Yes, farmers have been stitched up – but not by inheritance tax

Instead, farmers have described the reform as a “last straw” after they have been battered by policy after policy from the last government too. Despite many of them voting for it, farmers have been among the real losers of Brexit – agricultural exporting is much more complex following leaving the European Union. Payments under the Common Agricultural Policy, much complained about by farmers at the time, are now a receding pleasant memory.

The UK government’s new subsidy scheme to replace CAP pays farmers nothing to grow crops, but is instead all about conservation and land preservation. There is very little certainty as to what subsidies will look like more than a year ahead. 

It is a hard time to be a British farmer – especially of a smallholding – and there is a lot of pent-up anger and resentment. I heard from more than one farmer that the policies of the last government alone were effectively killing small farms in the UK, just without anyone admitting that was the policy. 

Against that backdrop, it is not hard to see why abolishing one of the most obvious tax advantages farmers had left would attract a huge backlash, especially given inheritance tax is already an unpopular tax across the country even though it is only paid by the most valuable 4% of estates. 

Labour’s new proposals still give farmland a much higher tax-free threshold than any other asset, and the tax is only charged at 20% of the value of the land above that – as opposed to 40% for any other asset. Farmland still gets much more generous treatment from the taxman than anything else. 

There is much and furious disagreement between the government and farmers’ representatives on how many farmers will pay the tax, where that new threshold actually is in practice, and how damaging it will be to those affected. Rachel Reeves says 73% of farms will be unaffected; the farmers say 66% will pay more.

The debate has parallels to the one that so plagued Brexit: that £350 million a week would be better off going to the NHS. By squabbling over the precise figures, the wider argument was lost – and no-one’s minds were changed by the details.

The wider argument on inheritance tax on farmland is this: it is not some ancient or historical principle that farmland gets generous tax breaks. Inheritance tax was only scrapped on farmland in 1992, meaning in many cases only one generation has benefitted from it. Farmers kept Britain alive through world war two and centuries before without this – it was an experiment that was tried out to see if it helped family farms.

That question seems hard to answer in the affirmative. For anyone rich, farmland suddenly became an incredibly attractive asset, especially if they were older and looking to hand over as much of their wealth to the next generation, and not the taxman. The value of farmland soared over the decades since the introduction of the tax break – not because farming was suddenly more lucrative, but because farmland was a nice asset to own. 

These new millionaire and billionaire landowners could make money leasing their land to working farmers (some of whom were priced out of buying that same land themselves) or else contracting people to work the land for them. Given the new government subsidy scheme pays landowners more generously not to farm their land than to work it, many of these farmland owners now get paid by the government to keep it fallow, using it only for the occasional shooting or hunt day.

Good agricultural land costs a farmer about £370 a hectare to rent, if he or she doesn’t own it. Tenant farmers – who make up around a third of all UK farmers – have to pay that to a landowner to be able to work the land, and do so on short-term leases of just three years typically. If they are to run a profitable business, they have to manage that huge cost of land – but the more successful manage to do just that.

Someone inheriting their farm, who owns the land outright, starts with a huge advantage, then – for them, the land is no cost at all. How does that change with inheritance tax? Depending who you believe, they need to pay 20% of the value of the land over somewhere between £1m to £3m. 

If they had to pay that immediately, that would mean selling some of the land, but in reality it doesn’t – the land is worth far, far more than the tax they own, and so the farm could take out a business loan over a number of years (comfortable to its own finances) that would cost it far less than a tenant farmer ever pays for their land. 

One tenant farmer who walked me through these finances was baffled as to why the outcry was so loud – saying he would love to pay as little for land as those inheriting under the new system would.

In theory, reducing (or eventually eliminating) the tax break on farmland should mean that the land is only owned by people who actually want to use it for farming, instead of as a tax-efficient investment. This might even reduce the price of the land for tenant farmers looking to buy land of their own. 

But such is the mistrust of government and the sense of beleaguerment in the industry that even the tenant farmers’ association is opposing the changes.

British farmers are in a bind. On one level, the blame for this goes all the way back to Napoleon, who decreed that farmland had to be split between heirs and couldn’t just go to the eldest. This created many small farms and small farmers in France, who retain significant political power.

Napoleon never conquered the UK, and so farms were inherited by the eldest – and if he didn’t want to be a farmer, he sold the land to a neighbour, meaning UK farms got bigger and bigger, with fewer and fewer Brits being farmers. Consolidation has been the story for decades, if not centuries. 

Beyond that, the UK has not been self-sufficient for food for centuries, and will not feasibly ever become so (we are a densely populated island on the same latitude as Siberia, for one). We simply do not have the affection for farmers of other European countries, and they do not have the same political power.

Cynics in Westminster even wonder whether the government is quietly glad that a fight with the farmers is dominating the post-Budget coverage. The way Rachel Reeves structured her National Insurance hike hits places that employ part-time workers on relatively low wages the hardest.

That generally means nurseries, care homes, home help, shops and hospitality businesses. This could be something of a triple whammy for the government: these are places that employ working mums, and so if they cut back on headcount, it will be noticed. Supermarkets and pubs might not pull the nation’s heartstrings, but they are low-margin businesses – meaning that food price inflation next year could be laid on Reeves’ doorstep. And if there is a sudden collapse in childcare providers or nursing homes, the political blowup will be huge.

All of those rows are simmering, but they are being dominated by the anger of the farmers. There are several dozen new Labour MPs in seats where farming is a major component of the local economy who must surely already be assuming that their stay in Westminster will likely be for one term only. But despite that pressure, Labour may still feel like the row is masking even bigger headaches to come.

Britain’s farmers, battered by reform after reform from one unsympathetic minister after another, might not have picked the best cause on which to make their stand. But tempers burst when they burst – it can’t be controlled or planned. 

It is perhaps telling that the figurehead of the protest, Jeremy Clarkson, said outright he bought his farm for the tax benefits, however sincerely devoted he is to the industry now. Working farmers might be fighting a cause that most benefits landowners or billionaires, but it is one they sincerely feel is their own – and the portion of farmers who disagree are keeping their heads firmly down and their mouths firmly shut.

Britain’s farmers know they are likely to lose this fight, but they feel obliged to have it anyway. They may have a better chance of success if they can coalesce on a reform to the package that would help them out without forcing a government u-turn – perhaps increasing the tax-free threshold but charging inheritance tax at a higher percentage when it is raised.

As it stands, with no concrete demand beyond full retreat, the government seems likeliest to wait it out – and, judging by the nation’s apathy towards its farmers, probably to win.