The Impact of Labour’s Tax Policies on UK Agribusiness and Food Security

The UK’s agricultural sector is at a crossroads as Labour’s 2025 tax reforms reshape the landscape of agribusiness and food supply chain stability. Central to these changes are revisions to Agricultural Property Relief (APR) and Business Property Relief (BPR), which now impose a £1 million threshold for inheritance tax relief. Farms and estates exceeding this value face a 20% tax rate on the surplus, payable over a decade interest-free [1]. While the government frames these reforms as a step toward “fairness” by curbing tax loopholes exploited by wealthy landowners [2], investors must weigh the unintended consequences for rural economies and food security.

Strategic Risks for Investors

1. Asset Liquidity and Land Fragmentation
   The National Farmers’ Union (NFU) warns that the new tax regime could force large estates to sell land or assets to meet obligations, fragmenting productive farms and destabilizing supply chains [1]. For investors, this raises concerns about reduced economies of scale and increased operational costs. A 2024 analysis estimates that 75% of commercial family farms will exceed the £1 million threshold, potentially triggering a wave of asset disposals [3]. Such fragmentation could disrupt long-term contracts with processors and retailers, creating volatility in input costs and output reliability.

2. Sustainability Initiatives Under Threat
   The abrupt closure of the Sustainable Farming Incentive (SFI) scheme to new applicants in March 2025 has already strained trust between farmers and policymakers [1]. This, combined with APR/BPR reforms, risks derailing investments in sustainable practices. The UK Food Security Report 2024 highlights that the sector is already grappling with labor shortages, climate risks, and rising input costs [4]. Without stable funding for environmental programs, investors may face higher exposure to regulatory and reputational risks as sustainability becomes a non-negotiable for global markets.

3. Fiscal Uncertainty and Public Debt
   The Office for Budget Responsibility (OBR) underscores that the UK’s debt-to-GDP ratio remains at 94%, with borrowing costs among the highest in advanced economies [5]. While Labour’s tax policies aim to fund public services like the NHS and infrastructure, investors must consider how fiscal constraints could limit future support for agribusiness. Delays in implementing programs like the Environmental Land Management Scheme (ELMS) and the absence of a horticulture strategy further complicate long-term planning [6].

Government Rationale vs. Industry Concerns

The government defends the reforms as necessary to address inequities in the inheritance tax system, arguing that smaller farms—often the backbone of local food systems—were previously overshadowed by large estates [2]. However, critics point out that the policy fails to account for the “asset-rich, cash-poor” nature of farming, where liquidity is often tied to land rather than cash reserves [3]. This mismatch could force estates to prioritize short-term tax compliance over long-term productivity, undermining the resilience of the food supply chain.

Investor Implications

For investors, the key risks lie in market volatility, regulatory uncertainty, and the potential for supply chain disruptions. Farms facing tax-driven asset sales may prioritize quick returns over sustainable practices, increasing the likelihood of land degradation and reduced yields. Additionally, the lack of transitional support for affected estates could accelerate consolidation in the sector, favoring larger agribusinesses over smallholders and altering competitive dynamics [1].

While Labour’s £5 billion investment in farming over two years—including £1.8 billion for ELMS—signals a commitment to sustainability [6], the delayed rollout and funding gaps in programs like SFI suggest a fragmented approach. Investors must monitor how these policies evolve and assess whether they align with their risk tolerance for a sector already under pressure from global trade shifts and climate change.

Conclusion

Labour’s tax reforms present a dual-edged sword for UK agribusiness. While they aim to address fiscal inequities, the potential for land fragmentation, sustainability setbacks, and fiscal instability demands a cautious approach from investors. A strategic risk assessment must account for both the immediate financial pressures on farms and the broader implications for food security. As the government navigates these challenges, stakeholders will need to balance policy objectives with the practical realities of a sector vital to the UK’s economic and environmental future.

Source:
[1] Economic and planning policies: Impact on farming and rural communities [https://lordslibrary.parliament.uk/economic-and-planning-policies-impact-on-farming-and-rural-communities/]
[2] Summary of reforms to agricultural property relief and business property relief [https://www.gov.uk/government/publications/agricultural-property-relief-and-business-property-relief-reforms/summary-of-reforms-to-agricultural-property-relief-and-business-property-relief]
[3] Analysis: Supply Chain Shifts Amid Trade Uncertainty [https://www.nfuonline.com/updates-and-information/an-impact-analysis-of-apr-reforms-on-commercial-family-farms/]
[4] United Kingdom Food Security Report 2024: Theme 3 [https://www.gov.uk/government/statistics/united-kingdom-food-security-report-2024/united-kingdom-food-security-report-2024-theme-3-food-supply-chain-resilience]
[5] Fiscal risks and sustainability – July 2025 [https://obr.uk/frs/fiscal-risks-and-sustainability-july-2025/]
[6] One year in – progress for better food and farming under [https://www.sustainweb.org/blogs/jul25-food-and-farming-under-labour-one-year-progress-review/]