Labour’s Tax Attack: A Reckless Blow to a Struggling Industry
December 3, 2024
0 3 minutes read
The government has shaken the very foundation of farmers’ financial stability – PA/Gareth Fuller
The government seems taken aback by the outcry from farmers after they targeted inheritance tax relief that many have relied on for years.
This isn’t a new concept; the government has been imposing taxes on the estates of the deceased since 1694. Yet, the landscape of these taxes has shifted dramatically.
What started as modest percentages on large estates morphed into an astonishing 85% tax for the wealthiest estates by 1969. The tax system has transformed over time, with the capital transfer tax introduced in 1975, later morphing into the current inheritance tax regime, set at a hefty 40% since 1986.
Fast forward to today, the rules have largely remained unchanged. Although thresholds have been raised and a nil-rate band introduced for homes, the core issue remains: death is a certainty, and so is the tax that follows.
For many, inheritance tax is a “necessary evil.” It targets wealth that’s perceived as unearned, ensuring that the privileged pay their fair share. But the reality is that only a small fraction of estates—less than 5% in 2021-22—actually pay this tax. It’s seen as a way to promote equality without hindering economic activity.
Yet, it’s no major cash cow for the Treasury either. In the last available year, inheritance taxes brought in a mere £6 billion, a drop in the bucket compared to the staggering £1.2 trillion government spending that year. Even with proposed changes expected to add £500 million to tax revenue, the overall impact remains minimal.
Historically, politicians recognized that such a steep tax rate clashed with the goal of passing down family businesses through generations. They understood that these family-run enterprises are essential to our economy and culture.
To support this, two significant reliefs—agricultural property relief and business property relief—have allowed farmland and family businesses to remain intact for future generations. But recent changes threaten this delicate balance.
In a bold move this autumn, the Chancellor introduced a 20% charge on family farms and businesses worth over £1 million, slashing the previous 100% relief to just 50%. This shift is monumental, fundamentally altering how farmers and business owners manage their financial affairs.
Farming is not just a business; it’s a way of life. It’s physically demanding, reliant on unpredictable factors like weather, and often offers slim profit margins. The very essence of family farms hinges on the long-term ability to inherit land and legacy without financial penalties.
Farming is inherently about the long haul. Good years and bad years ebb and flow, yet farmers remain steadfast, often defying logic, in their quest to make a living amidst the unpredictable tides of agriculture.
Historically, agriculture was the backbone of the UK economy. Before mechanization in the 19th century, it was the top employer and the main food source for the nation. Yet, the landscape has drastically shifted over the last two centuries.
The value of crops has plummeted due to mechanization and global competition, while the costs of production—labor, land, energy, and regulatory compliance—have continued to rise. As a result, the viability of farming now hinges on significant productivity gains, which, while achievable, often leave farmers struggling to make ends meet.
According to the Office of National Statistics, the numbers are sobering. In 2023, agriculture’s productivity was the lowest across all sectors, with farmers grossing only £20.47 per hour worked—well below the national average of £39.34.
In simple terms, farmers are earning less than waitstaff while investing substantial capital in their operations—capital that is barely yielding any return. The reality is stark: many farmers would be better off selling their land and seeking employment elsewhere.
Yet, many remain, despite the challenges. Disillusioned by burdensome regulations and financial uncertainties, some have already stepped away from farming. This has shrunk the sector to a mere 0.7% of the UK economy, a stark contrast to the over 60% it once represented during medieval times.
Those who persist in farming do so for a lifestyle choice—an outdoor existence that fosters independence and a vision for the future. The prospect of passing down the family farm without financial repercussions is a lifeline for many.
However, the government’s recent decision to limit inheritance tax relief could very well spell doom for UK farming. Why would anyone invest in a legacy if they know it might be the last generation to carry it on? The choice to sell and exit becomes all too tempting.
