Finance (No. 2) Bill (Fourth sitting)
Dan Tomlinson ExcerptsThursday 29th January 2026
(2 days, 6 hours ago)
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Martin Wrigley (Newton Abbot) (LD)
On reading the clause, I too was concerned about the costs for SEND. Devon, which is a very rural county, spends something like—from memory—£50 million a year on taxis to move children across the county who require special schools in different areas. A 20% tax on that would equate to £10 million. Will the Minister clarify whether taxis used for SEND transport by councils are included? If so, will the Minister please negotiate the extra money that will be required, so that we do not have our SEND budget in Devon cut by £10 million?
The Exchequer Secretary to the Treasury (Dan Tomlinson)
It is a pleasure to speak under your chairship, Mrs Harris. I am very glad to see you in the Chair. Rather than running through these changes in detail, let me respond to some of the points that have been raised, because they are important and, in some cases, valid.
As a tax Minister, I am not going to comment on the affairs of individual taxpayers, by which I mean individual businesses, but I will say that the exclusion from TOMS applied to several large private hire vehicle operators. Crucially, it ensured that they were subject to the same tax rules as everyone else. That is what this change is trying to do.
Regarding any subsequent potential changes to the operation of business models that may or may not have taken place—hon. Members have mentioned some reports, but at this stage they are only reports—HM Revenue and Customs will always make an operationally independent assessment of whether a private hire vehicle operator is operating as an agent or, as it is sometimes called, a principal, and it will charge tax accordingly. If there are any implications—we do not know yet whether there will be—any costing update will flow into the forecast as usual.
James Wild
May I return to the point about the ancillary services? Proposed new subsection (3A) in section 53 of the 1994 Act requires only
“the provision of accommodation, or…the transport of passengers by bus, coach, train, ship or aircraft.”
Excursions or trips are not covered, which is why the ICAEW has suggested simply amending the wording to include the services of tour guides, trips and excursions to ensure that genuine day-trip packages, wholly within TOMS, continue to be protected. Under the clause as drafted, they will not be; a proportion of them will face an extra 20% charge. That is the case, is it not?
Dan Tomlinson
We are confident that the exclusion drafted in the Bill is carefully targeted and will not have unintended implications by limiting the activities of legitimate tour operators. It is right to make this change, which will raise £700 million of tax revenue that the Government believe should already be being paid. It will be a vital contribution to the public finances.
Dan Tomlinson
The Government are, of course, aware of the pressures on local council finances as a result of the growing number of children with additional needs who require transportation or other support. It is important to note that the clause does not seek to apply additional VAT to those who are not already seeking to make use of the TOMS. The vast majority of taxi services across the country are not using the TOMS and will be unaffected by this change, but we think it right to ensure that this particular use of the TOMS cannot continue, in order that we can raise revenue.
Dan Tomlinson
I have given way multiple times, but I am happy to do so again, because we are in Committee and it is good to have thorough scrutiny.
Mr Reynolds
I thank the Minister for his generosity. Will he confirm that if any local authority sees an increase in its spending on SEND transport because of the 20% VAT, the Treasury will work with the Ministry of Housing, Communities and Local Government to ensure that those authorities are paid back in full for that extra cost? That reassurance would help to put our minds at ease, along with council leaders and council chief executives across the country who are worried that they might have a hole in their budget come the next financial year.
Dan Tomlinson
Local authorities have usual and long-standing mechanisms for handling their VAT liabilities, including reclaiming the VAT where permissible.
I hope that I have responded with sufficient thoroughness to the points that have been raised. I commend the clause to the Committee and urge that amendment 42 be withdrawn and new clause 14 be rejected.
James Wild
I need to hammer the nail about day-trippers while we have the taxman on the Government Benches. Proposed new subsection (3A) in section 53 of the 1994 Act does not provide for day-trip excursions not to be in scope; it refers simply to accommodation and passenger transport not being captured. I hope that the Minister might look at that again, because certainly in tourist areas such as my own constituency, those day trips are part of the local economy and hospitality sector. He knows well from his portfolio that pressures are being placed on hospitality businesses more broadly, not just on pubs.
I am not sure whether we got the full guarantee on SEND. Perhaps the Minister will write to the Committee to set out the position on that, so we all have clarity and can go back to our local authorities to assure them that the £700 million that the Government are looking to raise in additional taxes will not be coming from our council tax payers.
I am not satisfied that the Minister has dealt with the rural issue or the impact on such areas. I appreciate that he does not come from a rural constituency, so he does not have that at his fingertips, but certainly in my area, people rely on private hire vehicles and taxis to get around. That is a big issue, so I will therefore be pressing the amendment to a vote.
Question put, That the amendment be made.
Dan Tomlinson
I thank the Opposition spokespeople for their questions. [Interruption.] Spokesmen—very good. Before the Budget, I attended a roundtable with businesses, charities and those who had been campaigning and advocating for the change we brought in at the Budget. In response to many of the questions asked by the Opposition spokesmen, I can reassure them that we worked through the limits and detail of the clause really closely with the charitable sector and with the businesses that would have a different VAT treatment or that may pass on their goods in this way.
On the specific question about guidance, it has already been shared with stakeholders and we continue to engage with them. I will see if my officials can send the Opposition spokesman, the hon. Member for North West Norfolk, the guidance if he would be interested to see it. The value of goods will be commensurate with a £10 million a year Exchequer cost.
On the threshold, the Government have decided not to uprate it in line with CPI, but we will continue to keep it under review. As I said, it was set after detailed and extensive conversations and engagement with the groups that will be involved with the different treatment through either receiving or donating the goods.
It is worth noting that, due to the wonders of modern capitalism, lots of the prices of consumer goods have actually been falling in real terms over time—for example, we might think about how expensive a traditional washing machine or a television is today compared with 20 or 30 years ago. It is not clear to me that it would be appropriate to continue to uprate the threshold as default in line with CPI. For that reason, I encourage that amendment 43 be rejected, and commend clause 80 to the Committee.
James Wild
The hon. Member for Maidenhead makes a reasonable point about the £200 limit. The Minister said that there had been a lot of discussion to arrive at that threshold, but I do not think he exposed the entire rationale underpinning it—he talked about washing machines and their prices, which was an interesting diversion. The point remains that if we have a £200 limit and we think that is the right limit now, why do we not just automatically uprate it? Then the Minister will not have to come back with regulations or put other clauses in future Finance Bills. It would save us all a lot of hassle and palaver, and would mean that people and charities know where they stand. Our amendment is a modest measure, which I am surprised that the Minister has not simply accepted, so I will test the will of the Committee.
Question put, That the amendment be made.
Dan Tomlinson
My remarks on clause 81 will be very brief. The changes that the clause makes will add combined county authorities to the list of bodies eligible for refunds under section 33 of the Value Added Tax Act 1994. This will remove the need for individual Treasury orders each time a new combined county authority is established. I commend the clause to the Committee.
James Wild
I thank the Minister for that very succinct description of the clause. He will be pleased to hear that I have only a few points to make—[Interruption.] The hon. Member for Burnley says, “That’s good.”
The clause allows newly created combined county authorities to reclaim VAT incurred on non-business activities, such as statutory public functions. At present, established local authorities can recover VAT on such activities under section 33 of the Value Added Tax Act, but the definition does not explicitly include combined county authorities. We understand that that change took effect last year.
The explanatory notes make it clear that the clause is intended to ensure fiscal neutrality for the new governance arrangements. Combined county authorities should be no worse off than traditional counties because of their form, but of course the beneficiaries are the combined authorities that are being formed under the Government’s local government reorganisation plans.
My own county of Norfolk is set to be joined with Suffolk in one of these combined county authorities, with a mayor sitting across the two counties. People in Norfolk and Suffolk were looking forward to that mayor being elected in May, until the Government cancelled our election as a late Christmas present in December. As a result, we will not have a combined county authority mayor in place and we will lose out on the £40 million that the mayor was meant to have through the investment fund.
The county council elections for the authority that will make way for the combined county authority, which will then benefit from this VAT exemption, were also cancelled. So there is more delay and uncertainty, and a loss of funding, as people look at the creation of these combined county authorities, which are the subject of the clause, and the refund that they will be able to get. The clause is sensible, but the Government’s wider plans that sit behind it are somewhat chaotic, and cancelling elections is undemocratic.
Mr Reynolds
Balancing VAT refund rights to ensure fairness for CCAs is, of course, welcome, and we support it. We support the idea that VAT refund rights should be balanced across groups and institutions that are similar and have a similar purpose. That is why I hope you will allow me to share some surprise, Mrs Harris, that the Government have not gone further in balancing refund rights. For example, a school with a sixth form attached can claim its VAT back, but a sixth form college cannot. My hon. Friend the Member for Mid Sussex (Alison Bennett) has been campaigning on that for a significant time. In answer to a written question, the Minister confirmed that the Government are not planning to extend the VAT refund right to sixth form colleges, but they have done so for combined county authorities. Will the Minister explain the rationale for that? We all support the idea of balancing VAT refund rights, so we should surely be extending that to other situations.
Dan Tomlinson
I am glad that the hon. Member for Maidenhead is aware of the answer to the written parliamentary question. I have also responded in writing to Members who have written to me about this issue, and the rationale has been set out in that correspondence.
Question put and agreed to.
Clause 81 accordingly ordered to stand part of the Bill.
Clause 82
UK listing relief
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 15—Review of extension of three-year period for UK listing relief—
“(1) The Chancellor of the Exchequer must, within 12 months of this Act being passed, publish and lay before Parliament a report on the potential benefits of extending beyond three years the period for which UK listing relief applies under section 82.
(2) The report under subsection (1) must assess the—
(a) impact that extending the period could have on the attractiveness of UK markets for new listings,
(b) potential effects on capital raising and investment in the UK, and
(c) implications for Exchequer revenues.”
This new clause would require the Chancellor of the Exchequer to report on the potential benefits of extending beyond three years the period for which UK listing relief applies under section 82, including effects on the attractiveness of UK markets, capital raising and Exchequer revenues.
Dan Tomlinson
The Government are committed to ensuring that world-leading capital markets support our firms to raise the capital they need to continue to grow and invest. Clause 82 introduces UK listing relief, which means that transfers of a company’s securities will be subject to relief from stamp duty reserve tax for the first three years after the company lists in the UK.
Stamp duty reserve tax and stamp duty are charges on transfers of UK securities. They are vital sources of revenue for the Exchequer, and combined they are forecast to raise up to £5.3 billion a year by the end of the forecast period. The Government are focused on ensuring that the UK is the best place for firms to start, scale, list and stay, and we have delivered an ambitious programme of reforms to build on those strong foundations.
The changes made by the clause will remove the 0.5% stamp duty reserve tax charge on the transfer of a company’s securities for three years from the point at which the company lists its shares on a UK-regulated market. That will enable newly listed companies to secure higher share prices, boost trading volumes and improve access to capital.
Mark Garnier (Wyre Forest) (Con)
It is great to hear the Minister talking about making the City of London a pre-eminent place in which to grow and list companies, and this is a very welcome measure. However, if he accepts that stamp duty is what has been holding back the listing of shares, why do the Government not go the whole hog and get rid of stamp duty altogether, thereby making the City of London comparable with pretty much every other major developed stock market in the world?
Dan Tomlinson
As the hon. Member knows, there are always trade-offs to be considered in taxation policy design. As I have just outlined, there is around £5 billion of revenue here. We must ensure we get the balance right between raising revenue and continuing to support growth and the ability of companies to grow and invest in the UK.
We did make changes at the Budget, for example to venture capital trusts, enterprise investment schemes and enterprise management incentives to encourage start-ups in particular to scale up in the UK, as one of our frontier sectors seeing growth. We have made changes to support that. I note the Opposition’s perspective, but on balance we think this is a good change to make on its own. We look forward to seeing the impact that it will have and we will continue to keep our tax measures under review.
New clause 15 would require the Chancellor to publish, within 12 months, a report on the potential benefits of extending the period in which the UK listing relief applies beyond three years. The Government have carefully considered the scope of this relief, including the length of the relief period. The first few years after listing are crucial for companies as they endeavour to establish long-term viability on public markets, with the most vital period being the initial one or two years. However, our judgment is that the benefits of significantly extending the relief beyond this period would not represent best value for money, as the Exchequer cost would increase while the benefits for firms would diminish with each additional year. I therefore commend clause 82 to the Committee and ask that new clause 15 be rejected.
James Wild
I rise to speak to clause 82 and new clause 15 tabled in my name and those of my right hon. and hon. Friends. As we have heard, clause 82 introduces a time-limited relief from stamp duty reserve tax for companies listed on a UK-regulated market. The Committee will know that stamp duty is charged at 0.5% on trades in chargeable securities such as shares. This form of transaction tax is among the most economically inefficient, in the same way stamp duty is on homes: it dampens the market, prevents people from moving and undermines labour market flexibility. As a result, we have committed to abolishing stamp duty on house sales—not stamp duty on shares—and that has been very warmly welcomed.
Under clause 82, trades in a newly listed company’s securities will be exempt from that 0.5% charge for the first three years after the company lists, provided specified conditions are met. The relief will apply to new listings from November last year, with the detail on the qualifying markets and securities set out in the clause, with which hon. Members will, I am sure, have familiarised themselves. We on this side of the Committee support the principle behind the clause.
Some Opposition Members have highlighted the potential benefits of scrapping this transaction tax entirely. We all want to see more companies listing and raising capital in the UK, and steps to lower frictional trading costs can contribute to that ambition. However, my new clause 15 seeks to go further by requiring the Government to publish a report on the potential benefits of extending the stamp duty relief beyond three years. Specifically, I am asking Ministers to assess how a longer relief period could affect the attractiveness of UK markets for new and returning listings, and the impact on capital raising, investment and Exchequer revenues. According to the “Budget 2025 Policy Costings” document, historical listing activity has raised between £14 billion and £17 billion of capital each year. The same document shows that the relief is expected to cost the Exchequer £25 million in the first year, rising to about £50 million a year once fully implemented.
Dan Tomlinson
As with other measures that have been debated this week, for example on business rates, it seems that the Conservatives were just getting around to reform on the issue. Now they are in opposition, they seem to have developed a significant zeal for reform and tax cutting that they did not show at all when they were in government—for example, leaving business rates unreformed, as well as leaving this measure totally unreformed.
James Wild
I am surprised that the Minister has brought up business rates. This is very important. We look with sympathy at having to reverse the Chancellor’s mess, although the Minister will be coming back in a few months, I am sure, with a further U-turn. Just to clarify on business rates, did the Government choose to scrap the 40% relief that was in place when they came into office?
Dan Tomlinson
I do not know whether you want the conversation to continue on a tax that is not in scope, Mrs Harris, but I am happy to answer the question.
Dan Tomlinson
Indeed, Mrs Harris. I respect your judgment and authority in such matters.
As I said, the Government carefully considered the scope of the relief, including the length of the relief period. The first few years after listing are vital in establishing longer-term liquidity, the most important period coming right at the start. The benefits of extending the relief significantly beyond that period, in our judgment, would not represent value for money for the taxpayer.
Mark Garnier
The Minister talks about value for money and the cost, but the alternative is that there will be no listings, so it does not cost anything because this is revenue that the Government would not otherwise have. If they levy this stamp duty, people will not list—they will go to other markets. If they remove it, people will list. There is not actually any change in the revenue to the Government. I do not understand why they cannot extend it. It is not lost revenue because it never would have been generated in the first place.
Dan Tomlinson
Of course there will be companies that will list under the current tax regime, and changing the tax would lead to lower revenues for the companies that would have listed anyway. We have to look at both sides of the coin. [Interruption.]
Dan Tomlinson
The Government are doing a lot to continue supporting the UK’s vibrant capital markets. We have some of the deepest capital markets globally. We have, for example, changed UK listing rules to bring the UK into line with international best practice. We are also changing and improving the prospectus regime, significantly cutting the amount of paperwork that a firm needs to produce while providing better and more relevant information to investors.
We are taking a range of actions to support our capital markets and to support firms to list here. We have seen some good progress in recent months, with more companies choosing to list in the UK, and I hope and expect that we will see more of that soon.
Question put and agreed to.
Clause 82 accordingly ordered to stand part of the Bill.
Clause 87
Rates of duty effective from 6pm on 26 November 2025
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 88 stand part.
New clause 31—Review of effects of sections 87 and 88 on illicit tobacco market—
“The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the provisions made under sections 87 and 88 on the illicit tobacco market.”
This new clause would require the Chancellor of the Exchequer to publish an assessment of the impact of sections 87 and 88 on the illicit tobacco market.
Dan Tomlinson
Clauses 87 and 88 implement changes announced at Budget 2025 concerning tobacco duty rates.
At the Budget, my right hon. Friend the Chancellor confirmed that the Government will increase tobacco duty in line with the escalator. Clause 87 therefore specifies that the duty charged on all tobacco products will rise by 2 percentage points above retail prices index inflation. The new tobacco duty rates will be treated as having taken effect from 6 pm on the day they were announced, which was 26 November 2025. In October 2026, tobacco duty will rise again in line with the escalator with the introduction of vaping duty. That is to preserve the price differential between vaping and tobacco products to ensure the duty on vaping does not make smoking more attractive, and will maintain the incentive to choose vaping over smoking.
New clause 31 would require the Government to publish an assessment of the impact of the changes to tobacco duty rates on the illicit tobacco market within six months of the Bill being passed. The Government will not accept the new clause, as the potential impact on the illicit market is already one of several factors that we consider when we take decisions on tobacco duty rates. We have already published a tax information and impact note alongside the Budget to set out the expected impact of this measure. I commend clauses 87 and 88 to the Committee and I reject new clause 31.
James Wild
I rise to speak to clauses 87 and 88, as well as new clause 31 tabled by the Conservatives. As the Minister said, clause 87 increases tobacco duty and the minimum excise tax with effect from Budget day, as is traditional. As he also outlined, tobacco duty is clearly charged on cigarettes and other tobacco products, while the minimum excise tax ensures that cheaper cigarettes do not escape the appropriate levels of taxation.
Clause 88 sets out a further increase from October this year, introducing an additional uplift in line with RPI, alongside a one-off increase of £2.20 per 100 cigarettes and a similar rise for hand-rolled tobacco. The one-off increase coincides with the introduction of the new vaping products duty, which we may get to talk about later in Committee.
As the Committee discussed last year, in the autumn Budget 2024, the Government announced that the measure was intended to preserve the price gap between tobacco and vaping products, with the same £2.20 rate applying across both categories. These measures will result in a sharp rise in the duty per pack and per pouch. While we broadly support these measures, there are concerns about the implications for illicit trade and enforcement. As we discussed in the Committee of the whole House on the Budget and the Finance Bill in relation to the Government’s almost doubling of gambling taxes, the risk, as always, is that such steep increases widen the price gap between legal and illegal products, making it more profitable for criminal networks, and more tempting for consumers to turn to the black market.
The tobacco duty has been around for a long time, and in recent years successive increases have sought to maintain the financial incentive for people to switch to vaping or to give up entirely. The OBR forecasts that tobacco duty will raise around £8 billion in the current financial year, a modest rise of 0.8% from the previous year, before receipts fall steadily to £7 billion by 2031. The tax information and impact note suggests that the Exchequer impact from this measure will peak at about £130 million before tailing off, consistent with those forecasts.
In economic terms, it would appear that tobacco duty is pushing beyond the point of maximum returns—beyond the Laffer curve peak. As Members of this House, our focus should be on ensuring that further increases in gambling taxes, or the tobacco taxes that we are debating here, do not simply fuel illegal trade. Raising prices on tobacco inevitably risks boosting demand for illicit products, with the associated criminality that blights our communities and fuels organised crime gangs. Even the TIIN acknowledges that some consumers may switch to cross-border or illicit purchases.
HMRC says that it will “monitor and respond” as part of its anti-fraud strategy, but frankly, more clarity and more action are needed. Will the Minister outline specific measures that HMRC will use to counter any shift towards the black market? What assessment has been made of the risk to consumers who buy illicit products, both in terms of the health impacts and the costs to public services such as our NHS?
Mrs Harris, you are probably wondering what the scale of this problem is. According to HMRC, 10% of cigarettes and 35% of hand-rolling tobacco consumed in the UK are from illegal or non-UK duty-paid sources. However, industry data suggests—I of course recognise that the companies have an interest, and I do not take their figures at face value—that the problem may be far worse, with up to 30% of cigarettes and over 50% of hand-rolling tobacco now being sourced illicitly. If accurate, those are levels that have not been seen the mid-2000s.
I cited similar data in Committee during the passage of the Finance Act 2025, when similar provisions were brought forward. Can the Minister update me and the Committee on what discussions have taken place with HMRC about the discrepancy in the estimates? We have one estimate of 10% and another of 30%; that is a huge difference, and we have to get to the actualité.
HMRC’s own director of indirect tax—I want to see that on a business card—has said that illicit tobacco costs the taxpayer around £1.8 billion a year in lost revenue. That is a lot of tax being avoided that could be collected, were this legislation properly implemented. Is that the Government’s estimate? If not, can the Minister provide more up-to-date figures on the gap between legal and illegal sales? It would also be helpful to know whether the Government have assessed the cumulative impact on retailers and enforcement bodies, if the illegal market continues to expand. That is precisely the purpose of new clause 31, which would require
“an assessment of the impact of the provisions made under sections 87 and 88 on the illicit tobacco market.”
HMRC launched its first strategy to tackle illicit tobacco back in 2000. I will not go through them all, but subsequent updates, working closely with Border Force, have delivered progress. They have reduced the duty gap on cigarettes by a third and on hand-rolling tobacco by half, which is a welcome success. The previous Conservative Government launched a strategy in March 2024, building on that record.
I am pleased to see that the trading standards powers we introduced in July 2023 are producing results. By early January this year, over £1.4 million in civil penalties had been issued for illicit tobacco sales. When in government, we recognised the importance of enforcement. The Public Accounts Committee, on which my hon. Friend the Member for Mid Bedfordshire serves and I had the pleasure of serving for two years, estimated that every £1 spent by HMRC on compliance recovers £18— a fine rate of return.
Dan Tomlinson
Let me respond to some of the Opposition spokesman’s points. HMRC’s estimate of illicit trade is published annually in “Measuring tax gaps”, which are official statistics produced to the highest quality standards. They adhere to the values, principles and protocols set out in the UK Statistics Authority’s code of best practice for statistics and are regulated by the Office for Statistics Regulation. HMRC is always looking for ways to strengthen them, but the Government consider them to be the most reliable estimates of illicit trade. As he set out, the figures produced by the tobacco industry or those working on its behalf cannot be regarded as a fully neutral assessment of the situation on the ground.
The Opposition spokesman asked about the latest figures. The latest figures from the 2023-24 tax year are that the tobacco duty gap was 13.8%, equivalent to £1.4 billion. He is right that every penny not collected there is a penny not going towards public services. We need to continue to focus our efforts on what we can do to reduce that figure. He mentioned the work of the previous Government, and this Government will build on that. We will continue to work with Border Force to seize cigarettes and hand-rolling tobacco. The Committee may be interested to know that in the 2023-24 tax year, HMRC and Border Force together seized 92,435 kg of hand-rolling tobacco. We are continuing to see what more we can do. HMRC and Border Force published a strategy in 2024 setting out the continued commitment to reduce the trade, with £100 million of funding in enforcement capability and £1.4 billion to recruit 5,000 compliance officers.
I had not heard the Opposition spokesman’s point on trading standards before; I did not have the pleasure of serving on the Public Bill Committee of last year’s Finance Bill when he raised it. The Government’s policy position is as it stands, but I am always interested to hear policy ideas. I will take his point back to the Department.
Question put and agreed to.
Clause 87 accordingly ordered to stand part of the Bill.
Clause 88 ordered to stand part of the Bill.
Clause 89
Vehicle excise duty for light passenger or light goods vehicles etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 17—Statement on increases to vehicle excise duty for cars and light goods vehicles—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to the House of Commons, on the increase to vehicle excise duty made under section 89.
(2) The statement under subsection (1) must include details of the impact on—
(a) the automotive sector,
(b) household incomes, and
(c) the UK economy.”
This new clause would require the Chancellor of the Exchequer to make a statement to the House on the impact of the increase to vehicle excise duty under section 89 on the automotive sector, household incomes and the UK economy.
Dan Tomlinson
I will keep my remarks brief, if only to give the hon. Member for North West Norfolk more time to inform us of his opinions on this matter. Clause 89 makes changes to uprate vehicle excise duty rates for cars, vans and motorcycles in line with the retail prices index measure of inflation from 1 April 2026. New clause 17 would require the Chancellor to make a statement to the House on the impact of that 2026-27 increase to VED rates, but the increase announced in the Budget is in line with the retail prices index, meaning that rates will remain unchanged for vehicle owners in real terms by that metric. It is therefore the Government’s judgment that the new clause is unnecessary. I therefore commend clause 89 to the Committee, and recommend that new clause 17 be rejected.
James Wild
I am very happy to share my views with the Committee on each and every clause as we go through; that is part of what we are here to do. I am also happy for the Minister to expand on the merits or otherwise of his legislation at will. If he prefers to keep it brief, we can read into that what we wish.
Clause 89 increases vehicle excise duty, the annual charge for keeping a car, van or motorcycle on the roads, in line with the retail prices index. Those changes take effect in relation to licences taken out on or after 1 April. Let us be clear: in practice, that means higher costs for almost every driver. New clause 17 seeks to make sure that those impacts are assessed. It specifically looks at the impact on the automotive sector, household incomes and the UK economy.
We will not vote against clause 89, but the Government should not take our position as an endorsement of their wider approach to motorists. Vehicle excise duty flows straight into the Treasury’s general fund, and the amount that a driver pays depends on the vehicle type, registration date and emissions, with rates adjusted. According to the OBR, vehicle excise duty is forecast to raise getting on for £12 billion by the end of the decade, due in no small part to the RPI increases. It is interesting that the Minister is keen to increase people’s taxes by RPI on a regular basis but will not give such a commitment on a fairly minor charitable threshold. We will leave that there, though, as we have debated that clause.
Ministers like to describe these increases as modest. On their own they may be, but we have to look at all these things in the round, and the impact of these clauses on individuals. If we look at all the costs—the hike in fuel duty and the new mileage-based charge planned for electric and plug-in hybrid electric vehicles, which will cost the average driver £255 a year—the cumulative impact begins to bite. That is why the new clause looks at the impact of this measure. That all comes on top of rising insurance premiums, servicing costs and of course the wider pressure on household budgets. Everyone’s bills are going up, and there seems to be no end in sight.
Let us not forget that it was this Government who decided to end the 5p fuel duty cut that the last Conservative Government introduced—a decision that will cost the average family around £100 a year from September. Then, from next April, the long-standing fuel duty freeze that was in place for 16 years will also be scrapped, replaced by inflation-linked rises. That freeze has saved motorists £120 billion since 2010, but once again, drivers are being asked, through this measure, to pay the price for the Government’s failure to get a grip on the economy.
Motorists and motoring organisations including the RAC have rightly warned that these charges come at a time when the cost of living remains high and public transport options are patchy—particularly outside our major cities, as we discussed in the context of private hire vehicles and taxis. For many in rural areas like my own, a car is not a luxury but a necessity to get around, get to work and see family. Many people do not have an alternative to their car. Drivers are paying more, yet the Prime Minister boasts about things like his £3 bus fare cap, which he quietly increased by 50%. That is why new clause 17 would require an assessment of the impact of the increase in vehicle excise duty.
Although we will not vote against the clause, we expect some answers from the Minister. Will he confirm whether the Treasury has modelled the combined impact of these motoring costs—VED, fuel duty, the upcoming road pricing charges—on household budgets, particularly in rural areas where public transport is limited? What assessment has been made of the impact on small businesses that depend on vans and light goods vehicles to operate in each of our constituencies every day? Those are the people we should think of when we consider clauses such as this. New clause 17 would help to deliver the clarity that Britain’s 50 million motorists deserve.
Dan Tomlinson
In response to the shadow Minister’s question, the Government do consider the impact of each individual tax measure on businesses and consumers in the round with the others, at Budgets and in between them too. As a result, we have concluded that this is the right and proportionate way forward, to protect revenue and make sure that we can increase revenue in line with inflation, rather than beyond it.
Question put and agreed to.
Clause 89 accordingly ordered to stand part of the Bill.
Clause 90
Vehicle excise duty for rigid goods vehicles without trailers and tractive units
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 91 to 93 stand part.
Clause 95 stand part.
New clause 18—Statements on HGV Vehicle Excise Duty and HGV Road User Levy—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to the House of Commons on the increase to HGV vehicle excise duty made under sections 90 to 93 and the increase to the HGV Road User Levy made under section 95.
(2) The statement under subsection (1) must include details of the impact on the—
(a) haulage sector,
(b) decarbonisation of the logistics industry, and
(c) UK economy.”
This new clause would require the Chancellor of the Exchequer to make a statement to the House on the increases to HGV vehicle excise duty under sections 90 to 93 and to the HGV Road User Levy under section 95, including their impact on the haulage sector, decarbonisation of logistics and the UK economy.
Dan Tomlinson
Clauses 90 to 93 will make changes to the vehicle excise duty rates for rigid goods vehicles without trailers and tractive units, the cab of an articulated lorry, rigid goods vehicles with trailers, vehicles with exceptional loads, and haulage vehicles other than showman’s vehicles. Clause 95 will make changes to uprate the heavy goods vehicle—HGV—levy.
The registered keeper of a vehicle is responsible for paying VED. The rates depend on the vehicle’s revenue weight, axle configuration and Euro emissions status. The HGV levy is payable for both UK and foreign HGVs using UK roads. A reformed HGV levy was introduced in August 2023, which varies according to the vehicle’s weight and Euro emissions status.
New clause 18 would require the Chancellor to make a statement to the House—in a similar way, I believe, to new clause 17 that we just discussed—on the increases to HGV vehicle excise duty under clauses 90 to 93, and the HGV road user levy under clause 95. Similarly, given that the uprating is in line with inflation and that rates will remain unchanged in real terms for vehicle owners, it is the Government’s view that the new clause is not therefore necessary, and I urge the Committee to reject it.
James Wild
The clauses deal with changes to vehicle excise duty for heavy goods vehicles, rigid good vehicles with and without trailers, vehicles with exceptional loads, and haulage vehicles other than showman’s vehicles. I welcome the exemption for showman’s vehicles as we look forward to the King’s Lynn Mart, which has been going for 800 years. On 14 February, I will be joining in the civic procession through the middle of King’s Lynn, before getting on the dodgems for the traditional dodgem ride, with other civic figures. Hon. Members should feel free to come along—it is on a Saturday. It is always cold for the Mart, but it is well worth coming along to.
Together, these provisions will uprate the VED and the road user levy by RPI. We have concerns about the timing of the increases, and the absence of meaningful backing for the most affected industries, especially the logistics sector, which keeps Britain moving. HGV vehicle excise duty is already complex, with more than 80 different rates, varying based on the characteristics of weight, emissions, class and configuration. Of course, as the Minister referred to, HGVs are also subject to the road user levy, which was introduced in 2014 as a charge for using the network. That levy was rightly suspended in August 2020 during the pandemic, and the reformed levy that the Minister referred to was reintroduced in August 2023, but it was frozen in the autumn statement that year.
Mr Reynolds
The haulage sector has seen significant challenges in recent years: increases in fuel prices, increases in wages and significant changes in the Employment Rights Act 2025, business rates and vehicle excise duty, as we see here. I would not be the investment and trade spokesman for the Liberal Democrats if I did not mention another challenge for the road haulage sector in recent years, which is the significant amount of red tape involved in Brexit, and the cost of that.
The Government’s EU reset has not touched the sides, as haulage associations have been telling us recently. The Business and Trade Committee recently heard about some goods moving from the UK to France that required 29 different stamps on their paperwork. If one stamp goes in the wrong place, the vehicle gets stuck in France or sent back. That is an additional cost for the road haulage sector, on top of all these extra costs and the vehicle excise duty increases.
For example, we were told on the Business and Trade Committee about a vehicle that was sat in France for almost one month because of paperwork that was not quite correct and small technical challenges. That vehicle being sat in France for one month meant consistent driver changes and meant the freezer compartment having to be kept on to ensure that the goods did not spoil. There was a £6,000 cost to the business because of two stamps being in the incorrect place. If we add that to the £2,000 cost per truck of the changes to vehicle excise duty, we see very clearly that the significant changes that the Government are making in quick succession are not helping the sector, which needs all the support it can get.
Dan Tomlinson
I thank the hon. Member for North West Norfolk for his romantic invitation to King’s Lynn; I may be otherwise engaged on that date, but I thank him for it all the same. I am interested to see whether any Members wish to intervene to say whether they will be taking up the invitation, but it is good to hear that he is an active constituency MP.
We do, of course, look at measures in the round, as the hon. Member for North West Norfolk implored me to. We did so ahead of the Budget, and I will continue to work with my right hon. Friend the Chancellor on tax policy in the run-up to the Budget at the end of the year. We are providing stability this year for the private sector and for individuals by moving away from the relatively chaotic approach under the previous Government of having multiple tax events with big swings and roundabouts twice a year, so future tax changes will not come until the end of the year, but that will give me more time to consider things in the round.
James Wild
Is the Minister therefore ruling out any further support for hospitality, leisure and retail businesses in the Chancellor’s spring statement?
Dan Tomlinson
The Government will consider all tax measures in the round in the usual way in the run-up to the Budget. It would not be right for me to speculate on what will or will not be in the Budget; it is a long way away, and there is much to consider in the meantime. Conservative Members decided to bring up inflation, which hit 11% under them in 2022, pushing up prices for everyone up and down the country, leaving businesses and consumers significantly worse off in the worst Parliament on record for living standards.
James Wild
The Minister is a fair man, so he will recognise the impact that the pandemic and the war in Ukraine had on inflation and energy prices. Could he confirm what the inflation rate was on the day the Government came into office and what it is today? That is an important context for his comments.
Dan Tomlinson
Over the months ahead, as a result of the action that this Government have taken to bring stability back to the economy, I look forward to seeing inflation return to 2% by the end of the year, as is forecast by the Bank of England.
I thank the hon. Member for Maidenhead for bringing up the botched Brexit deal that the previous Government left us. Under the leadership of the Prime Minister and Ministers in the Cabinet Office and elsewhere in Government, we continue to work to reduce barriers to trade and deepen our relationship with our nearest trading partner. As the Minister responsible for customs and excise, I am always looking at what more we can do to support those who move goods across borders and trade with our partners in the EU.
Question put and agreed to.
Clause 90 accordingly ordered to stand part of the Bill.
Clauses 91 to 93 ordered to stand part of the Bill.
Clause 94
Vehicle excise duty: expensive car supplement
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 19—Report on expensive car supplement—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 94 on—
(a) the automotive sector,
(b) the sale of hybrid cars, and
(c) vehicle excise duty revenues from high-value vehicles.
(2) The review must consider whether the threshold set under section 94 remains appropriate.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 94 on the automotive sector, sales of hybrid cars and vehicle excise duty revenues from high-value vehicles, and to consider whether the threshold remains appropriate.
Dan Tomlinson
Clause 94 will make changes such that the vehicle excise duty expensive car supplement threshold is increased to £50,000 for zero emission cars, from its current level of £40,000. This change will take effect from 1 April 2026 and will apply to zero emission vehicles first registered on or after 1 April 2025 for tax renewals from April 2026.
The expensive car supplement is a supplement to VED payable by vehicle keepers for five years, from years two to six following a car’s first registration. The rate is currently £425 a year; that will increase to £440 from 1 April 2026, in line with RPI, and is charged in addition to the standard rate of VED. The additional charge was, I believe, originally introduced in 2017 under a previous Government so that those who can afford the most expensive cars pay more than the standard rate paid by other drivers.
Clause 94 will increase the threshold for zero emission cars from £40,000 to £50,000. This measure is projected to benefit over half a million drivers of zero emission vehicles over the next five years. It will also incentivise electric vehicle take-up. Increasing numbers of motorists will benefit in future years as the zero emission vehicle population grows.
New clause 19
“would require the Chancellor…to report on the impact of section 94 on the automotive sector”
and on other issues. As is usual practice, a tax information and impact note was published at the Budget, outlining the anticipated impacts of this measure as well as the expected revenue impacts of the change.
The Government remain fully committed to the EV transition, which will drive economic growth, help the country meet its climate change obligations and improve air quality. By increasing the ECS threshold to £50,000 for zero emission vehicles, clause 94 supports those goals.
James Wild
I rise to speak to clause 94 and new clause 19, which stands in my name. Clause 94 makes changes to the expensive car supplement in vehicle excise duty, as the Minister referred to, specifically for zero emission vehicles. This is an extra £425 charge that applies to most cars with a list price above £40,000. Under the clause, the Government propose to increase the threshold to £50,000, but only for zero emission vehicles. That means that buyers of higher-value electric vehicles will avoid paying the charge, while the £40,000 limit still applies to petrol, diesel and hybrid cars. This change is due to take effect from April 2026.
Let us recall that, back in the Public Bill Committee on last year’s Finance Bill, one of the Opposition’s “review” new clauses called for an independent assessment of the £40,000 threshold and its impact on consumers, particularly for electric vehicle sales, because we said that it was not at the right level. The Minister’s predecessor rejected that idea, and now here we are: the Ministers have quietly decided to raise the very threshold that we urged them to raise a year ago. They are playing catch-up, but they get there in the end. Is the Minister willing to admit that they have been a bit slow to follow the points that we made? Maybe we will be here in Committee next year, talking about other clauses on which the Minister has rejected things and reversed his position.
That brings me to the hybrid point. The Government now seem to have decided that hybrids no longer warrant support, despite the fact that they are critical in bridging the transition to fully electric vehicles. I would be grateful if the Minister expanded at length on the reasoning behind that decision, and on how many jobs in the UK are dependent on the manufacture of hybrid models when a lot of our electric vehicles come from China, where the Prime Minister is now.
We are broadly supportive of the measure, having recommended it a year ago, but let us be realistic: it will not do anything for most of the households in our constituencies, who simply cannot afford a new electric vehicle, especially one that costs £50,000. That is completely out of reach for people in my constituency. I do not know whether that is also the case in constituencies nearer to London, but it is certainly the case in mine.
How does this increase fit with the wider EV policy and charging infrastructure and its roll-out? To support ordinary people up and down the country, we should be joining countries such as Canada—along with the EU, or so it looks—in scrapping the mandate forcing manufacturers to produce EV vehicles and ending the 2030 ban on the sale of new petrol and diesel cars.
New clause 19 would require a proper review of the policy, its effects on the automative sector and the impact on the sale of hybrid cars and on vehicle excise duties. It would ensure a consideration of whether the threshold remains appropriate as market prices shift.
I hope that the Government will accept this accountability and transparency in policymaking, which will benefit everyone. Will the Minister at least commit to reviewing the threshold in future, particularly if it turns out that it needs to be adjusted? Will he also look at the hybrid point?
Mr Reynolds
We welcome the uprating of the expensive car supplement for EVs to the value of £50,000, supporting EVs and EV take-up. However, we are surprised that during the Committee’s first sitting on Tuesday, when I asked about extending zero VAT for charging infrastructure beyond 2027, the Economic Secretary declined to do so. I am aware that the Minister who is present today was not there, but that is slightly confusing. Here, we see the Government supporting electric vehicles and increasing the threshold from £40,000 to £50,000, but not applying the same policy by supporting electric vehicles post 2027 in other clauses of the Bill.
The Economic Secretary, who was in the Minister’s place on Tuesday, is now in China; I do not know whether I should commiserate with the Minister for not being invited on that trip. We are concerned about floods of electric vehicles that are coming in from China, undercutting European and British competitors. We are worried that they will be impacted by that £50,000 change, but several British vehicles will not be. I am sure that we do not want a world in which the Government are unintentionally encouraging British residents to buy electric vehicles made in China rather than electric vehicles from Britain. I hope that the Minister will clarify that point for us.
Dan Tomlinson
I am sorry to report to the Committee that when the Chancellor and I made the decision to increase the threshold ahead of the Budget, I was not aware of the representations that the hon. Member for North West Norfolk had made in last year’s Finance Bill Committee. If I am still in my role in the run-up to the Budget later in the year, of course I will bear in mind everything he has said today. I have already taken some notes that I will take back with me.
The hon. Member is right to note the important role that hybrid vehicles play in the transition. Ultimately, however, to move towards our goal of net zero by 2050, we need to move to a fully clean vehicle fleet over the coming decades, so we want to particularly encourage fully electric vehicles.
We will keep this measure under review; it is important that we do so. This has been an ask of the car manufacturers here in the UK that we want to support. I take the points from the hon. Member for Maidenhead about making sure that consumers can buy vehicles that are produced here in Britain. I hope that a change such as this, which shows the Government’s intent to support the electric vehicle transition, will be a consideration for vehicle manufacturers as they choose where to produce new EV cars in the years to come. Along with other measures that we set out in the Budget, this shows our intention to work alongside the industry to support that transition.
The hon. Member for North West Norfolk raised a point about how high the supplement is. He said that many constituents in rural Norfolk, but also in north London, will find it very challenging to afford to buy a new car that costs between £40,000 and £50,000. That is true in lots of parts of the country, but as I am sure he is aware, it is important that we seek to encourage those who can afford such a car to do so, because they will then sell their cars on at a cheaper value that people may be able to afford. It supports the general health of the car market overall if we can increase the affordability of these—granted—relatively expensive vehicles. That is why the Government have brought forward this change: to support the transition and to reduce the cost of purchasing new vehicles within the £40,000 to £50,000 bracket.
Question put and agreed to.
Clause 94 accordingly ordered to stand part of the Bill.
Clause 95 ordered to stand part of the Bill.
The Chair
I think now is an appropriate time for a comfort break. Please will Members get back as quickly as possible?
Dan Tomlinson
I thank the Opposition for that warm welcome back after our break.
Clause 96 sets the rates of air passenger duty for the year 2027-28, as announced at the Budget. The rates will take effect on 1 April 2027. Following previous increases to APD, the Government will uprate rates in line with RPI from 1 April 2027. As was previously announced, they will be rounded to the nearest penny, which constitutes a real-terms freeze. This will continue to make sure that airlines continue to make a fair contribution to the public finances, particularly given that tickets are VAT-free and aviation fuel incurs no duty. The Government expect these measures to have an impact on approximately 600 airlines and aircraft operators.
New clause 20 would require the Chancellor to publish an assessment of the impact of changes to air passenger duty under clause 96 on the aviation industry, passengers, household finances at different income levels and the public finances. The air passenger duty national statistics on different APD rates administered by HMRC are published annually through the APD bulletin. The bulletin, which is updated annually, includes statistics and analysis on APD receipts up to the latest full month before its release, and airline passenger numbers one month behind that of duty receipts in the UK. New clause 20 is therefore unnecessary.
New clause 32 would require travel operators liable to air passenger duty to ensure that, where a boarding pass is issued, the change in the level of air passenger duty made under clause 96 and charged in respect of the passenger’s journey is clearly stated on the boarding pass. Air passenger duty is charged to airlines on a per-passenger basis on departure from UK airports. Although airlines can pass the cost of the tax on to passengers, that is a commercial decision for them. I therefore commend clause 96 to the Committee, and encourage the Committee to reject new clauses 20 and 32.
James Wild
Thank you, Mrs Harris. I am almost the only one who has said anything in this Committee, so hopefully people know my name. I rise to speak to clause 96 and to my new clauses 20 and 32.
As the Minister has set out, clause 96 sets air passenger duty rates for the 2027-28 tax year, uprating them in line with RPI. I believe that APD is one of the few taxes for which rates are set well in advance so that the sector knows of the increases. The clause will also expand the higher rate to all private jets over 5.7 tonnes. This applies to passengers departing from UK airports, with rates determined by distance and travel class.
My new clause 20 would require the Government to publish a full impact assessment of the APD changes on the aviation industry, on passengers, on households of all income levels and on the public finances. New clause 32 seeks to bring greater transparency to the travelling public; it would require that the change in the level of APD charge be clearly stated on boarding passes so that every passenger knows how much the rate has gone up as a result of tax imposed by the Government. The Minister says that it is a commercial decision whether airlines pass on the cost, but he will be familiar with how the world works. If a business is taxed more, it is likely to pass on the cost rather than absorbing it into what can be quite thin margins. It may not be able to absorb it, so if it does not pass it on, it will go bust.
This could start a wave of transparency. At the petrol pump, we could see how much of the price of a litre is going straight out in tax. In a pub, we could see on a pint glass how much of the pint goes on tax. Those ideas are not included in my new clause, but they have given me inspiration for when we return to the Floor of the House on Report. The new clause would bring greater transparency; I would hope that the Government and Ministers are willing to be more open.
According to the Office for Budget Responsibility, APD will raise £4.1 billion this year, which is forecast to rise to £6.5 billion by 2030-31, driven by rate increases and passenger growth. While the Government reap the higher revenues, they must also recognise the impact and pressure on families getting away for a holiday—I would say, “Come to Norfolk”—and on regional airports and the wider economy. There are concerns about the impact on people saving up for a family holiday; about the availability of routes that might be slightly marginal and which the increases might make uneconomic; and about affordability for families.
The British Airline Pilots Association said that the latest rise is:
“Bad news for passengers, especially families going on holiday”.
The Business Travel Association put it rather more bluntly:
“APD is not simply a passenger charge; it is a tax on global connectivity”.
It highlights an economy flight to India, a key trading partner of the UK. For 2027, the APD alone will be over £100 per passenger, and that is of course before any accommodation or other costs. It is a significant additional factor if a family of four is travelling, perhaps to see family or to go to some of the great sights in India. I enjoyed a visit there a few years ago, and I am happy to discuss where I went with colleagues after this sitting, as I fear it may be out of scope. What will this mean for children? What analysis has been done of how it might affect consumer behaviour? Will it put people off flying?
New clause 32 is about transparency. Everyone would be able to see on their boarding pass how much has been added as a result of this stealth tax. We are unable to put the full amount, due to resolutions passed by the House, which is why we would put the annual amount. Such taxes should be more visible to consumers.
From 2027, all aircraft over 5.7 tonnes will face a higher charge, and that change follows the 50% rise planned for April. When we talk about private jets, people may think of pop stars gadding around, but most private jets are corporate aircraft that are used as capital assets. They are not luxury toys; they are about people flying to trade and secure jobs in our economy. It is about people being internationally connected and going to places such as India—[Interruption.] The hon. Member for Burnley is pulling a face, as if that is not the reality, but it is what these jets are. We want people to get on a plane, go and do deals, come back and secure investment into our country. [Interruption.] The Minister is nodding. Perhaps that is why he is the Minister and not on the Back Benches.
The Prime Minister has just hired a private jet to go to China, because he could not take the Royal Squadron flight due to national security concerns. Perhaps the Minister can tell us how much chartering that plane has cost the taxpayer in air passenger duty.
We do not oppose clause 96, but we expect the Government to be up front about the impact of the tax rises they are ramming through in this Bill. We want transparency for families going on holiday, who will see prices going up and will have to pay more to get away. Our new clauses simply ask for some transparency and accountability, which are often missing from the Government’s approach to taxation.
Dan Tomlinson
One thing to note about Labour Back Benchers is that they are on the Government Benches, making changes for their constituents. They are supporting the work of this Government to improve living standards for people up and down the country, to ensure economic stability and to bring down interest rates. They are doing the right thing by their constituents.
Dan Tomlinson
Of course, Mrs Harris.
On the point that the hon. Member for North West Norfolk raised, it would be an unnecessary administrative burden to ask airlines to reformulate how they print and design their boarding passes as a result of an Opposition new clause, so I do not support it.
Question put and agreed to.
Clause 96 accordingly ordered to stand part of the Bill.
Clause 97
Rates of climate change levy
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 21—Report on Climate Change Levy rates—
“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 97 on—
(a) energy-intensive industries, and
(b) the UK’s international competitiveness.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 97 on energy-intensive industries and the UK’s international competitiveness.
Dan Tomlinson
Clause 97 makes changes to the main rates of the climate change levy, with effect from 1 April 2027. Since 2001, CCL has provided an incentive for businesses and the public sector to be energy efficient by adding a tax on the non-domestic supply of energy. Energy efficiency is one of the most cost-effective ways in which businesses can cut emissions, and permanently reducing energy use also helps to improve the UK’s energy resilience.
CCL sets four separate main rates for different energy products. The liquefied petroleum gas rate has been frozen since 2019, and it will continue to be so from April 2027. The changes made by clause 97 will increase CCL rates on gas, electricity and solid fuels in line with the retail prices index. This represents a small increase to business bills, but it will ensure that the behavioural incentives of the tax are maintained while also protecting the public finances. The Government announced a wider review of CCL at the spring statement in 2025, and we remain committed to this to ensure the tax remains up to date in the ever-changing energy landscape.
New clause 21 would require the Chancellor to report on the impact of clause 97 on energy-intensive industries and the UK’s international competitiveness within six months of the Bill being passed. I reassure the Committee that the Government already consider the impact of CCL on energy-intensive industries and competitiveness, and a number of reliefs are available to such businesses. For example, the exemption for certain processes in sectors such as steel, ceramics, cement, glass, metal forming and aluminium provides £270 million of relief per year. The Government do not believe that new clause 21 is necessary.
I therefore commend clause 97 to the Committee and ask that new clause 21 be rejected.
James Wild
Environmental taxes are obviously a very important topic for our constituents and businesses, so it is important that we scrutinise them appropriately. Clause 97 raises the climate change levy—the tax on non-domestic energy use for electricity, gas and solid fuels—while freezing the rate for LPG. As the Minister said, it was first introduced in 2001 to encourage energy efficiency.
This uprating will take effect from April 2027. According to the OBR, around £2 billion will come in as a result. We must look at the additional burden being placed on businesses. Again, we need to look at all of these things cumulatively, which is why I welcome the Government’s decision in the autumn to extend the climate change agreements for a further six years—by allowing qualifying businesses to benefit from reductions at a time when businesses are facing significant headwinds, this offers some much-needed respite.
Of course, British manufacturers are paying higher prices than the European average—I think it is more than 50% more for electricity—while the gap with the United States is wider, for understandable reasons. However, high energy costs are one of the issues holding back growth and productivity in the country. We should be looking to reduce the burden and cost of energy, rather than increase it, and this measure will obviously put up the rate.
New clause 21 would require a report on climate change levy rates, and it would require the Chancellor of the Exchequer to review the impact on energy-intensive industries and the UK’s international competitors. I am thinking about sectors such as ceramics, glass, data centres and gigafactories. These are the industries that drive innovation, exports and skilled jobs, and we should consider the impact of such measures on their ability to do business in the UK.
That is why we have set out a different approach that does not follow the fundamentalism of the Energy Secretary, who is picking arbitrary dates and loading up costs by rushing to meet them, rather than getting the benefits of technology development and innovation. Our plan would bring down the cost of energy, because taxing industrial energy is not a strategy for growth.
What assessment has the Minister made of the greater impact of these rates on British manufacturers’ productivity, competitiveness and ability to grow? If he cannot answer that question, perhaps he will support new clause 21 so that we can have a review after the event to see what the impact has been.
Dan Tomlinson
The hon. Member for North West Norfolk is right that high energy costs are one of the big challenges facing industry and consumers. The Government are doing all we can to accelerate the roll-out of clean power. That includes nuclear power, which as a country we have not invested in for way too long, and we desperately need more of that firm baseload power. We also need more intermittent clean power through wind and solar. We cannot turn things around overnight, but in time, I hope and expect that these interventions will lead to lower bills for both businesses and consumers. However, I would be the first to say there is much more to do on this, given the high energy costs and surging inflation we inherited from the previous Government, particularly after 2022.
Question put and agreed to.
Clause 97 accordingly ordered to stand part of the Bill.
Clause 98
Rates of landfill tax
The Chair
With this it will be convenient to discuss new clause 22—Review of landfill tax changes—
“(1) The Chancellor of the Exchequer must, within 12 months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 98.
(2) The report under subsection (1) must in particular assess any effects on—
(a) construction and infrastructure projects,
(b) investment in ports,
(c) levels of recycling and illegal dumping,
(d) progress towards the Government’s environmental objectives, and
(e) Exchequer revenues.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 98, including any effects on construction and infrastructure projects, port investment, recycling and illegal dumping, progress towards environmental objectives and Exchequer revenues.
Dan Tomlinson
Clause 98 increases the standard rate of landfill tax in line with the retail prices index. It increases the lower rate by the same cash amount, and it will take effect from 1 April 2026. This tax was introduced 20 years ago, and it is charged on materials disposed of at a landfill site or an unauthorised waste site in England and Northern Ireland. The objective of the tax is to divert waste away from landfill and to support investment in more circular waste management options, such as recycling and recovery.
The Government consulted earlier this year on proposals to reform the tax to drive more materials out of landfill, and to design out incentives for landfill tax fraud. The hon. Member for Grantham and Bourne (Gareth Davies) is not here, but I enjoyed his video on this, in which he appeared with a hard hat. He, and others, have engaged on this issue.
I particularly welcome the engagement from industry, which has welcomed the Government’s decision. The National Federation of Builders said we had
“really engaged with industry”,
and that the decision put forward after the Budget, following the consultation, would
“allow the industry to start preparing for the circular economy”.
Meanwhile, the chief executive of Biffa said that our decision
“not to converge the two rates…is a good outcome for the industry”.
I am glad that we have a very good tax policy. We are making progress, consulting in good time, engaging with industry, and coming forward with a proposal to make sure the gap does not get any wider on landfill tax—we are increasing the lower rate by the same cash amount as the increase in the higher rate—without adding significant burdens on those who seek to construct and build this country’s future, which we must do after 14 long years of under-investment and decline.
New clause 22 would require the Government to make an assessment of the impacts of clause 98. At the Budget, the Government published a tax information and impact note for this measure, and our approach has been informed by extensive engagement with business. The Government oppose new clause 22 on that basis, and I urge the Committee to reject it. I commend clause 98 to the Committee.
James Wild
Clause 98 increases the standard and lower rates of landfill tax from 1 April, uprating them in line with the retail prices index. In practical terms, that means the standard rate will increase to £130.75 per tonne, with the lower rate applying to less polluting materials increasing by the same cash amount.
Landfill tax, as the Minister said, is intended to discourage disposal in landfill and promote recycling and recovery, and of course we support that aim. However, it is also right that we scrutinise the real-world effect of these changes on business costs, recycling rates and wider environmental outcomes. That is why we have tabled new clause 22.
According to the Budget 2025 costings document, the measure is expected to raise £35 million in 2026-27, increasing to £130 million by the end of the decade. Members will remember the intense speculation ahead of the Budget that the Government might move to a single landfill tax, and the Minister referred to a consultation. The speculation did not come from nowhere; it came from a Government consultation that proposed to do precisely that.
As such, the Minister could have been a bit more up front that this is something the Government were consulting on, presumably because they thought it might be a good idea. Indeed, I recall raising this directly with the Chancellor at Treasury questions earlier last year, where she accused me of scaremongering when I spoke about her own consultation, so I am glad that she has dropped her proposal to move to a single rate. Had she gone ahead with it, material such as topsoil could have faced a thirty-onefold increase.
The Minister kindly referred to my hon. Friend the Member for Grantham and Bourne and his video; he led a determined campaign alongside the industry to stop the reckless proposals put forward by the Chancellor. They could have added £28,000 to the cost of a new home and increased road construction costs by up to 25%.
When we asked what discussions the Treasury had had with the Ministry of Housing, Communities and Local Government before coming forward with its proposal for a thirtyfold increase in the tax rate, it was clear that there had not been any. There was then a sudden panic that the 1.5 million new homes target would be sunk by the Treasury’s actions. I welcome the rethinking of this policy—I will be generous to the Minister on that—to spare the sector yet another unnecessary blow that could have worsened house building numbers and jeopardised the key infrastructure upgrades that we all want to see across the country.
So far, so good, but—and there is always a “but”—the Government’s retreat on that issue does not mean all is well with these proposals. The long-standing exemption for dredging material and its removal has caused deep concern, if the Committee will accept the pun, in the ports and water sector.
The British Ports Association, I believe, has written to the Minister as well as the Chancellor, warning that if these changes proceed unchecked, we may see
“the collapse of major industrial and development projects, particularly in ports, rivers and canals”.
I declare an interest, as King’s Lynn in my constituency has a fine historical port. Indeed, the wealth of King’s Lynn was built on our trading links with the Hanseatic League in medieval times. The knock-on effects of removing the exemption could be significant; delayed waterway clean-up projects, increased flooding in vulnerable areas, and reduced investment in our ports, which keep our country trading.
New clause 22 seeks a proper assessment of how these tax changes will affect construction and infrastructure projects, investment in ports, recycling levels and illegal dumping rates, and progress towards the Government’s environmental objectives. The Minister needs to set out how the Government are responding to address the serious concerns raised by the British Ports Association, which, if correct, could have a very damaging effect on major infrastructure. We welcome that the proposals put forward in the consultation have been ditched, but there are concerns that the Minister now needs to address.
Martin Wrigley
I endorse my hon. Friend’s comments. We have a number of quarries in Newton Abbot, and the same principles apply. I am, however, doubly pleased that the extensive increase was not included in the Budget. I was taken to a local factory in Newton Abbot that makes high-value, high-performance propellers that it exports all over the world. The factory was to be put out of business, because it pours the metal into moulds of sand, and the cost of disposal of that sand would have been more than it could have borne. That would have shut down a £20 million-a-year business. I am extremely grateful that the increase has not been implemented, but I draw the Minister’s attention to such side effects when considering future proposals.
Dan Tomlinson
I thank Opposition Members for their contributions and for welcoming the Government’s decision on this matter at the Budget. I find it a bit tiresome that the Conservatives, when we consult, accuse us of consulting, and when we do not, accuse us of not consulting. It is right and proper, where possible, for the Government to engage with industry on proposals and then come forward with good policy outcomes. I am glad that there has been acknowledgment across the Committee that we have listened, engaged and come forward with proposals that are proportionate.
James Wild
It was not the fact that the Government consulted that we objected to; it was that they were consulting on a crazy idea that would have increased costs for industry 31-fold. Consult away, but do not consult on bad ideas.
Dan Tomlinson
The refining fire of a consultation process is something that I am happy to stand behind.
On the shadow Minister’s important point about the decision to remove the dredging exemption, I have received correspondence from the sector on the issue and will continue to engage with it. The change is not scored in the Budget. To be very clear, it was not made with the express intention of raising revenue; the Government’s judgment, after consultation, was that it would get the balance right between supporting the circular economy and encouraging more environmentally friendly ways of carrying out the activity. I want to continue to engage sincerely with the sector, so I will be responding to the correspondence I have received. I am sure that we will continue to engage.
James Wild
The industry’s concerns are urgent, so if it persuades the Minister on certain points, will he table amendments on Report—the Bill will return to the House in the near future—to address them?
Dan Tomlinson
I am sorry to tell the shadow Minister that this matter is not being legislated for in this Finance Bill; it will be for next year’s Finance Bill.
Question put and agreed to.
Clause 98 accordingly ordered to stand part of the Bill.
Clause 99
Rate of aggregates levy
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 100 stand part.
Government amendments 27, 28 and 26.
Schedule 23.
Government motion to transfer schedule 23.
New clause 23—Report on aggregates levy rate—
“The Treasury must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 99 on—
(a) the construction industry, and
(b) infrastructure projects.”
This new clause would require the Treasury to report on the impact of section 99 on the construction industry and infrastructure projects.
Dan Tomlinson
Clause 99 makes changes to increase the rate of the aggregates levy in line with the retail prices index from 1 April 2026. Clause 100 and schedule 23 make changes to aggregates levy legislation in preparation for its replacement in Scotland with the Scottish aggregates tax.
The changes made by clause 99 increase the rate of aggregates levy from £2.08 per tonne to £2.16 per tonne from 1 April 2026. The changes made by clause 100 and schedule 23 make aggregate moved from a producer’s site in Scotland to England, Wales or Northern Ireland liable to aggregates levy. In addition, they provide an exemption where the aggregate has previously been supplied and will be subject to Scottish aggregates tax. Lastly, they provide for a tax credit from aggregates levy for aggregate moved from England, Wales or Northern Ireland to Scotland. The changes will take effect from 1 April 2026, when the Scottish aggregates tax is due to come into force.
Amendments 26 to 28 are needed to ensure that the legislation interacts correctly with Scottish Government legislation so that a credit from aggregates levy is available on aggregates moved to Scotland only in circumstances in which Scottish aggregates tax is payable on the movement.
Mr Reynolds
Clause 99 introduces a very small increase in the rate of aggregates levy, but a small increase when dealing with massive numbers is still quite a large increase. High Speed 2, for example, is predicted to use 20 million tonnes of aggregate during phase 1. That means that the measure will add about £3.2 million to the bill for HS2, which we know is already significantly over budget. Has the Minister worked out the cost associated with money being passed from the Government to HS2 and then from HS2 back to the Government through things like the proposed aggregates levy increase?
Dan Tomlinson
On the question asked by the Opposition spokesman, the hon. Member for North West Norfolk, and implied in the specific question about HS2 impacts from the Liberal Democrat spokesman, the hon. Member for Maidenhead, the key thing is that the aggregates levy provides a price incentive to use more recycled aggregate, which we would all support, rather than virgin aggregate. Increasing the aggregates levy rate in line with inflation will ensure that the value of that price incentive does not fall in real terms.
It is important for administrative reasons and for our ability to collect tax without undue complexity that, even where services are provided ultimately for the benefit of the public sector, the taxes apply in a uniform way. It would become more complicated than it would be worth to apply the tax differently to parts of different industries, or to different contracts, depending on whether they were being used for HS2 or something else.
Question put and agreed to.
Clause 99 accordingly ordered to stand part of the Bill.
Clause 100 ordered to stand part of the Bill.
Schedule 23
Aggregates levy: amendments relating to disapplication of levy to Scotland
Amendments made: 27, in schedule 23, page 535, line 22, after “from” insert “premises in”.
This amendment together with Amendments 28 and 26 revises the inserted sub-paragraph (za) of regulation 13(2) of SI 2002/761 to accommodate expected changes to provisions of the law relating to Scottish aggregates tax.
Amendment 28, in schedule 23, page 535, line 23, after “Ireland” insert
“operated or used by a person registered under section 24 of the Act for any purpose specified in subsection (6) of that section”.
See the explanatory statement for Amendment 27.
Amendment 26, in schedule 23, page 535, line 24, leave out from “waters” to end of line 25.—(Dan Tomlinson.)
See the explanatory statement for Amendment 27.
Schedule 23, as amended, agreed to.
Ordered,
That Schedule 23 be transferred to the end of line 5 on page 468.—(Dan Tomlinson.)
Clause 101
Rate of plastic packaging tax
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
Clauses 101 to 104 encourage greater demand for recycled plastic, help create demand for chemically recycled material, and allow for a more level playing field for plastic recyclers, rewarding the recycling of waste plastic. This is supportive of the Government’s broader environmental goals. The plastic packaging tax was introduced on 1 April 2022 as a part of the previous Government’s resources and waste strategy. It is the Government’s view that the clauses implement that tax in the right and proportionate way. I will not go through each in detail, but I will of course answer any questions that the Committee may have.
James Wild
Clauses 101 to 104 amend the plastic packaging tax introduced in 2022 to encourage the use of recycled and reduced plastic. At the end of August last year, around 5,000 businesses were registered for the tax, and 38% of plastic packaging manufactured or imported into the UK was declared as taxable under it. The tax applies to packaging with less than 30% recycled content and is charged per tonne of plastic packaging components. The Opposition believe that the Government must ensure that the policy is working effectively in practice, encouraging the industry to change and delivering genuine environmental benefit, and not simply adding cost.
Clause 101 increases the packaging tax rate, this time in line with CPI, not RPI. Could the Minister explain why? In principle, that is reasonable, to maintain its value and sustain the incentive to recycle, but it is a practical reality that many businesses simply cannot get enough high-quality recycled plastic at reasonable prices, so raising the rate without addressing that supply constraint risks making packaging more expensive but not greener.
Recycling firms are already facing higher energy bills and rising labour costs as a result of both global pressures and some of the measures that have been introduced. It is often still cheaper to import virgin or recycled plastic from Asia than to buy recycled content from within Europe, and loopholes in legislation may make it more profitable to export plastic waste than to process it here at home.
The Guardian, which I confess is not my usual paper of choice—[Interruption.] It is not the Minister’s either; it is good to get that on the record. It recently reported that 21 plastics recycling and processing plants across the UK have shut down in the last two years, which is a direct result of the imbalance between export incentives, cheap virgin plastic and low-cost imports from Asia.
How much additional revenue does the Treasury expect this rate increase to bring in, given that I think receipts actually fell in 2024-25? What increases in recycled content are the Government assuming will result from the measure? Has the Treasury assessed whether the costs will simply be passed on to consumers through higher prices for everyday goods? We want a tax that drives genuine behaviour change, not one that just adds to the cost of living.
Clause 102 allows chemically recycled plastic to count towards the 30% recycled threshold and introduces a mass balance approach. That is a welcome recognition of innovation and new technology. However, analysis from Pinsent Masons notes that it will introduce significant certification and evidential demands on manufacturers and importers, and many small and medium-sized businesses fear an extra compliance burden in the absence of clear guidance or support. Can the Minister set out to the Committee, and to those companies, what practical support the Government will provide to help businesses adapt to the new rules, and will Ministers commit to reviewing the effectiveness of the measure within a reasonable period to ensure that it is genuinely driving more recycling?
Clause 103 excludes pre-consumer plastics, such as factory offcuts, from the definition of recycled content from April next year. The Government say that that is to ensure that the tax incentivises genuine recycling of post-consumer waste, rather than reusing scrap material. That is reasonable as it goes, but Pinsent Masons has warned that some manufacturers will no longer be able to treat their own production offcuts as recycled content. While the overall burden of tax may not have changed, the burden of liability could shift from those gaining relief through mass balance accounting to those losing relief for pre-consumer materials. The Government should be up front about who will bear the costs of the changes.
Finally, clause 104 deals with commencement. Businesses need certainty ahead of the changes, and time to adapt their supply chains and get the relevant certification and other measures lined up. Can the Minister confirm that HMRC will be publishing detailed guidance in advance? He may tell me that it is already out there and that I have not seen it yet, but if it is not, can he assure me that it will be published in good time for those companies?
Dan Tomlinson
I thank the Opposition spokesman for his questions. May I put on record my thanks to the officials for the support that they have provided to me today, in my first appearance in a Bill Committee as a Minister?
The hon. Member asked why the tax is increasing in line with CPI rather than RPI. All new tax measures introduced since 2018 have been uprated by CPI instead of RPI, so that is perfectly in keeping with established practice. That is good to know.
The hon. Member also about the mass balance approach. That is an accepted model already used in a range of industries, including cocoa and timber. Respondents to the consultation on a mass balance approach agreed that combining it with third-party certification is the best approach to prevent fraud and abuse. HMRC will continue to work with stakeholders on the detailed policy development, including independent certification requirements, which will be designed to be fair and robust and to maintain the integrity of the tax.
Dan Tomlinson
Clause 105 legislates for the new rates of the soft drinks industry levy to apply from 1 April 2026. It amends section 36(1) of the Finance Act 2017 to reflect the new rates of the levy to apply from 1 April 2026. Those rates are £2.08 and £2.78 per 10 litres of prepared drink, for the lower and higher bands respectively. I commend the clause to the Committee.
James Wild
I am surprised that the Minister covered this important clause so briefly, as will become clear in my remarks. Clause 105 increases the soft drinks industry levy—the tax on soft drinks with added sugar, which is charged per litre, with higher rates applied to drinks containing more sugar. The Government propose to uprate the levy by combining one fifth of the CPI inflation from 2018 to 2024 and full CPI inflation between Q2 2025 and 2026. In practice, that all together means a total rise of 27%—I am surprised that the Minister did not want to get that figure on the record; it is a significant increase.
The soft drinks industry levy has worked in meeting its objectives, but we had a debate on it last year and, and as I warned then, we have serious concerns about the Government’s decision to backdate an inflation increase over a six-year period. That is an unprecedented move, which raises serious questions about fairness, consistency and confidence in the UK tax system.
The soft drinks industry levy was introduced in 2017 by the Conservative Government to help tackle obesity, diabetes and tooth decay, particularly among children. By any reasonable measure, it has been a success. There has been a 46% reduction in sugar in fizzy drinks since the original tax came into force, and 89% of soft drinks sold now in the UK are not subject to the charge due to reformulation. As the British Soft Drinks Association points out, since 2015, more than 1 billion kilograms of sugar have been removed from the UK diet. Soft drinks now account for just 6% of the UK’s total sugar intake.
The industry has responded to the incentives that Parliament put in place by investing heavily, innovating and reformulating on a huge scale. That is why the backdated tax rise in clause 105 is so troubling. Imposing, in one go, six years of inflation over a period when it was not imposed represents a 27% retrospective increase, something that I think—unless I am corrected by the Minister—is without precedent in recent UK fiscal policy. It is not simply a technical adjustment; it is a departure from the principles that underpin our tax system, such as clarity and predictability.
As we have recently discussed when considering other clauses, inflation uprating is normally applied annually, not retroactively over a six-year period. When alcohol duty or fuel duty is frozen, the Treasury does not go back and seek to make up for the years it was frozen by adding them to the rate—although maybe that is what the Government are going to do—but that is precisely what the Government are now doing with the soft drinks levy. As I pointed out to the Finance Bill Committee last year, if the same backdating principle were applied elsewhere, the results would be very troubling. According to research that the House of Commons Library kindly produced for me, if the Government were to take the same approach to fuel duty as they applied to the soft drinks levy—there has been a long freeze in fuel duty—fuel duty would rise by 64%, while the aggregates levy would rise by 67%. No one would defend that, so why is it acceptable in this scenario to have such an increase?
Businesses make long-term decisions on investment, employment and pricing based on the stability of the tax regime. To introduce retrospective changes on this scale undermines that certainty and, I fear, risks setting a dangerous precedent. Is this now Government policy? Can the Minister rule out—as the Minister at the time failed to rule out—the Government taking a similar approach with other taxes, such as fuel duty? I wonder if he will be able to give us a bit more confidence. Will the Government commit to not applying such levels of retrospective taxation-inflation increases to other sectors?
In the context of this debate about the soft drinks industry levy and the increase in it, also important is what might happen—given that the threshold and the rates have been set—if there are proposals to lower the rate to bring more soft drinks into the tax, such as milk-based drinks—the milkshake tax—coffee drinks and milk substitutes that exceed the same sugar threshold. If that happened, that would potentially be another hit to the cost of living. Industry has estimated that compliance costs could run into the tens or possibly hundreds of millions of pounds, if such an approach were taken, moving the goalposts when the policy has delivered on its aims. The hospitality and drinks sector already face a lot of pressures, so they do not need to see further increases.
I therefore think that applying a retrospective 27% tax increase is a move that the Government should not take lightly. We support the principle of the industry levy and the goals that it serves, but this is concerning, and I look for some confidence from the Minister that the retrospective approach to taxation will be a one-off.
Dan Tomlinson
Our approach to uprating taxes is plain to see for all the different approaches that we have taken. The Government set out their position on fuel duty, for example, and we have discussed many upratings today in Committee. The Government’s judgment in this specific circumstance was that uprating in line with inflation, as in previous years, was an appropriate step to take to protect the real-terms value of the SDIL and to maintain incentives for manufacturers over time. The Government are happy to stand by that position, although of course it is well within the rights of the Opposition to take a different approach.
Question put and agreed to.
Clause 105 accordingly ordered to stand part of the Bill.
Clause 106
Amendment of customs tariff power
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
The clause relates to trade defence. As set out in the trade strategy, the Government committed to strengthen the UK’s trade defence toolkit in response to an increasingly turbulent global trading environment. The clause supports those commitments and ensures that the Government can continue to respond to changes in the global trading system.
Unfair trade practices, including distortionary subsidies and dumping goods below cost in foreign markets, have a long pedigree. What has changed rapidly in recent years is their sheer volume and the range of markets and indeed British businesses that they threaten. Our trade defence system needs to be sharper and more flexible to respond to the increasingly turbulent global trading system.
The UK remains committed to upholding the rules-based international system that has benefited us well, but in an unstable and volatile world, we cannot afford to be left behind and we need to be more agile in the face of a range of potential future shocks. That is why clauses 106 to 108 strengthen the UK’s trade defence toolkit, making it more closely aligned to that of international peers. The clauses will help to ensure that we can best protect UK interests, including in critical sectors such as steel, which are vital to our national security and critical infrastructure.
The changes made by the clause will put beyond doubt that we are able to apply tariffs on a global basis or against a group of countries, where consistent with international agreements to which the UK is a party. This measure strengthens the UK’s trade defence toolkit, ensuring that the Government can continue to respond to changes in the global trading system, as well as to unfair trading practices where they occur. I commend the clause to the Committee.
Mark Garnier
Before I go into the details of the clause, and before the Committee discusses the subsequent two clauses, it is worth getting on record how much the Opposition object to trade wars and increasing tariffs. Such tariffs harm the country that introduces them. Take what has been going on in America as an example. On its “liberation day”—as I think its Government called it—it introduced very heavy tariffs, including on something as simple as the iPhone, which the American people would consider to be one of the greatest inventions and greatest products they have ever had. It seemed that the person who introduced those tariffs had completely failed to observe that 95% of an iPhone is made in Vietnam and China, as a result of which the tariffs increased the price of iPhones for the American people, which was completely against the intentions of that Government.
Tariffs are really bad, and we have been trying to get them down for an awfully long time. However, I completely understand the point that the Government are trying to make with the Trade Remedies Authority and the toolkit that the Government need in order to respond to certain issues. It is vital that we have the ability to move on things such as tariffs, and I suspect that the Minister is 100% aligned with me on this, but I stress that we have lessons from history, from when such actions have gone hideously wrong.
The Smoot-Hawley Tariff Act of 1930, introduced by President Hoover, was designed by Senator Smoot and Representative Hawley to try to help American businesses and American farmers by increasing tariffs. The net result was a global trade war that resulted in a 65% drop in global trade. That is what happens when people muck around with tariffs; that is where the damage can come. I completely appreciate that these measures are, I suspect, a very necessary response to what is happening on the other side of the Atlantic, where there is a very unpredictable trade policy, so it is the right thing to do. However, I urge the Minister to talk to all his colleagues about this matter, and to reassure the Committee that these measures are not about having our own version of that policy, and about increasing tariffs in order to have a trade war, but about having a set of relevant measures that mean that the Government can act in defence to what could be a hostile attack on trade.
Dan Tomlinson
I thank the hon. Member for his comments. It is good to converse with a new Opposition spokesman and I look forward to more conversations and discussions with him—though I do not have favourites. I want to be really clear—and I am glad to have the chance to be so—that the UK will continue to champion the free and fair trade that has benefited us so much in our history as a small, independent trading nation. We will always look to work with international partners to protect the rules-based international trading system. With this measure, we are not lapsing into protectionism and we will always make sure to balance the need to use these powers when and if they may be required in individual circumstances, with a continued focus on the need to be open because that is the route to sustained and long-term prosperity for a country with an economic and geopolitical position such as ours.
Question put and agreed to.
Clause 106 accordingly ordered to stand part of the Bill.
Clause 107
Dumping and subsidisation investigations
Mr Reynolds
I beg to move amendment 44, in clause 107, page 129, line 32, at end insert—
“(10) Before giving a direction under sub-paragraph (1), the Secretary of State must lay before Parliament an impact statement setting out—
(a) the evidence on which the Secretary of State has concluded that the conditions in sub-paragraph (1) have been met,
(b) an assessment of the potential impact on consumer prices and UK supply chains,
(c) the reasons why a direction is considered necessary in the circumstances, and
(d) whether coordination with other jurisdictions, including the European Union, has been considered.
(11) A direction under sub-paragraph (1) shall cease to have effect if, within the period of 21 sitting days beginning with the day on which the statement under sub-paragraph (10) is laid, either House of Parliament resolves that the direction should be annulled.”
This amendment would require the Secretary of State to provide Parliament with an impact statement before directing the TRA to initiate a dumping or subsidisation investigation, and would give Parliament the power to annul such directions within 21 sitting days.
Mark Garnier
Clause 107 gives the Secretary of State the power to direct the Trade Remedies Authority to initiate a dumping or subsidisation investigation. We support measures that tackle any unfair trading practices, including dumping and subsidisation. We are also supportive of measures that bring power back into the hands of Secretaries of State and Ministers. That is especially important when it comes to practices that could harm our industries and our constituents.
One example of that is the steel industry. Back in 2016, it was reported that Tata Steel had suffered more than 1,000 job losses, including 750 from Port Talbot alone. Tata stated that the reason for this was the flooding of cheap imports, particularly from China. This will continue to be a problem. According to the OECD, Chinese steel imports surged to a record level of 118 million tonnes in 2024. Interestingly, there are different points of view on this. For those in the building industry, the idea of having an awful lot of cheap steel coming into the country is not that unattractive, but it would affect our domestic industries.
How the Government curb dumping and subsidisation must be accompanied by, at least in part, a deterrent effect. That is crucial for investigations that implicate large and powerful countries. Clause 107 removes the opportunity to implement any deterrent effect because it caps duties imposed on the dumping margin or subsidy amount, not at the injury margin. I acknowledge that this is in line with World Trade Organisation rules. However, injury margins can often exceed dumping and subsidy margins due to their accurate reflection of the true economic harm inflicted on UK industries. Each time, they have been overridden due to the lesser duty rules, and the removal of this rule could have given the Government the opportunity to apply a regime that reflects injury margins better in dumping and subsidy investigations. That would not only protect UK industries but send a clear message to those who engage in these abhorrent trade practices that this will not be tolerated and will be met with serious repercussions. I would be grateful if the Minister could expand on the Government’s rationale not to cut duties at the injury margin. It is quite a technical question, and if he feels the urge to write back, that might save him the trouble of getting into a lot of technical detail.
We are supportive of the thrust of amendments 44 and 45, tabled by the hon. Member for Maidenhead. It is important for decision makers to be accountable to Parliament for their decisions, whether that is the Secretary of State or the Trade Remedies Authority. I suspect that these amendments will be voted down, so could the Minister help the Committee understand what safeguards are in place to address the concerns outlined by the hon. Member for Maidenhead?
Clause 108 gives the Secretary of State the power to direct the Trade Remedies Authority to initiate a safeguarding investigation. It is important that the UK has the necessary defensive measures where there is injury to UK industries. However, clause 108 requires clarity on the conditions that enable the Secretary of State to direct the Trade Remedies Authority to initiate an investigation.
I have two points on this. First, on the requirement of evidence of increased quantities in a good, clause 108 does not introduce any parameters or a threshold that would distinguish a legitimate increase in quantity of goods from an increase that warrants investigation. Secondly, there is no definition or guidance on what constitutes “serious injury”; the clause does not make clear what serious injury means. Without the clarification, the clause grants the Secretary of State substantial discretion in determining whether those conditions have been met. Fundamentally, though, on both these clauses, we must ensure that these important decisions are made with technical rigour and on the evidence. It is incredibly important that they are not driven solely by political whim. I ask the Minister for an assurance on that point.
Dan Tomlinson
I will not expound on the detail of the clauses, but I will explain why the Government cannot accept the amendments.
On amendment 44, any public disclosure of evidence before an investigation is formally launched risks undermining it. The formal initiation of an investigation is a defined procedural step, and once an investigation has been formally initiated, the TRA may recommend the imposition of provisional duties. If there was a gap between publicly disclosing evidence and initiating an investigation, it might incentivise exporters to increase shipments of the goods concerned into the UK to avoid potential future duties. It would also risk contravening our international World Trade Organisation obligations. The rules are clear that authorities must avoid publicising the application for an investigation before a decision has been made to initiate it. To our knowledge, no such parliamentary veto exists in comparable trade remedy systems internationally, but I assure the House that the process will remain transparent and led by the evidence.
On amendment 45, the Trade Remedies Authority is already required by our domestic legislation to publish the consumer and wider economic impact of proposed anti-dumping or countervailing duties. As part of its dumping and subsidisation investigations, the Trade Remedies Authority must advise the Secretary of State on whether and how any recommended anti-dumping or countervailing duties would meet the economic interest test as set out in legislation. The Secretary of State must then have regard to that advice when considering whether to accept or reject the recommendation. This advice is included in the TRA’s published reports across the case life cycle, including a statement of essential facts, which is included on the public file ahead of a recommendation to the Secretary of State.
Since he has given me leave to do so, I will write to the shadow spokesperson, the hon. Member for Wyre Forest, on his specific question.
Mr Reynolds
It is important to remember that one can support both free trade and protection against unfair dumping—they are not mutually exclusive—and I think the amendments strike a balance between them transparently. Amendment 44 gives Parliament meaningful oversight of ministerial decisions to initiate investigations, and amendment 45 ensures that decisions account for impacts on consumers and businesses relying on imported inputs. Together, they strengthen democratic accountability while maintaining our ability to act against unfair trading practices. I ask the Minister to reconsider his thoughts on amendment 44 when we push it to a vote.
Dan Tomlinson
Clause 109 amends sections 20 and 20A of the Customs and Excise Management Act 1979 to update HMRC’s existing powers to require all ports to provide and fund customs infrastructure.
Customs infrastructure is essential to protecting the UK by ensuring that risk-based checks on goods entering and leaving the country can take place. Provision of that infrastructure by ports is a long-standing requirement. When we left the EU, the Government funded and operated customs infrastructure at inland border facilities for ports that do not have enough space for this infrastructure within the port itself. Only two inland border facilities remain: Sevington inland border facility in Kent and Holyhead inland border facility in Wales. As confirmed in the border target operating model in autumn 2023, Government provision of these inland border facilities was always intended to be temporary.
Clause 109 would, first, require the small number of ports assessed as having insufficient space on site for customs infrastructure to provide equivalent infrastructure at an offsite location, which must be approved by HMRC. Secondly, all ports will now be responsible for providing and funding the customs infrastructure required for border checks on goods. This levels the playing field between ports, bringing all ports into line with the long-standing model. I commend the clause to the Committee.
Mark Garnier
Clause 109 shifts the responsibility for the remaining two inland border facilities from the Government to the port authorities. The switching of inland border facilities services and operations to a commercial basis was something that the last Government were exploring.
However, we query whether clause 109 goes a little too far. It would require the ports to prepare to take on the additional responsibility of providing equivalent infrastructure. We appreciate why the ports received the additional Government assistance in the first place, especially considering the far-reaching effects that any disruption in Dover could have. However, while I agree that the ports must be able to stand on their own feet, clause 109 risks the ports’ introducing additional import and export charges being applied to every lorry and trailer that passes through. The magnitude of the price increases could be substantial for businesses, which may end up passing on the additional costs to consumers—not to mention that they would be in addition to the port inventory charges that the port of Dover implemented from 1 January this year.
I recommend that the Government assess the impact that the legislative changes in clause 109 would have on these ports, the businesses and hauliers that rely on them and consumers, who will have to pay a higher price. We get the principle of the clause, but we are concerned about whether there are any adverse knock-on effects on trade through the ports.
Dan Tomlinson
We do not expect that the changes will result in significant cost changes. How ports that currently benefit from the inland border facilities choose to recover any costs is a commercial matter. It is worth noting that the ports have benefited from significant public investment that has already been made in the development and operation of inland border facilities since we left the EU.
Question put and agreed to.
Clause 109 accordingly ordered to stand part of the Bill.
Clause 110
Increases to rates of levy
Dan Tomlinson
I beg to move amendment 12, in clause 110, page 134, line 20, at end insert—
“(2A) In consequence of the amendments made by the preceding subsections, in section 189 of the Economic Crime and Corporate Transparency Act 2023, in subsections (3)(b)(ii) and (11) (which operate by reference to provisions amended by this section), for ‘large or very large’ substitute ‘in any of bands B to D’.”
This amendment makes a consequential amendment as a result of the new bands.
Dan Tomlinson
Clause 110 will make changes to the rates charged to businesses under the economic crime (anti-money laundering) levy from April 2026. The changes will increase the revenue raised each year by the levy by £110 million from 2027-28 onwards.
The levy was introduced to provide a long-term, sustainable source of funding for initiatives aimed at tackling money laundering. In 2024-25, the levy funded 455 new roles fighting economic crime in organisations, including in the National Crime Agency and City of London police, and delivered a new digital service for suspicious activity reporting, which onboarded precisely 15,211 organisations. In a constrained funding landscape, we believe that the levy is right place to find the money for these initiatives. The Government have decided to change the rates charged to businesses under the levy to provide sufficient funding to deliver key projects in the economic crime space over the next three years.
The changes made by clause 110 will increase the charge paid by businesses with an annual revenue between £10.2 million and £36 million from £10,000 to £10,200 per annum. It will also introduce a new band for businesses with an annual revenue between £500 million and £1 billion. Lastly, it will increase the charge paid by businesses with an annual revenue exceeding £1 billion to £1 million from April 2026. As the levy is collected a year in arrears, the increased rates will first be collected in the financial year beginning April 2027. The changes have been designed with proportionality and fairness at their core, and no business will pay more than 0.1% of its UK annual revenue in levy charges.
Government amendment 12 seeks to update the language in the Economic Crime and Corporate Transparency Act 2023, which refers to the current band names “large” and “very large”. These will be changed to refer to the new band names A, B, C and D. The amendment contains no policy changes; it will just bring existing legislation in line with the new economic crime levy band names. I commend the clause and the amendment to the Committee.
Mark Garnier
The previous Conservative Government introduced the levy back in 2022 as a proactive measure to combat money laundering and strengthen our economy. As my hon. Friend the Member for Arundel and South Downs (Andrew Griffith), now the shadow Business Secretary, said when he brought it in,
“the levy will provide an important private sector contribution from those industries at highest risk of being abused for money laundering.”
We support robust action against money laundering, but we have one or two concerns about the scale. The introduction of a new band C, with a £500,000 levy for businesses with a revenue of between £500 million and £1 billion, is a substantial new burden on businesses that are already heavily regulated and are already investing significant sums in anti-money laundering compliance. To be clear, a business with £500 million to £1 billion revenue used to pay £36,000 and will now have to pay half a million—a 1,289% increase.
The Government’s own impact assessment suggests that between 100 and 110 businesses will be affected by the levy rise in this band C. It is a really big rise, so it would be helpful if the Minister could justify the nearly 1,300% rise for firms moving into the new band C. Perhaps he could also say whether he has had any representations from any businesses about the effect it could have on investment, staffing level, productivity and all the rest of it.
The simultaneous reduction in the threshold for the “very large” band, band D, means that more businesses fall into the higher levy. Will the Minister talk about the rationale for that? Has he considered the potential impact on the UK’s competitiveness, particularly mid-sized firms that may now face substantially higher costs?
Dan Tomlinson
On competitiveness, the Government of course do not place any additional burdens on businesses lightly, but reducing economic crime helps the good functioning of the UK economy and our competitiveness, so we think that this is a proportionate change.
The shadow Minister is right to identify that there are significant changes in band C. Previously, businesses with revenue of £500 million paid only 0.007% of their UK revenue, while those with revenues of, for example, £36 million paid 0.1%. That was a significant imbalance. This change seeks to address that disparity by aligning contributions more closely with revenue size so that contributions are proportionate to revenue—more proportionate, but still bands over the broad swathe of business size. This is to make contributions fairer and more consistent, and it will ensure that larger businesses contribute proportionately to the overall funding requirement.
Amendment 12 agreed to.
Clause 110, as amended, ordered to stand part of the Bill.
Clause 111
Removal of time limit to claim relief under section 106(3) of FA 2013
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
Clause 111 removes a restrictive time limit within which relief from the annual tax on enveloped dwellings can be claimed. This measure updates the legislation to remove the current restrictive time limit for claiming relief from the ATED. Companies are still required to deliver their ATED returns on time—typically 30 days from the start of the chargeable period. ATED returns not delivered by the filing deadline will remain subject to penalties for late filing. The time limits for amending a return already delivered to HMRC are unchanged. This clause will come into effect from the date of Royal Assent of the Bill and will have effect as if it had always been in force. HMRC is currently applying its discretion to accept late claims pending enactment of this legislative change. The change is necessary to ensure that the law reflects our policy aims for relief from the ATED. I therefore move that clause 111 stand part of the Bill.
Mark Garnier
The ATED was originally brought in back in 2013 under the coalition Government to discourage the use of corporate structures to hold high-value residential properties. Reliefs were built into the system to ensure that genuine commercial property businesses were not caught by the charge. However, those reliefs were subject to a clear 12-month time limit for making a claim. That was for two reasons: first, it helps ensure that relief claims are made while the facts are still reasonably clear. Secondly, it simply aligns with normal tax time limits.
Now the Government want to remove that time limit entirely. Without a deadline, if claims are made over the original 12-month period, HMRC could be required to revisit historical ATED returns long after they were filed. Given service levels in HMRC are already stretched, it is unclear why the Government have chosen to do that. It could increase, rather than reduce, administrative burdens on HMRC. Have the Government assessed the resource implications for HMRC of processing claims made more than a year after the relevant adjustment period?
Dan Tomlinson
Yes; in anticipation of the Budget and the announcements made at the Budget, work was carried out between HMRC and policy officials in the Treasury to assess the implications of tax changes on businesses and on the Government, and this is set out in the usual way.
Question put and agreed to.
Clause 111 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mark Ferguson.)
Finance (No. 2) Bill (Third sitting)
Dan Tomlinson ExcerptsThursday 29th January 2026
(2 days, 6 hours ago)
Public Bill CommitteesRead Full debate Finance (No. 2) Bill 2024-26 View all Finance (No. 2) Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 29 January 2026 - (29 Jan 2026)
The Chair
With this it will be convenient to discuss the following:
Amendment 41, in schedule 10, page 395, line 28, at end insert—
“(1A) The Treasury must, each tax year, amend the amount specified under section 681I(1)(b) by the change in the level of the consumer prices index in the previous tax year.”
This amendment would provide for the £35,000 income threshold for implementation of the winter fuel payment charge to be uprated annually in line with the consumer prices index.
Schedule 10.
New clause 10—Review of uprating of Winter Fuel Payment charge cap—
“(1) The Chancellor of the Exchequer must, within 12 months of this Act being passed, lay before the House of Commons a report on the impact of uprating, by reference to the consumer prices index, the level of the winter fuel payment charge specified under Schedule 10.
(2) The report under subsection (1) must in particular assess the impact of such uprating on—
(a) households liable to the winter fuel payment charge, and
(b) Exchequer receipts.”
This new clause would require the Chancellor of the Exchequer to report on the impact of uprating the winter fuel payment charge cap in line with the consumer prices index on liable households and on Exchequer receipts.
New clause 27—Report on winter fuel payment charge and related compliance and collection measures—
“(1) The Commissioners for HM Revenue and Customs must lay before the House of Commons a report on the operation and effects of the charge applied to winter fuel payments where an individual’s income exceeds the relevant threshold, including the compliance and collection arrangements introduced under section 55 and Schedule 10 in relation to that charge.
(2) The report under subsection (1) must in particular consider—
(a) the effect of the charge on people whose income exceeds the threshold by a small amount, and any resulting behavioural impacts,
(b) the administrative complexity and proportionality of introducing a tapered abatement for winter fuel payments,
(c) the potential effect of updating section 7 of the Taxes Management Act 1970 so that a winter fuel payment charge becomes a notifiable liability for tax assessment purposes, including the operation of penalties for failure to notify, and the interaction with existing exceptions for liabilities reflected in PAYE tax coding adjustments or where a taxpayer has already been issued a notice to file a self-assessment return, and
(d) the operation and effectiveness of any new PAYE regulation provisions that allow winter fuel payment charges to be collected via tax code adjustments in year, and which allow HMRC to repay any overpaid income tax related to the charge via the tax code within the same year.”
This new clause would require HMRC to report to Parliament on the operation of the winter fuel payment charge, including its effect on people whose income exceeds the threshold by a small amount. The report would also cover the implications of updating section 7 of the Taxes Management Act 1970 to make winter fuel payment charge liabilities notifiable for tax assessment purposes.
The Exchequer Secretary to the Treasury (Dan Tomlinson)
Clause 55 and schedule 10 will provide a mechanism to recover the winter fuel payment from those who are not eligible, to balance support for vulnerable pensioners with responsible use of taxpayer money. Historically, the winter fuel payment has been near universal for pensioners over state pension age. In June 2025, however, the Government announced that only those with incomes up to £35,000 or receiving certain means-tested benefits will benefit from a winter fuel payment in winter 2025. Parliament has already legislated to make the payments to all pensioners who have not opted out. To ensure that the support is targeted, HM Revenue and Customs will recover payments made to pensioners with a total income above £35,000 via the tax system.
I turn to the non-Government amendments. Amendment 41 aims to uprate annually, in line with the consumer prices index, the threshold above which an individual is liable to repay the full value of their winter fuel payment. New clause 10 aims to require the reporting of the impact on households and on the Exchequer of uprating the income threshold for the charge annually in line with CPI. The Government believe that those changes are unnecessary at this time. The £35,000 threshold has been set at a level such that more than three quarters of pensioners will still benefit from the payment at the end of this Parliament. The cost of benefits is already published regularly by the Department for Work and Pensions through the benefit expenditure and caseload tables.
New clause 27 aims to require HMRC to report on the operation of the winter fuel payment charge, including its effect on people whose income exceeds the threshold by a small amount. The £35,000 threshold, above which an individual is liable to repay the full value, has no impact on those whose income exceeds the threshold, as prior to its introduction they did not benefit from a winter fuel payment. The Government believe that the new clause is unnecessary. This measure will be monitored through HMRC’s compliance and reporting systems, including pay-as-you-earn and self-assessment data. I commend clause 55 and schedule 10 to the Committee; I urge the Committee to reject amendment 41 and new clauses 10 and 27.
James Wild (North West Norfolk) (Con)
It is a pleasure to see the Exchequer Secretary in his place. Some Committee members may have felt that his ministerial colleague the Economic Secretary dealt with some clauses rather briefly in our earlier sittings, so we look forward to the loquaciousness that the Exchequer Secretary displayed on the Floor of the House the other day.
I shall speak to clause 55 and to amendment 41 and new clause 10 in my name. The clause is about clawing back the winter fuel payment from anyone whose total taxable income is above £35,000. According to the Budget costings, this measure will cost about £1.8 billion in 2025-26, settling at £1.3 billion the year after, but overall the changes that the Government have made with the removal of winter fuel payments will save £450 million.
However, the Chartered Institute of Taxation and the Low Incomes Tax Reform Group have raised concerns about the potential complexity of the clause; about how it could cause anxiety for people who have not had to navigate tax rules before; and about how the £35,000 per year cap will only diminish over time as inflation eats away at it. I have therefore tabled new clause 10, which would require the Government to review the case for uprating the £35,000 threshold by CPI each year, ensuring that it retains its value. I have also tabled amendment 41, which would go further and put that commitment squarely on the face of the Bill so that there can be no ambiguity about whether the level will increase.
The Minister skated over a bit of the background to the clause. The measure flows from one of the Chancellor’s first political choices, which was to remove the winter fuel payment from all pensioners except those in receipt of pensioner credit. That meant that pensioners living on incomes of around £13,000 a year lost their winter fuel support. Vital support was pulled from millions of pensioners across the country. In my constituency, 22,000 pensioners lost their entitlement overnight; the figure may have been similar in your constituency, Mr Efford. It was a deeply damaging move, which is why organisations such as Age UK and my party campaigned against it, and the Chancellor was forced to come back to the Dispatch Box to perform one of her U-turns. In response to the pressure, the Government announced that everyone would get the payment but that it would be clawed back.
I turn to the points that the Chartered Institute of Taxation and the Low Incomes Tax Reform Group have raised about the clause and the schedule. If a pensioner’s income is £1 over the threshold, they will lose the entire winter fuel payment; there is no taper. Unlike other income-related charge-backs, such as the high-income child benefit charge or the tapering of the personal allowance, the winter fuel payment is based on total income, not adjusted net income. It will affect pensioners who are seeking relief on their charitable contributions. Will the Minister explain why the Government have opted for a system that measures income in inconsistent ways, with different rules from similar income-dependent clawback schemes?
The Bill sets out that the Government’s approach relies heavily on data sharing between the DWP, devolved social security bodies and HMRC. There are some exemptions, for example for those who have been on means-tested benefits during the qualifying week or who have opted out of receiving the payment, but if that information is not shared swiftly and accurately, instances may occur of administrative issues causing distress and financial loss. Pensioners could also see an unexpected tax code on their pay slip, clawing back money that they should never have been charged. That might lead them to have to fight through an appeals process just to claim what is rightfully theirs.
The plan to collect the charge through PAYE, as is set out in the clause, brings its own issues. From 2027-28, HMRC will move to in-year coding, meaning that pensioners could start paying back a benefit that they have not even received yet, based on HMRC’s best guess at their income. As we all know, the winter fuel payment is a one-off payment that is usually paid in November, but PAYE collection is spread throughout the year, so pensioners could be having money clawed back that they have not yet received. If that estimate turns out to be wrong, they will have money taken off and refunded later. That is a recipe for potential confusion and hardship, and it could lead to more calls to HMRC that may go unanswered. In the year of transition, some pensioners could face being charged twice in a single tax year. That is not a minor administrative issue. It needs to be addressed.
We all know that any fixed monetary threshold in legislation loses its real value over time, but if Ministers believe that £35,000 is the right level today, surely they accept that uprating in line with inflation is only fair. If the Minister will not support that principle outright, perhaps he will commit to supporting new clause 10, which simply asks for a review of the impact of doing so. Schedule 10 allows for the alteration of the limit, but there is no obligation on Ministers, as there is for other benefits, to review the level or uprate the limit.
Mr Joshua Reynolds (Maidenhead) (LD)
I rise to speak to clause 55 and new clause 27, but I can tell the hon. Member for North West Norfolk that if he does press amendment 41, he will have the support of the Liberal Democrats.
Countless pensioners were forced to choose between heating and eating last year while the Government buried their head in the sand for months on end, ignoring those who really were suffering. The Government’s changes to winter fuel payments only added to those people’s worries. The delay to the warm homes grant scheme has meant that no household has benefited from support that could have made their homes more sustainable and cheaper to heat over the last winter.
The Liberal Democrats opposed the announcement to cancel winter fuel payments, which caused many millions of the most vulnerable residents in our society to lose out on vital support. We welcome the fact that those over state pension age in England and Wales with an income of £35,000 or less will now receive their winter fuel payment. However, as new clause 27 lays out, we have some serious concerns. Quite simply, it aims to review the practical impact of the winter fuel payment changes, especially on those individuals who exceeded the income threshold by only a small amount.
The cliff edge of £35,000 means that someone on that income will keep the entire payment, but someone at £35,001 will have the entire amount clawed back. We would like to examine the behavioural effects and whether the charge and cliff edge will discourage additional work, savings or income reporting. Would it be fairer to have the amount tapered so that we can get to a fairer place?
We also want to consider the implications of making the charge a notifiable tax liability, including penalties for a failure to notify, and how that would interact with PAYE and self-assessment rules. Right now, most people, especially pensioners, do not have to actively tell HMRC about certain things, because tax is sorted through PAYE or the benefits system. If winter fuel payments become notifiable, individuals would be legally responsible for reporting to HMRC. Evaluating the effectiveness of these measures will help to ensure that we have a smooth and fair process for taxpayers overall.
Dan Tomlinson
I thank the hon. Members for North West Norfolk and for Maidenhead for their remarks and my hon. Friend the Member for Burnley for his enjoyable intervention.
In response to the point made by the hon. Member for North West Norfolk, we believe that total income is a reasonable way of assessing income. There are other ways of making that assessment, but we think that in this instance total income is appropriate.
Blake Stephenson
The Minister says that the measures that the Government are using are appropriate, but can he explain, in response to the question from my hon. Friend the Member for North West Norfolk, why adjusted income was not used and why it is not appropriate?
Dan Tomlinson
There are different ways of measuring income. In this instance, the Government’s decision is that total income is an appropriate way of measuring it. We keep all taxes and all thresholds under review. We are legislating for the threshold to remain at £35,000 but, as hon. Members with experience in government in the run-up to Budgets will know, all things are always considered in the round. Other thresholds in the tax system were frozen by the previous Government and, as was debated in Committee of the whole House a few weeks back, income tax thresholds were frozen as well.
On the point that the hon. Member for Maidenhead made about tapering, the Government’s view is that that would add complexity to the system. We think that a simple threshold is a preferable approach.
Martin Wrigley (Newton Abbot) (LD)
The Minister mentions that our suggestion would add complexity to the system, but the system, in and of itself, is becoming overly complex. It started very simply: “Here is a winter fuel allowance for a harsh winter.” Every winter is harsh. Would it not be much simpler and more efficient to wind this into the main pension in future years? Will the Government consider that?
Dan Tomlinson
The Government’s view was that it was right to put a threshold in the system. Labour Members do not think that it is right for the super-rich to continue to receive the winter fuel payment. On the hon. Member’s broader point, the Government’s policy is to continue with the payment as it stands, as a stand-alone payment for those who have a total income below £35,000 a year.
Question put and agreed to.
Clause 55 accordingly ordered to stand part of the Bill.
Schedule 10
Winter fuel payment charge
Amendment proposed: 41, in schedule 10, page 395, line 28, at end insert—
“(1A) The Treasury must, each tax year, amend the amount specified under section 681I(1)(b) by the change in the level of the consumer prices index in the previous tax year.”—(James Wild.)
This amendment would provide for the £35,000 income threshold for implementation of the winter fuel payment charge to be uprated annually in line with the consumer prices index.
Question put, That the amendment be made.
Dan Tomlinson
Clause 56 and schedule 11 reform the tax treatment of carried interest—a form of performance-related reward that is received by individuals who work as fund managers.
At the autumn Budget 2024, the Chancellor announced that the Government would reform the way that carried interest is taxed, so that its tax treatment is in line with the economic characteristics of the reward. Following an initial increase in the capital gains tax rates applying to carried interest to 32% from 6 April 2025, the clause introduces a revised tax regime for carried interest that sits wholly in the income tax framework. The revised regime takes effect from 6 April 2026. The package of reforms announced at the 2024 Budget will raise almost £300 million by 2030-31.
The changes made by clause 56 and schedule 11 will establish the revised tax regime, under which an individual who receives carried interest will be treated as carrying on a trade. The carried interest will be treated as the profits of that trade and will therefore be subject to income tax and class 4 national insurance contributions. That reflects the Government’s view that carried interest is, in substance, a reward for the provision of investment management services.
New clause 11 would require the Government to publish a report within two years of the legislation passing, covering various issues in connection with the impact of the reforms introduced by clause 56 and schedule 11. The Government recognise the vital importance of the asset management sector in supporting growth. As set out already, we are delivering a revised tax regime for carried interest that ensures fund managers pay their fair share of tax, while maintaining the UK’s position as a world-leading asset management hub.
We have engaged closely with the sector to understand the impact of the reforms at every step. We published a call for evidence in July ’24, a consultation at the autumn Budget ’24 and a technical consultation on draft legislation in July 2025. We therefore do not consider new clause 11 to be a necessary addition to the Bill. I commend clause 56 and schedule 11 to the Committee and ask that new clause 11 be rejected.
James Wild
I will speak to clause 56, the schedule and new clause 11, which is tabled in my name. The Minister talks of reform; indeed, clause 56 fundamentally changes how carried interest is taxed. New clause 11 proposes a thorough assessment, given the significance of those reforms.
Until now, carried interest has been taxed as a capital gain up to 28%. Under clause 56, however, a full 72.5% of qualifying carried interest will be treated as trading income and taxed at income rates that could reach up to 45% plus class 4 national insurance contributions. The effective rate, therefore, would be around 34%. The Minister spoke about competitiveness, but that rate is far above other jurisdictions in Europe—for example, 26% in Italy and 25% in Spain. The precise rate will vary depending on the average holding of the underlying investment; longer holds will receive slightly fairer treatment. Does anyone think that sounds like a measure that is likely to attract talent and investment into the country? As we have discussed in previous sittings, those are things that everyone is signed up to, but many measures in the Bill do not deliver on them.
Carried interest is not some mysterious perk; it is a share of profits that fund managers receive only when their investments do well. It is long term, risk based and uncertain. According to UK Private Capital, in most cases it takes seven years or more before a fund pays a penny of carried interest, and quite frequently it never does.
This measure is a substantial tax rise designed to reclassify carried interest as remuneration, rather than a general return on capital. That may sound tidy in theory, but it misunderstands what carried interest is. As UK Private Capital puts it, carried interest is “fundamentally different” from a salary or a bonus because it is paid only when investments succeed, often many years later and quite often not at all—that is the nature of risk.
The famous tax information and impact note expects the measure to raise £145 million in 2027-28 and £80 million in the following year, but there is a risk of driving talent and investment abroad. Can the Minister share his assessment on what happens if fund managers start relocating to other tax regimes such as Dublin, Luxembourg or New York? What would that mean for wider tax receipts, for the thousands of jobs that funds support and those who rely on them, and for the UK’s standing as a global financial hub? TheCityUK and PwC published a significant report at the beginning of this week about measures that need to be taken to ensure that London remains a pre-eminent finance hub. The measures in the clause run counter to that.
That is why I have tabled new clause 11, which would require a review of the clause’s impact on UK competitiveness in attracting and retaining fund managers, the level and composition of investment into the UK, and the revenues collected compared with forecast revenues. For the Minister’s benefit—because he was not in the Committee’s earlier sittings—we have tabled new clauses that would require reviews because a TIIN is a prediction of what might happen, not a review. We are assured that the Treasury keeps all measures under review, so if those reviews are happening, what is the problem with publishing them and giving that information to Parliament?
As well as on the principle, we need answers on the implementation. HMRC will now be expected to verify the average holding period of thousands of complex investment portfolios. What additional resources and guidance will be provided to HMRC to do that? How will it cope if receipts are lumpy and unpredictable? UK Private Capital has warned that the measure will be challenging to manage. I think that is an understatement; it could be a recipe for disputes and confusion.
A further danger is double taxation. The sector has warned that under the rules, some managers could be taxed twice on the same carried interest in different jurisdictions. Can the Minister assure fund managers and the sector that the Treasury has appropriate double taxation agreements and treaties in place to ensure that their concern is ill-founded? If the Government get this wrong, we risk losing capital to countries that do offer such clarity.
In debates on earlier clauses, we have spoken about wanting to encourage enterprise and investment, to compete internationally, and to support growth in high-value businesses, but clause 56 sends the opposite signal. It will leave us with one of the highest rates of tax on carried interest among competitive and competitor jurisdictions.
We can see why some Labour MPs may be happy about having some of the highest levels of tax on fund managers, but these measures will fundamentally dampen the animal spirits in our economy at a time when we need to be unleashing them. That is why I contend that new clause 11 is essential to ensure that Ministers measure the real-world consequences of their choices before lasting damage is done to our economy.
Dan Tomlinson
The measure contained in clause 56 was in our manifesto, and I think it is good that the Government are making progress to implement our manifesto reforms. We have been working closely with the sector through the rounds of consultation and engagement that I mentioned in my opening remarks. The sector has acknowledged that the Government have had to balance the need to raise revenue for essential public services with the requirement to keep our economy competitive, and has welcomed the changes that have been made as a result of the engagement that has taken place since 2024.
I may add that I am glad that someone does read the TIINs—they are always a joy to sign off ahead of any fiscal event. We will continue to monitor the impact of the measure and other reforms, although the Government do not believe that it is necessary to legislate for such monitoring. It is our position that it is best not to over-legislate.
James Wild
In the debate on the first clause that we considered in Committee, there was a commitment to keep corporation tax at 25% across this Parliament. Can the Minister at least commit to not further increase the rate of tax on carried interest in this Parliament?
Dan Tomlinson
I am grateful to the shadow Minister for giving me a chance to reiterate that the Government have set out—it is relatively unusual for a Government to do so—a corporate tax road map where we have made very specific commitments, which we have kept to, around maintaining the headline rate of corporation tax at the lowest rate in the G7. As with all other policies, however, we keep all taxes under review. It would not be right, particularly many months from the next Budget, for me—I was called a “low-ranking” Treasury Minister by the Daily Mail the other day—to comment or speculate on future tax measures.
Question put and agreed to.
Clause 56 accordingly ordered to stand part of the Bill.
Schedule 11 agreed to.
Clause 57
Collective money purchase schemes and Master Trust schemes
Dan Tomlinson
Clause 57 has three connected objectives. First, the change will enable certain collective money purchase schemes to apply to become a registered pension scheme. Secondly, it will allow HMRC to refuse to register, or to deregister, an unauthorised CMP scheme. Finally, it will allow regulations to be made to efficiently support the development of those CMP schemes.
CMP schemes are a new type of pension scheme that provide members with a target pension income for life. The rules for operating such schemes are set out in the Pension Schemes Act 2021, and include a requirement that they must be authorised by the Pensions Regulator. Currently, a CMP scheme can be set up only by an employer to provide benefits to its employees and those of a connected employer. The rules regarding who can set up such a scheme are changing so that from 31 July 2026, it will be possible to set up a CMP scheme for unconnected, multiple employers.
James Wild
Clause 57 updates HMRC’s pension rules to align them with the Pension Regulator’s authorisation regime for collective money purchase schemes. Such schemes pool members’ contributions into a single fund, with the benefits linked to the performance of that shared pot rather than a guaranteed payout, as Members will be aware. Master trusts operate on a similar principle, but manage pension savings on behalf of multiple, unconnected employers, each with its own ringfenced section.
The clause goes a little further than just a technical update; it gives HMRC new and wide-ranging powers to refuse or remove the tax registration of those schemes, and to change the underlying tax rules through secondary legislation. The aim is straightforward: to ensure the alignment of the tax and regulatory frameworks so that only properly supervised schemes benefit from the generous pension tax reliefs. That is a principle that we would all support.
Well-regulated CDC—collective defined contribution—schemes could play an important role in the future of workplace pensions, particularly as the next generation of whole-of-life, multi-employer and retired CDC models develop. If done right, that could help savers manage their transition from work to retirement more smoothly, but it will work only if the rules are clear, consistent and fair with the existing annuity structures. As the Chartered Institute of Taxation has highlighted, the current framework does not allow for reductions in pension payments that vary between different groups of members. That potentially risks creating unfair outcomes for savers in otherwise identical positions. I would be grateful if the Minister could clarify how the Government intend to address that concern raised by the experts.
We also know that, under the new guided retirement model expected from 2027, trustees will be making complex decisions on behalf of their members yet, as the Chartered Institute of Taxation notes, trustees will hesitate to act without sufficient flexibility such as limited opt-out periods or conversion options. Those safeguards are notably absent from the clause. Has the Minister, or potentially his colleague the Minister for Pensions, been engaging with the sector on those points?
A further practical point, which I hope the Minister will be able to tidy up, concerns the co-ordination between HMRC and the Pensions Regulator. What safeguards will be in place to prevent a scheme being authorised by one regulator but not recognised by the other? What steps are in place to ensure that savers—our constituents—are not caught in the middle?
Dan Tomlinson
I thank the Opposition spokesman for his remarks. He is right that the change will involve some co-ordination between the Pensions Regulator and HMRC. That is partly why we want to legislate here for changes that will allow HMRC to be confident that it can align the pension scheme tax registration process with the Pension Regulator’s authorisation and supervision regime. We think it is important for those things to be aligned and, as the Minister with responsibility for HMRC, I will continue to engage with officials, alongside, I am sure, the Minister for Pensions, to ensure that they continue to work closely with one another.
The Opposition spokesman asked what engagement has taken place. The Government invited a small group of representatives from the pensions industry to comment on the measures ahead of the publication of the Bill to assess their efficacy for our intended purposes. We will continue to work closely with the sector, colleagues from the Pensions Regulator and the DWP on this matter.
Question put and agreed to.
Clause 57 accordingly ordered to stand part of the Bill.
Clause 58
Corporate interest restriction: reporting companies
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
Clause 58 makes changes to corporate interest restriction legislation to simplify administration in relation to reporting companies under the regime. Clause 59 makes a minor technical amendment to corporate interest restriction.
The UK’s corporate interest restriction rules restrict groups from using excessive financing costs to reduce their UK tax liability. They apply where net financing costs of a group exceed £2 million per annum. Above that threshold, the rules typically restrict interest deductions to a proportion of tax-EBITDA—earnings before interest, taxes, depreciation and amortisation—which is a measure of UK taxable earnings.
The restriction is applied to the group’s UK companies as a whole, and the regime provides for groups to appoint a reporting company to act on their behalf to simplify the administration of the regime, and to allocate any overall disallowance among the individual UK companies. Difficulties can arise where groups do not appoint a reporting company on time. The lack of a reporting company can give rise to increased tax liabilities, which stakeholders have described as a disproportionate outcome, and to difficulties and additional work for HMRC.
The main change made by clause 58 is the removal of the time limit to appoint a reporting company, as well as the requirement for the appointment to be made by notice to HMRC. Most of the changes take effect for periods ending on or after 31 March 2026, but the ability for groups to make retrospective appointments will apply for periods that ended on or after 31 March 2024.
To conclude my brief remarks, clause 58 delivers changes that will reduce the administrative burden and risk for both groups and HMRC from administering the regime, while clause 59 ensures that the corporate interest restriction regime works as intended. I commend both clauses to the Committee.
James Wild
Clause 58 makes changes to the corporate interest restriction rules, which limit how much interest large companies can deduct from taxable profits each year. It aims to fix an administrative problem that has frustrated many businesses. Under the CIRR, each group must appoint a reporting company—that is, a UK group member responsible for submitting a group’s interest restriction to HMRC—and the clause simplifies that process, which is obviously welcome.
At the same time, the clause introduces a new £1,000 penalty where a group submits a return without any company having been validly appointed to act as the reporting company. That is a small fixed penalty designed to encourage groups to get the appointment right. Can the Minister assure us that this will be applied with some common sense? Does HMRC have discretion not to apply the penalty automatically, so that it can take into account any mitigating factors?
Clause 59 makes a targeted but important change to the way in which companies calculate tax-EBITDA under the corporate interest restriction rules. The clause adjusts the calculation so that certain types of capital expenditure related to cemeteries and crematoriums and environmental and infrastructure spending—such as waste disposal, flood prevention and coastal erosion management—are excluded from the limits on how much interest a group can deduct for tax purposes.
In practice, that means that when a company makes large one-off investments in public interest infrastructure, such as new flood defences, those up-front costs will no longer unfairly reduce the amount of interest they are permitted to deduct. The measure applies retrospectively to periods ending on or after 31 December 2021. On the face of it, this is a sensible change that ensures that the rules operate as intended, and we support the principle behind it.
The Government describe this as a largely technical fix, which is broadly correct. It does correct the distortion in the corporate interest restriction rules that discourage capital investment in environmental and infrastructure projects. The Budget documents suggest the fiscal impact is limited, allowing qualifying businesses to claim interest deductions they were previously denied. But it does raise some other questions. If the calculation of tax-EBITDA has accidentally penalised spending on projects such as flood defence, waste treatment or crematoriums, are there are other sectors that the Treasury has looked at that might face similar unintended consequences?
Are there sectors where the Government think there might be similar distortions, or were others considered and dismissed? How will HMRC manage amended tax returns and claims retrospectively back to 2021? Does it have the resources and processes in place to do that officially? Finally, will the Minister commit to a wider review of the corporate interest restriction rules to ensure that the system generally supports the long-term environmental and infrastructure investment that our economy and our constituencies need?
Dan Tomlinson
I am not aware of further sectors to which the changes outlined in clause 59 would apply, but I will work with officials to continue to receive representations and perspectives from those who may or may not want to see further changes. The hon. Member for North West Norfolk asked about a review—of course, taxes will be kept under review. On his specific question on clause 58 and whether HMRC will be able to have discretion in applying the £1,000 penalty—yes, it will. I hope and strongly expect that HMRC will always use its powers and penalties in a judicious fashion, making sure to treat companies and individuals reasonably. I am confident that it will continue to do so in this case.
Question put and agreed to.
Clause 58 accordingly ordered to stand part of the Bill.
Clause 59 ordered to stand part of the Bill.
Clause 60
Avoidance schemes involving certain non-derecognition liabilities
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
The Government are taking action to tackle those who attempt to bend or break the rules to avoid paying the tax that they owe. The clause introduces a new provision to address avoidance arrangements in certain very specific situations involving the creation of liabilities and related expenses for accounting purposes. The rule addresses certain arrangements that are designed to secure a tax advantage.
The accounting and tax analysis in relation to when financial assets are derecognised or may continue to be recognised can be complex. In some cases, assets that are transferred to a securitisation vehicle may continue to be recognised for accounting purposes in the transferor’s accounts. This can potentially happen for commercial reasons. In certain circumstances, a liability may also be recognised for accounting purposes in connection with the underlying assets or otherwise in connection with the transfer. This liability is a non-derecognition liability.
This new rule addresses scenarios where, as a result of tax-driven arrangements, a company seeks a tax deduction for expenses in connection with such a non-derecognition liability. HMRC considers that existing legislation already negates any UK tax advantage from these arrangements. However, introducing the new rule aims to deter such tax avoidance arrangements and secure receipts for the Exchequer that might otherwise be deferred through tax disputes. I therefore commend the clause to the Committee.
James Wild
As the Minister said, the clause introduces a new anti-avoidance provision aimed at arrangements involving non-derecognition liabilities. These are complex structures whereby a company transfers assets to another entity, but under accounting rules continues to recognise those assets and related liabilities on its own balance sheets. Such structures are of course common in securitisations, which are an important part of the UK’s financial landscape. In these arrangements an originating company passes on the economic risks and rewards with an asset, yet maintains the asset on its books. Used properly, these arrangements serve a legitimate commercial purpose. However, as the Minister said, there are examples of people bending or breaking the rules. Can he give the Committee a flavour of how prevalent he thinks that bending or breaking of the rules is?
The provisions of this clause seek to correct any rule-breaking by denying tax deductions where their main purpose is to seek to gain a tax advantage by exploiting non-derecognition accounting. The Opposition strongly support efforts to tackle avoidance and close loopholes that undermine trust in the tax system, and efforts to bring the tax gap down—as the last Government successfully did, and this Government are, I am sure, continuing to seek to do—but, as always, the details matter.
Dan Tomlinson
The Opposition spokesperson is right to ask about the extent to which HMRC will be able to distinguish between valid purposes and uses and those that seek to bend or break the rules. HMRC is aware of a small number of companies and businesses that we think are engaging in such practices. It would not be appropriate for me to disclose the precise number, but there are some of which HMRC is aware. We certainly do not want traditional and reasonable uses of the non-derecognition method to be affected.
The Opposition spokesperson asks about the potential impact of this measure. I am glad that he has also read the costings. According to those costings, which have been certified by the Office for Budget Responsibility, this measure is expected to raise quite a significant sum: £465 million in total over the scorecard period. That suggests that the experts and analysts in HMRC, as well as the independent officials at the OBR, believe that there is a volume of bending or breaking of the rules here that we should be able to go after more effectively under this measure.
Question put and agreed to.
Clause 60 accordingly ordered to stand part of the Bill.
Clause 61
Energy (oil and gas) profits levy: decommissioning relief agreements
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 12—Report on decommissioning relief agreements—
“The Chancellor of the Exchequer must, within six months of this Act being passed, lay before the House of Commons a report on the impact of implementation of the provisions of section 61 on—
(a) North Sea decommissioning activity,
(b) employment levels in the UK oil and gas industry,
(c) capital expenditure in the UK oil and gas industry,
(d) UK oil and gas production,
(e) UK oil and gas demand, and
(f) the Scottish economy and economic growth in Scotland.”
This new clause would require the Chancellor of the Exchequer to report on the impact of section 61 on North Sea decommissioning, employment and capital expenditure in the UK oil and gas industry, UK production and demand, and the Scottish economy.
Dan Tomlinson
Clause 61 introduces legislation to expressly state that no payments can arise under decommissioning relief agreements in relation to the energy profits levy, confirming the Government’s long-standing view. Decommissioning relief agreements, which take the form of decommissioning relief deeds, are contracts entered into between the Treasury and oil and gas companies. They have been in place since 2013. They define and in effect guarantee a minimum level of tax relief that an oil and gas company will receive in relation to its decommissioning expenditure. Companies can claim a payment under a DRD if the amount of tax relief that they receive is less than the defined minimum level. DRDs enable decommissioning security agreements to be made on a net-of-tax basis, freeing up cash for investment.
The energy profits levy was introduced in 2022 by the previous Government, to tax the profits of oil and gas companies following record high oil and gas prices. The calculation of profits subject to the EPL does not allow a deduction for decommissioning expenditure. The Government have always been clear that that cannot be circumvented by making a claim under a DRD.
New clause 12 asks the Chancellor of the Exchequer to report on the impact of clause 61 on North sea decommissioning and on employment and capital expenditure in the UK oil and gas industry. The Government oppose the new clause on the basis that clause 61 does not impact on the statutory obligation for oil and gas companies to decommission wells and infrastructure at the end of a field’s life, or on employment, capital expenditure, production, demand or the Scottish economy. This measure simply confirms the Government’s long-standing position that payments cannot be made under a DRD in relation to the energy profits levy.
I therefore commend clause 61 to the Committee, and urge that new clause 12 be rejected.
James Wild
I will speak to clause 61 and new clause 12, tabled in my name. They concern reliefs and the energy profits levy, which the Chancellor increased to 78%—a very high level. When it was introduced, prices were much higher than they are now.
Clause 61 clarifies that payments under decommissioning relief agreements—long-term agreements under which the Government guarantee a minimum level of tax relief for decommissioning costs—cannot be claimed by reference to the EPL; and it makes it clear that companies cannot seek refunds or payments when decommissioning costs arose on or after 26 November 2025. New clause 12 is about ensuring that the impact of these changes on decommissioning, employment and capital expenditure in the oil and gas sector, production and demand and the Scottish economy is considered by the Treasury and the Chancellor.
That is important because of the context. The reality in the North sea is stark. Investment has sunk to record lows and, according to research from Robert Gordon University, jobs are being lost at a rate of 1,000 a month. Offshore Energies UK has warned that the Government’s decision in the Budget to reject replacing the energy profits levy in 2026 will cost tens of thousands of jobs, cripple investment and undermine Scotland and its energy security.
The decommissioning reliefs to which this clause refers were designed to give long-term certainty on tax treatment in the basin, precisely so that companies could plan for responsible decommissioning. The Government themselves have acknowledged that we will need oil and gas for decades to come, with about 75% of the UK’s energy still coming from oil and gas and 10 billion to 15 billion barrels required by 2050. Offshore Energies UK has shown that we can produce more than that at home, through tax reform in tandem with a pragmatic approach to decommissioning and licensing, instead of importing more energy and exporting the jobs. That is why new clause 12 would require a proper assessment of the impact on the areas that I have set out. The Chancellor likes to describe the energy profits levy as temporary, but there is nothing temporary about the damage that is being done to jobs, investment and energy security in the North sea.
Dan Tomlinson
As I said in my opening remarks, this clause just clarifies the treatment as was originally intended and has always been the case. It would not be appropriate or necessary to monitor and look at the impact of it, because as I believe was said—a second mention for the 2017 general election—“nothing has changed” in relation to the treatment of DRDs and the interaction with the EPL.
Question put and agreed to.
Clause 61 accordingly ordered to stand part of the Bill.
Clause 70
Relevant property: disapplication of exemptions from exit charges
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
Clauses 70 to 73 make changes to improve the residence-based regime for inheritance tax. The clauses bolster the new residence-based approach to inheritance tax, which came in last April. The Government are making targeted adjustments to the reforms to ensure that they work as intended, acknowledge the economic contribution of former non-doms to our country and strengthen the UK’s position as an attractive destination for global talent.
The changes made by clauses 70, 72 and 73 introduce some of the technical amendments needed to make sure that the reform works as intended. Clause 70 is an anti-avoidance provision, ensuring the settlor and its trust cannot manipulate excluded property rules to avoid an exit charge on ceasing to be a long-term UK resident. Clause 72 confirms that years of diplomatic service do not count towards the long-term UK residence test. Clause 73 makes minor corrections to the wording of sections in the Inheritance Tax Act 1984 that deal with spouse elections to be long-term UK residents and non-residents’ bank accounts.
Clause 71 introduces a new £5 million cap on inheritance tax charges every 10 years on trusts of former non-doms. The usual tax levied on those trusts is 6% per decade. The cap applies only to trusts settled before 30 October 2024, recognising long-term decisions made under the previous framework. The changes bolster the new residence-based approach and make it more effective.
James Wild
Following the 2024 Budget, the Government decided to implement a long-term residency test for inheritance tax. That is a 10-year residency in a 20-year time period. Clause 70 imposes an inheritance tax charge where there has been a change in the settlor’s long-term residence status. While this is not the 20% exit tax—one of the kites that was flown by someone near the Treasury ahead of the Budget—there is a risk about the message that it sends about encouraging people to this country.
The Chartered Institute of Taxation has pointed out that individuals faced with the prospect of UK inheritance tax on their overseas trusts may already have decided to leave the UK and/or wind up the trust, an issue that was debated on Tuesday afternoon in relation to the clauses that pertain to non-doms. The measures that the Government are taking will undermine what we all want to see, which is more money being brought back into the UK and invested in our country. What conversations has the Minister had with groups such as Foreign Investors for Britain about these changes? How would he respond to their concerns?
Dan Tomlinson
Government Ministers are in regular conversation with external stakeholders and individuals to discuss tax matters and their impact. In part, the changes that are being introduced in clauses 70 to 73 are in response to engagement. We are introducing the changes in order to refine the system, which was changed significantly under this Government, to make it fairer and fit for the long term. I commend the clauses to the Committee.
Question put and agreed to.
Clause 70 accordingly ordered to stand part of the Bill.
Clauses 71 to 73 ordered to stand part of the Bill.
Clause 74
Power to make provision about infected blood compensation payments
Mr Reynolds
The infected blood scandal represents one of the greatest treatment disasters in NHS history: more than 3,000 people died, and thousands more live with HIV, hepatitis C or lifelong trauma. Yet even now victims’ families face the indignity of inheritance tax on compensation payments meant to acknowledge that profound suffering. The clause gives the Treasury the power to provide inheritance tax relief where victims or affected persons have died before compensation payment was received. That policy is intended to develop fair and consistent treatment for grieving loved ones, but it is entirely discretionary, with no timeline, no consultation requirements and minimal parliamentary oversight.
Amendments 47, 48 and 46, in my name and that of my hon. Friend the Member for Newton Abbot, look to fix that. First, amendment 47 would ensure that all the regulations face proper parliamentary scrutiny through the affirmative procedure, ensuring that they get the correct amount of parliamentary oversight and the scrutiny that is required.
Amendment 46 would require the Chancellor to make regulations within 60 days mandating consultations with victims’ organisations and the Infected Blood Compensation Authority—people who actually understand what the families are going through. Crucially, it would establish practical support, dedicated helplines and assistance in evidence-gathering through outreach to bereaved families. That matters not just because of the number of people who have died while waiting for compensation, but because their families have already endured decades of suffering, medical records lost and destroyed, and broken promises. They should not also have to face the labyrinth of the tax system without the support they need.
Amendment 48 would require the Treasury to demonstrate how it meets key objectives: that for any victim faced with inheritance tax on their payments, the treatment is fair, regardless of the timings; and that administrative processes do not create additional distress. These amendments are not intended to distract from the clause, which we support; however, without the safeguards that they propose—without timelines and the correct accountability—we will see delay and delay. The families have waited decades for support, and the amendments aim to help to get them that support and the fair treatment that they deserve.
The Government’s policy paper was unequivocal that compensation must be a matter of entitlement rather than charity, and our amendments 47, 48 and 46 would ensure that those promises were kept and not kicked into the long grass. I hope that the Committee will support them when we press amendments 47 and 46 to a vote later.
Dan Tomlinson
The clause, as has been discussed, introduces a power to extend the existing inheritance tax relief for infected blood compensation payments. I worked closely on this measure with the Chancellor ahead of the Budget. It is an important measure for the victims of this scandal and their families. I am glad to hear that the Liberal Democrat spokesperson, the hon. Member for Maidenhead, supports the clause—I am sure that all Members will do so—and I of course welcome the challenge and the scrutiny.
Amendment 47 would require all regulations made under the new powers to be subject to an affirmative procedure, but the clause already provides that, if the future regulations do not amend primary legislation, they can be made under the negative procedure. That is consistent with the existing regulation-making powers for compensation payments under schedule 15 to the Finance Act 2020. The clause already provides for using the affirmative procedure, should the future regulations amend primary legislation.
The Government’s objective here is to ensure that we can introduce regulations, which will come later this year, as soon as possible to help further to clarify the inheritance tax position for all those impacted. I am sure we all agree that we want to ensure as much clarity as possible, as soon as possible, for those who are affected and might be impacted by this change, which has been welcomed.
Amendment 48 would require the Treasury to make a statement setting out the extent to which the regulations meet certain objectives. I have already issued a written ministerial statement, on 18 December, setting out in detail how the changes to the existing relief from inheritance tax for compensation payments made from the infected blood compensation scheme and the infected blood interim compensation payment scheme will be made.
Amendment 46 would introduce proposed new subsections (7) to (10), which set out various new introductory, consultation and reporting requirements. I understand the desire for prompt clarity on the inheritance tax treatment of compensation payments, and the Government are committed to delivering the regulations as quickly as possible. I also recognise the importance of consulting with relevant stakeholders; officials have worked very closely with the Infected Blood Compensation Authority, and the Government will continue to engage with stakeholders ahead of laying regulations.
The clause introduces a power to make a sensible and compassionate change, ensuring that those infected and affected by the infected blood scandal can choose how to pass on the value of any compensation received without incurring inheritance tax. Although I welcome the engagement from the Liberal Democrats on this matter, I hope the Committee agrees to clause 74 standing part of the Bill and rejects amendments 46 to 48.
James Wild
I am grateful to the hon. Member for Maidenhead for bringing forward these amendments to what is a very important clause, one that honours a commitment; I remember sitting in the main Chamber when a number of colleagues from across the House were pressing Ministers to introduce such a change, and it is very welcome that the Government have brought it forward in the Bill. I believe a similar treatment applies to the Horizon IT scandal. It is a common-sense clause. Fundamentally, the victims of this appalling scandal deserve compensation and their families deserve to then benefit in due course.
I put on record my tribute to the work of Sir Brian Langstaff, as well as to the work of my right hon. Friend the Member for Salisbury (John Glen) when he was in the Cabinet Office, working particularly with victims’ groups. The clause will help to provide the remedy that victims and their families have been seeking.
I have said that a similar treatment applies in the Horizon case, but I should mention to the Minister that the Hughes report on the valproate and pelvic mesh scandal is still outstanding. It was published two years ago and recommended that interim compensation payments should be made. I have raised the matter with the Health Secretary on a number of occasions; I ask the Minister to take that issue back and to consider, as the compensation scheme is designed, whether that sort of provision can be built in from the start.
We support the thrust of the amendments tabled by the Liberal Democrats, which seek to ensure that Government regulations around the issue reach the right objectives, as well as supporting victims and their families. Amendment 46 would establish a mechanism to support families to navigate the system. I think that is very important and, if the hon. Member for Maidenhead chooses to press the amendment, I assure him that Conservative Members will support it.
Mr Reynolds
The Minister used the words “as soon as possible”. The amendments that we have tabled would hold him and the Government to account on that. They show the seriousness of this issue, and would allow parliamentary oversight, accountability measures and a clear deadline.
I am glad that the hon. Member for North West Norfolk mentioned the Hughes report. My hon. Friend the Member for Chelmsford (Marie Goldman) mentioned the Hughes report in an oral question to the House yesterday, and the response was not particularly forthcoming. I urge the Minister to consider how this clause could apply to the Hughes report and others in the future.
Without these amendments, the clause gives a number of empty promises and more regulation in due course. That mean more waiting and more families navigating complex tax systems alone, while grieving loved ones are left in limbo. Infected blood victims were actively misled by the responsible authorities, then they were ignored, then they were told help was coming. In many tragic cases, that help is too late. The amendments would ensure that grieving relatives do not face additional challenges in receiving compensation. I hope the Minister changes his mind and supports amendments 47 and 46.
Dan Tomlinson
I thank the Liberal Democrat spokesperson and the shadow Minister for their contributions.
I want to reassure the Liberal Democrat spokesperson in particular that these are not empty promises. The Government take this matter incredibly seriously. When it was raised, we worked hard to engage constructively and productively, and we brought forward this legislation in the Budget. I was glad that we were able to do so for those impacted by the scandal. I put on the record that these are deep and full promises, and the Government will make the progress that needs to be made for the victims.
Question put, That the amendment be made.
Dan Tomlinson
Clauses 75 and 76 close an avoidance loophole to ensure that the inheritance tax exemption for gifts to charities works as intended. Changes were made in 2023 to the definition of “charity” for multiple taxes, including that the charity must be based in the UK. Some gifts to charitable trusts can still, however, get exemption from inheritance tax, even if they are not themselves charities. They may have no connection to the UK, bypassing the UK jurisdiction condition and other regulation requirements for charities. The tax-paying public may therefore be subsidising relief on money that we cannot be sure is used solely for charitable purposes. The Government are therefore closing this loophole and protecting the exemption for legitimate charities.
New clause 13 would require the Government to report on the impact of clause 75 on charitable donations. The Government have already published, as the shadow Minister will have read, a tax information and impact note to set out the impact of the changes. It showed that charities and community amateur sports clubs should be unaffected, as exempt gifts can be made to them in the usual way. New clause 13 should therefore be rejected, and I commend clauses 75 and 76 to the Committee.
James Wild
I rise to speak to clauses 75 and 76, as well as new clause 13 in my name. The clauses fit within the inheritance tax part of the Bill. In Committee of the whole House, we had debates on the family farm tax and the family business tax, and the damage and distress they are causing in rural communities, so I will not prolong that debate. I will focus briefly on clause 75, however, which tightens the rule on inheritance tax exemptions for gifts to charities and registered clubs, including sports and social clubs. Clause 76 provides limited protection for existing arrangements, seeking to prevent new restrictions from applying retrospectively or unfairly.
New clause 13 would require the Treasury to publish a report on the impact of clause 75, including on the volume and value of charitable donations, the financial health of affected charities and clubs, donor behaviour and impact on Exchequer revenues. We agree with the principle, which the Minister set out, of ensuring that charitable reliefs are used as intended, but it is also important that the Government understand the practical consequence of any tightening of the rules. On Tuesday afternoon, we discussed some of the concerns that charities have about earlier provisions in the Bill, and the potential complexity and bureaucracy that was being added to them. We all know that the charitable sector is under significant pressure, and we do not want to add undue burdens on to trustees of charities in particular.
Dan Tomlinson
I can give the assurance that this will not be an unreasonable burden, or even a small burden, on charities that are continuing to behave in a way that is reasonable and right. I note that thirdsector.co.uk reports that, according to experts, charities are unlikely to be affected by new inheritance tax avoidance measures. I agree with those experts.
Question put and agreed to.
Clause 75 accordingly ordered to stand part of the Bill.
Clause 76 ordered to stand part of the Bill.
Clause 77
Zero-rating of leases of vehicles to recipients of disability benefits
Question proposed, That the clause stand part of the Bill.
Dan Tomlinson
Clause 77 will make changes to ensure that the Motability scheme and other qualifying schemes provide value for money for the taxpayer while continuing to support disabled people. It will remove the VAT relief for top-up payments made to lease more expensive vehicles. Clause 78 ensures that insurance premium tax will apply at the standard rate of 12% to insurance contracts on the scheme.
The Motability scheme is an important vehicle leasing scheme available to people receiving the enhanced Motability component of disability benefits such as the personal independence payment. The weekly Motability award covers the lease cost and a generous service package. If a chosen vehicle is more expensive, the customer pays a one-off top-up payment in advance of the three-year lease.
The Motability scheme supports the independence of disabled people, but it benefits from generous tax breaks that are supporting provision beyond the scheme’s core objectives, such as the lease of luxury cars. To limit tax support for the most premium vehicles on the scheme, the Government have removed VAT reliefs on the one-off voluntary—I stress that they are voluntary—payments made to lease higher-cost vehicles. VAT reliefs on weekly lease costs covered by eligible disability benefits, and the VAT relief on vehicle resale, will remain in place. Additionally, ending the IPT exemption for most vehicles will bring the IPT treatment for qualifying vehicles’ leasing schemes in line with other commercial leasing firms.
The tax changes will preserve the delivery of the core objective of the scheme, and Motability Operations Group has confirmed that, after the tax changes take effect, it will continue to offer a broad range of vehicles available without a top-up payment, meaning that customers will be able to lease a vehicle that meets their needs for the value of their eligible benefit. The changes made by clauses 77 and 78 will generate savings of more than £1 billion across the scorecard. I commend them to the Committee.
James Wild
At present, when a disabled person uses their mobility benefits, such as the mobility component of the personal independence payment or disability living allowance, to lease a vehicle under the Motability scheme, that lease is zero-rated for VAT. Let us remember why Motability was created: it was established to help those with serious, long-term physical disabilities to access independence and mobility, not to provide subsidised cars for people with minor or temporary conditions. However, the numbers show that the scheme has expanded far beyond its original purpose. Last year, 815,000 people were using Motability vehicles, an increase of 170,000 in a single year.
For many participants, their benefit covers the full cost of a three-year lease, so they pay nothing beyond their benefit entitlement. However, when someone chooses a more expensive model, such as a larger or higher-spec vehicle, they must make an up-front top-up payment. Until now, the entire lease, including that top-up, has been VAT-free, but clause 77 changes that. Under the new rules, only the proportion of the lease funded by the qualifying Motability payment will remain zero-rated, and any additional amount paid voluntarily will be subject to the standard rate of 20%. That is a fair and balanced reform that we wholeheartedly support.
Clause 78 narrows the insurance premium tax relief for vehicle insurance linked to disability schemes. IPT is a 12% tax on most general insurance premiums. Many cars that are leased to disabled people currently benefit from that relief, even when the vehicles are standard, unadapted models. We welcome that the clause limits the relief to applying only to contracts for vehicles that are specifically adapted for wheelchair or stretcher users; for example, vehicles with ramps, lifts or structural changes supporting wheelchair access. If a vehicle has no such adaptation, premiums will rightly be subject to the 12% charge.
Conservative Members have long argued for tighter focus and accountability in the Motability scheme, and I welcome the Government’s decision to act— we have been pushing them to do so. Sadly, we read in The Times this morning that the Prime Minister has apparently ruled out any wider reforms to welfare in the King’s Speech. Some of the growth we have seen in the Motability scheme, which the clauses will hopefully address, reflects genuine need, but much of it does not. That expansion raises questions about the eligibility standards and on whether taxpayers’ money is being used as intended. Motability should not be a back-door subsidy for people who do not meet the scheme’s original intent, which was to help those with serious disabilities.
As the Minister said, over the scorecard this measure makes a significant saving that is a meaningful contribution to public finances, which we welcome and support. Taxpayer resources should be targeted more effectively to ensure fairness. However, the measures in the Budget overall raise people’s taxes to pay for more welfare spending. We consider that to be the wrong choice. We welcome the fact that the clause mitigates some of that additional welfare spending, but overall, this is a welfare spending Budget.
Mr Reynolds
I will speak briefly to clause 78, and then I will ask the Minister some questions, specifically on the definition of “substantially and permanently adapted”, which is slightly lacking in the Bill. Disability is not just about wheelchairs and stretchers; many individuals use and require adapted vehicles that may not be seen as substantially or permanently adapted.
The Liberal Democrats do not aim to change or amend the clauses, but some clarification would be helpful. Could the Minister clarify the definition of substantially adapted vehicles, and confirm what consultation has happened with disability groups about those definitions? Could he also confirm what impact assessment has been done on the additional costs for individuals who will no longer receive insurance premium tax relief?
Dan Tomlinson
I will somewhat disappoint the Liberal Democrat spokesperson, the hon. Member for Maidenhead: the words that Ministers say in Committee are sometimes powerful and I do not think it would be appropriate for me to be more expansive on the definition. I ask him and others to rely on the words in the existing legislation, which I think are relatively clear and strong.
Question put and agreed to.
Clause 77 accordingly ordered to stand part of the Bill.
Clause 78 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mark Ferguson.)
Business Rates
Dan Tomlinson Excerpts(4 days, 6 hours ago)
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The Exchequer Secretary to the Treasury (Dan Tomlinson)
This Government want the best for Britain’s high streets. We know how central they are to the strength and vibrancy of our villages, towns and cities. We know how hard small business owners work, and we know how badly they were let down by the previous Government; shops were shuttered, council funding was cut, and business rates were left totally unreformed. We will not let decline continue, and we are already taking steps to arrest it.
We are protecting high street businesses from upward-only rent review clauses, and we are introducing a strong new community right to buy to help communities safeguard valued community assets, such as pubs and shops on their high streets. We are pushing ahead with high street rental auctions, which are helping to bring long-term empty shops back into use. Where premises have been vacant for too long, councils can auction the right to rent them; they can offer one to five-year leases to new businesses and community groups, helping to create more vibrant high streets. We also launched the winter of action to combat retail crime, a nationwide crackdown on crime and antisocial behaviour to protect shoppers and retail workers.
As well as that, we are investing in local communities through the £5 billion Pride in Place programme announced last September, and we are investing to support growth, including through the new local growth fund. Around one in three businesses continue to benefit from small business rates relief and do not pay any business rates at all, and 85,000 benefit from reduced business rates as this relief tapers. At the Budget, we extended the small business rates relief second property grace period for another two years, which is a really important change; it means that businesses expanding into a second property will retain the support as they grow.
We know that there is more to do. Before I turn to today’s announcements, I want to run through the three main components of the changes to business rates that are taking place in April for all businesses, and to explain the steps that the Government took at the Budget last year on business rates. The first change is the underlying, significant reforms to the system that the Chancellor set out as part of our commitment to transform business rates in England over this Parliament. We have implemented permanently lower multipliers for eligible retail, hospitality and leisure properties; the multiplier will fall by around 12p or 25% on 1 April. Some of this is a result of the overall reduction in multipliers between revaluation periods, but the further 5p reduction announced by the Chancellor is, on its own, worth nearly £1 billion for the 750,000 retail, hospitality and leisure businesses that are the lifeblood of our high streets.
We are paying for this support for the high street through higher rates on the top 1% most expensive properties. That includes many large distribution warehouses, such as those used by online retail giants. Let us be crystal clear: before our reforms, a mid-sized high street business faced the same multiplier or tax rate as a warehouse used by an online giant—that was the system we were left with. Now, the mid-sized high street business will pay around 38p in the pound, and the large warehouse will pay around 51p in the pound. That is 33% more. This is a sizeable reform, and it is here for good.
The second component of business rates announced at the Budget was the revaluation. All non-domestic properties are revalued independently every three years for business rates purposes. New valuations will come into effect in April. I thank the independent valuers in the Valuation Office Agency who carry out the work. The Government did not take the easy approach of kicking the post-covid revaluation into the long grass. Instead, we introduced a significant transitional support package, because we knew that some sectors were seeing large increases in their rateable values after the pandemic. We are capping bill increases in each of the next three years for those with the largest rises, and we are spending a total of £4.3 billion on that and other interventions.
The Government recognise that the rateable value of hotels has increased significantly since the pandemic, so our caps on increases are particularly important for them, but it is right that we look at this further. We will therefore review the way that hotels are valued, to ensure that it accurately reflects the market for this sector.
The third important context is the tapering away of the temporary pandemic relief for high street businesses. The previous Government went into the election with plans to withdraw that relief overnight in 2025. That would have been a harsh and sharp removal of support, pushing up bills for independent high street businesses overnight by 300%. That is reckless and irresponsible. Instead, we have taken a different approach. We extended the retail, hospitality and leisure relief this year—it is set at 40%—and we are unwinding it over the coming years. The jumping-off point for any business currently receiving a 40% discount is their current bill, not their bill without relief.
The Budget decisions led to the following outcomes. First, for over half of ratepayers, bills will be flat or will fall next year. Secondly, of the properties whose bills will increase from 1 April, most will see their increases capped at 15% or less, or at £800 for the smallest. Thirdly, bills will adjust to new valuations, but because of our caps, this will happen gradually, and high street businesses will benefit from permanently reduced multipliers for the long term. That is a fair and reasonable approach. As set out at the Budget, in total we are spending over £4 billion in the next three years to limit the scale of bill increases for those who are either losing reliefs or seeing their rateable values increase.
In the coming financial year, because of our interventions, the business rates system will raise the same amount of revenue as it was forecast to raise in spring 2025, before the Budget—not billions and billions more, as Opposition Members seek to claim. The forecast is more or less the same. That is the shape of the policy that we set out in the Budget. I hope you will forgive me, Madam Deputy Speaker, but I wanted to set that out in full, because business rates are rather complicated.
This Government want to go further to support pubs. Pubs are the cornerstone of so many communities, and they are essential to the social and cultural life of so many places across the country. I have heard clearly from Government Members just how important pubs are. I thank colleagues who have engaged constructively and privately with me on this issue in recent weeks. Whether they represent constituencies in coastal or rural communities, towns or cities, their representations have been invaluable. Their constituents should know that most of the politics that they see in the papers is not what matters; it is the conversations and the advocacy of MPs in the corridors of this place that can make the difference. In particular, my hon. Friend the Member for Bournemouth East (Tom Hayes) has been a relentless advocate for businesses in his constituency, as have my hon. Friends the Members for Isle of Wight West (Mr Quigley), and for Redditch (Chris Bloore). I thank my hon. Friend the Member for Warrington North (Charlotte Nichols) for her engagement on this issue, in her role as chair of the all-party group on pubs.
For too long, under the Conservatives, pubs have not had the support they needed. Opposition Members claim to care about pubs, but where were they when the number of pubs fell by 7,000 between 2010 and 2024? They were in government, and they let the number of pubs in our communities fall by a fifth. The Conservatives also allowed the revaluation to go ahead with a business rates methodology for pubs that no longer has the support of the sector. Before the Budget, every pub sector body was broadly signed up to the methodology used for valuing pubs, and lent its support to the principles set out in the Valuation Office Agency’s guide. Since the Budget, the same sector bodies have withdrawn their support. The Government acknowledge their concerns and will therefore carry out a review of the pub valuation methodology. The review will report in time to be implemented at the next revaluation.
While that review is ongoing, and given the challenges that pubs faced over the long term under the previous Government, we are stepping in to provide support for pubs in the next three years. Today, I confirm that, from April, every pub in England will get 15% off its new business rates bill, on top of the support announced in the Budget. Pubs’ bills will then be frozen in real terms for a further two years. That support is worth £1,650 to the average pub next year. It will mean that around three quarters of pubs will see their bills either fall or stay the same next year. This decision—
Madam Deputy Speaker (Caroline Nokes)
Order. I say very gently to the Minister that it was always open to him to ask for extra time, but we cannot find any record of him having done so. He has already got to 10 minutes, and he seems to have three more pages, so I will allow the Opposition spokespersons more time as well. This is an important statement, and I think that the hon. Member wants to finish, but it is very unfair to exceed the time by what I reckon will be 50%.
Dan Tomlinson
Let me apologise profusely for not letting you know in advance, Madam Deputy Speaker. This is the first time I have done one of these statements, and I will not make the same mistake again. I am glad that the same courtesy will be afforded to the shadow Chancellor, and I look forward to hearing a full 15 minutes of remarks from him. I am sure that they will be entertaining for us all. [Interruption.] I will make progress now, and we will hear more from the shadow Chancellor.
This decision will mean that the amount of business rates paid by the pub sector as a whole will be lower in 2028-29 than it is today. This is Independent Venue Week, so it is particularly appropriate that our package will apply also to music venues. Many live music venues are valued as pubs, and many pubs are grassroots live music venues. It would not be right to seek to draw the line in a way that includes some and not others, and I thank MPs who have made constructive representations on this issue in recent weeks. In the meantime, we are pressing ahead with wider regulatory reforms, building on the new licensing policy framework in the Budget, and we are working with the sector to ensure that local authorities are using that to ease licensing decisions on the ground. As part of our ongoing licensing reforms, for home nation games in the later stages of the men’s football world cup this summer, pubs and other licensed venues will be able to open until 1 am or 2 am, depending on when the game starts. We will legislate to increase the number of temporary events notices for pubs and other hospitality venues, whether to help them screen world cup games, or for other community and cultural events.
This Government are committed to helping pubs build sustainable business models over the long term. In the spring we will consult on further loosening planning rules to benefit pubs, helping them to add new guest rooms or expand their main room without planning applications. We will also continue to engage with the sector to ensure that other retail leisure and hospitality premises have planning flexibility—
Mr Speaker
Order. This is not acceptable. I have to be quite honest, because the other Front Benchers need time to respond. When a statement is meant to take 10 minutes, that is meant to be 10 minutes. If Ministers tell me otherwise in advance, I am willing to work with them, but they cannot just carry on speaking. Minister, I take it that you are now coming to the last page of the statement, not the middle pages—[Interruption.] No, I want you to bring it to an end, and quickly.
Dan Tomlinson
May I apologise, Mr Speaker, for not letting you know in advance that the statement would be running over 10 minutes?
Mr Speaker
Can I just ask, gently, have you not been advised that this is meant to be 10 minutes? Departments have people who are meant to advise Ministers on how long they have got. How on earth have you got a speech that is longer? It could be 20 minutes. It is unfair to the Members present, and there is other business. Please, this House should be shown the respect it deserves, and unfortunately we are not getting it. I am here to protect Members, not allow Ministers to take advantage.
Dan Tomlinson
Mr Speaker, I will wrap up very quickly, and I apologise again.
This Government also understand that things are not easy out there. Today’s announcement is about additional support for pubs, but we understand that this is a tough time for other businesses on the high street. We have already taken significant steps to acknowledge that and support businesses, including £4.3 billion of business rates support in the Budget. Over the past decade, consumers have changed their habits and are increasingly working from home and shopping online, and these trends continue to make it harder for high street businesses. I am therefore announcing today that later this year the Government will bring forward a high streets strategy to reinvigorate our communities. We will work with businesses and representative bodies to bring that strategy together. It will be a cross-Government strategy, and we will be looking at what more the Government can do to support our high streets.
To conclude, this Government have already started the work of reforming our business rates system, and any potential changes to business rates will be considered at the Budget in the usual way. Labour Members have the right economic plan for Britain and will back our high streets and our pubs every step of the way.
Sir Mel Stride
That is much appreciated, Mr Speaker.
Mr Speaker, was that it? After all this time, and weeks of telling our local pubs that help was on the way, this is all they get—a temporary sticking plaster that will only delay the pain for a few, while thousands of businesses despair as their bills skyrocket. The Labour party manifesto promised to completely replace the business rates system. Labour Members said that they would create a system that levels the playing field for our high streets and supports entrepreneurship and investment. Well, we are waiting.
So far, what we have seen is the exact opposite of what our local businesses were promised, with business rates soaring across the board. Despite the temporary relief announced today, pubs will still end up, in time, with bills more than 70% higher than they are today. The Federation of Small Businesses has calculated that the business rates of a typical medium-sized shop or restaurant with a rateable value of around £50,000 will increase by 71% over the coming years. For hotels, it will be over 100%.
Ministers expect those businesses to be grateful for some temporary relief, tweaks to multipliers and changes to licensing, but the Conservatives have been clear: support must be permanent. We have to cut business rates for our high streets to give certainty to local businesses. Measures must be far wider than those that the Government have announced today, applying not just to pubs but to the whole of the retail, hospitality and leisure sectors, which bring life to our high streets and town centres. We would not just introduce temporary reductions in rates, but completely abolish business rates for thousands of pubs, shops and restaurants across our country.
These huge tax rises introduced by this Government are a choice, but it does not have to be this way. The Government have chosen to increase spending by vast amounts, including on the benefits bill, with a benefits giveaway of over £3 billion at the Budget to abolish the two-child cap. These choices are why bills are going up, businesses are going under, jobs are being lost and our high streets are being hollowed out.
Let us not forget that this is not an isolated issue. Businesses are having to shoulder not just business rates rises, but a long list of other burdens that are being piled on by a Government who simply do not understand how businesses work. Many of those facing the highest increases in their business rates were among the worst impacted by the Chancellor’s jobs tax. They have already seen their business rates go up by as much as 140% last year, and they face yet more costs and red tape from the Government’s employment rights legislation. Analysis by UKHospitality suggests that, on average, as many as six hospitality venues could close every single day this year. That is a tragedy for our high streets and our communities. It is also a tragedy for our young people, many of whom look for their first job in the local pub or coffee shop, and who will find those jobs simply do not exist any more.
I ask the Minister, where is the help for the wider retail, hospitality and leisure sectors? Does what has been announced today include gastropubs, pubs with hotel rooms, bars, nightclubs and private clubs? Why are the Government happy to stand by and watch while businesses close and jobs are lost? When will the guidance be published for businesses, so that they know whether they will be eligible for this further relief and what their bills will be over the coming year? Why did Ministers not come forward with this relief for pubs at the time of the Budget, when they knew the level of increases that many businesses were facing? No new information has been provided between the Budget being announced and this statement. Can the Minister confirm that because this relief was not accounted for at the Budget, today’s announcements will need to be paid for through yet more borrowing?
The Government have proved today that either they do not understand the damage that they are doing or they do not care. Today’s announcement is far too little, far too late.
Mr Speaker
I appreciate that, but when Madam Deputy Speaker is in the Chair, I expect her to be given the same respect, so that when she says that time is up, you do accept that ruling. She felt that you were not stopping in time. I do not want to get into it now, but I will be speaking to the Chief Whip later.
Dan Tomlinson
It is just not credible for the shadow Chancellor to say that he would scrap business rates. What did the Conservatives do over the 14 years that they were in power? They kept business rates in place, they did not reform the system and, year after year, they introduced temporary reliefs that did not work or last. Some 7,000 pubs closed under their watch, in communities up and down the country, and they expect this House to believe that they were just getting around to it. Well, we do not believe that and we will not stand for it. Instead, this Labour Government will get on with the work of ensuring that we can get our public finances in order, getting borrowing down and continuing to support businesses, as far as we reasonably can, with our £4.3 billion of support.
The right hon. Gentleman asked about the guidance. That guidance will be published today—I hope it has been published already, but if not it will come very soon. Bills will be landing in the inboxes and on the doormats of businesses across the country in the coming weeks, and will reflect the changes that have been announced today. Yes, this will be scored in the usual way at the Budget. He talks about borrowing, but his plans to scrap business rates entirely, funded by made-up savings in other parts of public spending, would mean an increase in borrowing of £30 billion or so, which we could not afford.
The Labour Government have set out significant plans today to support pubs and those businesses that are the heart of our high streets that have been affected by the particular way that they are valued. As I said in my statement, pub business rates valuations are not the same as those for the rest of hospitality: pubs are valued on their takings, whereas other hospitality businesses are valued on their bricks and mortar. Industry bodies have highlighted concerns about how the costs are accounted for in this methodology. The Government want to look at that more closely, which is why we are launching the review and have come forward with this significant package of support for pubs today.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
I welcome the support for music venues as well as pubs in my constituency. I also welcome the Minister’s engagement and willingness to speak to the Select Committee and to be questioned by us. I am sure, Mr Speaker, you would agree that it would increase the Minister’s favour in your eyes were he to do that with dispatch and not leave it for too many weeks, so I thank the Minister for his engagement on that.
On the wider issues of business rates, changes have been announced, but will the Minister outline the timeframe within which we will see a significant change? It was a Labour manifesto commitment to change business rates, but it will take time because of the valuation procedure. Does he propose to change that wholesale, and in what timeframe? Businesses of all types, including pubs, need certainty most of all, so that they know the trajectory in good time and can plan.
Dan Tomlinson
The review of the methodology for pubs that we have announced today will be conducted as rapidly as possible, and I hope that it will conclude this year. We also want to look closely at the methodology used to value hotels, which is similar but not quite the same as that used for pubs. I am sure we will get into that in Committee in due course. We want to ensure that those reviews about the changes to the methodology conclude in good time for the next revaluation, which is set to come into operation in 2029. My hon. Friend asks about the Government’s ambition to rebalance the system. As I outlined, last year’s Budget introduced a significant rebalancing, with the largest businesses having a tax rate multiplier that is 33% higher than that of typical businesses on the high street. I look forward to continuing to engage with hon. Members and businesses on business rates in the run up to the Budget in the usual way.
Daisy Cooper (St Albans) (LD)
If the Government are serious about saving the high street, then these measures can only be the start. Since the Government’s first Budget, we Liberal Democrats have been warning that high streets were at risk if the Government did not make the various changes that they have made over the past 18 months.
A number of questions arise from today’s statement. There are 11 pubs in my constituency, not all of which could be described as large, that have a rateable value of more than £100,000 because of the ridiculous valuation system, and they will still see their rates bills go up. There will be such pubs across the country, but is it correct that they will get only half of the percentage relief? Pubs can already have 50 temporary event notices a year, so extending that is simply a soundbite solution without a problem.
I am glad that the Government are looking at hotels, but what is the timeframe? The Samuel Ryder hotel in my constituency tells me that its bill is going up by 157% in the first year alone, and it will not be the only such hotel. Will the new formula for hotels be in place in April, or will they be left in limbo?
The statement still offers nothing for the rest of the retail, hospitality and leisure sectors—the restaurants, soft play centres and high street shops that made business, investment and hiring decisions based on the expectation of the full 20p discount. I welcome the announcement of a high street strategy, which we Liberal Democrats will engage constructively with, but will the Minister start now by heeding our calls to direct the Competition and Markets Authority to look at the energy market, which is blocking hospitality businesses and other sectors from getting the best energy deals? Will he also look at our fully funded proposal to slash VAT until April 2027, to give our high streets a boost?
Over the past few weeks and months, getting answers and data from the Government has been like getting blood from a stone. Just 90 minutes ago, I asked the Minister if he would tell us what he knew and when; he said he would, but he has not.
Finally, on the methodology for pubs, the use of fair maintainable trade—turnover—has long had its day, but may I urge the Minister to allow for parliamentary scrutiny? None of the current legislation relating to pubs or business rates allows for any scrutiny in this House or the other place. I asked the Government about the valuation methodology back in July 2024; it was one of my first written questions after the general election, but it has taken 18 months for the Government to listen. Will they please allow this House to scrutinise their plans so that we can get a long-term fix to save our pubs?
Dan Tomlinson
The 15% reduction will apply to all pubs. As the hon. Member knows, there are different caps for pubs depending on their size, but if bills had been frozen, no bill would have fallen next year. Instead, because we have decided to apply the 15% reduction, around 75% of pubs will see their bills either stay the same or fall. I acknowledge what she says about the very largest pubs, but we will still significantly reduce the increase that they would have expected this year. Their bills will then be frozen in full in years two and three of the period before the revaluation review—I am glad that the hon. Member is able to welcome that review. Its results will be implemented for future revaluations.
The hon. Member mentioned temporary event notices. We are trying to implement the recommendations of the licensing review, which was carried out in conjunction with pubs and other businesses in the sector, so although she may think that changes such as these do not touch the sides or make a difference, pubs themselves told us that—in addition to ensuring that we could support them in the right way fiscally—such changes would be welcome. I hope that pubs that are able to make use of them will do so.
The hon. Member also asked about the 20p multiplier. She is right that we legislated for a reduction of up to 20p, but we have to see these things in the balance. The decision to reduce the multiplier by 5p came with a £900 million price tag; reducing it by the full 20p would cost significantly more. Taken in the round, our package of support has a lower tax rate within the system—a lower multiplier—but also steps in with caps to support businesses if they are experiencing increases in their values or having to adjust to the slow unwinding of the pandemic relief.
The hon. Member asked about VAT. All I will say—she will expect this—is that when the Liberal Democrats had the chance in government, they put VAT up; now, they seem to be calling for it to go down.
Finally, on the question of what I knew and when, as the VOA set out, Ministers were provided with details of the increases in the valuations. However, at that time, we did not foresee—I did not foresee—that after the changes in the rateable values that were published at the Budget, pubs and their representative bodies would want to withdraw their support for the independently and previously agreed methodology. Given that and the Government’s judgment that there are issues, to which the hon. Member has referred, we thought it was right to pause, review the methodology and ensure that it is fit for the future for pubs and hotels.
Several hon. Members rose—
Jim Dickson (Dartford) (Lab)
I thank the Minister for his statement. The pubs in my constituency, from the Growler Stop and Ivy Leaf in Dartford to the Bull in Stone and the Spring River in Ebbsfleet, are the heart of our community. Does the Minister agree that it is crucial that we find ways to protect them as places for people to come together and build communities, and that the package he has announced today—with its 15% reduction on the revalued bill and protection for the next three years—makes a big contribution to that goal?
Dan Tomlinson
I thank my hon. Friend for his question, and for his engagement on this matter on behalf of the businesses in his constituency. We are making a significant intervention for pubs because we understand the concerns that have been raised about the methodology. As we have heard from my hon. Friend, pubs play a central role in his community in Dartford, as they do elsewhere, and they are important to the health, life and vibrancy of high streets, towns and villages in constituencies across the country.
Dame Harriett Baldwin (West Worcestershire) (Con)
Putting up a sticker saying “No Labour MPs welcome here” is obviously a successful strategy if you want to get a change from the Treasury. However, what we have ended up with will lead to real complications on our high streets, because a pub that is helped by today’s announcement will be next door to a restaurant that serves alcohol and occasionally has music, which in turn will be next door to a music venue. Businesses on the high street will now be treated in a range of different ways, so why has the Minister chosen to single out pubs and music venues?
Dan Tomlinson
There is a significant overlap between the pub sector and live music venues. Many pubs serve as grassroots live music venues, with the result that they are often valued in a similar way for business rates purposes. We did not think it would be right to draw the line so tightly that some music venues, which happened to be valued as pubs, received the relief and others did not. We think this is a fair and reasonable way forward that reflects the reality on the ground.
Florence Eshalomi (Vauxhall and Camberwell Green) (Lab/Co-op)
I thank the Minister for this statement—it is welcome news, and many of the pubs in my constituency will welcome it. I received an email from the general manager of the Hampton by Hilton London Waterloo, who outlined that its business rates bill would increase by £296,000 next year and rise to £399,000 by year four. They want additional support, not just for the hospitality sector but for hotels. As the Minister knows, hotels contribute a lot to the local economy—they employ local people, their supply chain is local, and they house many of the people who come to visit our pubs, restaurants and other venues. Many of the hotels in my constituency house many MPs as well. Would the Minister be happy to visit one of those hotels along the south bank and have a discussion with its staff?
Dan Tomlinson
As a London MP, I do not get the joy of staying in a hotel in my hon. Friend’s constituency—instead, I get the joy of the Northern line on the route home. She asks an important question about hotels, which are valued in a different way from some other sectors. Their methodology is well established, but as with pubs, specific concerns have been raised, and the Government think it is right to review how hotels are valued for business rates purposes to ensure their valuations accurately reflect the market for those sectors. I intend to engage with hotel businesses and their representative groups on this important issue. Any future changes to business rates for hotels or other businesses will be considered in the usual way as part of the usual Budget processes.
John Glen (Salisbury) (Con)
Can I respectfully remind the Minister that when Jonathan Russell from the Valuation Office Agency came before the Select Committee, he was very clear that the impact of the rate rises was made known to the Treasury before the Budget? The VOA provided data drops over 12 months, which did not detail the rates for individual properties, but provided a clear overview at a central level and revealed that 5,000 pubs would see their rates double. It is just not credible for the Minister to say that the Treasury did not know what was going to happen, is it? It had a very clear view of the impact of the changes that it was imposing.
Dan Tomlinson
We were aware of the changes to rateable values that were going to be published at the Budget, which is why we came forward with a significant package of support to help businesses adjust to their new values. For example, yesterday, Waterstones came out to express its support for our changes to business rates, because the lower multipliers that we have put into the system will support its business. Businesses across the country are benefiting from those lower multipliers. As I have said, more than half are seeing their bills either flat or falling. We have also put in place significant transitional relief support, with caps this year, next year and the year after. That is because we were aware of the effect of the changes to valuation, although I was not aware of what would happen subsequently with the pubs and their views. I have engaged with them on the methodology, and because of that we are launching this review. We think it is right to look carefully at that methodology.
Samantha Niblett (South Derbyshire) (Lab)
Last Friday, I met Laura at the Malt in Aston-on-Trent. She started as a pot washer, went to university, worked the whole way through and is now a tenanted landlady. She shared the amount of hours she works, and she will welcome the review of the business rates methodology, not least because she feels that she works all the hours God sends and she was due to have to pay a lot more. Will the Treasury look at a couple of key bits of feedback that she gave me? One is about prices for alcohol in supermarkets. She could have longer licensing hours, but she cannot compete with people staying at home drinking. The other was about a cardboard tax. She has to pay for packaging for brewery deliveries, but she also has to pay local councils to pick up the packaging, so she would welcome something where the breweries reuse existing crates.
Dan Tomlinson
I thank my hon. Friend for her engagement on behalf of the businesses in her constituency. She raises some interesting issues on tax, regulation and licensing when it comes to pubs and hospitality. I do not want to pre-empt the work of the high street strategy, which will be a cross-Government effort with the Home Office, the Department for Business and Trade, the Ministry for Housing, Communities and Local Government and the Treasury working together, but we want to hear about these things from businesses on the ground. I look forward to engaging with Members of Parliament from all parties as we work on the strategy in the coming months.
Dan Tomlinson
That is a very good question, and it allows us to reflect on the fact that back in 2009, Nick Clegg, the former leader of the Liberal Democrats, said that we did not need to invest in nuclear power, because it would not come online until the mid-2020s. We are in the mid-2020s now, and we would have benefited from long-term investments in clean and green power, driving down energy bills for consumers and for businesses across the country. We are now taking the long-term steps needed to invest in our energy security and bring bills down. That is incredibly important, and I hope that the steps we have taken on business rates and tax can be welcomed and that businesses in the hon. Member’s constituency and across the country can engage through the various sector bodies with the high street strategy that I have announced.
Lizzi Collinge (Morecambe and Lunesdale) (Lab)
I am sure that pubs and venues, such as the Alhambra in Morecambe, will welcome today’s announcement. The Minister might be aware of my letter to the Chancellor on the wider hospitality sector. On the high street, we know that consumer demand has changed, so businesses must change, too. Will the Minister tell me how the strategy will work with businesses and their representatives, such as the Morecambe business improvement district or Sedbergh economic partnership, to pivot businesses to meet the new market reality?
Dan Tomlinson
We are keen to hear from businesses, large and small, about what more the Government can do to support high streets. We want to engage on lots of issues affecting high streets, including planning, licensing and crime, and the direct investment that we can make in our communities. There is a lot to do, because we had 14 years under the Conservatives where our high streets were in decay and shops were shutting. We had 7,000 pubs closing and businesses struggling across the country. We know that there is work to do, and I look forward to working with my hon. Friend and other Members on it.
Sir Gavin Williamson (Stone, Great Wyrley and Penkridge) (Con)
After all the briefing in the newspapers, we were all hopeful of something more significant, but we have a somewhat flaccid statement from the Minister. The statement not only totally ignores the fact that some pubs are having to deal with a threefold increase in business rates, but it does nothing to help high street retailers. Will the Minister be coming back to the House to make another U-turn to help our high street retailers?
Jim McMahon (Oldham West, Chadderton and Royton) (Lab/Co-op)
The support package for pubs is welcome news. The Whitegate Inn in Chadderton saw its value increase from £194,000 to £330,000, and the Halfway House in Royton went from £20,000 to £57,000. The Minister knows that the pressures being felt by pubs are felt by the whole of hospitality. For instance, the Egyptian Room food hall in Oldham will jump from £142,000 to £175,000. It is all part of the same ecosystem. The Government could and should have included that wider package in the announcement today, but I urge the Treasury, even at the second attempt, to get it right and have a wider support package for the whole of hospitality.
Dan Tomlinson
We have implemented a wider support package for businesses across the country as a result of the changes to valuations coming in from 1 April, which unwind the valuations that were last looked at during the pandemic. Some 56% of properties will see their bills fall or stay the same in April. The easy thing to do would have been to kick the revaluation into the long grass and bury our head in the sand, but we wanted to make sure that businesses, particularly those that have seen their valuations fall, got the benefit of having up-to-date values post pandemic. Then, because we were aware of the changes coming down the track, we stepped in with £4.3 billion of support. It means that our net revenue from business rates this year will be broadly the same as was forecast before the Budget.
Sarah Olney (Richmond Park) (LD)
My constituency has a diverse and varied hospitality sector that supports lots of different communities, including those who do not go to pubs, such as parents of young children, people who do not drink, faith groups and—dare I say—people who do not want to watch the football. They have different needs. They want to go to cafés and to soft play centres. Why are the Government focusing this relief just on pubs? Can they not come up with a package that provides better business rates relief for those businesses that will still be struggling with the rates hike?
Dan Tomlinson
The hon. Member may not wish to watch the football, and that is fine—that is her decision—but she will be interested to know that we are consulting on whether we can extend the power over longer licensing hours to other events. She will have to let me know if there are other events that she would like to go and watch in a pub, and that can be part of the consultation.
I have already answered the specific question that the hon. Member raises in a way, but I am happy to repeat myself. It is the case that pubs are valued differently than other sectors on the high street. It is also the case that they have suffered in the past 14 years, with 7,000 pubs closing and significant pressures. More broadly, we have put in a package of support, as I have outlined already.
Ms Stella Creasy (Walthamstow) (Lab/Co-op)
I know that many of the businesses in the Walthamstow beer mile that are also music venues, as well as our brilliant Rose and Crown pub and the Wood Street Bear, will welcome what the Minister has said today, and rightly so, because pubs are important. I must take issue, however, with his metric that pubs are somehow the only cornerstone of community life in this country. I join colleagues in asking for further support for the hospitality industry, in particular those small independent venues, such as cafés, community centres and soft play centres. I am sure he does not want to be the Minister responsible for sending toddlers into pubs because the other places that their parents might take them to during the day have closed down. That would not be in anybody’s interest. May I make a plea for him to revisit his exclusion of these smaller, independent chains from the hospitality relief that he is talking about?
Dan Tomlinson
I would not want to be the Minister who caused that to happen. My hon. Friend has made a very good point, and, as the parent of a young child, I can say how much I value soft play, even though it is rather exhausting at times.
I have set out the specific reasons why we have taken this approach to pubs and live music venues, and I am glad that my hon. Friend welcomes that for the businesses in her constituency. More broadly, the Government did come forward with £4.3 billion of support, most of which is coming this year, and we will of course continue to engage with businesses and with parliamentarians on this important issue in the run-up to future Budgets.
Mark Pritchard (The Wrekin) (Con)
I am not sure whether the Minister has volunteered yet for “Strictly Come Dancing”. Today, from the Government of U-turns, we have seen a half turn or a reverse turn or a pivot, as it is known in ballroom dancing circles.
The Minister will recall that I invited him to join me on a pub crawl in Shropshire. So far he has not responded, and perhaps he should not respond, because for many pubs in Shropshire his statement was too little, too late, and they have already decided to close their doors. The independent pub chains have to make investment decisions, and they have put those off. As for the wider business review, may I appeal to the Minister—on behalf of the leisure sector, the retail sector and the hospitality sector—for the timetable to be brought forward from 2029 so that people can plan for their business futures?
Dan Tomlinson
The hon. Gentleman has asked about timing. We have announced this decision today in time for new bills to be issued from 1 April that reflect the changes the Government have proposed, because we have listened and because we have carried out that engagement in recent weeks. I am not sure that I will take the hon. Gentleman up on his offer of a pub crawl just yet, but I hope he will be able to welcome the support we have provided for the pubs that he raised with me in questions earlier this year.
Andy MacNae (Rossendale and Darwen) (Lab)
I thank the Minister for his positive engagement and his willingness to listen. It has made a big difference. His announcement will be a big relief to pubs throughout my constituency, and it shows that the Government are on their side. However, he has rightly recognised the need for more fundamental reform, so I welcome the announcement of the pub and hotel valuation methodology reviews and the high street strategy. Does he agree that this is an opportunity to think further about how the business rates system, and indeed the tax system as a whole, could be used to actively incentivise entrepreneurs to start and grow businesses and create jobs in the places where our communities need them most?
Dan Tomlinson
I thank my hon. Friend for his persistent and powerful engagement on these matters. He is an expert on all things high street and business rates, as I have come to know. Let me point him to the transforming business rates work that the Government have been publishing and advancing. One possibility that we are considering carefully and talking to businesses about is changing the business rates system from a slab system to a slice system. At present, if a business goes over an individual threshold, the new tax rate will then apply to the whole value of its property. Reform is always tricky, but we want to investigate whether changing to a slice system, whereby the tax rate would not involve those big stepped increases, would support investment by businesses on high streets in Rossendale and Darwen and across the country.
Lisa Smart (Hazel Grove) (LD)
William Robinson is the managing director of Robinsons Brewery, on my patch. His is the sixth generation running a brewer, a bottler and more than 250 pubs, inns and hotels across the north-west and north Wales, as well as an important bottling plant in Bredbury. William has written to tell me that the present system is destroying confidence, businesses and future investment, and therefore jobs. Does the Minister accept that repeated changes such as moving from the removal of reliefs to this package, including frozen bills and a temporary 15% discount, have created huge uncertainty and anxiety for pubs as they are making important investment and staffing decisions?
Dan Tomlinson
There is a big picture that we need to move to with business rates: making sure that, permanently, we have differential treatment for retail, hospitality and leisure businesses and those with higher value, particularly the large online warehouses that are causing the economic rebalancing that we do not really want to see and that is harming our high streets. The Government set out the reforms in the Budget in respect of the 5p reduction in the multiplier. As I have explained to Members, that is a transfer of nearly £1 billion in tax away from the high street—less tax—towards the larger online giants. I want to continue to engage on all tax matters that affect the high street in the run-up to the next Budget, and decisions will, of course, be made in the usual way.
Mr Clive Betts (Sheffield South East) (Lab)
I welcome the changes that the Minister is introducing for pubs and music venues. Can he assure me that the changes for music venues will apply to Sheffield arena, which currently, under the proposal, is being treated like an Amazon warehouse? Will he also look at an issue I wrote to him about? Handsworth Junior Sporting Club, a small local voluntary sports club in my constituency, is faced with a 60% increase in business rates. Surely that cannot be right. It needs to be looked at again.
Dan Tomlinson
As I have said, some live music venues are valued in a similar way to pubs, and will therefore be included in the relief. We think it fairest to provide the same level of relief to all music venues. The detail will be set out for the business in his constituency and others to see in the guidance, which I hope, if it has not already been published, will be published at some point today.
Dave Doogan (Angus and Perthshire Glens) (SNP)
It does not say “English Business Rates” up there on the annunciator, so I assume the Minister can confirm that the budget—the departmental expenditure limit—for the Ministry of Housing, Communities and Local Government will increase with the new money, which will mean Barnett consequentials for the devolved nations. What will the quantum of that be, and when will it be delivered?
Dan Tomlinson
The Barnett consequentials of this decision will be set out in the usual way and through the usual process.
Jenny Riddell-Carpenter (Suffolk Coastal) (Lab)
I thank the Minister for his statement, and I give my personal thanks to the Members on both sides of the House who have been advocating very strongly with him, including my hon. Friends the Members for Redditch (Chris Bloore), for Gower (Tonia Antoniazzi) and for Isle of Wight West (Mr Quigley). I also thank the businesses and, in particular, the pubs in my constituency: the Anchor at Walberswick, the Froize Inn, Deben Inns, and many, many more. I welcome today’s announcement, but we can do more and go further, including in the strategy, to look at lowering VAT for hospitality and lowering the alcohol duty, which could perhaps be offset by a higher alcohol duty in supermarkets.
Dan Tomlinson
This year, we are three years on from the changes in alcohol duty that the last Government implemented. I am not sure whether they adopted the same policy position, but we made it clear that it would be reviewed after three years. As part of that usual process, we will be reviewing the reforms that were made in 2023. If my hon. Friend or other Members want to write to me about changes that they think should be made, I will, of course, be happy to receive that correspondence.
Sarah Bool (South Northamptonshire) (Con)
Labour’s response to high street struggles is a strategy later this year to look at
“what more the Government can do to support our high streets.”
Well, I will save them the trouble. They should adopt the Conservatives’ plan, and scrap business rates on those high streets.
Dan Tomlinson
I am not sure what the question was, but the Government have set out a plan that is fair and reasonable and does not engage with the fantasy economics that Opposition Members keep peddling. They still have Liz Truss in their party, and it shows, because instead of having a sensible business rates policy that is affordable and works for the long term, they have made-up spending cuts and pretend that they could afford to abolish a tax altogether. We know that that will not work. We know that they will not deliver it, not least because they had 14 years to make changes of that magnitude and never even bothered.
Alex Sobel (Leeds Central and Headingley) (Lab/Co-op)
As co-chair of the all-party parliamentary group on music, in Independent Venue Week, I thank the Minister for extending the support to music venues. Will it include multi-use venues such as the City Varieties music hall in my constituency, where I attended the Holocaust memorial event on Sunday, and the Howard Assembly Room? Has the Minister considered the impact on music studios, which are also a core part of our creative industries?
Dan Tomlinson
I thank my hon. Friend for his support for the announcements made today. Because I do not know those specific independent venues, it would not be right for me to comment here, but he is welcome to check the guidance and to encourage the venues to check it online. We have made it clear that our policy intent is for pubs and music venues to be covered by these changes.
Adam Dance (Yeovil) (LD)
Many business representatives who met me after the Budget, including Shaun who runs Lanes hotel, will welcome the decision to review the way in which hotels are valued, but their biggest concern is about staying afloat today. A review will not make a difference to the bills that business owners such as Shaun are facing right now. What help will the Government offer rural hotels that are fighting to stay afloat, and does the Minister recognise the uncertainty that all this flip-flopping is creating for the hospitality sector?
Dan Tomlinson
We have set out a package of support for hotels and all other businesses. It is worth around £2 billion this year and £4 billion over the next three years. If there are hotels in the hon. Gentleman’s constituency that are facing significant increases in their rateable values this year, the increases in their bills will potentially be many multiples lower, because bill increases are capped at either £800 for small businesses or at 15% or 30% for the largest. It is really important that we distinguish—I am not saying that he is not doing so, because I am not sure of the detail—between the change in rateable values and the change in bills. That is important, and it sometimes gets lost in this discussion.
Chris Curtis (Milton Keynes North) (Lab)
I welcome the engagement from the Minister and today’s fantastic announcement, and invite him to come and have a pint at the Dolphin in my constituency, where I used to pull pints. Just down the road is William Cowley, a business that has been in my constituency since 1870. It produces the vellum on which much of the history of this nation has been written, including royal weddings, births and deaths; royal patents; freedoms of the city; and many Acts of Parliament. It is worried about its viability going forward, particularly after the revaluation of business rates. Will the Minister agree to meet me to have a discussion about how we can better support heritage businesses going forward?
Dan Tomlinson
One of my favourite things to do is to meet my hon. Friend to discuss a whole range of matters, so I will happily discuss this issue with him too. We have been in correspondence on this business already, so I hope that he passed on the messages from me about the need to check that there is a difference between the increase in the RV—the rateable value—and the increase in business rates bills. I hope to be in one of the fastest-growing cities in the country before long.
Mike Wood (Kingswinford and South Staffordshire) (Con)
This U-turn delivers some much-needed temporary relief for a lot of pubs, but it does not deliver the permanently lower bills that the Prime Minister promised. It also does nothing at all for the other hospitality firms in our constituencies—the cafés, restaurants, clubs and guest houses that are facing crippling rate rises because of this Government’s choices. Mr Speaker, is it not a sign of the incompetence of this Government that they cannot even get their U-turns right?
Dan Tomlinson
I do not think that was a question for me. It was a question for you, Mr Speaker.
Alex McIntyre (Gloucester) (Lab)
I note that Reform Members have already made it to the pub ahead of the statement, perhaps to celebrate the latest defection from the Conservative party, but I thank the Minister for today’s statement. Since I got elected last year, I have been running a campaign to open up our empty shops in Gloucester and show that we are open for business. May I ask him to expedite the high street strategy to make sure that we are capitalising on the fantastic opportunities in my city to turbocharge regional growth in my area and make sure that everyone can be proud of their high street?
Dan Tomlinson
I really look forward to working with my hon. Friend on important matters such as the high street strategy, and I hope that he has been in conversation with his local authority and businesses about some of the other measures that the Government are introducing and the issues that are important to him. High street rental auctions have real potential to be powerful in forcing shops that are being left vacant back into use. The introduction of the community right to buy should also be an effective change, and I hope that we will be able to see it implemented in his constituency and across the country.
Layla Moran (Oxford West and Abingdon) (LD)
Can the Minister understand, from the point of view of a small independent retailer, that the way that this announcement has been done—with the package coming forward late in the day—has led to a perception of unfairness? I was contacted by one owner, who pointed out that her bills have gone up by over £500 a month. She compares herself with Harrods and Selfridges, whose bills have gone down. Although she is pleased that local pubs and hospitality have got some help, her business sits alongside them and is part of the same community. What does the Minister have to say to that independent retailer, who is part of the backbone of our economy? When is the help coming for her business?
Dan Tomlinson
I do not know the details of that individual business owner and by how much her rateable value has increased, but we have implemented the permanently lower multipliers. They are now 33% lower than the tax rate that is paid by the online giants. That is a big change to the system that this Government have delivered, and which previous Governments ducked time and again. We have implemented our transitional relief caps this year, capping increases at £800 or at 15% or 30% for the largest businesses. We will continue to engage with businesses on what more we can do on a whole range of issues.
Mr Jonathan Brash (Hartlepool) (Lab)
Of course this package of support for pubs and music venues is most welcome, and I know it will be welcomed in Hartlepool, but I have been contacted by numerous businesses, including the Marine hotel in Seaton Carew, whose business rates will basically double this year. Hartlepool is a town of entrepreneurs and innovators, but they cannot afford that. Will the Minister look again at the wider support package that we could put in place for hospitality?
Dan Tomlinson
I would be happy to have a further conversation with my hon. Friend about this issue. It is really important that no hotel will see its business rates bill go up by 100% this year. It may be that the Marine hotel has seen a really significant increase in its rateable value, and we will review the methodology because of the large increases. We are aware of those, and we want to work on this issue with the hotel industry. It sounds like the business is probably one of the larger ones, so its increase will be capped at 30%. If it is a smaller business, the increase may be capped at 15%. That is the difference that this Government are making. If it is a business receiving RHL relief, it would have had that relief removed overnight under the previous Government, with a 300% increase in rateable values for businesses in 2025.
Martin Vickers (Brigg and Immingham) (Con)
If the Minister were to visit my constituency and come with me to the George Inn in Barton-upon-Humber, we would go inside and he would immediately recognise it as a typical English pub, yet it is also a hotel—the last hotel in the town. Could the Minister reassure the proprietor at the George? Will he receive early relief, or will he have to wait for yet another review?
Dan Tomlinson
The definition of “pubs” that is used for the changes that have been announced today is the same one that was used when the previous Government implemented a relief. I believe that that was in 2017, so it is a long-standing definition. I encourage the hon. Member to find that on the gov.uk website and send it to the relevant business. I do not know the precise details of the pub that he mentions, but we are sticking with the long-standing definition.
Andrew Pakes (Peterborough) (Lab)
We in Peterborough are fond of a pint, so I thank the Minister and his team for their engagement today and in the months leading up to this decision. We are also proud of our independent beer festival, and we are home to Oakham Ales. Can the Minister reassure us that as he looks at the strategy for the high street and the rules on business rates, he will have due regard to the needs of the community sector—both the pubs that are going into community ownership, and the small businesses and others that provide communities on our high streets?
Dan Tomlinson
That is a really important point. There are many independent pubs up and down the country, as well as bigger chain pubs, and it is right that the support that the Government are bringing forward will support both. Around 75%—definitely above 70%—of independents and chains will receive support this year, ensuring that their bills are either flat or falling. We want to make sure that we are protecting both the independents and the chains.
Sammy Wilson (East Antrim) (DUP)
I welcome the statement. It is a pity that it does not include hotels and restaurants, because the hospitality sector in Northern Ireland is under massive pressure due to taxes and the regulations that have been imposed. The Minister has confirmed that this will be new money and therefore there will be a Barnett consequential. Can he indicate how much that will be? More importantly, can he ensure that the Sinn Féin Finance Minister spends the money for the purpose that was intended, rather than spending it for other purposes, which he has done in the past?
Dan Tomlinson
It is not for me to tell the devolved Administrations how to spend their money, but if the right hon. Gentleman writes to me, I will be happy to write back to him with the details of the consequentials following the decision set out today.
Chris Webb (Blackpool South) (Lab)
As chair of the all-party parliamentary group on hospitality and tourism, I thank the Minister for his constant engagement with me since the Budget, because I have been able to raise concerns directly with him from the industry, UKHospitality and others. This statement will be welcome for many pubs in Blackpool, including our small music venues, such as the Bootleg. You may want to visit it sometime, Mr Speaker, and I hope you get well soon. We know that the hospitality sector has been struggling. It is on life support after a decade of neglect from the previous Government, and it needs more support. Will the Minister continue to engage with me, the APPG and UKHospitality on what the high street strategy can do, so that we get it right this time?
Dan Tomlinson
My hon. Friend is a powerful and strong advocate both for the businesses in his constituency and for the hospitality sector more broadly. I thank him for our conversations; I think we spoke before Christmas as well as in recent weeks. I will of course continue to engage with him and the hospitality sector on tax issues, as is typical for a Tax Minister in the run-up to a Budget, but I also want to talk more about the broader support the Government can provide, working across Departments, as part of the high street strategy we have announced today.
Bradley Thomas (Bromsgrove) (Con)
This is another U-turn that does not go far enough, because as a result of the choices made by Labour, energy bills are up, taxes are up and confidence is down. That is corrosive, and it is having a particularly corrosive effect on cafés, restaurants, hotels and small retail outlets. Will the Minister announce broader support for those businesses to alleviate the pressure of business rates or, better still, scrap them once and for all?
Dan Tomlinson
Over and over again, Conservative Members profess to be paragons of fiscal virtue, yet stand up in this place and say they want to cut taxation, which in effect means more and more borrowing. We have in the past seen the problems caused by Conservative Governments who let borrowing run out of control, cause interest rates to surge for families in our constituencies, send our economy to the dogs and harm living standards. We will not stand for that—we will not make the mistakes they made—and we will come forward with proportionate changes that support businesses, but that make sure we can continue to keep our public finances on a sustainable path.
Rachael Maskell (York Central) (Lab/Co-op)
York is a difficult place in which to trade, and with two thirds of businesses being independents, many will not get the relief the Minister has announced today. I sent through a paper with a spreadsheet of every business in the business improvement district showing that this just is not meeting their needs of those businesses, which will close. Will the Minister look at that detail, and ensure that resilience and support are built in, because York has a very strong retail reputation, but it is about to be challenged unless more help comes its way?
Dan Tomlinson
I am always happy to look at and respond to the correspondence I receive from hon. Members. I am aware of the issue my hon. Friend raises, which she has been consistently raising in this House. We came forward at the Budget with a significant package of support, and many small and independent businesses are small enough not to pay business rates because we have the small business rates relief in place, and we are extending that relief to support businesses that could extend to a second premises.
Helen Morgan (North Shropshire) (LD)
I declare an interest in that my husband works for an independent wine merchant.
Today’s news will be very welcome for the many pubs in North Shropshire that have been pushed to the brink over recent years by national insurance contributions increases, high energy bills and now business rates. However, this will not help shops or hotels such as the lovely Pen-y-Dyffryn in my constituency, the rateable value of which has nearly quadrupled. Will the Minister outline the timeline for his review of hotels in particular, and what other help can be given to retail and hospitality businesses?
Dan Tomlinson
We want to work with the hotel sector on the review I have announced today. We will make sure it reports in time to be implemented by the Valuation Office Agency by the date of the next revaluation. For hotels at the very far end of the distribution of changes in rateable value—with an increase that large, I believe the one the hon. Member mentioned is—that is precisely why we have implemented the support we have. If it is worth less than £100,000, its increase will be capped at 15% this year; if it is worth more, its increase will be capped at 30%. We are aware that that is still an increase, but it is significantly less than it would have been if we had not stepped in to provide that support.
Catherine Atkinson (Derby North) (Lab)
It is understandable that covid-era business rates support needs to come to an end, and the 15% cap on increases for most hospitality businesses is a really important protection. I particularly welcome the Government’s acknowledgment of the central role that pubs—such as the Paddock in Chaddesden, the White Swan in Littleover and so many more across Derby—play in our communities. Will the Government continue to listen to and work with pubs, so that we can ensure they have certainty for the long term?
Dan Tomlinson
Yes, we will continue to work with pubs, because we do value them. I want to be clear, however, that we value all of the businesses on the high street. We value our hospitality businesses, our retail businesses and those that work in leisure and soft play, which I believe was mentioned earlier. All the different businesses that provide life and vibrancy on our high streets are important. I have set out the particular challenges of the rateable value methodology for pubs and the big challenges they have faced over the last 14 years, with 7,000 closing, but we want to make sure we continue to do all we can to support high streets in my hon. Friend’s constituency and across the country.
Ben Lake (Ceredigion Preseli) (PC)
Dozens of small businesses across Ceredigion and north Pembrokeshire will have listened to the Minister’s statement with interest. Could he please reassure me that the consequential funding that he has confirmed will go to Welsh Government will be determined and communicated in time—by 1 April—to allow the Welsh Government to allocate additional support to those small businesses?
Dan Tomlinson
I am sure that the consequentials and their implications will be set out as soon as is practically possible.
Steve Race (Exeter) (Lab)
As I think you know, Mr Speaker, Exeter and Devon have some of the finest pubs, independent breweries and live music venues in the country. I thank Exeter Brewery and the Exeter Phoenix arts venue for their representations to me on these issues. I am pleased that, on top of the support in the Budget, pubs will get an additional 15% off, and that will apply to music venues as well, which is very welcome. Does the Minister agree with me that the £4.3 billion of support in the Budget, and the support today, stand in stark contrast to the record of 7,000 pubs closing under the previous Government?
Dan Tomlinson
I very much agree with my hon. Friend. What happened in the past is in stark contrast to the reform of our business rates system under our Government. We have set out long-term differences in the multipliers—also known as the tax rates—faced by high-street businesses and those faced by the online giants and the largest businesses. Typical businesses on his high street will have a significantly lower tax rate than that faced by the largest online warehouses. I understand that bills may still increase because of the winding down of pandemic relief and the increase in rateable values, but that underlying reform of the system is there, and it is there for good.
Monica Harding (Esher and Walton) (LD)
Tom Duxberry has run Marney’s village inn, a brilliant and much-loved local in Weston Green, for 17 years. Its rateable value is set to rise from £20,000 to £50,000—a 175% increase—and he is facing rent rises; inflation on beer, wine products and energy; and customers with less money in their pocket. Did the Government not see his plight right from the get-go, and what more help can they give him with all those pressures?
Dan Tomlinson
Because of the interventions announced today, the total business rates bill for pubs will fall over the coming years. As the hon. Member mentions, we are giving individual pubs a 15% reduction on their new bills, and then a real-terms freeze for the next two years. That is a significant intervention because of the significant challenges that pubs have faced—7,000 pubs have closed—and the issues with their RV methodology.
Jack Abbott (Ipswich) (Lab/Co-op)
I welcome this really significant additional support for pubs and music venues, on top of the £4.3 billion given to the wider sector at the Budget. I thank the Minister for all the conversations that he has had with me over the last few weeks, and I also thank Dan and Ness from the Greyhound, who have engaged so positively and constructively with me. It is fair to say that the business rates rebound inherited from the previous Government led to a mixed picture across Ipswich, but the Greyhound was particularly unfortunate. Could the Minister lay out his thinking behind the review of this process?
Dan Tomlinson
I thank my hon. Friend for his advocacy on behalf of the pubs and businesses in his constituency. Concerns have been raised about the methodology. We have looked into that in recent weeks, and we think it is right to review it. That review will take place in the coming months. It will definitely report in time for the new revaluation, so that we can have a long-term, sustainable methodology for pubs, making sure that they are valued in the right way for the long term, from 2029 onwards.
Mr Adnan Hussain (Blackburn) (Ind)
The Minister’s statement will certainly be welcomed by many pub owners who have written to me in recent weeks, anxious about rising costs, but what about the rest of the high street? Small businesses are the heartbeat of Blackburn and the engine of our country. Already battered by online shopping and rising costs, they are being squeezed from every direction. Why are the Government making it harder for Blackburn’s independent shops to survive, instead of delivering the permanent cuts that our town centres need to flourish?
Dan Tomlinson
Around one in three businesses will continue to benefit from small business rates relief, and so will pay nothing at all. As for independent shops that are above the threshold and in the business rates system, many just above the threshold will be on the taper, and others will benefit from the support that was set out at the Budget.
Jacob Collier (Burton and Uttoxeter) (Lab)
I welcome support for pubs in Britain’s beer capital of Burton and Uttoxeter. I thank the Minister for his continued engagement with me on this issue; I know that we will continue to speak about measures that could be included in the future, such as draught relief. The Minister will remember that I stressed the importance of hospitality more widely, and of breathing life into our high streets, so I welcome the high-street strategy announcement. How can businesses feed directly into it, so that we hear from those affected?
Dan Tomlinson
My hon. Friend is a proud and strong champion of the businesses in his constituency—the brewers, pubs and all those in the hospitality industry. I am sure that businesses in his patch would do well to feed in via him, as he is such a good representative.
Dr Roz Savage (South Cotswolds) (LD)
There are many fine pubs in the South Cotswolds, such as the Old George Inn in South Cerney and the Rattlebone Inn in Sherston. For many of our small rural communities, these are the only freely available spaces where people—faith leaders and football fans alike—can meet, yet many pubs are really struggling. Although I welcome today’s statement, £1,650 per pub is better than a poke in the eye, but not by much. Would the Minister be kind enough to meet me to discuss how his Department could further support the pubs of the South Cotswolds? Given today’s run-ins with the Chair, I suggest the Trouble House near Tetbury as a suitable venue.
Dan Tomlinson
I hope that I will be out of trouble before too long. We will double the hospitality support fund, providing £10 million of funding over the next three years. That fund aims to help more than 1,000 pubs diversify their business model, improve efficiency and productivity in the sector, and support people who are furthest from the labour market in moving into jobs in hospitality.
Lewis Atkinson (Sunderland Central) (Lab)
I welcome the 15% off business rates for pubs in Sunderland. As we are a music city—live music is core to our identity and regeneration—I particularly welcome the steps that the Minister has announced for live music venues, and his engagement with me and the Music Venue Trust. Could he say a little bit about the methodology for music venues? I know that he will look at the pub methodology, but would he consider discussing the future methodology for music venues? We could perhaps do that at a gig at Independent, or over a pint at the Ship Isis afterwards.
Dan Tomlinson
I thank my hon. Friend for his representations on behalf of businesses in his constituency. The Government are clear that we will look at the pub and hotel methodologies specifically. I would be happy to have a conversation with him about issues for other sectors, but the Government will focus on pubs and hotels. However, I would be happy to meet, to see if I can make it up to his constituency.
Carla Lockhart (Upper Bann) (DUP)
Unfortunately, the Sinn Féin Finance Minister in Northern Ireland has not got the memo on the need to support our hospitality sector, and is pressing on with a rates revaluation that will see a hotel in my constituency experience a 267% rate rise. Will the Minister commit to sharing this Government’s hard learning about rates, and will he go further and reduce the VAT rate for hospitality as well?
Dan Tomlinson
The hon. Member is right that each devolved Government have full control over the structure and level of business rates in their part of the country. They set a business rates policy, retain all the revenues generated, and determine how they are spent.
Jonathan Davies (Mid Derbyshire) (Lab)
When we had an urgent question on business rates last week, I raised the issue of grassroots music venues, so I am pleased that the Minister confirmed today that there will be 15% off business rates for pubs and grassroots music venues. As he seeks to build on the permanently lower multipliers and the excess of £4 billion of support in the Budget with his high street strategy, can I encourage him to keep music and cultural venues front and centre of his thinking? The UK music industry generates more than £8 billion for the UK economy, and these venues are a platform for future talent.
Dan Tomlinson
I will continue to keep those important cultural and social assets in mind as we work on our policy for supporting businesses across the country.
Alison Bennett (Mid Sussex) (LD)
The Minister talks about the definition of a pub. In the village of Hurstpierpoint in my constituency, Morley’s Bistro has a very similar product offering to food-led pubs on the same high street. They are competing for the same customers, and they are, ideally, all employing young people and giving them their first job. How does the Minister justify this?
Dan Tomlinson
We are, in the usual way, using long-standing definitions set out in business rates guidance to define pubs, and similar venues to which the relief will apply.
Mr Luke Charters (York Outer) (Lab)
I thank Gary at the Marcia Inn in Bishopthorpe and Adam at the Wenlock Arms in Wheldrake for meeting me to discuss support for pubs. The Tories created a ticking time bomb on business rates, then walked away, like someone who spilled a pint and left us to mop it up. Does the Minister agree that this Government are determined to back legendary landlords in Britain, like Gary and Adam?
Dan Tomlinson
Very much so. We want to support legendary landlords. I have my own in my constituency, and I look forward to having a pint with them this weekend to discuss the changes that the Government have made.
Freddie van Mierlo (Henley and Thame) (LD)
When it comes to business rates, the Government have delivered a masterclass in giving with one hand and taking with the other, leaving pubs and hospitality businesses worse off, but businesses cannot be fooled. They are on top of their numbers, even if the Government are not. Will the Government consider again the Liberal Democrat proposal for an emergency 5% cut in VAT for hospitality, and can he give an answer that does not resort to political point scoring?
Josh Newbury (Cannock Chase) (Lab)
Yesterday, I visited the Beach Hut, a fantastic independent indoor play venue in my home village of Norton Canes. The owner, Joanne, told me how passionate she and her staff are, but they face particularly acute pressures; they have a relatively large footprint, and therefore higher business rates, but have to keep fees low for families. Indoor play faces a perfect storm of increasing costs, but it offers so much to children and their parents. As the Minister will be working on the high street strategy, will he meet me, people from Cannock Chase venues, and the Association of Indoor Play to discuss what support could be provided to the sector?
Dan Tomlinson
I would be happy to discuss that matter with my hon. Friend. Indoor play is a really valuable and growing part of our economy, but there are challenges. With more free childcare, it may be that fewer people are going in during the day, and I know that many indoor play centres have seen increases in their rateable values. We set out our proposals on business rates at the Budget to support these businesses with significant caps this year, next year and the year after.
Claire Young (Thornbury and Yate) (LD)
When I visited The Play Shed in Yate last year, the reduction in retail, hospitality and leisure relief was already costing it £12,000, even before the more recent changes. This package is welcome for pubs and music venues, but what will the Government do to help other leisure businesses in my constituency that are struggling with business rates?
Dan Tomlinson
We have changed the tax rates, the multipliers, within the system so that a typical high street business may now pay 38p in the pound and an online retail giant may pay 51p in the pound on their rateable values. That is a significant underlying reform to the tax system that is here for good.
Tom Hayes (Bournemouth East) (Lab)
Business rates are complicated, and this new methodology particularly so. Businesses were always going to be in touch with MPs, and in our democracy we were going to talk it through with the Government to get to a better place. Today’s announcement shows that our democracy works and that representation works. I thank the hospitality sector business owners in Bournemouth East who have constructively engaged with me to get to that better place. We also, in this House, need to put party politics aside and recognise that business owners put their hearts and souls, and their blood, sweat and tears, into building something better. We all need to commit to doing something better on their behalf. Will the Minister continue to engage with me, on behalf of all hospitality, so that we can get the very best deal for them, and not just now but for the future?
Dan Tomlinson
I thank my hon. Friend for his engagement, persistence and advocacy on behalf of the businesses in his constituency. I know that he has had many conversations with businesses in his constituency, and he has been able to feed them directly to me as the Minister with responsibility for tax. I am sure that we will continue to have such conversations in the months and years to come.
Gideon Amos (Taunton and Wellington) (LD)
The change in business rates for pubs will be welcomed by the Winchester Arms in Trull in my constituency, but a family hotel contacted me yesterday and the combined impact of Government changes in the Budget will, they expect, as they look to the year ahead, lead to a £250,000 loss next year. Will the Minister meet me, Somerset MPs and hoteliers to discuss how hotels can be helped through the reforms he is proposing?
Dan Tomlinson
Because of the concerns around the methodology to value hotels, today we have announced that we will review that methodology so that, in time for the next revaluation, hotels can have a methodology that more appropriately works for their sector. The hon. Gentleman is right to point out that hotels have seen some of the largest increases in their rateable values. Therefore, they will be some of the biggest beneficiaries from the caps we have put into the system this year.
Oral Answers to Questions
Dan Tomlinson Excerpts(4 days, 6 hours ago)
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The Exchequer Secretary to the Treasury (Dan Tomlinson)
There are a number of questions on this topic, and I am sure there will be more this afternoon when I make a statement to the House on a package of support in relation to business rates, with a particular focus on pubs. As previously announced, we are introducing a support package worth £4.3 billion to support rate payers who are seeing increases in their business rates.
Richard Foord
Joanna Watson runs the Elizabeth hotel and the Kingswood hotel in Sidmouth. She is essentially facing a 20% rise in her business rate costs. Joanna’s bills do not reflect what she earns; they stay high all year round, even though there are months like these in winter when income completely collapses. The Government legislated for a 20p reduction in the business rates multiplier for hospitality, and that created an expectation that it would be used. The Minister said that he will make a statement this afternoon, but will he also consider the plight of hotels such as those in Sidmouth?
Dan Tomlinson
We have considered the challenges that hospitality businesses and businesses on our high streets have been facing. That is why we put in place £4.3 billion of support at the Budget. We recognise that there are concerns as to how hotels are valued for business rates, and that will be one of the items I talk about in the statement later.
Paula Barker
I wish your leg a speedy recovery, Mr Speaker.
I recently visited the wonderful Aura salon in my constituency and spoke to the owners Victoria and Janet, who have owned the business for 24 years and are the hub of their local community. They have invested in and trained numerous young hair stylists but now their business rates and VAT are crippling them, meaning that they can no longer take on apprentices. Victoria and Janet told me that the VAT rate that they pay is unbalanced compared with other sectors that claim back VAT. Will the Minister please advise what can be done to help salons like Aura and others that are part of the Save our Salons campaign, and are there any plans for an affordable apprenticeship scheme in the hairdressing sector?
Dan Tomlinson
I thank my hon. Friend for the work that she is doing to champion salons and the beauty industry in her constituency and elsewhere. She will know that VAT is a broad-based tax; in fact, it is our third largest revenue raiser, raising £180 billion last year. That is vital revenue that pays for our public services. There are lots of issues in relation to VAT, including the differential treatment depending on how salons decide to set themselves up and pay their employees. Those are important issues, and we will consider tax changes in the usual way in the run-up to future Budgets.
Sir John Whittingdale
I recently visited the Ship Inn in Burnham-on-Crouch, which has a few hotel rooms, as well as Peaberries, a tea shop on the high street. Both are looking at existential threats as a result of business rates. Can the Minister say whether the package that he will announce later will benefit them as well?
Dan Tomlinson
I do not think that Mr Speaker would like me to pre-empt the announcements that will be made later, but the right hon. Member has given me the opportunity to reiterate that at the Budget we implemented for the first time differential rates of tax—differential multipliers—meaning that the largest businesses now pay 33% more than the smallest high street businesses. That is a big differential that was not there before but which now exists because of the big reforms that we made at the Budget.
Olly Glover
In my Oxfordshire constituency, pubs including the Fox Inn in Denchworth, the White Hart in Harwell and the Fox and Hounds in Uffington are vital to their village communities, yet they face significant business rate increases from April. Given that the chief executive of the Valuation Office Agency told the Treasury Committee that, ahead of the Budget, the VOA warned that over 5,000 pubs would see their business rates double, will the Minister tell the House why the Government decided to press on and create such uncertainty for our hospitality sector in the Budget?
Dan Tomlinson
The Government will have more to say a bit later today when it comes to pubs and the support that the Government can provide for them. We knew that the revaluations would be implemented from 1 April, and that is precisely why we came forward with a significant package of support for all businesses across the economy. We introduced significant reforms to lower the multipliers for businesses like the pubs that the hon. Member mentioned.
Abtisam Mohamed
Sheffield Central businesses continue to face disproportionately higher pressures, with ever-increasing running costs stacking up and a drop in footfall. Businesses like the Gamers Guide Café and the Dove and Rainbow pub tell me that they need much more to survive the dip in foot traffic, so will the Minister set out how he is reducing pressures on high street cafés and pubs, and will he consider targeted relief to ensure viability for hospitality businesses?
Dan Tomlinson
I thank my hon. Friend for her representations on behalf of businesses and constituents in Sheffield. One of the important things to note about the business rates system is that there are many smaller businesses on our high streets that pay no business rates at all. One in three businesses continue to benefit from small business rate relief and an additional 85,000 benefit from reduced bills as that tapers. At the Budget we announced an additional two years of small business rate relief for those businesses that expand into a second property. This will be helpful for small and independent businesses, and will support them to grow.
Marie Goldman
Chelmsford has a vibrant night-time economy. Just last Sunday, I spent the evening at a fabulous local music venue called Hot Box, right in the heart of my constituency. Venues such as Hot Box represent important cultural and social spaces for smaller cities like mine, but many are at risk due to recent Government changes to the business rates system. New analysis puts the average increase in the hospitality business rates bill in Chelmsford at nearly £23,000 over three years. For many, that is impossible to absorb. Another family-run business in Chelmsford that has been going for 25 years will see its monthly rates more than double from April. It says that it will simply have to close its doors if that goes ahead, resulting in 40 people losing their jobs. Will the Government implement the 20p discount that they have already legislated for and let all businesses in retail, leisure and hospitality get the support that they need?
Dan Tomlinson
I have got the idea, Mr Speaker!
The key thing to note here is that there is a significant difference between the change in the rateable value and the change in the business rates. This year, we have stepped in to cap the increases for bills at £800 for those coming into the system for the first time. For most high street businesses, the increase will be 15%, while the very largest will see increases of 30%. Those are the steps we have taken. When the Liberal Democrats were in government, they chose to increase VAT on businesses up and down the country.
Catherine West (Hornsey and Friern Barnet) (Lab)
I wish you a speedy recovery, Mr Speaker.
Will the Minister say something about music recording studios, such as the Church Studios, where Annie Lennox recorded “Sweet Dreams (Are Made of This)”? Could he give me a sweet dream this evening and tell me that my music recording studio is going to be fine?
Dan Tomlinson
I am very fond of my constituency neighbour, who has the privilege of sharing a part of Barnet with me. There will be news this afternoon—I am just trying to find my words, Mr Speaker.
Dan Tomlinson
I hope the microphone picked that up.
We will make further announcements this afternoon specifically focused on pubs, but I understand that there are businesses across the economy that will have seen increases in their rateable values since the pandemic. That is precisely why we have stepped in with our support package.
Valerie Vaz (Walsall and Bloxwich) (Lab)
Here’s another one: what assessment has the Minister made of the impact on really small independent high street bookshops? This is the National Year of Reading; we want them to stay open, not closed.
Dan Tomlinson
Many really small bookshops up and down the country will not pay any business rates at all because they will be in receipt of small business rate relief. Of course, there will be some that will have seen either their rateable value increase, or—because of the Government’s decision to slowly wind down the temporary pandemic support—an increase in their bills. We are capping those increases in this year and in subsequent years so that transition can be manageable for those businesses. Of course we want to support bookshops on our high streets; they are incredibly important, along with all the other high street retailers up and down the country.
James Wild (North West Norfolk) (Con)
The Chancellor promised hospitality firms that she would lower their taxes, but her business rate raid is hammering every town, village, city and high street. This is not just an attack on pubs; hotels, cafés, music venues and many more are being hit. It is two months since the Budget caused huge worry for these businesses, and we await details of this latest U-turn, but the key question is: does the Chancellor get it? Does she get that it is not just pubs but hospitality, leisure and retail businesses that need support because of her terrible choices?
Dan Tomlinson
Conservative Members do not get it, because when they were in government, they set out plans to remove the temporary pandemic rates relief overnight in 2025. That would have seen an increase of 300% in business rate bills overnight for businesses on the high street. We have taken a different, fairer and more proportional approach, phasing out the pandemic relief over a slower time period and extending it into this year.
Daisy Cooper (St Albans) (LD)
Thank you, Mr Speaker, and I wish you a speedy recovery.
We know that pubs have been badly hit by these business rates changes, but businesses right across retail, hospitality and leisure have made investment and hiring decisions based on the expectation raised by this Government that they would get a full 20p discount on their business rate multiplier. Those businesses—music venues, restaurants, soft play centres and hotels—are the high street shops that communities most love. Do Ministers accept that anything less than the full 20p discount for retail, hospitality and leisure will leave the three-to-five-year business plans of those high street businesses in total disarray?
Dan Tomlinson
We announced a 5p reduction in the multiplier on top of the 7p or thereabouts reduction that was taking place as a result of the revaluation more broadly. That is a £900 million transfer of underlying rates liability away from the smallest high street businesses towards the online giants and the largest properties. When the Liberal Democrats and the Conservatives had the chance, they kept the tax rates the same. We have introduced significant reform, and we started the work of that reform at the Budget. Of course we will continue our conversations in the months ahead.
Daisy Cooper
Businesses up and down the country know that the Government raised their expectations and then dashed them. This whole sorry saga has been an absolute shambles. The question remains: why were Ministers so blindsided, when the VOA has confirmed that it was providing data drops over a period of 12 months? Will Ministers use the opportunity in 90 minutes’ time to answer all the questions that Opposition MPs have asked and to explain what they knew and when?
Munira Wilson (Twickenham) (LD)
The Exchequer Secretary to the Treasury (Dan Tomlinson)
When the Liberal Democrats had the chance, what did they do? They put up VAT on hospitality businesses. Now they are coming up with ideas, without the plans to pay for them. They want to increase borrowing over and over again, rather than ensure that we support businesses in a fair and sustainable way over the years to come.
Preet Kaur Gill (Birmingham Edgbaston) (Lab/Co-op)
Peter Fortune (Bromley and Biggin Hill) (Con)
More than 80% of households in Bromley and Biggin Hill have at least one car or van—a figure significantly higher than the average in Greater London—so the decision to remove the 5p fuel duty reduction hits them particularly hard. This is the latest in a slew of measures against motorists, including increased congestion charges and the ultra low emission zone charge, which is really hitting them in the pocket. Why does the Labour party continue to use motorists as a cash cow?
Dan Tomlinson
We have extended the temporary 5p fuel duty cut until the end of August 2026, and rates will then gradually return to early 2022 levels. The planned increase in line with inflation will also not take place. That will save the average driver £49 next year, compared with previous plans.
Rachael Maskell (York Central) (Lab/Co-op)
While pubs may have a large lobby, we know that independents power our local economy. I have looked through the spreadsheets showing the business rates for our independent businesses after the relief has been applied. Businesses in my city will see an increase of up to 93% in their business rates. What engagement has the Minister had with small independents to ensure that they are safeguarded through the relief that he is about to announce?
Dan Tomlinson
It is important to note that there is a 40% relief in the system for smaller and independent businesses. It will be phased out over the coming years; we have put in transitional relief protection. As the Chancellor said earlier, that is reasonable. Members from across the House will agree that it would not be right to have temporary pandemic support still in place at the end of the decade.
Rupert Lowe (Great Yarmouth) (Ind)
I will not challenge you to a corridor race today, Mr Speaker, but good luck with your leg.
I wrote to the Chancellor on 8 January, with the support of 7,000 small businesses from across the spectrum—not just pubs. They are concerned about not only rate re-evaluations, and the vicious tax rises that they have had to suffer, but the cost of the Employment Rights Act 2025. When can the 7,001 of us expect a reply?
Dan Tomlinson
I regularly reply to letters and parliamentary questions from the hon. Member and those on both sides of the House.
Antonia Bance (Tipton and Wednesbury) (Lab)
There are many small and medium-sized enterprises in advanced manufacturing supply chains in my bit of the Black Country. Does the Chancellor agree that successfully implementing our industrial strategy is vital to securing the growth, through small businesses, that we need to get British industry back on track?
Edward Argar (Melton and Syston) (Con)
What does the Minister say to childminders in Melton and Syston who are concerned about potentially increased administrative burdens and cash-flow pressures, as a result of changes under Making Tax Digital for businesses with a turnover of at least £50,000? It is scrapping the blanket 10% wear and tear allowance, and replacing it with a requirement for line-by-line item accounting, with childminders having to pay up front and claim back later.
Dan Tomlinson
This is an important issue that is of concern to childminders. I have replied to correspondence on this topic from the right hon. Member, I think, and from others in this place. I would be happy to talk to Members about it. I think the change is proportionate and reasonable, and we have engaged closely with the sector to make sure that the burden will be proportionate for those who are affected by it.
Sarah Coombes (West Bromwich) (Lab)
Thanks to the policies of the Labour Treasury team, Sandwell will receive £1.5 million to smarten up our towns. Does the Chancellor agree that local people should have a say in how that funding is spent, and will she encourage people in Rowley, West Bromwich and Oldbury to fill in my survey about how we spend this Government cash?
Business Rates: Retail, Hospitality and Leisure
Dan Tomlinson Excerpts(1 week, 5 days ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Sir Mel Stride (Central Devon) (Con)
(Urgent Question): To ask the Chancellor of the Exchequer if she will make a statement on the planned changes to business rates for the retail, hospitality and leisure sectors.
The Exchequer Secretary to the Treasury (Dan Tomlinson)
Colleagues will have heard what the Prime Minister and the Chancellor have said on this matter in recent days. I will not add further comments on the specifics in responding to this urgent question. When there are further comments to be made, I am sure they will be made in the usual way.
At the Budget, the Government announced a comprehensive set of reforms to business rates. We have created a new, sustainable system with permanently lower multipliers for retail, hospitality and leisure businesses. Business rates are, in line with the usual timelines, revalued every three years, and new valuations that were set in train by the previous Government come into effect in April.
It was right to support businesses during covid, but the previous Government went into the election with plans to scrap the temporary support entirely in 2025. If they had won re-election, they would have removed that support overnight last April. If the Opposition had intended to extend the relief, why did they not say so and why was that not included in their forecast or projections?
We on this side of the House have chosen a different path: we extended the support at a lower rate in 2025-26 and are slowly unwinding it over the coming three years, with the help of £4.3 billion of transitional support. I think all Members can agree that it would not be sustainable for a £1.7 billion annual temporary covid tax relief to remain fully in place at the end of the decade. At the same time, our reforms—[Interruption.] I am glad someone is enjoying them. Our reforms to rebalance the underlying design of the business rates system towards high street businesses will be implemented in April.
The new, lower tax rates will be introduced for 750,000 RHL businesses, funded by a higher rate on the most valuable properties, including for the online giants. That is worth almost £1 billion and means that smaller high street businesses will have a tax rate that is 25% lower than businesses with the largest properties. That is being supported by a significant support package, as I said, worth £4.3 billion over the next three years. As a result, over half of ratepayers will see their bills flat or falling next year, and around a third of properties pay no business rates at all, as they receive 100% small business rate relief.
I look forward to supplementary questions from the shadow Chancellor, the right hon. Member for Central Devon (Sir Mel Stride), and other Members, and I look forward to seeing whether the shadow Chancellor can keep a straight face, given that he knows his Government never did enough for our high streets: 7,000 pubs closed over the 14 years the Conservatives were in power; shops were shuttered on high streets up and down the country; the council services that keep our high streets clean and vibrant were cut to the bone; investment was down; and the public suffered from the longest squeeze on living standards on record. That is the legacy for our communities—one that we are turning around.
Sir Mel Stride
That was a complete non-response. The Minister says he will make a statement in future in the usual way; we can only assume that that will be via the media, not this House.
Of all the excuses for a U-turn that we have heard from the Government, this one beggars belief. The Minister expects us to accept that the Government simply did not know what the impact of the changes would be when they announced them. That is astonishing. Why did they announce crippling rises in business rates without bothering to check who would be hit the hardest?
Worse still, we now know from the chief executive of the Valuation Office Agency, who appeared before the Treasury Committee last week, that Ministers were provided with the data on revaluations before the Budget. We are left with questions not only about whether the Government’s excuse is reasonable, but about whether it is indeed correct. Can the Minister clarify what specific information was given to Ministers on the level of increases that businesses would be facing, and when?
Businesses are now in a terrible limbo over what their bills will look like in the coming years. The Government have indicated that changes will be announced for pubs at least, but there has been no official statement, which is why we have had to drag the Minister to the House this afternoon, so will he answer the following additional questions?
Can the Minister at least make it clear which sectors will be in line for further support? Will it be just pubs? If so, why are the Government refusing to help businesses in the wider retail, hospitality and leisure sectors, some of which are seeing even higher rates increases? Will the new support be a temporary or permanent cut in bills, as we have called for? How much will it cost, and will it be funded by yet more Government borrowing? Will the Minister apologise now to the thousands of local businesses up and down our country that have been so sorely let down by this shambolic Labour Government?
Dan Tomlinson
The shadow Chancellor said that I was dragged to the House, but that is very much not the case; I am very happy to take questions from him and from Conservative and Government Members.
Mr Speaker
May I help the Minister a little bit? I did grant this urgent question. This discussion would not have happened if I had not done so. I am not quite sure that his statement and mine are compatible.
Dan Tomlinson
I fully respect your decision to grant an urgent question, Mr Speaker. It was—[Interruption.]
Mr Speaker
Order. I certainly do not need any help from Opposition Members.
Dan Tomlinson
It was the word “dragged” that I had some objection to. I did not mean to comment on your decision to grant the urgent question, Mr Speaker.
Let me answer some of the questions asked by the shadow Chancellor. The key thing is that we are implementing the revaluations that his Government set in train. Treasury Ministers holding a similar role to mine a good few years ago undertook the process for the revaluations that will be in place from April 2026. Those are set on property values from 2024.
Yes, there is an unwind from the pandemic, in terms of increases in businesses’ property values as a result of businesses recovering from the pandemic. We were aware of the impact of the valuation, and of the fact that the previous Government did not have any plans whatsoever to extend the temporary pandemic support. We extended it for one year, and over the course of the next three years we are phasing it out, with the support of Government decisions worth £4.3 billion, and our transitional relief scheme.
I will not comment on speculation, but the shadow Chancellor referred to borrowing. Over the course of this Parliament, we will see the fastest reduction in borrowing of any G7 economy. Borrowing is set to fall in every single year of the forecast because of the decisions that the Chancellor took at the Budget. We have doubled our headroom against our fiscal rules, and we are seeing a warm response from private sector investors and the markets as a result of the decisions that the Government have taken.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
Many pubs in my constituency are seeing eye-watering increases in business rates. We know from the Valuation Office Agency, which gave evidence to the Treasury Committee last week, that the formula used is the same formula that has been used for 20 years. This should have been no surprise, as the shadow Chancellor said, yet we learned in that meeting that more than 2,000 pubs have had their business rates doubled. This Government came in with a mission to transform business rates, and they came in part way through a valuation cycle. Aside from the question of what will happen to the hospitality sector, where are the plans for the reform of business rates in the medium to long term?
Dan Tomlinson
I thank my hon. Friend for her leadership of the Treasury Committee. At the Budget, we set out the first significant fundamental reform of the business rates system that we have ever seen. For the first time, there is a very significant divergence in the tax rate paid by businesses on our high streets and by the very largest businesses, including online giants. The tax rate is around 13p lower for high street businesses than it is for the largest businesses. That is a 25% reduction, which cost around £1 billion. It is a £1 billion reduction for businesses on the high street, paid for by higher taxes on those who can most afford it.
Daisy Cooper (St Albans) (LD)
These business rates changes will hammer high streets, and with the jobs tax on top, many businesses have already decided to shut up shop. Getting data out of the Government has been like getting blood from a stone; every question I am about to ask, I have asked before, but let me try again. Why did the Government set the expectation that they would reduce the business rates multiplier by the full 20p discount for retail, hospitality and leisure, and then not use the maximum power that they gave themselves to do that? Do they accept that lots of small businesses have made investment and hiring decisions based on the expectations that this Government set, and will they apologise to those businesses for raising their expectations and then dashing them? Can the Government finally tell us how many business premises have been brought into paying business rates for the first time?
Last Tuesday, we learned that that the Valuation Office Agency had sent the Treasury data drops regularly over the past 12 months. What did Ministers know, and when? The VOA also confirmed that it had told the Treasury that more than 5,000 pubs would see their business rates double, so how is it possible that Ministers did not know that this would happen? Finally, whatever the Government are considering, can they confirm that it will apply to all hospitality businesses and not just pubs, and will they consider our fully costed Liberal Democrat plan for an emergency VAT cut for hospitality?
Dan Tomlinson
On the point about 20p versus 5p, we legislated for a reduction in the multiplier of up to 20p for retail, hospitality and leisure businesses, but that did not set an expectation that we would go that far; it set the bounds within which the Government could choose to operate. As the first step in our significant reform to the business rates system, we chose to reduce the multiplier by 5p, which reduces the total taxes paid by RHL businesses by almost £1 billion and increases the tax take from the largest businesses by an equivalent amount.
The answers to many of the questions that hon. Members ask are very easy to find in the data published by the VOA. Detailed breakdowns of the change in the value of properties between the different revaluation periods are published on the Government’s website. I will not take—I will not say “lectures”—suggestions from Liberal Democrat Members on VAT, given that when they were in power, they and the Conservatives chose to whack up VAT, a decision that pushed up inflation and added to the cost of living for people up and down the country.
Liam Byrne (Birmingham Hodge Hill and Solihull North) (Lab)
The £4 billion package in the Budget is very welcome, but the manifesto commitment was to replace the business rates system, not tinker with it or subsidise it. Pubs alone will see bill increases of 4% this year. Alongside that, VAT thresholds are strangling hospitality businesses on the high street, and that is on top of a tax compliance bill of £25 billion for small business, not least because His Majesty’s Revenue and Customs does not answer 4 million phone calls a year. I repeat the question posed by my hon. Friend the Member for Hackney South and Shoreditch (Dame Meg Hillier), the Chair of the Treasury Committee: when will the Government table comprehensive, radical reform that meets the test of the manifesto commitment?
Dan Tomlinson
At the Budget, we published further updates on our broader work to transform the business rates system. There are things that we want to look at—for example, a switch from a slab system to a slice system, which should support and encourage investment. As was confirmed by the Chancellor at the Budget, we have already extended small business rate relief, so that businesses do not face a disincentive to expand from one premises to two premises, but there are more things that we want to look at that are in that consultation. Of course, we will continue to engage with businesses on our high streets up and down the country, and with businesses large and small, to see what more we can do to continue our work of reforming and improving the business rates system.
Sir Gavin Williamson (Stone, Great Wyrley and Penkridge) (Con)
Some of my publicans are facing a threefold increase in rates. They have seen the speculation that the Treasury has briefed out to the newspapers, but they are still waiting. They do not have long to wait before they have to pay these increased bills, though, so can the Minister give some indication of when there will be clarity—not just for publicans, but for retailers?
Dan Tomlinson
It is important to be clear that no pub will see their business rates bill go up by three times this year. [Interruption.] No, it is simply not the case. It is true that some businesses have seen significant increases in their valuations, but this year the Government are capping the increase in business rates bills at either £800 or 5%, 15% or 30%, depending on the size of the property. Yes, bills may be higher, and it could be by a large percentage if the rate is moving up by £800, but for the vast majority of businesses, the increase in their bills this year will be limited, due to the Government having intervened and provided more than £2 billion of support this year.
Cat Eccles (Stourbridge) (Lab)
I welcome noises from the Department about additional support for pubs, but this is not just about pubs; it is about all hospitality businesses, including music venues such as Claptrap the venue and Katie Fitzgerald’s in my constituency. They have been massively impacted by a perfect storm of new valuations by the Valuation Office Agency, the end of covid-related reliefs and rising energy costs. I also want to mention service-based industries, such as hair and beauty salons and indoor play centres. These businesses have limited opportunities to claim back VAT, as labour is their highest cost. When the Government consider additional support measures for hospitality, please can they ensure that all businesses are included?
Dan Tomlinson
Hospitality businesses are the cornerstone of our communities, providing life and vibrancy to high streets up and down the country. The Government are committed to continuing to support their growth and their success. We value the work that employees in that sector do—I believe that around 2 million people work in hospitality across the country—and the work of business owners who seek to grow and expand their hospitality businesses. Precisely because we value their work and the work of businesses on the high street, we fundamentally redesigned the transitional relief scheme, so that it takes the 40% reduction in bills as its jumping-off point. That reduction is a result of this Government’s decision to extend the pandemic-related relief. The previous Government had not costed or funded that, and they would have ended it overnight if they had won the general election in 2024.
Dame Harriett Baldwin (West Worcestershire) (Con)
The problem is that the November Red Book stated:
“The high street will benefit from permanently lower business rates for retail, hospitality and leisure”.
Businesses up and down the land think that was entirely misleading. We have had briefings to the newspapers that there will be a change, but the Minister is saying that that is not happening, and that change will be made through the normal processes, which I interpret to mean in the next spring statement. Those in businesses are lying awake at night, worried about these increases, so can the Minister tell them when relief will be on its way?
Dan Tomlinson
The changes at the Budget led to a reduction in the tax rate paid by businesses on the high street. That was a result of the reforms that this Government have brought in. We have been clear about the need to start the work to rebalance the business rates system to support our high streets. Because the pandemic relief is being unwound over the coming years—something that the previous Government would have done overnight in 2025, had they won the general election—and because of the increase in business rate values as we come out of the pandemic, some businesses are seeing increases in their bills. We have capped those increases significantly this year and over the coming three years, providing £4 billion of support. On the hon. Member’s point about updates being made in the usual way, it is of course possible for Ministers to make statements in the House.
Mr Toby Perkins (Chesterfield) (Lab)
My hon. Friend is absolutely right to say that the Opposition have no credibility on this issue. We know that had they won the election, either we would have seen these increases quicker, or the black hole would have been even bigger. None the less, it is true that many pubs are really concerned, and are under the impression that further help is coming. They are trying to make accounting decisions right now. Can he say any more about whether their bills will be exactly what they are expecting right now, or whether further help will come before April?
Dan Tomlinson
I am grateful to my hon. Friend for making the important point that the last Government had no plans to continue to extend the pandemic support. As for his other question, I will not comment today on the speculation. He and others can see the words that the Prime Minister and the Chancellor have said about this matter at the Dispatch Box and during various media interviews, and I have no more to say about it.
Bobby Dean (Carshalton and Wallington) (LD)
As has been mentioned, in its manifesto Labour committed itself to reforming the business rates system, and the Red Book for the Budget referred to
“permanently lower business rates for retail, hospitality and leisure”.
That will have given business owners the impression that their bills would be lower. The Government’s get-out about the rates being low, when they knew that transitional reliefs were being phased out and rateable values were rising substantially, is not cutting it with businesses that made plans accordingly. Last week, we on the Treasury Committee heard from the Valuation Office Agency that the Government had known for more than a year about the size of the increase in rateable values, so why has this backlash taken them by surprise?
Dan Tomlinson
As I have said, the Government were aware that a revaluation was taking place. That revaluation, which was initiated by the last Government, took account of property values in 2024, and will be in place from April this year. We were also aware—and Members in all parts of the House would probably agree on this—that by the end of the decade it would not be appropriate to retain the full pandemic relief almost 10 years after the height of the pandemic. In the round, as a result of those decisions, we came forward with a significant package of £4.3 billion of protection for businesses across the country—large and small, high street and non-high street—to help them adjust to the potential for higher bills that some are experiencing. Let me add that, as I said in my opening remarks, the business rates bills of about 50% of businesses are either flat or falling.
Rachael Maskell (York Central) (Lab/Co-op)
Pubs have a powerful lobby, unlike the independents on our high streets such as cafés and retail outlets. I have been poring over the spreadsheets showing the impacts that this will have on York. Some little retail outlets are seeing their business rates rise by 93%, and they simply do not have the resilience to deal with it. What will the Minister do for independents to ensure that they survive past March this year?
Dan Tomlinson
York high street, in my hon. Friend’s constituency, is a beautiful and wonderful place where there are many fantastic businesses. I worked there for a time. I know that Members in all parts of the House value the businesses that keep their high streets vibrant and thriving. We are taking steps, and we took steps in the Budget, to support high street businesses through our £4.3 billion of support, and we will continue to engage with Members and with businesses on the further steps that we can take to support them.
Paul Holmes (Hamble Valley) (Con)
The Minister is talking in numbers, but out there on the doorsteps and in the streets and high streets, I have met a café owner and a publican whose businesses are busier than ever—they are selling more drinks and more food—but whose top line is shrinking because of the decisions being made by this Government. One landlady was in tears as she spoke to me about whether she should carry on, directly because of this Government’s policies. What advice would the Minister give her?
Dan Tomlinson
I hope that when the hon. Member was conversing with businesses in his constituency, he explained that this year, if a pub has a rateable value of less than £100,000, the policy as set out in the Budget will have capped those increases at 15%. I think it important for Members to do all that they can to help business owners pick through the complexities of the business rates system. It is a complicated system: there are many different reliefs, and there is a difference between the tax rates that are paid, the relief that is applied and the rateable value of the property. Of course some businesses are seeing their rateable values increase as we unwind from the pandemic, but that is precisely why the Government included that package of support in the Budget.
Kim Johnson (Liverpool Riverside) (Lab)
The hospitality and leisure sector in Liverpool is one of the largest employers and contributes significantly to the local economy. However, it is facing significant challenges at the moment, with the average hospitality business facing an increase of more than £48,000 in business rates over the next three years—double the national average, and a serious threat to sustainability. That is compounded by a 20% VAT rate, which is one of the highest in Europe. By comparison, Germany has reinstated a rate of 7% to support its sector. Can the Minister explain what targeted support will be provided to safeguard jobs, and to prevent closures and redundancies, in the hospitality and leisure sector in Liverpool? Will he please come to Liverpool to speak to business owners?
Dan Tomlinson
When I am up at the Labour party conference, I like to enjoy the pubs and hospitality available in Liverpool. It is a fantastic and vibrant city, and I know that the constituencies and areas in the middle of the city have some of the highest numbers of pubs and hospitality businesses in the country. Like me, my hon. Friend really values those businesses, the work that business owners do and, of course, the work that their employees do—they can be quite tough and demanding jobs.
We want to support hospitality, which is why the Government redesigned the transitional relief scheme at the Budget so that it applies a 40% reduction as the baseline, rather than unwinding the support in full, as the previous Government would have done overnight. We also said at the Budget that we will appoint a retail, hospitality and leisure envoy, and I look forward to that announcement in due course.
Several hon. Members rose—
Monica Harding (Esher and Walton) (LD)
Perhaps the Prime Minister, on his much-heralded cost of living tour, might like to visit the pubs and cafés in my constituency of Esher and Walton, if they let him in. They are being squeezed to breaking point by this Government, while constituents watch their wallets because of tax rises. Hospitality venues are the lifeblood of my high street and create the jobs we need for young people. Will the Government act now by fully using business rates relief and introducing an emergency VAT cut for hospitality to protect jobs, pubs, restaurants and the lifeblood of my constituency?
Dan Tomlinson
One of the things that the Government are doing to support businesses up and down the country is bringing back economic stability. Under this Government, interest rates have been cut six times, which will reduce borrowing costs for businesses small and large, and we are doing all we can to boost living standards, so that people have more money in their pockets to spend in hospitality businesses. We have seen faster increases in wages in the first year of this Government than we did in the first 10 years under the Conservatives.
Chris Webb (Blackpool South) (Lab)
I find it a bit rich that the Conservatives are raising this issue, given that around 7,000 pubs and bars closed on their watch, which is felt in Blackpool and across the country. Will the Minister continue to engage with the hospitality sector, UKHospitality and small businesses to ensure that we get this right? Many are struggling after 14 years of Conservative government, and especially after covid. We need to support our high streets, which have been forgotten about for far too long.
Dan Tomlinson
I thank my hon. Friend for his engagement on this important issue, and for the work that he does on the all-party parliamentary group for hospitality and tourism. Yes, the Government will continue to engage with sector bodies such as UKHospitality on this and other matters that are important for the hospitality industry.
Mark Pritchard (The Wrekin) (Con)
The Minister does not have to defect to Reform to get a pint, and I am very happy to show him round the pubs in Shropshire’s villages and market towns. I will show him that pubs are not just about having non-alcoholic and alcoholic drinks; they are often at the very heart of village communities. Local charities, the women’s institute, pensioner groups and others meet there because the post office or the shop has closed. May I genuinely invite the Minister to get out of London—out of the beltway and out of the bubble—and come to Shropshire? He will not be allowed inside pubs, of course, but I can bring him a pint outside when the warmer weather comes. I appeal to him to join me in Shropshire and hear at first hand what pub landlords and owners have to say.
Dan Tomlinson
I do not know what the current Government position is on whether pubs are allowed to sell takeaway pints, but I hope that would be allowed in Shropshire if I were to visit. However, I have about 30 pubs in my north London constituency, and I have many conversations with publicans both locally and in my role as Exchequer Secretary.
Tonia Antoniazzi (Gower) (Lab)
I refer to my entry in the Register of Members’ Financial Interests and to my chairship of the all-party parliamentary beer group. Does the Minister accept that pubs are anchor employers on our high streets, and will he please ask the Chancellor to expedite a package of rates relief and duty reduction aimed specifically at sustaining these really important jobs in hospitality?
Dan Tomlinson
I strongly agree with my hon. Friend that pubs are important anchor institutions. I know that she cares deeply about the businesses in her constituency, and she is a strong representative for them. Under the previous Government, we saw more than one pub closing every single day—7,000 fewer pubs in our communities. This Government will do all we can to continue to support publicans and institutions that are the lifeblood of communities up and down the country.
Richard Tice (Boston and Skegness) (Reform)
There has been an absolutely shambolic, chaotic furore around these business rates since the Budget. When will the Minister do the right thing and confirm to the House exactly when we are going to get some clarity on these changes? Is he aware just how despairing businesses are in my constituency of Boston and Skegness and around the country because of the uncertainty and the increased costs? Is he also aware that pubs are reducing opening hours and employee hours? Will he do the decent thing and apologise?
Dan Tomlinson
I was not sure what the hon. Member was referring to when he said there was a “shambolic, chaotic furore”, but it was probably his own party, which would not be able to run anything in any brewery, let alone a whole country.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
The Minister says that it is the job of MPs to help publicans and hospitality businesses understand the system. I gently say to him that they do understand it. Their frustration comes not from not understanding the help that is available, but from the system they are working in. Several things can be true at once. It is true that there is a permanently lower rate and that there is a £4 billion package to soften the blow for those with increased business rates, but it is also true that, when that goes away, breweries such as Titanic Brewery in Stoke-on-Trent will have an overall business rates increase of 130%, with some of its venues seeing a 400% increase. Can the Minister set out what specific support they can look forward to in the next three years, or can he give them clarity on what they need to budget for, because as a result of these changes some pubs around the country will close, and we need to avoid that?
Dan Tomlinson
I totally agree with my hon. Friend that we need to avoid the situation we saw for 14 years, when 7,000 pubs closed under the Conservatives, with about 4,000 closing in the first five years when the Lib Dems were in coalition with them. This Government will do all we can to support pubs, hospitality businesses and our high streets, which is why we set out a really strong set of proposals at the Budget, as he mentioned, including £4.3 billion of support.
Sir Bernard Jenkin (Harwich and North Essex) (Con)
When is a U-turn not a U-turn? I would suggest it is when the Government realise that they have made a terrible mistake, brief that they will change the policy and then send a Minister to this House to explain that nothing is changing at all. Does the Minister realise how much despair people are feeling? This is not a problem about a transition; this is a fundamental flaw in the whole concept of business rates that hits the smallest businesses the hardest. We need our policy, which is to leave the transitional rates relief permanently in place until there is a new system that exempts smaller businesses from this punitive tax.
Dan Tomlinson
The Conservatives had 14 years to implement significant reforms to the business rates system. They could have changed the system with significant underlying reforms, meaning that the tax rate paid by high street businesses was lower than the tax rate paid by the largest businesses, but they did not. I do not think we can trust a word they say when it comes to reform of the business rates system. They did not take the opportunity when they had their chance. It is easy to say things, but the Government are getting on with the job of reforming and improving our business rates system.
Emma Lewell (South Shields) (Lab)
I thank my hon. Friend for his engagement so far on this issue. It will come as no surprise to him that we need a cut to VAT and the maximum 20p discount for business rates applied across hospitality, not just pubs, because nobody wants to drink in a pub surrounded by boarded-up cafés, restaurants and B&Bs. Can I urge the Government to act quickly and, as a gesture of their intent, withdraw the statutory instrument that enforces the much lower 5p business rate discount this April?
Dan Tomlinson
I thank my hon. Friend for her sustained and important engagement and advocacy on behalf of high street businesses in her constituency, from hospitality venues such as cafés and pubs to independent shops. She has explained to me really clearly the impact of various changes that previous Governments and this Government have announced on the businesses in her constituency. I will continue to engage with her and other strong advocates of the hospitality industry on this and other important issues that affect our high streets.
Sarah Olney (Richmond Park) (LD)
The Government have already imposed additional employment costs on our small businesses and those on our high streets. They are still struggling with sky-high energy costs that the Government have yet to alleviate, and now we have these massive increases in business rates. Is there anything at all that the Minister can say that will give hope to the small and medium businesses on our high streets that are wondering whether they can continue, or to our entrepreneurs who are wondering if they can get started?
Dan Tomlinson
The Government back small businesses and our high streets. We want to do all we can to continue to support businesses up and down the country. That is why we announced significant reforms to business rates at the Budget, making sure that we could have a permanently lower multiplier for high street businesses and providing significant support worth £4.3 billion over the coming three years.
Janet Daby (Lewisham East) (Lab)
Libraries and community centres are central to communities like mine in Lewisham East, and they make an excellent contribution to the local area. Can the Minister say whether there are any planned changes to their business rates and tell us how else they can be supported in our local community?
Dan Tomlinson
My hon. Friend is right to highlight the role that libraries and community centres in her constituency and across the country play in providing places for people to socialise, to learn new skills, and to grow and develop. I think of the libraries to which lots of parents in my constituency take their children in order to get their first books. The reforms to the business rates system that we set in place at the Budget will protect any businesses or premises that are seeing large increases in their rateable values, but I am always happy to have conversations with hon. Members on what other steps, more broadly, the Government could take to support important institutions such as those my hon. Friend raises.
Dame Karen Bradley (Staffordshire Moorlands) (Con)
We all look forward to whatever it is that the Government have decided to change here, but can I ask the Minister to look at two points? First, can he look at when appeals can be made to valuations? At the moment, businesses have to wait until 1 April, and that simply is not giving the sector any confidence. Secondly, can he look at wedding venues? They suffered enormously during covid and are likely, as things stand, not to benefit from any relief that he will announce in the next few weeks.
Dan Tomlinson
The process for businesses that are not satisfied with the valuation provided by the Valuation Office Agency is to go through the “check, challenge, appeal” process. In my role as the Minister with responsibility for His Majesty’s Revenue and Customs, I will of course be doing all I can to make sure that the performance of the VOA is as good as it can be to help businesses get through that process. That is very important, not least given that we are seeing a rebound in the values of many businesses across the country following the pandemic.
Kerry McCarthy (Bristol East) (Lab)
I hope the Minister will join me in congratulating Bristol East’s Lost and Grounded Brewers, which has just appeared on the list of the eight best breweries in Britain in The Times. He may recall that just before the Budget, I brought another Bristol East brewery, Left Handed Giant, to meet him and other Ministers at No. 11, where it made very clear the pressures facing the hospitality sector. Can he give me assurances that, as a first step, we need to sort out the revaluation shambles? Can he also ensure that the consideration of a differential rate of VAT, as we see in so many other countries on the continent, is also on the Treasury’s radar?
Dan Tomlinson
I join my hon. Friend in congratulating the brewery in her constituency. I know there is a vibrant small and independent brewery sector in Bristol, with lots of fantastic places where people can choose to have a drink if they so wish. Just the same as her, I want to make sure that this Government do what they can to continue to support businesses such as the one she mentions and those operating up and down the country. This Government are seeking to ensure that people have more money in their pockets so they can go out and spend it. That is why I am really glad that under the first year of this Labour Government, we saw faster increases in wages than we did in the whole first 10 years under the Conservatives.
Sir John Whittingdale (Maldon) (Con)
As well as pubs, hotels and restaurants, is the Minister aware that many grassroots music venues, some of which have never been liable for rates, now face demands for thousands of pounds? The Music Venue Trust has said that these are not bills but “closure notices”. Will he ensure that grassroots music venues are included in any relief he provides, and are recognised as critical creative infrastructure?
Dan Tomlinson
We considered before the Budget the matter of businesses being brought into business rates for the first time. We set out at the Budget the supporting small business relief scheme, so that businesses that are paying no business rates at the moment but which are coming into business rates for the first time will have their increases capped at £800.
Alex Sobel (Leeds Central and Headingley) (Lab/Co-op)
I refer to my entry in the Register of Members’ Financial Interests as the co-chair of the all-party parliamentary group on music. The vast majority of live performance venues have alcohol licences. Many are pubs, but the vast majority are not. Leeds Arena in my constituency is being dragged into the highest rate of business rates, alongside some large retailers. Without live performance venues, we will not have any future Ed Sheerans, Darcey Bussells, Idris Elbas or Simon Armitages bringing in the export income that the Treasury desperately needs. Is the Minister considering live performance venues, not just pubs, when he is thinking about the changes?
Dan Tomlinson
My hon. Friend is right to raise the importance of live performance venues. They not only support our economy directly, through people visiting the venues and enjoying a good night out and a good performance; they also support the local economy more broadly, with people travelling to and from, and choosing to go out for a meal before the event. He and I value the contribution they make to our national life and to our economy.
Christine Jardine (Edinburgh West) (LD)
Business rates in Scotland are, of course, devolved, but businesses, particularly in the hospitality, leisure and retail sectors, are not immune to the impact of these measures as they spread across the United Kingdom and undermine the economy. Has there been any effort to sit down with Scottish Government Ministers to discuss a national strategy on how we can help businesses throughout the United Kingdom?
Dan Tomlinson
The hon. Member is right that business rates policy is devolved. I am in conversation with the Governments in Scotland and Wales about a number of changes to taxation policy that were announced in the Budget, and I will of course be happy to continue those conversations. We need to ensure that we continue to support these vital businesses up and down the country, which is why the Chancellor set out the package of support at the Budget.
Tulip Siddiq (Hampstead and Highgate) (Lab)
Over 20,000 people, including the likes of James McAvoy and Benedict Cumberbatch, have rallied around to try to save the local cafés on Hampstead Heath. I recently spoke to one of the owners, Alfonso, who brought home to me the importance of having local cafés that are affordable and accessible. As a fellow north London MP, is the Minister going to join the campaign to save the local cafés on Hampstead Heath? Will he reassure my constituents that protecting small businesses is at the heart of Government policy?
Dan Tomlinson
If I get time and the parking permits in Camden allow it, I do like to drive down and have a walk in my hon. Friend’s constituency. I have not yet been made aware of that campaign, but I look forward to talking more with her about it. On a personal level, I will do all I can to get my tea and coffee from those establishments.
Stuart Anderson (South Shropshire) (Con)
I am speaking to loads of business owners across South Shropshire in the retail, hospitality and leisure sectors, who are telling me the polar opposite of what the Minister is saying from the Dispatch Box, showing that the Government are completely detached from reality. There is a U-turn coming on this policy, but many business owners are lying awake at night worrying about how they are going to get through this. Can the Government make that U-turn quickly?
Dan Tomlinson
It is worth pausing to note that while some businesses will see increases in their bills, more than half of rate payers’ bills will either remain flat or will fall in the next year. That, in part, is because of the support the Government have provided to businesses, as set out at the Budget.
Mary Kelly Foy (City of Durham) (Lab)
Hospitality and leisure businesses in the City of Durham are incredibly concerned about their future. Does the Minister agree that if we are truly to level the playing field between the high street and the online giants, it is time we show our much loved pubs, cafés, restaurants and hotels the same level of support that distribution warehouses, office blocks and supermarkets are receiving?
Dan Tomlinson
We are seeking to give even more support to those businesses than to the very largest ones. Under previous Governments, there would have been the same tax rate for those businesses, but, because of the changes we put forward at the Budget, the business rates multiplier for the smallest businesses on high streets in Durham and across the country is 25% lower than the tax rate paid by the largest businesses. This is the first significant, fundamental reform to the underlying tax rates in the business rates system in a very long time.
Sammy Wilson (East Antrim) (DUP)
Whether it is retail, hospitality or pubs, businesses right across the United Kingdom, especially small businesses, are failing. That is due in no small part to action by the Government—increased taxes, increased energy prices and increased regulation. Rates play a big part in that, too. Can the Minister assure us that if there is to be further additional money for support, it will be ringfenced and not given to the devolved Administration in Northern Ireland, where the Sinn Féin Minister has taken the money but spent it on something else?
Dan Tomlinson
The right hon. Gentleman raised the issue of small businesses. It is worth nothing that a third of properties pay no business rates at all, as they receive 100% small business rate relief, and that a further 85,000 will benefit from reduced bills as this support tapers away.
Steve Witherden (Montgomeryshire and Glyndŵr) (Lab)
Hospitality is the UK’s third largest employer; when the sector is hit, jobs are affected at scale. Pubs sit at the heart of the hospitality industry. In Montgomeryshire and Glyndŵr, we have 136 great pubs, employing more than 1,100 across the constituency, including the Eagles in Acrefair, where my wife used to work behind the bar, and the brilliant pub, the Hand, in Llanarmon Dyffryn Ceiriog. What steps is the Minister taking to support jobs in the hospitality sector?
Dan Tomlinson
I must say, I am very jealous that my hon. Friend has over 100 pubs in his constituency; I have only 27 in mine, and I have not made it round all of them yet. He is right to highlight the importance of the employment and job opportunities that can be provided by the hospitality sector, with around 2 million people working in it. Many people’s first job is in hospitality, helping them to get their foot on the career ladder and progress in their careers. That is why the Government provided significant support for hospitality businesses at the Budget, and it is why I will continue to engage with my hon. Friend and other Members on the issue of business rates and other matters where we can support our high streets.
Adrian Ramsay (Waveney Valley) (Green)
Retail, hospitality and leisure businesses are at the heart of my constituency, yet family-run village pubs such as the Blue Boar in Walsham le Willows face significant increases in business rates from this April. If the Minister does recognise that the current system is failing businesses, when will he commit to meaningful reform and action, including giving local authorities greater powers to support socially and economically essential local businesses, which village pubs in rural areas undoubtedly are?
Dan Tomlinson
I will happily talk further with the hon. Member about any changes that we can make to give councils more powers in relation to the issue he raises. It is not a topic that has crossed my desk before, but I would be happy to receive some correspondence on it.
Sarah Edwards (Tamworth) (Lab)
Two weeks ago, I held a roundtable for hospitality businesses in Tamworth to discuss the broken business rates system, and I then wrote to the Department about their preferences for support. The rates are crippling, and those businesses asked me to ask the Minister when reform is coming and how they will receive support in the interim, which is essential for my constituency and our businesses.
Dan Tomlinson
I thank my hon. Friend for her question and for the engagement that she has carried out with businesses in her constituency, as a strong representative of the businesses and people of Tamworth. The Government set out some significant reforms in the Budget. We lowered the tax rate that is paid by businesses on our high streets by 5p compared with what it would otherwise have been. That means that the tax rate paid by businesses on our high street is a quarter lower than that paid by the very largest businesses, which can afford higher taxes. That is why we rebalanced the system, transferring £1 billion of extra tax revenue from the largest businesses to high street businesses in my hon. Friend’s constituency and across the country.
Mike Wood (Kingswinford and South Staffordshire) (Con)
The tables to which the Minister refers show that the median rateable value for pubs and wine bars is increasing by a third. He visited the Prince of Wales, a pub in his constituency, to help it reopen last spring. Its rateable value is going up from £49,200 to £62,500, which will push it into the higher band and higher bills. When we have the inevitable U-turn, will he ensure that it genuinely delivers lower business rates, and not just for the Prince of Wales in his constituency but for all hospitality venues across the country?
Dan Tomlinson
I thank the hon. Member for giving me a chance to talk about the Prince of Wales in my constituency, a fantastic pub that I am glad I and colleagues in Barnet council were able to save. I was there just a couple of weeks back, after a canvassing session out on the doorsteps. He is right to point out that some pubs are seeing increases in their rateable values as a result of the unwind from the pandemic. That is precisely why we have come forward with support, capping the increases in business rates bills this year and in subsequent years. In general, the point about pubs being at the heart of our communities is totally true. From the Prince of Wales in East Barnet to the Griffin in Whetstone—I could go on—there are some fantastic pubs in Chipping Barnet, as I am sure there are in his constituency too.
Dr Simon Opher (Stroud) (Lab)
I am a bit surprised by the mock rage coming from the Opposition, given that, over the past decade and a half, thousands of pubs have closed. I thank the Minister on behalf of Stroud publicans for agreeing to review the system so that we can get a really practical solution for pubs. Can I confirm that all business rates, including those on the high streets, will be reviewed, so that we can have a proper level playing field with the out-of-town institutions?
Dan Tomlinson
It is really important that we level the playing field for business rates paid by high street businesses in Stroud—for which my hon. Friend is a strong and active representative—and those paid by the largest online retailers and those with warehouses and distribution centres. That is why we implemented the reforms in the Budget to rebalance the system through a lower tax rate on high street businesses and a higher one on those that can afford it. I thank him for raising the point that Opposition Members want to keep dodging, which is that on their watch 7,000 pubs closed across the country, hollowing out our communities and making our high streets and the places where we live less vibrant and less sociable.
David Reed (Exmouth and Exeter East) (Con)
I have heard from many struggling businesses across my constituency about the increasing pressures that they are facing. To give just one example, under the Government’s original plan, a small independent shop in Exmouth would have seen its rateable value rise by about 50%, wiping out the benefits of the lower small business multiplier, stripping it of eligibility for relief and leaving it facing extra costs of around £600 a month. Does the Minister understand how damaging that is for business confidence and viability, and will he please set out a timeline for when those types of small businesses can expect to receive support?
Dan Tomlinson
One of the challenges with the questions I am being asked by Opposition Members is that they seem to be suggesting that the Government should not have gone ahead with the post-pandemic revaluations. Those revaluations were set in train by the previous Government. I do not know about the hon. Member, but I think that, if businesses in his constituency or mine have seen a decrease in their rateable values since the pandemic, for whatever reason, it is right that the system is updated to reflect their post-pandemic values. That is what we have done. He cites a particular example. Of course there will be businesses that see increases in their rateable values, and that is precisely why we have stepped in, with the Chancellor announcing £4.3 billion of transitional support at the Budget last year.
Jonathan Davies (Mid Derbyshire) (Lab)
I welcome the assurance that half of businesses will see their business rates flat or falling, and that is even after the end of the covid-era support and the post-pandemic review initiated by the previous Government. Research by the Music Venue Trust estimates that 600 grassroots music venues may see quite significant rises, probably because of the revaluation. Significant areas backstage are dedicated to production and performance and cannot be used for revenue raising. Will the Minister meet me and sector representatives so that we can understand the issue better together?
Dan Tomlinson
I thank my hon. Friend for raising this issue. Many grassroots music venues are valued as pubs. Intricacies and complexities in the business rates system mean that, when we think of pubs, it is important also to think of grassroots music venues up and down the country. We must provide support to them and to other businesses. That is why the Government stepped in with the £4.3 billion of transitional protection, over £2 billion of which will be in place this year.
Saqib Bhatti (Meriden and Solihull East) (Con)
Those who run pubs in my constituency are really worried about the Budget and its impact on their business rates bills. Last week the Business Secretary said that there was no way the Government could have known about the impact of their decisions, but the valuation office then confirmed that it had told Ministers about the impact of their decisions, which I think the Minister has confirmed. He also confirmed that that data was easily accessible, so why did that happen? Was it wilful ignorance, was it incompetence or did they just go ahead anyway?
Dan Tomlinson
I am glad that the hon. Member was able to ask the exact same question as the shadow Chancellor, the right hon. Member for Central Devon (Sir Mel Stride). I am not going to comment on the policymaking process in the run-up to the Budget.
Jessica Toale (Bournemouth West) (Lab)
Most fair-minded businesses recognise that covid-era subsidies could not last for ever, yet many in hospitality, including in my constituency, are worried about what bill will come through for their rates in April. Can the Minister reassure those businesses and outline what transitional support we are putting in place in the short term and how we are reforming rates in the long term?
Dan Tomlinson
I thank my hon. Friend for her question and for her continued representation for the small businesses in her Bournemouth constituency, where I know there is a vibrant and growing hospitality and leisure sector. We have implemented reforms to the system to rebalance business rates away from the high street and towards the online giants. I look forward to continuing to engage with her and other Members of Parliament on business rates, other issues and other steps that this Government can take to continue to support the high street and businesses in her constituency.
Greg Smith (Mid Buckinghamshire) (Con)
This morning I met Roly May, the landlord of the Russell Arms pub in Butlers Cross. Government Members might recognise it: it is the closest pub to Chequers, where they can drown their sorrows after an audience with the Prime Minister. The pub has seen as £17,500 business rate increase. I have heard similar horror stories from pubs such as the Cock and Rabbit in The Lee, the Dinton Hermit in Ford and many others. Will the Minister at least accept that there is no more money to squeeze out of pubs that are absolutely on the brink of financial catastrophe under this Government?
Dan Tomlinson
This Government understand the pressures that hospitality businesses, and pubs in particular, are facing. One of the pressures, which I have heard about very clearly, relates to the fact that the previous Government did not invest in our energy security, which would have ensured that businesses and families had lower energy bills and certainty about future bills, and as a result those businesses and families have seen their energy bills surge. In 2022, under the previous Government, we saw inflation hit 11%, and it is things like that that have made it difficult for small businesses up and down the country.
Darren Paffey (Southampton Itchen) (Lab)
We all know that we are where we are precisely because of the disastrous legacy that we were left by the Conservatives, who made unfunded promise after unfunded promise. I welcome the Minister’s reassurance about transitional relief and the caps on the increases, but cafés and small hospitality businesses in Southampton are concerned not just about the future, but about the now, so what message would he give them to assure them that this Government are pro-business and have their back?
Dan Tomlinson
When it comes to support for businesses, we are making sure that we bring back economic stability to this country, with six interest rate cuts that will reduce the cost of borrowing for businesses and households. The economic stability that we have provided has meant that wages went up faster in the first year of this Government than they did in the whole first 10 years of the previous Government. We are supporting people up and down the country with the cost of living and providing stability for businesses in the corporation tax system, keeping it at the lowest rate in the G7 as part of our commitment to our corporate tax road map.
Shockat Adam (Leicester South) (Ind)
One of the worst things for business owners in my constituency is the unpredictability of running a business. They need to know, and it is simply killing them. They already have to deal with poor parking, a rise in antisocial behaviour and rises in national insurance contributions, wage costs and energy costs. Now, when they thought that they were going to have a reduction in business rates, they are possibly going to have a rise instead. Can the Minister alleviate their fears and put them out of their misery? What is it going to be? Is it going to rise or is it going to stay the same?
Dan Tomlinson
We want to provide stability in our taxation system, and one of the things that the Government are seeking to do in the coming years is to continue to have economic stability—something that was lacking for so long under the previous Government. That is why we are focusing on getting Government borrowing down in every year of the forecast, and it will fall faster in this country than in any other G7 economy. When it comes to business rates, the reforms that we set out in the Budget will rebalance the system to provide a permanently lower tax rate—the multiplier for those small businesses on the high street.
Clause 1
Dan Tomlinson Excerpts(2 weeks, 5 days ago)
Commons ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Dan Tomlinson)
It is a pleasure to open this first day of Committee debate on the Finance (No. 2) Bill. This was set to be the biggest economic moment of the day, but my moment in the limelight has sadly been blown off course by the riveting news that the former Member for Stratford-on-Avon has defected to Reform UK. This star signing is clearly a great loss to the Conservative party. Conservative Members may hope that it will allow them to start to expunge the history of the Truss mini-Budget from the nation’s collective memory, although I cannot help but feel that it is a case of shutting the heated stable door after the horse has bolted. He said he wanted to join Reform UK to fix a broken system, but as with the Conservative party, no one will believe that he can do it. In fact, he ran the system, broke the system and left us all sorting out with the taxman how to pay for the mess he left behind.
I return to the topic at hand. My right hon. Friend the Chancellor delivered her second Budget at the Dispatch Box a few weeks ago. It was a Budget to build strong foundations and a secure future for our country. Reflecting historical underperformance, the Office for Budget Responsibility has revised down its productivity forecast. In isolation, this reduces the amount of revenue that the OBR expects the Government to collect by around £16 billion in 2029-30. The Government are determined to outperform this forecast by continuing our plans to grow the economy, protecting public services and cutting borrowing, but it is right to plan on the independent forecaster’s judgments, meaning that despite Britain’s progress, the Government need to strengthen the public finances.
The choice at the Budget was austerity and decline or investment and renewal, and this Labour Government have rejected austerity and repeating the mistakes of the Conservative party. All those who are quick to promise that they will cut taxes must set out where they would credibly raise that money, what they would cut or by how much they would increase borrowing, as they enjoyed doing so much in recent years. The Budget made fair and necessary choices that deliver on the public’s priorities and bring about the change that this Government promised. We have chosen to cut the cost of living by delivering £150 off energy bills and freezing train fares and prescription charges. The Government have chosen to focus on cutting waiting lists by delivering 5.2 million more appointments and opening 250 new neighbourhood health centres. All this would be threatened by the Conservatives, who do not support the taxes—including those we will debate in these clauses—that are needed to fund decent public services.
Sir Julian Lewis (New Forest East) (Con)
I am very impressed by the Minister’s opening speech and his lightness of touch, but can he explain to the Committee how he reconciles the litany of good effects with the number of U-turns carried out since the Budget was put forward?
Dan Tomlinson
I thank the right hon. Member for giving me time to top up my glass of water—and for his intervention. The Government have been very clear in our approach since we took office. We needed to raise revenue to fund public services, and we have been consistent in our objectives in that regard. We also needed to get borrowing down, and borrowing is falling in every single year of this forecast because of the decisions we have taken. I believe it is the fastest reduction in borrowing in the G7, bringing back economic stability and allowing the Bank of England the space to cut interest rates, as it has already done six times since the general election.
The Finance (No. 2) Bill will deliver on the choices that the Government have made, and we will renew public services. We have taken the decision to lift hundreds of thousands of children out of poverty, to get more people into work and, crucially for our long-term growth prospects, to maintain the highest level of public investment for 40 years, all while keeping borrowing this year as a share of GDP to its lowest level in six years and doubling our headroom against our fiscal rules.
Jim Shannon (Strangford) (DUP)
I thank the Minister for what he is putting forward. The OBR has said that some £55.5 billion will be raised, but the money is not coming from millionaires. It is coming from lower and middle-income families, which means that some 4.8 million more individuals will be paying the higher rate and some 600,000 more individuals will move into the additional rate band. How, in all honesty, can we help those in the lower and the middle brackets? The millionaires can afford it; the others cannot.
Dan Tomlinson
One way we are seeking to support everyday working people and families across the country is by making the decisions—many of them have been opposed by the Opposition, I must say—to raise taxes on those with the very largest estates and the very highest wealth. In fact, over this Parliament, as a result of the decisions made in the Budget in 2025 and the Budget in 2024, we will be raising an additional £10 billion of revenue from wealth and from those with the greatest wealth, which enables us to minimise our ask of everyday families when it comes to the topic we will be debating later in this sitting.
Turning in detail to the clauses we are debating, clauses 1 to 3 are on income tax, which is the largest source of Government revenue and helps to fund the UK’s schools, hospitals and the other essential services we rely on. In the coming year, it is expected to raise £359 billion. Each year, the Government have to legislate to charge and to set the rates of income tax. The rates of income tax are not being changed by this Bill; we are confirming that they will remain the same.
Clause 1 imposes an income tax charge for the coming financial year. Clause 2 sets the main rates of income tax at 20%, 40% and 45%. These will apply to non-savings, non-dividend income taxpayers in England and Northern Ireland. Income tax rates in Scotland and Wales are set by their respective Parliaments. Clause 3 sets the default rates at the same levels as the main rates—namely 20%, 40% and 45%. These rates apply to the non-savings, non-dividend income of taxpayers who are not subject to the main rates of income tax, the Welsh rates of income tax or the Scottish rate of income tax. Income tax is a vital revenue stream for our public services, and clauses 1 to 3 ensure that it will continue to be so in the year ahead—2026-27.
Kit Malthouse (North West Hampshire) (Con)
Just for the elucidation of the public, who the Minister knows will be glued to our proceedings this evening, I want to make a couple of points. First, he said that debt is falling. Will he confirm that it is levelling off as a share of GDP and may possibly fall slightly by the end of the forecast period, but is rising in absolute terms? Secondly, when he says that income tax rates are not changing in this Bill, he is technically correct, but fiscal drag means that, for hundreds of thousands of people, the tax rate on their marginal earnings will actually change very significantly in the years to come.
Dan Tomlinson
It is right to be precise, and I was being precise about the rates themselves, which are not changing. The right hon. Member raises the effective tax rate, which is a point I understand. On the specifics of what I said, I was talking about borrowing rather than debt, and borrowing is falling significantly over the course of the forecast. It is the fastest reduction in the G7, as far as I am aware, on the latest data. He is right that debt is broadly stable, but is falling, in the year that the fiscal rules are relevant, as a share of GDP, which is the traditional and I think more economically relevant way of assessing the stock of Government debt as a share of the economy. One of the ways our country was able to reduce the debt we took on after the second world war was through growing our economy and the debt becoming a smaller share of GDP, and that is something this Government will seek to do through continuing to beat the forecast when it comes to economic growth.
Clauses 4 to 8 will raise the tax rates for property, savings and dividend income to ensure that income from assets is taxed more fairly. Those with property, savings or dividend income currently pay lower rates of tax than those whose income comes from employment as they do not pay national insurance contributions. It is not fair that the tax system treats these types of income so differently. For example, it is not fair that a renter pays a higher rate of tax on their income than the landlord from whom they are renting their property.
Mr Joshua Reynolds (Maidenhead) (LD)
Has the Treasury done any analysis of the amount of that tax increase that will be passed on to renters, and if it has, what has it come out with?
Dan Tomlinson
The main drivers of rental prices in the UK are supply and demand. The Government are seeking to do all we can to reform and improve our planning system to increase the number of homes being built. If Liberal Democrat Members are keen on making sure that we support households with the cost of living, I hope they will change their approach to their votes in this place on our planning reforms, which are vital for supporting families with the cost of living and for lowering the cost of renting and owning their own home.
As I was saying, this change will narrow the gap between the tax paid on work and the tax paid on income from assets.
Dan Tomlinson
If I may, I will make a little more progress.
Those with small amounts of income from assets will continue to be protected by tax-free allowances, and income from savings and investments held in individual savings accounts will continue to be tax-free. The vast majority of UK taxpayers are unaffected by these changes as they do not have taxable property, dividend or savings income. Changes to savings and dividend income will apply UK-wide, and the Government have engaged closely with the devolved Governments of Scotland and Wales to provide them with the ability to set property income rates in line with the current income tax powers in their fiscal frameworks.
Clause 4 will increase the tax rates applicable to dividend income by 2 percentage points for the 2026-27 tax year. Clause 5 will increase the tax rates applicable to savings income by the same amount. Clauses 6 and 7 will create separate tax rates for property income, which will apply from the 2027-28 tax year. The property basic, higher and additional rates will be set at 22%, 42% and 47%, respectively, for the 2027-28 tax year. Clause 6 will also make changes to the income tax calculation so that general reliefs and allowances will be applied to property income, savings and dividend income only after they have been applied to other sources of income.
Clause 8 will make provision for the Scottish Parliament and the Senedd to set devolved property income tax rates. This power will be commenced by the Treasury if the Scottish and Welsh Governments agree—individually, of course—to take the power, which is the typical process to protect the powers and responsibilities of devolved Governments.
These changes will still ensure that those with the broadest shoulders contribute more. In 2029-30, around two thirds of the revenue from the increases to the dividend, property and savings tax rates is expected to come from the top 20% of households. Taken together, these measures are projected to yield £2.2 billion in additional tax revenue by 2029-30.
This Finance Bill is about delivering on choices—choices to protect ordinary workers; choices to cut their energy bills, freeze train fares and prescription charges; and choices to focus on reducing inflation to push down mortgage costs. It delivers the Government’s commitment to this country to build a stronger and fairer economy where living standards rise and child poverty falls, and to ensure that public services are improved, with every measure in the Bill geared towards those high-level goals. The choice at the Budget was austerity and decline or investment and renewal, and this Labour Government back investment and renewal.
The Second Deputy Chairman of Ways and Means (Caroline Nokes)
I call the shadow Minister.
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.
Dan Tomlinson
Maybe later.
I turn to the contribution of my hon. Friend the Member for Loughborough. His speech—I had hoped it would be even longer; I am somewhat disappointed not to have heard more from him—provided a clear exposition of the benefits of the modest changes the Government are setting out in this group of clauses, which are being considered by the Committee of the whole House.
Dr Sandher
Was my hon. Friend surprised that Opposition Members spoke about the complexity of implementing clause 4 when it is simply a measure changing the rates of dividend taxation and does not lead to any more burden when filing taxes?
Dan Tomlinson
I thank my hon. Friend for that intervention, which gives me a chance to repeat clearly that these changes are a 2 percentage point increase. The tax rates will increase from 20% to 22%, from 40% to 42% and from 45% to 47%. That does not add a significant—or any real—complication to the tax system. We are changing the rates in a way that is fair, closing the difference in taxation treatment between those who receive their income from employment and those who receive their income from assets.
My hon. Friend’s speech was really helpful in bringing comparative evidence to the debate. I hope he will send that my way for review. Opposition Members who asked about changes made in other countries may be interested in reading that evidence, too. He also provided a helpful exposition on the economic theory sitting behind some of these changes and the need to ensure that our taxation system incentivises people to make investments and good decisions for the long-term health of our economy. He touched on the crucial point—it is worth making this clearly—repeatedly pointed out by many tax experts and tax commentators that one challenge in the UK’s taxation system is that we treat income received from different sources very differently, which can lead to distortions. It is better to ensure that we do what we can to reduce the gaps between the tax treatment of different sorts of income. [Interruption.]
I am happy to refer to Opposition Members’ utterances —they have been shouting out the word “risk.” I make the point that there is still an incentive in the system as taxation levels have not closed completely. [Interruption.] Yes, it is smaller—hon. Members gesture as such, and they are correct that the gap has closed—but there are still significant incentives for people to set up their businesses and income streams in certain ways to increase their income.
Let me now turn to the contribution from the hon. Member for St Albans (Daisy Cooper), who helpfully mentioned the performance of HMRC, the Department for which I am the Minister with responsibility. She is right to say that we need to have a laser focus on customer service. The performance in terms of missed calls—that is, calls that are not picked up because someone hangs up before they are answered—is improving under this Government. I think that is progress—[Interruption.] The hon. Member for St Albans specifically raised the performance of HMRC in her remarks, and it is only right and proper for me to mention that. The hon. Member also raised the impact of these changes on rents; of course the Government will continue to monitor the impact of taxation changes on the rental market. One crucial thing we can do to support private renters is to increase the supply of housing to push down the price of rents in the long term.
To begin to conclude—[Hon. Members: “Hear, hear!”] To begin to conclude—[Interruption.] Did someone say they wanted to intervene? No? In that case, I hope I have been able to—
Dr Sandher
I have no doubt that Conservative Members would also like to intervene after I have made my intervention!
Does the Minister agree that we in this House prize the contribution of business people and that we are here to work productively to ensure that workers and businesses contribute to the prosperity of this nation? I am really proud of what business people do. I come from a family of business people who have invested, who have created a nation and who have created employment. On the other side, we must ensure that the benefits are paid both to them and to our wider economy.
Dan Tomlinson
I thank my hon. Friend for that intervention and for giving me the chance to reiterate this Government’s focus on economic growth and on providing economic stability. Last year, the OBR forecast that the economy would grow by 1% but it then revised that up to 1.5%. That is a 50% increase in our growth forecast. Of course, we need to continue to redouble our efforts as a Government, going further and faster when it comes to supporting economic growth, so that we can see rising living standards in every single part of the country. That is core to our plan. We do not want to see people continuing to suffer.
The last Parliament was the worst on record for living standards, and it is no surprise that the British people decided to boot out the Conservatives and replace them with a Government who are laser-focused on improving the cost of living and improving living standards, both through the changes we are making—including in the Finance Bill to support our public finances—and, as my hon. Friend mentions, through continuing to partner with business to unlock private sector investment and increase economic growth. The changes that we are making to planning do not just support more houses being built and more residential development, which of course we need for the reasons we have discussed; they should also make it easier for us to build large infrastructure projects to support economic growth—including new nuclear power stations, which the Conservatives continually did not invest in—and to get our long-term growth and productivity rates up.
By keeping the clauses in the Bill unchanged, we will raise additional revenue from those who are undertaxed relative to most employees. As I have said, the changes on dividend savings and property income will raise an additional £2.2 billion in the coming years, which will help us to repair and improve our public finances. The changes will also enable us to reduce the contribution that we are asking of working people through the threshold freezes. By making changes such as the introduction of the electric vehicle excise duty and the reduction in relief for those who are selling their businesses to employee ownership trusts, we are making it possible to reduce the ask of working people. That is in sharp contrast to the position set out by the shadow Chancellor, the right hon. Member for Central Devon, who said that if he was in Labour’s position, he would be increasing the rates of income tax. Rather than doing that, we will ensure that this Government stay true to their manifesto commitments on tax and the public finances, with borrowing falling in every year of the OBR’s forecast.
I therefore urge the Committee to reject new clause 2 and new clauses 10 to 12, and to support the inclusion in the Bill of clauses 1 to 6, schedule 1, clauses 7 and 8 and schedule 2.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 to 6 ordered to stand part of the Bill.
Schedule 1 agreed to.
Clauses 7 and 8 ordered to stand part of the Bill.
Schedule 2 agreed to.
New Clause 12
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of the changes introduced by sections 6, 7, and 8 of this Act on the private rental sector in England, Wales, Scotland, and Northern Ireland.
(2) The assessment made under subsection (1) must consider -
(a) the effects of the provisions of sections 6, 7, and 8 on the cost of private rent in each region within England, Wales, Scotland, and Northern Ireland,
(b) the effects of the provisions of sections 6, 7, and 8 on the supply of private rental properties in each region within England, Wales, Scotland, and Northern Ireland,
(c) any other implications of the changes introduced by sections 6, 7, and 8 of this Act.”—(Gareth Davies.)
This new clause requires the Secretary of State to publish an assessment of the impact of imposing new rates of income tax on property income.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The First Deputy Chairman of Ways and Means (Judith Cummins)
With this it will be convenient to discuss the following:
Clause 10 stand part.
Clause 69 stand part.
New clause 3—Notification of taxpayers affected by frozen thresholds—
“(1) HM Revenue and Customs must take reasonable steps to identify individuals who, as a result of—
(a) the freezing of the starting rate limit for savings under section 9 of this Act, or
(b) the freezing of the personal allowance or the basic rate limit under section 10 of this Act, will—
(i) become liable to income tax for the first time, or
(ii) become liable to income tax at a higher rate than in the previous tax year.
(2) HM Revenue and Customs must ensure that each individual identified under subsection (1) is provided with a written notification before the start of the relevant tax year.
(3) A notification under subsection (2) must—
(a) explain that the individual’s tax liability is affected by the freezing of income tax thresholds,
(b) state whether the individual will pay income tax for the first time or move into a higher tax band, and
(c) provide information on where the individual can obtain further guidance about their tax position.
(4) HM Revenue and Customs must publish, no later than six months after the end of each affected tax year, a report setting out—
(a) the number of individuals notified under this section,
(b) the number of individuals who became income taxpayers for the first time as a result of sections 9 and 10, and
(c) the number of individuals who moved into a higher tax band as a result of those sections.
(5) In this section ‘written notification’ includes electronic communication.”
This new clause would require HM Revenue and Customs to notify individuals who, as a result of the freezing of income tax thresholds in the Act, will pay income tax for the first time or move into a higher tax band.
New clause 4—Review of the impact of tax changes on household finances—
“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, publish an assessment of the impact of changes introduced by sections 9,10 and 69 on household finances.
(2) The assessment must evaluate how households across different income levels are affected by these changes.”
This new clause requires the Chancellor of the Exchequer to assess and publish a report on how the freezing of tax thresholds to 2030-31 impacts households at various income levels.
New clause 5—Report on impact of sections 9, 10 and 69—
“Within three months of this Act being passed, the Chancellor of the Exchequer must lay before the House of Commons a report setting out—
(a) the number of taxpayers who will pay income tax at each rate during each tax year between 2026-27 and 2030-31 under sections 9, 10 and 69,
(b) the number of those taxpayers who are pensioners or are of State Pension Age,
(c) comparative figures for each tax year since 2020-21,
(d) comparative projected figures for each tax year to 2034-35, and
(e) comparative figures with a scenario under which normal uprating policy had been implemented for financial years 2020-21 through 2030-31.”
This new clause requires the Chancellor of the Exchequer to assess how many people will be in each income tax bracket from 2026-27 through to 2030-31, together with comparative figures before and after that period.
New clause 13—Assessment of the impact of changes to the basic rate limit and personal allowance for tax years 2028-29 to 2030-31—
“The Chancellor of the Exchequer must, within three months of this Act being passed, publish an assessment of the expected impact on an average earner of the provisions of section 10.”
This new clause requires the Secretary of State to publish an assessment of the impact on the average earner of extending the freeze on the basic rate limit and personal allowance for the tax years 2028-29, 2029-30, and 2030-31.
New clause 14—Assessment of the impact of the freezing of the personal allowance on those in receipt of the state pension for the tax years 2027-28 to 2030-31—
“(1) The Chancellor of the Exchequer must, before the start of the tax year 2027-28, publish an assessment of the impact of the freezing of the personal allowance on those in receipt of the state pension for the tax years 2027-28 to 2030-31.
(2) The assessment made under subsection (1) must include details on the estimated total income from tax receipts received in each tax year from individuals whose only income is the state pension.”
This new clause requires the Secretary of State to publish an assessment of the impact of the personal allowance on those pensioners whose only income is the state pension for the tax years 2027-28, 2028-29, 2029-30, and 2030-31.
New clause 15—Assessment of the impact of exempting from income tax pensioners whose sole income is the basic or new State Pension—
The Chancellor of the Exchequer must, within three months of this Act being passed, publish an assessment of the fiscal impacts of exempting pensioners whose sole income is the basic or new State Pension (without any increments) from paying small amounts of income tax.”
Dan Tomlinson
In opening debate on this second group of clauses, I want to reflect on why we are making changes to the tax system. I am looking forward to no interventions at all on this speech from Opposition Members—their interventions seemed to dry up in my last speech, so maybe they have now finished with them. Of course, we make these changes to modernise the tax system, to make it fair and fit for purpose and to adapt to a changing world, but we also make these changes so that we can raise the revenue to fund our public services. Yes, the Bill holds thresholds constant till the end of the decade, but in doing so contributes to our being able to renew our public services while maintaining the highest levels of public investment in four decades to stimulate economic growth and ensure that those with the broadest shoulders pay their fair share.
Dan Tomlinson
This Government have stuck to their manifesto commitments. We were very clear about not wanting to change the rates of income tax. I have been in discussions with Opposition Members about the wording of our manifesto; I am glad that Conservative Members have taken such interest in it. We are sticking to our commitments. The tax changes that we are discussing now, and others, will allow us to do things such as lift 550,000 children out of poverty this Parliament, by removing the two-child limit and expanding free breakfast clubs and free school meal eligibility. They allow us to cut waiting lists and cut the cost of living by delivering £150 off energy bills. All that would be threatened by Opposition Members, who do not support the taxes needed to fund decent public services.
Steve Darling (Torbay) (LD)
Can the Minister explain why there are £300 million-worth of cuts in Devon this year to our NHS—to hospital trusts, our partnership trust that looks after mental health and our integrated care board?
Dan Tomlinson
I am not able to comment on the specific figures that the hon. Gentleman raised, but overall the Government are spending significantly more on the NHS in this Parliament each year. That is enabled by the changes to taxation that we announced at this and previous Budgets. One of the challenges that the national health service has today is a result of under-investment in capital for too long, meaning that day-to-day spending is having to take more of the strain. So often in recent years capital budgets have been raided, including when, I should mention, the Conservatives and Liberal Democrats were in coalition. Cutting the capital budgets has left us in the difficult situation that we are in now, and this Government are seeking to turn that around.
Dan Tomlinson
I will give way to the right hon. Member for East Antrim (Sammy Wilson) and come back to the right hon. Member for Gainsborough (Sir Edward Leigh).
Sammy Wilson
The Minister is putting on a brave face because a manifesto commitment has been broken. People are going to pay more in income tax despite the promises that were made. Does he recognise that, for many people, this is not money to renew public services, but money squandered on giving compensation to foreign Governments for land that we owned—the Chagos islands—and are now paying for; money that will be spent on an ID system that is totally unnecessary and will not serve the purpose it is meant to; and money spent on net zero commitments that have destroyed our economy and added little in benefits to the public?
Dan Tomlinson
The right hon. Gentleman is welcome to express his views on a range of policies. On the final issue that he raises—net zero and our transition to a cleaner and greener economy—independent analysis, the Government’s Climate Change Committee and the long-term fiscal risk report of the Office for Budget Responsibility have set out clearly that not making that transition, both in the UK and internationally, comes with larger long-term costs for the public finances because of the growing costs of adapting to climate change. It is clear that we need to make that change, for the environment and for the long-term health of our public finances. The OBR’s fiscal risks report is always a good read; I hope that he is, like me, looking forward to the next edition in the summer.
Dan Tomlinson
I will give way, but then I should make progress given that we have another group of clauses to address after this one.
Sir Edward Leigh
Even more important than the point made by the right hon. Member for East Antrim (Sammy Wilson) is the fact that, as I read recently, the average family is paying £12,000 in tax to cover the benefits bill. That is important, because we are taxing entrepreneurial people more, and they will perhaps decide to work a little less hard, so we will all get poorer. I just pray that the Government will have the guts to return to their original proposals—which the Chancellor dropped in the light of pressure—to encourage people back into work, which will mean cutting the benefits bill. I encourage the Government to be true to their original word.
Dan Tomlinson
I agree with the right hon. Gentleman on one point: the welfare system that we inherited was failing. Our Government need to correct the mistakes that meant welfare spending was running out of control, as it was when the shadow Chancellor, the right hon. Member for Central Devon (Sir Mel Stride), was Secretary of State for Work and Pensions. We must carefully consider the welfare system and make reforms that support people into work and ensure that the forecast budget increases are sustainable for the public finances. I agree with the right hon. Member for Gainsborough on that point.
I have not heard the £12,000 statistic before, but I would caution against such statistics, which often appear in the press. Many welfare claimants up and down the country are pensioners who receive the state pension. I do not know whether that figure includes the state pension—Members of all parties, with the exception of the shadow Chancellor, support the triple lock—or the many welfare payments for families with someone in work. We are trying to reduce the need to support working families with welfare payments, through increases to the national living wage and steps to boost productivity. I would say that that figure is a misrepresentation—not that I would accuse the right hon. Member for Gainsborough of misrepresenting the facts—because it uses the word “welfare” as a catch-all, when many people who receive support from the state need that support and benefit from it in a reasonable way, including those who lose their jobs, whom we support through jobseeker’s allowance, for example.
Mr Reynolds
I will be brief—the Minister might even be able to give me a one-word answer. In 2024, the Chancellor said that she had come to the conclusion that extending the threshold freeze would hurt working people. Does the Minister agree, then, that he is proposing to hurt working people?
Dan Tomlinson
I encourage the hon. Member to listen back to what I said earlier in my speech. I and this Government are not shying away from the fact that at the end of the decade, we are freezing income tax thresholds for a further three years, after the seven years—if I recall correctly—that they were frozen under the previous Government. That decision enables us to raise more revenue—the amount set out by the OBR—at the end of the decade and in a way that means that we can stick to our clear manifesto commitment not to increase the rate of tax. We have looked across the tax system. I am sure that the Opposition Front Benchers will enjoy line-by-line scrutiny in the Bill Committee, when we will go through the other changes we have made to the tax system to reduce our ask of working people via the extension of the threshold freeze at the end of the decade.
Clause 9 maintains the starting rate for the savings limit at its current level of £5,000 from the 2026-27 tax year until 6 April 2031. The starting rate for savings must be legislated for each year to confirm the band of savings income to which it applies. In addition to the starting rate for savings—eligible individuals can earn up to £5,000 in savings income, free of tax—savers are supported by the personal savings allowance, which provides up to £1,000 of tax-free savings income for basic rate taxpayers. Savers will also continue to benefit from the annual ISA allowance of £20,000. As a result of those measures, in 2025-26, around 85% of savers pay no tax whatsoever on their savings income.
Dan Tomlinson
I will make a little progress, if I may. I have already taken two interventions on this exact point.
We know that there will be a broad-based effect, but as I have said, we are making other changes so that we ask as little as possible of those who will be affected by the change. We are making lots of changes to ensure that those with the broadest shoulders pay their fair share. I think that that is a fair and necessary decision to raise tax revenue in order to fund public services and restore economic stability.
Neil Duncan-Jordan
I have been contacted—as has the Minister, I am sure—by a number of pensioners who are worried that they will pay tax on their state pension for the very first time. Which pensioners will be affected by the freeze in allowances, and how will any exemptions apply?
Dan Tomlinson
The Chancellor was clear about that very soon after the Budget, in her interview with Martin Lewis, which I am sure my hon. Friend saw. Those whose only income is the basic state pension will not pay tax on it during this Parliament.
The changes to the personal allowance will apply to the whole of the UK. The changes to the basic rate limit and the higher rate threshold will apply to non-property, non-savings and non-dividend income in England, Wales and Northern Ireland. The Scottish Parliament sets income tax rates and limits for Scottish taxpayers. Alongside maintaining the national insurance contribution thresholds for the same period, that will raise £7.8 billion in 2029-30, helping to fund public services and restore economic stability.
Clause 69 provides that the inheritance tax nil rate bands will continue at current levels in 2030-31. There are two nil rate bands for inheritance tax. The nil rate band has been £325,000, as Opposition Members will know, since 2009-10. The residence nil rate band has been £175,000 since 2021. Subject to reliefs and exceptions, inheritance tax is payable if the net value of an estate exceeds those thresholds. The previous Government froze those thresholds until April 2028. We fixed them at those levels for a further two years at the autumn Budget in 2024. We have fixed the nil rate threshold for a further year, until 2031, consistent with the decisions to maintain other personal tax thresholds until April 2031.
The clauses are fair, necessary and fiscally responsible, and will raise the revenue needed to fix the public finances and fund public services such as our NHS, schools and police force. They will fund vital changes to bring half a million children out of poverty.
Calum Miller (Bicester and Woodstock) (LD)
I am extremely grateful to the Minister for giving way. He is trying to make the case that freezing thresholds is progressive, but what he has not mentioned, understandably, is the freezing of student loan thresholds. There is strong evidence that it will result in lower-earning graduates having to pay much more back over the duration of their loan period. Why is the Treasury taking the £6 billion benefit to the asset balance sheet in 2026-27 from this measure, and can the Minister convince me and my constituents that this is in any way fair and progressive?
Dan Tomlinson
The hon. Member mentions the change to student loan thresholds that was announced at the Budget. The Government have looked at our taxation system in the round, and at our benefits system—for example, there are the changes to Motability—to ensure that we are raising the revenue that we need in a proportionate and reasonable way, and the measures that we are debating tonight enable us to do that. I will not let Opposition Members, who repeatedly voted to freeze thresholds until 2028 when they were in government, try to rewrite history as we debate these clauses.
The First Deputy Chairman of Ways and Means (Judith Cummins)
I call the shadow Minister.
Clive Jones (Wokingham) (LD)
I rise to speak to clause 10. It is utterly unfair and shameful that this Government are raising taxes on struggling families by freezing or continuing the freeze of income tax thresholds, which was started by the Conservatives. The Conservative Government spent years hitting people with stealth taxes, and Labour, sadly, has decided to continue to do the same. Clause 10 freezes the basic rate limit for income tax at £37,700, and it freezes the amount of personal allowance at £12,570 until 2030-31. This extension of the Tories’ stealth tax will hit ordinary families, people on low incomes and pensioners whose only income is the state pension. The Government have again turned their back on some of the most vulnerable for the sake of another short-sighted tax grab. Does the Minister really think that is fair?
Let me once again offer some advice. The best way to balance the books is to grow our economy, and the quickest way to do that is to repair the damage of the Conservatives’ terrible Brexit deal by negotiating a bespoke EU-UK customs union. A better trade deal like that would raise more than £25 billion for the Exchequer, which would be a huge boost for the public finances. It is suggested nearly every week in this place by Liberal Democrats. When will the Minister and his colleagues start to listen?
Dan Tomlinson
I was listening to the speeches made by Members on the Opposition Benches so intently that I am not in the right place in my notes to start my speech.
I extend my thanks to the various Members who have spoken today. I will be very brief in winding up— [Interruption.] Yes, I know some Members in particular will enjoy that. The Conservatives’ new clause 15 asks the Government, within three months of this legislation coming into force, to publish an assessment of the impact of exempting pensioners whose sole income is the basic or new state pension from income tax. That issue was raised by the Opposition spokesperson, the hon. Member for Grantham and Bourne (Gareth Davies), as well as by the hon. Members for Hinckley and Bosworth (Dr Evans) and for Mid Dorset and North Poole (Vikki Slade), and others.
The new clause refers to the Chancellor’s announcement that those whose only income is the basic or new state pension without any increments will not have to pay income tax over this Parliament. I know that some Members are particularly impatient and energetic on this point, but more details will be set out later in the year. As the details of the policy have not yet been announced, it would be premature for us to set out the impacts at this stage.
Several hon. Members rose—
Dan Tomlinson
Many Members wish to intervene. I will happily give way to the hon. Member for Kingswinford and South Staffordshire (Mike Wood).
Mike Wood (Kingswinford and South Staffordshire) (Con)
The Minister says that pensioners who only receive the new state pension will not have to pay income tax. Can he say whether pensioners paid the old basic state pension, but who were contracted out and have alternative provision that brings them up to the same level as the new state pension, will have to pay income tax?
Dan Tomlinson
As the Chancellor has set out—more detail will follow later this year—those whose only income is the basic or new state pension, without any increments, will not have to pay income tax over this Parliament. I am aware that Members would like to see more detail, but it would be premature for us to set out the impacts of the policy at this stage, because the details will be forthcoming later this year. I therefore say that new clause 15 should be rejected.
Several hon. Members rose—
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.
The First Deputy Chairman of Ways and Means (Judith Cummins)
With this it will be convenient to consider the following:
Amendment 42, in schedule 12, page 443, line 13, leave out from “and” to end of line 16 and insert—
“(c) either—
(i) is attributable to property that has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family, or
(ii) if the value does not fall within (i), does not exceed the amount of the 100% relief allowance available in relation to that chargeable transfer (see section 124D),”
This amendment would maintain 100% business relief where the property has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family.
Amendment 45, page 443, line 13, leave out from “and” to end of line 16, and insert—
“(c) either—
(i) is attributable to property acquired before 31 March 2026, or
(ii) if the value does not fall within (i), does not exceed the amount of the 100% relief allowance available in relation to that chargeable transfer (see section 124D),”
This amendment would apply 100% business property trust relief where the property was acquired before 31 March 2026.
Amendment 43, page 443, line 22, leave out from “and” to end of line 25 and insert—
“(c) either—
(i) is attributable to property that has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family, or
(ii) if the value does not fall within (i), does not exceed the amount of the 100% trust relief allowance available in relation to that occasion (see sections 124G to 124K),”
This amendment would maintain 100% business relief where the property has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family.
Amendment 46, page 443, line 22, leave out from “and” to end of line 25 and insert—
“(c) either—
(i) is attributable to property acquired before 31 March 2026, or
(ii) if the value does not fall within (i), does not exceed the amount of the 100% trust relief allowance available in relation to that occasion (see sections 124G to 124K),”
This amendment would apply 100% business property trust relief where the property was acquired before 31 March 2026.
Amendment 44, page 443, line 37, leave out from “and” to end of line 3 on page 444 and insert—
“(b) either—
(i) is attributable to property that has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family, or
(ii) if the value does not fall within (i), does not exceed the amount of the 100% relief allowance available in relation to that chargeable transfer (see section 124D),”
This amendment would apply 100% agricultural property trust relief where the property has been owned by the transferor for at least 10 years as part of a business that is actively operated by the transferor or a member of their family.
Amendment 47, page 443, line 37, leave out from “and” to end of line 3 on page 444 and insert—
“(b) either—
(i) is attributable to property acquired before 31 March 2026, or
(ii) if the value does not fall within (i), does not exceed the amount of the 100% relief allowance available in relation to that chargeable transfer (see section 124D),””
This amendment would apply 100% business property trust relief where the property was acquired before 31 March 2026.
Amendment 48, page 444, line 15, at end insert—
“(1D) Where the whole or part of the value transferred is treated as reduced by 50% under subsection (1), the resulting inheritance tax liability is chargeable only if, within 10 years of the relevant transfer, the agricultural land giving rise to the charge is either—
(a) sold (and the owner has not purchased agricultural land elsewhere), or
(b) ceased to be used for farming.”
Government amendments 24 to 26.
Amendment 3, in schedule 12, page 451, line 22, leave out “30 October 2024” and insert “1 March 2027”.
This amendment, along with amendments 4 to 23 would remove the transition period in respect of the changes to agricultural property and business property relief and delay the implementation date so that the changes would take effect for transfers made after 1 March 2027.
Amendment 31, page 451, line 22, leave out “30 October 2024” and insert “6 April 2026”.
This amendment, with Amendments 32 to 36, would remove the transition period in respect of the changes to agricultural property and business property relief so that the changes take effect for transfers made from 6 April 2026.
Amendment 4, page 452, line 3, leave out “30 October 2024” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 32, page 452, line 3, leave out “30 October 2024” and insert “6 April 2026”
See explanatory statement for Amendment 31.
Government amendments 27 to 29.
Amendment 5, in schedule 12, page 454, line 17, leave out “30 October 2024” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 33, page 454, line 17, leave out “30 October 2024” and insert “6 April 2026”
See explanatory statement for Amendment 31.
Amendment 40, page 455, line 31, leave out “2031” and insert “2027”
This amendment would begin indexation in 2027 rather than 2031.
Amendment 41, page 455, line 33, at end insert—
“(2A) If the Treasury estimates that the value of agricultural land has increased by more than the percentage increase in the consumer prices index during the same period, then it must instead make an order by statutory instrument amending each relief allowance amount relating to agricultural property by the percentage increase in the value of agricultural land.”
Amendment 6, page 461, line 2, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 7, page 461, line 3, leave out sub-paragraphs (2) and (3)
See explanatory statement for Amendment 3.
Amendment 34, page 461, line 3, leave out sub-paragraphs (2) to (4)
See explanatory statement for Amendment 31.
Amendment 8, page 461, line 17, leave out “sub-paragraph (3) will not apply” and insert
“the transfer will prove to be an exempt transfer”.
See explanatory statement for Amendment 3.
Amendment 9, page 461, line 21, leave out from “paragraph” to end of paragraph 17(5)(b) and insert
“comes into force on 1 March 2027”
See explanatory statement for Amendment 3.
Amendment 35, page 461, line 21, leave out from “paragraph” to end of paragraph 17(5)(b) and insert
“comes into force on 6 April 2026”
See explanatory statement for Amendment 31.
Amendment 10, page 461, line 28, leave out “30 October 2024” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 36, page 461, line 28, leave out “30 October 2024” and insert “6 April 2026”
See explanatory statement for Amendment 31.
Amendment 11, page 461, line 31, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 12, page 461, line 33, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 13, page 461, line 36, leave out “6 April 2026” and insert "1 March 2027”
See explanatory statement for Amendment 3.
Amendment 14, page 461, line 38, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 15, page 462, line 3, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 16, page 462, line 7, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 17, page 462, line 15, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 18, page 462, line 19, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 19, page 462, line 30, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 20, page 462, line 35, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 21, page 464, line 14, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 22, page 464, line 21, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Amendment 23, page 464, line 27, leave out “6 April 2026” and insert “1 March 2027”
See explanatory statement for Amendment 3.
Schedule 12.
New clause 1—Section 62: application in Northern Ireland—
“(1) The Chancellor of the Exchequer must, within six months of this Act coming into force, publish an assessment of the effects of the measures in section 62 as they apply in Northern Ireland.
(2) The assessment must consider—
(a) the number of estates in Northern Ireland expected to be subject to the reduction in agricultural property relief made under this Act,
(b) the potential benefits to farmers in Northern Ireland of exempting land used for agricultural purposes from the changes to agricultural property relief made under this Act,
(c) the potential costs to the Exchequer of exempting land used for agricultural purposes from the changes to agricultural property relief made under this Act,
(d) the impact of the measures on farm succession, land retention, and the viability of agricultural businesses in Northern Ireland, including any potential implications for the resilience and security of the UK’s food supply, and
(e) any other matters that the Chancellor of Exchequer deems appropriate.
(3) In subsection (2), “land used for agricultural purposes” does not include land that falls within the Financial Conduct Authority’s definition of a land-banking investment scheme.
(4) In carrying out the assessment, the Chancellor of the Exchequer must have regard to—
(a) the average farm size and land valuation profile in Northern Ireland,
(b) the prevalence of intergenerational family farming in Northern Ireland,
(c) the interaction between agricultural property relief and devolved agricultural support schemes, and
(d) any disproportionate impact on rural communities in Northern Ireland.
(5) The assessment must be carried out following meaningful consultation with—
(a) the Department of Agriculture, Environment and Rural Affairs in Northern Ireland,
(b) representatives of farmers and land-based businesses in Northern Ireland, and
(c) such other persons as the Chancellor of the Exchequer considers appropriate.
(6) The Chancellor of the Exchequer must, within three months of publishing the assessment, lay before Parliament a statement setting out the steps the Government intends to take in response to the assessment’s findings.
(7) The Chancellor of the Exchequer must keep the operation of the measures in section 62 under review in light of the assessment and publish a further assessment within 18 months of this Act coming into force.”
New clause 6—Impact assessment of section 62 prior to implementation—
“(1) The Chancellor of the Exchequer must, within three months of the passing of this Act, lay before the House of Commons an assessment of the impact of implementation of section 62 on family-owned farms and businesses.
(2) The assessment made under subsection (1) must consider potential impacts on—
(a) business continuity,
(b) land use, and
(c) rural employment.”
New clause 7—Uprating of allowance amounts for agricultural property—
“The Chancellor of the Exchequer must, within six months of the passing of this Act, undertake and publish an assessment of the potential merits of uprating annually the relief allowance amount for agricultural property by the change in the value of agricultural land.”
New clause 17—Review of anti-forestalling provisions relating to Agricultural Property Relief—
“(1) The Treasury must conduct a review of the effects of the anti-forestalling provisions relating to Agricultural Property Relief.
(2) The review must, in particular, consider the effects of those provisions on—
(a) succession planning and intergenerational transfer of agricultural land and businesses,
(b) the viability and continuity of family-run farms,
(c) food security and domestic agricultural production,
(d) land management, environmental stewardship, and the condition of the countryside, and
(e) the availability of agricultural land for active farming.
(3) In conducting the review, the Treasury must consult such persons as it considers appropriate, including representatives of the agricultural sector.
(4) The Treasury must lay before the House of Commons a copy of the report within 12 months of the coming into force of the anti-forestalling provisions under this Act.”
Dan Tomlinson
As we come to the final group in today’s Committee stage on the Bill, I am pleased to open this important debate on clause 62, schedule 12 and the many associated amendments. As reiterated throughout the day, the Bill delivers on the choices made at this Government’s two Budgets. It delivers fair and necessary reforms that strengthen the foundations of our economy and provide a secure future for our country. The choice at those two Budgets was austerity and decline or investment and renewal, and on both occasions the Labour Government rejected austerity and chose renewal.
Clause 62, schedule 12 and Government amendments 24 to 29 make changes to agricultural property relief and business property relief in order to target them more fairly, contribute to the sustainability of public finances and fund public services. Under the current system, the 100% relief on business and agricultural assets is heavily skewed towards the wealthiest estates. According to HMRC data for 2021-22, 40% of agricultural property relief across the UK was claimed by just 7% of the estates making claims. That is £219 million in tax relieved from just 117 of the largest estates in the country, and it is a similar picture for business property relief: more than 50% of BPR was claimed by just 4% of the estates making claims. That is a striking £558 million in tax relieved from just 158 estates.
That contributes to the very largest estates paying lower average effective inheritance tax rates than the smaller estates, and significantly lower average effective inheritance tax rates than most people who end up paying IHT will pay. That is the status quo that those seeking to reverse the Government’s reforms in full wish to perpetuate. It is not sustainable and, in the Government’s view, it is certainly not fair to maintain such a large tax break for such a small number of claimants, especially in the context of the wider pressures on the public finances and public services.
Ms Julie Minns (Carlisle) (Lab)
I very much welcome the fact that, from next year, an estimated 85% of farms will pay no more inheritance tax on their farming and business assets. I agree with the Minister that it is a proportionate measure that aims to prevent the wealthy from abusing APR, and I know that he is mindful of the profitability of our small and medium-sized farms. Will he undertake to work with colleagues in the Department for Environment, Food and Rural Affairs to make sure that we get the definition right for the new sustainable farming incentive, so that as many of those small and medium-sized farms as possible are eligible for it?
Dan Tomlinson
I thank my hon. Friend for her continued interest in this area; she is a strong representative for the rural communities that she represents in the north-west of our country. I am sure that colleagues in DEFRA, including the Secretary of State and others, will be working hard to make sure that the funds that this Government have allocated for farming and farming businesses are spent in full, rather than leaving hundreds of millions of pounds underspent, as the previous Government did. We will make sure that the money gets to the farms that will benefit from it, to support them with the initiatives that they and we know would be good for them to pursue, because they are good for the environment and for those businesses.
Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)
I thank the Minister for giving way; he is very courteous. As Members will understand, I represent a very remote constituency in the north of Scotland where crofting—very marginal farming and hill farming—is fundamental not just to the economy of the highlands, but to the social structure. The great curse in the past was de-population, and various safeguards were enacted in the 19th and 20th centuries to ensure that crofting continued. Crofters are asset-rich, but their income is very poor indeed. I welcome what the Government have done so far. Could I please ask the Minister, with my hand on my heart, to keep an eye on this particular sector? Anything that would discourage people could be fatal for the community I represent.
Dan Tomlinson
I thank the hon. Member for raising the crofting sector and the rural communities that he represents. The Government will continue to do all we can to support different types of farmers, and to make sure that we can support tenant farmers too. I thank him for raising that point and for the representation that he provides to his constituents.
The changes made by clause 62, schedule 12 and Government amendments 24 to 29 will reform how we target agricultural property relief and business property relief from 6 April this year.
Harriet Cross (Gordon and Buchan) (Con)
It has been many, many months since the agricultural property relief and business property relief changes were first announced by this Government. In that time, they have had so many representations from farmers, the farming industry, small business groups, family business groups, Members of this House, industry sectors, the National Farmers Union Scotland, the Country Land and Business Association, Scottish Land & Estates, Labour Back Benchers, Opposition Back Benchers and the public at large. Everyone was telling the Government that this was a bad policy. Why did it take them so long to change it?
Dan Tomlinson
Conservative Members keep repeating, “14 months”. I should use that as an opportunity to remind people of the 14 wasted years that their party put farmers and rural communities through; of the trade deals that they implemented, which made life worse for our farmers and farming communities; and of the hundreds of millions of pounds that went underspent in the farming budgets over 14 years, and which could have benefited rural communities and farmers.
After continued engagement from Ministers across the Government, including in the Treasury and the Department for Environment, Food and Rural Affairs, as well as the Prime Minister’s engagement with important representatives in this space, the Government made a change—the change that the Government amendments will enable this Committee to legislate for, if it wishes, and I do hope it does. This change will strengthen the public purse by around £300 million.
Robin Swann (South Antrim) (UUP)
I want to take the Minister back to his earlier commitment on Scotland. Will the Government give the same commitment to farmers in Northern Ireland? We have a very different family farm structure from that in the rest of the United Kingdom, and the engagement of and representations by the Ulster Farmers’ Union and the Young Farmers’ Clubs of Ulster should bring this Government to a realisation that their last proposals did not sit well with farmers across this United Kingdom.
Dan Tomlinson
A few weeks back, I had the pleasure of attending a Westminster Hall debate focused on farming and farmers in Northern Ireland. It was a good, productive debate, and I took away many of the points raised. The hon. Member will know that the Government have made a change to increase the threshold.
Carla Lockhart
I thank the Minister for attending that debate. He noted during it that he might meet the Ulster Farmers’ Union, but, sadly, that has not happened. The Government have been tone deaf for the last 14 months on this issue, and when the Ulster Farmers’ Union and each of the unions across this United Kingdom told them of the wrong that they were doing, they did not listen. In the wake of all this, would he meet the Ulster Farmers’ Union to discuss its outworkings?
Dan Tomlinson
I am sure that Environment Ministers will continue to engage with farming unions and farming representatives. Both in the run-up to the Budget and subsequently, Treasury Ministers and those from other Departments have engaged with farmers, and we will continue to do so, to support farmers in a way that the previous Government never did.
Individuals will still benefit from 100% relief for the first £2.5 million of combined business and agricultural assets, and the figure will be fixed at that level until April 2031, alongside other inheritance tax thresholds, as we have been debating. Any unused allowance can be transferred to a surviving spouse or civil partner, including where the first death is before 6 April 2026. On top of that amount, there will be a 50% relief, which means that inheritance tax will be paid at a reduced effective rate of up to 20%. We are also reducing the maximum rate of business property relief available from 100% to 50% for shares designated as not listed on the markets of registered stock exchanges. The reliefs sit alongside other exemptions and nil rate bands. This means that a couple will now be able to pass on up to £5 million of agricultural or business assets tax-free between them. That is on top of existing allowances, such as the nil rate band.
Where inheritance tax is due, those liable for a charge can pay any liability on the relevant assets over 10 annual instalments, interest-free. This benefit is not seen elsewhere in the inheritance tax system, and it means that the relief continues to be more generous than it was for the vast majority of the 20th century. In fact, from April 2026, the reliefs will be more generous than they ever were under, for example, Margaret Thatcher’s Government.
Our reforms are expected to result in a total of up to 1,100 estates across the UK paying more inheritance tax in 2026-27. Only up to 185 estates across the UK claiming APR, including those also claiming BPR, are expected to pay more in the next tax year. This means that around 85% of such estates will not pay any more tax as a result of the changes in 2026-27. Excluding estates holding shares designated as not listed on the market of registered stock exchanges, only up to 220 estates across the UK only claiming business property relief are expected to pay more.
Dan Tomlinson
Go on, then. I will give way, but I was trying to make progress so that other Members could speak.
Simon Hoare
I hate to interrupt the Minister, but the Chancellor in effect told the House and the country when this policy was first introduced that people need not really worry a huge amount, because not a vast number of farms would fall into this trap. The welcome but limited announcement made just before Christmas will of course reduce still further the number of people who will fall into this trap. He has just set out to the Committee a very complicated set of checklists, including this, that and the other. Would it not make more sense to scrap this whole damned stupid idea, and give a big tick of confidence to our food-security-bringing, environment-protecting, job-creating farming sector, which is so vital to UK plc?
Dan Tomlinson
The Government do support the farming sector and the farming industry. We will continue to do so through the funds that we will make available via DEFRA—funds that were not fully spent under the previous Government. We have listened to farming communities and business representatives, and raised the threshold from £1 million to £2.5 million as a result of that listening and engagement. The Government do not think it would be right to abolish the policy in full, because then we would forgo £300 million of revenue from the very largest estates. [Interruption.] The hon. Member for North Dorset (Simon Hoare) may say that £300 million is a rounding error, but it is important to raise revenue from a broad range of taxes, and from those with the largest-value estates in the country. As I said earlier, hundreds of millions of pounds in tax is relieved from the very largest estates in the country. If Opposition Members want that to continue to be the case, that is of course their right, but we Government Members think that our reforms are fair, and raise proportionate revenue from the very largest estates.
Robbie Moore (Keighley and Ilkley) (Con)
Can the Minister explain how we ended up in the bizarre scenario in which two estates—I use the term “estates”, because they need not necessarily be farming businesses; they could be any kind of family business estate—valued at £5 million could generate different amounts of tax for the Treasury, depending on the ownership structure? Secondly, can he explain, because I cannot see this in the amendments that have been tabled, why there is no indexation link to any increase? Obviously, land values will increase over time. Thirdly, when he was last at the Dispatch Box, he said that interest would not be charged, so can he clarify whether, when inheritance tax liability is triggered, interest is or is not triggered in that 10-year period?
Dan Tomlinson
There were some forensic questions in that not brief intervention, but of course I appreciate it, and I look forward to trying to go through—[Interruption.] I am trying to answer the questions, okay? [Interruption.] It is a bit difficult when Opposition Front Benchers continue to barrack me while I am trying to answer the questions that a Back-Bencher has asked. If the right hon. Member for Louth and Horncastle (Victoria Atkins) wishes to continue to hector me from a sedentary position, she may, but we will not have any time for me to answer questions.
On the points raised by the hon. Member for Keighley and Ilkley (Robbie Moore)—let me dial down the temperature; congratulations for getting to me—and on how the spousal transfer is used in the inheritance tax system, we are replicating that in the treatment of the spousal transfer for APR and BPR. That is the way the transfer is set out in the inheritance tax system. We are not doing anything different or novel here. We just debated the thresholds, which will be set at current levels and will not be uprated in line with the changes that we are making to other taxes. The hon. Gentleman also asked about interest. As I said, where inheritance tax is due, those liable for a charge can pay any liability on the relevant assets over 10 annual instalments, if they like, and that will be interest-free. I have been through the numbers. Only 185 additional estates claiming APR are expected to pay more in 2026.
To conclude, the reforms get the balance right between supporting farms and businesses, fixing the public finances, and funding our public services.
Ben Maguire (North Cornwall) (LD)
I would like to pick up on the point raised by the hon. Member for Keighley and Ilkley (Robbie Moore) about the ludicrous situation where a farm that is worth £5 million if it is owned under a certain ownership model will not be subject to tax, but a farm worth less than that could be subject to tax. Graham, a farmer from my constituency, visited my surgery on Friday. He is in that exact situation. He is a sole trader slightly over the £2.5 million mark. We ended up discussing for more than 10 minutes whether he should marry his long-term partner to get away from this tax. Does that not illustrate just how ludicrous the situation is, Minister?
Dan Tomlinson
This is the normal way that inheritance tax assets are taxed. There is not just APR and BPR, and the changes coming in in April; other assets are passed on through inheritance. We are applying the same treatment here; this is the standard way that inheritance tax is set for various assets.
As I was saying, these reforms get the balance right between supporting farms and businesses, fixing the public finances and funding public services. They reduce the inheritance tax advantages available to some owners of agricultural and business assets, but those assets will still be taxed at a much lower effective rate than most other assets—a £6 million estate owned by a couple, for example, could have an effective tax rate of just 1.2%, which can be paid, interest-free, over 10 years.
Those opposing these reforms in full will be voting for a status quo in which the very largest estates pay a lower average effective inheritance tax rate than the smallest estates—a status quo where the Exchequer sees £219 million in tax relieved from just 117 estates claiming APR, and £558 million in tax relieved from just 158 estates claiming BPR. That is not sustainable, and it is certainly not fair. I therefore commend clause 62, schedule 12 and Government amendments 24 to 29 to the Committee.
The Chairman of Ways and Means (Ms Nusrat Ghani)
I call the shadow Minister.
Olly Glover (Didcot and Wantage) (LD)
I stand to speak in favour of various Lib Dem amendments and in particular new clause 7. Farmers in this country continue to be hammered, as they were under the previous Government, by the current one. From poor funding of rural public services to botched trade deals that undercut British farmers, rural communities have been left behind, despite the industry being vital to delivering our food supply and a key pillar in our fight against climate change. Food is not some luxury or niche commodity but an essential, and an important part of our heritage and culture. In an increasingly volatile world, it is important that we recognise the value of domestic production.
Many speakers this evening have discussed problems with the Labour Government’s changes to agricultural and business property tax relief, and it is welcome that the Government have to some extent listened to that. However, in my constituency, the key thing I hear when speaking with farmers is that the proposed changes, in their original form, were the final straw for them on top of so many other challenges and headwinds. That is why the reaction has been so strong. They face the uncertainty and impact of Brexit; trade deals based on proving the so-called benefits of Brexit, no matter the impact on our farmers; constantly changing Government incentive and payment regimes; the impact of recent worldwide inflation on fertiliser prices and equipment costs; labour shortages, also partly as a result of Brexit; and the dominance of large supermarkets seeking ever lower prices.
Our farmers also face rural crime, which, as the hon. Member for Lagan Valley (Sorcha Eastwood) rightly stated, has a significant impact on their mental health and wellbeing. Even with Thames Valley police’s best efforts, farms’ remoteness makes them easy targets for theft or hare coursing. Flooding has also affected many farms across my constituency, such as George Gale’s Manor farm in Appleford or Paul Cauldwell’s Dropshort farm in Drayton. Increased rainfall and a lack of river maintenance are both contributing factors to wider flooding incidents, plus run-off from new developments.
The National Farmers’ Union hustings were by far the toughest of the general election campaign, but I have also been warmly welcomed by farmers who have been very patient and generous in explaining their trade to someone who could not have less of an agricultural background. They include Matt Lane of Grange farm, David Christensen of Lockinge estate and Alan and Richard Binnings, who put so much work into Truckfest, which, as well as being an amazing concert experience on their land, raises tens of thousands of pounds for local charities each year.
I want to talk in particular about Ben Smith from Manor Road farm near Wantage. When I met him last winter to hear his challenges, he explained that he is a third-generation arable farmer. At that time, his mother was 90 years of age. She owns the farm. Ben’s big concern was that when she dies, he and his family will be significantly hit by the inheritance tax, with revenues from their arable farming barely able to cover the liabilities. At that time, his mother was saying that she would rather die than leave Ben and his sister to deal with the situation later. Ben wants his son and daughter to have the farm, but he will be in a financial mess. He might need to lose six or seven staff, some of whom have worked for him for between 10 and 45 years. Inheritance tax is a big worry to him, but he has also been hit by other increases in tax and national insurance.
All the farmers I have met have been welcoming, tolerant of my agricultural ignorance, forgiving of my vegetarianism, patient in educating me about their work and profoundly passionate about what they do. I have been surprised to find parallels between my experience of working in railways before coming to this place and farming. Both are subject to the stop-and-start whims of Government policy and the decisions of people who have little knowledge or experience of the sectors concerned and often do not take the time to listen and learn.
In contrast, the Liberal Democrats are proud of our advocacy for farmers and are calling for the farming budget to be raised by £1 billion, for a renegotiation of trade agreements to protect British farmers in line with our objectives for health, environmental and animal welfare standards, and for strengthening of the Groceries Code Adjudicator to ensure that farmers can keep farming in fair circumstances.
It is welcome that the Government have started to listen, but we must always remember that we need food, we need countryside and our farmers do so much to look after both. They deserve our support.
Dan Tomlinson
I extend my thanks to hon. Members for their thoughtful contributions during this session in particular, which I appreciate has been a topic of discussion in public and in this place over a number of months. As I have said, the Government have been listening carefully to feedback from the farming community, family businesses and their representatives. The Government are proud to represent the national interest, with strong representation for rural, semi-rural and urban constituencies. It is a fantastic vote of confidence in our Prime Minister and in this Government that there are pretty much as many Labour MPs who represent rural constituencies as there are Conservative MPs in total.
The Government are going further to protect more farms and businesses while maintaining the core principle that more valuable agricultural and business assets should not receive unlimited relief. That is why we have tabled an amendment that will increase the allowance for the 100% rate of relief from £1 million to £2.5 million.
Robbie Moore
I hope that the Minister will answer my question, which I have asked twice in this debate, about indexation and the scenario in which two estates valued at £5 million are subject to different IHT liabilities depending on their ownership structures. Given that this issue is so important, not only to our farming community but to family businesses more broadly, why on earth did the Chancellor not announce this change at the Budget? It seems very peculiar to make a big fiscal change outside of a Budget announcement.
Dan Tomlinson
I will come shortly to the questions that the hon. Gentleman asked.
The Liberal Democrat spokesperson, the hon. Member for Witney (Charlie Maynard), mentioned the costs of administrating the tax changes. Those costs were published in a tax impact and information note, alongside the changes: £9.2 million is the figure that the Government published. On the sustainable farming incentive, which he and others mentioned, he may have missed the update that Secretary of State for Environment, Food and Rural Affairs provided last week, which the NFU said showed
“real ambition for a thriving agriculture industry”.
The hon. Members for Keighley and Ilkley (Robbie Moore), for Upper Bann (Carla Lockhart), and others, mentioned that the allowance is only transferrable between spouses. That is in line with the long-standing approach to inheritance tax. The inheritance tax nil rate band and the residence nil rate band are also only transferrable between spouses and civil partners.
Dan Tomlinson
I am just going to respond to this point. For siblings, and for co-owners who are not spouses but who jointly own a farm—the example raised and that set out on the Government website—it is still the case that each individual has a £2.5 million allowance that they can use. That means that a farm that is jointly owned, even if not by spouses, cannot be transferred between spouses but can still be passed on, on an individual basis, up to £2.5 million.
A range of Opposition Members raised the question of whether the Government should set different thresholds for different parts of the country. I say gently, particularly to Conservative Members, that there are very different property prices across the country, yet in the 14 years they were in power, they did not set different inheritance thresholds for different parts of the country.
I look forward to further contributions on this topic during the passage of the Bill. Overall, the Bill, including the clauses debated today, is an essential part of the Government’s broader economic plan to manage our public finances well, to bring down borrowing in every year, to fund our public services, and to provide the underpinnings for higher growth and living standards across the country. We have the right plan for the country, and this Bill helps us to deliver it. I therefore urge the Committee to reject amendments 3 to 23, 31 to 36, 40 to 48, and new clauses 1, 6, 7 and 17, and I urge it to support clause 62, schedule 12 and Government amendments 24 to 29.
Question put, That the clause stand part of the Bill.
Rural Fuel Duty Relief
Dan Tomlinson Excerpts(3 weeks, 3 days ago)
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The Exchequer Secretary to the Treasury (Dan Tomlinson)
It is a pleasure to speak under your chairship, Ms Furniss. I am grateful to the hon. Member for North Devon (Ian Roome) for securing this debate and speaking so passionately in support of rural communities and the people in his constituency, who I know he has much honour in representing. I thank him for securing the debate and giving Members on both sides of the House the chance to contribute on this very important topic.
This Government recognise the importance of rural areas for the UK economy, and will continue to consider how they can best support those who live and work rurally. Although my Barnet constituency, which is in the very north of London, lacks the beaches and moors of the hon. Gentleman’s, it does contain 14 farms and have some rural areas, because of the large bit of green belt that extends into north London. Like all Ministers, I am fully committed to ensuring that the tax system works for everyone, whether they are in rural or more urban parts of the country.
Fuel duty is an important source of Government revenue and provides vital funding for public services and infrastructure. It raised £24.4 billion in 2024-25; as has been mentioned, fuel duty rates have been frozen since 2011, with a further, temporary 5p cut introduced in 2022. Fuel duty rates are therefore now, in real terms, about 40% lower than they were in 2011. Pump prices are at their lowest level since 2021, before Russia’s illegal invasion of Ukraine led to soaring prices and the introduction of the temporary 5p cut.
At the Budget, therefore, the Chancellor announced that the 5p cut would first be extended until the end of August, with rates then rising gradually, returning to March 2022 levels by March 2027. As well as that extension to the freeze, the planned increase in line with inflation for the coming financial year will not take place. Those decisions on fuel duty will save the average car driver across the country £49 in the coming financial year, compared with previous plans.
The Government also recognise the importance of competition between retailers in the road fuels market. Liberal Democrat Members, including the hon. Members for North Cornwall (Ben Maguire) and for Newton Abbot (Martin Wrigley) and others, mentioned a pumpwatch scheme. Sadly, that reveals that we need to communicate even better about some of the ideas put forward by Government: at the Budget, the Chancellor confirmed that from spring 2026, UK consumers will be able to compare prices more easily through the Government’s new open-data fuel finder scheme, which I believe will achieve aims similar to those of the pumpwatch proposal. It will help to encourage competitive pricing among retailers and is expected to result in further savings for drivers of potentially up to £40 a year.
The Government, however, are well aware that fuel costs can be higher in certain more remote areas, so the rural fuel duty relief scheme provides a 5p per litre reduction to benefit motorists buying fuel in those areas. The areas included in the scheme demonstrate certain characteristics, such as pump prices being much higher than the UK average, remoteness leading to high fuel transport costs from refinery to filling station, and relatively low sales meaning that retailers cannot benefit from bulk discounts.
As mentioned by many Members, the scheme provides about £5 million in support per year, with about 165 fuel retailers registered with His Majesty’s Revenue and Customs to claim the relief. The hon. Member for St Ives (Andrew George) mentioned the administrative costs, and I am interested to hear more from him and from any businesses that have ideas about how I, as Minister with responsibility for HMRC, can seek to reduce any of the administrative burdens that those 165 retailers may face.
One area included in the scheme is the EX35 postcode, which is part of Exmoor national park and in the constituency of the hon. Member for North Devon, who secured the debate. I confirm that the scheme in fact covers not just 11 or 12 constituencies, but 16—some of the postcodes sneakily cross over constituency boundaries, so that 16 Members of the House of Commons represent constituencies of which at least some elements are covered by the relief.
Andrew George
The Minister raised the issue of the administrative burden. I was referring to an occasion when an operator of the scheme was late in his submission to HMRC, in which case he was refused the rebate, which he had been taking. In such circumstances, he had to appeal. I was simply demonstrating the rigidity and lack of humour, as it were, in the system. We are talking about extremely small businesses that find the additional administrative burden quite onerous.
Dan Tomlinson
I note, as I am sure others in the Chamber will, just how forensic is the hon. Member’s understanding of some of the small businesses in his constituency. That is to be very much commended. If he would like to write to me on that point, I would certainly like to raise it with HMRC. Of course, it is not appropriate for me as a tax Minister to get involved in individual tax affairs. That said, the general point is about administration, and the extent to which we are getting the balance right between ensuring that we stick to the rules as set out, and having an appropriate level of flexibility. That is something that I would happily raise with the Department, if he were willing to write to me.
The hon. Member for North Devon and many others have suggested that the Government should increase the rural fuel duty relief in line with inflation. As I set out earlier, since the relief’s introduction, it has remained at 5p, but the main fuel duty rate has also remained at the same level—or, more recently, has fallen. I am aware that there are differences across the country, and there may have been differentials in the increase in fuel prices in some areas. However, the fuel costs are broadly the same as they were in 2011, if not slightly higher; it was roughly 130p for a litre then, compared with around 135p now.
Brendan O’Hara
The hon. Member for Na h-Eileanan an Iar (Torcuil Crichton) made the point that getting this rebate was one of the few successes of the coalition Government. The reason there was no political reward for it was that, at £1.60 a litre in rural Argyll, Bute and South Lochaber, it does not feel like a benefit. If the Minister will not make it index-linked, can he tell us what mechanism the Government have put in place to check that this rebate—albeit scant—is actually reaching the consumer? It does not feel as though it is for people living in rural communities.
Dan Tomlinson
Other Members, including the hon. Member for Strangford (Jim Shannon), have asked the same question; I was going to come on to it, but I will happily do so now. As a Department, HMRC requires retailers to keep records evidencing that the 5p saving is being passed on to customers, but I would be happy to look in more detail at how that is done. Maybe we can catch a word in the Tea Room to discuss it in more detail, because the Government want to make sure that that is happening and that the 5p cut—although we can debate whether it should be higher—is passed on to consumers in full.
The Members who spoke in the debate have deep knowledge of their constituencies and have often talked about their trust in their small local businesses, many of which will be running the garages or forecourts in the more rural areas, such as the middle of the moors. I must say that the hon. Member for Strangford is doing a very honourable thing in going to more expensive garages to support the local businesses. That is a very commendable act; I must say that it is not one I always engage in, as I like to find a good price, but I commend him on it.
While fuel duty costs are broadly the same, I admit that they are slightly higher than they were in 2011. However, as foreshadowed by the Opposition spokesperson, the hon. Member for North West Norfolk (James Wild), the Chancellor keeps all taxes under review; decisions on future fuel duty rates and rural fuel duty reliefs will always be made in the round and in the context of the public finances. That said, I have noted with interest all the points made today and again thank the hon. Member for North Devon for securing this debate and giving me the chance, as the Minister with responsibility, to reflect on these important issues.
A number of Members have also suggested that the Government should increase the number of areas in scope of a rural fuel duty relief—I can sense a potential Liberal Democrat local election campaign, although I would not possibly want to comment. I was going to say that neither I nor my predecessor, my right hon. Friend the Member for Ealing North (James Murray)—I checked—had received any formal representations to expand the coverage of the relief since the start of this Parliament, but of course I have received some comments on that during the debate. There are no current plans to amend the list of eligible locations but, if Members strongly feel that their constituencies fall into the categories in the scheme’s rules, I will always welcome representations, and they should feel free to write to me.
Richard Foord
If the Minister will not consider the geographical expansion of the rural fuel duty relief scheme, with a view to the Government’s introduction of the electric vehicle excise duty in April 2018, might he consider a duty relief for the existing areas, but applying to the electric fuel duty?
Dan Tomlinson
That is not something that we are actively considering. That said, the details of the eVED scheme are to be consulted on in detail. We are still a number of years from its introduction, and there will be many fine decisions that need to be made in the coming months ahead of its implementation, and I note the representation that the hon. Gentleman has made today.
Dan Tomlinson
I will happily do so, although I am sure that hon. Members would like me to make some progress, too.
Andrew George
On the question of geographical coverage, and given the Minister’s comment that he has not received representations about further areas for inclusion, I urge the Government to review the scheme and to take an objective measure themselves of where else it might extend to, rather than inviting us to form an orderly queue in pleading for our own areas, which could result in a system based not on need, but on political advantage.
Dan Tomlinson
I am always glad to take interventions. The hon. Member’s point is noted and I acknowledge his request. I ask Members to get in touch if they believe that an area meets the criteria. As the hon. Member has noted, there are not hard and fast rules here—there are not specific criteria within each of the categories that are considered in the round—and the Government do not intend to change to having hard and fast rules. I would be worried that that might lead to more complexity and change within the system, meaning that if one area’s prices tipped slightly above or below, we might get into contestation of whether the additional costs of transporting fuel to certain places tips over or above the threshold. I hope that Members who have views on where relief should be extended to will bear with the current, less-rigid process.
I was going to say, in a slightly light-hearted way, that the hon. Member for Witney (Charlie Maynard) suffers somewhat in tax policy debates, in that I know his constituency well, having been born and brought up in west Oxfordshire. As part of my joyful travelling to and from seeing my family there, I often fill up in his constituency, which is often cheaper than doing so in north London. I noted that the hon. Member was magnanimous in calling for the scheme to be extended not to west Oxfordshire, but instead to other areas represented by his Liberal Democrat colleagues.
I should mention the important speech made by my hon. Friend the Member for Na h-Eileanan an Iar (Torcuil Crichton)—he will have to teach me how to pronounce his constituency, as that was the first time I have said it. His is one of the constituencies that does benefit from the relief. I am glad to hear Labour Members talking clearly about the benefits that the relief provides for constituents in some of the most rural parts of the whole country.
Again, I commend the hon. Member for St Ives for his engagement with businesses. We heard about the garage on the Isles of Scilly and how it gets petrol to and from. I think I have covered most of the points raised. If Members have a burning desire to ask me to clarify something, I will, but I am sure we all want to make some progress.
Let me make a couple of further points before I conclude. The fuel duty system supports rural areas in other ways as well. Households and non-commercial premises are entitled to use red diesel for heating and electricity generation, which includes off-grid homes in remote and rural locations that have limited alternatives. Red diesel is subject to fuel duty, which is 10.18p per litre compared with the 52.95p for diesel used on roads. Farmers also retain the entitlement to use red diesel in machinery and vehicles used for agricultural purposes after that was withdrawn from most sectors under the previous Government in 2022.
Several Members discussed the need to ensure that public transport maintains a level of affordability. At the end of the last year, the Government confirmed a long-term investment of over £3 billion over the next three years to support local leaders and bus operators across the country to improve bus services for millions of passengers. That includes multi-year allocations for local authorities under the local authority bus grant. From 2026-27, we have revised the formula to include a rurality element for the first time to ensure that the additional challenges of running bus services in rural areas are taken into account.
I was surprised that there was no mention of potholes in a debate about transport, but I know that they are of particular concern to those in rural areas that are more prone to frost, meaning that ice gets inside the tarmac and the road breaks up. By 2029-30, the Government will have committed more than £2 billion annually for local authorities to repair, renew and fix potholes on their roads. That doubling of funding since we took office will mean that we can exceed our manifesto commitment to fix an additional 1 million potholes a year by the end of this Parliament.
The Opposition spokesperson mentioned the electric vehicle decision that the Government announced at the Budget. We remain fully committed to the electric vehicle transition, which will drive growth and help the country to meet its climate change objectives. Our public charging network is growing rapidly. We had more than 87,000 public charge points as of December last year, and, in the year ending 1 October 2025, the number of charging devices in rural areas had increased by 26%. In addition, the Government announced at Budget 2025 the immediate roll-out of a package of support worth £3.6 billion to help motorists to switch to cleaner and greener cars, to support the automotive sector through the transition to EVs, and to bolster British industry.
The Government are dedicated to supporting and promoting rural areas, particularly by providing support for transport costs, such as through the rural fuel duty relief scheme. I very much look forward to further discussions—perhaps even further correspondence—over the course of the Parliament about how we can continue to do that. I thank the hon. Member for North Devon for securing the debate and all Members in the Chamber for their contributions.
Global Minimum Tax System
Dan Tomlinson Excerpts(3 weeks, 3 days ago)
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The Exchequer Secretary to the Treasury (Dan Tomlinson)
The UK has reached agreement with more than 140 members of the G20-OECD inclusive framework on a package of reforms to the pillar 2 global minimum tax system.
The reforms deliver on the June 2025 G7 statement, and subsequent G20 commitments, to address how the pillar 2 system should interact with US minimum tax rules, alongside an evidence-based stocktake process to ensure that a level playing field is maintained for all inclusive framework members. Further, the reforms provide an important first step on simplification measures for UK businesses, and make wider changes to the design of the framework to support its long-term stability.
The Government welcome the certainty and stability that this agreement brings, and the protection from retaliatory measures that it provides to UK businesses. This agreement underlines the continued commitment of the UK and others to tackle aggressive tax planning by multinational enterprises and preserve the level playing field.
Measures to implement this agreement in UK law will be subject to technical consultation and then brought forward in the next Finance Bill. They will apply for accounting periods beginning on or after 1 January 2026.
Details of the package as agreed by the inclusive framework are set out here: https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/global-minimum-tax/side-by-side-package.pdf
[HCWS1224]
The Corporation Tax Act 2010 (Part 8C) (Amendment) Regulations 2025
Dan Tomlinson Excerpts(3 weeks, 4 days ago)
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The Exchequer Secretary to the Treasury (Dan Tomlinson)
I beg to move,
That the Committee has considered the Corporation Tax Act 2010 (Part 8C) (Amendment) Regulations 2025 (S.I. 2025, No. 1253).
It is a pleasure to serve with you as Chair, Ms Lewell. The regulations before the Committee today amend part 8C of the Corporation Tax Act 2010. These changes are clarificatory and ensure that the legislation works as originally intended.
In the context of part 8C, restitution interest is compensation for not having had access to money awarded by the courts on repayments of tax in long-running litigation, between His Majesty’s Revenue and Customs and companies, about whether UK tax law was compatible with EU law when the UK was a member state. Many such cases remain in litigation, so more restitution interest may be awarded in the future. Part 8C was enacted to apply a higher 45% tax rate in the unusual event that the court were to award such restitution interest to companies on a compound basis—that is, including interest on the interest. It was not intended to apply to a more normal award of simple interest—that is, interest only on the principal sum. The first of the amendments to part 8C clarifies that intent by expressly removing the ambiguous meaning that it could apply in cases of simple interest, which I think we would all agree is very important.
The second amendment removes an unintended lacuna in the timing of assessment, which might otherwise mean that events overrun the ability of HMRC to raise a charge in certain cases where the courts’ decisions crystallising a charge under part 8C are outside the normal time limit. Again, we would not want that to happen.
The clarification that part 8C does not apply to simple interest is generally favourable to the companies involved, and the change to assessment time limits corrects a defect in the legislation and protects the Government’s interests in long-running disputes. In summary, the regulations ensure that the legislation applies as originally intended, and I commend them to the Committee.
Dan Tomlinson
I thank the right hon. Member for North West Hampshire for his contribution, and for sharing his knowledge and expertise on this matter and many other matters relating to tax and economic policy.
There are two separate changes. The first, as he points out, is more a clarification to ensure that this provision applies only on compound interest and not on simple interest.
Kit Malthouse
I realise that this is being painted as a concession, but as I hope that the Minister knows, in the most serious restitution cases, where unlawful behaviour by the Revenue has occurred, it is very rare that courts award simple interest. Actually, most of the awards are interest according to part 8C. Presumably, that was what was behind the original introduction of part 8C and the Revenue was saying, “Oh my God, we’ve got this massive financial exposure; what are we going to do? I tell you what: we’ll introduce a penal tax rate on this interest that doesn’t apply to anybody else.” I would caution the Minister against throwing these regulations in as some kind of concession, because in truth, in the biggest, most important, expensive and difficult cases, simple interest is very rarely awarded.
Dan Tomlinson
My understanding is that the majority of companies that are affected are likely to be awarded simple rather than compound interest, but I am sure there will be some cases—I am not privy to the individual details; as the tax Minister, that would not be appropriate—where compound interest potentially could be applied.
On the second point, the right hon. Member is raising a broader issue about why a tax rate is applied at all here, and about the incentive structures. One thing that this Government are seeking to do in the way that we oversee HMRC is to bring more focus on its delivering for taxpayers and providing value for money for us all. I now sit as the chair of the HMRC board, with an intense focus on scrutinising the work of the Department. As the Minister responsible, when cases are brought to my attention, I always ensure that HMRC is treating taxpayers fairly and proportionately.
My understanding is that when the specific change around the application of 45% interest was made back in 2015, there was a concern that without the changes made in part 8C, those payments would be taxed at the lower corporation tax rate that applied at the time the payments were due to be made, and because the payments may have accrued over many years, when the rate of corporation tax was much higher, companies receiving that interest would receive a significant financial benefit relative to the counterfactual, at the expense of the public purse. That is why the decision was made in 2015 to apply the rate of interest in such a way.
The right hon. Member raised a point about retrospection. The regulations will not apply to those businesses that have already settled and reached an agreement with HMRC, but he is right to point out the shift here—we are moving the time window to the end of the period, when a final decision has been made, rather than the start.
Kit Malthouse
Anybody who is currently in litigation with the Revenue that has passed the four-year mark from the period in which the liability may or may not have arisen would now have the expectation that if they win and an award is made, it would not be assessed under part 8C. Will the Minister confirm that now it will be assessed, so people in that situation will need to recalibrate almost completely their assumptions of risk around the litigation?
Dan Tomlinson
A very small number of companies are affected, but yes, my understanding is that this change will mean that the decision point where the interest is applied will shift from the beginning to the end. As the right hon. Gentleman says, that will change the financial considerations for the small number of businesses that are in litigation at the moment.
Question put and agreed to.
Agricultural Property Relief and Business Property Relief
Dan Tomlinson Excerpts(3 weeks, 5 days ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Victoria Atkins (Louth and Horncastle) (Con)
(Urgent Question): To ask the Chancellor of the Exchequer if she will make a statement on the changes to agricultural property relief and business property relief.
The Exchequer Secretary to the Treasury (Dan Tomlinson)
I thank the shadow Secretary of State for Environment, Food and Rural Affairs for asking this question. I wish a happy new year to her and to all Members of the House.
The reforms announced in December go further to protect more farms and businesses while maintaining the core principle that more valuable agricultural and business assets should not receive unlimited relief.
The allowance for the 100% rate of relief for agricultural property relief and business property relief will be increased from £1 million to £2.5 million when it is introduced in April. That means that a couple will now be able to pass on up to £5 million of agricultural or business assets tax-free between them, on top of the existing allowances such as the nil rate band. Taken together with the reform announced at the recent Budget, widows and widowers will benefit from up to £2.5 million of their spouse’s allowance, even if their spouse passed away many years ago.
Our changes further reduce the number of estates forecast to pay more inheritance tax, and they further reduce the liability for many of the remaining estates. Compared with Budget 2025, the number of estates claiming APR—including those also claiming BPR—affected by the reforms in the coming tax year is expected to halve, from what would have been 375 estates to just 185 estates. That means that around 85% of estates claiming agricultural property relief in 2026-27 are forecast to pay no more inheritance tax on their estates under the changes.
The Government have announced these changes after listening carefully to feedback from the farming community and family businesses, and I am pleased that the National Farmers’ Union and others have welcomed the changes. Even after the reforms, the Government expect to raise around £300 million in 2029-30 from our changes to these tax reliefs. We are making fair and responsible choices to support the farming community, with a record £11.8 billion investment in sustainable farming and food production over this Parliament, and to modernise our tax system for the future.
Victoria Atkins
Thank you, Mr Speaker, for granting this first urgent question of 2026—and what a way to open the new year, with yet another Government U-turn. But where is the Chancellor of the Exchequer? This is her tax and her U-turn, and she should explain why she did not announce this at the Budget. Over the past 14 months, farmers, rural communities and the Conservatives have campaigned relentlessly in and out of Westminster against these vindictive taxes. This U-turn acknowledges what farmers have been telling the Government from day one: Ministers have got their maths badly wrong, and many more farms and family businesses will be broken up as a result of Labour’s higher taxes. Does the Minister accept that?
Why have the Government U-turned? Does it have anything to do with the recent Labour Back-Bench rebellion? Can the Minister tell the House how many family farms and non-farming family businesses will still have to pay this death tax? Are tenant farmers included, given that the now Chief Secretary to the Treasury admitted at the time that 14,000 tenant farmers were missed out of the Government’s original calculations? Can the Minister also confirm whether he signed the tax information and impact note for this U-turn before the Budget?
This partial U-turn does not save every family farm and family business. Indeed, for many the U-turn simply comes too late; we have seen record farm closures under this Government, and it has taken a great personal toll on many families. Given the pain, anguish, distress and, in some cases, sorrow that this cruel tax has caused families up and down the country, will the Minister now have the good grace to apologise on behalf of the Government to farmers and family business owners?
Dan Tomlinson
The Government announced the change in December because we had continued to listen to the representatives of family businesses and the farming community. I note that the National Farmers’ Union and others have welcomed the change, which will increase the threshold from £1 million to £2.5 million.
I think it is the right change to make, and it ensures that we get the balance right. We are still raising £300 million from the very largest estates. If the Conservatives would prefer not to raise that money and give a £1 million tax cut to an estate worth £10 million, that is their choice. It is not our choice. We think we have got to the right place on this policy and are striking the right balance—both raising revenue from those with the very largest estates, and making sure that we have a higher threshold. Because of the changes we announced at the Budget, someone in a couple will now be able to pass on up to £5 million.
I can confirm to the House that I did not sign the tax information note for the change that was announced on 23 December before the Budget. On the numbers, as I said, the number of estates affected who claim agricultural property relief—including those also claiming BPR—is expected to halve, from 375 to 185.
Jim Dickson (Dartford) (Lab)
Happy new year to you, Mr Speaker. I thank the Minister for his answer. I was pleased to meet NFU representatives for Dartford and for Kent in late 2024 and January 2025. Following those meetings, I passed on the view to Treasury Ministers that it was right for the Government to close the inheritance tax loophole and stop the price of farmland from being inflated by people purchasing that land to avoid inheritance tax, but that the threshold should be set at a significantly higher level to reduce the risk of smaller family businesses being affected by the changes. Does the Minister agree that the reliefs are now fairer to family farms but will still achieve their purpose of reducing tax sheltering and raising vital revenue for public services?
Dan Tomlinson
Yes, I do believe that we have got the balance right. It is worth noting that the top 4% of claims accounted for over half the Exchequer cost of business property relief and the top 7% of claims accounted for 40% of the Exchequer cost of agricultural property relief. That is hundreds of millions of pounds in tax that was forgone but will now be raised under these changes from the very largest estates. I thank my hon. Friend for his engagement on this issue over recent weeks and months.
Daisy Cooper (St Albans) (LD)
Happy new year to you, Mr Speaker, and to House staff and all Members in the Chamber. This policy was a disaster from the get-go. It came with no warning, no consultation and no clue. The Liberal Democrats were the first party to point out the damage it would do to family farms. We have repeatedly and clearly highlighted that it would fail to tackle the loopholes exploited by private equity companies but hammer the family farm, damaging our food security in the process. The changes are welcome, but they do not touch the sides, and they are a clear admission by the Government that they have got it badly wrong.
There is now only one sensible course of action left: to scrap the policy in its entirety. Will the Government now do that? If not, the Liberal Democrats will table amendments to the Finance Bill to bring this measure down. Will the Government allow a free vote so that those on their own Benches who want to vote against the measure are free to do so?
Dan Tomlinson
I am always interested in reading Liberal Democrat amendments, even though none of them will ever get passed in this House—not least on this measure, where we have got to the right position. The changes that will be in the Finance Bill will raise about £300 million. It is a legitimate position for the Liberal Democrats to say they do not wish to raise that revenue and that instead they would borrow more money or cut public spending on services like our NHS. That is not our position. We think that this is a fair and proportionate reform.
Jayne Kirkham (Truro and Falmouth) (Lab/Co-op)
I welcome this sensible compromise and point out that the £800 million put into the environmental land management scheme in 2023-24 will become £2 billion by 2028-29, along with the sustainable farming incentive being reintroduced in April, the land use framework and the farming road map. Does the Minister agree that the Labour Government are now well on track to raise food security and help our family farmers?
Dan Tomlinson
I thank my hon. Friend for her question and for her work on the Environment, Food and Rural Affairs Committee on this and many other important issues that affect rural communities up and down the country, as well as in her constituency—a fantastic part of the world that I am sure I will be able to visit soon. She is right that the Government are taking steps—for example, through our £11.8 billion fund to support sustainable farming and food production—and I look forward to working with Ministers in other Departments and across Government to ensure that we continue to support our rural and farming communities.
Mr Speaker
I call the Chair of the Environment, Food and Rural Affairs Committee.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
I welcome this announcement and I pay the warmest possible tribute to the farming unions and others whose tireless campaigning since the Budget of 2024 has made this happen. These changes make the policy better, but that is not the same as saying that they make it good. It is surely bizarre that in 2025, two farms could both be valued at £5 million but one of them would pass free of inheritance tax while the other had an inheritance tax bill of £500,000. Surely the Government now have to publish the impact assessment that they have presumably done so that we can all see the reasons for this change and have some confidence that they have got the figures right this time.
Dan Tomlinson
The figures that the Government have published on this change and at previous Budgets are drawn from actual claims and from engagement with His Majesty’s Revenue and Customs on both APR and BPR. That analysis shows that before this change, up to 275 estates a year would have been affected, and that that number is now forecast to halve to around 185. That means that around 85% of all estates claiming APR, some with BPR, will now not pay any additional tax. I stand by those figures. We published them when we made the decision and they are included in the letter that I and the Secretary of State have sent to all Members.
On the right hon. Member’s point about £2.5 million or £5 million, I think he was referring to the fact that a couple can pass on up to £5 million and for a single person it is £2.5 million. That is a long-standing position. It means that the inheritance tax nil rate band and the residence nil rate band are transferable only between spouses and civil partners. Making any unused allowance transferable in the same way is consistent with that long-standing approach.
Lizzi Collinge (Morecambe and Lunesdale) (Lab)
My constituents very much welcome the changes to agricultural property relief and business property relief, which, as the Minister knows, I have raised repeatedly. The changes to the reliefs mean that family farms will be protected while large landowners who bought agricultural land simply to avoid paying tax will no longer have that loophole. Does the Minister agree that these changes show that the Labour Government are listening to rural areas and to rural Labour MPs, and that, unlike the Opposition, they are serious about proper policy development and not just headline chasing?
Dan Tomlinson
My hon. Friend is right to say that we on this side of the House are the true and better representatives of the rural community. There are over 150 MPs on this side of the House who represent rural or semi-rural constituencies—I believe that there are as many Labour MPs representing rural constituencies as there are MPs on the blue Opposition Benches.
Sir Geoffrey Clifton-Brown (North Cotswolds) (Con)
Thank you, Mr Speaker, and a happy new year to you and your staff. Farmers in my constituency will welcome this change to the thresholds for APR and BPR. However, it took 14 months to achieve it and rural communities really do feel discriminated against by some of the measures that this Government are taking against them. I ask the Minister to convey to his colleague, the Minister for Food Security and Rural Affairs, who is sitting on the Treasury Bench, that the Government should not enact any changes to shooting or trail hunting, because to do so would really damage and annoy rural communities?
Dan Tomlinson
We will be going ahead with the changes that were set out in our manifesto and that have been announced recently. I think that that is the right thing for us to do.
Jenny Riddell-Carpenter (Suffolk Coastal) (Lab)
Happy new year to you and the team, Mr Speaker.
I start by thanking the Minister and his Department for working actively with rural colleagues and myself for the last 14 months. In the many conversations that we have had, both face to face and in wider correspondence, we have set out the huge number of issues that are well known to this House, but at the heart of this, and the reason that so many of us are concerned, is the lack of profitability in farming. Baroness Batters’ report will go a huge way towards addressing some of the systemic issues in farming, but does the Minister agree that we also need to tackle supermarkets and unfair practices and to address lots of the long-standing issues, and that the Treasury as a whole needs to continue to engage with rural MPs to make sure that we introduce further reforms to support farming profitability?
Dan Tomlinson
I thank my hon. Friend, too, for her work on the Select Committee, and for representing rural communities, including hers. My understanding is that Ministers in the Department for Environment, Food and Rural Affairs and the Government are looking at what more we can do to ensure that farmers receive a fair price for their products. Of course, we support having a competitive supermarket and retail system in this country, so that we can have low prices for consumers, but we have to ensure that those prices are fair for farmers, and for the communities up and down the country that we rely on to produce good British produce.
Sir Julian Smith (Skipton and Ripon) (Con)
This policy has caused huge stress for rural communities across North Yorkshire. What discussions is the Minister having inside government about other policies, such as the policy on rates for public houses in rural areas, to ensure that this error is not made again?
Dan Tomlinson
Of course, as the tax Minister—that is why I am at the Dispatch Box today, to address a point made earlier—I look continually at what improvements we can make to our tax system to ensure that we continue to support both rural and urban constituencies and communities up and down the country. If there are changes that the right hon. Member would like to see, he is of course welcome to write to me, on that or any other matter.
Tonia Antoniazzi (Gower) (Lab)
I have worked extensively with the National Farmers Union and its Welsh branch, and with the Ulster Farmers’ Union in Northern Ireland. These changes are very much welcome, but I say to the Minister—and to the Minister for Food Security and Rural Affairs, who is sitting next to him—that it is important that we have these conversations with Labour MPs and Members from across the House at every opportunity, because this has damaged our farming communities. I also have no truck with what the Opposition say, because I have been in opposition and I know what it is like. Conservative Members let our farmers down. We are getting to the heart of this, fixing the situation, and supporting our rural communities properly, and I welcome the changes, especially for my constituents in Gower.
Dan Tomlinson
I thank my hon. Friend for her contribution, for the experience and expertise that she brings to the House as Chair of the Select Committee, and for the important work that she has done on this and other issues. The changes that we have made to this policy mean that it is now fair and balanced, and protects more farms. As I have said, the number of estates expected to pay more tax will halve. We Labour Members and the Government can hopefully continue to focus on what we can do to support our farming and rural communities—for example, on the £11.8 billion of investment that we are putting in over the course of this Parliament.
Tim Farron (Westmorland and Lonsdale) (LD)
Our farming and rural communities in Cumbria and right across Britain should be utterly proud of themselves, because this U-turn is their victory, and I pay tribute to them. However, the appalling emotional and economic damage done to farmers over the last 14 months has been cruel and will have a lasting impact. Will the Minister apologise to the farming community for the last 14 months, and recognise that many hill farms in Cumbria will still be hit by this tax, because they are worth more than £2.5 million, although their average income is less than the minimum wage? Does this tax not remain an attack on British farming and on food security?
Dan Tomlinson
If the Government had not made these changes in December, Opposition Members would have been standing here asking us to make those changes. We are coming forward with a revised position—we are increasing the threshold from £1 million to £2.5 million—and Members are criticising us for that change. We think it is the right thing to do, and we are doing it in good time—before the Finance (No.2) Bill, in which these changes will be made, is voted into law later this year.
Yes, some estates—the very largest—will continue to pay more after these changes, but it is worth bearing in mind that, relative to the position of a few months ago, estates worth £2.5 million will now pay significantly less; there is a £300,000 reduction in their tax liability. For an estate worth £5 million, it is a £600,000 reduction. These are significant reductions in the amount of tax that the very largest estates will have to pay, but we do think that it is right and fair to continue with a reform that strikes the right balance between the need to raise more revenue and the need to protect smaller family farms.
Sadik Al-Hassan (North Somerset) (Lab)
I wish you, my constituents in North Somerset, House staff and hon. Members a happy new year, Mr Speaker. I welcome the Government’s decision to amend the thresholds for APR and BPR, as do rural communities in my constituency, and extend my thanks to the organisations that campaigned for this outcome, such as the NFU. However, this is only one part of a larger problem. For 50 years, our country has witnessed the gradual erosion of our rural community sustainability, national food security and farm profitability. I look forward to 2026 being the year that the farming sector gets the wider change that it needs in order for the new year to be happy and profitable.
Dan Tomlinson
I wish my hon. Friend’s constituents a happy new year. The Batters review, which was published just a few weeks ago, set out ideas that the Government can take forward to ensure that farming can be profitable and sustainable. I know that Ministers in the Department for Environment, Food and Rural Affairs and across Government will continue to work on those important objectives.
Sir John Whittingdale (Maldon) (Con)
Although I welcome this announcement, which directly contradicts what the Secretary of State told me and my right hon. Friend the Member for Louth and Horncastle (Victoria Atkins) on the day that the House rose for Christmas, is the Minister aware that a significant number of my constituents who farm in the Dengie peninsula and elsewhere will still face a significant inheritance tax bill that may prevent them from passing on their farm, as they inherited it, to their children? If the Minister is anxious about the scheme being used for tax avoidance, will he reconsider the NFU’s suggestion that there be a clawback mechanism, which would allow the Government to take back the exemption if a farm was sold within a certain period after inheritance?
Dan Tomlinson
No, we will not be considering the clawback proposals put forward. Instead, the Government have come forward with the change that was announced in December, which increases the threshold from £1 million to £2.5 million. It is worth remembering that the tax rate paid above the higher threshold is half the rate that anyone else who has sufficient assets would pay if they were liable for inheritance tax, and that any tax liability can be paid interest-free over 10 years. On balance, while these changes will affect some of the very largest estates—the Government have published the numbers, which are based on the actual claims data from His Majesty’s Revenue and Customs; it estimates that fewer than 200 estates will pay additional tax—almost all the estates paying additional tax will pay significantly less than they would otherwise have done, because we have listened to family businesses and farming communities.
Mr Clive Betts (Sheffield South East) (Lab)
Although this issue is clearly of importance to the farming industry, it is also of importance to small firms in the steel and engineering sector in my constituency. The owner of Special Quality Alloys, Benn Beardshaw, wrote to tell me that the firm had been in the family for many years, and had been passed on from one generation to another. He was really concerned that the measure as initially proposed could lead to a break-up of that important firm, which has won the Queen’s award for enterprise, or to it being sold off. Will the Minister confirm that this measure will equally help those sorts of small businesses, which are vital to the overall wellbeing of the steel and engineering sector in Sheffield?
Dan Tomlinson
I thank my hon. Friend for his question, which has given me a chance to return to a question that the shadow Secretary of State, the hon. Member for Epping Forest (Dr Hudson), asked, but that I did not quite get to—he will have to forgive me. I will put on record for the House that the number of estates claiming only business property relief is set to fall from 325 to 220 a year as a result of our increasing the threshold from £1 million to £2.5 million.
I have met representatives of Family Business UK. I know that, as well as having private conversations about APR, Labour Members have been discussing the BPR proposals with the Government. The uplift in the threshold will mean that family businesses that people wish to pass on will now be subject to a lower tax rate, or will not have to pay the tax at all in many cases.
Wendy Chamberlain (North East Fife) (LD)
I find it interesting that the Minister says that this is the right policy. That is what the Government said on 23 December, but not what they said at oral questions on 18 December—the day before we rose for recess. I have spoken to farmers who will now not be affected by the tax, but who have spent cashflow and hard-earned savings on financial advice to ameliorate their position. Things are not getting easier for farmers; just this morning, one of my local farmers got in touch to say that he was informed on new year’s day that his milk supply faces a 3p per litre cut. What is the Government’s assessment, alongside what is in the Batters report, of the ongoing financial impact on farmers, be it of poor Government policy or of poor supply chain practices?
Dan Tomlinson
Earlier in the year, Members asked us about making these changes, and we have come forward with a revised proposal that includes a higher threshold. That is the right thing to do; it shows that we have listened to representations from the farming and business communities, as my hon. Friend the Member for Sheffield South East (Mr Betts) mentioned. The Batters report, which was published on 18 December, made a number of recommendations. We will take forward many of those proposals to ensure that we support increased profitability for farmers and continue to work on important sustainability initiatives.
John Whitby (Derbyshire Dales) (Lab)
I was grateful for the opportunity to meet the Chancellor recently to highlight the impact that the changes to APR and BPR would have had on farmers in Derbyshire Dales. I therefore sincerely thank the Minister and the Chancellor for listening to me and other members of the Labour rural research group, and raising the tax-free allowance. Since the change was announced, more than 100 farmers have written to me to say how pleased they are about it. One farmer said:
“This has been hanging over me all year, making me ill, and I can’t believe the relief I’m feeling right now.”
Will the Minister or the Chancellor take the opportunity to visit a farm in Derbyshire Dales to see for themselves the positive difference that this change has made?
Dan Tomlinson
I thank my hon. Friend for his invitation. I will pass it on to the Chancellor of the Exchequer, and will carefully consider it myself.
Sir Bernard Jenkin (Harwich and North Essex) (Con)
The Minister referred to the importance of manifesto commitments. Where in the Labour manifesto did it say that there would be any tax restrictions on inheritance for farmers? In fact, when they were in opposition, did Ministers not go around promising not to impose such a tax? They then did precisely the opposite. When he talks about manifesto commitments, will he have a slightly less selective memory and avoid misconstruing the position of the NFU, which is still in favour of the abolition of the tax altogether? Tom Bradshaw is my constituent. I hope that the Minister will send him his best wishes and congratulate him on exposing the Government’s hypocrisy.
Dan Tomlinson
I had the pleasure of meeting Mr Bradshaw last year. The NFU published statements—both at the time of the announcement and around the turn of the year—welcoming the changes that the Government have proposed. The hon. Gentleman asks about manifesto commitments. We were very clear in our manifesto that we would return economic stability to this country, putting behind us the chaos of Liz Truss and the chaos that the Conservatives left us with. Part of that is about ensuring that we do not continue to borrow at excessive levels, as they did, but bring borrowing down—[Interruption.] Borrowing is coming down in every single year of the next five years. We are ensuring that we can raise, in a fair and sustainable way, the revenue to fund our public services.
Laura Kyrke-Smith (Aylesbury) (Lab)
I hugely welcome these changes, which have been met with real relief by the farmers in my constituency, and I am grateful to the farmers who fed in their perspectives to me over the last year and allowed me to pass them on to the Treasury. Can the Minister reassure me and my local farmers that he will continue to listen and engage with our farming communities in this way, recognising the inherent value of farming, but also the great contribution it makes to the economy and our food security?
Dan Tomlinson
I thank my hon. Friend for the conversations that I know she has had with Ministers on this and other issues in recent weeks and months. Yes, we will continue to do all we can to support farmers and the farming industry in this country. That is part of why we are working hard on trade deals, to make sure we can improve access to markets for farmers here in the UK so they can export more of their produce overseas.
Dave Doogan (Angus and Perthshire Glens) (SNP)
I pay tribute to the Minister: he is back out again doing a sterling job of being a totally discredited Chancellor’s human shield. He will remember the Finance Bill that we debated just before Christmas, which took three hours in this place, and two hours of that was taken up with agricultural property relief, as I pointed out to him at the time. He wants us to believe that he has moved this policy into an acceptable position, but it is no such thing: this is a policy that Labour expressly said they would not enact, and then they did it, and now they have made it slightly less bad. I and the NFU Scotland are firmly opposed to this in its entirety, so will he take a win for a hard-up Government and pause this policy pending a proper analysis?
Dan Tomlinson
Yes, we did discuss this at Treasury questions and on Second Reading of the Finance Bill, and we will have time to discuss it in the Committee of the whole House next week too—and I can see from the number of Members wishing to speak now that there are many more questions coming so we may have many more hours today, Mr Speaker, to discuss it as well. In the end, the position that the Government have now reached is that we are going to amend the Finance Bill to make this change and increase the threshold from £1 million to £2.5 million. That will, we expect—and it will be confirmed by the Office for Budget Responsibility in the usual way at fiscal events—raise £300 million, money that we can put into our public services, rather than continue the chaos of previous years with additional borrowing. It is right to look in the round at fair and necessary tax changes that we can make on those with the broadest shoulders, so that we can fund our public services adequately.
Ms Julie Minns (Carlisle) (Lab)
Happy new year, Mr Speaker. I pay tribute to Carlisle NFU and my constituents who have raised this issue with me over the last 14 months, and I thank the Minister and his colleagues for engaging constructively and listening to those representations. North Cumbrian farmers face land price increases as a result of forestry firms snapping up large parcels of land and large landowners seeking to abuse the IHT system by hiding their wealth, and this is an important step in balancing the need to tackle that abuse and rising land prices and the need to raise the revenue required for our village schools, local health services and to tackle crime. Does the Minister agree that this now achieves that balance?
Dan Tomlinson
I thank my hon. Friend for her question and for her strong representation of rural constituents and rural communities. She makes a very important point. It is worth noting that this is a tax relief, and the tax relief as it stood before the changes that the Government have come forward with since the 2024 Budget meant that the top 7% of claims for agricultural property relief accounted for 40% of the Exchequer cost of the relief. That meant £219 million in foregone tax revenue—revenue that, by and large, this Government will now be raising from the very largest estates to help fund our public services in a sustainable way. The Opposition were never able to do that because of their chaotic management of the economy and the public finances.
Aphra Brandreth (Chester South and Eddisbury) (Con)
The Government have heard from these Benches time and again about the impact the family farm tax has had on food security and the risk to countryside stewardship and our environment and the economic viability of farms, but also, crucially, about the impact on farmers’ mental health. My question to the Minister is simple: on behalf of farmers across Chester South and Eddisbury, why did this decision take so long?
Dan Tomlinson
The Government wanted to ensure that the changes that we are legislating for in the Finance Bill in the coming weeks came forward before that Bill was passed. We have continued to listen to farming communities and family businesses. The changes with which we have come forward, including increasing the threshold from £1 million to £2.5 million, coupled with the changes announced in last year’s Budget, will mean that a couple can pass on up to £5 million of agricultural or business assets tax free, which we think is a fair and proportionate way to raise revenue from some of the largest estates in the country.
Ben Goldsborough (South Norfolk) (Lab)
South Norfolk is home to 400 farms, and I put on record my thanks to Will, Nick, David and Deborah, who are some of the farmers have supported me hand in glove over the past 14 months in making representations to the Minister. I welcome these changes, but the biggest threat to family farming in South Norfolk right now is biosecurity risk. I urge the Treasury to pay special attention to avian influenza and African swine fever, so that we can protect those family farms going forward.
Dan Tomlinson
I thank my hon. Friend for the strong representation that he has provided for his constituents since he was elected in 2024, and for raising an important issue. I am sure that DEFRA Ministers are alive to that issue and will continue to have conversations with hon. Members.
David Davis (Goole and Pocklington) (Con)
I refuse to call this property relief on what is an absolutely new tax, but will the Minister tell us if the agricultural property tax threshold will rise in line with agricultural land prices?
Dan Tomlinson
The Government have set the thresholds for tax policies over the period of the OBR’s forecast, and it would not be right for me to comment on the changes that may or may not happen after that. May I say to the right hon. Gentleman that throughout the time that Margaret Thatcher was in power, we did not have a system like the current system, so he is not quite right to say that this relief has always been there? It was not there when the political hero of many Conservative Members was in power.
Andrew Pakes (Peterborough) (Lab)
Happy new year to you, Mr Speaker, and to all your team. I welcome the Minister’s comments. I thank DEFRA and Treasury Ministers for engaging with farmers and National Farmers Union members in my constituency, and for listening to their views. Farming has had a terrible decade—much longer than 14 months—with rural services cut, farming budgets unspent, failed Brexit plans and trade deals that sold out British farmers. Does the Minister agree with me that with the changes that we have made to APR, the findings of the Batters review and the funding that this Government are putting in place, we can now turn a corner on that terrible decade for British farming?
Dan Tomlinson
Yes, I agree with my hon. Friend’s powerful contribution. He made important points about how the trade deals negotiated by the previous Government undermined British farming and that there was no consistency of investment and support for farmers up and down the country. What do rural communities think about that? At the last general election, they turfed out hundreds of Conservative rural MPs and elected over 150 Labour MPs to represent rural and semi-rural constituencies. Labour Members are now the mainstream voice of rural communities up and down the country.
Helen Morgan (North Shropshire) (LD)
The psychological impact of the past 14 months has been profound in rural places like North Shropshire. At every primary school visit that I have made in the past 14 months, I have been asked by children as young as seven or eight to confirm that I oppose the family farm tax, because it is having a devastating impact on their families at home. The uncertainty has also had a devastating impact on related businesses, such as agricultural machinery suppliers. It will continue to have an impact by making business owners deliberately keep their businesses small so that they do not have to pay inheritance tax, because they cannot sell off part of their farms as they will no longer be viable. Why are the Government continuing with this daft policy of restricting growth in rural areas?
Dan Tomlinson
The Government want to support growth and investment in rural communities. That is why we are putting in £11.8 billion of support over the course of this Parliament and ensuring that we improve our economy and our economic fortunes across the board as a country after the chaos of the last 14 years. We have had six interest rate cuts in a row, borrowing costs are coming down, and inflation is falling faster than people forecast—it is now forecast to continue to fall. All those long-term changes to improve our economic outlook will support businesses in rural communities and communities across the country.
Joe Morris (Hexham) (Lab)
May I put on record my thanks to farmers such as Nick, Matt, Debbie, James and Graham in the Northumberland branch of the NFU in my constituency? I was in contact with them regularly, and they welcomed the Minister to my constituency to hear at first hand about the potential impact of the policy had it not been changed. I urge him to impress on colleagues the importance of buying British wherever possible. The best way to improve farming profitability is to ensure that much of the public sector food procurement is done with British farms and to ensure that farmland is not lost. To replace potential food-producing land, more food-producing land does not need to be cut out of forests elsewhere in the world.
Dan Tomlinson
I thank my hon. Friend for inviting me to his constituency last year; I believe it was shortly after I was made a Minister on 1 September. It was a very productive and useful visit, and I thank the farmers and members of the community I met when I went to a lovely café and had some lovely tea and cake with my hon. Friend and those farmers. It was a really helpful conversation for me, and I am thankful to him for his representations on behalf of his constituents over many months. I want to work with him on procurement and ensuring that we can continue to support farmers and farming communities; I know that Ministers across Government, particularly in DEFRA, will continue to do that in the months and years ahead so that we can turn the page on the chaos we had under the previous Government.
Sir Gavin Williamson (Stone, Great Wyrley and Penkridge) (Con)
I cannot adequately put into words the fear, concern and stress that farmers in my constituency and right across the country have felt as a result of the policy announced at the Government’s first Budget. That same fear is now being felt in rural pubs up and down the country due to the changes to business rates. Will the Minister apologise to those farmers for the fear, stress and cost that he has put them all through? Will he indicate to many publicans across Staffordshire that the Government are going to U-turn on business rates so that they do not close rural pubs?
Dan Tomlinson
The Government have been listening to rural communities, farming representatives and the representatives of family businesses. That is why, after listening, we have come forward with these changes, which we think strike the right balance between the necessary impulse to ensure a fair and sustainable tax system and continuing to protect smaller businesses and farms. I am sure that we will have many more chances in this place to continue to discuss business rates.
Terry Jermy (South West Norfolk) (Lab)
This is very welcome news, and many farmers in my constituency will be delighted. May I acknowledge the Minister’s engagement on this subject and the many conversations he has had with myself and other Labour party representatives from rural communities? I pay tribute to my hon. Friend the Member for Suffolk Coastal (Jenny Riddell-Carpenter) for her role as the chair of the Labour Rural Research Group and her advocacy for hundreds of farmers across the country. It is fair to say that the changes to APR are part of a long list of concerns for farmers in this country—concerns that were increased over 14 years of Conservative Government, when we saw a huge decline in farming. May I invite the Minister to join me in a new year’s resolution to work with Treasury colleagues to do more and to do all that we can possibly do to support farming in this country?
Dan Tomlinson
I thank my hon. Friend for his reminder that the previous Government and previous Conservative Prime Ministers were roundly rejected by the country at the last general election. People in rural communities and communities up and down the country voted for change for the better with this Labour Government and for a Government who will continue to represent and support farming communities up and down the country. Let me praise my hon. Friend on his recent appointment to the Environment, Food and Rural Affairs Committee, to which I know he will provide an invaluable contribution in his continued representation of rural communities.
Sammy Wilson (East Antrim) (DUP)
I wish you and the staff of the House a happy new year, Mr Speaker.
Regardless of the reason for the change in policy—whether it is simply fear of the electoral consequences of breaking election and manifesto promises to farmers, or a belated recognition of the importance of the farming industry to feeding the nation in an increasingly unstable world—I welcome these changes. However, I would point out to the Minister that despite his assurances, 25% of farmers in Northern Ireland will still fall over the threshold he has announced, which will have an impact on family farms because of the cost of land and so on. Having seen the disaster of the policy, does he accept that the only answer is to abolish it altogether?
Noah Law (St Austell and Newquay) (Lab)
I thank the Minister for his considered engagement with rural Labour MPs such as myself on this issue from the get-go. I also thank farmers—at least in my part of Cornwall—for their dignified engagement at what I know has been a difficult time. Does the Minister agree that where we have landed now strikes a much better balance, one that in relative terms favours small family farms compared with industrial concerns, institutional investors and those looking to use agricultural property as a means of avoiding tax?
Dan Tomlinson
I thank my hon. Friend for his continued engagement on this and a whole range of issues that affect rural communities in Cornwall—he is a strong advocate for his constituents. As he says, we have now come forward with a change in the APR and BPR thresholds to make sure we can protect those smaller family farms.
Madam Deputy Speaker (Ms Nusrat Ghani)
I urge colleagues to keep their questions short, and for the answers to be on point.
Alicia Kearns (Rutland and Stamford) (Con)
This U-turn comes too late for too many. It is extraordinary to hear Labour MPs saying that their farmers are delighted; mine are sick with relief after 14 months. At the Liaison Committee, the Prime Minister accepted that he knew that some farmers had planned to take their lives or had already done so, yet it still took him well over a week to decide that rural lives matter. What was it that suddenly changed after 14 months for him to decide that our farmers should be stood by, and should not be questioning whether or not they were going to be here for next Christmas?
Dan Tomlinson
Over the course of recent months—since I have been in the Government, from September onwards—Ministers from the Department for Environment, Food and Rural Affairs and from the Treasury have continued to engage with farming communities and with business communities. As has been raised by some Members today, it is worth remembering that this change affects business property relief, not just agricultural property relief. As a result of that listening and engagement, we have come forward with this change in time for it to be included in the Finance (No. 2) Bill.
Steve Witherden (Montgomeryshire and Glyndŵr) (Lab)
This month marks 12 months since I first called on the Government to raise the APR threshold. I strongly welcome their decision to do so, and thank NFU Cymru and the Farmers’ Union of Wales for their tireless campaigning. Can the Minister assure me that the Government will continue to listen to rural communities like mine?
Dan Tomlinson
Yes, I can reassure my hon. Friend that we will continue to listen to, and engage with, the over 150 Labour MPs who represent rural and semi-rural constituencies.
Sarah Dyke (Glastonbury and Somerton) (LD)
It really should not have taken over a year for the pleas of thousands of farmers to be heard, and for the Government to finally concede their mistake and change the disastrous family farm tax. However, it is clear that they still simply do not understand the industry. Many farms in Glastonbury and Somerton are run by multi-generational family partnerships, rather than married couples. Those businesses will not benefit from the combined spousal allowance of up to £5 million, so will the Chancellor finally give up and completely leave farmers alone to get on with what they do best: producing food for the nation?
Dan Tomlinson
We think that continuing to raise around £300 million from this policy is the right thing to do, so that—alongside the other changes that the Government are making—we can raise revenue in a fair and sustainable way to fund our public services.
James Naish (Rushcliffe) (Lab)
I refer the House to my entry in the Register of Members’ Financial Interests. I thank the Minister for his engagement on this issue over recent months—it has made a real difference. Given his engagement on this matter and rural issues, does he agree that this country needs a rural strategy, which this Government should be delivering?
Dan Tomlinson
This Government have our farming road map. We have also published the Batters review, and we will be taking forward many of the proposals and the recommendations in it, so that we can continue to support profitability and sustainability for farmers and our farming communities.
John Cooper (Dumfries and Galloway) (Con)
A guid new year to you, Madam Deputy Speaker, and the staff of the House.
The past 14 months have been hell for the farmers of Dumfries and Galloway, and the Minister has made it clear that he will not apologise for that. Will he stop fantasising, like the wealthfinder general, about the money he can take out of agriculture and instead concentrate on helping British farmers to put British food on British tables?
Dan Tomlinson
We need to continue to do all we can to support British farming so that we can have more British produce on our shelves and so that countries overseas can have more British produce, too. That is why we have been working hard on our trade deals to secure more access for British farmers to markets overseas.
Perran Moon (Camborne and Redruth) (Lab)
I thoroughly welcome the increase in the threshold, and I remind the Minister that in terms of farming profitability, my Conservative predecessor—a former DEFRA Secretary —described their Australia deal as
“not actually a very good deal for the UK”.—[Official Report, 14 November 2022; Vol. 722, c. 424.]
The Conservatives sold out and undercut our farmers with trade deals to New Zealand, whereby we could not export to New Zealand, but it could export to us. These deals were cheered on by Reform. Will the Minister confirm that this Labour Government will never sign such incompetent and damaging deals, and that we will not take lectures on farming profitability from the Conservatives or Reform?
Dan Tomlinson
My hon. Friend gives me the chance to quote Michael Gove, who admitted that the previous Government had let down British farmers. He said:
“I can confirm I think we negotiated poorly with Australia, and New Zealand, but particularly with Australia in defence of our farmers”.
He admits that the last Government made mistakes, failing farmers on trade; I wonder whether the Opposition will do so too.
Richard Tice (Boston and Skegness) (Reform)
This partial U-turn on the dreadful family farm tax is partially welcomed by farmers in Boston and Skegness, but where is the Chancellor to come and admit the error of her ways? Jobs have been lost, investment has been slashed and, tragically, lives have been lost by this grief tax. Will the Minister, at the third time of asking, apologise to the farming community?
Dan Tomlinson
As the Minister with responsibility for tax, I am here answering questions about tax, and I am happy to continue to do so. The change that the Government came forward with last month—we will be legislating for it in the Finance Bill—will increase the threshold from £1 million to £2.5 million. We are doing that because we have listened to farmers and their representatives and to family businesses, too. We think that is the right thing to do, and we think it strikes the right balance.
Dame Nia Griffith (Llanelli) (Lab)
I thank my hon. Friends in DEFRA and the Treasury for listening to farming colleagues, including NFU Cymru and the Farmers Union of Wales, in making this welcome change to the proposals for agricultural property relief. It will mean that many more Welsh farms will not pay any additional inheritance tax. The Minister will know that the previous Conservative Government signed very detrimental trade agreements with Australia and New Zealand, which within 10 years will lead to limitless meat imports. Will he look carefully at what can be done now to help those Welsh family farms to maintain their farming tradition? At the moment, they will be open to severe competition, and we need to look at everything that can be done to help them.
Dan Tomlinson
The previous Government negotiated poorly when it came to trade deals. When the Conservatives negotiate, Britain loses. Labour has negotiated four new significant trade deals that will help to ensure that British businesses—farming businesses and businesses of all sorts—can access more markets, more easily. That is the right thing to do for long-term growth and productivity.
John Glen (Salisbury) (Con)
I welcome the partial U-turn. When I met a number of farmers on Boxing day, all 400 of them were very concerned that the next phase of this Government’s relationship with rural Britain would be a consultation on banning trail hunting. On the basis of this experience, I think that the Minister could go back to the Treasury and ask his officials to put together a team to work very closely with their counterparts in DEFRA to absolutely ensure that the farmers’ obligation, and indeed their true intent—to produce food and be good stewards of the environment— can be combined, and to ensure that never again in the course of this Parliament will such measures be undertaken as they were last year.
Dan Tomlinson
The right hon. Gentleman has mentioned the issue of trail hunting. That was in our manifesto, and it is part of our animal welfare strategy to continue with some important changes there. I think it right for governing parties to make progress on the commitments that they made when they stood before the country.
Dave Robertson (Lichfield) (Lab)
I welcome the Government’s changes in their plans in relation to inheritance tax on farmers and family businesses. The current system does not work. We need a tax regime that protects genuine family farms but does not let the super-rich dodge tax by buying up land, and many farmers in my constituency have the same concerns about that, but they have also made it very clear to me that the £1 million threshold was too low and would have a significant and detrimental impact on farming in my constituency. Along with many other Labour Members in rural seats, I have made that case to Ministers directly, and I am very pleased that the Govt are raising the threshold to £2.5 million, because that will make a huge difference for farmers in my constituency. I am very interested to hear, though, what steps the Government will be taking—and what steps the Minister can take, with colleagues—to ensure that profitability is at the forefront of our work with farmers, particularly on things like—
Dan Tomlinson
The Batters review focused closely on this, and we will be looking at its proposals and recommendations, and ensuring that we can do all that we can as a Government, within the constraints that we have, to continue to focus on improving farming profitability.
Several hon. Members rose—
Anna Sabine (Frome and East Somerset) (LD)
In my constituency, we have not just a lot of farmers but a huge number of other businesses and livelihoods that rely on those farmers, and the whole of that rural economy has been negatively impacted over the last 14 months. Will the Minister undertake not just to apologise to communities like mine, but to ensure that the Government will genuinely start listening to rural communities? At the moment, they do not feel listened to, understood by or even cared for by this Government.
Dan Tomlinson
We will continue to listen to rural communities, and to farming communities, to make sure that we can support them as they seek to grow and invest in their businesses in order to improve and support the communities that they are part of. It is because we have been listening to the representatives of farming communities and family businesses that we have come forward with the changes that we think strike the right balance.
Steve Race (Exeter) (Lab)
I welcome this sensible compromise, and thank the members of the NFU in Devon for their work and for talking to me, both here and in Exeter. The Government’s support for nature-friendly farming through environmental land management schemes is to increase from £800 million a year to £2 billion a year over the coming years. Can the Minister confirm that they are taking the necessary steps to ensure that we can, in a sustainable and environmentally-friendly way, produce the food that we need in this country?
Dan Tomlinson
I thank my hon. Friend for the engagement that we have had on this and other issues that affect his constituency, which I know contains some rural elements. He has raised an important point. We need to continue to work in partnership with farmers, and with their representatives and trade bodies, to make sure that we can support sustainable food production in the UK, and we are investing £11.8 billion of support over this Parliament.
Stuart Anderson (South Shropshire) (Con)
I thank all the South Shropshire farmers and businesses for their tireless campaign. They were continually told by the Government that they were wrong, but they have now been proved right. They are still telling me that this tax is wrong. The family farm tax is not right. Will the Minister apologise for the heartache, pain and suffering that he has caused South Shropshire farmers and businesses, and scrap the tax completely?
Dan Tomlinson
We will not be scrapping this tax completely. We have tabled an amendment that the House will have the chance to debate next week in Committee of the whole House on the Finance Bill. We think that the proposals that we plan to implement will raise £300 million in a fair way and protect smaller family farms.
Douglas McAllister (West Dunbartonshire) (Lab)
Last month, I visited Portnellan farm in my West Dunbartonshire constituency. I received a very warm and courteous welcome from husband and wife farmers David and Freda and their son Chris. The Scott-Parks run their family farm and were keen for me to hear and see at first hand the challenges that they face in ensuring that the next generation can continue to farm at Portnellan. I listened to their request that we review the original proposals. Does the Minister agree that 85% of all farming estates will now be protected from inheritance tax but, importantly, that we will maintain the original principle that tax avoiders should not use land to avoid tax at the expense of hard-working family farmers such as the Scott-Parks?
Dan Tomlinson
My hon. Friend makes an important point. If someone has agricultural or business assets worth £2.5 million, for example, they will now pay £300,000 less in inheritance tax than they would otherwise have paid; if they are worth £5 million, they will pay £600,000 less than they would have paid before the changes that we announced last month. The challenge of the proposals from the Opposition parties is that they would provide a £1 million tax cut to an estate worth £10 million. Their priority is clearly giving the very largest estates in this country tax cuts worth millions or even tens of millions, rather than using revenue in a fair way to fund our public services.
Dr Ellie Chowns (North Herefordshire) (Green)
Farmers in North Herefordshire welcome this change, as do I, but there are still huge problems with the policy: it does not even fix the tax loophole for people who buy up land to avoid tax, and it has created huge economic damage and heartache in farming communities. First, why did it take more than a year to listen to farmers’ voices? Secondly, will the Treasury please engage brain before announcing policy in future, and listen to and work with farming communities?
Dan Tomlinson
We will, of course, continue to engage with, listen to and work with farming communities on the policies that we are putting forward. It is interesting to see and hear that there is at least one wealth tax that the Green party does not support.
Sean Woodcock (Banbury) (Lab)
I thank farmers in my constituency of Banbury and Chipping Norton for engaging constructively with me on the issue—well, the vast majority of them, anyway. I know that they will welcome these changes, as they will welcome the record £1.8 billion investment in sustainable farming and food production provided by this Government. However, they are concerned about trade deals, having been left high and dry by the previous Government, so will the Minister confirm that this Government will protect farmers, not sell them down the river as happened previously?
Dan Tomlinson
Having grown up in rural west Oxfordshire, I know the importance of farming and rural communities in the fantastic county of Oxfordshire, which thankfully now does not have a single Conservative MP—long may that continue. It is a very good thing that we have strong Labour representatives in north Oxfordshire who are continuing to fight the good fight for their communities.
John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)
This partial U-turn on the family farm tax is undoubtedly welcome, but does the Minister understand the hell that he has put farmers through during the past 14 months, not just in my constituency but across the United Kingdom? He should do the right thing and scrap this dreadful, dreadful tax.
Dan Tomlinson
We will not be going ahead with the hon. Member’s proposal of scrapping this change entirely.
Chris Vince (Harlow) (Lab/Co-op)
I put on the record my thanks to the farmers in my constituency of Harlow who have engaged really productively on the issue. In particular, I pay tribute to Richard and Jack Scantlebury of Great Canfield. Can the Minister talk further about how the record investment of £11.8 billion in sustainable farming can help to benefit farmers such as Jack and Richard in my constituency?
Dan Tomlinson
My hon. Friend is right that we are putting that amount in over the course of this Parliament to support innovation, agritech and all the things that farming businesses can and should do to invest and grow and to support their communities. That is the right thing to do, and it is turning the page on the chaos and the underfunding of previous years.
Richard Foord (Honiton and Sidmouth) (LD)
The Minister said that this reversal of plans to introduce inheritance tax on many farming families has happened
“after listening carefully to feedback from the farming community”.
This news just before Christmas was indeed a massive relief, but given that the farming community did not say anything in December that it had not been saying for the previous 13 months, will the Government listen properly in future?
Dan Tomlinson
Yes, the Government will make sure that we do continue to listen.
Chris Hinchliff (North East Hertfordshire) (Lab)
I thank the Minister for listening and acting on the concerns that I and many other Labour MPs raised alongside our farming constituents. Now that a happier compromise has been found on inheritance tax, the issue remains one of securing a profitable future for nature-friendly farming in our country. Can the Minister provide an update on what actions the Treasury is taking to support the swift roll-out of our manifesto commitment for 50% of the food bought by the public sector to be locally produced?
Dan Tomlinson
I cannot update my hon. Friend at this moment, but I would be happy to write to him on that point.
Dr Luke Evans (Hinckley and Bosworth) (Con)
The Government say they have been listening carefully, but they had 14 months and four votes to listen to the Opposition and the farming community. One question is: what changed the Government’s mind? The second question is: who made the decision—the Environment, Food and Rural Affairs Secretary, the Prime Minister or the Chancellor—and how long did they take to persuade the others to make that right decision?
Dan Tomlinson
Government decisions are made collectively. Yes, the Government have listened to farming communities and farming businesses, and to representatives of family businesses that would also have been affected by the £1 million BPR threshold, which was the same as the APR threshold.
Jonathan Davies (Mid Derbyshire) (Lab)
It was very welcome news that the Government had revisited the issues of business property relief, which will help family businesses in my constituency, and agricultural property relief, which means that up to £5 million can be passed on by a qualifying couple. It was also right that the Government considered this area as a whole, because too many people, including famous folk off the telly, had bought such properties with a view to insulating themselves against tax. Can the Minister assure me that we will take steps to support our farming community by not selling them down the river with dodgy trade deals, as we saw with Australia and New Zealand under the previous Government, and that we will work closely with our European export partners? Will he also ensure that the SFI and other subsidies get to where they need and are spent in a timely way, because they went unspent under the previous Government?
Dan Tomlinson
My hon. Friend is right to mention the disastrous trade deals that happened under the previous Government, and I thank him for giving me the chance to mention the trade deals that we have implemented, which seek to support businesses across the country to access more markets. I hope that, with our continued engagement with the European Union, we can continue to do that closer to home, too.
Ben Lake (Ceredigion Preseli) (PC)
Does the Treasury subscribe to the general commitment that the Government have made to ensure that all policymaking considers the impact of decisions on rural areas? If it does subscribe to that rural-proofing commitment, will the Minister elaborate on how he will ensure that it is abided by in future so that rural communities, such as those in Ceredigion Preseli, are not subjected to yet another ordeal such as we have just endured?
Dan Tomlinson
I can reassure the hon. Member that I and Ministers will continue to think through the impacts on rural communities—and all communities—when we come forward with changes to tax or other policies. It is because we have done that that we came forward with the change we announced just before Christmas, and we will be making that change in the Finance Bill in the coming weeks.
Katie Lam (Weald of Kent) (Con)
Family farms and family businesses across the Weald of Kent have been through appalling emotional turmoil in trying to work out how to avoid leaving their children unaffordable, crippling tax bills when they die. They are operating on razor-thin margins and small profits, and many of them have been forced to shell out thousands of pounds on professional services advice on this issue, which is now worthless. What does the Minister have to say to them?
Dan Tomlinson
To those families—people with farms and businesses that would have been affected by the lower threshold, but will now be affected less or not at all by the higher threshold—I would say that we have listened. Over recent months, we have heard the concerns that were raised, and that is why we have raised the threshold from £1 million to £2.5 million. That means a couple can pass on up to £5 million of agricultural and business assets tax-free on inheritance. I briefly remind the House that, above that threshold, the tax rate is half the rate that everyone else pays—20% rather than 40%—and that those who pay it will, if they so need, have 10 years to pay it interest-free.
Cameron Thomas (Tewkesbury) (LD)
Farmers are among the most robust members of society, yet since autumn 2024 several have spoken candidly with me about the mental health impact of the family farm tax, in an industry that suffers a rate of suicide four times the national average. The changes to the Government’s family farm tax are welcome, but will the Government take this opportunity to apologise to Gloucestershire farmers for 14 months of torment?
Dan Tomlinson
We have listened. We have made sure, after the engagement we have had with farmers across the country, their representatives and the representatives of family businesses, that we have come forward with a policy proposal that we, on the Government Benches, now think is balanced. It raises £300 million from the very largest estates and does so in a fair way that means we can continue to fund our public services sustainably.
Dr Ben Spencer (Runnymede and Weybridge) (Con)
Fourteen months is a long time for farmers to have the sword of Damocles over their heads. Many still do, because this is only a partial U-turn in the policy. The Minister has said many, many times today that he is and has been listening to farmers, but will it take another 14 months before he hears them and scraps this policy altogether?
Dan Tomlinson
We heard what farmers were saying and that is why we have come forward with the changes we announced last month.
Robin Swann (South Antrim) (UUP)
The Ulster Farmers’ Union and the Young Farmers’ Clubs of Ulster made many representations here with regard to the damage that this policy would do to Northern Ireland farms, but there is one specific point I want to ask the Minister about. He has mentioned a number of times the allowance being passed between couples and civil partnerships. Example 2, in his own Government paper, states:
“Two people (such as siblings) who jointly own a farm will be able to pass on a farm up to £5.65 million”
under the allowance. If there is a father and daughter, uncle, aunt, niece and nephew in that partnership, can they pass on that allowance, too—seeing as he is the tax Minister?
Dan Tomlinson
They can each pass it on up to £2.5 million to whomever they choose to pass it on to. In the inheritance tax system more broadly, it is the case that the various bands and allowances are only fully transferable between spouses, and this is consistent with that policy. But it would be the case that if a farm was owned, say, by a brother and a sister, the brother could pass up to £2.5 million to whomever he wished and the sister could pass up to £2.5 million to whomever she wished. That is what example 2, which the hon. Gentleman is referring to, gets at.
Dame Harriett Baldwin (West Worcestershire) (Con)
Worcestershire’s farmers have had to endure 14 months of sleepless nights over this policy before this partial U-turn. The Minister has hinted, at the Dispatch Box today, that he appreciates he will also have to U-turn on business property rates, because of the transitional relief coming off too quickly. Can he commit to the House that he will do that U-turn in less than 14 months?
Dan Tomlinson
We are having a discussion today about agricultural property relief and business property relief. I am sure we will have many occasions in the coming weeks and months to continue to discuss the changes that the Government have made on business rates to support businesses through the transition, because of course there has been a significant increase in their rateable values, coming out of the pandemic. I would just say to Opposition Members that the changes to the rateable values and the valuation methodology were signed off by Conservative Ministers. We have made sure that we are providing support, for example business rates will be capped at 15% for many pubs this year.
Lisa Smart (Hazel Grove) (LD)
It is wholly unacceptable that farming families in places such as Mellor and High Lane have had over a year of uncertainty and anguish since the Government first announced these tax hikes. The Government got it wrong and the changes we are talking about today are welcome, but will the Minister commit to consulting farming communities before making any future changes to taxes affecting farming communities? That was the step in the process that was missed and it could have saved them 14 months of anguish, had they got it right last time.
Dan Tomlinson
Because I sign them off, I can tell the hon. Lady that there are many consultations on tax changes that we publish alongside fiscal events. If she wished to engage with the consultation on electric vehicle taxation, she could do so; if she wished to engage with the consultation on the high-value council tax surcharge that will be published shortly, she could do so too. The Government have published many consultations on tax changes, and on those where formal consultations are not published—it is not universal—we continue to engage in detail with those who are affected, as we have done with this change.
Wendy Morton (Aldridge-Brownhills) (Con)
Despite many opportunities to do so, the Minister simply refuses to apologise. Despite warnings from so many organisations that this tax would do real harm, farmers, including those in my constituency, have been forced to live with fear and uncertainty for more than 14 months. Can the Minister explain what support his Department will give to the families who have shelled out money for advice and whose businesses have suffered irrevocable damage as a result of this Government?
Dan Tomlinson
I have been asked that question already by an Opposition Member, but I am happy to give the right hon. Lady a similar answer. I can say to those families that we listened carefully to the representations that were made about the level of the threshold as it was originally set at the Budget in 2024, and we have now come forward with a change to increase the threshold from £1 million to £2.5 million, which, coupled with the changes announced at the Budget in 2025, will now be transferable between spouses, allowing those families to pass on up to £5 million tax free.
Caroline Voaden (South Devon) (LD)
Happy new year, Madam Deputy Speaker. For 14 months, I have stood here alongside my colleagues and asked various Ministers to reconsider this policy. For 14 months, farming organisations up and down the country have campaigned relentlessly against the policy. Why did it take the Government so long to listen to them? Would it not be nice if someone was able to stand at the Dispatch Box and simply say, “We’re sorry—we got this wrong. We commit now to consult with farming and rural communities on any further changes to tax reliefs affecting them”?
Dan Tomlinson
We have come forward with a change to this policy after listening to farmers and farming communities and to the representations that have been made. We think that this is the right change. We will have the chance to debate it again when we consider the Finance (No. 2) Bill in Committee of the whole House next week, when the amendment that has been tabled will be voted on. In the end, Opposition Members who wish for the Government not to go ahead with this change at all should come forward with ideas for how they would raise £300 million from those who have the very largest estates in this country. We think it is right to raise revenue from those with the very broadest shoulders, and that is what this change will allow us to do.
Bradley Thomas (Bromsgrove) (Con)
After months of sleepless nights, fear and uncertainty, this partial U-turn is a victory for farmers—I pay tribute to farmers across the country, but particularly those in my constituency of Bromsgrove and the villages. Despite the U-turn, this policy should still be scrapped. What can the Minister say to farmers regarding incentives? Where is the incentive for a farm to invest in very expensive capital equipment if it may tip them over the threshold of liability for the family farm tax?
Dan Tomlinson
Just to be clear, this policy applies only to the farming or business estates worth more than £2.5 million, or £5 million if owned by a couple. There are still significant incentives to grow and invest in people’s businesses. This tax rate is half the rate for everyone else paying inheritance tax, if they have sufficient assets to get over the threshold. I think that is worth noting. Only around the very largest 10% of estates in the country pay any inheritance tax at all.
Brian Mathew (Melksham and Devizes) (LD)
On behalf of the family farmers of Melksham and Devizes, can I point out that farm prices differ across the UK and that raising the level of APR to a flat £6 million, say, whether a farm belongs to a couple or to an individual farmer, would be a great help in assuring the farmers about the future, freeing them from worry and ensuring their future growing our food?
Dan Tomlinson
We think it is right to have the same level across the country. It is the same in other parts of our tax system, and it would not be right to have different tax thresholds for different small parts of the country.
Jim Allister (North Antrim) (TUV)
I certainly welcome the increase in the threshold as far as it goes, and I commend the campaigning farmers who secured it. In explaining it today, the Minister said that the Government have “got the balance right”, but of course those are the very words that he used at the Dispatch Box and in Westminster Hall when defending the £1 million threshold, and each time he caused torment and anxiety to farming families. Is he sorry for the anxiety caused needlessly to those farmers?
Dan Tomlinson
The number of estates that will be affected by this change will fall by half as a result of the changes that the Government announced late last year after listening to representations from various business and farming communities. That means that rather than 375 estates being affected per year, it will now be closer to 185 estates affected per year. Around 85% of estates will not pay any additional inheritance tax, and the vast majority of those that do will pay significantly less than they would have done before the change we announced late last year.
Manuela Perteghella (Stratford-on-Avon) (LD)
I welcome the revised threshold change; it is a first step in the right direction. I thank the local farming community in South Warwickshire and the National Farmer’s Union in Warwickshire for their tireless campaigning. However, farmers across my constituency tell me that the changes to agricultural property relief have created many months of uncertainty, freezing investment and growth and affecting succession planning. Why did the Chancellor and her team announce changes to the agricultural property relief last year without meaningful consultation with family farmers first?
Dan Tomlinson
I thank the hon. Member for welcoming the changes that the Government have brought forward. We did continue to engage with representatives from the farming community. I believe that the Prime Minister mentioned being in conversation with Mr Bradshaw from the NFU, and Ministers across Government have of course listened to and engaged with the farming community. I myself went up to Hexham. I see that my hon. Friend the Member for Hexham (Joe Morris) has left—for other important business, I am sure—but I met farmers in his constituency. All those different forms of engagement have proved very valuable indeed.
Adrian Ramsay (Waveney Valley) (Green)
Farmers in Waveney Valley are relieved at this change, but they are also frustrated that the Government have not been listening about the underlying causes of why it is so difficult for farmers to make even a living wage to put food on our table. It has been obvious from the outset that the Government needed to review the threshold, so it is baffling that it took 14 months for them to do so. Does the Minister recognise the emotional and financial cost of this 14-month delay?
Dan Tomlinson
I recognise that many estates that would have been affected by the lower threshold, rather than having to pay additional inheritance tax, will now not be paying any inheritance tax at all. We have moved hundreds of estates out of having to pay additional inheritance tax. We have also reduced the tax liabilities for those larger estates too, because we have listened.
Ian Roome (North Devon) (LD)
Many of my rural constituents are relieved that the Government have partly seen sense on this issue. Given the track record of U-turns from this Government, when I meet with a group of local farmers next week, what reassurance can I give them that the Government will not change course on this policy again in the near future?
Dan Tomlinson
The Finance (No. 2) Bill will be making its way through the House in the coming weeks, and once the Bill is law that change will come forward. If the hon. Gentleman meets his farmers on 7 April this year, the change will already be in place.
Edward Morello (West Dorset) (LD)
Happy new year, Madam Deputy Speaker. I pay tribute to the farmers of West Dorset who have never stopped campaigning against the family farm tax, and especially those hardy ones who have repeatedly driven their tractors up to London to let their views be known. This is just the latest in numerous assaults by the Government against our farming communities. So will the Minister take this opportunity to put on the record that the Government will not agree to President Trump’s demands that we accept more food imports at lower food standards as part of a US trade deal?
Dan Tomlinson
We will always fight for the interests of British businesses and British farmers in the deals we strike with countries across the world.
Mr Lee Dillon (Newbury) (LD)
Happy new year, Madam Deputy Speaker. In the last 14 months, constituents in Newbury, which I am proud to represent, have really felt the burden of the unfair family farm tax. I have hosted farmers here in Parliament and invited all parliamentarians to come and meet them, and I am proud that Members—predominantly from the Opposition Benches—have made that effort, and the Government have started to listen. But I have family farms in my constituency that will still have to pay £600,000, and they will have to sell off their farms to pay those tax bills. When the Government table their amendment, will they publish an assessment of those remaining farms and whether it is likely that they will need to be sold off to fit Labour’s tax bills?
Dan Tomlinson
The amendment, which has already been laid before the House, sets out the changes that the Government are making. In the letter that all hon. Members will have received, we set out our estimate that the number of estates we think will be affected will halve, and that about 85% of farming estates claiming APR—sometimes with BPR—will not pay any additional inheritance tax at all as a result of these changes.
Claire Young (Thornbury and Yate) (LD)
Looking at farm sizes and land values locally, I fear that family farms will still be paying the family farm tax. What evidence is there that £2.5 million realistically reflects the value of a typical family farm in a constituency with higher land values, such as Thornbury and Yate?
Dan Tomlinson
May I thank all hon. Members on both sides of the House for their engagement on this important issue today? We have set the threshold at £2.5 million for a single person and £5 million for a couple as a result of the changes announced at the Budget 2025. We think that threshold is right and fair. It means that the number of farming estates that will be affected will fall by half, and the vast majority will pay no additional inheritance tax at all.
Dame Harriett Baldwin
On a point of order, Madam Deputy Speaker. Earlier the Minister said that agricultural property relief was not available under Margaret Thatcher. In fact, it was Margaret Thatcher’s Government who brought it in under the Inheritance Tax Act 1984, and it was subsequently increased to 100% under John Major. How might I go about getting the Minister to correct the record?