By unlocking the export potential China offers the pig industry, not to mention the red meat sector as a whole, we could gain entry into a marketplace which comprises a fifth of the world’s population.What George Osbourne's budget means to farmers
CHANCELLOR George Osborne described it as the ‘unavoidable budget’. Political editor, Alistair Driver looks at what it all means for the farming industry.
MR Osborne warned that ‘everyone will pay something’ in his ‘tough but fair’ package designed to cut the massive budget deficit the coalition Government has inherited. His emergency budget combined harsh spending cuts with tax rises as he moved ‘decisively’ to address the problem
SPENDING CUTS
Mr Osborne announced average real terms budget cuts of 25 per cent over four years for ‘unprotected’ departments, like Defra, amounting to £17bn by 2014-15.
Defra already has one of the smallest departmental budgets at just £3.2 billion and as one of Whitehall’s ‘less fashionable’ departments, its cuts could amount to as much as one-third of its budget, according to NFU president Peter Kendall.
Further details of where the cuts will fall will be unveiled in an October spending review but the implications for Defra and its agencies, like Natural England, the Environment Agency, the Rural Payments Agency, Animal Health and are likely to be profound.
Spending on animal health, research and development, agri-environment schemes and environmental projects could all be up for discussion, with pressure for industry cost-sharing measures certain to grow.
Reaction:
“It is going to be gruesome. If a third of Defra’s budget goes, there are going to be things lost we are not even contemplating now. It is really critical that they don’t just look to charge the farming industry as a way out of this.”
NFU president Peter Kendall
“Cutting conservation spend would be a false economy.”
RSPB head of sustainable development, Martin Harper
TAXATION
The initial response from industry and fiscal analysts was that, given the big picture, farming had come out relatively unscathed.
VAT – increased from 17.5 per cent to 20 per cent from January 4, 2011. Food will be exempt from the rise.
Capital Gains Tax – immediate rise to 28 per cent for higher rate taxpayers, but remains at 18 per cent for low and middle-income savers. The blow has been softened by an extension of the ‘entrepreneurs tax relief’ threshold from £2m to £5m, meaning a 10 per cent rate on profits on selling business will now be applied to the first £5 million of lifetime gains.
Corporation Tax - cut from 28 per cent by 1 per cent each year, starting on April 2011, for the next four years until it reaches 24 per cent. The small companies’ tax rate will be cut to 20 per cent.
National Insurance - the threshold at which employers start to pay NI will rise by the rate of inflation plus £21 per week from April 2011. New firms outside south-east/east to be let off employer national insurance contributions, up to £5,000, for each of first 10 employees recruited.
Income tax – personal income tax allowance to be increased by £1,000 in April to £7,475.
Insurance premium tax – up from 5 to 6 per cent.
Reaction:
“For farmers considering selling up, the biggest impact will be from the changes to Capital Gains Tax. However, the increase in entrepreneurs’ tax relief is good news for farmers selling either one of their farm enterprises or their whole farm. The cut in corporation tax rates for small businesses is also good news.”
Sean McCann, NFU Mutual personal finance specialist
“The Capital Gains Tax rise is far less than people had feared and is likely to maintain if not increase interest in investment on land as a means of having wealth in a secure asset.”
Hugh Fell, George F White managing partner
“Landowners will be badly affected by the increase in the CGT rate. The disposal of non-liquid assets such as land which cannot be disposed of in small parcels naturally results in large gains being realised, albeit at infrequent intervals.”
William Worsley, CLA President
“The rise in the NI threshold will be helpful for farm businesses employing workers on lower levels of pay and the increase in the personal allowance for income tax will assist lower paid farm workers.”
Claire Harris, solicitor, Withers
“The VAT rise, albeit recoverable by most commercial farmers, will affect cash flows.”
Andrew Arnott, Saffery Champness, partner
BENEFITS, LEVIES AND RELIEF
Broadband - a 50p a month ‘landline tax’ to fund the rollout of fast broadband will be scrapped. The Government will instead support private investment, partly funded by digital switchover under-spend within TV licence fee.
Annual Investment Allowance – the allowance enabling companies to write off the full cost of their plant and machinery is being cut from £100,000 to £25,000, although not until April 2012.
Furnished holiday lettings relief - tax allowances to be reinstated from April 2011.
Basic state pension – re-linked to average earnings from April 2011, with minimum increase of 2.5 per cent.
Child benefits – frozen for next three years. Tax credits restricted for high earners.
Reaction
“Abolishing landline levy raises questions about how high speed internet access will be delivered in rural areas. The Announcement to reinstate furnished holiday let rules is great news and a result for NFU lobbying pre-budget.
“The delayed reduction to annual investment allowance reduction is good news – it allows another two years to put slurry stores in, for example.
NFU chief economist Tom Hind
“The reduction in Annual Investment Allowances will hit farmers buying new tractors and combine harvesters”
Andrew Arnott, partner Saffery Champness
ALCOHOL, FUEL, ENERGY
Alcohol duty - no change in alcohol or cigarette duty. Labour’s plan to increase the duty on cider by 10 per cent above inflation will be scrapped from July.
Fuel duty - no new announcement on fuel duty, although drivers still face previously announced rises of 1p a litre in October and 0.76ppl in January 2011.
Rural rebate- One of the more intriguing policies hidden in the budget small print is a consultation on a possible rebate on fuel taxes for people in ‘remote rural areas’. This includes possible pilot schemes in Scotland.
Fuel stabiliser - the Chancellor is also investigating the feasibility of a ‘fair fuel stabiliser’ mechanism, which would, in essence, cut duty when prices rose and vice versa.
Climate change levy - the Government will publish proposals to reform the levy in the autumn order, which will support a carbon price in the electricity sector.
Reaction
“The possible rebate on fuel taxes for people in remote areas would be very welcome tom people ewho have to drive because of the distances to local services – and the lack of public transport.”
NFU Mutual’s Sean McCann
“No duty on fuels in good news for farmers and landowners. The announcement on cider will be good news not only for cider makers but also fruit growers”.
Andrew Arnott, partner Saffery Champness
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