The Budget and rural business

The government’s got a long way to go to win back trust from farmers, the Prime Minister conceded on a visit to Cornwall last month. During the trip, the government announced a £65 million fund for farmers across England in response to Summer’s drought, but that alone is unlikely to do the job. After the cuts to agricultural property relief (APR) and business property relief (BPR) announced in the 2024 Budget, the marches in protest and the suspension of farming subsidies in 2025, there’s still a way to go. 

Next month’s Budget will be the real test of whether the government is likely to win back hearts and minds in rural businesses and farms.

The Chancellor has his work cut out. Earlier this month, the Countryside Alliance called for a “rural reset”, asking the government to review 27 policies since 2024 hitting farms, businesses and countryside communities, from rising wage bills to firearms licensing fees.

“After two years where an unprecedented range of government policies have left rural people feeling under attack, a new Prime Minister provides an opportunity for the government to reset its relationship with rural Britain,” the organisation’s Chief Executive said.

That might prove a little optimistic in a Budget where borrowing costs are fast eroding the Chancellor’s fiscal headroom. If the government can’t be persuaded to do everything, there are at least four areas where many farms, other rural businesses and landed estates would desperately like to see their concerns addressed.

The first is further reform of APR and BPR. Even after the 100% relief allowance was made transferable between spouses in the 2025 Budget, and further increased to £2.5 million for each individual in December 2025, many rural businesses remain concerned.

Funding inheritance tax without selling land or other productive assets will inevitably be a challenge to some, undermining the sustainability of farms and businesses that Andy Burnham says he wants to see.

A complete rollback of the new rules would be the best outcome. If that’s too much to hope for, many rural businesses and landowners would welcome some further protection for genuine trading and agricultural businesses and more flexible payment terms.

Complaints and problems with government grants are long-standing. The suspension of the capital grants scheme last year due to budget constraints did much to sour relations. This year’s grant budget was 50% larger but was still exhausted earlier this month.

Quite apart from the amount, however, many farmers and landowners would welcome more stability: Predictable and consistent funding rather than schemes that open, close or change at short notice.

Properly funded environmental land management schemes, capital grants for infrastructure investment and support for food production would all help the sector. Where extreme weather can really impact this sector, support with increasing costs (labour, fertiliser, energy for example) would also be welcomed by all.

Similarly, while tax rates remain a key concern, they’re not the only issue. The complexity of the tax system is another drain on landowners’ time and resources. Many estates are having to diversify to survive while also trying to maintain heritage and history associated with the estate. Maintaining non-profitable, yet historical, aspects of an estate (amenity woodland, for example) while driving profit and cash growth with diversified activities can be difficult with existing tax rules.

The government could give thought to establishing a single rural business unit. Enabling estates to operate under one unified tax structure, rather than splitting across different classifications for tax purposes, would help drive growth in the sector and wouldn’t have to cost the Chancellor anything.

Potential reforms to stamp duty land tax and council tax that would see them replaced with an annual land value tax have been widely rumoured. The Prime Minister has long supported an overhaul and made council tax reform a key part of his Makerfield by-election campaign.

There are strong arguments in its favour. An annual land value tax would be less distortive to the property market than SDLT. It could remove the upfront cost of getting onto the property ladder and present opportunities for landowners looking to exploit development potential on their land. The impacts would vary wildly across the country, however, and for the asset-rich landowner, it would mean further draws on annual cashflows.

It would also be a significant undertaking for the government, with valuations of land across the UK. Whether it has the appetite for such an undertaking – amid so many other pressures – remains to be seen.

Whatever it decides, the Budget is likely to set the tone for this government’s relationship with the rural sector for the remainder of this parliament. We must hope it’s positive.

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