Keir Starmer made a mistake with the ‘tractor tax’ – now he must fix it

Editorial: In addition to a lack of any meaningful consultation, the prime minister and the chancellor overlooked how much support farmers would receive from the British public

All governments – even the most extolled – make mistakes. The political skill lies in extricating the central mission of any administration from the kind of blunder that threatens to divert, distract and discredit it in its pursuit of that essential work.

So it is proving with the Starmer administration, and one of its most serious misjudgements: the so-called “tractor tax”, which is doing much harm to British agriculture and for no great purpose.

Whatever the motivation for bringing many thousands of family farms, in due course, into the ambit of a harsher regime of inheritance tax, it is now clear that this part of Rachel Reeves’s controversial Budget is falling foul of that most iron of rules – the law of unintended consequences.

Ministers have claimed that the idea was to make inheritance tax – a highly unpopular impost – fairer, as well as to raise funds with which to repair the public finances, which were admittedly left in a parlous state by their predecessors. Well, what has emerged in recent weeks is that the practical effects of the move are anything but fair.

The Treasury failed to consult the Department for the Environment in any meaningful way about this radical alteration in the economics of farming – let alone ask any of those who will be grievously affected and turfed out of business. Had they done so, they might well have thought again about what they wrongly assumed was a relatively minor and technical adjustment to agricultural property relief.

It is now well understood that, while farms seem “asset rich” (partly as a result of speculation and the use of land for tax avoidance), they are income poor, achieving minimal margins, with farmers working long hours and earning a relatively modest salary. The prospective imposition of inheritance tax will force many to sell up, perhaps even impoverishing some families as they are driven from their homes, and will leave the fields open to unscrupulous developers and big agri-business with no sense of stewardship over ancient landscapes.

After the shock of the Budget move came despair, outrage and protests – and severe electoral damage to those Labour MPs so recently given the confidence of the rural communities that returned them to parliament. Steve Reed, now secretary of state in charge of the sector, gave the distinct impression to the National Farmers’ Union that Labour would not change the inheritance tax rules for farms. There was nothing in the manifesto about it, and far too little time has been given for farmers to reorder their affairs.

The “tractor tax” has amounted to a litany of errors, a case study in how not to formulate and implement policy. The sum it would raise in a year – about £500m – is dwarfed both by the size of the overall tax take (around £1 trillion) and by the economic harm to agriculture, already trying to cope with Brexit and disadvantageous trade deals.

A way out has to be found.

It is at times like these that friends can offer helpful advice – and Sir Keir Starmer, Ms Reeves and Mr Reed would do well to heed the words of the general secretary of the Trades Union Congress, Paul Nowak. Historically the voice of working people – the very people Sir Keir’s government has promised so much to and for – Mr Nowak has chosen to speak out for hardworking farmers, too.

He warns: “I’m worried about the impact of [the tax] on small farmers. I know that for some small employers, national insurance contributions will also be a worry next year, particularly for those companies operating on small profit margins.”

Others friendly to Labour have also tried to tow the government out of the ditch it has fallen into. Dan Neidle, a highly respected tax expert, has proposed a series of reforms that would meet the government’s aims to raise revenue and curb tax avoidance while protecting real farmers with a complete exemption from inheritance tax, subject to a very large cap and certain conditions about the continuance of the family farm.

The chancellor would be very foolish in the coming months to attempt to prove her “iron-clad” fiscal credentials by sticking to a policy that her own allies are now telling her is worrying – and is easily fixed. The farmers’ campaign enjoys substantial public sympathy, and the scale of the protests may well increase in such a way as to create an atmosphere of crisis, diverting the work of the government and subverting its core missions.

Ms Reeves still has the freedom to pledge a proper review of the tax changes, and win some credit for the government for being prepared to look at the evidence and listen to sound advice.