Inheritance Tax Relief: Farms
James Murray Excerpts(6 days, 11 hours ago)
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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?
Crown Estate Bill [ Lords ] (Second sitting)
James Murray ExcerptsThursday 6th February 2025
(1 week, 3 days ago)
Public Bill CommitteesRead Full debate Crown Estate Bill [HL] 2024-26 View all Crown Estate Bill [HL] 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 6 February 2025 - (6 Feb 2025)
The Chair
I remind the Committee that with this we are discussing new clause 4—Partnership agreement: the Crown Estate and Great British Energy—
“The Chancellor of the Exchequer must lay before Parliament any partnership agreement between the Crown Estate and Great British Energy.”—(James Wild.)
This new clause requires the Chancellor of the Exchequer to lay before Parliament any partnership agreement between the Crown Estate and Great British Energy.
James Murray
It is a pleasure to see you in the Chair, Mr Mundell. In his remarks, the shadow Minister essentially set out a similar question, rephrased in a number of different ways, about the publication of the partnership agreement between the Crown Estate and Great British Energy, and I would like to remind him of some of the points we discussed before lunch.
The Crown Estate is keen to ensure that details of the partnership are publicly available on an ongoing basis, and the Government agree that it is sensible to require the Crown Estate to include the relevant detail in its existing annual reports. I would also emphasise—I do not know whether the hon. Gentleman feels that this is less important than we do—that partnership agreements are highly commercially sensitive. It is therefore right that any agreement is not made public or laid before Parliament, as to do so would likely prejudice the commercial interests of the Crown Estate or GB Energy and risk the aims of the partnership, which are to speed up the process of delivering clean energy and investing in clean energy infrastructure.
Mr Andrew Snowden (Fylde) (Con)
The shadow Minister talked about the agreement being presented to the Public Accounts Committee in confidence. I am not sure how it would create commercial issues for GB Energy or the Crown Estate if the agreement was viewed in private by the Chair of the Public Accounts Committee and its members.
James Murray
We have considered the importance of making sure that the details of the partnership are publicly available. Because of the highly commercially sensitive nature of partnership agreements, the Government have set out that the way forward is to ensure that the commissioners include in their annual reports a summary of their activities, and of any effects or benefits resulting from their activities, under the partnership between the Crown Estate and GB Energy. We believe that that measure fulfils the aim of making sure that the information about the partnership is publicly available.
The work of GB Energy and the Crown Estate is very important for achieving some of the Government’s goals. They will work together to speed up the process of developing clean energy projects by co-ordinating planning, grid connections and leasing to de-risk projects for private developers to build. That will unlock private investment, speed up the deployment of clean energy infrastructure, boost energy independence, save costs for families, create jobs and tackle the climate crisis.
I hope that the Opposition would support some of those goals, although it was drawn to my attention that the shadow Minister campaigned against national grid infrastructure last year in his constituency. He teamed up with Liz Truss to do it; it was the shadow Minister and Liz Truss. Am I going to get sued now for having referenced that? I do not know whether the shadow Minister would like to express his regret at having campaigned against national grid infrastructure, which is obviously so important for the energy transition. Perhaps that is why this debate has touched a particular nerve on the Opposition Front Bench, but that is for him to say, not for me to speculate about.
What I do not have to speculate about, and what I can say with great certainty, is that the Great British Energy and Crown Estate partnership is very important for this Government, and the measures in clause 4 ensure that the relevant information is publicly available. I therefore commend the clause to the Committee.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
Salmon farms on the Crown Estate
Question proposed, That the clause stand part of the Bill.
James Murray
Clause 5 would require the Crown Estate commissioners to assess the environmental impact and animal welfare standards of salmon farms on the Crown Estate on an ongoing basis. Where that assessment determines that a salmon farm is causing environmental damage or has significant animal welfare issues, the Crown Estate would be required to revoke the relevant licence. The commissioners would be required to make the same assessment of any applications for new licences for salmon farms, and where they determine that an application may cause environmental damage or raises significant animal welfare concerns, the Crown Estate must refuse the application.
During the Bill’s passage in the other place, peers felt it necessary to amend the Bill to add clause 5. The Government understand the objectives behind the clause, but we are unable to support it, as it would duplicate existing protections. Fisheries policy is also largely devolved, and therefore responsibility for this issue in Scotland, Wales and Northern Ireland rests with the relevant devolved Government. At present, virtually all salmon aquaculture in the UK takes place in Scotland, and the management of the Crown Estate in Scotland is also a devolved matter.
For those reasons, the clause would have almost no impact in practice on farmed salmon in the UK. As it stands, it risks impeding an already thoroughly regulated industry, while having little to no positive impact, due to the territorial realities of the Bill. Therefore, I do not recommend clause 5 to the Committee.
James Wild (North West Norfolk) (Con)
It is a pleasure to serve under your chairmanship again so soon, Mr Mundell. As the Minister noted, the clause was added in the other place, particularly following the efforts of my noble Friend Lord Forsyth of Drumlean. It was backed by peers from across the parties, and Labour peers may have supported it as well. The Minister says that it duplicates provisions that exist. Given that the Government said in the House of Lords that they support its objective, it is clearly disappointing to see them removing these provisions, with the message that that sends about the importance of protecting the future of wild Atlantic salmon.
Question put and negatived.
Clause 6
Commissioners with special responsibility
Question proposed, That the clause stand part of the Bill.
James Murray
Clause 6 amends the Crown Estate Act 1961 to require the appointment of commissioners with special responsibility for giving advice about England, Wales and Northern Ireland. That responsibility would be in addition to the other responsibilities of a commissioner. For appointments relating to Wales and Northern Ireland, no recommendation may be made to His Majesty, unless Welsh Ministers and the Executive Office in Northern Ireland have been consulted.
The legislative changes brought about by clause 6 ensure that those on the board of commissioners of the Crown Estate continue working in the best interests of Wales and Northern Ireland, alongside performing their existing duties as commissioners. The clause, which was added as an amendment, following Government support in the other place, will bring knowledge of the devolved nations even more directly to the board table and will supplement the expertise of the Crown Estate’s director for the devolved nations, who is based in its recently opened office in Cardiff. The clause will ensure that the board of commissioners of the Crown Estate continues working in the best interests of Wales and Northern Ireland. I therefore commend it to the Committee.
James Wild
This is a pretty straightforward clause. It is one of those that were added to the Bill in the other place to improve it, and I hope the Minister might learn the lesson of those clauses as we come to consider the new clauses shortly.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7
Extent, commencement and short title
James Murray
I beg to move amendment 3, in clause 7, page 4, line 4, leave out subsection (4).
This amendment removes the privilege amendment inserted by the House of Lords.
James Murray
These are very straightforward matters to debate. Government amendment 3 removes the privilege amendment inserted by the other place. Clause 7 sets out the Bill’s extent, commencement period and short title in the usual manner for such legislation. I commend Government amendment 3 and clause 7 to the Committee.
James Wild
Thank you for calling me to speak again, Mr Mundell—it is good to get the exercise. There is not much to add on this very straightforward clause and amendment, other than that the commencement date, which brings the legislation into force automatically within two years, could usefully be applied to other legislation from the last Parliament. Quite a lot of private Members’ Bills and other pieces of legislation were passed that have not been commenced. I could expand on that issue at length, Mr Mundell, but you would rightly say that it was not in scope. However, car parking regulations, for example, have not been brought into the code of practice or into effect. Having a clear date in legislation to say, “This will happen, as long as the Bill passes,” is a good thing to do.
Amendment 3 agreed to.
Clause 7, as amended, ordered to stand part of the Bill.
New Clause 2
Territorial seabed
“After section 3A of the Crown Estate Act 1961 (inserted by section 1 of this Act) insert—
‘3AA Restriction on permanently disposing of interest in seabed etc
(1) The Commissioners may not without the consent of the Treasury permanently dispose of—
(a) any part of the territorial seabed, or
(b) any interest, right or privilege over or in relation to the territorial seabed,
which forms part of the Crown Estate.
(2) Accordingly, without that consent, any purported disposal of a kind mentioned in subsection (1) is void.
(3) In subsection (1), “territorial seabed” means the seabed and subsoil within the seaward limits of the United Kingdom territorial waters.’”—(James Murray.)
This new clause requires the Crown Estate Commissioners to obtain consent from the Treasury before they permanently dispose of any of the Crown Estate’s interest in, or rights or privileges in relation to, the territorial seabed.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 3—Limit on the disposal of assets—
“After section 3 of the Crown Estate Act 1961, insert—
‘3A Limit on the disposal of assets
(1) The Commissioners must inform the Treasury if the disposal of assets of the Crown Estate will be of a value totalling 10% or more of the Crown Estate’s total assets in a single year.
(2) The Treasury must approve of any disposal of assets above the threshold in subsection (1) and the Chancellor of the Exchequer must lay a report before Parliament within 28 days of being notified by the Commissioners.’”
This new clause requires the Crown Estate Commissioners to notify and seek HM Treasury approval for the disposal of assets totalling 10% or more of the Crown Estate’s total assets.
James Murray
New clause 2 relates to the seabed, which is obviously an important asset held by the Crown Estate. Specifically, the clause will prevent the Crown Estate from selling the seabed without obtaining consent from the Treasury. During the Bill’s time in the other place, there was significant interest in the ability of the Crown Estate to dispose of unique national assets such as the seabed.
It will be no surprise to the Committee that the law on the ownership of the seabed is incredibly complex. As such, the Financial Secretary to the Treasury committed to explore the matter further and, if required, to bring forward a legislative provision to restrict the Crown Estate’s ability to sell the seabed.
I am pleased to say that the clause delivers on the commitment made by the Financial Secretary by putting special protections in place for the seabed. It does that by requiring the Crown Estate commissioners to obtain consent from the Treasury before they permanently dispose of any part of, or the Crown Estate’s interests in or rights and privileges in relation to, the territorial seabed.
Melanie Onn (Great Grimsby and Cleethorpes) (Lab)
Could the Minister give examples of when the Crown Estate might consider selling the territorial seabed?
James Murray
I will come in just a moment to some of the scenarios that the new clause might cover.
As I said, the new clause ensures that the Crown Estate commissioners must obtain consent from the Treasury before they permanently dispose of any part of, or the Crown Estate’s interests in or rights and privileges in relation to, the territorial seabed. To be clear, that does not mean that the Crown Estate could never be permitted to dispose of a seabed. To answer my hon. Friend’s question, national or local interests may be best served by such a sale, including, for example, to another part of the public sector to enable local infrastructure development. Any such sale could, under these measures, take place only with the agreement of Ministers, and it is right that they are decision makers on such sales.
I should also make it clear that the clause would not fetter the Crown Estate’s existing right to agree licences or leases in relation to the seabed, which by definition do not represent a permanent disposal of the asset. The ability to agree long-term licences and leases for the seabed will continue to be an important feature of the Crown Estate, to attract significant investment needed for offshore clean energy developments.
New clause 3, tabled by the hon. Member for North West Norfolk, seeks to limit the ability of the Crown Estate to dispose of assets without Treasury approval. Specifically, it would require the Crown Estate to seek consent for the disposal of assets totalling 10% or more of its total assets in a single year, and that the Treasury lay a report before Parliament within 28 days of being notified of disposals above that threshold.
The Government’s view is that imposing a limit on disposals would undermine the flexibility needed to enable the Crown Estate to operate commercially and meet its core duties under the Bill. There may be instances where it makes commercial sense to dispose of high-value assets, particularly when the Crown Estate takes a long-term view of the business and its strategy.
I recognise that the new clause would not prohibit disposals above the specified limit, but would require the Crown Estate to obtain Treasury approval. However, as I have set out for the Committee, the Crown Estate is an independent commercial business, and it is not the Government’s intention to materially alter its independence in such a way that the Treasury is required to approve its business decisions.
However, I do understand that there may be concerns about the Crown Estate’s ability fundamentally to change the nature of the estate. I reassure the hon. Member that the core duty of the Crown Estate—to maintain an estate in land and to enhance and maintain the value of that estate—is unchanged by the Bill. I hope that that provides the appropriate reassurance and that he feels able not to press new clause 3.
The Government are thankful for the constructive engagement of the Opposition on the matter of disposals. That has led to special protections being put in place for the seabed. I therefore commend new clause 2 to the Committee.
James Wild
I will respond to Government new clause 2 and to new clause 3, which was tabled in my name. As we heard from the Minister, Government new clause 2 will require the Crown Estate commissioners to obtain consent from the Treasury before they permanently dispose of any of the Crown Estate’s interest in, or rights or privileges in relation to, the territorial seabed. The Government moved this measure because of the extensive debate in the other place about the sale of certain assets, and particularly the seabed. We welcome the constructive approach taken by Ministers; Lord Livermore gave a commitment in the other place, and it has been honoured today, so we will support the new clause.
Although we welcome the new clause, we still have concerns about the disposal of other assets. My new clause 3 would require the Crown Estate commissioners to seek approval from His Majesty’s Treasury for the disposal of assets totalling 10% or more of the Crown Estate’s total assets. It would also require the Chancellor to lay a report before Parliament within 28 days of being notified of such a disposal by the commissioners.
As previously noted in Committee, the Crown Estate owns some of the nation’s most vital assets. It is somewhat surprising to find that there are few safeguards to prevent the Crown Estate commissioners from deciding to sell critical assets. That is why the debate in the other place, which exposed the issue of the seabed and brought about new clause 2, was so important. However, the Crown Estate has lots of other assets, which Members may wish to refer to and which they may think also deserve special attention.
In the original business case for modernisation of the Crown Estate, which is publicly available, it was noted that the Crown Estate was planning £1.4 billion of disposals, which—coincidentally enough—equates to nearly 10% of its portfolio. In the other place, my noble Friends suggested a disposal limit of anything greater than £10 million. The noble Lord Livermore responded:
“It is the Government’s view that imposing a statutory limit on disposals in this way would undermine the flexibility required by the Crown Estate to ensure that it can operate commercially and fulfil its core duties under the future Act.”—[Official Report, House of Lords, 5 November 2024; Vol. 840, c. 1411.]
The Minister made a similar argument in his speech, but I am not sure that it is right. Given that the assets are held for the benefit of the nation, there should be some form of greater transparency if they are to be disposed of. Reporting to Parliament and seeking approval from the Treasury for disposals over a set percentage would provide such transparency.
The disposal of assets by the Crown Estate should be properly scrutinised, given its important role and statutory purpose. When I asked the Crown Estate about its planned disposals—the £1.4 billion referred to in document on the modernisation of the Crown Estate, which any Member may access—it said that it was unable to disclose its plans. Members might guess that the old “confidential, commercially sensitive” reason was given. That raises concerns about transparency. Will the Minister confirm whether he knows which assets were included in that figure and whether the Crown Estate plans further disposals? I asked the same question on Second Reading, and the Minister replied to most of my points, but that is one he did not reply to. Perhaps he will do so on this occasion.
Having reflected on the debates in the other place, we have changed our approach from a £10 million cap to a 10% cap, after which new clause 3 would require approval and a report to Parliament. That is a modest measure, which would not inhibit the commercial freedom of the Crown Estate to take such decisions if it wants to. It owns assets such as Great Windsor Park and others, and who knows which it may decide to sell at some point in the future? Such assets are held in right of the Crown, so this is not about the sovereign’s private income, but about the income generated for the taxpayer. Transparency is something that the Government should endorse.
James Murray
I thank the shadow Minister for his comments, but imposing a limit on disposals would undermine the flexibility needed to enable the Crown Estate to operate commercially and meet its core duties under the Crown Estate Act 1961. As I mentioned earlier, there may be instances where it makes commercial sense to dispose of high-value assets, particularly when the Crown Estate, by its nature, takes a longer-term view of the business and its strategy.
James Wild
The Minister talked about flexibility, but the Crown Estate would not suddenly decide tomorrow to sell some asset; it will have a business case and a process. That business case will go to the Chancellor, who will get advice rapidly—within a matter of hours or a day—either approve it or not, and report to the House. I do not see what the flexibility issue is.
James Murray
I point the shadow Minister to the way the system currently operates. The Crown Estate operates independently from Government, but there is a long-standing, constructive and transparent relationship between it and the Treasury. That ensures that the Government will be consulted on any potential sale of a nationally significant asset. That is underpinned by the Crown Estate’s framework document, which makes it clear that the Crown Estate should inform the Treasury
“of any matters concerning spending, income or finance that are novel, contentious or repercussive.”
That is an important point to highlight in terms of the way the system currently operates.
However, I return to my earlier point, which is that the Crown Estate is an independent commercial business, and it is not the Government’s intention to materially alter its independence in such a way that the Treasury is required to approve its business decisions. I reassure the shadow Minister and others on the Committee that the Crown Estate’s core duty, which is to maintain an estate in land and to enhance and maintain the value of the estate, is unchanged by the Bill.
Finally, to respond to the question about the £1.4 billion of disposals outlined in the business case, those published as part of the Lords stages relate to non-strategic assets.
Question put and agreed to.
New clause 2 accordingly read a Second time, and added to the Bill.
New Clause 3
Limit on the disposal of assets
“After section 3 of the Crown Estate Act 1961, insert—
‘3A Limit on the disposal of assets
(1) The Commissioners must inform the Treasury if the disposal of assets of the Crown Estate will be of a value totalling 10% or more of the Crown Estate’s total assets in a single year.
(2) The Treasury must approve of any disposal of assets above the threshold in subsection (1) and the Chancellor of the Exchequer must lay a report before Parliament within 28 days of being notified by the Commissioners.’” —(James Wild.)
This new clause requires the Crown Estate Commissioners to notify and seek HM Treasury approval for the disposal of assets totalling 10% or more of the Crown Estate’s total assets.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
James Wild
I will not detain the Committee for long. The hon. Member for Ynys Môn referred to the previous Conservative Government’s position, which has not changed today. The proposal would introduce an element of risk in spinning out assets and revenue streams. We heard about the particulars of the Celtic sea, so this is not the right proposal for this time.
James Murray
I thank the hon. Member for Ynys Môn for tabling new clause 5, which would require that within two years of the day on which the Act commences, the Treasury must have completed a transfer of the responsibility of the management of the Crown Estate in Wales to the Welsh Government. It would allow the Treasury, by regulations, to make provision about the transfer relating to reserved matters as necessary, and would require it to make provision to ensure that the employment of any person in Crown employment is not adversely affected by the transfer of responsibility.
I also thank the hon. Member for South Cambridgeshire for tabling new clause 12, which would require the Treasury to set out a scheme to transfer all existing Welsh functions of the Crown Estate commissioners to Welsh Ministers or a person nominated by Welsh Ministers. The Welsh functions would consist of the property, rights or interests in land in Wales and rights in relation to the Welsh zone.
The Government believe there is greater benefit for the people of Wales and the wider United Kingdom in retaining the Crown Estate’s current form. Both new clauses would most likely require the creation of a new entity to take on the management of the Crown Estate in Wales which, by definition, would not benefit from the Crown Estate’s current substantial capability, capital and systems abilities. It would further fragment the UK energy market by adding an additional entity and, as a consequence, risk damaging international investor confidence in UK renewables and disrupting the National Energy System Operator’s grid connectivity reform, which is taking a whole-systems approach to the planning of generation and network infrastructure. Its reform aims to create a more efficient system and reduce the waiting times for generation projects to connect to the grid.
Llinos Medi
For clarification, does that plan not include Scotland, which has already been devolved?
James Murray
I thank the hon. Lady for that question, but we must consider the proposal before us in terms of the situation we face now, rather than consider decisions that have been made in relation to another nation in the past. We are considering not only the challenges but the opportunities for generating renewable energy in connection with assets closer to Wales or closer to England. The Government believe that having a united approach, through retaining the Crown Estate’s current form, is the best way to improve lives for people in Wales and across the rest of the UK.
As I was saying before the hon. Lady intervened, our reforms aim to create a more efficient system and reduce the waiting times for generation projects to connect to the grid. I am sure she would not want to see those waiting times increase. The cumulative impact of the changes that she and the hon. Member for South Cambridgeshire are suggesting in their new clauses would likely significantly delay the pathway to net zero.
Furthermore, the Crown Estate’s marine investments are currently made on a portfolio-wide basis across England and Wales. To devolve to Wales would disrupt the existing investments, since they would need to be restructured to accommodate a Welsh-specific entity. To devolve the Crown Estate at this time would risk jeopardising the existing pipeline of offshore wind development in the Celtic sea planned into the 2030s. The Crown Estate’s offshore wind leasing round 5 is spread across the English and Welsh administrative boundaries in the Celtic sea. It was launched in February last year and is expected to contribute 4.5 GW of total energy capacity, or enough to power 4 million homes.
In addition to energy, the extensive jobs and supply chain requirements of round 5 will also likely deliver significant benefits for Wales and the wider UK. Lumen, an advisory firm to the Crown Estate, has estimated that manufacturing, transporting and assembling the wind farms could potentially create around 5,300 jobs and create a £1.4 billion boost for the UK economy.
Devolution would also delay UK-wide grid connectivity reform. The Crown Estate is using its data and expertise as managers of the seabed to feed into the National Energy System Operator’s new strategic spatial energy plan. For Wales, the Crown Estate is working in partnership with the energy system operator to ensure that its current pipeline of Welsh projects, the biggest of which is the round 5 offshore wind opportunity in the Celtic sea, can benefit from this co-ordinated approach to grid connectivity up front. It would not make commercial sense to introduce a new entity, with control of assets only within Wales, into that complex operating environment, where partnerships have already been formed. Furthermore, the Crown Estate’s assets and interests in Wales, as compared with its assets in England, are of a fundamentally smaller magnitude, which would likely not be commercially viable if the costs were unsupported by the wider Crown Estate portfolio.
The Crown Estate, in its present form, has the ability to take a longer-term approach to its investments and spread the costs of those investments across its entire portfolio. A self-contained, single entity in Wales would not have the same ability, nor would it benefit from the expertise that the Crown Estate has developed over decades in delivering offshore wind at scale. A devolved entity would be starting from scratch, midway through a multimillion-pound commercial tendering process, at a time when the Crown Estate is undertaking critical investment in the UK’s path towards net zero.
For example, the commercial viability of all three 1.5 GW floating offshore wind project development areas in the Celtic sea, which straddle the English and Welsh administrative boundaries, benefited from the Crown Estate’s significant investment of time, expertise and capital to enable entry to market. UK floating offshore wind, which is an emerging offshore technology that the Crown Estate is supporting, would be particularly vulnerable to market disruption.
It is also important to underline that income generated by the whole Crown Estate benefits the people of Wales. As I have noted, the Crown Estate pays its entire net profits into the UK Consolidated Fund each year. That means that much of the revenues already support public services in Wales, either through supporting UK Government spending in reserved areas or through the funding provided under the operation of the Barnett formula and the Welsh Government’s block grant funding.
Perran Moon (Camborne and Redruth) (Lab)
On that point, does the Minister agree that a lot of the concern and anxiety expressed so far stems from the idea of huge opportunities for revenue generation by the Crown Estate passing through deprived rural coastal communities and going to the Treasury? Will he comment on how a place like Cornwall, which is not subject to the Barnett formula, will benefit from all the resources from something like the Celtic sea?
James Murray
My hon. Friend is absolutely right that a collective approach to projects such as those in the Celtic sea, which cross English and Welsh administrative boundaries, can increase a return for the UK Consolidated Fund, which benefits people in Cornwall, Wales and other parts of the UK. It ensures that we get the best return on our investment through Crown Estate activities. Our concern about the proposition in the new clauses is that it would undermine such revenue generation for all our public services, as well as disrupting the emerging market in offshore floating wind at a critical time, when what investors need is stability, certainty and confidence to invest in a growing sector, not organisational change that might undermine the investment they seek to make.
To pick up further the point made by my hon. Friend the Member for Camborne and Redruth, were Wales to benefit only from the income generated in Wales, it would likely receive zero or negligible benefits for several decades to come, because Welsh assets are relatively new and it will take them time to mature—in the order of 10 to 15 years. The Crown Estate has shown itself to be a trusted and successful organisation, with a proven track record in effective management and profit generation, which are valuable outcomes that we need to be careful not to undermine.
As I set out earlier, the Government supported the inclusion of clause 6, which will require the appointment of a commissioner responsible for giving advice about Wales. I will not repeat what I have already set out, but it is important to underline that that will help to ensure that the board of commissioners for the Crown Estate continue to work in the best interests of Wales, alongside their existing duties as commissioners. That will certainly strengthen the Crown Estate’s ability and mission to deliver benefits for the whole UK.
I am aware that hon. Members may not agree with the points I have made, but I hope that I have set out clearly why the Government believe the existing structure remains the best approach. I hope hon. Members feel able not to press their new clauses.
Llinos Medi
I thank the Minister for those comments; I will come back on a few of them.
This debate is about fairness. We are asking for fairness and equity for Wales, and parity with Scotland. It is important to give a bit of history. Our natural resources in Wales have been extracted from our communities yet, as I mentioned earlier, by the end of this decade 34% of children in Wales will live in poverty. If the money we are discussing was spent back in Welsh communities, it would have a dramatic effect.
James Murray
I thank the hon. Member for Ynys Môn for tabling new clause 6, which would require that the commissioners must transfer all net revenue profit generated from the Crown Estate’s activities in Wales to the Welsh Government on an annual basis. As The Crown Estate’s operations are not divided into business units for each nation, calculating the exact net profit figure attributable to Wales is not straightforward, because most of the associated costs cannot easily be disentangled from the Crown Estate’s overall costs and would, in places, require subjective judgment.
Furthermore, as I set out earlier, given that the Crown Estate takes a long-term approach to investments, it is anticipated that its investments in Wales could take up to 10 to 15 years to see an appropriate return. Therefore, if net profits were transferred to the Welsh Government now, they are likely to be zero or negligible. I hope that explanation was helpful and that the hon. Member feels able to withdraw the new clause.
Llinos Medi
I am unsure how the Minister can say that we would not receive any profits when the Government cannot work out what profits Wales generates. It feels a bit difficult to understand that argument.
I am fighting the corner for fairness for Wales. We have lost all our natural resources and that has been feeding the UK machine. Unfortunately, we are seeing poverty on the rise and deindustrialisation in communities. The new clause would see the profits that are generated given back to those communities, to be spent in those communities and on their future.
Question put, That the clause be read a Second time.
Llinos Medi
I note that since 2021 the net revenue profit and asset value data for Wales has not been published by the Crown Estate. The Crown Estate says that the reason for this is that:
“While in the past, we have produced illustrative figures for Wales, we have since shifted our focus to a more holistic approach to assessing value and increasing our investment, and we realise that such figures are not a fair reflection of value. The previous Wales numbers we published have not included a cost allocation.”
In an answer from September 2024 to my written question asking about the merits of producing regular disaggregated assets and revenue data for Wales, the Government said:
“To achieve efficiency in its operations, the Crown Estate runs many of its functions at a whole enterprise level. As a result, separate financial statements for Wales would not reflect the fact that expenditure is incurred for the benefit of the whole portfolio, and it is not possible to disaggregate net revenue profit attributable to Wales.”
I also note that the Government accepted an amendment to the Bill in the House of Lords to include national commissioners for England, Wales and Northern Ireland on the board of the Crown Estate. The amendment also grants Welsh Ministers and the Executive Office in Northern Ireland the right to be consulted about the Welsh and Northern Irish appointments. Therefore, can the Government outline how these national commissioners will be able to advise on the affairs of each respective nation if there is no process by which the Crown Estate can measure and delineate the profits and costs incurred separately in England, Wales and Northern Ireland?
New clause 7 would address this gap by requiring annual reporting of both asset value and revenue across all nations under the Crown Estate, and by doing so, it would require the Crown Estate to develop a way to measure asset value and revenue in a consistent manner. I hope the Government will accept this amendment to strengthen the ability of national commissioners to fulfil their intended role to advise and act in the interests of the nations they represent on the Crown Estate board.
I turn to new clause 8. Under the current arrangements, many public bodies, such as local authorities, pay lease fees to the Crown Estate simply to lease the land in their own area. However, details of these are not routinely published. In response to my written question in October 2024, the Government noted that,
“Publishing details of those fees would risk prejudicing the commercial interests of both The Crown Estate and the local authorities involved.”
However, local authorities are able and willing to provide this information through freedom of information requests. These FOIs have revealed that in 2023 local authorities in Wales paid fees amounting to well over £300,000 a year. At a time when council budgets are under enormous pressure, how can these fees be justified? This is public money that vital council services such as housing, education and social care are being deprived of.
We should be having a debate on the merits of these fees. This has to start with total transparency and a full account of what is being charged and where. That is why I have tabled new clause 8, which requires the Crown Estate to publish in its annual accounts a list of all lease agreements it has with public bodies in Wales, England and Northern Ireland, including each lease’s name and valuation. I ask the Government to support my new clause for the sake of transparency and to agree that, where public money is being spent, the public should be able to see where this money is going.
New clause 9 is similar to new clause 8. It would require that the Crown Estate commissioners report separately for England, Wales and Northern Ireland, and that the devolved legislatures have these reports laid before them. The Crown Estate already produces highlights reports for Wales and Northern Ireland. This amendment would place this type of reporting on a statutory footing by ensuring that these reports are made available to both the Senedd and the Northern Ireland Assembly, and would allow for greater transparency and engagement between the Crown Estate and the devolved legislatures. Diolch.
James Murray
New clause 7, tabled by the hon. Member for Ynys Môn, would require the Crown Estate to disaggregate reporting in its accounts to show capital and revenue figures for the activities of the Crown Estate in England, Wales and Northern Ireland. At present, the Crown Estate’s operations are not divided into business units by nation. It would therefore not be straightforward to disaggregate reporting in that way. It would be a complex task, requiring a series of highly subjective judgments to be taken. Although it is possible to identify gross revenues from each nation, reporting them without any representation of the costs associated would be entirely misleading. However, the Crown Estate does publish broader information relating to its activities in England, Wales and Northern Ireland as part of its annual report and accounts. The Government’s view is that it remains appropriate for the Crown Estate to continue its reporting on a whole-business basis. I hope that that explanation is helpful and encourages the hon. Member to withdraw her new clause.
The Chair
My decision is that new clause 12 is sufficiently similar to new clause 5 as not to justify a separate vote, so we will move on to the remaining procedures.
Question proposed, That the Chair do report the Bill, as amended, to the House.
James Murray
May I take this moment to thank all hon. Members on both sides of the Committee for their attendance and their contributions? I also thank you, Mr Mundell, for chairing the Committee. I thank the Treasury officials, the House of Commons officials and everyone else for making the Committee run so smoothly.
James Wild
I am grateful, Mr Mundell, for your chairing this afternoon, and I am grateful to Ms Furniss for chairing the first session this morning. I am grateful for the support, help and advice of the Clerks and for the contributions and responses provided by the Crown Estate during the passage of the Bill. I look forward to reconvening with Members for its remaining stages, which I understand will be on 24 February—they will be a pleasure. I am grateful to the Minister for getting on the record my strong opposition to the 100 miles of pylons coming from Grimsby to Walpole in my constituency and the need to look at underground options.
Crown Estate Bill [ Lords ] (First sitting)
James Murray ExcerptsThursday 6th February 2025
(1 week, 3 days ago)
Public Bill CommitteesRead Full debate Crown Estate Bill [HL] 2024-26 View all Crown Estate Bill [HL] 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 6 February 2025 - (6 Feb 2025)
Pippa Heylings (South Cambridgeshire) (LD)
Amendment 7 is similar to amendment 4, and is supportive of its essence. It is about introducing a sensible borrowing limit for the Crown Estate commissioners by capping their net debt-to-asset value ratio at 25%, with any change to that limit requiring parliamentary approval.
As we have just heard, clause 1 as it stands grants the Crown Estate significant new powers to borrow and access financial assistance from the Treasury. Although investment in the Crown Estate’s portfolio—particularly in areas such as offshore wind—is welcome, it is vital that we ensure fiscal responsibility and protect the long-term value of these assets for the nation.
Amendment 7 is about introducing proper safeguards. The Crown Estate manages over £16 billion in assets, and its revenues contribute directly to the Treasury and public finances. Without a clear borrowing limit, we could risk unchecked debt accumulation, which could ultimately undermine the Estate’s financial sustainability and reduce the returns it provides to the Exchequer. A 25% debt-to-asset ratio is a reasonable cap and allows for investment and growth, but prevents excessive leveraging that could put the Estate’s finances at risk. Crucially, the amendment also ensures parliamentary oversight. Any changes to the limit must be debated and approved by both Houses, rather than left solely to the discretion of the Treasury.
This is not about preventing the Crown Estate from borrowing; it is about ensuring that borrowing is responsible, transparent and aligned with the long-term interests of the nation. Given the Crown Estate’s unique status and the importance of its revenues to the public purse, it is only right that Parliament retains a say over any significant increase in borrowing capacity. The amendment would only confirm assurances that were provided in the other House by Lord Livermore. In his work with Baroness Kramer, we were assured that there would be a cap on borrowing to 20% of the loan-to-value ratio in the updated framework agreement. Amendments 4 and 7 reflect those promises, and I urge the Government to support amendment 7 to safeguard the financial integrity of the Crown Estate and ensure that borrowing powers are used wisely and with proper oversight.
The Exchequer Secretary to the Treasury (James Murray)
It is a pleasure to serve on the Committee with you as Chair, Ms Furniss. I will turn to the amendments in a moment, but I will first briefly address why clause 1 should stand part, and what it would achieve in amending the Crown Estate Act 1961.
The clause amends the 1961 Act to clarify the powers of the commissioners and remove certain statutory restrictions in respect of borrowing. Those changes are central to the aims of the Bill, which are to modernise the Crown Estate and to remove limitations on investments, to ensure that it can meet its core statutory duties. Those duties—which it is right for the Crown Estate to pursue in the national interest—are to maintain and enhance the value of the estate and the returns obtained from it.
The Crown Estate is a commercial business, independent from Government, that operates for profit and competes for investment. However, limitations placed on it by the Crown Estate Act 1961 currently risk its ability to compete and invest most effectively, meaning that it is less able to deliver returns for the public purse than it might otherwise be. The clause therefore makes two main changes.
First, the clause clarifies the investment powers of the Crown Estate commissioners by expressly conferring powers that are currently implicit in the 1961 Act. That ensures that the commissioners have the power to do anything that is designed
“to facilitate, or is conducive or incidental to,”
discharging their statutory duties, including their core duties to maintain and enhance the value of the estate. The clause also removes restrictions on the commissioners’ powers to invest.
Through those broader investment powers, the Crown Estate will have greater flexibility to invest in new growth opportunities—for example, in digital technologies, to support the acceleration of offshore energy through digital mapping of the seabed. These broader powers will also unlock the Crown Estate’s ability to under de-risking activities, such as surveys and grid co-ordination, which will increase the frequency of offshore wind leasing and support the clean energy mission.
Secondly, clause 1 inserts a proposed new section into the 1961 Act that would grant the Crown Estate the power to borrow out of the national loans fund via the Treasury, or otherwise subject to Treasury consent. It also authorises the Treasury to provide financial assistance to the commissioners. That change will unlock the Crown Estate’s ability to compete more effectively, by enabling it to borrow as its competitors currently can.
The clause has been carefully drafted to include the requirement for Treasury consent prior to the Crown Estate accessing debt. That strong safeguard will ensure that borrowing is carefully considered and controlled. Furthermore, as borrowing will be from Government at commercial rates, the interest paid by the Crown Estate will outweigh the cost to Government of the borrowing.
Any borrowing undertaken by the Crown Estate will be for investment in activities that will drive increases in its revenues, thereby also increasing the profits it generates and provides to the Government, which will help to provide funding for our public services. That will be a net benefit to the public finances, and builds on the Crown Estate’s long track record of delivering significant returns to the public purse year after year. As the shadow Minister mentioned, that has totalled more than £4 billion in the last decade.
I will now turn to amendments 4 and 7, which were tabled by the hon. Members for North West Norfolk and for South Cambridgeshire respectively. The amendments would place a legislative limit on borrowing, through regulations, but it is the Government’s view that limits on borrowing are best set outside of legislation. For that reason, a limit will be set in the memorandum of understanding between the Treasury and the Crown Estate, with the cap set at no more than a 25% net debt-to-asset value ratio. That document has been made available in draft to aid the House in its scrutiny.
The primary safeguard built into the Bill is the requirement for Treasury consent. We are also retaining the requirement for the Crown Estate to maintain and enhance the value of the estate, while having
“due regard to the requirements of good management”,
as set out in the 1961 Act. Taken together, those elements provide clear guardrails and strengthen the important fiduciary duty of the commissioners not to take decisions that could endanger the estate or compromise its core duties.
To underscore the point—given that the two Opposition Members raised questions about this—the Bill is clear that any borrowing undertaken by the Crown Estate can only be from the Treasury or otherwise with Treasury consent. The Treasury will, of course, ensure that any borrowing is consistent with our wider fiscal rules. Therefore, in addition to the requirement to secure Treasury consent, the draft memorandum of understanding between the Treasury and the Crown Estate sets out additional guardrails. For instance, it says that the borrowing should “target a sustainable range”, and is “not to exceed 25%” of the
“Loan to value ratio (defined as the ratio of net debt to asset value”
As with any public sector borrowing, the Treasury will ensure that this is consistent with managing public money principles, to ensure value for money from the taxpayer. On that basis, I hope hon. Members will not press their amendments.
James Wild
The clause amends schedule 1 to the Crown Estate Act 1961. Specifically, it will increase the number of commissioners from eight to 12 and require them to be paid out of the returns generated by the Crown Estate, rather than out of money provided by Parliament, as is the case currently.
Clause 2 is intended to bring the Crown Estate’s operating practice in line with best practice for corporate governance. Subsection (2) seeks to provide the flexibility to allow the board to include a combination of executive and non-executive directors, to reflect its increasingly diverse activities. Subsection (2) also removes the requirement for the second Crown Estate commissioner—a post currently held by the chief executive—to be the deputy chairman. This measure seeks to satisfy best practice standards, whereby the roles of chairman and chief exec should not be exercised by the same person.
We are supportive of the changes, and I put on record again my thanks to Baroness Vere of Norbiton for pushing the Government to give assurances that the chair of the Crown Estate commissioners could be added to the Cabinet Office’s pre-appointment scrutiny list. I understand that we are waiting for the Treasury Committee to set a date for the pre-appointment hearing for Ric Lewis. Subsection (3) requires the salaries and expenses of the commissioners to be paid out of the returns of the estate to reflect the Crown Estate’s commercial freedom and function, and to place the commissioners in a position that is more consistent with general commercial practice.
I turn now to amendment 5, which is tabled in my name. As I have set out, as well as modifying the governance, clause 2 alters the way in which the commissioners are paid. Parliament will no longer need to approve the salaries and expenses of the commissioners and their staff. However, I believe that some form of parliamentary oversight is needed. At present, the estimate details supply finance and is voted on by Parliament at the beginning of the financial year. Amendment 5 would simply require the commissioners to
“notify the Chancellor of the Exchequer of any proposed changes to the remuneration framework governing remuneration of the Chief Executive set out in the Framework Document.”
The Chancellor of the Exchequer would then be required to lay before Parliament any such notification.
Currently, the remuneration policy and framework for the Crown Estate’s staff is the responsibility of the board’s remuneration committee, and the framework document states:
“The Committee will share any planned changes to the remuneration framework with HM Treasury to seek their agreement.”
Given that Parliament will no longer be needed to approve the salaries, does the Minister agree that it would be sensible to ensure that Parliament is at least notified of any changes to the remuneration policy that affect the chief executive?
At present, the framework document sets out that the
“maximum remuneration of the Chief Executive should be in line with or below that of the lower quartile of an appropriate benchmark group agreed with HM Treasury.”
It also states that
“the clear majority of the Chief Executive’s total reward package should be conditional upon performance, with a significant element of that conditional upon long term performance”,
given the Crown Estate’s primary duty. The Opposition support rewarding success and the delivery of targets, but any such changes to the policy should be considered by Parliament.
On Second Reading, the Minister said:
“As the Crown Estate is statutorily an independent, commercial organisation, which returns hundreds of millions of pounds in profit to the Exchequer every year, continuing the success is crucial and it requires the organisation to have the freedom to compete for the top talent in the commercial world.”—[Official Report, 7 January 2025; Vol. 759, c. 805.]
We absolutely agree on that, but I struggle to see how ensuring that Parliament is simply notified of changes to the chief executive’s pay policy will restrict the Crown Estate’s ability to compete for top talent. It is about transparency, and it would simply provide much-needed scrutiny to a process for which there is currently parliamentary oversight, given the statutory purpose of the Crown Estate. I would welcome support for our amendment, and I look forward to the Minister’s response.
James Murray
I will turn to amendment 5 in a moment, but I will begin by briefly setting out what clause 2 seeks to achieve. The clause makes changes to the Crown Estate’s governance to bring the Crown Estate’s constitution in line with best practice for modern corporate governance. The clause makes three changes, which I will deal with in turn.
First, the clause increases the maximum number of commissioners on the Crown Estate’s board from eight to 12. That will provide the Crown Estate with the flexibility it needs to satisfy best practice standards for modern corporate governance. For example, the change will allow the Crown Estate’s board to include a wider combination of executive and non-executive members, both to reflect its increasingly diverse and wide-ranging activities and to enable it to adopt appropriate committee structures.
However, I assure the Committee that although we are increasing the number of commissioners, we are not changing the way in which they are appointed to the role, except for the new commissioner roles introduced by clause 6. The exact number and the respective roles of the commissioners within that new maximum will remain subject to the public appointments process. As such, additional commissioners will be appointed by the King on the recommendation of the Prime Minister, as is usual practice. That also includes the new commissioners with special responsibility that we will consider in our debate on clause 6, for which there will also be a process of consultation with the relevant devolved Government. The chair will face additional pre-appointment scrutiny, as the Financial Secretary confirmed in the other place.
Secondly, the clause removes the requirement for the second Crown Estate commissioner, a post currently held by the chief executive, to be deputy chair. This change will align the Crown Estate with best practice standards that set out that the roles of chair and chief executive should not be exercised by a single individual.
Thirdly, the clause will require the salaries and expenses of the commissioners to be paid out of the return obtained from the Crown Estate, rather than out of money provided by Parliament, which is the current position. Changing the source of funding for commissioner salaries is intended to demonstrate more clearly the relationship between the relevant expenditure and Crown Estate income, while also reflecting the Crown Estate’s commercial functions. However, the pay of the chair and other non-executive commissioners will continue to be set by Treasury Ministers. In line with the UK corporate governance code, that will not include any performance-related element.
Lincoln Jopp (Spelthorne) (Con)
Clearly, the highest standards of independence and probity will be required of the chair in order to execute their duties, particularly given that we have not brought back to Parliament the ability to raise debt on the assets of the Crown Estate. I feel duty bound therefore to ask the Minister whether he is aware of media reports that the Chancellor’s preferred candidate for chair is a recent Labour party donor who gave £15,000 to the Labour party in 2023 and £30,000 to the Foreign Secretary. It is not unreasonable of the shadow Minister’s amendment to seek that level of transparency by asking for any future changes to salaries for chairs to come back to Parliament.
James Murray
The hon. Member asks about the amendment tabled by the hon. Member for North West Norfolk, to which I was just about to turn. If he will allow, I will address the amendment and that will answer at least some of the questions he raises in his intervention.
Amendment 5 would require the commissioners to notify the Chancellor of the Exchequer of any proposed changes to the remuneration framework for the chief executive set out in the framework document and for such notification to be laid before Parliament by the Chancellor. I will set out the current arrangements on remuneration for the chief executive of the Crown Estate.
How the chief executive is paid is a matter for the Crown Estate’s board in the first instance. However, the pay is set with reference to the agreement between the Treasury and at a level that is at the lower end of the Crown Estate’s comparable peers, reflecting the national significance of the organisation. The framework document between the Crown Estate and the Treasury is clear that the Crown Estate
“will share any planned changes to the remuneration framework with HM Treasury to seek their agreement.”
I think that very much delivers on the spirit of the amendment.
The Crown Estate’s annual report and accounts already include as a matter of course a comprehensive report on remuneration and details of the chief executive’s pay. Taken together, those arrangements already deliver on the essence of the amendment and I hope that, with that explanation, the hon. Member for North West Norfolk will feel able to withdraw the amendment.
The primary intention of the Bill is to modernise the Crown Estate and ensure that it is best able to operate in a modern, commercial environment. These changes are central to that aim.
James Wild
I am grateful for the contributions on this point and for the Minister’s response. I have read the framework agreement closely. At the moment, the Crown Estate will notify the Treasury of changes and ultimately the Treasury will come to Parliament through the estimates process to approve the pay, based on that policy.
What is going to change is that the Crown Estate will be paying from within the income it generates. While the Treasury may still know that there has been a change, no one else will necessarily know. Although I take the point that the annual report will detail any changes, there will be a lag—the policy could have been in place for some time before that happens.
James Wild
Okay. Amendment 1 would require the Crown Estate commissioners to have regard to net zero targets, regional economic growth and ensuring resilience in various areas. Instinctively, I am a bit sceptical about putting more obligations on the Crown Estate, given that its primary purpose is to generate a return for the nation. As I mentioned in passing, clause 3 already applies a sustainable development duty. The hon. Member for Great Grimsby and Cleethorpes spoke pretty persuasively, so I look forward to the assurances that the Minister might give before we see whether the Committee divides on the amendment.
James Murray
With your permission, Ms Furniss, I will briefly add to the comments that I made in the previous debate, because the shadow Minister asked about the appointment of the chair. On 23 December, the Government announced Ric Lewis as our preferred candidate for chair of the Crown Estate. The Government also confirmed that the appointment would be subject to a parliamentary pre-appointment hearing. Under paragraph 9.2 of the governance code on public appointments, political donations should be publicly disclosed if the successful candidate has made a significant donation or loan to a party in the last five years. That will happen if the appointment is confirmed, following the Treasury Committee’s report, and a subsequent announcement is made. Thank you for your patience, Ms Furniss.
Amendment 1, which was tabled by my hon. Friend the Member for Mid and South Pembrokeshire (Henry Tufnell), and to which other hon. Members have spoken, would require the Crown Estate commissioners, in reviewing the impact of their activities on the achievement of sustainable development, to have specific regard to the UK’s net zero targets, to regional economic growth and to ensuring resilience in respect of managing uncertainty, risk and national security interests. I was glad to meet my hon. Friend on Tuesday to discuss the amendment. The Government understand the motive behind it, but it is important first to set out the context for clause 3. I will be brief, as I realise that we will debate clause 3 stand part later.
The Government and the Crown Estate welcomed the addition of clause 3 on Report in the other place, as a clarified and enhanced accountability on the Crown Estate to deliver environmental, social and economic outcomes. The Crown Estate is already a trailblazer in its efforts on tackling climate change and supporting the environment, which I will address in more detail later. Clause 3 will require the commissioners to keep under review the impact of their activities on the achievement of sustainable development in the UK. It is important to note that the public framework document that governs the relationship between the Crown Estate and the Treasury will be updated in the light of clause 3 to include a definition of sustainable development and to confirm that the Crown Estate will continue to include specific information on its activities in its annual report.
The Crown Estate Act 1961 established the Crown Estate as a commercial business, independent from Government, that operates for profit and competes in the marketplace. It is analogous to a private sector commercial operator. The commissioners operate under a clear commercial objective, as set out in the Act, to “maintain and enhance” the value of the estate. At the same time, the Crown Estate can and does focus on activities that closely align with wider national interests, including on the environment, net zero, our nation’s energy needs and sustainable economic growth. As a public body, the Crown Estate seeks to work with the grain of prevailing Government policy.
In addition to its core commercial objective, the Crown Estate operates under a duty in the 1961 Act to have
“due regard to the requirements of good management.”
This obliges the Crown Estate to maintain and enhance the value of the estate responsibly. Good management practices include maintaining a strong governance structure, adhering to best practices in risk management, and fostering a culture of accountability and transparency.
It is important for the Bill to stand the test of time as new, relevant areas of concern on the environment, society and the economy emerge over the coming decades. These currently include net zero and regional economic growth, which are given regard by the Crown Estate and should be covered in its annual report. The general term “sustainable development” was chosen because it is broad and captures the widest range of relevant concerns across the environment, society and the economy, now and as priorities in those areas evolve over time.
Noah Law (St Austell and Newquay) (Lab)
I recognise that it might not be the place of statute to outline some of the specifics brought up by the amendment, but does the Minister agree that the spirit of the amendment is well in keeping with the mission of this Government and, moreover, that of regional economic development in particular, which spreads to all corners of Britain? That is important, and it is incumbent on the Treasury more widely to ensure that that takes place, particularly through the channel of supply chain development.
James Murray
My hon. Friend is absolutely right. A priority of the Government is to ensure not only that there is economic growth at a national UK level, but that all regions and nations of the UK benefit from such economic growth and the increase in productivity. We want to ensure that people right across the country are better off and have more money in their pocket through greater investment and growth in their local areas. He makes an important point.
To return to the definition of “sustainable development”, I will briefly address the point made about that by the hon. Member for South Cambridgeshire. I assure her that that definition will be published on Royal Assent of the Bill, at that point. It was, however, a deliberate decision not to specify specific targets or objectives such as net zero on the face of the Bill, given that the Crown Estate is already required to “maintain and enhance” the value of the estate responsibly. Referencing specific targets would risk complicating the Crown Estate’s existing clear commercial objective.
As I have already noted, the Crown Estate is required to pay its entire net profits to the UK Consolidated Fund every year, worth more than £4 billion over the past decade. That supports the UK Government’s spending on policy priorities, including net zero and, indeed, regional economic growth.
On national security interests specifically, it is important to be clear that the Government are responsible for ensuring that national security interests are managed effectively at a UK-wide level. It would not be appropriate to require the Crown Estate to have a specific regard in that matter. As I have noted, while the Crown Estate has goals under which its strategy can align with wider national policy objectives, the 1961 Act provides the Crown Estate with independence and autonomy. The Government believe that it should continue to operate in that way, as a commercial business independent of Government. This requirement would encroach on that independence by drawing the Crown Estate into interests managed directly by the Government.
The Government believe that the Crown Estate’s existing duties give it a clear focus, leading to a consistently significant return to the Exchequer to support the funding of public services and priorities. The duty to have due regard to the requirements of good management, alongside the new requirement to keep under review the impact of its activities on the achievement of sustainable development, are already sufficient to cover the concerns of my hon. Friend the Member for Great Grimsby and Cleethorpes. I hope that the amendment will be withdrawn.
I turn to amendments 6 and 8, tabled respectively by the hon. Members for Ynys Môn and for South Cambridgeshire. Amendment 6 would require the commissioners, in complying with proposed new subsection (3A) of the 1961 Act on sustainable development, to
“set and publish sustainable development objectives in relation to their activities…take all reasonable steps to meet these objectives, and…have regard to the relevant environmental legislation for the UK, England, Wales and Northern Ireland in relation to making these objectives.”
It would further specify that the relevant environmental legislation includes the Climate Change Act 2008, the Environment Act 2021, the Well-being of Future Generations (Wales) Act 2015 and the Environment (Wales) Act 2016.
Amendment 8 would require any “framework document” published by the Chancellor of the Exchequer, the Crown Estate or the commissioners to define “sustainable development”, and that that definition include a reference to a “climate and nature duty”. It further specifies that such a climate change duty would mean a duty to achieve any of the targets set out under part 1 of the Climate Change Act 2008, or under sections 1 to 3 of the Environment Act 2021.
The Government understand the intention behind amendments 6 and 8, but a key purpose of the 1961 Act was to repeal various detailed statutory provisions that had built up over the 150 years previously, which were hampering the effective management of the estate. By focusing the commissioners’ duties on enhancing the estate’s value and the returns generated, the commissioners have a clear objective for which they can be held to account. It is an important principle that giving an organisation too many objectives will make it far less effective than giving it clear and focused priorities. As I have already noted, the Crown Estate is a commercial business, independent from Government, that operates for profit.
Pippa Heylings
To seek clarification, is the Minister saying that, unlike what seemed to be the agreement reached in the other House, we will not seek, through this legislation or any burden put on the Crown Estate, to ensure that it has a climate and nature duty, such as other bodies have? That will not form part of the definition of sustainable development he said will be published on Royal Assent.
James Murray
As I mentioned, the definition of “sustainable development” will be published on Royal Assent. Perhaps we can return to any questions that the hon. Member may have on that definition at that point.
The fundamental point that I am seeking to make is about ensuring that the Crown Estate can operate effectively. By having clear and focused priorities, it will operate more effectively than having too many objectives, which end up meaning overall that it will perform less well in the public interest. As I have noted, the Crown Estate is a commercial business. It is independent of Government and operates for profit. Although it has goals that, under its own strategy, can align with national policy objectives, fundamentally, the 1961 Act grants the Crown Estate independence and autonomy.
The Government have accepted the amendment to require the commissioners to keep under review the impact of their activities on the achievement of sustainable development. However, expanding the Crown Estate’s core purposes in legislation, in particular with additional duties or objectives that may unnecessarily complicate or conflict with the achievement of the core commercial objective, would risk undermining that core objective being achieved.
Any actions that undermine the core commercial objective risk undermining the very funding that is used to support environmental and other policy objectives. The Government believe that the Crown Estate should continue to operate in this way—as a commercial business, independent of Government—because it has shown itself to be a trusted and successful organisation, with a proven track record and effective management.
As I noted, the Crown Estate is already a trailblazer in its efforts to tackle climate change and support the environment, and it is required to pay its profits into the UK Consolidated Fund each year. Furthermore, I confirm that the requirement under amendment 8 for any framework document between the Treasury and the Crown Estate to define sustainable development has already been agreed by the Government.
As confirmed on 5 November on Report in the other place, the public framework document that exists between the Treasury and the Crown Estate will be updated in the light of that amendment to clarify that “sustainable development” means regard for the impact of the Crown Estate’s activities on the environment, society and the economy. It will also make it clear that that regard includes, where relevant, consideration of relevant legislation, such as part 1 of the Climate Change Act 2008, which deals with the targets set for 2050, and section 56 of the Climate Change Act and sections 1 to 3 of the Environment Act 2021, which also deal with specific environmental targets. The framework document will also make it explicit that the Crown Estate will include in its annual report a report of its activities in relation to sustainable development. For those reasons, I trust that hon. Members will be able to withdraw their amendments.
Melanie Onn
I do not intend to press the amendment to a vote. I accept the point about the Crown Estate being a commercial business, but I am less persuaded that it is unable to cope with an additional objective. When I think about other organisations in the public sector and the number of objectives that we set for them, I am fairly sure that a commercial business has the wherewithal to be able to manage that. However, I accept the potential for an impact on the returns of that commercial business. The Minister has given indications regarding the annual report, and I hope that he will have heard today the determination of Members from coastal communities and the importance of this to them. He will be aware of the strength of feeling about the necessity of ensuring that we have real delivery and community benefits from the extended powers and facilities that we are providing to the Crown Estate.
We will not press the amendment to a vote, but, when it comes to accountability, we know where the Minister’s door is and I am sure we will happily knock on it should the need arise.
James Wild
I rise briefly to speak to amendment 9, not least because I represent North West Norfolk, which is next door to North Norfolk where I grew up. It is sometimes quite difficult to get the local names correct, but Happisburgh is actually pronounced “Haysborough”, rather than “Happisberg”. I wanted to get that on the record, because people there feel quite strongly about it—it is a mistake that is inadvertently made quite a lot.
It is important to protect national assets such as those at Bacton from coastal erosion. I would expect the Crown Estate already to be taking account of such requirements, and the Government to be doing likewise through their wider planning and strategic approach to coastal erosion, so I look forward to the Minister’s response on how coastal erosion will be prevented.
James Murray
I rise to speak to amendment 9 and new clause 10.
Amendment 9, tabled by the hon. Member for South Cambridgeshire, would mean that in satisfying proposed new subsection (3A) of the 1961 Act, which states,
“The Commissioners must keep under review the impact of their activities on the achievement of sustainable development in the United Kingdom”,
the commissioners must assess the adequacy of protections against coastal erosion in areas affected by their offshore activities. I very much understand the concerns reflected in the amendment, but protections against coastal erosion are not the responsibility of the Crown Estate, and therefore the amendment is not relevant to the Bill.
The UK has dedicated statutory bodies under each devolved Administration with responsibility for ensuring adequate protection against coastal erosion. The Crown Estate always collaborates and complies with the relevant statutory authority for any assessment of the impact of offshore activity on coastal erosion, and the potential for coastal erosion should be considered as part of marine licensing, which is considered by the relevant regulator, depending on the jurisdiction. However, the statutory responsibility falls on the relevant body in each devolved area.
The Crown Estate becomes involved in coastal defence only when the statutory bodies responsible for coastal erosion wish to construct defences. In such cases, the Crown Estate typically grants leases to those bodies for defence works.
Although the Crown Estate is not responsiblefor coastal erosion, the Government are committed to supporting coastal communities and are investing ausb record £2.65 billion over two years in building, maintaining and repairing our flood and coastal defences. Shoreline management plans are developed and owned by local councils and coastal protection authorities to provide long-term strategic plans that identify approaches to managing coastal erosion and flood risk at every stretch of the coastline. Shoreline management plans have recently been refreshed with updated action plans, following several years of collaborative work between the Environment Agency and coastal groups.
The Environment Agency has published the updated national coastal risk map for England, which is based on monitoring coastal data, the latest climate change evidence and technical input from coastal local authorities. There are also strong safeguards to manage the flood and coastal risk through the planning system. I hope that on that basis the hon. Member for South Cambridgeshire feels able to withdraw her amendment.
I turn to new clause 10, which would require that in relation to any decisions made about marine spatial priorities, the Crown Estate must ensure the decisions are co-ordinated with the priorities of the Marine Management Organisation and must consult any communities or industries impacted by the plans, including fishing communities.
I can confirm to the Committee that the Crown Estate and the Marine Management Organisation already have well-established ways of working together to ensure effective collaboration for marine spatial planning and prioritisation. The Crown Estate’s collaboration with the Marine Management Organisation and other relevant statutory bodies is governed by the Marine and Coastal Access Act 2009, which establishes the framework for marine planning and licensing in the UK, and requires the Crown Estate to have regard to marine policy documents such as marine plans in its decision making. It is also governed by the habitat regulations, which require the Crown Estate to conduct plan-level habitat regulation assessments for leasing or licensing activities.
Furthermore, the Crown Estate and the Marine Management Organisation jointly agreed a statement of intent in 2020, which is reviewed periodically to provide a focus on priorities and opportunities for alignment, as well as longer-term ambitions. The statement of intent complements a memorandum of understanding agreed in February 2011, which sets out a framework to encourage co-operation and co-ordination between parties in relation to the sustainable development of the seabed and rights managed by the Crown Estate, based on active management, shared information and effective marine planning and management by both parties.
In addition to the Crown Estate’s relationship with the Marine Management Organisation, there are also various regulatory requirements on developers leasing areas of the seabed from the Crown Estate to engage with the Marine Management Organisation through a number of routes. Those include through marine licensing; developers must obtain marine licences from the Marine Management Organisation for activities that could impact on the marine environment. The process involves consultation with statutory bodies and adherence to marine plan policies. As part of a marine licence application, developers must also conduct environmental impact assessments for projects that could significantly affect the environment, which includes consultation with the Marine Management Organisation and other relevant authorities to ensure compliance with environmental regulations. Developers are also encouraged to engage with local communities, statutory bodies and other stakeholders throughout the planning and development process to address concerns and ensure compliance with marine plans.
This new clause therefore duplicates existing regulatory requirements and practice. I hope the hon. Member for South Cambridgeshire feels able to withdraw her amendment.
Mr Snowden
I feel sympathy with the contributions from both the Minister and the hon. Member for South Cambridgeshire. There are some issues at the heart of what the amendment and new clause are trying to achieve, but whether they are within the scope of the responsibility of the Crown Estate is an equally valid point. New clause 9 talks about coastal erosion and, while that is an issue, there is also the issue of coastal damage caused by projects where the seabed in particular is licensed. Again, Morgan and Morecambe off the Fylde coast will lead to years of work trying to rebuild sand dunes that will be cabled and tunnelled through for a new cabling corridor. The dunes will be completely damaged due to activity coming in to connect to the national grid.
Furthermore, the new clause talks about consultation. This is where I really do have some sympathy with the Minister, because that is not the responsibility necessarily and primarily of the Crown Estate. The root cause of the issue is that there are already regulations in place for consultation to happen where licences are being issued. The consultation happens; people consult and then they just ignore local communities and industries. Nothing changes, and perfectly valid objections and alternative routes for cabling corridors coming in from the sea are just ignored—but that is a broader issue rather than specific to this point.
James Murray
Clause 3 amends the Crown Estate Act 1961 to require the commissioners to keep under review the impact of their activities on the achievement of sustainable development in the UK. I have referred to various aspects of clause 3 as part of our earlier debate, so I will try to be brief. As hon. Members know, this clause was added as an amendment in the other place, based on productive debates that reflected the important role that the Crown Estate has in stewarding our natural environment. As I noted earlier, the Government believe that the Crown Estate’s existing duties give it a clear focus, leading to a consistently significant return to the Exchequer to support the funding of our public services.
At the same time, the Crown Estate can, and does, focus on activities which also closely align with wider national interests, including on the environment, net zero, our nation’s energy needs and sustainable economic growth. As a public body, the Crown Estate seeks to work with the grain of prevailing Government policy. That said, it is right that the public and private sectors make every contribution they can to achieving our climate change targets, and the Crown Estate should continue to be a national trailblazer in that regard. The Crown Estate has committed to becoming a net zero carbon business by 2030, aligning with the 1.5° target, and will prioritise activities that help to enable a reduction in national carbon emissions, such as building net zero homes, transitioning its holdings to sustainable agricultural practices and working in partnership with the Government to meet the national renewable energy targets.
Regarding the biodiversity targets in the Environment Act, the Crown Estate is committed to delivering a measurable increase in biodiversity by 2030. It will publish its delivery plan to meet that goal later this year, which will include commitments to restore habitats in line with targets in the Environment Act. The Crown Estate also published its approach on nature recovery last autumn, where it committed to delivering increased biodiversity, to protecting and restoring freshwater, marine and coastal systems and to increasing social-wellbeing benefits from nature. However, the reforms introduced by this Bill are not intended to alter the fundamental statutory basis of the Crown Estate as a commercial business independent from Government.
The commissioners operate under a clear commercial objective, as set out in the 1961 Act: to maintain and enhance the value of the estate. As I have already noted, the Crown Estate operates under a duty in the 1961 Act to have due regard to the requirements of good management. Alongside its core commercial objective, the duty obliges the Crown Estate to maintain and enhance the value of the estate responsibly. It is the Government’s view that these existing statutory requirements and this clause are the best approach.
New clause 11, tabled by the hon. Member for South Cambridgeshire, would require the commissioners to assess plans for benefits to local communities and, in the case of offshore activities, coastal communities before making any investment decisions. It would also require the commissioners to transfer at least 5% of the Crown Estate’s net profit to the local communities impacted by its activities.
At present, local communities benefit from onshore and offshore developments through the economic advantages that such developments bring, including job creation and increased business for local suppliers, and individual developers also contribute to local initiatives. The Crown Estate has also specifically designed the leasing process for its offshore wind leasing round 5 opportunity in the Celtic sea such that developers must make commitments to deliver social and environmental value as part of the development of their new wind farms. Those commitments will be monitored, reported on and enforced throughout the lifetime of the relevant round 5 developments.
The Crown Estate is committed to proactively working with the local communities and partners to enable employment and skills opportunities. For example, it has allocated £50 million through the supply chain accelerator to stimulate green jobs and is developing a green skills pipeline, from a GCSE in engineering skills for offshore wind, seed-funded by the Crown Estate and developed with Cornwall college, to a post-16 “Destination Renewables” course with Pembrokeshire college. The Crown Estate is also partnering with the employment charity Workwhile to create green construction apprenticeships.
The Crown Estate already works closely with communities, charities, businesses and the Government to ensure that its skills initiatives are sensitive to market demands and emerging technologies and to keep them relevant and effective. The Government consider it important that the Crown Estate retains that flexibility in how its skills initiatives are funded and delivered, to ensure that it can contribute to skill training in the best possible way and, importantly, without conflicting with its statutory duty to maintain and enhance the value of the estate.
On that basis, I hope that the hon. Member for South Cambridgeshire feels able to withdraw her new clause. It is the view of the Government that the existing statutory requirements and this clause are the best approach going forward. I commend clause 3 to the Committee.
Pippa Heylings
The Minister might have pre-empted my speaking to the new clause. The new clause would ensure that local and coastal communities see real benefits from Crown Estate activities by requiring a proper assessment of community benefits before investment decisions are made and by mandating that at least 5% of net profits be transferred to impacted communities.
For too long, communities, particularly coastal communities, have borne the impact of large-scale offshore developments without seeing a fair share of the financial benefits; we heard that earlier today. The Crown Estate generates billions in revenue from offshore wind farms, marine industries and land developments, yet too often local people see little direct return. The new clause seeks to redress that imbalance and would ensure that those communities benefit from our journey towards net zero, taking people with us.
First, the new clause would ensure transparency and accountability by requiring that the Crown Estate formally assess community benefits before making investment decisions. That would mean that local communities would no longer be an afterthought. They must be considered from the outset in decisions affecting their livelihoods, identity, infrastructure and environment.
Secondly, the new clause would establish a concrete financial commitment by mandating that at least 5% of the profits generated by the Crown Estate’s activities must be reinvested in local communities impacted. That is a fair and proportionate measure, recognising that those communities are often on the frontline of change, whether it be from offshore energy projects, tourism pressures or rural land use shifts. The kickbacks could be revolutionary for towns and villages across the UK and would be a real testament to how clean energy can level up communities.
The new clause is about not just fairness, but economic regeneration. It would provide a direct funding stream to support local jobs, infrastructure, training and environmental projects, and ensure that prosperity generated from our shared natural resources is not centralised in Whitehall or in corporate boardrooms, but flows directly back to the people and places most affected.
If the Government are serious about levelling up and supporting coastal and rural communities and economies, they should have no issue backing the new clause. It is practical, and it would enable us to manage the different developments. It does not seek to block development; it would ensure that development happens fairly and sustainably, with proper co-ordination.
James Wild
I will briefly speak to new clause 11. On Second Reading, we heard a lot of debate and discussion about the role of community benefits. As I mentioned, I represent a coastal area where there are existing community benefit schemes through the operators of the offshore wind projects that operate on the East Anglian coast.
The Energy Secretary, who seems to be on a one- man mission to put solar farms on farmland and to put pylons across the countryside with no regard to the impact on communities or nature, has said that the Government will bring forward their own approach to community benefits. I am a strong supporter of community benefits, and I look forward to the Energy Secretary coming forward with that plan. It seems to be the best approach and context in which to address the important points raised by the hon. Member for South Cambridgeshire.
James Murray
I thank the hon. Members for their comments. To reiterate, the Crown Estate already works with communities, charities, businesses and the Government to ensure that its skills initiatives are sensitive to market demand and to emerging technologies. It is important that the Crown Estate retains this flexibility in how its skills initiatives are funded and delivered, so that it can contribute to skills training in the best possible way and, importantly, as I have referred to several times, without conflicting with its statutory duty to maintain and enhance the value of the estate. As we know, the Crown Estate already pays its net revenue surplus into the Consolidated Fund. That is a total of more than £4 billion in the last decade, and local communities already benefit from investment by the Crown Estate. I point hon. Members to the partnership between Great British Energy and the Crown Estate; they will work together to co-ordinate agencies and stakeholders to create jobs and ensure that communities reap the benefits of clean, secure, home-grown energy.
I repeat my encouragement of the hon. Member for South Cambridgeshire not to move her new clause, as I believe the Bill and the existing measures and statutory requirements achieve the outcomes that are best for this country.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4
Annual reports
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 4—Partnership agreement: the Crown Estate and Great British Energy—
“The Chancellor of the Exchequer must lay before Parliament any partnership agreement between the Crown Estate and Great British Energy.”
This new clause requires the Chancellor of the Exchequer to lay before Parliament any partnership agreement between the Crown Estate and Great British Energy.
James Murray
Clause 4 requires the commissioners to include in their annual report a summary of their activities and of any effects or benefits resulting from their activities under any partnership between them and Great British Energy, which I referred to in our debate on the previous clause. This requirement will only apply in relation to a year in which such a partnership was in operation. Following productive debate in the other place on the new partnership between the Crown Estate and Great British Energy announced last year, this clause was added by the Government. The Crown Estate is keen to ensure that details of this partnership are publicly available on an ongoing basis, and the Government agree it is sensible to require the Crown Estate to include the relevant detail in its existing annual report. That is the intention behind clause 4.
New clause 4, tabled by the hon. Member for North West Norfolk, would require the Chancellor to lay before Parliament any partnership agreement between the Crown Estate and GB Energy. As I am sure the hon. Member will appreciate, partnership agreements are highly commercially sensitive. It is therefore right that any agreement is not made public or laid before Parliament, as to do so would likely prejudice the commercial interests of the Crown Estate or GB Energy and risk the aims of the partnership, which are to speed up the process of delivering clean energy and to invest in clean energy infrastructure. The Department for Energy, Security and Net Zero will set out further detail on GB Energy in due course. I hope the hon. Member feels able not to move his new clause as a result.
Clause 4 is a sensible change to the Bill that reflects the desire to ensure that relevant information related to the nationally significant partnership between GB Energy and the Crown Estate is made publicly available. I commend the clause to the Committee.
James Wild
As the Minister said, clause 4 was added on Report in the House of Lords to require the Crown Estate’s annual report to include activities under the partnership between the Crown Estate and GB Energy. I will also speak to new clause 4, which is in my name.
Clause 4 does introduce an important layer of transparency, as the Minister said, ensuring there is a specific report on the activities of the commissioners under that partnership during the year, and on any effects or benefits experienced during the year that are a result of those activities. This is a welcome step, and we support the clause. However, the reporting requirement would only apply in years when a partnership between the commissioners and GB Energy was in operation. This means we will not know what has been agreed until the partnership is operational. Parliament—I think not unreasonably—needs to see an agreement when it is finalised. That is why I have tabled new clause 4.
New clause 4 would simply require the Chancellor of the Exchequer to lay before Parliament any partnership agreement between the Crown Estate and GB Energy. This new clause is of fundamental importance. Without being able to see the details of the partnership agreement, we do not know what has been agreed and the impact on the duties of the Crown Estate. On the day that the Bill was introduced, the Government, with a lot of fanfare, announced the partnership between the Crown Estate and GB Energy. Indeed, Ministers claimed that the new GB Energy partnership would “turbocharge energy independence” and
“unleash billions of investment in clean power.”
However, currently there is a distinct lack of transparency over how this partnership will work and what difference it will make. I am concerned that this partnership may have been created for political, rather than economic, purposes.
National Insurance Contributions
James Murray Excerpts(1 week, 5 days ago)
Commons ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (James Murray)
I beg to move,
That the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments, National Insurance Funds Payments and Extension of Veteran’s Relief) Regulations 2025, which were laid before this House on 15 January, be approved.
Madam Deputy Speaker (Ms Nusrat Ghani)
With this it will be convenient to discuss the following motion:
That the draft Child Benefit and Guardian’s Allowance Up-rating Order 2025, which was laid before this House on 15 January, be approved.
James Murray
Regulations are made each year to set various national insurance thresholds, and to uprate child benefit and the guardian’s allowance. In opening the debate, I will give the House details of what the regulations set out to do. First, the Social Security (Contributions) (Rates, Limits and Thresholds Amendments, National Insurance Funds Payments and Extension of Veteran’s Relief) Regulations 2025 set the rates of certain national insurance contribution classes and the level of certain thresholds for the 2025-26 tax year. The lower earnings limit, the small profits threshold and the rates of class 2 and class 3 contributions will all be uprated by the September consumer prices index figure of 1.7%, while the other limits and thresholds covered by the regulations will remain fixed at their existing levels.
The regulations also make provision for a Treasury grant—a transfer of wider Government funds—to be paid into the national insurance fund, if required, for the 2025-26 tax year. The regulations also, importantly, extend the veterans’ employer national insurance contributions relief until April 2026. The scope of the regulations under discussion is limited to the 2025-26 tax year.
As hon. Members will know, national insurance contributions are social security contributions; people make contributions when they are in work to receive contributory benefits when they are not working—for example, after they have retired, or if they become unemployed. National insurance contribution receipts fund those contributory benefits, as well as helping to fund the NHS.
The primary threshold and the lower profits limit are the points at which employees and the self-employed start to pay employee class 1 and self-employed class 4 national insurance contributions respectively. The primary threshold and lower profits limit were frozen by the previous Government at £12,570 until April 2028. However, the level of those thresholds does not affect people’s ability to build up entitlement to contributory benefits such as the state pension. For employees, entitlement is determined by their earnings being above the lower earnings limit, which the regulations will uprate from £123 a week in 2024-25 to £125 a week in 2025-26. That is the equivalent of an uprating from £6,396 to £6,500 a year.
Entitlement for self-employed people is determined by their earnings being above the small profits threshold, which the regulations will uprate from £6,725 in 2024-25 to £6,845 for 2025-26. Uprating the lower earnings limit and the small profits threshold is the usual process, and it maintains the real level of income at which people gain entitlement to contributory benefits. Wage growth is currently higher than inflation, which means that following the uprating by CPI, there will be a reduction in the number of hours that someone who has received a typical wage increase needs to work to gain entitlement compared with last year.
The upper earnings limit, which is the point at which the main rate of employee national insurance contributions drops to 2%, and the upper profits limit, which is the point at which the main rate of self-employed national insurance contributions drops to 2%, are aligned with the higher rate threshold for income tax at £50,270 a year. The previous Government also froze those thresholds until April 2028.
I now turn to the thresholds for employer national insurance contribution reliefs. As hon. Members are aware, the Government have had to make difficult decisions to fix the public finances. One of the toughest decisions that we faced was the decision to increase the rate of employer national insurance contributions and reduce the secondary threshold. Although those changes are the subject of a separate Bill, not these regulations, they are the context for why our decision to maintain other targeted national insurance contributions reliefs is so important. Those employer reliefs include those for under-21-year-olds, under-25 apprentices, veterans, and new employees in freeports and investment zones. The regulations that we are debating set these thresholds in line with other personal tax thresholds.
The regulations also provide for the national insurance contributions relief for employers of veterans to be extended for a year until April 2026. This measure means that next year, businesses will continue to pay no employer national insurance contributions on salaries up to the veterans upper secondary threshold of £50,270 for the first year of a qualifying veteran’s employment in a civilian role.
Mr Jonathan Brash (Hartlepool) (Lab)
I welcome the extension of national insurance contributions relief for veterans, but does the Minister agree that we need to do more to ensure that employers across the country know that the relief exists, to incentivise employing veterans?
James Murray
My hon. Friend is absolutely right that we want employers to be aware of this important relief, and to encourage them to make use of it to employ veterans. This relief helps to support those who have already given so much to our country, and it also means that the skills and the huge potential of those people who have already given such service to our country can be used to make a further contribution to our country and our economy. We want all employers to know that this relief exists. We can all play a role as local MPs in making sure that all employers in our constituencies are aware of this important relief. I thank my hon. Friend for letting me make that point.
The continuation of the veterans relief is evidence of the Government’s commitment to supporting our veterans. As I explained in response to my hon. Friend’s intervention, it is intended to incentivise employers to take advantage of the wide range of skills and experience that ex-military personnel offer. As I said, it is important that we support those who have given so much to our country by helping to make sure that our country benefits further from the skills and potential of our service leavers.
Let me move on to the national insurance fund, into which the majority of national insurance contributions are paid, and which is used to pay the state pension and other contributory benefits. The Treasury has the ability to transfer funds from wider Government revenues into the national insurance fund. The regulations make provision for a transfer of this kind, known as a Treasury grant, of up to 5% of forecasted annual benefit expenditure to be paid into the national insurance fund, if needed, in 2025-26. A similar provision will be made in respect of the Northern Ireland national insurance fund.
The Government Actuary’s Department report laid alongside these regulations forecasts that a Treasury grant will not be required in 2025-26, but as a precautionary measure, the Government consider it prudent to make provision at this stage for a Treasury grant. That is consistent with what has been done in previous years.
I turn to the draft Child Benefit and Guardian’s Allowance Up-rating Order 2025. As hon. Members will know, the Government are committed to delivering a welfare system that is fair for taxpayers while providing support to those who need it. The order will ensure that the benefits for which Treasury Ministers are responsible, and which His Majesty’s Revenue and Customs delivers, are uprated by inflation in April 2025. Child benefit and the guardian’s allowance will increase in line with the consumer prices index, which had inflation at 1.7% in the year to September 2024. Uprating by the preceding September’s CPI is the Government’s typical approach. Tax credit awards will end on 5 April 2025, so no changes to rates will be required from 2025-26 onwards.
I hope all Members will support the regulations. Rejecting them would mean that HMRC-administered benefits would not rise at all next year, and so would lose value in real terms. The regulations fix most of the rates and thresholds for the national insurance contributions that they cover at the 2024-25 levels for the 2025-26 tax year, except for the lower earnings limit, the small profits threshold, and the rates of class 2 and class 3 contributions, which will all be updated by the September 2024 CPI rate of 1.7%. The regulations also make provision for a Treasury grant. They extend the veterans employer national insurance contributions relief, and increase the rates of child benefit and the guardian’s allowance in line with prices.
Dr Luke Evans (Hinckley and Bosworth) (Con)
The Minister talked about the Treasury grant being up to 5%. As a matter of curiosity, what figure had Treasury planned to put in?
James Murray
The regulations contain a provision for us, in case it is needed. The expectation is that it will not be. As I mentioned, a Government Actuary’s Department report laid alongside the regulations has forecast that the Treasury grant will not be required in 2025-26. The provision in the regulations is a precautionary measure, and is in line with what has happened in previous years. The Government consider it prudent to continue the practice of previous years, and to make provision for the grant in these regulations. I hope that answers the hon. Gentleman’s question.
The regulations enable an increase in child benefit and the guardian’s allowance in line with prices. Without these regulations, HMRC would be unable to collect national insurance contributions receipts, and child benefit and guardian’s allowance would be frozen at the 2024-25 levels. I hope that colleagues will join me in supporting the regulations.
Madam Deputy Speaker (Caroline Nokes)
Before I call the shadow Minister, I inform the Liberal Democrat spokesman that I will call him immediately afterwards.
James Murray
With the leave of the House, Madam Deputy Speaker, I will respond to the comments of hon. Members.
The shadow Minister, the hon. Member for Grantham and Bourne (Gareth Davies), set out the official Opposition’s response to the regulations and the order that are before us, but his speech related largely to the changes being made by a different piece of legislation—a Bill—so I will be careful not to try your patience, Madam Deputy Speaker, by veering into that legislation, and will remain strictly within the confines of the regulations and the order.
Let me say briefly, however, that as the hon. Gentleman knows, we had to take difficult decisions in the Budget last October, and one of the toughest was the decision to increase the rate of employer national insurance contributions and lower the secondary threshold. The reason we had to take those difficult decisions was the fiscal situation that we had inherited from the Government of which he was a member. I note that in his recollection of history, he referred to a double crisis; I think that it was, at the very least, a triple crisis, given Liz Truss’s premiership in the country and leadership of his party, so he may have omitted certain facts from the historical record, although I am sure that the wider British public will make no such mistake.
The hon. Gentleman spoke about some of the impacts of the national insurance changes. Again, he was speaking about a Bill rather than the statutory instruments that we are discussing, and for that separate Bill a tax information and impact note has been published, as is standard practice. I welcomed his support for our extension of veterans relief for a year, until April 2026, to help more ex-service personnel into employment. As the scope of the regulations is limited to the 2025-26 tax year, they could extend it only by one year, but we think it important for that to be done.
The hon. Gentleman also spoke about work being the best way out of poverty, and I entirely agree with him in that regard. When we are creating jobs and ensuring that businesses can invest and provide work opportunities for people throughout the country, it is important for those jobs to be decent jobs with decent pay, and our changes to the national living wage are of course important in that respect. Overall, in relation to all the measures in the Budget, the Office for Budget Responsibility has concluded that the employment level will rise from 33.1 million to 34.3 million between 2024 and 2029.
The spokesperson for the Liberal Democrats, the hon. Member for Torbay (Steve Darling), also spoke about a Bill rather than the regulations that we are debating. I want to reassure him by pointing to the comments that the Chancellor has made since taking office last July. Since her first few days in No. 11 Downing Street, she has been determined to boost growth by getting rid of the ban on onshore wind turbines, reforming the way in which pensions can invest, and ensuring that the planning and regulatory barriers get out of the way of the growth that we are determined to achieve for this country.
The Chancellor’s growth speech last week was just the latest example of her leadership in taking those decisions, which are the right ones for our country, to boost investment and growth. We know that having a stable set of public finances is a prerequisite for that investment and growth. The difficult decisions that both Opposition spokespeople referred to are slightly off the topic of the regulations in front of us, but they none the less drew attention to the fact that those difficult decisions were precisely to restore the public finances, while supporting public services, therefore allowing investment to increase and seeking the growth that we are determined to deliver for this country.
Question put and agreed to.
Resolved,
That the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments, National Insurance Funds Payments and Extension of Veteran’s Relief) Regulations 2025, which were laid before this House on 15 January, be approved.
Resolved,
That the draft Child Benefit and Guardian’s Allowance Up-rating Order 2025, which was laid before this House on 15 January, be approved.—(James Murray.)
Business of the House (5 February)
Ordered,
That at the sitting on Wednesday 5 February, notwithstanding the provisions of Standing Order No. 16 (Proceedings under an Act or on European Union documents), the Speaker shall put the Questions necessary to dispose of proceedings on—
(1) the Motion in the name of Secretary Yvette Cooper relating to Police Grant Report not later than three hours after the start of proceedings on that Motion, and
(2) the Motions in the name of Secretary Angela Rayner relating to Local Government Finance not later than three hours after the start of proceedings on the first such Motion or six hours after the commencement of proceedings on the Motion relating to Police Grant Report, whichever is the later; proceedings on those Motions may continue, though opposed, after the moment of interruption; and Standing Order No. 41A (Deferred divisions) shall not apply.—(Lucy Powell.)
Finance Bill (Third sitting)
James Murray ExcerptsThursday 30th January 2025
(2 weeks, 3 days ago)
Public Bill CommitteesRead Full debate Finance Bill 2024-26 View all Finance Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 30 January 2025 - (30 Jan 2025)
The Chair
Good morning everyone. Will Members please ensure that all electronic devices are turned off or switched to silent? We continue line-by-line consideration of the Finance Bill. The selection list for today’s sitting is available in the room and on the parliamentary website. It shows how the clauses, schedules and selected amendments have been grouped together for debate. If any Member wishes to press an amendment in a group to a vote—this includes the new clauses that have already been debated—they need to let me know before we reach them on the amendment paper.
Clause 57
Rate bands etc for tax years 2028-29 and 2029-30
Question (28 January) again proposed, That the clause stand part of the Bill.
The Exchequer Secretary to the Treasury (James Murray)
It is a pleasure to serve on this Committee with you as Chair, Ms Vaz. Tuesday’s debate on this clause concluded before we came to the decision, but I think the Opposition indicated that they would not oppose it. I commend the clause to the Committee.
Question put and agreed to.
Clause 57 accordingly ordered to stand part of the Bill.
Clause 58
EBTs: prohibition on applying property for benefit of participators etc
Question proposed, That the clause stand part of the Bill.
James Murray
Clauses 58 to 60 make changes to strengthen the conditions that must be met for transfers of shares into an employee benefit trust to be exempt from inheritance tax. An employee benefit trust is a trust that provides benefits and rewards to employees of a company, often in the form of shares in the company. Under certain conditions, such shares are exempt from inheritance tax. All or most employees need to be capable of benefiting from the trust for the inheritance tax exemption to apply, so it cannot be limited to shareholders of the company or family members, for example.
In 2023, the previous Government launched a consultation on employee ownership trusts and employee benefit trusts. The consultation set out concerns that such trusts were increasingly being used as a tax planning vehicle for shareholders and their families, rather than for a wider class of employees. At the autumn Budget, the current Government responded to that consultation and announced changes to strengthen the conditions that must be met for the transfer of shares into an employee benefit trust to be exempt from inheritance tax.
The changes made by clause 58 will mean that restrictions on shareholders and their family members benefiting from an employee benefit trust must apply for the entire lifetime of the trust. The clause will address cases in which the trust deed allows individuals who are closely connected with a shareholder to benefit after the participator’s death. The clause ensures that the Government’s position is explicitly clear in legislation. The change will come into effect on Royal Assent.
Previously, family members of the shareholder who were excluded from benefiting from the capital of the trust could still receive income payments from the trust. The changes made by clause 59 will ensure that no more than 25% of employees who can receive income payments from an employee benefit trust may be family members of the shareholder. This reinforces the original policy intent of employee benefit trusts to reward and motivate a wide group of employees.
Previously, an individual could set up a company, immediately make a transfer of shares to an employee benefit trust, and obtain an inheritance tax exemption. The changes made by clause 60 will mean that shares must have been held for at least two years before being transferred into the employee benefit trust. The provision will take into account shares held prior to any share reorganisation, and will strengthen protections against employee benefit trusts being used purely for inheritance tax planning purposes.
Clauses 59 and 60 are treated as having come into effect for transfers of value to new and existing trusts on or after 30 October 2024. The clauses will ensure that the tax treatment of employee benefit trusts is consistent with the original policy intent of rewarding and motivating employees, while minimising opportunities for abuse. I commend them to the Committee.
Gareth Davies (Grantham and Bourne) (Con)
It is, as always, a great pleasure to see you in the Chair, Ms Vaz.
As the Minister set out, clauses 58 to 60 make amendments to requirements for inheritance tax exemptions involving employee benefit trusts. Clause 58 provides that restrictions on shareholders and connected persons benefiting from employee benefit trusts will now apply for the lifetime of the trust. Clause 59 provides that no more than 25% of employees who receive income payments from an EBT can be connected to the shareholders in the company. Clause 60 provides that shares will now need to have been held for at least two years prior to being transferred to the EBT.
As the Minister said, the measures follow on from the consultation launched in 2023, which we referred to when we discussed clause 31 and employee ownership trusts. Although we will not oppose the clauses, I would be grateful if the Minister could comment on one specific issue that was raised during the consultation on the changes. In response to the measure introduced by clause 59, concerns were raised at consultation on behalf of smaller companies using EBTs that may now be forced to exclude certain employees from participating in share scheme arrangements in order to comply with the new requirement. What was the Minister’s assessment of that particular impact? Is he content that the benefits of the changes outweigh that particular risk cited in during the consultation?
James Murray
I welcome the Opposition’s support for the clauses, which build on the consultation that started when they were in office. The shadow Minister’s question related to what effect the changes might have on small businesses in particular. I will try to answer now, but he is free to contact me if he feels I have not covered his point fully.
The changes we are making to employee benefit trusts will not have an adverse effect on small businesses, because the original policy intent of exempting transfers of value to employee benefit trusts from inheritance tax was to encourage businesses to reward and motivate a wide range of employees. To qualify for the exemption, conditions need to be met that ensure that EBTs that benefit only shareholders and their families, or other people closely connected to shareholders, do not receive preferential inheritance tax treatment. Given that that is the aim in the principles behind the clauses, I am confident that they will not have the adverse effect that the shadow Minister fairly raised. I hope that provides him with some reassurance.
Question put and agreed to.
Clause 58 accordingly ordered to stand part of the Bill.
Clauses 59 and 60 ordered to stand part of the Bill.
Clause 61
Agricultural property relief: environmental management agreements
Question proposed, That the clause stand part of the Bill.
James Murray
The clause extends the scope of agricultural property relief from 6 April this year to land managed under certain environmental agreements. Agricultural property relief is an inheritance tax relief that reduces the amount that farmers and landowners must pay on land and other property that is owned and occupied for the purposes of agriculture. That will usually be land or pasture that is used to grow crops or to rear animals. Currently, access to APR may be lost where such land is taken out of agricultural production. Some tax advisers and industry representatives believe that provides a potential barrier for some farmers, particularly tenant farmers, to enter certain environmental land management agreements. Following consultation, the previous Government announced that they would extend agricultural property relief to such agreements.
Harriet Cross (Gordon and Buchan) (Con)
It is of course welcome that more land is to be brought under the scope of agricultural property relief, but given the introduction of the £1 million cap on agricultural property, is it not somewhat redundant? I know the Government use different numbers, but the industry believes that the majority of farms will be over that threshold anyway, so bringing more land within the scope of APR does not actually make much difference to the bill they will have to pay at the end.
James Murray
As the hon. Lady knows, because we have debated this many times, the data that we have published, based on His Majesty’s Revenue and Customs data, shows that the large majority of small farms will not be affected. I am sure she knows well the statistics on the 530 farms affected by the reforms to APR and business property relief in ’26-27, because she will have seen them in the Chancellor’s letter to the Treasury Committee and we have discussed them many times in this place.
Clause 61 relates specifically to land managed under certain environmental agreements, and was a measure proposed by the last Government. If the hon. Lady allows me to continue explaining why the clause is important, she might feel able to support it, given the benefits it will bring. The clause was welcomed by the sector, and the Government agree with the approach. I can confirm that there have been no changes to the design outlined by the previous Government in March 2024, which is why I hope to get the Opposition’s support for the clause.
As a result of the changes made by clause 61, from 6 April 2025 APR will be available for land managed under an environmental agreement with or on behalf of the UK Government, devolved Governments, public bodies, local authorities or approved responsible bodies. This includes but is not limited to the environmental land management schemes in England and equivalent schemes elsewhere in the UK, as well as any agreement that was live on or after 6 March 2024.
The Government are fully committed to increasing the uptake of environmental land management schemes in England, and we are providing the largest ever budget of £1.8 billion for this in 2025-26. The changes made by clause 61 will ensure that the tax system is not a barrier to uptake, thereby supporting farmers and land managers to deliver, alongside food production, significant and important outcomes for the climate and environment. I commend the clause to the Committee.
Gareth Davies
As the Minister said, clause 61 brings land managed under an environmental agreement—be that with the UK Government, devolved Governments, public bodies, local authorities or approved responsible bodies—within the scope of agricultural property relief.
I am afraid we have here Labour taking with one hand and providing far less with the other. For the £5 million, which we welcome, that they will give back to farmers each year with this measure, they will take away some £500 million a year through the family farm tax, if the Office for Budget Responsibility’s highly uncertain costings are to be believed. Many farmers, and bodies such as the National Farmers Union, have raised concerns about this. The Chartered Institute of Taxation has queried why the relief remains limited to schemes entered into with public authorities, rather than allowing enterprising landowners to enter into other schemes. I would be interested to hear the Minister’s thoughts on that, but we will not oppose the measure.
James Murray
I thank the hon. Gentleman for his support for the measure. He made wider points about reforms to agricultural property relief, which we have debated several times. The clause focuses in a targeted way on environmental land management schemes.
The hon. Gentleman asked why private environmental land management that is outside of agreements is not included. I confirm that relief will be available for land managed under an environmental agreement with or on behalf of the UK Government, devolved Governments, public bodies, local authorities or approved responsible bodies. This will ensure that the extension of the relief applies only where there are high, verifiable environmental standards.
Question put and agreed to.
Clause 61 accordingly ordered to stand part of the Bill.
Clause 62
National Savings Bank: statements from HMRC no longer to be required
Question proposed, That the clause stand part of the Bill.
James Murray
The clause makes changes to remove requirements in limited circumstances that the National Savings Bank, more commonly known as NS&I, obtains from HMRC a statement of inheritance tax paid before making a payment. The regulations concerned are consolidated regulations that confer powers and administrative obligations on NS&I which, before paying out a deceased person’s national savings and securities to personal representatives, must make due diligence checks, such as whether the payee has a grant of probate.
The changes made by the clause remove the requirement to contact HMRC directly to check inheritance tax paid in limited circumstances, including certain domicile conditions. This is no longer required in line with the modern compliance processes. This is a minor change that is connected to, but slightly out of scope of, the reforms for non-UK-domiciled individuals. It is consequential on the non-UK-domicile reforms. I commend the clause to the Committee.
Gareth Davies
The Minister may think that this is a minor issue—and he will be pleased to know that I agree with him. [Laughter.] I am just waking everybody up. The requirement is redundant and we will not oppose the clause.
James Murray
I applaud the hon. Gentleman’s theatre in delivering his response, and welcome his support.
Question put and agreed to.
Clause 62 accordingly ordered to stand part of the Bill.
Clause 63
Rates of alcohol duty
Mr Angus MacDonald (Inverness, Skye and West Ross-shire) (LD)
I beg to move amendment 66, in clause 63, page 68, line 10, leave out “£32.79” and insert “£31.64”.
Mr Paul Kohler (Wimbledon) (LD)
It is a pleasure to serve under your chairship, Ms Vaz. May I draw Members’ attention to my entry in the Register of Members’ Financial Interests? I own a bar called Cellar Door—though not the same cellar door as the ones the hon. Member for North West Norfolk just referred to.
I want to speak about wine and the hospitality and night-time economy in general. Under the current regime of the wine easement, 85% of all wine sold in the UK is subject to the same rate of duty. That is now to be replaced by 30 different rates. That fails to take account of fundamental differences between wine and other manufactured alcoholic drinks.
The alcohol by volume of wine cannot be predicted with precision before or during the wine-making process. The alcohol content is stable only at the point when the wine goes into the bottle. The ABV varies between different years and different vats. Until bottling, we do not know the ABV of a particular bottle of wine. It therefore creates huge uncertainty about price and profit margins for the industry if there are different rates of duty depending on the specific ABV, down to a gradation of 0.1% ABV. This is particularly important with low-cost wines. The point is that this regime is utterly impractical for wine producers and wine merchants.
Hal Wilson, co-founder of Cambridge Wine Merchants, told me:
“In my business this feels like death by a thousand cuts, or even two thousand cuts. We sell over 2,000 different wines each year and from February will need to know the precise ABV of each and every one before being able to calculate their full cost. For each 0.1% ABV difference there is a different amount of tax to be paid.”
I wrote to the Minister about this and got a long and detailed response, for which I am grateful. He made the point that HMRC will change its practices and accept the ABV on the label of the bottle to the nearest 0.5%, but that is current practice; it is not in the legislation as I understand it, and it is still far too complex and much of my criticism still holds. Secondly, the letter fundamentally misunderstands why people drink wine. Wine is consumed for the taste, not the strength. An ABV goes through the taste profile. Compare a light Beaujolais with a robust Rioja. It is all about taste, not about whether it is stronger so one can get more drunk. That is not how people consume wine.
The hospitality and the night-time economy industry is facing an existential crisis owing to rising energy prices, recent inflation, labour shortages following Brexit, changes to commuting patterns and the more than doubling of business rates. Now, alcohol duties are to be another burden. It is death by a thousand cuts. Every incremental cost makes survival more difficult. That is why we are asking for a review after six months to see the effect on the wine industry, hospitality industry, night-time economy and other industries.
James Murray
I will attempt to address the points raised by the Opposition parties. Let me make it clear that clause 63 makes changes to the alcohol duty rates from 1 February 2025. Alcohol duty rates for products qualifying for draft relief will be cut by 1.7% to take a penny of duty off an average-strength pint, while rates of all other products will increase by the retail price index.
James Murray
As I was saying, the clause also increases the relative value of small producer relief for both draught and non-draught products, and clause 64 ends the alcohol duty stamps scheme. To reassure Members, in consideration of what position to take at the autumn Budget, I had meetings and officials had further meetings with representatives from the wine, beer, spirits and cider industries, as well as with public health people, to understand the full range of opinions and how we could carefully calibrate our policy response.
Harriet Cross
The Scotch Whisky Association is not on the list of people the Minister met. Can he confirm whether he did meet the association?
James Murray
The association is included under “spirits”.
As we know, alcohol duty is frozen until 1 February. The OBR’s baseline, reflected in its forecast, is that alcohol duty will be uprated by RPI inflation each year. The Government have decided to maintain the value of alcohol duty for non-draught products by uprating it from 1 February. At the same time we are recognising the social and economic importance of pubs, as well as the fact that they promote more responsible drinking, by cutting duty for draught products, which account for the majority of alcohol sold in pubs.
A progressive strength-based duty system was introduced on 1 August 2023 by the previous Government following the alcohol duty review. The reforms introduced two new reliefs: a draught relief to reduce the duty burden on draught products sold in on-trade venues, and small producer relief that replaced the previous small brewers relief. The clause increases the generosity of both reliefs.
The alcohol duty stamps scheme is an anti-fraud measure applied to larger containers of high-strength alcoholic products, typically spirits. It requires the mandatory stamping of certain retail containers with a duty stamp. In 2022, HMRC was commissioned to review the effectiveness of the scheme. It found that it is outdated, susceptible to being undermined and now plays a diminished compliance role, and concluded that the cost and administrative burdens imposed on the spirits industry could no longer be justified. The previous Government announced the end of the scheme at spring Budget 2024. That is a decision that this Government will implement from 1 May 2025. That date was chosen after consultation with businesses, which requested sufficient time to prepare.
Clause 63 makes four changes. First, it increases the rates of alcohol duty for non-draught products to reflect RPI inflation. Secondly, it reduces the rates of alcohol duty on draught products by 1.7%. Thirdly, it amends the tables in schedule 9 to the Finance (No. 2) Act 2023 that are used by small producers to calculate their duty discount under small producer relief. This increases the value of small producer relief for both draught and non-draught products in relation to the main rates for these products.
In cash terms, the current cash discount given to small producers for draught products is maintained, while the discount provided to small producers for non-draught products is increased. Small producer relief provides the same relative discount, irrespective of whether a product also qualifies for draught relief. As a consequence of the RPI increase in non-draught rates, it increases the simplified rates in schedule 2 to the Travellers’ Allowances Order 1994, which is used for calculating duty on alcoholic products brought into Great Britain.
Some hon. Members raised questions about the impact of these measures on pubs and the hospitality industry. To support the hospitality industry, particularly recognising the role that pubs play in local communities, the Government have announced a reduction in the alcohol duty rates paid on draught products. This reduces businesses’ total duty bill by up to £100 million a year and increases the duty differential between draught and non-draught products from 9.2% to 13.9% for qualifying beer and cider.
As we have mentioned a couple of times in this debate, the reduction to draught relief rates will also result in the average alcoholic strength pint at 4.58% ABV paying 1% less in duty. Draught relief provides a reduced rate of duty on draught products below 8.5% ABV packaged in containers of at least 20 litres designed to connect to a qualifying system for dispensing drinks.
Clause 64 ends the alcohol duty stamps scheme from 1 May this year, removing the provisions in the Finance (No. 2) Act 2023 and the secondary legislation in the Duty Stamps Regulations 2006. It also makes consequential changes and removes references to the scheme where they appear elsewhere in legislation.
Amendment 66 would freeze alcohol duty for alcoholic products above 22% ABV. That is contrary to the Chancellor’s decision at the autumn Budget to increase those duty rates to reflect inflation, and would cost the Exchequer £150 million a year.
Specifically in relation to the Scotch whisky industry, I would like to set out that the overall alcohol package balances commercial pressures on the alcohol industry with the need to raise revenue for our vital public services and reduce alcohol-related harms. Consumers and brewers in Scotland will benefit in line with the rest of the UK, with consumption and production patterns roughly equal nationwide. Of course, 90% of Scotch whisky is exported, which means it pays no duty. The Scotch Whisky Association’s own figures show the health of the industry. The Budget offers support to the Scotch whisky industry by removing the alcohol duty stamps scheme, which we have just considered, and through investment in the spirit drinks verification scheme by reducing fees for geographical verification.
New clauses 2 and 4, which were also tabled by Opposition Members, would require the Chancellor to make additional statements about the impact of the alcohol duty measures. The Government do not believe further statements to be necessary. As usual, a tax information and impact note was published at the autumn Budget, outlining the anticipated impacts of the measures on alcohol producers and the hospitality sector. Alcohol duty, like other taxes, will be reviewed in future Budgets.
New clause 2 also requires a review of the impact on trade, but UK alcohol duty is, of course, not charged on exports. Some hon. Members raised the impact of the changes to business rates on the hospitality sector in Scotland, but business rates are, of course, devolved. The Scottish Government are accountable to the Scottish Parliament on devolved areas.
Hon. Members also raised questions around the wine easement and why it had not been extended or made permanent. I remind them that the wine easement was intended as a transitional arrangement to give the wine industry time to adapt to the strength-based duty calculation for wine. The revised alcohol duty system simplified and reduced differences between categories of alcohol. Making the wine easement permanent would introduce a new differential into the system and add to the complexity of that system. It would further lead to a duty regime in which stronger ABV wines pay less in proportion to their alcohol content than lower ABV wines. Making the wine easement permanent would, therefore, undermine the simplification and public health objectives of the revised alcohol duty system.
In conclusion, the changes to the alcohol duty balance public health objectives, fiscal pressures, cost of living pressures and the economic and social importance of pubs, while also supporting small producers by increasing the generosity of small producer relief. Furthermore, the end of the alcohol duty stamps scheme will simplify procedures for approximately 3,500 registered alcohol importers and producers, reducing overall costs on the spirits industry by an estimated £7 million a year. I therefore commend the clause to the Committee, and urge it to reject amendment 66 and new clauses 2 and 4.
Mr MacDonald
I do not have a great deal to add. I did miss out, when we declared our interests earlier, the fact that I own a pub, which hon. Members are very welcome to visit when they are next in Fort William—do not all rush at once. It never rains there.
I want to come back, briefly, to the 1p a pint reduction that we were promised. The whole hospitality industry and beer industry have come together to agree that that is a stunt, and that that 1p will not be passed on to the customer. It is just not relative at all, because the reduction in business property relief and the national insurance and minimum wage increases effectively mean that the cost to the hospitality industry is going through the roof. The Minister knows that perfectly well, but he still continues to trot out his line.
On the whisky industry, I am not sure that account has been taken of the potential tariffs. We talk about exports being very strong, but they are not actually very strong at the moment.
Lastly, on tax overall, when I make a submission to Scottish Government Ministers about the tax on hospitality, the whisky industry and so on, they all blame Westminster, but when I speak to Westminster Ministers about it, they all blame Scotland. The net result is that industries such as hospitality in Scotland are suffering from both sides, and that is simply not fair.
The Chair
With this it will be convenient to discuss the following:
New clause 5—Review of effects of section 65 on illicit tobacco market—
“The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by section 65 of this Act, on the illicit tobacco market.”
This new clause requires the Chancellor to review the impact increased rates of tobacco duty on the illicit tobacco market.
James Murray
The clause implements changes announced at the autumn Budget 2024, concerning tobacco duty rates. The duty charged on all tobacco products will rise in line with the tobacco duty escalator, with an additional increase being made for hand-rolling tobacco to reduce the gap with cigarettes. Smoking rates in the UK are falling but they are still too high; around 12% of adults are now smokers. Smoking remains the biggest cause of preventable illness and premature death in the UK, killing around 80,000 people a year and up to two thirds of all long-term users.
We have plans to reduce smoking rates further to achieve our ambition of a smoke-free UK. To realise that ambition, we announced our intention to phase out the sale of tobacco products for future generations, as part of the Tobacco and Vapes Bill, along with powers to extend smoke-free legislation to some outdoor areas.
At the autumn Budget, the Chancellor announced that the Government will increase tobacco duty in line with the escalator. Clause 65 therefore specifies that the duty charged on all tobacco products will rise by 2% above RPI inflation. In addition, duty on hand-rolling tobacco increases by 12% above RPI inflation. These new tobacco duty rates will be treated as taking effect from 6 pm on the day that they were announced, 30 October last year.
Recognising the potential interactions between tobacco duty rates and the illicit market, HMRC and Border Force launched their refreshed illicit tobacco strategy in January 2024. The strategy is supported by £100 million of new funding, which will be used to scale up ongoing work and support new activities set out in the strategy, including enhanced detection and intelligence capabilities.
New clause 5 would require the Chancellor to review the impact of increased tobacco rates on the illicit tobacco market within six months of the Bill being passed. The Government respectfully will not accept this new clause, as the potential impact on illicit markets is already one of several factors the Government take into account when a decision on tobacco rates is made. I also note that the approach used in the costings at the Budget, certified by the Office for Budget Responsibility, accounts for behavioural responses to changing excise rates, including the impact of illicit markets. HMRC also publishes tobacco tax gaps annually, which allow for an analysis for the long-term trends in illicit trade.
Although the Government are rejecting new clause 5, I assure Committee members that the Government will continue to monitor illicit trade and to support the efforts of our enforcement agencies to counter it. HMRC and Border Force have had strategies in place to reduce the illicit trade in tobacco for over 20 years, which have helped to reduce the tobacco tax gap from 21.7% in 2005-06 to 14.5% in 2022-23. That happened during a prolonged period in which tobacco duties were consistently increased, as the attitude of all Administrations, including I believe the last one, has been that the threat of illicit tobacco needs to be addressed by reducing its availability, rather than allowing it to dictate our public health and tax policies.
On that matter, I hope that all Committee members, and I assure them that that will continue to be this Government’s approach. The clause will continue the tried and tested policy of using high duty rates on tobacco products to make tobacco less affordable. It will help to continue the reduction in smoking prevalence, supporting our ambition for a smoke-free UK, and will reduce the burden placed by smoking on our public services. I comment the clause to the Committee and urge it to reject new clause 5.
James Wild
As we have heard from the Minister, clause 65 increases excise duty on all tobacco products and the minimum excise tax on cigarettes by the duty escalator RPI plus 2%. In addition, the excise duty rate for hand-rolling tobacco increases by an additional 10%. This is a one-off increase in addition to the restated policy of increasing rates in line with RPI plus two percentage points. We are broadly supportive of these measures but I have some questions around purchaser behaviour and its impact on the illicit market and enforcement. In addition to speaking to clause 65, I will also speak to new clause 5, which stands in my name.
Tobacco receipts are expected to be £8.7 billion this year, down by 2.7% on last year. They are forecast to decline by 0.5% a year on average over the rest of the forecast period to £8.5 billion, as declining tobacco consumption offsets increasing duty rates. The tax information and impact note explains that over the four years from 2019 to 2023, the tobacco escalator coincided with a reduction in smoking prevalence from 14.1% to 11.9% of people aged over 18. That is clearly welcome. The Government are bringing forward the Tobacco and Vapes Bill, which the Minister referred to and which includes lots of measures to make vapes less attractive to children and harder to get hold of. There is a lot to be said about that Bill, but fortunately, that is the job of another Committee.
Increasing the price of tobacco clearly comes with the risk of boosting the illicit market. The tax information and impact note suggests that some consumers might engage in cross-border shopping and purchase from the illicit tobacco market. HMRC will monitor and respond to any potential shift. Indeed, the OBR has suggested that the duty rate is beyond the peak of the Laffer curve—the revenue-maximising rate of tax. Can the Minister confirm what measures will form HMRC’s response to any shift in illegal consumption?
There are also questions around the figures. Although HMRC estimates that 10% of cigarettes and 35% of hand-rolling tobacco consumption is from illegal and other non-UK duty paid sources, evidence submitted by the industry believes that is a significant understatement. Its data shows that the consumption of tobacco from non-UK duty paid sources currently accounts for 30% of cigarettes and 54% of hand-rolling tobacco consumption. Has the Minister discussed with HMRC the difference between those figures and the basis on which they have been put together?
The Tobacco Manufacturers’ Association said that the illegal market is not in decline but that, contrary to HMRC’s claims, it is expanding. As well as providing more accurate figures on the scale of the illegal market, it would be useful to know whether the Government have calculated the potential consequences for retailers and law enforcement of an expanding illegal market.
James Wild
The hon. Member has probably seen the same evidence produced by the industry as I have; I do not think that we should dismiss it out of hand. Representatives from the industry do, for example, go around football terraces, pick up the empty packets, see where they came from, and do sampling or take other measures. Of course the industry’s evidence should be challenged and tested, but my point is about whether HMRC has worked with the sector to see if its figures are wrong. If they are, and HMRC’s are perfectly right, we can follow the HMRC figures. I am raising a legitimate concern about the accuracy of the data to make sure that we are all operating from the same page because, as the OBR has pointed out, we may already have reached the peak point where the tax will be doing harm.
The Minister referred to the success of enforcement over the last couple of decades. In March last year, the previous Government set out a new strategy to tackle illicit tobacco. With evidence of a substantial illegal market—and whichever set of figures we take, it is substantial—what steps are the Government taking? Are they taking the previous Government’s strategy forward or will they introduce their own strategy?
The industry has specifically proposed that the Government provide trading standards with full access to the powers granted to HMRC under the Tobacco Products (Traceability and Security Features) (Amendment) Regulations 2023. At present, the legislation allows trading standards to refer cases to HMRC, which will then consider imposing on-the-spot penalties of up to £10,000 on those selling tobacco.
The industry proposed that it would be far more effective for trading standards to apply the penalty at the point of enforcement rather than having to refer the case to HMRC. It also suggested allowing trading standards to keep the receipts from any such penalties to reinvest in its enforcement action—we are all familiar with the pressures that trading standards is facing. Will the Minister say whether the Government have considered those proposals and, if they have not, will he?
I have tabled new clause 5 to ensure there is better understanding of the risk around the illicit market. The Minister respectfully dismissed the need for it, but it would require the Chancellor to, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by clause 65 of the Bill on the illicit tobacco market. As we have heard, increasing tobacco duty could alter the behaviour of consumers, and we could see greater illicit market share.
Evidence from the industry—which may be contested—shows that non-UK duty paid sources are significant. There is clearly a risk that a further increase to tobacco duty could boost the illicit market, and HMRC needs to act to protect lawful revenues for the taxpayer. We would therefore welcome the Chancellor publishing an assessment of the impact of the changes. As I set out, we will not oppose clause 65, but I look forward to the Minister’s response to my points, particularly on the illicit market.
James Murray
I welcome the Opposition’s support for these measures. I will write to the hon. Gentleman in response to some of the queries he raised about specific figures. I will address the points that he made about the illicit tobacco market, because that is obviously something we all want to consider in some depth in connection with anything that we do around the tobacco duty.
As I mentioned in my earlier remarks, HMRC and Border Force launched their refreshed illicit tobacco strategy in January 2024. That is being implemented under this Government. It is supported by £100 million of new funding, which will be used to scale up the ongoing work and support the new activities outlined in the strategy, including enhanced detection and intelligence capabilities.
The hon. Gentleman also asked about the impact of increasing tobacco duty on the demand for illicit products, and whether increasing duty rates might push some smokers towards illicit products. It will be helpful if I set out the context for this discussion. Under the assumptions that were used in the tobacco costings for the autumn Budget, which were of course certified by the OBR, the overall level of increase decided on by the Government raises revenue while continuing to reduce tobacco consumption.
The approach used in costings, certified by the OBR, takes into account a number of potential behavioural responses to changing excise duty rates, such as quitting or reducing smoking, substituting with vapes, and moving from UK duty paid consumption to the non-UK duty paid market, including the impact on illicit products. However, the threat from illicit tobacco needs to be addressed by reducing its availability, rather than allowing it to dictate our tax and public health policies.
Finally, the hon. Gentleman asked whether HMRC had worked with the sector to authenticate its figures. HMRC has analysed how external figures are calculated, but World Health Organisation rules prohibit extensive engagement with the industry on such issues.
Question put and agreed to.
Clause 65 accordingly ordered to stand part of the Bill.
Clause 66
Rates of vehicle excise duty for light passenger or light goods vehicles etc
The Chair
With this it will be convenient to discuss new clause 6—Review of effects of £40,000 expensive car supplement threshold—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the £40,000 expensive car supplement threshold included in section 66.
(2) The assessment in subsection (1) must consider the effects of the threshold on the proportion of new cars sold which are Electric Vehicles.”
This new clause requires the Chancellor to review the impact of the £40,000 expensive car supplement threshold.
James Murray
Clause 66 makes changes to the uprating of standard vehicle excise duty rates for cars, vans and motorcycles, excluding first-year rates for cars, in line with the retail prices index, from 1 April. The clause will also change the VED first-year rates for new cars registered on or after 1 April, to strengthen incentives to purchase zero emission and electric cars.
As announced at the autumn Budget, the clause will freeze the zero emission rate at £10 until 2029-30, while increasing the rates for higher-emitting hybrid, petrol and diesel cars from 2025-26.
Vehicle excise duty—VED—is a tax on vehicle ownership, with rates depending on the vehicle type and the date of first registration. Vehicle excise duty first-year rates were introduced as part of the wider changes to the VED system implemented in 2017, and they vary according to emissions. Vehicle excise duty first-year rates are paid in the first year of a car’s life cycle, at the point of registration. From the second year, cars move to the standard rate of VED. From 1 April, new zero emission vehicles registered on or after that date will also be liable for the VED first-year rates.
Vehicle excise duty first-year rates have been routinely uprated by the RPI since their introduction in 2017, and as announced by the previous Government at the autumn statement in 2022, from April 2025, electric cars, vans and motorcycles will begin to pay VED in a similar way to petrol and diesel vehicles.
The clause will set the VED rates for 2025-26, increasing the standard rates for cars, vans and motorcycles in line with the RPI. As part of this uprating, the standard rate of VED for cars registered since 1 April 2017 will increase by only £5. The expensive car supplement will also be increased by £15, from £410 to £425. The rates for vans will increase by no more than £15, and motorcyclists will see an increase in rates of no more than £4.
From 1 April 2025, the VED first-year rate for zero emission cars will be frozen at £10 until 2029-30. For 2025-26, first-year rates for cars emitting 1 to 50 grams per km of carbon dioxide will go from £10 to £110, and cars emitting 51 to 75 grams per km of CO2 will go from £30 to £130. Rates for cars emitting 76 grams per km or more of CO2 will double.
New clause 6 would require the Chancellor to review the impact of the £40,000 expensive car supplement threshold and consider its effects on the proportion of new cars sold that are electric vehicles. As set out at the autumn Budget, the Government have already committed to considering increasing the £40,000 threshold for EVs at a future fiscal event. The Government recognise that new electric vehicles can still often be more expensive to purchase than their petrol or diesel counterparts, and we acknowledge the need to ensure that EVs are affordable as part of our transition to net zero. In the light of that commitment, a separate review is unnecessary so I urge the Committee to reject new clause 6.
The changes to the VED first-year rates outlined in clause 66 will increase the incentives to buy new zero emission cars at the point of purchase and support the uptake of new electric vehicles. Revenue from that change will also help to support public services and infrastructure in the UK. An increase in VED standard rates for cars, vans and motorcycles by the RPI in 2025-26 will ensure that VED receipts are maintained in real terms. I commend clause 66 to the Committee.
James Wild
As we heard from the Minister, clause 66 provides for increasing certain rates of VED for light passenger and light goods vehicles in line with the RPI. There will also be changes to the first-year rates for zero emission vehicles and low emission vehicles. We broadly support the measures, but as well as discussing clause 66, I will consider new clause 6, which is in my name and that of my hon. Friend the Member for Grantham and Bourne.
According to the OBR, VED receipts are expected to raise £8.2 billion in 2024-25, up by £0.5 billion compared with 2023-24. It expects an increase through the forecast period to £11.2 billion, driven by an increasing number of cars, more cars paying the expensive car supplement and the extension of VED to electric vehicles from 2025. It was the last Government who decided that EVs would no longer be exempt from VED and moved to make the system fairer. I will raise some points about the implications of that, and particularly the expensive car supplement for electric vehicles. New zero emission cars, registered after 1 April, will be liable for that charge, which currently applies to cars with a list price exceeding £40,000. That threshold has not changed since 2017, despite inflation and changing technologies. The Society of Motor Manufacturers and Traders has called on the Government to look at that.
The current ECS threshold will add more than £2,000 to the cost of a zero emission vehicle in the first six years of ownership, and more than £3,000 including the standard rate VED that must also be paid. That will deter potential buyers from purchasing zero emission vehicles and will have an impact on residual values. According to figures quoted by the SMMT, the ECS is likely to capture more than half of the zero emission vehicle market from 2025.
The Minister referred to the Government saying that they may look at the threshold in future, and I will come on to that when I discuss new clause 6. Can he confirm how much the ECS currently raises and how much it is forecast to raise as a result of the changes? Given that the Government are committed to a 2030 ban on new petrol and diesel vehicle sales, what impact will the ECS have on the Government’s progress towards that goal?
For those reasons, we have tabled new clause 6, which would require the Chancellor, within six months of the Bill being passed, to publish an assessment of the impact of the £40,000 expensive car supplement threshold in clause 66. The assessment must consider the effects of the threshold on the proportion of new car sales that are electric vehicles.
As we have heard, the threshold has remained unchanged since 2017 and the Government are pushing ahead with the 2030 date. My right hon. Friend the Member for Richmond and Northallerton (Rishi Sunak) introduced some welcome common sense to the debate by moving the date for the ban on new petrol and diesel car sales back to 2035. That is the date that the major car manufacturing countries in Europe and the rest of the world have adopted, and one that we should have stuck to.
The Government’s policy is odd because it makes people less likely to move to EVs—because it makes it more expensive to do so. Perhaps the Treasury is not quite as signed up to the Energy Secretary’s dogmatic approach as he is; perhaps it secretly agrees with Opposition Members who certainly think that he is the most expensive Cabinet member in many ways. Although I recognise that the Minister said that the Government have committed to look at the threshold, the new clause would make that binding and make sure that it happened within a specific timeframe. We therefore want the new clause to be taken forward. As I have set out, we will not oppose the clause, but I will press new clause 6 to a Division.
Hybrid vehicles will start paying road tax at the standard rate, as well as paying the ECS where applicable. Those changes will hasten the departure from hybrids, as my hon. Friend the Member for Grantham and Bourne said earlier. I would be grateful if the Minister provided an assessment of the decision to disincentivise hybrids and if he could say how many jobs in the UK are based on producing hybrid vehicles.
James Murray
I thank the shadow Minister for indicating the Opposition’s support for the clause. I understand what the Opposition are doing by proposing new clause 6, and the points that they want to raise, and the Government have considered it. We consider our commitment, which was made at the autumn Budget in the public domain, to be a strong commitment from the Government: we will consider increasing the £40,000 threshold for EVs only at a future fiscal event.
We recognise that when electric vehicles are new, they can still often be more expensive to purchase than their petrol or diesel counterparts. There is a need to ensure that EVs are affordable as part of the transition. We also recognise that, as transport is currently the largest-emitting sector, decarbonising it is central to the wider delivery of the UK’s cross-economy climate targets.
As I said, it was announced at Budget ’24 that the Government will consider raising the threshold for zero emission cars only at a future fiscal event. The Government have no current plans to review the threshold for petrol, diesel and hybrid vehicles, but we keep all taxes under review as part of the Budget process.
Question put and agreed to.
Clause 66 accordingly ordered to stand part of the Bill.
Clause 67
Rates of vehicle excise duty for rigid goods vehicles without trailers etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider the following:
Clauses 68 and 69 stand part.
Clause 71 stand part.
Government new clause 1—Rate of vehicle excise duty for haulage vehicles other than showman’s vehicles.
New clause 7—Statements on HGV Vehicle Excise Duty (VED) and HGV Road User Levy—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to Parliament about the increase to HGV VED introduced by sections 67 to 69 and increase to the HGV Road User Levy under section 71 of this Act.
(2) The statement under subsection (1) must include details of the impact on—
(a) the haulage sector,
(b) the decarbonisation of the logistics industry, and
(c) the UK economy.”
This new clause requires the Chancellor to make a statement about the impact of increasing Vehicle Excise Duty on HGVs.
James Murray
Clauses 67, 68 and 69 make changes to upgrade VED rates for heavy goods vehicles in line with the retail prices index from 1 April. They also make changes to the VED rates for rigid goods vehicles without trailers, rigid goods vehicles with trailers and vehicles with exceptional loads. Clause 71 uprates the heavy goods vehicle levy in line with the RPI from 1 April.
The registered keeper of a vehicle is responsible for paying VED. The rates depend on the vehicle’s revenue weight, axle configuration and Euro emission status. Furthermore, the HGV levy, which was introduced in August 2023 and frozen at the autumn statement in 2023, is payable for both UK and foreign HGVs using UK roads. Similarly to VED, the levy rates depend on the vehicle’s weight and Euro emissions status. Clauses 67, 68 and 69 will set the VED rates for heavy goods vehicles for ’25-26, increasing them in line with the RPI. For example, the annual VED liability of the most popular HGV—tax class TC01, VED band E1—will increase by £18, from £560 to £578. Hauliers will not see a real-terms increase in VED costs, as rates have increased to keep pace with inflation only.
The changes made by clause 71 will increase the annual rates for domestic and foreign HGVs using UK roads and the associated daily, weekly, monthly and six-monthly rates in line with the RPI. For example, the annual rate for the most common type of UK HGV will increase by £21, from £576 to £597. As part of that uprating, the £9 and £10 caps on the daily rates paid by foreign HGVs, which are a consequence of retained EU law and are now obsolete, will be removed.
Government new clause 1 corrects an omission in the Bill of an uplift to the general haulage rate announced at the autumn Budget. We are inserting a new clause to ensure that the legislation operates as intended by updating the currently recorded rate for the general haulage tax class—tax class 55—from £350 to £365 in line with the RPI.
New clause 7 seeks to require the Chancellor to make a statement about the impact of increasing VED on HGVs. The new clause is not necessary, as the Government have already published the tax information and impact note that sets out all the expected impacts of the measure. It makes clear that hauliers will not see a real-terms increase in their VED or HGV levy liabilities, as rates are being increased in line with the RPI to keep pace with inflation only. The measure is not expected to have any significant macroeconomic impacts.
Increasing both VED rates for HGVs and the HGV levy by the RPI for ’25-26 will ensure that VED receipts are maintained in real terms and that hauliers continue to make a fair contribution to the public finances in the wider context of a Budget in which hauliers have benefited from a further freeze in fuel duty, worth nearly £1,100 a year to the average HGV. I therefore commend clauses 67, 68, 69 and 71 as well as Government new clause 1 to the Committee, and I urge the Committee to reject new clause 7.
James Wild
As the Minister says, clauses 67, 68 and 69 provide for changes to certain rates of VED, and clause 71 increases the rates for the HGV road user levy. We will not oppose the provisions, but we have some concerns and points to make about the timing of the changes and the lack of support for impacted industries, such as the logistics sector. As well as discussing those clauses, I will consider new clause 7, which is in my name and that of my hon. Friend the Member for Grantham and Bourne.
Heavy goods vehicle VED is a complex picture, with more than 80 different rates. The characteristics of HGVs determine their rates, and the increases to HGV VED represent the first rise since 2014. Heavy goods vehicles may also be liable for the additional HGV road user levy, which was introduced in 2014 and is a charge for using the road network, ranging from £150 to £749 a year. The levy was suspended in August 2020, demonstrating the previous Government’s support for the haulage sector during the pandemic. A reformed levy was introduced in 2023 and was frozen at the autumn statement in 2023. The new levy divides qualifying HGVs into six levy bands rather than the previous 22, which is a welcome simplification.
James Murray
I thank the hon. Gentleman for confirming that the Opposition will support these clauses. He asked about the wider challenges faced by the road haulage industry. Road haulage is key to the UK’s economy, and the Government acknowledge the pressures the industry has faced in recent years. As a result of the changes in these clauses, hauliers will not see a real-terms increase in their VED or HGV levy liabilities, as rates will be increased in line with the RPI to keep pace with inflation only.
Of course, revenue from HGV VED and the HGV levy helps to ensure that we can continue to fund the vital public services and infrastructure that people across the UK expect, so it is right that the taxes are regularly reviewed. In the wider context, hauliers will also benefit from the further freeze in fuel duty for 2025-26 that the Chancellor announced in the Budget, which is worth nearly £1,100 a year for the average heavy goods vehicle.
Question put and agreed to.
Clause 67 accordingly ordered to stand part of the Bill.
Clauses 68 and 69 ordered to stand part of the Bill.
Clause 70
Vehicle excise duty: zero-emission vehicles
Question proposed, That the clause stand part of the Bill.
James Murray
The clause makes minor amendments to ensure the legislation for the application of vehicle excise duty to zero emission vehicles operates as intended. In the 2022 autumn statement, the former Government announced that from April 2025, zero emission cars, vans and motorcycles would begin to pay VED in line with their petrol and diesel counterparts. The clause will ensure that the legislation governing the application of VED to zero emission vehicles operates as intended by making minor technical amendments to the legislation. The changes will clarify the current VED exemption for electric vehicles, clarify the interpretation of data entries on the certificate of conformity and ensure that all zero emission vans registered between 1 January 2007 and 31 December 2008 pay VED, in line with their petrol or diesel counterparts, from 1 April 2025. The clause will ensure that the legislation for the application of VED to zero emission vehicles operates as intended.
James Wild
I will be very brief on this one. It is a perfectly sensible measure, and we will not be opposing it.
Question put and agreed to.
Clause 70 accordingly ordered to stand part of the Bill.
Clause 71 ordered to stand part of the Bill.
Clause 72
Rates of air passenger duty until 1 April 2026
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 73 stand part.
New clause 8—Review of bands and rates of air passenger duty—
“(1) The Chancellor of the Exchequer must, within eighteen months of this Act being passed, publish an assessment of the impact of the changes to air passenger duty introduced by section 73 of this Act on—
(a) the public finances;
(b) carbon emissions; and
(c) household finances.
(2) The assessment under subsection (1)(c) must consider how households at a range of different income levels are affected by these changes.”
This new clause requires the Chancellor to publish an assessment of this Act’s changes to air passenger duty on the public finances, carbon emissions, and on the finances of households at a range of different income levels.
James Murray
Clause 72 sets the rates of air passenger duty for 2025-26, as announced in the 2024 spring Budget, and they will take effect on 1 April 2025. Clause 73 sets the rates of APD for 2026-27, as announced in the 2024 autumn Budget, and they will take effect a year later, on 1 April 2026.
APD rates have fallen in real terms, because they are set more than a year in advance using forecast RPI, and inflation has subsequently been much higher than originally forecast. The former Government announced that in 2025-26, rates would be uprated by forecast RPI and non-economy rates would be adjusted to account partially for previous high inflation. For 2026-27, the current Government are making a broad-based adjustment to all rates to compensate in part for previous high inflation and are raising the higher rate on larger private jets by an additional 50%. These changes aim to ensure that the aviation industry continues to make a fair contribution to the public finances. As is standard practice, the Government have given the industry more than 12 months’ notice.
Let me go into some detail. The changes made by clause 72 will raise all APD rates by forecast RPI, rounded to the nearest pound, for 2025-26. Non-economy rates will be further adjusted to correct partially for previous high inflation. For domestic and short-haul international economy passengers, these changes mean that rates will stay at their current level in 2025-26. Rates for other economy-class passengers will rise by £2. For non-economy international passengers, rates will rise by between £2, for short-haul commercial passengers, and £66, for those travelling ultra-long haul in larger private jets that incur the higher rate.
The changes made by clause 73 will raise all APD rates in 2026-27 to account partially for previous high inflation, and increase the higher rate on larger private jets by an extra 50% above the increases to other rates. For economy-class passengers, this means that those flying domestically will face an increase of £1. Rates for short-haul economy passengers will increase by £2, and those for long-haul economy passengers will increase by £12. The increases for non-economy passengers and those travelling in private jets will be greater. Whereas the short-haul international rate for economy passengers is increasing by £2, that for non-economy passengers is rising by £4 and that for private jet passengers by £58.
Taken together, the corrections to non-economy rates announced at the spring and autumn Budgets do not raise rates by more than RPI over the period since 2021-22, based on the latest figures. From 2027-28, rates will be rounded to the nearest penny, to ensure that they track forecast inflation more closely.
New clause 8 would require the Chancellor to publish an assessment of the impact of the APD changes on the public finances, carbon emissions and the finances of households at a range of income levels. At the autumn Budget, the Government published a TIIN that outlined the expected impacts of the APD changes, including the Exchequer, household and environmental impacts. New clause 8 is therefore unnecessary, and I urge the Committee to reject it.
These changes will help to maintain APD rates in real terms, following high inflation. I therefore commend clauses 72 and 73 to the Committee and urge it to reject new clause 8.
James Wild
As we heard from the Minister, clause 72 sets the rates of air passenger duty for the year 2025-26—those rates were announced in the 2024 spring Budget, precisely to give the sector time to plan—and clause 73 sets the rates for 2026-27. The higher rates that apply to larger private jets will increase by an additional 50%, as the Minister said. We will not oppose these measures, but we want to raise some points and seek more detail about their impact.
APD was first introduced on 1 November 1994. Initially, it was charged at a rate of £5 on flights within the UK and to other countries in the European Economic Area, and £10 on flights elsewhere. Since then, it has been reformed by successive Governments. Currently, it is chargeable per passenger flying from UK airports to domestic and international destinations, and rates vary by destination and class of travel. According to the OBR, APD receipts are expected to be £4.2 billion in 2024-25, and then they are forecast to increase by 9% a year, on average, to £6.5 billion in 2029-30, driven by increasing passenger numbers and the higher duty rates. The changes mean that a family of four flying economy to Florida, for example, will be taxed £408—a 16% increase on the current rates.
I turn first to the changes in clause 73 that relate to the higher rate, which will increase by an additional 50% on business and private jets. There is some concern from the industry about the impact of the measure on economic growth—the Government’s driving, No. 1 mission, in which we support their efforts. In reality, most private jets are corporate aircraft that are used as capital assets. One industry commentator said:
“They allow businesses to increase productivity and the amount of time they have in the day, which means they can make more money, employ more people and pay more in taxes. ”
That is something I think we all support. Has the Minister calculated what impact the 50% increase will have on economic growth and developing our trade relationships? The Prime Minister rightly travels a lot around the world to make connections and promote trade in our economy. Can the Minister confirm whether the Royal Squadron is subject to the higher rates, or is it exempt?
There has also been some concern about the impact on our constituents—people going on holiday or to see family and friends. The changes may limit flight options. Airlines UK has said that the rise will make it harder for British carriers to put on new routes. Does the Minister think the increase will impact the ability to consider new routes? It will certainly increase ticket prices; I woke up this morning to hear the boss of Ryanair on the radio saying that the increases in APD will mean that a third of an average £45 fare will now be tax.
It is because of the impacts that the rate rises might have on consumers, industry and economic growth that we tabled new clause 8, which would require the Chancellor to publish an assessment of the impact of the changes introduced by clause 73 within 18 months of the Bill being passed. The assessment would have to consider the impact of the changes on the public finances, carbon emissions and household incomes. The industry has been clear in its warnings in this regard, and we need to take them seriously. The Minister said that the new clause is unnecessary and that a review has been covered anyway, but reviews should be an important part of the Treasury’s toolkit in understanding impact.
We will not oppose these measures, but we will continue to raise industry’s concerns, particularly on behalf of our constituents and people who want to go on holiday.
James Murray
It might be worth my saying at the outset that our support for the aviation industry more broadly is very clear. I am sure the hon. Gentleman was listening to the Chancellor’s growth speech yesterday, in which she announced that we will no longer shy away from decisions about airport expansion, which can be delivered to support economic growth while meeting our climate obligations. People in the aviation industry can have no doubt about this Government’s desire and willingness, and concrete actions, to work with them to drive economic growth in this country.
In relation specifically to APD, which is the subject of these clauses, I say to the hon. Gentleman that the adjustment to the APD rates for ’26-27 is proportionate, because the rates have fallen significantly behind inflation in recent years. These changes will help to compensate for that fact. The short-haul international rate on economy passengers will increase by £2 on 1 April 2026. That rate has not increased since 2012. Even after 1 April 2026, for a family of four—two adults, two children—flying economy class to Spain, the total APD increase will be only £4, since under-16s travelling in economy class are exempt from APD.
By contrast, the increases for non-economy passengers and those travelling in private jets will be higher, to ensure that they make a fair contribution to the public finances. One other bit of context is that, unlike other sectors, no VAT applies to plane tickets and there is no tax on jet fuel. It is only fair that aviation pays its fair share through APD.
Question put and agreed to.
Clause 72 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Christian Wakeford.)
Finance Bill (First sitting)
James Murray ExcerptsTuesday 28th January 2025
(2 weeks, 5 days ago)
Public Bill CommitteesRead Full debate Finance Bill 2024-26 View all Finance Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 28 January 2025 - (28 Jan 2025)
The Chair
With this it will be convenient to discuss the following:
Clauses 2 to 4 stand part.
New clause 3.
The Exchequer Secretary to the Treasury (James Murray)
It is a pleasure to serve on the Committee with you as the Chair, Mr Mundell. Clauses 1 to 3 impose a charge to and set the rates of income tax for 2025-26, and clause 4 maintains the starting rate for savings limit at its current level of £5,000 for the ’25-26 tax year.
Income tax is the largest source of Government revenue and helps to fund the UK’s schools, hospitals and defence, and other public services that we all rely on. In ’25-26, it is expected to raise around £329 billion. The starting rate for savings applies to the taxable savings income of individuals with low earned incomes of less than £17,570, allowing them to benefit from up to £5,000 of income from savings interest before they pay tax. It specifically supports those taxpayers with low levels of earned income.
As Committee members will be aware, both the income tax rates and the starting rate limits for savings must be legislated for each year. The Bill will not change the rates of income tax. We are confirming that they will remain the same, thereby meeting our manifesto commitment not to increase the basic, higher or additional rates of income tax.
Clause 1 imposes a charge to income tax for the year ’25-26. Clause 2 sets the main rates of income tax, namely the basic rate of 20%, the higher rate of 40% and the additional rate of 45%. These will apply to non-savings, non-dividend income of taxpayers in England and Northern Ireland. Income rates in Scotland and Wales are set by their respective Parliaments.
Clause 3 sets the default rates at the same levels as the main rates, namely 20%, 40% and 45%. These rates apply to the non-savings, non-dividend income of taxpayers who are not subject to the main rates of income tax, Welsh rates of income tax or Scottish rates of income tax. For example, they might apply to non-UK-resident individuals. The clause also sets the savings rates of income tax—again at 20%, 40% and 45%.
Clause 4 will maintain the starting rate limit at its current level of £5,000 for the ’25-26 tax year. The limit is being held at this level to ensure fairness in the tax system while maintaining a generous tax relief. In addition to the starting rate for savings, whereby eligible individuals can earn up to £5,000 in savings income free of tax, savers are also supported by the personal savings allowance, which provides up to £1,000 of tax-free savings income for basic rate taxpayers. Savers can also continue to benefit from the annual individual savings account allowance of £20,000. Taken together, as a result of these generous measures, around 85% of savers will pay no tax on their savings income.
Finally, I should mention the Government’s efforts to encourage those on the lowest incomes to save through the help to save scheme. We recently extended the scheme until 5 April 2027, and we have extended the eligibility to all universal credit claimants who are in work from 6 April 2025. I encourage Committee members to do what they can to promote the scheme to their constituents.
New clause 3 would require a review of how many people who receive the new state pension at the full rate are liable to pay income tax this year and in the next four tax years, and specifically what the tax liability of their state pension income will be. The Government consider the new clause to be unnecessary, given the information that is already publicly available.
His Majesty’s Revenue and Customs has published statistics for this tax year and past tax years that cover the number of income taxpayers, including breakdowns by marginal rate, tax, band and age, and the Department for Work and Pensions has published figures for pensioners’ average incomes. The Office for Budget Responsibility is the Government’s independent economic forecaster and most recently published projections of the number of income taxpayers for future years in its “Economic and fiscal outlook” at autumn Budget. Those projections include a breakdown by marginal rate.
Income tax is a vital revenue stream for our public services and the clauses will ensure that that remains the case in 2025-26, while also retaining the starting rate of savings at its very generous existing value. I therefore commend clauses 1 to 4 to the Committee, and I urge the Committee to reject new clause 3.
Gareth Davies (Grantham and Bourne) (Con)
It is a great pleasure to see you in the Chair, Mr Mundell. This is one of many Finance Bill Committees that I have participated in. The subjects have changed somewhat each time, but something has remained consistent: the presence of the hon. Member for Ealing North. It is a pleasure to see him in his place, and I hope that his experience as the Treasury Minister in a Finance Bill Committee is as unpleasurable as mine when I was facing him.
As the Minister rightly set out, clause 1 imposes a charge to income tax for the year 2025-26, which is a formality. Clause 2 sets the main rates of income tax in England and Northern Ireland for 2025-26—the 20% basic rate, the 40% higher rate and the 45% additional rate—leaving them unchanged. Clause 3 sets the default rate and savings rate of income tax for the tax year 2025-26 for the whole of the United Kingdom. Clause 4 freezes the starting rate limit for savings at £5,000.
Of course, the Government’s big announcement on income tax in the Budget was that they would not extend the freeze to income tax thresholds beyond April 2028. Committee members will be aware that that announcement does not need to be legislated for, as the income tax personal allowance and the basic rate limit are subject to consumer prices index indexation by default, unless Parliament overrides that via a Finance Bill, and Parliament has not overridden indexation beyond the 2027-28 tax year.
As the current legislative framework did not allow the Government to enact their announcement on income tax thresholds at the Budget, we must take them at their word that they will keep their promise and not succumb to the temptation to override the thresholds in future. Given the possibility that rising borrowing costs have eliminated the Chancellor’s headroom under the Government’s own stability rule, I would be grateful if the Minister could reconfirm that they will allow CPI indexation to resume from 2028-29 and that they will not renege on that promise.
On a point of clarity, I would be grateful if the Minister could confirm whether the unfreezing of income tax thresholds in 2028-29 will involve an increase to the fixed portion of the income tax higher limit, which he will be aware of. The limit is set at £100,000 plus twice the personal allowance, and that £100,000 is not indexed to CPI by default. Should we expect the additional rate to rise only in so far as the personal allowance rises, or will that £100,000 be unfrozen too? I would appreciate an explanation on that.
I leave it to others to interpret what it says about this Labour Government and Budget that a non-binding commitment merely not to raise some tax thresholds in three years’ time is presented as a big win for the British taxpayer. On income tax, as with most of the Government’s more positive policy announcements, the benefits are prospective and entirely speculative.
Meanwhile the pain, as we have seen with national insurance contributions and in other areas, is very much immediate and certain. Pensioners left out in the cold by the Government this winter will recognise that all too familiar pattern. A pensioner who receives the full rate of the new state pension without additional income—whose income from April is roughly £12,000—is now in most cases no longer receiving the winter fuel payment. The Government have defended that decision by referring to the triple lock.
Will the Minister update the Committee on when the Government now project the full rate of the new state pension to exceed the income tax personal allowance, and how many pensioners they expect will be newly taken into income tax as a result of the development? If he cannot tell the Committee, perhaps he and his colleagues will vote in favour of new clause 3, which would require the Treasury to produce and publish forward projections for the number of people receiving the full rate of the new state pension who are liable to pay income tax, and specifically what the tax liability of their state pension income will be.
Pensioners cannot easily alter their financial circumstances, yet they were given less than six months’ notice of the withdrawal of the winter fuel allowance. They must not be blindsided for a second time by the taxman—especially not those who are just about getting by without additional income beyond the state pension. I urge Members and the Minister to vote for new clause 3 to prevent that from happening.
James Murray
I thank the shadow Minister for the comments at the beginning of his speech, if not for all the questions subsequently. First, on the question about whether the £100,000 threshold will be unfrozen in due course, that threshold does not move, and it sets the personal allowance taper beyond that level.
The shadow Minister asked broader questions about the personal allowance and our decision to change the policy we inherited from the previous Government. In the many Finance Bill Committees that he and I served on before the general election, the personal allowance would routinely be frozen for more and more years into the future. That is what we have inherited: the personal allowance is frozen up until April 2028. We made clear that we would do things differently. As well as not increasing the basic higher and additional rates of income tax, as we set out, we did not freeze the personal allowance beyond April 2028, which means that it will continue to rise with inflation.
The shadow Minister asked specific questions about how the change affects pensioners, and referred to new clause 3, which I addressed earlier. I will repeat what I said: new clause 3 is not necessary because the data the shadow Minister requests is already in the public domain. We need to ensure that as the personal allowance begins to rise from April 2028, that will benefit not just people in work but pensioners, because they will see the personal allowance that applies to their pension income rising as well. That is underlined by the fact that we are maintaining the triple lock, which will see generous increases in the state pension as the bedrock of state support for pensioners.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 to 4 ordered to stand part of the Bill.
Clause 5
Appropriate percentage for cars: tax year 2028-29
Question proposed, That the clause stand part of the Bill.
James Murray
Clauses 5 and 6 make changes to ensure long-term certainty on company car tax by setting the rates for 2028-29 and 2029-30. The increases in the appropriate percentages will help to ensure that the tax system contributes to supporting the sustainability of the public finances. The effect of the clauses is to gradually narrow the differential between zero emission and electric vehicles and their petrol and diesel counterparts, while ensuring that significant incentives to support the take-up of EVs remain in place. The provisions also increase rates for hybrid vehicles.
Company car tax applies when a company car is made available to an employee or their family member for private use. Company car tax rates were confirmed by the previous Government up until 2027-28. In the 2024 autumn Budget, the Government set out the rates for 2028-29 and 2029-30, to provide certainty.
The Government recognise that the company car tax regime continues to play an important role in the EV transition by supporting the take-up of EVs and their entry into the second-hand car market. Although it is important to maintain strong incentives to encourage the take-up of EVs, the Government need to balance that against the responsible management of the public finances by gradually withdrawing them over time, as EVs become more normalised. That is why we have committed to raising the company car tax rates—or appropriate percentages—for EVs, hybrids, and petrol and diesel vehicles in 2028-29 and 2029-30, gradually narrowing the differential between EVs and other vehicle types, and bringing the treatment of hybrids closer to that of petrol and diesel cars.
The changes made by clauses 5 and 6 will set the company car tax appropriate percentages for the tax years 2028-29 and 2029-30. Appropriate percentages for EVs will rise by two percentage points per year, rising to 9% by 2029-30. Meanwhile, the appropriate percentages for cars with emissions of 51 grams of carbon dioxide per kilometre or over will rise by one percentage point per annum. By 2029-30, the appropriate percentages for petrol and diesel cars will rise to between 20% and 39%, depending on the car’s specific emissions. Together, the measures will gradually narrow the gap between EVs and their petrol and diesel counterparts, while maintaining a generous incentive for EVs.
On the changes to the hybrid appropriate percentages, I draw the Committee’s attention to recent research from the European Commission that has shown that the real-world emissions of hybrid vehicles are in fact three and a half times higher than previously thought. Consequently, the Government have announced that they will align the treatment of hybrids more closely with that of petrol and diesel cars.
Harriet Cross (Gordon and Buchan) (Con)
On aligning hybrid cars more closely with petrol and diesel cars, what assessment has been made of the impact on the hybrid car market and the take-up of hybrid cars, if we are ultimately looking to move away from petrol and diesel in the long term?
James Murray
Over the coming years we need to make the transition to electric vehicles. Hybrid cars obviously play an important part in the car market and car manufacturing in the UK. The clauses are about a plan over the next five years or so regarding what will happen to the appropriate percentages. This is not an overnight change. Actually, one of the important principles of our setting out the appropriate percentages now for some years in advance is to give car manufacturers and everyone interested in the car industry certainty about what will happen. That is why, as I have been setting out, the appropriate percentages for EVs will rise, thereby narrowing the gap between them and petrol and diesel vehicles, but there will still be a generous incentive to help to shift people towards purchasing EVs.
Hybrid vehicles obviously fit within the general scheme of appropriate percentages. However, as I was setting out, European Commission research shows that emissions from hybrid vehicles are in fact three and a half times higher than previously thought, so in setting the rates for 2028-29 and 2029-30, we have decided to reflect that fact in the appropriate percentages that we are legislating for. That means all cars with emissions between 1 gram and 50 grams of carbon dioxide per kilometre—those that largely fall in the hybrid category—will see their appropriate percentages rise to 18% in 2028-29 and to 19% in 2029-30. As I outlined to the hon. Member for Gordon and Buchan, by setting out the rates until 2029-30 we will give the industry and consumers certainty about the future rates.
The company car tax system offers generous incentives to encourage EV take-up and makes an important contribution to the EV transition. The Government, however, must balance incentives against responsible management of the public finances. We are announcing the rates for 2028-29 and 2029-30 to start to narrow the differentials between EVs, hybrids, and petrol and diesel vehicles. I therefore commend clauses 5 and 6 to the Committee.
Gareth Davies
As the Minister set out, clauses 5 and 6 set the appropriate percentage used for calculating the taxable benefit for a company car for tax years 2028-29 and 2029-30. In those tax years, the appropriate percentage for EVs will increase by 2% to 7% in 2028-29 and 9% in 2029-30. For most other vehicles, the appropriate percentage will increase by a further 1% in each year, up to a maximum of 39%. Hybrid vehicles are the standout exception. The effect of these clauses for vehicles capable of operating on electric power while producing between 1 gram and 50 grams of CO2 per kilometre is to introduce a steep increase in the appropriate percentage of as much as 13% in 2028-29 to reach 18%, before rising to 19% in 2029-30.
Whereas previously the appropriate percentage for cars with emissions between 1 gram and 50 grams of CO2 per kilometre would rise as the electric range reduced, from 2028-29 that system will be replaced with a single flat rate, regardless of the electric range. That means that hybrid cars with the greatest electric range, which are presumably the least polluting, will see the steepest tax rise. Any distinction between hybrid vehicles will be eliminated for the purposes of these provisions. Indeed, as the explanatory notes make very clear, rates for hybrid vehicles will align more closely with the rates for internal combustion engine vehicles, as the Minister just pointed out.
It will not have escaped Members that these new rates take us to 2030. The Government have confirmed their intention to ban the sale of new petrol and diesel cars by that date. What has not yet been confirmed is the future of hybrid vehicles. The Department for Transport is consulting on which hybrid cars can be sold alongside zero emission models between 2030 and 2035. The Minister, naturally, will not pre-empt the outcome of that consultation, but these measures effectively do just that. While the Department for Transport parses the differences between plug-in hybrid electric vehicles and hybrid electric vehicles, the Treasury is eliminating that distinction altogether by 2028, let alone by 2030.
Not only that, but the Treasury is effectively lumping all hybrid vehicles in with those powered by internal combustion engines. Treasury Ministers will be aware that the manufacturing of hybrid vehicles and engines supports thousands of British jobs, as my hon. Friend the Member for Gordon and Buchan alluded to, and car manufacturing firms operate on a multi-year investment cycle. The contradictions between the Bill and the Department for Transport’s consultation send a less than clear signal, which puts those jobs at risk. I would therefore be grateful if the Minister clarified the Government’s intention in making these changes, especially when the House of Lords Environment and Climate Change Committee has heard that these rates have been the single most effective intervention to date in changing consumer behaviour around different types of vehicles.
I would also be grateful if the Minister outlined what steps the Treasury and HMRC are taking to make the general public aware of these changes. I grant they are quite technical, but they could impose a significant additional tax bill on certain taxpayers with plug-in hybrid vehicles. The Chartered Institute of Taxation raised that as a key area of concern, which could confront unsuspecting taxpayers—those seeking to do the right thing by purchasing a less-emitting vehicle— with a massive and steep tax rise. A higher rate taxpayer on £51,000 whose company car is a plug-in hybrid VW Golf could face an additional tax bill of as much as £1,600 in 2027-28. That strikes me as neither fair nor proportionate.
It has been reported that this Labour Government ordered no fewer than 10 petrol hybrid Jaguars upon assuming office to supplement the existing departmental, chauffeur-driven pool cars. If the Minister is confident that the consequences of the changes have been communicated and fully understood, I am sure he will be able to inform the Committee of the extra tax liability in 2028-29 of someone on a salary similar to that of a Treasury Minister—£110,000—whose full-time work car is a plug-in hybrid Jaguar F-Pace valued at roughly £60,000 with an electric range of just under 40 miles.
As the Committee can tell, we have serious reservations about the communication of the changes, the unfair overnight tax hikes they impose on taxpayers just trying to do the right thing, and the mixed messages they send to vehicle manufacturers by contradicting other areas of Government policy and consultation. The measures concern the ’28-29 and ’29-30 tax years, so the Government have time to think again and to bring back a better calibrated policy in a future Finance Bill. For the reasons that I have set out, we will vote against the clauses.
James Murray
I listened to the shadow Minister’s comments, and he must have a different definition of “overnight” from me. Legislating now for changes that will come in in 2028 does not feel like overnight. Some Budget changes come in on the day of the Budget—had he called one of those overnight, I might have had some sympathy with the description, but not for legislating now for changes that will come in in 2028, toward the end of this decade. Part of the point of legislating now for changes that will happen some years down the line is precisely to give that signal to consumers and manufacturers, to ensure that the consumers are aware of what is to happen and manufacturers know what is planned.
Harriet Cross
People might be buying cars now—that is, overnight—that they still have in ’28-29, when the changes come in. They will be making decisions now that will be caught up in future changes.
James Murray
The hon. Lady makes a similar point to that made by the hon. Member for Grantham and Bourne, which is that the changes will come in further down the line, but they are critical of the fact that we are pre-announcing the changes now so that we give greater certainty and stability. I cannot understand that criticism, because I thought that giving as much forecasting, certainty and stability as possible would be welcomed by the industry and consumers. People expect taxes to change over time, and the greater the forecasting and advance notice they have, the better for consumers and for manufacturers. Without making this too political, I know that the Opposition were not a great fan of certainty and stability when they were in office, but we are rather different. That is why we are setting out the changes now.
The shadow Minister referred to the DFT consultation, and of course, he is right that I would not pre-empt its outcome. In combination, our giving information about what the appropriate percentages will be towards the end of the decade, thereby providing certainty and stability, will help us to work closely with other Departments to ensure that consumers are well informed about what is likely to happen towards the end of the decade and manufacturers have the certainty and stability that were so desperately lacking under the previous Administration.
Question put, That the clause stand part of the Bill.
James Murray
Clause 13 sets the charge for corporation tax for the financial year beginning April 2026, setting the main rate at 25%; and clause 14 sets the small profit rate at 19% for the same period. As Members know, the charge for corporation tax must be set every year, so it is important to legislate on the rate for 2026 now to provide certainty to large and very large companies, which will pay tax in advance on the basis of their estimated tax liabilities. That is also why we have committed to cap corporation tax at 25% for the duration of the Parliament, as set out in the corporate tax road map published at the autumn Budget. The changes made by clause 13 will establish the right of the Government to charge corporation tax from April 2026. The clauses maintain the current rates of 25% and the small profits rate of 19%. Tax certainty is of great importance to businesses, and clauses 13 and 14 ensure that they continue to benefit from stable and predictable tax rules. I commend both clauses to the Committee.
Gareth Davies
As the Minister set out, clauses 13 and 14 set the charge and rates of corporation tax for financial year 2026. The main rate remains unchanged at 25%, with the standard small profits rate at 19%, and the standard marginal relief fraction remains three 200ths.
In Committee on the last Finance Bill, the Exchequer Secretary to the Treasury, who was then the shadow Financial Secretary to the Treasury—a great Opposition role—told the House that if Labour won the election, they would bring certainty back for businesses by capping the rate of corporation tax at 25% for the whole of the next Parliament. At that point, he spoke of capping corporation tax and publishing a business taxation road map as though they were two separate things.
This year’s Budget makes clear that there is no cap outside the road map, and once again, as with income tax, we must take Labour at their word that they will stick to a non-binding commitment, which is not legislated for in this Finance Bill. It is unclear how much certainty or stability such a loose commitment will bring, especially when the Budget blindsided businesses with a £25 billion tax hike. Not only that, but the corporate tax road map itself says that, while the Government are committed to providing stability and predictability in the business tax system, they cannot rule out changes to the corporate tax regime over the course of this Parliament.
Given the Government’s ongoing worries about headroom and the uncertainty and instability that has created, will the Minister reconfirm for the parliamentary record the Government’s commitment, first, not to raise the headline rate of corporation tax for the duration of this Parliament; secondly, not to raise the small profits rate or reduce the marginal relief currently available; and thirdly, to maintain full expensing and the annual investment allowance, as well as writing down allowances and the structures and buildings allowance without meaningfully altering their eligibility?
James Murray
I was expecting a series of amendments from the Opposition; I was not expecting the shadow Minister to quote back at me an amendment I tabled several years ago. It is a new, although interesting, approach to opposition to rely on what I tabled in opposition and quote that back at me. I am sure it was an excellent amendment, although I cannot remember its exact detail.
On the hon. Gentleman’s questions about corporation tax rates, I am sure he will remember from his time in the Treasury that it is standard practice to legislate the charge to corporation tax on an annual basis, even when the rates remain unchanged. That is a long-standing convention that applies to income tax as well. However, because we were so determined to give businesses stability and certainty, we published the corporate tax road map alongside the Budget. In that road map, we made clear our commitment to maintaining the main rate—or, indeed, to capping it—at 25% for the duration of the Parliament.
The small profits rate and marginal relief will also be maintained at their current rates and thresholds. Full expensing and the annual investment allowance are also guaranteed for this Parliament. When it comes to corporation tax, full expensing and the annual investment allowance, the various Finance Bills in this Parliament will be quite a different experience compared with those in the previous Parliament.
Harriet Cross
Although we of course welcome a road map as a way to give businesses confidence on corporation tax, we should not get mixed up in the smoke and mirrors of what business taxes are. Because of the Budget, businesses now face many taxes and the uncertainty that they bring. Will we also see road maps for things such as the national insurance rises, the increase in business rates, minimum wage increases and measures in the Employment Rights Bill, all of which have an impact on business?
James Murray
The hon. Lady mentions business rates. I do not know whether she has read the discussion paper “Transforming Business Rates”.
James Murray
I am glad the hon. Lady has read it, because it sets out our approach to business rates in the coming year, from April 2026, and what we want to do over this Parliament. Businesses want stability and certainty from Government; they recognise that, over a five-year period, things will happen that cannot be predicted on day one, but they want that certainty and predictability. That is why, in the corporate tax road map, we give certainty on capping the main rate and on the small profits rate, marginal relief, full expensing and the annual investment allowance—everything on which we can give full certainty. However, where there are areas that we seek to explore or consult on, we are also clear about that. We developed that approach in partnership with business to make sure that we give as much certainty up front as we can, while also signposting those areas that we want to discuss.
Gareth Davies
Let us be clear: it is good when a Government set out a tax rate over a multi-year period; we accept that that is a good thing. However, does the Minister accept—to the point raised by my hon. Friend the Member for Gordon and Buchan—that although a road map has been set out on corporation tax, the Labour party has created uncertainty by saying, before the election, that it would not increase national insurance contributions and then, immediately after the election, hitting businesses with a £25 billion tax rise, including not only a rate change but a threshold change that brings many new businesses into the tax regime? Does the Minister accept that the problem is about more than corporation tax? It is about the entire business tax ecosystem. On that basis, the charge is very clear: his Government have caused great uncertainty and great damage to British businesses.
James Murray
Although I am mindful that the clauses are on corporation tax, Mr Mundell, let me briefly respond to the shadow Minister’s comments. This Government were elected to bring an end to the instability that had become endemic under the previous Government. I like the hon. Gentleman a lot, but for him to imply that the previous Government had stability from day to day is for the birds. I was in the House of Commons Chamber so many times for debates on Finance Bills. I think we went through the entire introduction and repeal of the health and social care levy in the space of a few months. There was no stability under the previous Government, and that was a large part of what led people to vote for change at the last general election. They wanted us to sort out the public finances, get public services back on their feet and restore the economic stability that is the bedrock on which investment can rise and on which we can get the economy growing as we know it can, supporting British businesses, entrepreneurs and wealth creators to do what they do best.
To bring us back to the clauses, publishing the corporate tax road map shows our commitment to not just campaigning on the prospect of bringing stability but delivering it in our very first Budget. The corporate tax road map clearly sets out our approach to corporation tax, related allowances and other areas we will look at. I may have discerned support for it in the shadow Minister’s comments; it was bound up in other comments but, reading between the lines, I think he supports the publication of the corporate tax road map. He is welcome to intervene if he disagrees.
Gareth Davies
I will intervene anyway. As I said, any certainty that can be provided to businesses regarding the tax system is a good thing. The point I am trying to make—I will try again—is that corporation tax is just one tax paid by businesses. They also pay national insurance contributions. They also use reliefs such as the business rates relief the Minister talked about—by the way, the Government have cut that from 70% to 40%, although I am not sure that it was clear before the election that they would do that. The uncertainty has been caused by all the things that the British public were told would not happen, but that then did happen.
We are talking about corporation tax today, and I can see that you are, quite rightly, about to bring us back in scope, Mr Mundell. I will leave it here by saying that British businesses pay more than just corporation tax, and what they need is certainty across the board. We have a corporation tax road map, but why do we not have a holistic, comprehensive business tax road map that includes national insurance, business rates and other taxes borne by businesses? That is my point.
James Murray
Yes. In the context of this discussion on corporation tax, I will address the comments about other taxes. The shadow Minister again mentioned business rates and business rates relief, but he might want to recall the situation we inherited on business rates relief. This year it is operating at a 75% discount for retail, hospitality and leisure properties, up to a cap of £110,000, and it was due to expire entirely in April 2025. What we inherited was not just instability, but a cliff edge—it was going to go entirely in April this year. I notice that that part of the story is conveniently erased from the shadow Minister’s account of history.
Business rates relief was going to expire entirely in April 2025, so we were keen to ensure that we continued it, while being mindful of the public finances. Our decision to continue it for a further year at 40% was the right thing to do while we ensure that we are ready from April 2026 to have permanently lower tax rates for retail, hospitality and leisure businesses with a rateable value of below £500,000. That is the stability that businesses so badly need. Frankly, the shadow Minister, who is talking about business rates in the context of corporation tax, overlooked that fact entirely. Under the previous Government, the reliefs were extended one year at a time, with the rates going up and down, which provided no stability for businesses trying to make investment decisions. From April 2026, with our permanently lower rates, we want to provide exactly that stability.
To return to corporation tax, which is the subject of these two clauses, one of the conversations that I had many a time with businesses while in opposition was about their desire for certainty on corporation tax and the system of allowances. I recall challenging the shadow Minister, when he was a Treasury Minister himself, about the number of changes there had been to full expensing, the annual investment allowance and indeed to the super-deduction, which came and went entirely within one Parliament. That instability is what prompted our desire to provide stability for businesses, and publishing the corporation tax road map and these clauses begins to implement the commitments we made.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14 ordered to stand part of the Bill.
Clause 19
Pillar Two
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendments 1 to 3, 21 to 23, 4 to 11, 24 to 29, 12 and 13, 30, 14, and 31 to 37.
Schedule 4.
James Murray
Clause 19 and schedule 4 introduce the undertaxed profits rule—the third and final part of the internationally agreed global minimum tax known as pillar two. They also amend the existing legislation on multinational top-up tax and domestic top-up tax to incorporate the latest international agreements and stakeholder feedback.
It is essential that multinationals pay their fair share of tax in the UK. Pillar two protects the UK tax base from large multinationals shifting their profits overseas to low-tax jurisdictions, by requiring multinationals that generate annual revenues of more than €750 million to pay an effective tax rate of 15% on their profits in every jurisdiction in which they operate. Where their effective tax rate falls below that, they will pay a top-up tax.
James Wild (North West Norfolk) (Con)
It is a great pleasure to serve on the Committee under your chairmanship, Mr Mundell. As we heard from the Minister, clause 19 and schedule 4 amend the parts and schedules of the Finance (No. 2) Act 2023 that implement the multinational top-up tax and domestic top-up tax. Part 2 of schedule 4 introduces the undertaxed profits rule into UK legislation, and part 3 makes amendments to the multinational top-up tax and domestic top-up tax. These taxes represent the UK’s adoption of the OECD pillar two global minimum tax rules, and we are supportive of the measures before us.
In October 2021, under an OECD inclusive framework, more than 130 countries agreed to enact a two-pillar solution to address the challenges arising from the digitalisation of the economy. Pillar one involves a partial reallocation of taxing rights over the profits of multinationals to the jurisdictions where consumers are located. The detailed rules that will deliver pillar one are still under development by the inclusive framework. As the Minister said, pillar two introduces a global effective tax rate, whereby multinational groups with revenue of more than €750 million are subject to a minimum effective rate of 15% on income arising in low-tax jurisdictions.
The multinational and domestic tax top-ups were introduced in the Finance Act 2023, as the first tranche of the UK’s implementation of the agreed pillar two framework. Measures in the Bill extend the top-up taxes to give effect to the undertaxed profits rule. That brings a share of top-up taxes that are not paid under another jurisdiction’s income inclusion rule or domestic top-up tax rule into charge in the UK. The undertaxed profits rule will be effective for accounting periods beginning on or after 31 December 2024.
Following discussions with the Chartered Institute of Taxation, I have a number of points to raise with the Minister. First, as the institute points out, there is an open point around the application of the transitional safe-harbour anti-arbitrage rules. The OECD’s anti-arbitrage rules for the transitional safe harbours are drafted very broadly, and may therefore go further than originally anticipated. Will the Minister clarify HMRC’s view of the scope of those rules?
There are also questions about taxpayers’ ability to qualify for the transitional safe harbours. A transitional safe harbour is a temporary measure that reduces the compliance burden for multinationals and tax authorities. There has been some uncertainty as to whether a single error in a country-by-country report could disqualify all jurisdictions from applying the transitional safe harbours. HMRC has recently indicated that it would be open to permitting re-filings of country-by-country reports where errors are spotted. Can the Minister provide further clarity on HMRC’s proposed approach?
The UK’s legislation will need to be updated regularly to stay in line with the OECD’s evolving guidance. What steps is the Minister taking to ensure that clear guidance is provided in a timely manner? The new top-up taxes and undertaxed profits rule are complicated. Schedule 4 runs to over 40 pages and includes an eight-step method to determine the proportion of an untaxed amount to be allocated to the UK. It is important that the Government minimise the cost of implementation and compliance. How will the Minister ensure that it is kept to a minimum?
While I welcome the work the UK is doing at a global level, there are still significant issues. I was interested, as I am sure the Minister was, to see that one of the first actions of President Trump, just hours after he took office, was to issue a presidential memorandum stating:
“This memorandum recaptures our nation’s sovereignty and economic competitiveness by clarifying that the global tax deal has no force or effect in the United States.”
It states in clear and unambiguous terms:
“The Secretary of the Treasury and the Permanent Representative of the United States to the OECD shall notify the OECD that any commitments made by the prior administration on behalf of the United States with respect to the global tax deal have no force or effect within the United States absent an act by the Congress adopting the relevant provisions of the global tax deal.”
The OBR estimates that pillar two is expected to generate £2.8 billion by the end of this Parliament. What impact could the US position have on the future operation of pillar two and the UK’s ability to levy top-up taxes on multinationals as planned? The same memorandum issued by President Trump notes that
“a list of options for protective measures”
will be drawn up within 60 days. What action are the Government taking to engage with the US Treasury and to prepare for such actions? Has the Chancellor raised this with her opposite number?
The Minister referred to the more than 30 Government amendments that have been tabled to schedule 4, which correct errors in the calculation of the multinational top-up tax payable under the UTPR provisions that would have resulted in an excessive liability; secure that eligible payroll costs and eligible asset amounts are allocated from flow-through entities in a manner that is consistent with pillar two model rules; and ensure that multinational top-up tax and domestic top-up tax apply properly in cases involving joint ventures. They are all perfectly sensible, but the number of amendments tabled underlines the complexity of the issue.
As I mentioned, this is a two-pillar system. The corporate tax road map confirmed the Government’s support for the international agreement on a multilateral solution under pillar one and the intention to repeal the UK’s digital sales tax when that solution is in place. The digital sales tax raised £380 million in 2021-22, £567 million in 2022-23 and £678 million in 2023-24. I would welcome an update from the Minister on pillar one and the future of the digital sales tax.
The Opposition will not be opposing the clause, but I look forward to the Minister’s response to the specific points I have raised, including those on developments under the new Trump Administration and on implementation.
James Murray
I thank the shadow Minister for his support for the provisions before us and our general approach.
First, it is the case that we are amending the Bill in Committee, but that is because, as his colleagues may remember from their time in government, these are complex rules and it is important that pillar two rules work as intended. This is a complex international agreement and it represents one of the most significant reforms of international taxation for a century. It is to a degree inevitable that revisions would be needed as countries and businesses introduce pillar two and set it in progress. It is complex, but we should not forget that pillar two applies only to large multinational businesses, and the reason it is being introduced is to stop those businesses shifting their profits to low-tax jurisdictions and not paying their fair share here in the UK. The rules need to respond to that, and we need to make sure that they work for all sectors and all types of businesses.
James Murray
The clause repeals the offshore receipts in respect of intangible property legislation, known as ORIP, which was aimed at disincentivising large multinational enterprises from holding intangible property in a low-tax jurisdiction if the intangible property was used to generate income in the UK. Such enterprises could thereby gain an unfair competitive advantage over those that held intangible property in the UK. The policy is no longer required, because pillar two—the global minimum tax—will more comprehensively discourage the multinational tax planning arrangements that ORIP sought to counter.
As set out in the corporate tax road map, which we debated earlier, the Government are committed to simplification of the UK’s rules for taxing cross-border activities in the light of pillar two. Repeal will take place alongside the introduction of pillar two’s undertaxed profit rules in the UK from 31 December 2024, which we debated with clause 19. Clause 20 simply repeals chapter 2A of part 5 of the Income Tax (Trading and Other Income) Act 2005, and I commend it to the Committee.
James Wild
As we heard from the Minister, clause 20 repeals the ORIP rules, which are about ensuring that profits derived from UK consumers are taxed fairly and consistently, regardless of where the underlying intangible property is held. The previous Government announced in the 2023 autumn statement that they would abolish ORIP, so we support the clause.
The ORIP rules were a short-term, unilateral measure introduced in the Finance Act 2019 to disincentivise large multinational enterprises from holding intangible property—assets such as patents, trademarks and copyrights—in low-tax jurisdictions if it was used to generate income in the UK. Such multinationals could thereby gain an unfair competitive advantage over others that hold intangible property in the UK, as well as eroding the UK tax base. However, the legislation is no longer required, because the OECD/G20 inclusive framework pillar two global minimum tax rules will comprehensively discourage the multinational tax planning arrangements that ORIP sought to counter.
As the Minister said, the repeal will happen alongside the introduction of the pillar two undertaxed profits rule from 31 December 2024. Has he assessed how successful the ORIP rules have been since their introduction? HMRC’s tax information and impact notes state that this measure will have a negligible impact on around 30 large multinational groups and a negative impact on the Exchequer, peaking at £40 million in 2026-27. Can the Minister clarify why the repeal of the ORIP rules is having a negative impact on revenues to the Exchequer? I note that the Chartered Institute of Taxation has welcomed the measure and specifically said that
“any reduction in the legislative code to minimise overlap and unnecessary measures is welcome.”
We say amen to that.
As I have set out, we will not oppose the clause, but I look forward to the Minister’s response to my specific points about ORIP.
James Murray
I thank the shadow Minister for his support for the clause. I think his question was about the impact of repealing ORIP. A fundamental point here is that pillar two, which we debated previously, will now tax the profits that were the target of ORIP. Pillar two is expected to raise more than £15 billion over the next six years, so ORIP is simply no longer needed. The Government believe that simplifying and rationalising the UK’s rules for taxing cross-border activities is important, and as such it is right that we use this opportunity to repeal ORIP.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21
Application of PAYE in relation to internationally mobile employees etc.
James Murray
I beg to move amendment 15, in clause 21, page 11, line 21, after “is” insert “or has been”.
This amendment makes it clear that new section 690 applies if an employee has been internationally mobile in a tax year, even if the employee is no longer internationally mobile.
The Chair
With this it will be convenient to discuss the following:
Government amendments 16 to 19.
Clause stand part.
James Murray
I will briefly address clause 21 before explaining what the amendment seeks to achieve.
The clause makes changes to simplify the process for operating pay-as-you-earn where an employee is eligible for overseas workday relief. It relates to some of the reforms we are making around non-UK domiciled individuals, which we will return to later in Committee, because those clauses are in a different part of the Bill. More broadly, the context of this measure is that 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 6 April 2025.
Currently, where an employer makes an application to treat only a portion of the income that they pay to an employee as PAYE income, they are required to wait for HMRC to approve an application, which can result in delays. The changes made by clause 21 will mean that from 6 April 2025, an employer will be able to operate PAYE only on income relating to work done in the UK once they have received an acknowledgment from HMRC of their completed application, rather than having to wait for HMRC to approve it. That approach will simplify the operation of overseas workday relief for employers, while still allowing HMRC to direct employers to amend the proportion of income on which PAYE is operated, should it be necessary to do so.
Amendments 15 to 19 are needed in order to ensure that the legislation regarding the correct operation of PAYE works as intended. 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. That will encourage them to spend and invest those funds in the UK.
James Wild
As we have heard from the Minister, clause 21 amends the process by which employers can operate PAYE on a proportion of payments of employment income made to an employee during the tax year. It is a welcome change. We will be supporting the clause and the simplification that it introduces.
By way of background, the clause amends section 690 of the Income Tax (Earnings and Pensions) Act 2003. Section 690 provides a mechanism for an individual or employer to seek a decision from HMRC regarding the tax treatment of certain earnings. The resulting determination under section 690 is an agreement between HMRC and a UK employer on the estimated percentage of duties that an internationally mobile employee expects to carry out in a tax year. Once that determination is provided, the employer can operate PAYE on only that percentage of the employee’s salary.
Unfortunately, that is easier said than done. According to the Institute of Chartered Accountants in England and Wales, historically HMRC has missed its four-month target to agree employers’ applications, and in some cases it has taken up to a year to obtain HMRC’s approval. This is just one example of the difficulty that taxpayers have in engaging with HMRC. I welcome the comments that the Minister made at Treasury questions last week about the work that he is doing—he chairs the board of HMRC, I believe—to ensure that HMRC delivers a better service for customers. We all wish him well on that.
Perhaps this is an opportune time to remind the 3.4 million people who have to submit self-assessment tax returns to do so before the 31 January deadline. Colleagues may wish to ensure that they have submitted theirs.
In the absence of an agreement, PAYE must be operated on the whole salary, meaning that the employee would be overtaxed and must claim relief after the year end. That is not a satisfactory outcome for anyone. These changes will allow employers to immediately operate PAYE on only the proportion of earnings that they believe relates to UK duties, rather than having to wait for HMRC to approve the application. This new process is a welcome step forward in dealing with an issue that HMRC has had in meeting its legal obligations under the current tax system.
James Murray
I thank the shadow Minister for his support for the clause and the amendments. He rightly recognises that this is a simplification to make things happen quicker in the tax system, and we can all agree on that. He raised some specific points, and I will write to him on the detail of the operation of the clause so that he has a record of that. I endorse his call for anyone who has not already submitted their self-assessment tax return to be mindful of the deadline of the end of the month.
Amendment 15 agreed to.
Amendments made: 16, in clause 21, page 12, line 4, after “being” insert “or having been”.
This amendment is consequential on Amendment 15.
Amendment 17, in clause 21, page 12, line 22, after “is” insert “or has been”.
This amendment makes it clear that a notice under new section 690A can be given during the mobile tax year if the employee has been internationally mobile during that year, even if the employee is no longer internationally mobile.
Amendment 18, in clause 21, page 13, line 22, leave out “public notice given” and insert “general direction made”.
This amendment means that the requirements of notices under new section 690A will be specified in a general direction made by HMRC rather than a public notice.
Amendment 19, in clause 21, page 15, line 38, at end insert—
“(3) Any direction given by an officer of Revenue and Customs under section 690 of ITEPA 2003 (employee non-resident etc) has no effect in relation to tax year 2025-2026 or any subsequent tax year.” —(James Murray.)
This amendment means that any direction given under the old section 690 will cease to have effect in relation to future tax years.
Clause 21, as amended, agreed to.
Clause 22
Advance pricing agreements: indirect participation in financing cases
Question proposed, That the clause stand part of the Bill.
James Murray
Clause 22 introduces technical amendments to provide certainty that advance pricing agreements are available for all financing arrangements covered by the transfer pricing rules, in line with the existing HMRC guidance.
The transfer pricing rules ensure that transactions between related parties, such as companies in the same multinational group, are priced as though they were between independent entities, in line with the arm’s length principle. This makes sure that each related party pays the appropriate amount of tax in the country in which it operates. That ensures a fair distribution of tax revenues across different jurisdictions and prevents companies from manipulating intra-group prices to shift profits to lower tax jurisdictions.
The UK’s advance pricing agreement legislation provides for agreements to be entered into between HMRC and businesses in scope of the transfer pricing rules, which determine the transfer pricing method that businesses should use to determine the arm’s length price. An advance pricing agreement is not special treatment for that taxpayer; rather, it provides improved certainty to taxpayers in areas where the correct application of the transfer pricing rules may be in doubt.
HMRC has recently become aware of a technical gap in the legislation that was contrary to its long-established statement of practice. The said statement of practice allows for an advance pricing agreement to be entered into where the parties are acting together in relation to financing arrangements. The changes made by this clause fix that gap and will ensure that HMRC can provide businesses with tax certainty in relation to the application of the transfer pricing legislation to all in-scope financing arrangements, in line with HMRC’s statement of practice.
The intention of this clause is to fix a technical gap in existing legislation and to ensure that HMRC can provide certainty in line with its existing published guidance.
James Wild
As we heard from the Minister, clause 22 makes amendments to parts 4 and 5 of the Taxation (International and Other Provisions) Act 2010 concerning the meaning of indirect participation in relation to advance pricing agreements. Once again, we welcome these changes. An APA is a procedural agreement between one or more taxpayers or one or more tax authorities on the future application of transfer pricing policies. Advance pricing agreements can help to provide certainty and avoid transfer pricing disputes.
HMRC recently became aware that there is a technical gap in the circumstances in which an advance pricing agreement may be entered into. Clause 22 aims to rectify that gap and provide clarity on what constitutes indirect participation in the context of APAs. The clause amends both the transfer pricing and APA legislation to ensure the validity of advance pricing agreements in cases where the parties to the provision are connected only by virtue of acting together in relation to the financing arrangements.
The clause will ensure the validity of advance pricing agreements with businesses in such circumstances and is intended to ensure that HMRC can provide businesses with tax certainty in relation to the application of transfer pricing legislation. We have spoken a lot during this Committee about the importance of certainty for business, so that is a welcome step.
By providing clarification on what indirect participation means, the Government are confirming the scope of advance pricing agreements, which should improve certainty and dispute resolution. The Chartered Institute of Taxation notes that
“this measure will be helpful for taxpayers that have applied to or want to apply to HMRC for APAs in relation to financing arrangements (such as Advance Thin Capitalisation Agreements) in circumstances where the UK’s transfer pricing rules are only in scope due to persons acting together in relation to those financing arrangements.”
The clause will likely improve the process both for businesses and HMRC. It is, however, a little hard to understand the real-world impact from the tax information and impact notes. Now that indirect participation has been defined and the scope of advance pricing agreements effectively broadened, will there be any extra enforcement cost? I would be grateful if the Minister could confirm how many businesses the change is likely to impact. It would also be useful to know whether the Government have calculated the economic benefits of advance pricing agreements and, subsequently, how the change will impact the Exchequer. As I have set out, we welcome this technical change, but I would welcome the Minister’s comments on the issues I have raised.
James Murray
I thank the hon. Gentleman for his support for the clause. We are on a roll of him supporting clause after clause—may this continue throughout the rest of the Bill.
The hon. Gentleman rightly recognises that this is a simplification measure on which all Members can agree. As it is a simplification measure, it is non-scoring, so it does not have an Exchequer impact—it simply provides certainty on how the rules as intended will apply. It does not change how the rules apply or make a policy change to the Government’s approach; it makes sure that there is total certainty and clarity about how they will apply. Only a limited number of taxpayers will be affected, and we expect them to welcome the change because of this certainty.
I welcome the Opposition’s support for this clause, because I think we can all agree on giving as much certainty to taxpayers and businesses as possible.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Expenditure on zero-emission cars
Question proposed, That the clause stand part of the Bill.
James Murray
Clauses 23 and 24 make changes to extend the 100% first-year allowances for qualifying expenditure on zero emission cars and plant or machinery for electric vehicle charge points by a further year to April 2026. The first-year allowance for cars was originally introduced for expenditure incurred from 17 April 2002 for low CO2-emission cars, including electric vehicles, and eligibility was later restricted to cars with zero CO2 emissions from April 2021. The first-year allowance for electric vehicle charge points was originally introduced for expenditure incurred from 23 November 2016. These first-year allowances were introduced to support the UK’s transition to cleaner vehicles and were due to expire in April 2025.
The changes made by clauses 23 and 24 will extend the availability of the capital allowances for a further year to 31 March 2026 for corporation tax purposes and 5 April 2026 for income tax purposes. This ensures that investments in zero emission cars and charge point infrastructure continue to receive the most generous capital allowance treatment. By extending the first-year allowances for zero emission cars and charge point infrastructure, the measure will provide continued support for the transition to electric vehicles.
Gareth Davies
As the Minister set out, clauses 23 and 24 extend the availability of the 100% first-year allowance for business expenditure on zero emission cars and for expenditure on plant or machinery for an electric vehicle charging point. Both allowances are extended for a single year from April 2025. In their current forms, both allowances were introduced by Conservative Governments. Although we will not oppose the clauses, there are a few questions that I would like the Minister to address.
The first relates to a point that has been highlighted by the Association of Taxation Technicians concerning clause 24. The ATT has queried why the specific allowance for charging points is being extended when this expenditure has been covered by both the annual investment allowance and full expensing since the Conservative Government made those reliefs permanent in 2023. That means that the allowance is really relevant only to unincorporated business—for example, a partnership or sole trader— that has already used its annual investment allowance in full, which is a scenario that the ATT considers to be quite rare.
According to the ATT, we should be able to tell how rare this is from the number of claims made for this specific allowance on tax returns. Will the Minister provide any information that he has to hand on that? HMRC has said it expects 6,000 unincorporated businesses to be impacted by clauses 23 and 24. Does the Minister have a figure for clause 24 alone and for specific unincorporated businesses that have exhausted their annual investment allowance? At the very least, I would be grateful if the Minister explained to the Committee the rationale behind that specific extension, given the context that the ATT has so clearly set out.
The cost to HMRC of implementing the clauses is a cool £1.2 million—a relatively high figure for the extension of a pre-existing allowance for a single year. If clause 24 is largely redundant, this hardly seems good value for money on HMRC’s part. I therefore ask the Minister to provide a clause-by-clause breakdown of the £1.2 million of taxpayers’ money that HMRC will spend to be able to execute the relief.
Turning back to clause 23, electric vehicles, unlike charging points, are not in scope of the annual investment allowance or full expensing, so I will not question the extension of that specific allowance, which we welcome. However, given the Government’s ambition to accelerate our transition to electric vehicles, I cannot help but wonder why they are putting a brake on the allowance after just a single year.
The Red Book states that the allowance will
“help drive the transition to electric vehicles”,
yet from April 2026, a business investing in these cars will receive relief only through annual writing-down allowances of either 18% or 6%, depending on the car’s emissions—those incentives are less generous and less immediate. At Budget 2020, we extended the EV allowance by four years to provide the support and certainty to businesses that the Minister says he so desperately wants. This Labour Government have declined to do the same, creating what some—not me—may call a cliff edge. As Labour increases the pace and the burden of the transition to net zero, they are also shifting the burden away from His Majesty’s Government and on to British businesses and British consumers. Once again, it is they who will pay the price for the Government’s obsession with decarbonising our grid and imposing net zero policies on the British public.
James Murray
I thank the shadow Minister for his questions and his support for the clause. He mentioned a question that the ATT raised about the interaction between the extension of the 100% first-year allowance we are proposing, particularly for charge points, and the context of full expensing in the annual investment allowance. For businesses that are investing over the annual investment allowance limit, there may be circumstances where, if the first year allowance were not extended as it is by these clauses, some investment in EV charge point equipment would qualify for only a 50% first-year allowance rather than 100% full expensing. The Government want to support investment in EV charge point infrastructure by providing full relief for investment in equipment for EV charge points. That is why we have introduced this measure.
The shadow Minister asked for a specific figure. I do not have that to hand, but I am happy to look into what information is available and get back to him. More broadly, the 100% first-year allowance was due to expire in April 2025. This conversation has echoes of an earlier discussion we had around retail, hospitality and leisure business rates relief, and reliefs or allowances that we inherited and which are due to expire in April 2025. We have decided to extend this, and the reason why is to help support businesses and individuals who are buying or making electric vehicles and associated infrastructure. We see this as one of a series of measures to support the EV transition. It has come up in relation to a number of clauses, so I think it is clear to the Committee that the Government are pursuing a range of different interventions and policies to carefully calibrate the right level of Government support.
Blake Stephenson (Mid Bedfordshire) (Con)
In the interest of providing certainty, would the Minister explain why the Government did not choose a multi-year allowance on this, rather than going for an extension of only one year?
James Murray
As I was saying, we are seeking to calibrate the incentives carefully for the transition to EVs to support manufacturers and consumers and to give as much certainty as possible, while making sure that we have the right support in different parts of the tax system to provide value for money and support the transition in the right way. It is not a question of a single measure being responsible for supporting the transition. This relies on manufacturers and consumers playing their part, but the Government need to play their role, too, which is why this measure sits alongside others we have debated, including those that are not part of the Finance Bill but are part of the Government’s broader agenda. Collectively, they will support this transition.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Clause 24 ordered to stand part of the Bill.
Clause 25
Commercial letting of furnished holiday accommodation
Question proposed, That the clause stand part of the Bill.
James Murray
The clause and the schedule abolish the furnished holiday lettings tax regime from April 2025, removing the tax advantages that landlords who offer short-term holiday lets have over those who provide standard residential properties. Furnished holiday let owners benefit from a more generous tax regime than landlords of other property types, such as standard residential properties. The advantages of that tax regime include capital gains tax reliefs: FHLs can qualify for gains to be charged at 10%, unlike buy-to-let properties and second homes. FHLs also benefit from unrestricted income tax relief on their mortgage interest, rather than the 20% restriction on relief for standard lettings, and from capital allowance on furniture and furnishings. FHL profits are also counted as earned income for pension purposes.
The previous Government announced at the spring Budget 2024 that they would abolish the FHL tax regime to level the playing field with landlords of standard residential properties. We are now legislating for that measure and abolishing the FHL tax regime from April 2025, which will raise around £190 million a year by 2029-30 and thereby support the vital public services we all rely on. The changes made by clause 25 and schedule 5 mean that FHL landlords will be treated the same as other residential landlords for the purposes of income tax, corporation tax and capital gains tax.
Harriet Cross
Does the Minister recognise the difference between properties with a use clause compelling them to be used for holiday let accommodation and houses that do not, and that can therefore be used as residential properties? Those two things do not necessarily line up in terms of what the owner can use the property for.
James Murray
If I understand the hon. Member’s question correctly, it might relate to clauses in the lease of the property, but I am not quite sure what her point was. I will come back to this if I have misunderstood her question, but clause 5 relates specifically to the tax treatment of these properties. It is about how FHLs, which can still operate in the same way as they have previously in terms of lettings, will be treated by the tax system to bring them in line with standard residential property tax treatment. This is about equalising the tax treatment of FHL landlords and standard landlords, rather than seeking broader changes, which may be what she was alluding to, but I am happy to return to it later in the debate if I have misunderstood her question.
This measure does not penalise the provision of FHLs; it simply brings their tax treatment more in line with long-term lets. It does that to remove the tax advantages that FHL landlords have received over other property businesses in four key areas. First, finance cost relief will apply in the same way as for long-term lettings, with income tax relief on their mortgage interest restricted to the basic rate. Secondly, it will remove the capital allowances rule for new expenditure and allow replacement of domestic items relief. Thirdly, it will withdraw access to reliefs from taxes on chargeable gains for trading business assets. Fourthly, FHL income will no longer count as earned income for pension purposes. After repeal, former FHL properties will form part of a person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses.
However, the Bill does not equalise tax treatment entirely. Holiday lets, whether they qualify as FHLs or not, are subject to VAT, whereas longer-term, private rented sector accommodation is not. Withdrawal of finance cost relief will mainly affect higher rate and additional rate taxpayers, with basic rate payers largely unaffected. The Government have also introduced transitional arrangements. FHL properties will become part of a person’s overall property business and past FHL losses can be relieved against profits of that business in future years. Existing capital allowance claims can be continued, but new capital expenditure will be dealt with under the rules for standard residential let properties. The legislation also confirms that where a business has ceased prior to April 2025, business asset disposal relief may continue to apply to a disposal that occurs within the normal three-year period following cessation, which is in line with current rules.
Mr Angus MacDonald (Inverness, Skye and West Ross-shire) (LD)
Did the Minister consider the different legislation in Scotland, where we have short-term letting licences, visitor tax and a whole load of extra legislation coming in, which is making it difficult and reducing the amount of holiday letting available? How relevant is the proposal for Scotland?
James Murray
The hon. Gentleman’s question goes slightly beyond the ambit of the tax measures we are discussing. As I understand, he is talking about the wider regulation and the approach to lettings in Scotland. To echo my response to the hon. Member for Gordon and Buchan, the measures really relate to the tax treatment of FHLs in comparison to standard property lettings, making them more equal. It does not make them entirely equal—VAT remains a point of difference—but it is about levelling the playing field between FHL landlords and the landlords of standard lettings in the tax system.
Mr MacDonald
My point was really about the cumulative effect of many different taxes and restrictions making it more and more difficult for people in the letting business, which is crucial to the economy of tourist areas.
James Murray
We know that in any local area there needs to be a balance between visitor accommodation and long-term accommodation. I am sure that the hon. Member and others recognise the tension inherent in getting that balance right. We need to ensure not only that we are supporting our visitor economy, but that the tax system supports long-term accommodation for people who live in those areas—not least because those who work in the tourism sector need somewhere to live near their place of work. It is about the balance between supporting visitor economies and long-term residential lets. We agree with the previous Government, who introduced the reform, on this point. The tax treatment of FHL landlords is better if brought more in line with standard residential lets.
I will briefly mention the anti-forestalling rule, which is also introduced as part of the Bill. It will prevent the obtaining of a tax advantage through the use of conditional contracts to receive capital gains relief under the current FHL rules. That rule applies from 6 March 2024.
In summary, the changes made by the provisions will make the tax system fairer by eliminating tax advantages for landlords who let out their properties as short-term furnished holiday lets compared with those who let out properties for longer periods. FHL landlords will now be treated the same as other residential landlords for the purposes of income tax, corporation tax and capital gains tax. We are grateful to all the stakeholders who have already fed in following the publication of the draft legislation and supporting documents.
Gareth Davies
As the Minister set out, clause 25 and schedule 5 repeal special tax rules relating to the commercial letting of furnished holiday accommodation. The changes were first announced in our Government’s Budget in March 2024, and we will not oppose them. However, it is important to view the measures in the context of the wider changes to the circumstances of the hospitality sector as a result of Labour’s Budget—most notably the hike in national insurance contributions.
Loan Charge: Independent Review
James Murray Excerpts(3 weeks, 3 days ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (James Murray)
At the Budget, the Government announced that they would commission an independent review of the loan charge to help bring the matter to a close for those affected while ensuring fairness for all taxpayers. Today I can set out further details about the review.
The loan charge was intended to tackle historical use of contrived tax avoidance schemes that seek to avoid income tax and national insurance by disguising remuneration as a form of non-taxable payment (typically a loan). Disguised remuneration schemes have been considered by the courts. In the most notable case in 2017, the Supreme Court agreed with HMRC that schemes that redirect earnings and ultimately pay them in the form of loans do not succeed in avoiding tax. In a further decision in 2022, the Court of Appeal confirmed that even where other parties (such as employers or agencies) have obligations to operate PAYE, the liability for income tax is that of the employee.
The Government believe that it is right that those who did not pay the right amount of income tax and national insurance are required to resolve their affairs with HMRC. Accepting otherwise would be contrary to the decisions of the courts and would be unfair to the vast majority of taxpayers who have never used these schemes.
However, the Government recognise that concerns continue to be raised about the loan charge. In particular, there are concerns about the size of liabilities owed by some of those affected and their ability to pay the tax that they owe in a reasonable timeframe.
I have therefore asked Ray McCann, a former president of the Chartered Institute of Taxation, to conduct a review into the barriers that are preventing those subject to the loan charge from reaching resolution with HMRC and to recommend ways in which they can be encouraged to do so.
The objectives of this review are to help bring the matter to a close for those affected; ensure fairness for all taxpayers; and ensure that appropriate support is in place for those subject to the loan charge. The full terms of reference for the review have been published here: www.gov.uk/government/publications/independent-review-of-the-loan-charge.
The review will commence on 23 January 2025 and I have asked Mr McCann to present his final report to me by summer 2025. I will provide a further update to the House after I have received that report.
[HCWS386]
Agricultural and Business Property Reliefs: OBR Costing
James Murray Excerpts(3 weeks, 3 days ago)
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Victoria Atkins (Louth and Horncastle) (Con) (Urgent Question)
To ask the Chancellor of the Exchequer what assessment she has made of the Office for Budget Responsibility’s supplementary forecast information release on the costing of changes to agricultural and business property relief.
The Exchequer Secretary to the Treasury (James Murray)
At the autumn Budget, we took difficult decisions on tax, welfare and spending that were necessary to restore economic stability, fix the public finances and support public services. We had to do that to address the mess we inherited from the previous Government, which the right hon. Member for Louth and Horncastle (Victoria Atkins) will remember well, having served in that ill-fated Government. We have taken these decisions in a way that makes the tax system fairer and more sustainable.
The Government are better targeting agricultural property relief and business property relief to make them fairer. These reforms mean that despite the tough fiscal context, the Government are maintaining very significant levels of relief from inheritance tax beyond what is available to others.
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 His Majesty’s Revenue and Customs, 40% of agricultural property relief benefits the top 7% of estates making claims. That is just 117 estates claiming £219 million of relief. It is a similar picture for business property relief, with more than 50% of it being claimed by just 4% of estates making claims, which equates to 158 estates claiming £558 million in tax relief. Our reforms mean that individuals can access 100% relief for the first £1 million of combined business and agricultural assets, and 50% thereafter. Given the nil rate bands, this means that a couple can pass on up to £3 million between them to a direct descendant, inheritance tax free.
Yesterday, the Office for Budget Responsibility published further details on the data sources and modelling used to estimate costings across a number of the tax measures announced at Budget, including the reforms to agricultural property relief and business property relief. The costing is the same as published at Budget, and the approach to modelling the costing is typical and in line with other tax policies. As the Government have set out, the reforms mean that almost three quarters of estates claiming APR in 2026-27, including those that also claim BPR, will not pay more inheritance tax. This is a fair approach that protects farms while also fixing the public services we all rely on.
Mr Speaker
I call the shadow Secretary of State for Environment, Food and Rural Affairs.
Victoria Atkins
Having inherited the fastest-growing economy in the G7, the Chancellor’s Budget has led to the highest borrowing costs since the pandemic, growth flatlining, business confidence plummeting and job freezes. Who has Labour chosen to pay the price for its economic illiteracy? Pensioners, family businesses and farmers. For months, farmers, farming businesses, professional advisers and economists, and now eight major supermarkets, have warned the Chancellor that she has got her figures wrong, but Ministers cleave desperately to their soundbites. Let us hope that they listen to the OBR.
Yesterday, the independent OBR released additional information about this particular measure and reiterated the “‘high’ uncertainty” of the predicted yield. It noted that the yield of the measure is likely to be reduced by 35% because of behavioural responses, and that it is unlikely to reach a steady state for 20 years. The OBR also expressed grave concerns about the impact on older individuals and their ability to plan. In short, the reassurances provided by Ministers are falling almost as flat as the economy.
The Chief Secretary to the Treasury has lectured this House about the perils of sidelining the OBR. In light of its analysis, will the Minister now commit to a full and proper review of this dreadful policy? The public have noticed that Government Ministers are failing to answer reasonable questions about their policies, so will the Minister please give straight answers to the farmers and businesses watching our proceedings today?
In light of the new analysis, how many farms does the Treasury think will be affected by the changes to APR, APR/BPR and BPR alone? What assessment has he made of the Central Association of Agricultural Valuers’ finding that the Chancellor has underestimated the number of farms affected by the changes by a factor of five? How many tenant farmers will be evicted? As worrying reports of suicides among farmers begin to emerge, will the Minister please do what the Secretary of State for Environment, Food and Rural Affairs has failed to do and measure the number of suicides over the next 12 months, so that we can understand the human cost of this policy?
Finally, why does the Minister think that Tesco, Sainsbury’s, Asda, Morrisons, Marks & Spencer, Aldi, Lidl and the Co-op have all come out against this tax policy and believe the Treasury’s figures to be wrong? Why does he think they are wrong and he is right?
James Murray
I think there may be some confusion on the Conservative Benches about what the OBR data shows. The data published by the OBR yesterday refers to exactly the same costing as was published at Budget. It sets out the approach to modelling and the costing, which is typical and in line with other tax policies. Indeed, the OBR’s statement makes it clear that:
“The OBR’s role is to provide independent scrutiny and certification of whether the Government’s policy costings are reasonable and central.”
That is exactly what the OBR has done in publishing the extra information, which shows the modelling behind the data that was published at the time of the Budget.
The shadow Secretary of State asked about the data. The data on the number of affected estates claiming APR and, indeed, APR/BPR—some 530 is the upper estimate—is in table 1.1 of the OBR document published yesterday. That is consistent with what we have been saying for many months since the Budget. I think Opposition Members are confusing the value of farms with the value of claims under inheritance tax. The only way to truly understand the impact of changes to inheritance tax policy on inheritance tax claims is to look at the claims data itself.
We are working in partnership with the large supermarket chains to make sure they are driving economic growth. We are very clear that some of the decisions we had to take in the Budget were difficult decisions that will have consequences, but we are determined to work with businesses across the country to drive economic growth, which is the No. 1 mission of this Government.
Chi Onwurah (Newcastle upon Tyne Central and West) (Lab)
The people of Newcastle upon Tyne Central and West love the local produce provided by local farmers in our fantastic markets, such as Grainger market, and they enjoy the beautiful countryside of Northumberland, which has been shaped by generations of sustainable farming. However, we cannot help but be aware that most of that land is owned by, for example, the Duke of Northumberland, big landowners and those seeking to minimise their tax exposure, so does the Minister agree that, by keeping this loophole open for so long, the country has pushed up land prices and pushed out the next generation of young farmers?
James Murray
There certainly is evidence that the current inheritance tax system has caused people to use these reliefs for tax planning and to avoid inheritance tax bills. My hon. Friend alludes to the broader question of the fairness and sustainability of this measure. As I mentioned earlier, 40% of agricultural property relief benefits the top 7% of estates, and 50% of business property relief benefits the top 4% of estates. The Leader of the Opposition has said that she thinks this is a good way to prioritise public money, but we think it is neither fair nor sustainable.
Steve Darling (Torbay) (LD)
After years of the Tories failing our rural communities, including with a dodgy and utterly shameful Australian trade deal, it is a great pity that the new Government have picked up the baton. From Orkney to the Isles of Scilly, Liberal Democrat colleagues are extremely concerned about the impact of these proposals.
The report published yesterday clearly demonstrates the uncertainty about the income from the misguided family farm tax over the next two decades. In the light of this, and given that it will hit older farmers in particular and those who put food on the tables of the United Kingdom, will the Minister do the right thing and scrap this tax?
James Murray
The OBR document published yesterday refers to the level of uncertainty associated with this policy, which is exactly what was set out at the time of the Budget, and it is a typical way in which the OBR responds to new measures. What was published yesterday simply reiterates the OBR’s conclusions from the end of October.
Callum Anderson (Buckingham and Bletchley) (Lab)
Does my hon. Friend agree that, once again, the Conservative party has failed to agree with the tough decisions we have made and has no idea how to raise the revenue to finance the public services that benefit rural communities like mine in north Buckinghamshire?
James Murray
My hon. Friend is absolutely right. The party opposite—in fact, the parties opposite—routinely support the Government’s spending and investment decisions but will not support any of the difficult decisions we have to take to fund them.
Simon Hoare (North Dorset) (Con)
The weight of public and business opinion is not with the Minister on this issue, and the body of expert opinion speaking out against this tax proposal is now overwhelming. The Minister is a kindly man, so I wonder if he will indulge me. What would he be saying if he were in opposition and that weight of opinion was being expressed against a Conservative Government’s Treasury policy?
James Murray
The hon. Gentleman is a kindly man, too. I value the conversations that he and I have had outside the Chamber. People looking at this policy, and all our policies in the Budget, will recognise that we had to take difficult decisions, and will understand the context: our inheritance from the previous Government. We recognise the toughness of those decisions—they were not easy to make—but we prioritise balancing the public finances and economic stability, because that is how we get investment in growth, which our country so badly needs.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
One of the witnesses before the Environment, Food and Rural Affairs Committee told us that the Government’s changes hit the people the Government say they are protecting, and protect the people the Government say they are hitting. It is difficult to improve on that analysis of what is proposed. It really does not have to be like that. There is a sensible debate to be had about reforming inheritance tax to stop the super-rich from sheltering their wealth while still protecting family farms. His Majesty’s Revenue and Customs has its technical consultation coming up. Why does the Minister not agree to broaden its terms, engage with the farming communities, and look for a way to protect family farms and get at those who are sheltering their wealth in land?
James Murray
The policy that we are implementing includes generous provisions to protect family farms—the £1 million entire relief from inheritance tax for agriculture and business property assets. That is in addition to the nil-rate bands that people can access as part of the general inheritance tax scheme. We think that strikes the right balance between making sure we raise money for the public finances and protecting family farms.
Dame Harriett Baldwin (West Worcestershire) (Con)
Mr Speaker, have you noticed a pattern—that on a Thursday, a Treasury Minister will be asked to come to the Commons to answer an urgent question, and there will be barely a soul on the Labour Benches behind them when they do?
Dame Harriett Baldwin
The Office for Budget Responsibility forecasts that the measure will raise £500 million in revenue by 2029, which, in the context of tax revenues of over £1,150 billion, is a very small number. What value does the Minister put on food security for the United Kingdom?
James Murray
Obviously, the Government put the highest priority on food security. That is why our policies set out to support it, and the farming sector more widely. The policy is one of many difficult decisions that we had to take in the Budget to balance the public finances, support public services and provide the economic stability we need for investment and growth.
Sarah Dyke (Glastonbury and Somerton) (LD)
I have heard from many farming businesses across Glastonbury and Somerton over the last few months, but one farm in Hurcot near Somerton recently wrote to me to describe the anguish and stress that the changes to the APR and BPR have caused them. As in the case of many farming businesses, their succession planning has focused on the primary landowner retaining the farm until death. How will the Minister explain to them that according to the OBR, the potential loss of their family farm business is likely to have little impact on the public finances, and that the policy will hit the oldest farmers hardest?
James Murray
The OBR’s publication yesterday sets out the costings that were in the October Budget. There is no difference between the costings set out in October and what the OBR set out yesterday. It simply showed more of the background behind how they calculated those costings, for transparency and so that people are aware. Indeed, it says in the report that that is done in an effort to improve the public debate and ensure that people understand what is behind the data published at the time of the Budget.
As I said to several Opposition Members, clearly this was one of many tough decisions that we took in the Budget to balance the public finances, but we also made sure that there is greater protection from inheritance tax under our proposed reform scheme than is available more widely.
John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)
The Labour Government’s family farm tax will be catastrophic to farmers in my constituency in the Borders. I will join many of them and their tractors in Kelso on Saturday, when the farming community comes together to show its displeasure and disapproval of this policy. Farmers will struggle to pay this tax, so what assessment have the Government made of the policy’s impact on vets, feed merchants, machinery suppliers, and all the other people who support the rural economy?
James Murray
Supporting the rural economy, public services and investment right across the country is part of Labour’s national mission to get the economy growing, but the prerequisite for that investment and economic growth is stable public finances. Without economic stability, we cannot proceed to the investment and growth that we all so desperately need. That is why the decision to target agricultural property relief and business property relief was taken, alongside all the other difficult decisions that we took in the Budget.
Dave Doogan (Angus and Perthshire Glens) (SNP)
This measure is now revealed to be spectacularly ill-considered, leaving aside the fact that it is also a breathtaking betrayal of farmers, who were promised before the election that this would not happen. The measure groups intergenerational farmers with speculative millionaires seeking to dodge tax by getting involved in farming. It has put an immediate brake on investment in farming, which threatens to lower yields and drive up food prices. That then threatens to put inflationary pressures on the UK economy, which is already in a perilous state. This Government cannot just agree with the OBR when it suits them. They must agree with the OBR regardless of what it says. Will the Minister please respectfully pause the measure, take some time to think about this, and come up with something that will actually deliver for the Treasury but not push our family farming sector under.
James Murray
There still seems to be confusion among Opposition Members about what the OBR publication set out. It reiterates the costings that were published at the time of the Budget, on 30 October. It explains how those costings were arrived at, so that people can understand the calculations behind them, but the costings are the same as those published at the time of the Budget.
Jerome Mayhew (Broadland and Fakenham) (Con)
Mr Speaker, if you look at the Register of Members’ Financial Interests, you will see a reference to my family farm in my constituency. Last Sunday, I drove one of our tractors to Fakenham racecourse to support the farmers’ protest against the APR and BPR. I talked to other farmers, and the key complaint was that there had been no consultation on the changes, and no time for older farmers to adjust their affairs. All those concerns have been rubbished by Ministers time and again, most recently today. Now that the OBR confirms that it is more difficult for older people to restructure their affairs quickly, will the Government finally listen, show some humility, and consult on how best to tackle the tax shelterers while still protecting our farmers?
James Murray
The comments in the OBR publication yesterday about older individuals reference a point that has been made since the Budget in debates in this place and elsewhere. We have pointed out that our reform of agricultural property relief and business property relief maintains generous exemptions from inheritance tax; £1 million is subject to relief, and there is the 50% relief beyond that, the existing nil-rate bands, and other exemptions in the system.
Wendy Chamberlain (North East Fife) (LD)
Unusually, in Scotland tenant farms can be passed down as inheritance. I have been asking the Treasury whether it has made an assessment of the impact on such farms, given that their farmers cannot sell land to meet the APR liability that they might face. So far, the answer appears to be that there is no assessment, so I ask the Minister for an answer from the Dispatch Box: is he aware of agricultural tenancies under the Agricultural Holdings (Scotland) Act 1991, and has he made an impact assessment?
James Murray
The way to calculate the impact of changes to inheritance tax policy is to look at the inheritance tax claims that have been made, and that is what we have used as the basis for our calculations. In fact, the OBR publication yesterday confirms that it used HMRC’s data on inheritance tax reliefs in the past and inheritance tax projected forward, and it is on the basis of that data that we designed our policy.
Charlie Dewhirst (Bridlington and The Wolds) (Con)
The Minister has just confirmed that the Treasury’s modelling is based on agricultural property relief and joint agricultural and business property relief claims, yet tax experts have said in evidence to the Environment, Food and Rural Affairs Committee that many family farms will wrap their agricultural land into a single business property relief claim, so the Treasury’s modelling does not take into account family farms that have used a BPR-only claim, tenant farmers who use BPR, and the many rural family businesses that will also use BPR. Will the Minister please take this opportunity to look at this again, before his Government wreck the countryside?
James Murray
As I set out earlier, the need to reform business property relief is as strong as the need to reform agricultural property relief, in order to have stable public finances and a fair and sustainable tax system. As I set out, 40% of APR goes to the top 7% of estates, and 50% of BPR goes to the top 4% of estates. Given the fiscal context that we inherited, that kind of unfairness is not sustainable. When balancing the books, we need to develop the tax system in a way that is sustainable and gives us the economic stability that we desperately need after the mess that the previous Government left us.
John Milne (Horsham) (LD)
Farmers have made their inheritance tax plans in good faith, based on existing rules. In effect, the measure is a retrospective change to tax law, so will the Minister agree to at the very least delay its implementation until the effects are properly understood by both farmers and the Government?
James Murray
The Government are committed to delivering the reforms announced in the Budget. We have carefully considered their impact, and designed the policy to provide generous exemptions from inheritance tax for small family farms and businesses, while ensuring that we balance the public finances as fairly as possible.
Harriet Cross (Gordon and Buchan) (Con)
In the light of the uncertainty in the OBR’s report; the fact that the policy will hit elderly farmers the hardest and put food security at risk; and the fact that rural communities will suffer the most, given the impact on tenants and young farmers, and the wider agricultural sector, does the Minister really still believe in this policy?
James Murray
The OBR’s allusion yesterday to a degree of uncertainty is exactly the same as what it said at the time of the Budget. The costing is exactly the same as what it published at the time of the Budget. Yesterday, the OBR published more information about how the costing was arrived at, but the costing itself, the degree of uncertainty and the calculations remain exactly the same as at the time of the Budget.
Richard Tice (Boston and Skegness) (Reform)
The Minister just mentioned balancing the public finances—those are the key words—through these measures. We have just had the debt figures for December, which are 20% higher than the OBR expected them to be just two months previously. At what point will the Minister and the Government recognise that they have got this badly wrong and change course?
James Murray
We recognise that when the Conservative party was in government, it got it badly wrong. The country decided to change course, which is why they elected us into government to fix the public finances, put our public services back on their feet, boost investment and get the economy growing.
Lincoln Jopp (Spelthorne) (Con)
They say that one ought to build one’s enemy a golden bridge. I think the compromise and pause proposed by the National Farmers Union is an elegant solution. That golden bridge is now being signposted by Tesco, Aldi, Lidl, the Co-op, and all the major retailers the Minister claims to be engaging with. Why does he not just pause, go back, listen, and review the policy?
James Murray
As I set out in answer to a previous question, the Government are committed to delivering the reforms announced in the Budget. They were carefully calibrated to retain generous inheritance tax exemptions, while ensuring that we balance the public finances as fairly as possible.
Max Wilkinson (Cheltenham) (LD)
Bence Builders Merchants in my constituency has been providing good local produce and good local jobs since the Earl of Aberdeen was in power. The owner, Paul Bence, fears that the combination of business property relief changes and changes to employer’s national insurance mean that there is a huge disincentive to invest further. Does the Minister share my constituent’s concern?
James Murray
I thank the hon. Gentleman for raising his constituent’s concern. I do not know the specifics of the case, but more broadly, investment decisions depend above all else on a stable economy and stable public finances. Without the hard work that we have done since taking office to fix the public finances and bring back economic stability, investment would be hampered, and our growth ambitions would not materialise in the way that we are determined to ensure happens.
John Cooper (Dumfries and Galloway) (Con)
There will be a rally on Saturday, and the Minister appears to imagine that this indicates acclamation for his policy. We heard earlier in the week from the hon. Member for Falkirk (Euan Stainbank) and today from the hon. Member for Newcastle upon Tyne Central and West (Chi Onwurah)—both well-known rural areas—that this is all about the landed estates and wealthy people, but I can assure the Minister that the farmers I will speak with in Castle Douglas on Saturday are tenant farmers and family farmers, and they face being put off the land after generations. Is he really suggesting that I should tell them they have nothing to worry about?
James Murray
I am not going to tell the hon. Gentleman what he should say to his constituents, but what I can tell him about the Government’s policy is that we have reserved generous inheritance tax reliefs for people in the situations he describes. I encourage anyone who is concerned to seek advice, to understand exactly how the new rules might apply to them.
Jim Shannon (Strangford) (DUP)
Sometimes I am absolutely flummoxed—we probably all are—by the Chancellor’s intent to tax working family farms, which we all know will result in the loss of small farms, the sale of the land and a reduction in food security. Now it seems that the OBR agrees that it will not make savings. Will the Minister commit to meeting Cabinet colleagues urgently to remove the sword of Damocles that is hanging above small family farms and hurting the agrifood sector as a whole? I say to the Minister that there is a way forward: increase the threshold from £1 million to £5 million, and family farms will be saved.
James Murray
I thank the hon. Gentleman for his question, but I think it was based primary on the OBR publication yesterday. I reiterate the point I have made several times now: that OBR publication reiterated the costings and figures set out at the Budget, it reiterated the level of uncertainty associated with the measure, as published at the Budget, it provides more detail behind that, but the conclusion is the same as it was on 30 October.
Mr Carmichael
On a point of order, Mr Speaker. Before questioning the Minister, I should have reminded the House of my entry in the Register of Members’ Financial Interests. My failure to do so, for which I apologise, was inadvertent—I just got carried away with the excitement of the moment.
Oral Answers to Questions
James Murray Excerpts(3 weeks, 5 days ago)
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Antonia Bance (Tipton and Wednesbury) (Lab)
The Exchequer Secretary to the Treasury (James Murray)
The UK carbon border adjustment mechanism will be introduced in 2027. It will ensure that imports face a carbon price that is comparable with domestic products, giving UK industry the confidence to invest without its decarbonisation efforts being undermined. UK steel producers will continue to benefit from high levels of free allowances in the UK emissions trading system until at least the end of 2026, protecting them against carbon leakage via high-emission imports.
Antonia Bance
Newby Foundries and Alucast in my constituency of Tipton, Wednesbury and Coseley have raised with me the impact of the UK CBAM coming into effect later than, and differing from, the EU CBAM. This could threaten domestic steel production and make the export of metal products to the EU more difficult. Can the Minister please support the UK’s steel and metal finishing industries by reassuring me that the UK CBAM will not be weaker than the EU CBAM, and will he meet me and other steel MPs to discuss this?
James Murray
As I have set out, the UK CBAM will mitigate the risk of carbon leakage by placing a carbon price on some of the most emissions-intensive industrial goods imported into the UK, including in the iron and steel sector. The UK CBAM is designed for the UK context, and in some areas, its emissions scope is wider than the EU CBAM—in respect of indirect emissions, for instance. The first CBAM industry working group was held earlier this week, and I understand that a representative of the UK steel sector attended. I will make sure that my officials continue to engage with the industry sectors most affected, and I am very happy to discuss this further with my hon. Friend.
Sir Gavin Williamson (Stone, Great Wyrley and Penkridge) (Con)
Heavy industry, whether it is steel, ceramics or so many other areas, is totally dependent on low energy costs. The trajectory is that energy costs are rising, especially in industry, whether as a result of regulation or world markets. Many other countries are doing more to protect their heavy industries by making sure they can have low input costs for energy. What more can the Minister do to protect our heavy industry in the future?
James Murray
The No. 1 thing for industry and households is to bring down the cost of energy. That is why we are investing in renewable home-grown energy for the future, to make sure we have energy independence, energy security and, crucially, lower bills for those households and businesses.
Steve Darling (Torbay) (LD)
The Exchequer Secretary to the Treasury (James Murray)
The Government announced a range of measures at the autumn Budget to support SMEs, including in the retail, hospitality and leisure sectors. They include more than doubling the employment allowance, freezing the small business rates multiplier, extending RHL relief to 40%, maintaining the small profits rate and reducing the duty on qualifying draught products, which represent 60% of alcoholic drinks sold in pubs.
Bobby Dean
The Labour manifesto committed to replacing the business rates system. However, last week at the Treasury Committee, the Minister seemed to rule out the kind of comprehensive reform that the Liberal Democrats and others have been campaigning for, and indicated that there might only be a tinkering around the edges of rates and reliefs. Can the Minister confirm today whether the Government still intend to replace the business rates system, or will they just be tinkering around the edges of this broken system?
James Murray
I think that retail, hospitality and leisure businesses, which are the backbone of our high street, might object to the idea of permanently lower tax rates as “tinkering around the edges”. That is a fundamental change that we want to bring in from April 2026 to make sure they have stability, certainty and permanently lower rates. Alongside it are our wider ambitions in the “Transforming Business Rates” discussion paper, which I invited the hon. Gentleman to read and respond to at last week’s Treasury Committee.
Michael Wheeler
I draw Members’ attention to my declaration in the register of interests.
Retail is an important part of the economy in my constituency, which includes many wonderful independent businesses. Will, who runs the excellent Wandering Palate in Monton, wrote to me about the challenges he is facing. Will the Minister outline the measures the Government are taking to support small business owners like Will in my constituency and across the country to enable our high streets to thrive?
James Murray
I thank my hon. Friend for his question and for referencing Wonderful Palate, the business in his constituency. I do not know the details of the rateable value of that property, but I point the owner to the fact that we are retaining small business rate relief, freezing the small business multiplier next year and extending the retail, hospitality and leisure relief in 2025-26. I also point the owner of that business and other businesses to our future plan, as I mentioned, to have permanently lower tax rates for retail, hospitality and leisure businesses with values of below £500,000, as well as to consider reforms to small business rate relief to better support businesses that want to expand into a second premises.
Steve Darling
What consideration have Ministers given to exempting the seasonal tourism industry from the national insurance hikes set to kick in this summer? That would benefit Paignton zoo and Splashdown in the Torbay constituency.
James Murray
We set out the details of our decision to increase the rate of national insurance contributions from employers and to reduce the threshold, and we have added the different benefit we will give, particularly to small businesses and charities, by more than doubling the employment allowance. The employer national insurance contribution changes were among the toughest we took in the Budget, but they were necessary to repair the public finances and deliver the economic stability that is so crucial for investment and growth.
Mr Speaker
We have had the former Chair of the Treasury Committee, so let’s now have the current Chair.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
My hon. Friend the Exchequer Secretary rightly said that small and medium-sized enterprises are a vital part of our high streets and our economy, and one of the biggest changes is, of course, the change to business rates. He was not tempted at the Select Committee last week to give more detail on the timeframe for that, but many businesses want certainty about business rates as they go forward. May I tempt him to give an indication of the Government’s thinking about how quickly this change might be introduced and whether the small business rate relief is likely to survive or to be subsumed into a new regime?
James Murray
I thank the Chair of the Select Committee for her questions. If she did not succeed in tempting me at the Select Committee, I doubt she will succeed today, but I can reassure her that the decisions we have set out about introducing the permanently lower business rate for RHL—retail, hospitality and leisure—properties below a £500,000 rateable value will be coming in from April 2026. Specifically in relation to small business rate relief, I can confirm that the Government are committed to retaining that. One of the options we are looking at in our “Transforming business rates” discussion paper is how to support businesses that want to expand into a second premises, thereby growing the business, because at the moment there is the cliff edge where they lose small business rate relief.
Richard Fuller (North Bedfordshire) (Con)
Confidence on Britain’s high streets is sliding faster than the Chancellor will be down the ski slopes of Davos later today. With retail sales down—rather than up, as expected in the run-up to Christmas—and with the British Retail Consortium saying that two thirds of stores will raise prices to cover her national insurance increases, when will the Minister accept that the Chancellor’s economic strategy of raising taxes and increasing regulations is not working?
James Murray
I am glad to know that the shadow Minister’s morning was well spent cooking up that line about the Davos ski slopes. What he will know, and what sectors across the economy will know, is that having a stable economy is a prerequisite for the investment we need to get the economy growing. That is why we had to take difficult decisions at the autumn Budget, including those to increase the rate of employer national insurance contributions. Alongside that increase, however, we more than doubled the employment allowance and set out our plans to have permanently lower tax rates for high street RHL properties from April 2026.
Daisy Cooper (St Albans) (LD)
A number of small high street businesses will be hit hard by the Government’s jobs tax and the dramatic reduction in business rates relief, and House of Commons Library research that I commissioned shows that from April 2026 the Government’s reforms to business rates could leave small and independent businesses in effect subsidising the big chains. Will the Chancellor meet me and a delegation of small and independent businesses from St Albans so that we can make the case for fairer reforms and for wholesale reform of the broken business rates system?
James Murray
One of the problems with the Liberal Democrats is that they support all our spending plans, but they do not support any of the tax changes to fund them. This is a prime example. When we talk about increasing employer national insurance contributions, we acknowledge that that was one of the toughest decisions we took at the Budget, but it was necessary to fix the public finances and provide support for those public services, which I note the Liberal Democrats are very keen to support.
Frank McNally (Coatbridge and Bellshill) (Lab)
Olly Glover (Didcot and Wantage) (LD)
The Exchequer Secretary to the Treasury (James Murray)
During the passage of the National Insurance Contributions (Secondary Class 1 Contributions) Bill, we set out clearly how the scheme would work to reimburse costs for public departments or local government. That measure is in line with what the previous Government attempted to do with the health and social care levy. Where third-party private contractors are engaged, those costs will be considered by local government or other public sector organisations in the round.
Brian Leishman (Alloa and Grangemouth) (Lab)
Mr Speaker
Order. Mr Lowe, topical questions are meant to be short and punchy. I am sure that you are very good at that normally.
James Murray
One of my key priorities as Exchequer Secretary and the Minister with responsibility for HMRC is to oversee a programme of transformation at HMRC to improve its customer service, to digitise the service, to close the tax gap and to ensure that we have the modern, reformed service that we need for the future.
Steve Witherden (Montgomeryshire and Glyndŵr) (Lab)
James Murray
As my hon. Friend set out, decisions on eligibility for covid-19 financial support were taken by the previous Government. The current Government have no plans to assess the financial compensation scheme, but the covid-19 inquiry has recently launched its module to investigate the economic response to the pandemic. The Government are committed to learning from its findings.
Sir Edward Leigh (Gainsborough) (Con)
When I visited St Barnabas hospice in Lincoln recently, the chief executive told me that it was having to pay £350,000 extra every year to cover the national insurance increase. I do not expect an answer now, but as we all agree that palliative care is so important and we want to encourage it, and the Terminally Ill Adults (End of Life) Bill started its Committee stage today, will the Government keep that increase for hospices under review?
James Murray
We have been clear since the Budget that the decision to raise employer national insurance contributions was one of the toughest we have taken as a Government, and we recognise that it has consequences for businesses. However, we think all businesses will benefit in future from the economic stability that this decision will bring; it will drive investment and growth across the country.
Chris McDonald (Stockton North) (Lab)
James Murray
What we accept is that the difficult decisions we took at the Budget enabled extra funding to be put into the NHS. GP surgeries have had a funding settlement that considers all the pressures on them in the round.
Sonia Kumar (Dudley) (Lab)
My constituency has a proud industrial heritage, with manufacturing still worth £1 billion a year to the local economy from sectors that account for nearly 10% of the UK’s total economic output. What steps have the Government taken to promote the growth of the manufacturing sector and ensure that towns like Dudley continue to build on their industrial traditions?
Agricultural and Business Property Relief
James Murray Excerpts(1 month ago)
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The Exchequer Secretary to the Treasury (James Murray)
It is a pleasure to speak in this debate with you as Chair, Dr Allin-Khan. I congratulate the right hon. Member for Beverley and Holderness (Graham Stuart) on securing this debate. Likewise, he is always thoughtful in his contributions, so I am always glad to hear from him and indeed the interventions that he allowed during his speech.
I know hon. Members have raised questions about the reforms that we are making, and I will try to address as many of them as I can. However, let me start by briefly reminding hon. Members of the economic context in which the decisions were taken. At the autumn Budget, we took difficult but necessary decisions on tax, welfare and spending
to restore economic stability, fix the public finances and support public services, as a result of the situation that we inherited from the previous Administration. We took those tough decisions in a way that will make the tax system fairer and more sustainable. The decision to reform agricultural property relief and business property relief was not taken lightly. The reforms mean that, despite the tough fiscal context, the Government will maintain significant levels of relief from inheritance tax, beyond what is available to others.
Richard Foord
I do not question the Minister’s difficult inheritance, but the Labour party adviser Dan Neidle suggests that the plan to slap inheritance tax on farms worth more than £1 million should be replaced with a much higher threshold with a clawback mechanism, perhaps for land over £20 million that is sold. That would tackle the Dysons of the world without affecting small family farms. What does the Minister think of that proposal?
James Murray
I am just about to come on to the details of the reforms that we have made to agricultural property relief and business property relief. If the hon. Gentleman waits a moment, he will see some of the reasoning behind the decisions that we took.
The Government recognise the role that the reliefs play, particularly in supporting farms and small businesses, and under our reforms that will continue. The case for reform is underlined by the fact that the full unlimited exemption, which was introduced in 1992, had become unsustainable. Under the current system, the benefit of the 100% relief on business and agricultural assets has become heavily skewed towards the wealthiest estates. According to the latest data from HMRC, 40% of agricultural property relief benefits the top 7% of estates making claims. That is 117 estates claiming £219 million of relief.
It is a similar picture for business property relief. More than 50% of business property relief is claimed by just 4% of estates making claims. That equates to 158 estates claiming £558 million in tax relief.
James Murray
I have only a few moments, so I will make progress.
The Leader of the Opposition has made it clear that she would prioritise that tax break within the public finances, but we do not believe it is fair or sustainable to maintain such a large tax break for such a small number of the wealthiest claimants, given the wider pressures on the public finances. It is for those reasons that the Government are changing how we target agricultural property relief and business property relief from April 2026. We are doing so in a way that maintains a significant tax relief for estates, including for small farms and businesses, while repairing the public finances fairly.
Let me be clear that individuals will still benefit from 100% relief for the first £1 million of combined business and agricultural assets. On top of that, as we know, there will be a 50% relief, which means that inheritance tax will be paid at a reduced effective rate of up to 20%, rather than the standard 40%. Importantly, those reliefs sit on top of the existing spousal exemptions and nil-rate bands. Depending on individual circumstances, a couple can pass on up to £3 million to their children or grandchildren free of inheritance tax.
Harriet Cross
At the Oxford farming conference, the Secretary of State suggested that farms should diversify to be more profitable, but diversification has become a lot less incentivised because that all gets wrapped up into the BPR, as well as the APR. Does that not completely negate the Secretary of State’s argument for diversification if it will all be taken away in tax?
James Murray
My right hon. Friend the Secretary of State made an important point about diversification, but whatever category the assets fall into, a couple can pass on up to £3 million to their children or grandchildren free of inheritance tax; that applies across agricultural and business property relief. The point I was making is that the agricultural and business property relief sit on top of the existing transfers and nil-rate bands, so when considering individual circumstances, we must look at the details of the situation that an individual or couple face.
I have a minute left, so I will be brief. Some hon. Members questioned the statistics about how many estates will be affected. We are very clear—we have published the data, and the Chancellor has written to the Treasury Committee about it—that up to 520 estates claiming agricultural property relief, including those claiming business property relief too, will be affected by these reforms to some degree. That means that about three quarters of estates claiming agricultural property relief, including those also claiming business property relief, will not pay any more tax as a result of these changes in the year they are introduced. All estates making claims through these reliefs will continue to receive generous support at a total cost of £1.1 billion to the Exchequer. The Office for Budget Responsibility has been clear that it does not expect this measure to have any significant macroeconomic impacts.
I thank all hon. Members who have contributed today, and I am grateful to the right hon. Member for Beverley and Holderness for securing this debate.
Motion lapsed (Standing Order No. 10(6)).