Clause 1

Daisy Cooper Excerpts

Monday 12th January 2026 Commons Chamber

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

I call the Liberal Democrat spokesperson.

[Daisy Cooper (St Albans) (LD)]

I will speak to clauses 1 to 8 and schedules 1 and 2. Overall, the tax changes increase complexity, raise the tax burden on small businesses and savers, and raise the risk of serious unintended consequences on the property market. They all have the hallmarks of a Treasury tax grab without proper the consideration of the broader consequences.

When taken together, clauses 4 to 8 add more complexity, and concerns have been raised by the Chartered Institute of Taxation and the Association of Taxation Technicians, which highlighted that the new property rates add five new income tax rates. They are: the property basic rate of 22%; the property higher rate of 42%; the property additional rate of 47%; the property trust rate of 47%; and the savings trust rate of 47%. Rates will apply differently to investment returns and to savings. Basic and higher dividend rates have been changed, but additional dividend rates have not, and no explanation has been given as to the policy intent behind that. It would be helpful if the Minister could set that out on the record.

The long and short of it is that the Government say that they want to simplify tax, but their tax changes are making things more complicated. The Making Tax Digital forms will need to updated, and more individuals and small businesses will likely make more calls to His Majesty’s Revenue and Customs. Recent research by the House of Commons Library, commissioned by Liberal Democrats including my hon. Friend the Member for Maidenhead (Mr Reynolds), shows that HMRC failed to pick up one in five taxpayer calls over the last decade, with the tax service leaving the best part of a hundred million calls unanswered in the last 10 years. HMRC has failed to pick up 83 million calls from Brits in the last 10 years—6 million in just the last year. That is why we have been calling for a new HMRC hotline dedicated to supporting pensioners. It would help those who are among the likeliest to seek tax information over the phone while freeing up capacity for the tax service to deal with other queries—something that is imminent, given that the tax changes will result in more phone calls.

More broadly, the Federation of Small Businesses said:

“Hikes to dividend tax mean the Government continues to make investing in your own business one of the least tax-friendly things you can do with your money.”

Will the Minister listen to our small businesses, which are suffering under a mounting tax burden, not least from the Government’s business rates bombshell, and finally give them some respite?

With new clause 2, the Liberal Democrats call for a review of the impact of section 7 on rent prices. As many hon. Members have highlighted, the new clause would require the Chancellor of the Exchequer to lay before the House a proper assessment of the impact of the Bill’s tax changes on rent prices. Countless renters across the country will be worried that the higher property income tax will simply get passed on to them, making things even worse during the cost of living crisis. We cannot afford to ignore the unintended consequences of any tax policy.

The new clause would require the Government to update the House on some crucial details about the broader impacts of this measure. What proportion of the tax rise will get passed on to renters, according to the Treasury’s estimates? Which income groups are most likely to be affected by the tax rise? Which parts of the country will bear the brunt of it? I hope the Minister will agree that that information is essential.

[Dan Tomlinson]

I thank Members across the Committee, particularly those on the Labour Benches, for their contributions today. I believe that other things going on in the Palace today have drawn other Labour Members to Committee Rooms, but I am very glad that my hon. Friend the Member for Loughborough (Dr Sandher) chose to prioritise speaking in this important Finance (No. 2) Bill debate. I thank him for that.

I will respond to the points that have been raised in this all-too-brief debate on this group of important clauses. It is always a pleasure to stand at the Dispatch Box opposite the shadow Financial Secretary, the hon. Member for Grantham and Bourne (Gareth Davies). It was enjoyable to hear a history lesson rather than a selection of poetry or literary references, which I often get when I am opposite the shadow Chancellor, the right hon. Member for Central Devon (Sir Mel Stride). The shadow Financial Secretary noted correctly that income tax was originally introduced as a temporary measure. Running through my mind are the taxes introduced by the 2010-2024 Government that were initially announced as temporary but are still with us—but I will not comment on those, for reasons he may understand.

The shadow Financial Secretary mentioned my constituency, and I thank him for giving me a chance to talk about Chipping Barnet. He questioned what the tax rises are for. I can tell him that in the area that I know best NHS waiting lists are falling for the first time in a very long time, and the number of police officers is increasing after having been cut significantly. We are also opening breakfast clubs in primary schools. Those changes happening in my patch are happening across the country. That investment in our public services has been enabled by the tax changes that this Government have made. We are raising revenue in a sustainable and fair way in order to ensure that we can fund our public services and keep borrowing on a downward trajectory.

The shadow Financial Secretary raised the change landlord income tax—the two percentage point increase. I fully understand, as does he, that there are many reasons why people end up becoming landlords. We want to make sure that the taxation is fair and reasonable, which is why landlords do not pay national insurance in the way that their tenants do, and it is why we have taken steps to reduce—but not close in full—the gap in tax treatment, with the two percentage point increase. Landlords will still typically pay a lower rate of tax than their tenants, but the gap will be reduced following the measures set out today.

The shadow Financial Secretary, and other Members in interventions, mentioned the changes on dividend taxation. The main takeaway from the Office for Budget Responsibility is that it does not expect the changes to dividend taxation announced at the Budget a few short weeks ago to have a significant impact on business investment. Business investment is forecast to continue to grow over the course of the OBR’s five-year forecast horizon.

That is good news, because one thing that we know we need to do in this country is turn around the long-term weakness in investment—by both public and private sector—that has driven our long-term productivity and growth underperformance. That under-investment over the last 30 years is an issue that both major parties—and the Liberal Democrats for their time in the first five years of the coalition Government—should take responsibility for. I believe that in 24 of the last 30 years—that stat may now be one year out of date; I will have to update it for next time—the UK had the lowest rate of investment of any G7 economy. Until we can start to turn that around through higher public and private sector investment, our economy will not be able to fire on all cylinders, as this Government would like it to.

Let me turn to new clauses 2 and 12. New clause 2 would require the Government, within three months of the Act coming into force, to lay before the House of Commons an assessment of the impact of the implementation of section 7 of the Act on rent prices. New clause 12 seeks to require the Government, within six months of the Act coming into force, to publish an assessment of the impact of the changes introduced by sections 6, 7 and 8 on the private rental sector in England, Wales, Scotland and Northern Ireland.

As hon. Members will be aware, the Office for Budget Responsibility engages closely with the Treasury on the potential impacts of policy measures as part of standard Budget processes, and the OBR does not expect that the reform to property income will have a significant impact on rental prices in the forecast horizon. As I said, the economic literature points to rental prices being determined by the balance of supply and demand in the market, not just the cost facing landlords. The housing market proved to be more resilient than expected in 2025, and as interest rates fall further we hope that will reduce costs for landlords, too.

--- Later in debate ---

[Daisy Cooper]

These stealth taxes were started by the Conservatives and are being continued by Labour. When the Liberal Democrats were in government, we made sure to raise the income tax thresholds, taking people out of paying tax, but it is clear that the two biggest parties continue to drag more people into paying tax. According to the OBR, by 2030, an extra 9.4 million people will be dragged into paying the basic and higher rates of income tax, 1.7 million of whom will be dragged into the system because of this Government’s decisions at the last Budget. By 2031, the stealth taxes introduced by the Conservatives and continued by Labour will cost British taxpayers an eyewatering £67 billion a year, some £13 billion of which is a result of last November’s Budget.

To put that into perspective, in a two-person household, where someone earns £26,000 and someone earns £60,000 a year, over the decade of Conservative and Labour stealth taxes, the lower of those earners will lose the equivalent of an entire year’s pay due to frozen tax thresholds. Wiping out an entire year’s pre-tax salary for a typical earner is devastating for household finances. It is staggering to realise that this decade of frozen thresholds will cost what is broadly a typical two-earner family a staggering £26,800. The OBR says that one in four adults will be a higher rate taxpayer by 2031, up from one in seven in 2022. That represents an additional 5.7 million people, including 920,000 dragged into the higher rate band as a result of the Chancellor’s latest three-year extension.

It is really important that people understand that this is happening. The Liberal Democrats have tabled new clause 3 so that people are notified about how they will be affected by these frozen thresholds. The new clause will require the Chancellor to properly communicate to the people the impact of frozen tax thresholds. One of the most damaging aspects of this tax rise is that it goes unnoticed by so many. Unlike other tax changes, the stealth tax does not show up on people’s payslips and too many people are simply unaware that they are paying more tax because of the Government’s decisions. New clause 3 would require the Chancellor to be transparent with taxpayers and directly write to them, explaining in black and white the impact frozen thresholds will have on their pay cheques.

As many other hon. Members have said, there is huge concern among pensioners about what the measures will mean for them. In a recent meeting with the Chartered Institute of Taxation, it was highlighted to me that is not clear who will qualify for which rate of tax. The way that the system is set up suggests that pensioners who receive the same amount of income but from different sources could end up paying different rates of tax. Many of us like Martin Lewis, but the fact that the Chancellor has done a podcast with him does not mean that the impact of the Government changes has been communicated clearly to every single pensioner. I urge the Minister to adopt our simple new clause 3. The Government have said that they want to make the tax system more transparent, so if Ministers truly want to be honest with people, they should accept this simple amendment and write to the people who are affected by these policies.

[Sir Ashley Fox]

A Budget is the most important set of choices that a Government can make, and introducing clause 10 is a choice by this Government. I oppose clause 10 because it extends the freeze on the personal income tax allowance and the basic rate limit for a further three years, from 2028 to 2031. That means that rates will have been frozen for 10 years.

The choice in this Budget, as in all others, was clear: will spending be controlled or will taxes be raised? For the second year running, this Labour Chancellor chose higher taxes. In 2024, the Chancellor said that to extend this freeze would be to break her manifesto commitment not to raise the level of income tax, but at this Budget, she did it anyway. At the last election, the Government promised growth. They promised not to raise taxes on working people and to fund public services through a stronger economy, but from the moment that they took office, they have done the opposite. Labour have expanded welfare without reform, handed out huge pay deals without productivity gains and piled costs and regulations on to employers. When the inevitable bill came, what did they do? They reached into the taxpayer’s wallet.

These tax rises are a political choice. The consequences of these choices are clear. Taxes on working people are at record highs, growth is sluggish and unemployment has risen consistently since the election. Record numbers are now trapped outside the labour market on benefits, with no requirement and no incentive to seek work at all. Those who do the right thing, who work hard to provide for their families, now face higher tax bills to fund an ever-larger welfare state.

--- Later in debate ---

[Dan Tomlinson]

It is so wonderful to see so many Members on the Opposition Benches wishing to intervene. They were much less forthcoming in my previous closing remarks. I have given way to one Conservative, so I will give way to a Liberal Democrat.

[Daisy Cooper]

The Minister will have heard a number of colleagues asking for more detail about how the pension provisions will affect pensioners. The Minister has just said that further information is to come. Will he please give us an indication of the date when we can expect that guidance to be published, so that he can then come back and clarify some points?

[Dan Tomlinson]

That information will be forthcoming in due course.

In conclusion, I hope that Members will see how the amendments that have been tabled are not necessary. We have set out the impact of our tax changes in numerous tax impact and information notes, which Members can read online at their leisure. This Government and I will not let Opposition Members who repeatedly voted to freeze thresholds until 2028 when they were in government to rewrite history. This Labour Government reject the Conservatives’ austerity measures, which got our country and public services into this sorry state. We inherited a mess at the 2024 general election, and the measures we are considering now, and those elsewhere in the Finance Bill, enable us to rebuild our public finances, to fund our public services for the long term and to get borrowing over the course of this Parliament to continue to fall. I therefore, urge the Committee to reject new clauses 3 to 5 and 13 to 15 and to support the inclusion of clauses 9, 10 and 69.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Clause 10

Basic rate limit and personal allowance for tax years 2028-29 to 2030-31

Question put, That the clause stand part of the Bill.