Labour May Axe Controversial Family Farm Tax

Labour is reportedly poised to eliminate a contentious inheritance tax (IHT) on family farms, a policy that has drawn significant criticism. Sources close to Prime Minister Andy Burnham suggest the party is considering abolishing the levy – which requires farmers to pay IHT when passing family farms to their children – at the upcoming budget on October 28.

This potential reversal, if enacted, would represent a victory for advocates like celebrity farmer Jeremy Clarkson, who have campaigned against the tax. The levy, introduced by Keir Starmer during his tenure as Chancellor, has been described by one Labour insider as "scraping the barnacles off the Starmer boat."

While the state of public finances is precarious, some within the government view the abolition of this tax as a relatively inexpensive method to distinguish Burnham's leadership from Starmer's policies. Axeing the levy is estimated to cost the exchequer approximately £300 million annually, a sum considered modest by some Treasury officials when compared to other potential tax cuts.

An alternative being considered is raising the tax threshold to £5 million. A source close to the Prime Minister indicated this approach might be favored to prevent the exploitation of farms as IHT loopholes while mitigating the impact on family farmers. However, critics argue that such a change would undermine the purpose of any reform, as many farms would still face substantial tax bills to transfer to the next generation, even with a higher threshold.

John Healey, set to receive the final economic forecast from the Office for Budget Responsibility (OBR) three weeks prior to the budget, will determine the precise financial room available for such a decision.

Sources suggest that eliminating the tax entirely could significantly influence the approximately 135 rural Labour MPs, who are perceived as "grumpy," and could aid Burnham in securing victories in closely contested marginal seats. A senior Labour source noted the approaching election's competitiveness, highlighting the vulnerability of over 100 Labour MPs with slender majorities in rural areas, suggesting immediate action on the tax is prudent.

The potential policy shift has fueled speculation that Burnham is contemplating an early general election. This possible reversal would follow Burnham's earlier decision to abandon predecessor plans to eliminate jury trials.

A poll by Orb International for the Countryside Alliance indicated that over a quarter of rural residents would reconsider their vote for Labour if the policy were dropped. The family farm tax had previously caused a significant decline in rural support for Labour, following the party's success in winning a record number of rural seats in the last general election.

Farmers expressed considerable anger when former Chancellor Rachel Reeves initially announced plans to impose a 20 percent tax on assets exceeding £1 million, ending a waiver that had been in place since the 1980s. Following widespread backlash and farmer protests, Sir Keir Starmer subsequently reduced the scope of the tax and raised the threshold to £2.5 million. However, many farmers continue to be affected by these revised measures, contributing to persistent discontent within rural communities.

The closure of 6,300 forestry, fishing, and farming businesses last year, according to the Office for National Statistics (ONS), has been cited by the Conservative Party as evidence of the family farm tax's detrimental economic impact.

Tory shadow farming secretary Victoria Atkins labeled the tax "vindictive." She stated that Labour MPs were repeatedly warned about the damage to businesses and families, yet ignored these warnings. Atkins asserted that Labour should abolish the tax entirely, with the Conservatives pledging to do so if Labour fails to act.

Despite reservations from the OBR, Labour advisors are optimistic about securing sufficient financial headroom in the budget to fund the tax cut. While previous budgets had significant financial buffers, current estimates suggest a much smaller margin, though this figure is subject to daily fluctuations based on global market movements.

Internal pressure is mounting for Burnham to address the tax. A former farming minister under Sir Keir acknowledged the tax's flaws and its negative impact on rural relations. Similarly, Labour grandee Lord Blunkett described the IHT measure as a "mistake."

Farmers like James Wright of Somerset have voiced concerns about the tax's negative effects on rural families and food security, deeming its removal long overdue. Mo Metcalf-Fisher, director of external affairs at the Countryside Alliance, stated that scrapping the tax would be a positive initial step in recalibrating the government's approach to the countryside.

A HM Treasury spokesperson commented that decisions regarding taxation are the purview of the Chancellor and would be announced at fiscal events, declining to comment on speculation or proposals.