Category: Policy & Business

Rachel Reeves unveiled the first Budget of the new Labour administration on the 30th October.  As expected, it included large tax increases to fix the fiscal ‘black hole’ the Chancellor says she has inherited.  A number of the announcements have direct implications for farming.

The Office of Budget Responsibility (OBR) has updated its economic forecasts for the years ahead.  These show fairly anaemic growth for the medium term, and inflation not reverting to its target level of 2% until 2029.  Of course, one of the guiding principles for this Government is to boost economic growth.  This is not a short-term process however, and even sucessful policies will take years to show an effect.

Headline points from the speech include;

• As widely trailed, the rules on Agricultural Property Relief (APR) for Inheritance Tax (IHT) are to be amended, along with Business Property Relief.    100% relief will still be available for the first £1 million of combined agricultural and business assets.  On combined assets above £1m, IHT will be payable at 50% of the normal rate (50% of 40% = 20% effective tax rate).  The IHT threshold is to remain fixed at £325,000 until 2030.  At a land price of £10,000 per acre the new rules will hit farms abover circa 100 acres – hardly large farms.  The change is to be introduced from April 2026.  The rules on Potentially Exempt Transfers (PET) are unchanged meaning assets can be given away tax free if the donor survives 7 years.  There will be transitionary arrangements on this where deaths occur between now and April 2026.  The ability to pay IHT over 10 years remains.  From April 2025 land entered into environmental schemes will be eligible for APR
• The rates of Capital Gains Tax are to increase.  The standard rate will rise from 10% to 18% whilst the higher rate lifts from 20% to 24%.  This aligns the rates with those for residential property
• The biggest tax increase comes in the form of a rise in Employers National Insurance (NI) contributions.  The rate will go up by 1.2% from 13.8% to 15%.  The threshold at which payments start is also to be lowered from £9,100 to £5,000.  A very thin silver lining for employers is that the Employers Allowance will rise from £5,000 to £10,500.  The changes to NI are predicted to raise £25bn
• Minimum wage rates are to rise from April next year.  The National Living Wage for those 21 and above will go up 6.7% from £11.44 per hour to £12.21.  The 18-20 year old rate goes up from £8.60 to 10.00, whilst the Apprentice rate jumps from £6.40 to £7.55.  The combined effect of the NI and Minimum Wage increases will have a significant effect on those that employ a lot of labour at low wage rates – for example the fresh produce sector
• The thresholds for Income Tax and NI will remain fixed until 2027/28 as previously announced.  This is effectively a stealth tax as ‘fiscal drag’ gradually brings more people into higher tax bands as inflation takes effect.  Thresholds have been unchanged since 2022.  In a slightly surprising move the Chancellor stated that thresholds will start to be increased in line with inflation again for 2028/29
• Fuel duty will remain unchanged.  Alcohol duty will largely rise in line with inflation although the rate for draft beer is to be cut
• A reform of the Business Rates system is promised within the lifetime of this Parliament.

A key question for agriculture was what the funding for farm support is going to be.  Defra’s Departmental spending allocation is as follows;

The Budget document states that ‘The Government is facing significant funding pressures on flood defences and farm schemes of almost £600 million in 2024-25.  While the Government is meeting those commitments this year, it is necessary to review these plans from 2025-26 to ensure they are affordable‘.  It is not obvious what this means.  The publication goes on to state that ‘[The settlement is] providing £5 billion over 2024-25 and 2025-26 to support the transition towards a more productive and environmentally sustainable agricultural sector in England‘.  This, coupled with the announcement from Defra (see article on BPS in 2025), indicates that the current farm budget in England of £2.4bn per year has been maintained.  The amount for 2025/26 is going to be increased as a one-off to £2.6bn as £200m of underspend from previous years is going to be rolled forward.  This neatly arrives at the £5bn for two years.  In 2025/26 £1.8bn will be allocated to ELM.

A continuation of the current budget (in nominal terms) is not unexpected.  But should be remembered that there has been significant inflation since the £2.4bn for England figure was set in 2020.  Using the OBR’s forecasts going forwards, prices will be 30% higher in 2026 than they were in 2020 – thus this is effectively a circa 30% funding cut.  Furthermore, farm spending was never uprated for inflation when we were part of the EU.  The £2.4bn figure has been almost the same since 2007.  Agriculture is being asked to do more for less.  The settlement is far lower than the £4bn for England the NFU (with Andersons help) calculated as being required to meet Government policies.

Looking beyond 2025/26 (the 2025 ‘subsidy year’) the Comprehensive Spending Review will set Defra’s budget for future years – likely 2026 to 2028.  If public finances remain under strain, there is no guarantee about future funding even remaining at current levels.

The EU Deforestation Regulation (EUDR) implementation has been delayed by one year.  The delay was announced in mid-October following the Council of the European Union’s decision to extend the timeline.  Initially set to be enforced from December 2024, the regulation will now be applicable from December 2025 for large businesses and from June 2026 for micro- and small enterprises.  Last month, we reported how the enforcement of the EUDR was causing growing concern for the UK agri-food industry, especially around access to soya, and this delay will give businesses more time to adapt to the new requirements.

The EUDR aims to prevent products associated with deforestation from entering the EU market, targeting key commodities such as soy, palm oil, and wood but the regulations also apply for commodities such as beef and sheepmeat.  For agricultural businesses, this regulation demands thorough scrutiny and traceability measures to verify that products are not sourced from recently deforested land.  The delay provides additional breathing space for companies to implement systems to demonstrate compliance.  As reported last month, there was concern within the UK agri-food industry that other countries were more proactive in creating Government-backed systems that are EUDR-compliant and that the same level of preparation has not taken place within the UK.  Therefore, whilst the delay has bought some more time, the challenge remains for the UK agri-food industry and policy-makers to meet EUDR requirements in just over a year.

The EU’s Entry/Exit System (EES), originally set for 2023, has been delayed until 2025, following an EU Commission announcement on 10th October.  The EES will digitally record entry and exit data for non-EU nationals, including UK citizens.  This delay provides UK exporters and port operators extra time to adapt to logistical challenges and potential costs arising from increased border checks which could have resulted in substantial delays at key trading routes such as Dover-Calais.  This announcement has been welcomed by industry as it became evident in recent months that authorities in France, the Netherlands and Germany were not ready to implement EES.

The EU Commission mentioned that it will provide further detail of its delayed plans ‘in the coming weeks’.  It is anticipated that travellers will now undergo EES registration probably during the summer of 2025.  This timeline would then be aligned with the need to register for the EU’s ETIAS visa waiver scheme, which the EU says will be introduced ‘in the first half of 2025’.  ETIAS will require visitors from 60 visa-free countries, including the UK, to obtain a new electronic travel authorisation to enter 30 European countries.  The fee for ETIAS will be €7 for those aged 18 to 70 and it will be valid for three years.

The EES is another example of the increasing regulatory burden which is going to be placed on businesses trading between the UK and the EU which will add further costs to trade.  It is crucial that both UK and EU authorities have the correct systems in place to ensure that any delays associated with the implementation of these requirements are minimised.  Otherwise, the competitive position of UK exports to the EU will be eroded further as a substantial proportion of agri-food trade with the EU is via driver-accompanied Roll-on Roll-off (RoRo) shipments.

The Government has confirmed the Seasonal Worker visa route will be maintained for 2025.  This means 43,000 per year will be available for the horticultural sector with a further 2,000 allocated to poultry.  (The horticulture figure is a slight reduction on the 45,000 previously available).  The extension of the scheme had been announced under the previous Conservative Government, see our article of 10th May (https://abcbooks.co.uk/seasonal-workers-scheme-extended/) but the present Labour Government had not confirmed that this would be carried forward until now.  While this announcement will be welcomed, the scheme only addresses seasonal labour issues and there is still a fundamental shortage of permanent labour in the farming and food sectors which remains a significant barrier to growth in the industry.

A recent report has found farmers would like researchers to investigate the impact on farming of Artificial Intelligence, methane, carbon sequestration, regenerative systems, financing and anti microbial resistance.  The report, which was written by the Centre for Effective Innovation in Agriculture (CEIA) in collaboration the NFU, Innovate UK and Elizabeth Creak (Charitable Trust) acknowledges that while some research priorities have remained the same since the last review in 2013, such as disease control and soil health, these new priorities have come to the fore.  The full report can be found at https://www.nfuonline.com/media/tfgpgsxm/farmer-research-priorities-report-2024.pdf.  The report is published at the same time as four Competitions under Defra’s Farming Innovation Programme have been put on hold, pending the Spending Review Process.  The Funding Futures R & D (phase 2), Small R & D Partnerships (Round 4), Feasibility Studies (Round 4) and the Futures R & D – Net Zero Farming were all supposed to be opening this autumn ( see https://farminginnovation.ukri.org/).

The UK government has appointed Ruth Davis OBE as the first Special Representative for Nature.  Ms Davis previously advised the Government when it hosted COP26 and has worked for the RSPB and Plantlife.  Ms Davis will begin her role at the end of October and will attend the UN Convention on Biological Diversity COP16 meeting in Colombia, (which is currently underway), in her current role as an advocate for nature, working alongside the UK delegation led by Environment Secretary, Steve Reed.  This is a joint role between the Foreign, Commonwealth and Development Office (FCDO) and Defra.

The RPA has confirmed the temporary adjustments to agri-environment agreements because of the wet weather do not (currently) apply to agreements that started on or after 1st August 2024.  Back in May, RPA announced some adjustments where farmers have had difficulty carrying out the requirements of their Agri-environment agreements due to the wet weather.  These refer to Countryside Stewardship (CS), Environmental Stewardship (ES), Sustainable Farming Incentive (SFI) and SFI Pilot agreements.  In general, RPA is allowing more time to establish some options.  The start of these temporary adjustments took effect from 1 October 2023, because of the bad weather last autumn but ended on 31st July 2024.  This means for agreements starting after 31st July, actions have to be adhered to within the first 12 months of the action’s duration.  It remains to be seen if there will be any adjustments this year.

Our article of 17th May (See https://abcbooks.co.uk/wet-weather-adjustments-to-schemes/) gives further information.  The full list of amendments, including the option/action, current requirement and the temporary adjustment is available at https://www.gov.uk/guidance/wet-weather-temporary-support-for-farmers-in-2024#annex.  The adjustments apply automatically meaning farmers do not need to submit a request.

• farm records showing field operations at a land parcel level
• associated invoices and photographs of how the options and action have been affected by the weather conditions and how attempts have been carried out to try and carry out agreement requirements.

Dan Corry has been appointed to carry out an internal review into the regulation and regulators at Defra.  The review will examine whether the current regulatory landscape is ‘fit for purpose’ and develop recommendations to ensure that regulation across the Department is ‘driving economic growth while protecting the environment’.

The review will explore:

• Whether Defra regulators are equipped to drive economic growth, secure private sector investment and protect the environment
• The customer and stakeholder experience of regulation, including the impact on those who are regulated
• The efficiency of regulation, in particular whether the current regulatory landscape involves any duplication and/or contradiction, and whether there are opportunities to make improvements.

Dan Corry has been an adviser in many Government departments where he was involved in regulatory reform.  Furthermore, he previously served as Head of the No10 Policy Unit under former Prime Minister Gordon Brown.

With delinking, English entitlements have disappeared (and thus have a nil value). The loss of the capital value can be offset against other gains for Capital Gains Tax.  This is only the case where entitlements were purchased (or inherited) – either on their own or part of an overall land transaction.  In the former case, there will be an actual purchase value to work from.  However, if the entitlements were ‘bundled’ into a land purchase or inheritance, the value may not be known.  We have had some questions on historic capital values of entitlements.  If anyone would like the data, please contact us.

 

The Welsh Government is consulting on its proposal to designate a new National Park.  This is planned to be a similar area to the existing Clwydian Range and Dee Valley Area of Outstanding Natural Beauty (AONB).  This lies to the west of Wrexham and runs from Llangollen down to the sea at Prestatyn.  The consultation runs until the 16th December and can be found at – https://ymgynghori.cyfoethnaturiol.cymru/north-east-gogledd-ddwyrain/new-national-park-proposal-information-page-wales/ .