Rachel Reeves unveiled the first Budget of the new Labour administration on the 30th October. As expected, it included large tax increases to fix the fiscal ‘black hole’ the Chancellor says she has inherited. A number of the announcements have direct implications for farming.
The Office of Budget Responsibility (OBR) has updated its economic forecasts for the years ahead. These show fairly anaemic growth for the medium term, and inflation not reverting to its target level of 2% until 2029. Of course, one of the guiding principles for this Government is to boost economic growth. This is not a short-term process however, and even sucessful policies will take years to show an effect.
Headline points from the speech include;
- As widely trailed, the rules on Agricultural Property Relief (APR) for Inheritance Tax (IHT) are to be amended, along with Business Property Relief. 100% relief will still be available for the first £1 million of combined agricultural and business assets. On combined assets above £1m, IHT will be payable at 50% of the normal rate (50% of 40% = 20% effective tax rate). The IHT threshold is to remain fixed at £325,000 until 2030. At a land price of £10,000 per acre the new rules will hit farms abover circa 100 acres – hardly large farms. The change is to be introduced from April 2026. The rules on Potentially Exempt Transfers (PET) are unchanged meaning assets can be given away tax free if the donor survives 7 years. There will be transitionary arrangements on this where deaths occur between now and April 2026. The ability to pay IHT over 10 years remains. From April 2025 land entered into environmental schemes will be eligible for APR
- The rates of Capital Gains Tax are to increase. The standard rate will rise from 10% to 18% whilst the higher rate lifts from 20% to 24%. This aligns the rates with those for residential property
- The biggest tax increase comes in the form of a rise in Employers National Insurance (NI) contributions. The rate will go up by 1.2% from 13.8% to 15%. The threshold at which payments start is also to be lowered from £9,100 to £5,000. A very thin silver lining for employers is that the Employers Allowance will rise from £5,000 to £10,500. The changes to NI are predicted to raise £25bn
- Minimum wage rates are to rise from April next year. The National Living Wage for those 21 and above will go up 6.7% from £11.44 per hour to £12.21. The 18-20 year old rate goes up from £8.60 to 10.00, whilst the Apprentice rate jumps from £6.40 to £7.55. The combined effect of the NI and Minimum Wage increases will have a significant effect on those that employ a lot of labour at low wage rates – for example the fresh produce sector
- The thresholds for Income Tax and NI will remain fixed until 2027/28 as previously announced. This is effectively a stealth tax as ‘fiscal drag’ gradually brings more people into higher tax bands as inflation takes effect. Thresholds have been unchanged since 2022. In a slightly surprising move the Chancellor stated that thresholds will start to be increased in line with inflation again for 2028/29
- Fuel duty will remain unchanged. Alcohol duty will largely rise in line with inflation although the rate for draft beer is to be cut
- A reform of the Business Rates system is promised within the lifetime of this Parliament.
A key question for agriculture was what the funding for farm support is going to be. Defra’s Departmental spending allocation is as follows;
The Budget document states that ‘The Government is facing significant funding pressures on flood defences and farm schemes of almost £600 million in 2024-25. While the Government is meeting those commitments this year, it is necessary to review these plans from 2025-26 to ensure they are affordable‘. It is not obvious what this means. The publication goes on to state that ‘[The settlement is] providing £5 billion over 2024-25 and 2025-26 to support the transition towards a more productive and environmentally sustainable agricultural sector in England‘. This, coupled with the announcement from Defra (see article on BPS in 2025), indicates that the current farm budget in England of £2.4bn per year has been maintained. The amount for 2025/26 is going to be increased as a one-off to £2.6bn as £200m of underspend from previous years is going to be rolled forward. This neatly arrives at the £5bn for two years. In 2025/26 £1.8bn will be allocated to ELM.
A continuation of the current budget (in nominal terms) is not unexpected. But should be remembered that there has been significant inflation since the £2.4bn for England figure was set in 2020. Using the OBR’s forecasts going forwards, prices will be 30% higher in 2026 than they were in 2020 – thus this is effectively a circa 30% funding cut. Furthermore, farm spending was never uprated for inflation when we were part of the EU. The £2.4bn figure has been almost the same since 2007. Agriculture is being asked to do more for less. The settlement is far lower than the £4bn for England the NFU (with Andersons help) calculated as being required to meet Government policies.
Looking beyond 2025/26 (the 2025 ‘subsidy year’) the Comprehensive Spending Review will set Defra’s budget for future years – likely 2026 to 2028. If public finances remain under strain, there is no guarantee about future funding even remaining at current levels.
If you found this article useful, there are numerous additional articles published each month on our Professional Update bulletin service. You can access a no obligation 90-day free trial via the link below.
Sign up to the Professional Update
