Finance Bill (Second sitting)

James Murray Excerpts

Committee stage
Tuesday 28th January 2025 Public Bill Committees

[Gareth Davies (Grantham and Bourne) (Con)]

I will pick up where I left off by asking the Minister to provide confirmation on the three points I listed, and to provide an assurance that the guidance from His Majesty’s Revenue and Customs is sufficiently clear on those points that those affected are aware of the full implications of the changes.

Finally, in the case of joint ownership, the Chartered Institute of Taxation is calling for an administrative easement to allow declarations to be backdated. Has the Minister considered the possibility of such an easement being implemented? I have not been able to raise all of the many points that the institute has raised with me, and I apologise to it for that. I am sure the Minister is engaging with the institute. I know that in opposition he spent a lot of time with it, as he will be doing with industry. I encourage him to speak to the Chartered Institute of Taxation and get its guidance and input, as I have tried to lay out in my remarks.

[The Exchequer Secretary to the Treasury (James Murray)]

I start by putting on the record my thanks to the Chartered Institute of Taxation. It was a great support to me in opposition and continues to be an important stakeholder for us in government.

I will try to respond to some of the shadow Minister’s points. First, he raised concerns articulated by the Chartered Institute of Taxation about trading and property income boundaries. There are established principles that underline what is trading and what is income from property. The bright-line tests that have been put forward distort those principles rather than clarify them. Whether activity is income from property depends on the nature of the activity undertaken, and specifically how the profit is derived. If the profit is derived from the exploitation of land, the income is taxable as property income. The furnished holiday let rules provided for specific reliefs, but for tax purposes it has always been property income, not trading income. Categorising some property income arbitrarily as trading would give more reliefs than FHLs previously had.

The shadow Minister also raised concerns about how the repeal of the FHL rules will apply practically to landlords and how that may affect them. I reassure him that HMRC has already published guidance on the changes and will be publishing more ahead of April, when the changes come into effect. We have also engaged with the industry since the announcements to ensure that we are aware of its reaction.

On the shadow Minister’s other points in relation to business asset disposal relief and roll-over relief, we have considered the impacts of the changes on those two reliefs. It will depend on an individual’s personal circumstances, but broadly each person would need to dispose of the whole or part of an FHL business, or dispose of assets that were used for the purposes of an FHL business that has ceased, before April 2025. We have been fair in our approach not to restrict relief where someone has had an FHL before repeal. Individuals should consult online guidance or a tax adviser before making any decisions.

The shadow Minister asked about married couples. We have considered the impact of the changes on married couples and civil partners. The removal of the FHL rules will mean that a married couple is subject to the same rules as other landlords. For married couples, income is assumed to be split 50:50 unless a declaration is made to split the income in a different proportion, which must be the same as the proportion of ownership between the couple. If they want to change the proportions, married couples will have to make an election for joint ownership arrangements as per the usual process. There will be a deadline of April for married couples to adjust to the changes as we cannot backdate such elections. That was already set out online following the consultation on the draft legislation. Further online guidance will be available.

I hope I have covered most of the shadow Minister’s points. I conclude by recognising my gratitude to him for not opposing the provisions; it would be noteworthy if he had changed his mind since he was in government. I am not sure whether all his colleagues are on exactly the same page as him, but I will not pry at this stage of our consideration of the Bill. Perhaps his slightly caveated response to the clauses reflects some of the discussions happening among Members on the Opposition Front Bench. Notwithstanding whatever is happening behind closed doors, I welcome their support for the clause.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Schedule 5 agreed to.

Clause 26

Films and television programmes: increased relief for visual effects

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

[The Chair]

With this it will be convenient to discuss clauses 27 and 28 stand part.

[James Murray]

Clause 26 makes changes to maximise the potential of the UK’s world-class visual effects industry, and clauses 27 and 28 make changes to ensure continuity for companies claiming expenditure credits for film, TV and video game production, by aligning the legislation with equivalent provisions in the previous tax reliefs.

The UK is a strong performer in visual effects production and is home to several Oscar-winning companies, but in recent years there have been reports of visual effects activity moving overseas. Stakeholders report that that is because of the 80% cap on qualifying expenditure relating to the audiovisual expenditure credit, or AVEC. Currently, companies can receive AVEC on up to 80% of their production costs, including visual effects costs. Visual effects work is done virtually, so companies may place 80% of their production costs in the UK and place their visual effects costs overseas, particularly in countries such as Canada and France, which offer special tax incentives for visual effects.

In November 2023, a call for evidence on the visual effects industry was published. It provided substantial evidence that visual effects work was moving overseas because of the 80% cap and because of increased competition from countries that offer targeted visual effects tax incentives. Separately, previous tax reliefs for film, TV and video game production are being phased out and will be fully replaced with expenditure credits from 1 April 2027. Indeed, companies can already claim expenditure credits instead of the tax reliefs if they wish.

The changes made by clause 26 will increase the amount of AVEC awarded to UK visual effects costs in film and high-end TV production by 5 percentage points, to a total credit rate of 39%. The changes remove AVEC’s 80% cap on qualifying expenditure for visual effects costs, so that all those costs, including those that are above the 80% cap, may receive the enhanced 39% rate of relief. Around 1,300 companies claim film or high-end TV tax relief and stand to benefit from the changes, and the additional tax relief is expected to cost £75 million per year from 2028-29.

Clause 27 sets out that the previous tax reliefs and the new expenditure credits both require companies to provide cultural certificates from the British Film Institute to support their claims for relief. HMRC requires the certificates to be in force at the time a claim is made. The new expenditure credits legislation is less clear on that requirement than the previous tax reliefs legislation; it requires certificates to have effect at the end of each claim period, rather than only at the time the claim is made. The changes made by clause 27 will therefore align the expenditure credits legislation with the tax reliefs legislation, to clarify that cultural certificates must be valid when claims are made, and ensure continuity of treatment between the previous tax reliefs and the new expenditure credits.

On clause 28, the previous tax reliefs and the new expenditure credits both have rules on the treatment of expenses that are not made within four months of the end of the accounting period in which they are incurred. The tax relief rules allow for such expenses to be deducted from profits, but do not allow additional relief on them until they are paid. The expenditure credit rules prevent the expenses from being deducted from profits at all—that is, until they are paid. The changes made by clause 28 will align the expenditure credit rules with the tax relief rules, so that the unpaid amounts can be deducted from profits that are still ineligible for relief until they are paid. This will ensure continuity for companies that are used to the treatment of unpaid amounts under the previous tax reliefs.

In conclusion, the changes to the audiovisual expenditure credit will boost the UK’s offer in visual effects in an increasingly competitive international environment, and incentivise more visual effects work on UK productions to be done here in the UK. Furthermore, the changes to the expenditure credits legislation will align it with the more familiar tax relief provisions, ensuring continuity for film, TV and video game companies. I commend the clauses to the Committee.

[Gareth Davies]

As the Minister set out, clauses 26 to 28 create an additional relief for video effects expenditure while making administrative changes to align audiovisual and video games expenditure credits with older reliefs for film, TV and video games.

We announced the additional relief for VFX expenditure at the spring Budget 2024, as part of a wider package to support our world-leading creative industries—which, by the way, grew at more than one and a half times the rate of the wider economy between 2010 and 2019, a remarkable success for any sector. The consultation we launched on the design of the policy directly informs the clauses, and we will not oppose them.

However, one suggestion raised in the consultation that the Government have not chosen to take forward was to allow companies that claim the independent film tax credit to also claim the additional tax relief for visual effects. The Government have said they do not believe this exclusion will have an adverse impact on companies, but it would be helpful to hear from the Minister what assessment was made of the benefit to smaller visual effects studios had the scope of the relief been widened in the way in which many suggested as part of the consultation.

The spring Budget 2024 also announced a 40% relief from business rates for eligible film studios in England for the next 10 years. My understanding is that this has not yet been implemented by the new Government, and has in fact been referred to the subsidy advice unit. I understand that in the last couple of hours, over lunch, the unit has reported its findings. I would be grateful if the Minister could update the Committee on what those may mean for the future of the measure and the expected timeline for delivery.

[James Murray]

I thank the shadow Minister for his comments and for setting out some important context around the tax reliefs and expenditure credits, and around why they are so important in supporting growth in the UK economy.

On his question about the independent film tax credit, as he I am sure understands, films that claim the independent film tax credit will receive a 53% rate of audiovisual expenditure credit on up to 80% of production costs. That includes visual effects cost. The independent film tax credit therefore provides generous support for visual effects costs within independent films. Separating the additional tax relief for visual effects from the independent film tax credit helps to ensure that both schemes are simple and easy for companies to understand.

On the publication that the shadow Minister says happened in the last few hours, that is so hot off the press that I am not even authorised to speak about it yet. I have not been briefed on it because I have been getting ready for this Committee. I am sure that if it has been submitted, the right officials and Ministers will look at it as soon as possible.

Question put and agreed to.

Clause 26 accordingly ordered to stand part of the Bill.

Clauses 27 and 28 ordered to stand part of the Bill.

Clause 29

Research and development relief: Northern Ireland companies

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

[James Murray]

Clause 29 makes small changes to the rules for enhanced support for research and development-intensive companies with a registered office in Northern Ireland. At the spring budget 2023, the previous Government announced an enhanced rate of relief within the R&D small and medium-sized enterprise scheme applying from 1 April 2023. Separately, from April 2024 slightly different rules applied for R&D-intensive companies with a registered office in Northern Ireland, allowing them to continue claiming relief on a wider range of overseas expenditure than companies in Great Britain, while introducing a cap on the amount of relief that can be claimed.

Clause 29 amends the rules introduced last April to reflect the particular market conditions in Northern Ireland and ensure consistency with the UK’s international obligations. This will introduce some additional requirements around the cumulation of aid and reporting, which will apply to claims made on or after 30 October 2024 by eligible companies with a registered office in Northern Ireland. A very small number of claimant companies in Northern Ireland are expected to be affected, while the vast majority will continue to be better off compared with their counterparts in Great Britain. This is because their claims are too small to be affected by the cap, but they will still be able to claim on overseas expenditure, as before.

The Office for Budget Responsibility has certified this measure as having a negligible impact on the cost of the relief. The Government are committed to supporting R&D investment across the UK through the R&D tax reliefs, which play a key role in supporting the mission to kick-start economic growth. The changes will ensure that the R&D reliefs reflect the particular market conditions in Northern Ireland and ensure consistency with the UK’s international obligations. I commend the clause to the Committee.

[Gareth Davies]

As the Minister set out, clause 29 amends the measure in Northern Ireland to set in law a new cap of €300,000 on a three-year rolling basis, alongside other sources of relevant aid. The existing cap of £250,000 is currently defined in regulations. Will the Minister inform the Committee why the provisions have been moved from regulation into law? What are the implications of the change?

HMRC notes that when claiming enhanced R&D-intensive support, companies with registered offices in Northern Ireland now need to take into account other relevant aid that they have received. What steps have been taken to ensure that those companies are aware of this change and are equipped to satisfy the new requirement?

[James Murray]

I thank the hon. Gentleman for his questions. It is worth emphasising that this is a small change compared with the rules that already applied from April 2024. In practice, we expect a very small number of companies to be affected by the change, with very few claims to be made before April 2025. Since the change will be a key qualification to the tax rules for a part of the UK, it should be legislated for in the Finance Bill and as part of the Budget process. I hope that helps to explain the process we are taking to implement the changes and reassures the hon. Gentleman that they are small and will affect a very small number of companies.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Clause 30

Research and development intensity condition: transitional provision

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

[James Murray]

The clause makes small changes to the higher rate of relief available for R&D-intensive SMEs to ensure that the R&D reliefs remain fit for purpose while providing clarity to businesses. The Government recognise the important role that R&D plays in driving innovation and economic growth, as well as the benefits it can bring for society. The R&D tax reliefs play a key role in this. That is why I was pleased to announce in the corporate tax road map published at the Budget that the Government are committed to maintaining the generosity of the rates in both the merged R&D expenditure credit scheme and the enhanced support for R&D-intensive SMEs to increase certainty for companies when making investment decisions.

In the Finance Act 2024, the R&D intensity calculation for the enhanced rate of relief did not take account of any expenditure for which a company was entitled to claim research and development expenditure credit. That meant that some companies that were supposed to qualify as R&D-intensive might not meet that threshold. The change made by clause 30 will therefore ensure that research and development expenditure credit-qualifying expenditure is included in the calculation of the R&D intensity ratio, as was always intended.

This change will apply to all claims for the enhanced rate of relief from its introduction in April 2023, and to all expenditure incurred from 1 April 2023 in an accounting period that began before 1 April 2024. It will affect some small and medium-sized enterprises that have a high R&D intensity and claim the enhanced rate of SME-payable R&D tax credit relief. This is a small technical change and so it is not anticipated to have any Exchequer or economic impacts.

The Government are committed to supporting R&D betterment across the UK through the R&D tax reliefs, which play a key role in supporting our mission to kick-start economic growth. The changes made by this clause will ensure that all companies originally intended to benefit from the higher rate of relief will now be able to do so. I commend clause 30 to the Committee.

[Gareth Davies]

The clause amends the transitional provision, clarifying that expenditure that would qualify for R&D expenditure credit is relevant R&D expenditure when calculating the R&D intensity ratio, which determines eligibility for enhanced R&D intensive support, as was always intended. This provision has a retrospective effect, and I would be grateful if the Minister could therefore tell the Committee what steps the Treasury is specifically taking to ensure that all those who missed out on the relief, but may now be eligible, are aware and equipped to claim this new support.

[James Murray]

I reassure the shadow Minister that, as Ministers and Treasury officials, we are routinely in conversation with the industry and those companies that benefit from R&D support. We will ensure that all changes to legislation and all opportunities available for us to support the industry are communicated with clarity, and we will ensure that everyone is aware of what support we can offer for their economic growth ambitions.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31

Employee-ownership trusts

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

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 38 to 43.

Schedule 6.

[James Murray]

The clause and the schedule make changes to the taxation of employee ownership trusts to prevent opportunities for abuse and to ensure that the regime remains focused on encouraging employee ownership. The Government are committed to supporting employee ownership as a viable and sustainable business model. Employee ownership gives employees a greater stake in the business in which they work, improving working conditions and in turn driving productivity and growth.

Tax reliefs are currently available for company owners who transition their companies into an employee ownership trust, which is set up to hold and manage the company for the benefit of all employees of the company, rather than for individual shareholders. This model has proven successful, with over 1,500 UK companies held by employee ownership trusts today, improving the working conditions of some 200,000 employees. However, while the success of the employee ownership model is to be applauded, the Government are concerned that the tax regime is vulnerable to exploitation. We are therefore determined to close loopholes to ensure that the reliefs are available only to those who are motivated by a genuine desire to transform their companies into employee ownership trusts.

The changes made by clause 31 and schedule 6 therefore amend the conditions for obtaining capital gains tax relief on disposing of a company to the trustees of an employee ownership trust to ensure that the former owners cannot retain control of the company following disposal. The trustees must be UK residents and they must take reasonable steps not to pay more than the fair market value for their shares. These changes are necessary to prevent opportunities for abuse and to protect the long-term integrity of these reliefs.

Individuals will also be able to provide additional information to HMRC at the point of claiming the relief, and the period of time within which HMRC can take action, if the relief conditions are breached post-disposal, will be increased. HMRC will be given additional powers to monitor the reliefs and to take action when non-compliance is identified.

Lastly, this measure makes technical changes to provide clarity on the tax treatment of contributions paid to the trustees from the company in order to meet costs associated with purchasing the company from the former owner, and also adjusts the conditions for income tax relief on employee bonus schemes. Overall, these changes will simplify the process of setting up and operating employee ownership trusts.

Government amendments 39 and 41 confirm that the relief is available only with respect to contributions paid to the trustees from a company for the purposes of meeting the trustees’ acquisition costs. In doing so, they clarify the policy intent and remove any potential ambiguity within the legislation as drafted. Government amendments 38 and 40 ensure that the distributions relief is available in circumstances where the capital gains tax relief was not claimed because the vendor was a company, rather than an individual, provided that the conditions for obtaining the relief were otherwise met.

Government amendments 42 and 43 expand the scope of the costs that qualify for the relief to include other expenses that may reasonably be incurred by trustees in connection with the acquisition of the company. These amendments make technical clarifications and address the concerns expressed by key stakeholders that the scope of the relief as announced at the autumn Budget was too narrow to reflect the reality of how employee ownership trust acquisitions are funded.

Overall, the clause protects the future of employee ownership in the UK by ensuring that the tax reliefs available to encourage it continue to operate effectively and by preventing opportunities for abuse. I commend clause 31, schedule 6 and Government amendments 38 to 43 to the Committee.

[Gareth Davies]

Clause 31 and schedule 6 alter the conditions for obtaining tax reliefs for employee ownership trusts. The current regime was introduced by a Conservative Government, following the independent Nuttall review in 2012, which set out the many strengths of the model and how it could become more widespread in our country.

Since the current regime was implemented in 2014, its tax incentives have achieved great success in encouraging the creation of employee ownership trusts, which have become the predominant model for employee ownership. Today, more and more companies are making the transition to that model. I was pleased to hear the Minister tell us that there are about 1,500 examples in the country. In 2023, we launched a consultation to review the regime, and it has fallen on this Government to respond to it.

The package of changes that the Minister has set out aim to prevent opportunities for the relief to be abused while ensuring that employee ownership continues to be incentivised and supported. We share those objectives, and we warmly welcome these measures, which largely reflect the recent consultation. We will not oppose them but, as hon. Members would expect, I have a few questions.

I would be grateful if the Minister can explain why a few suggestions put forward during the consultation have not been taken forward. For instance, a large number of respondents asked for the tax-free bonus limit for employees to be increased from the current level of £3,600. Had that kept pace with inflation, the maximum today would be close to £5,000. The Government have made it clear that they have no plans to increase the tax-free bonus amount, but they have not said why. A little more detail would be welcome, as would some reassurance that the Government will keep that element of the regime under review so they can react speedily if the weakening of the incentive begins to undermine the overall policy goal that we all share.

Another point raised in responses to the consultation was the issue of double taxation upon the sale of an EOT-owned company to a third party. In that event, trustees would be liable to pay capital gains tax on the disposal, and employees would be charged income tax on their share of the net proceeds. When responding, the Government did not acknowledge that point about double taxation, which the Chartered Institute of Taxation also highlighted. We understand that that concern must be weighed against the main abuse that the Government are rightly trying to prevent with these measures: the exploitation of EOTs by company owners to reduce their CGT liability when ultimately selling their business to a third party.

Surely the second layer of taxation—the income tax charged to employees—does not act as a major disincentive to that kind of behaviour, however, especially in the context of the additional restrictions being introduced in part 1 of the schedule to prevent such abuses. I would therefore be grateful if the Minister can address that point or write to me later with clarification about why that was not taken forward.

The Minister will be aware of concerns about the implementation of the statutory relief for distributions in part 2 of the schedule. As originally drafted, the schedule allowed for only specific costs—for example, payments made by companies to the EOT to fund the share purchase, interest on outstanding considerations, and stamp duty—to be tax deductible, a process which previously would have taken place through a non-statutory clearance request to HMRC.

That had the effect of excluding other costs that many thought would be reasonable to cover. I am glad that the Government have listened and have tabled some amendments to widen the scope of the relief, and I thank the Exchequer Secretary for his letter setting them out—it was a great read. Other costs, however, such as payments to cover the fees of professional trustees and advisers for ongoing services, unfortunately remain excluded. Moreover, HMRC has limited flexibility to provide relief for any excluded cost, now that the relief is on a statutory footing.

I would be grateful if the Minister could elaborate on the thought process behind the fine lines being drawn and, in some cases, redrawn in this area. On what basis are the Government determining what should and should not attract relief? As I said, we will not oppose these measures, but I would be grateful for reassurance that in the pursuit of a noble goal—preventing this important regime from being abused—the Government are not unintentionally undermining its attractiveness.

[James Murray]

I thank the shadow Minister for his broad support for the changes we are making and for recognising the benefit that these measures can bring in supporting the integrity of employee ownership for the future. Where schemes become liable to abuse, it undermines support for them and their longevity. Making sure that the tax reliefs are well designed is important for making sure that this beneficial structure can continue into the future.

The shadow Minister asked a specific question about the level of restrictiveness on the relief for distributions from the company and why various decisions and conversations were had on extending the relief to other costs that may be incurred by the trustees. I can tell him that since the autumn Budget, officials have met stakeholders such as the Chartered Institute of Taxation, which raised concerns about the scope of the distributions relief as initially announced.

The CIT was concerned that that relief was too narrow to reflect the reality of how employee ownership trust acquisitions are funded. In fact, as the shadow Minister referenced, we accepted those concerns, and tabled amendments 42 and 43 to expand the scope of distributions relief to cover all other expenses reasonably incurred by the trustees in connection with their acquisition of the company. As always, I am grateful to the Chartered Institute for Taxation for the constructive engagement it has given to my officials in discussing these issues.

More broadly, the shadow Minister asked a series of questions about policy choices. Of course, the Government keep all policy under review, but it is a question of finding the right balance when calibrating policies such as this to ensure that they use tools of public policy in a targeted way to achieve the right outcome. As I made clear, we were open to feedback from the CIT when it felt that the terms of certain aspects were too restrictive, so we tabled these amendments.

Many of the key changes being introduced now were, to give the shadow Minister credit, the subject of a consultation held by the previous Government in 2023, which sought views on proposals to reform the tax regime. We are now putting those into play today. Our proposals, which were initially contained within that consultation, were met with broad support from respondents. They actually form the core of the changes that we are implementing today, notwithstanding the subsequent changes we have made.

Our relationship with the Chartered Institute of Taxation and other relevant stakeholders in this space helps to inform the policy decisions we are putting in law today, as well as any future changes to the scheme we might consider. We want to ensure that this opportunity continues into the future and that it succeeds. Making sure that we take proportionate measures to avoid tax reliefs being abused is fundamental to ensuring their longevity.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.

Schedule 6

Employee-ownership trusts

Amendments made: 38, in schedule 6, page 180, line 32, leave out

“by a person (‘P’) other than a company”.

This amendment allows for the distributions relief to be given in circumstances where the capital gains tax relief for employee ownership trusts is not available because the vendor of the shares in the company to which the employee ownership trust relates is a company (provided the other conditions for the capital gains tax relief being given are met).

Amendment 39, in schedule 6, page 181, line 2, at end insert—

“(d) the payment was made for the purposes of meeting the trustees’ acquisition costs.”

This amendment requires that the distribution that is the subject of the relief was actually made for the purposes of meeting acquisition costs.

Amendment 40, in schedule 6, page 181, line 10, after “trusts)” insert

“, but those requirements have effect for the purposes of this section as if references to ‘P’ were to the person making the disposal whether or not that person is a company”.

This amendment is consequential on Amendment 38, and secures that the capital gains tax relief requirements are capable of applying properly in circumstances where the vendor of the shares in the company to which the employee ownership trust relates is a company.

Amendment 41, in schedule 6, page 181, line 11, leave out “subsection (2)” and insert “this section”.

This amendment is consequential on Amendment 39 (and secures that “acquisition costs” is defined for the purposes of the whole section).

Amendment 42, in schedule 6, page 181, line 12, after “are” insert

“sums expended by the trustees on”.

This amendment, and Amendment 43, expand the scope of acquisition costs that can benefit from the relief.

Amendment 43, in schedule 6, page 181, leave out lines 13 to 19 and insert—

“(a) the acquisition of ordinary share capital in C by the trustees that resulted from the disposal;

(b) the repayment of any sums borrowed to fund that acquisition;

(c) the payment of interest on any such sums or in respect of any deferral of consideration for the disposal to the extent the payment is not in respect of interest exceeding a reasonable commercial rate;

(d) any valuation of C carried out in connection with the acquisition;

(e) any liability to stamp duty or stamp duty reserve tax on the acquisition;

(f) such other reasonable expenses as are directly connected with the acquisition (but this does not include any expenses incurred in connection with the ownership of the ordinary share capital once acquired).”—(James Murray.)

This amendment, and Amendment 42, expand the scope of acquisition costs that can benefit from the relief.

Schedule 6, as amended, agreed to.

Clause 32

Overseas transfer charge: pension schemes in EEA state or Gibraltar

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

[The Chair]

With this it will be convenient to discuss clauses 33 and 34 stand part.

--- Later in debate ---

[The Chair]

With this it will be convenient to discuss schedule 7.

[James Murray]

The clause and schedule make changes to alternative finance tax rules for refinancing, and will promote financial inclusion for those who choose to use alternative forms of finance, for either religious or other reasons.

Alternative finance is a method of raising finance that characteristically involves the sale, purchase and renting of assets in circumstances in which conventional financing would involve lending at interest. Currently, a capital gains tax or, in some cases, corporate tax or income tax liability can arise when entering into alternative refinancing arrangements; this would not occur if conventional financing arrangements had been used.

This issue mostly affects properties that do not qualify for capital gains tax private residence relief, such as rental properties, second homes and commercial properties. The changes made by clause 35 and schedule 7 will ensure that, where qualifying alternative finance provisions are used, individuals and companies will not be liable to capital gains tax, corporation tax or income tax on the transfer of part of the beneficial interest in the asset to a financing institution in order to raise finance.

The Government are committed to the continued strength of the UK Islamic finance sector and to it providing access to alternative finance to anyone who seeks it. These measures deliver on this commitment by putting alternative and conventional financing on a level playing field in relation to their tax treatment when refinancing. As a result, those who choose to use alternative finance will receive broadly the same tax treatment as those using conventional financing arrangements. I therefore commend clause 35 and schedule 7 to the Committee.

[James Wild]

As the Minister set out, clause 35 and schedule 7 make changes to the tax rules that apply to alternative finance. They ensure that, where an existing asset is used to raise finance using alternative finance, the tax outcome is broadly the same as it would be had conventional financing been used. The measure aims to level the playing field, and we will not oppose it.

Currently, the refinancing of a residential or commercial property using alternative finance triggers a potential capital gains tax liability on any inherent gain. By contrast, no potential capital gains tax liability arises when a conventional mortgage is used. The policy objective of this measure is one that we support and acted on in government in other areas: to ensure a level playing field across conventional and alternative forms of finance. This issue affects properties that do not qualify for capital gains tax private residence relief, such as residential properties, and will apply to refinancing entered into on or after 30 October 2024.

Once again, I echo the thanks given to the Chartered Institute of Taxation for its work and advice on scrutinising the Bill, as well as for the discussions I have had with it about the clause. The Chartered Institute of Taxation has suggested that the clause could be amended to exempt taxpayers from the liability on inherent gains that were raised on alternative finance transactions before 30 October 2024. They recognise that making such a retrospective change would be unusual. However, they suggest that a retrospective change in circumstances where there is an anomaly in the legislation that is both inconsistent with Government policy during the time the anomaly exists and adversely affects taxpayers, particularly those with protected characteristics, would meet the high bar.

I would be grateful if the Minister could say whether he has considered that point, and what approach HMRC will take to taxpayers who have already incurred a capital gains liability. Can the Minister confirm how many taxpayers using alternative financing will likely benefit from this change? I would also be grateful if he could set out what steps HMRC is taking to deal with any potential for fraud. As I say, we support this measure, and I would be grateful if the Minister would respond to my questions.

[James Murray]

I thank the shadow Minister for his support for these clauses, and for what we seek to do through them: as he said, level the playing field between alternative finance and conventional finance. He asked whether the changes can be applied retrospectively. As he is aware, the Government do not generally apply tax changes retrospectively. The changes to alternative finance tax rules announced in the autumn Budget will apply from 30 October last year. The Government appreciate that some alternative finance customers will have already paid capital gains tax on refinancing arrangements, which is where this question arises from. However, to provide taxpayers with certainty over their tax position and to ensure that the law is applied in the way intended, the Government do not generally apply tax changes retrospectively and will not be doing so in this case.

More broadly, the shadow Minister asked whether we will be taking measures to ensure there is no fraud. It should go without saying that, as with any measures the Government take, we will ensure there is no fraud. That does not apply any more or less to this measure than it would to any other; we want to make sure there is no fraud in the way that any tax measures we take are used. That will be on our radar, as it would be with any other tax changes that we make.

In terms of the number of people affected, I know that the previous Government’s consultation on the alternative financing tax rules published in January last year, which closed in April, received 22 responses, including from alternative finance providers, representative groups, tax and legal professionals, academics, and consumers. This is, of course, a sector that we want to grow. It is one of the many sectors of the UK economy that will drive economic growth.

Question put and agreed to.

Clause 35 accordingly ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 36

Statutory neonatal care pay

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

[James Murray]

The clause makes a consequential amendment to the shared incentive plan—SIP—to take account of the introduction of statutory neonatal care pay in the Neonatal Care (Leave and Pay) Act 2023. SIP is a tax advantage share scheme through which a company can award free shares to employees, or enable them to purchase partnership shares through salary deductions authorised by the employee. The SIP legislation requires an employer, when entering a partnership share agreement, to provide notice to inform the employee of the possible effect of salary deductions on their entitlement to social security benefits, such as statutory sick pay or statutory maternity pay.

The Neonatal Care (Leave and Pay) Act 2023 introduced provisions to enable parents whose babies require specialist care after birth to take additional paid time off work. The share incentive plan legislation must therefore be updated accordingly to reflect the introduction of statutory neonatal care pay, which may also be impacted by salary deductions. As a result of the changes made by clause 36, statutory neonatal care pay will be included in the notice that employers must provide to employees when entering partnership share agreements alongside other existing statutory payments. The clause will ensure that employees understand the potential impact of salary deductions as part of a SIP agreement on their entitlement to statutory neonatal care pay. I therefore commend the clause to the Committee.

[James Wild]

It is a pleasure to serve under your chairmanship, Mr Mundell. As we heard from the Minister, clause 36 confirms that statutory neonatal care pay is taxable as social security income. The measure will take effect from 6 April 2025, and we support it.

It is important to understand the context in which we are discussing today’s changes; since at least 2014, there have been calls to extend parental leave and pay for parents who have premature babies and would seek neonatal care. I was pleased to stand on a manifesto in 2019 that committed to legislating to allow parents to take extended leave for neonatal care to support those new mothers and fathers who need it during the most vulnerable and stressful days of their lives.

In 2019, the previous Government launched the good work plan proposal to support families, which included proposals to do just that—introduce neonatal care leave and pay. The Government responded to that consultation, which led to the Neonatal Care (Leave and Pay) Bill, introduced as a private Member’s Bill supported by the Government. That new right, confirmed from 6 April, is expected to benefit around 60,000 new parents. It is absolutely right that these measures address some of the difficulties parents face when their baby is in neonatal care.

The impact assessment for that Bill notes that the estimated annual costs to the Exchequer of the care leave paid at statutory flat rate would be around £14 million a year on average. I wonder if the Minister has an update on whether those estimates are still correct. It also suggested that the one-off cost to businesses of familiarising themselves with the new legislation was around £4.7 million, with the resulting annual cost to business estimated at £22 million. Does the Minister have updated figures on the impact of introducing those measures?

The measure we are discussing here is technical and confirm the tax treatment, but it is important—as the Minister said—that employers make clear the implications to their staff members. Can the Minister confirm what action the Government are taking to communicate proactively about the changes? As I have set out, we support this right to neonatal care and pay, and I look forward to the Minister’s response to the specific questions.

[James Murray]

I thank the shadow Minister for his support for this measure. If I understood his comments correctly, he asked a series of questions about the Exchequer impact and estimated costs of the measure itself, whereas the clause we are talking about here is really a consequential and relatively minor technical change to what employers have to say when they notify employees who are taking part in share incentive plans. I could try to look into those questions for him after this Committee sitting, but the information that we are discussing today—the scope of this clause—is actually much more limited than his questions suggest.

This clause is really just about employers notifying employees that if they take part in a share incentive plan, it may impact their statutory benefits, which now include neonatal care pay. It does not make any changes to neonatal care pay itself, which is the subject of separate legislation that is not impacted in any way by these clauses. I would not want anyone watching the Committee or reading Hansard to be under the misapprehension that we are in any way changing neonatal care pay, which we think is very important. This is purely about making sure that employees who are considering taking part in a share incentive plan are fully informed of what impact any salary deductions may have on their eligibility for statutory benefits.

In terms of implementing the scheme, again, we may be talking slightly at cross purposes. This clause is really about ensuring that employees are properly informed about how the share incentive plan works and the implications of having salary deductions for that, rather than neonatal care pay itself. That would be a separate question to be picked up at another time. Having neonatal care pay is an important change in legislation and we are very pleased that it is part of the landscape of statutory benefits, but this clause does not impact neonatal care pay. It is purely about informing employees of the potential impact of salary deductions when they want to engage with a share incentive plan.

--- Later in debate ---

Claim for relief on foreign income

[James Murray]

I beg to move amendment 20, in clause 37, page 31, line 21, at end insert—

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

Clause 38 stand part.

Government amendments 44 to 54.

Schedule 8.

Clause 39 stand part.

[James Murray]

Clauses 37 to 39 make changes to ensure that from April 2025, individuals moving to the UK who have not been tax resident in the UK for the 10 previous years will not pay tax on their foreign income or gains for the first four years of UK residence.

For context, the Government are removing the outdated concept of domiciled status from the tax system and replacing it with a new, internationally competitive, residence-based regime from 6 April this year. Currently, where a non-UK-domiciled individual moves to the UK, they are able to access the remittance basis of taxation, under which foreign income and gains are not taxable unless they are brought into the UK. Similarly, when undertaking work abroad, newly UK resident, non-UK-domiciled individuals are able to access overseas workday relief, which means that overseas employment income is not taxable unless brought into the UK. The arrangements create a disincentive to invest in the UK and are being changed as a result of these measures.

The changes made by clauses 37 and 39 will provide full tax relief on foreign income and gains for new arrivals to the UK for their first four years of tax residence, provided that they have not been UK tax resident for 10 years before their arrival. To align with the new regime, clause 38 and schedule 8 extend the period of overseas workday relief to four years, and decouple overseas workday relief from domiciled status to align it with the new foreign income and gains regime. Claims to the relief will be capped at the lower of £300,000 or 30% of an individual’s total employment income. Furthermore, the removal of the remittance basis means that it will no longer be necessary to keep income offshore to benefit from relief.

Government amendment 20 amends clause 37 to add an additional category of income to the list of eligible incomes, which will ensure that all eligible income for relief is referenced correctly. Government amendments 44 to 53 have also been tabled to schedule 8 to ensure that the relief on travel costs for qualifying newly resident employees in the UK functions as the legislation intended. Furthermore, Government amendment 54 amends schedule 8 to clarify that it is a general direction made by HMRC, rather than a public notice.

The Government are committed to ensuring that everyone who is long-term resident in the UK pays their taxes here. The new regime ensures that that will be the case, while also being more attractive than the current approach as individuals will be able to bring income and gains into the UK without attracting additional tax charges. That will encourage people to spend and invest those funds here in the UK.

I commend clauses 37 to 39 and schedule 8, along with Government amendments 20 and 44 to 54, to the Committee.

[Gareth Davies]

Currently, a person who is UK resident but not UK domiciled pays tax on any UK income and gains but can choose for their non-UK income and gains to be taxed on a remittance basis. Part 2 of the Bill provides for the abolition of non-domiciled status from April 2025, as the Minister points out, and for its replacement with a new regime for the taxation of foreign incomes and gains on the basis of UK residence. It therefore terminates the current tax regime for those who are resident but not domiciled in the UK, while creating a temporary repatriation facility for historical foreign income and gains to be brought into the UK over the next three years. Those changes will also be applied to trusts under the Bill and inheritance tax will also be brought into the new, residence-based system.

Although the shape of the overall package is much the same as the one the Conservatives announced in the spring Budget 2024, there are a few notable differences on the detail. Before I move through the chapters—we will spend a bit of time on that, starting with chapter 1—I will first provide some context by noting that, net of the reforms we announced in March, Labour’s adjustments to the new regime are forecast to raise £12.7 billion over the next five years. This means the measure we are considering is the second biggest revenue-raising new policy in this entire Budget. Labour’s adjustments to the temporary repatriation facility alone account for £10.6 billion.

These are significant sums, but also highly uncertain, according to the OBR. There is significant uncertainty in particular around the behavioural responses and the size of the tax base, according to the OBR’s assessment. The OBR also says it is unclear to what extent inflows to the temporary repatriation facility are additional over the long term rather than bringing forward disposals which would otherwise have attracted full rates of taxation.

When the second biggest revenue-raising new policy in a Budget is so uncertain, according to the OBR, bond market jitters come as no surprise. The emphasis Labour has placed on this policy, which makes up a massive chunk of the Bill, is compounding its conundrum ahead of the OBR’s March forecast. It exacerbates fiscal instability by adding to the risk that revenues will not be as high as anticipated. This brings us back to the same old questions we have been asking, including in the Chamber today: which taxes will Labour have to raise if there is a shortfall, or which services will they have to cut? The Minister will say that we need to wait for the OBR’s revised forecasts, but will those include an update on these highly uncertain figures?

Turning specifically to chapter 1, clauses 37 and 39 introduce the new four-year 100% relief on eligible foreign income and gains for those arriving in the UK who have not been UK tax residents in the 10 tax years immediately prior to their arrival. I acknowledge that that mostly mirrors the proposals we put forward in the March Budget 2024 but would be grateful if the Minister could none the less address the following points.

--- Later in debate ---

[Gareth Davies]

That is a very good point—if only I had included it in my speech. That is a classic example of an intervention that adds to the content of the debate on behalf of all those who will be impacted by this measure. It is important to look at the projections over the five-year period on a year-by-year basis. It will be no surprise to the Minister that I look at them very carefully. I look at the timing of when the measures generate revenue, and when they do not. I could provide lots of examples of places where questions need to be asked of this Budget—indeed, we have been asking them today.

In claiming the 100% relief on foreign income and gains, an individual forfeits their eligibility for a whole host of allowances available to normal UK taxpayers, including the personal allowance'; yet even those who were previously taxed on a remittance basis for non-UK income and gains would still pay tax on their UK earnings, just like everybody else. That was surely an uncontroversial element of the old regime, which did not require any attention, so why have the Government taken it upon themselves to make the tax treatment of UK income less favourable as a condition of claiming the new 100% relief—which we of course welcome?

The biggest concern that has been raised with me regarding these new reliefs by the likes of the now-famous Chartered Institute of Taxation, which many of us have referred to, is the requirement to itemise and actively claim each income and gain. As far as I can recall, the technical note that we produced alongside our proposals in March 2024 did not insist on that level of specificity and detail, which is quite onerous on those applying. As a basic matter of fairness, it seems wrong that the window for making a claim is so much less than the 12 years available to HMRC to issue a compliance check, and even more so when the ability to make a consequential claim to correct an error is restricted.

The Budget claims to introduce a regime that is simpler and internationally competitive, as the Minister outlined in his speech, but those two requirements are neither of those things. I would be very grateful if the Minister can explain what exactly the benefit of doing things in that way are.

The main departure from our proposals comes with clause 38 and schedule 8, which introduce financial limitations for overseas workday relief. Is that to compensate for the additional year in which the relief will now be claimable? How significant does the Treasury expect the impact of the alteration to be? I would be grateful if the Minister can indulge me by outlining an explanation on those points.

[James Murray]

I thank the shadow Minister for his comments. I was going to thank him for his support for these measures, but I do not know whether he explicitly said that. I think he nearly did, so I will take it as support unless he jumps in to correct me.

One of the key measures that the shadow Minister highlighted in our package of legislative measures that is the subject of clause 37 is the temporary repatriation facility, an important feature of the system we are seeking to introduce. What it does—I say this so that all Members are aware—is to introduce a reduced tax rate for remittances to encourage individuals to bring their capital to the UK and to spend and invest it here. The fact that it will raise considerable revenue is beneficial to the public finances, but it is also critical to recognise that that is a consequence of people bringing money into the UK to spend and invest here, which is something I am sure the Opposition side of the Committee will welcome as well.

--- Later in debate ---

[Gareth Davies]

To clarify, the point I am trying to make is that the Minister is rightly trying to ensure that this new regime makes the UK as competitive as possible so that assets flow into our country and we derive revenues from that. The first question I have is, why remove the personal allowance for those who seek to do so? The second is that although the point about the reporting is valid in terms of monitoring, does the Minister accept that that in itself could make the system more complicated and onerous to those who may consider moving their assets to this country? That may result in less money coming through the door, which is exactly why the OBR has rated this as highly uncertain revenue generation. That is the point that I am trying to make.

[James Murray]

I thank the hon. Gentleman for his further comments. To address his point regarding the OBR, we seek to strengthen that institution, inspired not least by some of his colleagues’ views of the OBR having damaged trust in it under the previous Government. We wanted to make sure that that could never happen again, by strengthening its standing in law.

As the hon. Gentleman will know, when the OBR is looking at suggested tax changes, particularly when they are more complex than simply changing a rate—when they are more involved—it is a matter of course for degrees of uncertainty to be associated with that revenue from different measures.

The point about the design of the scheme is best answered by explaining that this is about striking the right balance. The hon. Gentleman asked whether the reporting requirements are too onerous. It is a balance between making sure that we minimise the burden on individuals, and of course the businesses that they work for—we want to make sure that we are not putting any onerous requirements on them to report information that is not needed—while, at the same time, making sure that we have the information to be able to evaluate the regime, to identify any avoidance risks and to ensure compliance. It is a constant tension within the tax system to make sure that burdens are as low as possible while ensuring that we have adequate information to prevent non-compliance and so on. Those are the judgments that we have to take as Ministers, but we want to take them in the way that achieves the best possible outcome.

To conclude, the overall package that we are proposing, with the foreign income and gains regime, where foreign income and gains will see no income tax for four years, is more generous—is more attractive—than the remittance basis that is currently in place, because it means that those foreign incomes and gains will not be subject to income tax.

Therefore, I hope that our proposed package is not only positive for public finances here in the UK, but serves as an attractive regime for people around the world with talent and with entrepreneurial spirit, who want to work and invest in our country and help our economy grow, and that they can see that the scheme will help them to do just that. I commend these measures to the Committee.

Amendment 20 agreed to.

Clause 37, as amended, agreed to.

Clause 38 ordered to stand part of the Bill.

Schedule 8

Relief on foreign employment income: consequential and transitional provision

Amendments made: 44, in schedule 8, page 194, line 33, leave out “qualifying” and insert “non-resident or qualifying”.

This amendment is to make parenthetical description of sections 373 and 374 of ITEPA 2003 consistent with those sections as amended by Schedule 8.

Amendment 45, in schedule 8, page 194, line 39, after “Part 2” insert—

“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.

This amendment provides that an employee must not be a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005 to benefit from a deduction under section 341 of ITEPA 2003, as well as not being a qualifying new resident for the purposes of ITEPA 2003.

Amendment 46, in schedule 8, page 195, line 4, after “Part 2” insert—

“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.

This amendment provides that an employee must not be a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005 to benefit from a deduction under section 342 of ITEPA 2003, as well as not being a qualifying new resident for the purposes of ITEPA 2003.

Amendment 47, in schedule 8, page 195, line 11, after “Part 2” insert—

“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.

This amendment provides that an employee can benefit from deductions under section 355 of ITEPA 2003 where the employee is a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005, as well as where the employee is a qualifying new resident for the purposes of ITEPA 2003.

Amendment 48, in schedule 8, page 195, line 13, leave out “qualifying” and insert “non-resident or qualifying”.

This amendment is to make the parenthetical description of section 373 of ITEPA 2003 consistent with that section as amended by Schedule 8.

Amendment 49, in schedule 8, page 195, line 36, after “Part 2” insert—

“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.

This amendment provides that an employee can benefit from deductions under section 373 of ITEPA 2003 where the employee is a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005, as well as where the employee is a qualifying new resident for the purposes of ITEPA 2003.

Amendment 50, in schedule 8, page 196, line 7, after “Part 2” insert—

“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.

This amendment provides that an employee can benefit from deductions under section 374 of ITEPA 2003 where the employee is a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005, as well as where the employee is a qualifying new resident for the purposes of ITEPA 2003.

Amendment 51, in schedule 8, page 196, leave out line 16.

This amendment reinstates section 375 of ITEPA 2003 which defines “qualifying arrival date” for the purposes of sections 373 and 374 of ITEPA 2003.

Amendment 52, in schedule 8, page 196, line 21, after “Part 2” insert—

“of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)”.

This amendment provides that an employee must not be a qualifying new resident for the purposes of Chapter 5 of Part 8 of ITTOIA 2005 to benefit from a deduction under section 376 of ITEPA 2003, as well as not being a qualifying new resident for the purposes of ITEPA 2003.

Amendment 53, in schedule 8, page 197, line 17, at end insert—

“2A In Part 8 of Schedule 3 to the Social Security (Contributions) Regulations 2001 (S.I. 2001/1004), in paragraph 5 (travel costs and expenses where duties performed in the United Kingdom) —

(a) in the heading, for ‘non-domiciled’ substitute ‘non-resident or qualifying new resident’;

(b) in paragraph (a), for ‘non-domiciled’ substitute ‘non-resident or qualifying new resident’.”

This amendment makes the parenthetical descriptions of sections 373 and 374 of ITEPA 2003 contained in the Social Security (Contributions) Regulations 2001 consistent with those sections as amended by Schedule 8.

Amendment 54, in schedule 8, page 198, line 32, leave out “public notice given” and insert “general direction made”.—(James Murray.)

This amendment means that the requirements of notices under new section 690D will be specified in a general direction made by HMRC rather than a public notice.

Schedule 8, as amended, agreed to.

Clause 39 ordered to stand part of the Bill.

Clause 40

Remittance basis not available after tax year 2024-25

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

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 55 to 58.

Schedule 9.

Clause 41 stand part.

Government amendment 59.

Schedule 10.

Clause 42 stand part.

Schedule 11.

[James Murray]

These clauses and schedules also relate to the non-dom reform, which we just discussing in relation to the previous group of clauses. Clauses 40 to 42 and schedules 9 to 11 make changes to ensure that the remittance basis of taxation will no longer apply from 6 April this year. For previous users of the remittance basis, a temporary repatriation facility will be introduced, which we just discussed under the previous group of clauses. Individuals will be able to rebase their foreign assets to their value on 5 April 2017.

As we know well, the Government are removing the outdated concept of domicile status from the tax system and replacing it with a new, internationally competitive residence-based regime from April this year. Currently, where a non-UK-domiciled individual moves to the UK, they are able to access the remittance basis of taxation, under which foreign income and gains are not taxable unless they are brought to the UK. These arrangements can create a disincentive to invest in the UK.

The changes made by clause 40 and schedule 9 will remove the remittance basis of taxation from being claimed after 6 April 2025, and this clause clarifies how this legislation operates. Although no new claims can be made, foreign income and gains that have arisen through a remittance basis prior to 6 April 2025 will continue to be taxed at the prevailing tax rates if remitted to the UK on or after this date.

Clause 41 and schedule 10 will introduce the new temporary repatriation facility for individuals who had previously claimed a remittance basis, through which they will be able to designate and remit foreign income and gains that arose prior to 6 April 2025 at a reduced rate of tax. That will include unattributed foreign income and gains held within trust structures. That facility, as we discussed in relation to the previous group of clauses, will be available for a limited time period of three years from April 2025, with a rate of 12% for the first two years, rising to 15% in the final year.

Clause 42 and schedule 11 introduce a transitional arrangement for capital gains tax purposes. That will allow those who have previously claimed a remittance basis to rebase foreign assets they held on 5 April 2017 to the value at that date, when they dispose of them on or after 6 April 2025.

Government amendments 55 and 56 amend the wording of sections 56, 61G and 61R of the Income Tax (Earnings and Pensions) Act 2003 to ensure that those sections, which cover chargeability to tax in respect of deemed employment payment, no longer make reference to domicile, which has become redundant in light of the current reforms.

Government amendment 57 amends section 22 of the Finance (No. 2) Act 1931, section 154 of the Finance Act 1996 and section 174 of the Finance Act 1993 to ensure that an individual’s domicile is no longer a relevant consideration for Treasury securities issued with free of tax for residents abroad conditions. Government amendment 58 removes references to domicile in section 614 of the Income and Corporation Taxes Act 1988, relating to relief on income for investments of certain pension schemes, which have become redundant in light of the current reforms.

Finally, Government amendment 59 corrects an incorrect reference in schedule 10. Amendments have also been made to the associated explanatory notes to accurately reflect the legislation. The Government are committed to making the tax system fairer so that everyone who is long-term resident in the UK pays their taxes here.

[Harriet Cross]

I thank the Minister for listing the amendments before the Committee. At Davos last week, the Chancellor announced other amendments that will be made to non-dom status. It is disappointing that they have not been put before the Committee, where they can be scrutinised line by line. Why is that not the case, and when will either a Committee or the House get to see those amendments?

[James Murray]

I am glad that the hon. Lady was paying good attention to what the Chancellor was saying at Davos. The Government will introduce, as the Chancellor set out, a number of amendments to the Finance Bill on Report, to make the temporary repatriation facility simpler to use and more attractive to those who want to benefit from it, while retaining the structure announced at the Budget.

More broadly, the new regime is more attractive than the current approach, because individuals will be able to bring income and gains into the UK without attracting an additional tax charge. That will encourage people to bring funds into the UK and spend and invest them here. That is good for the UK in terms of investment and spending coming into the UK, and in terms of the tax revenue, which we spoke about in relation to the previous set of clauses. I therefore commend clauses 40 to 42, schedules 9 to 11 and Government amendments 55 to 59 to the Committee.

[Gareth Davies]

As the Minister said, clause 40 and schedule 9 abolish the remittance basis of taxation for foreign income and gains from 2025-26. Clause 41 and schedule 10 create a temporary repatriation facility, or TRF, to allow former remittance-based taxpayers to bring historical foreign income and gains into the UK at a lower rate of tax. Clause 42 and schedule 11 allow for foreign assets to be rebased to their value in 2017 for capital gains tax purposes.

On the TRF, I gently point out to the Minister that, given that this is the single biggest revenue-raising part of Labour’s policy—offering a reduced rate of tax on income and gains for a limited time—the Government are not so much closing loopholes in the tax system, as the Labour party consistently said to us when it was in opposition, and as was claimed at the Budget, but creating new loopholes, by their own definition of debates past. As the OBR has stated, there is great uncertainty over how much of that revenue is truly additional. Tom Josephs, one of the three members of the OBR’s Budget Responsibility Committee, told the Treasury Committee:

“most of the revenue that we have scored in the forecast comes from what are…essentially, three years’ worth of lower tax rates…The steady-state impact of the reform is much lower.”

As is so often the case, there is a mismatch between Labour’s rhetoric and the policy reality.

The same would appear to be true for the “tweaks” to the temporary repatriation facility that the Chancellor announced on the slopes of Davos just last week. That indiscretion would be more problematic had there been any substance to the Davos announcement. We are still none the wiser, because the relevant amendments have not appeared, as my hon. Friend the Member for Gordon and Buchan said. This is the Committee stage of a Finance Bill, when we scrutinise the measures of the Government of the day, line by line. The Chancellor of the Exchequer made a conscious decision to get on a plane, fly to Davos and make the announcement—not in this House, but overseas. Then, when she had the opportunity to table amendments for the scrutiny of this Committee, she decided not to do so. I feel sorry for the Minister who has had to explain this, but it is not good enough. The Minister said that we will debate it on Report, but what stopped the Chancellor from tabling amendments today, in Committee? What was it about the line-by-line scrutiny that meant she could not do so? I would be grateful if the Minister could try to explain it, but I think the Chancellor should be explaining it to the House.

Those points aside, the main grievance, which others have raised, relates to the changes to definition of “remittance” in schedule 9. The Chartered Institute of Taxation says the changes are badly drafted, that they should not be retroactive and that, at the very least, implementation should be delayed to allow for them to be rewritten and consulted on. Otherwise, the Minister needs to explain why, under paragraph 5(8), lending foreign income to a foreign relative outside the UK, to be kept outside of the UK, should be treated as a remittance to the UK. Paragraph 5(11), which makes it so that anything that has ever been remitted to the UK without being charged to tax under previous rules should now be treated as if it was a chargeable remittance, is described by the ICAEW as “unacceptable”; it states that the provision “should be deleted”. This is a matter on which I am not particularly expert, but the ICAEW is. I would be grateful if the Minister could explain those points, or follow up in writing to me, so that I can provide these industry bodies with an explanation.

[James Murray]

I am always happy to respond to queries from the Chartered Institute of Taxation—they were eloquently presented by the shadow Minister—and will I make sure that any responses to those queries are forthcoming.

However, I think the central point, which the shadow Minister focused on in his comments, is about the temporary repatriation facility and our changes to that. The Chancellor was very clear that these changes, which she mentioned at Davos, are designed to make the system simpler and more attractive. As he will know, Finance Bills are routinely amended both in Committee and on Report by the Government to ensure that the best possible legislation is in place before a Finance Bill gains Royal Assent.

The new temporary repatriation facility, which we are setting up under these clauses, includes rules concerning how income and gains in a trust structure are matched to beneficiaries. These are complex things and the amendments will simplify that process. To provide absolute clarity, the amendments to the temporary repatriation facility, which the Chancellor referred to, are separate from the amendments that we are debating today in Committee, which clarify specific aspects of the legislation and ensure that the policy works as intended.

Collectively, the Government amendments before the Committee ensure that the legislation works as intended, and the amendments the Chancellor mentioned at Davos are designed to make the system simpler and more attractive. If it is a win-win, where it does not have an impact on the income—

[Blake Stephenson (Mid Bedfordshire) (Con)]

I think Opposition Members are somewhat confused. The Chancellor committed to bringing an amendment forward. I know that the Minister says it will be tabled at a later stage, but why is it so complex that it cannot be considered today, so that it can be scrutinised by the Opposition?

[James Murray]

At the risk of repeating myself, amendments are routinely brought forward in Committee and on Report, and they are scrutinised at both stages of the Bill. The intention is to make sure that the legislation is in the best possible place by the time it gets to Third Reading and receives Royal Assent.

The focus for us is to make sure that this legislation works as well as possible. We are pragmatic about that; we want to make sure that it functions effectively. That is why we are making technical changes by way of Government amendments today, and why there will be further amendments on Report to make the system simpler and more generous, in the way that the Chancellor has set out.

This is about achieving a system that makes the tax system both fairer, in the ways that we have set out, and as simple and attractive as possible for people who want to come to the UK and bring their money to the UK, to invest and spend it here, which will help us to grow the economy.

Question put and agreed to.

Clause 40 accordingly ordered to stand part of the Bill.

Schedule 9

Income Tax and Capital Gains Tax: Remittance Basis and Domicile

Amendments made: 55, in schedule 9, page 208, line 24, leave out “sections 56(5)(a), 61G(5)(a) and 61R(5)(a)” and insert “sections 56, 61G and 61R”

This amendment together with Amendment 56 omits subsections that have become redundant in light of the ending of the relevance of domicile to income tax.

Amendment 56, in schedule 9, page 208, line 25, leave out from “payment)” to end of line 27 and insert “, omit subsections (4) and (5).”

This amendment together with Amendment 55 omits subsections that have become redundant in light of the ending of the relevance of domicile to income tax.

Amendment 57, in schedule 9, page 210, line 34, at end insert—

“Premium trust funds

21A In section 174 of FA 1993 (premium trust funds), omit subsection (6)(a).

FOTRA securities

21B (1) In section 22 of F(No.2)A 1931 (Treasury power to issue securities with a FOTRA condition)—

(a) in subsection (1)(b), for “persons who are neither domiciled nor resident in the United Kingdom” substitute “exempt persons”;

(b) after subsection (1) insert—

“(1A) For the purposes of subsection (1), the following persons are “exempt persons”—

(a) individuals who are not resident in the United Kingdom, and

(b) persons who are not individuals and are neither domiciled nor resident in the United Kingdom.”

(2) In section 154 of FA 1996 (FOTRA securities), in subsection (1)—

(a) after “applies,” insert “where the person with the beneficial ownership of the securities is not an individual and”;

(b) for “the person with beneficial ownership of the securities” substitute “that person”.

(3) Any security issued before 29th April 1996 with a FOTRA condition shall be treated in relation to times on or after 6 April 2025 as if—

(a) it were a security issued with the post-1996 FOTRA conditions (and with no other FOTRA condition), and

(b) the post-1996 FOTRA conditions had been authorised in relation to the issue of that security by virtue of section 22 of F(No.2)A 1931.

(4) In sub-paragraph (3) —

“a FOTRA condition” means a condition about exemption from taxation authorised by section 22 of F(No.2)A 1931;

“the post-1996 FOTRA conditions” means the conditions about exemption from taxation with which 7.25% Treasury Stock 2007 was first issued by virtue of section 22 of F(No.2)A 1931.”

Amendment 58, in schedule 9, page 210, line 34, at end insert—

“Reliefs in respect of income from investments etc. of certain pension schemes

21C In section 614 of the Income and Corporation Taxes Act 1988 (exemptions and reliefs in respect of income from investments etc. of certain pension schemes), in subsections (4) and (5), omit “not domiciled and”.”—(James Murray.)

This amendment removes references to domicile in provisions of the Income and Corporation Taxes Act 1988 relating to relief on income from investments of certain pension schemes.

Schedule 9, as amended, agreed to.

Clause 41 ordered to stand part of the Bill.

Schedule 10

Temporary repatriation facility

Amendment made: 59, in schedule 10, page 214, line 6, leave out paragraph (a) and insert—

“(a) Part 2 of this Schedule (exemptions etc for designated qualifying overseas capital),”—(James Murray.)

This amendment corrects an incorrect reference.

Schedule 10, as amended, agreed to.

Clause 42 ordered to stand part of the Bill.

Schedule 11 agreed to.

Clause 43

Trusts: connected amendments, transitional provision etc

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

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 60 and 61.

Schedule 12.

--- Later in debate ---

[James Murray]

Clause 43 and schedule 12 make changes to ensure that the foreign income and gains arising within settlor-interested trust structures will no longer be protected from tax for non-domiciled and deemed-domiciled individuals who do not qualify for the four-year foreign income and gains regime, which we have been discussing in relation to earlier groups of clauses.

As we have established in previous debates in Committee, the Government are removing the outdated concept of domicile status from the tax system and replacing it with a new internationally competitive residence-based regime from April of this year. Currently, where a non-UK-domiciled individual settles an offshore trust, foreign income and gains arising within that trust are protected from UK tax, which remains the case even if the individual is later deemed domicile.

The changes made by clause 43 and schedule 12 will mean that from 6 April 2025, foreign income and gains arising in settlor-interested trusts will be taxed on the same basis as UK-domiciled settlors, unless the settlor is eligible for and claims the new four-year regime, regardless of when the trust was established. In addition, the trust protections will not apply to the legislation on the transfer of assets abroad. This will mean that all income arising in a settlor-interested trust or an underlying company can be taxed on a UK settlor as it arises if the transferor has the power to enjoy the income or receives capital sums from the trust or company.

Government amendments 60 and 61 ensure that the onward gifting provisions continue to operate effectively, as under the existing regime. These provisions ensure that taxpayers cannot avoid a liability to tax by diverting benefits to other persons not liable to that charge. The Government are committed to making the tax system fairer so that everyone who is a long-term resident in the UK pays their taxes here. The new regime ensures this while also being more attractive than the current approach, as individuals will be able to bring income and gains into the UK without attracting an additional tax charge. As we have debated already, this will encourage them to spend and invest these funds here in the UK. Therefore, I commend these provisions to the Committee.

[Gareth Davies]

Clause 43 and schedule 12 mirror the proposals that we set out in March 2024. The Minister will therefore be very pleased to hear that I have not picked up any significant murmurings of discontent on this clause, and I have no further comments.

[James Murray]

I thank the shadow Minister and encourage him to respond in similar terms in future.

Question put and agreed to.

Clause 43 accordingly ordered to stand part of the Bill.

Schedule 12

Trusts: connected amendments, transitional provision etc

Amendments made: 60, in schedule 12, page 238, leave out lines 21 to 23 and insert—

“(b) the original recipient—

is liable neither to income tax nor to capital gains tax by reference to the amount or value of the original benefit, or

is a qualifying new resident for the tax year in which the original benefit is provided,”.

This amendment expands the scope of the onward gifting rule to circumstances where benefits are routed via individuals who are UK resident but who are not themselves within the scope of the benefits charge (because they are not the settlor or a close family member).

Amendment 61, in schedule 12, page 239, line 41, at end insert—

“(5A) Where the original recipient is liable neither to income tax nor to capital gains tax by reference to the amount or value of part only of the original benefit, this section applies as if the two parts of the original benefit were separate benefits.”—(James Murray.)

This amendment supplements Amendment 60.

Schedule 12, as amended, agreed to.

Clause 44

Excluded property: domicile test replaced with long-term residence test

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

[The Chair]

With this it will be convenient to discuss the following:

Clauses 45 and 46 stand part.

Government amendments 62 to 65.

Schedule 13.

[James Murray]

Clauses 44 to 46 and schedule 13 make changes to replace the current domicile-based system of inheritance tax with the new residence-based system. Currently, an individual’s domicile status determines whether their non-UK assets are in scope of inheritance tax. The non-domiciled individual’s personal non-UK assets are not in scope until they become deemed domiciled. However, if such assets are placed into a trust they will remain out of scope in perpetuity, even if an individual later settles in the UK.

--- Later in debate ---

[Gareth Davies]

As the Minister set out, clauses 44 to 46 and schedule 13 bring inheritance tax into the residence-based system so that it applies to non-UK assets owned outright or held in trusts. This was our stated intention in March 2024, subject to consultation.

As the Minister set out, non-UK assets will now be in scope for inheritance tax where an individual is considered a long-term resident—that is, if they have been resident in the UK for at least 10 of the last 20 tax years that immediately precede the chargeable event. This is subject to a tapered 10-year tail where a person who was resident in the UK for 20 years or more would no longer be considered long-term resident after 10 consecutive tax years of absence, whereas a person with 19 years of UK residence in the last 20 years would no longer be considered a long-term resident after nine years, and so on down to a minimum of three years for those with between 13 and 10 years of residence in the last 20 years.

As far as I am aware, there are no details of consultations which have taken place and nothing has been published on this. I am told by the likes of the Chartered Institute of Taxation that certain provisions such as the tapering of the 10-year tail were put forward during that process. I would be grateful if the Minister could confirm to the Committee the nature and extent of the consultation that has taken place by the Government to inform the creation of these clauses.

One point made by the Chartered Institute of Taxation is that there is now an anomaly whereby individuals who leave the UK before the new regime begins on 6 April are considered long-term residents when the legislation comes into effect, meaning they will incur an inheritance tax exit charge for trusts they have settled when their long-term resident status ends. As the Chartered Institute of Taxation points out, it seems unfair that a person who has already left the UK should face an exit charge due to legislation that comes into effect after their departure. I would be grateful if the Minister could explain that anomaly, which seems a little unfair. According to the Office for Budget Responsibility, these clauses raise very little revenue—I think it is in the range of £100 million a year on average—so the Government can afford to get this right. I would really appreciate a fuller explanation.

[James Murray]

I thank the shadow Minister for his remarks. He asked about the consultation and how we developed these policies. It is worth pointing out that there has been quite extensive discussion about the legislation on non-domicile status. The Government published a technical note at the autumn Budget in October 2024 explaining the proposed changes to provide certainty ahead of the rules coming into force in April 2025. Officials have engaged extensively with interested specialists and individuals over the summer and throughout the development of this policy. Many elements, such as the tapered tail and the transitional arrangements, were proposed by representative bodies. Those representative bodies also told us that people want certainty about the proposed new rules as early as possible, which is why we published information ahead of the Finance Bill and discussed it with people who might be affected and have views to add.

I will write to the shadow Minister with details on the very specific question he asked, so he has that information for reference. The objective with this policy is to achieve our aim of making the tax system fairer while making the new regime as attractive as possible and internationally competitive to encourage people to come to the UK to invest here, work here, create jobs and wealth, and grow our economy. That is the balance that we seek to strike. We have done that in close consultation and discussion with those affected to get the legislation to the best possible place.

Question put and agreed to.

Clause 44 accordingly ordered to stand part of the Bill.

Clauses 45 and 46 ordered to stand part of the Bill.

Schedule 13

Inheritance tax

Amendments made: 62, in schedule 13, page 266, line 35, at end insert—

“(2A) In subsection (1)—

(a) in the definition of “excluded property”, for “6 and 48” substitute “6, 48 and 48ZA”;

(b) omit the definition of “formerly domiciled resident”.”

This amendment updates the definition of “excluded property” in section 272 of the Inheritance Tax Act 1984 in consequence of the amendments made by clause 45. It also removes the now-redundant definition of “formerly domiciled resident”.

Amendment 63, in schedule 13, page 266, line 36, at beginning insert “Also”.

This amendment is consequential on Amendment 62.

Amendment 64, in schedule 13, page 267, line 25, at end insert—

“28A “(1) Schedule A1 (non-excluded overseas property) is amended as follows.

(2) In paragraph 1, for “48(3)(a)” substitute “48ZA”.

(3) In paragraph 5(2)(a), for “or 48(3)(a), (3A) or (4)” substitute “, section 48(4) or section 48ZA”.”

This amendment is consequential on clause 45 (which amends section 48 of the Inheritance Tax Act 1984 and inserts new section 48ZA).

Amendment 65, in schedule 13, page 271, line 39, at end insert—

“(1A) In construing section 267 of IHTA 1984, so far as saved by sub-paragraph (1), the repeal of the definition of “formerly domiciled resident” by paragraph 28(2A)(b) is also to be disregarded.”—(James Murray.)

This amendment clarifies that the definition of “formerly domiciled resident”, which is being removed from the Inheritance Tax Act 1984 by Amendment 62, will still be relevant in construing section 267 (which by virtue of paragraph 48 of Schedule 13 will continue to apply for certain limited purposes).

Schedule 13, as amended, agreed to.

Clause 54

Alternative finance: land in England, Scotland or Northern Ireland

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

[The Chair]

With this it will be consider clause 55 stand part.

[James Murray]

Clauses 54 and 55 make changes to alternative finance tax rules to put alternative and conventional financing arrangements on a broadly level playing field for annual tax on enveloped dwellings. As with the changes made in clause 35, which we debated earlier, these changes promote financial inclusion for those who choose to use alternative forms of finance, either for religious reasons or otherwise.

The annual tax on enveloped dwellings is an annual charge payable by non-natural persons, such as companies, owning UK residential property valued at more than £500,000. It is intended to discourage non-commercial enveloping of residential property in a company in order to avoid other property-related taxes, such as stamp duty land tax. The charge is not intended to apply to individuals who use alternative finance to purchase residential property.

These clauses fix an issue whereby an unintended annual tax on enveloped dwellings may arise on individuals and financial institutions when using certain alternative finance arrangements. The changes made by clause 54 would ensure that an annual tax on enveloped dwellings charge does not arise just because alternative finance has been used to purchase the property. It does that by disregarding the financial institution’s interest in the property, so that the tax liability is assessed on the basis of the client of the alternative finance arrangement.

Clause 55 fixes an error with the existing legislation and ensures that the treatment for annual tax on enveloped dwellings is the same for those entering into alternative finance arrangements in Wales as it is for those in the rest of the UK.

These clauses, alongside clause 35, which we debated earlier, deliver on the Government’s commitment to the continued strength of the UK Islamic finance sector by putting alternative and conventional financing on a broadly level playing field in their treatment for annual tax on enveloped dwellings. I therefore commend the clauses to the Committee.

[James Wild]

As we heard from the Minister, these clauses extend existing alternative finance provisions to ensure that the ATED charge arises only where the client is a person within the scope of that charge. Clause 54 extends those provisions for land in England, Scotland or Northern Ireland and clause 55 does so for land in Wales.

As we discussed when debating clause 35, alternative financing is a method of raising finance involving the sale, purchase and renting of assets in circumstances where conventional financing would involve lending at interest. Although based on Islamic financing, it can be used by both followers and non-followers of that faith. These changes reflect the approach that we took in government, which the new Government have taken on, to ensure, where possible, a level playing field between conventional and alternative finance transactions. We support the changes.

The ATED is an annual charge payable by companies, partnerships with a company member, and collective investment vehicles that own residential property valued at more than £500,000. An enveloped dwelling is a property that is used or can be used as a residence—for example a house or flat—and that is owned through a corporate structure. The amount of ATED due is worked out through a banding system. The current chargeable amount for properties worth more than £500,000 and up to £1 million is £4,450. If a property is worth more than £20 million, the charge is £292,000. I would be grateful for any data that the Minister has on how much is raised by this tax every year, including any per-band figures. The tax information and impact note includes an annual £5 million negative impact on the Exchequer from 2025 through to 2030. Will the Minister explain what lies behind that? It would also be useful to know how many individuals using alternative finance will be impacted by these changes.

I am grateful to our friends at the Chartered Institute of Taxation for their comments on these measures. They have queried what they term the Government’s piecemeal approach to levelling the playing field for alternative finance arrangements. The CIOT has said that the current legislation does not provide for a look-through to the underlying buyer for stamp duty land tax reliefs such as charities relief, group relief and relief for acquisition by a house builder from an individual acquiring a new dwelling. The effect is that that relief is denied when alternative finance arrangements are in place. This is inconsistent with a policy of providing parity of treatment between alternative finance and conventional financing, and should also be addressed. Will the Minister confirm whether he will consider such changes and, when horizon-scanning, consider adopting a more consistent approach more widely to level the playing field? As I have set out, we support these changes. I hope that the Minister will respond, briefly, to my questions.

[James Murray]

I thank the hon. Gentleman for his support on this matter. He asked about the receipts from ATED. The most recent figures are from 2022-23 and show £124 million of receipts from ATED overall. I hope that puts in context the small, £5 million impact of the changes that these clauses and clause 35 would introduce.

The hon. Gentleman also asked how many people are impacted by these changes. We recognise that they will benefit a small number of finance providers and individuals, and anticipate that the number of people who will benefit will be low. However, it is important to give this sector the confidence to grow and to ensure a level playing field. The shadow Minister agreed that it is important to ensure that the Islamic or alternative finance sector has that level playing field, so that it can contribute towards our country’s economic growth. These clauses, along with clause 35, seek to achieve that goal.

Question put and agreed to.

Clause 54 accordingly ordered to stand part of the Bill.

Clause 55 ordered to stand part of the Bill.

Clause 56

Testing of FMI technologies or practices

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

--- Later in debate ---

[Emma Reynolds]

I thank the shadow Minister for the way he has approached this subject. He is correct, of course, that the previous Government consulted on PISCES in March last year. We responded to the consultation in November, alongside the Mansion House speech delivered by my right hon. Friend the Chancellor.

I am glad that there is cross-party agreement on these issues. When we were in opposition, we were very constructive in our feedback on such proposals. The shadow Minister is right that there are other reforms in this area, which came from the Lord Hill listings review and others—there were other reviews pertinent to capital markets when the Conservative party was in government.

The shadow Minister asked me a number of questions. On estimating the impact, it is really important to note that many stakeholders in the City and across financial services, not least the Investment Association, have welcomed this innovation. We know that investors and those in the market are interested in it, and I think there is great optimism about the demand for shares on PISCES. We still have to lay the statutory instrument, but the innovation is of interest to Members across the House, so I am very happy to update it on the development of PISCES.

On the shadow Minister’s questions about the FCA, we stress to the financial services regulators at every opportunity that any new rules should be proportionate, and I assure him that that is how I will approach my work with the FCA. On his final question, although I am quite new to this position, I am familiar with the demands for the simplification of stamp duty and stamp duty reserve tax—we might make it a little bit easier to say, let alone to pay. I will absolutely prioritise looking at simplification, because any kind of simplification is good for the market and helps to get things going. I am happy to look at that, but I cannot give the shadow Minister an exact answer now.

Question put and agreed to.

Clause 56 accordingly ordered to stand part of the Bill.

Clause 57

Rate bands etc for tax years 2028-29 and 2029-30

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

[James Murray]

The clause makes changes to the inheritance tax thresholds so that they continue at the current levels in 2028-29 and 2029-30. Subject to reliefs and exemptions, inheritance tax is payable if the net value of an estate exceeds the respective thresholds for two bands: the nil-rate band, for which the threshold has been £325,000 since 2009-10, and the residence nil-rate band, for which the threshold has been £175,000 since 2021. Those thresholds rise with the consumer price index each year, but have in recent years been frozen until April 2028, by the previous Government.

The changes made by clause 57 will fix the threshold at current levels for a further two years, until April 2030. This will raise £355 million in 2029-30.

[Harriet Cross]

We heard earlier that the thresholds for income tax will be unfrozen as of 2028; why will the thresholds for inheritance tax not be? What impact will that have on, for example, agriculture and business property reliefs? Have the Government done an assessment of the number of additional estates that will be brought into inheritance tax beyond 2028, and how many of those will be family farms?

[James Murray]

Broadly speaking, the reason why we have had to take a number of decisions, including some of the more difficult decisions in the Budget, is the fiscal inheritance from the previous Government. I do not need to spend time in Committee rehearsing the arguments on that, because they are well known and widely accepted. We inherited a mess from the previous Government and had to take difficult decisions at the autumn Budget to fix that problem, put the public finances back on an even footing and get public services back on their feet. Extending the freeze for inheritance tax thresholds is one of many difficult decisions we had to take.

On the number of estates that will pay inheritance tax as a result of the freeze, fixing the nil-rate bands is forecast to increase the number of tax-paying estates by 1,400 in 2028-29 and by 2,900 in 2029-30. That means the proportion of all UK deaths subject to inheritance tax will rise by 0.2 and 0.4 percentage points in ’28-29 and ’29-30 respectively, when compared with the thresholds rising with CPI. If we look at all inheritance tax measures, the latest forecast indicates that 37,700 estates will have an inheritance tax liability in ’24-25, which equates to 5.8% of all estates. That will increase to 66,600 estates in ’29-30, which equates to 9.5% of estates. I hope that helps to put the measures in context.

We have debated the specific changes to agricultural and business property reliefs several times, and I have shared with the hon. Member for Gordon and Buchan the data on that, which shows the limited impact of the freeze in terms of the number of estates affected. Most estates will not be subject to any inheritance tax because of the way we have designed the reforms to agricultural property relief and business property relief. We have had several other debates on that issue in this place.

--- Later in debate ---

[Gareth Davies]

Where it has gone wrong is that the Labour party said pre-election that it would not increase national insurance, but has now gone back on that. Labour said it would not hit farmers and would support them, but we now have the family farm tax. We are slightly veering off topic, as Mr Mundell will point out, but I say gently to the hon. Gentleman that although I hope he retains his seat at the next election—[Laughter.] The Chancellor, who is completely out of her depth, has made his life a little more difficult. He is laughing now but I am not sure he will be in four years.

In the context of more drastic changes to inheritance tax elsewhere in the Budget, and the changes to agricultural relief in particular, my hon. Friend the Member for Gordon and Buchan asked about the Government’s assessment of how many of the estates being brought into the regime as a result of the threshold freeze are family farms. I did not quite hear an answer. On behalf of all the farmers we all represent, I say it would be good to hear the Treasury’s estimate as to how many family farms will be impacted.

Ministers frequently cite the inheritance tax thresholds in mitigation of their decision to introduce the family farm tax, but that mitigation is being steadily eroded by inflation. By the time the family farm tax comes into effect next year, Labour’s excuses will be worth even less than they are today, not least because the OBR forecasts that inflation will be higher for longer under Labour. It has already gone up in this short period. It is a shameful exercise in how not to govern, and we will be holding the Government to account going forward.

[James Murray]

That was a fairly wide-ranging response from the shadow Minister to what is quite a straightforward clause. I could not help but notice that he began by saying that he supported what we are doing in the clause, that he understood that we needed to take tough decisions and that he will not oppose the decision to extend the freeze to inheritance tax thresholds—which the Conservatives began—for a further two years. He then proceeded to explain why he did not support it. I know the Opposition have not made their policy on many things, but it seems that even individual Members have not made up their minds.

[Gareth Davies]

I was pointing out the discrepancy in how, as we covered earlier, the Government are unfreezing income tax—apparently, although they are not legislating for it—but keeping the freeze on inheritance tax, which I pointed out that we did, not least for public finance reasons. Not only that, but the freeze has also been used as a mitigation against the disgraceful family farm tax that has impacted many of our farmers. Every year that inflation goes up—and it is going up under Labour—that mitigation goes away. That was the point I was trying to make, and it would be great if the Minister could address it.

[James Murray]

The shadow Minister alleges that there is some discrepancy on this side of the Committee; I feel like there is some discrepancy within his own views. I return to the central point that he seemed to begin by saying that he welcomed our measures—that he supports them and understands why tough decisions have to be taken—but then seemed to explain why he did not support them.

The shadow Minister asked why we decided to extend the threshold freeze for inheritance tax while not, for instance, increasing income tax rates; that is a political choice. It is a difficult choice, but it is a political choice. As a Government we have made the choice to make sure that we do not raise income tax. We went into the election saying that we would not raise taxes on working people, and we have kept that pledge through our policies on income tax, employee national insurance and the rate of VAT. We made those commitments and we are honouring them.

[Mr Angus MacDonald (Inverness, Skye and West Ross-shire) (LD)]

Will the Minister consider the fact that the increase in national insurance has harmed many companies that have really struggled? An increase in the top rate of income tax or capital gains tax would at least have hit organisations that are making proper profits and proper money.

[The Chair]

The debate is only in the context of the clause. If the Minister feels he can find a context, he can respond.

[James Murray]

I will attempt to link that question to inheritance tax thresholds. I am thinking rapidly on my feet and struggling somewhat. With your permission, Mr Mundell, I will respond briefly to the hon. Gentleman’s point about the difficult decision—one of the toughest we took in the Budget—to increase employer national insurance contributions. We did not want to have to take that decision, but we had to take a series of difficult decisions because of the state of the public finances. We recognise that it was difficult for businesses as well. What is critical for businesses, and for the economy more widely, is having the public finances in balance, meeting our fiscal rules and ensuring that we have stability in the economy. As I said earlier, without that, the investment in growth that we are determined to pursue will not have the right foundations.

I will return to inheritance tax thresholds. I set out the number of estates that will be affected as a result of the thresholds. I do not know whether the shadow Minister is aware of the data that has been put out on the changes to agricultural property relief and business property relief. The number of estates affected that claim agricultural property relief, and agricultural property relief with business property relief, is estimated to be up to 530 in ’26-27. I have referred to that information in the Chamber several times, and it was in the letter that the Chancellor sent to the Treasury Select Committee.

To conclude, although the shadow Minister’s position is confusing, I welcome the Opposition’s support for the measures.

Ordered, That the debate be now adjourned.—(Christian Wakeford.)

Loan Charge: Independent Review

James Murray Excerpts

Thursday 23rd January 2025 Written Statements

[The Exchequer Secretary to the Treasury (James Murray)]

At the Budget, the Government announced that they would commission an independent review of the loan charge to help bring the matter to a close for those affected while ensuring fairness for all taxpayers. Today I can set out further details about the review.

The loan charge was intended to tackle historical use of contrived tax avoidance schemes that seek to avoid income tax and national insurance by disguising remuneration as a form of non-taxable payment (typically a loan). Disguised remuneration schemes have been considered by the courts. In the most notable case in 2017, the Supreme Court agreed with HMRC that schemes that redirect earnings and ultimately pay them in the form of loans do not succeed in avoiding tax. In a further decision in 2022, the Court of Appeal confirmed that even where other parties (such as employers or agencies) have obligations to operate PAYE, the liability for income tax is that of the employee.

The Government believe that it is right that those who did not pay the right amount of income tax and national insurance are required to resolve their affairs with HMRC. Accepting otherwise would be contrary to the decisions of the courts and would be unfair to the vast majority of taxpayers who have never used these schemes.

However, the Government recognise that concerns continue to be raised about the loan charge. In particular, there are concerns about the size of liabilities owed by some of those affected and their ability to pay the tax that they owe in a reasonable timeframe.

I have therefore asked Ray McCann, a former president of the Chartered Institute of Taxation, to conduct a review into the barriers that are preventing those subject to the loan charge from reaching resolution with HMRC and to recommend ways in which they can be encouraged to do so.

The objectives of this review are to help bring the matter to a close for those affected; ensure fairness for all taxpayers; and ensure that appropriate support is in place for those subject to the loan charge. The full terms of reference for the review have been published here: www.gov.uk/government/publications/independent-review-of-the-loan-charge.

The review will commence on 23 January 2025 and I have asked Mr McCann to present his final report to me by summer 2025. I will provide a further update to the House after I have received that report.

[HCWS386]

Agricultural and Business Property Reliefs: OBR Costing

James Murray Excerpts

Thursday 23rd January 2025 Commons Chamber

[Victoria Atkins (Louth and Horncastle) (Con) (Urgent Question)]

To ask the Chancellor of the Exchequer what assessment she has made of the Office for Budget Responsibility’s supplementary forecast information release on the costing of changes to agricultural and business property relief.

[The Exchequer Secretary to the Treasury (James Murray)]

At the autumn Budget, we took difficult decisions on tax, welfare and spending that were necessary to restore economic stability, fix the public finances and support public services. We had to do that to address the mess we inherited from the previous Government, which the right hon. Member for Louth and Horncastle (Victoria Atkins) will remember well, having served in that ill-fated Government. We have taken these decisions in a way that makes the tax system fairer and more sustainable.

The Government are better targeting agricultural property relief and business property relief to make them fairer. These reforms mean that despite the tough fiscal context, the Government are maintaining very significant levels of relief from inheritance tax beyond what is available to others.

Under the current system, the benefit of the 100% relief on business and agricultural assets is heavily skewed towards the wealthiest estates. According to the latest data from His Majesty’s Revenue and Customs, 40% of agricultural property relief benefits the top 7% of estates making claims. That is just 117 estates claiming £219 million of relief. It is a similar picture for business property relief, with more than 50% of it being claimed by just 4% of estates making claims, which equates to 158 estates claiming £558 million in tax relief. Our reforms mean that individuals can access 100% relief for the first £1 million of combined business and agricultural assets, and 50% thereafter. Given the nil rate bands, this means that a couple can pass on up to £3 million between them to a direct descendant, inheritance tax free.

Yesterday, the Office for Budget Responsibility published further details on the data sources and modelling used to estimate costings across a number of the tax measures announced at Budget, including the reforms to agricultural property relief and business property relief. The costing is the same as published at Budget, and the approach to modelling the costing is typical and in line with other tax policies. As the Government have set out, the reforms mean that almost three quarters of estates claiming APR in 2026-27, including those that also claim BPR, will not pay more inheritance tax. This is a fair approach that protects farms while also fixing the public services we all rely on.

[Mr Speaker]

I call the shadow Secretary of State for Environment, Food and Rural Affairs.

[Victoria Atkins]

Having inherited the fastest-growing economy in the G7, the Chancellor’s Budget has led to the highest borrowing costs since the pandemic, growth flatlining, business confidence plummeting and job freezes. Who has Labour chosen to pay the price for its economic illiteracy? Pensioners, family businesses and farmers. For months, farmers, farming businesses, professional advisers and economists, and now eight major supermarkets, have warned the Chancellor that she has got her figures wrong, but Ministers cleave desperately to their soundbites. Let us hope that they listen to the OBR.

Yesterday, the independent OBR released additional information about this particular measure and reiterated the “‘high’ uncertainty” of the predicted yield. It noted that the yield of the measure is likely to be reduced by 35% because of behavioural responses, and that it is unlikely to reach a steady state for 20 years. The OBR also expressed grave concerns about the impact on older individuals and their ability to plan. In short, the reassurances provided by Ministers are falling almost as flat as the economy.

The Chief Secretary to the Treasury has lectured this House about the perils of sidelining the OBR. In light of its analysis, will the Minister now commit to a full and proper review of this dreadful policy? The public have noticed that Government Ministers are failing to answer reasonable questions about their policies, so will the Minister please give straight answers to the farmers and businesses watching our proceedings today?

In light of the new analysis, how many farms does the Treasury think will be affected by the changes to APR, APR/BPR and BPR alone? What assessment has he made of the Central Association of Agricultural Valuers’ finding that the Chancellor has underestimated the number of farms affected by the changes by a factor of five? How many tenant farmers will be evicted? As worrying reports of suicides among farmers begin to emerge, will the Minister please do what the Secretary of State for Environment, Food and Rural Affairs has failed to do and measure the number of suicides over the next 12 months, so that we can understand the human cost of this policy?

Finally, why does the Minister think that Tesco, Sainsbury’s, Asda, Morrisons, Marks & Spencer, Aldi, Lidl and the Co-op have all come out against this tax policy and believe the Treasury’s figures to be wrong? Why does he think they are wrong and he is right?

[James Murray]

I think there may be some confusion on the Conservative Benches about what the OBR data shows. The data published by the OBR yesterday refers to exactly the same costing as was published at Budget. It sets out the approach to modelling and the costing, which is typical and in line with other tax policies. Indeed, the OBR’s statement makes it clear that:

“The OBR’s role is to provide independent scrutiny and certification of whether the Government’s policy costings are reasonable and central.”

That is exactly what the OBR has done in publishing the extra information, which shows the modelling behind the data that was published at the time of the Budget.

The shadow Secretary of State asked about the data. The data on the number of affected estates claiming APR and, indeed, APR/BPR—some 530 is the upper estimate—is in table 1.1 of the OBR document published yesterday. That is consistent with what we have been saying for many months since the Budget. I think Opposition Members are confusing the value of farms with the value of claims under inheritance tax. The only way to truly understand the impact of changes to inheritance tax policy on inheritance tax claims is to look at the claims data itself.

We are working in partnership with the large supermarket chains to make sure they are driving economic growth. We are very clear that some of the decisions we had to take in the Budget were difficult decisions that will have consequences, but we are determined to work with businesses across the country to drive economic growth, which is the No. 1 mission of this Government.

[Chi Onwurah (Newcastle upon Tyne Central and West) (Lab)]

The people of Newcastle upon Tyne Central and West love the local produce provided by local farmers in our fantastic markets, such as Grainger market, and they enjoy the beautiful countryside of Northumberland, which has been shaped by generations of sustainable farming. However, we cannot help but be aware that most of that land is owned by, for example, the Duke of Northumberland, big landowners and those seeking to minimise their tax exposure, so does the Minister agree that, by keeping this loophole open for so long, the country has pushed up land prices and pushed out the next generation of young farmers?

[James Murray]

There certainly is evidence that the current inheritance tax system has caused people to use these reliefs for tax planning and to avoid inheritance tax bills. My hon. Friend alludes to the broader question of the fairness and sustainability of this measure. As I mentioned earlier, 40% of agricultural property relief benefits the top 7% of estates, and 50% of business property relief benefits the top 4% of estates. The Leader of the Opposition has said that she thinks this is a good way to prioritise public money, but we think it is neither fair nor sustainable.

[Mr Speaker]

I call the Liberal Democrat spokesperson.

[Steve Darling (Torbay) (LD)]

After years of the Tories failing our rural communities, including with a dodgy and utterly shameful Australian trade deal, it is a great pity that the new Government have picked up the baton. From Orkney to the Isles of Scilly, Liberal Democrat colleagues are extremely concerned about the impact of these proposals.

The report published yesterday clearly demonstrates the uncertainty about the income from the misguided family farm tax over the next two decades. In the light of this, and given that it will hit older farmers in particular and those who put food on the tables of the United Kingdom, will the Minister do the right thing and scrap this tax?

[James Murray]

The OBR document published yesterday refers to the level of uncertainty associated with this policy, which is exactly what was set out at the time of the Budget, and it is a typical way in which the OBR responds to new measures. What was published yesterday simply reiterates the OBR’s conclusions from the end of October.

[Callum Anderson (Buckingham and Bletchley) (Lab)]

Does my hon. Friend agree that, once again, the Conservative party has failed to agree with the tough decisions we have made and has no idea how to raise the revenue to finance the public services that benefit rural communities like mine in north Buckinghamshire?

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[James Murray]

My hon. Friend is absolutely right. The party opposite—in fact, the parties opposite—routinely support the Government’s spending and investment decisions but will not support any of the difficult decisions we have to take to fund them.

[Simon Hoare (North Dorset) (Con)]

The weight of public and business opinion is not with the Minister on this issue, and the body of expert opinion speaking out against this tax proposal is now overwhelming. The Minister is a kindly man, so I wonder if he will indulge me. What would he be saying if he were in opposition and that weight of opinion was being expressed against a Conservative Government’s Treasury policy?

[James Murray]

The hon. Gentleman is a kindly man, too. I value the conversations that he and I have had outside the Chamber. People looking at this policy, and all our policies in the Budget, will recognise that we had to take difficult decisions, and will understand the context: our inheritance from the previous Government. We recognise the toughness of those decisions—they were not easy to make—but we prioritise balancing the public finances and economic stability, because that is how we get investment in growth, which our country so badly needs.

[Jim Dickson (Dartford) (Lab)]

rose—

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

One of the witnesses before the Environment, Food and Rural Affairs Committee told us that the Government’s changes hit the people the Government say they are protecting, and protect the people the Government say they are hitting. It is difficult to improve on that analysis of what is proposed. It really does not have to be like that. There is a sensible debate to be had about reforming inheritance tax to stop the super-rich from sheltering their wealth while still protecting family farms. His Majesty’s Revenue and Customs has its technical consultation coming up. Why does the Minister not agree to broaden its terms, engage with the farming communities, and look for a way to protect family farms and get at those who are sheltering their wealth in land?

[James Murray]

The policy that we are implementing includes generous provisions to protect family farms—the £1 million entire relief from inheritance tax for agriculture and business property assets. That is in addition to the nil-rate bands that people can access as part of the general inheritance tax scheme. We think that strikes the right balance between making sure we raise money for the public finances and protecting family farms.

[Dame Harriett Baldwin (West Worcestershire) (Con)]

Mr Speaker, have you noticed a pattern—that on a Thursday, a Treasury Minister will be asked to come to the Commons to answer an urgent question, and there will be barely a soul on the Labour Benches behind them when they do?

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[Dame Harriett Baldwin]

The Office for Budget Responsibility forecasts that the measure will raise £500 million in revenue by 2029, which, in the context of tax revenues of over £1,150 billion, is a very small number. What value does the Minister put on food security for the United Kingdom?

[James Murray]

Obviously, the Government put the highest priority on food security. That is why our policies set out to support it, and the farming sector more widely. The policy is one of many difficult decisions that we had to take in the Budget to balance the public finances, support public services and provide the economic stability we need for investment and growth.

[Sarah Dyke (Glastonbury and Somerton) (LD)]

I have heard from many farming businesses across Glastonbury and Somerton over the last few months, but one farm in Hurcot near Somerton recently wrote to me to describe the anguish and stress that the changes to the APR and BPR have caused them. As in the case of many farming businesses, their succession planning has focused on the primary landowner retaining the farm until death. How will the Minister explain to them that according to the OBR, the potential loss of their family farm business is likely to have little impact on the public finances, and that the policy will hit the oldest farmers hardest?

[James Murray]

The OBR’s publication yesterday sets out the costings that were in the October Budget. There is no difference between the costings set out in October and what the OBR set out yesterday. It simply showed more of the background behind how they calculated those costings, for transparency and so that people are aware. Indeed, it says in the report that that is done in an effort to improve the public debate and ensure that people understand what is behind the data published at the time of the Budget.

As I said to several Opposition Members, clearly this was one of many tough decisions that we took in the Budget to balance the public finances, but we also made sure that there is greater protection from inheritance tax under our proposed reform scheme than is available more widely.

[John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)]

The Labour Government’s family farm tax will be catastrophic to farmers in my constituency in the Borders. I will join many of them and their tractors in Kelso on Saturday, when the farming community comes together to show its displeasure and disapproval of this policy. Farmers will struggle to pay this tax, so what assessment have the Government made of the policy’s impact on vets, feed merchants, machinery suppliers, and all the other people who support the rural economy?

[James Murray]

Supporting the rural economy, public services and investment right across the country is part of Labour’s national mission to get the economy growing, but the prerequisite for that investment and economic growth is stable public finances. Without economic stability, we cannot proceed to the investment and growth that we all so desperately need. That is why the decision to target agricultural property relief and business property relief was taken, alongside all the other difficult decisions that we took in the Budget.

[Dave Doogan (Angus and Perthshire Glens) (SNP)]

This measure is now revealed to be spectacularly ill-considered, leaving aside the fact that it is also a breathtaking betrayal of farmers, who were promised before the election that this would not happen. The measure groups intergenerational farmers with speculative millionaires seeking to dodge tax by getting involved in farming. It has put an immediate brake on investment in farming, which threatens to lower yields and drive up food prices. That then threatens to put inflationary pressures on the UK economy, which is already in a perilous state. This Government cannot just agree with the OBR when it suits them. They must agree with the OBR regardless of what it says. Will the Minister please respectfully pause the measure, take some time to think about this, and come up with something that will actually deliver for the Treasury but not push our family farming sector under.

[James Murray]

There still seems to be confusion among Opposition Members about what the OBR publication set out. It reiterates the costings that were published at the time of the Budget, on 30 October. It explains how those costings were arrived at, so that people can understand the calculations behind them, but the costings are the same as those published at the time of the Budget.

[Jerome Mayhew (Broadland and Fakenham) (Con)]

Mr Speaker, if you look at the Register of Members’ Financial Interests, you will see a reference to my family farm in my constituency. Last Sunday, I drove one of our tractors to Fakenham racecourse to support the farmers’ protest against the APR and BPR. I talked to other farmers, and the key complaint was that there had been no consultation on the changes, and no time for older farmers to adjust their affairs. All those concerns have been rubbished by Ministers time and again, most recently today. Now that the OBR confirms that it is more difficult for older people to restructure their affairs quickly, will the Government finally listen, show some humility, and consult on how best to tackle the tax shelterers while still protecting our farmers?

[James Murray]

The comments in the OBR publication yesterday about older individuals reference a point that has been made since the Budget in debates in this place and elsewhere. We have pointed out that our reform of agricultural property relief and business property relief maintains generous exemptions from inheritance tax; £1 million is subject to relief, and there is the 50% relief beyond that, the existing nil-rate bands, and other exemptions in the system.

[Wendy Chamberlain (North East Fife) (LD)]

Unusually, in Scotland tenant farms can be passed down as inheritance. I have been asking the Treasury whether it has made an assessment of the impact on such farms, given that their farmers cannot sell land to meet the APR liability that they might face. So far, the answer appears to be that there is no assessment, so I ask the Minister for an answer from the Dispatch Box: is he aware of agricultural tenancies under the Agricultural Holdings (Scotland) Act 1991, and has he made an impact assessment?

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[James Murray]

The way to calculate the impact of changes to inheritance tax policy is to look at the inheritance tax claims that have been made, and that is what we have used as the basis for our calculations. In fact, the OBR publication yesterday confirms that it used HMRC’s data on inheritance tax reliefs in the past and inheritance tax projected forward, and it is on the basis of that data that we designed our policy.

[Charlie Dewhirst (Bridlington and The Wolds) (Con)]

The Minister has just confirmed that the Treasury’s modelling is based on agricultural property relief and joint agricultural and business property relief claims, yet tax experts have said in evidence to the Environment, Food and Rural Affairs Committee that many family farms will wrap their agricultural land into a single business property relief claim, so the Treasury’s modelling does not take into account family farms that have used a BPR-only claim, tenant farmers who use BPR, and the many rural family businesses that will also use BPR. Will the Minister please take this opportunity to look at this again, before his Government wreck the countryside?

[James Murray]

As I set out earlier, the need to reform business property relief is as strong as the need to reform agricultural property relief, in order to have stable public finances and a fair and sustainable tax system. As I set out, 40% of APR goes to the top 7% of estates, and 50% of BPR goes to the top 4% of estates. Given the fiscal context that we inherited, that kind of unfairness is not sustainable. When balancing the books, we need to develop the tax system in a way that is sustainable and gives us the economic stability that we desperately need after the mess that the previous Government left us.

[John Milne (Horsham) (LD)]

Farmers have made their inheritance tax plans in good faith, based on existing rules. In effect, the measure is a retrospective change to tax law, so will the Minister agree to at the very least delay its implementation until the effects are properly understood by both farmers and the Government?

[James Murray]

The Government are committed to delivering the reforms announced in the Budget. We have carefully considered their impact, and designed the policy to provide generous exemptions from inheritance tax for small family farms and businesses, while ensuring that we balance the public finances as fairly as possible.

[Harriet Cross (Gordon and Buchan) (Con)]

In the light of the uncertainty in the OBR’s report; the fact that the policy will hit elderly farmers the hardest and put food security at risk; and the fact that rural communities will suffer the most, given the impact on tenants and young farmers, and the wider agricultural sector, does the Minister really still believe in this policy?

[James Murray]

The OBR’s allusion yesterday to a degree of uncertainty is exactly the same as what it said at the time of the Budget. The costing is exactly the same as what it published at the time of the Budget. Yesterday, the OBR published more information about how the costing was arrived at, but the costing itself, the degree of uncertainty and the calculations remain exactly the same as at the time of the Budget.

[Richard Tice (Boston and Skegness) (Reform)]

The Minister just mentioned balancing the public finances—those are the key words—through these measures. We have just had the debt figures for December, which are 20% higher than the OBR expected them to be just two months previously. At what point will the Minister and the Government recognise that they have got this badly wrong and change course?

[James Murray]

We recognise that when the Conservative party was in government, it got it badly wrong. The country decided to change course, which is why they elected us into government to fix the public finances, put our public services back on their feet, boost investment and get the economy growing.

[Lincoln Jopp (Spelthorne) (Con)]

They say that one ought to build one’s enemy a golden bridge. I think the compromise and pause proposed by the National Farmers Union is an elegant solution. That golden bridge is now being signposted by Tesco, Aldi, Lidl, the Co-op, and all the major retailers the Minister claims to be engaging with. Why does he not just pause, go back, listen, and review the policy?

[James Murray]

As I set out in answer to a previous question, the Government are committed to delivering the reforms announced in the Budget. They were carefully calibrated to retain generous inheritance tax exemptions, while ensuring that we balance the public finances as fairly as possible.

[Max Wilkinson (Cheltenham) (LD)]

Bence Builders Merchants in my constituency has been providing good local produce and good local jobs since the Earl of Aberdeen was in power. The owner, Paul Bence, fears that the combination of business property relief changes and changes to employer’s national insurance mean that there is a huge disincentive to invest further. Does the Minister share my constituent’s concern?

[James Murray]

I thank the hon. Gentleman for raising his constituent’s concern. I do not know the specifics of the case, but more broadly, investment decisions depend above all else on a stable economy and stable public finances. Without the hard work that we have done since taking office to fix the public finances and bring back economic stability, investment would be hampered, and our growth ambitions would not materialise in the way that we are determined to ensure happens.

[John Cooper (Dumfries and Galloway) (Con)]

There will be a rally on Saturday, and the Minister appears to imagine that this indicates acclamation for his policy. We heard earlier in the week from the hon. Member for Falkirk (Euan Stainbank) and today from the hon. Member for Newcastle upon Tyne Central and West (Chi Onwurah)—both well-known rural areas—that this is all about the landed estates and wealthy people, but I can assure the Minister that the farmers I will speak with in Castle Douglas on Saturday are tenant farmers and family farmers, and they face being put off the land after generations. Is he really suggesting that I should tell them they have nothing to worry about?

[James Murray]

I am not going to tell the hon. Gentleman what he should say to his constituents, but what I can tell him about the Government’s policy is that we have reserved generous inheritance tax reliefs for people in the situations he describes. I encourage anyone who is concerned to seek advice, to understand exactly how the new rules might apply to them.

[Jim Shannon (Strangford) (DUP)]

Sometimes I am absolutely flummoxed—we probably all are—by the Chancellor’s intent to tax working family farms, which we all know will result in the loss of small farms, the sale of the land and a reduction in food security. Now it seems that the OBR agrees that it will not make savings. Will the Minister commit to meeting Cabinet colleagues urgently to remove the sword of Damocles that is hanging above small family farms and hurting the agrifood sector as a whole? I say to the Minister that there is a way forward: increase the threshold from £1 million to £5 million, and family farms will be saved.

[James Murray]

I thank the hon. Gentleman for his question, but I think it was based primary on the OBR publication yesterday. I reiterate the point I have made several times now: that OBR publication reiterated the costings and figures set out at the Budget, it reiterated the level of uncertainty associated with the measure, as published at the Budget, it provides more detail behind that, but the conclusion is the same as it was on 30 October.

[Mr Carmichael]

On a point of order, Mr Speaker. Before questioning the Minister, I should have reminded the House of my entry in the Register of Members’ Financial Interests. My failure to do so, for which I apologise, was inadvertent—I just got carried away with the excitement of the moment.

Oral Answers to Questions

James Murray Excerpts

Tuesday 21st January 2025 Commons Chamber

[Antonia Bance (Tipton and Wednesbury) (Lab)]

7. What steps she plans to take to help protect the steel industry from high-emission steel being diverted away from the EU to the UK following confirmation of the UK carbon border adjustment mechanism for 2027.

[The Exchequer Secretary to the Treasury (James Murray)]

The UK carbon border adjustment mechanism will be introduced in 2027. It will ensure that imports face a carbon price that is comparable with domestic products, giving UK industry the confidence to invest without its decarbonisation efforts being undermined. UK steel producers will continue to benefit from high levels of free allowances in the UK emissions trading system until at least the end of 2026, protecting them against carbon leakage via high-emission imports.

[Antonia Bance]

Newby Foundries and Alucast in my constituency of Tipton, Wednesbury and Coseley have raised with me the impact of the UK CBAM coming into effect later than, and differing from, the EU CBAM. This could threaten domestic steel production and make the export of metal products to the EU more difficult. Can the Minister please support the UK’s steel and metal finishing industries by reassuring me that the UK CBAM will not be weaker than the EU CBAM, and will he meet me and other steel MPs to discuss this?

[James Murray]

As I have set out, the UK CBAM will mitigate the risk of carbon leakage by placing a carbon price on some of the most emissions-intensive industrial goods imported into the UK, including in the iron and steel sector. The UK CBAM is designed for the UK context, and in some areas, its emissions scope is wider than the EU CBAM—in respect of indirect emissions, for instance. The first CBAM industry working group was held earlier this week, and I understand that a representative of the UK steel sector attended. I will make sure that my officials continue to engage with the industry sectors most affected, and I am very happy to discuss this further with my hon. Friend.

[Sir Gavin Williamson (Stone, Great Wyrley and Penkridge) (Con)]

Heavy industry, whether it is steel, ceramics or so many other areas, is totally dependent on low energy costs. The trajectory is that energy costs are rising, especially in industry, whether as a result of regulation or world markets. Many other countries are doing more to protect their heavy industries by making sure they can have low input costs for energy. What more can the Minister do to protect our heavy industry in the future?

[James Murray]

The No. 1 thing for industry and households is to bring down the cost of energy. That is why we are investing in renewable home-grown energy for the future, to make sure we have energy independence, energy security and, crucially, lower bills for those households and businesses.

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[Steve Darling (Torbay) (LD)]

22. What steps she is taking through the tax system to support the hospitality and tourism sectors.

[The Exchequer Secretary to the Treasury (James Murray)]

The Government announced a range of measures at the autumn Budget to support SMEs, including in the retail, hospitality and leisure sectors. They include more than doubling the employment allowance, freezing the small business rates multiplier, extending RHL relief to 40%, maintaining the small profits rate and reducing the duty on qualifying draught products, which represent 60% of alcoholic drinks sold in pubs.

[Bobby Dean]

The Labour manifesto committed to replacing the business rates system. However, last week at the Treasury Committee, the Minister seemed to rule out the kind of comprehensive reform that the Liberal Democrats and others have been campaigning for, and indicated that there might only be a tinkering around the edges of rates and reliefs. Can the Minister confirm today whether the Government still intend to replace the business rates system, or will they just be tinkering around the edges of this broken system?

[James Murray]

I think that retail, hospitality and leisure businesses, which are the backbone of our high street, might object to the idea of permanently lower tax rates as “tinkering around the edges”. That is a fundamental change that we want to bring in from April 2026 to make sure they have stability, certainty and permanently lower rates. Alongside it are our wider ambitions in the “Transforming Business Rates” discussion paper, which I invited the hon. Gentleman to read and respond to at last week’s Treasury Committee.

[Michael Wheeler]

I draw Members’ attention to my declaration in the register of interests.

Retail is an important part of the economy in my constituency, which includes many wonderful independent businesses. Will, who runs the excellent Wandering Palate in Monton, wrote to me about the challenges he is facing. Will the Minister outline the measures the Government are taking to support small business owners like Will in my constituency and across the country to enable our high streets to thrive?

[James Murray]

I thank my hon. Friend for his question and for referencing Wonderful Palate, the business in his constituency. I do not know the details of the rateable value of that property, but I point the owner to the fact that we are retaining small business rate relief, freezing the small business multiplier next year and extending the retail, hospitality and leisure relief in 2025-26. I also point the owner of that business and other businesses to our future plan, as I mentioned, to have permanently lower tax rates for retail, hospitality and leisure businesses with values of below £500,000, as well as to consider reforms to small business rate relief to better support businesses that want to expand into a second premises.

[Steve Darling]

What consideration have Ministers given to exempting the seasonal tourism industry from the national insurance hikes set to kick in this summer? That would benefit Paignton zoo and Splashdown in the Torbay constituency.

[James Murray]

We set out the details of our decision to increase the rate of national insurance contributions from employers and to reduce the threshold, and we have added the different benefit we will give, particularly to small businesses and charities, by more than doubling the employment allowance. The employer national insurance contribution changes were among the toughest we took in the Budget, but they were necessary to repair the public finances and deliver the economic stability that is so crucial for investment and growth.

[Mr Speaker]

We have had the former Chair of the Treasury Committee, so let’s now have the current Chair.

[Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

My hon. Friend the Exchequer Secretary rightly said that small and medium-sized enterprises are a vital part of our high streets and our economy, and one of the biggest changes is, of course, the change to business rates. He was not tempted at the Select Committee last week to give more detail on the timeframe for that, but many businesses want certainty about business rates as they go forward. May I tempt him to give an indication of the Government’s thinking about how quickly this change might be introduced and whether the small business rate relief is likely to survive or to be subsumed into a new regime?

[James Murray]

I thank the Chair of the Select Committee for her questions. If she did not succeed in tempting me at the Select Committee, I doubt she will succeed today, but I can reassure her that the decisions we have set out about introducing the permanently lower business rate for RHL—retail, hospitality and leisure—properties below a £500,000 rateable value will be coming in from April 2026. Specifically in relation to small business rate relief, I can confirm that the Government are committed to retaining that. One of the options we are looking at in our “Transforming business rates” discussion paper is how to support businesses that want to expand into a second premises, thereby growing the business, because at the moment there is the cliff edge where they lose small business rate relief.

[Mr Speaker]

I call the shadow Minister.

[Richard Fuller (North Bedfordshire) (Con)]

Confidence on Britain’s high streets is sliding faster than the Chancellor will be down the ski slopes of Davos later today. With retail sales down—rather than up, as expected in the run-up to Christmas—and with the British Retail Consortium saying that two thirds of stores will raise prices to cover her national insurance increases, when will the Minister accept that the Chancellor’s economic strategy of raising taxes and increasing regulations is not working?

[James Murray]

I am glad to know that the shadow Minister’s morning was well spent cooking up that line about the Davos ski slopes. What he will know, and what sectors across the economy will know, is that having a stable economy is a prerequisite for the investment we need to get the economy growing. That is why we had to take difficult decisions at the autumn Budget, including those to increase the rate of employer national insurance contributions. Alongside that increase, however, we more than doubled the employment allowance and set out our plans to have permanently lower tax rates for high street RHL properties from April 2026.

[Mr Speaker]

I call the Liberal Democrat spokesperson.

[Daisy Cooper (St Albans) (LD)]

A number of small high street businesses will be hit hard by the Government’s jobs tax and the dramatic reduction in business rates relief, and House of Commons Library research that I commissioned shows that from April 2026 the Government’s reforms to business rates could leave small and independent businesses in effect subsidising the big chains. Will the Chancellor meet me and a delegation of small and independent businesses from St Albans so that we can make the case for fairer reforms and for wholesale reform of the broken business rates system?

[James Murray]

One of the problems with the Liberal Democrats is that they support all our spending plans, but they do not support any of the tax changes to fund them. This is a prime example. When we talk about increasing employer national insurance contributions, we acknowledge that that was one of the toughest decisions we took at the Budget, but it was necessary to fix the public finances and provide support for those public services, which I note the Liberal Democrats are very keen to support.

[Frank McNally (Coatbridge and Bellshill) (Lab)]

T1. If she will make a statement on her departmental responsibilities.

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[Olly Glover (Didcot and Wantage) (LD)]

T2. The Local Government Association estimates that the Budget’s increases to employer national insurance contributions will cost local councils an extra £637 million per year. The Government’s funding settlement for councils in relation to that of £515 million will leave them with a gap, putting key services such as social care, pothole repairs and leisure facilities at risk. Will the Chancellor commit to fully finding that gap for local councils, rather than them having to look for savings?

[The Exchequer Secretary to the Treasury (James Murray)]

During the passage of the National Insurance Contributions (Secondary Class 1 Contributions) Bill, we set out clearly how the scheme would work to reimburse costs for public departments or local government. That measure is in line with what the previous Government attempted to do with the health and social care levy. Where third-party private contractors are engaged, those costs will be considered by local government or other public sector organisations in the round.

[Brian Leishman (Alloa and Grangemouth) (Lab)]

T4. The previous Conservative Government decided to back an INEOS project in Antwerp, with a £600 million loan guarantee. I have spoken with the current the Secretary of State for Energy Security and Net Zero and the Under-Secretary of State for Energy Security and Net Zero, my hon. Friend the Member for Rutherglen (Michael Shanks) about that, and I have been told that the Government have no plans to stop that money, even though INEOS plans to close the Grangemouth refinery, with the loss of thousands of jobs. Why is there £600 million for Antwerp and not Grangemouth, and why would the Government allow that to happen and not use the £600 million as leverage with INEOS, to avoid Scottish job losses?

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[Mr Speaker]

Order. Mr Lowe, topical questions are meant to be short and punchy. I am sure that you are very good at that normally.

[James Murray]

One of my key priorities as Exchequer Secretary and the Minister with responsibility for HMRC is to oversee a programme of transformation at HMRC to improve its customer service, to digitise the service, to close the tax gap and to ensure that we have the modern, reformed service that we need for the future.

[Steve Witherden (Montgomeryshire and Glyndŵr) (Lab)]

T5. I draw Members’ attention to my entry in the register of all-party parliamentary groups. During the covid-19 pandemic, 3.8 million self-employed UK taxpayers were shamefully excluded from Government financial support. Many, including pregnant women and war veterans, were forgotten about by the Conservative party. Will the Minister meet me to discuss how to address the unfairness faced by so many during the pandemic?

[James Murray]

As my hon. Friend set out, decisions on eligibility for covid-19 financial support were taken by the previous Government. The current Government have no plans to assess the financial compensation scheme, but the covid-19 inquiry has recently launched its module to investigate the economic response to the pandemic. The Government are committed to learning from its findings.

[Sir Edward Leigh (Gainsborough) (Con)]

When I visited St Barnabas hospice in Lincoln recently, the chief executive told me that it was having to pay £350,000 extra every year to cover the national insurance increase. I do not expect an answer now, but as we all agree that palliative care is so important and we want to encourage it, and the Terminally Ill Adults (End of Life) Bill started its Committee stage today, will the Government keep that increase for hospices under review?

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[James Murray]

We have been clear since the Budget that the decision to raise employer national insurance contributions was one of the toughest we have taken as a Government, and we recognise that it has consequences for businesses. However, we think all businesses will benefit in future from the economic stability that this decision will bring; it will drive investment and growth across the country.

[Chris McDonald (Stockton North) (Lab)]

T9. Will my right hon. Friend join me in congratulating Intasite, a technology business in Stockton that is celebrating its 10th anniversary with 40% growth? Does she agree that our industrial strategy will help businesses to invest and grow in Teesside?

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[James Murray]

What we accept is that the difficult decisions we took at the Budget enabled extra funding to be put into the NHS. GP surgeries have had a funding settlement that considers all the pressures on them in the round.

[Sonia Kumar (Dudley) (Lab)]

My constituency has a proud industrial heritage, with manufacturing still worth £1 billion a year to the local economy from sectors that account for nearly 10% of the UK’s total economic output. What steps have the Government taken to promote the growth of the manufacturing sector and ensure that towns like Dudley continue to build on their industrial traditions?

Agricultural and Business Property Relief

James Murray Excerpts

Tuesday 14th January 2025 Westminster Hall

[The Exchequer Secretary to the Treasury (James Murray)]

It is a pleasure to speak in this debate with you as Chair, Dr Allin-Khan. I congratulate the right hon. Member for Beverley and Holderness (Graham Stuart) on securing this debate. Likewise, he is always thoughtful in his contributions, so I am always glad to hear from him and indeed the interventions that he allowed during his speech.

I know hon. Members have raised questions about the reforms that we are making, and I will try to address as many of them as I can. However, let me start by briefly reminding hon. Members of the economic context in which the decisions were taken. At the autumn Budget, we took difficult but necessary decisions on tax, welfare and spending

to restore economic stability, fix the public finances and support public services, as a result of the situation that we inherited from the previous Administration. We took those tough decisions in a way that will make the tax system fairer and more sustainable. The decision to reform agricultural property relief and business property relief was not taken lightly. The reforms mean that, despite the tough fiscal context, the Government will maintain significant levels of relief from inheritance tax, beyond what is available to others.

[Richard Foord (Honiton and Sidmouth) (LD)]

Will the Minister give way?

[James Murray]

I will give way maybe once or twice, but I do not have much time.

[Richard Foord]

I do not question the Minister’s difficult inheritance, but the Labour party adviser Dan Neidle suggests that the plan to slap inheritance tax on farms worth more than £1 million should be replaced with a much higher threshold with a clawback mechanism, perhaps for land over £20 million that is sold. That would tackle the Dysons of the world without affecting small family farms. What does the Minister think of that proposal?

[James Murray]

I am just about to come on to the details of the reforms that we have made to agricultural property relief and business property relief. If the hon. Gentleman waits a moment, he will see some of the reasoning behind the decisions that we took.

The Government recognise the role that the reliefs play, particularly in supporting farms and small businesses, and under our reforms that will continue. The case for reform is underlined by the fact that the full unlimited exemption, which was introduced in 1992, had become unsustainable. Under the current system, the benefit of the 100% relief on business and agricultural assets has become heavily skewed towards the wealthiest estates. According to the latest data from HMRC, 40% of agricultural property relief benefits the top 7% of estates making claims. That is 117 estates claiming £219 million of relief.

It is a similar picture for business property relief. More than 50% of business property relief is claimed by just 4% of estates making claims. That equates to 158 estates claiming £558 million in tax relief.

[Mr Angus MacDonald]

Will the Minister give way?

[James Murray]

I have only a few moments, so I will make progress.

The Leader of the Opposition has made it clear that she would prioritise that tax break within the public finances, but we do not believe it is fair or sustainable to maintain such a large tax break for such a small number of the wealthiest claimants, given the wider pressures on the public finances. It is for those reasons that the Government are changing how we target agricultural property relief and business property relief from April 2026. We are doing so in a way that maintains a significant tax relief for estates, including for small farms and businesses, while repairing the public finances fairly.

Let me be clear that individuals will still benefit from 100% relief for the first £1 million of combined business and agricultural assets. On top of that, as we know, there will be a 50% relief, which means that inheritance tax will be paid at a reduced effective rate of up to 20%, rather than the standard 40%. Importantly, those reliefs sit on top of the existing spousal exemptions and nil-rate bands. Depending on individual circumstances, a couple can pass on up to £3 million to their children or grandchildren free of inheritance tax.

[Harriet Cross]

At the Oxford farming conference, the Secretary of State suggested that farms should diversify to be more profitable, but diversification has become a lot less incentivised because that all gets wrapped up into the BPR, as well as the APR. Does that not completely negate the Secretary of State’s argument for diversification if it will all be taken away in tax?

[James Murray]

My right hon. Friend the Secretary of State made an important point about diversification, but whatever category the assets fall into, a couple can pass on up to £3 million to their children or grandchildren free of inheritance tax; that applies across agricultural and business property relief. The point I was making is that the agricultural and business property relief sit on top of the existing transfers and nil-rate bands, so when considering individual circumstances, we must look at the details of the situation that an individual or couple face.

I have a minute left, so I will be brief. Some hon. Members questioned the statistics about how many estates will be affected. We are very clear—we have published the data, and the Chancellor has written to the Treasury Committee about it—that up to 520 estates claiming agricultural property relief, including those claiming business property relief too, will be affected by these reforms to some degree. That means that about three quarters of estates claiming agricultural property relief, including those also claiming business property relief, will not pay any more tax as a result of these changes in the year they are introduced. All estates making claims through these reliefs will continue to receive generous support at a total cost of £1.1 billion to the Exchequer. The Office for Budget Responsibility has been clear that it does not expect this measure to have any significant macroeconomic impacts.

I thank all hon. Members who have contributed today, and I am grateful to the right hon. Member for Beverley and Holderness for securing this debate.

Motion lapsed (Standing Order No. 10(6)).

Debt Advice Services

James Murray Excerpts

Thursday 9th January 2025 Commons Chamber

[The Exchequer Secretary to the Treasury (James Murray)]

I congratulate my hon. Friend the Member for Walthamstow (Ms Creasy) on securing the debate. I very much recognise and have seen the work she has done over the years to raise the profile of responsible consumer credit practices and effective debt advice. I thank my hon. Friend the Member for Congleton (Mrs Russell) for her contribution and specifically for raising the experience of her constituents.

Credit, when offered responsibly, can be an essential tool for people who have to manage unexpected costs or who need to smooth their cash flow. As a Government, we want to support consumers in having access to credit when they need it. But, at the same time, we are determined to ensure that access to credit comes with robust protections to ensure that lending is affordable and consumers are protected when things go wrong. That is why in October last year we published a consultation on a proposed regulatory regime for “buy now, pay later” products. The regime will introduce better protections for millions of consumers and will bring “buy now, pay later” firms into the regulatory perimeter of the FCA. That in turn will mean that firms offering “buy now, pay later” products will be required to pay specific annual FCA fees and levies. Among those is the financial guidance levy, the proceeds of which fund free debt advice services.

As I turn to the importance of debt advice, I pay tribute to the thousands of debt advisers across the country for the critical work they do to provide support for those in need.

[Ms Creasy]

We all value the debt advisers. As my hon. Friend has just said, “buy now, pay later” companies do not yet contribute to the levy that pays for those people, but the companies themselves have said that they would make voluntary contributions. Would the Treasury consider approaching them to get that money ahead of their being part of the regulatory landscape, so that we can have more of these brilliant debt advisers?

[James Murray]

I am sure that Treasury officials and the Economic Secretary to the Treasury, my hon. Friend the Member for Hampstead and Highgate (Tulip Siddiq), will be in close contact with the sector about any proposals they have. It is important to emphasise that because of the regulations we are consulting on for the new regime, that will mean that “buy now, pay later” firms will be required to pay those specific fees and levies, which will help fund free debt advice services. We know that funding those services is important because intervention through debt advice services not only prevents financial difficulties from escalating, but protects people’s overall mental health and wellbeing. More widely, there are positive effects for families, communities and the economy at large.

As a new Government, we are committed to supporting national and community-based services through the Money and Pensions Service, or MAPS as it is commonly known. Those services provide advice to hundreds of thousands of individuals and families in need in England. In December, MAPS published its first debt advice impacts report, which showed that across 2023-24 people accessing debt advice through MAPS-funded services gained an estimated £48 million of extra income. That underlines the fact that for many people, advice not only allows them to deal with their debt problems, but helps them to find a way forward with more money in their pockets. Eighty-seven per cent of people who received MAPS-funded debt advice said they would recommend the service to someone in a similar situation.

Outside of England, the UK Government provide funding through the financial services levy to the devolved Governments in Scotland, Wales and Northern Ireland. As debt advice is a devolved matter, the devolved Governments have responsibility for delivering those services within their nations and for tailoring provision to the needs of their local communities.

My hon. Friends spoke about the gap between those who need debt advice and those who are currently accessing it. The Government recognise that gap and the need to tackle it. Funding levels, which my hon. Friends mentioned, are regularly reviewed to reflect demand, inflation and evolving needs. The MAPS debt advice budget for the upcoming financial year will be communicated in the usual way in the spring, and I will ensure that my hon. Friends are informed.

My hon. Friend the Member for Walthamstow mentioned the MAPS consultation last year on the future of its debt advice commissioning strategy. MAPS published its response to that consultation in October, setting out its commitment to increasing debt adviser wellbeing, further building advisers’ skills and delivering digital transformation across the debt advice sector. As part of its efforts to address unmet demand for debt advice, MAPS has also launched its debt advice modernisation fund, a grant initiative designed to support projects aimed at enhancing and modernising debt advice services in the not-for-profit sector. Projects are currently under way and will be completed by the end of March.

My hon. Friends touched on the wider issue of financial inclusion. I assure them that the Government are taking further steps to ensure that individuals can access the financial services they need.

[Warinder Juss (Wolverhampton West) (Lab)]

In my constituency, the Whitmore Reans Welfare Centre, a voluntary organisation, signposts individuals to the debt advice that they need. In the past, the centre received funding for a part-time or full-time caseworker, but it is finding it increasingly difficult to provide the kind of one-to-one advice mentioned earlier, which is so useful for residents. Can the Minister give any advice on how to help organisations of that nature so that constituents can be signposted to, and given, one-to-one advice?

[James Murray]

I thank my hon. Friend for raising that constituency case and highlighting the important work that that organisation does for his constituents. I cannot comment from the Dispatch Box on individual funding decisions, but he underlines the importance of tailoring to local need. Although there may be a national priority to ensure that people are provided with debt advice, individual local debt advice agencies will need to tailor their services to the needs of their communities. He is an excellent advocate for his constituents in that regard.

Alongside the debt advice services that the debate has focused on, it is important, as I was saying, that individuals can access the financial services that they need. That is why the Government announced in December our intention to develop a financial inclusion strategy that will aim to further tackle barriers to individual and household ability to access affordable and appropriate financial products and services. The strategy will be supported by a committee that the Economic Secretary to the Treasury convened for the first time in December, which will consider the problem of debt.

I will turn my attention briefly to the work that the Government are doing to support vulnerable individuals and businesses repaying debt to the public sector. The Government debt management function functional centre, based in the Treasury, convenes the debt fairness group—a collaboration with the debt advice sector that identifies opportunities to continuously improve public sector debt recovery processes. The functional centre’s work includes debt management toolkits to support public sector bodies dealing with those facing physical and mental health challenges, and to help them identify and support the 8.7 million adults in the UK who have experienced economic abuse.

I thank my hon. Friend the Member for Walthamstow once again for raising this important matter. I have no doubt that she will continue to be a champion on the issues that we have discussed. The Government remain committed to providing accessible debt advice and promoting financial inclusion. We are committed to ensuring that everyone has the support they need to manage their finances effectively and build a more secure future for themselves and their family.

Question put and agreed to.

Crown Estate Bill [Lords]

James Murray Excerpts

2nd reading
Tuesday 7th January 2025 Commons Chamber

[The Exchequer Secretary to the Treasury (James Murray)]

It is a pleasure to close this debate on the Crown Estate. May I wish you, Madam Deputy Speaker, a happy new year?

I am grateful to the shadow Minister for his comments today, as well as for the contributions of all my hon. Friends. I am particularly grateful for the Opposition’s support for the Bill in general, which they display by their absence this afternoon. I welcome the questions set out by the shadow Minister and I will go through some of those in my remarks.

As the Chief Secretary to the Treasury noted in his opening speech, the purpose of the Bill is to bring the legislation governing the Crown Estate into the 21st century by making a targeted and measured enhancement to its powers and governance. Without the Bill, the Crown Estate would continue to be restricted in its ability to compete and invest and would therefore be limited in its ability to deliver returns to the public purse. The Bill therefore broadens the scope of the activities that the Crown Estate can engage in, enabling it to further invest in the energy transition that we know is so crucial. It empowers the Crown Estate to invest in capital-intensive projects more effectively and, critically, the measures will unlock more long-term investment, increasing the contribution that the Crown Estate can make to creating high-quality jobs and driving growth across the UK.

I turn to some of the points raised in the debate. I appreciate the shadow Minister’s broad support for the Bill’s aim. On his specific question about the Crown Estate’s borrowing powers, the Bill is clear that any borrowing undertaken by the Crown Estate can only be from the Treasury or otherwise with Treasury consent. The Treasury will, of course, ensure that any borrowing is consistent with our fiscal rules. There will, as has been noted, be a memorandum of understanding in place between the Treasury and the Crown Estate, and that will govern how borrowing powers will be exercised. As with any public sector borrowing, the Treasury will ensure that that is consistent with managing public money principles to ensure value for money for the taxpayer.

The shadow Minister also asked specific questions about commissioners’ pre-appointment scrutiny. I want to set out for him how the appointment of other commissioners is likely to work. The Crown Estate commissioners who manage the Crown Estate are appointed by His Majesty on the recommendation of Ministers. The appointment process is governed by the code for public appointments. The reforms in the Bill will not alter the fundamental statutory basis of the Crown Estate, which is as a commercial business that is independent of government, operates for profit, competes in the marketplace and needs to recruit the highest quality talent to its board of commissioners. Within that context, it would not be appropriate for either the Government or Parliament to place further requirements on the recruitment process.

The shadow Minister also asked about chief executive pay. The details of a chief executive’s remuneration are a matter for the Crown Estate board, which is operationally independent of government, as I set out. As the Crown Estate is statutorily an independent, commercial organisation, which returns hundreds of millions of pounds in profit to the Exchequer every year, continuing the success is crucial and it requires the organisation to have the freedom to compete for the top talent in the commercial world.

We know that cheap executive remuneration in this context is set at the lower end of the private sector peer group, which is agreed with the Treasury. The majority of the package is in fact conditional on performance, which ensures that the chief executive rewards are heavily dependent on delivering long-term value to the Exchequer. The shadow Minister also asked about governance when it comes to the Crown Estate and Great British Energy. I can set out to him the operational matters in regard to the partnership, but they will be determined in their final detail by the passing of the great British Energy Bill, which is currently going through Parliament. Once it completes all its legislative stages, the partnership will be subject to an agreement between the Crown Estate and Great British Energy. Although the partnership agreement itself will not be published, given that it will be commercially sensitive, the Crown Estate has committed to publish information relating to the partnership as part of its existing annual report. This will include a report on the activities of the commissioners under that partnership and any effects or benefits resulting from the activities of the commissioners that entails.

The shadow Minister asked a specific question about the amendment on the seabed, which was debated in the other place by Lord Livermore. As hon. Members may know, on Report of the Crown Estate Bill in the Lords, the Financial Secretary to the Treasury committed to bring forward an amendment, if it were needed, to restrict the ability of the Crown Estate to sell the seabed. That was in response to concerns from peers that the seabed, which is owned by the Crown Estate, is a unique asset and therefore special protections may be warranted. As the Financial Secretary noted at the time, the law on the ownership of the seabed is complex, so officials are working with the Crown Estate to establish the extent to which the Crown Estate can currently sell the seabed. If it is established that further legislation is required to restrict the ability of the Crown Estate to sell the seabed, we will look to bring forward an amendment at Committee stage.

Finally, the shadow Minister mentioned the measures on salmon that were inserted in the Bill in the other place. There is a fundamental question about whether the Bill is an appropriate vehicle for a debate about the rights of salmon and protecting animal rights in that context. In England, Wales and Northern England, to which the Bill applies, there is on Crown Estate-owned land only one relevant area—one relevant salmon farm. The issue really relates more widely to Scotland, which is governed by Crown Estate Scotland and not by the provisions in this Bill. We know that fisheries policy is the responsibility of devolved Government in Scotland. All fish farming in England is regulated with the intention to ensure that it is carried out in a responsible manner. Given that virtually all salmon aquaculture in the UK takes place in Scotland, the matter is really one for a different debate.

As well as the comments from the shadow Minister, we also heard from the Liberal Democrat spokesperson, the hon. Member for South Cambridgeshire (Pippa Heylings). Many points that she raised have been covered in what I have said so far, although she raised an additional point that aligned with comments by the right hon. Member for Orkney and Shetland (Mr Carmichael) about how the Crown Estate will balance the expansion of offshore renewables with the needs of the fishing industry, marine wildlife and so on. I wish to set out briefly the Government’s position on that matter. We know that the Crown Estate is committed to sustainable management of the seabed and, where appropriate, it collaborates with industry stakeholders, marine licence bodies and environmental non-governmental organisations to ensure that activities on the seabed are conducted responsibly.

As with any developer, the proposals of the Crown Estate go through a standard planning application process, which includes the relevant environmental assessments. Under the Crown Estate strategy, it has an objective to take a leading role in stewarding the natural environment and biodiversity. Key to delivering that aim is managing the seabed in a way that reduces pressure on, and accelerates the recovery of, our marine environment. The Bill will not directly impact on how much commercial fishing takes place in areas managed by the Crown Estate.

My hon. Friend the Member for Reading Central (Matt Rodda) raised an important point around grid connections and grid connectivity, which are vital to ensuring that our plans to move towards clean energy are effective. His points were important as part of the connection between the Crown Estate and Great British Energy, which we have been talking about during the debate. One benefit of the Crown Estate working with Great British Energy is that they can work together to speed up the process of developing clean energy projects, including co-ordinating planning requirements and grid connections, as well as leasing land to de-risk and speed up projects so that private developers can get on and build them. That will be crucial to unlocking the private investment and speeding up the deployment of clean energy infrastructure. As well as de-risking private sector investments, GB Energy and the Crown Estate will directly co-invest in clean energy infrastructure. That will include floating offshore wind and carbon capture projects.

Several of my hon. Friends made important points around local community benefits and supply chains. I thank in particular my hon. Friends the Members for Mid and South Pembrokeshire (Henry Tufnell), for Truro and Falmouth (Jayne Kirkham) and for Camborne and Redruth (Perran Moon) and the hon. Member for Inverness, Skye and West Ross-shire (Mr MacDonald). They all focused on the importance of community benefits, local supply chains and investment in jobs and skills. My hon. Friend the Member for Great Grimsby and Cleethorpes (Melanie Onn) made a helpful set of points around the importance of long-term community benefit—that is, people who are not just building infrastructure, making a one-off payment and then leaving, but actually making a long-term investment in the area and the people who live there. She referred to Projekt Renewable in her constituency, and it would be interesting to discuss that with her after the debate.

Looking more broadly at what the Crown Estate has been doing and intends to do on investing in local community benefit, it is committed to working with local communities and partners to enable employment and skills opportunities. For example, it has allocated £50 million through the supply chain accelerator to stimulate green jobs. It is also developing a green skills pipeline from a GCSE in engineering skills for offshore wind, seed-funded by the Crown Estate and developed with Cornwall college, to a post-16 destination renewables course with Pembrokeshire college. The Crown Estate is partnering with the employment charity Workwhile to create green construction apprenticeships.

On offshore wind specifically, the Crown Estate has worked on upskilling frontline Department for Work and Pensions work coaches to be well equipped to support job seekers in the offshore wind industry through the offshore wind learning programme and specifically in relation to offshore leasing round 5, which hon. Members have mentioned. The Crown Estate has designed the leasing process in such a way that developers have to make commitments to deliver social and environmental value as part of the development of new wind farms, including a requirement to provide an apprenticeships plan and a skills development plan.

The Crown Estate is also committed to working with communities to ensure that future generations can make the most of the opportunities that marine energy will bring. It is working closely with local educational institutions, such as Falmouth marine school, where it helped develop a pre-16 engineering programme to build skilled local workforces, alongside other initiatives, including the marine internship programme and a recent partnership with the Sea Ranger Service, which is based in Port Talbot.

We heard from the hon. Member for Ynys Môn (Llinos Medi), who asked questions about the devolution of the Crown Estate and its functions to Wales. Some of the points she raised were addressed by my hon. Friends, but it is important to recognise that the proposed powers in the Bill will be of huge benefit to Wales. Combined with its existing scale, expertise and track record, the Crown Estate is uniquely placed to help drive the activities required, such as de-risking and developing offshore renewable energy and other emerging offshore technologies to realise the potential of the Celtic sea. I would be concerned that further devolution of the Crown Estate in the manner suggested could fragment the renewable energy market and undermine the strong international investor confidence in the UK to the detriment of both Wales and the wider UK. It would risk creating further complexity and delay our drive for energy security and net zero at a time when simplicity and accelerated deployment are essential. That is why the Government believe that the existing provisions are the best way to ensure that the assets of the Crown Estate are managed most effectively to benefit people across Wales, England and Northern Ireland.

The hon. and learned Member for North Antrim (Jim Allister) spoke of his concern about environmental impacts. Offshore wind is essential to meeting our net zero and energy security objectives, which I hope he supports, but to get the wider balance right, the habitat regulations assessment process ensures that we can deliver our offshore wind requirements while maintaining environmental protections. The Government are also consulting on revisions to the national planning policy framework to increase support for renewable energy schemes in order to tackle climate change while safeguarding environmental resources.

I thank my hon. Friends the Member for Lichfield (Dave Robertson) and for York Outer (Mr Charters) for their particularly impassioned support for the principles behind the Bill and what it sets out to achieve. As my hon. Friend the Member for Lichfield said, it is crucial for investment, growth and modernising the Crown Estate for the 21st century. My hon. Friend the Member for York Outer focused on the power of the Bill’s measured reforms to modernise the Crown Estate and support growth in a fiscally responsible way while generating revenue that will benefit our constituents across the country.

I hope that I have managed to address hon. Members’ points. As my right hon. Friend the Chief Secretary to the Treasury and I have set out, the Bill delivers a targeted and measured enhancement to the Crown Estate’s powers and governance, thereby modernising it for the 21st century. It broadens the scope of activities that the Crown Estate can engage in, enables it to further invest in the energy transition, and empowers it to invest more effectively in capital-intensive projects. Critically, the measures in it will unlock more long-term investment and increase the contribution of the Crown Estate to generating high-quality jobs and driving growth across the UK. Growth is at the heart of our Government’s mission. I commend the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

CROWN ESTATE BILL [LORDS] (PROGRAMME)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Crown Estate Bill [Lords]:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 11 February.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill may be programmed.—(Christian Wakeford.)

Question agreed to.

CROWN ESTATE BILL [LORDS] (MONEY)

King’s recommendation signified.

Resolved,

That, for the purposes of any Act resulting from the Crown Estate Bill [Lords], it is expedient to authorise

(1) the payment out of money provided by Parliament of any expenditure incurred by the Treasury under any other Act that is attributable to the Act;

(2) the payment out of the National Loans Fund of any sums payable out of the fund under any other Act that is attributable to the Act.—(Christian Wakeford.)

National Insurance Contributions (Secondary Class 1 Contributions) Bill

James Murray Excerpts

Committee of the whole House & 3rd reading
Tuesday 17th December 2024 Commons Chamber

[Iqbal Mohamed]

Everyone in my constituency, and indeed in the whole country, knows that the last Tory Government decimated public services after 14 years of austerity, mismanagement, negligence and a sole focus on the rich, at the expense and neglect of the poor working class and the public sector. I sympathise with the new Government, and I will try to provide constructive support.

I wholeheartedly welcome the Government’s announcements in the Budget of increased investment in education, the NHS, infrastructure projects and other public services, but, like many other people in the House and throughout the country, I do not agree with the approach taken to the funding of those investments. Members on both sides of the Committee have indicated today that failing to protect key sectors and services such as general practices, care homes, pharmacies, childcare providers and third sector providers may have been an oversight or a mistake on the Government’s part, but I am not so sure. On the basis of the Government’s other blanket policies on abolishing the winter fuel allowance, imposing VAT on all private schools including low-fee and charitable schools and removing business rates relief from all private schools and charities without any announcement of safeguarding or compensatory measures to protect these services and sectors, it appears to have been a deliberate, or negligent, decision.

It is clear that the Government inherited a dire state of affairs that requires huge investment, which must be paid for in a responsible way. I am sorry to say that the way that has been chosen by this new Labour Government is not the right one. Viable and progressive alternatives are available to the Government to raise finances for the necessary investment rather than inflicting the increase in national insurance contributions on the impacted bodies. Let me suggest a couple of easy measures that would support the Government’s investment. One possible solution is the imposition of a 2% wealth tax on assets over £10 million, which would raise the amount predicted to be raised by national insurance contributions; another is the closing of corporation tax loopholes that allow corporations to save billions and to offshore profits.

[The Exchequer Secretary to the Treasury (James Murray)]

I am conscious that I have only a few moments to speak. I will not go through the four clauses of the Bill, as I take it that everyone will have read it already. I will instead go directly to the amendments that have been tabled, ahead of potential votes in a few moments.

I will address the amendments tabled by the hon. Members for St Albans (Daisy Cooper), for Angus and Perthshire Glens (Dave Doogan), for Leicester South (Shockat Adam), for Grantham and Bourne (Gareth Davies), and for Lagan Valley (Sorcha Eastwood). These amendments seek to exclude certain sectors, including healthcare providers, educational settings and charities, from the new rate and threshold for employer national insurance. As hon. Members know, the changes in the Bill before us represent one of the difficult but necessary decisions that the Government have had to take to fix the foundations of our economy and our public finances.

[Dr Evans]

Will the Minister give way?

[James Murray]

I cannot give way. I have given way to the hon. Gentleman many times in recent weeks, but I have about four minutes in which to address everyone’s comments.

As hon. Members have set out, we recognise that the changes we are making today will have an impact on employers. Making these changes was a tough decision that we did not take lightly, but we are also clear that the revenue raised from the measures in this Bill and others in the Budget will play a critical role in both restoring economic stability and getting the NHS back on its feet. As a result of the measures in this Bill and the wider Budget measures, the NHS will receive an extra £22.6 billion over two years to deliver 40,000 extra elective appointments a week.

The Government will provide support for Departments and other public sector employers on additional employer national insurance costs, including central Government, public corporations and local government. Independent contractors, including primary care providers, social care providers, charities such as hospices and nurseries will not be supported with the costs. That is the same as was the case with the changes to employer national insurance rates under the previous Government’s plans for the health and social care levy.

Primary care providers—general practice, dentistry, pharmacy and eye care—are important independent contractors that provide nearly £20 billion-worth of NHS services. Every year, the Government consults each sector about what services they provide, and about the money to which they are entitled in return under their contract. As in previous years, the issue we are debating today will be dealt with as part of that process in the round. The Department of Health and Social Care will confirm funding for general practice, dentistry and pharmacy for 2025-26 as part of the usual contract process later in the financial year, including through consultation with sectors.

I turn to adult social care. The Government have provided a real-terms increase in core local government spending power of around 3.2% for 2025-26, including at least £680 million of new grant funding for social care. The funding can be used to address the range of pressures facing the adult social care sector; again, they will be considered in the round.

Some hon. Members have tabled amendments to exclude charities from the new national insurance rate and threshold. However, it is important to recognise that charities can benefit from employment allowance, which this Bill has more than doubled from £5,000 to £10,500. That will benefit charities of all sizes, particularly the smallest. The Government also provide wider support for charities, including hospices, via a tax regime. This tax regime is among the most generous in the world, with tax reliefs for charities and their donors that are worth just over £6 billion for the year to April 2024.

I recognise that some hon. Members have shown an interest in the impact of this Bill on childcare settings, as highlighted in the amendments tabled by the hon. Members for St Albans, for Grantham and Bourne, and for Lagan Valley, and in the new clause tabled by my hon. Friend the Member for Walthamstow (Ms Creasy). Early years providers have a crucial role to play in driving economic growth and breaking down barriers to opportunity. We are committed to making childcare more affordable and accessible, which is why the Government committed in our manifesto to deliver the expansion of Government-funded childcare for working parents, and to open 3,000 new or expanded nurseries, by upgrading space in primary schools to support the expansion of the sector. Despite the very challenging circumstances that the Government inherited, the Chancellor announced in her Budget in October significant increases to the funding that early years providers are paid to deliver Government-funded childcare places. This means that the total funding will rise to over £8 billion in 2025-26.

New clause 4, tabled by my hon. Friend the Member for Walthamstow, specifically refers to the eligibility criteria for employment allowance. I can assure her that they have not changed, except for the removal of the £100,000 threshold, which will mean that more organisations are able to access employment allowance. The eligibility of a particular organisation will depend on the make-up of an individual business’s work, which can be determined following detailed guidance from His Majesty’s Revenue and Customs. While every organisation will need to check its eligibility for the employment allowance, it is likely that many childcare providers will be able to access it.

Finally, I will turn to the amendments to exclude universities from the new rate and thresholds for employer national insurance. We greatly value UK higher education in creating opportunity, being an engine for growth in our economy and supporting local communities. The Budget provided £6.1 billion of support for core research and confirmed the Government’s commitment to the lifelong learning entitlement. The Secretary of State for Education has confirmed that the maximum fees in the academic year 2025-26 will rise, for the first time since 2017, from £9,250 to £9,535. This was a difficult decision, which demonstrates that the Government are serious about the need to put our world-leading higher education sector on a secure footing. I would like to continue, Madam Chair, but I should stop now—

--- Later in debate ---

[James Murray]

I beg to move, That the Bill be now read the Third time.

The Bill seeks to put into law one of the toughest decisions we made at the Budget in October. As I set out in earlier stages of the Bill, we recognise that there will be impacts on employers as a result of the changes, with employers facing difficult decisions. It will implement a difficult but necessary decision that, along with others, is critical to raising the revenue needed to fix the public finances, get public services back on their feet and restore economic stability.

The Bill before us has three measures: first, an increase to the main rate of employer secondary class 1 national insurance contributions from 13.8% to 15%; secondly, a decrease in the secondary threshold for employers from £9,100 to £5,000 per year from 6 April 2025; and thirdly, changes to the employment allowance to support small businesses. The measure will protect small businesses and charities by more than doubling the employment allowance from £5,000 to £10,500 pounds a year from April 2025. In addition, the £100,000 eligibility threshold will be removed.

Through the measures in the Bill and others in the Budget, the Government are taking the difficult but necessary decisions to fix the foundations of our economy. If hon. Members in other parties choose to vote against the Bill, the British people will see that they are voting to ignore the fiscal mess that we inherited. They are voting to cut investment in the NHS and to increase borrowing for day-to-day spending.

Finally, I reiterate my thanks to hon. Members who have participated in the debate, and I extend my thanks to all the officials for their support. I commend the Bill to the House.

LGBT Financial Recognition Scheme Payments: Income Tax Exemption

James Murray Excerpts

Thursday 12th December 2024 Written Statements

[The Exchequer Secretary to the Treasury (James Murray)]

Today, the Government have confirmed ex gratia payments made under the LGBT financial recognition scheme will be exempt from income tax. The scheme is designed to offer financial recognition to those who served under, and suffered from, the ban on LGBT personnel serving in HM armed forces between 1967 and 2000.

This decision to grant an income tax exemption ensures that applicants receive the full payment amount, marking an important step toward addressing the historic wrongs faced by LGBT personnel and veterans in the past.

The Government will legislate via secondary legislation to formalise this tax exemption in due course.

[HCWS305]

Finance Bill

James Murray Excerpts

Committee of the whole House
Wednesday 11th December 2024 Commons Chamber

[The Exchequer Secretary to the Treasury (James Murray)]

This Government believe that all children should have the opportunity to succeed. That opportunity should not be limited by who they are, where they are from or how much their parents earn. We are determined that a young person’s background should not limit what they can achieve. That is why, despite the dire fiscal situation that we inherited and the numerous tough choices that it has entailed, the Chancellor prioritised investment in education at the Budget in October.

At that Budget, the Chancellor announced real-terms growth of 3.4% in education funding, including a £2.3 billion increase to the core schools budget in England for the next financial year. This funding supports the recruitment of 6,500 additional teachers, in line with the Government’s commitment, and includes £1 billion for the special educational needs and disabilities system, to help the 1 million pupils in the state system with special educational needs.

This Government will make sure that all children get the high-quality education that they deserve, as well as high-quality school buildings; funding has been announced for the school rebuilding programme, and for school maintenance, so that we can begin to tackle the maintenance backlog. These changes are crucial first steps to improving education for all children and meeting the aspirations of parents across the country.

Investment in education has to be paid for, so I turn to the focus of this debate: our decision to end the VAT exemption for private school fees. In July, the Chancellor announced that the Government will end tax breaks on VAT and business rates for private schools. These policies are expected to raise £1.5 billion in their first full year, rising to over £1.8 billion a year by 2029-30.

[Graham Stuart (Beverley and Holderness) (Con)]

Has the impact on the market of children being withdrawn from schools been greater than expected? In my time as a Minister, I always found that the Treasury rather underestimated the dynamic impact of policy change. I would be interested to hear his reflections.

[James Murray]

I thank the right hon. Gentleman for his question on the impact of the policies on children’s education. I will come to the details shortly, but to give him an overview of the forecast impacts, we estimate that ultimately there will be around 37,000 fewer pupils in the private sector. That is a combination of pupils who will never enter the private sector in the first place and those who will leave. They represent around 6% of private school pupils. We expect most of the moves to take place at natural transition points, such as when a child moves from primary to secondary school or at the beginning of exam courses.

[Sir Oliver Dowden (Hertsmere) (Con)]

If the intention of the Government is that the moves should happen at natural transition points, why did they decide to impose the change from January? Whatever one’s views on the merits of the policy, that is not really fair on the parents affected. Indeed, one could say it is cruel.

[James Murray]

It is right that these changes be implemented as soon as possible to raise the funding that we need to deliver on our education priorities. As a result of the policies coming into effect in January, we will raise a forecast £460 million of additional revenue in 2024-25. We are ambitious for the state education system, and we want to get on with delivering the changes that we committed to in the manifesto.

[Dr Ben Spencer (Runnymede and Weybridge) (Con)]

I must declare that I, like many parents in Surrey, have chosen independent education for my children. A freedom of information request earlier this week regarding empty school places in Surrey showed that in the ’25-26 academic year, there are zero spare places in year 9, zero in year 10 and zero in year 11. The Minister will know that in independent schools, many children in those years take international GCSEs and baccalaureates. What is his message to those children, who have no place and will have their exam training disrupted because of his spiteful policy?

[James Murray]

Local authorities and schools already have processes in place to support pupils who move between schools at any point in the academic year. Analysis carried out by the Department for Education under the previous Government suggests that each year, almost 60,000 secondary school moves take place not at normal transition points or over the school holidays. We fully expect the majority of moves to take place at natural transition points or in the school holidays, rather than within the school year.

I have been clear that ending these tax breaks for private schools has been a difficult decision, but it is necessary to secure additional funding that will help us to fulfil the commitments we made to improving education for all.

[Simon Hoare (North Dorset) (Con)]

The Minister continually refers to tax breaks. They are not tax breaks. Why can he not just be honest with the House and admit that this is the first time that any Government in a civilised democracy has imposed a tax on learning and education?

[James Murray]

Let me explain to the hon. Gentleman how public finances work. Funding a tax relief or a tax break is equivalent to public spending, because it is money that cannot be spent on something else. The Conservatives have committed, through their new leadership, to repealing this policy if they win the next general election. That implies cutting state education—cutting the investment in education for all that we are prioritising.

[Simon Hoare]

rose—

[James Murray]

I will not give way because I am making a clear point. We have to make choices in politics about what to prioritise. We have said that the VAT tax break for private school fees is not something that we want to prioritise. We want to spend that money instead on improving state education for all children.

[Simon Hoare]

I am grateful to the Minister for giving way a second time, and I am so grateful for the public finance lesson. Surely he has to accept that as no tax is placed on learning in any sector in the educational landscape across the United Kingdom, this measure is not a tax break. It is not that there is a tax break for one sector while others have a tax imposed. This is an imposition of a new tax in the educational sphere. It is not a tax break because no educational establishment pays VAT.

[James Murray]

Given the record of the Conservatives over the past 14 years, I do not think it is ridiculous to assume that they might need some education on how public finances work, with the mess that we inherited and the desperate need for us to restore fiscal responsibility to public finances. Restoring that fiscal responsibility requires us to take decisions that are difficult but necessary to raise the finances to fund our priorities. We have taken the decision that we will not support a VAT exemption for private school fees and that we will invest the money that we raise in state education to ensure that the aspirations of every parent across this country can be fulfilled. That is a decision I will defend every time I am in this Chamber.

[Josh Fenton-Glynn (Calder Valley) (Lab)]

My constituents would be surprised that there is no tax exemption on tampons, which are used by close to 50% of society, yet there is a tax exemption for VAT on private schools, which are used by less than 5% of the country. Does my hon. Friend not agree that it is a mark of the priorities of Conservative Members that they are so quiet about the former but not the latter?

[James Murray]

My hon. Friend is right to point out that decisions on VAT reliefs are political choices. Indeed, the Opposition are showing which side of that choice they land on when it comes to education; through their new leadership, they are choosing to prioritise a tax break for private school fees over investment in state education. That is a political choice. I am very happy to stand behind where we are on that side of the debate.

I will turn to some of the clauses in detail. The changes made by clause 47 will remove the VAT exemption from which private schools currently benefit on the education, vocational training and boarding they provide. Let me be clear: this policy does not mean that schools must increase fees by 20%, and the Government expect schools to take steps to minimise the increases for parents. Schools can reclaim VAT paid on inputs and make efficiency savings to minimise the extent to which they need to increase fees. Many schools have already committed publicly to capping fee increases at 5% or absorbing the full VAT costs themselves.

[Dr Luke Evans (Hinckley and Bosworth) (Con)]

One of the schools in my area has posed a question on VAT. It has combined fees, within which things like meals are included. It is not clear from Treasury guidance whether the school would have to separate those fees out, creating another accounting problem—in order to have separate VAT and travel, for example, as part of the fees—when currently it is all one unit. Could the Minister provide clarity on that? When I met the Schools Minister, he was unable to give me an answer, and was going to go away and speak to the Treasury about what that looks like. This will have real impacts for this school, which will have to decide how to set out its accounting, and whether it has to include the fees or separate them out into several different blocks.

[James Murray]

I thank the hon. Gentleman for his specific question. Let me just be clear that I am not giving tax advice for that particular school in my response, because I would always assume that any school would get its own tax advice. In general, the VAT treatment of a particular supply is determined by the predominant supply, so there are options available to schools. I am happy to pick the matter up with him outside the Chamber and to make sure he has the details in writing. As I said, I would not want to give specific advice to that school, but it is worth the school getting advice on the VAT treatment of the fees it charges based on the predominant supply.

I will return to the impact of the policy we are proposing and the changes in clause 47. Government analysis suggests that the impact of the VAT policy on private and state school sectors is likely to be very small—ultimately leading, as I was saying a few moments ago, to 37,000 fewer pupils in the private sector, which includes both pupils who will never enter the private sector and those who will move.

[Dr Neil Shastri-Hurst (Solihull West and Shirley) (Con)]

A particular subset of pupils affected by this policy are those in receipt of the continuity of education allowance. The revised figures for the CEA, released recently, do not fully protect those pupils from the uplift on VAT on school fees. What assessment have the Government made of the impact of this policy on retention and recruitment into our armed forces and our diplomatic service?

[James Murray]

I thank the hon. Gentleman for raising the continuity of education allowance, because the Government greatly value the contribution of our diplomatic staff and serving personnel. The continuity of education allowance is therefore provided to ensure that the need for frequent mobility does not interfere with the education of their children. As he may know, the Ministry of Defence and the Foreign, Commonwealth and Development Office have increased the funding allocated to the continuity of education allowance, to account for the impact of any private school fee increases on the proportion of fees covered by the CEA, in line with how the allowance normally operates.

The Government have carefully considered the impacts of the policies set out in clause 47 and received a wide range of representations covering topics that have already been raised in the debate today. The Government received more than 17,000 consultation responses, and my officials and I have met those representing schools, local authorities and devolved Governments. As a result of these representations, the Government have made several changes to the legislation, including to clarify the treatment of nurseries. In deciding on the final design of the policy, we have made sure that schools are treated fairly and consistently.

A number of hon. Members have raised with me concerns about the impact of this measure on particular types of schools and on different pupils, so I am glad to have this chance to address some of those points. First, to protect pupils with special educational needs that can be met only in a private school, the local authorities and devolved Governments that fund these places will be compensated for the VAT they are charged on those pupils’ fees. Secondly, as I just mentioned in response to the intervention on military and diplomatic families, the Ministry of Defence and the Foreign Office have agreed to increase the funding allocated to the continuity of education allowance to account for the impact of private school fee increases.

The Government are aware that while many schools have always offered schemes enabling the prepayment of fees, there were concerning reports of some parents using such schemes in an attempt to avoid these fees being subject to VAT. The Government believe that allowing fees paid from the date of the July statement to the date this policy comes into force to be paid without charging VAT on them would be unfair on the vast majority of families who will be unable to pay years-worth of fees in advance. The changes made by clause 48 will therefore introduce anti-forestalling provisions that will apply to all prepayments of private school fees and boarding services on or after 29 July 2024 and before 30 October 2024. Finally, clause 49 sets out the commencement date for these changes, which will apply to any fees paid on or after 29 July 2024 relating to the term starting in January 2025.

To conclude, the reason the Government are raising funding from the changes we are debating today is to increase investment in the state education system. Every parent aspires for high-quality education for their children. The removal of the VAT exemption for private schools will help to support the Government’s investment in schools and ensure that every child has a chance to thrive. We are determined to be a Government who enable the aspirations of all parents to be met and who ensure that all children have the opportunity to succeed. I therefore commend these clauses to the Committee.

[The First Deputy Chairman of Ways and Means (Judith Cummins)]

I call the Opposition spokesperson.

--- Later in debate ---

[Lewis Cocking]

I thank the hon. Member. If he just waits for the next part of my speech, he may get the answer to his intervention.

The Government’s plan will put all that at risk. Notably, Haileybury is planning to absorb as much of the financial hit as it can, rather than place the extra burden on parents. To do so, it must look at reducing expenditure and therefore its ability to offer financial support to Haileybury Turnford, painfully contradicting the Government’s argument that their policy will result in more spending on state school pupils. It is not just about money; greater financial pressures on Haileybury will inevitably lead to staff having less time and resources available to share with Turnford, and fewer opportunities for state school students at Haileybury Turnford as a result.

Ministers think that their policy will impact only the rich, but for nearly a decade a genuinely working-class community in my constituency has benefited from a state school and an independent school working together, which is exactly the kind of partnership that we should be encouraging. We should not be encouraging the politics of envy. Sadly, the changes that the Government are introducing through the Bill will bring all that to an end.

[James Murray]

Let me begin by thanking all hon. Members for their contributions. I will take a few moments to respond to some of the points raised and then to set out the Government’s view on the proposed new clauses.

The shadow Minister, the hon. Member for North West Norfolk (James Wild), addressed new clause 8, which was tabled by the right hon. Member for Central Devon (Mel Stride). I will come to the new clause in a moment, but for the avoidance of doubt let me reassure the shadow Minister that higher education and teaching English as a foreign language are both exempt from and not affected by this policy. I also reassure him that HMRC stands ready to support schools. It has already published bespoke guidance for schools, run webinars, updated registration systems and put additional resources in place to process applications.

[Damian Hinds]

In principle, what is the distinction between full-time private schooling and private tuition, from the point of view of what it is right to tax? Will he guarantee that no tax will be put on private tuition?

[James Murray]

If the right hon. Gentleman is referring to the comments I just made in response to the shadow Minister’s remarks, teaching English as a foreign language and higher education are exempt from the provisions of the Bill.

[Damian Hinds]

No, I mean families who send their child once or twice a week for an hour for academic study or something extra-curricular. Why should that be tax exempt, when if it is done for all the hours in the school week, it is not?

[James Murray]

In designing the Bill and making sure that it is clear, we decided to focus on those schools that provide full-time education. Following feedback during the consultation on the Bill, we decided to clarify some of the treatments, such as for nurseries, which I mentioned earlier, to ensure that they are treated appropriately. If they are fully stand-alone nurseries, they are not covered. In the original drafting of the legislation, we referred to nurseries that wholly comprise children below the compulsory school age. We changed that to wholly or almost wholly to ensure that having, for example, one pupil over compulsory school age would not trip a nursery into being covered.

[Damian Hinds]

rose—

[James Murray]

I am going to make some progress, because I will come to the right hon. Gentleman’s point in a moment, and I want to mention the points made by other hon. Members in the debate.

We heard from the hon. Members for Twickenham (Munira Wilson) and for Richmond Park (Sarah Olney). Yet again from the Liberal Democrat Front Bench, we see a party that is happy to support our extra investment in education for all children, but that cannot bring itself to support the measures that we put in place to help pay for that investment in education.

[Sarah Olney]

We have heard this point time and again from the Labour Benches. I want to say, one more time, that the Liberal Democrats put forward a fully costed programme in our 2024 general election manifesto, which had a range of tax-raising measures that would have paid for the changes we proposed and did not include VAT on school fees, for all the reasons the Minister has heard today.

[James Murray]

The reason why the Liberal Democrats hear this time and again from the Government Benches is that, time and again, they want all the benefits of investment without having to pay for it. That is a pattern that we see again and again in this Chamber.

[Munira Wilson]

rose—

[James Murray]

I am going to make some progress.

I thank my hon. Friends the Members for Falkirk (Euan Stainbank) and for Loughborough (Dr Sandher) for their comments. I feel that I am duty bound to add my congratulations to my hon. Friend for Loughborough on his engagement.

The hon. Member for Hinckley and Bosworth (Dr Evans) is not in his place—sorry, he is at the Bar. Perhaps he could come and take a seat on the Benches. He asked an important question to try to get some clarity about the VAT treatment of combined fees that cover school meals, transport and other services. I hope that my earlier answer gave him some reassurance on that.

I reiterate that I cannot provide advice for individual schools, but it is worth emphasising that the general principle is that if a school supplies a package of education for a single fee, that will normally be a single supply for VAT. That package could include a number of other elements such as transport or meals, alongside the main element of education. If it is a single supply, it is a single VAT liability. However, where a school supplies education and also supplies other elements for a separate fee, that will normally be treated as a separate supply. For example, if a school offers school meals alongside the education for a separate charge, those will normally be two different supplies, and they may have different VAT liabilities. Although the education would be subject to the standard rate of VAT, the school meals may be exempt, if they meet the conditions.

[Dr Luke Evans]

I am grateful for the Minister’s clarification on that point; I think he is hitting towards it. The school itself has everything grouped into one fee, which includes the transport, schooling and food. Its contention, therefore, is that it will have to break that all out, which means it will have to deal with all the accounting issues on top of this. It is just another burden to think about. I wonder whether the Treasury has thought about that and whether there will be further guidance—there is literally just one line in a piece of written guidance put out by the Treasury. Is there anywhere the school can raise this issue to work through the exact advice it needs? I appreciate that the Minister cannot give that advice directly to the school from the Dispatch Box.

[James Murray]

The way that we treat private school fees and the other charges that private schools may levy has to be consistent with the VAT principles more broadly, which is why I have tried to explain how the supply of education and the supply of other elements would interact with the VAT system more widely. I will hold back from giving specific advice about that individual school, but I would encourage it to contact HMRC to get advice about its specific registration. If the school staff read what I have just said in Hansard, I hope they will see some information that will help them to understand how to approach this issue.

[Graham Stuart]

As ever, the Minister is being very gracious in giving way. If someone were to establish a new educational establishment providing entirely modular educational elements that people could choose between, would that be subject to VAT, individually or collectively, or not?

[James Murray]

The right hon. Gentleman is tempting me into hypotheticals and into trying to give advice to a school that does not yet exist—I will hold back from that, because I think the principles of our Bill are very clear on what VAT at the standard rate is applied to and what can be made exempt, in line with the existing rules on VAT.

We heard several times from the right hon. Member for East Hampshire (Damian Hinds). I assure him that the Government costing has, of course, been fully scrutinised and certified by the Office for Budget Responsibility. He also spoke about capital funding. Obviously, pupil numbers fluctuate for a number of reasons. The Government have already announced more than £700 million to support local authorities over this academic year and the next to provide places in new schools and expand existing schools. I did note, however, that in response to an intervention by my hon. Friend the Member for Hartlepool (Mr Brash), the right hon. Gentleman seemed implicitly to admit to his Government’s failure to improve high-needs education in the state sector, which is precisely why our measures today are so important.

[Damian Hinds]

First, the Minister knows I said no such thing. I spoke about the additional investment that had gone into the high-needs budget under the previous Government, particularly since 2019, and said that there was more to do.

Since I am on my feet, can I ask him to expand on what he just said about capital? What he has just spoken about is capital for places that are already planned, but what if a lot more children present in some places? Has he budgeted for that capital? Does he guarantee that whatever capital goes to the DFE will be on top of the existing capital budget?

[James Murray]

As I said to the right hon. Gentleman, pupil numbers in schools fluctuate regularly for a number of reasons, and the Department for Education, and indeed the devolved Governments, already work with local authorities to identify pressures and take action where necessary. As I said in my earlier remarks to him, the Government already provide capital funding through the basic need grant to support local authorities in England to provide school places, and the Government have already announced £700 million over this academic year and the next, which can be used to provide places in new schools and to expand existing places.

Finally, the hon. Member for Bexhill and Battle (Dr Mullan) raised the motivation behind our policy, which other Opposition Members also spoke to. Let me be clear on this: our decision to fix the public finances to fund public services, including education, means that difficult decisions have to be taken. Our choice to end the VAT exemption for private school fees has been a difficult but necessary decision that will secure additional funding, which will help to deliver on our commitments to improve education for all.

[Dr Mullan]

I did not talk about motivation in my speech; I spoke about how the Minister has framed it. Does he accept that with a general taxation pot, where all the money goes into one amount that is doled out as the Government see fit, there is absolutely no basis for saying that children in the state sector have less because of the exemption of VAT for private schools? The two things are totally unconnected in the Budget and the financing of the Government.

[James Murray]

What is connected is that if we want to fund public services and fix the public finances, we have to take difficult decisions. This is one of those difficult decisions we are taking today: a difficult but necessary decision to restore fiscal responsibility after the mess we inherited from the Conservative party and to fund our public services. It is necessary to take those decisions, so that we can get that funding into education for all. If the hon. Gentleman does not want to take that decision, he is, in effect, denying the choices that we are making about funding public services.

I will now make some progress to address the new clauses tabled by Opposition Front Benchers. New clause 8, which was tabled by the right hon. Member for Central Devon, would require the Government to make a statement to Parliament about the impact of removing the VAT exemption for private school fees within six months of the Act being passed. It states that it

“must include details of the impact on…pupils with special educational needs and disabilities…small rural schools, and…faith schools.”

It would require the Government to

“make a statement about the impact of the removal of the exemption on schools that take part in the music and dance scheme”

within 18 months of the Act being passed.

I want to make it clear that in developing this policy, the Government carefully considered the impact it would have, including the impact it would have on pupils with special educational needs and disabilities, rural and urban schools, faith schools, and schools that take part in the music and dance scheme. As I said before, the Government considered a wide range of representations, including over 17,000 consultation responses, before finalising the policy design. The Government set out the expected impact of the measure in a tax information and impact note published at autumn Budget 2024 in the usual way.

I set out earlier today how the Government will ensure that those children with an EHCP, or its equivalent in other nations, will not be subject to VAT on any private school fees. I am not clear whether the right hon. Gentleman’s new clause, when it refers to “pupils with special educational needs and disabilities”

refers to only those in the private sector, or whether he intends the new clause to consider also the 1 million or more pupils with SEND in the state system. If it is the latter, I am sure he will welcome the extra £1 billion for high-needs funding next year that we have been able to announce thanks to our decisions on tax policy, including that which we are debating today. In addition, based on the evidence provided, it is not apparent that small faith schools will be more affected by this policy than other schools.

The hon. Member for Twickenham, the Front Bench spokesperson for the Liberal Democrats, tabled new clause 9. I think I have addressed most of those points already in my remarks today.

To conclude, I hope I have been able to reassure Members that the new clauses are not necessary, for the reasons I have set out. I therefore urge the Committee to reject new clauses 8 and 9.

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