Disturb a delicate ecosystem at your peril, particularly if it involves tractors. The UK’s five-month-old Labour government is unlikely to emerge without damage from a clash with farmers over its plans to impose inheritance taxes on farmsteads, which drew thousands of protesters to London last month. Across Europe, demonstrations by agricultural activists have invariably led to concessions — as well as gains for right-wing populists. That is a troubling precedent.
For now, the British campaign remains genteel. Farmers have not used their machines to block roads or dump manure and rotting garbage, as in France, Germany and the Netherlands. It would be unwise to ignore the parallels, though. Rural discontent helped propel the rise of National Rally leader Marine Le Pen in France, the Alternative fur Deutschland party in Germany and far-right Dutch politician Geert Wilders.
True to form, populist Reform party leader Nigel Farage turned up to the London protest kitted out in country attire of tweed cap, Barbour jacket and Wellington boots. Farage’s presence was not universally welcomed. He has never been a farmer, having entered the City of London as a commodities trader after leaving school, and was a driving force for Brexit, which made UK farmers materially poorer. Still, an opportunity has been sensed.
Some urbanites might struggle to understand the special treatment lavished on farmers. To a dispassionate observer, Labour’s tax proposals look quite reasonable. The first ￡1 million (US$1.27 million) of agricultural assets would be exempt, and thereafter inheritance tax would apply at 20 percent — half the standard rate. The net result, taking into account other allowances, is that a farming couple could pass down ￡3 million of assets tax-free. That is three times the ￡1 million threshold for a non-farming couple, who also pay the full 40 percent rate on anything more than that. It does not seem so bad. Objectively, anyone sitting on ￡3 million of assets is wealthy — as of 2020, ￡3.6 million was enough to rank in the UK’s top 1 percent.
The fear is that farm owners who scrape by on a meager income would pass down an inheritance tax bill that their descendants would be unable to pay, forcing them to sell land that might have been in the same family for generations. Farms are asset-rich, but cash-poor. The median return on capital employed of farms in England was 0.5 percent in the year through February last year, government data showed. That paltry return partly reflects the growth in the value of agricultural land, which has been inflated by buyers taking advantage of the inheritance tax exemption to shelter their assets.
Those are the owners Labour is attempting to target — but sorting the hard-working wheat from the tax-dodging chaff might not be so straightforward. The debate has descended into a squabble of competing claims. The government says about 500 estates a year might be ensnared, with three-quarters untouched; the British Country Land and Business Association counters that 70,000 farms could be worth more than the level that would make them potentially liable to inheritance tax.
Beyond the issue of whether the government has threaded the needle correctly is the question of why a sector that accounts for such a small share of the economy and employment holds such political sway. Agriculture contributed ￡13.7 billion to GDP last year, or 0.56 percent of the total, and employed 462,100 people, making up 1.4 percent of the UK’s workforce. Yet the farm lobby’s argument that it should retain privileges unavailable to most taxpayers commands strong public support. Most farmers, granted, have a hard and poorly remunerated life — but that also goes for many low-paid urban workers.
One of the most obvious and frequently cited reasons — food security — does not stack up. The farmers produce our food, so we should not annoy them in case they stop, the argument implicitly runs. However, the smallest farms, accounting for 45 percent of the total, generate only 2 percent of the UK’s agricultural output. The bigger farms are, the more productive they become. If farmers are forced to sell and their holdings are consolidated into larger operations, then productivity (and therefore food security) would improve — although biodiversity and the look of the countryside might well change for the worse.
The key is the intangible factor of emotional and psychological connection. Any owner with a farm valued at ￡3 million could sell the land and live comfortably for life. The point is that most do not want to. Farming is a matter of identity and a farm sold is an identity lost. About two-thirds of England’s land area is dedicated to agriculture and farmers are stewards of the land. Voters appear to appreciate that emotive connection and to approve of farmers’ special status. That argues for mitigating the tax changes, while still targeting the better-off and those who have bought agricultural land primarily for tax reasons.
If nothing else, it would avoid making an implacable enemy of the rural constituency, heading off the threat of deepening social divisions and political radicalism. A government obsessed with revenue-raising might need reminding that not everything worth having can be measured in monetary terms.
Matthew Brooker is a Bloomberg Opinion columnist covering business and infrastructure. Formerly, he was an editor for Bloomberg News and the South China Morning Post.
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