Most farmers unaffected by budget tax changes, IFS says, despite fears children could be robbed of legacy
Halloween isn’t the only thing giving UK farmers a scare this week.
Many say the first Labour budget for over a decade has been disastrous for small farms and their future.
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Paul Tompkins raises a herd of 400 dairy cows
Chancellor Rachel Reeves announced that, although there will continue to be no inheritance tax on combined business and agricultural assets worth less than £1m, for anything valued above that there would be a 50% relief, at an effective rate of 20%, from April 2026.
The National Farmers Union says the decision could result in farmers having to either borrow money or sell off parcels of land to pay the tax.
Paul Tompkins raises a herd of 400 dairy cows on a 300 acre (4.7 square mile) farm near York.
He, and thousands like him, fear that the new £1m limit on inheritance tax relief on farmland will rob his children of their farming legacy.
“I thought this budget was going to help working people, and I see myself and other small farmers to be among those working people,” he says.
“I shouldn’t have to be worried that I’m going to be fleeced by the government and have to face the fact my kids might not be able to keep this farm, which has been handed down through four generations, going in the future.”
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‘Raising taxes was not an easy decision’
Shadow secretary of state for rural affairs Steve Barclay posted on X that Labour had “broken a clear promise they made to our farmers”.
The government says only a small number of the largest estates will be affected, and some financial experts agree.
Paul Johnson, Director of the Institute for Fiscal Studies (IFS), says: “What the budget did was reduce the amount of additional relief that farmers get on agricultural land.
“It still means they’ll be significantly more generously treated than the rest of us and still more generously treated actually, than farms used to be in decades past.
“The changes will affect actually a remarkably small number of some of the most valuable farms. The majority will still not be affected by this.”
But the Country Land and Business Association believes up to 70,000 farms could be affected. There are about 209,000 farm holdings in the UK, according to the government.
The government has confirmed it would be maintaining the £2.4bn farming budget for England in 2025/26, and says its commitment to farmers remains “steadfast”.
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But farmers like Paul Tompkins still feel betrayed by the chancellor and maintain that the only fair thing for her to do is to completely reverse her decision.
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The pound has fallen sharply after the chancellor announced the biggest tax rises in a generation.
Over the last three days, sterling has dropped by 1.2% (in trade weighted terms) – the biggest fall in 18 months.
Between around 1.30pm and 5.30pm today, versus the dollar, it dropped from about 129.9c to the pound to about 128.6c. In the same period, against the euro, it went from 119.3c to the pound to about 118.4c.
In addition, yields for 10-year UK bonds – the cost or interest rate charged for long-term government borrowing – have gone past 4.5% for the first time in a year.
Ed Conway, Sky News’s economics and data editor, said those yields are “pretty much halfway towards the danger zone” – a zone identified by the Office for Budget Responsibility (OBR).
However, he said other European bonds had risen, too. “But the UK does seem to be moving faster than most of the others,” he added.
While cautioning that the budget is still very new, Conway said the “upshot” is that Rachel Reeves’s “room for manoeuvre” is already diminishing “because of market moves”.
Markets are reacting in “quite a violent way”, Conway said.
“It’s really unusual to see this after a budget, and that will have a bearing on how much this government will be able to afford in the future,” he added.
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‘Raising taxes was not an easy decision’
A sudden rise in the yields of 10-year UK bonds followed Liz Truss’s disastrous “mini-budget” of September 2022, which led to a surge in the cost of borrowing for ordinary consumers, while the pound slumped to a 37-year low against the dollar.
It is “certainly not like that at the moment”, Conway said.
Nonetheless, market movements will be “enough to really concern people at the Treasury”, he added, “because it suggests that a lot of traders are looking at how much money this government is borrowing, and they’re saying: ‘Hang on, maybe we’re going to charge you more’.”
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The pound has weakened and gilt yields – the cost of borrowing by the UK government – has increased in response to the budget, which saw Rachel Reeves introduce the biggest tax hike in a generation.
While Conway said it does not feel like a “crisis point”, he said the “calculus for this government” may be changing.
Jack Meaning, UK chief economist at Barclays, said market reaction was “materially different” to what happened in 2022.
Bond yields since Ms Reeves’s budget are up by about 0.3%, while in 2022 the rise was about 1.5%, he said.
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Reeves acting like ‘compulsive liar’
The conversation Barclays is having with its customers is also different to that in 2022, Mr Meaning added.
At that time, people were wondering whether a “big crisis point” had been reached.
This time, he said the focus is on comments from the OBR about a potential rise in inflation, and the potential knock-on effect as the Bank of England makes decisions on interest rates in the next few months.
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The prime minister’s official spokesperson refused to talk about bond prices.
“We don’t comment on market movements,” they said.
“The chancellor has been very clear that first and foremost, this budget has been about restoring fiscal stability, and she’s outlined two new robust fiscal rules, which put public finances on a sustainable path.”
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