Jeremy's Blog 3rd January 2025: Farming Without the Government

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 2nd January 2025

The New Year started as sodden and stormy as the months before while farmers continued their protests against the Budget’s Inheritance Tax changes with over 1,100 beacons on New Year’s Eve. Rachel Reeves has not talked with the NFU President, though now the TUC General Secretary has said: “You wouldn’t want the policy to impact on small family farms, because that was never the intention. The onus will be on the government to demonstrate that this doesn’t have the impact that some fear it will have.”

The Prime Minister though dropped the retrospective defences, simply telling the Commons Committee Chairmen: “The purpose was to raise revenue in the budget. It wasn’t aimed at a particular group of individuals.” and clung to the Government’s original figures as “robust”.

The messages from Government to farmers are clear. Steve Reed, DEFRA Secretary of State, told (col 432) the Commons on its last day before Christmas that farms “are businesses that need to make a profit”, suggesting that measures for “supply chain fairness” would assist. Daniel Zeichner, Minister of State is then reported as telling a TFA webinar that farmers are too dependent on schemes. The DEFRA blog accompanying the Budget stated: “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.”

Having not delivered its focus on growth, the Government has now started what is expected to be a harsh spending review with results now thought to come in June, almost a year after the election. The warnings made give no reason to expect any protection for agricultural or environmental spending. It may become more harsh were tax revenues not to increase as projected, public sector spending to continue to grow and money be needed for defence.

For English farming, autumn 2024 saw, without warning, a precipitate acceleration of the phased agricultural transition started for 2021 with the near removal of delinked payments for 2025 and the suspension of capital grants with an explanation only after the event. That was supplemented across the UK by the increased risk to business capital of the Inheritance Tax proposals, based on assessments showing no sign of understanding the real effects but demanding money from long term businesses on the chance of death’s roulette wheel.

The practical response to such Government actions is for farmers to focus yet more sharply on themselves as businesses – the business of farming is farming as a business. Those who had not read the tea leaves after the referendum will now need to react more swiftly. Who is farming what land with what business structures and types and methods of production will all adapt.

This will call heavily on professional skills to manage this well in a world of increased risk requiring reward and needing resilience as much as efficiency.

For 60 years the farm management economics of commodity production have prompted restructuring to reduce unit costs. The practical logic of the payment regimes since 1992 has been to expect farming not to make much money, remedying that with payments asking, especially in England and Wales, for some environmental actions. Farmers took these for their high net margins, giving schemes persuasive power. However, these regimes protected costs and structures that would otherwise have changed earlier. The phased agricultural transition was managing the weaning away from subsidy; there is now a colder bath.

This will also see changes in land use and management whether by owners’ choices, development or for other reasons. While the Government did make some amendments to its draft NPPF for England, its actions do not regard agriculture as a priority land use. One possible outcome of the Inheritance Tax and nutrient neutrality changes is to see more land held by environmental charities and for private amenity.

While seeing farming as business, the Government adds to the obligations of land ownership with proposals for greater public access to reduced compensation for compulsory purchase, now joined by further Natural England screening requirements for altering or installing field boundaries and leaving scheme agreements. Do farmers move to owning less land and having more on tenancy and other arrangements? One risk is that more attention is devoted to protecting business capital against tax than in promoting the business.

It remains to be seen if the Government is prepared for what farming as a business might look like. That might not be the simple intensification that some suggest; that is not necessarily profit maximising. It might be that output falls until seeing the higher prices needed for profit after the long years of squeezing costs – that becomes a cost to the consumer. Simply re-allocating the limited margins within the supply chain, now pressed by other Budget changes, will not suffice.

If farmers are indeed to look less to schemes for basic income, those schemes may then have less force for behaviour, ranking alongside farming and diversification options. Does that lead to more regulation, as for, say, water quality objectives?

Effort in understanding the sector would help the Government which, as ever, should be careful in what it wishes for.