UK Farmers Trigger the Revolution – Politely.
Blain’s Morning Porridge 20th Nov 2024: UK Farmers Trigger the Revolution – Politely.
“Cuz, I’ve got a brand new combine harvester… and I’ll give you the key”
Bring on the revolution! The UK has gone Full Stalin taxing Farmers. How very dare they! The reality is UK farming is a national treasure and should be a source of national pride – but the IHT revolt is a distraction from land price distortion, overly powerful monopolistic buyers, and Brexit incompetence by the previous shower in power!
James May, Captain Slow of Top Gear fame, asked a very simple economics question yesterday: If a farm generates £50k of income per annum, what makes it worth the £3 mm at which UK inheritance tax will likely become payable? Great question..
(Before I start… I love UK farmers. I think UK farmers produce the best food on the planet, and they are wonderful, dedicated people! But… they are being manipulated. The farmer’s revolt is angry – but like most revolutions is directed at all the wrong issues by actors with other agendas)
Going back to Captain Slow’s question: 60 times multiples are usually associated with start-ups promising unfathomable upside. No one would pay that multiple for an unproductive asset in a low return business, strongly suggesting the price of farms has been distorted by the tax advantages that go with them? Doh!
Saving 40% of a farms value in Inheritance Tax is a much more appealing reason to buy. Everyone in Cambridgeshire is very aware of how much land James Dyson now owns, and it’s no secret he acquired the land as a tax hedge. Rich men sheltering their wealth from taxation – and the resulting distortion that’s caused in land prices – is just one of the issues Government should be addressing.
Instead… suddenly we have a farming protest crisis of French proportions…
Elon Musk, displaying an intimate knowledge of 1920’s Soviet purges of the wealthy Kulak peasant class (especially in the Ukraine), has weighed in accusing Sir Keir of going “full Stalin” by imposing Inheritance Tax on Farms worth more than £1mm. Farmers above the threshold – which will be higher after allowances – will pay 20% IHT, half the normal rate which kicks in at £325k for everyone else. (Fewer than 5% of UK estates pay any IHT at all.)
The reality for UK farming is about 30% of the UK’s 210,000 farms are currently worth more than £1mm. Their capital assets (like tractors and combines) depreciate. All farmers will get a £325k property allowance and £175k tax free on the main residence being passed to family – meaning a £3 million rate for a farming couple. Less than 120 farming estates were valued over £2.5mm in 2021-22. Farmers will have 10-years to pay any IHT due on the estate bequeathed to them.
To borrow a phrase from his car-crash interview with Victoria Derbyshire, it is a “fact” the UK’s most famous farmer, and maker of one of my favourite TV Shows; Clarkson’s Farm, did write when he bought Diddley Squat Farm for £4.45mm in 2008: “Land is a better investment than any bank can offer. The Government doesn’t get any of my money when I die.” According to the Daily Excess, his farm complex is now worth about £12.5mm. In 2023 Clarkson made a £27,614 profit from the farm operations. Not a lot for a lot of effort.. but it makes for excellent TV. Whatever Amazon is paying him (which is unknown, but huge numbers have been suggested) isn’t enough for its sheer entertainment value. I trust his much smarter farming sidekicks, Charlie and Kaleb, see a significant slice of the upside.
Farmers don’t own farms to avoid inheritance tax. But rich men do. That distorts the price of farms. That’s a problem for non-farmers trying to get into farming, or agricultural workers looking to buy a farm. The best they can do is rent – at an inflated price to reflect the value of the land. It’s much the same kind of issue everyone else faces trying to get on the property ladder when the average price of home is 13 times salary!
There are, as always, two sides to every conflict. Whatever the Tories claimed yesterday, the Labour party do not want to destroy farming, but a chance to lambast the government was just too good an opportunity to turn down. Hence Kemi Badenough, whatever his name is who leads the Liberals, and Farage were all there in feigned horror yesterday.
In reality, the multiple problems for the bulk of UK farmers lie not in a tax obligation most of them will never face, but the terrible structure of the market for their products – where the supply/demand imbalance favours the oligopoly power of the large supermarkets, but also the botched post-Brexit planning of how the UK will replace Brussels subsidies without breaking farmers – all of which has been endlessly delayed. And, just to be clear… that’s a problem the previous govt left for the current crowd to solve after they failed to plan/solve/complete pretty much anything Brexit related!
These are the issues for Government to solve – how to encourage UK farmers to produce top quality food at prices that reward them, and which consumers can afford. That may even mean subsidy to promote healthier farming options. Farming should not be about land price distortions. It should be about making the UK the best food producer!
Instead, it’s been yet another communications nightmare the Government has blundered into. Imposing a focused tax on the rich is a laudable goal – but how would it have worked? Most folk would support a IHT policy that gave Farmers working the land and passing it to families who continue to work the land an exemption… but how would you define working the land? Could I get an exemption passing Blain Manor and its’ 8 straggling olive trees and a leaf-bitten small lemon tree (for organic craft G&T’s) to my kids?
Meanwhile… you have to laf….
I was mistaken for a farming-protestor yesterday! Because of the slightly inclement weather conditions, I was wearing my “City” Barbour jacket – a relatively new and slightly stylish blue affair, without the torn pockets where the dog has nuzzled into treats, and the multiple stains and rips of my active-duty one. I was also wearing almost fashionable lace-up boots, brown cords, and my favourite tweed flat cap to keep my bald spot warm.
If I’d worn a pair of Chinos I might have got away with it. The Brown Cords were the big mistake.
After braving the slightly colder than normal rain, the not quite frozen railway points (which still delayed trains), millimetre thin snow, I had an excellent lunch in the West End with a top equity analyst to talk about Energy Grids and transition investments. On the way back I ran into a bunch of mildly excited folk wearing even cleaner Barbour jackets and brand-new wellies at Waterloo. They were all terribly, terribly excited. They’d had a wonderful day. And they got in the same carriage as me. Dang.
I was just waiting for one of them to say something… “wasn’t Kemi wonderful”, or “didn’t Clarkson tell them”, when the lady on the other side of the table asked me very politely if I’d enjoyed myself at the rally.
I am now considering an uncover career as a spy for the Garuniad Newspaper… “Bill Blain reports from inside the Tory fightback”, or something like that. They were lovely, lovely people, but not quite social revolutionaries in the conventional sense. The lady and her family think its awful what’s happening to farmers. They own land, but it’s for their children. They rent some of their land to a horticulturist, and I think he might even be the chap I bought some beautiful Acers from near Stockbridge. And they also own fishing rights on the best trout stream in the Galaxy – the Test. (Yes, I would happily sign any petition saying anything at all in return for a rod for a day in May.)
While Putin threatens to Nuke the West… the current furore about Farmers paying Inheritance Tax, Allison Pearson (the well-known, and mostly harmless Telegraph Journalist) being accused of a hate-crime for calling Muslim flag-wavers “Jew-Haters” (apparently), or Premier Sir Keir Starmer spending too much time on Global Conferences…. dominate the news flow. We have real issues to worry about!
Unfortunately, all the noise is undermining confidence in the UK.
Out of time and back to the day job..
Bill Blain
Author of the Morning Porridge, founder of Wind Shift Capital
Comments are closed.
Disclaimer
This publication is protected by US, UK and International Copyright laws. All rights reserved. No License is granted except for the subscriber’s personal use. Rights will be pursued.
The Morning Porridge is not investment advice. It is market commentary based on discussions and information gathered from multiple sources believed to be reliable. No guarantee is given for its accuracy or completeness. It is not an offer to buy, sell or solicit investments or securities. The author may have a position in companies or institutions discussed in this commentary.
If you want to know what’s really happening and why.. welcome to the Porridge.
Financial Market Insights for Thinkers!
10 Comments
Starmer needs to replace his entire comms apparatus. Utterly inept. As ever you make wonderful points BB!
The £3m “exemption” keeps being quoted fir a typical farm, but due to the taper of the residential nil rate band, it will actually be £2.65m of available relief
Whoever you believe over how many family farmers it will affect, it will affect some, and they will face a tax bill which is disproportionate to their income, with no liquidity to pay it. Ten years seems a generous time period to pay but farming margins are very low so this will cause increased hardship, and resentment. Effectively having to repurchase their assets from a low future income.
Across the country there are young men and women finding themselves made redundant from businesses they have given their all to, losing their jobs for multiple reasons, none of which are due to their actions, but can be traced to the way global trade has changed, costs of business, rising competition and one-thousand-and-one other reasons. In the past years both my children have been made redundant but through their resilience have found new jobs. One of them has found out that new govt regulations mean he will likely lose his new post in the near future. They don’t have 10-years to find the money to pay their rent. Yet, they and millions of others struggle on and make the best of their lives. I sympathise with them all – and with farmers.
But in a world where everyone is subject to the will of the pernicious gods of markets and economics, they have little claim to special treatment. If everyone is a special interest, then nobody is special.
And yet we’re telling a whole generation of kids that ‘they’re special’!
Excellent comment from one of my farmin chums:
Bill – Just to point out a couple of things:
Land agents are unsure how much, if any, farmland values will reduce after changes to APR. Firstly, it will still offer a 20% IHT saving on other investments (attracting 40% IHT). Secondly, land in the UK is probably one of the best examples of a truly scarce economic good: we are an overpopulated, wealthy island nation and there are significant competing demands for land than agriculture (development value, lifestyle value, solar generation, carbon capture, rewilding, institutional investors).
If we ignore any effects on the gearing ratios of agricultural businesses, farmers likely would not mind if the value of agricultural land reduced to a reasonable multiple of its agricultural income potential. The effects of such drops in value only being realised when a family sells up – which the message of the protest is saying that they do not want have to do. The issue is, that the aforementioned competing demands mean its value will still remain distorted from agricultural returns.
As such, a 20% tax on everything a farm business owns above the threshold (calculated by a professional valuation, rather than what a balance sheet claims – so depreciating machines is not an option) is simply not possible to repay without selling land. The issue with selling bits of land is it reduces the viability of the (already unviable) farming business. As such, it possibly requires the sale of the entire farm in order to keep it a viable farming unit.
Further issues may come from how farmers will look to mitigate the tax, and the spill out effects. Farmers are not going to be investing in machines, buildings, drainage, equipment to the extent that they were, firstly because it may increase their IHT bill, and secondly because they may need to be extracting money from the business in preparation to be able to eventually make a “gift without reservation” to the next generation – the 7-year rule (which prohibits the gifter from benefitting from the gifted assets in any way)
This threatens the entire viability of the rural economy ( machinery dealers, mechanics, builders etc.) via eliminating the multiplier effect that stemmed from agricultural investment.
James Dyson: if we divide the Net Assets of Dyson Farming Limited (£612m) by his Sunday Times Rich List net worth (£20.8bn). James Dyson potentially only has 3% of his net worth in farming. It is possibly more appropriate to think of James Dyson’s farming investments as a billionaire’s version of an allotment, than an inheritance tax ploy.
Ultimately, it comes down to the value we place on long-term food security and the rural economy. This will mean an inevitable reduction in investment in UK agriculture and our productive potential.
On James Dyson – that’s an impressive allottment at £612 million. I am also told he has decamped to Ireland….
Sorry to be pedantic but just for information, I suspect Netflix are paying him nothing at all as its an Amazon show.
er… of course…. my bad. through the magic of editing we can fix that…
This an excerpt of a comment from an ex-farmer. His family were eventually forced to sell up by the scale of damage done by pre-1984 tax bills – which highlights, that selling land to pay tax-bills will create a farming crisis of its own:
Bill – As a direct result of that 1984 legislation land has been seen as a nifty tax dodge for a much wider community who lack any particular affinity with or interest in land and food, thus pushing the price of land far beyond its true economic value. A very recent example comes from my home territory. I was talking to Cluttons in Cambridge only a month or so ago and they told me they had just sold 140 acres in Long Sutton for £2,000,000. There had been a battle between the adjoining farmer and a developer with development gains to roll over and the developer won. This inflation of prices is a real a problem for genuine working farmers and what is worse about this latest budget decision is that this leaves fully intact the non-farmer advantage by continuing to offer them a 20% DISCOUNT. So this means that Government has continued to provide a valuable tax haven for third parties while knocking the genuine farming community.
They have also retained the invisible barrier to farm entry, by providing the non-farmer with privileged access to the land market.