Budget 2020 - focus on agricultural sector - PKF Francis Clark
skip to Main Content
Merry Christmas! Our offices will be closed from 1pm on Christmas Eve, reopening on Tuesday 4 January.

Budget 2020 – focus on agricultural sector

There has been much talk and conjecture in the media in recent weeks as to the importance, or not, of the agriculture and food & drink sectors to the broader UK economy. You might think the comments made by Professor Tim Leunig that Britain doesn’t need farmers or fisherman are lunacy, and should therefore be quickly dismissed as uninformed twaddle. However, the key point here is that Professor Leunig is a well-respected government aide who certainly has the ears of Boris Johnson and Dominic Cummings.

For me this type of noise is very worrying as we look to enter trade negotiations with the EU and given Professor Leunig has a treasury role, I ask if any of this thinking could impact Rishi Sunak and his Budget on Wednesday.

I must be honest in terms of an adviser to the rural/agricultural sector, I have never been more interested in what a Chancellor might say and what impact it could have on the sector.

In the latest edition of Farming Matters, I commented on the powerful mandate the country has given Mr Johnson, in the hope that this would allow him to get things done and fulfil the election promises (we shall see!), but what exactly did the Conservatives promise in their election campaign manifesto?

I have pulled out extracts from the manifesto for promises which could have an impact on the agricultural sector.

Personal taxation ·      No rise in the rates of income tax, National Insurance or VAT

·      To raise the National Insurance threshold to £9,500

Employers ·      Increase the National Living Wage to two thirds of average earnings, currently forecast at £10.50 an hour, and widened its reach to everyone over 21

·      Increase the Employment allowance for small businesses

·      Improve the working of the Apprenticeship Levy

 

Land ·      Protect and enhance the Green Belt

·      Improve poor quality land, increase biodiversity and make our beautiful countryside more accessible for local community use

·      Prioritise brownfield development, particularly for the regeneration of our cities and towns

As you will see, these are the more generic promises in the manifesto but the Conservatives also promised to make the lives of those in rural and coastal communities, including farming and fishing industries, much easier. The manifesto promised to:

  • Free our farmers from the bureaucratic Common Agricultural Policy and move to a system based on ‘public money for public goods’
  • Guarantee the current annual budget to farmers in every year of the next Parliament
  • Encourage farming in a way that protects and enhances our natural environment, as well as safeguarding high standards of animal welfare, all in return for funding
  • Increase the annual quota for the Seasonal Agricultural Workers Scheme, currently being piloted, from 2,500 to 10,000

Some of these things have already been announced and built on in the Agricultural Bill and on the face of it the Government did appear to have an intention to ‘do good’ for the farming community, which have politically remained incredibly loyal to the Conservatives over the years.

However, my concern is that now elected, does Mr Johnson stand by what has been said and how important is the farming to the Government?  Will election promises be kept or will the farming vote and arguably the broader South West vote be taken for granted with political focus more on the industrial North?

Politically things have definitely changed and to that extent the change to the Government’s TB policy last week is evidence to that. This also went largely under the radar due to Coronavirus monopolising the news.

Another concern surrounds the understanding of the importance of red diesel to the sector. Whilst farming unions have been assured by successive governments that red diesel exemptions would remain, there is much commentary that this could come to an end on Wednesday. Whilst I can see the environment and tax income arguments here, it is important that the Government note that if this is implemented, it would mean farmers would be charged the full fuel tax of 57.7p/litre. This change would force up the average farm fuel costs by almost 50%. Would this lead to food inflation or reduced margins for farmers? As price takers I fear the latter.

Clearly this would have severe financial implications for the agricultural industry at a time where farmers are struggling from the long wet winter, where subsidy payments are due to be phased out, the details around what is to follow are yet to be announced and the most important trade negotiations for generations are due to take place. In addition, I understand that most other countries do have fuel tax exemptions, so would make the trading playing field ever more uneven.

As I say, the Budget could be interesting and this is before I mention inheritance tax (IHT). This in my opinion remains an option for some headline-catching changes and I have reviewed the impact of these potential changes on the agricultural sector.

The Office for Tax Simplification issued a report in July 2019 suggesting changes were needed. Our blog post Inheritance Tax changes ahead? covered the possible adaptions/reforms, commenting on possible changes to business property relief (BPR), agricultural property relief (APR), gift allowances and exemptions.

After a long period of relative stability in terms of IHT rules, these changes would clearly have a major impact on the succession plans of many in the farming sector. In particular, farmers and landowners with significant diversified investment income from furnished holiday lets, residential property and land rented under farm business tenancies, could all see very valuable reliefs lost!

The Government could go further with the changes and abolish the capital gains tax base cost uplift. If this were to come into law, this would be another significant game changer for the agricultural sector.  Current IHT legislation has seen older farmers holding onto assets that qualify for APR or BPR (notably farm land, farmhouse and buildings) until death rather than making lifetime gifts for the sole reason that their beneficiaries are able to benefit from the rebasing on death. If this were to change, this could encourage earlier lifetime giving, which is probably good for the industry, but would also see greater capital gains being paid in the future, should assets be sold.

I just hope that the Budget reflects the Government staying good to its word and acknowledges the importance of the farming and food & drink sector, not just to the economy but to rural communities, the countryside and environment at large. Ironically the Coronavirus could have an important part to play, as there is nothing like bare shelves in the supermarket to make sure that the British public understand how important the farming community actually is.

Keep an eye on our commentary to find out the latest updates and analysis from our experts. Visit our Budget page https://www.pkf-francisclark.co.uk/budget-2020/ for lots of other insights. Join us there from 12.30 on Wednesday 11 March for live commentary on the Budget.

 

FEATURING: Brian Harvey
As head of PKF Francis Clark’s agricultural sector group, Brian manages a dedicated team of agricultural accountants and tax advisers. He hails from a Cornish… read more
Back To Top