Gareth Davies
Main Page: Gareth Davies (Conservative - Grantham and Bourne)Department Debates - View all Gareth Davies's debates with the HM Treasury
Finance Bill (Second sitting)
Gareth Davies ExcerptsTuesday 28th January 2025
(1 year, 6 months ago)
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Gareth Davies (Grantham and Bourne) (Con)
I will pick up where I left off by asking the Minister to provide confirmation on the three points I listed, and to provide an assurance that the guidance from His Majesty’s Revenue and Customs is sufficiently clear on those points that those affected are aware of the full implications of the changes.
Finally, in the case of joint ownership, the Chartered Institute of Taxation is calling for an administrative easement to allow declarations to be backdated. Has the Minister considered the possibility of such an easement being implemented? I have not been able to raise all of the many points that the institute has raised with me, and I apologise to it for that. I am sure the Minister is engaging with the institute. I know that in opposition he spent a lot of time with it, as he will be doing with industry. I encourage him to speak to the Chartered Institute of Taxation and get its guidance and input, as I have tried to lay out in my remarks.
The Exchequer Secretary to the Treasury (James Murray)
I start by putting on the record my thanks to the Chartered Institute of Taxation. It was a great support to me in opposition and continues to be an important stakeholder for us in government.
I will try to respond to some of the shadow Minister’s points. First, he raised concerns articulated by the Chartered Institute of Taxation about trading and property income boundaries. There are established principles that underline what is trading and what is income from property. The bright-line tests that have been put forward distort those principles rather than clarify them. Whether activity is income from property depends on the nature of the activity undertaken, and specifically how the profit is derived. If the profit is derived from the exploitation of land, the income is taxable as property income. The furnished holiday let rules provided for specific reliefs, but for tax purposes it has always been property income, not trading income. Categorising some property income arbitrarily as trading would give more reliefs than FHLs previously had.
The shadow Minister also raised concerns about how the repeal of the FHL rules will apply practically to landlords and how that may affect them. I reassure him that HMRC has already published guidance on the changes and will be publishing more ahead of April, when the changes come into effect. We have also engaged with the industry since the announcements to ensure that we are aware of its reaction.
On the shadow Minister’s other points in relation to business asset disposal relief and roll-over relief, we have considered the impacts of the changes on those two reliefs. It will depend on an individual’s personal circumstances, but broadly each person would need to dispose of the whole or part of an FHL business, or dispose of assets that were used for the purposes of an FHL business that has ceased, before April 2025. We have been fair in our approach not to restrict relief where someone has had an FHL before repeal. Individuals should consult online guidance or a tax adviser before making any decisions.
The shadow Minister asked about married couples. We have considered the impact of the changes on married couples and civil partners. The removal of the FHL rules will mean that a married couple is subject to the same rules as other landlords. For married couples, income is assumed to be split 50:50 unless a declaration is made to split the income in a different proportion, which must be the same as the proportion of ownership between the couple. If they want to change the proportions, married couples will have to make an election for joint ownership arrangements as per the usual process. There will be a deadline of April for married couples to adjust to the changes as we cannot backdate such elections. That was already set out online following the consultation on the draft legislation. Further online guidance will be available.
I hope I have covered most of the shadow Minister’s points. I conclude by recognising my gratitude to him for not opposing the provisions; it would be noteworthy if he had changed his mind since he was in government. I am not sure whether all his colleagues are on exactly the same page as him, but I will not pry at this stage of our consideration of the Bill. Perhaps his slightly caveated response to the clauses reflects some of the discussions happening among Members on the Opposition Front Bench. Notwithstanding whatever is happening behind closed doors, I welcome their support for the clause.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 26
Films and television programmes: increased relief for visual effects
Question proposed, That the clause stand part of the Bill.
James Murray
Clause 26 makes changes to maximise the potential of the UK’s world-class visual effects industry, and clauses 27 and 28 make changes to ensure continuity for companies claiming expenditure credits for film, TV and video game production, by aligning the legislation with equivalent provisions in the previous tax reliefs.
The UK is a strong performer in visual effects production and is home to several Oscar-winning companies, but in recent years there have been reports of visual effects activity moving overseas. Stakeholders report that that is because of the 80% cap on qualifying expenditure relating to the audiovisual expenditure credit, or AVEC. Currently, companies can receive AVEC on up to 80% of their production costs, including visual effects costs. Visual effects work is done virtually, so companies may place 80% of their production costs in the UK and place their visual effects costs overseas, particularly in countries such as Canada and France, which offer special tax incentives for visual effects.
In November 2023, a call for evidence on the visual effects industry was published. It provided substantial evidence that visual effects work was moving overseas because of the 80% cap and because of increased competition from countries that offer targeted visual effects tax incentives. Separately, previous tax reliefs for film, TV and video game production are being phased out and will be fully replaced with expenditure credits from 1 April 2027. Indeed, companies can already claim expenditure credits instead of the tax reliefs if they wish.
The changes made by clause 26 will increase the amount of AVEC awarded to UK visual effects costs in film and high-end TV production by 5 percentage points, to a total credit rate of 39%. The changes remove AVEC’s 80% cap on qualifying expenditure for visual effects costs, so that all those costs, including those that are above the 80% cap, may receive the enhanced 39% rate of relief. Around 1,300 companies claim film or high-end TV tax relief and stand to benefit from the changes, and the additional tax relief is expected to cost £75 million per year from 2028-29.
Clause 27 sets out that the previous tax reliefs and the new expenditure credits both require companies to provide cultural certificates from the British Film Institute to support their claims for relief. HMRC requires the certificates to be in force at the time a claim is made. The new expenditure credits legislation is less clear on that requirement than the previous tax reliefs legislation; it requires certificates to have effect at the end of each claim period, rather than only at the time the claim is made. The changes made by clause 27 will therefore align the expenditure credits legislation with the tax reliefs legislation, to clarify that cultural certificates must be valid when claims are made, and ensure continuity of treatment between the previous tax reliefs and the new expenditure credits.
On clause 28, the previous tax reliefs and the new expenditure credits both have rules on the treatment of expenses that are not made within four months of the end of the accounting period in which they are incurred. The tax relief rules allow for such expenses to be deducted from profits, but do not allow additional relief on them until they are paid. The expenditure credit rules prevent the expenses from being deducted from profits at all—that is, until they are paid. The changes made by clause 28 will align the expenditure credit rules with the tax relief rules, so that the unpaid amounts can be deducted from profits that are still ineligible for relief until they are paid. This will ensure continuity for companies that are used to the treatment of unpaid amounts under the previous tax reliefs.
In conclusion, the changes to the audiovisual expenditure credit will boost the UK’s offer in visual effects in an increasingly competitive international environment, and incentivise more visual effects work on UK productions to be done here in the UK. Furthermore, the changes to the expenditure credits legislation will align it with the more familiar tax relief provisions, ensuring continuity for film, TV and video game companies. I commend the clauses to the Committee.
Gareth Davies
As the Minister set out, clauses 26 to 28 create an additional relief for video effects expenditure while making administrative changes to align audiovisual and video games expenditure credits with older reliefs for film, TV and video games.
We announced the additional relief for VFX expenditure at the spring Budget 2024, as part of a wider package to support our world-leading creative industries—which, by the way, grew at more than one and a half times the rate of the wider economy between 2010 and 2019, a remarkable success for any sector. The consultation we launched on the design of the policy directly informs the clauses, and we will not oppose them.
However, one suggestion raised in the consultation that the Government have not chosen to take forward was to allow companies that claim the independent film tax credit to also claim the additional tax relief for visual effects. The Government have said they do not believe this exclusion will have an adverse impact on companies, but it would be helpful to hear from the Minister what assessment was made of the benefit to smaller visual effects studios had the scope of the relief been widened in the way in which many suggested as part of the consultation.
The spring Budget 2024 also announced a 40% relief from business rates for eligible film studios in England for the next 10 years. My understanding is that this has not yet been implemented by the new Government, and has in fact been referred to the subsidy advice unit. I understand that in the last couple of hours, over lunch, the unit has reported its findings. I would be grateful if the Minister could update the Committee on what those may mean for the future of the measure and the expected timeline for delivery.
James Murray
I thank the shadow Minister for his comments and for setting out some important context around the tax reliefs and expenditure credits, and around why they are so important in supporting growth in the UK economy.
On his question about the independent film tax credit, as he I am sure understands, films that claim the independent film tax credit will receive a 53% rate of audiovisual expenditure credit on up to 80% of production costs. That includes visual effects cost. The independent film tax credit therefore provides generous support for visual effects costs within independent films. Separating the additional tax relief for visual effects from the independent film tax credit helps to ensure that both schemes are simple and easy for companies to understand.
On the publication that the shadow Minister says happened in the last few hours, that is so hot off the press that I am not even authorised to speak about it yet. I have not been briefed on it because I have been getting ready for this Committee. I am sure that if it has been submitted, the right officials and Ministers will look at it as soon as possible.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Clauses 27 and 28 ordered to stand part of the Bill.
Clause 29
Research and development relief: Northern Ireland companies
Question proposed, That the clause stand part of the Bill.
James Murray
Clause 29 makes small changes to the rules for enhanced support for research and development-intensive companies with a registered office in Northern Ireland. At the spring budget 2023, the previous Government announced an enhanced rate of relief within the R&D small and medium-sized enterprise scheme applying from 1 April 2023. Separately, from April 2024 slightly different rules applied for R&D-intensive companies with a registered office in Northern Ireland, allowing them to continue claiming relief on a wider range of overseas expenditure than companies in Great Britain, while introducing a cap on the amount of relief that can be claimed.
Clause 29 amends the rules introduced last April to reflect the particular market conditions in Northern Ireland and ensure consistency with the UK’s international obligations. This will introduce some additional requirements around the cumulation of aid and reporting, which will apply to claims made on or after 30 October 2024 by eligible companies with a registered office in Northern Ireland. A very small number of claimant companies in Northern Ireland are expected to be affected, while the vast majority will continue to be better off compared with their counterparts in Great Britain. This is because their claims are too small to be affected by the cap, but they will still be able to claim on overseas expenditure, as before.
The Office for Budget Responsibility has certified this measure as having a negligible impact on the cost of the relief. The Government are committed to supporting R&D investment across the UK through the R&D tax reliefs, which play a key role in supporting the mission to kick-start economic growth. The changes will ensure that the R&D reliefs reflect the particular market conditions in Northern Ireland and ensure consistency with the UK’s international obligations. I commend the clause to the Committee.
Gareth Davies
As the Minister set out, clause 29 amends the measure in Northern Ireland to set in law a new cap of €300,000 on a three-year rolling basis, alongside other sources of relevant aid. The existing cap of £250,000 is currently defined in regulations. Will the Minister inform the Committee why the provisions have been moved from regulation into law? What are the implications of the change?
HMRC notes that when claiming enhanced R&D-intensive support, companies with registered offices in Northern Ireland now need to take into account other relevant aid that they have received. What steps have been taken to ensure that those companies are aware of this change and are equipped to satisfy the new requirement?
James Murray
I thank the hon. Gentleman for his questions. It is worth emphasising that this is a small change compared with the rules that already applied from April 2024. In practice, we expect a very small number of companies to be affected by the change, with very few claims to be made before April 2025. Since the change will be a key qualification to the tax rules for a part of the UK, it should be legislated for in the Finance Bill and as part of the Budget process. I hope that helps to explain the process we are taking to implement the changes and reassures the hon. Gentleman that they are small and will affect a very small number of companies.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Clause 30
Research and development intensity condition: transitional provision
Question proposed, That the clause stand part of the Bill.
James Murray
The clause makes small changes to the higher rate of relief available for R&D-intensive SMEs to ensure that the R&D reliefs remain fit for purpose while providing clarity to businesses. The Government recognise the important role that R&D plays in driving innovation and economic growth, as well as the benefits it can bring for society. The R&D tax reliefs play a key role in this. That is why I was pleased to announce in the corporate tax road map published at the Budget that the Government are committed to maintaining the generosity of the rates in both the merged R&D expenditure credit scheme and the enhanced support for R&D-intensive SMEs to increase certainty for companies when making investment decisions.
In the Finance Act 2024, the R&D intensity calculation for the enhanced rate of relief did not take account of any expenditure for which a company was entitled to claim research and development expenditure credit. That meant that some companies that were supposed to qualify as R&D-intensive might not meet that threshold. The change made by clause 30 will therefore ensure that research and development expenditure credit-qualifying expenditure is included in the calculation of the R&D intensity ratio, as was always intended.
This change will apply to all claims for the enhanced rate of relief from its introduction in April 2023, and to all expenditure incurred from 1 April 2023 in an accounting period that began before 1 April 2024. It will affect some small and medium-sized enterprises that have a high R&D intensity and claim the enhanced rate of SME-payable R&D tax credit relief. This is a small technical change and so it is not anticipated to have any Exchequer or economic impacts.
The Government are committed to supporting R&D betterment across the UK through the R&D tax reliefs, which play a key role in supporting our mission to kick-start economic growth. The changes made by this clause will ensure that all companies originally intended to benefit from the higher rate of relief will now be able to do so. I commend clause 30 to the Committee.
Gareth Davies
The clause amends the transitional provision, clarifying that expenditure that would qualify for R&D expenditure credit is relevant R&D expenditure when calculating the R&D intensity ratio, which determines eligibility for enhanced R&D intensive support, as was always intended. This provision has a retrospective effect, and I would be grateful if the Minister could therefore tell the Committee what steps the Treasury is specifically taking to ensure that all those who missed out on the relief, but may now be eligible, are aware and equipped to claim this new support.
James Murray
I reassure the shadow Minister that, as Ministers and Treasury officials, we are routinely in conversation with the industry and those companies that benefit from R&D support. We will ensure that all changes to legislation and all opportunities available for us to support the industry are communicated with clarity, and we will ensure that everyone is aware of what support we can offer for their economic growth ambitions.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 31
Employee-ownership trusts
Question proposed, That the clause stand part of the Bill.
James Murray
The clause and the schedule make changes to the taxation of employee ownership trusts to prevent opportunities for abuse and to ensure that the regime remains focused on encouraging employee ownership. The Government are committed to supporting employee ownership as a viable and sustainable business model. Employee ownership gives employees a greater stake in the business in which they work, improving working conditions and in turn driving productivity and growth.
Tax reliefs are currently available for company owners who transition their companies into an employee ownership trust, which is set up to hold and manage the company for the benefit of all employees of the company, rather than for individual shareholders. This model has proven successful, with over 1,500 UK companies held by employee ownership trusts today, improving the working conditions of some 200,000 employees. However, while the success of the employee ownership model is to be applauded, the Government are concerned that the tax regime is vulnerable to exploitation. We are therefore determined to close loopholes to ensure that the reliefs are available only to those who are motivated by a genuine desire to transform their companies into employee ownership trusts.
The changes made by clause 31 and schedule 6 therefore amend the conditions for obtaining capital gains tax relief on disposing of a company to the trustees of an employee ownership trust to ensure that the former owners cannot retain control of the company following disposal. The trustees must be UK residents and they must take reasonable steps not to pay more than the fair market value for their shares. These changes are necessary to prevent opportunities for abuse and to protect the long-term integrity of these reliefs.
Individuals will also be able to provide additional information to HMRC at the point of claiming the relief, and the period of time within which HMRC can take action, if the relief conditions are breached post-disposal, will be increased. HMRC will be given additional powers to monitor the reliefs and to take action when non-compliance is identified.
Lastly, this measure makes technical changes to provide clarity on the tax treatment of contributions paid to the trustees from the company in order to meet costs associated with purchasing the company from the former owner, and also adjusts the conditions for income tax relief on employee bonus schemes. Overall, these changes will simplify the process of setting up and operating employee ownership trusts.
Government amendments 39 and 41 confirm that the relief is available only with respect to contributions paid to the trustees from a company for the purposes of meeting the trustees’ acquisition costs. In doing so, they clarify the policy intent and remove any potential ambiguity within the legislation as drafted. Government amendments 38 and 40 ensure that the distributions relief is available in circumstances where the capital gains tax relief was not claimed because the vendor was a company, rather than an individual, provided that the conditions for obtaining the relief were otherwise met.
Government amendments 42 and 43 expand the scope of the costs that qualify for the relief to include other expenses that may reasonably be incurred by trustees in connection with the acquisition of the company. These amendments make technical clarifications and address the concerns expressed by key stakeholders that the scope of the relief as announced at the autumn Budget was too narrow to reflect the reality of how employee ownership trust acquisitions are funded.
Overall, the clause protects the future of employee ownership in the UK by ensuring that the tax reliefs available to encourage it continue to operate effectively and by preventing opportunities for abuse. I commend clause 31, schedule 6 and Government amendments 38 to 43 to the Committee.
Gareth Davies
Clause 31 and schedule 6 alter the conditions for obtaining tax reliefs for employee ownership trusts. The current regime was introduced by a Conservative Government, following the independent Nuttall review in 2012, which set out the many strengths of the model and how it could become more widespread in our country.
Since the current regime was implemented in 2014, its tax incentives have achieved great success in encouraging the creation of employee ownership trusts, which have become the predominant model for employee ownership. Today, more and more companies are making the transition to that model. I was pleased to hear the Minister tell us that there are about 1,500 examples in the country. In 2023, we launched a consultation to review the regime, and it has fallen on this Government to respond to it.
The package of changes that the Minister has set out aim to prevent opportunities for the relief to be abused while ensuring that employee ownership continues to be incentivised and supported. We share those objectives, and we warmly welcome these measures, which largely reflect the recent consultation. We will not oppose them but, as hon. Members would expect, I have a few questions.
I would be grateful if the Minister can explain why a few suggestions put forward during the consultation have not been taken forward. For instance, a large number of respondents asked for the tax-free bonus limit for employees to be increased from the current level of £3,600. Had that kept pace with inflation, the maximum today would be close to £5,000. The Government have made it clear that they have no plans to increase the tax-free bonus amount, but they have not said why. A little more detail would be welcome, as would some reassurance that the Government will keep that element of the regime under review so they can react speedily if the weakening of the incentive begins to undermine the overall policy goal that we all share.
Another point raised in responses to the consultation was the issue of double taxation upon the sale of an EOT-owned company to a third party. In that event, trustees would be liable to pay capital gains tax on the disposal, and employees would be charged income tax on their share of the net proceeds. When responding, the Government did not acknowledge that point about double taxation, which the Chartered Institute of Taxation also highlighted. We understand that that concern must be weighed against the main abuse that the Government are rightly trying to prevent with these measures: the exploitation of EOTs by company owners to reduce their CGT liability when ultimately selling their business to a third party.
Surely the second layer of taxation—the income tax charged to employees—does not act as a major disincentive to that kind of behaviour, however, especially in the context of the additional restrictions being introduced in part 1 of the schedule to prevent such abuses. I would therefore be grateful if the Minister can address that point or write to me later with clarification about why that was not taken forward.
The Minister will be aware of concerns about the implementation of the statutory relief for distributions in part 2 of the schedule. As originally drafted, the schedule allowed for only specific costs—for example, payments made by companies to the EOT to fund the share purchase, interest on outstanding considerations, and stamp duty—to be tax deductible, a process which previously would have taken place through a non-statutory clearance request to HMRC.
That had the effect of excluding other costs that many thought would be reasonable to cover. I am glad that the Government have listened and have tabled some amendments to widen the scope of the relief, and I thank the Exchequer Secretary for his letter setting them out—it was a great read. Other costs, however, such as payments to cover the fees of professional trustees and advisers for ongoing services, unfortunately remain excluded. Moreover, HMRC has limited flexibility to provide relief for any excluded cost, now that the relief is on a statutory footing.
James Murray
Clauses 37 to 39 make changes to ensure that from April 2025, individuals moving to the UK who have not been tax resident in the UK for the 10 previous years will not pay tax on their foreign income or gains for the first four years of UK residence.
For context, the Government are removing the outdated concept of domiciled status from the tax system and replacing it with a new, internationally competitive, residence-based regime from 6 April this year. Currently, where a non-UK-domiciled individual moves to the UK, they are able to access the remittance basis of taxation, under which foreign income and gains are not taxable unless they are brought into the UK. Similarly, when undertaking work abroad, newly UK resident, non-UK-domiciled individuals are able to access overseas workday relief, which means that overseas employment income is not taxable unless brought into the UK. The arrangements create a disincentive to invest in the UK and are being changed as a result of these measures.
The changes made by clauses 37 and 39 will provide full tax relief on foreign income and gains for new arrivals to the UK for their first four years of tax residence, provided that they have not been UK tax resident for 10 years before their arrival. To align with the new regime, clause 38 and schedule 8 extend the period of overseas workday relief to four years, and decouple overseas workday relief from domiciled status to align it with the new foreign income and gains regime. Claims to the relief will be capped at the lower of £300,000 or 30% of an individual’s total employment income. Furthermore, the removal of the remittance basis means that it will no longer be necessary to keep income offshore to benefit from relief.
Government amendment 20 amends clause 37 to add an additional category of income to the list of eligible incomes, which will ensure that all eligible income for relief is referenced correctly. Government amendments 44 to 53 have also been tabled to schedule 8 to ensure that the relief on travel costs for qualifying newly resident employees in the UK functions as the legislation intended. Furthermore, Government amendment 54 amends schedule 8 to clarify that it is a general direction made by HMRC, rather than a public notice.
The Government are committed to ensuring that everyone who is long-term resident in the UK pays their taxes here. The new regime ensures that that will be the case, while also being more attractive than the current approach as individuals will be able to bring income and gains into the UK without attracting additional tax charges. That will encourage people to spend and invest those funds here in the UK.
I commend clauses 37 to 39 and schedule 8, along with Government amendments 20 and 44 to 54, to the Committee.
Gareth Davies
Currently, a person who is UK resident but not UK domiciled pays tax on any UK income and gains but can choose for their non-UK income and gains to be taxed on a remittance basis. Part 2 of the Bill provides for the abolition of non-domiciled status from April 2025, as the Minister points out, and for its replacement with a new regime for the taxation of foreign incomes and gains on the basis of UK residence. It therefore terminates the current tax regime for those who are resident but not domiciled in the UK, while creating a temporary repatriation facility for historical foreign income and gains to be brought into the UK over the next three years. Those changes will also be applied to trusts under the Bill and inheritance tax will also be brought into the new, residence-based system.
Although the shape of the overall package is much the same as the one the Conservatives announced in the spring Budget 2024, there are a few notable differences on the detail. Before I move through the chapters—we will spend a bit of time on that, starting with chapter 1—I will first provide some context by noting that, net of the reforms we announced in March, Labour’s adjustments to the new regime are forecast to raise £12.7 billion over the next five years. This means the measure we are considering is the second biggest revenue-raising new policy in this entire Budget. Labour’s adjustments to the temporary repatriation facility alone account for £10.6 billion.
These are significant sums, but also highly uncertain, according to the OBR. There is significant uncertainty in particular around the behavioural responses and the size of the tax base, according to the OBR’s assessment. The OBR also says it is unclear to what extent inflows to the temporary repatriation facility are additional over the long term rather than bringing forward disposals which would otherwise have attracted full rates of taxation.
When the second biggest revenue-raising new policy in a Budget is so uncertain, according to the OBR, bond market jitters come as no surprise. The emphasis Labour has placed on this policy, which makes up a massive chunk of the Bill, is compounding its conundrum ahead of the OBR’s March forecast. It exacerbates fiscal instability by adding to the risk that revenues will not be as high as anticipated. This brings us back to the same old questions we have been asking, including in the Chamber today: which taxes will Labour have to raise if there is a shortfall, or which services will they have to cut? The Minister will say that we need to wait for the OBR’s revised forecasts, but will those include an update on these highly uncertain figures?
Turning specifically to chapter 1, clauses 37 and 39 introduce the new four-year 100% relief on eligible foreign income and gains for those arriving in the UK who have not been UK tax residents in the 10 tax years immediately prior to their arrival. I acknowledge that that mostly mirrors the proposals we put forward in the March Budget 2024 but would be grateful if the Minister could none the less address the following points.
Yuan Yang (Earley and Woodley) (Lab)
The hon. Gentleman raises the question of estimates around the level of revenue that would be generated by this important measure. Is he familiar with the work of Andy Summers and Arun Advani at LSE and the University of Warwick? Three years ago, in 2022, they modelled the effect of the 2017 tax reforms on non-doms and used that as a basis for statistical estimates for the proposal before us. While economics is a science that does to the best it can with the data available, I think there are some quite substantial measures available on the table for this proposal.
Gareth Davies
I am afraid I have not taken the time to read the academic reports, but I greatly value and emphasise the work of the OBR, which the Conservatives established in government. The new Government have taken it forward and are already seeking to bolster its impact on the Treasury’s work. If the hon. Lady will forgive me, it is the OBR’s work that I look at, and that work says that this budgetary measure is highly uncertain. As I was pointing out, that leaves questions for markets and for the Labour parliamentary party when it comes to which taxation will have to go up and what spending will be cut if that figure is not met. I will leave that to the Minister to address.
Harriet Cross (Gordon and Buchan) (Con)
Regardless of the uncertainty, we know from the projections that, although the tax intake should peak at about £6 billion, it tails off by the end of the period to £95 million—a huge difference. By the time this spending and the costs have been worked into the system, no matter what happens in terms of uncertainty, at the end of that tax period there will be a huge amount of money that was in the system, but which now has to be filled. This policy, if implemented, will mean that there is a hole in the system at the end of the ’29 period that will need to be filled in some way.
Gareth Davies
That is a very good point—if only I had included it in my speech. That is a classic example of an intervention that adds to the content of the debate on behalf of all those who will be impacted by this measure. It is important to look at the projections over the five-year period on a year-by-year basis. It will be no surprise to the Minister that I look at them very carefully. I look at the timing of when the measures generate revenue, and when they do not. I could provide lots of examples of places where questions need to be asked of this Budget—indeed, we have been asking them today.
In claiming the 100% relief on foreign income and gains, an individual forfeits their eligibility for a whole host of allowances available to normal UK taxpayers, including the personal allowance'; yet even those who were previously taxed on a remittance basis for non-UK income and gains would still pay tax on their UK earnings, just like everybody else. That was surely an uncontroversial element of the old regime, which did not require any attention, so why have the Government taken it upon themselves to make the tax treatment of UK income less favourable as a condition of claiming the new 100% relief—which we of course welcome?
The biggest concern that has been raised with me regarding these new reliefs by the likes of the now-famous Chartered Institute of Taxation, which many of us have referred to, is the requirement to itemise and actively claim each income and gain. As far as I can recall, the technical note that we produced alongside our proposals in March 2024 did not insist on that level of specificity and detail, which is quite onerous on those applying. As a basic matter of fairness, it seems wrong that the window for making a claim is so much less than the 12 years available to HMRC to issue a compliance check, and even more so when the ability to make a consequential claim to correct an error is restricted.
The Budget claims to introduce a regime that is simpler and internationally competitive, as the Minister outlined in his speech, but those two requirements are neither of those things. I would be very grateful if the Minister can explain what exactly the benefit of doing things in that way are.
The main departure from our proposals comes with clause 38 and schedule 8, which introduce financial limitations for overseas workday relief. Is that to compensate for the additional year in which the relief will now be claimable? How significant does the Treasury expect the impact of the alteration to be? I would be grateful if the Minister can indulge me by outlining an explanation on those points.
James Murray
I thank the shadow Minister for his comments. I was going to thank him for his support for these measures, but I do not know whether he explicitly said that. I think he nearly did, so I will take it as support unless he jumps in to correct me.
One of the key measures that the shadow Minister highlighted in our package of legislative measures that is the subject of clause 37 is the temporary repatriation facility, an important feature of the system we are seeking to introduce. What it does—I say this so that all Members are aware—is to introduce a reduced tax rate for remittances to encourage individuals to bring their capital to the UK and to spend and invest it here. The fact that it will raise considerable revenue is beneficial to the public finances, but it is also critical to recognise that that is a consequence of people bringing money into the UK to spend and invest here, which is something I am sure the Opposition side of the Committee will welcome as well.
Gareth Davies
To clarify, the point I am trying to make is that the Minister is rightly trying to ensure that this new regime makes the UK as competitive as possible so that assets flow into our country and we derive revenues from that. The first question I have is, why remove the personal allowance for those who seek to do so? The second is that although the point about the reporting is valid in terms of monitoring, does the Minister accept that that in itself could make the system more complicated and onerous to those who may consider moving their assets to this country? That may result in less money coming through the door, which is exactly why the OBR has rated this as highly uncertain revenue generation. That is the point that I am trying to make.
James Murray
I thank the hon. Gentleman for his further comments. To address his point regarding the OBR, we seek to strengthen that institution, inspired not least by some of his colleagues’ views of the OBR having damaged trust in it under the previous Government. We wanted to make sure that that could never happen again, by strengthening its standing in law.
As the hon. Gentleman will know, when the OBR is looking at suggested tax changes, particularly when they are more complex than simply changing a rate—when they are more involved—it is a matter of course for degrees of uncertainty to be associated with that revenue from different measures.
The point about the design of the scheme is best answered by explaining that this is about striking the right balance. The hon. Gentleman asked whether the reporting requirements are too onerous. It is a balance between making sure that we minimise the burden on individuals, and of course the businesses that they work for—we want to make sure that we are not putting any onerous requirements on them to report information that is not needed—while, at the same time, making sure that we have the information to be able to evaluate the regime, to identify any avoidance risks and to ensure compliance. It is a constant tension within the tax system to make sure that burdens are as low as possible while ensuring that we have adequate information to prevent non-compliance and so on. Those are the judgments that we have to take as Ministers, but we want to take them in the way that achieves the best possible outcome.
To conclude, the overall package that we are proposing, with the foreign income and gains regime, where foreign income and gains will see no income tax for four years, is more generous—is more attractive—than the remittance basis that is currently in place, because it means that those foreign incomes and gains will not be subject to income tax.
Therefore, I hope that our proposed package is not only positive for public finances here in the UK, but serves as an attractive regime for people around the world with talent and with entrepreneurial spirit, who want to work and invest in our country and help our economy grow, and that they can see that the scheme will help them to do just that. I commend these measures to the Committee.
Amendment 20 agreed to.
Clause 37, as amended, agreed to.
Clause 38 ordered to stand part of the Bill.
Schedule 8
Relief on foreign employment income: consequential and transitional provision
Amendments made: 44, in schedule 8, page 194, line 33, leave out “qualifying” and insert “non-resident or qualifying”.
This amendment is to make parenthetical description of sections 373 and 374 of ITEPA 2003 consistent with those sections as amended by Schedule 8.
Amendment 45, in schedule 8, page 194, line 39, after “Part 2” insert—
“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.
This amendment provides that an employee must not be a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005 to benefit from a deduction under section 341 of ITEPA 2003, as well as not being a qualifying new resident for the purposes of ITEPA 2003.
Amendment 46, in schedule 8, page 195, line 4, after “Part 2” insert—
“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.
This amendment provides that an employee must not be a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005 to benefit from a deduction under section 342 of ITEPA 2003, as well as not being a qualifying new resident for the purposes of ITEPA 2003.
Amendment 47, in schedule 8, page 195, line 11, after “Part 2” insert—
“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.
This amendment provides that an employee can benefit from deductions under section 355 of ITEPA 2003 where the employee is a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005, as well as where the employee is a qualifying new resident for the purposes of ITEPA 2003.
Amendment 48, in schedule 8, page 195, line 13, leave out “qualifying” and insert “non-resident or qualifying”.
This amendment is to make the parenthetical description of section 373 of ITEPA 2003 consistent with that section as amended by Schedule 8.
Amendment 49, in schedule 8, page 195, line 36, after “Part 2” insert—
“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.
This amendment provides that an employee can benefit from deductions under section 373 of ITEPA 2003 where the employee is a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005, as well as where the employee is a qualifying new resident for the purposes of ITEPA 2003.
Amendment 50, in schedule 8, page 196, line 7, after “Part 2” insert—
“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.
This amendment provides that an employee can benefit from deductions under section 374 of ITEPA 2003 where the employee is a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005, as well as where the employee is a qualifying new resident for the purposes of ITEPA 2003.
Amendment 51, in schedule 8, page 196, leave out line 16.
This amendment reinstates section 375 of ITEPA 2003 which defines “qualifying arrival date” for the purposes of sections 373 and 374 of ITEPA 2003.
Amendment 52, in schedule 8, page 196, line 21, after “Part 2” insert—
“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.
This amendment provides that an employee must not be a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005 to benefit from a deduction under section 376 of ITEPA 2003, as well as not being a qualifying new resident for the purposes of ITEPA 2003.
Amendment 53, in schedule 8, page 197, line 17, at end insert—
“2A In Part 8 of Schedule 3 to the Social Security (Contributions) Regulations 2001 (S.I. 2001/1004), in paragraph 5 (travel costs and expenses where duties performed in the United Kingdom) —
(a) in the heading, for ‘non-domiciled’ substitute ‘non-resident or qualifying new resident’;
(b) in paragraph (a), for ‘non-domiciled’ substitute ‘non-resident or qualifying new resident’.”
This amendment makes the parenthetical descriptions of sections 373 and 374 of ITEPA 2003 contained in the Social Security (Contributions) Regulations 2001 consistent with those sections as amended by Schedule 8.
Amendment 54, in schedule 8, page 198, line 32, leave out “public notice given” and insert “general direction made”.—(James Murray.)
This amendment means that the requirements of notices under new section 690D will be specified in a general direction made by HMRC rather than a public notice.
Schedule 8, as amended, agreed to.
Clause 39 ordered to stand part of the Bill.
Clause 40
Remittance basis not available after tax year 2024-25
Question proposed, That the clause stand part of the Bill.
Gareth Davies
As the Minister said, clause 40 and schedule 9 abolish the remittance basis of taxation for foreign income and gains from 2025-26. Clause 41 and schedule 10 create a temporary repatriation facility, or TRF, to allow former remittance-based taxpayers to bring historical foreign income and gains into the UK at a lower rate of tax. Clause 42 and schedule 11 allow for foreign assets to be rebased to their value in 2017 for capital gains tax purposes.
On the TRF, I gently point out to the Minister that, given that this is the single biggest revenue-raising part of Labour’s policy—offering a reduced rate of tax on income and gains for a limited time—the Government are not so much closing loopholes in the tax system, as the Labour party consistently said to us when it was in opposition, and as was claimed at the Budget, but creating new loopholes, by their own definition of debates past. As the OBR has stated, there is great uncertainty over how much of that revenue is truly additional. Tom Josephs, one of the three members of the OBR’s Budget Responsibility Committee, told the Treasury Committee:
“most of the revenue that we have scored in the forecast comes from what are…essentially, three years’ worth of lower tax rates…The steady-state impact of the reform is much lower.”
As is so often the case, there is a mismatch between Labour’s rhetoric and the policy reality.
The same would appear to be true for the “tweaks” to the temporary repatriation facility that the Chancellor announced on the slopes of Davos just last week. That indiscretion would be more problematic had there been any substance to the Davos announcement. We are still none the wiser, because the relevant amendments have not appeared, as my hon. Friend the Member for Gordon and Buchan said. This is the Committee stage of a Finance Bill, when we scrutinise the measures of the Government of the day, line by line. The Chancellor of the Exchequer made a conscious decision to get on a plane, fly to Davos and make the announcement—not in this House, but overseas. Then, when she had the opportunity to table amendments for the scrutiny of this Committee, she decided not to do so. I feel sorry for the Minister who has had to explain this, but it is not good enough. The Minister said that we will debate it on Report, but what stopped the Chancellor from tabling amendments today, in Committee? What was it about the line-by-line scrutiny that meant she could not do so? I would be grateful if the Minister could try to explain it, but I think the Chancellor should be explaining it to the House.
Those points aside, the main grievance, which others have raised, relates to the changes to definition of “remittance” in schedule 9. The Chartered Institute of Taxation says the changes are badly drafted, that they should not be retroactive and that, at the very least, implementation should be delayed to allow for them to be rewritten and consulted on. Otherwise, the Minister needs to explain why, under paragraph 5(8), lending foreign income to a foreign relative outside the UK, to be kept outside of the UK, should be treated as a remittance to the UK. Paragraph 5(11), which makes it so that anything that has ever been remitted to the UK without being charged to tax under previous rules should now be treated as if it was a chargeable remittance, is described by the ICAEW as “unacceptable”; it states that the provision “should be deleted”. This is a matter on which I am not particularly expert, but the ICAEW is. I would be grateful if the Minister could explain those points, or follow up in writing to me, so that I can provide these industry bodies with an explanation.
James Murray
I am always happy to respond to queries from the Chartered Institute of Taxation—they were eloquently presented by the shadow Minister—and will I make sure that any responses to those queries are forthcoming.
However, I think the central point, which the shadow Minister focused on in his comments, is about the temporary repatriation facility and our changes to that. The Chancellor was very clear that these changes, which she mentioned at Davos, are designed to make the system simpler and more attractive. As he will know, Finance Bills are routinely amended both in Committee and on Report by the Government to ensure that the best possible legislation is in place before a Finance Bill gains Royal Assent.
The new temporary repatriation facility, which we are setting up under these clauses, includes rules concerning how income and gains in a trust structure are matched to beneficiaries. These are complex things and the amendments will simplify that process. To provide absolute clarity, the amendments to the temporary repatriation facility, which the Chancellor referred to, are separate from the amendments that we are debating today in Committee, which clarify specific aspects of the legislation and ensure that the policy works as intended.
Collectively, the Government amendments before the Committee ensure that the legislation works as intended, and the amendments the Chancellor mentioned at Davos are designed to make the system simpler and more attractive. If it is a win-win, where it does not have an impact on the income—
James Murray
Clause 43 and schedule 12 make changes to ensure that the foreign income and gains arising within settlor-interested trust structures will no longer be protected from tax for non-domiciled and deemed-domiciled individuals who do not qualify for the four-year foreign income and gains regime, which we have been discussing in relation to earlier groups of clauses.
As we have established in previous debates in Committee, the Government are removing the outdated concept of domicile status from the tax system and replacing it with a new internationally competitive residence-based regime from April of this year. Currently, where a non-UK-domiciled individual settles an offshore trust, foreign income and gains arising within that trust are protected from UK tax, which remains the case even if the individual is later deemed domicile.
The changes made by clause 43 and schedule 12 will mean that from 6 April 2025, foreign income and gains arising in settlor-interested trusts will be taxed on the same basis as UK-domiciled settlors, unless the settlor is eligible for and claims the new four-year regime, regardless of when the trust was established. In addition, the trust protections will not apply to the legislation on the transfer of assets abroad. This will mean that all income arising in a settlor-interested trust or an underlying company can be taxed on a UK settlor as it arises if the transferor has the power to enjoy the income or receives capital sums from the trust or company.
Government amendments 60 and 61 ensure that the onward gifting provisions continue to operate effectively, as under the existing regime. These provisions ensure that taxpayers cannot avoid a liability to tax by diverting benefits to other persons not liable to that charge. The Government are committed to making the tax system fairer so that everyone who is a long-term resident in the UK pays their taxes here. The new regime ensures this while also being more attractive than the current approach, as individuals will be able to bring income and gains into the UK without attracting an additional tax charge. As we have debated already, this will encourage them to spend and invest these funds here in the UK. Therefore, I commend these provisions to the Committee.
Gareth Davies
Clause 43 and schedule 12 mirror the proposals that we set out in March 2024. The Minister will therefore be very pleased to hear that I have not picked up any significant murmurings of discontent on this clause, and I have no further comments.
James Murray
I thank the shadow Minister and encourage him to respond in similar terms in future.
Question put and agreed to.
Clause 43 accordingly ordered to stand part of the Bill.
Schedule 12
Trusts: connected amendments, transitional provision etc
Amendments made: 60, in schedule 12, page 238, leave out lines 21 to 23 and insert—
“(b) the original recipient—
is liable neither to income tax nor to capital gains tax by reference to the amount or value of the original benefit, or
is a qualifying new resident for the tax year in which the original benefit is provided,”.
This amendment expands the scope of the onward gifting rule to circumstances where benefits are routed via individuals who are UK resident but who are not themselves within the scope of the benefits charge (because they are not the settlor or a close family member).
Amendment 61, in schedule 12, page 239, line 41, at end insert—
“(5A) Where the original recipient is liable neither to income tax nor to capital gains tax by reference to the amount or value of part only of the original benefit, this section applies as if the two parts of the original benefit were separate benefits.”—(James Murray.)
This amendment supplements Amendment 60.
Schedule 12, as amended, agreed to.
Clause 44
Excluded property: domicile test replaced with long-term residence test
Question proposed, That the clause stand part of the Bill.
Gareth Davies
As the Minister set out, clauses 44 to 46 and schedule 13 bring inheritance tax into the residence-based system so that it applies to non-UK assets owned outright or held in trusts. This was our stated intention in March 2024, subject to consultation.
As the Minister set out, non-UK assets will now be in scope for inheritance tax where an individual is considered a long-term resident—that is, if they have been resident in the UK for at least 10 of the last 20 tax years that immediately precede the chargeable event. This is subject to a tapered 10-year tail where a person who was resident in the UK for 20 years or more would no longer be considered long-term resident after 10 consecutive tax years of absence, whereas a person with 19 years of UK residence in the last 20 years would no longer be considered a long-term resident after nine years, and so on down to a minimum of three years for those with between 13 and 10 years of residence in the last 20 years.
As far as I am aware, there are no details of consultations which have taken place and nothing has been published on this. I am told by the likes of the Chartered Institute of Taxation that certain provisions such as the tapering of the 10-year tail were put forward during that process. I would be grateful if the Minister could confirm to the Committee the nature and extent of the consultation that has taken place by the Government to inform the creation of these clauses.
One point made by the Chartered Institute of Taxation is that there is now an anomaly whereby individuals who leave the UK before the new regime begins on 6 April are considered long-term residents when the legislation comes into effect, meaning they will incur an inheritance tax exit charge for trusts they have settled when their long-term resident status ends. As the Chartered Institute of Taxation points out, it seems unfair that a person who has already left the UK should face an exit charge due to legislation that comes into effect after their departure. I would be grateful if the Minister could explain that anomaly, which seems a little unfair. According to the Office for Budget Responsibility, these clauses raise very little revenue—I think it is in the range of £100 million a year on average—so the Government can afford to get this right. I would really appreciate a fuller explanation.
James Murray
I thank the shadow Minister for his remarks. He asked about the consultation and how we developed these policies. It is worth pointing out that there has been quite extensive discussion about the legislation on non-domicile status. The Government published a technical note at the autumn Budget in October 2024 explaining the proposed changes to provide certainty ahead of the rules coming into force in April 2025. Officials have engaged extensively with interested specialists and individuals over the summer and throughout the development of this policy. Many elements, such as the tapered tail and the transitional arrangements, were proposed by representative bodies. Those representative bodies also told us that people want certainty about the proposed new rules as early as possible, which is why we published information ahead of the Finance Bill and discussed it with people who might be affected and have views to add.
I will write to the shadow Minister with details on the very specific question he asked, so he has that information for reference. The objective with this policy is to achieve our aim of making the tax system fairer while making the new regime as attractive as possible and internationally competitive to encourage people to come to the UK to invest here, work here, create jobs and wealth, and grow our economy. That is the balance that we seek to strike. We have done that in close consultation and discussion with those affected to get the legislation to the best possible place.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Clauses 45 and 46 ordered to stand part of the Bill.
Schedule 13
Inheritance tax
Amendments made: 62, in schedule 13, page 266, line 35, at end insert—
“(2A) In subsection (1)—
(a) in the definition of “excluded property”, for “6 and 48” substitute “6, 48 and 48ZA”;
(b) omit the definition of “formerly domiciled resident”.”
This amendment updates the definition of “excluded property” in section 272 of the Inheritance Tax Act 1984 in consequence of the amendments made by clause 45. It also removes the now-redundant definition of “formerly domiciled resident”.
Amendment 63, in schedule 13, page 266, line 36, at beginning insert “Also”.
This amendment is consequential on Amendment 62.
Amendment 64, in schedule 13, page 267, line 25, at end insert—
“28A “(1) Schedule A1 (non-excluded overseas property) is amended as follows.
(2) In paragraph 1, for “48(3)(a)” substitute “48ZA”.
(3) In paragraph 5(2)(a), for “or 48(3)(a), (3A) or (4)” substitute “, section 48(4) or section 48ZA”.”
This amendment is consequential on clause 45 (which amends section 48 of the Inheritance Tax Act 1984 and inserts new section 48ZA).
Amendment 65, in schedule 13, page 271, line 39, at end insert—
“(1A) In construing section 267 of IHTA 1984, so far as saved by sub-paragraph (1), the repeal of the definition of “formerly domiciled resident” by paragraph 28(2A)(b) is also to be disregarded.”—(James Murray.)
This amendment clarifies that the definition of “formerly domiciled resident”, which is being removed from the Inheritance Tax Act 1984 by Amendment 62, will still be relevant in construing section 267 (which by virtue of paragraph 48 of Schedule 13 will continue to apply for certain limited purposes).
Schedule 13, as amended, agreed to.
Clause 54
Alternative finance: land in England, Scotland or Northern Ireland
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clause 57 fixes the inheritance tax thresholds at their current levels for a further two tax years, as the Minister set out. The nil-rate band, which remains fixed at £325,000, has been unchanged since 2009. The residence nil-rate band, which comes into play when a person leaves a property to their direct descendants when they die, was introduced at £100,000 in 2017-2018 by a Conservative Government, before being increased by £25,000 in succeeding years. In reaching the current level of £175,000, we delivered on our manifesto pledge to create an inheritance tax threshold for married couples and civil partners of up to £1 million. Since then, the legislative default is for the thresholds to be increased in line with the consumer prices index, although Parliament agreed to override that provision in the aftermath of the pandemic and to maintain the current thresholds to 2027-2028.
Although we do not oppose the measures, HMRC has reported that the Labour Government’s decision to extend the freeze on the current thresholds for a further two years will, as the Minister just set out, increase the number of tax-paying estates by 1,400 in 2028-2029 and by 2,900 in 2029-2030. It was perfectly reasonable for my hon. Friend the Member for Gordon and Buchan to ask why this Labour Government have chosen to unfreeze income tax in 2028 but not inheritance tax. I am afraid the answer we got was not good enough in the context of a Budget and a series of measures that have spent £8 billion on GB Energy, an energy company that will not produce any energy or reduce any energy bills; £7 billion on a national wealth fund, which basically means repainting the UK Infrastructure Bank building; and £9 billion on union pay deals that came with no reform and no productivity gains, but massive pay rises that, by the way, the OBR has assessed as inflationary.
Sure enough, inflation has gone up and interest rates are going to stay higher for longer. It is mortgage payers who will pay the price. That is the state of the public finances that Labour inherited. While we are on the subject, Labour inherited the fastest growth in the G7, half the deficit—[Interruption.] It is true. Labour Members do not like facts, and we know they are not good with numbers, but being the fastest growing economy in the G7 is a pretty good inheritance. On top of that, the deficit was 50%—[Interruption.] Even the Liberal Democrats are reacting.
This is a very important point. People out there want to know why these difficult decisions are being made. It is important to set out the facts on how the economy was doing when the Government came into office. There was 2% inflation; it is now higher. The deficit was half of what it was. These are important factors. It was very reasonable of my hon. Friend the Member for Gordon and Buchan to point out the dichotomy and the choices that this Government have made.
Oliver Ryan (Burnley) (Lab/Co-op)
The election last year was momentous: it was a landslide election for the new Government. I note the hon. Gentleman’s glowing impression of the inheritance from the previous Government; where did it go wrong?
Gareth Davies
Where it has gone wrong is that the Labour party said pre-election that it would not increase national insurance, but has now gone back on that. Labour said it would not hit farmers and would support them, but we now have the family farm tax. We are slightly veering off topic, as Mr Mundell will point out, but I say gently to the hon. Gentleman that although I hope he retains his seat at the next election—[Laughter.] The Chancellor, who is completely out of her depth, has made his life a little more difficult. He is laughing now but I am not sure he will be in four years.
In the context of more drastic changes to inheritance tax elsewhere in the Budget, and the changes to agricultural relief in particular, my hon. Friend the Member for Gordon and Buchan asked about the Government’s assessment of how many of the estates being brought into the regime as a result of the threshold freeze are family farms. I did not quite hear an answer. On behalf of all the farmers we all represent, I say it would be good to hear the Treasury’s estimate as to how many family farms will be impacted.
Ministers frequently cite the inheritance tax thresholds in mitigation of their decision to introduce the family farm tax, but that mitigation is being steadily eroded by inflation. By the time the family farm tax comes into effect next year, Labour’s excuses will be worth even less than they are today, not least because the OBR forecasts that inflation will be higher for longer under Labour. It has already gone up in this short period. It is a shameful exercise in how not to govern, and we will be holding the Government to account going forward.
James Murray
That was a fairly wide-ranging response from the shadow Minister to what is quite a straightforward clause. I could not help but notice that he began by saying that he supported what we are doing in the clause, that he understood that we needed to take tough decisions and that he will not oppose the decision to extend the freeze to inheritance tax thresholds—which the Conservatives began—for a further two years. He then proceeded to explain why he did not support it. I know the Opposition have not made their policy on many things, but it seems that even individual Members have not made up their minds.
Gareth Davies
I was pointing out the discrepancy in how, as we covered earlier, the Government are unfreezing income tax—apparently, although they are not legislating for it—but keeping the freeze on inheritance tax, which I pointed out that we did, not least for public finance reasons. Not only that, but the freeze has also been used as a mitigation against the disgraceful family farm tax that has impacted many of our farmers. Every year that inflation goes up—and it is going up under Labour—that mitigation goes away. That was the point I was trying to make, and it would be great if the Minister could address it.
James Murray
The shadow Minister alleges that there is some discrepancy on this side of the Committee; I feel like there is some discrepancy within his own views. I return to the central point that he seemed to begin by saying that he welcomed our measures—that he supports them and understands why tough decisions have to be taken—but then seemed to explain why he did not support them.
The shadow Minister asked why we decided to extend the threshold freeze for inheritance tax while not, for instance, increasing income tax rates; that is a political choice. It is a difficult choice, but it is a political choice. As a Government we have made the choice to make sure that we do not raise income tax. We went into the election saying that we would not raise taxes on working people, and we have kept that pledge through our policies on income tax, employee national insurance and the rate of VAT. We made those commitments and we are honouring them.