The tractor tax has done lasting damage to ‘Starmer the farmer harmer’

Editorial: After the chilly Westminster protest, the prime minister must listen again to the hard-pressed farmers’ case at first hand, before he does further harm to his reputation for fairness and compassion – and his government’s chances of re-election

Out in sunny Rio de Janeiro for the G20 summit – an event no prime minister can easily avoid – Sir Keir Starmer is a world away from the first day of snow back home (and the equally chilly farmers’ protest in Westminster). It is hardly the prime minister’s fault that he finds himself, albeit briefly, in such an earthly paradise and among such rarified company; but he could at least strike a more empathetic note when he discusses the merits of the so-called “tractor tax”.

Sir Keir is not by nature a callous man. He is, after all, a human rights lawyer with a record of giving his services pro bono to struggling refugees. In the recent past, he’s acknowledged at the National Farmers’ Union conference that a farm closing is “not like losing any other business. It can’t come back.”

There is no good reason why he should not now listen again to the hard-pressed farmers’ case at first hand – which he refused to when he had the chance at the weekend Welsh Labour conference. He could and should respond with more compassion. And yet, all this intelligent and eloquent man seems capable of doing at the moment is repeating, again and again, a stats-based assurance that only a minority of farms – the figures are disputed – will face any impact from the changes to inheritance tax on farms.

There is evidence to the contrary, which might have been clear earlier had the policy been more widely considered. Instead, he and his chancellor Rachel Reeves apparently bounced the cabinet into it at Budget time. Even the Department for the Environment, Food and Rural Affairs (Defra) was only informed of the changes when it was far too late to do anything about them. Now Sir Keir and Ms Reeves have been educated about its feared consequences, they still seem adamant against even reviewing the policy and its likely impact. This is stubbornness rather than “iron-clad” resolution. This is also a mistake.

What has become abundantly clear since the Budget is that the reduced inheritance tax allowance for farms, agricultural property relief (APR), even with the reduced rate of taxation (20 per cent rather than the usual 40 per cent) is not going to work in the manner expected. It will hit “family farms” particularly hard because the returns they earn cannot easily cover the liability, with grievous consequences – “asset rich, cash poor”.

Yet those the Treasury rightly wants to target, the “investors” seeking shelter from inheritance tax who’ve helped to drive the price of agricultural land so much higher over the decades, will be able to dodge the tax; either because they have little long-term commitment to the land or else through the kind of trust arrangement still available to the super-rich.

The impacts on farming families, rural economies and the countryside are the very opposite of what a party dedicated to helping “working people” should be about. To be charitable, it may be because historically, Labour has been such an urban party. However, it now has many more representatives from rural and semi-rural areas. And they, like Labour’s Defra ministerial team, should now be consulted on reworking the policy before more harm to the party’s reputation, and electoral chances, is done.

The prime minister should order his colleagues to go away and find a better way to get the tax avoiders to pay their fair share without pushing barely profitable farms into liquidation. At the least, any radical policy such as this needs to be phased in much more gradually to facilitate planning for it, or else cut the seven-year survival rule for tax-free transfers.

The incomes of those farm businesses, as well as their inflated asset values, need to be assessed properly – the ability to pay is a key characteristic of a fair tax, and a sound Labour principle. To capture the informal intergenerational contract of the family farm, liability for inheritance tax on farms could be “frozen” until such time as the farm, or parts of it, is indeed sold off – at which point the “family farm” defence passes, and the funds to pay the tax bill thus crystallised, become abundantly available. That could be for generations – and that is how it ought to be.

London is full of clever civil servants, ingenious tax experts and relevant, creative, legal expertise. The new rules on APR are not yet law, and won’t need to be in legislation until next year’s finance act. There’s time for a rethink. An impact assessment will have to be made, which also helps.

Defra is now involved, as will the NFU and other interested parties have to be. At the end of this process, not everyone will be satisfied but a fairer answer will have to be found – same objectives, same revenue raised, but better targeted.

The abuse of APR by the rich is morally intolerable and damaging to agriculture too, but those who make an often tough living from the land must get a better deal. Given all the other pressures on them, the farmers deserve a Labour government that listens and is “on their side,” as Sir Keir used to say.