Reasons to be fearful…
Richard Rankin, Chief Executive, H&H Group Plc
"There are several key areas currently raising serious concern amongst our customers and in our rural community.
As the new Labour Government prepares to unveil its first budget since coming into power earlier this year, there are anxious farmers across the land worried about potential tax changes that could significantly impact their livelihoods and the future of their farms. Rising fuel costs, shifting subsidies, and potential adjustments to key taxes such as Capital Gains Tax (CGT) and Inheritance Tax (IHT) are sparking heated discussions over farmhouse kitchen tables throughout the agricultural sector.
One of the biggest of the more immediate worries for farmers is the potential for increased fuel duties. Agricultural businesses rely heavily on fuel to run essential machinery, transport livestock, and move goods. From tractors to trucks, farming operations are deeply dependent on fuel, and any rise in fuel duty would mean a direct increase in operating costs, which are already under pressure from inflation and high energy prices. For farmers, even a modest increase in fuel duty will further erode already narrow profit margins.
Another significant concern for farmers is the potential for changes to agricultural subsidies, especially as the government continues to phase out the Common Agricultural Policy (CAP) or Basic Payment System (BPS) and transitions towards the Environmental Land Management Scheme (ELMS). CAP provided billions in essential financial support to farmers, and while ELMS is designed to reward sustainable farming practices, there is concern that the new system may not provide the same level of support to all farms – as well as lacking any focus on food production.
Farmers fear that ELMS may favour specific types of farming, such as conservation projects, over traditional agricultural activities like livestock farming. This could leave many farms, especially those in less ecologically sensitive areas, with significantly reduced income support. The unpredictability around how these new schemes will be rolled out and which farmers will benefit is causing uncertainty in an industry that relies on long-term planning. This anxiety is particularly acute for smaller, family-run farms that depend heavily on subsidies to maintain financial stability.
However, one of the furthest reaching and longest lasting potential threats to the future of our farms, farmers and rural life are the changes the current Government is considering to Capital Gains Tax (CGT) and Inheritance Tax (IHT). These potential changes are weighing heavily on farmers' minds, particularly those who plan to sell land or pass their farms on to the next generation. Farmers often rely on land sales or the sale of assets like livestock and machinery as a way to manage debt or raise capital for investment. Potential increases in CGT could make selling farmland or valuable agricultural assets much more costly, reducing the proceeds available for reinvestment or retirement. This could discourage transactions in the agricultural sector, particularly for those nearing retirement age or looking to downsize their operations.
Whilst maybe not immediate, Inheritance Tax poses another potentially even greater challenge for our farmers, as agricultural businesses are often passed down through generations. Currently, Agricultural Property Relief (APR) and Business Property Relief (BPR) offer significant relief on inherited assets, but any changes to these tax reliefs would dramatically increase the tax burden on family farms. This would make it harder for the next generation to keep the farm operational without selling off parts of the land or other assets to pay the tax bill.
For many farming families this creates deep anxiety and uncertainty, as a rise in IHT could lead to the break-up of family farms, jeopardising the future of generational businesses. A higher tax bill could force the sale of land or equipment at auction, potentially driving some smaller farms out of business entirely, thereby destroying a way of life and potentially irreparably altering the rural landscape.
In a sector that thrives on stability, succession and long-term planning, these potential changes are causing widespread fears for the future. For many of our farmers, the upcoming budget could represent a turning point that will determine whether their operations can survive and prosper in the years ahead or dramatically alter their long-term visions."