Government assessment on tax changes claims no 'significant' economic impact

The government has claimed capping vital inheritance tax reliefs for farmers and family businesses will not have "any significant macroeconomic impacts".

The CLA has strongly criticised its impact assessment of the changes, published this week along with the draft legislation of the policy.

The reforms are due to come into force in April 2026, with the government arguing it "is not expected to have a material impact on food security" and "would not be expected to impact the UK’s ability to source imports from international markets".

The CLA has spent months trying to explain the many consequences, and offered a sensible alternative via the ‘clawback’ mechanism.

Country Land and Business Association (CLA) President Victoria Vyvyan said:

“The CLA has made clear, and costed, the consequences of this ideological folly; the loss of jobs, the reduction in GVA. Together the industry has offered a sensible alternative via the ‘clawback’ mechanism. The Treasury has given no reason for failing to consider an alternative.

“This is not an impact assessment; it reads like an amateur note from an arrogant government setting and marking its own homework and simply not understanding businesses and food security.

“To be clear, this is a tax burden on businesses, not wealth, delivered without consultation and with derisory engagement. Farmers and family businesses are the backbone of the economy and deserve to be heard by a government that seems hell-bent on pressing ahead, indifferent to the slow but inevitable train crash.”

In the publication, the government:

• Said the changes will earn the Treasury £230m in 2026/27, and £520m a year in following years
• Claims around 2,000 estates will pay more inheritance tax in 2026/27 than they would previously have been liable to pay
• Admits the policy "will have an impact on families going through bereavement and those planning for succession, where the estate has an increased inheritance tax liability as a result of this measure". But it claims the reforms are "not expected to have a significant impact on family formation, family stability or family breakdown".

The CLA will continue to campaign and lobby on members' behalf, using data, case studies and modelling to argue the case against these tax changes.

Altogether, these publications are incredibly disappointing. The draft legislation contains no concessions from the government, while the response to the trust consultation has a single concession regarding property rules and multiple trusts.

Since the measures were first announced, the CLA has lobbied the government to release the impact assessment of how the proposed measures will affect the rural economy. We have had several freedom of information requests rebuffed, with the justification that we should wait for the impact assessment when the Finance Bill is published. 

With the bill now out, we have received an impact assessment which is extremely limited and claims that the measures will have no wider macro-economic impact. This fails to account for:

• The reduction in confidence that will impact economic performance, which will flow through the supply chain
• A series of unintended economic consequences and the increased fragility of the rural economy

It also fails to address the impact of the changes that we are already seeing in rural areas.  According to a survey carried out by CBI Economics, supported by the CLA, since the announcements in the Autumn Budget: 

• 23% of businesses affected by the change have already cut jobs and paused recruitment ahead of the changes
• 55% of family businesses and 49% of farms affected by the changes have already cancelled proposed investment projects since it was announced

The government surmises that this policy will bring £230m into the exchequer in 2026/27, peaking at £520m in 2028/29. This suggests that the policy decision has not been made to increase Treasury revenues. The amount of potential revenue is simply too small to make a significant impact on the UK’s finances, with total government spending over £1,278bn a year.

In addition, many of the claims within the document are not properly evidenced. The claim that 2,000 estates would be affected with only 520 paying more tax is based on historic data and the detail is lacking - we believe this could be significantly more particularly with BPR changes.  

The assertion that the “majority of personal representatives claiming the reliefs will not face additional ongoing administrative burdens” completely disregards the requirement for professional valuations to be undertaken.  

In addition, the government claims that the “measure is not expected to have a material impact on food security” and justifies this by arguing that the measures will not affect the UK being able to "source imports from international markets.” This reads as the government being prepared to rely on foreign markets to supply food when this policy leads to farms shutting down, which does not inspire confidence.