Rachel Reeves’s plans for a “family farm tax” have suffered a major blow after the supermarket giant Tesco called on her to halt the policy.
In a highly unusual move, the retailer backed farmers in their fight against the inheritance tax raid, with its chief commercial officer warning the “UK’s future food security is at stake”.
In a triple blow to the chancellor as she seeks to woo business investment to the UK at the World Economic Forum in Davos two more huge supermarkets, Lidl and the Co-Op, also called on her to pause the policy.
The interventions mean Tesco, British agriculture’s biggest customer, Lidl and the Co-Op have joined other major supermarket chains Sainsbury’s, Asda and Morrisons in backing farmers.
To add to her woes, a new report by the Office for Budget Responsibility (OBR) warned the policy may raise less than the Treasury hopes, with the £500m-a year-revenue forecast given a “high” uncertainty rating and likely to fall after seven years as families use tax planning to avoid the charge.
Tesco’s chief commercial officer Ashwin Prasad said that ensuring farms remained economically sustainable was “essential” not just to food security but so customers “can continue to get the great quality food they want, at a price they can afford”.
The calls will increase pressure on Ms Reeves to U-turn on her controversial tax raid. The chancellor has faced a furious backlash to her Budget decision to extend inheritance tax to family farms, which critics warn could sound the death knell for family farms in England.
The changes mean that farms valued at £1m or more would be liable for 20 per cent inheritance tax.
The Treasury says that, with tax allowances, in reality, only farms worth £3m would be affected, just 28 per cent of family farms. But official Defra figures appear to suggest as many as 66 per cent could be hit.
Thousands of farmers brought Westminster to a standstill in November when they descended on the capital to voice their opposition to the change.
Mr Prasad said: “One message is loud and clear: farmers desperately need more certainty. After years of policy change, it has been harder than ever for them to plan ahead or to invest in their farms.
“One current area of uncertainty is the proposed change to inheritance tax relief. With many smaller farms relying on APR [agricultural property relief] and BPR [business property relief], we fully understand their concerns.
“It’s why we’ll be supporting the NFU’s calls for a pause in the implementation of the policy, while a full consultation is carried out.”
Lidl said in a statement: “Providing security and long-term investment for British agriculture is key to helping ensure that farmers can continue to produce affordable and increasingly sustainable food for generations to come.
“We are concerned that the recent changes to the inheritance tax regime will impact farmer and grower confidence and hold back the investment needed to build a resilient, productive and sustainable British food system.
“We, therefore, support the call by the farming community to pause the implementation of those changes and to consult with industry to achieve a mutually beneficial outcome. We will be raising our concerns with government at any opportunity we get.”
The Co-Op said that while it was aware ministers had tough choices to make “we have directly contacted relevant government departments to communicate our hope that they will look again at the impact of the ... changes. We have also agreed to sign the UK farming unions’ letter going to the government imminently, to call for a reconsideration of the proposed tax changes.”
Mo Metcalf-Fisher, director of external affairs at the Countryside Alliance, said that the supermarket giants “understand that they benefit from a buoyant family farming sector, something the Treasury’s tax hike threatens to completely undermine. It is becoming almost impossible to find anyone that supports this policy, yet Rachel Reeves refuses to consult relevant rural stakeholders to find a way forward out of the unnecessary fallout created by her department. If the government wants to avoid a long-running battle with [Countryside Alliance], they need to rethink this policy urgently.”
On Friday, Asda also offered its public support for farmers by backing the NFU’s demand for a “pause” in implementing the changes. And earlier this month, Morrisons told farmers “we’re with you” in the fight.
Environment secretary Steve Reed recently offered an apology for having “shocked” farmers with the Budget measures.
But he and other cabinet ministers blame the tax raid on a £22bn “black hole” in the public finances left by the previous Tory government.
Separately, a new report by the OBR casts doubt on how much money the raid will raise. The expected revenue, £500m a year by 2029, has been given a “high” uncertainty rating by the spending watchdog. The OBR also warned it was likely to fall after seven years as families use tax planning to avoid the levy.
Shadow environment secretary Victoria Atkins said ministers “still can’t tell us how many businesses will be affected. They have chosen to destroy British family farming for little return.
“The OBR is clear that it will be near impossible for older farmers to restructure their affairs quickly in response to this vindictive tax.
"Farmers up and down the country are worried sick about their families’ futures and Labour’s tax bills.”
Liberal Democrat rural affairs spokesperson Tim Farron said the report “confirms that the government’s misguided family farm tax is mired in problems and will penalise British farmers for practically no benefit.
“It is deeply concerning that older farmers will be hit hardest from this tax, with the rug pulled from under them before they can change their plans. And with tax revenue expected to be highly uncertain and unstable for two decades, the chancellor’s excuses simply don’t stack up. The government must do the right thing and scrap the family farm tax before it’s too late.”
A government spokesperson said: “Our commitment to farmers remains steadfast – we have committed £5 billion to the farming budget over two years, including more money than ever for sustainable food production, and we are developing a 25-year farming roadmap, focusing on how to make the sector more profitable in the decades to come.
“Our reform to Agricultural and Business Property Reliefs will mean estates will pay a reduced effective inheritance tax rate of 20%, rather than standard 40%, and payments can be spread over 10 years, interest-free. This is a fair and balanced approach, which fixes the public services we all rely on, affecting around 500 estates next year.”
