I cannot think of a budget in living memory when some interest group or sector of industry has not been up in arms because they are being asked to contribute a little more to the national kitty. This time it is farmers (inheritance tax) and businesses. The last 14 years have been about cuts in benefits, reduced budgets on expenditure, and pots of money that are distributed when things start grinding to a halt. This government and its predecessor rejected the usual sources of tax rises, on income tax, national insurance, VAT and corporation tax, leaving only subsidiary areas to raise taxation to fill the famed £22bn budgetary black hole.
Pitchforks at the ready
Before the budget, OAPs were on the warpath about the news that winter fuel payments would be restricted to those receiving pension credit. This, of course, left those near the eligibility point for pension credit in the cold; as with all means tests, a few pounds over the threshold spells ineligibility.
The next group on the hit list were public schools that had their zero VAT status removed, the middle classes claiming that private school children would overwhelm the state sector as their parents could not afford the school fees, and threats of private schools taking legal action on the changes.
On the farm, pitchforks are being sharpened and tractors made ready as farmers protest about changes to inheritance tax. The government claims that most family farms will pay nothing or pay no more than before, while farmers claim that it is the end of farming as we know it and that ‘townies don’t understand the country’.
Let’s do the maths
Using the BBC Verify figures, let’s do a worked example from the beloved radio series ‘The Archers’.
David and Ruth Archer live at Brookfield Farm in Ambridge, Borsetshire. It is a holding of around 500 acres. That is what is termed a family farm in Britain, which has historically had larger farms than much of Europe because of the enclosure acts and increasing mechanisation.
There has been a gradual decline in small British family farms, which have fallen from 160,000 in 1950 to 30,000 in 2020.
Fewer than 1% of the UK population, or 470,000, work in agriculture. In fact, Britain has been an urbanised society since 1851, the year of the Great Exhibition. Therefore, there has been a long-standing trend for agricultural holdings to be larger and in fewer hands.
Up to now, land, or rather agricultural land, has passed onwards through the generations, free of tax, but in recent decades, agricultural land has been seen as an investment vehicle, with the benefit of no inheritance tax issues. The treasury, never one to miss a trend where tax ought to be levied, has come up with this latest proposal.
Inheritance tax for the Archers
Brookfield Farm is probably worth £5mn, based on a land value of £10,000 per acre. Land values depend on location, quality and position. Small plots tend to fetch more as they are attractive to the horsey culture and back to the land sectors.
If Brookfield Farm were an ordinary house, David and Ruth would be entitled to a tax-free amount of £325,000 each, a total of £650,000. Under the new scheme, David and Ruth are entitled to a tax relief of £3mn. It is not mentioned too often that while Brookfield may be worth £5mn, any debts on the farm are also set against the inheritance tax liability. A lot of farms carry debt. Farmers live on a continual supply of credit, with the farm as collateral. The calculations on how many farms will be liable for tax and how much will be levied are based on the best estimates available. The farming community is accentuating the negative and saying that this budget measure will be harmful to the industry. Elsewhere, other commentators are taking a more nuanced view.
Even if the heirs to David and Ruth are liable for, say, £1mn or £1.5mn in inheritance tax liability, the rate is half of the normal rate of tax at 20%, and the payment can be spread over 10 years. Everyone else will have to pay the tax almost immediately to complete probate on a will.
Inheritance tax for non-farmers
Next door to the Archers live Eddie and Clarrie Grundy. They have been successful with their concrete garden ornament business, and today it too is worth £5mn. However, Eddie’s heirs will be paying 40% inheritance tax on any joint capital value above £650,000. This liability will be due to complete probate.
In the village, Christine is reaching the age when she may suffer from dementia in the future. If so, she may have to sell Woodbine Cottage to pay for her care. If she requires care for a long period, she will be left with less than £20,000 in capital assets. Christine is not alone in this predicament, as many old people are afraid of losing all their savings and their house to pay for adult social care. What makes it worse is the local authority will levy an additional charge to administer what is in effect a sequestration of a person’s capital assets. If farmers were subject to this regime, there might well be cause for concern.
Rural versus urban
The farming community believes that the urban majority do not take rural issues seriously, and there is some truth in that. The public often think of rural communities as if they were all like the village of Dibley, populated with well-meaning vicars, not very bright farmers, and Machiavellian squires. However, the reverse is also true. There is a complete lack of understanding within some rural communities about urban matters. A little more understanding on both sides would be beneficial to both communities.
Villages are no longer communities where agriculture is at the heart of affairs. Villages have become more urban, with villagers commuting, usually by car to work or for social matters, or, as is increasingly the case, as retirement centres. Not all villages are dormitories devoid of all life and activity, but the mechanisation of agriculture, decline in rural crafts and gentrification have been as far-reaching in rural areas as the effects of town planning have been in urban areas.
The fencing out of the public, and reduction in rights of way, by landowners keen to fence out walkers only adds to the ‘them and us’ conflict between rural and urban attitudes.
Some commentators believe these attitudes are a result of the faint echoes of feudalism, but more likely, they are latent effects of land enclosures and mechanisation that occurred in the 19th century, which has meant that the link between the land and society, as seen in France and in many other countries in Europe, is missing, leading to mutual incomprehension.
Sympathy for farmers
The public are empathetic in terms of fairness in farm gate pricing. Nobody has much sympathy for the supermarkets or the giants of the food industry, but that does not mean that farmers are thought of in the same terms as NHS staff. The farmers’ case is that they are an important sector in putting food on the nation’s table, but if we follow that line, doctors, nurses, lorry drivers and many others are also important to the wellbeing of the nation, and yet they neither require, nor expect, special treatment.
Money has to be found somewhere
How town and country can be reconciled, so that farmers are treated with greater fairness, and urban dwellers can experience the country to a greater extent than today, is uncertain, but not doing so harms both parties.
Farmers need to understand that while the public may not like inheritance tax, they also know that money has to be found somewhere to restore failing public services. Agriculture also suffers from an ageing workforce, and only those who inherit wealth can be farmers, because of the high land values caused by speculation and tax avoidance schemes. Perhaps in retrospect, this modest proposal on inheritance may help to rejuvenate an industry by giving young aspirant farmers the chance to run their own farm.
