According to ONS statistics, the rural economy is 16% less productive than the national average. If we could unlock that potential, the benefit to the economy in England alone would amount to an extra £43 billion each year.
The UK’s departure from the EU, and the changes in agriculture policy that have only just begun, are forcing farming businesses to adapt, seek new markets, change land use and diversify. Ultimately, they will continue to make a substantial contribution to a rural economy that in turn makes a sizeable contribution to the Exchequer. And with the evolution of farming and the rising importance of realising environmental objectives, as well as the need to mitigate climate change and embrace carbon sequestration, the pressure on farms to diversify their businesses is only increasing.
Diversification is a growing trend. The Defra Evidence Compendium shows that 66% of farm businesses in England in 2017/18 included some form of diversified activity, generating around £680 million in profit. Many farmers now make more cash from tourism than they do from growing food.
In spite of this, it remains extremely difficult for land-based businesses to diversify. There are many reasons – but speak to entrepreneurial farmers across the country and they will tell you one of them is the existing tax system, under which each revenue stream in a rural business must be reported on and taxed separately. Not only does this impose a large and unnecessary administrative burden on the business owner, but it can actively discourage the entrepreneurship needed for the Government to achieve its ambition to rebalance the UK’s economy.
A solution to this is the establishment of the ‘Rural Business Unit’ (RBU). RBUs would make sure that rural businesses which pass certain qualifying tests (relating to their activities such as agriculture or environmental management; management; size and income) are taxed as single entities, rather than a collection of revenue streams. As the CLA’s recent Budget submission suggests, a simplified regime of this kind would give farmers more opportunities to grow and diversify their businesses. At the moment, they are condemned to wasting time filling out several lengthy tax forms, which requires them to spend time focusing on the minutiae of what cost should be apportioned to what income stream, or to facing large bills if an accountant has to help them.
It would also encourage farmers to think of themselves as entrepreneurs, as the RBU would make it easier to use assets and other resources across different facets of the business, as new opportunities materialise.
This proposal is one of the pillars of our Rural Powerhouse campaign, which we developed to unlock investment and economic growth in rural areas. It’s a campaign that has four other main aims – to connect the countryside fully, to establish a planning system fit for rural communities, to make farming both profitable and sustainable, and to push investment in skills and innovation – the realisation of which will be necessary for the countryside to meet its true potential.
There are still many who believe that ‘levelling-up’ – to use the Prime Minister’s language – equates to higher taxes and more government spending. For some, this is undesirable; for others, unworkable. The government is already under considerable pressure to end austerity and pour money into schools, local government services, and the NHS, and yet it has promised not to raise income tax, VAT or national insurance.
And there are many others who claim the government’s promise is impossible to keep, citing the efforts made by previous governments of different stripes to address regional disparities. This fiscal imbalance, they say, is a product of far deeper divisions most recently laid bare by the vote to leave the European Union.
Tax-and-spend may be a lever in ‘levelling-up’, but it is not the only one. Nor is it true that the differences between town and country are so great as to be intractable. With the realisation of all aims contained in the Rural Powerhouse campaign we can unshackle the rural economy and reap the benefits of doing so. But for now, simplifying the tax code is a good place to start.
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