Rachel Reeves’ second budget mentioned little about farming or the wider rural sector, although the industry will still feel the effects of policies announced and unchanged.
Farmers travelled to Whitehall to continue the fight against changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), announced last year, and some were arrested for breaking the last-minute ban on tractors at the protest.
Despite continued pressure, the government made only a minor concession to the inheritance tax changes, allowing farmers who are married or have deceased spouses to transfer their allowance to one another if one dies without using it.
While a few proposals will directly impact the rural sector, general changes within the budget could impact farmers and contractors.
The National Living Wage has increased from £12.21 to £12.71 for those over 21, and from £10 to £10.85 for those aged 18 to 20, while employer National Insurance contribution thresholds have been frozen until 2031, meaning costs will increase alongside wages over the next few years.
Industry response
To call the response to the Budget muted would be generous. The NFU said that the concession to inheritance tax doesn’t come close to protecting many family farms, and does nothing to limit the impact on elderly and vulnerable farmers.
NFU president Tom Bradshaw said: “It’s good to see the government accepts its original proposals were flawed. But this change goes nowhere near far enough to remove the devastating impact of the policy on farming communities.
“It’s only right that agricultural allowances can be transferred between spouses and it’s something we’ve been calling for, but it doesn’t go anywhere near far enough in protecting the working people of the countryside. It does nothing to alleviate the burden it puts on the elderly and vulnerable.
“It is also a huge smack in the face to the Labour MPs who have been working so hard to find a way through this for their local farmers. To them, we say thank you.
“The Chancellor said she wanted to ‘back working people not make them poorer’ and to ‘increase investment not cut it’. To do that, government must look again at the multiple solutions that have been put forward by industry and tax experts.”
He added: “Several other announcements in the Budget will hit farming and growing businesses hard. The increase in the National Living Wage, which will have risen 12% in two years, puts further cost pressures on agricultural and horticultural businesses and further inflationary pressures on our food system. At a time when the government has an ambition to get the country eating more fruit and vegetables, it will hit the horticulture sector hardest.
“The increase in the autonomous tariff quota (ATQ) for sugar cane undercuts British growers at a time when this government says promoting growth and investment at home is its priority.
“However, we believe farming may benefit from the announcements on apprenticeships and it could help bring the next generation into our food and farming sector.
“Public support over the past year has been incredible. We will need this support to continue from all sides to create the change needed to protect those people caught up in this unjust, unfair policy. The fight continues; we cannot give up and we will work with the wider industry, supply chain and MPs on next steps.”
‘Little to fundamentally change the outlook’
Head of estate management at Carter Jonas, Mark Charter, noted: “There is little in this budget to fundamentally change the outlook of farm and estate owners, with the major changes to inheritance tax (IHT) announced a little over a year ago. But we do expect it to act as a catalyst for action for those who need to address succession issues and tax planning.
“IHT changes seem to be going ahead as planned next April, the only change being a £1m threshold on assets that can be transferred to a spouse upon death. Businesses and families who haven’t discussed the future of their assets need to take advice and make decisions quickly.
“The 2% increase in tax on rental income – which will affect rural landlords – is another blow for the rental market. We are already anticipating a rise in costs due to compliance with Minimum Energy Efficiency Standards (MEES). Plus, there is increased risk from the Renters Reform Act which is hitting confidence in the sector. While the rise seems small, it will further erode the profitability on farms and estates where let property is an income stream.
“An annual levy on residential properties with a value exceeding £2m will catch some farmhouses and family homes on estates. Questions remain over how properties will be valued, and how the tax will be implemented.
“Diversified businesses running retail, hospitality and leisure operations will view the lower business rate multiplier as a positive move. It is a small step, but is a financial gain for those who have diversified because other farming enterprises were not sufficiently profitable.”
Simon Gooderham, managing partner at Cheffins, went further when discussing the inheritance tax. “It is a major disappointment that the Government has not made a U-turn on, or even softened, its latest announcement this afternoon regarding Inheritance Tax and in particular, Agricultural Property Relief. The financial and mental strain on the agricultural sector has been immense, with the combination of the tapering out of the Basic Payment Scheme and the dwindling numbers of farm subsidies and environmental grants.
“The £1m cap on relief has created worrying times for the entire agricultural community, and as a result, it is anticipated that more farmland will be offered for sale as farmers try to offset individual tax liabilities. This aggressive policy approach by the Government to IHT will likely mean that a number of active farms will be swallowed up within the next generation, creating a bleak future for many family farms and rural communities across the country. Forward planning with appropriate professional advice and support It will be critical to help farmers navigate their way through this disastrous policy.”
Asset management firm, Rathbones, was more positive about the changes. Ade Babatunde, senior financial planning director, said: “The Chancellor has thrown a lifeline to family businesses and farmers. The £1m allowance for 100% Business Relief (or Agricultural Property Relief) can now be passed to a surviving spouse or civil partner—even if the first death happened before the rule change. That means families won’t lose relief if it wasn’t used straight away. This could be a game-changer for SMEs ahead of next April’s shake-up, sparing many from selling assets just to pay tax.”
They did concede that estate planning was getting trickier, with the combined effect of fiscal drag, inheritance tax changes and frozen thresholds, however. “The Treasury still wants a bigger slice of the ‘great wealth transfer’.”