With inflation at a 40-year high fuelling the much talked of cost of living crisis, a £55bn hole in government finances following Kwasi Kwarteng’s disastrous mini-budget, and a looming recession, many people approached November’s autumn statement in a state of trepidation.
Media reports suggested this was to be the start of a great economic rebalancing with the prospect of tax hikes and swingeing cuts on the cards to raise some cash and plug the hole.
But what unfolded when Chancellor Jeremy Hunt took to his feet wasn’t quite as draconian as many expected. Although the announcements he delivered on November 17th will certainly impact businesses and individuals, the effects are likely to be less severe than many people feared.
So, how did farming get on and what will be the impact on food production across the UK? In this post by Ian Parker, Director of Whitley Stimpson, we take a look.
A series of small changes
It’s fair to say that rather than any one huge change that will impact farms across the UK, the Chancellor introduced a range of smaller measures. The question is, will these add up to have a significant effect on British agriculture?
Certainly, one of the biggest changes is the increase in the national living wage. This is to go up from £9.50 per hour to £10.42 per hour for 23 year olds from April next year.
Food production is a labour intensive sector which means there are parts of the industry that will be seriously affected by this change, and it is unlikely they will be able to pass all of this extra cost on, especially with other input costs soaring. It is hard to see, therefore, how this move will help to achieve another of Mr Hunt’s main objectives from the autumn statement – that of reducing inflation.
Another area that could disproportionately affect farmers is the halving of the capital gains tax allowance from its current rate of £12,300 to £6,000 from April. It will then half again from 2024 to £3,000.
This will drive up tax duties for any farmers selling farmland or agricultural property that has seen a significant increase in value since they’ve owned it, so if you are currently considering divesting of any significant assets, it may be worth bringing that sale forward, particularly as the Chancellor did not increase Capital Gains Tax rates as many feared he would.
Changes in personal taxation may hit some farmers, although this is likely to be a minority as they only affect the top earners. In an effort to increase tax revenues and plug the gap in the finances, the top rate of income tax, 45p, will be payable from £125,140 from April 6 2023 instead of £150,000. This will see any farmers earning £150,000 or more now pay around £1,200 extra in tax next year.
But whereas few will sympathise with those earning six-figure salaries, a closer look shows that what the Chancellor didn’t do may end up making a bigger impact than what he did.
By freezing the personal tax allowance and income tax thresholds, he effectively introduced a stealth tax that will see more people pushed into the higher rate of income tax as wages increase to help families deal with the cost of living crisis. Whereas doing this enabled Mr Hunt to announce fewer tax hikes in his autumn statement – a PR win he may have thought at the time – many families could end up feeling the pain of this decision. Ultimately, however, it is the government that may end up paying the highest price.
Another change that might affect farm business director incomes is the changes to dividend allowance. This is to be cut from £2,000 to £1,000 from April next year and then to £500 in 2024, meaning an extra tax burden of between £88 – £400 depending on their annual takings.
Whereas these changes will affect high earners and directors across all industries, it comes at a particularly sensitive time for farmers as Basic Payment Scheme (BPS) payments are being phased out and the government continues to heap confusion onto the future of Environmental Land Management Scheme (ELMS). Farm incomes are falling, and increased tax burdens will only add to the stress already felt by farmers up and down the country.
The real impact of the autumn
So, farmers will certainly feel the impact of the autumn statement, but perhaps not to the extent that they and others were expecting. Where exactly, then, did the axe actually fall for farming?
Interestingly, the brunt of the economic fallout is being felt by the government department responsible for farming in the UK – DEFRA.
An already beleaguered department, and on the sharp end of multiple cuts since the 2008 crash, DEFRA has once again been the subject of a significant budgetary cut.
Almost £500m is to be stripped from the department’s finances over the next two years, equating to 10.6% of its total budget.
Such a significant cut is likely to leave the already chronically under-funded department even less able to do its job of supporting farming and protecting the environment.
Not only does this throw up major environmental concerns such as the inability of DEFRA to crack down on sewage spillages into the UK’s waterways, it could also lead to further doubt surrounding ELMS and the future of farm payments.
As a result, this single cut constitutes the biggest single impact of the autumn statement on farming. It perhaps also provides insight into exactly how much the government values UK farmers and how much they’re prepared to invest in them.
Compared to defence, transport, education and the other top tier departments, DEFRA’s budget is already tiny. But what it supports is at least of equal importance to any of those, more so in fact, because without farmers, none of those other departments would be able to function.
The production of food fulfils the most fundamental human need there is and those who work tirelessly to do that deserve better. Sadly, the cuts made to DEFRA as a result of the autumn statement seem to suggest the government disagrees.