Scotland cannot afford the UK's attack on its farming sector

The row over the UK Government’s decision to change the rules on agricultural inheritance tax comes at a time when Scotland’s agricultural sector is already facing huge pressures. 

The new tax rules have received a lot of publicity - some of it focusing on very wealthy people like Jeremy Clarkson and James Dyson. There is undoubtedly a case for changing the tax regime so that the super-rich can’t use it as a loophole to avoid inheritance tax. However, the way it has been done is to slam more cost and uncertainty on a sector that is already breaking under the pressure.

Scotland cannot afford for Westminster to take a hammer to its food and farming sector - at the end of the day, we all need access to affordable, nutritious food. 

Scotland has a strong farming industry - it turns over £16 billion annually, and contributes 17% of the total to the UK economy - double the population share. It is an important contributor to the economy - but Scottish agriculture has been given less and less funding in real terms each year since the Brexit vote. 

Scottish food and drink is considered to rank amongst the highest quality produce in the world, from whisky to Scotch beef and lamb to quality seafood much in demand in Europe our agriculture sector adds to Scotland brand for quality and the environment

Here are three reasons why the UK Government’s approach is causing problems for farmers in Scotland. 

1 Farm values don’t bear any relation to incomes 

Accountants normally expect a return of at least 5% from assets. So, on paper, farms worth millions should bring in a lot of money every year. But in the case of farming, the link between the value of the asset and the income has been broken. A real farmer generally doesn’t earn enough to pay a six-figure inheritance tax bill, even over ten years. 

Why has that link been broken? It is basically because, as the saying goes, nobody is making any more land. The cost of farmland has been rocketing over recent decades. There are lots of factors pushing up the price. One may be the appetite of the super-rich for farmland, because of tax reasons, as has been pointed out by several commentators. But this new rule change is unlikely to change that much - the fact that the inheritance tax bill will still be lower on farms than, say, yachts will still make it an attractive investment. 

Another reason for the rising cost of land, in Scotland especially, is the emerging market in carbon offset - financial institutions want to buy land and plant trees on it. They can acquire carbon credits which can be used to mitigate things like air travel. And there are lifestyle reasons why the wealthy want houses with lots of acres around them. 

Farming income goes up and down as prices, costs and weather fluctuate. But in general it is not keeping pace with inflation and some sectors are hit more than others. Last year the average income of a Scottish farmer was £69,000, with the high price of grain benefiting arable farms. But the average income of a livestock farmer in Scotland was under £20,000 - someone in that position cannot afford a six-figure inheritance tax bill, even over ten years. 

2 The increased complexity will cause cost and stress for many, perhaps most,  farmers

The new rules are quite complicated. The UK government repeatedly claims that a farm worth £3 million can be passed on free of inheritance tax. But it is not as simple as that. In fact, the £1 million allowance is not transferable between spouses - it has to be used on death, by passing on part of the farm. There is a separate allowance of £500,000 for property - farm machinery is expensive and if the farmhouse happens to have a sea view, for example, that will increase its paper value. 

Under the current system, settling the estate when the farmer dies is quite straightforward. But this change ends that - everything will have to be valued. The old tractor that a farmer handed to his neighbour five years ago will have to be added to the tally. This is going to hugely increase the complexity and time to settle farm estates - even those who don’t end up needing to pay inheritance tax will have a hefty legal bill and the process could take years. This will add to uncertainty and stress for farming families. 

There are a lot of elderly farmers who have been advised not to hand over their farms early because of the existing rules. They will be hit the hardest, as will their families. Without a change in the rules, many may have to sell. The land may still be farmed - or it may be used for other things, impacting food and drink production. The number of farms in the UK is already falling and is predicted to drop by more than a fifth by 2040. 

3 Post Brexit Scotland is getting less and less money in real terms to support farming

Access to affordable, nutritious food is the basis of health and wellbeing. The purpose of the European Common Agricultural Policy, created in the aftermath of World War Two on a continent which had experienced food scarcity, was to safeguard food production and make sure food was affordable. It was accepted that a proportion of the cost of growing and producing food should be met by the taxpayer and it should not just be left to the markets to set prices. 

In its early days, the CAP was a victim of its own success, criticised for producing too much cheap food - “butter mountains” and “wine lakes”. Since then it has been changed. The CAP is awarded on a seven-year cycle and is partly given as a basic payment according to how much land is being farmed. That gave farmers a bit of certainty - they knew what money they could rely on for the next seven-year cycle.  

This direct payment was in the process of being phased out between 2021 and 2027, but in the recent Budget, Labour announced it was accelerating the wind-down period, meaning farmers could see their support cut as much as 79 per cent next year.

In England, the replacement for CAP is something called the Environmental Land Management scheme which is a whole new set of boxes for farmers to tick. One of the issues with ELM is that it is not designed as a straightforward multi-year cycle and it has increased bureaucracy, uncertainty and stress for farmers. Many farmers are struggling to work with the scheme. 

Agriculture in Scotland is devolved and Scotland is sticking with a basic farm payment system to try to support food production. But, while under CAP, the farming sector received ring-fenced payments on the seven-year cycle which were adjusted in line with inflation etc, now Scotland is getting less and less money in real terms every year to support farming. 

Scotland’s agricultural sector punches above its weight, contributing 17% of the total value of agriculture to the UK economy. Yet this year it will get £620 million - an amount which has not been raised since the Brexit vote, so it is worth, in real terms, significantly less. The UK government has decided not to ring-fence it, and is trying to pass the buck of underfunding to the Scottish Government, challenging it to find extra money out of what Westminster hands out in the block grant. 

Scottish Secretary for Rural Affairs Mairi Gougeon told the BBC’s ‘Farming Today’ programme: “There was a commitment in the Bew Review that we would have discussions about the future distribution of agricultural funding and the fact that that that hasn’t happened and that we have had a settlement imposed on is causing us huge concern…the settlement is the same level as it was at six years ago so we think it should better affect the inflationary pressures that there have been in that time.”

Conclusion

A demonstration by farmers planned for Holyrood this week will ask the Scottish Government to mitigate Westminster’s policies. But the Scottish Government does not hold the levers of power that are required to secure the future for Scotland’s food and farming sector.

The Scottish Government can’t do anything about the decision to introduce new inheritance tax rules without consultation. That is going to load more cost and uncertainty onto many farmers, even those who don’t cross the £1 million bar.

The Scottish Government can’t do anything about Brexit - which Scotland voted against and yet was forced to accept. Coming out of the structured and multi-annual Common Agricultural Policy has proved terrible news for the farming sector. Now the Scottish Government is going to get an unpredictable annual amount from London based, not on what Scottish farmers need or what they contribute, but on the “Barnett Consequentials” of what England decides. 

Only with independence can Scotland give the solid support that its agricultural sector needs to keep on producing so much that is vital to Scotland’s health and prosperity.