“Only the richest estates will pay – not small, family farms.” This is the repeated phrase parroted by the Chancellor and other Labour ministers – in this case Steve Reed Secretary of State for Environment Food and Rural Affairs and MP for Streatham and Croydon North.
The key to this statement is “What is a Small family farm?” This is important to understand and I will explain my informed view in as simple as terms as possible. The reason this needs to be done is that politics, by its very nature is Urban biased simply because that is where most of the voters live. This creates problems for Rural policy in that you rely on a rural MP to represent a rural community and to get support they will have to ally with their more urban colleagues.
For many the image of a small family farm is a vibrant mixed farm with cows, pigs, sheep and chickens in picturesque countryside, comprising from a few dozen to a few hundred acres with a quaint stone farmhouse, a barn, a duckpond and a spinney. This image is reinforced by such TV programs as Matt Baker’s “Our Dream Farm”. Indeed farms are repeatedly not seen as businesses but as “ways of life”. Reenforcing this is the plethora of TV programs, including Countryfile, that repeatedly over the years show farms that have little relation to the commercial reality. This rural idyll is can be re-enforced by people not properly reading books written by experienced farmers, or reading those books and forgetting that the geography, geology and climate of Britain is so varied that so too is the nature of farming. In the 1930’s Henry Williamson sought to educate people about farming reality with his Story of a Norfolk Farm. In the 2020’s Jeremy Clarkson has sought to do the same with his program Clarkson’s Farm. Both describe financial reality.
If I was to define a small family farm it would be described as, “A farm of a size to be economically sustainable to provide a home and living for a family of two adults with their children.” Note I do not mention size of farm. There is a further reality, most family farms have their income topped up by one or other of the partners having an extra job. The level of income required to live can vary greatly by location. Housing costs are perhaps incorporated in the farm. Income after housing costs can be a useful measure but understanding individuals is key and no government tends to do this very well. The simple fact is that I have seen a 2000 acre farm bring in less income for a family than an 80 acre one yet both were family farms.
Different farming businesses require a key size to be viable. I remember the land agent of a Norfolk estate explaining to me that since 1945 the size of a viable unit on this estate had changed from 140 acres to 2000 acres in 2012. These were tenanted farms, but if owned a value of £8,000 per acre was easily achievable illustrating the trap of Inheritance Tax just in land value, consider machinery, livestock, building and housing and you start to understand the risk to economic sustainability that such a tax can create.
However, inheritance tax can be paid over ten years. Effectively a loan from the government to pay the tax. Here is another simple truth the borrowing of any money reduces the choices of what to do with your future income. In an industry where low return on capital, low profits, price and cost squeezes have been the norm for decades the extra income to service such a debt is simply not there in many family farms. Even if it is there it will reduce future reinvestment into the business that benefits the economy,
The reason that the size of a family farm varies so greatly in asset base and size is simple. Some operations require an economy of scale to be viable. In this way we have seen dairy farms reduce in number and increase in size. Even without livestock a farm has huge working capital costs, that is the cost of putting a crop in the ground, maintaining and growing it and then harvesting and storing it before sale. Figures vary, but to help the layman understand £500 an acre to grow wheat if you yield 3 ton per acre you possibly are just meeting the cost of the crop. If you are lucky and yield 4 tons an acre that is your profit (possibly £180). This means that wheat, a staple of nearly all our diets in the UK is at risk of being unviable to grow. If you look at potatoes the cost per acre can be £2500 per acre planted, the opportunity for greater profits is there, but these do not happen every year and the risk of loss is equally great. In contrast I have seen organic market gardens and smaller livestock operations be highly profitable on small acreages. Contrary to the government line at this level of taxation viability of small family owned farms is in jeopardy.
The reality is that many small family farms whether owned or tenanted, whilst providing a great service to food supply and/or the great beautiful patchwork of Britain’s countryside, are not viable without the farming family having a second income. Whilst it is a tenanted example, I believe that Henson’s “Our Dream Farm” on Channel 4 where the National Trust selected a tenant for a farm in Northumberland touched on this point, but I would have loved to see the figures which understandably were not broadcast.
The simple fact is the new level of Inheritance Tax will have a dramatic effect on family farms.
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