A budget for the rural economy: the CLA's recommendations

Ahead of the chancellor’s spring budget on 15 March, the CLA sets out its key recommendations and asks to help level up the rural economy and deliver the government’s net zero objectives
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With the spring budget due on 15 March, the chancellor is under pressure to cut taxes and boost UK growth while addressing rising inflation, high energy prices and a cost of living crisis. The CLA has submitted written representations to the Treasury to be considered as part of the decision-making process in the lead-up to the budget. Here we summarise our key asks, which focus on two key themes: levelling up rural areas by delivering growth and delivering net zero.

Delivering growth

Digital connectivity in rural areas is vital for members and their businesses. Ubiquitous connectivity will help rural economies perform to their full potential and increase productivity. To level up rural areas and eradicate the rural-urban digital divide, the CLA has asked the government to ensure that the target of 100% coverage by 2025 is met and that the necessary resources are allocated to this goal within the remaining parliamentary term.

Last year, the Treasury consulted on whether to make changes to the capital allowances regime. In our response and budget submission, we have called on the government to simplify capital allowances, which can be done by extending the UK Annual Investment Allowance (£1m per year) to include buildings and structures. This will encourage investment in agricultural buildings, equipment and infrastructure – modernising the sector and driving productivity growth.

Despite the changes in 2022 to business rates, they can still impede the establishment and growth of rural businesses. The CLA is calling for a full review of business rates and their burden on rural businesses. In our submission, we have made several recommendations for improving the rates regime in the interim, including raising the Small Business Rate Relief ceiling to £15,000, permanently freezing the multiplier and abolishing rates on empty properties.

Many members operate a rural tourism business. The temporary VAT reduction for the tourism sector was welcome, and the return to 20% VAT is not helping the sector to bounce back sustainably and resume its growth trajectory. We are seeking a permanent VAT reduction to 12.5% for accommodation and attractions enterprises as the best way to support the sector.

Vineyards have become a popular diversification, and while the number of registered vineyards has grown in recent years, the UK wine industry could grow even further with the right government support. With changes to the alcohol duty system afoot, it is time for the government to support the growth of and investment in UK wine producers. Vineyards deserve the same support that small cider and beer producers will benefit from with the new Small Producers Relief; we have called for a separate small vineyards relief from alcohol duty rates.

Delivering net zero

Many members are looking at how they use their land and are considering taking some of it out of agricultural use to deliver environmental objectives. If land is managed predominantly to meet the government’s public goods objectives, such as environmental concerns (biodiversity, tree planting and carbon sequestration) or social objectives, inheritance tax reliefs (agricultural property relief and business property relief) can be lost.

We have called on the government to change the tax rules and have met with the Treasury, Defra and HMRC to make the case - even giving them the draft legislation that works to protect the availability of these inheritance tax reliefs.

Our proposed solution will encourage the uptake of environmental and tree planting schemes, as landowners will have the certainty that the land will continue to benefit from relief despite its change of use.

We have also made recommendations to the government to support residential landlords and homeowners to decarbonise their homes.

Government schemes, such as the Green Home Deal and the Home Upgrade grants, have had low takeup rates, so have not facilitated the investment needed to decarbonise homes and install low-carbon heating, such as air source heat pumps. We have called on the government to allow residential landlords to claim capital allowances for this investment. This would be more successful and help the UK achieve carbon neutrality by 2050.

At a time when many want to reduce heating costs to counter high energy prices, last year’s introduction of a zero VAT rate for energy-saving materials, to last until 31 March 2027, was a welcome change. However, the reduction does not go far enough to benefit everyone who is looking to improve the insulation of their homes at a time of high energy prices.

Firstly, it only applies to the installation of qualifying energysaving materials, and not where the materials are purchased separately. We have asked the government to extend the reduction’s scope to the purchase of energy-saving materials. This will mean that any homeowner or landlord who buys energy-saving materials to be installed by themselves or their employees will no longer have to pay 20% VAT on these materials.

Secondly, there is a practical problem in cases where energy-saving materials are installed at the same time as other improvement works are carried out on a residential property. Where these works are provided by the same contractor, the benefit of the zero rate on energy-saving materials is denied. This is because all the works are treated as a single composite supply and the energy efficiency installation works are ancillary to the overall refurbishment. We have recommended that, in these cases, this should be viewed as a mixed supply, with each element taxed accordingly. This would mean the installation of the energy-saving material qualifies for the zero rate, per the government’s intention to provide relief.

The CLA will wait to see what measures the chancellor will announce. We will inform members of key budget announcements in a special budget e-news on 15 March, and in April’s Land & Business.

Key contact:

Louise Speke
Louise Speke Chief Tax Adviser, London