Farmers will not see fuel costs rise after the chancellor revealed agriculture would be outside his sweeping reforms to red diesel duty rates.
Rishi Sunak revealed at the Budget on Wednesday (11 March) that he would be abolishing the lower 11p/litre duty rate on all sectors except agriculture, fishing, rail and domestic heating.
The move to pay the full 57.7p/litre rate will not come into place for two years in order to give the construction industry and others time to prepare, he said.
The retention of the red diesel duty rate leaves farmers able to benefit from the slump in oil prices this week, which saw the price of fuel drop to 46.9p/litre on Wednesday after turmoil on crude oil markets.
The chancellor also chose to retain the freeze on fuel duty rates at the pumps for another 12 months.
Treasury leaks in the weeks prior to the speech had fuelled speculation that reforms were coming to the lower duty rate, which Mr Sunak called a £2.4bn tax break for polluters.
However, he said he recognised that it would be too challenging for agricultural businesses, citing lobbying from farming unions and chief whip Mark Spencer, who is a former chairman of the National Federation of Young Farmers Clubs.
Relief for farmers
Tenant Farmers Association chief executive George Dunn said: “The chancellor’s announcement that agriculture will retain the relief on red diesel will be welcomed by farmers up and down the country and will prevent the need for food price inflation.
“We are grateful to the chancellor for responding positively to the representations that we have made on this issue.”
NFU President Minette Batters said: “We are pleased to see the Chancellor has acknowledged our concerns.
“Red diesel is the primary fuel to run the majority of agricultural machinery and it is incredibly important for the farm businesses that produce the nation’s high quality and affordable food.”
She also welcomed the increase of £5.2 billion into flood defences, particularly the £120 million for the repair of damage caused by this winter’s storms and said it was crucial that a significant chunk of it is spent on helping repair defences in rural areas.
“I would urge the government to recognise and reward farmland that is used to store floodwater. Any flood management policy needs to reward farmers for this vital public service,” she added.
In a speech that led on the fiscal response to the coronavirus threat, the chancellor unveiled a £30bn package of measures to support businesses, which included grant funding of £3,000 to help small businesses pay bills.
A co-ordinated move by the Bank of England monetary policy committee cut the base rate by half a percentage point to 0.25% to reduce the cost of borrowing.
Budget moves that will affect farmers and landowners
Entrepreneurs relief (ER) – lifetime limit of £10m to be cut to £1m. ER reduces CGT rate from 20% to 10% when a business is sold. Effective on all exchanges of contracts on the sale of qualifying businesses and assets from Budget day. This will have specific impact on those selling farms or looking at selling land for development.
National insurance (NI) – current £8,362 threshold at which individuals start to pay NI is to rise to £9,500 – worth just over £100 a person a year for both employees and self-employed.
Statutory sick pay (SSP) – small businesses will get a government refund of up to 14 days SSP to help with coronavirus impact.
Retail rates relief – set at 50% for 2020-21 – will be raised to 100% and extended to include hospitality and leisure businesses. This, along with an additional £3,000 worth of small business rates relief (SBRR) for those already eligible, will help many diversified farm businesses.
Coronavirus loan guarantees to help businesses affected by the virus – up to £1bn will be guaranteed to help banks lend to affected businesses.
Research and development (R&D) – public spending on R&D to rise to £22bn a year by 2024-25.
Fly tipping – £2m to improve evidence on where fly-tipping happens and best ways to tackle it.
Planning reform – planning White Paper in spring comprehensive reform, including speedier development and government intervention in the release of land for housing. Could be linked to moves for financial gain from development value uplift to be captured by national or local government.