Why Did Starmer Back Down in the Farm Tax Controversy?

The UK government's recent decision to partially reverse the controversial "farms tax," a 20% inheritance tax set to take effect next April, has come as a relief to many farmers and their supporters. Approximately half the farms that would have been impacted are now exempt from this tax, a change driven by sustained protests and internal pressures within the Labour Party. This article explores the motivations behind this policy shift, its implications, and why it matters for UK farmers and rural communities.

Last updated: 15 December 2023 (BST)

What’s happening now

The UK government has announced a significant modification to its inheritance tax policy, specifically regarding agricultural properties. Following extensive campaigning, including tractor convoys to Parliament, the government has decided to exempt about half the farms previously slated to incur the 20% tax. This change is a direct response to mounting public pressure and internal dissent among Labour MPs representing rural areas.

Key takeaways

• The government has partially reversed its "farms tax," exempting approximately half the farms from the 20% inheritance tax.
• The change follows sustained protests by farmers and lobbying from the National Farmers' Union.
• Internal pressures from Labour MPs representing rural constituencies played a crucial role in the decision.

Timeline: how we got here

The journey to the government's recent U-turn on the inheritance tax policy has been marked by significant events:

• March 2022: Inheritance tax policy introduced during the Budget, drawing criticism from farmers and rural communities.
• Throughout 2022-2023: Farmers protest against the policy, with regular demonstrations and public outcry.
• December 2023: Government announces partial reversal of the policy, exempting half the farms from the tax.

What’s new vs what’s known

New today/this week

The most recent development is the government's decision to exempt around half of the farms from the impending inheritance tax. This move has been characterised as a direct response to the ongoing protests and political pressure from within the Labour Party.

What was already established

Prior to this change, the government had maintained the inheritance tax policy for over a year, despite significant opposition. The Labour Party's election victory last year has resulted in a greater number of MPs representing rural areas, leading to increased scrutiny of the policy.

Impact for the UK

Consumers and households

The reversal of the inheritance tax policy will directly benefit many families who own agricultural land, alleviating financial burdens associated with passing down family farms. This change could have a stabilising effect on rural communities, where farming is a primary source of livelihood.

Businesses and jobs

For agricultural businesses, the partial exemption from the 20% tax means reduced financial strain, allowing them to reinvest in their operations. This could lead to job preservation and potentially new hiring, as farms are less likely to be forced to sell or downsize.

Policy and regulation

The change signals a shift in how the government approaches taxation policies that disproportionately affect rural populations. Upcoming consultations and discussions with stakeholders in the agricultural sector may further redefine tax policies to ensure they are equitable and sustainable.

Numbers that matter

• £130 million: Estimated cost of the policy reversal to the government, a fraction of the total £900 billion raised through taxation annually.
• 20%: The initial rate of inheritance tax that would have applied to the affected farms.
• ~50%: Proportion of farms now exempt from the inheritance tax under the new policy.
• 30+: Number of Labour MPs who abstained from voting on the inheritance tax policy, indicating internal party dissent.
• 14 months: Duration the government defended the original inheritance tax policy before the recent reversal.

Definitions and jargon buster

• Inheritance Tax: A tax applied to the estate of a deceased person, based on the value of the estate, which can significantly impact family-owned farms.
• National Farmers' Union (NFU): A UK organisation representing farmers and farming interests, involved in lobbying against the inheritance tax policy.

How to think about the next steps

Near term (0–4 weeks)

In the immediate future, expect discussions among agricultural stakeholders about the implications of the tax exemption. Farmers may begin planning for succession without the burden of the inheritance tax.

Medium term (1–6 months)

Over the next few months, the government may seek to solidify its relationship with rural MPs and the agricultural community, potentially reviewing other policies that impact this sector.

Signals to watch

• Upcoming debates in Parliament regarding agricultural taxation and rural affairs.
• Public sentiment and reactions from farming communities to the policy change.
• Future announcements from the government regarding potential further reforms in agricultural taxation.

Practical guidance

Do

• Stay informed about changes in tax policies that may affect your farm or agricultural business.
• Engage with local representatives and organisations such as the NFU to voice concerns and gain insights.
• Prepare for succession planning with the new exemption in mind.

Don’t

• Don’t ignore the potential impact of future tax policies on your finances and estate planning.
• Don’t hesitate to seek professional advice when navigating inheritance and tax matters.

Checklist

• Review your estate plan in light of the new inheritance tax exemption.
• Consult with a financial advisor about the implications of this change.
• Stay connected with agricultural networks to keep abreast of further developments.

Risks, caveats, and uncertainties

While the government’s reversal on the inheritance tax provides immediate relief, uncertainties remain regarding future tax policies and their sustainability. Observers note that such policy changes often arise following political backlash, raising questions about the government's long-term strategy and commitment to rural communities. Additionally, any future changes could once again impose financial burdens on farmers, creating a cycle of instability.

Bottom line

The UK government's partial U-turn on the inheritance tax represents a significant shift in its approach to taxation in rural areas, driven by public outcry and internal dissent. This change alleviates immediate pressures on family farms, but it also raises questions about future policymaking and the government's ability to address rural concerns effectively. Farmers and stakeholders should remain vigilant and engaged as the political landscape evolves.

FAQs

What is the "farms tax"?

The "farms tax" refers to the 20% inheritance tax that was to be imposed on agricultural properties, which sparked widespread protests and opposition from farmers and rural communities.

How many farms are now exempt from the inheritance tax?

Approximately half of the farms that were initially affected by the inheritance tax will now be exempt following the government’s recent policy reversal.

What prompted the government to change its policy?

The government’s decision was influenced by sustained protests from farmers, lobbying by the National Farmers' Union, and internal pressures from Labour MPs representing rural constituencies.