Farming in Crisis

The government's farming policy has been a mess for a while now. The promised post-Brexit sunlit uplands farmers were promised looks more like a stygian bog.

It's not news that most of them are having a terrible time. Small farmers are suffering real and increasing hardship, and environmentalists are up in arms too. It wasn't hard to predict the current shambles, but it has been heartbreaking.

I'm baffled though that it is the inheritance tax row which has so dominated the headlines recently. Do many people think that there should be no inheritance tax on farmland? Sure, most would understand the case for some kind of exemption to help family farms. They would also agree that in current circumstances the government has set that figure too low. But wouldn't the NFU be better off campaigning for a higher tax free threshold rather than objecting to it on principle? Is IHT the single biggest issue facing the industry? 

Unintended Consequences

Farmland does seem to be an attractive asset from a tax perspective. In addition to the IHT exemption, farmland up to £1million also attracts a CGT rate of only 10%. It can be gifted free of CGT, which is handy too. There's "rollover relief" as well, which allows you to delay paying tax on land disposals if the proceeds are reinvested into business assets.

I can understand why all this was introduced, but it has had unintended consequences. It means that farmland in the UK is much more expensive than it should be, and is increasingly owned by investors using it at least partly as a tax shelter. Generous subsidies for tree planting etc (i.e. not farming) have made it even more attractive to them. There's a large new landowner close to us who is buying up family dairy farms left right and centre at inflated prices. You can bet it's not for their milk production.

For farmers this is a massive problem. They can't afford to buy land to farm and those that already own it are incentivised to sell it, rather than pass it on to the next generation.

A Proper Price For Food

As Guy Singh-Watson (The Riverford founder) points out, this would be less of an issue if consumers paid properly for their food. Food prices in the UK are nearly a quarter cheaper than those in France, for example (Source: Numbeo Survey, 2023), while agricultural land is considerably more expensive. If farmers were paid properly for their produce there would be less need for unreliable, unfathomable and unaffordable public subsidy. Farmers would be more inclined to pay some inheritance tax if they were actually making some profits to pay it from!

We're not anywhere close to that at the moment. 

"World Leading"

Instead, we've witnessed the slow motion car crash of the farm subsidy system originally dreamt up by Michael Gove and actioned by the last administration. Deeply ironic now that I remember him describing them as "world leading". The latest disaster seems to me to be much more significant than the IHT debate, but the NFU have been strangely silent about it. 

The Sustainable Farming Incentive (SFI) scheme is what it says on the tin. It's part of the post Brexit Environment Land Management (ELM) schemes. You could sign up to various elements to benefit biodiversity, soil health, water quality and resilience against climate change - i.e. promoting sustainable food production. 

It came in for a lot of criticism (not least from me!). The National Audit Office said it was too slow, too unpredictable, and too complicated, with uncertain outcomes. It criticised the process for being "iterative" - i.e. DEFRA were making it up as they went along. It became evident that it was being played by some larger landowners, who benefited from the lack of a cap on the scheme (doh!). ELMS shouldn't be an end in itself - it should be complimentary to actual farming. 

It made no sense for tax payers to be paying for it at the same time as we were signing trade deals to import food produced to lower standards overseas. And many felt we should be prioritising food security rather than meeting environmental goals. 

The government abruptly "paused" the scheme for new applications last week as they said this year's available pot (over £1 billion) had been spent. You can imagine the chaos that has ensued. SFI is now effectively dead in the water. No-one trusts it any more, and what happens now is anyone's guess.

A Sense of Perspective

The whole episode has been illustrative of how difficult it is to get this sort of thing right, particularly when it's under-resourced and under-thought. I don't think the biggest problem in farming at the moment is whether agricultural assets attract an inheritance tax exemption figure of £1 million rather than say £3 million. The NFU should be focusing on the bigger systemic issues farmers have to worry about.