James Murray
Main Page: James Murray (Labour (Co-op) - Ealing North)Department Debates - View all James Murray's debates with the HM Treasury
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The Exchequer Secretary to the Treasury (James Murray)
It is a pleasure to speak in this debate with you in the Chair, Dr Murrison. I begin by extending my thanks, as other Members have, to my hon. Friend the Member for South Norfolk (Ben Goldsborough) for opening today’s debate. I recognise his commitment to making sure that his constituents’ opinions are heard here today. I also thank all other hon. Members who have contributed to today’s debate for setting out their views.
I appreciate that some Members disagree with either the principle or the detail of the changes that the Government have announced to agricultural and business property reliefs. It is important to be able to debate this issue here today, given the public interest in this topic. I am aware of the strength of feeling, both within the room today and outside, including from the almost 150,000 people who have signed this petition. I understand, as the petition sets out, that there are concerns about the impacts of the reforms to the reliefs, particularly on working farms.
I will seek to address the points that hon. Members have raised in a moment, but, first, I would like to emphasise the fact that the decision to reform agricultural and business property reliefs was not taken lightly. It was one of many tough decisions that we had to take at the autumn Budget in 2024, given the incredibly challenging fiscal position we inherited from the previous Administration.
Rachel Taylor
Does my hon. Friend agree that, until we improve the living standards of ordinary working people, we will never drive up the profitability or sustainability of family farms? It is the Conservative party, with its Budget choices, that devastated our rural communities, and only a Labour Government will focus on improving living standards for every single person living in my constituency of North Warwickshire and Bedworth.
James Murray
I thank my hon. Friend for her intervention. She is absolutely right about the importance of repairing the public finances and supporting public services, for her constituents in North Warwickshire and Bedworth and indeed for all of our constituents across the country.
I noted that, in her contribution earlier, my hon. Friend made a point about what this Government are doing to support the profitability of the farming sector. She may have seen that, at the Oxford farming conference in January, the Secretary of State for Environment, Food and Rural Affairs set out the Government’s long-term vision. That includes reforms to use the Government’s own purchasing power to make sure that we are buying more British food, planning reforms to speed up the delivery of infrastructure, and work to ensure supply chain fairness, which will help people involved in the farming industry and more widely, across her constituency and those of other Members here today.
As I said, the decision that we took to reform agricultural property relief and business property relief was one of the difficult but necessary decisions that we needed to take on tax, welfare and spending to restore economic stability, to fix the public finances and to support public services, including an NHS in crisis. We have taken those decisions in a way that makes the tax system fairer and more sustainable.
The reforms to agricultural property relief and business property relief mean that, despite the tough fiscal context, the Government will still maintain significant levels of relief from inheritance tax beyond what is available to others. The Government recognise the role that these reliefs play, particularly in supporting small farms and businesses, and, under our reforms, they will continue to play that role.
The case for reform is underlined by the fact that the full, unlimited exemption, as introduced in 1992, has become unsustainable. Under the current system, the benefit of the 100% relief on business and agricultural assets is heavily skewed towards the wealthiest estates. According to the latest data from HMRC, and as hon. Members have mentioned, 40% of agricultural property relief benefits the top 7% of estates making claims—that is 117 estates claiming £219 million-worth of relief.
Dave Doogan
On the point the Minister just made about the notional value of estates, I think I can help him, because that is where he is going wrong, and where he has taken his Government up an agricultural cul-de-sac. When it comes to agriculture, what is important is not the notional value of the estate, but how someone came by that estate—whether they used billions of pounds of money on which they should have been paying tax in order not to pay tax, or whether they inherited the family farm from the generation that went before. That is the differentiation that the Treasury should be making. The value is irrelevant; the Minister should focus on the nature of the inheritance or acquisition.
James Murray
What has driven the Government in making the decision to reform agricultural and business property relief is the overwhelming priority of fixing the public finances in a fair and sustainable way. That is why the statistics to which I just referred, about how agricultural and business property relief have come to be used in recent years, are important for understanding the context in which we decided that the time for reform was now.
James Murray
I will respond fully to the point made by the hon. Member for Angus and Perthshire Glens (Dave Doogan) first. As I was saying before he intervened, the data from HMRC, to which other Members have referred, shows that 40% of agricultural property relief benefits the top 7% of estates. It is a similar picture for business property relief, more than 50% of which is claimed by just 4% of estates—that equates to 158 estates claiming £558 million in tax relief. Given the wider pressures on the public finances, we do not believe that that is fair or sustainable, and we felt it was appropriate to reform how the reliefs operate.
Graham Stuart
To follow up on the earlier question that I channelled in the Minister’s direction, will he say something about the average profitability of family farms? That puts this in context.
James Murray
Earlier in the debate, we heard that the average return on capital is 0.5%, but I am sure that the right hon. Gentleman will be aware that 10% of farms in England have made a return on capital of 10%, so it is perhaps a more complicated picture than the one presented earlier. Similarly, farm business income, which is net profit, shows a wide variation. In designing the reforms, we obviously considered the fact that those who have assets on which they currently claim agricultural or business property relief still need to have generous relief. That is inherent in the design of the reforms that we are proposing: there is full 100% relief for the first £1 million of assets—above other nil-rate bands, spousal transfers and so on—and then effectively an unlimited 50% relief thereafter.
Graham Stuart
I thank the Minister for his answer and for telling us about the variation, which I am sure is there, but will he provide the average or median, to give us a sense of the situation for the vast bulk, rather than the top 10%? What does the average or median look like? What is the reality for most farms up and down this country?
James Murray
I thank the right hon. Gentleman for his further intervention. In understanding how the reliefs are reformed, the important point is to focus our conclusions on the data on claims. In understanding how many estates are likely to be affected by the changes, the data that matters is the data on claims. That is why the information that I was setting out around where the bulk of the relief currently goes is based on claims data. In a moment I will come to some other statistics that were referred to in the debate.
James Murray
I will make a little progress, and then take interventions in a second.
The data that I just referred to on where the relief currently goes—I was going to address in a moment the data on how many estates making claims we think will be affected in 2026-27—is based on actual claims, so we believe it is the right data on which to base the reforms.
James Murray
I will take interventions in a moment, but let me make a little progress. Based on the statistics I have just set out, which show where the bulk of the benefit from agricultural property relief and business property relief has been going, we felt it was appropriate to reform how those reliefs operate. That is why the Government decided to change how we target agricultural property relief and business property relief from April 2026. As I have said, we are doing so in a way that maintains significant tax relief for all estates, including for small farms and businesses, while making sure that we repair the public finances.
Under the reforms that we have announced, all individuals will, of course, be able to access the general nil-rate bands and spousal exemptions that apply within the inheritance tax system. On top of those allowances, any business and agricultural property within people’s estates will benefit from 100% relief on a further £1 million of combined assets, except in cases of shares designated as “not listed” on the markets of recognised stock exchanges. Beyond the £1 million of full relief, a further 50% relief will apply with no limit. That means that any inheritance tax paid will be at a reduced effective rate of up to 20%, rather than the standard 40%.
Mr Carmichael
Does the Minister not understand that by penalising family farming at the same time as offering the 20% threshold, he leaves a situation in which purchasing land is still an attractive option for those who wish to shelter their wealth? He penalises those he wants to protect while protecting those he seeks to penalise.
James Murray
I thank the right hon. Gentleman for his intervention, but let us consider those who will still have generous protection from inheritance tax under the reformed system that we have announced. I point the right hon. Gentleman towards the fact that the reliefs in the reformed system, when taken together with the spousal exemptions and the nil-rate bands, will mean that, depending on people’s individual circumstances, up to £3 million can be passed on by a couple to their children or grandchildren, free of any inheritance tax.
Ben Lake
There has been much debate about the discrepancies between the estimate of the Treasury, which states that some 500 farms will be affected every year, and the estimates from the NFU, the Farmers’ Union of Wales, the CAAV, the AHDB—I could name a few more. Is the Minister not concerned, and should it not give the Government pause for thought, that the Central Association for Agricultural Valuers has estimated that in Wales alone the proposals will make an extra 200 family farms subject to an inheritance tax liability? If we are to believe the Government’s estimates, that would constitute 40% of the UK total.
James Murray
I am about to come to some of the statistics to which the hon. Gentleman and others referred. I do not have much time, so I will make a little progress before answering some of those questions.
On the point of how the nil-rate band and spousal exemption allowances work together, anything beyond the nil-rate band, the spousal transfers and the 100% full relief will receive unlimited 50% relief, and heirs can spread any payments due over 10 years, interest free. That is a benefit not seen anywhere else in the inheritance tax system.
James Murray
I will make some progress and turn to the impact that the reforms will have on taxpayers, because there has been a lot of discussion of the impacts, and of the numbers that various Members have highlighted during the debate. As the Government have set out in recent months, in ’26-27 up to 520 estates claiming agricultural property relief, including those that also claim business property relief, are expected to pay more as a result of this change. That means that around three quarters of estates claiming agricultural property relief, including those that also claim business property relief, will not pay more tax as a result of the changes.
James Murray
I will make some progress.
The Liberal Democrat spokesperson, the hon. Member for Glastonbury and Somerton (Sarah Dyke), asked how the figures were arrived at. The figure to which I referred—520 estates likely to be affected in ’26-27—comes from taking the historical data and projecting it forward using economic determinants. She may have seen the letter sent by the Chancellor to the Treasury Committee in November, which set out how that calculation was done. I suggest that all Members read that letter to understand the basis for that 520 number.
The statistics also show how many estates claiming business property relief are likely to be affected. Around three quarters of estates claiming business property relief alone, excluding those only holding alternative investment market shares, will not pay any more inheritance tax in 2026-27. The Office for Budget Responsibility has been clear that it does not expect this measure to have any significant macroeconomic impacts.
I recognise the disagreement over this policy, but Ministers and officials have been listening carefully to the views of the farming sector and rural communities. Ahead of the Budget, there was media speculation that the Government were going to abolish the reliefs altogether. In reaction to that speculation, the Treasury received and considered several representations from the farming sector with views on retaining the reliefs. I responded to a debate on the matter in this very room on 17 October.
James Murray
I have only a few minutes left, so I will not.
I have also participated in several meetings with farming bodies since the autumn Budget 2024, and I am meeting farming bodies again shortly to discuss their concerns further. At the same time, it is important to recognise that other organisations have called for the reliefs to be abolished or restricted. Commentators have highlighted that the reliefs currently contribute to an inheritance tax system that means that the very largest estates pay lower effective tax rates than smaller estates. As the Institute for Fiscal Studies has set out since the Budget, the changes we announced will still leave farmland much more lightly taxed than other assets.
I want to address as many of the points that Members made during the debate as possible, but it is worth saying first that it is important to see the changes in the context of wider support for farmers and the rural community. The Budget committed £5 billion to farming over the next two years, including the biggest budget for sustainable food production in our history. It committed £60 million to help farmers affected by the unprecedented wet weather last year, and we are protecting farms and rural businesses by committing £2.4 billion over the next two years to rebuild crumbling flood defences.
We will also continue to provide existing support for the farming industry in the wider tax system. That includes, for example, the exemption from business rates for agricultural land and buildings, and the ongoing entitlement for vehicles and machinery used in agriculture to use red diesel, as the hon. Member for Dumfries and Galloway (John Cooper) mentioned.
On the point made by the right hon. Member for Orkney and Shetland (Mr Carmichael) about the inheritance tax treatment of Scottish agricultural leases, the Government are aware of the issue and officials have already discussed it with their counterparts in the Scottish Government. There is an existing provision in the Inheritance Tax Act 1984 that deals explicitly with the Scottish agricultural leases. Section 177 of the Inheritance Tax Act means that Scottish agricultural leases passed down on death are not included in the value of the estate.
James Murray
I have only a few moments, so I will not.
My hon. Friend the Member for North Northumberland (David Smith) asked about introducing a working farmer test. I draw his attention to the fact that a test where relief was provided only if, among other things, the individual received 75% of their income from agriculture did exist in the UK for a short period, between 1975 and 1981. It was removed, however, because of concerns about its impact on the availability of land for tenant farming.
Finally, I will address an issue raised by a number of Members, including the hon. Members for North Cornwall (Ben Maguire) and for Chester South and Eddisbury (Aphra Brandreth), about mental health among the farming community. The Government are committed to supporting farmers and agricultural workers in accessing the support they need to protect their mental health. DEFRA already works with a range of farming charities including the Royal Agricultural Benevolent Institution and Yellow Wellies, which was mentioned by the Liberal Democrat spokesperson. Those organisations have highlighted the mental health challenges for farming communities more generally.
To conclude, as we have heard, the reforms to inheritance tax generate strong views, and I understand that. I recognise that a small number of estates will have to pay more tax, but the reform of the reliefs is necessary given the fiscal challenge that confronts us and the fact that the bulk of the cost of the reliefs had become skewed towards the wealthiest estates. We must put our public finances back on a stable footing and repair our broken public services. We are doing so in a way that involves tough decisions but is as fair as possible and preserves significant relief from inheritance tax for small farms and businesses.
Julia Buckley
On a point of order, Dr Murrison. The manner in which the shadow Minister described the view that a farmer was better off if he committed suicide before April 2026 was highly irresponsible. This is a public debate on a very emotive subject. It is televised and it is being shared across social media in real time. This is not the moment to encourage anyone to consider suicide. Farmers’ anxiety and concerns about mental health are running high, and this is the moment to engage constructively with the Treasury, and with farmers and the NFU, who have been in dialogue, to seek the transition to tapered support that I referred to in my intervention, to avoid the very scenario that the shadow Minister repeated.
Every Member here cares for our farmers; it is the reason that has brought us all from different parties together to discuss this matter in a respectful manner. In the interests—[Interruption.] Dr Murrison, may I finish? In the interests of mature and responsible debate, will the shadow Minister kindly correct the record to show that he does not condone suicide but encourages constructive dialogue?