Small Farms and Family Businesses

Earl of Leicester Excerpts

Thursday 12th December 2024 Lords Chamber

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[The Earl of Leicester]

That this House takes note of the impact of the Government’s budget proposals on the future of small farms and family businesses.

[The Earl of Leicester (Con)]

My Lords, I am grateful to Conservative colleagues for giving me the opportunity to hold this very topical and important debate. I look forward to hearing what noble Lords have to say on the matter. Indeed, looking down the list I see that it is populated with titans from this House. I also look forward, albeit with some sadness, to the valedictory speech of my remarkable noble friend Lady Cumberlege. She has been a giant at the centre of healthcare for decades, and we are grateful to her for her many achievements.

The achievements by the Chancellor in the Budget are too many for me to list in 15 minutes, so I shall rely on noble Lords following me to elaborate on those I miss. The delinked BPS payments have been summarily cut, out of the blue, with no warning. Money that businesses had earmarked for growth or investment, or to pay the wages of a new tractor driver to undertake all the environmental work on a farm that I know of, has gone. Meanwhile, national insurance contributions have gone up and the baseline has come down. The living wage has gone up way beyond inflation again, with no recognition that this affects the pay differentiation of supervisors and junior managers who are just above employees on the minimum wage or living wage. This will have a huge effect on all business across the country. I know of a small GP surgery in Norfolk that now has another £250,000 added to its costs. Were we not told that this money was to plug the gap in NHS funding?

The cost of employment has become prohibitive, inflation is creeping up and interest rates remain stubbornly high. This Government are making the cost of business prohibitive. Then the Chancellor dropped the “A-bomb” in the Budget, which she followed with a “B-bomb”: agricultural property relief capped at £1 million as if it were personal wealth, instead of what it really is—a business asset.

The president of the CLA, Victoria Vyvyan, visited Lower Leighton Dairy in Wales a couple of weeks ago. It has invested millions of pounds in technology. It is a cutting-edge dairy, an incredible place with inquisitive animals that themselves are valued at over £1 million. Now, all that investment is going to be taxed on death. Will the dairy go to the bank to borrow £10 million again? I do not think so. Why would it bother?

All the CLA and NFU modelling shows that farmers and their businesses cannot afford this change. There is not the profitability in farms or in the diversified farm businesses to pay this tax. I have heard it said on the Government Benches that APR is a loophole—that is so not true. It is a specifically designed policy introduced in the Inheritance Tax Act 1984 to protect Britain’s family farms from being sold and broken up. For this reason, Governments of all parties have retained APR. APR and BPR are necessary tax reliefs that help people do business across multigenerational businesses.

Ironically, this Government were elected on a mandate for growth. In the rural economy we have the capacity to grow, so instead of taxing small businesses into non-existence, perhaps if they encouraged people to grow their businesses with the right policies, they might end up with more income tax.

While in opposition, Defra’s Secretary of State, Steve Reed, provided multiple reassurances privately and publicly to the NFU and the CLA that Labour had no intention of changing APR. Rural businesses now have no faith in the man or his party, although I have some sympathy for those at Defra and its hapless Ministers. They have been cut off at the knees by an unthinking Treasury.

Outside of agriculture, many small family businesses will be caught by this. According to BDO accountants, in one short month since the Budget, high street retailers had their worst slump since Covid, with November sales tumbling 5.8% year on year. Part-time Christmas job vacancies have fallen by a staggering 12.9% this year. Business confidence, as judged by the IoD, has nosedived to the lowest form since April 2020, plunging from minus 52 to minus 65.

Business leaders are pointing the finger directly at the Chancellor and her tax hikes, with national insurance contribution hikes alone expected to cost industry £7 billion. Wetherspoons boss Sir Tim Martin said:

“All democratic governments need to manage the relationship between an economic horse and the public services cart—society needs both. This Government has disincentivised and discouraged the horse”.


BPR is crucial for family business owners, helping them to plan for succession, with long-term strategies that retain value within the business to drive investment and growth. Changes to inheritance tax create uncertainty among family businesses, which will feed through to reductions in investment, headcount and turnover.

There are currently an estimated 4.8 million family-owned businesses in the UK. They are predominantly very small. Oxford Economics has estimated that 74% have zero employees, owned by people who are themselves self-employed, while 25% have between one and 49 employees. The vast majority—92%—of UK family businesses are worth more than £1 million.

Family Business UK commissioned CBI Economics to undertake research into the effects of the loss of this relief on family businesses. More than a quarter of family businesses expect to change ownership in the forecast period, which is the four and a half years that this Government might hope to have in office. Some 18% of businesses expect to change ownership between April 2026 and 2028, with a further 9% expecting to change ownership between April 2028 and 2030.

There will be a reduction in economic activity as a result of the Budget changes: 85% of family businesses say they will decrease investment by, on average, 17%. More than half—54%—will decrease headcount by an average of 10%. Four in 10—41%—are anticipating reductions in turnover, with an average loss of 7%. An overwhelming majority of family-owned businesses expect detrimental impacts from the changes to BPR, with 15% expecting to have to sell off their business entirely, 2% closing the entire business and liquidating it, and 2% locating the business overseas.

When BPR reliefs are reduced the Government believe that it will bring an increase in tax revenue and, bizarrely, an increase in UK economic activity. But the reality is that an increase in tax burden on businesses due to increased costs will lead to reduced investment, reduced headcount, reduced turnover, partial or full selling of the business, reduced stability and, crucially, reduced competitiveness versus foreign and non-family businesses that do not have to pay these charges or make tax planning a priority. The net result is that the total tax take will be smaller than the Government think they will get. In the process, they will have destroyed thousands of family businesses that are the bedrock of the country’s economy.

Every single Labour Government that ever existed left office with unemployment higher than when they came in; with this Budget, we will see more of the same. The Exchequer is expecting to raise £1.4 billion in tax revenue from family-owned businesses over a five-year period by changing BPR. However, the reality is that the Exchequer can expect a £2.6 billion reduction in total tax revenue from family-owned businesses, caused by reduced activity of those businesses in the same period: less production, less spending, less income and less national insurance contributions. The Exchequer will actually be expected to make a net fiscal loss of £1.26 billion over the next five years.

I return to family farms. Farming has a very small profit margin. We are talking about a return on capital of anything between 0.5% and 0.9% each year, from what a farm’s land, buildings, tractors, equipment and stock are worth. I predict that the impact of the brutal withdrawal of the remaining single farm payment of agri-funding, with no warning, will supress that surplus by a third—let us say a 0.5% return. A tax of 20% over a generation—typically 30 years—comes out at 0.66% recurring. That is clearly unpayable if someone’s return has dropped to 0.5% a year. Can the Minister please acknowledge the mathematics of this question?

Then there is the practicality of actually paying this death tax—because that is what it is, a tax on death. The first instalment has to be paid within six months of the date of death. This can be interest-free and paid over 10 years, but only as long as you have paid the first 10% within the first six months. But how many farms, quite complicated businesses, will even have completed probate by this time? District valuer officers have not dealt with these sorts of valuations for over 40 years—over a generation. I doubt very much whether they will be tooled up with enough resources to provide the service they should and ensure that their letter, or that of the capital taxes office, arrives within six months. What the successors pay on time to qualify for this interest-free allowance will therefore be guesswork. This is unnecessarily cruel when you have just lost your father.

The Government say that 75% of farmers claiming agricultural property relief will not be affected, but most claimants are not even farmers. Nearly 40% of land holdings that claim APR in England are under 50 acres, containing perhaps a couple of horse paddocks. These account for barely 4% of the farmed area, so the Government’s claim is specious. Furthermore, BPR is to be merged with APR, meaning that all tractors and combines—which can cost up to £0.5 million—and stock will fall into the equation too. Therefore, it is very likely that, if the owner of a small family farm dies, his or her successors will be charged IHT at the new rate of 20% on at least some of their assets, even if the land does not reach the APR threshold.

Suppose a farmer is hit with an IHT demand of £500,000; it is very unlikely that that money will be in the bank. Most farmers are either in debt or have very small cash reserves. It is unlikely that they will be able to pay that bill out of income, so they will have to sell some acres—admittedly, for quite a bit of money. However, this will make the farm less viable in future. Sale of land or assets, integral to the viability of the farm, will be the only way to get cash to pay the tax. In this case, they will have to realise an asset, with all the costs of selling it, and then from the profit of selling it, hand back a big chunk to the Government. Of course, they have just become liable for 24% capital gains tax too.

CLA modelling has suggested that, based on differing models of farm size, this may mean selling between 16% and 28% of the farm. A farm is not like a share portfolio or a collection of buy-to-let properties; it is so much more difficult and inefficient to try to sell 20% of a farm. The land cannot be consolidated or relocated.

Who will buy this land? It will not be the neighbouring family farm, as they will be in the same boat. It is more likely to be a very rich individual, to whom a 20% tax hit will not necessarily be a problem. It is much more likely to be a corporate farming business—a corporate that wants the land for energy generation or tree-planting and carbon sequestration; a charity such as the RSPB or the National Trust; a government body such as Natural England or the Forestry Commission; or a local council that may need it as a carbon land bank. What is the single factor that separates these large organisations from a family farmer? They do not die—I repeat to the Minister: they do not die—so they never have to pay this tax, whereas individuals do. That is simply unfair.

IHT is a death tax on family businesses and on small people. It is deeply unfair, when, as I have just illustrated, much larger and wealthier land-owning organisations are exempt from it. I would like the Minister to answer that. One thing I hope this debate does is to shine a spotlight on IHT generally. As I understand it, 96% of people in this country do not pay it and it does not raise a great deal of money.

What we are seeing now in some sections of the Labour Party is the old-school socialist view that land should not belong to an individual: yes, you can own a house, but land should belong to the state. That was Lenin’s view, and he deliberately expropriated land from an enormous number of people, with disastrous effect. Following the Budget, the Deputy Prime Minister was heard to say that, when a farmer dies, it is right that some of the value of the land comes back to the state. Really?

As Jeremy Clarkson said, if Rachel Reeves had wanted to attack landowners such as himself or Sir James Dyson,

“she would have used a sniper’s rifle, but she’s used a blunderbuss”.

I hope that, at the end of this debate, the Labour Government will have gained a greater understanding of the issues at stake. They must surely reconsider this disastrous Budget, or are they really determined to be this tribal and venal? If they are, it will not end well for them. This is structural vandalism of the farming ecosystem by a Government that did not consult, did not listen, did not learn and did not see the flaws in their plan, and that now need to stop, listen and think through the harm that their Budget proposals will cause. They need to step back and understand that APR and BPR are not tax loopholes; they are enablers of successful tax-paying businesses that take multiple generations to achieve the ability to operate in a highly competitive, difficult and volatile market.

--- Later in debate ---

[The Earl of Leicester (Con)]

My Lords, first I must apologise for not mentioning earlier my interests as laid out in the register. They include land ownership in Norfolk, let land, my own farming interests and managing arguably the most important national nature reserve in the land at Holkham.

This has been an excellent debate, with many excellent points made by noble Lords from all sides. I thank all Peers who have contributed. I started writing down everybody’s name, but it was pointless because everybody’s contribution has been incredibly meaningful, emotional and well researched. There were certain noble Lords who could not participate today, such as the noble Baroness, Lady Batters, my noble friends Lord Forsyth and Lord Fuller, and those who were scratched. Other noble Lords were unable to speak on such a controversial topic by virtue of the committees they chair. It is only controversial because this Government made it so by producing such a venal Budget.

I thank noble Lords from the Conservatives, Lib Dems, Cross Benches and the Bishops for taking such an interest in this Bill. It must be very embarrassing that the Government had only one Member of their Back Benches speaking on it, the noble Baroness, Lady Mallalieu—and she was speaking on our side of the argument. It is a great shame, and just demonstrates that this Government do not really seem to care about this issue. I feel sorry for the Minister having to read out that brief, parrot-fashion. He should credit Members of this House with some intelligence; we all spoke in this debate because we know something about it.

Unfortunately, this tin-eared Government have yet again demonstrated their lack of understanding of wealth creation other than through what is arguably their only understanding of it: the short-term and inevitably short-lived medium of taxation. With not a single Cabinet Minister having any real-world business experience of wealth creation, how could they? Before the general election, without exception, every single candidate for their top-100 target seats came from the public sector. Together, they have trumpeted the same old socialist mantra of misconceived wealth redistribution. With this Budget, they have completely missed their target.

The Minister was wise enough not to mention the £22 billion black hole. How we in this House are getting bored with it, as are the public. Last week, I discussed this very matter with the right honourable Jeremy Hunt. He, and we on these Benches, have rubbished that figure, and the OBR has stepped back from it. I hate to have to inform the Minister, but frankly the voters no longer believe it either. As the oldest democracy in the world, we are lucky enough to have a very sophisticated electorate. They can clearly see that the so-called black hole was entirely of Labour’s own making. They created it when they gave their chums in the unions—the train drivers and the junior doctors—huge pay rises without negotiating any change in their terms and conditions.

This Budget was sadly put together with no impact assessment, no consultation with Defra, no idea of how much revenue it would generate, and certainly no consideration whatever for the damage, and in many cases the destruction, it will cause to hundreds, maybe thousands, of small family farms and businesses.

We always hear this Government and their acolytes decrying the far right for rioting and for questioning or criticising the perceived wisdom of the intellectual elite and its progressive policies—and now, increasingly, for thought crime. Let us see it as it is: this is not a Labour Government; this is a far-left Government. History records that the far left has been far crueller and always does far more damage to its subjects, particularly its agrarian population, in its vainglorious pursuit of misplaced ideology. It is straight out of the World Economic Forum’s playbook: “In the future, you will own nothing and be happy”.

Motion agreed.