Rishi Sunak’s first Budget as Chancellor of the Exchequer was met by relief by farmers after he announced the agriculture industry will retain the current tax relief on red diesel, despite it being abolished for most other sectors.
There was also no mention of changes to Agricultural Property Relief (APR) or Business Property Relief (BBR) which would have had significant implications for family farming businesses when succession planning.
This news on red diesel was particularly welcome given farmers are already facing lower profits in 2020 as a result of one of the wettest autumn and winters on record and the prospect of direct payments being phased out from next year.
According to Strutt & Parker’s calculations, if duty on red diesel had been increased to the standard rate it would have increased farmers’ costs by about £50/ha.
Retaining this relief for agriculture feels balanced, given the other significant changes in agricultural and environmental policy that will significantly change land management in England, including policies that will cut its environmental impacts by significantly more than the savings that would have been made by changing this subsidy.
There were a series of announcements about funding to support environmental measures.
For example, the government confirmed that £640m will be made available for a new Nature for Climate Fund, to support the government’s ambitions on tree planting and the restoration of peatland.
We await with interest to see details of how this fund will work as it could provide an interesting opportunity for landowners.
We also welcome the announcement of a Nature Recovery Network Fund, through which the government will invest up to £25m in England to partner with landowners, businesses, and local communities in the creation of Nature Recovery Areas. These will deliver habitat and species restoration and recovery, alongside wider natural capital benefits.
The new Natural Environment Impact Fund, through which the government will commit up to £10m to stimulate private investment and market-based mechanisms to improve and safeguard our environment, is also positive and should help develop new environmental markets for cutting and storing greenhouse gas emissions.
Another proposal that was not in the speech is that the government will legislate for a carbon emissions tax as an alternative carbon pricing policy and consult on the design of a tax in spring 2020. An effective carbon tax will be one of the most effective ways to reduce greenhouse gas emissions.
The news that business rates will be suspended for a year for small retail, leisure and hospitality businesses was a boost for some farms and estates that have diversified into non-agricultural enterprises, such as holiday lets, farm shops and wedding venues.
Those businesses eligible for small business rate relief will also be eligible for a £3,000 cash grant and could be useful for anyone with cash flow issues caused by a drop in trade as the impact of coronavirus is felt.
The chancellor also announced a ‘fundamental’ review of the business rates system by the autumn Budget, honouring the manifesto commitment, amid concerns that it is penalising high street retailers, who pay higher rates than online and out-of-town rivals. While the delay will not help many businesses – although there were more reliefs announced – it is at least progress.
Other announcements in the budget with an impact on the rural economy were:
Entrepreneurs’ relief on Capital Gains Tax
A proposed cut in the amount of capital gains that relief can be claimed on from £10m to £1m – although the government says this will only affect a small number of business people.
Broadband and 5G mobile investment
The Budget confirmed that the Shared Rural Network agreement has been finalised between the government and industry. The government will commit up to £510m of funding, which will be matched by industry. This means 95% of the UK’s landmass should have high quality 4G mobile coverage by 2025.
The Budget also committed £5bn to support the rollout of gigabit capable broadband in the most difficult to reach 20% of the country.
In terms of impact on the wider rural economy, this will undoubtedly have the largest impact. This is very positive and we hope that delivery will be effective.
Structures and Buildings Allowance (SBA)
The Structures and Buildings Allowance (SBA) allows the cost of qualifying expenditure, which includes new and renovated non-residential structures and buildings, and infrastructure such as fencing, bridges and tunnels, to be written off against tax.
The Allowance, which was introduced in 2018, has been increased to 3%, so allowing investment to be written off over 33 years rather than the previous 50 years. This is a small but welcome change and may encourage more rural businesses to invest in buildings and infrastructure.
The Annual Investment Allowance (AIA) does not appear to have been extended. The temporary 100% tax relief on purchases of qualifying plant and machinery up to £1m per year is due to end on 31 December 2020 and revert to the former level of £200,000 per year. Extending it would have had a greater impact than the change to SBA.