A cure for "subsidy addiction"?

A review of subsidies to farming post-Brexit may also result in a review of all the benefits farmers receive, including tax relief. The issues will be wider and more complicated than some may think.

21 September 2017

A leading economist who chairs a committee set up to provide independent advice to government on environmental matters, says that in his opinion, the current system of farm support has led to “subsidy addiction” and recommends a full review of the benefits that farmers receive.

This was the bracing news that greeted listeners to The Today Programme on Saturday 29 July in an interview with Professor Dieter Helm. The gist of his argument was that in exchange for £9 billion of output, farmers receive £3 billion of subsidies plus other benefits such as exemption from business rates, Inheritance Tax (IHT) reliefs and duty free diesel.

He suggests that this has resulted in an ad hoc system of benefits which treats farmers more generously than those in any other industry and that as part of the review of subsidies post-Brexit there must be a review in the round of all the benefits farmers receive. A better description of his complaint might therefore be "support addiction".

He made particular mention of IHT reliefs (although it was reported that he felt such reliefs have their place, but that they were somehow being used "wrongly").

Investment in farming

This is a difficult question. If by the suggestion that reliefs are being used wrongly he is criticising investors who buy land for the IHT reliefs, then it opens an interesting debate. For example, is a wealthy banker or producer of household appliances who decides to invest part of his considerable fortune in agricultural land which he then farms, any less deserving of Inheritance Tax relief than a farmer who has been in the business "man and boy"?

Many would see a difference. There are benefits in ensuring that the lifelong farmer is able to pass his farm onto his children largely free of IHT. He and his family may be important to the local community and provide many jobs. But is he more deserving than the pinstripe farmer who may invest a lot of cash, innovation and extra productivity to develop his farming? Others would point out that some investors simply employ contractors to farm their land and bring little benefit to their farms or local community.

Comparing farmers with other businessman

Some commentators have suggested that there might be a return to some sort of “working famer relief" for IHT. But why should the owner manager of a “widget factory” receive full Business Property Relief for IHT on his death, whereas a new money farmer with other interests, who would fall the wrong side of a working farmer test, get reduced relief or perhaps no relief at all?

Relief on let farms is another difficult area. Since 1995 100% relief has been available on new farm lettings, whereas a landlord of a widget factory gets no relief. Agricultural landlords are unquestionably favoured. If they were not so favoured, then fewer farms would be available for tenants and in time landed estates with large let land holdings, might have to sell land to pay IHT. Many would regard this as a sorry return to the taxation policies of the first half of the last century which resulted in estates being broken up.

These issues are not new. They have been debated at various times since the late nineteenth century. But whatever your view it looks likely that the current debate will be much wider and more complicated than simply the shape of future farm subsidies.

Key contact

Tom Hewitt

Tom Hewitt Partner

  • Private Wealth
  • Head of Estates and Land
  • Head of Food and Farming

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