What does the Chancellor’s Autumn Budget mean for farming, nature, land use and net zero? Emily Norton, our new Policy Champion for Land, Agriculture and Carbon, gives her analysis. 

Financial pressures on farms

Reduced support payments, plus changes to inheritance tax (see below), a rise in the minimum wage and an increase in employer NI contributions, will all add financial pressure to many farm businesses. In the short term, these pressures may cause some farms to put off or delay riskier decisions such as adopting new technologies, new crops or new approaches, and therefore delay a transition to more sustainable farming systems. 

Deep cuts to the largest remaining payments to larger farms under the old payments scheme were announced on Wednesday, likely accelerating the shift to farmers signing up to one of the elements of ELMS. Budgets for SFI and Countryside Stewardship seem safe for now, with commitment to Landscape Recovery being weakest in Defra’s communications.

In this context, agri-food supply chains need to give serious consideration to the additional pressures their farmer suppliers are now facing and be alive to the reality that farm viability is an existential concern for the buyers and consumers of food. Supply chains will need to play a much stronger role in giving farms confidence in the road ahead.

Inheritance tax and land use decisions

Until now, there has been relatively little awareness of the role of tax in guiding decisions about land use and the transition to environmentally beneficial farming. This is now in focus due to the reduction in inheritance tax reliefs for farms. 

However, because they have been retained albeit at a lower threshold, there is still a fundamental incentive to keep land in agricultural production, which brings back the ongoing debate around the outdated definition of ‘agriculture’. This has become associated with productive, intensive land use and it restricts tenant farmers in particular from adapting their farming systems. It is ripe for reform as farmers look to diversify and embrace wilder, wetter and healthier farming. 

One positive step is the government committing to equivalence of inheritance tax treatment between agriculture and environmental land uses. However, this will only apply to public schemes such as Biodiversity Net Gain, which will hold back innovative private markets for nature based solutions.

(Editor’s note: Due to interest in the changes to inheritance tax rules and the concern changes have caused in the farming community, we will be exploring this topic more in the coming weeks. Look out for news of a webinar – Jez Fredenburgh, 1 November 12.55).

Defra budget and priorities

The Treasury’s commitment to maintain Defra’s core farming budget in England is to be welcomed, and will allow it to press on with plans for transitioning farmers to more productive and environmentally sustainable agriculture. We won’t find out more about the Devolved Nations commitments on agriculture and the environment until their own budget announcements. 

Defra’s settlement was perhaps better than many expected, but it doesn’t take account of inflation and is potentially up for review after 2025, which won’t help farmer confidence. £600m of funding for farm payments and flood schemes is signalled to be at risk after 2025.

Government is clear in its budget that Defra funding is for prioritising progress on climate adaptation, food security, net zero and environmental goals. Bringing these sometimes competing priorities together at farm level remains the challenge, with many hoping this will be enabled by the highly anticipated Land Use Framework. 

Nature-based solutions

Defra will have £400 million over the next two years for tree planting and peatland restoration, and £2.4 billion for flood resilience, but to support the transition to healthy and efficient farm businesses, much more detail is needed on how private markets for nature based solutions, including carbon and water, are going to integrate with stretched public budgets. 

Pressure on the private sector to up its game on carbon and nature featured in Labour’s manifesto and the Chancellor was reported to be considering writing to the Bank of England asking it to consider climate change in its work. This, if followed through, will put much needed pressure on the rest of the financial system to push on with accountability on carbon and nature.

Nature protections and competing land use

The day before the Budget, Defra announced how it intends to meet its global commitment to protect 30% of land and sea in England by 2030. Shockingly, only 7% of England’s land currently complies with the department’s rules for recognising land as being conserved and managed for nature. 

Finding more protected land is not going to be easy, with the paper acknowledging that achieving ‘30 by 30’ alongside goals for food security, clean energy and housing will need “a strategic approach at the national level, which also considers local priorities”. 

The future Land Use Framework will have a role to play, but importantly, it will be possible for farmed land to qualify, provided it meets the three criteria of purpose, protection and management. Defra will need to align its funding fairly carefully behind this target, as well as the other Environmental Improvement Plan goals that are being reviewed at the moment.

In conclusion, the direction of travel is clear, but as financial pressures ramp up, the ways and means of getting there have been made more challenging for many.

Read a quick-fire summary of key Budget decisions for farming and the countryside, and for food and health.