Key tax changes are coming in later this year
A senior Treasury minister has spoken about major tax changes being brought in. Chief Secretary to the Treasury, James Murray, was grilled by a House of Lords committee about the Government’s policies.
The Economic Affairs Committee wanted to scrutinise the minister about Labour’s fiscal policies, and its efforts to stability in the economy. They started off asking Mr Murray if he thought the way the Autumn Budget 2025 came out was “unfortunate” and “counterproductive”, given how much of it was leaked beforehand, with some potential policies eventually reversed.
There was speculation in the run-up to the Budget that Rachel Reeves could increase income tax, with the Chancellor hinting in the weeks before that there could be tax increases. Labour felt the need to explicitly rule out this possibility as the Budget loomed.
There was also chaos in the House of Commons on Budget day itself. In the minutes before the Chancellor was set to make her speech, a report from the Office for Budget Responsibility (OBR) was mistakenly published, setting out the major policies she was supposed to make public at the despatch box.
Mr Murray said in response: “The Chancellor made her feelings clear about all of the speculation, and obviously the leak that happened, the fact the leak inquiry is under way and indeed the OBR publishing its report before the Budget was announced itself, all of that process, views have been set out in quite some detail following the Budget process.”
The Budget included some major tax policies, including keeping income tax thresholds frozen until 2031, reducing the cash ISA allowance and a new cap on the pension salary sacrifice scheme. The committee asked Mr Murray about the Government’s U-turns on many of its policies.
Lord Andrew Turnbull asked if the Government was making “difficult decisions” but not making good on them. Labour has had to change course on many of its policies, such as cutting the eligibility for the Winter Fuel Payment, changes to the eligibility rules for PIP (Personal Independence Payments) and its plan for Digital ID.
‘Toughest decision’
But Mr Murray was keen to outline some major tax policies where the Government has stuck to its guns. He said: “Since coming into Government, we knew that we had inherited a difficult fiscal situation.
“Look at the example of raising employer National Insurance contributions. It is not something that any of us wanted to do. It was the toughest decision I think we took at that first Budget, but we were determined to make sure that we would restore stability to the public finances and get the NHS and other public services back on their feet.
“That decision on employer National Insurance is already in place.” As announced at the Autumn Budget 2024, the rate for employer National Insurance increased from 13.8 per cent up to 15 per cent, from April 2025.
He also shared an example of where the Government had changed a policy proposal but it still represents a major change, with the changes to inheritance tax coming in soon. Mr Murray told the committee: “One example where we have changed the policy is around the threshold for agricultural property relief and business property relief.
“That is one where we have maintained the principle of what we have done. That principle behind the policy remains the Government’s position, but we adjusted the threshold. That is one example there, but there are numerous other tax choices I could go through, many of which have been tough choices, such as the employer National Insurance that I mentioned, but we think that they are the right and necessary choices.”
Under plans set out in the April 2024 Budget, the inheritance tax relief of 100 per cent on agricultural and business assets was to be limited to the first £1million of assets being passed on, with the remaining total assets to be taxed at 20 per cent. But after widespread criticism of the plans, the Government increased the threshold to £2.5million.
Inheritance tax is usually levied at 40 per cent. Each person gets an allowance, meaning they can pass on up to £325,000 in total assets tax-free, plus an extra £175,000 when passing on a main residence to a direct descendant. You can pass on any unused allowances to your spouse or civil partner when you die, meaning they could pass on up to £1million in assets tax-free when they eventually die.
