The End of an Era?
Surveying the state of the agricultural industry at Michaelmas 2020, there is something of the feel of the Edwardian era - a last period of sunshine, shooting parties and prosperity before the country was plunged into a war economy, turmoil and recession. Certainly not everything in the industry is now perfect, but we are seeing wheat futures approaching £190/tonne, beef and lamb prices up 15-20% and red diesel down by nearly a third over the last twelve months. After difficult weather last year, the autumn cultivations are well ahead and some welcome rain in the last week should see crops off to a good start.
Moving from the meteorological to the political, the announcement that the autumn budget has been cancelled takes a little away from the threat of capital tax reforms, and the extension of the income tax deferral period will be a significant help for those whose Cashflow might have been stretched in January. Indeed, the whole Covid-19 aid package will have benefitted an industry which, for many, has seen little direct impact of the disease so far but has brought benefits in the shape of bounce back loans, self-employed income support grants, business rate rebates and tax deferrals.
The rural economic bulletin published in September, shows that for most, rural life really isn’t too bad these days. By comparison with the urban environment, average house prices are £27,000 higher, unemployment is 0.7% lower and whilst the number of redundancies has risen over the last year, the increase in percentage terms is less than half that of urban areas. Even the incidence of Covid-19 cases has been lower with 415 cases per 100,000 being recorded in predominantly rural areas compared to 729 in predominantly urban environments.
It almost goes without saying that at this point, the probability is that life is likely to take a downturn. Some factors are at this stage unknown: the state of the Brexit trade negotiations (and impact on prices) will become apparent in the next few weeks, the extent of the second wave of Covid does not look encouraging and the autumn and winter weather is, as usual, anybody’s guess.
Other problems are easier to predict. We know that BPS, which makes up a significant part of farm incomes, will be phased out from next year. We know that the deferred tax liabilities will come home to roost in January 2022 and those who have taken out bounceback loans as cheap finance will need to repay them next summer. We can be pretty much sure that at some stage taxes will need to rise and although there is a feeling that pain will need to be shared across all income levels, and that the repair to the national finances will be a long term process, capital taxes (and particularly CGT) may well be one of the areas where significant money can be raised without too much immediate outcry. Certainly, the possibility of the tax burden on agriculture being reduced seems remote in the extreme.
So whilst the latest fiscal announcements are generally good news, these should be seen as a breathing space to enable the implementation of a farm survival strategy rather than an indication that everything will be fine in the future. The parable of the seven fat cattle being devoured by seven thin cattle is one that has stood the test of time.
Sarah Dodds, Head of Agriculture at MHA MacIntyre Hudson advises;
“Whilst many businesses are in a strong position, now would be a good point in time to prepare for the worst, do the Cashflow forecasts and business plans - and try to ensure there is still a viable farm business by the end of the decade.”