Legislation Day: Finance Bill
James Murray Excerpts(1 day, 17 hours ago)
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The Exchequer Secretary to the Treasury (James Murray)
The Government are committed to developing and legislating for tax policy in a way that achieves long-term economic stability and supports economic growth.
The Government are committed to a single major fiscal event each year, through which the Budget is delivered. Following the Budget, relevant tax policy measures will be legislated for in the Finance Bill or another appropriate legislative vehicle.
The Government will publish draft clauses for the next Finance Bill, covering pre-announced policy changes, on 21 July, along with accompanying explanatory notes, tax information and impact notes, responses to consultations and other supporting documents. All publications will be available on the gov.uk website.
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Oral Answers to Questions
James Murray Excerpts(4 days, 17 hours ago)
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Bobby Dean (Carshalton and Wallington) (LD)
The Exchequer Secretary to the Treasury (James Murray)
His Majesty’s Revenue and Customs uses a range of data sources to monitor the wealthy population. International exchanges of information, including the common reporting standard and US Foreign Account Tax Compliance Act data, offer opportunities to develop deeper insight into the international financial affairs of some of the UK’s wealthiest taxpayers.
Bobby Dean
The Minister will no doubt be aware of reports of the so-called exodus of millionaires. Those reports are from “high profile individuals” and city spokespeople, but there are rarely hard numbers behind them. Are Treasury Ministers able to verify the Tax Justice Network’s research that says that just 0.3% of millionaires have exited the UK and that that number has remained low and stable over the past decade, and will they publish their own figures as well?
James Murray
When considering fiscal measures or financial changes, the figures that matter are those provided by the Office for Budget Responsibility. The OBR has certified that the non-dom reforms that the Government have implemented will raise £33.8 billion in total revenue, and that figure accounts for some non-doms who are ineligible for the new regime choosing to leave the UK.
Dr Jeevun Sandher (Loughborough) (Lab)
Public investment makes us all more prosperous, but clearly that public investment, in our roads, rail and energy infrastructure, needs to be paid for. Will the Minister set out how we are funding that public investment by taxing the very richest people in this country?
James Murray
My hon. Friend is absolutely correct that our changes to the non-dom reporting regime are essential to raise billions of pounds to support the public finances and get our public services back on their feet. I contrast that with some of the proposals set out by opposition parties. Indeed, Reform UK’s plans are for a tax cut for foreign billionaires.
Mark Garnier (Wyre Forest) (Con)
In her Budget last year, the Chancellor tucked away about £10 billion over the next couple of years from reform to the non-dom tax regime. It is important to remember that the OBR said in its fiscal outlook that that figure was “highly uncertain”, and a high-level survey by Oxford Economics found that fully two thirds of non-doms are considering leaving the country in the next couple years as a direct result of those policies. That implies not an increase of £10 billion but a decrease of £8 billion. The Chancellor has created a fiscal black hole of £18 billion with just one policy alone. In this week of heroic U-turns from the Government Front Bench, will the Minister confirm whether they will be axing this tax? When will it finally be condemned to the history books?
James Murray
I am not really sure whether there was a policy suggestion in that comment or not. As the shadow Minister will know, the fiscal black hole that we had to address when we won the general election was the £22 billion black hole that the Conservatives left after their mismanagement of the economy. As I said, the Office for Budget Responsibility has confirmed that our reforms to the non-dom regime, with our removal of non-dom tax status, will raise £33.8 billion over the five years of the forecast. It is the OBR’s figures that we will trust in that regard.
Rachael Maskell (York Central) (Lab/Co-op)
Deirdre Costigan (Ealing Southall) (Lab)
The Exchequer Secretary to the Treasury (James Murray)
The spending review announced significant investment into clean energy to strengthen our energy security and our economy. That includes over £8.3 billion for Great British Energy and Great British Energy Nuclear and £14.2 billion for Sizewell C.
Deirdre Costigan
Although my constituents in Ealing Southall are no doubt sweltering in today’s heat, they are worried that come winter, they will again face eye-watering energy bills to heat their homes. The previous Government left us with the leakiest homes in Europe, slashing grants for loft and cavity insulation. Can the Minister set out the work that this Labour Government are doing not just to support the clean energy sector, but to upgrade my constituents’ homes to take that clean, cheap energy and bring down bills in Ealing Southall?
James Murray
My hon. Friend is an excellent advocate for her constituents in Ealing Southall, and I am sure that many of them will benefit from our warm homes plan, which will see £13.2 billion invested across this Parliament. That investment will be allocated to schemes to support the roll-out of heat pumps, alongside energy-efficiency measures and other low-carbon technologies. This will help with environmental goals, but crucially, it will cut bills and tackle fuel poverty.
Robbie Moore (Keighley and Ilkley) (Con)
This week, the 19% tariff on imports of US ethanol falls to zero through the 1.4 billion litre quota negotiated by this Labour Government, which represents the size of the UK’s entire ethanol market. That will have a hugely damaging impact on our rural economy, UK jobs and the NHS, with Government effectively offshoring the benefits of ethanol production and its by-products to the US. What conversations are the Chancellor and her team having with this green energy sector, in which a huge number of jobs are now at stake in Teesside and Hull?
James Murray
Of course, our colleagues in the Department for Business and Trade are having conversations with those businesses and industries that may be affected. I hope the hon. Member welcomes the trade deal that we got with the US—an economic deal that is so important for our prosperity and will see us being the only country to avoid some of the tariffs that are affecting all other countries around the world.
Gareth Davies (Grantham and Bourne) (Con)
It is becoming clear that one year in, the public still do not know what Labour is all about, and the same could be said for its so-called National Wealth Fund. Not only has the National Wealth Fund invested less equity in clean energy than before its costly £7 billion rebrand, but it is also now rightly subject to a Treasury Committee inquiry, at which expert witnesses could not name a single thing it is doing differently. The CEO of the British Business Bank now says the Government did not understand what they were setting up. Can the Minister tell us why the National Wealth Fund has invested less in clean energy than before the costly rebrand and why the Government U-turned on incorporating the British Business Bank?
James Murray
The shadow Minister forgets to mention the fact that we have had £30 billion of investment in green energy since the general election. I am sure he has consulted the spending review documents closely—I know he is a diligent shadow Minister in that regard—and he will have seen the investment that we are putting into Great British Energy, Sizewell C, small modular reactors, fusion, nuclear R&D, the warm homes plan, and carbon capture and storage. All of this is to make sure we improve our energy security and bring down bills for good.
Jim Shannon (Strangford) (DUP)
Sally Jameson (Doncaster Central) (Lab/Co-op)
The Exchequer Secretary to the Treasury (James Murray)
We very much recognise the social and cultural value of horseracing, which is why on-course betting is exempt from duty, and horseracing is the only sport to receive a Government mandated levy. We are consulting on measures to simplify gambling duty and improve compliance. No decision will be made on rates before the Budget, and we are working with the horseracing sector to identify unintended consequences and mitigations.
Sally Jameson
I refer Members to my entry in the Register of Members’ Financial Interests. In Doncaster, we are incredibly proud of our historic racecourse, which is home to the iconic St Leger festival. As someone who has attended the racecourse for a number of events throughout my life, I can say that it is part of our local community and brings thousands of jobs. Will the Minister confirm that he will continue dialogue with the horseracing industry, noting that it brings 85,000 jobs to the country nationally and is the second largest spectator sport in the country, and identifying that this is very different from online casinos and games of chance?
James Murray
It is excellent to hear my hon. Friend speak so passionately about Doncaster racecourse and the wider sector, and I reassure her that we will absolutely continue close dialogue with the horseracing industry on these proposals. I and my officials are working closely with the horseracing sector to identify any unintended consequences and possible mitigations. We intend to continue those conversations with the industry, and we welcome further engagement.
Alex Easton (North Down) (Ind)
How do the Government assess the implementation of a flat rate in terms of improving fairness and simplification for all involved, reducing administrative costs and encouraging compliance?
James Murray
One of the principles behind the reforms that we are looking to make to the gambling duty is to tackle issues of compliance by simplifying the system. The consultation is open at the moment, and I encourage the hon. Gentleman, and anyone else who is interested in contributing towards that, to make their views known.
Nick Smith (Blaenau Gwent and Rhymney) (Lab)
Andrew George (St Ives) (LD)
The Exchequer Secretary to the Treasury (James Murray)
The year before we came to power, the tax gap stood at £47 billion. That is unacceptable, which is why we announced the most ambitious-ever package of tax gap measures in the Budget, and went even further in the spring statement. We are now forecast to raise £7.5 billion from the tax gap in 2029-30, including by recruiting 5,500 more compliance officers, investing in better technology and closing loopholes. We will bring forward further measures to close the tax gap in the autumn Budget.
Joe Powell
As the Minister is no doubt aware, an increasingly common issue on our high streets is phoenixing. That is where a shop unit continues to trade while cycling through multiple limited companies every few months, none of which pays corporation tax, VAT or business rates. Can the Minister encourage officials at His Majesty’s Revenue and Customs to walk along Whitehall, just a few hundred metres from this Chamber, and take a look at whether the series of Harry Potter-themed gift shops across London—which have been accused by “London Centric” of doing exactly that—are playing by the rules? Will they ensure that tax enforcement supports legitimate small businesses on our high streets?
James Murray
My hon. Friend is a powerful campaigner and advocate for tackling those who do not play by the rules. While I am unable to comment on individual taxpayer affairs because of my position, I very much recognise the issue. We are determined to tackle this problem, and HMRC is working across Government on enforcement action, including work with Companies House and the Insolvency Service to tackle phoenixism.
Andrew George
Does the Minister agree that instead of handing £500 million of taxpayers’ money to those who are entitled to small business rate relief, which is what has happened in Cornwall over the past 10 years, it would be far better to invest that money in desperately needed first homes for local families in desperate housing need, rather than give it to second home owners? Would he be prepared to meet me, so that we can establish a better method of achieving housing justice through tax policy?
James Murray
I am happy to hear from the hon. Gentleman about how he will support our home-building plans in his constituency and across the country. We know that the most important thing to tackle the housing crisis is to support the reforms that this Government are making to the planning system to make sure we can build 1.5 million new homes and invest £39 billion in our 10-year affordable homes programme—the biggest in a generation.
Brian Leishman (Alloa and Grangemouth) (Lab)
The Exchequer Secretary to the Treasury (James Murray)
There is £200 million available, and the Government will look at all proposals for investing it.
Ms Stella Creasy (Walthamstow) (Lab/Co-op)
The main beneficiaries of Brexit have been printers, because of all the extra paperwork that the previous Government created. The National Audit Office has estimated that their border arrangements have cost us £4.7 billion and rising, and the single trade window will add to the red tape. Does the Chancellor agree that the best way to reduce the paperwork requirements in the first place is to do a good deal with Europe, and will she update us on her progress on that?
James Murray
My hon. Friend will have seen the Prime Minister’s work to reset relations with the EU. She mentions the single trade window, and it is the Government’s intention to deliver that. More widely, the Government are committed to minimising the administrative burdens and frictions experienced by businesses trading internationally.
Jack Rankin (Windsor) (Con)
Greg Smith (Mid Buckinghamshire) (Con)
A recent freedom of information request has revealed that, for a number of schemes, HMRC has settled with large corporations for just 15% of what was owed. With the loan charge review ongoing, does the Chancellor agree with me that individuals should be treated no differently from the large corporations for which this precedent has been set?
James Murray
I thank the hon. Gentleman for his question; he has engaged with me about the loan charge previously. As he knows, there is an independent review of the loan charge at the moment, and I think it is important that I as a Minister do not comment on that. Let the independent reviewer complete his work and report back to us as a Government.
Emily Darlington (Milton Keynes Central) (Lab)
The loan charge scandal was absolutely awful and has devastated the lives of tens of thousands of people. It failed to be addressed under the last Government. Can the Minister please tell us what he is doing to make sure people are not still being sold this illegal product?
James Murray
I thank my hon. Friend very much for her question. I can reassure her that, alongside the loan charge review, the Government have published a consultation on a comprehensive package of measures to close in on the promoters of marketed tax avoidance schemes. As we know, these contrived schemes both deprive public services of funding and leave their clients with unexpected tax bills.
Esther McVey (Tatton) (Con)
Does the Chancellor believe that the changes she has made to employer’s national insurance contributions will lead to higher levels of employment, or will they lead to higher levels of unemployment?
VAT Registration Threshold: SMEs
James Murray Excerpts(1 week, 4 days ago)
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The Exchequer Secretary to the Treasury (James Murray)
It is a pleasure to speak with you as Chair, Mr Vickers. I congratulate the hon. Member for Mid Leicestershire for securing this debate. I feel that I am letting the side down by not having a quote from Napoleon to open my remarks, but I listened carefully to the hon. Member’s contribution to the debate, and to the contributions of all hon. Members, including the shadow Minister—the hon. Member for Grantham and Bourne (Gareth Davies) —and the Liberal Democrat spokesperson, the hon. Member for St Albans (Daisy Cooper). I hope that my remarks will address most of the points that they raised.
It is clear from all hon. Members’ contributions to this debate that, across the House, we agree on how valuable small businesses and entrepreneurs are to the local economies and communities in the areas we represent. As a Government, we recognise that contribution. Before I turn to the VAT threshold, the focus of this debate, I will briefly set out the wider support that the Government are providing to the small businesses that are so important in our constituencies across the country. That support includes measures set out only yesterday in the industrial strategy. A new business growth service will streamline small businesses’ access to Government support, advice and funding, providing the access that the Liberal Democrat spokesperson asked about. Reforms to public procurement will help small businesses to secure Government contracts. We will help small businesses to adopt new technologies. We will continue to tackle the challenge of late payments to SMEs. The Government are also planning to publish an SME strategy later this year, giving more detail on the Government’s wider offer for small businesses.
Hon. Members will also be aware that the Chancellor recently announced the 2025 spending review, which contained measures to support small businesses. In particular, the Chancellor increased the financial capacity of the British Business Bank to £25.6 billion, which will enable a two-thirds increase in support for small businesses across the UK. That support in the spending review sits alongside the Government’s support for small businesses through the tax system. We have more than doubled the employment allowance to £10,500 and expanded it to all eligible employers. We have frozen the small business rates multiplier to protect small properties from inflationary bill increases to business rates. We are introducing permanently lower business rates for smaller retail hospitality and leisure businesses from 2026, and we have committed in the corporate tax road map to maintaining the small profits rate and marginal relief at their current rates and thresholds, as well as maintaining the £1 million annual investment allowance.
I will now turn to the VAT threshold, which is the focus of this debate. As several hon. Members have said, a number of businesses have raised concerns about that threshold. In particular, they are concerned that the cliff edge of the £90,000 threshold, as it is, may disincentivise businesses that are close to the threshold from growing and surpassing it, and they have connected concerns about the level at which the threshold is set.
Let me first address the argument that the threshold disincentivises small businesses from growth as they approach it. I acknowledge that some businesses will take legitimate action to avoid reaching the VAT threshold, and will bunch just below that threshold. However, those businesses are a minority, accounting for around 0.5% of all businesses that are not VAT-registered. Some businesses, and indeed some hon. Members in this debate, have suggested that the Government should introduce a taper mechanism, in which the amount of VAT that businesses must charge is phased in. However, there is little evidence to suggest that a taper would tackle the bunching of businesses just below the threshold, although it would add additional complexity to the tax system. At £90,000, the UK has a higher VAT registration threshold than any EU member, and the joint highest in the OECD. That threshold keeps most UK businesses out of VAT altogether.
Mike Martin
I am sure that the Minister is aware that the UK is one of only three countries in Europe that does not offer a lower rate of VAT for hospitality and tourism. For example, France, Italy and Spain charge only 10% on those sectors. Will he consider lowering the rate for those sectors as part of the UK’s VAT regime to give our high streets the boost they need?
James Murray
I will turn to the questions that the hon. Gentleman and other hon. Members have raised about VAT reliefs in a moment, but I will first finish the point about where the VAT registration threshold is set, because that is an important part of the debate.
It is worth reflecting on the fact that views on the threshold are divided. The case for change has been regularly reviewed over the years, because some businesses argue that a higher threshold would reduce their administrative and financial burdens. However, other businesses contend that a lower threshold would provide a fairer competitive environment, for instance in the hair and beauty sector.
The Government’s approach to the VAT threshold and applicable rates aims to balance the potential impacts on small businesses, including their growth and financial sustainability, with the economy as a whole and, of course tax, revenues. Although the Government always welcome hearing businesses’ views about how the tax system operates, we are not currently planning to change the design of the VAT threshold.
More broadly on VAT, the Government often receive calls from businesses, and indeed from hon. Members, to examine the rate of VAT for specific industries. VAT is a broad-based tax on consumption and the 20% standard rate applies to most goods and services. VAT is the UK’s third largest tax and is forecast to raise £180 billion in 2025-26. Of course, tax breaks have an impact on the public finances and they must represent value for money for the taxpayer, so exceptions to the standard rate have always been limited and balanced against affordability considerations. The assessment of any new VAT relief should consider whether the cost saving is likely to be passed on to consumers.
Fundamentally, the best support that we can provide to small businesses is economic growth. Delivering secure, strong and sustainable growth to boost prosperity and living standards across the UK is the Government’s No. 1 mission, as set out in our plan for change. That is why, when we took office, we took the necessary decisions to provide the stability that is so important for investment and growth by tackling the £22 billion hole in the public finances that we inherited from the previous Government.
Robbie Moore
I struggle to understand how the Minister can come out with these pre-written speeches and expect anyone to believe him. How can he say that stability has now been put back into the wider economy when many hard-working businesses, including the SMEs that many hon. Members have talked about in this debate, are struggling to deal with the consequences of employer’s national insurance contributions rising; the consequences of VAT, which we are debating today; and the consequences of the Employment Rights Bill, which are coming down the line? Yet he still stands at the Dispatch Box and comes out with the bizarre claim that the Government have installed stability with their plan for change. That is nonsense.
James Murray
I think the hon. Gentleman must be forgetting the recent history of this country’s economy when his party was in charge, because the many small businesses that I have met are not clamouring for a return to the economic chaos that we saw under Liz Truss or the 14 years of economic stagnation that his party presided over. The stability that we restored to the public finances and to the economy is an essential prerequisite for investment and growth; indeed, it is the foundation on which economic growth can succeed.
Mr Angus MacDonald
I am reluctant to come in on the side of the Opposition on this issue, but I can tell the Minister that my constituency has never suffered as much in my whole business career as it has since the Budget last year. National insurance increases and related increases have absolutely crucified business up there. If the Government cared to come up to the highlands and come round local businesses with me, they would be in for a real shock, but I strongly recommend that they do so.
James Murray
I do not recall the hon. Gentleman ever opposing extra investment in the national health service during his interventions in the main Chamber, because, of course, the decisions that we took around employer’s national insurance contributions were taken to stabilise the public finances and put our public services back on their feet. We acknowledged at the Budget last year, when we took those difficult decisions, that they would have consequences. However, we also acknowledged that no responsible Government could have let things continue as they were, or taken what we inherited from the previous Government without putting public finances back on a firm footing.
That is exactly what we have done from our first day in office. Alongside that essential work to steady the public finances, we have been removing barriers to growth by overhauling the planning system, launching a new National Wealth Fund and reforming our pension system to unlock billions of pounds. At the spending review earlier this month, we saw the Chancellor marking a key step in our growth mission by allocating substantial new capital investment to ensure that growth is felt across the country.
That investment will be further bolstered in the coming months by other reforms, including the industrial strategy published yesterday, and the 10-year infrastructure strategy published last week. A rising economic tide lifts all boats, big and small, and this Government believe that that should be the most important priority for supporting small businesses.
Lewis Cocking
We have all mentioned a number of businesses that think this Labour Government are taking the wrong direction. Can the Minister list the businesses in his constituency that believe that this Labour Government are taking the right direction for business growth in this country? If he lists the businesses in his constituency, we will go and ask them.
James Murray
I would typically ask businesses’ permission before I named them in the House of Commons, but I can reassure hon. Members that in conversations with businesses in my constituency, or indeed across the country in my role as a Minister, they understand the difficult decisions we took to restore stability to the public finances and to the economy. That is not to pretend for a moment that those decisions were not difficult and do not come with consequences, but most businesses I speak to recognise our difficult inheritance from the previous Government, and the importance of restoring stability to the public finances as an essential prerequisite for investment and growth.
What is most important is working hand in hand with businesses—whether they are small businesses in our constituencies or large businesses that operate across the country—and putting through the reforms that we know are needed. That includes making sure that the planning system is reformed, that the National Wealth Fund supports their investment, and that we are investing across the country to ensure there are jobs and growth in every part of the UK. That is what we are focused on, working in partnership with businesses, because we know how important that is.
Jim Shannon
Irrespective of the Windsor framework and the protocol issue, I understand that experts and businesses have suggested that the VAT threshold should be £250,000. The hon. Member for Inverness, Skye and West Ross-shire (Mr MacDonald) referred to the fact that that would enable businesses to perhaps employ one or two apprentices or extra people in their companies, and help them to focus on a strategy for growth, which I know the Minister is committed to. Are there any circumstances in which the Minister would consider a £250,000 threshold, because of the benefits that it would clearly bring to all businesses in the United Kingdom?
James Murray
I thank the hon. Gentleman for his question. He referred to the impact of the Windsor framework, which as he correctly pointed out, imposes an upper limit of just over £90,000 on the threshold in Northern Ireland. The Windsor framework is therefore relevant to the threshold in Northern Ireland and, by extension, to the Government’s decisions in Great Britain as well. The debate is becoming slightly wider than the question about the VAT threshold, but I can understand why that is the case. The VAT threshold—in fact, VAT as a whole—is only one of the factors in the landscape that businesses face.
Although we recognise that we have taken some difficult decisions on employer’s national insurance contributions, as I said earlier, the important point to focus on is the stability that those decisions have brought to the public finances and that they have put our public services back on their feet. Many businesses that I speak to recognise that they need their workforce to be healthy and to be able to get on a train and get to work.
Businesses need people who are coming out of school to be trained and to have the right skills to access the jobs of the future. They need the Government to create the right environment for growth, because private sector businesses will drive growth and create wealth and prosperity across the country. Businesses want a partner in Government who will provide the infrastructure, reforms and investment to enable them and everyone across our country to flourish. That is the wider context in which this debate takes place.
This debate has mostly been about the VAT threshold. It has taken a wide definition of the VAT threshold and its connected policies, but I understand why: the threshold sits within a wider context that affects small businesses. We all agree that small businesses are at the heart of all our local communities and economies, and we all want them to thrive. That is why the Government have taken steps to ensure that the tax system supports them. We have doubled the employment allowance, increased the small employers’ compensation rate, frozen the small business multiplier, introduced permanently lower business rates for smaller retail, hospitality and leisure businesses from next year, and committed to maintain the small profits rate and £1 million annual investment allowance.
The industrial strategy, published yesterday, goes even further to support small businesses, including by announcing the creation of a new business growth service that will streamline access to Government support, advice and funding for small businesses. The VAT threshold strikes a balance between keeping the majority of businesses out of VAT altogether while ensuring that we can support public services and maintain fiscal responsibility.
I thank you again for your chairmanship, Mr Vickers. I thank all hon. Members who have contributed to the debate and, in particular, I thank the hon. Member for Mid Leicestershire for securing the debate.
Business Rates Relief: High-street Businesses
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 in the Chair, Ms Jardine. I thank hon. Members for their warm welcome.
I want to extend my thanks, as many others have, to the right hon. Member for Stone, Great Wyrley and Penkridge (Sir Gavin Williamson) for securing this debate—and, indeed, for his kind words about how I am doing my job. I thank all hon. Members for their contributions to the debate and for bringing perspectives from their constituencies to it. Although we have had a fair dose of politics, there have also, in fine Westminster Hall tradition, been moments of cross-party agreement and a desire to find a way forward to support high streets in all our constituencies.
As Members of this place, we all know how important high streets are to our constituents as centres of economic activity and places where people come together. I was glad to hear healthy competition in the claims about who has the best high street and local pubs in their constituency. [Interruption.] I am seeing further bids from the other side of the room. We all know as MPs, and indeed as members of the public in our own right, how high streets unite people. They sustain jobs and are central to the identity of the areas that we represent. That is why the Government are protecting the high street by transforming the business rates system so that it supports investment and is fit for the 21st century. I welcome this opportunity to set out our approach to making that transformation a reality.
As many hon. Members have said, retail, hospitality and leisure businesses are the backbone of our high streets—our shops, pubs and cinemas—but they are contending with changing consumer habits and have faced a series of economic headwinds in recent years, including the pandemic. Online services are undeniably convenient and offer great variety, but it is high streets that bring people together. The problem, as many hon. Members have set out, is that business rates fall more heavily on property-intensive sectors, so it is a priority for the Government to ensure that the burden is permanently rebalanced and that high street businesses are protected.
We inherited a situation in which protection for high street businesses through retail, hospitality and leisure relief was set to end altogether in April this year. That continued a pattern that had become normal under the previous Government; ratepayers would rightly complain that the fact that RHL relief ended every year by default created an annual cliff edge for RHL businesses. What was supposed to be a temporary, stopgap measure was extended year by year following the pandemic by Conservative Governments, who made no attempt to fix the system and give businesses the certainty and stability they need.
That is why at last year’s autumn Budget we announced our intention to change how this is done, by introducing permanently lower tax rates for RHL properties with rateable values below £500,000 from 2026-27. That will give much needed certainty and support to the high street, improving investment and growth in places across England. We intend to introduce two lower RHL multipliers to mirror the existing national small business and standard multipliers. The new small business RHL multiplier will apply to RHL properties with rateable values below £51,000, and the new standard RHL multiplier will apply to RHL properties with rateable values of £51,000 and above, and below £500,000. Those lower multipliers will apply to all RHL properties with rateable values below £500,000. We will have no cash cap per business as the previous Government’s relief had, meaning that all relevant properties will be able to benefit from our approach.
Under our Government, any tax cut must be paid for. We saw what happened when the previous Government ignored that rule. That is why we intend to fund this tax cut by introducing a higher rate for properties with rateable values of £500,000 and above. Those properties represent less than 1% of all properties, but include the majority of large distribution warehouses, including those used by the online giants.
The Government recognise that business rates form a significant part of the costs of some businesses, but we must make difficult choices to ensure that our plans to support the high street are sustainable. That is why we are asking those occupying the most valuable properties to contribute more to support the vitality of the high street.
The rates for new multipliers will be set at the Budget 2025, so that the Government can factor in the upcoming revaluation outcomes and broader economic and fiscal contexts into the decision making. The Non-Domestic Rating (Multipliers and Private Schools) Act 2025 gives Government flexibility in the creation of the new multipliers and their rates within appropriate guardrails, so that the Government do not have unfettered powers. The rate for any higher multiplier cannot be more than 10p higher than the national standard multiplier, while the lower RHL multipliers cannot be less than 20p lower than the national small business multiplier. I emphasise to Members that those are only guardrails, not the intended rates, and the final decisions on the multipliers will be made at Budget in the autumn.
The Government recognise that RHL businesses need support in 2025-26, ahead of the permanently lower tax rates being introduced for 2026-27. Hon. Members today have spoken about the impact of changes to RHL relief on high street businesses in their constituencies, but it is worth emphasising again that without any Government intervention, RHL relief would have ended entirely in April 2025. To avoid that happening, our Government decided to provide a 40% business rates discount to RHL properties up to the cash cap of £110,000 per business in 2025-26.
Sir Gavin Williamson
Will the Minister assure us that, given the cross-party agreement in the Chamber today, he will go back to the Treasury and make representations to see if that could be increased to 75% for the intervening year? It would be a great relief not just on finances but on the mental worry of so many businesses if they knew that someone in the Treasury was battling for the return of that 75% relief.
James Murray
The permanently lower tax rates will come in in April 2026, so the intervening year is the year that we are currently in. That rate has been set by the Chancellor. The Chancellor makes announcements about rates at fiscal events. The autumn Budget is where she sets out those rates, in the same way that she agreed, at the autumn Budget last year, what the rate would be for RHL relief for the current year, 2025-26. At the autumn Budget this year, she will set out what the permanently lower rates will be thereafter. I would say to businesses looking at their finances this year that from April ’26—from the next financial year—the permanently lower rates will come in. Indeed, it will benefit a broader variety of shops on the high streets, because we are not continuing the cash cap of £110,000 per business.
Mr Mohindra
One of the likely consequences of the Minister’s proposals is that tenants will look to change their rateable value. Can he assure the House that the Valuation Office Agency will have sufficient resources to ensure that any appeals are done as quickly as possible to give the certainty that our high street retailers and hospitality deserve?
James Murray
I thank the hon. Gentleman for raising the issue of the VOA. Its performance is very important for businesses across the country. I am sure that he will have seen our recent announcement that, this year, we are bringing the VOA into His Majesty’s Revenue and Customs, rather than it being an arm’s length body. Part of that is to save on administration costs—to protect the public finances—but it is also to ensure that we can work with it to improve its service as much as possible, to give the best and quickest possible service to businesses involved. I reassure the hon. Gentleman that VOA performance is very high on our agenda.
Hon. Members raised the impact of RHL relief on pubs, which is understandable, given the particular importance of pubs in all our local communities. Indeed, we had a competition for who has the best pub in their constituency. I will just about resist the temptation to list the pubs in my constituency, as I am here as a Minister rather than with my constituency hat on, but hon. Members should pop into the Duke of Kent if they are ever in Ealing North. To put this in context, the extension of RHL relief for this year under this Government is saving the average pub with a rateable value of £16,800 more than £3,300. That is a real, meaningful difference to pubs across the country. The Government have, of course, frozen the small business multiplier for this year as well. Taken together with small business rates relief, more than 1 million properties have been protected from inflationary increases in their bills this year.
Some hon. Members, including the right hon. Member for Stone, Great Wyrley and Penkridge, have argued that the RHL relief in this year should be higher. However, given the Government’s fiscal inheritance, it was not fiscally sustainable to continue the 75% relief, which cost £2.4 billion a year. Crucially, to repeat remarks I have made several times now, our approach from April 2026 will mean no more use of an indefinite stopgap measure. Our approach will instead offer permanently lower tax rates and the stability that those bring for businesses.
The Budget announcements and the changes I have just described reflect the Government’s first steps to support the high street. We want to go further, and modernise the business rates system. At the autumn Budget last year, the Chancellor therefore announced the publication of a discussion paper that sets out priority areas for reform.
Suella Braverman
The Minister says that he cannot afford the £2 billion price tag of maintaining the relief introduced by the last Conservative Government. How, then, is he paying for the £30 billion surrender deal in which this Government are giving up sovereign territory, the Chagos islands, to Mauritius?
James Murray
I would challenge the right hon. and learned Lady’s use of language, but that issue is rather outside the scope of a debate on business rates.
As I was saying, we published a discussion paper at the Budget last year, which invited the industry to help us to design a fairer business rates system that supports investment and is fit for the 21st century. Since publishing the paper last autumn, my officials and I have met more than 250 stakeholders across a range of sectors, including RHL and local government, and have received submissions from a range of businesses, including those from the constituencies of hon. Members present today. We are analysing the responses in detail, and the data and views shared by businesses will inform the business rates policy development process. In the summer, we will publish an interim report that sets out a clear direction of travel for the business rates system, with further policy detail to follow at the autumn Budget 2025.
It is worth my briefly drawing hon. Members’ attention to the fact that, beyond the business rates system, the Government are taking other steps to rejuvenate our high streets. We are introducing high street rental auctions to revitalise our high streets and tackle empty properties, which we know can fuel a spiral of decline in town centres. Through the English devolution Bill, the Government will introduce a new community right to buy to help communities to safeguard valued community assets. That will empower local communities to bring assets such as empty shops, pubs and community spaces into community ownership, helping to revitalise our high streets and eliminate vacant properties.
Alongside that, the new £1.5 billion plan for neighbourhoods programme will deliver up to £20 million of funding and support over the next decade to 75 communities across the UK, laying the foundation to kick-start local growth and drive up living standards. As part of the programme, local partnerships will be able to fund interventions focused on revitalising high streets. The Government will announce further plans to support high streets in the small business strategy later this year.
As we have heard, hon. Members are rightly concerned about the high streets in their constituencies. We are all passionate about the places where we live and that we represent, and we want them to thrive. As I have set out, the business rates system that this Government inherited has been failing to give high streets the long-term, certain and stable support they need, instead providing only stopgap help through RHL relief that has kept changing and has been repeatedly extended ahead of an annual cliff edge.
This Government are fixing the foundations of the business rates system, and that starts with permanently rebalancing the burden of RHL properties through introducing permanently lower tax rates from 2026-27.
Stuart Anderson
I really like the idea of permanently lower tax rates. Can the Minister confirm that that is for all businesses, and that no businesses will receive tax rises?
James Murray
I thank the hon. Gentleman for his question. As I set out, the new lower multipliers of RHL properties will apply to all RHL properties with rateable values below £500,000. There will be a standard RHL multiplier and a small RHL multiplier for properties with rateable values of £51,000 and below. The definition of an RHL property will broadly follow the definition by which RHL relief is currently allocated. That will be set out in guidance, but hon. Members can expect that to operate in a similar way.
The advantage of our approach of permanently lower tax rates and multipliers is that they do not have a cap in the way that the previous Government’s relief did, of £110,000 per business. All properties within the RHL definition with rateable values of less than £500,000 will be able to benefit from this support, helping all the shops that contribute towards high streets across the country.
Beyond the changes to the RHL multipliers, I have also had the chance to set out some of the wider work that we are undertaking to transform business rates over the course of this Parliament and create a fairer, modernised system that is fit for the 21st century. I thank the right hon. Member for Stone, Great Wyrley and Penkridge and all hon. Members who have contributed to the debate.
Inheritance Tax: Family-owned Businesses
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The Exchequer Secretary to the Treasury (James Murray)
It is a pleasure, Sir John, to speak in this debate with you as Chair, and I congratulate the hon. Member for Mid Dunbartonshire (Susan Murray) on securing it—I notice that the debate is being opened and closed by a Murray.
I know that some Members are very concerned about the impact of forthcoming reforms to inheritance tax reliefs on businesses in their constituencies, and I understand that people feel very strongly about inheritance tax. I should be clear that the Government believe that our reforms to business property relief and agricultural property relief get the balance right between supporting farms and businesses and fixing the public finances in a fair way. The reforms reduce the inheritance tax advantages available to owners of agricultural and business assets, but still mean that those assets will be taxed at a much lower effective rate than most other assets.
Let me make clear that, much like the hon. Lady set out, the Government recognise and greatly value the huge contribution that small and family-owned businesses make to their communities and the economy. Businesses large and small, including family businesses, will create jobs and wealth and be the engines of growth in the economy. Those businesses and their workforces are the backbone of our economy, and they are fundamental to kickstarting economic growth, which is the Government’s No. 1 mission. Those businesses need a Government who will take the right decisions in the national interest, including when they are difficult, to support our security and prosperity.
People who own, run and work in businesses of all sizes will remember the economic context that we inherited last year. They know how important responsible financial management is within their own businesses and how the success of businesses and their workforces depends on economic stability and public services that function well. I believe that many of them will understand that, since taking office, the Government have taken a number of difficult but necessary decisions on tax, welfare and spending to restore economic stability, fix the public finances and support public services. None of these decisions, including the decision to reform agricultural property relief and business property relief, was taken lightly, but those tough decisions were left to us by the previous Administration, and no responsible Government could have let things carry on as they were.
Alongside our work to stabilise the economy and restore discipline to the public finances, the Government are determined to do everything we can to support businesses to grow. We are overhauling the UK’s regulatory system to reduce burdens on businesses by 25% by the end of this Parliament. We have secured trade deals that will slash the cost of doing business abroad, reduce border checks, cut tariffs and axe red tape. Those trade deals will support jobs and create opportunities for Great British businesses in our biggest current markets and in one of the world’s biggest future markets, too.
The Government expect to publish an SME strategy later this year. It will set out the Government’s vision for SMEs, from encouraging entrepreneurship to boosting scale-ups across key policy areas, such as creating thriving high streets, making it easier to access finance, opening up overseas and domestic markets, building business capabilities and providing a strong business environment.
Despite the tough fiscal inheritance at the election last year, we have also taken decisions to continue supporting small businesses through the tax system. We have chosen to increase the employment allowance to £10,500 to take many small businesses out of paying national insurance contributions altogether. We froze the small business rates multiplier to protect small properties from inflationary bill increases, and we will introduce permanently lower business tax rates for small retail, hospitality and leisure businesses from 2026.
Anna Gelderd (South East Cornwall) (Lab)
In rural and coastal communities such as South East Cornwall, family-run businesses and farms are the backbone of the local economy. Does the Minister agree that any changes to inheritance tax must be carefully shaped to support our local businesses and farms to plan for their future so that they can pass on their hard-earned success?
James Murray
My hon. Friend is a great champion of businesses and farmers in her constituency. When we were deciding how to reform agricultural property relief and business property relief, we made sure that generous tax reliefs still existed in the tax system precisely because we want to continue to support small and family-owned farms and businesses in particular. I will come to those in a moment.
I am conscious that you asked me to give you a few moments at the end, Sir John. Do you mean at the end of my remarks?
Sir John Hayes (in the Chair)
I need about 15 seconds at the very end of your remarks.
James Murray
Got it. To conclude my remarks on the wider support that we are giving to businesses, I also draw hon. Members’ attention to the fact that we committed in the “Corporate Tax Roadmap”, which was published at the autumn Budget, to maintain the small profits rates and marginal relief at their current rates and thresholds, as well as the £1 million annual investment allowance.
I know that many Members are concerned about the reforms to inheritance tax that are the subject of the debate, so I will now turn to them. The reality is that the full, unlimited relief introduced in 1992 has become unfair and unsustainable, particularly in the economic context that we inherited. Under the current system, the 100% relief on business and agricultural assets is heavily skewed towards the wealthiest estates, which is clear from the latest HMRC data from 2021-22. More than 50% of business property relief was claimed by just 4% of estates making claims. That means that the wealthiest few per cent of estates claimed £558 million in tax relief. That contributes to the very largest estates paying a lower average effective inheritance tax rate than smaller estates. It is neither fair nor sustainable to maintain such a large tax break for such a small number of claimants, given the wider pressures on the public finances. It is for that reason that the Government are changing how we target agricultural property relief and business property relief.
Under the reformed system, estates will still benefit from 100% relief for the first £1 million of combined assets from April 2026, and on top of that there will be an uncapped 50% relief on further assets. That means that inheritance tax will be paid at a reduced effective rate of up to 20%, rather than the standard 40%. Those reliefs sit on top of the standard nil-rate bands and other exemptions, such as transfers between spouses and civil partners.
Susan Murray
Why do the Government not consider taxing large digital multinational corporations trading in this country in order to raise the extra revenue that is being raised from this measure, which effectively punishes the businesses that run the supply chains that export to those markets? Those businesses have relationships with specialist suppliers and are being put at risk.
James Murray
I believe that the hon. Lady is asking about the taxation of large multinational firms operating in the digital space. I am sure that she is aware of the digital services tax, which is currently in operation. The Government are committed to maintaining that until the pillar 1 international solution is implemented, and I am sure that she is familiar with pillar 2 of the OECD deal on a global minimum corporate tax rate. Large multinational firms are well dealt with on the international level, which is why, in opposition and in government, we have supported the OECD’s two-pillar solution.
I do not want to be distracted from the design of the reforms that we are talking about today. Where inheritance tax is due, those liable for a charge can pay any liability on the relevant assets over 10 annual interest-free instalments. That benefit is not seen anywhere else in the inheritance tax system.
There has been a lot of discussion of the impact of this policy, so let me set out the numbers, based on HMRC claims data. It is expected that, under these reforms, about 1,500 estates claiming only business property relief will pay more inheritance tax in 2026-27. Two thirds of those estates—about 1,000—are expected to only hold shares designated as not listed on the markets of recognised stock exchanges, such as the alternative investment market. Under these reforms, about three quarters of estates claiming business property relief in 2026-27, excluding estates only holding shares designated as not listed, will not pay any more inheritance tax in 2026-27.
The reforms to relief have generated a lot of commentary about the wider impacts, but hon. Members should take care when relying on analysis based on self-selecting surveys from members of representative groups campaigning against the reforms. Indeed, the independent Office for Budget Responsibility is clear that it does not expect this measure to have any significant macroeconomic impacts, and it certified the costing at autumn Budget 2024. It said that the reforms to agricultural property relief and business property relief are forecast to raise a combined £520 million in 2029-30.
Richard Baker (Glenrothes and Mid Fife) (Lab)
I recognise the need for the Government to raise funds, given the economic context that they inherited, but, as my hon. Friend the Member for Dunfermline and Dollar (Graeme Downie) said, a number of family businesses have come forward with alternative proposals that would raise the funds in a different way. Would the Minister and his team be prepared to meet and consult with family businesses to ensure that they have input into the plans? That would enable those businesses to inform them of their experiences and raise alternative proposals that might raise funds differently.
James Murray
I reassure my hon. Friend that I, and the wider team of officials, have had a number of meetings with representatives of family businesses and the agricultural and farming sector. We have listened to ideas raised by a number of people we have met, as well as ideas raised in debates in the Commons and in meetings in the Treasury and elsewhere. We have listened, but we remain confident that our approach is a fair way to balance supporting farms and businesses with fixing the public finances, so we stand by our reforms.
I should probably conclude. I thank all hon. Members, particularly the hon. Member for Mid Dunbartonshire, for their contributions to the debate.
Question put and agreed to.
Oral Answers to Questions
James Murray Excerpts(1 month, 2 weeks ago)
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Munira Wilson (Twickenham) (LD)
The Exchequer Secretary to the Treasury (James Murray)
The Government are committed to keeping taxes for working people as low as possible. The personal allowance means those earning below £12,570 pay no tax. At our first Budget, we decided not to extend the freeze on personal tax thresholds, which was implemented by the previous Government.
Munira Wilson
I thank the Minister for his response, but what short and long-term assessments have Ministers made of the cost to the taxpayer of the deep cuts in grants for therapy for some of the most vulnerable and traumatised children in our country through the adoption and special guardianship support fund? Given the Treasury’s intransigence in putting more money into the fund to meet rising demand, it is likely that adoption and kinship care placements will fail, resulting in more children in the care system in the short term. In the long term, sadly, we know that care-experienced children are four times more likely to end up with a criminal conviction. There is a moral and economic case to support this fund properly.
James Murray
I very much recognise, both as a constituency MP and as a Minister, the importance of making sure that adoptive parents can build a strong family unit with their adoptive children. If I may make a broader point, the only reason we can invest in public services is because of difficult decisions we have taken around taxation. The problem with the Liberal Democrats and other parties on the Opposition Benches is that they are happy to support the extra funding for public spending, but not the tax rises necessary to pay for it.
Rachael Maskell (York Central) (Lab/Co-op)
This is not an issue on which to make a party political point. The reality is that a 40% cut to the adoption and special guardianship support fund will be deeply impactful for young people who have experienced significant trauma—abuse, neglect and so much more. Given that our mental health services are not fit for purpose at the moment, it is imperative that we make the right investment so that those young people are not denied a life course opportunity if that fund is cut. Will the Minister review the decision and ensure that we have the proper funding that young people need?
James Murray
As my hon. Friend will know, spending decisions are for the Chief Secretary of the Treasury to discuss with Departments. I make the general point that investment in mental health, for instance, which she mentioned, is possible only because of the decisions we have taken on taxation to ensure that we can support public spending on mental health services and on support for young people.
Sarah Edwards (Tamworth) (Lab)
Jack Abbott (Ipswich) (Lab/Co-op)
The Exchequer Secretary to the Treasury (James Murray)
We are determined to go further and faster to reform business rates, which is why we will publish an update paper in the summer. I am also glad that we can work with councils such as Ipswich to ensure that we can turn around town centres after years of Conservative decline.
Mr Joshua Reynolds (Maidenhead) (LD)
Lisa Smart (Hazel Grove) (LD)
James Murray
I am sorry to hear about the experience of the hon. Lady’s constituent. To reassure her and her constituent, one of my priorities as chair of the HMRC board is to improve HMRC’s day-to-day performance. We have seen the percentage of telephony adviser attempts handled go from 59% last March to 80% this March. It will remain a priority for me to modernise and digitise the service.
Graham Stringer (Blackley and Middleton South) (Lab)
Private Intermittent Securities and Capital Exchange System
James Murray Excerpts(1 month, 2 weeks ago)
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The Exchequer Secretary to the Treasury (James Murray)
Today, the Government have laid the Financial Services and Markets Act 2023 (Private Intermittent Securities and Capital Exchange System Sandbox) Regulations 2025 (SI 2025/583). This legislation establishes the legal framework for the private intermittent securities and capital exchange system—a new type of stock market, which will facilitate the trading of private company shares on an intermittent basis.
At spring statement 2025, the Government published a technical note detailing the tax implications in relation to employees trading their shares on PISCES[1]. This stated that new enterprise management incentives and company share option plan contracts could be exercised on PISCES, provided that a PISCES trading event was a specified event and that other conditions were met. The Government also said that we were considering the case for legislating to allow existing EMI and CSOP contracts to be exercised on PISCES.
I can now confirm that the Government will legislate in the next Finance Bill to allow employers, with their employee’s permission, to amend existing EMI and CSOP contracts to include a PISCES trading event as an exercisable event, without losing the tax advantages the schemes offer. This will allow employees with contracts amended in line with the legislation to exercise their options on PISCES and retain the tax advantages. The legislation will have retrospective effect, and in the interim HMRC will be able to use collection and management powers to not collect tax on exercise. This means that this change will benefit the first PISCES trading events expected later this year. Further information on how we will legislate to allow contracts to be amended to include PISCES whilst retaining the tax advantages will be published by the end of July.
This announcement is alongside the legislation establishing the PISCES legal framework and the Budget 2024 announcement of an exemption from stamp duty and stamp duty reserve tax for PISCES transactions. Together, these are important milestones in delivering the Government’s plan to go further and faster to drive economic growth through the plan for change, by supporting private companies to scale and grow by providing a stepping stone to public markets and supporting our world- leading capital markets.
[1] www.gov.uk/government/publications/tax-implications-for-companies-and-employees-in-relation-to-employees-trading-their-shares-on-pisces/technical-note-tax-implications-for-companies-and-employees-in-relation-to-employees-trading-their-shares-on-pisces
[HCWS639]
Income Tax: Personal Allowance
James Murray Excerpts(1 month, 3 weeks ago)
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The Exchequer Secretary to the Treasury (James Murray)
It is a pleasure to speak with you in the Chair, Mr Stuart; this is our second debate together in the last few days. I extend my thanks, as many others have, to my hon. Friend the Member for Sunderland Central (Lewis Atkinson) for opening the debate, and I congratulate Mr Frost, who created the petition. I also thank all other hon. Members who have contributed to the debate for setting out their views.
I know that this petition has attracted almost 250,000 signatures, so, given the public interest in this topic, it is important that we are debating it. I recognise the views of everyone who has put their name to the petition, and let me be clear that, as a Government, we want taxes on working people and on pensioners, who have worked hard all their lives, to be as low as possible. We were elected to put more money in people’s pockets and, crucially, we were elected to do so in a fiscally responsible way. That is a critical point to understand. We want to keep taxes on working people and pensioners as low as possible, but if we were to follow the calls of some Opposition parties and abandon fiscal responsibility, it would lead to economic chaos and the collapse of public services, and that would harm working people and pensioners the most.
Raising the personal allowance to £20,000 would cost more than £50 billion. That is more than the £45 billion of unfunded tax cuts announced by Liz Truss in her disastrous mini-Budget. Conservative and Reform MPs may have cheered Liz Truss on, but like the British people, we in the Labour party know the damage that that caused, and we will never let it happen again. To put it another way, if £50 billion was taken out of public services, that would be equal to wiping out almost the entire UK defence budget or slashing the NHS by a quarter. The British people will not be the winners if public services collapse or chaos returns to the economy.
The Chancellor has taken the right decisions to get the UK’s public services back on their feet and to restore fiscal responsibility and economic stability. We will fight to protect those hard-won gains from those who want to see them squandered. In that critical context of fiscal responsibility, however, the Government are doing everything we can to support working people and pensioners. In our first Budget, we decided not to extend the freeze on personal tax thresholds, meaning that people will be able to keep more of their income. We are supporting hard-working families and pensioners through the plan to make work pay and through our significant increases to the national living and minimum wages and the state pension. We know that we will be able to keep taxes down only by delivering sustainable economic growth, which is why our plan for change and our trade deals are so important to make people better off.
Of course, an important context for this discussion is the autumn Budget, in which the Government reset public spending and put the public finances back on a sustainable path. The decisions in the Budget were underpinned by the most ambitious package ever to close the tax gap—the difference between what taxpayers owe and what is paid to His Majesty’s Revenue and Customs—alongside tax changes that make the tax system fairer and more sustainable while protecting people’s payslips. The Government are determined to close the tax gap as far as we can, because ensuring that everyone pays the tax they owe is critical for a well-functioning economy, for protecting revenue to fund our public services and for helping to keep taxes on working people as low as possible. In the spring statement, the Chancellor went further and faster to close the tax gap, raising an extra £1 billion in revenue for the public finances.
Turning to the personal allowance, it is worth beginning by recognising that the UK has one of the more generous personal tax allowances in the OECD, and the most generous in the G7. As we have heard in today’s debate, it was the previous Government who made the decision to freeze the personal allowance at its current level of £12,570 until April 2028. In the Budget last autumn, this Government decided not to extend that freeze and we kept the basic, higher and additional rates of income tax, employee national insurance contributions and VAT unchanged, meaning that people will keep more of their income. We also had to take a number of difficult but necessary decisions on tax, welfare and spending to restore economic stability, fix the public finances and support public services, given the situation that we inherited from the previous Government.
Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)
I think the reason so many people signed the petition is that the plight of some of the poorest and most vulnerable in our society is on our collective conscience. I may have a helpful suggestion. I should declare an interest right away: my wife is disabled and I am her carer. I know of people who are carers and live in terror of an unexpected cost coming their way, such as the boiler breaking down in the north of Scotland or some horrifying bill throwing the finances out completely. I wonder whether it would be a kindly and humane step for the Government, or any Government, to provide for a mechanism whereby, when a nasty, surprise bill comes the way of a person caring for someone who is long-term sick or disabled, that bill could be offset against the tax payable by that person, or the married couple together.
James Murray
Of course, having a well-functioning welfare state is, in many ways, precisely about protecting people when they have unexpected shocks to their lives. I am not sure that the tax system is the best way to address that, but I think the hon. Gentleman’s broader point about ensuring that the state provides a safety net or cushion against unexpected shocks to people’s lives is an important principle.
The focus of today’s debate is very much on tax thresholds, particularly the personal allowance, so I will return to my comments on that. When we took office in July last year, no responsible Government could have let things carry on as they were. Likewise, no responsible Government could now raise the personal allowance to £20,000 at a cost of more than £50 billion, as such a move would put public services back on their knees or risk economic chaos that would push up inflation, mortgages and taxes.
The petition suggested that
“raising the personal allowance would lift many low earners out of benefits”.
We know that our benefits system is currently failing on all fronts; it is failing those who receive benefits, by not helping them to work where they can, and failing taxpayers more widely, through soaring costs to the public purse. We are fixing that by reforming the benefit system to make it more pro-work, while protecting those who cannot work. When people are in work, we want them to be better paid, which is why in April 2025 we increased the national living wage to £12.21 per hour, the third largest proportional increase since 2016, and that is expected to benefit over 3 million workers.
We have published the “Get Britain Working” White Paper, which sets out the Government’s plans to reform employment, health and skills support to tackle economic inactivity and support people into good work. Our plan to make work pay represents the biggest upgrade in employment rights in a generation, bringing the UK back into line internationally. It tackles poor working conditions and job security, and by making work more flexible and family friendly, it will support our wider programme across employment, health and skills policy to get Britain working.
James Wild
The Minister referred to the Employment Rights Bill. Has he seen the survey from the Britain Retail Consortium in which 70% of the businesses that were surveyed, which are major retailers that employ half a million people, said that the legislation would damage their business, and half said that it would make them less likely to take people on?
James Murray
Many employers recognise that having a productive, secure workforce who can take pride in their jobs and contribute to their fullest ability at work is important not just for the employees themselves but for the productivity of the businesses. That is why we want to see workers with employment rights that will be upgraded through our plan to make work pay, alongside, as I mentioned a few moments ago, a stronger national living wage and national minimum wage under this Government.
That focuses, however, on working people and their rights at work and their incomes. The petition also raised concerns about the state pension being subject to income tax. In 2025-26 the personal allowance will continue to exceed the basic and full new state pension. That means that pensioners whose sole income is the full new state pension or basic state pension without any increments will not pay any income tax. The state pension continues to be the foundation of support available to pensioners, backed by the Government’s commitment to the triple lock.
This year, over 12 million pensioners have benefited from a 4.1% increase to their basic or new state pension, which means that those on the full new state pension will get an additional £470. Over the course of this Parliament, the yearly amount of the full new state pension is currently projected to go up by around £1,900, based on the latest forecast from the Office for Budget Responsibility. The Government also support pensioners through a range of other means, including free eye tests, NHS prescriptions and bus passes. For pensioners who are eligible for means-tested support, we provide pension credit and housing benefit.
I recognise the substantial support for this petition. Hard-working people and pensioners who have worked hard all their lives want taxes to be as low as possible; I understand that. However, as we have set out today, we inherited a mess from the previous Government and have had to take tough choices to set us on a path to generate economic growth. Raising the personal allowance to £20,000 would undermine the work that the Chancellor has done to restore fiscal responsibility and economic stability, and it would slash the funding available for vital public services. This Government remain committed to keeping people’s taxes as low as possible while ensuring fiscal responsibility. Fiscal recklessness hits working people and pensioners the hardest. Parties promising to raise the personal allowance to £20,000 would have to explain how they would cut the NHS by a quarter, or why they want a rerun of the economic disaster we saw under Liz Truss.
We as a Government are determined to go further and faster to deliver our plan for change with its key goal of putting more money in people’s pockets by kick-starting economic growth. We will always keep taxes as low as possible while never putting security for families and pensioners at risk. I thank all hon. Members who have spoken.
Draft Finance Act 2021 (Increase in Schedule 26 Penalty Percentages) Regulations 2025
James Murray Excerpts(1 month, 4 weeks ago)
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The Exchequer Secretary to the Treasury (James Murray)
I beg to move,
That the Committee has considered the draft Finance Act 2021 (Increase in Schedule 26 Penalty Percentages) Regulations 2025.
It is a pleasure to serve on this Committee with you as Chair, Mrs Harris. These draft regulations increase the penalties charged for the late payment of certain taxes. They do so by amending the percentage points by which the late-paid tax is multiplied in order to calculate the penalties. The taxpayers affected are those paying VAT, income tax or capital gains tax under Making Tax Digital for income tax.
The reform of penalties by His Majesty’s Revenue and Customs intends to modernise the tax system in relation to late payment penalties, as set out in schedule 26 of the Finance Act 2021, incentivising compliance and protecting the public finances. At this stage, the legislation affects only VAT customers for accounting periods beginning on or after 1 January 2023, and those who have voluntarily joined Making Tax Digital for income tax since April 2024. It is, however, the intention over time for penalty reform to replace other late filing and late payment penalties. The effect of the draft regulations will be to increase the late payment penalties for those who do not pay on time. They will change from two percentage points at days 15 and 30, and four percentage points after 30 days, to three, three and 10 percentage points respectively.
The reason that we are pursuing these changes is as part of a Government package to bring down the debt balance. We inherited a debt balance of more than £44 billion in March 2024—more than double the £19 billion in March 2019 before the pandemic—and we are determined to use all levers at our disposal to reduce it. We know that unpaid tax deprives public services of vital funding, and puts businesses that pay the right tax at a competitive disadvantage. Closing the tax gap plays a key part in the Government’s efforts to restore economic stability and fiscal responsibility.
Let me be clear to Committee members that these changes to late payment penalties do not affect compliant taxpayers who pay their tax on time. This approach continues to encourage taxpayers to pay what they owe on time, while providing a greater disincentive for those taxpayers who are continuously non-compliant, do not engage with HMRC and still owe tax after 30 days. It therefore removes any unfair financial advantage for those who choose not to pay over compliant taxpayers who pay on time. We believe that an increase in these penalties will be an important step in closing the tax gap and encouraging those who owe tax into compliance.
For those taxpayers in genuine difficulty, HMRC continues to operate a time to pay scheme. This can spread out debt over a manageable period and, importantly, if payment schedules are abided by, no penalties will be issued. Under the changes that we are making, taxpayers retain the same right of appeal if they disagree with the penalty issued. For those who have a reasonable excuse for their failure to pay, no penalty will be owed, although, as with the current policy operated by HMRC, this can be considered only once the debt has been resolved.
As set out in the spring statement by my right hon. Friend the Chancellor, these penalty increases are an essential part of a package of measures to bring down the debt balance and help to close the tax gap. The measures will encourage those who owe their tax to pay their debts or enter into an agreement to do so, while also raising £125 million by 2029-30, according to the Office for Budget Responsibility, from those who do not pay what they owe.
In summary, these regulations give effect to the Government’s decision to increase late payment penalties. They increase the differential between those who pay on time and those who do not, as part of the Government’s wider plans to make sure that everyone pays what they owe, to bring down the debt balance and to close the tax gap. I therefore commend the draft regulations to the Committee.
James Murray
I welcome the Opposition’s support for the draft regulations. The hon. Members for Grantham and Bourne and for North East Fife asked about wider efforts to improve HMRC’s service. I will address that briefly, although I realise that it strays a little beyond the strict boundaries of the regulations, but they are very important questions.
As Members might know, when I became Exchequer Secretary to the Treasury and chair of HMRC’s board, I set out our three priorities for HMRC: close the tax gap, improve customer service and reform and modernise HMRC. In fact, they all come together around measures such as these changes to late payment penalties, because we need to make sure that we close the tax gap, modernise the service and improve the service that individual taxpayers and businesses receive.
We are in the process of going through the spending review. We will publish a transformation road map after that has concluded, which will set out our plans to improve HMRC’s service. The answer to extended waiting times on the phones cannot simply be to recruit more people to pick up the phones; it has to be to reform the way that HMRC services are delivered. More needs to be done through automation and self-service, with tax being paid without people even having to engage with the system by picking up a phone, because it will happen in a more automated fashion. When they need help, they should be able to get it online rather than having to pick up a phone, so there is a lot of progress there. If Opposition Members want to talk to me about that in future, they are welcome to grab a moment in the Division Lobbies, although we are usually in different ones.
The draft regulations will give effect to the Government’s specific decision around the late payment penalties that I set out. It is important to emphasise, because the theme of customer service and supporting individual taxpayers has been raised by other Members, that the Government are encouraging taxpayers facing genuine difficulty to contact HMRC to enter a time to pay arrangement. As I mentioned, that enables taxpayers to pay by instalments over a longer time period.
I am grateful to hon. Members for their contributions and I hope all Members will be able to support the draft regulations before us today.
Question put and agreed to.
Tax Simplification, Administration and Reform
James Murray Excerpts(2 months, 1 week ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (James Murray)
At the autumn Budget 2024 and the spring statement 2025, the Government committed to bringing forward a package of measures in spring 2025 aimed at simplifying the tax and customs system to help deliver the plan for change. Today, the Government deliver that commitment with a package of 26 measures.
In addition, the Government are setting out two further administrative measures designed to strengthen the integrity of the tax and customs system, as well as a package of 11 measures that reform the tax system, ensuring that it continues to be fit for the modern world.
This includes new plans to reduce bureaucracy and increase efficiency at His Majesty’s Revenue and Customs to deliver the Government’s ambition to become a more productive, agile and effective state.
Simplification
Measures announced today will support economic growth by reducing burdens on employers and small businesses, modernising HMRC systems and processes to simplify the experience for individuals and traders, and simplifying HMRC guidance and communications.
The Government have engaged widely with stakeholders, including representative bodies, business organisations, the border industry and small businesses, and are implementing five ideas submitted by the Administrative Burdens Advisory Board as their priorities for simplification.
The Government will continue to work with stakeholders to identify further measures and priorities for simplifying the tax and customs administration system.
These measures will collectively reduce administrative burdens so that businesses and individual taxpayers spend less time on tax and customs administration and more time adding value to the economy.
Measures being announced today that reduce burdens on businesses, employers, and employees include:
Capital goods scheme simplification: To support small businesses, secondary legislation will be laid at a later date to remove computers from the assets covered by the scheme, and increase the capital expenditure value of land, buildings and civil engineering work, currently set at £250,000—exclusive of VAT—to £600,000.
Spirit drinks verification scheme simplification: At the autumn Budget, the Government announced their commitment to support the UK spirits industry by, among other measures, investing up to £5 million into HMRC’s spirit drinks verification scheme. The Government have decided to use this funding to modernise HMRC’s IT system and introduce a simpler flat fee model, significantly reducing the fees paid by operators to £250 per facility.
Mandating the payrolling of benefits in kind: As recommended by the Administrative Burdens Advisory Board, the Institute of Chartered Accountants of England and Wales, and the Employment and Payroll Group, the Government have announced a delay to the introduction of mandatory reporting and paying of income tax and class 1A national insurance contributions (NICs) on benefits in kind via payroll software—“Mandatory Payrolling.”
Mandatory Payrolling will be introduced from April 2027 instead of April 2026, to reduce the burden on businesses by giving them more time to prepare for changes. HMRC will continue to engage on design and delivery issues to ensure minimum disruption to employers.
These steps to reduce burdens on employers build on the 28 January 2025 announcement that the Government will not be taking forward the draft Income Tax (Pay As You Earn) (Amendment) Regulations 2025, initiated by the previous Government. This means employers will no longer have to provide more detailed employee hours data to HMRC from April 2026.
Additionally, today the Government have set out further measures to modernise HMRC systems and processes to simplify the customer experience, including:
Cultural gift scheme: The Government are announcing their intention to introduce legislation at the next Finance Bill to reform the scheme by removing the restriction on jointly owned objects and allowing tax credits to be used more flexibly. This will simplify the scheme by making it more accessible and improve take-up and will come into effect from April 2026.
Income Tax Self-Assessment (ITSA) criteria review: the Government confirmed their intention to raise the ITSA reporting threshold for trading income and align it with new ITSA reporting thresholds for property and “other taxable” income, at £3,000 gross each. This will remove the requirement for up to 300,000 taxpayers to file a self-assessment return. These changes will be implemented within this Parliament.
Reviewing National Insurance Contributions (NICs) Annual Maximum refunds process: A review of the process for refunding national insurance contributions under the annual maximum rules, to make it easier and faster for customers to access the refunds they are entitled to.
Voluntary NICs: enhancing “Check Your State Pension” forecast service: The Government also intend to further enhance the “Check Your State Pension” forecast service, which supports people who want to pay voluntary national insurance contributions to fill gaps in their national insurance record.
These measures build on the Government’s announcement at the spring statement 2025 that, from summer 2025, employed individuals who become liable to the high-income child benefit charge will be able to opt to pay HICBC directly through PAYE, without the need to register for self-assessment.
Simplifying HMRC guidance and communications is crucial to helping taxpayers get their tax right first time and reducing the worry and stress of managing their tax affairs. Therefore, the Government are announcing five measures to improve HMRC guidance and communications, including:
Clarifying self-assessment registration obligations: As recommended by tax professionals, HMRC will simplify guidance on self-assessment registration obligations to ensure clarity on when individuals must register for self-assessment.
Simpler communication and AI solutions: HMRC is working with external stakeholders to simplify HMRC guidance and communications by:
Working with the Administrative Burdens Advisory Board and others to simplify the language used in HMRC letters, making them more accessible and easier to read.
Collaborating with third parties and the Government Digital Service to investigate how businesses could leverage HMRC’s gov.uk guidance in their own AI-powered products and services. This could make it easier for taxpayers to get the information they need with the help of the latest AI solutions, reducing the need to contact HMRC, and access a more personalised experience to meet their needs.
The Government are also announcing a package of measures that simplify customs processes, reduce burdens and improve customer experience, while ensuring that we place targeted and appropriate control on movements. This includes:
Improvements to temporary admission: A package of simplifications and improvements to temporary admission, which relieves import duties on temporary imports.
Customs digitalisation: Announcing the details of Government pilots progressing trade and customs digitalisation, including a technical pilot with US Customs and Border Protection to test methods to speed up processes for trade for UK and US businesses.
Transit improvements: An informal stakeholder engagement exercise on potential improvements to modernise the transit process.
Authorisation by Declaration: Increasing how often AbD—authorisation by declaration—can be used from three times to 10 times per 12 months. AbD allows importers to use certain special procedures to suspend or relieve duties without getting an authorisation from HMRC beforehand.
Post and parcel exports consultation: A summary of responses to the customs treatment of post and parcel exports consultation. This includes a new authorisation scheme for ETOE—extraterritorial office of exchange—operators and sites to ensure that they operate with appropriate security standards. It also announces plans to conduct a further review of the export and transhipment memoranda of understanding, with the aim of clarifying existing rules and ensuring consistency and alignment with other comparable facilitations.
These measures are part of our ambition to embed innovation in customs processes and systems to support digitalised trade and supply chains. The Government are committed to continuing to work closely with industry to deliver on our ambitions and further improve our customs system.
Tax Administration
The Government are introducing administrative measures as part of this package of tax and customs policies.
This includes legislative amendments to ensure that all border locations are responsible for funding and operating their own customs infrastructure.
Reform
The Government have announced a package of measures that help to reform the tax system, ensuring that it continues to be fit for the modern world.
New proposals are being published for consultation, including on a single remote gambling duty, as committed to at the autumn Budget 2024, and on the VAT treatment of business donations of goods to charity. The Government are also consulting on proposals to reform the soft drinks industry levy in order to strengthen incentives to reduce sugar in soft drinks, proposals to reform landfill tax, and are exploring the merits of reform to online marketplace liability for VAT.
In addition, the Government will outline next steps on reform work already under way, including on the modernisation of the stamp taxes on shares framework and the response to the technical consultation on vaping duty.
The Government are committed to modernising HMRC to become a digital-first organisation. The Government are announcing today that HMRC will reduce paper post sent, saving £50 million per year by 2028-29, while maintaining paper post provision for critical correspondence and for the digitally excluded. The Government will do this by investing in digital services to send and receive taxpayer information and will bring forward legislation to support a digital-first approach.
The Government are committed to improving value for money in the system of tax administration, and so will be reducing the HMRC estate in central London by 25%. HMRC is already a national organisation and by 2030, 85% of HMRC staff will be based outside of London. Moving roles out of London, in line with the Government’s wider “Places for Growth” initiative will ensure that the civil service is closer to the communities it serves.
Ahead of their review of all arm’s length bodies, the Government are confirming that they will bring the functions of the Valuation Office Agency, an executive agency of HMRC, within HMRC by the end of this financial year. Moving the VOA’s functions into HMRC will strengthen direct accountability to Ministers, helping to improve the experience of taxpayers and businesses and support the delivery of the Government’s commitments to reform business rates and modernise the tax system. This move will support the Government to deliver change more quickly and effectively, by combining the expertise and experience of both organisations in policy, valuations and programme delivery. It will also drive efficiencies in the administration of the tax system, resulting in between 5% and 10% in additional savings in VOA administrative costs by 2028-29.
The full list of publications and announcements can be found at: https://www.gov.uk/government/collections/tax-update-spring-2025-simplification-administration-and-reform
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