Small Farms and Family Businesses

Lord Northbrook Excerpts

Thursday 12th December 2024 Lords Chamber

[Lord Northbrook (Con)]

My Lords, I declare my interest as a Hampshire farm owner.

The Prime Minister, when speaking to the NFU in 2023, pledged to have

“a new relationship with the countryside and farmers”.

He promised to provide certainty and to work with farmers, insisting that

“food security is national security”.

Also, the Defra Secretary Steve Reed, while in opposition, provided multiple reassurances that Labour had no plans to change agricultural property relief. In this speech I will be refuting several government claims to justify the tax change and how they are underestimating its impact on family farms. For this information, I am drawing on briefings from the CLA and NFU. Can the Minister respond to my refutations?

The first claim is that it will affect only a small number of farms. Several bodies and member organisations in the rural sector have independently concluded that this is inaccurate. The CLA estimates that, in its current form, the cap could affect 70,000 farms in the UK over a generation. Significantly, these farms make up 75% of the utilised agricultural area in the UK. This means that, although the cap may not affect the smallest holdings, it has the potential to be immensely damaging to UK food security.

CLA modelling has also found that, for an average arable farm in England, IHT will start applying at 250 acres for a farming couple and 100 acres for a single farmer. With the average farm at around 215 acres, it cannot be claimed that only the largest farms will be affected. This cap will lead to transformational change in the industry over time. The CLA has already heard of numerous examples of rural businesses stopping investment due to these changes.

The next government claim is that most farms will not be affected until they are worth £3 million. It is true that some farming couples will be allowed assets worth up to £3 million before IHT occurs on their farm. However, the £3 million will be available only if both the couple’s nil-rate bands are not used up, and if resident nil-rate relief is available in both cases. Often it is not.

The position also fails to consider the 46% of farms that are owned by single farmers. CLA modelling shows that a typical 200-acre farm owned by an individual with an expected profit of £27,300 would face an IHT liability of £370,000. If spread over a period of 10 years, this would require the farm to allocate 136% of its profit each year to cover the tax bill. To meet this bill, successors could be compelled to sell 16% of their land. For a 250-acre single farmer, the cost would be 151% of their yearly profit for a decade. The fact that these costs are spread over a decade means little to working farms if they are forced to pay over 100% of their yearly profit for each of those 10 years in order to fund their IHT bill.

The next government claim is that, with good succession planning, most farmers will not have to pay IHT. On several occasions, the Government have hinted at this. This misunderstands farming businesses. A major concern is based around rules on gifts with reservation of benefit. In its current form, to avoid IHT, a farmer will have to pass on their land to a successor seven years prior to their death. However, for this transfer to be valid, the farmer cannot take income from the farm or live in their property without paying a market rent for those seven years and after. This is a major concern, as a significant number of farmers do not hold a pension. A recent assessment from Investec wealth management found that 96% of farmers see their farm as their pension, while 46% expect the farm to provide more than 50% of their retirement income. These farmers will not be in a position to succession plan and avoid IHT. In addition, as acknowledged by independent organisations such as the IFS, this policy is unfair to those who will pass on in the next seven years.

Autumn Budget 2024

Lord Northbrook Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Northbrook (Con)]

First, I declare my property and land interests, as per the register.

When voters returned a Labour Government, they may have believed they were electing a party with similar views to the Blair Administration in 1997. Then, business capital gains tax was lowered to 10%, £10 million entrepreneurs’ relief was introduced and there were no capital tax increases. Instead, we are heading back to the 1970s. We are going to be suffering the highest tax rates since the Second World War, unions are demanding ever higher wage settlements, and businesses are being used as cash cows rather than being encouraged to grow.

The main area of growth will be public sector spending. Handing £22.5 billion to the National Health Service is a measure that many voters would instinctively agree with, but, if it is not followed by a rigorous programme of reform, increased productivity and falling waiting lists, that money may well be wasted, like other funding settlements announced in the past. As the Times pointed out:

“What a familiar definition of Labour in power it is … and a Bill underwritten by employers and the asset rich”.


The Chancellor would argue that her Budget fulfils Labour’s promises of protecting the income of working people. It is clear at least who these working people are: those who work for other, richer people who now face an unappetising menu of fiscal disincentives to business expansion and job creation. Whatever she claims, the Chancellor did not once indicate that she planned to raise an additional £25 billion from higher rates of national insurance on employers.

Of the claimed £22 billion black hole in the nation’s finances, £9 billion is public sector employee pay, but can the Minister explain the mystery figure of “normal reserves claims” of £8.6 billion? I am not quite sure what that represents. What is bad for bosses in this instance will ultimately be bad for the workers the Chancellor is seeking to protect. Firms could well invest and hire less. According to the OBR, some 60% of additional costs will be passed on to employees. None of this is good news for Labour’s working people.

To continue on the tax theme, Labour have failed to explain how its tax hikes are anything but prejudicial to small businesses—enterprises that ought to form the backbone of its growth strategy. It is hard to avoid the conclusion that Labour does not understand how growth is generated. The Chancellor seems to lack an instinct for timing. Over the four months before she delivered her Budget, she encouraged negativity to drive capital out of the country, particularly with regard to non-domiciled individuals who, contrary to the Treasury’s belief, contribute hugely valued tax revenue.

Speculation also depressed consumer expenditure and unsettled private sector confidence. In the days since the Budget, the Treasury’s reaction has been ponderous and largely defensive. It was not until five days after the election that the Chancellor grudgingly conceded the obvious truth that Labour had erred in promising voters that there would be no need to raise taxes in government.

More disappointing, however, than that broken but largely unconvincing promise, has been the Chancellor’s failure to live up to another pre-election pledge: that of running the

“most pro-business Treasury our country has ever seen”.

None of the Government’s fiscal measures suggests they are serious about creating the conditions necessary for private sector growth. The employers’ national insurance increase will especially penalise small businesses wishing to expand. Added to this anti-employer agenda, Labour’s package of strengthening working rights is expected to cost firms some £5 billion a year. This is a recipe for smothering growth.

Less defensible still are Labour’s punitive reforms to business and agricultural property relief. The Government’s proposed 20% hit at the point of inheriting a company will be sufficient to force the selling of many smaller companies’ businesses, yet the UK’s 5 million family firms provide some 14 million jobs, generating billions in tax revenues. Discouraging this wealth creation is a transparent act of economic self-harm. The end of inheritance exemptions for farmland will hugely damage the smaller family farm, particularly as the farmhouse and machinery element will quickly eat into the £1 million exemption. Such policies damage enterprise for meagre gains to the Treasury.

In contrast to the previous Government, notably few of Labour’s Front Bench have experience of building a firm or even working in the private sector. Their misjudgments manifest this lack of experience. The Chancellor seems not to appreciate that it is the industry of private citizens within a favourable regulatory environment that acts as the engine of growth and, eventually, of enhanced living standards and public services. In opposition, she paid lip service to such ideals; now, she must get down to business and deliver. In summary, this is an old-fashioned Labour Budget of the 1970s, and we know what happened to the country’s finances then.