There is something deeply conservative about family farming. Farmers passing on their land and their knowledge to their children, just as their parents had done for them, is the embodiment of long-term thinking. This thinking of and acting with the future in mind is ultimately what makes farmers the natural stewards of Britain’s green and pleasant land. Yet the government’s plan to hack away the relief on inheritance tax for farmers risks undermining this powerful incentive for environmental stewardship of the land
When you inherit a farm from your parents, you feel a duty to honour your inheritance by tending carefully to the land. And if you want your children to grow food from the land after you have died, you have an incentive to protect your soils through reduced tillage and compaction. You have an incentive to plant cover crops and herbal lays that put nutrients back into the soils. You have an incentive to plant pollen and nectar mixes in field corners to support pollinators. It’s also worth your while investing in longer-term natural assets, like hedgerows and trees, which you may not live to see the benefits of but which your children and grandchildren will.
Unfortunately family farming hasn’t always delivered such positive outcomes for the environment. There are legitimate reasons to be unhappy with the stewardship of the farmed environment in recent decades, as farmland bird populations have declined and agriculture has made a sizeable contribution to river pollution.
But this loss of nature under previous generations was motivated not by environmental vandalism on the part of farmers, but by perverse incentives created by politicians.
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These changes did not sit well with many traditional farmers — indeed, James Rebanks has beautifully articulated in his book, English Pastoral, the natural abundance we have lost from our landscapes due to greater intensification of farming. He describes powerfully how regenerative agriculture is not some new fangled fad, but rather the rediscovery of the traditional farming practices of his grandfather.
Thankfully changes to the old incentives are well underway. Liberated from the shackles of the EU’s Common Agricultural Policy, we are free to chart our own course. No longer will we lavish taxpayer subsidies on farmers simply for managing land. Nor will we subsidise food, a private good which consumers already pay for in their weekly shop.
Instead we are directing our limited public funds to what the market hasn’t traditionally valued, but which is essential for farming and food production — healthy soils, clean and abundant water, pollinators, and a thriving natural environment.
One of the few pieces of good news in the Budget was the commitment to maintain the £2.4 billion annual budget for farming for two more years, with an increase in funding for the environmental land management schemes (ELMS). However, this budget is not guaranteed for the remainder of the parliament, so farmers face financial uncertainty. Nor was it protected in real terms. If we are going to halt wildlife decline by the end of the decade, nature-friendly farming needs annual funding of £3.1 billion in England.
Although the budget was given a temporary reprieve, the government’s APR cut will undermine its sustainable farming aspirations.
Created in 1984, Agricultural Property Relief (APR) protects family farms from inheritance tax, preventing them from being broken up upon death. The government now proposes to limit APR to £1m and to charge farmers an effective inheritance tax rate of 20% on the value of the estate above that threshold. While £1 million sounds like a lot, in reality, it only covers farms of up to approximately 90 acres, based on average arable land prices. For context, the average farm size in England is 217 acres. Even if they also qualify for the additional allowances for primary residences and Business Property Relief, many medium-sized family farms could still be affected.
While Labour has claimed the new allowance will protect family farms, it risks many family farms no longer being passed down the generations tax-free, damaging incentives for long-term environmental stewardship. Clearly a sizable number of farms will be affected, or else the Treasury wouldn’t forecast annual revenue of over £500 million by the end of the decade from this change.
Some have claimed that APR changes could help accelerate the handing down of family farms through the generations, enabling younger generations to get onto the land earlier. Under the new regime, to avoid inheritance tax, farmers have to gift their estates seven years before their deaths. Accelerating succession planning is indeed an important challenge for the sector, particularly if we want to bring innovative thinking about sustainable farming into the industry. But there will be many elderly farmers today who were not given enough notice to make this gift. Furthermore, it is far from clear that using the coercive power of the state to tax farm holdings is the fairest way to bring younger generations onto the land.
Many conservatives favour abolishing inheritance tax altogether. That would respect the human instinct to want to hand on the fruits of your life’s work to your children. It would also end the perverse incentive under the old APR regime for the super wealthy to buy up land and inflate values as a tax avoidance scheme.
But the public finances are stretched – in no small part because of Labour’s overspending on unnecessary quangos like GB Energy and inflation-busting public sector pay settlements. So if the fully conservative option is deemed unaffordable, then the government should make a couple of modifications.
First, it should make all farmland covered by an ELMS agreement or a privately financed equivalent exempt from the changes to APR. This would drive uptake into the new schemes and reward farmers who are doing brilliant work to protect nature alongside producing food. A second option would be to change the criteria for APR to ensure family farmers are genuinely exempt. Raising the threshold from £1m to £5m, for example, would exempt the many medium sized family farms currently at risk from the government’s changes.
With agriculture spanning 70% of England’s land, farmers are not just stewards of their own slice of countryside but collectively they are the custodians of our natural inheritance. This intergenerational exchange of our nation’s farmland has been protected for decades from the perils of inheritance tax. And rightly so. Yet tragically this is now at risk.
The family farm is the embodiment of conservative environmentalism. Their self-interest — to protect the natural capital upon which the long-term productivity and value of their farm depends — aligns with the environmental interest. That’s why conservative environmentalists should oppose this change to APR.
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