The chancellor described his first budget last month as a budget for growth and set out the four pillars of the government’s industrial strategy: enterprise, employment, education and everywhere. Yet, further analysis shows that the government demonstrates a lack of ambition for the rural economy. The rural economy is 19% less productive than the national average, and closing this gap would add £43bn. Nothing in this budget will unlock that vast potential.
Rural entrepreneurs that operate as sole traders or partnerships will not be able to benefit from the full expensing of capital expenditure in plant and machinery. They will continue to benefit from the £1m annual investment allowance.
Taxation of environmental land management and ecosystem services
The CLA has campaigned extensively to change the definition of agriculture in the tax system to include environmental land management and ecosystem services. Ecosystem services include the provision of carbon sequestration, biodiversity net gain units or nutrient neutrality offsetting.
A call for evidence and consultation has been published asking for evidence of how the private markets for ecosystem services are working and what the associated tax uncertainties are. Alongside this, the UK Government is responding to the CLA’s calls for change: it is consulting on a potential expansion of agricultural property relief from inheritance tax to include environmental land management and ecosystem services. We will, of course respond. We encourage members to respond too – more information will be in the next edition of Land & Business and our e-newsletters.
The CLA had also asked HMRC to confirm that land entered into and verified by the Woodland Carbon Code and the Peatland Carbon Code would qualify for business property relief (BPR). It has now done so in its inheritance tax manual. BPR will apply to land where credits generated are sold to others or used to offset the emissions of the landowner’s business.
Geographical scope of agricultural property relief and woodlands relief from inheritance tax
Currently, agricultural property and woodlands located in the European Economic Area, the Channel Islands and the Isle of Man can qualify for relief from inheritance tax. This is being changed. From 6 April 2024, members that own non-UK agricultural property or woodland will not qualify for agricultural property and woodlands reliefs on them.
There was a real concern that the government would impose a fuel duty increase in line with inflation. However, fuel duty will be frozen at current levels. In addition, the 5ppl reduction will remain in place until the end of March 2024.
Continuing with the fuel duty freeze will help to stabilise costs within the agrifood supply chain. A more stable cost environment, particularly regarding raw material and input costs affected by oil prices, is welcome.
The red diesel rebate was restricted in April 2022 to agriculture (including horticulture, pisciculture and forestry) and non-commercial heating. The ability to use red diesel is being extended from 15 March 2023 to those that use it to provide electricity or heating to premises that are used for both commercial and non-commercial purposes. It can also be used in machines or appliances for purposes relating to arboriculture.
Energy support extension
The government will maintain the energy price cap of £2,500 for domestic supplies for a further three months, from April to June 2023. From July 2023, the cap will increase to £3,000. This reflects higher-than-expected energy prices. Members are likely to see prices falling over the summer and beyond to reflect the reductions in global prices over the last three months.
The government had previously announced further support for business through the Energy Bill Discount Scheme, which replaces the Energy Bill Relief Scheme on 1 April 2023. This will provide electricity discounts at £19.61/MWh (with a price threshold of £302/MWh and gas discounts at £6.97/MWh (with a price threshold of £107/MWh). For energy-intensive industries, such as manufacturing, there is a larger discount of £89/MWh for electricity and £40/MWh for gas.
The new discount scheme prevents an obvious cliff edge for businesses in terms of increased energy costs. However, the discount rates are substantially less than under the current relief scheme, so the benefits will be limited unless businesses are eligible as an energy-intensive industry.
The government announced it will create 12 new investment zones. These will be spread across the West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in Wales.
Each investment zone will benefit from enhanced rates of capital allowances and relief from stamp duty land tax, business rates and employer national insurance contributions.
The concept of ‘investment zones’ was announced in September 2022 during Liz Truss’ government, but in this budget it has been redefined. There is an explicit link between the zones, local authorities and universities as innovation centres. Members in an investment zone area could see an indirect benefit through greater local innovation.
Devolution: Local authorities and Local Enterprise Partnerships (LEPs)
The government has announced its intention to transfer the functions and powers of Local Enterprise Partnerships (LEPs) to local authorities. It is also proposing the withdrawal of central government support for LEPs from April 2024. The government will consult on these proposals before a decision is confirmed.
While this was expected, it will change the dynamic of local decision-making. This proposal coincides with local authorities starting to deliver the Rural England Prosperity Fund for rural businesses and communities. This is not without its challenges, as many local authorities have not delivered such a scheme before. To ensure that these decisions do not cause a vacuum between local authorities and rural businesses, the CLA will continue to engage with local authorities to ensure that members are fully supported.
The Department for Levelling Up, Housing and Communities will shortly launch a call for evidence from local planning authorities in England on nutrient mitigation schemes, backed by a commitment to provide funding for high quality, locally-led proposals.
The need for all developments to meet nutrient neutrality is strangling small-scale housing schemes and affecting rural job creation. Mitigation is costly, and can restrict the opportunities for business diversification by hindering commercial development. The CLA is disappointed that the government has not acknowledged the impact of mitigation on the rural economy. It should consult with a wider group of interested parties, not just local authorities.