little cheer for
PRESSURE on agricultural incomes will continue, following this weeks Budget which did nothing to dampen the economy. Observers believe sterling will remain strong, in the short term at least.
There were some sighs of relief as feared measures like a pesticides and fertiliser tax failed to materialise. And other proposals giving small businesses a boost were welcomed (details overleaf).
However, in farmers minds at least, the Budgets likely effect on sterling eclipsed any benefits it may have contained. NFU deputy president Tim Bennett said the Budget had done nothing to tackle the overall impact of the strong £.
George Dunn, chief executive of the Tenant Farmers Association, believed the chancellor had put more money into the economy than he had taken out. Further interest rate rises were likely, to offset continued consumer spending, higher wage demands and inflation. "That will lead to further pain for hard-pressed UK farmers."
Norman Coward, head of agriculture at Midland Bank, predicted the same result. "The big issue for agriculture is the strength of the £. The net effect of changes in taxation and spending is close to zero. If anything, the chancellor has encouraged the view that interest rates will have to go up again."
The City appeared to agree. By the time the chancellor sat down, the £ had risen to DM3.044, and hit DM3.05 on Wednesday, leading to further fears of cuts in support payments and prices (see Green £ rejig on this page).
As for actual Budget content, capital gains tax changes created plenty of comment.
The new rules reduce taxation the longer an asset is held, to just 10% for 10 years or more. That could be used to encourage landlords to let land to tenants on farm business tenancies for longer terms than to date, said Mr Dunn.
However, with no recognition of historical ownership, the benefits for existing asset holders were small, since the full benefit would not be realised until 2008, warned Country Landowners Association president Ian MacNicol.
With reinvestment relief removed from next month, farmers had lost one way of mitigating the effects of CGT, said Grant Thorntons Graham Latham.
Higher fuel costs
Higher fuel costs were a major concern. With road diesel up by 5.5p/litre, the NFUs Stephen Smith reckoned that would cost the industry £2.2m, and significant indirect haulage costs would be added on. Red diesel will rise by 0.2 p/litre, costing another £1.5m.
Changes to family benefits would have a significant impact on farming as the squeeze on profits continued, said Mr Coward. "Many farmers are now on low incomes and will be able to benefit from the increases." Those earning less than £10,000pa would be £23 a week better off, according to the Chancellor. *