Dozens of retail bosses have signed a letter to the chancellor warning of dire consequences for the economy and jobs if she pushes ahead with budget plans which, they say, will raise their costs by £7bn next year alone.

There were 79 signatories to the British Retail Consortium’s (BRC’s) response to Rachel Reeves’ first budget last month, a draft of which was seen by Sky News last week.

As farmers prepared to launch their own protest in London over inheritance tax measures, the retail lobby group’s letter to Number 11 Downing Street was just as scathing over the fiscal event’s perceived impact.

It warned that higher costs, from measures such as higher employer National Insurance contributions and National Living Wage increases next year, would be passed on to shoppers and hit employment and investment.

The letter, backed by the UK boss of the country’s largest retailer Tesco and counterparts including the chief executives of Sainsbury’s, Next and JD Sports, stated: “Retail is already one of the highest taxed business sectors, along with hospitality, paying 55% of profits in business taxes.

“Despite this, we are highly competitive, with margins of around 3-5%, ensuring great value for customers.

“For any retailer, large or small, it will not be possible to absorb such significant cost increases over such a short timescale.

“The effect will be to increase inflation, slow pay growth, cause shop closures, and reduce jobs, especially at the entry level. This will impact high streets and customers right across the country.

“We are already starting to take difficult decisions in our businesses and this will be true across the whole industry and our supply chain.”

The budget raised employers’ National Insurance contributions by 1.2 percentage points to 15% from April 2025, and also lowered the threshold for when firms start paying to £5,000 from £9,100 per year.

It also raised the minimum wage for most adults by 6.7% from April.

The BRC has previously pleaded for the total cost burden, which also includes business rates and a £2bn hit from a packaging levy, to be phased in and its chairman has said the measures fly in the face of the government’s “pro-business rhetoric” of the election campaign.

Official data covering the past few months has raised questions over whether the core message since July of a tough budget ahead has knocked confidence, hitting employment and economic growth in the process.

The government was yet to comment on the letter, which pleaded for an urgent meeting, but a spokesperson for prime minister Sir Keir Starmer has previously stated in response to BRC criticism that the budget “took tough choices but necessary choices to fix the foundations, to fix the fiscal blackhole that the government had inherited and to restore economic stability.”

Farmers have left the fields for the streets of the capital in protest at changes to inheritance tax that will see death duties payable by some farmers on agricultural and business property.

The Treasury estimates the changes, revealed in the budget, will raise up to £520m a year. Farmers and campaigners say they threaten the future of thousands of multi-generational family farms.

Here, we take a look at the issues involved to explain why farmers are angry.

What is inheritance tax?

Inheritance tax (IHT) is ordinarily payable on estates at 40%. Estates passed to a surviving spouse or civil partner, charity or community sports club are exempt, and there are reliefs on property passed to children, relatives and others.

Estates worth less than £325,000 are not taxed, with a further £175,000 of relief given if a home is left to children or grandchildren, giving a total of £500,000 tax free. Currently around 4% of estates are liable for IHT.

What are the plans for inheritance tax on farmers?

Since 1984 farmers and agricultural land and business owners have been exempt from IHT, thanks to a series of tax “reliefs” that can be applied to estates.

There are two broad categories, both offering 100% relief. Agricultural Property Relief (APR), covers land and farm buildings, and Business Property Relief (BPR) applies to livestock, machinery such as tractors and combine harvesters, and assets developed to diversify income, such as cottages converted to short-term lets, or farm shops.

From 2026 those 100% reliefs will end, replaced by limited relief for farmers on more generous terms than general IHT.

Estates will receive relief of £1m, with up to £500,000 of additional relief, as with non-farming estates. If a farm is jointly-owned by a couple in a marriage or civil partnership, the relief doubles from £1.5m to £3m.

Any tax owed beyond the level of relief will be charged at 20%, half the standard 40%. If farms are gifted to family members at least seven years before death no IHT is payable.

Why is the government acting?

Those generous reliefs have made agriculture an attractive investment for those seeking to shelter wealth from the taxman. Jeremy Clarkson, the UK’s highest profile farmer – and opponent of the government’s plans – said as much when promoting his Amazon series about becoming the proprietor of Diddly Squat Farm in Oxfordshire.

“Land is a better investment than any bank can offer. The government doesn’t get any of my money when I die. And the price of the food that I grow can only go up,” he told the Times.

Mr Clarkson is far from alone. Private and institutional investors, along with so-called “lifestyle” farmers funding purchases from previous careers, like the former Top Gear presenter and his Oxfordshire neighbour, the Blur bassist Alex James, now dominate agricultural land purchases.

Figures from land agents Strutt & Parker show those three categories made up more than half of all agricultural land purchases in England last year, with just 47% bought by traditional farmers.

In the first three quarters of this year the figure is down to 31%, fewer than the 35% of purchases made by private investors. (Strutt & Parker stress that less than 1% of land changes hands every year and the majority remains in the hands of farmers and traditional landowners.)

The most valuable estates also receive the lion’s share of tax relief. Analysis by the Resolution Foundation shows 6% of estates worth more than £2.5m claimed 35% of APR, and 4% of the most valuable accounted for 53% of BPR in 2020.

In the budget the Treasury said “it is not fair or sustainable for a very small number of claimants each year to claim such a significant amount of relief”.

How many farms does the government say will be affected?

The government says around a quarter of farms will be impacted by the changes, based on the annual tally of claims for Agricultural Property Relief and Business Property Relief made in the event of a farm owners’ death.

The latest figures for APR, for 2021-22, show that for estates worth more than £1m and therefore potentially exposed to the new regime, there were 462 claims, 27% of the total.

More than 340 claims were in the £1m-£2.5m band, with 37 claims from estates claiming more than £5m of relief, at an average of £6.35m.

For Business Property Relief, which also includes shares held on unlisted markets including the London AIM market, there were 552 claims for more than £1m, or 13% of the total, with 63 claims worth more than £5m in relief, at an average value of £8m.

While ministers insist smaller farms will be protected, the merging of APR and BPR seems certain to increase the value of estates for IHT purposes. New tractors and combine harvesters are six-figure investments, and farmers say rising land values mean the reliefs are less generous than the government maintains.

What do farmers say?

Farmers and campaigners say the government’s figures are far too low. The Country Landowners Association estimates 70,000 farms could be affected, a figure reached by multiplying average arable land value by the average farm size that they conceded should be treated with caution.

The National Farmers’ Union points to figures from the Department for Environment, Farming and Rural Affairs, which show 49% of farms in England had a net value of more than £1.5m. On that basis almost 50,000 farm owners may need to consult an accountant.

The NFU’s central point is that the economics of farming mean levying inheritance tax could be ruinous for many. While farmers and agricultural landowners are asset rich, courtesy of their land, property and equipment, they are cash poor.

Average income in every category of cropping farms declined in 2023, with cereals revenue falling by 200% year-on-year, and average earnings across the board of less than £50,000.

For farms with meagre incomes facing hefty IHT bills and no tax planning, land sales may be the only option. That could be terminal for some family dynasties, but it would make IHT the final straw, rather than the root cause in an industry that, for far too many farmers, simply does not pay.

The prison service is starting to recategorise the security risk of offenders to ease capacity pressures, Sky News understands.

It involves lowering or reconsidering the threshold of certain offenders to move them from the closed prison estate (category A to C) to the open estate (category D) because there are more free cell spaces there.

Examples of this could include discounting adjudications – formal hearings when a prisoner is accused of breaking the rules – for certain offenders, so they don’t act as official reasons not to transport them to a lower-security jail.

Prisoners are also categorised according to an Incentives and Earned Privileges (IEP) status. There are different levels – basic, standard and enhanced – based on how they keep to the rules or display a commitment to rehabilitation.

Usually ‘enhanced’ prisoners take part in meaningful activity – employment and training – making them eligible among other factors, to be transferred to the open estate.

Insiders suggest this system in England and Wales is being rejigged so that greater numbers of ‘standard’ prisoners can transfer, whereas before it would more typically be those with ‘enhanced’ status.

Open prisons have minimal security and allow eligible prisoners to spend time on day release away from the prison on license conditions to carry out work or education.

The aim is to help reintegrate them back into society once they leave. As offenders near the end of their sentence, they are housed in open prisons.

Many of those released as part of the early release scheme in October after serving 40% of their sentence were freed from open prisons.

They were the second tranche of offenders freed as part of this scheme, and had been sentenced to five years or more.

Despite early release measures, prisons are still battling a chronic overcrowding crisis. The male estate is almost full, operating at around 97% capacity.

Read more from Sky News:
Find out what it’s really like inside prison?
Prison recalls soar as justice system struggles
Campaigners demand IPP sentences are scrapped

Sky News understands there continue to be particular pinch points across the country.

Southwest England struggled over the weekend with three space-related ‘lockouts’ – which means prisoners are held in police suites or transferred to other jails because there is no space.

One inmate is believed to have been transported from Exeter to Cardiff.

A Ministry of Justice spokesperson said: “The new government inherited a prison system on the point of collapse. We took the necessary action to stop our prisons from overflowing and to protect the public.

“This is not a new scheme. Only less-serious offenders who meet a strict criteria are eligible, and the Prison Service can exclude anyone who can’t be managed safely in a category D prison.”