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Labour’s first Budget in 14 years has far-reaching consequences for farmers and the economy The government has missed a key opportunity to boost economic... Budget ‘lacks measures’ to encourage growth

Labour’s first Budget in 14 years has far-reaching consequences for farmers and the economy

The government has missed a key opportunity to boost economic growth for agriculture and UK businesses, says a farming analyst.

As the dust settles from the autumn Budget, the consequences for farming and the wider economy are becoming clear, says Jeremy Moody, secretary and adviser to the Central Association of Agricultural Valuers.

Changes to Inheritance Tax (IHT) and reducing agricultural and business property relief (APR and BPR) will be costly to many farms, while the arguments used appear based on misunderstood and partial data, he says.

“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.”

Lack of growth

That is particularly the case when it comes to stimulating growth and supporting domestic business, says Mr Moody. “At a strategic level, the government may have missed its optimum moment to drive the economic growth programme we need.”

“The Budget lacks significant measures to stimulate growth through entrepreneurship, relying heavily on taking taxes from businesses – including from agriculture, farming families and the food chain.

The government could have fostered 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, citing the example of a key project which has been mothballed.

“The signal given in July by the Chancellor’s cancellation of the £800m exacomputer project at Edinburgh University – one 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.

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.

Inheritance tax

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 Mr Moody – who is a respected independent analyst and adviser in his own right – says this 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 economy.

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.

Other measures

However, and almost immediately, English farmers face the dramatic acceleration of delinked payment cuts – with the government phasing out the Basic Payment Scheme much quicker than previously.

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. This will be particularly felt in labour-intensive sectors like dairy, pigs, poultry fruit, vegetables and horticulture.”

While the industry awaits news of schemes and answers on capital productivity grants, Mr Moody says the funding boost to the biosecurity facilities at Weybridge is to be welcomed given the growing disease threats the UK faces.

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.

But these are small mercies, suggests Mr Moody. “Those benefits do not relieve the large losses to farming from the headline changes,” he says.