Higher taxes, fairness and the future of family farms: key tax discussions from the Second Reading of the Finance Bill

Opening the debate for the government, Dan Tomlinson, Exchequer Secretary to the Treasury, said that the Bill delivers “a set of responsible choices that safeguard our economy and prepare us for the future”. In order to achieve that the government “have had to take the decision to ask everyone to contribute more at the end of the decade to protect our public services”.

The Bill also takes action “to ensure that income from assets is taxed more fairly” and “delivers previously announced reforms to tax wealth fairly”, including a revised tax regime for carried interest, the minister explained.

Shadow Chancellor Mel Stride led for the Conservatives during the debate, moving an amendment to decline to give the Bill a Second Reading on the grounds that it:

• Breaks the Chancellor’s promises not to raise taxes, and in particular the promise that there would be no extension of the freeze in income tax and national insurance thresholds;
• Implements changes to Agricultural Property Relief and Business Property Relief for Inheritance Tax “which will devastate family farms, businesses and food security”;
• Is the result of a Budget that “will lead to higher spending and borrowing, while damaging growth and living standards”.

Stride said the government had chosen to increase taxes on hard-working people and spend much of the money raised on increasing the benefits bill. He concluded that “the wrong choices have been made. Tax should not be going up and spending should not be going up in this way”.

A Liberal Democrat amendment, not selected by the Speaker, began by “recognising the deep economic damage caused by the previous government” but similarly criticised the inheritance tax changes and continuing thresholds freeze. It called for an emergency 5% VAT cut for hospitality, accommodation and attractions until April 2027, and for the government to “begin to repair the damage caused by the last government’s failed Brexit deal”.

Inheritance Tax: Agricultural Property Relief (APR) and Business Property Relief (BPR)

A central theme of the debate was the reform of APR and BPR, which many MPs argued would have a harmful impact on family farms and businesses.

The Shadow Chancellor told MPs that: “Farms up and down this country are now worried about the future.” Business property relief is being changed in broadly the same way as agricultural property relief, he added. “That will have a devastating and similar consequence for family businesses across the UK”.

“The changes to the agricultural property relief and the business property relief will punish family farmers who put food on our tables and guarantee the food security of our nation, and they will not tackle the loophole of private equity companies and celebrity farmers buying land to reduce their tax liability,” argued Lib Dem Treasury spokesperson Daisy Cooper.

Carla Lockhart (DUP) relayed the distress of farmers, claiming that, “The government have chosen to absolutely decimate family farms across the whole United Kingdom”.

Robbie Moore (Con) provided a constituency example, highlighting that Fibreline in his constituency has worked out that its BPR liability is about £850,000, adding that the company employs 250 people whose jobs are potentially at risk as a result of the business not being able to mitigate an inheritance tax liability that the government “are imposing on it.”

Another Conservative MP, Graham Stuart explained the mechanics and said, “Imagine a company that is worth £11 million. It will have a £2 million BPR tax payment to make. The person who inherits the shares will not have that £2 million, so they will have to extract that money from the business.” He suggested it would require £3.3 million to be deducted and taken out of the company in order to pay that £2 million in tax.

Ben Lake (Plaid Cymru) said the proposals “have changed the way in which our small businesses, particularly farm businesses, operate. Some 55% of small businesses and 49% of farm businesses have already cancelled proposed investment projects in anticipation of the changes.”

Alistair Carmichael (Lib Dem), chair of the Environment, Food and Rural Affairs Committee, pointed out that in his constituency, farms valued at about £3 million typically generate a net annual profit of only £25,000 to £30,000, adding: “Do the maths here—that is an inheritance tax liability of £400,000, which, even over the 10 years that is allowed, farmers simply will not be able to pay.”

He was one of a number of MPs to refer to the controversial anti-forestalling clause, saying its effect “is to trap especially those who have farmed into their 70s and 80s into the new rules unless they die before next April. I dislike the use of hyperbole, especially when we are talking about people and their lives, but the anti-forestalling clause in this Bill is downright cruel.”

Labour MP Alison Hume said she owed it to the farming families she represents to raise her concerns about the anti-forestalling clause. “I have met several families in Scarborough and Whitby who told me that they are having heartbreaking conversations with their parents, who talk about ending their own lives before April next year. I ask my hon. Friends in the Treasury to please look at removing the anti-forestalling clause from the Bill, or at the very least introducing a transition to protect the most elderly, and those with a terminal medical diagnosis.”

Other MPs to voice concerns about the effects of the measure on family farms included John Lamont (Conservative), Caroline Voaden, David Chadwick, Richard Foord, Edward Morello and Rachel Gilmour (all Lib Dems), Markus Campbell-Savours (Independent) and Seamus Logan (SNP).

Dan Tomlinson, Exchequer Secretary, responded to the concerns by highlighting the allowances available to family farms and other businesses, and that tax above those allowances will be levied at 20%, rather than 40%.

Lucy Rigby, Economic Secretary to the Treasury, said the government are “more than aware” of the strength of feeling on inheritance tax. She appreciated the compassion with which MPs had made their arguments. That was why the government came forward with the changes announced at the Budget just a few weeks ago: “Following those changes to both APR and BPR, surviving spouses can pass on double the tax-free allowance, making the system more fair and simple for farmers.”

Income tax thresholds and fiscal drag

Another significant topic of discussion was the government’s decision to freeze income tax thresholds, extending the freeze for a further three years from April 2028 to April 2031. MPs argued that this measure would increase the tax burden on working people through fiscal drag.

Mel Stride, the Shadow Chancellor, stated this means that “800,000 people or thereabouts will be dragged into the basic rate of income tax, and 1 million… will be dragged through fiscal drag into the higher rate of income tax”. A concern which was also raised by Daisy Cooper and Gareth Davies, the Shadow Financial Secretary.

Stride further highlighted the impact on younger people, adding: “That is on top of various other issues that are coming down the track, such as the freezing of the threshold for repayment of student loans, which is effectively a stealth tax on younger people. It is also on top of the freeze in the employer national insurance threshold, which will raise around £1 billion by 2030”.

While criticising the freeze in income tax thresholds, Dave Doogan (SNP) was pleased that “the income tax clauses largely do not concern Scottish taxpayers, who benefit from the SNP’s judicious and progressive income tax rates in Scotland”.

The Exchequer Secretary defended the measure as a ‘fair’ choice, saying: “In 2029-30, three-quarters of the revenue from maintaining income tax and employee, self-employed and national insurance contribution thresholds is expected to come from the top half of households.”

Business taxation and VAT

Sir Oliver Dowden (Con) pointed out the recent unemployment figures and asked whether there is a direct link between the ‘jobs tax’ and higher unemployment. The Exchequer Secretary responded that the Office of Budget Responsibility (OBR) was aware of the tax changes announced in the previous Budget when it made its forecast a few weeks ago. He continued that the OBR expects that employment will “rise every year” of this forecast.

On business rates reform, MPs expressed concern about the impact on hospitality and high street businesses.

Robbie Moore cited the UKHospitality, which has done the sums on the impact of the Budget on businesses across his constituency, arguing that over the next three years, hospitality businesses in Keighley and Ilkley will have to pay on average an additional £13,690 per annum.

Daisy Cooper suggested that the failure to reform business rates “again makes the government look like continuity Conservatives.” She added that “our high streets are critical to our sense of community up and down the land, yet high-street hospitality businesses are getting hit once again. Last year it was the jobs tax; this year it is the higher business rates bills.” This message was echoed by Gideon Amos (Lib Dem).

Ben Lake suggested that the government missed an opportunity in the Budget to look at VAT for hospitality, adding that it would have done “a world of good and given much-needed confidence to an industry and sector that are suffering dreadfully at the moment with the cumulative impact of different price increases as well as new taxes”.

The Economic Secretary emphasised that the government is delivering on their commitments and building a stronger economy in which businesses succeed and public services are renewed.

Taxation of savings and dividends

Mel Stride was among those criticising the impact on savers, saying: “We see in this Finance Bill an outright attack on savers… and a 2% increase in taxes on savings income, which the OBR suggests will ironically lead to more people putting cash into individual savings accounts. That is quite the reverse of the effect that the Chancellor is attempting to achieve”. He cited the Association of British Insurers, which suggests that the measure is “a short-sighted tax grab which will lower pension saving and undermine people’s retirement security.”

Daisy Cooper said hikes to dividend tax “mean the government continues to make investing in your own business one of the least tax-friendly things you can do with your money.”

The Exchequer Secretary explained that “income from assets is taxed more fairly, raising £2.2 billion in 2029-30 by increasing taxes on property dividend and savings interest income”. He continued that the government are ‘narrowing’ the gap between taxes paid on work and taxes paid on income from assets.

Other issues

Callum Anderson (Lab) welcomed the new stamp duty relief for listing on the UK stock market, believing that the clause will boost liquidity and “incentivise more investors of all types to buy British”. He called for tax simplification, suggesting that previous governments have increased the length of the tax code, and failed to close or tackle various loopholes.

Declaring a constituency interest Gareth Snell (Lab) highlighted that thousands of people are employed by gambling companies and asked whether the rate changes would have an impact on jobs. The Exchequer Secretary acknowledged that these businesses contribute significant revenue to the Exchequer but said “this government are asking them to contribute a bit more in order for us to be able to continue to fund our public services in a sustainable way”.

Matt Rodda (Lab) inquired about the loan charge, highlighting that his constituents are “grateful for the action to tackle inappropriate schemes being marketed at professional people”. In response, the Exchequer Secretary said: “I hope that those affected can see we have a reasonable and fair set of proposals that will help those who were subject to the loan charge to be able to come forward and to settle”.

The Exchequer Secretary replied that the government are accepting all but one of the recommendations of the independent loa charge review. “We are creating a new settlement opportunity to support those with outstanding liabilities to resolve their affairs with HMRC. This marks the start of a final opportunity to draw a line under this long-running issue. I sincerely and dearly hope for everyone involved that we will be able to move forward and that this issue can start to be part of people’s pasts, rather than a seemingly never-ending part of their future.”

Votes and programme motion

The Conservative amendment was voted down 118-340. The Bill passed its second reading 341-196.

Following the second reading vote, MPs voted to approve the programme motion for the bill’s committee stage, where MPs will examine individual clauses and can propose amendments.

The following clauses and schedules, chosen by the main opposition parties, will be considered in Committee of Whole House in January:

Day One (Monday 12 January 2026)

(a) Clauses 1 to 8 and Schedules 1 and 2 (income tax charge and rates);

(b) Clauses 9, 10 and 69 (freezing of allowances);

(c) Clause 62 and Schedule 12 (agricultural property relief and business property relief);

Day Two (Tuesday 13 January 2026)

(d) Clauses 63 to 68 (inheritance tax on pension interests);

(e) Clauses 83 to 85 and Schedule 13 (gambling duties);

(f) Clause 86 (rates of alcohol duty);

Any new Clauses or new Schedules relating to the subject matter of the Clauses and Schedules mentioned in paragraphs (a) to (f) will be considered in those groups.

The remainder of the bill will be considered in Public Bill Committee. While no official announcement has yet been made it is thought likely that the first two Public Bill Committee sessions will take place on Tuesday 27 January.

Proceedings in Public Bill Committee must conclude no later than Thursday 26 February 2026. It is likely that they will conclude before that, potentially on Tuesday 10 February.

You can read the full second reading debate here.

You can read our summary of the Bill here.