Analysis: Where does the Budget leave farming?

Rural charities have been urging struggling farmers to make use of their services, following a difficult Budget for the industry. 

Chancellor Rachel Reeves announced a series of measures last week which have added pressure to a sector already buckling under the strain of tight profit margins, cost inflation, new regulations and extreme weather events. 

While neither the Royal Agricultural Benevolent Institution (Rabi) nor the Farming Community Network had noted an increase in calls since the Budget, both said they were aware of growing anxiety in rural communities.

See also: NFU plans London rally over future of family farms

Rabi chief executive Alicia Chivers said: “We recognise that it’s a tough time for many in the farming community right now and remind those who may be struggling that Rabi’s support services continue to be available via our 24/7 helpline.

“While RABI does not offer specialist business or tax planning advice, our team is here to provide support and guidance to any qualifying farming people around their personal circumstances.”

Ms Chivers’ comments came as MPs warned of the impact the Budget is having on farmers’ mental health during a House of Commons debate. 

Meanwhile, NFU president Tom Bradshaw described it as “disastrous” for family farms and tenant farmers, adding that it “could be the final straw for many”.

Mr Bradshaw has accused the PM of breaking his promises to the sector regarding Labour’s stance on agricultural policies, particularly on family farms, changes to inheritance tax (IHT), and the importance of food security.

The Country Land and Business Association (CLA) has gone further, with its president Victoria Vyvyan accusing Labour of a “betrayal” as they made repeated assurances over the past 12 months that they would not tamper with IHT.

Farm support

There was some better news on England’s overall agricultural budget, which was maintained at £2.6bn.

This is still way below the £5.6bn proposed UK-wide budget for which the NFU had lobbied to ensure economic stability, domestic food production and the government’s own environmental goals, but a huge improvement on an earlier Treasury proposal to cut it by 20%.

Devolved governments in Scotland, Wales and Northern Ireland will calculate their agricultural budgets using the Barnett formula, but they have not yet been settled.

The Welsh government has pledged to continue rolling out Basic Payment Scheme funding in 2025 before the transition to the Sustainable Farming Scheme in 2026.

Farmers in Scotland, meanwhile, have been promised that at least 70% of future support will be direct payments, as part of a new support scheme to be introduced from 2026.

All this leaves farmers in England, who will see their direct support phased out completely by 2027, facing the prospect of an unlevel playing field.

And Defra says further reductions to delinked payments are necessary next year to allow more farmers to access diverted funding for Environmental Land Management (ELM) schemes, including the Sustainable Farming Incentive (SFI).

Laurence Gould’s director of farm business, Robin Hobson, believes most English farmers are unaware of the drastic reductions to delinked payments, announced in the Budget, which are coming in 2025.

For example, the 4% of English farmers who received more than £100,000 in subsidies in 2020 will receive no more than £8,000 in 2025.

This will hit cashflow on farms at a time when it is already tight and borrowing money from banks is not easy, Mr Hobson warned.

He told Farmers Weekly, advising one client who received £30,000 in 2024 that this would be cut to about £7,000 in 2025 felt terrible, especially considering rising costs and falling cereal prices.

“They just can’t make up £30,000 in a year starting from scratch. The profit is gone, whatever they do,” he said.

Basic payments have historically provided a valuable financial safety net for farmers, but this change adds to the financial stress that small to medium-sized farms face.

Furthermore, Mr Hobson said many farmers in England were still stuck in older, legacy agri-environment schemes, such as Higher Level Stewardship, and therefore were still unable to access higher-paying options under the SFI.

Defra was supposed to open the new Countryside Stewardship scheme for applications this autumn, but this has also been delayed, he noted.

Gary Markham is a director at rural tax adviser and accountant Land Family Business, based in Cambridgeshire, specialising in solving problems in rural businesses relating to strategic growth, inheritance and succession planning.

Mr Markham said the government’s decision, again announced in the Budget, to increase employer national insurance contributions by 1.2 percentage points from 13.8% to 15% from April 2025, will intensify the financial strain on farm businesses, especially in the horticulture and diversified sectors.

“It’s a body blow to farm businesses; a tax which will deter many from employing new staff and giving pay rises to existing workers,” he added.

This is compounded by the 6.7% rise in the national living wage to £12.21 an hour from next April and even bigger rises for workers aged 20 and under.

Pickups tax change

A further notable tax change in the Budget involves the reclassification of double cab pickups often used in agriculture as cars for tax purposes, resulting in significantly higher benefit-in-kind (BIK) charges and delayed capital allowances.

This will increase operational costs for farmers reliant on these vehicles.

The change puts a double cab Ford Ranger 2.0-litre diesel with carbon dioxide emissions of 230g/km in the highest BIK tax bracket (37%).

This leads to a BIK charge of about £22,200/year and a tax bill of £4,400/year for a 20% taxpayer and £8,880/year for a 40% taxpayer.

At accountant and business adviser Hazlewoods, tax director Peter Griffiths said the capital allowance impact of the change was significant.

However, there were some positive announcements for farming in the Budget, including a freeze on fuel duty.

The Labour government has also allocated additional funding for flood prevention on agricultural land, with an extra £75m for internal drainage boards, which are responsible for managing water levels and protecting farmland in flood-prone areas. 

The Budget increased Defra’s Farming Recovery Fund by £10m too, bringing it to £60m to help farmers in England repair the damage caused to land by serious flooding events, especially Storm Henk last January.

But frustrated flood-hit farmers say they should already have received this support by now.

Despite the fallout since the Budget, Defra farming minister Daniel Zeichner has insisted that his government’s commitment to support farmers in the vital role they play to feed the nation “remains steadfast”.

During a debate in the House of Commons, he blamed Conservative mismanagement of the public finances for the decisions which were taken by the chancellor. 

However, farm leaders have warned that without adjustments to funding and taxation policies, the combined pressure could push some farms to cut back operations, reconsider succession plans, or even exit the industry altogether.