As the dust settles on last week’s Budget, the consequences for the wider economy and farming are beginning to become clear. And that is particularly the case when it comes to stimulating growth, supporting domestic business and strengthening agriculture.
The Inheritance Tax (IHT) changes – reducing agricultural and business property relief (APR and BPR) will be costly to many farms and rural businesses, while the arguments used appear based on misunderstood and partial data, says Jeremy Moody, secretary and adviser to the Central Association of Agricultural Valuers (CAAV). “These changes will affect many more family farms than the Government suggests and will do so when farming needs its resources to meet the new policies, to invest and adapt to advancing climate change.
“At a strategic level, the Government may have missed its optimum moment to drive the economic growth programme we need,” he adds.
“The Budget lacks significant measures to stimulate growth through entrepreneurship, relying heavily on taking taxes from businesses, and distinctively farming and the food chain – rather than fostering an environment which supports innovation, business expansion and the rural economy. Instead, we have more tax levied in destructive ways and higher interest rates in bond markets, where we depend on the kindness of strangers.”
This was not a Budget about investment, says Mr Moody. “The signal given in July by the Chancellor’s cancellation of the £800m exacomputer project at Edinburgh University (one which is 50 times faster than any computer now in the UK, with a capability for key research and industry projects) seems confirmed.
“The Office for Budget Responsibility sees no real lift in growth in this Parliament, observing that the only Parliament with less growth will have been the last one – with its pandemic and Ukraine war. In an increasingly uncertain world, even that forecast is prey to Tuesday’s US election.”
When it comes to holiday lets, a popular farm diversification, there have been some changes in that area, too. “From April 2025, these will be treated on the same basis as residential lettings, and so no longer as a business,” says Mr Moody.
Of course, the devil is in the detail – so what do the IHT changes really mean? In simple terms, where land, dwellings, machinery, animals and other assets are worth £4m, there will be £600,000 in tax to find. “That is a lot to pay. Even if spread over 10 years that is as much as many farms make in profit over 10 years, precluding important investment.” The Government argues that only a quarter of farms; the wealthiest quarter, are affected. But that misunderstands the tax data:
- First, it is only based on APR claims and takes no account of the farm’s machinery, livestock, working capital or other business assets, including diversified business activities supporting the farm and the rural economy. That figure misses half the picture and so understates the effects of the change.
- Second, it is not an assessment of farms but of individual ownerships of agricultural land. The average value of £486,000 might generally be just 50 acres but nearer 20 in some areas. Some will be small intense farms or family members’ land used by the family farm, but more will be lifestyle units and stray fields let out for grazing round a house – both likely with wealthier non-farming owners. The data does not record farms when, on DEFRA data, the average cereals farm would need four owners to be out of tax on its farming activity.
“If farmland has to be sold, the increased capital gains tax rate will mean more acres must go, reducing the farm’s production capacity and its ability to meet its overheads,” warns Mr Moody.
However, and almost immediately, English farmers face the dramatic acceleration of delinked payment cuts.
The centrepiece of the Budget was a £25bn increase in employers’ National Insurance, increasing the cost of employing staff, especially lower paid and part-time workers. “The whole food chain will now be less able to invest and take on new hires, with anyone earning even £9,100 costing at least £615 more,” he explains. “This will be particularly felt in many of the labour-intensive sectors of farming like dairy, pigs, poultry fruit, vegetables and horticulture.”
While the industry awaits news of schemes and answers on capital productivity grants the funding boost to the biosecurity facilities at Weybridge is to be welcomed given the growing disease threats the UK faces. “And the decision to implement the last Government’s proposed extension of APR to farmland in environmental agreements with public authorities should, from next April, remove a shadow over land use decisions.
“However, those benefits do not relieve the large losses to farming from the headline changes.”
A breakdown of the Budget by Jeremy Moody is available in podcast form: https://www.caav.org.uk/70-
- Jeremy Moody
About the CAAV
The Central Association of Agricultural Valuers (CAAV) is a specialist professional body representing, qualifying and briefing 3,000 members practising in a diverse range of agricultural and rural work throughout England, Wales, Scotland and Northern Ireland.
CAAV members are agricultural and rural valuers who provide professional advice and valuation expertise on issues affecting the countryside from tenancy matters to sales and purchase of farms and land, from taxation and compulsory purchase to auctioneering, and from conservation issues to farming structures.
