Why Labour's tax raid will put farmers out of business with Scottish farmers especially at risk

Changes to inheritance tax look set to produce unaffordable tax bills that force the next generation of farmers to sell up

It is my experience that you never entirely know the narrative of a Budget until a good few days have passed. Experts are back in fashion and they are already poring over Rachel Reeves’ grand plan for the economy – not just the big ticket items but also the hidden tricks that went unnoticed on the day and the nasty snags that will trip up people and businesses in the months to come.

The impression that Wednesday’s Budget leaves currently is of a government that, for better or worse, has set its priorities. Unfortunately for those of us living in rural and island communities, we appear to be some way down that priority list.

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Last week it was speculated that inheritance tax relief for family farms would be up for the axe – and so it has proven. I fear the Treasury still does not entirely comprehend the damage that this could do in farming communities up and down the country.

After all, farmers are the definition of “capital rich but cash poor”. Their property has a high value on paper but fine margins for profitability. In a choice between an unaffordable tax bill and selling up, I suspect many would-be farmers – the future of the industry – will see only one option.

Farms may have a high value on paper but the profit margins can be small (Picture: Jeff J Mitchell)Farms may have a high value on paper but the profit margins can be small (Picture: Jeff J Mitchell)
Farms may have a high value on paper but the profit margins can be small (Picture: Jeff J Mitchell) | Getty Images

As well as cutting into the network of local family-owned farms, and tenant farmers, this tax change alone will be a blow to many small businesses that depend on their trade. Our rural communities are vibrant but they are also vulnerable. What may appear to be an issue affecting just the occasional farm-owner risks hollowing out communities in a short span of time.

Compounding the problem is the decision to remove the ringfence for agricultural funding in Scotland and lump it into the block grant. The UK Government is already effectively cutting the farm budget in real terms. By removing the ringfence they will give carte blanche to the SNP to pilfer agricultural funds to pay for pet projects elsewhere.

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This is, after all, a habit for the nationalists. Farmers and crofters have already been fighting for months just to see the return of farm funds that the SNP raided previously – and that was when the ringfence was still in place. No doubt someone in Bute House is already trying to work out how many half-built ferries they could buy now that they have the whole farm budget to fiddle with.

Individual minor frustrations in this Budget are starting to add up into quite a serious headache for rural businesses. They saw off a first attempt by the HMRC to hike tax on double-cab pick-up trucks in February. Now that hike has been snuck back onto the agenda without justification. Changes to tax on furnished holiday lets will also be a kick in the teeth for farmers and crofters who diversified their businesses into tourism with the encouragement of successive governments and are now getting stung for it.

I suspect that this list will grow with time. This Budget was the first test of what sort of government we now have – and whether it is one which will prioritise the interests of rural communities just as much as their urban base. I fear we now have our answer.

Alistair Carmichael is the Scottish Liberal Democrat MP for Orkney and Shetland

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