AHDB response to Budget 2024: Grain market daily

• UK feed wheat futures (Nov-24) closed at £179.05/t yesterday, down £0.95/t from Wednesday’s close. The May-25 contract also fell £0.95/t, to close at £193.10/t.
• Domestic wheat futures followed global wheat markets down yesterday with welcomed rain showers in the US and renewed signs of a difficult export season in the EU. Yesterday, the European Commission cut its projection of EU soft wheat exports this season by 1.0 Mt, now at 25.0 Mt, and 10.3 Mt behind last season.
• Nov-24 Paris rapeseed futures closed at €514.00/t yesterday, unchanged from Wednesday’s close. The May-25 contract gained €2.00/t over this period, ending the session at €520.75/t.
• The European Commission cut the EU rapeseed crop to 17.1 Mt yesterday, down from 17.2 Mt a month earlier, and the sunflower crop by 1.4 Mt to 8.1 Mt. The wider oilseeds complex was also supported yesterday, with support from rising soya oil prices and strong international demand for US soyabeans.

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AHDB response to Budget 2024: Grain market daily

Key points:

• Average farm holding value of £2.2 million would incur £240,000 inheritance tax from April 2026
• Static agricultural budget of £2.4 billion will see purchasing power eroded through higher inflationary forecasts
• Farming confidence at lowest level since 2010, added uncertainty may stifle investment appetite and so reduce productivity, resilience and food security

Budget headlines

Inheritance tax

Chancellor Rachel Reeves MP has announced significant changes in inheritance tax relief for landowners in this week’s Budget, limiting 100% agricultural property relief and business property relief to the first £1m of value.

Above that threshold, there will be 50% relief on qualifying assets, giving an effective inheritance tax (IHT) rate of 20% on assets over £1m.

The move was seen by many economists to be intended to close a tax loophole for those private and institutional investors that allowed them to transfer vast quantities of wealth across generations free from tax. According to Strutt & Parker figures, 60% of land marketed in 2023 was bought by private and institutional investors and so-called life stylers.

However, the move may also impact a significant number of family farms, many of whom will have to decide whether to sell land or to borrow to pay the tax, which is repayable over a period of 10 years.

AHDB Head of Economics, Sarah Baker, said:

"These changes may encourage farmers to think about succession earlier than they would otherwise. For example, there is a seven-year rule which applies in the case of land transfers.

"This means that any land gifted to an individual will be free of inheritance tax after seven years. Basically, the benefactor must live for seven years or more after gifting the land."

Direct payments

Defra confirmed that direct payments will be reduced in 2025. Reductions are based on the payment received in 2020. For the first £30,000 received, there will be a reduction of 76%.

For any payments above £30,000, the money received above this level will be reduced by 100%.

For example:

• If the amount received from direct payments in 2020 was £50,000:
• 76% reduction applied to the first £30,000 – a reduction of £22,800
• 100% reduction applied to the remaining £20,000
• Payments would be reduced to £7,200 for 2025

Farming budget

Although the Chancellor announced that the farming budget would remain unchanged at £2.4bn for the next financial year, our analysis shows that the real value of this money has been significantly reduced by inflation, with farm business costs rising on average by 44% since 2019.

How will this impact domestic agriculture?

With more uncertainty now faced in economic, market and weather conditions, farmers may be reluctant to increase borrowings and investments in a range of options from environmental schemes to farm equipment.

AHDB Economics and Analysis Director, David Eudall, said:

"The other consequence of the budget measures is that farm businesses will have to carefully consider operating and investment decisions, as these affect the value of the business and therefore have inheritance tax implications.

"This is of particular concern to us if there is a knock-on impact on agricultural productivity and therefore reduces our levy payer’s resilience to market shocks. We are also conscious there may be unintended consequences on self-sufficiency and food security."

We know that investment today drives income tomorrow, and that one of the ways for farmers to successfully manage the transition away from direct payments is to increase efficiency.

However, investment decisions are made on a cost vs expected return basis, and may well be adversely affected if that investment would incur taxes further down the line.

If demand for land from private and institutional investors is reduced due to these changes, and if a significant number of farmers decide to sell land, economics dictates that there would be downward pressure on land prices.

That of course depends on the volume of land being offered for sale, which in turn depends on the alternative courses of action available to farmers.

The direct, indirect and unintended consequences of the 2024 Budget are complex and will take many months and years to play out.

We will explore evidence-based analysis of these three main budgetary changes to help levy payers and industry make informed decisions.

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