Small Farms and Family Businesses

Baroness Bakewell of Hardington Mandeville Excerpts

Thursday 12th December 2024 Lords Chamber

[Baroness Bakewell of Hardington Mandeville (LD)]

It is a pleasure to follow the noble Lord, Lord Douglas-Miller. I congratulate the noble Earl, Lord Leicester, on securing this important debate and on his knowledgeable and thorough introduction. I also congratulate the noble Baroness, Lady Cumberlege, on her valedictory speech. She will be greatly missed in this Chamber.

Ministers have given reassurances that small farms will be unaffected. Sadly, there is something of a misunderstanding of just what constitutes a small farm. The cost of land has a distorting influence. A small farm of 100 acres could be valued at £1 million but, as your Lordships and farmers will know, you cannot make a living out of 100 acres. The minimum size for a farm to be able to support the farmer is about 240 acres, and even then it would be a struggle. Farmers at the lower end of the size range are capital rich but income poor.

While the legislation was intended to target the rich, who may not be farmers and have used farmland as a tax dodge, the new tax legislation will have a far greater impact. The new threshold for inheritance tax includes both APR and BPR, combining the value of land, machinery, buildings and other assets. Many family farms, even modest operations, could exceed the £1 million threshold in assets, leaving up to 66% of farms facing higher tax bills.

Those following nature-friendly farming principles have found this a bitter pill to swallow when they have faced so many pressures in recent years, including seeing their profits dwindle as suppliers and retailers extract value from the food system. While supermarkets continue to post profits year after year, farmers can be left with less than 1% profit from the food they produce. The Government are allowing farmers 10 years to pay their IHT on an interest-free loan. Banks will not lend for investment while there is a loan against the farm. In many cases, the yearly IHT payment will be more than the income generated from the farm. This will lead to selling off the land. The APR changes will have a significant disruptive effect in the land market. These disruptive effects will affect even tenants, who are not directly affected by the APR.

As the noble Earl, Lord Devon, has said, this is not the only pressure facing farmers and their cash flow. There are the NI changes, the speeding up of the BPS transition, border adjustment taxes on fertiliser, tax changes on pick-ups et cetera. All this is having an effect on the morale of farmers. We have heard little about the impact of these pressures, as it is all being lost in the noise around APR. The right reverend Prelate the Bishop of Norwich referred to the mental state of farmers.

Unfortunately, in some cases APR has been used by wealthy landowners to avoid inheritance tax. This is the driver for the Government announcing their plans to reform APR. Their view is that it is not fair for a small number of claimants each year to claim such a significant amount of relief, when this money could be better used to fund public services. That may be a reasonable argument for large farmers and landowners, and I agree with the noble Lord, Lord Londesborough, but why penalise the small family farm? Food production and biodiversity schemes could suffer as a result. The NFU view, which I share, is that the Government do not understand that family farms are not only small farms. Just because a farm is a valuable asset, it does not mean that those who work it are wealthy. Every penny the Chancellor saves from this introduction will come directly from the next generation having to break up their family farm.

An Institute for Fiscal Studies analysis has said that the policy could be tweaked. For example, farmers passing away in the next seven years will not have had the opportunity to avoid inheritance tax by making lifetime gifts. The policy could therefore be brought in more slowly, or gifts of agricultural property made before a certain future date could be inheritance tax free, regardless of the timing of the death. Other noble Lords have raised this issue.

The Government might also consider raising the threshold for the introduction of APR from £1 million to £3 million—the noble Lord, Lord Londesborough, gave a higher figure. My colleague in the other place, Alistair Carmichael—and the noble Earl, Lord Leicester —said:

“Agricultural property relief is not a loophole; it has been a deliberate policy of successive Governments for the past 40 years, designed to avoid the sale and break-up of family farms … These changes will have a ripple effect across the whole rural community”.—[Official Report, Commons, 4/11/24; col. 24.]


The current price paid to farmers for food is at rock bottom. Some supermarkets squeeze producers beyond what is feasible. The price paid by consumers bears little relationship to the cost to the farmer of growing the crop or rearing the stock. Despite what the Government might think, very few small farmers own tractors of the size and scale that television viewers see on Jeremy Clarkson’s programme. The media concentration on this television programme has led to a total misrepresentation of the role of the small family farmer.

In addition, the CLA rejects the Government’s claim that this move will not affect family farms. Its modelling highlights how a couple who own an average 350-acre English arable farm would have to spend 99% of their yearly profit over a decade to afford their inheritance tax bill. More starkly, a single farmer with 200 acres would have to pay 136% of their yearly profit to cover the bill.

Outside APR, the plight of farmers is also hit by the unexpected cut to delinked BPS payments. The current payments should have been 15% to 20%, which was 76% of the first basic payment, but that is now down to £7,000. The previous predicted basic payment this year would have paid the rent of a tenant farmer, but it will not do so now. The CLA believes that the announced cap would affect 70,000 farms, which is 75% of utilised agricultural area in the UK. This will be damaging to food security—the noble Baroness, Lady Mallalieu, referred to this.

As we approach Christmas, spare a thought for the farmer who gets up in the dark to feed and tend their stock, all while children are opening their stockings. It is right that the wealthy farmers and landowners should pay inheritance tax, but the effect on the smaller family farm has been misjudged. I ask the Minister and his Treasury colleagues to think again.