Jeremy's Blog 1st November 2024: A Budget for Spending not Growth

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 31st October 2024

As the dust settles on yesterday’s Budget, we have much to think about.

At a strategic level, Labour may have missed its moment to drive the economic growth programme we need. This is not “laser focused” on growth. Even while the Chancellor used the language of investment, a perhaps record sum of tax is to be raised from private business to pay for increased current spending. So far as there is short term growth from that, it is because the spending is higher than the tax. The same challenges will simply reappear. Do not expect the spending round to be concluded in March to be easy. The Red Book includes the warning for DEFRA that for flood defences and schemes “it is necessary to review these plans from 2025-26 to ensure they are affordable”.

Virtually nothing in the Budget encourages anyone to start or grow a business to drive private investment or have an entrepreneurial culture. The concern that necessary planning reform and international investment are the sum of the growth programme seem borne out. Pouring concrete can remove constraints, but the growth that could pay for all comes from innovation and enterprise. Yet, the signal given in July by the Chancellor’s cancellation of the ￡800m exacomputer project at Edinburgh University (one 50 times faster than any computer now in the UK with a capability for key research and industry projects) seems confirmed. The Office for Budget Responsibility sees no real lift in growth in this Parliament, observing that the only Parliament with less growth will have been the last one (with its pandemic and Ukraine war). In an increasingly uncertain world, even that forecast is prey to Tuesday’s US election.

Increasing the cost of employing staff, especially lower paid and part-time staff, reduces the ability of businesses to invest and bear down on the employment market. It will tend to “crowd out” innovation spending unless it is to automate replacing staff. It will add to the costs of many dairy, horticulture, pig and poultry farms as well as the food supply chain and catering.

Agriculture featured more in this Budget than in many. There is an immediate cash shock in the accelerated reduction of England’s delinked payments, to ￡7,200 for 2025 and less for smaller claims though it was all to go with 2027. Those who chose the Lump Sum Exit scheme might feel confirmed. That frees money for schemes which might now be more focused on environmental goals for marginal land and SSSIs while we wait for answers on capital productivity grants.

Importantly, the biosecurity facilities at Weybridge are to be upgraded as some recognition of the threats we face.

The changes to APR and BPR have attracted the greatest attention. We can welcome the decision to implement the last Government’s proposed extension of APR to farmland in environmental agreements with public authorities. Applying from next April, that should remove a shadow over land use decisions.

The reductions in the reliefs from April 2026 are not as severe as had been speculated. They are not capped. The principles of the reliefs remain the same, notably how let property can still be within a business for BPR. Values for CGT are still re-based on death. However, their combined benefit is now reduced to a position slightly better than we had in 1991 but now with ￡1m of combined full relief and no distinction for let land (then a lesser 30 per cent). This is not where we were in the mid-1970s .

We are still going to have to think hard. A ￡600,000 tax bill where the land, dwellings, machinery, animals and other assets amount to ￡4m is a lot to pay. Good advice with professional perspective will be important. The valuations to arrive at such a figure will be much more argued because they will matter more. Phased payments or borrowing would create a high rent equivalent, reducing ability to invest. We face questions we have not had for a generation, including the IHT value of some tenancies, not only in Scotland, revisiting the lessons of Baird, Walton and Greenbank v Pickles. We will think harder about farm and business structures though few may think it worth dividing businesses of any scale – Balfour saw two separate businesses united for assessing BPR.

This does not stop at the farm gate. Increased rates on pubs and other hospitality, retail and leisure properties combine with increased employment costs to test businesses that are often already stretched. When successful, they face the same BPR questions. The presentation illustrates the Government’s continuing problem with language. We have had the scrutiny of the threadbare campaign slogan of “working people”. The delinked cuts were first presented as ending “the era of payouts to large and wealthy farmers” yet the median farmer in 2020 seems likely to get just ￡3,840 next year. It might be that 74 per cent of APR claims are below ￡1m because they are mostly for smaller parcels of land – those are not the rhetorical “small family farm” which will now face a tax charge that is not limited to the largest estates. We need language to be honest and descriptive.

Whether reading the DEFRA minister’s speech on Monday with its emphasis on nature in rural land use or the Budget’s tea leaves, DEFRA’s blog today is simple: “Farms with greater resources in particular are encouraged to pursue ways to improve productivity and diversify without expecting the same level of direct state support.” We have been told. Farming per se is to be a business like any other with public money, where deemed available, spent for public purposes and expecting outcomes.