Small Farms and Family Businesses

Lord Roborough Excerpts

Thursday 12th December 2024 Lords Chamber

[Lord Roborough (Con)]

My Lords, I declare my interests in the register as the owner of a dairy farming business, commercially managed forestry and let agricultural property, and as a shareholder in Agricarbon and John Deere. I am most grateful to my noble friend Lord Leicester for securing this vital debate on these highly unpopular Budget proposals. It allows the Government to reflect on whether they are wise or appropriate.

I very much enjoyed my noble friend Lady Cumberlege’s valedictory speech, bringing an end to a remarkable 34 years in this House. It is clear that the House has been lucky to have my noble friend as a Member and is very grateful for her dedication to healthcare, and women’s healthcare in particular.

It is widely reported and understood that this was a business-unfriendly Budget, with the rise in employers’ national insurance contributions the biggest hit to business. However, I want to spend my time in this debate addressing inheritance tax reliefs. This was a disastrous Budget for family businesses. The reduction in APR and BPR inheritance tax relief to 50% of the value of estates in excess of £1 million will destroy existing long-term plans for those businesses. According to Oxford Economics, family businesses employ 14 million people; they are already responsible for £225 billion per annum in tax, according to PwC. Given that most of our largest businesses began as family-owned companies, I ask the Minister how this tax can be anything but negative for our economic growth outlook.

Beyond that, this tax is cruel as it falls unexpectedly on those who are now nearing the end of their lives and have no ability to mitigate or plan around it. It also falls on those who die young through accident or illness. As the noble Baroness, Lady Mallalieu, the right reverend Prelate the Bishop of Norwich and the noble Lord, Lord Curry of Kirkharle, have already mentioned, what do the Government expect the most elderly and infirm to consider to avoid the inheritance tax burden on the next generation as the tax deadline nears?

In a Written Answer to my question on whether the Government planned

“to keep monthly data on farmer, landowner and family business owner suicides”,

the Government answered that

“the ONS is committed to continuing its quarterly publication of suicide statistics and analysing suicide deaths by occupation using annual data … a more regular presentation of suicide deaths by occupation is not planned”.

Given that the Government have just created an incentive for such individual tragedies, I think this House might feel that they should at least measure its outcome. I ask the Minister to commit that the Government will gather and publish monthly statistics on suicide rates by those potentially impacted by these taxes in the run-up to their introduction on 6 April 2026.

Members of His Majesty’s Government have suggested that this can be avoided by passing assets to the younger generation more than seven years before dying, relying on the potentially exempt transaction rule. Who in this House knows when they are going to die? Should this tax be paid only by the children of those farmers or business owners who have suffered a fatal accident or succumbed to a sudden illness?

The Government have claimed that only 500 farms will be affected in 2026-27—equivalent still to over 10,000 farms in total with this guillotine hanging over them. However, the Central Association of Agricultural Valuers calculates that 75,000 farms will be impacted and the NFU, 75% of commercial farms. I listened with interest to the noble Baroness, Lady Foster of Aghadrumsee, citing 50% of Northern Irish farms also being caught.

The Government have failed to take into account the 14,000 tenant farms, many of which have over £1 million of business property, or the vast number of farms that are in companies or partnerships, which also qualify for BPR only. Can the Minister explain whether this is indeed the case and makes the claim of 500 farms incorrect? It would appear in recent answers to my Written Questions that this claim has been modified to 520 estates claiming APR that will be affected. Could it be that the real answer is that many times as many as this number of farms will be affected, as every organisation well informed on this sector claims?

On tenant farmers, I would add that the loss of 50% APR will incentivise private landlords to dispose of their land rather than let it out. Rental yields are typically less than 2% before tax, making the payment of IHT completely unaffordable. Surely it is not the wish of the Government to restrict the opportunities for those wishing to rent farmland. Around two-thirds of working farmers rent some or all of their farm’s land, according to the NFU.

While family businesses outside farming may be better placed through lower capital intensity to pay this death tax, many, if not most, will be structured as companies, with the tax paid from dividends. The cost on those companies being transferred from one generation to the next will incur a full inheritance tax rate of around 50%, as tax on dividends will also be levied prior to HMRC getting its money.

As my noble friend Lord Leicester also mentioned, family businesses compete against foreign-owned, publicly owned and institutionally owned companies that will not face this death tax. For family-owned companies, investment in new products and services, in more efficient equipment and in expansion becomes crippled by this new cost of doing business that is not borne by their competitors. Markets are fiercely competitive and small cost or technology advantages can mean the difference between thriving and dying. In a post-Budget survey, CBI Economics found that 56% of family businesses planned to reduce investment and 32% to reduce employment. That does not bode well for the competitiveness of family companies.

The figures, explained so well by my noble friend Lord Leicester, show that family farms have no prospect of paying this death tax out of income, which in turn means either taking on debt or selling off assets. Both further cripple those farms by either high annual interest and capital repayments or reduction in scale. On the payment data that my noble friend gave as an example, it is likely that family farms will not have paid off the debt for one inheritance tax bill before another one comes along. This is why 13,000 farmers protested in Whitehall recently and why we saw more than 600 tractors driven in Parliament Square yesterday. This is an attack on a way of life and farmers are in despair.

In answer to an Oral Question on 2 December, the Minister, the noble Baroness, Lady Hayman of Ullock, said that

“the APR changes are not designed to undermine small family farms and I know that both Defra and the Treasury have been meeting with stakeholders to discuss this matter further”.—[Official Report, 2/12/24; col. 912.]

Does this mean that the Government are still consulting on these Budget proposals?

I hope that this debate has explained to the Minister that the reduction of IHT reliefs for agricultural and business assets could lead to a loss of £9.4 billion of economic output, a loss of 125,000 jobs and a net cost to the Treasury of £1.3 billion between 2026-27 and 2029-30, all according to CBI Economics, while bringing misery to many, as it will largely be a tax on unexpected tragedy, if business owners follow the Government’s tax advice. Noble Lords have highlighted so many other negative impacts—on rural communities, land stewardship, food security and nature restoration. That leaves the only remaining justification for this policy to be ideology, or perhaps a mistake. I hope that the Government are big enough to concede that this was a mistake that they will reverse or heavily revise. I very much look forward to the Minister’s response.