Clause 1

Gareth Davies Excerpts

Monday 12th January 2026 Commons Chamber

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

I call the shadow Minister.

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

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

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[Jim Shannon]

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

[Gareth Davies]

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

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

[Kit Malthouse]

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

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[Gareth Davies]

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

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

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

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

[Sir Ashley Fox (Bridgwater) (Con)]

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

[Gareth Davies]

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

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

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

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

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

[Dr Jeevun Sandher (Loughborough) (Lab)]

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

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

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

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

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

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

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

I call the shadow Minister.

[Gareth Davies]

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

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

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

Will the hon. Gentleman give way?

[Gareth Davies]

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

[Gareth Snell]

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

[Gareth Davies]

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

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

[Dr Evans]

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

[Gareth Davies]

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

[Sammy Wilson]

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

[Gareth Davies]

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

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

I call the Liberal Democrat spokesperson.

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

I call the shadow Minister.

[Gareth Davies]

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

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

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

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

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

[Mike Martin (Tunbridge Wells) (LD)]

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

[Gareth Davies]

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

[Simon Hoare]

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

[Gareth Davies]

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

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

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

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

[Robbie Moore]

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

[Gareth Davies]

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

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

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

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

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

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

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