Rural Economy

Lord Carrington Excerpts

Thursday 19th December 2024 Lords Chamber

[Lord Carrington (CB)]

My Lords, I too thank the right reverend Prelate—or perhaps, in view of earlier remarks, I should say Primate—for tabling this timely debate. I draw attention to my farming and other rural interests as set out in the register.

As most economists and others would agree, if growth is the Government’s priority then their Budget should incentivise businesses to grow, rather than raise taxes on them. This applies throughout the economy but is particularly relevant in the case of rural business, which is dominated by farming and small family businesses. I note, however, that the Government have moved from the growth that they were targeting in opposition to the less ambitious task of raising living standards in the recently announced six milestones. The rise of over 16% in the national living wage—a 40% rise in just five years—together with the increase in employers’ national insurance to 15% will have a disproportionate impact on horticulture, tourism and the hospitality industry. This is not promoting economic growth and creating favourable conditions for investment.

On top of this, as we have heard, there are the changes to APR and BPR. I will not dwell on this, as it has been the subject of much debate already, but will repeat my remarks from a previous occasion. I pointed out that independently verified figures were required for those likely to be affected, in view of the significant differences in the estimates of the NFU, the CLA, Defra and the Treasury. At that point, a sensible government decision on tax could follow. This is particularly important in the light of the 2019 report by the Office of Tax Simplification, which said:

“It is generally understood that the main policy rationale for BPR and APR is to prevent the sale or break up of businesses or farms to finance Inheritance Tax payments following the death of the owner”.


No doubt the Minister or her Treasury colleagues will tell us what has changed since then.

In this debate, I wish to highlight the effect of these tax changes on growth and productivity in the rural economy and how they undermine much-needed investment and innovation. Family businesses of all types will be quantifying their future tax liabilities and avoiding value-adding investments that would increase their tax burden. Long-term resilience, diversification, competitiveness and environmental care will all be affected. On the farming side, this is compounded by rising input prices, the unexpected cuts in BPR and APR, delays in some farming subsidies and poor profitability. This has resulted in farmers reducing investment and not hiring staff. The Government’s claim that they have committed £5 billion to farming rings particularly hollow when inflation is taken into account and after the inheritance tax hike.

Reduced investment affects productivity through new technology, buildings and IT systems. I am a member of the APPG on Science and Technology in Agriculture, where we have focused on the need to attract investment to support farm-level innovation, as the UK is a recognised powerhouse in plant science and agriscience. Robotic equipment, autonomous machinery and the use of AI to advance crop and livestock breeding, together with vertical farming, will improve productivity, efficiency and the environment.

I note that none of these technological advances is covered by the eight areas of focus—that is, the areas that will generate the most growth—identified in the recent announcement of the Government’s industrial strategy. With the right investment climate, we might even be able to emulate the United States in trying to deliver a 40% increase in food production by 2050 and reducing farming’s environmental footprint by 50%. Can the Minister tell us how the Government’s industrial strategy and new tax regime will support this type of productivity investment?

Although noble Lords have mentioned many other important issues, the tax system is the most important factor in the growth of the rural economy and it is far from being fit for purpose. It inhibits growth, not just in farming but in horticulture, hospitality and tourism—I could go on—as well as in family businesses, from builders to butchers and garden centres to timber merchants. Contrast this with the support being given to so-called creative industries producing films, TV and video games. Tax credits for this industry are calculated to cost the Treasury £2 billion a year, compared to the new cap on BPR and APR which will generate the Treasury some £520 million a year. The Government have chosen fun over food security and family businesses.