Keir Starmer made a mistake on the “tractor tax” – now he has to fix it

AAll governments – even the most praised – make mistakes. The political art is to free the central mission of a government from errors that threaten to divert, divert and discredit it in the pursuit of that essential task.

This is evidenced by the Starmer government and one of its most serious misjudgments: the so-called “tractor tax”, which is doing great damage to British agriculture and serves no great purpose.

Whatever the motivation for bringing many thousands of family farms into the purview of a tougher inheritance tax regime in due course, it is now clear that this part of Rachel Reeves’ controversial budget breaks the harshest of rules – the law of unintended consequences.

Ministers have claimed the idea is to make the inheritance tax – a highly unpopular tax – fairer and to raise money to repair public finances, which were admittedly in a dire state under their predecessors. Now it has become clear in recent weeks that the practical impact of the move is anything but fair.

The Treasury has failed to consult the Environment Department in any meaningful way about this radical change in the economics of farming – let alone consult those who will be severely affected and forced out of business. Had they done so, they might have reconsidered what they mistakenly believed to be a relatively minor and technical adjustment to agricultural land easements.

It is now common knowledge that although farms may appear to be “asset rich” (due in part to speculation and the use of land to avoid taxes), they are low income and earn minimal profit margins because farmers have been working for a long time work and earn a relatively modest salary. The proposed introduction of an inheritance tax will force many to sell, perhaps even impoverish some families as they are forced from their homes, and will leave the fields to unscrupulous developers and large agricultural corporations with no sense of stewardship of the ancient landscapes.

The shock of the budget change was followed by despair, outrage and protests – and major electoral damage to Labor MPs who had only recently won the trust of the rural communities they returned to parliament. Steve Reed, the Secretary of State now responsible for the sector, gave the clear impression to the National Farmers’ Union that Labor would not change inheritance tax rules for farms. There was nothing about it in the manifesto and farmers were given far too little time to reorganize their affairs.

The “tractor tax” is a litany of mistakes, an example of how not to formulate and implement policy. The amount this would raise in a year – around £500m – is dwarfed both by the size of the total tax revenue (around £1tn) and by the economic damage to agriculture already caused by Brexit and disadvantageous trade agreements.

A way out has to find.

At times like these, friends can offer helpful advice – and Sir Keir Starmer, Ms Reeves and Mr Reed would do well to heed the words of Trades Union Congress general secretary Paul Nowak. Historically, Mr Nowak has been the voice of working people – the very people to and for whom Sir Keir’s government promised so much – and has chosen to stand up for hard-working farmers too.

He warns: “I am worried about the impact (of the tax) on small farmers. I know that for some small employers, social security contributions will also be an issue next year, particularly for companies operating on thin profit margins.”

Other pro-Labour parties have also tried to pull the government out of the crisis it has fallen into. Dan Neidle, a highly respected tax expert, has proposed a series of reforms that would meet the government’s goals of raising revenue and curbing tax avoidance while protecting genuine farmers through a full exemption from inheritance tax, subject to a very high cap and certain conditions for the continued existence of the family business.

It would be very foolish for the Chancellor to try in the coming months to demonstrate her “ironclad” financial credibility by sticking to policies that her own allies are now telling her are worrying – and easy to fix . The farmers’ campaign enjoys great public sympathy and the scale of the protests could well increase to such an extent that it creates an atmosphere of crisis, distracting the government’s work and undermining its core functions.

Ms Reeves still has the freedom to promise a proper review of the tax changes and to give credit to the Government for its willingness to consider the evidence and listen to sound advice.