“Unanticipated” increases in labour costs of at least 10% due to National Insurance hikes could pose a bigger immediate risk to farming businesses than Inheritance Tax reforms, the NFU has warned.
In addition to the Treasury’s divisive amendments to IHT liabilities for farm businesses, Chancellor Rachel Reeves’s changes to National Insurance rates added unexpected and “very significant” extra costs on to the already struggling horticulture sector, said NFU Horticulture & Potatoes board chair Martin Emmett.
The changes, announced in Reeves’ budget on 30 October, will see the NI rate for employers increase from 13.8% to 15%, while the threshold on employee earnings at which National Insurance applies will reduce from £9,100 to £5,000.
This, in addition to a rise in the national living wage of 6.7% (which growers had mostly prepared for), resulted in extra costs of about 4% and an overall increase in labour costs of 10% to 11%, Emmett said – which would ultimately have to be borne by the sector’s customers.
“The one thing that will impact the whole sector is the increase in employment cost as a compounded effect of the increase in the national living wage,” Emmett added.
“This is a significant increase in costs. Therefore, it’s got to ultimately translate as an impact on inflation.”
Emmett said some of the NFU’s members were already reducing working hours to offset the additional costs, and in the most extreme cases redundancies were now being considered.
Read more: Defra secretary Reed vows no inheritance tax u-turn in testy Efra Committee hearing
And the additional 4% was squeezing already tight margins, he warned, as prices had already been negotiated for the upcoming season. These costs were particularly significant as labour accounts for about 40% of the fresh produce sector’s costs.
“We’re in the process now of growers going back to their customers and discussing how we mitigate the impact,” Emmett said.
However, he added that retailers were also finding it to be a “very difficult increase for them to absorb in their own right”.
“The government has some great ambitions, but they come at a cost, and it must have a commitment to supporting the UK industry in addressing those increases in cost,” Emmett said, as the current policy was essentially putting UK producers out of business.
It comes as farmers took to the streets of London again on Wednesday to protest against the new IHT rules and changes to Agricultural Property Relief and Business Property Relief alongside wider government policy, with more than 100 tractors descending on the capital.
Meanwhile, the NFU this week ramped up its campaign to “Stop the Family Farm Tax” with a new banner campaign. It is also encouraging members to sit down with Labour MPs with an account or agricultural lawyer beside them to “debunk the Treasury’s story about the few farms that will be impacted”.
“I think it’s absolutely unimaginable that now [the government] understands the impact, they will leave the policy in place,” said the union’s president Tom Bradshaw. “But until we get to a point where they’ve actually said that they’re going to do something, we have to believe it’s not being changed.”
Bradshaw told The Grocer a “day of unity” in the farming sector would be planned for the spring after the budget came out in April if nothing had changed on IHT.
Read more: ‘We’ll have nothing left’: Emotional reactions from Westminster farmers’ protest
Elsewhere, the Commons Environment, Food & Rural Affairs committee this week launched a Future of Farming inquiry and held the first evidence session on the impacts of proposed changes to IHT on Wednesday.
“Since the announcement in the budget about the changes to Agricultural Property Relief, there has been an enormous amount of concern amongst the farming community that the viability and future of their farms are at risk,” said Alistair Carmichael MP, Efra chair.
“The number of farms that will be affected has been disputed between different groups, and in our evidence session next week I hope that we might shed some light on the predicted figures.
“The committee has chosen to take a strategic and long-term approach to its work, and so we are opening an ongoing inquiry to be ready to respond to developments as they arise.”
No comments yet