Budget fallout from Scottish stakeholders

NFU Scotland were left frustrated by the lack of clarity provided regarding Scotland’s agricultural budget, in a statement they said: “Rather than delivering a ring-fenced, multi-annual budget from Defra’s pot, it appears that Scotland’s share of the agricultural budget has been baselined against last year and will now be included in the Scottish block grant. Going forward, it appears that the agricultural funding package may have the Barnett formula applied to it, and we are seeking urgent clarification on that.”

Commenting on the changes to APR, NFUS fear that it will lead to a lack of investment in farming businesses and have a major impact on the rural economy: “This decision will generate only marginal benefits in filling a financial black hole but causes huge difficulties for some and will act as a barrier to those who wish to get a start in farming.

“The partial removal of APR and the threat of a considerable tax burden will see larger units being broken up and a major contraction of farmland being made available for tenancies or contracts.”

Robert Sheasby, chief executive of AIC, admires the government’s desire to grow the economy but fears the methodology they are opting for, he said: "While AIC welcomes this government's overarching ambition to drive economic growth throughout the UK, it is concerning to see the tax burden mounting at a time when agricultural supply businesses need the confidence to invest in infrastructure, technologies and systems to boost productivity and enhance sustainability for the future."

Scott Walker, executive manager of the Scottish Association of Meat Wholesalers, is wary of the increased national insurance contributions employers are now going to have to provide, he said: “More than 3000 workers are employed by member companies of the Scottish Association of Meat Wholesalers, a fact which makes the chancellor’s decision to increase national insurance (NI) for employers to 15% from April 2025 a major cost blow for our industry.

“The additional announced lowering of the threshold at which businesses will start paying NI on a workers' earnings from £9,100 to £5,000 and the 6.7% increase in the national living wage, which will see other workers asking for pay differentials to be maintained, will place further pressure on member companies who operate on wafer thin margins of between 0.7% and 1.5%.”

Jeremy Moody, secretary and advisor at CAAV, stated that the budget announcement will expose many farming families to IHT for the first time since 1995, and could include tenanted units on the value of the tenancy.

Elaborating further on the developments Mr Moody said: "A combinable cropping farm would pay 20% tax on its value if it has more than say 100 acres. The 75% of claimants with APR claims within £1m cover more people with a field or two than real functioning farms.

"We welcome the extension of APR to include farmland in environmental commitments with public authorities.” Mr Moody also added that the continuing freeze in IHT threshold of £325,000 to 2030 means, despite inflation, it will have gone untouched in 21 years.

David Eudall, AHDB economics and analysis director, questioned the chancellor’s decision to refrain from increasing the agricultural budget, he said: “The funding pot for agriculture in the UK has remained constant at £2.4 billion since the 2019-24 parliament. During this time, inflation had led to a 44% increase in farm costs while the agriculture budget remains the same.

“We are at a tipping point of how effective this budget can be in meeting the desired outcome of balancing food security, supporting farm efficiency, and delivering environmental benefits.”

Mr Eudall went on to comment on the changes to inheritance tax stating: "The impact of the changes to inheritance tax means that from April 2026, a farm worth £2 million will have a £200,000 tax requirement to pay on the £1 million above the threshold.

“For every additional £1 million the farm is worth, a further £200,000 will be required to be paid in inheritance tax."

Harriet Cross, Scottish Conservative MP for Gordon and Buchan, who recently led a Westminster debate on the issue of APR said: “These changes to agricultural property relief and business property relief could be fatal to family farms who rely on these inheritance tax lifelines.

“This appalling decision from the Labour government is a devastating blow to farming, the effects of which will be felt for decades to come.

“Without the full reliefs, we risk losing a generation of farmers which will ultimately decimate the industry.

“Whether it’s the owners or tenants of farms, the Chancellor’s deplorable move will threaten our food security, rural landscape, employment opportunities and our economy.”

Alistair Carmichael, Liberal Democrat MP for Orkney and Shetland, expressed concern that the changes to APR would send ripples across all levels of the rural sector, he said: “I fear that the Treasury does not realise the damage that this change to inheritance tax could do.

“As well as cutting deep into the heart of local, family-owned farms, it will deal a huge blow to all those small businesses that depend on them: from vets to agricultural merchants to local shops and post offices.

“The people most immediately at risk are tenant farmers as their landlords look at ways in which inheritance tax might be avoided.”