Keir Starmer must show some compassion to avoid triggering a ‘tractor tax’ culture war

A Budget that has unexpectedly hit farmers could yet end with Countryside Alliance-style marches and street protests that pit country folk against townies – and that’s in nobody’s interest, says Sean O’Grady

In spite of Partygate, the Labour freebies row, and lurid stories about Covid contract corruption, British politics is still a remarkably clean business. In fact, the one law most politicians fall prey to (and do so all too easily) is that of unintended consequences.

The present prime minister and chancellor of the Exchequer are but the latest victims of this occupational hazard, and I fear that they, along with the rest of us, will be in for some trouble in the coming weeks.

Because, as the dust settles on Labour’s first Budget in 14 years, some people are mad as hell and are not going to take it lying down. We’re talking about farmers, who have not had the easiest time of it but are going to be hit by an unexpected new “tractor tax”.

Farms worth more than £1m are to be subject to 20 per cent inheritance tax for the first time. Unless, that is, the farmers and their friends kick up a fuss about it.

So we now face the prospect of the Countryside Alliance, Jeremy Clarkson, Nigel Farage and Tommy Robinson – along with the Tories, most of the press, and even the Lib Dems – stirring up angry protests, descending on Parliament Square, blocking motorways, blockading London, and goodness knows what else.

It would be like the massed tractor protests seen in recent years in Canada and Europe, or the fuel protests and pro-fox-hunting riots that took place some years ago. It would be noisy, nasty, and divisive, and it would serve as an early challenge to the authority and the nerve of the democratically elected government.

In her Budget, Rachel Reeves decided to raise some £200m – a relatively small amount of money in the big, £1 trillion scheme of things – by levying inheritance tax (IHT) on “agricultural property” (such as farms, farmhouses, buildings and assorted businesses), effective from next April.

Agricultural property relief (APR) used to mean that these valuable assets could be passed down entirely free of what we used to call death duties. Now, that exemption is to be partly abolished – so there’ll remain an exemption for the first £1m worth of assets, with an uncapped 50 per cent relief on the rest, leaving an effective rate of 20 per cent. That brings things more into line with IHT on residential homes and the like. So it’s fairer – but it doesn’t feel that way to folk in the countryside. For them, it means the end of family farming as we’ve known it, with grievous consequences for the care of the landscape and food security.

Now, on the merits and the facts, the government has a strong case for reform. The tax-free status of farms only dates back to the 1980s. It is, undoubtedly, special treatment. It doesn’t necessarily make economic sense to give tax breaks to particular types of economic activity – it distorts the allocation of scarce resources. It has been abused by those merely seeking to shelter their wealth from taxation; Jeremy Clarkson and James Dyson are two oft-quoted examples of that trend.

According to the unimpeachable experts – Paul Johnson at the Institute for Fiscal Studies and Dan Neidle of Tax Associates – the fuss is hugely overdone and the media coverage completely over the top. They correctly point out that the great majority of farms would not be affected, and the ability to transfer the £1m allowance between spouses means that the tax-free exemption is more likely to be £2m.

Treasury figures show that fewer than 500 farms per year would have to pay anything; Neidle thinks the number affected could be as small as 100. By definition, these would tend to belong to the wealthiest of families, who, in theory, would be well able to pay the tax bill; they would also be able to do so by equal instalments over a 10-year period.

Neidle adds: “The old capital transfer tax (predecessor to IHT) had no agricultural exemption at all. In 1975, a 30 per cent relief was introduced. The complete exemption we have now was only created in 1992. The sky did not fall in.”

There are complications around the status of tenant farmers, which are subject to a consultation – but the principles remain the same. And, of course, the entire inheritance tax bill is easily avoided by transferring the assets to someone, provided you do it seven years before you die.

All of that is surely true, and even if it were not, it would not justify mob rule. But there will be a sense of grievance, even if much of the fear is chimerical, as occurred with the Ulez extension in London, which also left 90 per cent of people unaffected.

Without wanting to challenge the expertise of Johnson, Neidle et al, there will surely be some cases, albeit a small minority, where genuine hardship is entailed. Farmers tend to be asset-rich and cash-poor, and a bill for, say, £200,000, even at £20,000 a year, would be difficult to withstand for a family business generating, say, £100,000 a year. It may not be easy to sell chunks of land that are unsuitable for development, and the loss of the outputs from an area sold off would make a farm even less feasible.

There will be genuinely emotive stories. And, sadly, there will be agitators who simply want to overthrow “two-tier Keir”.

My advice, for what it’s worth, is for Starmer and Reeves to find a way of resolving the few cases that raise genuine concerns, and to refrain from talking in terms that sound unsympathetic, even callous.

Reeves has recently been at her flintiest about the farmers, and has displayed more than a hint of urbanite incomprehension, even class warfare, in her attitude: “At the moment, you can have some of the wealthiest landowners – not farmers, but wealthy landowners – in this country who pay no inheritance tax whatsoever, while middle-class families do. That is not right, and that’s why we’ve closed that loophole.”

It has to be said, too, that her colleague Steve Reed, now Defra secretary, had given the National Union of Farmers every indication that APR would be left alone by a Labour government. So we may look forward, if that’s the right expression, to another ugly “culture war” erupting before the end of the year, with townies pitted against their country cousins, and the government looking increasingly out of control as it tries to maintain order and legitimacy.

Starmer and Reeves would be wise to look a bit more compassionate, and to make some judicious amendments to their plans as part of the “consultation”. Unlike the situation involving the murderous rioting arsonists earlier in the year, this fight is probably not worth it.