Government do not seek to use the Crown Estate to try and deliver the Energy Secretary’s damaging policies and undermine returns to the taxpayer.

As I set out earlier, the Crown Estate owns some vital assets, so it is surprising that there are so few safeguards to prevent commissioners from selling off such important assets. In the business case for the changes, the Crown Estate was planning £1.4 billion of disposals to fund investments, representing nearly 10% of its portfolio. When I asked Crown Estate representatives what that covered, they said they were unable to disclose plans for disposals because it is commercially sensitive information. Again, that raises concerns about transparency. In response to questions in the other place, the Government said they were working with legal experts

“to establish the extent to which the Crown Estate can currently sell the seabed”

for example. On Report, Lord Livermore confirmed that if the Government establish that

“further legislation is required to restrict the ability of the Crown Estate to sell the seabed,”—[Official Report, House of Lords, 5 November 2024; Vol. 840, c. 1412.]

they would bring forward an amendment.

I would be grateful if, in his winding up, the Minister could update the House on the process of those discussions and the need for such an amendment. The disposal of assets should be properly scrutinised. The Government rejected attempts in the other place to bring more scrutiny here and said that a statutory limit on disposals would undermine the flexibility of the Crown Estate to operate commercially. Given that the assets are held for the benefit of the nation, we should ensure some form of transparency if they are to be disposed of, whether that is reporting to Parliament, or seeking HMT approval for disposal of specific assets, or those over a set value.

Finally, let me turn to salmon. Clause 5 would require the commissioners to assess the environmental impact and animal welfare standards on salmon farms on the Crown Estate. If a salmon farm is causing damage or animal welfare issues, its licence would have to be refused. I commend my noble Friend Lord Forsyth of Drumlean for his tireless work on this matter and for highlighting that salmon farming can cause detrimental impacts in the event of escapes in terms of disease, breeding and other issues. Given that wild Atlantic salmon are now on the international union for conservation of nature’s red list, these are perfectly reasonable obligations which he said might influence how the Crown Estate of Scotland is to operate. The amendment was sponsored by Lord Forsyth, but also by Green and Labour party Members, so it is disappointing to hear the Chief Secretary to the Treasury talking about reversing that measure, and we look forward to that debate in the Committee stage.

[Mr Carmichael]

Salmon farming is enormously important in my community and in many other communities around the highlands and islands. Those communities will not be affected by this apparently, although we might hear conformation on that at a later stage, but is it the hon. Gentleman’s position that this is the only way of regulating salmon farmers? Is he not aware that there is a massive amount of regulation affecting salmon farming already? Does he really think that the Crown Estate commissioners are the people to be doing this job?

[James Wild]

Like me, the right hon. Gentleman will have read the Hansard reports of the debates in the other place where this issue was covered at some great length, so I defer to the points made by Lord Forsyth there. Regulation is obviously in place, but this addition would simply raise awareness of the issues in the Bill. The Government said that they supported the objective of the amendment when it was discussed in the other House, but did not think it was necessary. They did not think that it would do any damage, so I suggest that it remains part of the Bill.

To conclude, the Crown Estate Bill will help deliver the modernisation that is needed, but the purpose must be supporting the estate’s duty to maintain and enhance its value for maximised return to taxpayers, rather than becoming an extension of GB Energy’s cheque book. We will be pursuing the concerns that I have raised about checks on borrowing governance, the relationship with GB Energy and the safeguards in response to the disposal of assets to ensure that that remains the case.

Farming and Inheritance Tax

Alistair Carmichael Excerpts

Wednesday 4th December 2024 Commons Chamber

[James Murray]

I would like to make a bit of progress to explain some of the detail behind our policy, which may answer some of the questions that hon. Members are jumping to their feet to ask.

We know that inheritance tax is always an emotive issue, and understandably so. It is a natural desire for people to want to pass on their assets to the people they love when they pass away.

The standard single rate of inheritance tax has been 40% since 1988, and assets have generally long been entitled to nil-rate bands, reliefs and exemptions. A form of relief for agricultural property was introduced on estate duty in the Finance Act 1948, meaning that this duty was charged at 55% of the rate that would normally have applied. A new agricultural property relief and a business property relief were created in the mid-1970s with the introduction of the capital transfer tax. The rate of relief increased over time to a maximum of 50% relief; that maximum rate was then increased to 100% in 1992. This means that agricultural landowners and farmers did not receive 100% relief for almost all of the 20th century, and yet farms passed down between the generations.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I am grateful to the Minister for giving way. That was why the law was changed to introduce 100% relief. Family farms were not being passed down because the value of land was increasing. Will he consider that before bringing in these changes?

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[James Murray]

I thank my hon. Friend very much for her intervention. It is telling that when she makes such an important and sensible point, the Opposition do not want to hear it and try to shout her down. As she rightly points out, our changes to the reliefs will make buying land less attractive as a means of inheritance tax planning. This means that land prices are likely to become more affordable for farmers, thanks to a reduction in tax-motivated investment in agricultural land.

[Mr Carmichael]

Will the Minister give way?

[James Murray]

I have given way already, so I am going to make some progress.

The reforms should be seen in the context of the significant existing support for the farming industry in the wider tax system, including the exemption from business rates for agricultural land and buildings, the ongoing entitlement for vehicles and machinery used in agriculture to use rebated diesel and biofuels, and the exemption from the plastic packaging tax for the plastic film used to produce silage bales. On top of that, farmers are able to add together their profits from farming over two to five years and be taxable on the average of those profits, building flexibility into their tax arrangements for difficult years and unexpected challenges.

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[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I remind the House of my entry in the Register of Members’ Financial Interests.

It is a pleasure to follow the hon. Member for Peterborough (Andrew Pakes), who is a fellow member of the Select Committee, and the hon. Member for Ribble Valley (Maya Ellis). They both, in their own way, made an important contribution to the debate by giving a bit more context to it. I will vote for the motion in the name of the Leader of the Opposition, not because it is the most elegant piece of drafting that I have seen in 23 years in the House, but because there is nothing in it with which I really disagree. It does feel, though, like a bit of a missed opportunity to move the debate onwards. I say that not as any real criticism, because it is a response to a Government measure in the Budget, which was also a bit of a missed opportunity.

It is worth taking a minute or two to pause and reflect on how things might have been done differently. We could have gone through the process that multiple Governments and Departments have gone through over the years by starting with a Green Paper or a White Paper, and looking at the way in which inheritance tax has worked, and some of the unintended consequences that it has generated. We have all heard of the super-rich buying up land and inflating the price as some sort of tax avoidance measure. I have not met a single working farmer who wants to defend that, so there was a real opportunity to do things differently. We could have built a consensus about the proper value of land, and about some stuff that is not really being spoken about in this debate.

I speak as a former solicitor. Thankfully, I never did any executory practice, but some of those who are still in practice and with whom I am in contact tell me candidly that, because there was 100% relief on agricultural land, they did not really give a great deal of thought to the valuation that went into the application for confirmation. That is bound to have had an impact on the figures on which the Government rely. Had we done things in a proper and reflective way, we would have been able to build consensus on values and thresholds, for example, and do things very differently.

[Sir John Hayes]

I welcome the contribution of my former ministerial colleague. Had the tax been levied on exactly the people he describes—the super-rich, and non-working farmers—few would have complained, but it has been set at the wrong level. That is why I asked for detailed modelling to be made available to the House.

[Mr Carmichael]

I think I just said more or less exactly that. A debate of the sort that I am talking about would have allowed for a wider debate about farming finances. We have had 70 years of very direct Government intervention in the agricultural economy through farm subsidies. Taking a step back, critical though those farm subsidies are, their net effect has ultimately been to keep farmers poor. There is now such an enormous mismatch between the capital value of the assets being farmed and the derisory return on them. DEFRA tells us that there is a 0.5% return on capital. Farmers in my constituency tell me that a £3 million farm will give them an income of about £25,000 a year. That is pretty much in line with DEFRA’s figures.

We hear about farmers working into their 80s. It is a slightly patronising and very romantic view of doughty farmers working on into their 80s because they are seized with a sense of vocation. There absolutely is a sense of vocation among farmers, but let us not forget that a lot of them work into their 70s and 80s because they have been running businesses that have had no spare money to put into a pension so that they can look after themselves in their old age.

[Alicia Kearns]

The right hon. Gentleman makes an important point about just how little farmers earn, and yet they are consistently being described by Labour Members as asset-rich. Should farmers not fall into their definition of working people, and therefore Labour should be on their side rather than what they are doing to them?

[Mr Carmichael]

“Working people” hardly does justice to farmers. Some of my young constituents told me they were working for returns of about £6 an hour. There is a reason I chose not to become a farmer at 16 and why I thought law was a more attractive career opportunity to pursue, but I bow to no one in my admiration for those who make that choice.

Of course, there is the question of those who have made their estate planning decisions on the basis of APR being available. Others have pointed to that, but it is absolutely critical, and it goes beyond estate planning. I wonder how many farmers over the years decided in a divorce settlement to take the farm as their part of the capital, because they have a familial and emotional connection to the land, and are now finding that what looked like an equitable settlement a few years ago risks being much more inequitable.

The particular opportunity I fear we have missed is that in relation to tenant farmers. The Tenant Farmers Association came up with an excellent proposal, which would reward landlords who grant leases in excess of 10 years with exemption from inheritance tax liability. That would be good for the very people who everybody on both sides of the House says they want to help: the small family farmers. There are multiple reasons why people might buy up agricultural land. I do not know anybody who takes an agricultural tenancy thinking that it will make them a member of the super-rich as a result.

The idea that is being mooted of a clawback—something on which we could see a bit of a sensible discussion and a consensus between the Front Benches—or the idea of a suspended inheritance tax liability which would crystallise only at the point of the land sale after the death of the owner, would both work to keep land in active food production. The irony of the way in which the Government have structured the measure is that, by allowing a 50% relief on farmland above £1 million, the purchase of agricultural land will probably remain an attractive proposition for the super-rich.

We have reached a point in the debate where we need to broaden it out beyond just inheritance tax, and look at the wider question of farming finance and ask ourselves how we can build a consensus that puts farming and food production at the heart of the countryside, where it truly belongs.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

Now, with a speaking limit of five minutes, I call Matt Bishop.

Business Property Relief and Agricultural Property Relief

Alistair Carmichael Excerpts

Thursday 17th October 2024 Westminster Hall

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

It is a pleasure to serve with you in the Chair, Dr Huq, and I congratulate the hon. Member for Gordon and Buchan (Harriet Cross) on securing a very timely debate. She has provided us with what is definitely my favourite euphemism, the “succession event”, and I think we know what that means in most cases.

This is a timely debate because we have had a lot of speculation in the media in recent weeks about the possibility of changes coming in the Budget very soon. There is very little that is certain in politics these days, but I am as near certain as anybody can be that, when the Minister comes to reply, he will say that he is not going to tell us anything about the Budget. I understand the reasons for that, which are essentially sound, long-standing and respected by all, but it illustrates the inadequacy of this as a way of effecting meaningful change. Without the ability to have a proper debate involving the Treasury, change will inevitably come in a haphazard and chaotic way, and it will bring with it many unintended consequences that will have an effect on not just farmers but the wider rural community. I should have said right at the start that I have my own interests in agriculture, which are in the Register of Members’ Financial Interests, and I remind the House of those.

There may be a case for reform, but this really is not the way to go about it. The hon. Member for Gordon and Buchan was right to say that farming is a capital-rich and revenue-poor industry. Of course, any changes in farming will have consequences that spread beyond agricultural businesses. What affects farmers will affect vets, agricultural merchants, local shops and post offices in some of the most economically fragile communities to be found anywhere in the country. My concern has long been—it is not exclusive to this Government—that the Treasury does not quite understand the way the rural economy works. It is a cliché, but true, to say that farming underpins just about everything in rural communities and the rural economy, whether environmentally—through the way in which land is managed, which has consequences for nature—or financially.

The Tenant Farmers Association provided a briefing for this debate, which said that it is already seeing consequences among its members:

“We are already seeing, first hand, concerns about how Inheritance Tax charges change the way that traditional estates have thought about the management of their agricultural land, and that is before there is any change to the Inheritance Tax regime. Rural estates with significant residential and mineral interests will want to ensure that they have sufficient business activity elsewhere on their estates to be able to qualify for BPR from Inheritance Tax across the whole of their estates. If APR was abolished this will make things hugely much more difficult for farm tenants.”

That important point gets right to the heart of the matter. That is why I am pleased that the hon. Lady, in framing this debate, covered APR and BPR, which work in an interlinked way. It also shows the responsibility we in politics have when we set hares running.

North of the border, for the last few years we have had an active and often welcome debate about land reform, but one of the consequences of that debate is that many agricultural land owners, instead of moving out and putting in tenants, have moved into grass lets. A lot of the larger landowners’ estates, in particular, have replaced the secure agricultural tenancies for which they had been known for generations with a much less secure system of tenure.

As the TFA says, there might be a case for reform. It suggests ways to reward longer tenancies of 10-plus years and more secure tenancies. We have to have that debate, but we cannot effect that in a meaningful way that looks at agricultural spending in the round once the decision has been announced in a Budget. There are many other influences at play. For example, in recent years we have had the reform of agricultural support payments in England and Wales, and that is now coming through in Scotland.

For decades, farmers have been told that they have to diversify—diversify, diversify, diversify—so they have renovated farm cottages and turned them into furnished holiday lets, and now they are being told that they are responsible for the housing crisis in the country and are being hit with furnished holiday let reform, which this Government appear to have inherited from the previous one.

Inheritance tax can be avoided by intra vires transfers, but the way they work can often be arbitrary. They can also have some difficult personal consequences when it comes to the transfer from one generation to the other, as the family interaction can be difficult.

I congratulate the hon. Member for Gordon and Buchan. I hope that when the Chancellor delivers the Budget next week, if this issue is under the Treasury’s active consideration, we will see the Government’s direction of travel and the overall picture that they want to achieve, rather than just one quick hit, because that could have serious consequences for family farms and rural communities across the country.

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[The Exchequer Secretary to the Treasury (James Murray)]

It is a pleasure to serve under you in the Chair, Dr Huq. Let me join others in congratulating the hon. Member for Gordon and Buchan (Harriet Cross) on securing the debate. I thank all hon. Members for their contributions —including the advice from the shadow Minister, the hon. Member for Droitwich and Evesham (Nigel Huddleston), on what to expect in my new role from the hon. Member for Strangford (Jim Shannon).

As many Members have rightly highlighted, there has been a great deal of speculation in recent weeks about potential changes to taxation in the Budget, including to the reliefs that we are debating today. Hon Members will understand—indeed, many of them acknowledged in their speeches that they understand—that I cannot add to that speculation. The Budget is on 30 October, and my right hon. Friend the Chancellor of the Exchequer will set out any changes to the tax system then, in the normal way. However, ahead of that, I welcome this opportunity to hear Members’ views on this matter.

Let me start by briefly setting out the context for this Budget. Following the spending audit in July, the Chancellor has been clear that difficult decisions lie ahead on spending, welfare and taxation to address the £22 billion black hole that we inherited from the previous Government. Decisions on how to address that will be taken at the Budget in the round. It is crucial that we get the public finances back on a firm footing so that we can restore economic stability. On those foundations, we will boost investment, increase growth across the UK and improve public services. That is the prize ahead and how we will make people across Britain better off.

Let me turn to how inheritance tax operates in the UK tax system. Inheritance tax, as other Members have said, is a wealth transfer tax and applies to the estate of the deceased. Transfers made in the seven years before death are also taken into account. The estates of all individuals benefit from a £325,000 nil-rate band. The residence nil-rate band is a further £175,000 and is available to those passing on a qualifying residence on death to their direct descendants, such as children or grandchildren. That means that, altogether, qualifying estates can pass on up to £500,000. Furthermore, the qualifying estate of a surviving spouse or civil partner can pass on up to £1 million without an inheritance tax liability, because any unused nil-rate band or residence nil-rate band is transferable to the surviving spouse or civil partner.

Above those thresholds, the headline rate of inheritance tax is 40%, but it is important to remember that that rate is charged only on the part of the estate that is above the threshold, and after the application of reliefs. That is obviously the subject of today’s debate, so let me turn first to business property relief. That relief is a long-standing part of the inheritance tax system. It is designed to ensure that businesses need not be broken up or sold on the death of an owner in order to pay an inheritance tax liability. That reflects concerns that there may not always be enough liquid assets in the business to pay the tax. Subject to certain qualifying conditions, the relief generally applies to unquoted shares and interests in a business. It also applies to shares designated as “not listed” on a “recognised stock exchange”, such as shares that are quoted on AIM, as mentioned by the shadow Minister. The rate of business property relief is usually 100%, but can be 50% in some circumstances. Until March 1992, the maximum rate of the relief was 50% and there was a lower rate of 30% alongside that. Hon. Members may be interested to know that the cost of the relief has risen from £685 million in 2019-20 to a forecast £1.3 billion in 2023-24.

Agricultural property relief is also a long-standing part of the system. It has a similar purpose to business property relief, although the main benefit is to ensure that relief is available when land is let to tenant farmers, as we heard from various hon. Members today. This is largely because owner-occupiers of agricultural land also qualify for business property relief. Again, the rate of agricultural property relief is usually 100%, but can be 50% in some circumstances, and as with business property relief, lower rates existed before 1992. The cost of this relief has risen from £320 million in 2019-20 to a forecast £365 million in 2023-24.

There are many different views on these reliefs. Stakeholders, including Family Business UK and the Country Land and Business Association, have argued strongly against any prospect of the reliefs being abolished. Other organisations are in favour of changes to the reliefs, with the Institute for Fiscal Studies suggesting that a cap on such reliefs could allow those passing on small farms or businesses to be taken out of inheritance tax, while preventing agricultural and business investments from being used to avoid it. The right hon. Member for Orkney and Shetland (Mr Carmichael), whom I thank for his contribution, said that there may be a case for certain reforms to agricultural property relief. Of course, the previous Government had views on these reliefs. I understand from reports in the Telegraph that the previous Government considered abolishing these reliefs as part of reforms to the system.

I welcome the opportunity today to hear from Members on their views, particularly on agricultural property relief, but also on issues relating to farmers and their constituents more widely. The hon. Member for Chester South and Eddisbury (Aphra Brandreth) rightly highlighted the importance of food security for this Government and its importance in our policy making. The hon. Member for Strangford (Jim Shannon)—in nudging me gently, to quote the shadow Minister—spoke eloquently about the importance of farming in his constituency and in the economy of Northern Ireland. The hon. Member for Central Suffolk and North Ipswich (Patrick Spencer) spoke of some of the wider challenges facing the farming community in recent years, not least energy bills. My hon. Friend the Member for Hexham (Joe Morris) is proving to be a very effective constituency MP already, raising a number of important issues on behalf of those he represents, as well as drawing attention to the wider significance of having economic stability and security for farmers and everyone in his constituency.

[Mr Carmichael]

The Minister reminds us—it is our fault for doing this—that we have focused very much on the family farm as the unit of concern, because that is what concerns most of our constituents. However, a lot of agricultural land is, in fact, owned by bodies such as the Royal Society for the Protection of Birds, of which I am a member. The RSPB is never going to have a succession event, to join the hon. Member for Gordon and Buchan (Harriet Cross) in using that expression. The consequence of abolition could be that two farms right next door to each other—one owned by a charity or an institution of that sort, and the other owned by a family—would be left having to farm in very different economic circumstances. Is that really fair?

[James Murray]

I thank the right hon. Gentleman for his point, although he presupposes he knows what will happen to agricultural property relief, which, as I set out earlier, I cannot comment on further. He will have to wait a couple of weeks, perhaps, to have further conversations about what the Government will do in this space. I thank him and all hon. Members for their comments today, because it has been an interesting debate. As we have heard, the issue generates some strong views among many of our constituents and the Members present, who represent them.

I understand that there are many different views on what the Government should do, and the debate has allowed me to hear them. As always, the Government welcome all opinions and keep all taxes under review. However, I return to my earlier point: the Chancellor will, of course, announce changes to the tax system at the Budget. There is not long to wait.

Financial Conduct Authority: Accountability

Alistair Carmichael Excerpts

Wednesday 1st May 2024 Westminster Hall

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I beg to move,

That this House has considered the accountability of the Financial Conduct Authority.

It is a pleasure to serve with you in the Chair, Sir Philip. I welcome the Minister to his place. I know that he has an interest in these issues, and I hope that this debate will be a productive exercise for us all.

It may be worth explaining a little bit about how I came to be interested in the FCA. I probably speak more about fishing than financial services in this House, but the FCA came to my attention as a consequence of constituents who I have been helping. They were victims of a Ponzi scheme, and they lost hundreds of thousands of pounds as a consequence of fraud. The perpetrator was sentenced to 14 years, later reduced to 10 years, in the High Court of Justiciary.

On no fewer than three occasions, the FCA, or the Financial Services Authority as it was initially, failed to read the warning signs and take action. As a consequence, that was allowed to continue. Had it acted at the first available opportunity, there would have been only one victim of Alistair Greig, rather than hundreds.

As is often the case with these matters, a handful of people were determined to fight, but they were rebuffed at every turn. They were told, “No, this is nothing to do with us. It is not a matter of regulation; it is a question of the creation of a principal and of an agent,” and the rest of it. They took court action, which cost them £2 million, and they lost, but eventually the FCA was forced to put them into the financial services compensation scheme, which gave most of them compensation, albeit capped at £85,000. One of my constituents was out for £130,000, so he is £45,000 down and has suffered a further loss as a consequence of the fact that he was one of the brave souls who was party to the court action. The 95 people who were behind that court action are now left with a bill of almost £2 million.

Notwithstanding the fact that this is a consequence of the way that the FCA has gone about its business, it wishes to have no further part in any discussions with the people who were affected. I organised the screening of a documentary in the House a few weeks ago. Even the judge who heard their case turned up. I have never heard of this happening before, but the Financial Conduct Authority did not want to know. No one from the organisation was prepared to come to this House, sit in a room for an hour with the people whose lives had been most dramatically affected by their decisions, look them in the eye and explain what they had done.

[Wendy Chamberlain (North East Fife) (LD)]

My right hon. Friend is outlining a very concerning story. When many hon. Members think about the FCA, including me as an MP from the 2019 intake, it is in relation to its legislative authority for ensuring the changes on access to cash. Does he agree that ensuring that people get the right support so that communities have the access to cash that they deserve is a real concern?

--- Later in debate ---

[Mr Carmichael]

I absolutely agree with my hon. Friend. In fact, as I hope will become clear as my remarks develop, the way that the FCA is going about its duties at the moment is working for nobody. It is clearly not working for the communities most directly involved, for the financial services sector or for members of the public such as my constituents, who have been left to beat their head against a brick wall for years in their dealings with the FCA.

[Jim Shannon (Strangford) (DUP)]

I wholeheartedly endorse what the right hon. Gentleman has said. Does he agree that, for many of us who have brought constituents’ financial issues to the FCA over the years, the FCA often appears to be a barrier rather than a help for the ordinary man or woman? Let us be honest, that perception needs to be altered by a seismic shift in how the FCA engages. I know he feels the frustration that all hon. Members present feel.

[Mr Carmichael]

I am delighted and relieved to see the hon. Gentleman in his place; he is absolutely right. The engagement of the average constituent—I am legally qualified, but I include myself in that—with the financial services sector is often a matter of supreme consequence. Very often, they have to rely on the judgment and expertise of the people with whom they are dealing, who are regulated by the FCA. That is why this matters for all of us.

The parallels with the Post Office are unavoidable. It is the same situation time and again: a well-resourced public body decides to deny, deny, deny until eventually people have to give in. That worked for the Post Office, although we were able to break through it. That is just one of the most egregious examples. Lower down the food chain, where fewer people are affected, including my constituents, it is much more difficult for anybody to get justice.

That is how I became interested in the first place. As is often the case, when one starts to lift rocks, what is underneath takes one off in other directions. I am afraid that I have found little under any rock that I have lifted to make me think there is anything in the FCA at the moment about which we should be happy or optimistic.

The FCA is consulting on proposals to change its enforcement code. Essentially, it is talking about naming and shaming much earlier people who have become a subject of concern. That has to be viewed in the context of its performance: an average FCA investigation takes at least four years. In 65% of cases referred to it, no further action is taken. For such an industry, the reputational consequences of naming and shaming at such an early stage could be catastrophic. The people most directly affected are not the big City firms, because they are big enough to withstand the damage, but the small and medium-sized enterprises, for which the FCA does not demonstrate the level of concern that it should.

A report by Spotlight on Corruption in February showed that 90% of the value of fines against directors in the financial services sector was levelled against directors in SMEs, and only 2% against senior executives in large companies. It is part of the culture that the regulator seems to be staffed and driven by people in the big City firms, who seem to get a different level of service and, dare I say, protection than the SMEs. That matters in relation to the enforcement code changes because there is a real risk of undermining this country’s reputation for stable and predictable regulation. Given the importance of financial services to the economy as a whole, the wider national economic interest is clearly at play.

The culture also goes wrong when we look at the way in which the FCA runs itself. I have had the benefit of a briefing from Unite the Union, and will turn later to some questions it poses through me. Independently of that, I have spoken privately to a handful of people who work for the FCA. I am not going to tell the House what they told me, because even though what they told me was in general terms—just for my own background and understanding—they were concerned that if something I said allowed them to be identified within the organisation, it would be to their professional detriment. Just hold that thought for a second: they are so concerned, and the culture in the FCA is so poor, that they are not prepared, even anonymously, to speak to Members of Parliament. If anybody doubts that there is a cultural problem within the FCA, that should surely remove those doubts.

The morale among staff is pretty poor. I have to say, though, that the staff I met genuinely understand the importance of the work they do in the public interest; they value the role they play, but clearly feel undervalued by the senior executives and the people at the top—and, actually, they are undervalued. Sixty staff working at the FCA earn salaries of less than £29,500, which is the Joseph Rowntree Foundation’s minimum salary recommendation that is required for an acceptable living standard. In fact, that amount would not even allow someone to bring a spouse into the UK under immigration regulations these days.

Unite the Union has surveyed staff extensively and speaks about the toxic environment within the FCA for staff reps, who are given little assistance or support and minimal information. The FCA carries out a quite remarkable performance assessment framework, which is not a million miles removed from the one that I knew when I first became a civil servant at the start of my legal career 30 years ago. I thought we would have moved well away from that, because it was hopelessly inadequate—but no; it seems as if it is almost designed to encourage mediocrity. It is the sort of system that was used by a number of public sector and City companies for a long time, but I do not know of many companies that have used that sort of framework for the last 10 years. It has destroyed the collaborative working environment within the FCA, and 81% of respondents to the Unite survey identified it as being unfair to them.

Unite has posed some questions to me that I will read into the record. I do not expect the Minister to answer them all, but perhaps he could follow up in correspondence. Why does a public sector organisation that pays its chief executive over £450,000 a year find it acceptable to pay a large number of staff below the Joseph Rowntree Foundation’s minimum income standard? Why has the FCA not made any cost of living adjustments for its staff in the 2024 pay round, following a punishing cost of living crisis? Why has the FCA not delivered the resource and priority it has promised staff representation in the wake of recent failures? If the FCA is committed to “best in class” staff representation, as the FCA chair Ashley Alder told the Treasury Committee last year, why will it not recognise a trade union?

What are the Government doing to hold the FCA leadership to account for the problematic culture of fear and burnout, the high staff turnover and the sinking morale that Unite the Union has consistently reported over the years? Why has the FCA persisted with a severely outdated model of staff performance grading, long abandoned by the industry it regulates? Surely the FCA should be leading the sector as a role model, should it not? Finally, why has the FCA made no headway in its large disability pay gap? Unite the Union reports that staff with disabilities, neurodivergence or complex personal circumstances are simply getting poorer performance and pay outcomes than their peers.

The FCA as an organisation does massively important work in the public interest but as I said to my hon. Friend the Member for North East Fife (Wendy Chamberlain), it is surely clear that it is working for nobody. It is not working for members of the public who rely on the protection it might give them, as evidenced by my constituents and the impact they felt from the Midas Financial Solutions Ponzi scheme’s fraud. It is not working for the benefit of the sector that it regulates, as evidenced by its proposed changes to the enforcement code. It is not working for our communities, as evidenced by the work on access to cash referenced by my hon. Friend, and it is most certainly not working for the benefit of the people it employs.

It is apparent to me that the poor culture in the FCA is driven from the top and then bleeds into every aspect of its work. As an organisation, it has lost direction and lacks leadership from the top. However, we all remember why we have it and why it was set up. For the national economic interest of us all, it is too important to fail, but surely it is apparent that it is failing, and somebody needs to take control and change that.

--- Later in debate ---

[Bim Afolami]

The hon. Lady makes an important and fair point. I agree with her that access to cash—which, as she knows, this Government legislated for—needs primacy in the way she has described. Banking hubs are a replacement when several banks have shut in a town or large village, and I believe that the assessment criteria relating to where they come in and the speed of the roll-out should be looked at again. To be fair, that is not down to the FCA. The expected timeframe for it to finish its consultation on access to cash is the third quarter of this year, and although the FCA is part of that process, it is worth saying that it is not the primary driver; the primary driver is the industry.

Let me come to a case that I know is close to heart of the right hon. Member for Orkney and Shetland: the failure of Midas Financial Solutions. Mr Alistair Greig perpetrated a large-scale fraud over a period of several years, lying to those who trusted him with their pensions and life savings. Those were people who had done the right thing in their lives—they had done everything right—and because of the fraud of that individual and his company, they lost out. The FCA intervened in 2014, following the receipt of intelligence related to the Midas scheme. The Financial Services Compensation Scheme was subsequently able to compensate eligible customers for a significant portion of what was lost, and Mr Greig was charged, found guilty of fraud and imprisoned.

It is imperative that the FCA continues to robustly enforce its rules and standards, not just against firms that are carrying out blatantly fraudulent activity as in the case of Midas, but to ensure that all the firms it supervises meet high standards and deliver high-quality outcomes. The FCA operates a risk-based approach, not a zero-failure regime. It is important Ministers say this: we are not in a world—nor should we aim to be in one—where it is impossible for anything to go wrong ever. What we have to do is say to the FCA, “Your job is to maintain a high standard and high quality in the market for all the firms you supervise.”

[Mr Carmichael]

I have absolutely no argument with the Minister on that point—it is absolutely sensible—but the fact of the matter is that the regulator was told not once, not twice, but three times, and each time it failed to take the appropriate action. It was sometimes just as basic as putting people through to the wrong extension when they phoned. The truth of the matter is that if my constituent and the 94 others who took legal action had not stuck with it, nobody would have got any compensation from the FCA. That is why there is surely a basic point of fairness and justice here: having been the ones who got the money for everyone, the money that they spent getting that compensation should be recognised.

[Bim Afolami]

I thank the right hon. Member for that point, which I will consider carefully while I discuss the accountability of the FCA to Parliament and the Treasury. The Financial Services and Markets Act 2000 establishes multiple ways for the Government, Parliament and the public to scrutinise the FCA—through, for example, its annual reports, which must set out how it has advanced its objectives. This year, down to the proposals of this Government and this Treasury, the FCA will for the first time report on how it has embedded its new growth and competitiveness objective. The Treasury can direct the FCA to include extra things in its reports. The FCA also regularly publishes a large amount of data on its performance—for example, on the time taken to respond to applications for authorisation—which demonstrates to the public whether it is meeting its targets. Indeed, the Treasury can shape the focus of the FCA by writing to it to set out which aspects of Government economic policy it should have regard to when advancing its objectives and carrying out its functions.

The right hon. Member mentioned concerns that had been shared with him about the internal culture, and pay decisions by the FCA. It is not appropriate for a Minister to pronounce on those things, beyond saying that I will be with him in scrutinising the annual report when it comes out to see in which areas those things are addressed. I am happy to discuss that with him, as well as the methods for accountability in that regard. It is also important that we set out through the Financial Services and Markets Act 2023 that the regulators are now required to respond annually to the recommendation letters. This provides greater transparency about how the regulators respond to Government recommendations.

The Treasury also has a range of powers to direct the FCA in certain exceptional circumstances. For example, it can require the FCA to conduct an investigation of relevant events where it is in the public interest. That happened once in relation to the FCA; in 2019, the Treasury directed the FCA to review the events relating to the failure of London Capital & Finance. After that report was done, the FCA subsequently accepted and implemented all recommendations, which included a significant overhaul of its operations through its transformation programme.

In addition to the Government and the Treasury, Parliament also has a vital role in scrutinising the actions and performance of the FCA. We have the Treasury Committee, and there is a new House of Lords Financial Services Regulation Committee, which regularly examines the work of the FCA. I would add that it is important that we think more about how we scrutinise in the most effective way. I fear that sometimes when it comes to the FCA, there are so many methods of accountability that it almost appears that there are none. They are so disparate, bitty and numerous that it is time consuming and expensive for the FCA, and often difficult to follow for Members of Parliament.

There is more work that we can do to streamline the process of accountability to ensure that it is rock solid and firm, and focused on not just consumer outcomes but ensuring the market works—and to do so in a way that makes sense for both Houses of Parliament. For example, between December 2019 and March this year, the FCA provided oral evidence to Select Committees on 36 occasions. That is a lot. In addition, there is constant discussion between Members of this House and the FCA. I think there is accountability, but we need to find ways to ensure that it is streamlined and more focused.

I hope I have reassured the right hon. Member for Orkney and Shetland that the Government take holding the FCA to account very seriously—I know that I do in particular. The legislative framework is designed to strike the right balance between the independence of the regulators and ensuring that they are held properly accountable. The Government have built on that accountability through the Financial Services and Markets Act 2023. This House, and Parliament as a whole, will be able to judge the FCA’s progress through things such as the upcoming report on how it has advanced its new secondary growth and competitiveness objective since it came into effect last year, and whether it takes account of the view of this House and the Chancellor on its naming and shaming proposals.

Question put and agreed to.

Furnished Holiday Lettings: Taxation

Alistair Carmichael Excerpts

Wednesday 1st May 2024 Westminster Hall

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I understand the concerns about housing shortages, which I have in my constituency. The answer to the shortage of housing, however, is to build more houses; it is not to punish what is a very important part of the local economy, including in parts of the country like mine. The advantage of such a tax provision is that it allows for the improvement and professionalisation of the sector, which at the end of the day can only improve the visitor offering.

[Peter Aldous]

I agree with the right hon. Member on both counts. There are other measures being introduced, such as the register, that I believe will help bring professionalism into the sector. In fact, I know from the constituents I have spoken to and the businesses that operate this type of furnished holiday accommodation that they are incredibly professional businesses.

--- Later in debate ---

[Nigel Huddleston]

I thank my hon. Friend for that point, which she has raised with me previously. I should put on the record that many hon. Members in the Chamber have raised concerns about the implementation of this proposal with me. The challenge is that one of the goals is simplification, and when we start moving into the area of carve-outs and exemptions, it opens up the system to challenges and potential abuse. I hear what my hon. Friend has to say. She will always hear from Ministers that we keep tax policy under review, but as soon as we start moving to an exemption here and an exemption there, it causes great difficulties. I also thank PASC for its constructive engagement with me on this issue and for giving me information.

I have had lots of correspondence and have engaged with colleagues, and I want to make this very clear. There is a belief that when we said we were abolishing the FHL tax regime, that meant we were abolishing FHLs. No, of course we are not. As I said, they play a vital role in the visitor economy, but we want to change the tax policy. The intention is for the tax reform to apply to all properties.

There will continue to be benefits. After the abolition of the FHL tax regime, a higher rate paying landlord with mortgage interest costs of £12,000 per year would still get up to £2,400 taken off their income tax bill through the relief. If they spend a further £8,000—for example, on insurance, letting agent fees and replacing domestic items such as sofas, fridges, washing machines—they could save a further £3,200 in income tax by using the reliefs that are available for all landlords. It is about levelling the playing field. There will still be tax incentives, but we do not want that distortion. When somebody buys a new property or an existing property, there is a false incentive that is causing some problems, because human behaviour that naturally seeks a better return on investment leads them towards short-term lets, rather than long-term lets. That is what we are trying to correct.

[Mr Carmichael]

On a point of order, Dame Siobhain. When I intervened, I should have pointed out that I have a declarable interest registered. I apologise to the Chamber for not doing so at the time and I hope the position is now clarified.

[Dame Siobhain McDonagh (in the Chair)]

Okay. That allows me to shorten what I was going to say.

Motion lapsed (Standing Order No. 10(6)).

HMRC Self-Assessment Helpline

Alistair Carmichael Excerpts

Wednesday 20th March 2024 Commons Chamber

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

The reprieve is welcome, but if we are to keep these helplines open, can we at least resource them properly and make them work? I spoke to a chartered accountant in my constituency this morning, and he tells me that when he recently phoned HMRC with a complex query on behalf of a client, it took 40 minutes to get an answer. When the phone was answered, there was an acknowledgment of the problem. He suggested that the answer might lie in his client’s wife’s data being incorrectly ordered, at which point he was told that the staff were allowed to handle only one case per call, and that he would have to hang up and phone back, with another 40-minute wait for an answer. Surely that is no way to treat a customer.

[Nigel Huddleston]

I thank the right hon. Gentleman for raising that point, and I am happy to raise it with HMRC.

National Insurance Contributions (Reduction in Rates) (No. 2) Bill

Alistair Carmichael Excerpts

Committee of the whole House
Wednesday 13th March 2024 Commons Chamber

[James Murray]

I thank my hon. Friend for bringing us that update from the Treasury Committee about what the Chancellor has been saying. Again, we can see the Chancellor being reckless by talking about merging national insurance with income tax without having a second thought for what impact that would have on hard-pressed taxpayers, particularly pensioners. Pensioners do not currently pay national insurance on their earnings and would be hit by a tax increase as a result of national insurance and income tax being merged. That is another example of how reckless these plans are, and how reckless it is for Treasury Ministers to refuse to stand up and explain how their plans would be funded.

The public deserves to know. If Ministers vote against our new clause or they refuse to come clean, then the British people will have it confirmed, yet again, that the Conservatives cannot be trusted with the economy, public finances or the finances of households across our country.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

Thank you for calling me, Mr Evans—surely it is long overdue that it should be Sir Nigel, but we will go with Mr Evans for today.

I stand to move new clause 2 in the name of my hon. Friend the Member for Richmond Park (Sarah Olney). Hon. Members will see that the effect of new clause 2 would be fairly short in its compass. It would compel the Treasury to report to this House its forecasts of the change to the number of people who are set to pay national insurance contributions as a result of the thresholds for payment remaining frozen until 2028, instead of increasing in line with the consumer prices index, which would be the case otherwise. The Chancellor and other Ministers have spoken today about the pride the Government take in what they are doing. In the interests of transparency, the Government should have no difficulty accepting new clause 2. I am sure it is merely an inadvertent omission that those measures are not part of the Bill already.

It is apparent that comments made by the Chancellor, the Prime Minister and others about the idea of abolishing national insurance altogether have started a debate, as we have seen this afternoon. It is a substantial commitment to make—£46 billion—and we do not yet know where that money would come from. That is maybe not the novelty that it used to be, certainly before the mini-Budget. However, it offers us an opportunity to think a little bit about the nature of national insurance as a tax, because it is quite distinct in its composition and operation.

In practical terms, functionally, national insurance is more or less like any other tax, in as much as money is paid into the Exchequer and fills the coffers, and then is spent as the Government or Governments see fit—in relation to health, policing, transport, Ministers’ legal fees or whatever else it is going to be.

As a matter of intent and purpose, however, national insurance is identifiably different from the other taxes we pay. More than any other levy, it is the symbol of our shared obligations—what we owe each other as a society and as communities in support throughout our lives. The point of national insurance is that we pool and share resources geographically and generationally. We pay our stamp on each payslip, trusting that, when the time comes for us to retire, someone else will continue to pay taxes that will fund our pensions.

Let us remember that the roots of this tax are in Lloyd George’s Budget, and that the introduction of national insurance came with the introduction of the pension. That is why we have the legacy of the link between national insurance and pensions, which was pointed out by the hon. Member for Denton and Reddish (Andrew Gwynne) in an intervention. That is significant. These are matters that must be clarified before we undertake a change of this sort.

At the heart of any healthy liberal democratic society, there is the idea that we have lasting obligations to one another. We have obligations to those we know, to those we do not know, to generations that are older than us, and to those who are yet to be born. We can be bound by policies with which we disagree, and sometimes we must pay taxes for things that we dislike or that we feel we do not need. That is the system in which the national insurance contribution has a demonstrably significant and different impact than other taxes. It is part of the tapestry of government and public life in this country.

This is perhaps just pulling at a thread, but the Minister and, indeed, people in all parts of the House would be well advised to consider exactly what they may be unravelling by pulling at this thread. Full transparency from the Government on the effect of freezing national insurance contributions in the way that has been proposed should be an important part of this debate as it proceeds.

[The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)]

Thank you very much. Can someone from the Liberal Democrats inform the Chair who their tellers will be, as their amendment has been selected for a separate Division?

Coastal Tourism and Hospitality: Fiscal Support

Alistair Carmichael Excerpts

Thursday 22nd February 2024 Westminster Hall

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

It is a pleasure to serve with you in the Chair, Ms Cummins. I congratulate the hon. Member for North Devon (Selaine Saxby) on securing this debate. By accident or design, Members have spoken about a range of communities although there have been a number of common threads.

I first remind the House of my entry in the Register of Members’ Financial Interests: I am a partner in the firm that runs my family farm, which also includes holiday let accommodation. In many ways, that is a living example of the changes and opportunities that the visitor economy brings to communities such as mine in Orkney and Shetland, and doubtless to those in other coastal and island communities around the country.

Tourism is of enormous importance to communities such as ours. I listened with interest, as always, to the hon. Member for Strangford (Jim Shannon), who described the ripple effect of dropping a stone in the water. The stone in this case is the visitor economy. The benefits come very obviously to those who operate the hotels, the bed and breakfasts and the self-catering accommodation, and they go out to those who are able to work part time as self-employed tour guides, for example, and those who have jobs servicing that accommodation—they go out and out. Tourism may be a useful add-on to a conventional business. The hon. Gentleman said that a number of farm businesses in rural and coastal communities have some sort of tourism add-on—perhaps seasonal. At the end of the day, it is what they can show to their accountant at the end of the year that matters.

The way in which our rural and island coastal communities have got up and done things for themselves is an inspiring story. The real beauty of it is that, by and large, these are the self-employed or small businesses—medium-sized enterprises at most—and the money they earn and pay out stays in the communities. It goes into local shops and post offices. It allows families to live in those areas, because their children can go to local schools. We can keep local doctors, services and banks; the story continues. There is no single silver bullet for these economies, but tourism is an important part that makes the whole thing more feasible.

There are a number of significant challenges. They are not, strictly speaking, fiscal, but they are significant, given the way that they hold back island communities. In Scotland, we have an ageing ferry fleet. For island communities, that has been problematic for the past few years, and sadly it is only getting worse. The availability of labour in the local community causes real difficulty, especially in a seasonal economy. People moving into work in island communities need accommodation at a time when people are coming to stay in the same accommodation, so housing availability in our island and coastal communities is a significant issue, and Government-led—public sector —provision could make a real difference to businesses’ ability to grow.

The regulatory burden unfortunately seems to get greater every year. In Scotland, we now have the short-term let licensing scheme. It will be interesting to contrast how that works with the way in which things are now being done south of the border through a planning mechanism. I have not yet seen figures for it, but my sense is that we may see, especially in the smaller outer isles in Orkney and Shetland, a lot of people walking away from the provision of bed and breakfasts or self- catering accommodation as a consequence of the licensing regime. It is expensive for people to comply with, especially if they are away from the centre of the population. Goodness knows it is difficult enough for someone operating a business in Kirkwall and Lerwick to get work done, but if they are operating in one of the outer isles—in Sanday, Stronsay or North Ronaldsay, or perhaps in Unst, Yell or Fetlar in Shetland—that becomes yet another extra burden and cost. The farther the accommodation is from the centre, inevitably the fewer weeks in the year it can be let and the fewer people coming to stay in the community. Again, at the end of the day, is it worth it? The balance is sadly tipping in the opposite direction, towards saying no.

Those are some of the challenges, but at the end of the day, these people are self-starting and entrepreneurial and do a lot to bring economic growth to their communities, and there are certain levers that the Treasury could use to help them grow their businesses. The difference between the fiscal levers we can pull and the other grant-aided incentives and opportunities is that fiscal levers give people more opportunity to decide what is best for them and their business, rather than having to design their business to conform with the various requirements of a grant application or discount scheme.

There is a real opportunity for the Government to add value and opportunity to tourism and visitor-economy businesses in our island and coastal communities. The single most important change I hear advocated by those businesses, time and again, is the one touched on by the hon. Member for North Devon (Selaine Saxby)—the reduction in value added tax. It is rare in any sector that we hear such consistency in message. We have seen a small example of that already with the reduction to 5% during the covid pandemic. It would be interesting to know what analysis the Treasury has done of the tax take in that time—albeit everybody was operating in a much-reduced market.

I come back to my experience from my time in government, when we reduced the duty on spirits. We did so—for only the second time in history, I think—in the expectation of a significant cut in revenue. In fact it produced a significant increase in revenue to the Treasury. I cannot remember the exact figures of the tax take, but I think we expected a £600 million decrease and actually got a £800 million increase. That shows what is possible sometimes when we reduce the burden on industry and business and allow them the opportunity to use that extra cash to grow their business. I strongly suspect—indeed, significant research has been done on this by some of the big consultancies; Ernst and Young springs most readily to mind—that the same would be possible for the visitor economy in our island and coastal communities. That being the case, at a time when we want to grow the economy and are relying on that to spread the benefits of growth throughout the country instead of hoarding them here in London, surely that is something that must commend itself to the Government.

Oral Answers to Questions

Alistair Carmichael Excerpts

Tuesday 19th December 2023 Commons Chamber

[Jeremy Hunt]

I would be happy to ask one of my colleagues to meet the hon. Gentleman to discuss why freeports are not appropriate in his part of Leicestershire.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

3. What recent discussions he has had with his Scottish counterpart on farm budgets for the financial year 2024-25.

[The Chief Secretary to the Treasury (Laura Trott)]

A very merry Christmas, Mr Speaker. The Government guarantee to maintain the £2.4 billion annual budget for farmers across the UK for every year of this Parliament. As agriculture is devolved, it is ultimately for the Scottish Government to decide how to allocate that money to farming in Scotland.

[Mr Carmichael]

The Minister will be aware of the frustration that is felt by many farmers and crofters in Scotland that the £33 million that was given to the Scottish Government for a specific purpose as part of the Bew review has been deferred hitherto. What will she do in future to ensure that where money is given for the express purpose of supporting Scottish agriculture, it is in fact used for that purpose?

[Laura Trott]

The right hon. Member raises an excellent question. The SNP Government are yet to clarify when this ringfenced money will be returned. I hope they will do so this afternoon at the Budget.