Insight: Why inheritance tax is just tip of iceberg for farmers feeling let down by successive governments

Last year farmers took to the streets of London in protest at the new Labour Government’s policies, furious over plans to impose inheritance tax on farms.

It saw hundreds descend on parliament, with angry farmers driving their tractors through the streets outside twice in large scale protests. It comes due to Chancellor Rachel Reeves’s plans for the introduction of a 20 per cent inheritance tax rate on farms worth more than £1 million, as well as the speeding up the phase-out of EU-era subsidies in favour of nature-friendly farming payments.

However, these protests are not unique to the Labour Government, despite what some Tory backbenchers have said on television. In April of last year, with Rishi Sunak sitting in Downing Street, hundreds of 'go-slow' tractors rolled past the Houses of Parliament in protest at cheap imports, inaccurate food labelling and the environmental focus of the government’s farm payment scheme.

Alistair Carmichael, who chairs Westminster’s influential Environment, Food and Rural Affairs (DEFRA) Committee, claimed the unhappiness among rural communities is not just about inheritance tax, explaining farmers have been let down by successive governments.

Mr Carmichael argued the controversial inheritance tax unveiled by Labour fitted the general approach to rural life from ministers, and failed to appreciate the importance of food security.

Speaking to Scotland on Sunday, Mr Carmichael warned failing to act now would leave farmers poor forever, and vowed to use his time chairing the committee to move the Government on the issue.

Asked if ministers understood rural life, the Orkney and Shetland MP claimed there was a “lack of understanding” that went back well past the current Labour Government.

He said: “I think for the last couple of decades at least, we have had a tacit consensus amongst policy makers that we could meet our food security needs by importing food, and the countryside could effectively be turned into some glorified theme park, and that farmers were just awkward people who got in the way of the grand schemes for nature, restoration, and climate change mitigation and the rest of it.

“You've seen this direction of travel, the consensus built up in the political community of public money being spent on public goods however that was then going to be defined. The failure of politics there was not actually to look at farming finances and farming economics in the round.

“You've got the quite incredible situation now where you have a three million pound asset in an average family farm, which is probably producing about £25,000 a year in net profit. Farmers working 60 hours a week are probably working for about six pounds an hour.

“Having to meet the cost of inheritance tax out of that will simply render the business unviable. Family Farms are going to be split up. Many of them will be sold off, after a while people feel that what's the point in carrying on. That's the real danger of it.”

The National Farmers’ Union (NFU) organised a mass lobby of MPs in November, with 1,800 members gathering, including a delegation of 25 from NFU Scotland.

A separate rally took place on the same day in central London, and further protests have taken place since.

Prime Minister Sir Keir Starmer has defended the inheritance tax changes, insisting most farmers will be unaffected and that the government just needs to “keep explaining” how it will work.

Mr Carmichael was elected chair of Westminster’s DEFRA committee in September, a cross-party group of MPs that exists to scrutinise the administration, spending and policy of the Government. They grill ministers, experts, and go on fact-finding trips to try and improve policy and understanding.

Discussing food security, Mr Carmichael pointed to the conflict in Ukraine, arguing its impact highlighted the importance of being self-sustaining.

He said: “The war in Ukraine was a big wake-up call for people. I now think we have come to the realisation that losing support for domestic food production is going to be counterproductive to the notion of food security.

“Minister after minister has told us that “food security is national security”, which has become just about the most meaningless political slogan since “Brexit means Brexit”. If you are going to repeat that sort of slogan you have to be able to define it – and explain what food security looks like in practice for our own food producers.

“We need to have a reset of that debate and stop and say, what are we going to achieve with the English farm subsidy system that we have?

Liberal Democrat MP Alistair Carmichael called for a reset of farming policy

“And you have some schemes in Scotland, like the financial support for beef calves, for example, that does genuinely and greatly support food production.

“There’s a fairly significant change of direction needed. But also, and this is the lesson from the inheritance tax developments, is the outcome of 70 years of government intervention in agricultural productions through subsidies, has been to keep farmers poor.

“We’re pushing towards a place where agricultural businesses as a whole are unsustainable, and we have to draw back from that.

“But in the medium to longer term, we have to find a way to reconstruct the market for domestically produced food in a way that it can be done profitably and without public money. “Otherwise we're just gonna keep farmers poorer forever. That's not how I see the future of agriculture.

"We need to build a positive agenda for farming and show people in rural communities that this is a viable career – and worth pursuing for themselves and their families. It matters that farmers and crofters feel like they are valued in society as much as anyone else, and not treated as disposable.”

Currently the UK government provides grants to improve farm productivity, innovation, and research and development, as well grants to improve animal health and welfare. There's also incentives for sustainable farming, countryside stewardship, and support for enhancing the natural environment.

Despite the protests over inheritance tax, one rural Labour MP suggested this was just one issue, and the party could restore trust with farmers if it just stuck to promises made in its manifesto.

They explained: “I think a lot of the concerns we reflected in the manifesto to farmers - about insecurity of trade deals, lack of backing from govt in terms of procurement, energy prices etc - still stand. “The issue is now that we have to deliver them - and farmers have been burned so much by the Tories that a lot of faith in the positive changemaking potential of the government has gone.

“A general sense from colleagues is the Tories have misjudged it though - while there is deep discomfort with us, the Tories are pretty despised by a lot of farmers now. We can kitchen table the farming vote in a way we've just not been able to previously - we get brownie points for turning up, which a lot of Tory MPs in these seats just didn't do for decades.

“Basically, the litmus test is going to be the same for farmers as it is for the country at the next GE. Are they better off? Have we restored profitability or at least increased it?”

They added that one concern frequently raised was land will be taken out of food production altogether, with farmers concerned it would be sold off for “'greenwashing' to multinationals and used for tree planting.

Former Scottish Tory leader Douglas Ross, who had a career in farming prior to politics, criticised Labour’s approach, but admitted “every” past administration could have done more.

He explained: “Farming has never been easy but it seems that governments of all political persuasions, both in Scotland and at a UK level, often made things harder rather than simpler for farmers and crofters.

“The early decisions taken by the new Labour government have been truly appalling and heartbreaking. There is no doubt their policies will lead to people giving up farming and lifetimes of experience and expertise will be lost.

“And while Labour have well and truly betrayed farmers across the UK, every government could have and should have done more.

“It’s perhaps a reflection that unlike other countries, farmers and those connected with the countryside don’t make up a large part of the electorate, but that’s the wrong way to look at things.

“Farmers are the custodians of the countryside and supporting them allows our farmers to support the habitats and environment we need now and in the future.”

NFU Deputy President David Exwood explained farmers needed a consistent policy, and accused Labour of bringing in changes too quickly.

He said: “In many of the criticisms and the placards of the protest around inheritance tax, they said it’s the final straw, and that’s the point. Farmers have been struggling for a decade of really changing policy and very huge volatility and Agricultural Property Relief (APR) is a really important thing, but it’s the final straw after years of uncertainty. They have nothing to give.

“Farming is long-term job. With such long production cycles, you can’t change things quickly. 2024 saw huge challenges on weather, politics and on markets. You saw all those three come together in a spectacular way for farmers. It’s a failure of the government to create a stable platform within which farmers can get on with the business of producing food.

“Farmers can adjust if there’s a new economic reality, but they can’t do it quickly. What they have done without really understanding, is make farming change too quickly. The transition is too quick, it could not be going worse. The direction of travel isn’t wrong, but the speed of travel is a disaster. They’ve come in and done exactly the same as the last government. “

Mr Exwood also compared the promises of Labour’s manifesto to the reality of the Budget.

He added: “The manifesto talked about growth, and growth was going to be the priority, but look what they’ve done. It’s a clash between policy and politics. It’s going to deliver no growth, and kill growth, in the most spectacular way. They either don’t get that, or they are being incredibly tone deaf.”

A veteran campaigner on issues around farming, Mr Carmichael insisted he didn’t get angry, simply frustrated, and would use his time as committee chair to try and move the Government on both its understanding and policy of farming.

He said: “The danger of being a select committee chair is, it can pull you down into the weeds and you lose sight of the bigger picture. I wouldn't say I was angry, I do occasionally feel frustrated, I would be angry if I felt that the situation was not recoverable. As a select committee chair, I think I've got four or five years to help parliament shape policy.

“I want us to be doing some of the medium to long term work, defining what food security means, and what does it look like when you’ve achieved it.

“That has to be food security not just for farmers, but for producers and consumers as well. It lies in supply chain fairness.

“It’s not actually been subsidies for farmers, it’s been subsidies for consumers to keep food cheap in the supermarket, so it’s ultimately been subsidies for the big corporates.

“The whole market has become so distorted that it needs radical change. You cannot take money away from agricultural support payments, until you have addressed the unfairness in the supply chain.

“The people who are taking advantage of the situation are the supermarkets and the other intermediates in the supply chain. Eventually you want to get to a place where you have a normal functioning market.”

A Defra spokesperson said: "Food security is national security – and it cannot be taken for granted.

“That is why this government is investing £5 billion into farming over the next two years – the largest ever directed at sustainable food production and in our country’s history. We are going further to develop a 25-year farming roadmap to make the sector more profitable in the decades to come.”