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Ann Davies (Caerfyrddin) (PC)
I beg to move,
That this House has considered the impact of changes to Agricultural Property Relief.
It is a pleasure to serve under your chairmanship, Mr Stringer. I refer Members to my entry in the Register of Members’ Financial Interest as a tenant dairy farmer. In Wales, 80% of our land is given over to farming, and our food foundation sector—including businesses that produce, process, manufacture and wholesale food and drink goods—is a vital part of our economy, hitting a turnover of £9.3 billion in 2023. In fact, Cabinet Ministers in the Labour Welsh Government have lauded Wales as a “food nation”, but the UK Government’s decision in the autumn Budget to change the agricultural property relief and business property relief will have a real effect on food, sustainable food production and food security in Wales.
Business property relief and agricultural property relief were introduced in the 1970s and the 1980s respectively to ensure that a farm or family business could continue trading after the owner’s death, protecting it from being sold and broken up. However, on 30 October 2024, the Chancellor of the Exchequer announced that the Labour UK Government intend to change APR and BPR conditions from 6 April 2026. From that date, 100% relief from inheritance tax will be restricted to the first £1 million of combined agricultural and business property, and 50% thereafter. The proposals equate to landowners paying inheritance tax at a rate of 20% of estate value, with the threshold from which they pay being dependent on individual circumstances. That tax is payable in instalments over 10 years without interest.
Combining APR and BPR under those changes means that the asset value of the tools and the machinery necessary to operate a farming business are affected, as well as the agricultural land and property, alongside any diversification activities that the UK Government have told farmers to explore to increase their income. The UK Government contend that those changes will affect around 500 estates a year, and that small family farms will not be affected, but organisations within the agricultural sector say otherwise.
The National Farmers Union calculated that 75% of commercial family farms will fall above the £1 million threshold across the UK. The Farmers’ Union of Wales, using other figures, estimated that essentially all farms that produce nearly 90% of agricultural output in Wales could be liable under the changes. In fact, Eirian Humphreys of LHP Accountants, a large accountancy firm across south and west Wales, told me that of the 51 farming clients who have inquired about those changes so far, 46—around 90%—will have to pay inheritance tax if they die after 6 April 2026.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
I congratulate the hon. Lady on bringing this matter before the House again. On the subject of the 500 estates, can we all agree that that only relates to the number of estates that claim under APR? It does not take account of the effect of APR and BPR together. In fact, BPR valuations are taken at book value, not at market value, so the number of estates that are liable must inevitably be massively greater than 500.
The Parliamentary Secretary to the Treasury (Torsten Bell)
indicated dissent.
Mr Carmichael
The Minister is shaking his head. I wonder whether the hon. Lady would join me in inviting him to intervene to explain why that fact is wrong.
Ann Davies
I do not know whether the Minister would like to do so now or at the end. It is up to him.
Torsten Bell
I will at some length explain why the remarks that the right hon. Gentleman just made—
Graham Stringer (in the Chair)
Order. If Members wish to make an intervention, they should stand to do so. It is up to the person who is speaking whether to accept an intervention.
I was going to say this at the end of Ann Davies’s speech, but I will say it now. This debate is oversubscribed, so I will put a time limit on speeches. Members should make short interventions, because interventions will mean less time for those people who have put in to speak.
Ann Davies
Of the clients that Eirian mentioned, five of them will not come under the tax liability because they have very small farms with off-farm income, they have transferred their farms following ill health, or they have significant debt that offsets the value of their farms.
It is clear that the assessments of the impact of the changes on working farms across the UK, on the wider economy and on the wider food supply chain are inadequate. The data that we have is deficient; it includes smallholdings and non-working farms. Data based on the basic payment scheme or on agricultural output would provide a fairer representation of the situation for genuine farmers.
John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)
The hon. Lady is speaking remarkably well about the challenges that this Government policy will create for farmers in Wales, in Scotland and across the UK. Research by Scottish Land and Estates shows that the average UK farm size is 217 acres and the average agricultural land value in Great Britain is £8,200 per acre, which means that the average working farm in the UK is worth about £1.8 million. Does that not show the flaw in the Government’s argument? This policy is not attacking the richest landowners; it is attacking working farms the length and breadth of the UK.
Ann Davies
I thank the hon. Gentleman for his intervention and I totally agree. Indeed, I will give further details about that issue later in my speech.
It is also clear that industry experts were not consulted on the changes prior to the announcement, even though consultation could have led to a fairer and more appropriate solution that is not detrimental to family farms or the wider industry.
Aphra Brandreth (Chester South and Eddisbury) (Con)
The hon. Lady is making a very passionate speech on an extremely important topic. She will know that my constituency of Chester South and Eddisbury borders Wales, and that there are many family farmers in north Wales who are deeply concerned about the consequences of this policy. Does she agree that it will impact not only farmers but the wider agricultural-industrial community, including businesses in my constituency that work alongside Welsh farmers in north Wales, such as Meadow Foods in Chester?
Ann Davies
I absolutely agree with the hon. Lady, and perhaps I should mention that Meadow Foods is the company that takes the milk from our farm—so we are that close to one another. I will say more about that issue as I move through my speech.
The lack of any data on the particular effects of the changes in Wales is a genuine problem. The available data, especially the data used by the Treasury, is a combination of Wales data and England data, or is UK-level data; it is not Welsh data. That is why organisations in Wales have to make their own calculations about the impact in Wales. The Country Land and Business Association calculated that an average 250-acre dairy farm in Wales could be hit by a £119,000 inheritance tax charge, while the average 250-acre livestock farm would expect an £85,000 charge. However, those figures do not include the asset value of diversified enterprise, meaning, of course, that they could be higher still.
It is crucial that farmers, policymakers and other stakeholders in Wales have accurate data to understand the real impacts of the changes within the specific context of Wales. The FUW called for the Wales-specific impact assessment to be modelled with working farms only, as the Welsh Government—the Welsh Labour Government—did during their 2023 sustainable farming scheme analysis. Today, I reiterate the call for the Government to implement that assessment, as my Plaid Cymru colleagues and I have continuously called for since October. The arguments have not changed.
There is evidence that the changes will not make even an iota of difference to the Treasury. In fact, modelling from the Confederation of British Industry Economics found that the changes to BPR will actually cost the Exchequer £1.25 billion between 2026-27 and 2029-30. It is unclear how they work towards Labour’s mission of growth, as industry organisations have come across numerous cases of farms and businesses delaying investments, putting orders on hold and preparing to reduce staffing. Let us not forget that each £1 a farmer spends generates another £9 in that community. What other rural industry does that?
Undermining local farmers and agricultural producers risks missing out on crucial opportunities to shorten our supply chains and to improve our food resilience. We currently produce 60% of the food that we need here in the UK and, when our food imports already outnumber exports by £33.2 billion, causing a reduction in the food that we produce will only increase our vulnerability to factors outside our control—the damaging consequences of which we have already felt in the energy market.
There is also a consensus that the changes do not address the initial concerns about non-farmers investing in land to avoid inheritance tax. For those with new money from capital gains made in the non-agricultural economy, there will continue to be a huge incentive to buy agricultural land, given that the value of that land above the announced threshold will face inheritance tax charges at half the rate of other assets.
Helen Morgan (North Shropshire) (LD)
The hon. Lady is making an excellent speech. Does she agree that, if the Treasury had considered increasing the threshold and raising the overall rate for very wealthy landowners to 40%, it might have achieved the outcome it was looking for? I put on record that I would not have gone down the route that it has anyway.
Ann Davies
I thank the hon. Lady for that intervention. I am coming on to solutions in a minute; I hope that the Minister will listen to my proposed options.
Extending the existing scope of APR to land managed under environmental agreements with or on behalf of, for example, the Government or public bodies also suggests that foundations and large companies could buy up land sold to pay inheritance tax, without being subject to it in the same way. We have a train of people in west Wales who are already buying land for planting trees, carbon offsetting and solar and wind farms.
Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)
I find the notion of people buying and selling land purely for fiscal purposes abhorrent. I come from a farming family. My father was broke. He had to sell most of the land. There is not a day that goes by in which I do not look at the fields and regret that my family parted with it. The point I am making is that there is an emotional attachment between the farming family and the land. That is quite different from buying or selling a house, shares or a holiday home in Spain—it is quite different.
Ann Davies
As someone who has lived and worked the land all my life, I totally agree with the hon. Member. It is something that is within our soul; it is not just a trading issue.
Dr Roz Savage (South Cotswolds) (LD)
I commend the hon. Lady on her excellent speech. Given that we are asking farmers, who are already under so much emotional and financial pressure, to be even more active participants in helping us to mitigate climate change and restore nature, does she agree that it is not the time to add to their stress and risk losing their deep knowledge of their land, which has been passed from generation to generation?
Ann Davies
I totally agree. Nobody understands those fields better than the farmer who has worked that land. They know where those wet corners are and they know where they should not tread during certain times. The sustainable farming scheme—the SFS—is coming out in Wales next year, and it is about nature restoration, so I absolutely agree.
Estate agents in west Wales are already seeing increased investor interest in purchasing farms following the autumn Budget. Selling land to pay an inheritance tax bill will inevitably hit tenant farmers because the £1 million threshold will hit asset-rich estates. Around 30% of land in Wales is farmed under some sort of tenancy agreement and, although some is local authority-owned, much is owned by private landlords. The Tenant Farmers Association anticipates that more insecure agricultural tenancies will be terminated to allow land to be sold to avoid taxes on death. Other landlords are reducing the lengths of term offered to tenants, who were expecting longer leases, so that farms are more readily sellable in case of tax change.
Llinos Medi (Ynys Môn) (PC)
Tenant farmers on Ynys Môn are expected to be impacted by the change to APR because landowners there will have no option but to sell their farms to cover the additional cost. The landowners have a good relationship with their tenants but they have no choice but to sell, leaving generational farmers to lose their homes, businesses and future, with long-lasting effects on the rural community. Does my hon. Friend agree that the realities of agriculture in Wales, including for tenant farmers, must be fully considered by the UK Government in a Wales-specific impact assessment?
Ann Davies
Diolch yn fawr. I absolutely agree with my hon. Friend. I should add that the wider economy will lose another vital source of food production. If that land is taken, it will never go back into food production.
My hon. Friend mentioned the effect on Wales, and there is a knock-on effect on the Welsh language: 43% of those involved in agriculture in Wales speak Welsh. Keeping our farming communities alive is key to moving towards the Welsh Labour Government’s target of achieving 1 million Welsh speakers in 2050. There is real worry—farming constituents have told me, with an eye on what it means for their own children, that they are concerned about the impact of the changes on future food production by Welsh-speaking families in areas of Wales already facing depopulation.
The families behind farming businesses are important to this debate. They are not just figures; they are people—people such as Richard Twose of Maenhir, who runs a 700-acre farm of 400 Holstein dairy cows and 300 pedigree Lleyn ewes with his parents, brother and children. APR and BPR changes have blown apart the family’s succession plans. They may now be forced to transfer the parents’ share in the farm and hope that they live for another seven years, or else the family will face a big tax burden on top of their business debt. Just yesterday I heard that, to add to the family’s worries and concerns, Richard’s father had passed away suddenly over Christmas.
The APR and BPR changes do not appear proportionate, in many ways. Inflation has already eroded the nil rate tax band of £325,000, which has been frozen since 2009 and is set to remain frozen until 2030. When APR and BPR were introduced, the nil rate band covered 56 acres of farmland; today, it covers 29 acres.
How the changes apply is not fair because the particularities—who someone shares the farm with, which tools or machinery they own or have hired, how much business debt they have—have a direct impact on their inheritance tax bill. Although the Government have said that married couples and their descendants can benefit from up to £3 million in tax relief, in reality tax experts are quoting figures that vary between £2 million and £4 million, based on different scenarios. We must remember that the Chancellor stated in October that the starting point for calculations is £1 million.
Adrian Ramsay (Waveney Valley) (Green)
Diolch yn fawr—thank you—to the hon. Member for giving way. Farmers in my constituency say to me that their problem is the threshold. The on-paper values of their farms—often several million pounds, even if the farmer makes no actual surplus income from the farm—would take them well into being caught by this policy. But the current situation is not working either, because non-farmers bought up more than half the farms and estates sold on the open market in England in 2023.
One local farmer told me that a 350-acre farm in Suffolk was bought by a merchant banker from London who had not even seen the farm and was clearly not intent on farming. Does the hon. Member agree that although we need the Government to increase the threshold, those arguing for the status quo are not doing farmers justice either?
Ann Davies
Absolutely. I am coming to my solutions, so I hope the Treasury will listen. I have three solutions that I think would work, because there are alternatives to this policy. The first is that abolishing capital business asset rollover relief could have provided a more targeted measure to tackle wealthy individuals buying agricultural land to avoid tax. That is the big one.
Secondly, taxing assets at the point of selling, rather than at the point of passing to another generation, would be a fairer measure to keep family farms. Thirdly, modifying existing proposals could double the zero-rate band and significantly increase the threshold, while allowing a shorter period than seven years for potentially exempt transfers. I have an additional comment on that. Do any of us have the right to live for seven years? That, my friends, is really not within our gift. Those are a few solutions from expert organisations in the sector, which could have proposed their solutions before the Government made their decision. That underlines again the importance of proper consultation with stakeholders.
To sum up, the APR and BPR changes have come at an already difficult time for farmers, with high costs of production, adverse weather and marketplace volatility taking their toll. Working farms that have been at the heart of Welsh communities for generations will suffer. As a constituent told me,
“Every farmer deserves the right to security of the farm they own or rent.”
Farms are not businesses but family legacies, vital for our rural economy and key to preserving our Welsh-speaking culture. Plaid Cymru supports closing loopholes that allow billionaire landowners to avoid paying their fair share, but this one-size-fits-all approach ignores the unique challenges of Welsh farming. That is why it is so important that the UK Government implement a Wales-specific impact assessment that reflects the realities of agriculture in Wales.
A petition calling for the UK Government not to change inheritance tax relief for working farms has reached more than 146,000 signatories, and is being debated here on 10 February—put that in the diary, folks! It is clear that the public agree that it is time for the Government to listen to farmers, conduct a proper analysis and rethink this damaging policy before it is too late.
Several hon. Members rose—
Graham Stringer (in the Chair)
Order. I remind hon. Members that they should bob if they wish to be called. The debate is well subscribed, so I am going to start with a four-minute limit. If there are a lot of interventions, that time will have to be reduced.
Steve Witherden (Montgomeryshire and Glyndŵr) (Lab)
It is a pleasure to serve under your chairship, Mr Stringer. I congratulate the hon. Member for Caerfyrddin (Ann Davies) on securing this important debate about a topic of major concern for many of my constituents.
Farming is at the heart of Wales’s social fabric, playing a vital role in our economy, food security and stewardship of the beautiful Welsh countryside. On Saturday, I met representatives of the FUW in Llansilin and NFU Cymru at a farm in Llanerfyl to discuss the ongoing challenges that farmers face. Farming is currently the least profitable sector of our economy, and changes to APR are having a significant impact on family-run farms.
A lifelong farmer in my constituency raised her children on her 220-acre farm. Although considered small, the farm is valued at more than £1 million. Her 48-year-old son, who has farmed alongside her since the age of 18, had hoped to take over the farm. His young daughters now share his passion. Sadly, they now face the prospect of losing the farm they have worked so hard for.
Let me be clear. I support progressive taxation to ensure that the wealthiest pay their fair share towards the upkeep of our society. In the 21st century, we see individual plutocrats and super-wealthy multinationals buying agricultural land to avoid paying inheritance tax, with no intention of using it for farming. That reduces our farmed land—something we can ill afford, given our fast-growing population in an unstable world.
The proposed changes to APR for farmers come on the back of this and more, and feel like the straw that broke the camel’s back, or as we would say in Wales: “Yr hoelen olaf yn yr arch.—[Translation: The final nail in the coffin.]”—if the hon. Member for Caerfyrddin can forgive my north-east Wales accent. The changes risk having a deeply detrimental effect on working family farms. What is at stake here? Food security. I have repeatedly spoken in the Chamber about my heartbreaking experiences with hungry children and food banks. In recent years, we have seen something that many never thought they would witness: food scarcity, empty shelves in the supermarkets and astronomical food price inflation. It cannot be overstated how that period of food inflation has affected the poorest in our country.
I will not say more about the proposed APR policy as a whole. Prior to my election in July, I attended 10 hustings —we do like our hustings in mid-Wales; my thoughts on this topic are well-known and on the record. However, I will speak about mitigations. First, I respectfully request that the Minister considers raising the threshold. If this policy is to target those who buy farmland solely to dodge inheritance tax, then let us make it so: raise the threshold and actually increase the rate for people like that, so that no family farm is affected.
Secondly, I implore the Minister to look at an exemption for farmers who—I risk sounding macabre, but I want to make myself clear—are too late in life to plan for this proposed change. I hope the Minister and you, Mr Stringer, can forgive my emotion. When you sit with an elderly farmer and his wife, both fighting back the tears, and they say, “If only I could die now, if only there was some kind of pill I could take now, so that my children don’t have to worry about this,” that has a profound effect. Diolch.
Seamus Logan (Aberdeenshire North and Moray East) (SNP)
It is a pleasure to serve under you, Mr Stringer. I thank the hon. Member for Caerfyrddin (Ann Davies) for securing this important debate. I agree with her and the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) about emotional attachment; I urge hon. Members to watch “The Field” with Richard Harris—his Oscar-winning performance.
I want to return to the point that I have made in previous debates and which has already been made by the hon. Member for Montgomeryshire and Glyndŵr. The key issue is that food security is national security; we as MPs have a duty to ensure that and to deliver jobs for communities across the country and low prices for consumers. Yet the Government behave as if they think food appears magically on the shelves at supermarkets.
My constituency of Aberdeenshire North and Moray East holds some of the best agricultural farmland in the country, and it will be disproportionately impacted by this change. Three quarters of the land in my constituency is used for agriculture, and the people who work that land are incredibly worried. Personally, I would have sympathy with a policy that targeted wealthy individuals who purchase agricultural land as a means of avoiding inheritance tax. However, that will not be the sole consequence of this legislation—that is the crucial point.
After the Chancellor delivered her Budget speech last year, the NFU and the National Farmers Union Scotland immediately cast doubt on the revenue that the policy would actually raise; they were ignored and dismissed. Now, even the Office for Budget Responsibility—Labour appear quick to mention it, but then ignore when it suits—has cast doubt on the revenue that the policy would raise. It states that the Treasury figure of £500 million is now highly uncertain. The justification for the policy is falling apart.
Since we last met on this issue, almost every major supermarket chain in the UK has publicly backed farmers, urging the Government to halt their plans and carry out a consultation. Ashwin Prasad, Tesco’s chief commercial officer, said there must be a pause in the Government’s implementation of the Budget measures, while a full consultation is carried out.
Farmers recognise Labour’s APR change as a bad decision; now the UK’s leading supermarkets have confirmed it. We must not forget that Labour brought in this change after explicitly ruling it out. Long-term clarity is needed when it comes to planning the future of family farms and the UK Government have failed farmers on that point. Listening to the NFUS and the NFU on this issue would have saved a lot of hurt for farmers, rural communities and shoppers across the country.
I have heard time and again from the Government that this policy was necessary to tackle the difficult financial situation that they inherited from the previous Government. I do not see how a bad inheritance justifies an objectively bad policy for consumers and farmers. If the necessity was so, why did the Chancellor rush to Davos to offer tax reliefs to non-doms, why is she not tackling widespread tax evasion by prominent individuals, as was reported recently by the BBC, and why is she not considering a wealth tax?
It seems ironic that the Labour Government complain about their dire inheritance while ignoring the dire inheritance that they are inflicting on family farms throughout the UK. It is not too late for the UK Government to reassess this damaging policy and make the necessary changes to protect farmers across these islands and in my constituency. It is a bad policy, Minister, and it is time to rethink it.
Rupert Lowe (Great Yarmouth) (Reform)
It is a pleasure to serve under your chairmanship, Mr Stringer. I congratulate the hon. Member for Caerfyrddin (Ann Davies) on securing such a valuable debate.
Being a farmer is not job; it is a career. In fact, it is not a career; it is a way of life. As one of the few active farming MPs, I am more qualified than most to comment. We were told before the election that Labour had no intention of changing APR, and farmers would have voted for Labour specifically on that pledge from the Environment Secretary. They certainly would not now. We should call it what it is: an outright betrayal.
Where do people think our food comes from? It does not grow on shelves in Waitrose; it is grown by British farmers on British farms. I urge all MPs to speak to their farming constituents. They will all say exactly the same: the backbone of British farming is being intentionally broken. If Labour continues down this path, thousands of grieving British farming families will lose their farms forever. Is that really what the Government want? The answer seems to be yes.
This assault on British family farms will undermine our food security, making our already uncertain place in an increasingly dangerous world even more precarious. Supporting British farmers today means safeguarding our domestic food supply for tomorrow. That should be the aim of any responsible Government. A rethink of this policy is urgently required.
Charlie Dewhirst (Bridlington and The Wolds) (Con)
It is starting to feel a bit like groundhog day, because the Government are clearly not listening to the entire agricultural economy, community or experts. Let us go back to the beginning and have a brief history lesson. The hon. Member for Great Yarmouth (Rupert Lowe) just mentioned that the Government said prior to the election that they had no intention of changing APR. At the Budget, the Chancellor told us that this was a measure to prevent very wealthy individuals from buying up agricultural land to avoid inheritance tax. That was proven by analysis of the policy to be untrue, so there was a pivot and we were told that the measure was about raising revenue for public services in rural areas. Then the OBR said, “Well, actually, it’s not going to raise the revenue it says it’s going to raise,” so the whole thing has unravelled week after week.
We have heard from other hon. Members today about the issue of the APR analysis not taking into account the BPR effect, and what that does for tenant farmers and farmers who have used BPR as one vehicle to wrap everything into in the event of a death. We have farmers, agricultural organisations, supermarkets, tax experts—even The Observer this weekend—coming out against the policy. It is truly remarkable that the Government have managed to unite all those people against one single measure.
Today, quite significantly, we had analysis from the Agriculture and Horticulture Development Board. That is important, because the AHDB is a non-departmental Government body, not a lobbying organisation. Its analysis, using data from the Department for Environment, Food and Rural Affairs, the farm business survey and the Scottish Government, says that over 75% of farms will be affected by this measure—three times the amount that the flawed Treasury modelling said.
Most of those farms simply cannot afford a large inheritance tax bill because, as we all know, they do not have the income to pay it. The result will be the sale of land upon death, most likely to the wealthy individuals or businesses that this very policy was allegedly meant to deter. In turn, that will take land out of production, risking both our food security and local agricultural economies. My hon. Friend the Member for Chester South and Eddisbury (Aphra Brandreth) made a really important point about the impact on construction firms, feed merchants, hauliers, plumbers, electricians—all those who rely on a healthy farming sector.
The Government have ploughed on, with their head in the sand, but at what cost? There is a political cost —the decimation of Labour’s reputation in the countryside —but, more importantly, there is a human cost. This measure has placed enormous stress on family farms and, unforgivably, we have heard stories of suicide.
If the Chancellor can look again at non-doms, she can look again at this policy. If the Treasury is seeking to deter the wealthy from buying agricultural land, let us look at this again. If it is seeking to raise revenue, let us look at this again. The farmers are not going to back down, and we are not going to back down, so let us do the right thing, get round the table and find a better way forward.
Carla Lockhart (Upper Bann) (DUP)
It is a pleasure to serve under your chairmanship, Mr Stringer. I commend the hon. Member for Caerfyrddin (Ann Davies) for bringing forward this debate. She is a real advocate for farmers, and her constituents will have noted that.
As has been said, farming is not just a job, but a way of life. It is a generational commitment. In rural Northern Ireland, including in my constituency of Upper Bann, despite the recent inclement weather, rising production costs and the very real concerns of avian flu, bluetongue and the affliction of tuberculosis, our farmers continue to toil away. As we stand here today, they are milking cows and feeding livestock. They are working the land and ultimately feeding the nation. Farmers take great pride in their work, with zero days off and low incomes, and they bear the immense responsibility of being the custodians of our countryside and the lifeblood of our rural communities. Schools, businesses and essential services depend on them.
Jamie Stone
I sincerely hope that I am wrong in what I am about to suggest, but if the value of land were to drop as a result of these measures, and a farm had borrowed heavily and owed the bank a lot, it could be the case that the bank would foreclose and force the sale of the farm.
Carla Lockhart
The hon. Member is not wrong—he is rarely wrong. That the policy could lead to the splitting up of family farms is a concern for many farming families across Northern Ireland and this United Kingdom.
Agriculture has long been and continues to be the backbone of the UK economy. The agrifood sector contributes significantly to our GDP and employs hundreds of thousands of people across the country, yet, despite their crucial contribution, farmers face ever-increasing pressures that are not of their making.
Farming is deeply personal for me: I was raised on a farm, I am the daughter of a farmer, I am the wife of a farmer and, as I have said in this place before, I am the proud mum of a little boy who aspires to be a family farmer. He also dreams of being a professional footballer, but we will talk about that another day. So when I speak of farming, it really cuts deep, and it is from my heart that I bring the Government the simple but urgent message that they continue down this path at their peril. The proposed tax changes are a heavy blow to those who are already struggling, and they will be a wrecking ball to our rural communities and rural way of life across this United Kingdom. They will undermine our food security, drive up prices and undermine the world-class environmental standards that British farmers adhere to day and daily.
The changes to agricultural property relief and business property relief fly in the face of the manifesto commitments of this Government. Prior to the general election, the Prime Minister told farmers what they wanted to hear. It feels very much like “you’ve threw them under the bus,” as we would say in Northern Ireland, for little monetary return for the Government coffers. He said:
“Losing a farm is not like losing any other business, you can’t come back…You deserve better than that.”
Those words came from the Prime Minister’s mouth, and they ring very hollow in our rural community.
The Department of Agriculture, Environment and Rural Affairs in Northern Ireland has done a deep dive into the figures, which clearly outline the significant and disproportionate impact that the changes will have on Northern Ireland’s agricultural sector. DAERA’s analysis has shown that the vast majority of farms will be affected. In fact, under the current land valuation of £21,000 per acre in Northern Ireland, approximately 40% to 45% of cattle and sheep farms will be impacted, and an astounding 87% of dairy farms will be caught by the tax. It is not a marginal impact; it will affect almost half of farms in Northern Ireland, which together account for 80% of the total agricultural land, 70% of beef cattle, 90% of dairy cows and 80% of all cattle. The proposed changes will disrupt the very heart of our agricultural output. Sadly, that situation is replicated across the whole of the UK.
Despite all the evidence and concerns, the UK Government continue to state that only 500 farmers will be impacted by the changes. The official figures from the Office for Budget Responsibility remain highly uncertain. In fact, the OBR itself acknowledged that the estimates are among the most uncertain in the entire Budget package. According to independent analysis, the true number of affected farmers is likely to be five times greater than the Government’s estimate. I have made this point repeatedly in this place: no farmers, no food.
Jim Shannon (Strangford) (DUP)
On a point of clarification, Mr Stringer, I understand that the Front-Bench speeches will begin at 3.28 pm. Does that mean that the hon. Member for Tiverton and Minehead (Rachel Gilmour) and myself can divide the 17 minutes until then between ourselves?
Graham Stringer (in the Chair)
On the time limit that I have set, if people took the four minutes, we would finish the Back-Bench speeches at 3.19 pm. One of the problems is that some people have put in to speak but are not standing. That made the calculation difficult, because I assumed that people who had put in to speak would be bobbing, and they have not. At the moment, I will go with the four minutes that we have agreed.
Jim Shannon
Thank you for that clarification, Mr Stringer. I did not intend to put you under any pressure. I wish you well and thank you for your chairship.
I thank the hon. Member for Caerfyrddin (Ann Davies) —I hope my pronunciation is right, with my Ulster Scots accent—for securing this important debate on a matter of grave concern for many constituents and communities across the United Kingdom, and for those that I proudly represent as the Member of Parliament for Strangford. I declare an interest as a member of the Ulster Farmers’ Union, a farmer and a landowner. All my neighbours—every one of them—are concerned about this issue, and they have expressed that to me very clearly.
Farmers are the backbone of our rural economy. Their work provides not only the food that graces our tables but the stewardship of our natural landscapes, which are an integral part of our cultural and environmental heritage. Yet the changes to APR threaten to destabilise that foundation. I have spoken to farmers in my constituency and beyond, and their message is clear: the changes will place a substantial financial burden on farming families, forcing many to sell land to cover tax liabilities.
In response to a survey by the Country Land and Business Association, 86% of farmers indicated that they would need to sell all or part of their land if APR were removed. I understand that approximately 70% of farms in Northern Ireland—that comes from the Ulster Farmers’ Union legal officer—will be affected, because the farms are smaller.
It is really important that we get this right. Farmers have faced unrelenting challenges in recent years, including soaring energy and fertiliser costs, unpredictable weather patterns and inflationary pressures. The past decade has been marked by uncertainty. The loss of APR would mean that future generations could face unsurmountable inheritance tax. For smaller farms, especially, that could spell the end of their viability. The reality is that the changes will sweep up in their net many genuine, hard-working family farms. It is not just a financial issue; it is a matter of fairness, community sustainability and food security.
The Minister is an honourable person, but let us be honest and reasonable: what is right and what is wrong? Justice is what we are looking for here, and that must be addressed. When global supply chains are increasingly fragile, it is unwise to undermine domestic food production. Every acre lost to inheritance tax obligations reduces our ability to feed our population sustainably and affordably.
Alison Bennett (Mid Sussex) (LD)
Clearly, many Members on both sides of the Chamber are incredibly concerned by the Government’s proposals to cut agricultural property relief and business property relief. Farmers from my constituency came to see me and they are incredibly worried. In an area with high land values but relatively small farms, they think that they will lose their farms. Does the hon. Member agree that, as well as having a global impact, losing those farms will be incredibly detrimental to the rural economy—to veterinary practices, agricultural merchants and other businesses attached to farming?
Jim Shannon
I thank the hon. Lady for that intervention. With those wise words, she has hit the nail on the head. When the Minister looks round this Chamber, he will see that everybody—those who have spoken and those who are here—is united against the change to APR. We are not going to put the Minister under pressure unduly, but if it were me, I would think twice about getting into a fight where it was 27 to one.
Jamie Stone
The hon. Member will be aware that my wife’s family come from Northern Ireland. My understanding is that the price of land there is quite a lot higher per acre than in Scotland or England. Does that not mean that what we are talking about today has a disproportionate effect on the Province of Northern Ireland?
Jim Shannon
It certainly does. For the Minister, we will lay on the line what we are after. The £1 million threshold is wrong, because it does not adequately reflect the rateable value of a farm. If the threshold was £5 million, that would save the small farms. The hon. Member for Caerfyrddin, who introduced the debate, talked about solutions. I have a solution for the Labour party, and I do not care if the Labour party claims it—that does not matter to me. What matters to me is that the threshold should rise from £1 million to £5 million. If it does, family farms will be saved, and if they are saved, we have a chance of moving forward.
I am trying to put that forward to the Minister as a positive solution. With the Ulster Farmers Union representatives William Irvine and Alex Kinnear, I had a meeting with the Minister away back before Christmas. We put that solution to him, and he said that he would take it to the Chancellor, because ultimately it will be her decision. It is a really clear way forward.
The hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) is right in what he says about Northern Ireland. Land values are more expensive in Northern Ireland than anywhere else, which is why the 70% figure is greater for Northern Ireland than anywhere else. We want to have the same mechanism for everybody across this great United Kingdom of Great Britain and Northern Ireland, but there are other ideas about mechanisms such as extended payment windows or graduated tax liabilities to alleviate the financial strain on small farms.
I urge the Minister to provide clarity and reassurance to farmers, who are deeply concerned about the future. Again, I say this to him: if we want to do something positive following this debate—as I think we can and must—the issue of the threshold is the way forward. When people add up the value of the land, the value of the machinery and the value of the stock, they are well over the £1 million threshold, but what if he made the threshold £5 million? I have not grasped that figure out of the air; the Ulster Farmers Union and the National Farmers Union put it forward as a figure that could address the issue.
I am not going to put a lot of pressure on the Minister today—well, actually, I am. We are all putting pressure on him, because we see a way forward—genuinely, constructively and positively. I beseech him to take that message from the debate today to increase the threshold and save family farms.
This is an issue across Northern Ireland, including in the constituencies that my hon. Friend the Member for Upper Bann (Carla Lockhart) and I represent. All my neighbours are worried sick about what the future holds, as are those tenant farmers in Wales and Scotland—across this great United Kingdom. We need the threshold to be raised. If the Minister does that, we will be on his side.
Rachel Gilmour (Tiverton and Minehead) (LD)
It is a pleasure to serve under your chairmanship, Mr Stringer. First and foremost, I congratulate the hon. Member for Caerfyrddin (Ann Davies) on securing this vital debate. Right hon. and hon. Members will perhaps be sick of hearing me talk on this topic, but I feel compelled to provide a voice for my farmers. My constituency of Tiverton and Minehead has a similar make-up to the hon. Lady’s. It is overwhelmingly rural agricultural land and home to many farming communities. There are some 1,600 holdings according to the CLA and 432 of those farms will be hit by the Government’s APR changes.
We Liberal Democrats applaud our farmers. As a former director of the National Farmers Union, I feel well placed to highlight the damaging consequences that will inevitably be visited upon them as a result of the changes to agricultural property relief. The Government’s claim that 27% of all farms will be affected is, if I am being generous, misinformed. According to in-depth analysis conducted by the National Farmers Union in collaboration with the OBR and Treasury experts, 75% of the nation’s working farms fall above the £1 million threshold and will be struck by the punitive changes. The changes are said to be caveated by different assumptions on rate relief.
There are misapplied exceptions. The first one is that the average family farm would not top the threshold of £3 million in value, which is just not the case. Great Ash farm in my constituency is a typical good-sized family farm consisting of 256 acres and is on the market for £3.5 million. In an inheritance tax valuation, the farm’s livestock and machinery would be added to the value, bringing the total to around £3.68 million. Even when the acreage is not as large, the value of agricultural land alone often pushes farmers close to, if not over, the £3 million threshold and can certainly shatter the individual threshold of £1 million. If we add to the value of the land the livestock, deadstock, properties, machinery and business, the owners of the farm are looking at a hefty valuation—not one that they can capitalise on to keep the farm, but one that will ensure they are caught in the claws of this onerous death duty.
The second misapplied exception is because farm ownership is not in all cases split equally between a husband and wife, and it does not always pass to a direct descendant. Existing capital gains tax rules have discouraged many older farmers from transferring their farms to their children owing to the potential tax burden, which means that ownership is staggered across many generations in some cases. Often, when there are not ownership models that meet the co-owning married couple status that the Chancellor uses for the modelling of those exceptions, it means that the various personal and dependent inheritance tax exemptions that go into the flawed Treasury equation on this policy cannot be used on many occasions.
The third misapplied exception, the residence nil rate band, is unlikely to be applicable. It is reduced by £1 for every £2 when the estate exceeds £2 million. Therefore, if a farm business exceeds £2.65 million, the residence nil rate tax band is no longer valid. That is yet another misapplied Treasury exemption, which will not have a realistic effect on family farms’ ability to keep the taxman from taking everything they have. In conclusion, I will make no apology for standing up for my rural communities—
Graham Stringer (in the Chair)
Order. Your four minutes are up. I call Alistair Carmichael.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
I had put in to speak, but when I saw the attendance in the Chamber, I thought I would exercise a self-denying ordinance. That seems to have been counterproductive, so I will take a couple of minutes to drill down into some of the underlying assumptions in relation to this issue.
Let us bear in mind that there are three ways in which agricultural land can be passed on in succession. It can be relieved under agricultural property relief, under business property relief, or under a combination of the two. Hitherto, that has offered executry practitioners and others a range of different options. Frankly, as long as the land qualified as agricultural farming land, it did not really matter which route was taken.
In fact, any value was pretty academic because there was 100% relief in any event. I suspect that is why the HMRC guidance in relation to business property relief says that for a relief claimed under BPR, the book value, if I can use that shorthand, should be used. There is then no need to have the full market value. The letter that the Chancellor sent to the Treasury Committee on 15 November last year made no reference to those estates that passed on land under BPR only. To my mind, it is almost certainly the case that a large number of other farms will be caught by the measure that have not been included in Treasury calculations.
That view is reinforced today by the publication of the report by the Agriculture and Horticulture Development Board, which, as the hon. Member for Bridlington and The Wolds (Charlie Dewhirst) said, is a non-departmental public body of DEFRA. The body is levy funded, but the press release says that it is not for it to say whether inheritance tax should be exigible in these circumstances—it just wishes to inform the debate with its analysis. Its analysis is that 42,204 farms out of 54,938 of 50 hectares or more will be affected.
That must surely give the Treasury some cause for concern, and a basis on which it could pause the change. We still have a long time to go; it will not be in the Finance Bill until October or November of this year. Where an element of doubt exists, it would surely be sensible for everyone concerned if the Treasury were to engage in a meaningful dialogue with the farming unions and others.
John Glen (Salisbury) (Con)
The right hon. Gentleman is making an extremely fair assessment. Does he acknowledge that the Treasury is full of capable civil servants and Ministers who have a number of other options available to them? No doubt the argument will be that there is a black hole to fill, but even if one does accept that, there are still better options overall for the agricultural and rural communities that serve us across this country.
Mr Carmichael
There are other options. On another day, with more time available, we might be able to look at what the tax take will be for the changes. The Secretary of State, when he gave evidence to the Select Committee, said that they were not going to be a problem because most people will avoid them. In fact, there will be opportunities for that to be the case.
The underlying concern here, which the Minister has the opportunity to address, is whether the Government still adhere to the belief that there is a public policy interest in ensuring the transition of family farms down the generations. If that was the original basis on which the reliefs were introduced, and if it remains the policy objective to this day, the figures need to be looked at more carefully. The thresholds could be increased or there could be a 10-year clawback—whatever the solution may be; the industry is full of ideas. There are any number of people who will come forward with suggestions for the things that at least some people in Government say they sought to achieve by making the change.
If—the Prime Minister was not very clear about this; well, he was clear that he was not bothered—the object was to avoid the super-rich using land to shelter their wealth, there are better ways of doing that. The Minister will get full co-operation from the farming unions and communities, but in order to have that, there has to be a dialogue. At the moment we are getting nothing from the Treasury. If he takes no other message back to the Treasury today, he should take this: the Chancellor must meet the farming unions.
Graham Stringer (in the Chair)
We are back on schedule, so there are 10 minutes each for the Front-Bench spokespeople.
David Chadwick (Brecon, Radnor and Cwm Tawe) (LD)
It is a pleasure to serve under your chairmanship, Mr Stringer. I thank the hon. Member for Caerfyrddin (Ann Davies) for securing this important debate, and I applaud the cross-party work she is doing to ensure that Welsh farmers have a strong voice in this place. We also heard from my hon. Friend the Member for Tiverton and Minehead (Rachel Gilmour), who pointed out the holes in the proposed policy change. I welcome the contribution from my right hon. Friend the Member for Orkney and Shetland (Mr Carmichael), whose voice is so valued by the agricultural community across these isles. He pointed out that there is still time for the Government to engage properly with the sector, and that it is in the public interest to preserve these farms.
Last weekend, a group of farmers came to Llandrindod Wells to show me their accounts. What they wanted to show me was not how much they were making, but how little. Their figures were corroborated by statistics released this month by the Welsh Government, which show that farming incomes have fallen by a staggering 34% across Wales in the last year. The average income now sits at just £22,000, which is perhaps not surprising considering what farmers have had to cope with recently: rising energy costs, runaway fertiliser inflation, supermarkets forcing unfair prices on producers, the transition away from the EU customs union, disastrous Conservative trade deals with Australia and New Zealand, and extra regulations from the Welsh Government. Those are just a few of the issues they are coping with, and we can now add to that the rise in national insurance and the changes to APR and BPR announced in the autumn Budget. Family farms are on the brink.
The people working on our farms in Wales deserve a decent living. Farming is already a tough business, but those figures and challenges highlight how unsustainable the situation is for many families. The Government’s proposed changes to agricultural property relief make things worse by forcing farmers either to sell parts of their land or to make repayments that will wipe out any annual profit. The Government are relying on outdated APR claim figures from 2021-22 and including non-commercial holdings in their calculations, which downplays the policy’s impact. According to NFU Cymru, the number of farms in Wales that will be affected is closer to 75% than the 27% claimed by the Government. If the Government are so confident in their numbers, why will not they release a full impact assessment that includes national breakdowns for Wales and Scotland?
When speaking to people in the sector, it is clear that they know what the impact will be: a further contraction in the rural economy. More young people will be forced to leave farming, placing our food security at risk, driving up food prices and damaging the wider rural economy. The process of rural depopulation will continue, making it harder for local councils to provide services. In Wales, the policy could have a calamitous impact on the Welsh language.
Recently, I visited Llanelwedd primary school, and a nine-year-old pupil asked me about the rising cost of fertiliser. I asked him whether he was going to farm when he grew up, and he looked me in the eye and said, “I am a farmer already.” Yet, under these new policies, this young man may inherit a smaller farm with little profit and fewer opportunities.
Farming is not a typical business, but it is an essential one. In Wales, we have already seen the decline of many industries as a result of political decisions, and I fear that the proposed changes to APR could have the same devastating effect on farming. Who will farm the Welsh countryside? Will it be Welsh farming families who have worked the land for generations, or will it be the super-rich? It is reported that the Government plan to soften the blow for non-doms, but they seem unwilling to listen to the farmers who are the backbone of our rural economy. Our farmers are patriots and servants of the land. Who will feed us when they are gone?
Surely, Ministers must now look again at this policy. It is not just Opposition parties and farming unions that are criticising it, but the Office for Budget Responsibility, supermarkets and even, as of this weekend, the Labour First Minister of Wales. Rural Labour MPs need to stand with them and to pressure the Government to reconsider, and I applaud the hon. Member for Montgomeryshire and Glyndŵr (Steve Witherden) for doing exactly that in this debate.
There are alternatives. Many in my constituency are already asking why Labour is targeting family farms, small businesses and charities for tax rises, while letting big banks, oil companies and tech giants off the hook. That is where the full troughs lie.
APR is not a loophole. As has been mentioned, it was purposefully introduced to protect family farms and safeguard our food security. If the Government want to stop tax evasion, they must work with the farming sector to find a solution that does not punish struggling farmers, because Welsh farmland belongs in Welsh farming hands.
Robbie Moore (Keighley and Ilkley) (Con)
It is a pleasure to serve under your chairmanship, Mr Stringer. I thank the hon. Member for Caerfyrddin (Ann Davies) for securing this incredibly important debate.
Here we are yet again, having summoned yet another Minister to the House. We have slowly worked our way through all the DEFRA Ministers, and now here we are with the Treasury. I welcome the new Treasury Minister to his place; he is replacing the Farming Minister, who seems to have disappeared from these debates. I hope the new Treasury Minister lasts longer in his post than the infamous “Ed Stone”, which he was so proud to have masterminded.
Let us remember why we are here. Last weekend, the NFU’s farming day of unity saw one of the biggest agricultural rallies, which took place in all parts of the United Kingdom, with people from all walks of life coming together to support our farmers. That followed protests outside supermarkets and Westminster, and at auction marts, but still the Government refuse to get behind our farming community and listen. Let them be under no illusion: the strength of feeling outside this place is rightly strong, and the issue will not go away.
When the Government announced this policy, I thought they were just being naive. Then I thought they were perhaps being arrogant. Now the only conclusion I can come to is that this is a vindictive policy aimed at our farming community. That is because the Government are still unwilling to listen to the concerns raised by Members and stakeholders, whether that be the NFU, the CLA or the Tenant Farmers Association. The Chancellor is yet to engage with any of them.
Although the Government will no doubt claim that only affect 27% of farms will be affected, research conducted by those industry experts concludes that at least 75% of commercial family farms will be, because the £1 million threshold will impact the many. This disconnect stems from significant flaws in the Government’s methodology, which fails to account for the many market conditions and economic realities that our farming businesses face.
Given that the average size of a farm is about 200 acres, the average value of a farm holding will without doubt be well in excess of the £1 million threshold. When we take into account the value of the farmland; the farmhouse, and potentially a cottage or two; and any stocks, machinery or growing crops that may be in store, it will exceed the £1 million cap, therefore impacting the farming business. When we take into account the profit that a business may be making—or indeed struggling to make—on an average-sized farm of 200 acres, it is going to struggle to pay that bill.
What do farmers do? What are the options available to them? They can sell assets to pay the inheritance tax bill, or they can sell some of the livestock or some of the machinery, stocks or crops that may be in store, all impacting the productivity of that farming unit. Alternatively, they may want to take out a loan, which is an option suggested by the Government. I do not know whether the Treasury Minister has spoken to any banks, but I have, and none of them is saying that they will offer a loan to pay a tax bill. That is because the gearing of many of our family farming businesses is so highly strung that they could not pay any additional loan that may be granted to them, because the serviceability of that debt, which probably exists alongside the family farming business they already occupy, is so strongly geared.
That is before we take into account all the other budgetary consequences the Government have brought about: the increase in employer’s national insurance contributions, the increase in the minimum wage, the immediate effect of delinked payments, the removal of capital grants, the fertiliser tax that will no doubt be introduced and the double-cab pick-up tax. All impact the profitability and productivity of our many family farming businesses. This policy will also lead to a significant reduction in the land available to rent, given that around two thirds of working farms rent some or all of their land.
That is before we take into account the human cost. Farming can be a very lonely business, and I fear that the added weight of the changes to not only agricultural property relief but business property relief will be forcing some of the older generation, including those who are seriously ill at the moment, to make decisions right now. Indeed, I have spoken to a few. I spoke to one farmer just last week who is aged 78 and in ill health. If he passes away before April 2026, any death tax will be zero. If he passes away after April 2026, the death tax imposed on his family will be over £1 million. What decisions is that individual having to make right now? Those are the consequences of the decisions and choices this Government have made.
Will the Government have the moral courage to pause their actions and consult the industry experts I mentioned, as well as Opposition Members who continue to raise concerns on behalf of their constituents? As the shadow Secretary of State, my right hon. Friend the Member for Louth and Horncastle (Victoria Atkins), has rightly asked every time she has been at the Dispatch Box, will the Government record farm suicides in the next few months so that we can properly assess the human impact of the choices this Labour Government are making? What measures could be put in place to mitigate the impact of these changes on those who are already over retirement age or in serious ill health? They have held on to these assets for many years and many generations, and they simply want to be in a position to hand them down to the next generation.
I want to ask the Minister a few questions. Why on earth has an economic impact assessment been undertaken of the consequences of the changes to agricultural property relief, and of agricultural property relief dual-claimed with business property relief, but not solely of business property relief? Has any impact assessment been taken into account in the changes to inheritance tax, as well as the wider budgetary changes as a result of the measures I have already alluded to?
Why do the Government believe that it is unnecessary to take into account the size of a family farm when indicating the negative consequences that this proposal will have? If they implement a £1 million threshold, the size of a farm absolutely matters, because that takes into account not only the amount of land being farmed, but the existing productivity and the assets retained within that business. Why is the size of the farms not being taken into account?
If the Government are so determined to push ahead, can they tell us why on earth have they arrived at the £1 million threshold as the appropriate figure? How do they deal with the progressive disappearance of the residence nil rate band on estates valued at more than £2 million? How will they protect tenanted land on estates that will be valued at levels much higher than any threshold? What hope is there for the tenant farmer who is told that their landlord is now having to liquidate the capital value tied up in the land that they rent to satisfy the Government’s potential tax liability? As a result, that tenant farmer will have no tenancy, because the tenancy will have to come to an end. For the tenant farmer, that will mean losing their home, their business and their livelihood. No amount of tax planning will help those tenant farmers to find a way forward.
In setting out the £1 million threshold, the Chancellor of the Exchequer claimed that she wanted to protect hard-working family farmers. I can tell the Minister that all family farmers are hard-working, so why on earth was the threshold set at that level? On behalf of the tenant farming sector, I can say that whatever level is set, it will do nothing to protect our tenant farmers. They will be impacted by the collateral damage caused by the decisions their landlord will have to make.
Just this week, the noble Lord Mackinlay of Richborough received an answer to a written parliamentary question in the other place that stated that agricultural property relief and business property relief on assets tied up in private pension funds will not receive any of the reliefs that Ministers are citing. As the Pensions Minister, can the Minister confirm that and explain why the Government have further excluded farms held under those types of ownership from this calculation? Given the Government’s response in the other place, they will absolutely be impacted.
There is much more to do. As we have indicated, the Conservatives will reverse this disastrous family farm tax, which will impact hard-working family farms. The Opposition position is clear: this policy is bad for farming businesses, bad for rural economic growth, bad for food prices and bad for food security. Farmers can see it, the NFU can see it, the CLA can see it, the Tenant Farmers Association can see it and the Central Association of Agricultural Valuers—of which I must declare I am a fellow, Mr Stringer—can see it. The supermarkets can see it, the Opposition can see it and the hon. Member for Montgomeryshire and Glyndŵr (Steve Witherden)—the one lonely Labour MP sitting on the Government Benches—can see it, so why on earth can the Government not see it?
Graham Stringer (in the Chair)
Minister, we have a generous amount of time left. Can you try to ensure that you leave at least two minutes for a winding-up speech?
The Parliamentary Secretary to the Treasury (Torsten Bell)
It is a pleasure to speak in this debate with you in the Chair, Mr Stringer. I congratulate the hon. Member for Caerfyrddin (Ann Davies) on securing this debate and for engaging with many different pronunciations of the name of her constituency over the course of the last hour and a half. She rightly makes a powerful case for Welsh farming, which all of us in south Wales would like to reinforce.
We will not all agree on the policy under discussion today, but we all agree that topics such as this are important to many and should be properly discussed in this place—ideally at a lower temperature than in this room. I have listened closely to the contributions to the debate, and I thank all hon. Members for setting out their views and for speaking on behalf of not only their constituents, but their acquaintances, friends and family members. The hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) made a clear case about the emotional, not just economic, importance of land to farmers and farming families. Most of us will have someone close to us who farms, but even those who do not will recognise the huge contribution that our farmers make to our food security, our economy and our rural communities. None of us takes those contributions for granted, and we have heard that today.
Before I turn to the specific points raised by hon. Members, I will briefly—I promise it will be brief—set out the context for the Budget decisions we are debating. This Government’s inheritance matters, however much the hon. Member for Keighley and Ilkley (Robbie Moore) declines to mention it. We had unsustainable public finances, equally unsustainable and struggling public services, councils going bust and prisons overflowing, so tough decisions were unavoidable in the Budget if we were to restore economic stability, fix the public finances and support public service. That is the backdrop to the decision to reform agricultural property relief.
That decision was not taken lightly, but it was a necessary decision, not least because rural communities lose out more than most when health, transport and council services across the UK do not live up to the standards that any of us expect. It was the right decision, because the Government will maintain significant levels of inheritance tax relief for agricultural property, far beyond what is available for most assets, because we recognise the role that those reliefs play in supporting farmers.
The debate is really about how we balance the objectives of protecting family farms with the public finances and public services. The status quo—the full, unlimited exemption introduced in 1992—has become unsustainable. The benefits have become far too heavily skewed towards the wealthiest estates. Some 40% of agricultural property relief benefits the top 7% of estates making claims. The top 2% claim 22% of the relief, which means 37 estates are claiming £119 million in a single—
John Glen
The Minister is a serious economist with a serious track record in analysing public finances. With all due respect, given the significant uncertainty and the fact that numerous organisations representing farming interests outside the party political debate have asked serious questions about the deliverability of the scheme and the amount of money that will be raised, surely he must accept that there is time for people such as he to work with officials to find better ways of finding the sums that he says he needs—I am not disputing that—to do the right thing by the farming communities of this country and not cause the unintended damage that will clearly take effect.
Torsten Bell
I thank the right hon. Member for his kind words, even though I cannot agree with everything that followed. I will come on to some of the points that he raised shortly. I think this will come up several times in the course of what remains of the debate, but we cannot use farm valuation data to make claims about inheritance tax claims. On the latter, we have the actual data for the claims made, which is what we rely on.
Several hon. Members rose—
Torsten Bell
I will make some progress and then I will give way.
We see a similar picture for business property relief. It is in large part these reliefs that mean the largest estates pay materially lower rates of inheritance tax than more modest estates. That undermines faith in the fairness of our tax system more generally. Given the pressures we face, it cannot be right to leave this system unreformed, which is a point the hon. Member for Waveney Valley (Adrian Ramsay) made well.
That is the context and the rationale for the changes to how we will target agricultural property relief and business property relief from April 2026. Contrary to the claims that these reliefs are being scrapped, which I am afraid to say were repeated by the hon. Member for Strangford (Jim Shannon) just now, we will continue to provide significant tax relief, including for small farms and businesses. Individuals will still benefit from 100% relief for the first £1 million of combined business and agricultural assets. Importantly, the relief sits on top of all the other spousal exemption and nil-rate bands. Depending on people’s circumstances, up to £3 million can be passed on by a couple to their children or grandchildren free of inheritance tax.
Jim Shannon
I will try to be brief. On the rateable value, which the Minister mentioned earlier, my understanding after talking to the legal person of the Ulster Farmers’ Union is that the rateable value is based on whether the farm was handed over in the 1970s, in the 1980s, in the 1990s or even in the 2000s, but the rateable value does not show the real value of the land. Therefore, it is a flawed system. If it is a flawed system, the Minister needs to go back to the very beginning and look at it. I say that respectfully; I am not trying to catch anybody out. I am just saying that if something is not right, then get it right.
Torsten Bell
The point I was making was about the hon. Member’s point that the relief had been scrapped; I was just making the point that the reliefs have certainly not been scrapped and that they remain very generous indeed.
Beyond the thresholds I mentioned, the 50% relief will continue and there will be a reduced marginal inheritance tax rate of 20%, rather than the standard 40%. Furthermore, in response to the points raised by several Members today about the cash-flow challenges that some farms face, particularly after bad years like last year, I will point out that heirs can spread the payments over 10 years interest-free, which is a benefit that is not seen anywhere else in the inheritance tax system.
Mr Carmichael
If people are looking at a £400,000 bill, which is what they would pay on a £3 million farm, and they earn £25,000 a year, they will still struggle to make that payment in 10 years; in fact, it would be downright impossible. That is how the land gets sold.
Torsten Bell
I will not comment on the individual example the right hon. Gentleman gave, but in general he is right to say that there can be large variations in the profits of farms between years and between farms. That is partly why the tax system already allows us—uniquely for farmers—to average profits over periods of time. Obviously, our advice to all farmers who think they will be affected by the change is that they should seek advice in turn.
I turn to the impact that these reforms will have, as that has been the central focus of most comments today.
Torsten Bell
I will make some progress.
In 2026-27, up to 520 estates claiming agricultural property relief, including those that also claim business property relief, are expected to pay more as a result of this change. That means that around three quarters of estates claiming agricultural property relief will not pay any more than they do now.
The hon. Member for Keighley and Ilkley and the right hon. Member for Orkney and Shetland (Mr Carmichael) asked questions about business property relief and specifically about claims that are not covered by agricultural property relief. Around three quarters of estates claiming business property relief alone—that is, the same proportion that have agricultural property relief, once we exclude those only holding alternative investment market or AIM shares, which are often held for the purpose of avoiding inheritance tax—will not pay any more inheritance tax in 2026-27. All estates making claims for these reliefs will continue to receive generous support, at a total cost of £1.1 billion to the Exchequer. The system will remain more generous than it was before 1992, when inheritance tax was applied at a maximum rate of 50%, including on the first £1 million that was passed on.
Several Members have implied that the change will end the passing-down of farms between generations. I gently point out in response that farmers, agricultural landowners and small business owners did not receive 100% relief on inheritance tax for almost all of the 20th century, yet farms and businesses were very much passed down between generations. Indeed, the tax system will continue to support that process. As the Institute of Fiscal Studies has said, our reforms will:
“still leave…land much more lightly taxed than most other assets”.
These changes should also be seen in the wider context of support we are providing for farmers and rural communities. The hon. Member for Aberdeenshire North and Moray East (Seamus Logan) was wrong in his comments about the Office for Budget Responsibility, as the document produced this week provides no new information. However, he was right about the importance of food security, as was the hon. Member for Great Yarmouth (Rupert Lowe). That is why the Budget committed £5 billion to farming over the next two years, including the biggest budget for sustainable food production in our history. It also committed £60 million to help farmers affected by the unprecedented wet weather last winter. The wider tax system will also continue to support farming—tenants as well as owners—including through exemptions from business rates, the use of rebated diesel and the ability, as I said, to average tax affairs over a number of years.
As we have heard today, the reforms to inheritance tax generate strong views. I understand that. I recognise that a small number of estates will have to pay more. I have not hidden from that today, nor in conversations—
Robbie Moore
Will the Minister confirm when he and the Government will start listening to the points being made by everybody outside this place—different stakeholders, banks, accountants—
Robbie Moore
And supermarkets. The Minister and Government are, dare I say it, alone on this point.
Secondly, as he did not allow my intervention earlier, will the Minister confirm why the Government are not taking into account the value and the size of agricultural units when projecting the impact the changes will have on family farming businesses and farming businesses?
Torsten Bell
The hon. Gentleman raises the question of supermarkets. Supermarkets can talk but there is a lot they could do directly to support our farmers—
Torsten Bell
I listened to the question and I will make more progress. I have not hidden from what I have heard from individuals across the country about this issue in recent months, including from talking to farmers in mid-Wales and East Anglia. Reform of the reliefs is necessary if we are serious about putting our public finances on a stable footing and repairing our broken public services, including the schools, hospitals and roads that communities across the UK—
Torsten Bell
No, I am going to finish. Communities across the UK, including in rural areas, rely on those things every single day. We have taken these decisions to make the system fairer and more sustainable and the decisions come alongside significant new investments in farming and support for small business.
Thank you, Mr Stringer, and all those who have spoken today, in particular the hon. Member for Caerfyrddin for securing the debate. I look forward to her concluding remarks.
Ann Davies
Diolch yn fawr, Mr Stringer. First, I want to thank all hon. Members for their contributions today. I appreciate their words, interventions and speeches. This is so important for food security but for us in Wales it is also, as has been mentioned, about the Welsh language and our culture. As I mentioned in my speech, there are alternatives that could bring further taxation into the Treasury and, more importantly, secure our food-producing farms for future generations. I have to be honest, I am really disappointed with the response we have had from the Government and the Treasury today. It is not what I was hoping to hear.
The issue affects my constituency of Caerfyrddin—I will say it again so Members can tune in to the pronunciation, although I thank everyone for trying—where 60% of residents live rurally. It affects all rural constituencies, of all political colours. We are here to represent our constituents and I ask kindly if we can do that with integrity, purpose and fairness. We need to have a Welsh impact assessment of the APR and BPR and I call again on the Government to do that.
Question put and agreed to.
Resolved,
That this House has considered the impact of changes to Agricultural Property Relief.